Full text of Stock Exchange Practices : Hearings Before the Committee on Banking and Currency, United States Senate, (1932-1934) : Hearings on S. Res. 84 and S. Res. 56 and S. Res. 97 : Part 14, Alcohol Pools, Pages 6171-6419

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STOCK EXCHANGE PRACTICES
HEARINGS
BEFORE THE

COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-THIRD CONGRESS
SECOND 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 and S.Res. 97
(73d CONGRESS)
RESOLUTIONS TO INVESTIGATE THE MATTER OF BANKING
OPERATIONS AND PRACTICES, TRANSACTIONS RELATING TO
ANY SALE, EXCHANGE, PURCHASE, ACQUISITION, BORROWING, LENDING, FINANCING, ISSUING, DISTRIBUTING, OR
OTHER DISPOSITION OF, OR DEALING IN, SECURITIES OR
CREDIT BY ANY PERSON OR FIRM, PARTNERSHIP, COMPANY,
ASSOCIATION, CORPORATION, OR OTHER ENTITY, WITH A
VIEW TO RECOMMENDING NECESSARY LEGISLATION, UNDER
THE TAXING POWER OR OTHER FEDERAL POWERS

PART 14
Alcohol Pools
FEBRUARY 21 TO FEBRUARY 26, 1934
Printed for the use of the Committee on Banking and Currency

176541

UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON • 1934

COMMITTEE ON BANKING AND CURRENCY
DUNCAN U. FLETCHER, 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 C. WALCOTT, Connecticut
ROBERT D CAREY, Wyoming
JAMES COUZENS, Michigan
P^REDERICK 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
ALBEN W BARKLEY, Kentucky *
EDWARD P. COSTIGAN, Colorado
-ALVA B. ADAMS, Colorado
1
3

PETER NORBECK, South Dakota 8
JOHN G TOWNSEND, JB , Delaware
JAMES COUZENS, Michigan

Alternate, Thomas P. Gore, Oklahoma.
Alternate, Phillips Lee Goldsborough, Maryland.

CONTENTS
p
Testimony of—
«*s«
Altschul, F r a n k , New York City, c h a i r m a n of t h e committee on stock
list, New York Stock E x c h a n g e
6186,6286
Bowers, H e n r y S , p a r t n e r in Goldman, Sachs & Co , New York City— 6282
Brown, Russell R , c h a i r m a n of t h e board, American Commercial
Alcohol Corporation, New York, N Y
6171,6206
Day, H e n r y Mason, Syosset, Long Island, member of t h e firm of Redmond & C o , New York
6218,6233,6242,6279
Gibson, F r a n k J , a u d i t o r of Redmond & Co , New York City
6240
Groesbeck, C. E , c h a i r m a n of! t h e board of Electric Bond & Share
C o , New York, N Y
G322
H a r r i s , George U., member brokerage firm H a r r i s , Upham & Co. and
member publicity committee New York Stock Exchange
6347, 6391
Johnston, E r n e s t H , Westfield, N.J., vice president Cities Service C o ,
New York, N Y
6309
Levis, William E , Toledo, Ohio, president Owens-Illmois Glass Corporation
6247
Porter, Seton, New York, president National Distillers Product Corporation
6246, 6265
Resor, R P , Bronxville, N Y , assistant t r e a s u i e r , S t a n d a r d Oil C o ,
Inc , New J e r s e y
6331
Sinclair, H a r r y F , G r e a t Neck, Long Island, N Y , chairman of t h e
executive committee of Consolidated Oil Corporation, New York
City
6338

EXHIBITS
(Italics indicate page on which exhibit was admitted into the record
indicates page on which exhibit is printed )

Roman type
Page

62 An application to the New York Stock Exchange for an additional
listing of common stock by the American Commercial Alcohol
Corporation, 6171
63. Paper marked " Supplemental" application of the American Alcohol Corporation, dated November 23, 1933, to the committee on
stock list of the New York Stock Exchange, 618S
64. Comment by Mr. Tirrell, meeting of July 24, 1933, produced by
Mr. Altschul
65 Transcript from minutes of executive committee meeting of American Commercial Alcohol Corporation of July 19, 1923, 6194
66 Certificate of correctness and authenticity of resolutions adopted
by board of directors of American Commercial Alcohol Corporation on August 8, 1933
67. Copy of option, June 1, 1933, Libby-Owens Securities Corpoiation
to Redmond & Co, 6220
68 Tabulation of profits of Libbey-Owens-Ford Syndicate accounts,
6228
69 Letter dated June 1, 1933, addressed to Kuhn, Leob & Co
70 Letter dated June 5,1913, from Kuhn, Leob & Co to Redmond & Co_
71 Copy of letter, Kuhn-Leob & Co to Redmond & Co , June 16, 1933
72 Letter dated February 15, 1932, from Redmond & Co to National
Distillers Products Corpoiation
* Not printed because of length or for reasons given in text

III

(')
(*)
6189
6195
6195
6221
6231
6234
6235
6244
6256

CONTENTS
Page

73 Letter dated May 3, 1932, from Seton Porter, president National
Distillers Pioducts Corporation, to Redmond & Co
74 Letter dated April 28, 1933, from National Distillers Products Corporation to William B. Levis
75 Letter dated, Apul 28, 1933, from Seton Porter, president National
Distillers Products Corporation, to Illinois Glass Consolidated
Corporation
76 Letter dated April 28, 1933, from Seton Porter, president National
Distillers Products Corporation, to Redmond & Co
77. Copy of draft of letter, April 27, 1933, National Distillers to Redmond & Co., 6274
78. Copies of options given to Redmond & Co, 1929 to 1933, 6281
79 Letter dated August 4, 1933, from Goldman, Sachs & Co to secretary committee on Business Conduct, New York Stock Exchange—
80. Application of Kelsey-Hayes Wheel Co., dated February 1, 1933, to
committee on Stock List, New York Stock Exchange, 6284
81 Letter dated February 7, 1933, from Goldman, Sachs & Co, and
Lehman Bros, to committee on stock list, New York Stock Exchange
82 Minutes of meeting of February 6, 1933, of committee on stock
list, 6289
83 An excerpt from the monthly letter on economic conditions to the
executive committee of Henry L Doherty & Co for December
1928
84. Printed document entitled " Confidential. Monthly Letter on Eoconomic Conditions to the Executive Committee, Henry L Doherty
& Co, January 1929 " 6312
85 Paper entitled " Further Developments in Brokers' Loans "
86 Letter dated November 1, 1933, from W. A. Jones to Ferdinand
Pecora, together with accompanying data, 6319
87. Letter dated November 9, 1933, from A. C. Ray, treasurer Electric
Bond & Share Co, to Ferdinand Pecora, counsel, Committee on
Banking and Currency, 6328
88 Letter dated November 9, 1933, from A C. Ray, treasurer American
& Foreign Power Co, Inc, to Ferdinand Pecora, counsel Committee on Banking and Currency, 6329
89. Copy of communication, November 3, 1933, Teagle to Pecora, 6382—
90. Statement entitled " Interest on Jesup & Lamont deposit account
for the year 1929 ", G385
91 Answers made by the Consolidated Oil Corporation to the questionnaire sent by the committee, 6889
92 The recapitulation made by members of the investigating staff of the
committee, entitled "Total number and amount of street loans
made by private corporations for the year 1929 in the call money
market of New York City ", 6342
93 Answer of the American Can Co to the committee's questionnaire, 6342
"94 Answer made by the Anaconda Oopper Mining Co. to the committee's questionnaire, 6842
95 Answer by the Auburn Automobile Co. to the committee's questionnaire, 6842
96 Answer by the Bethlehem Steel Coiporation to the committee's
questionnaire, 6343
97. Answer by the Chrysler Corporation to the committee's questionnaire, 6848
98 Answer of the General Foods Coiporation to the committee's questionnaire, 6348
99 Answer of the General Motors Corporation and subsidiaries to the
committee's questionnaire, 6343
100 Return made by the Intel national Nickel Co of Canada, Ltd, 6343—
101 Return made by the Pan American Petroleum & Transport Co to the
committee's questionnaire, 6348
102. Return made by the Radio Corporation of America to the committee's
questionnaire, 6844
* Not
printed because of length oi tor reasons given m text

6257
6262
6263
6263
(*)
6290
6283
(•)
6285
(*)
6310
(*)
6314
6359
6359
6361
6362
6305
6366

6370
6370
6371
6373
6374
6375
6376
6378
6380
6382
638S

CONTENTS

V
P-ige

103. Answer submitted by the Radjo-Keith-Orpheum Corporation to the
committee's questionnaire, 6344
104 Return made by the Tri-Continental Corporation to the committee's
questionnaire, 6344
105 Answer made by the United Corporation to the committee's questionnaire, 6344
106 Answer made by the United Gas Improvement Co to the committee's
questionnane, 6344
107. Return to questionnaire, dated November 6,1933, from L. H. Seagrave,
president American Founders Corporation, to Ferdinand Pecora,
counsel, Committee on Banking and Currency, and supplemental
return from L H Seagrave to Ferdinand Pecora, dated February
21,1934, 6346
108 Constitution, rules, together with amendments thereto, of the New
York Stock Exchange, 6348
109. Statement (copy of) entitled " Schedule C, Committee on Publicity ",
1929 to 1933, both inclusive, 6355
110. Copy of letter, February 14, 1934, Whitney to Stock Exchange
membeis, 6402
111 Copy of letter, February 14, 1934, Whitney to member corporations,
0405

112. Copy of undated, unsigned, memorandum m le effect of National
Securities Act, 6405
113 Document entitled "Answers Submitted by the New York Stock Exchange to the Questions Asked of It by Counsel for the United States
Senate Committee on Banking and Currency, 6416-,
114. Letter dated November 27, 1933, from Charles E Hudson, president
San Francisco Mining Exchange, to Ferdinand Pecora, together
with accompanying data, 6416
115 Document purporting to be statement of Mr. Richard Whitney before
the House Committee on Interstate and Foreign Commerce, 6419
116 Document purporting to be final proof of statement or proposal of Mr
Richard Whitney before the House Committee on Interstate and
Foreign Commerce, 6419
* Not printed because of length or for reasons given m text
(•*) Exhibits No 110-116 appear m vol 15

6386
6387
6388

6389
(*)
6389
(•*)
(*+)

(*•)
(**)
6417
(*•)
(*••)

STOCK EXCHANGE PKACTICES
WEDNESDAY, FEBRUARY 21, 1934
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

that application ?

purports to be a printed copy
thereof, which has been furnished to us by the New York Stock
Exchange. Will you look at it and tell me if you can identify it as
a true and correct copy of the application in question ?
Mr. BROWN (after looking at the printed form). Yes, sir.
Mr. PECORA. Mr. Chairman, I offer it in evidence, but it need not
be spread in full on the record of the committee's hearings.
The CHAIRMAN. Let it be admitted and appropriately marked.
(An application to the New York Stock Exchange for an additional listing of common stock by the American Commercial Alcohol
Corporation, was marked " Committee Exhibit No. 62, Feb. 21,1934,"
and will not be spread in full on the record but retained in the files
of the committee.)
Mr. PECORA. Mr. Brown, the listing application just referred to
has been received in evidence as committee exhibit no. 62 of this
date. I want to read into the record the following extracts therefrom, under the caption:

6171

6172

STOCK EXCHANGE PEACTICES
AUTHORITY FOR AND PURPOSE OP ISSUE

The company proposes to issue, upon due authority of the boa*.d of directors, up to 25,000 shares of its common stock, on account o± the purchase of
assets for which it is now negotiating and which may be acquired in the
near future, upon official notice of issuance and payment in full, with the
statement of the application of the proceeds for the property acquired.
The shares which it is proposed to issue will be registered with the Federal
Trade Commission in compliance with the provisions of the Securities Act
of 1933.

And under the caption " Opinion of Counsel ", the f ollowmg statement is contained in this application:
The legal details m connection with the said issue are subject to the approval of Messrs. Lai km, Rathbone & Perry, No 70 Broadway, New Yoik
City, who are of the opinion that by reason of the authority provided in
the certificate of incorporation of said corporation and upon due authority
of the board of directors, said shares of stock may be issued in the absence
of fraud, and in the transaction of the purposes specified above, and for
such consideration as may be fixed by the board of directors, and when so
issued will be lawfully issued, and will be fully paid and nonassessable, and
valid in the hands of holders thereof, and will not be liable to any further call
or assessment

The application itself is dated July 19, 1933, and is for an additional listing of 25,000 shares of the common stock, of $20 par value,
of the American Commercial Alcohol Corporation. I t sets forth
that the total amount of common stock authorized to be issued by
the company is 375,000 shares under its charter; that there were
previously authorized to be issued, or rather to be listed, 262,761
shares, of which there were outstanding on July 18, 1933, 260,715
shares, and that the total applied for, that is, for listing, is 287,761
shares; and that this application was authorized by the executive
committee of the American Commercial Alcohol Corporation on
July 19, 1933. The application is signed in behalf of the American
Commercial Alcohol Corporation by Cecil Page a^ secretary thereof.
The exhibit, constituting a copy of said application, contains the
following:
This committee recommends that the above-mentioned 25,000 shares of common stock, of $20 par value, be added to the list, after final notice of issuance
and payment in full with statement of application of proceeds or property
acquired, m accordance with the terms of this application, making the total
amount authorized to be listed 287,761 shares.

That is signed by Frank Altschul, chairman, and J. M. B. Hoxsey,
executive assistant to the committee on stock list. I t also shows it
was adopted by the governing committee on July 26, 1933, being
signed by Ashbel Green, secretary. That which I have last read
refers, of course, to the committee on stock list of the New York
Stock Exchange, and to the governing committee of the New York
Stock Exchange.
Now, Mr. Brown, has any of the stock covered by this application,
namely, 25,000 additional shares, ever been issued?
Mr. BROWN. NO, sir.
Mr. PECORA. Why not?
Mr. BROWN. Well, because

there were so many delays on the part
of the lawyers in the handling of the transaction, that the company
was put in a position in the meantime where it handled it by cash;
because of the improvement in the business situation it was enabled
to handle it by cash.

STOCK EXCHANGE PRACTICES

6173

Mr. PECORA. Well, the purpose of the issue, according to the statement in the application, was to purchase certain assets.
Mr. BROWN. Yes, sir.
Mr. PECORA. That is,

to enable your corporation, the American
Commercial Alcohol Corporation, to purchase assets?
Mr. BROWN. That is correct.
Mr. PECORA. I notice that the assets are not in any way designated
or referred to except in the manner in which I have read it in this
application. Now, Mr. Brown, what were the assets to be purchased
through the medium of this proposed additional issue of 25,000
shares ?
Mr. BROWN. We had two transactions in mind at that time. One
of them was the acquisition of a distillery at Louisville, Ky.; and
the other one was the Spirits Corporation, which was organized and
acquired, or was organized to acquire and did acquire the Sid Klein
Corporation.
Mr. PECORA. Did you say the Sid Klein Corporation?
Mr. BROWN. Yes, sir.
Mr. PECORA. NOW, was

there a Sid Klein Corporation in existence
on the date of this application, namely, July 19, 1933 ?
Mr. BROWN. I haven't the date here of the organization of the Sid
Klein Corporation.
Mr. PECORA. I did not hear you.
Mr. BROWN. I say, I haven't here with my data the date of the
organization of the Sid Klein Corporation.
Mr. PECORA. Well, was the Spirits Corporation that you hare
mentioned in existence on the 19th of July 1983 ?
Mr. BROWN. NO. That was organized on July 29, 1933, and by
charter amendment the name was changed to the American Distilling Co. on August 11, 1933.
Mr. PECORA. Who caused the Spirits Corporation to be organized?
Mr. BROWN. We did.
Mr. PECORA. That is, you

mean the American Commercial Alcohol

Corporation?
Mr. BROWN. Yes,
Mr. PECORA. And

sir.

Mr. BROWN. Yes,

sir.

was the Sid Klein Corporation eventually organized, either prior to or subsequent to July 19,19S3 ?
Mr. PECORA. And who caused that corporation to be organized?
Mr. BROWN. Mr. Sid Klein.
Mr. PECORA. Was Mr. Sid Klein in any way connected at the time
with the American Commercial Alcohol Corporation?
Mr. BROWN. NO, sir.
Mr. PECORA. I want

to read to you the following extracts from
the minute book of the board of directors of the American Commercial Alcohol Corporation, which minute book has been marked
for identification as " Committee Exhibit No. 14 on February 13,
1934." I will read from the minutes of the board of directors of a
meeting held on July 27,1933.
There were present at the meetings: Messrs. Atkins, Atwood,
Chadbourne, Colby, Foster, Grimm, Kessler, Kies, Page, Paine,
Publicker, and Kunk, being a majority and a quorum of the board.

6174

STOCK EXCHANGE PRACTICES

The chairman, Mr. Brown, presided, and Mr. Page acted as secretary of the meeting.
Now I quote from the minutes:
The chairman explained in briel to the Board the negotiations pending in
connection with which the Executive Committee had tentatively authorized the
issuance of up to 25,000 shares of the Corporation's common stock, as stated in
the mintues of the committee, and as to which a listing application had been
made to the New York Stock Exchange, and approved it
On motion^ duly made, seconded, and unanimously passed, it was resolved:
That the action of the Executive Committee, as stated in the minutes of its
meeting held July 19, 1933, authorizing the issuance of 25,000 shares of the
Corporation's common stock, of the par value of $20 per share, and the application for listing thereof on the New York Stock Exchange, be and the same
hereby is ratified and approved.
Resolved that application for registering the proposed issue of 25,000 shares
of the Corporation's common stock, of the par value of $20 per share, under
the Securities Act, be made; and that the proper officers of the Corporation be
and they hereby are authorized to do whatever may be necessary or proper,
under the advice of counsel, to obtain such registration and authority for the
issuance of said stock.

Now, that portion of the minutes which I have just read to you,
Mr. Brown, relates to the listing applications which has been marked
in evidence here this morning as Committee Exhibit No. 62, does it
not?
Mr. BROWN*. Yes,
Mr. PECORA. SO

sir.

that at the meeting of the board of directors of
your corporation held on July 27 last, apparently you reported to the
board that arrangements had been completed for the issuance of this
block of additional shares, and that application for the listing of
such additional shares had been already made to the New York
Stock Exchange, isn't that so?
Mr. BROWN. Well, that is the way that reads, but I do not quite
understand it, Mr. Pecora.
Mr. PECORA. What was that answer ? I could not hear you.
Mr. BROWN. I do not quite follow that which you have read. If
you will hand me the minute book for a minute I will see.
Mr. PECORA. All right. Here it is.
Mr* BROWN (after looking at the minute book). What is the question now?
Mr. PECORA. The committee reporter will read it to you.
(Thereupon the committee reporter read the following question:)
Mr. PECOBA SO at the meeting of the board of directors of your corporation
held on July 27, last, apparently you reported to the board that arrangements
had been completed for the issuance of this block of additional shares, and
that application for the listing of such additional shares had been already made
to the New York Stock Exchange, isn't that so?

Mr. BROWN. I do not so interpret that. As I read that, I explained to the board the progress of the negotiations in connection
with the Sid Klein situation, and the distillery matter, because the
deals, I believe, had not been concluded at that time.
Mr. PECORA. What do you mean by the Sid Klein situation?
Mr. BROWN. The Sid Klein Corporation, which was being acquired through the Spirits Corporation.
Mr. PECORA. The Sid Klein Corporation was being acquired
through the Spirits Corporation?

STOCK EXCHANGE PRACTICES
Mr. BROWN. Yes,
Mr. PECORA. The

6175

sir.

Sid Klein Corporation had not yet been formed,

as I understand.
Mr. BROWN. I have no date of organization, but it was all at
about that time. Yes; I have it here. It was incorporated on
August 3, 1933, as the Sid Klein Corporation.
Mr. PECORA. When was the Spirits Corporation formed?
Mr. BROWN. On July 29, 1933.
Mr. PECORA. NOW, was the name of the Spirits Corporation thereafter changed to some other corporate name?
Mr. BROWN. Yes. It was changed to American Distilling Co., on
August 11, 1933.
Mr. PECORA. And is it today known as the American Distilling
Co.?
Mr. BROWN. Yes, sir.
Mr. PECORA. NOW, Mr.

Brown, at the same meeting of the board
of directors of your corporation, held on July 27 last, the f ollpwing
action was taken or proceedings were had as appear from the
minutes of that meeting, extracts of which I will read to you from
your minute book:
The chairman thereupon repoited to the board that tentative arrangements
had been made with Mr Sid Klein for the organization of a corporation to
carry on the business of selling whisky and other spirituous liquors on a commission or brokerage basis whenever it could lawfully be done, but stated
that the plan, as discussed, contemplated this company furnishing some $200,000
in capital in exchange for which it would receive preferred stock and 10
percent of the authorized common stock of the proposed corporation.
After discussion, on motion by Mr. Kies, seconded by Mr. Grimm, and
unanimously passed, it was resolved: That the board approve in principle the
participation of this corporation in the proposed business of Mr Klein, and
referred the matter to the executive committee to work out the details thereof
and report back its recommendations with respect thereto for the approval of
the board

Do you recall that action having been taken?
Mr. BROWN. Yes, sir. That transaction was afterwards changed.
I think it was changed in the executive committee, and that we now
have $200,000 of the preferred stock, which is all of the preferred
stock outstanding, and that we have 50 percent of the original
common stock.
Mr. PECORA. That is, of the Sid Klein Corporation?
Mr. BROWN. Yes, sir. And that corporation, of course, is functioning today.
Mr. PECORA. NOW, Mr. Brown, at the meeting of the board of
directors of your company held on August 8, 1933, it appears from
the minutes of that meeting, portions of which I will read to you
from your minute book, that the following proceedings were had
and action taken:
Present at the meeting: Messrs. Atkins, Chadbourne, Colby, Foster, Kessler,
Grimm, Pond, Page, and Publicker, being a majority and a quorum of the
board.
The chairman, Mr. Brown, presided, and Mr. Page acted as secretary of
the meeting.
The chairman stated that Mr. Sid Klein had caused to be organized under
the laws of the State of Maryland, the Sid Klein Corporation, with an authorized capital consisting of 5,000 shares of 7 percent noncumulative nonvoting

6176

STOCK EXCHANGE PEACTICES

preferred stock of the par value of $100 per share, and 5,000 shares of common
voting stock of the par value of $1 per share, and had contracted with thait
corporation for the issuance to him of all the common stock thereof.
That Mr Klein had also caused to be organized the Spirits Corporation,
under the laws of Maryland, with a total authorized capital issue of 10,000
shares of no par common stock; that the Spirits Corporation had made and
contracted with Mr Klein for the purchase of 2,000 shares of the preferred
stock of the Sid Klein Corporation for $200,000, payable on delivery of said
preferred stock, and had made an agreement with Mr Klein whereby Mr.
Klein would tiansfer to it 2,500 shares of the Klein Company common stock.
The chairman also reported that the Spirits Corporation had issued of
its authorized stock 10,000 shares to Mr. Knox B Phagan for the consideration received by that corporation to Mr Knox B Phagan, being valued by
the Spirits Corporation's Board of Directors at $465,000
The chairman also stated that Mr Klein had also agreed with the Spirits
Corporation to cause the Sid Klein Corporation to pay dividends on the
preferred stock, when and as earned; and furthermore when the Sid Klein
Corporation had accumulated a net earned surplus of $50,000, after payment
of dividends on the preferred stock, to cause the Sid Klein Corporation to
retire the said preferred stock at such time or times, and in such amounts,
and upon such conditions as may be determined by a majority of the committee, one member of which would be named by the Sid Klein Corporation
and two members by the Spirits Corporation
There was then presented to the meeting a proposal signed by Mr. Knox
B. Phagan, dated August 8, 1933, whereby the said Knox B. Phagan offered
to exchange 10,000 shares of the no par common stock of the Spirits Corporation for 10,000 shares of the $20 par value common stock of the American
Commercial Alcohol Corporation A copy of said proposal, marked Exhibit A,
was ordered attached to and made a part of these minutes.
After discussion, on motion duly made, seconded, and unanimously passed
by the affirmative vote of all the directors present, it was resolved • That this
Corporation hereby approves and accepts the proposal of Mr. Knok B Phagan,
as set forth in his letter dated August 8, 1933, addressed to this Corporation
by him and submitted to this meeting as aforesaid; and that the officers of
this Corporation be and they are hereby empowered, authorized and directed
to execute formal exchanges of such proposal as provided herein, in the name
and on behalf of this Corporation, with the corporate seal affixed, and to
deliver a duplicate original so executed to Mr. Knox B. Phagan.
On motion duly made, seconded, and unanimously passed by the affirmative
vote of all of the directors present, it was resolved* That this Company
acquire from Mr Knox B Phagan 10,000 shares of the no par common stock
of the Spirits- Corporation, a Maryland corporation, in consideration of the
delivery by this company to Mr. Knox B. Phagan of 10,000 shares of the
common stock of the par value of $20 per share of this Company
Further resolved that upon the assignment and transfer to this company by
Mr. Knox B. Phagan of said 10,000 shares of the no par stock of the Spirits
Corporation, the proper officials of this Company be and they are hereby
authorized, either
(a) To issue, execute and deliver to or upon the order of Mr. Phagan, a
certificate or certificates representing 10,000 shares of the common stock of a
par value of $20 per share, of this Company, or
(&) To borrow from such source and on such terms as said officers of this
Corporation, under the advice of counsel, may deem proper, 10,000 shares of
the $20 per share par value of the stock of this Company, and to assign and
transfer said 10,000 shares of said common stock, when so borrowed, to or
upon the order of Mr Phagan; and thereafter at such times as said officers may
be advised by counsel is advisable, to execute and deliver 10,000 shares of the
common stock of the par value of $20 per share of this company, to or upon the
order of the firm, person, or corporation from whom or which the said stock
shall be so borrowed.
Further resolved, that in the judgment of the directors of this Company the
actual value of said 10,000 shares of the common no par stock of the Spirits
Corporation is not less than $465,000.

Now, Mr. Brown, there are other portions of the resolution which
follow but which it is unnecessary to read at this time. However,

STOCK EXCHANGE PRACTICES

6177

I want to ask you this question: Who were the officers and directors
of the Sid Klein Corporation at the time this matter was presented
to the board of directors of your corporation, on August 8, 1933?
Mr. BROWN. Sid Klein was president; Rose C. Markey was secretary.
Mr. PECORA. What was that last?
Mr. BROWN. Rose C. Markey was secretary. The directors were:
Sid Klein, William A. Bandler, Jesse E. Priest, and Strawbridge
Foster.
Mr. PECORA. Who were the officers and directors of the Spirits
Corporation at the same time?
Mr. BROWN. I will have to get that for you.
Mr. PECORA. According to what purports to be the minute book
of the Spirits Corporation, the board of directors of that corporation on August 7,1933, were Messrs. Capdevielle, Beebe, and Brown.
Who was the latter?
Mr. BROWN. Well, that is not I. It wag T. F. Brown.
Mr. PECORA. What Brown is that?
Mr. BROWN. I say, he is not a relative of mine. He was the cashier
of the American Commercial Alcohol Corporation.
Mr. PECORA. Well, was he the nominee of the American Commercial Alcohol Corporation?
Mr. BROWN. NO, sir.
Mr. PECORA. Who is Mr. Beebe?
Mr. BROWN. He is the auditor of

the American Commercial Alcohol Corporation.
Mr. PECORA. What did you say he was?
Mr. BROWN. The auditor of the American Commercial Alcohol
Corporation.
Mr. PECORA. And Capdevielle is this molasses broker who, according to your testimony given last week, was your dummy in connection with the organization of Noxon, Inc. ?
Mr. BROWN. Yes, sir.
Mr. PECORA. Was he also your dummy in this transaction?
Mr. BROWN. NO, sir.
Mr. PECORA. For whom did Mr. Capdevielle act ?
Mr. BROWN. He acted for Phagan.
Mr. PECORA. For Knox B. Phagan?
Mr. BROWN. Yes, sir.
Mr. PECORA. Well, Phagan was your dummy according to

your
testimony of last week in the proceedings attendant upon the organization of Maister Laboratories, Inc.
Mr BROWN. That is correct. And I asked him to follow this one
out, too.
Mr. PECORA. Was Phagan, whose interest in this transaction appears from the extract I have read to you from the minutes of the
meeting of your board of directors held on August 8. 1933, also
your dummy in connection with the Spirits Corporation s
Mr. BROWN. I asked him to do it.
Mr. PECORA. NOW, do you know what assets the Spirits Corporation had on the 8th of August 1933, when, according to the minutes
of the meeting of your board of directors held on that date, your
board expressed its judgment that the actual value of the 10,000

6178

STOCK EXCHANGE PRACTICES

shares of common stock of the Spirits Corporation was not less
than $465,000?
Mr. BROWN. I had taken Mr. Phagan's note for $465,000.
Mr. PECORA. And that was its only asset?
Mr. BROWN. Yes,

sir.

Mr. PECORA. This promissory note of Mr. Phagan's ?
Mr. BROWN. Yes, sir.
Mr. PECORA. And that

was a note that he gave to the companjT—
that is, to the Spirits Corporation—in return for its 10,000 shares
of common capital stock?
Mr. BROWN. That is correct.
Mr. PECORA. Was that note secured?
Mr. BROWN NO, sir.
Mr. PECORA. Was it

endorsed by any person of known financial
responsibility ?
Mr. BROWN. Not that I remember of; no, sir.
Mr. PECORA. Did you have any knowledge of Mr. Phagan's financial work other than that which you said last week you had?
Mr. BROWN NO, sir.

Mr. PECORA. And that was not a knowledge that indicated to
you he was worth the amount of that note, namely, $465,000, was it?
Mr. BROWN. I was confident he would pay the note.
Mr. PECORA. The question is not whether you were confident he
would pay the note but did you have any knowledge of his financial
responsibility that led you to believe he was worth $465,000?
Mr. BROWN. NO, sir.
Mr. PECORA. NOW, what

investigation was made by the board of
directors of your corporation—that is, the American Commercial
Alcohol Corporation—so far as you know, that led that board to
declare its judgment in this resolution I have read to you that the
assets of the Spirits Corporation on August 8 last were worth not
less than $465,000?
Mr. BROWN. None other than what I indicated to them, I suppose.
Mr. PECORA. YOU say none other than what you indicated to them?
Mr. BROWN. Yes, sir.
Mr. PECORA. What had you indicated to them?
Mr. BROWN. I indicated to them that I was

confident the note
would be paid.
Mr. PECORA. I t was simply a belief on your part that Phagan's
note would be paid?
Mr. BROWN. That is correct.
Mr. PECORA. And that belief was not supported by any knowledge
you had of Phagan's financial worth ?
Mr.

BROWN. NO, sir.

Mr. PECORA. And was it upon that basis that the board of directors expressed its judgment that the assets of the Spirits Corporation were worth not less than $465,000 on August 8 last?
Mr. BROWN. It was also based on the judgment that the Sid Klein
Corporation, which the Spirits Corporation would acquire, would
have very substantial earnings, and it is evidence by the xact that the
earnings have been substantial.
Mr. PECORA. YOU said it was based further on the feeling that the
assets which the Spirits Corporation were to acquire from the Sid
Klein Corporation f

STOCK EXCHANGE PRACTICES

6179

Mr. BROWN. Yes, sir; the acquisition of the Sid Klein Corporation, and its ownership by the Spirits Corporation, would prove a
profitable venture.
Mr. PECORA. What assets did the Sid Klein Corporation have on
August 8 last?
Mr. BBOWN. Well, it had a contract, as I remember it, with Mr.
Sid Klein, who was probably one of the most outstanding figures in
the whisky business, and who
Mr. PECORA (interposing). A contract of what kind?
Mr. BROWN. A contract of employment by which all of his services
were to be given to the Sid Klein Corporation, and he was also
Mr. PECORA (interposing). In other words, there was a person by
the name of Sid Klein who caused the Sid Klein Corporation to be
organized.
Mr. BROWN. That is correct.
Mr. PECORA. And that same Sid Klein was to devote all of his time
and services to the Sid Klein Corporation ?
Mr. BROWN. Yes, sir.
Mr. PECORA. And you

considered that that promise made by Sid
Klein to the Sid Klein Corporation wag an asset which, when acquired by the Spirits Corporation through its acquisition of the
stock of the Sid Klein Corporation, would help to give a value of at
least $465,000 to the assets of the Spirits Corporation ?
Mr. BROWN. Yes, sir. And I took the note.
Mr. PECORA. What kind of services was this Sid Klein to render
that made his services so extremely valuable?
Mr. BROWN. Well, because at that time it was apparent, or at
least we felt that prohibition repeal would come along. Mr. Klein
was probably one of the outstanding figures in the beverage liquor
business. He had been in it all of his life, up to the time of the
passage of the prohibition amendment. He was known from coast
to coast.
Mr. PECORA. AS being what?
Mr. BROWN. AS being a whisky merchant.
Mr. PECORA. AS being a whisky merchant?
Mr. BROWN. Yes, sir.
Mr. PECORA. Well, he

may have been known from coast to coast,
but frankly I never heard of him before.
Mr. BROWN. Well, you were not in the whisky business.
Mr. PECORA. Oh. He was only known to those in the whisky
business, is that right?
Mr. BROWN. That is right.
Mr. PECORA. Well, during prohibition days were there so many
persons engaged in the whisky business in this country?
Mr. BROWN. I don't know.
Mr. PECORA. That made Mr. Sid Klein's reputation an outstanding
one 2
Mr. BROWN. Mr. Klein formerly was a whisky broker in Cincinnati, where his headquarters were located. He came East and was
connected with the Kentucky Alcohol Corporation, and afterwards
became an official of the United States Industrial Alcohol Corporation—and this was all during prohibition times, when he was in the
industrial alcohol business. Then when he felt that prohibition re

6180

STOCK EXCHANGE PRACTICES

peal was going to be made effective he retired from the United
States Industrial Alcohol Co., as I understand it, and decided to
set himself up in the business of handling warehouse receipts, buying and selling whiskies and other beverage liquors for his own
account, and also to act as an importer, all of which he is doing
today under the name of the Sid Klein Corporation.
Mr. PECORA. Well, what proportion of this valuation of " at least"
$465,000 that you thought the assets of the Spirits Corporation were
worth on August 8 last, represented the value you placed upon the
contract for the exclusive services of Mr. Sid Klein ?
Mr. BROWN. Well, that I do not think was decided upon at the
time. Everything taken together was assumed to be of that value.
Mr. PECORA. Well, the only tangible asset was this promissory
note of Mr. Knox B. Phagan, wasn't it?
Mr. BROWN. Yes, sir.
Mr. PECORA. NOW, was

there in existence on August 8 any contract between Mr. Sid Klein and the Spirits Corporation ?
Mr. BROWN. AS to that, I cannot tell you offhand. I do not believe so, no, sir; not anything reduced to writing. I think the negotiations, as I remember now, with Mr. Klein were started at Atlantic
City by Mr. Publicker on the Fourth of July. I remember that it
was on a holiday, and it was afterwards brought up.
Mr. PECORA. NOW, what was to be the business of the Sid Klein
Corporation ?
Mr. BROWN. Dealing in whiskies, beverage liquors, importing alcoholic beverages, dealing in warehouse receipts, and so forth.
Mr. PECORA. In the main it was to engage in the business of selling alcohol and alcoholic products, is that it?
Mr. BROWN. NO. Alcoholic beverages.
Mr. PECORA. Alcoholic beverages, is that right?
Mr. BROWN. That is correct.
Mr. PECORA. What was to be the business, or what was the business
of the Spirits Corporation ?
Mr. BROWN. At the time when it was organized it was believed
that, perhaps, the Spirits Corporation might handle the beverage
business of the American Commercial Alcohol Corporation.
Mr. PECORA. DO you mean act as"a sort of selling agent?
Mr. BROWN. NO. TO handle the whole beverage end of the business, in connection with the production, sale, and distribution of
beverage liquors, it being considered quite inadvisable to put on a
bottle of whisky which might be produced, the name of the American
Commercial Alcohol Corporation. I t was felt that an outside or a
separate and distinct operation was needed to conduct the beverage
business.
Mr. PECORA. Well, now, you recognize, don't you, Mr. Brown,
that the steps taken in connection with the formation of the Sid
Klein Corporation and of the Spirits Corporation, and the arrangements for the acquisition by the Spirits Corporattion of all
the capital stock, or a major part of the capital stock, of the Sid
Klein Corporation, and then in turn the acquisition by the American Commercial Alcohol Corporation of the capital stock of the
Spirits Corporation through an exchange of shares, paralleled very
considerably what was done by the American Commercial Alcohol

STOCK EXCHANGE PRACTICES

6181

Corporation as testified to by you last week before this committee
in connection with the formation of the Maister Laboratories, Inc.,
and Noxon, Inc. ?
Mr. BROWN. That is correct. The reason that was handled in the
way it was, was because of Mr. Klein's insistence that it be handled in that way; not direct acquisition by the American Commercial Alcohol Corporation, because he felt at the time it would
be better if our mteiests and control of the situation was not disclosed generally, for the reason that he would do business with all
the different whisky purchasers, buying and selling where he could
make a profit.
Mr. PECORA. What position was Mr. Klein in to dictate to the
American Commercial Alcohol Corporation how the latter corporation should conduct its business, and how it should issue its capital
stock?
Mr. BROWN. Well, I wouldn't say that he dictated to the American Commercial Alcohol Corporation. But I think we felt at the
time it was quite correct, because of the feeling that it would be
better for him to appear as an independent operator.
Mr. PECORA. NOW, as a matter of fact, Mr. Brown, wasn't this plan
which involved the creation of the Sid Klein Corporation and of the
Spirits Corporation, and which involved further the acquisition and
control of the Sid Klein Corporation by the Spirits Corporation, and
the acquisition of the Spirits Corporation by the American Commercial Alcohol Corporation through an exchange of stock, conceived
solely for the purpose of enabling the American Commercial Alcohol
Corporation to make another issue of an additional block of its common stock without first offering that stock to its stockholders of
record under their preemptive rights?
Mr. BROWN. I shouldn't say so.
The CHAIRMAN. What was the capital stock of the Sid Klein
Corporation ?
Mr. BROWN. I t had 5,000 shares of $100 par value noncumulative
7 percent nonvoting preferred stock, and 5,000 shares of $1 par value
common stock. Of the preferred stock, 2,000 shares had been issued,
and all of the common. And the earnings of that corporation for
the last 2 months of the year, I think, were approximately $40,000,
and the earnings for the month of January Mr. Klein advises me
were approximately $20,000.
The CHAIRMAN HOW much of that stock did the American Commercial Alcohol Corporation acquire ?
Mr. BROWN. We acquired all of the preferred stock, and 50 percent of the common stock.
Mr. PECORA. NOW, Mr. Brown, in the application which was filed
with the New York Stock Exchange on July 19, last, for the listing of
these additional 25,000 shares of stock of your company, why wasn't
there set forth m detail the assets which were to be purchased
through the proposed issue of 25,000 additional shares?
Mr. BROWN. AS to that I don't know. I had nothing to do with
the application.
Mr. PECORA. Who did have to do with the application?
Mr. BROWN. I assume it was prepared by Mr. Page.
Mr. PECORA. Did Mr. Page know more about the situation than
you did?

6182

STOCK EXCHANGE PBACTICES

Mr. BROWN. NO, sir.

Mr. PECORA. YOU said something before about the acquisition of
a plant in Kentucky by the Spirits Corporation.
Mr. BROWN. N O ; by the American Commercial Alcohol Corporation.
Mr. PEOORA. Was it by the American Commercial Alcohol Corporation?
Mr. BROWN. Yes, sir.
Mr. PECORA. Well, how

did the acquisition of that plant figure in
this transaction ?
Mr. BROWN. I t did not figure in it at all.
Mr. PECORA. I mean with the Spirits Corporation and the Sid
Klein Corporation.
Mr. BROWN. Not at all.
Mr. PECORA. Why did you make reference to it, then?
Mr. BROWN. YOU asked me about the application for the

issuance
of 25,000 additional shares of stock.
Mr. PECORA. Was it contemplated then that among the assets to
be acquired by the American Commercial Alcohol Corporation at the
time it made this application to the New York Stock Exchange for
this additional listing of 25,000 shares, was this Kentucky plant?
Mr. BROWN. I t was contemplated; yes, sir.
Mr. PECORA. Did that offer pass beyond the stage of contemplation, or that effort, I mean?
Mr. BROWN. Oh, yes. There were considerable discussions, a complete inspection of the properties, and we were unable to arrive at a
definite deal. We thought we had something that was possible, but
finally they wanted too much money for the company.
Mr. PECORA. Well, nevertheless, at the time this application was
filed with the New York Stock Exchange one of the purposes for
which the additional listing of stock was sought was to enable your
corporation to acquire this Kentucky plant?
Mr. BROWN. Yes, sir.
Mr. PECORA. Through

the issuance of part or all of those addi-

tional 25,000 shares.
Mr. BROWN. Yes, sir.
Mr. PECORA. And that

plan completely went by the board after-

wards?
Mr. BROWN. Yes,

sir.

Mr. PECORA. When was it finally abandoned ?
Mr. BROWN. Well, I cannot give you the date of that.
Mr. PECORA. Well, about when ?
Mr. BROWN. Well, it was some time after that application was
filed.
Mr. PECORA. This application was filed on July 19.
Mr. BROWN. Correct.
Mr. PECORA. Was that plan completely abandoned within a month
thereafter?
Mr. BROWN. I should say so; yes, sir.
Mr. PECORA. NOW, I show you what purports to be a final signed
copy of supplemental data or statement filed by or on behalf of
the American Commercial Alcohol Corporation, with the committee
on stock list of the New York Stock Exchange, bearing date Novem

STOCK EXCHANGE PBACTICES

6183

ber 23, 1933, and bearing the signature of Cecil Page, as secretary
of the American Commercial Alcohol Corporation. Will you look
at it and tell me if you recognize it to be the supplemental statement
filed by and on behalf of your corporation last November with the
stock list committee of the New York Stock Exchange?
Mr. BROWN (looking at the paper). Yes, sir.
Mr. PECORA. Mr. Chairman, I wish to offer it in evidence.
The CHAIRMAN. Let it be admitted.
(A paper marked " Supplemental" application of the American
Alcohol Corporation, dated Nov. 23, 1933, to the committee on
stock list of the New York Stock Exchange, was marked " Committee Exhibit No. 63, February 21, 1934 ", and will not be made a
part of the record except as read by Mr. Pecora, but will be kept in
the files of the committee.)
Mr. PECORA. NOW, Mr. Brown, what was the purpose of the filing
of this supplemental statement with the stock list committee of the
New York Stock Exchange?
Mr. BROWN. I never knew that the thing had been filed. I was
away, apparently, at the time it was filed. And it never should have
been filed.
Mr. PECORA. SO, apparently, at the time it was filed it should
never been filed, you say?
Mr. BROWN. That is correct.
Mr. PECORA. Well, Mr. Cecil Page, the secretary of the corporation, is not only the secretary but also a lawyer, isn't he?
Mr. BROWN. That is correct.
Mr. PECORA. When did you learn that it had been filed?
Mr. BROWN. Just the other day.
Mr. PECORA. Only the other day?
Mr. BROWN. Yes. You see, so that you will understand my statement there: If you had been in the whisky business in November,
December, January, and February, there was a great deal of confusion. At the time when that was done I was at the Pekin plant
supervising construction for production, because it was before Mr.
Grimm went away—and he had a breakdown and had to go away the
first part of November—and we had agreed with Klein to clear up
the entire transaction by a cash payment, and agreed that this issuance of 10,000 shares, because of the substantial earnings of the
company at that time and the prospective substantial earnings, it
was unnecessary and we did not want to issue any more stock than
we absolutely had to; and that was the time the deal was called off.
That paper apparently went through as a routine matter in Mr.
Page's office, and I knew nothing about it, because, as I understand
it, no notice of issuance of the stock has ever been sent to the
Exchange.
Mr. PECORA. NOW, I want to read a statement from this supplemental statement filed with the committee on stock list of the New
York Stock Exchange:
In its application A-10117, dated July 19, 1933, American Commercial Alcohol Corporation made application for the listing on the New York Stock
Exchange of 25,000 additional shares of common stock of the par value of
$20 per share, on official notice of issuance thereof, and payment m full, with
a statement of application of proceeds or property acquired. It was stated
m said application that the shares proposed to be issued would be registered
175541—34—PT 14

6184

STOCK EXCHANGE PRACTICES

with th£ Federal Trade Commission, in compliance with the provisions of
the Securities Act of 1933
Since the date of said application, arrangements have been made for the
issuance of 10,000 of said 25,000 additional shares to Mr Knox B Phagan,
in exchange for the entire capital stock, being 10,000 shares of common stock
without par value, of the American Distilling Company (a Maryland Corporation, formerly known as the Spirits Corporation). Honorable Angus W.
McLean and Sanders, Childs, Bobb, and Westcott, Esquires, of Washington, D C ,
after conference with members of the Securities Division of the Federal Trade
Commission, have submitted an opinion to the effect that the issue by American
Commercial Alcohol Corporation of said 10,000 shares is not required by the
provisions of the Securities Act of 1933 to be registered w:th the Federal Trade
Commission
The American Distilling Company was organized on July 29, 1933, and has
acquired certain valuable formulae, processes, and so forth, for the manufacture
of beverage spirits; also a lease on a completely equipped distillery property
located at Pekin, Illinois Also sales contracts with and interests in certain
distributing companies organized for the purpose of the distribution of beverage
spirits Since July 29, 1933, the Amjerican Distilling Company has been in
operation and the balance sheet and profit and loss statement annexed, certified
to by Guy I Colby, Treasurer, exhibits its condition as at October 31, 1933, and
states the results of its operations July 29th through October 31, 1933
I hereby certify that the following consolidated condensed general balance
sheet and statement of profit and loss, in my opinion, correctly reflects the
financial status of the American Distilling Company as at October 31, 1933,
and the result of its operation for the period July 29th through October 31st.
GUY I. COLBY

Then follows the consolidated condensed balance sheet statement,
and the profit and loss statement, signed:
By

AMERICAN COMMERCIAL ALCOHOL CORPORATION,
CECIL PAGE,
Secretary

Then it shows that it was submitted to the governing committee
for information December 13, 1933, Ashbel Green, secretary. That
is, he is the secretary of the New York Stock Exchange. Now, Mr.
Brown, are you familiar with the balance sheet of the American
Distilling Co. set forth in this supplemental statement?
Mr. BROWN (after looking at the paper). I am; yes, sir.
Mr. PECORA. Among the assets shown m this balance sheet is an
item of "Notes receivable, $465,000." That refers to Phagan's
promissory note, doesn't it ?
Mr. BROWN. Yes, sir.
Mr. PECORA. Has that ever been paid?
Mr. BROWN. We were to have had a meeting

on the 15th of February. I think the lawyers had completed all the legal mechanics to
clear up the details, but the meeting had to be postponed. I think
the papers are all ready to close up that deal by the American Commercial Alcohol Corporation taking over the Phagan contract.
Mr. PECORA. I t is to take over the Phagan contract, or to take over
the stock issued to Phagan in return for that note, by the Spirits
Corporation subsequently called the American Distilling Co.
^ Mr. BROWN. I think the American Commercial Alcohol Corporation pays the note.
Mr. JPECORA. The American Commercial Alcohol Corporation is
going to pay Phagan's note ?
Mr. BROWN. Yes, sir.
Mr. PECORA. NOW, what

was the plant or distillery property located at Pekin, 111., that according to the statement in this supple

STOCK EXCHANGE PRACTICES

6185

mental report or statement to the New York Stock Exchange, was
acquired by the American Distilling Co. ?
Mr. BROWN. I t was under lease.
Mr. PECORA. What was that?
Mr. BROWN. Under lease.
Mr. PECORA. DO you say under lease?
Mr. BROWN. Yes,

sir.

Mr. PECORA. Who made the lease?
Mr. BROWN. It was between the American Commercial Alcohol
Corporation and the American Distilling Co.
Mr. PECORA. That is to say, your Corporation giving a lease to
the American Distilling Co. ?
Mr. BROWN. Yes, sir.
Mr. PECORA. Covering its plant at Pekin, 111. ?
Mr. BROWN. That is correct. The- reason for that

is that operating as the company does now, the beverage regulations of the Treasury Department and of the Federal Alcohol Control Administration,
requires every package to bear a serial number, and it has to bear
the name of the manufacturer. And there again we come back to
the point where we thought it would not appear advisable shown
on a barrel of whisky that it was made by the American Commercial
Alcohol Corporation. The Government stamp bears the name of
the manufacturer. So we carry the name of the American Distilling
Co., and the operations of the beverage business are carried under
the name of the American Distilling Co.
Mr. PECORA. This distillery plant at Pekin, 111., had been operated
by the American Commercial Alcohol Corporation as a part of its
business ?
Mr. BROWN. Intermittently; yes, sir.
Mr. PECORA. IS that right?
Mr. BROWN. Yes, sir.
Mr. PECORA. And it was

operated for the purpose of manufacturing alcoholic beverages?
Mr. BROWN. That is correct; yes, sir—no, not alcoholic beverages,
but industrial alcohol.
Mr. PECORA. Yes; commercial alcohol.
Mr. BROWK Yes, sir; commercial alcohol.
Mr. PECORA Then the American Commercial Alcohol Corporation divested itself of that portion of its business and turned it over
to the American Distilling Co.
Mr. BROWN. Well, the lease, at the time it was made, had to be
filed with the Government before we could get a permit for the
American Distilling Co. to do a beverage business, to conduct that
business.
Mr. PECORA. The American Distilling Co. merely stepped into the
shoes of the American Commercial Alcohol Corporation with respect
to its Pekin plant, did it?
Mr. BROWN. Yes, sir; and the conduct of the beverage business.
That is correct.
Mr. PECORA. And did that add anything to the assets of the American Commercial Alcohol Corporation?
Mr. BROWN. NO. It was all hooked back, or a consolidated picture.

6186

STOCK EXCHANGE PBACTICES

Mr. PECORA. It is the same thing, isn't it ?
Mr. BROWN. It is a consolidated picture.
The CHAIRMAN. DO you mean that the stock of the American Distilling Co. is owned by the American Commercial Alcohol Corporation?
Mr. BROWN. Yes,
Mr. PECORA. The

sir.

American Commercial Alcohol Corporation acquired it by issuing stock to Knox B. Phagan.
Mr. BROWN. NO stock was ever issued.
Mr. PECORA. HOW was it acquired ?
Mr. BROWN. It has been acquired by a cancelation of the arrangement there, and a taking over of the contract of Phagan's, by which
the note is going to be met by the American Commercial Alcohol
Corporation, as a purely company transaction.
Mr. PECORA. These additional 25,000 shares, for the listing of
which an application was made on July 19 last, to the New x ork
Stock Exchange, are not to be issued ?
Mr. BROWN. NO, sir. The deal is all off.
Mr. PECORA. The plan for the issuance of those shares has been
completely abandoned?
Mr. BROWN. Yes, sir.
Mr. PECORA. When was that decision made ?
Mr. BROWN. In the first part of November.
Mr. PECORA. Last November?
Mr. BROWN. Yes, sir; iust before Mr. Grimm

went south as the
result of a breakdown. And that increased my burden.
Mr. PECORA. Mr. Altschul, will you take the stand, please ?
The CHAIRMAN. We will excuse you for a moment, Mr. Brown.
Mr. Altschul, you will take the stand.
TESTIMONY OF FRANK ALTSCHUL, NEW YORK CITY, CHAIRMAN
OF THE COMMITTEE ON STOCK LIST, NEW YORK STOCK EXCHANGE—Resumed
Mr. PECORA. Mr. Altschul, I presume you have heard the testimony
given this morning by the preceding witness, Mr. Russell R. Brown?
Mr. ALTSCHUL. I think I heard most of it; yes, sir.
Mr. PECORA. Are you familiar with the application filed by and
on behalf of the American Commercial Alcohol Corporation dated
July 19,1933, with the New York Stock Exchange for the additional
listing of 25,000 shares of the common stock of that corporation?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. I show you

committee's exhibit no. 62 received in evidence this morning and ask you if you recognize it as a final printed
application and the one in question ?
Mr. ALTSCHUL. Yes, sir; I do.
Mr. PECORA. This application in

due course, I assume, came before
the stock list committee of the New York Stock Exchange last July
while you were chairman of that committee ?
Mr. ALTSCHUL. My recollection, Mr. Pecora, is that the proof no. 1
which is, I think, on all fours with the application, except that the
opinion of counsel had not reached us at that time, was the thing
before us.

STOCK EXCHANGE PRACTICES

6187

Mr. PECORA. Was it the printed document known as proof no. 1
of this application, a copy of which I understand is before you, which
came before the stock-list committee of the exchange last July?
Mr. ALTSCHUL. Yes, sir; I think so.
Mr. PECORA. And was it that proof of the application, that proof
no. 1, which your committee acted upon.
Mr. ALTSCHUL. Yes,

sir.

Mr. PECORA. And what was the action taken by your committee on
this application?
Mr. ALTSCHUL. The action was to recommend the application to
the governing committee subject to receipt of the material that was
missing m the application itself.
Mr. PECORA. When did your committee take such action?
Mr. ALTSCHUL. I have a time table here I believe. [Addressing an
associate:] Have you the date such action was taken? [After conferring :] July 24.
Mr. PECORA. 1933.

Mr. ALTSCHUL. Right.
Mr. PEGORA. And when was it acted upon by the governing committee of the stock exchange ?
Mr. ALTSCHUL July 26, 1933.
Mr. PECORA. When the matter was passed on for action to the governing committee, did it have anything other than the data contained
an proof no. 1 of the application ?
Mr. ALTSCHUL. It had the opinion of counsel inserted in the manner in which it appears in the final signed copy. Have you a copy,
sn\ of proof no. 2? I do not seem to have a copy of it m my files,
and that is the proof that went to the governing committee. Is
the opinion of counsel inserted ?
Mr. PECORA. I have what is designated as proof no. 2 of this listing
application, which I would like you to look at.
Mr. ALTSCHUL. Yes, sir. That is the proof that went to the governing committee.
Mr. PECORA. NOW, proof no. 2 of the application corresponds to
proof no. 1 with the exception that there is a paragraph under the
caption " Opinion of Counsel" which was not in proof no. 1 of the
application.
Mr. ALTSCHUL. SO far as I know, that is correct, sir.
Mr. PECORA. Proof no. 2 appears to have been O.K.M for final
printing and was printed as the final printed form of application, a
copy of which is in evidence here as committee's exhibit no. 62; isn't
that correct?
Mr. ALTSCHUL. That is correct, sir.
Mr. PECORA. Did you notice that the opinion of counsel for the
American Commercial Alcohol Corporation contained a reference to
absence of fraud in the application?
Mr. ALTSCHUL. Yes,

sir.

Mr. PECORA. DO you know from your experience as chairman of
the stock list committee of the New York Stock Exchange whether
or not such a reference is usually to be found in the opinion of
counsel submitted in support of an application for listing?
Mr. ALTSCHUL. Well, it is very difficult for me to answer that
positively, but I would think in a majority of cases it does not occur.

6188

STOCK EXCHANGE PEACTICES

Mr. PECORA. When you noticed it in this particular opinion of
counsel filed in connection with this application, did it excite any
suspicion or feeling that the matter should further be inquired into?
Mr. ALTSCHUL. NO. sir. We thought that that was a clause that
was put in, because the final—this was an application for authority
to list when a transaction under negotiation was finally completed,
and that was simply the phrase that counsel used to protect themselves against the details of the transaction which they had not fully
before them.
Mr. PECORA. I t was a sort of a saving clause ?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. For the protection of
Mr. ALTSCHUL. I don't know what

counsel?
that means legally. I suppose
so. The full opinion is here. I suppose you have it.
Mr. PECORA. Yes, sir. Under the caption of "Authority for and
purpose of issue " that appears not only in proof no. 1 of this application but also in the final printed application, the statement is made
as follows:
The company proposes to issue upon clue authority of the board of directors
up to 25,000 shares of its common stock on account of the purchase of assets
for which it is now negotiating and which may be acquired in the near future
upon official notice of issuance and payment in full with a statement of the
application of proceeds or property acquired The shares which it is proposed
to issue will be registered with the Federal Trade Commission in compliance
with the provisions of the Securities Act of 1933

Now, your committee approved this application without knowing
what the assets which were to be purchased through the issuance of
this additional stock actually were, didn't it?
Mr. Ai/rscHuii. They approved the application under those conditions, sir, but the stock would not be issued until the information
had been further furnished to us.
Mr. PECORA. Well, is it customary for the committee to make such
conditional approvals of applications for stock listings ?
Mr. Ai/rscHuii. From time to time, when it is urged upon the committee that there are business reasons why the company wants authority to add to the list certain shares for a purpose that will be
disclosed before the listing is actually granted, to faciliate the business we sometimes grant the authority, with a view to having a
chance to review the situation further.
Mr. PECORA. DO those situations arise more or less frequently?
Mr. ALTSCHUL. They arise from time to time. They have arisen
in other instances. I would not say they arise every meeting or
every month, but they do arise from time to time.
Mr. PECORA. Wasn't any information whatsoever given to the
stock-list committee or any of its examiners or attaches by the American Commercial Alcohol Corporation respecting the matter of the
assets which that corporation hoped to acquire through the issuance
of this additional stock?
Mr. ALTSCHUL. Speaking only for the stock-list committee, the
information that was before them is the information m the application. There was no further information available.
Mr. PECORA. The information in the application is of the most
general character.

STOCK EXCHANGE PRACTICES

6189

Mr. ALTSCHUL. The comment of the examiners, which will throw
some light on what had come into their hands, I think is in your
possession, sir.
Mr. PECORA. By that comment do you mean, among other things,
this so-called " memorandum" for Mr. Tirrell, signed by L.
Hasselbach ?
Mr. ALTSCHUL. NO, sir.

Mr. PECORA. Dated July 20, 1933?
Mr. ALTSCHUL. NO, sir; I don't mean that. I mean the comment
to the committee, comment by Mr. Tirrell, meeting of July 24,1933.
Here; I will give you a copy, sir [handing document to Mr. Pecora].
The last thing on the page. That throws some light on the previous
question, too, I believe, sir.
Mr. PECORA. I offer in evidence the document produced by the
witness with respect to this comment.
The CHAIRMAN. Let it be admitted.
(Comment by Mr. Tirrell, meeting of July 24, 1933, produced by
Mr. Altschul, was thereupon designated "Committee Exhibit No.
64, Feb. 21,1934 ", and appears in full immediately following, where
read by Mr. Pecora.)
Mr. PECORA. The document has been received as " Committee
Exhibit No. 64 " and reads as follows [reading]:
AMERICAN COMMERCIAL ALCOHOL CORPORATION

7-24-33
Common stock $20 par, additional listing 25,000 shares
The applicant company is negotiating for the purchase of what it regards
as one of the important distillery properties in Kentucky. The issue ot stock
up to 25,000 shares has been authorized by the directors in connection with
this proposition The company believes it will be very harmful to the negotiations to describe the properties in the application, but is apparently willing
to give a full description in final printing if negotiations are closed betoie
that time, or to make complete disclosure as soon as negotiations are terminated.
In somewhat similar cases the committee has respected the wishes ot the
company, with the understanding that such disclosures would be made at the
earliest possible time, and, provided the company can obtain a satisfactory
opinion from counsel m relation to the bearing ot the Securities Law on the
issue of this stock, there is no objection to the listing requested.
Meeting of July 24, 1933—Comment by Mr Tirrell •
American Commercial Alcohol Corporation common stock $20 par, additional
listing 25,000 shares.
The company has been very late m submitting this application For what
it considers urgent business reasons, the company wishes to have the application considered by the committee at its meeting Monday The stock has been
fully authorized by its directors to be issued up to 25,000 shares in connection
with the purchase of the assets of distillery properties in Kentucky At the
time of writing this comment the negotiations had not been finally completed,
and until that time the company does not wish to announce, either m a draft
of the application or in any other way, the name of the company whose
properties are to be acquired.
In similar circumstances the committee, in the case of the Air Reduction
Company, and more recently in connection with the Monsanto Chemical Company, has approved listing on condition that full disclosure be made promptly
upon the termination of negotiations
The company has been asked to submit opinion of counsel in relation to the
bearing of the issuance of the stock covered by the application to the provisions
of the securities law regarding registration No definite opinion has been received, and unless this is cleared up before the meeting of the stock list
committee, it may be considered an obstacle to the listing requested An
appearance before the committee has been arranged If the company will
undertake to make full disclosure regarding the properties to be acquired

6190

STOCK EXCHANGE PRACTICES

promptly upon completion of negotiations, and can satisfy the committee with
regard to the possible application of the securities law, there is no objection
to the listing requested
Now, Mr. Altschul, was the appearance before the committee
which in this comment by Mr. Tirrell had been arranged actually
consummated ?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. And who appeared

before the committee m behalf
of the American Commercial Alcohol Corporation?
Mr. ALTSCHUL. According to my record here, sir, Mr. Brown.
Mr. PECORA. Mr. Russell R. Brown?
Mr. ALTSCHUL. I take it for granted Mr. Russell R. Brown—yes,
Mr. Russell R. Brown. And Mr. Eggmton and Mr. Heiss of
Larkin, Rathbone & Perry.
Mr. PECORA. Mr. Egginton and Mr. Heiss are connected with the
law firm of Larkin, Rathbone & Perry.
Mr. ALTSCHUL. Yes .

Mr. PECORA. Have you any minutes of the proceedings had before
your committee in connection with that appearance ?
Mr. ALTSCHUL. I have a copy, yes, sir, of the original, which is
in your hands.
Mr. PECORA. Have you a copy of the minutes of your committee
meeting at which this appearance was made before you ?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. I have a copy

here which you were kind enough to
furnish to us, and I will read into the record, if you will kindly
follow me while I do so.
Mr. ALTSCHUL. Right.
Mr. PECORA. The minutes with respect to such appearance before
your committee, appearing at pages 154 and 155 [reading] :
AMERICAN COMMERCIAL ALCOHOL. COMPANY

There appear before the committee Messrs. H Egginton and Mr H Heiss,
Messrs. Larkin, Rathbone & Perry, counsel for the corporation, and Russell R
Brown, chairman of the board, and Cecil Page, secretary and director of the
corporation.
The CHAIRMAN* The question you are discussing with us is the question of
the need of registration under the Securities bill
Mr. BROWN We have decided to comply with the Act
The CHAIRMAN. YOU are going to comply with registration?
Mr EGGINTON. We have written an opinion that the Act does not apply.
We checked it with our correspondence with the Federal Trade Commission,
and they believe that the Act does apply. I think the opinion is entirely
erroneous, but they are going to stick to it.
The CHAIRMAN. Then you will make application, I suppose, for approval on
notice to this committe that the registration requirements be met with?
Mr. EGGINTON Yes.
Mr. BROWN. That is correct
Mr. EGGINTON. The listing application
The CHAIRMAN. And you wanted to

would be approved?
explain the secrecy in regard to the
purchase of the stock until the deal you were interested in is completed, as
I understood ?
Mr. BROWN I am perfectly
The CHAIRMAN. At all events,

when your final application comes in, if this
stock is used, then the purpose for which it is used will be fully set forth?
Mr. BROWN It will be disclosed.
The CHAIRMAN Any other questions?
Mr. SEAMAN. NO.
Mr. HOXSEY. No

this committee.

They are to file a copy of the registration statement with

STOCK EXCHANGE PRACTICES

6191

Mr. EGGINTON. We will file an opinion of counsel as to the propriety of the
issue upon your approval, and also file a copy of the registration when that
is concluded
The CHAIRMAN AS I understand it, you cannot physically issue all the stock
until 20 days. So if we pass it on official notice of issuance after the registration requirements have been complied with, then you are protected and
we are
Mr. EGGINTON. Yes.

Mr SEAMAN YOU say you are going to file an opinion. That is the opinion
you do not think you have to comply9
Mr EGGINTON NO, we have taken out the other expression of opinion.
The CHAIRMAN I think that leaves no
point further to discuss between us,
unless you have something, Mr Brown9
Mr. BROWN NO; I have nothing
Messrs. H Egginton, F. H Heiss, Russell R Brown, and Cecil Page retired.
Application A-10,119 of American Commercial Alcohol Corporation approved
for recommendation to the governing committee, subject to compliance with
registration requirements under Securities Act of 1933 and disclosure of
properties to be acquired with the securities issued hereunder.

That completes the minutes of that particular hearing.
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. And Mr. Seaman

who is referred to in these minutes
is another member of the stock list committee ?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. Mr. Hoxsey is the
Mr. ALTSCHUL. Executive assistant.
Mr. PECORA. Executive assistant to the committee?
Mr. ALTSCHUL. Correct.
Mr. PECORA. When was this meeting of your committee

held at
which Mr. Brown appeared and Mr. Page, Mr. Egginton, and Mr.
Heiss?
Mr. ALTSCHUL. July 24, 1933, sir.
Mr. PECORA. And it was at that same meeting that you had before
you the document marked in evidence here as " Committee Exhibit
No. 64", which includes the comment for the guidance of the
committee by Mr. Tirrell?
Mr. ALTSCHUL. The last part of that I am sure we had before us
at that time. I don't remember if the first ones related to that or not.
That important part we had before us. [Showing document to Mr.
Pecora.] Does this relate to the same thing?
Mr. PECORA. Apparently; yes.
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. Apparently

up to July 24, 1933, the representations
that had been made to your committee and its executive—what do
you call him?
Mr. ALTSCHUL. Assistant.
Mr. PECORA. Executive assistant, Mr. Hoxsey
Mr. ALTSCHUL. And his staff.
Mr. PECORA. By and on behalf of the American Commercial
Alcohol Corporation, were that it wanted to issue these additional
25,000 shares to enable it to acquire certain distillery properties in
Kentucky?
Mr. ALTSCHUL. I don't want to try to bandy words, but that is not
exactly accurate. They wanted to have authority to issue them in
connection with the acquisition of the property.
Mr. PECORA.

Yes.

6192

STOCK EXCHANGE PBACTICES

Mr. ALTSCHUL. They could not issue it until then.
Mr. PECORA. NO.
Mr. ALTSCHUL. I
Mr. PECORA. The

am sure we are quite in accord.
representations, in other words, which had been
made to your committee up to the time that it approved this application on July 24, last, by or on behalf of the American Commercial
Alcohol Corporation were to the effect that that corporation contemplated acquiring some distillery properties in the State of Kentucky, and in connection with such acquisition intended to issue
additional shares up to 25,000; is that right?
Mr. ALTSCHUL. The purpose of issuing in the application that was
before us read:
The company proposes to issue upon due authority of the board of directors
up to 25,000 shares of its common stock on account of the purchase of assets
which it is now negotiating and which may be acquired in the near future

Mr. PECORA. Yes; but in the comment by Mr. Tirrell which is
part of exhibit no. 64 that you produced
Mr. ALTSCHUL. That is right.
Mr. PECORA. Mr. Tirrell stated specifically that " the company ",
meaning the American Commercial Alcohol Corporation—
has been very late in submitting this application. For what it considers
urgent business reasons, the company wishes to have tlhe application considered by the committee at its meeting Monday. The stock has been fully
authorized by its directors to issue up to 25,000 shares in connection with the
purchase of assets of distillery properties in Kentucky.

Mr. ALTSCHUL. That is right. You have my only copy of that
now, sir, and I did not have that before me. That is right. I did
not have that.
Mr. PECORA. SO it is quite apparent from this that what has been
told to the committee on behalf of the American Commercial Alcohol
Corporation as the nature of the assets that it intended to acquire
with the issuance of these additional 25,000 shares
Mr. ALTSCHUL. That is right.
Mr. PECORA. Was the distillery property in Kentucky.
Mr. ALTSCHUL. That is correct, sir.
Mr. PECORA. NOW, you heard the testimony this morning of Mr.
Russell R. Brown, to the effect that what the corporation intended
to acquire was the capital stock of a corporation known as the Spirits
Corporation, which was in turn to acquire the capital stock of another corporation to be organized, called the Sid Klein Corporation,
didn't you?
Mr. ALTSCHUL. Yes,

sir.

Mr. PECORA. And that testimony and the testimony given by Mr.
Brown with regard to the organization of the Spirits Corporation
and the acquisition of its stock by the American Commercial Alcohol
Corporation had nothing to do with the acquisition of any distillery
property in Kentucky, did it?
Mr. ALTSCHUL. I really cannot answer that question. I don't
know whether there were distillery properties in Kentucky that
were taken over in corporate form or not. I am not sufficiently
familiar with it to know. There may have been.
Mr. PECORA. YOU heard the testimony of Mr. Brown that within
a month after they made this application to your committee the

STOCK EXCHANGE PRACTICES

6193

board of directors of his corporation completely abandoned the
negotiations or that which it had in mind with respect to acquiring
the distillery property in Kentucky?
Mr. ALTSCHUL. Mr. Pecora, I might say this—I mean I am not
trying to question that at all—I am not familiar enough with Mr.
Brown's testimony to be sure that I got all the implications of it,
but the authority and purpose of the issue which we felt was before
us and on which we acted, the actual document, in other words, is
the listing application itself. But the comment of Mr. Terrill we
considered in connection with it naturally, but the document which
we thought covered the actual authorization and purpose was not,
either so far as the company was concerned or so far as we were
concerned, limited, in our mind, by Mr. TernlPs comment. I don't
know whether that has any bearing on what you are driving at, but
I wanted to make that quite clear.
Mr. PECORA. Well, are you overlooking the fact that
Mr. ALTSCHUIJ (interposing). I am not overlooking the implications of that comment, Mr. Pecora. The point really is that the
authorization that we granted was the broad authorization covered
by the application, and that at the time we gave that authorization
there was that comment before us. So the authorization was not in
any sense limited by that comment.
Mr. PECORA. Here is a statement contained in committee exhibit
no. 64, which is the document that you produced this morning, reading as follows:
The applicant company—

That is, the American Commercial Alcohol Corporation—
Mr. ALTSCHUL. That is right.
Mr. PECORA (continuing):
is negotiating for the purchase of what it regards as one of the important
distillery properties in Kentucky The issue ot stock up to 25,000 shares has
been authorized by the directors in connection with this proposition
Mr. ALTSCHUL. I don't know whether the point that I am making

has any bearing in connection with what you are leading to or not.
So if you don't mind, I would just as leave pass it and see if it has
any bearing.
Mr. PECORA. Who is the author of that statement which I have
just read from committee exhibit no. 64?
Mr. ALTSCHUL. That is Mr. Tirrell, who is our chief examiner.
Mr. PECORA. That indicates to you, doesn't it, that Mr. Tirrell had
been informed
Mr. ALTSCHUL. Oh, yes; no doubt of it.
Mr. PECORA. By the American Commercial Alcohol Corporation
Mr. ALTSCHUL. Yes.

Mr. PECORA. That that was the specific purpose which the corporation had in mind in connection with this proposed issue of 25,000
additional shares?
Mr. ALTSCHUL. Oh, no doubt about that at all. My only point was
that the authority that we granted was based on broader terms than
Mr. Tirrell's information would lead us to think.
Now, for instance, if on the listing application Mr. Tirrell's statement had been made as to the purpose and they had limited them

6194

STOCK EXCHANGE PRACTICES

selves to that specific purpose, and we had acted upon it in that way,
that would have confined the listing to that extent.
My only point is that the manner in which it was acted upon was
in conformity with the application of the company, and while we
had that information and the information had some influence on
our decision, the application itself did not take that form. As I
say, I don't know whether that has any bearing on what you are
leading up to.
Mr. PECORA. But, Mr. Altschul, when the committee acts on these
applications, it acts not only on the statements and representations
embodied in the application itself, but also on such reports and information placed before it by its own assistants?
Mr. ALTSCHUL. That is true.
Mr. PECORA. Does it not?
Mr. ALTSCHUL. Oh, yes; that is correct.
Mr. PECORA. And its assistants make, or are supposed to make,
an investigation or inquiry and to lay before the stock list committee the results thereof in passing on these applications?
Mr. ALTSCHUL. That is correct.
Mr. PECORA. When applications of this kind come before your
committee does your committee ever go behind the application or
the report of its examiners and go directly to the corporate proceedings of the corporation ?
Mr. ALTSCHUL. We get transcripts of the minute books authorizing
the issue. We get a copy of the resolution of the board which
authorizes the issue. Beyond that we do not go into the corporate
records of the company.
Mr. PECORA. Did you get transcripts of the resolution of the board
of directors of the American Commercial Alcohol Corporation with
regard to this proposed issue ?
Mr. ALTSCHUL. I think so. I think I have it here some place.
Yes, sir [producing document].
Mr. PECORA. May I have the resolution?
Mr. ALTSCHUL (handing document to Mr. Pecora). There is a
copy i$ your files, sir.
Mr. PECORA. I S this all you got by way of a copy of corporate
resolutions ?
Mr. ALTSCHUL. Yes, sir; and that is the resolution that is referred
to on the face of the listing application in the authority and purpose
to issue.
Mr. PECORA. I offer that document in evidence, the copy of the
resolution produced by the witness.
The CHAIRMAN. Let it be admitted.
(Transcript from minutes of executive committee meeting of
American Commercial Alcohol Corporation of July 19, 1933, was
thereupon designated "Committee Exhibit No. 65, Feb. 21, 1934",
and appears in the record in full immediately following, where read
by Mr. Pecora.)
Mr. PECORA. The document produced by the witness and just received in evidence as exhibit no. 65 reads as follows [reading] :

STOCK EXCHANGE PRACTICES

6195

AMERICAN COMMERCIAL ALCOHOL COBPORATION
TRANSCRIPT FROM THE MINUTES, EXECUTIVE COMMITTEE MEETING JULY 19, 1933

Resolved, That the proper officers of the Corporation be and they hereby
are authorized to issue up to 25,000 shares of the Corporation's Common Stock
in exchange for certain properties and assets of equivalent value, for the
acquisition of which negotiations are now in progress, such stock, however,
not to be issued1 unless and until final arrangements, approved by the Company's
counsel and satisfactory to the Board of Directors, are made which will permit
such stock to be issued full paid and non-assessable
Certified a true record this 24th day of July, 1933,
(Signed)

CECIL PAGE,

Secretary.
Now I show you what purports to be a certificate of Cecil Page,
secretary of the American Commercial Alcohol Corporation, attesting to the correctness and authenticity of certain resolution or certain resolutions adopted by the board of directors of the American
Commercial Alcohol Corporation at a meeting thereof held on
August 8, 1933. Will you look at it and tell me if you recognize
it to be an original document filed with the stock-list committee
of the New York Stock Exchange, as appears by the stamped endorsement thereon, on December 14, 1933 ?
Mr. Ai/rscHUL. That is our stock-list stamp.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Certificate of correctness and authenticity of resolutions adopted
by board of directors of American Commercial Alcohol Corporation on Aug. 8,1933, was thereupon designated " Committee Exhibit
No. 66, Feb. 21,1934 ", and is as follows:)
COMMITTEE EXHIBIT NO. 66, FEBRUARY 21, 1934

I, CECIL PAGE, Secretary of American Commercial Alcohol Corporation, do
hereby certify that the following is a true and correct copy of certain resolutions adopted by the Board of Directors of American Commercial Alcohol
Corporation at a meeting of said Board duly called and held at the office of
the Corporation on Tuesday, August 8, 1933 •
Resolved, That this Company acquire from Mr Knox B Phagan, 10,000
shares of the no par common stock of the Spirits Corporation, a Maryland
corporation, in consideration of the delivery by this company to Mr Knox
B Phagan of 10,000 shares of the common stock of the par value of $20 a
share of this company;
Further resolved, That upon the assignment and transfer to this Company
by Mr. Knox B Phagan of said 10,000 shares of the Common No Par Stocfe
of The Spirits Corporation, the proper officers of this Company be and the?
hereby are authorized either
(a) To issue, execute and deliver to or upon the order of Mr. Knox B
Phagan a certificate or certificates representing 10,000 shares of the Common
stock of the par value of this Company; or
(b) To borrow from such sources and on such terms as said officers, being
advised by counsel, may deem proper, 10,000 shares of the issued and outstanding Common Stock of the par value of $20 per share of this Company,
and to assign and transfer said 10,000 shares of said Common Stock when so
borrowed to or upon the order of Mr Knox B Phagan, and thereafter, at
such time as said officers, being advised by counsel, may deem advisable, to
issue and deliver 10,000 shares of the Common Stock of the par value of $20
each of this Company to or upon the order of the person, firm, or corporation
from whom or which said stock shall have been so borrowed:

6196

STOCK EXCHANGE PRACTICES

Further resolved,, That m the judgment of the Directois of this Company the
actual value of said 10,000 shares of the Common no par Stock of The Spirits
Corporation is not less than $465,000
Further resolved, That the officers of the Corporation be and they hereby
are authorized and directed to file with the Maryland State Tax Commission a
Stock Issuance Statement m such form as the Commission shall require regarding the issuance of stock as aforesaid to be issued to said Mr. Knox B Phagan
and also to file same with any state authorities where required.
Further resolved, That said 10,000 shares of the Common Stock of this Corporation of the par value of $20 per share, when issued to said Mr. Knox B,
Phagan or his nominee, for the consideration hereinbefore stated, shall be and
are hereby declared to be fully paid stock and shall not be liable to any further
payment with respect to said shares.
Further resolved, That Mr Cecil Page, the Secretary of this Corporation, be
and he heieby is authorized and directed, upon the issuance of said 10,000
shares of the Common $20 par Stock of this Corporation as aforesaid and
receipt of payment in full, to advise the New York Stock Exchange thereof,
together with a statement of the application of the proceeds or property acquired in said transaction in accordance with the terms of the application filed
by this Company under date of July 19, 1933, (Application No. A-10,117) with
the New York Stock Exchange, for the listing on said Exchange of 25,000 additional shares of the Common Stock of the par value of $20 per share of this
Company.
Further resolved, That the proper officers of the Corporation be and they
heieby are empowered, authorized and directed to do any and all further acts
and things which they, with the advice of counsel may deem necessary or proper
to carry into effect all the matters hereinbefore set forth and the acts and
things to be performed by this Corporation in connection therewith
(Signed)

CECIL PAGE,

Secretary

Mr. PECORA. This last document, marked in evidence as " Exhibit
No. 66 ", shows upon its face, does it not, that it was not contemplated
to issue any stock in exchange for the acquisition of the distillery
property in Kentucky ?
Mr. ALTSCHUL (after perusing document). I would say so, sir.
Mr. PECORA. I want you to look at exhibit no. 63 received in evidence this morning and consisting of the so-called "supplemental
statement" filed with the committee on stock list, New York Stock
Exchange, by the American Commercial Alcohol Corporation, of
December 30, 1933, although apparently was submitted to the governing committee of the stock exchange on December 13, 1933.
Will you look at it and tell me if you saw that or a copy of that
before?
Mr. ALTSCHUii (after examining document). Yes, sir.
Mr. PECORA. Was any investigation made of the condition reflected
by the balance-sheet statement which forms part of this supplemental
statement ?
Mr. ALTSCHUL. NO, sir; and, Mr. Pecora, you understand that that
is not the document that was before the stock list committee in connection with the application of listing these 10,000 shares, don't you ?
Mr. PECORA. Well, that was in the information, the supplemental
information which, according to the requirement of the stock list
committee, was to be furnished by the American Commercial Alcohol
Corporation, was it not?
Mr. ALTSCHUL. At the time this came before the stock list committee, you will find in your files—I don't know whether this is
your numbering or not—but you will find a document dated November 23,1933, which preceded that.

STOCK EXCHANGE PRACTICES

6197

Mr. PECORA. What is the November, this third document ?
Mr. ALTSCHUL. I don't know whether this is what you refer to or
not [handing document to Mr. Pecora]. It comes from your files.
Mr. PECORA. The document you produced bearing (late November
23, 1933, is identical with the first two printed paragraphs of the
document marked " Exhibit No. 63 ", isn't it ?
Mr. ALTSCHUL. Yes, sir; I think so. I think you will find this is
in printed form similar to this, without the other material, in your
files. It is merely a proof, in other words.
Mr. PECORA. The situation presented to your committee was that
on July 19, 1933, application in its final form was filed with your
committee, or rather proof no. 2 was4>efore your committee, which
showed that the company wanted to issue up to 25,000 shares in
order to enable it to purchase certain unnamed, undesignated assets?
Mr. ALTSCHXTL. I think that was proof no. 1, sir, but the rest of
your statement is correct.
Mr. PECORA. Proof no. 1, all right. And that application when it
came before your committee for action on July 24, last, was supplemented with information given to your committee by its examiners,
namely, Mr. Tirrell and Mr. Hasselbach, in the form of the document marked m evidence here as committee exhibit no. 64? Isn't
that so?
Mr. ALTSCHUL. Oh, yes; it was supplemented by that information.
Mr. PECORA. Yes; and on July 24 when your committee met and
approved this application it was told by its examiners that the purpose of the issue, the proposed issue rather, of the 25,000 shares was
to enable the American Commercial Alcohol Corporation to acquire
one of the important distillery properties in Kentucky; is that
right?
Mr. ALTSCHUL That is correct, sir.
Mr. PECORA. On the 24th of July your committee approved the
application, andon the 26th of July it was also approved by the
governing committee of the stock exchange ?
Mr. ALTSCHUL. That is correct, sir.
Mr. PECORA. Presumably on the same information which your
committee had?
Mr. ALTSCHUL. NO, sir.
Mr. PECORA. What else did it have?
Mr. ALTSCHUL. I t had less than that.

It had the information that
is contained in the face of the application. That is what I was
trying to make the point before, that the authority and purpose of
the issue, by which we were bound and by which the company was
bound, or as we understood, was the authority and purpose of the
issue as outlined in the listing application, and not in any supplementary information that may have come through this memorandum.
Mr. PECORA. On July 24, when your committee approved the application, it approved it with knowledge given to it by its own examiners that the purpose of the proposed issue was to enable the American Commercial Alcohol Corporation to acquire one of the important
distillery properties in Kentucky?
Mr. ALTSCHUL. That is correct.
Mr. PECORA. That is correct?

6198

STOCK EXCHANGE PBACTICES

Mr. ALTSCHUL. That is correct. On the other hand, the action
of the committee was not limited in its formal action by those circumstances. The action of the committee was broader, and as I am
trying to point out, the action of the committee was in accordance
with the face of the document. In other words, if the application
had read, if they had come to us and had actually made the statement to us that this was for the purchase of a distillery, and they
had put that in as the purpose of the issue, and it had gone out to
the public and the shareholders as the purpose of the issue, that
would have been the action of the governing committee, and the
purpose of the issue would have been that. This information was
interesting information, but it did not determine the scope of the
action of the committee. That is the point I am trying to make.
Mr. PECORA. Didn't you regard the information given to your
committee by its own assistants as information which those assistants had obtained for the guidance of your committee?
Mr. ALTSCHUL. Oh, yes; we regarded that as information that
they had obtained and they had submitted to us, surely.
Mr. PECORA. For the purpose of guiding your committee in its
action on the application ?
Mr. ALTSCHUL. Surely; and if they had obtained any other different information and had stated that it was for the" purpose of
purchasing another property, the action conceivably would have
been just the same. My point is that the breadth of the authorization went beyond Mr. Tirrell's memorandum and can only be considered, it seems to me, as being the authority and purpose of the
issue which they stated in their official application, and which is
what we approved.
Mr. PECORA. The breadth of the authorization embodied in the
signed application which your committee approved there was to the
effect that the company, the American Commercial Alcohol Corporation, was to issue the stock on account of the purchase of
assets. That is all it said.
Mr. ALTSCHUL. That is right.
Mr. PECORA. That is the only description it gave of the assets.
Mr. ALTSCHUL. That is right. And as I understand your question
Mr. PECORA (interposing). Now, your committee would not have
acted merely on that general information would it?
Mr. ALTSCHUL. We would have authorized it on the understanding
that we were going to giet the information before it was actually
placed on the list.
Mr. PECORA. Did you get that information?
Mr. ALTSCHUL. That information is covered by that document that
I handed to you and the one you are speaking from, as the only
information we had.
Mr. PECORA. The information as covered by which document?
Mr. ALTSCHUL. That one, the one you have in your hand.
Mr. PECORA. This?
Mr. ALTSCHUL. And then later amplified in the one that you
showed me.
The CHAIRMAN. At this meeting at which Mr. Brown and his
attorneys appeared before your committee, did they go into this
question at all, about the assets?

STOCK EXCHANGE PRACTICES

6199

Mr. ALTSCHUL. The meeting that we discussed a few minutes ago,
Senator?
The

CHAIRMAN.

Yes.

Mr. ALTSCHUL. NO, sir. I t had been represented to us that they
wanted to get the authorization to issue the stock actually to be
issued at the time of the disclosure, and that they did not want a
record of what it was that they were going to acquire to be made
public until they had completed their negotiations, and we accepted
that explanation.
The CHAIRMAN. DO you know that they ever made a registration
before the Federal Trade Commission?
Mr. ALTSOHUL. I am not—except I heard something about it today which I did not understand very well—but I am not informed
as to what steps they took in regard to registration.
Mr. PECORA. The subsequent information that you got does not
refer in any way to the acquisition of any distillery property in Kentucky, does it?
Mr. ALTSCHUL. AS I remember it, it does not. Mr. Pecora, your
point apparently is that the subsequent information is inconsistent
with Mr. Tirrell's comment.
Mr. PECORA. Yes, sir.
Mr. ALTSCHUL. NO question

about that. I agree. My point is
that the subsequent information is not inconsistent with the authority and purpose of the issue which we actually acted on.
Mr. PECORA. But Mr. Tirrell's comment was with reference to the
purpose of an issue set forth in the company's application to the
stock exchange?
Mr. ALTSCHUL. That is quite right.
Mr. PECORA. Had you any reason to doubt, from Mr. Tirrell's comment to your committee, that he was told by the officers and directors
of the American Commercial Alcohol Corporation that the specific
purpose of the issue was to enable that corporation to acquire a
distillery property in Kentucky.
Mr. ALTSCHUL. NO reason to doubt it at all, but we did not limit
the authority of the listing to that specific purpose.
Mr. PECORA. All right; when you got the ^subsequent information
in the month of December 1933, you yourself have noted that it was
inconsistent with the information given to your committee by its
examiner, Mr. Tirrell, and which in turn was based upon information he obtained from the corporation?
Mr. ALTSCHUL. That is correct.
Mr. PECORA. Did your committee, in view of that inconsistency,
make any inquiry into the real purpose of the proposed issue?
Mr. ALTSCHUL. I t did not. The information was consistent, as
we saw it, with the authority and purpose for issue as contained in
the listing application, which I have tried to point out was the
document which we considered governed it.
Mr. PECORA. And as I again want to remind you, according to
your own testimony it was inconsistent
Mr. ALTSCHUL. NO doubt about that.
Mr. PECORA (continuing). With the purpose stated to Mr. Tirrell,
as an examiner of your committee, by the officers of the corporation,
and conveyed by him to your committee?
175541—34—PT 14

6200

STOCK EXCHANGE PRACTICES

Mr. ALTSCHUL. Correct.
Mr. PECORA. Wasn't that a circumstance that, frankly, should have
put the committee on inquiry with regard to the real purpose of this
issue?
Mr. ALTSCHUL. I am afraid that must be a matter of opinion. I
would not think so, Mr. Pecora. We did not know precisely what
this was being done for. We did not know—all we knew was
definitely and precisely what the authority and the purpose of the
issue was that we had authorized, as is outlined in very broad terms
m the listing application.
Mr. PECORA. On December 7, 1933, there came before your committee this supplemental statement from the American Commercial
Alcohol Corporation dated November 23, 1933, which merely states
with regard to the specific purpose of the issue as follows:
Since the date of said application arrangements have been made for the
issuance of 10,000 of said 25,000 additional shares to Mr. Knox B Phagan in
exchange for the entire capital stock, being 10,000 shares of common stock
without par value, of the American Distilling Co, a Maryland corporation

Did your committee ever make any inquiry into the American
Distilling Co.?
Mr. ALTSCHUL. My recollection is that in one of these papers you
will find a note of one of our staff asking for the balance sheet and
the income account.
Mr. PECORA. All right now; you got that balance sheet embodied
an the supplemental printed statement
Mr. ALTSCHUL. That is right.
Mr. PECORA (continuing). Also dated November 23, 1933, a copy
of which has been received in evidence here as committee exhibit 63 ?
Mr. ALTSCHUL. That is quite right, sir.
Mr. PECORA. Which you have seen ?
Mr. ALTSCHUL. Yes,
Mr. PECORA. When

sir.

you got that balance sheet and that supplemental statement was any inquiry made as to the assets of the
American Distilling Co. ?
Mr. ALTSCHUL. NO, sir.

Mr. PECORA. None at all?
Mr. ALTSCHUL. NO, sir.
Mr. PECORA Despite the

fact that among the assets was a note
receivable amounting to $465,000; is that right?
Mr. ALTSCHUL. That is right. This, Mr. Pecora
Mr. PECORA. Yes?
Mr. ALTSCHUL. This application was for listing of additional
stock. I don't know whether you want me to go into that again in
regard to our procedure, but in connection with the application for a
listing of additional stock we first have before us the fact that the
stock of the company has been listed in the first instance and at that
time supposedly an investigation of it has been made. The shareholders in the company have by that time taken on the status of
owners of shares listed on the exchange, and this materially affects
their rights.
Now, then, a company comes along in that situation and applies
for the authority to add additional stock to the list. The application
is made pursuant to authority granted by the board of directors

STOCK EXCHANGE PBACTICES

6201

under powers that are given them apparently by the laws of the
State in which they are incorporated. We get the opinion of responsible counsel, who are familiar with the whole question*
Mr. PBCORA. But that opinion in this particular case said that the
stock would be valid in the absence of fraud ?
Mr. ALTSCHUL. That is correct.
Mr. PECORA. In the application?
Mr. AiiTSCHUL. I am just outlining the steps of our procedure for
the moment.
We have a statement of the purposes of the issue, and we take at
that time such steps as seem to be requisite to bring the financial
statements of the applicant company itself, not necessarily the company that it is acquiring, but the applicant company itself, down to
date, and also we take the steps that we can to bring the applicant
company into accordance with any new agreements that the exchange
may have drawn up since the time of an earlier application. And
when we have done that we act on the application on the basis of
that information.
The CHAIRMAN. Was there anything ever done under this application for 10,000 shares? Was anything ever done under that?
Mr. ALTSCHTJL. I beg your pardon, Senator?
The CHAIRMAN. Was anything ever done to that application?
Mr. ALTSCHUL. TO this application?
The CHAIRMAN.
Mr. ALTSCHUL.

Yes.

This application went to the governing committee
on December 19 for their information. Does that answer your
question ?
The CHAIRMAN. IS that all?
Mr. ALTSCHUL. Yes, sir. You understand the shares under this
have never been issued in this case.
Mr. PECORA. I t is no fault of the stock exchange that the shares
have never been issued. The stock exchange paved the way for its
issuance, didn't it, by its action approving the listing?
Mr. ALTSCHUL. The stock exchange authorized the listing.
Mr. PECORA. YOU said last week m passing upon the pro forma
balance sheet that was discussed in the course of your testimony in
connection with the Noxon, Inc., that if your committee had had
pro forma balance sheet before it, its attention would have been
excited.
Mr. ALTSCHUL. That is correct.
Mr. PECORA. By an item of notes receivable, $270,000. Do you
say the same thing with regard to this balance sheet?
Mr. ALTSCHUL. NO, sir.
Mr. PECORA. What is the difference between
Mr. ALTSCHUL. I said before the committee

them ?
last week, if I remember correctly, that the notes receivable, the large item for patents,
promotion, and so forth, whatever it was, and the whole general
aspect of the balance sheet, would have aroused our attention. I
don't remember my exact words. Maybe you have them before you.
In this case there was a balance sheet presented which showed a
2 for 1 liquid position. It was supported by an income account thai
showed some earnings, and the whole thing could reasonably have
made the impression of just a small independent company It

6202

STOCK EXCHANGE PRACTICES

would not have excited my attention, at any events, to anything like
the extent that the other one would.
Mr. PECORA. YOU gave full faith and credit to the balance sheet,
didn't you ?
Mr. ALTSCHUL. We did not go beyond it; no, sir.
Mr. PECORA. Did not go beyond it. You produced here committee exhibit no. 66, which is resolution adopted by the board of
directors of the American Commercial Alcohol Corporation on
August 8, 1933, as certified to by Mr. Page, as secretary of that
corporation, and that resolution sets forth, does it not, that the
assets of the spirits corporation were worth not less than $465,000,
which corresponds exactly with the item of notes receivable shown
m the balance sheet of the supplemental statement submitted to your
committee last December?
Mr. ALTSCHUL. That is correct.
Mr. PECORA. Wouldn't that have excited your suspicion that the
situation was one that required further inquiry by your committee?
Mr. ALTSCHUL. It did not.
Mr. PECORA. Under similar

circumstances do you think jour committee would act in exactly the same way as it did on this application?
Mr. ALTSCHUL. Well, now, that is a hypothetical question that is
very difficult for me to answer.
Mr. PECORA. YOU are the chairman of the stock list committee
and supposedly more or less familiar with the policy of the committee in passing on these applications. If a similar situation were
to present itself to your company is it fair to say that it would take
the same action?
Mr. ALTSCHUL. If the committee had before it nothing that drew
to its attention anything suggestive of bad faith or impropriety,
I think they would take the same action.
Mr. PECORA. The committee then, without inquiring as to whether
or not any bad faith was being exercised in connection with the
making of an application, assumed and took it for granted that
there was no bad faith and hence made no inquiry; isn't that so?
Mr. ALTSCHUL. TO answer your question directly first; yes, sir.
In the absence of bad faith, the committee would not go beyond—
did not attempt to substitute its judgment for the judgment of
boards of directors who have, after all, been elected by the stockholders to look after their interests. If a board of directors decides to acquire some properties, they come and submit to us the
relevant information, and we try to have the informattion set forth
on which the board of directors acted, which they give us, so that
the stockholders and the public can see it. But we do not attempt
to go behind the action of the board of directors in the absence of
bad faith and substitute our judgment in a lot of business matters
or the judgment of others that are supposed to exercise their judgment.
Mr. PECORA. HOW would you expect to see any evidence of bad
faith in view of the fact that the committee makes no inquiry?
Mr. ALTSCHUL. Well, we examine the facts that are presented to
us. We make no inquiry.

STOCK EXCHANGE PBACTICES

6203

Mr. PECORA. And if the facts are set forth in clear enough fashion
as to indicate no bad faith, the committee makes no inquiry and
acts upon the representations placed before it?
Mr. ALTSCHUL. AS I understand, you are limiting your question
to the matters that we are discussing. You are limiting your *ques
tion to what we have done in connection with an application
Mr. PECORA. In connection with an application for listing of
additional stock.
Mr. ALTSCHUL. In connection with an application for listing additional stock. At the time of the initial listing, you understand,
sir, the company has entered into an agreement with us that they
will apply to us for the listing of additional stock to be issued for
any corporate purpose whatsoever. Under that agreement they cannot get this stock issued unless they come and apply to us and unless
the listing application is granted.
When we get these listing applications for additional stock, we, in
the absence of anything that puts us on notice or suggests to us
that there might be something more that we ought to look into further, we do not attempt to go behind the situation to find out whether
the board of directors who presented this application are facing us
with the facts or facing us or acting in good faith, or whether the
facts that are disclosed are in accordance with what the board of
directors say they are. We assume that the board of directors are
coming to us using their own judgment and exercising their own
authority in accordance with the laws of the State in which they
are incorporated, and present us with a picture of the situation as
it really is.
Mr. PECORA. Then, if a corporation, the stock of which has already
been listed on the exchange, desires an additional listing and states to
your committee in proper form and in good verbiage and accompanied by an opinion of counsel that everything is valid, and states
that the proposed additional issue for which listing is sought is to
be made to enable the corporation to acquire the assets of the capital
stock of another corporation, and sets forth the assets of that other
corporation are worth, we will say, $10,000,000, 40 percent of which
is represented by notes receivable, your committee would make no
inquiry into the value of those assets or for the purpose of determining whether or not the corporation is receiving full value for its
proposed additional stock?
Mr. ALTSCHUL. The mere fact of 40 percent of the assets being
represented by notes receivable would cause us, in itself, no alarm,
because, after all, 40 percent of the assets of many companies are
represented by notes receivable.
Mr. PECORA. But you would not inquire as to the nature of the
assets or the value of them in any way, shape, or form, if everything
on the surface is regular ?
Mr. ALTSCHUL. If everything on the surface in connection with
the additional listing of stock appears to be in accordance with the
discretion and the reasonable authority of the board of directors, we
will not go into that further. That is not our practice.
Mr. PECORA. YOU would not?
Mr. ALTSCHUL. NO, sir.
Mr. PECORA. DO you approve

that policy ?

6204

STOCK EXCHANGE PBACTICES

Mr. ALTSCHUL. Now
Mr. PECORA. What is

that?
Mr. AiiTSCHUL. We learn all the time, the committee on stock
list, s#ir.
Mr. PECORA. DO you now approve that policy ?
Mr. AiiTSCHuii. I would like to think about the things, because
there are many implications in that question. The policy, after all,
is based upon, and has always been based upon, what seems to me a
reasonable ground, and what still seems to me a reasonable ground,
and that is that the stock exchange is not undertaking to police the
management of corporations and is not undertaking to run corporations. That is the Junction
Mr. PECORA (interposing). Would the stock exchange be undertaking the policing and the running of a corporation making an
application to list additional shares which it states it is going to
issue to acquire other properties, if the stock exchange limited itself to an inquiry into the value of those other properties, so as to
give an assurance to the investing public when it approves such an
application that at least in the opinion of the stock exchange, after
proper investigation by it, the issue is properly being made?
Mr. ALTSCHmL. Well, the answer to that question I haven't any
doubt at all. I don't think the stock exchange could conceivably
reach a judgment as to the value of these properties. They never
try to reach a judgment as to the value of properties. If boards of
directors in a thousand different industries, or in any one of a thousand different industries, knowing the status and the circumstances
of their own industry, favor a purchase of assets in their own particular industry, we would not attempt to set our judgment of the
value of what they are buying over against the judgment of their
board of directors. Now, that has been the consistent policy of the
exchange, and if you ask whether I approve of it, I think any other
policy would be impossible of performance.
We try and get the facts set forth, but we cannot judge of the
values or this stock; we cannot say whether we think a deal is a
fair deal for the corporation to have made. After all, that is the
responsibility of the directors, to decide whether a deal is a fair deal.
Our responsibility has always seemed to us to be limited to seeing
that the facts with which we are dealing are fairly set forth in the
application.
The CHAIRMAN. Have you any jurisdiction to inquire into the
good faith of the applicant?
Mr. ALTSCHUL. Well, I don't know as to the jurisdiction, sir. If
we had any reason to question the good faith of the applicant,
we
The CHAIRMAN. DO you go into the question of good faith ?
Mr. ALTSCHUL. Only if there is something before us that arouses
our suspicion with regard to it. We generally approach applicants
on the broad theory that they are acting in good faith, and particularly when their actions are supported by opinion of reputable
counsel who, as I say, are familiar with the application. Now that
has always been our practice.
Mr. PECORA. In other words, you treat the applications with the
presumption that they are made in good faith?

STOCK EXCHANGE PRACTICES

6205

Mr. ALTSCHUL. We certainly do.
Mr. PECORA. And unless something special is brought to your
notice
Mr. ALTSCHUL (interposing). Either on the face of the application or otherwise.
Mr. PECORA. Or that appears on the face of the application, that
impeaches that good faith
Mr. ALTSCHUL. That is correct.
Mr. PECORA. Your committee would make no inquiry into the good
faith?
Mr. ALTSCHUL. Would make no inquiry into the good faith or the
business judgment of the boards of directors of the applicant
companies.
Mr. PECORA. And if your committee received an application for
an additional listing which set forth that the purpose of the issue
of the additional shares was to acquire the property of another
corporation, worth we will say 5 million dollars, or 1 million
dollars
Mr. ALTSCHUL. Yes,

sir.

Mr. PECORA. One million dollars—your committee would make no
effort to determine whether or not the corporation was issuing that
stock for good and sufficient value, would it?
Mr. ALTSCHUL. In the absence of anything to suggest bad faith,
we would consider that that was a determination that was up to the
boards of directors of the applicant companies and that any controversy about that was a controversy, if it arose, that arose between
the shareholders and their management.
Mr. PECORA. And then with that action taken by your committee,
the corporation would be free to advertise to the world that it had
obtained the approval of the New York Stock Exchange to the
listing of these additional shares issued for what it would represent
to the world as good and sufficient and full value ?
Mr. ALTSCHUL. They would undoubtedly state that the shares had
been listed. I dont5 know whether that is what you mean by advertise to the world or not. They undoubtedly would be free to say
that the shares had been listed on the New York Stock Exchange.
Mr. PECORA. And that the New York Stock Exchange, in giving
the privilege of listing, had been told that the shares were to be
issued for the acquisition of property worth a specified sum?
Mr. ALTSCHUL. The public could see from the listing application
all the information that we have before us.
Mr. PECORA. Has any action been taken within recent dates upon
this application or with respect to this application by youi
committee?
Mr. ALTSCHUL. We have been too much occupied with affairs here,
but undoubtedly the information that has been drawn out at this
hearing—and I have not seen the full record of the testimony, but
we want to have a chance to go over it very carefully—is such
as to make it perfectly clear that we should carry on an independent
investigation to determine just what did happen and what bearing
that has on the documents which were submitted to us and what our
action should be under all the circumstances.
Mr. PECORA. And all of the information which has been developed
here could undoubtedly have been obtained by your examiners if an

6206

STOCK EXCHANGE PRACTICES

inquiry had been made into all the facts involved in this transaction,
could it not?
Mr. ALTSCHUL. That is a question I cannot answer. It depends
on so many things. You know we haven't witnesses appearing under
oath. I don't know what that examination would develop, and I do
not believe I could answer that question.
Mr. PECORA. Well, the fact that you could not have witnesses appear under oath is a circumstance that would militate against the
effectiveness of an inquiry by your committee, isn't it?
Mr. ALTSCHUL. I would not be prepared to say that.
Mr. PECORA. What is that?
Mr. ALTSCHUL. I would not be prepared to say that.
Mr. PECORA. YOU just remarked yourself that the committee had
no power to get statements under oath.
Mr. ALTSCHUL. I just remarked that I could not answer your
question as to whether an investigation of ours would draw out the
same results. If our suspicions had been aroused in this situation
and we had made an examination, we might have found what you
found so skilfully after a great deal of effort down here. I don't
know.
Mr. PECORA. I might remark, Mr. Chairman, that under the bill
pending in Congress for the regulation of stock exchanges, inquiry
under oath can be made and punishment meted out to persons who
violate their oath, and also to those who make false representations
of any kind in connection either with the listing of the security or
the marketing of it.
The CHAIRMAN. That would seem to be an important provision.
Mr. PECORA. I think that is all. Will you remain this afternoon?
I want to question you about another matter.
Mr. ALTSCHUL. xes, sir; what time do you want me here, Mr.
Pecora?
The CHAIRMAN. We will take a recess now until a quarter after 2.
(Accordingly, at 1:12 p.m., a recess was taken until 2:15 p.m. of
the same day.)
AFTERNOON SESSION

The committee resumed at 2:15 p.m. on the expiration of the
recess.
The CHAIRMAN. The committee will come to order. Who will you
have now, Mr. Pecora ?
Mr. PECORA. Mr. Brown will please resume the stand.
TESTIMONY OP RTJSSEIL R. BROWN—Resumed
Mr. PECORA. Mr. Brown, do you recall that a special meeting of
the stockholders of the American Commercial Alcohol Corporation
was held on July 21, 1933?
Mr. BROWN. Y es.

Mr. PECORA. What was the particular necessity or occasion for
that special meeting ?
Mr. BROWN. I think it was the increase of the stock at that time.
Mr. PECORA. And a printed notice of that special meeting was
sent to stockholders by the corporation, was it not?

STOCK EXCHANGE PRACTICES

6207

Mr. BROWN. Yes, sir.
Mr. PECORA. And the

printed notice, with a form of proxy attached thereto, appears in the minute book of the board of directors
of the corporation, heretofore marked as " Committee Exhibit No.
14 " for identification. I t appears at the place where I now show
you, does it not?
Mr. BROWN (looking at the minute book). Yes, sir.
Mr. PECORA. I want to read into the record the notice of the special
meeting of stockholders identified by the witness, and the form of
proxy attached thereto:
American Commercial Alcohol Corporation.
Notice of special meeting of stockholders
Notice is hereby given that a special meeting of stockholders of the American
Commercial Alcohol Corporation, organized under the laws of Maryland, will
be held at the office of said corporation, Room No 1628, Baltimore Trust Building, No 10 Light Street, Baltimore, Maryland, on July 21, 1933, at 12 o'clock
noon Eastern Standard Time, to consider) and act upon certain resolutions
which will be presented at said meeting in respect of the following matters*
1 To amend the certificates of incorporation as amended, by increasing the
number of shares of common stock, of the par value of $20 a share of said
corporation, from 375,000 to 500,000, as set forth in certain resolutions of the
Board of Directors declaring such amendment advisable, passed at such meeting
of said Board duly called therefor on June 30, 1933
2 To amend the by-laws in the following respects:
(a) To enable meetings of stockholders of the Corporation, if desired, to be
held without the State of Maryland as permitted by a recent amendment of
the general corporation law of the State of Maryland
(b) Specifically to empower the directors at such meetings to transact any
business without special notice.
(c) To permit directors absent from any meeting to vote for and record
their approval in the matter of any action taken thereat.
(d) To permit the Executive Committee of the Board of Directors of the
Corporation to appoint members of the Board of Directors to act in the place
of members of the Executive Committee temporarily absent
3 To approve, ratify, confirm and adopt any and all acts, transactions, and
proceedings theietofore taken or authorized by the Board of Directors, Executive Committee, and officers of the Corporation or ratified thereby, whether
pursuant to previous authorization of the stockholders or otheiwise, including
without m any way limiting generally the same, and the foregoing issuance
of common stock of the Corporation in the acquisition of the stock of other
corporations as subsidiaries, whether wholly owned or otherwise
4 To consider and act upon such other business as may be properly brought
before the meeting
The stock transfer books of the Corporation will not be closed
Only stockholders of record on July 10, 1933, at 3 pm Eastern Daylight
Saving Time, will be entitled to vote at said meeting
You are cordially invited to be present at said meeting, but if you are unable to do so you are requested to sign, detach and return the attached proxy
in the enclosed envelope Your name should be signed exactly as it appears
on your stock certificate.
If you should attend the meeting your proxy will be returned to you at that
time
By order of the Board of Directors:
NEW YORK, N.Y, July 10, 1933.

CECIL PAGE, Secretary

And the proxy form attached to this notice of special meeting
reads as follows:
Proxy
American Commercial Alcohol Corporation.
Special meeting of stockholders
Know all men by these presents: That the undersigned stockholder of the
American Commercial Alcohol Corporation, a Maryland corporation, has made,

6208

STOCK EXCHANGE PRACTICES

constituted and appointed, and does hereby make, constitute and appoint Russell R. Brown, Richard H. Grimm, William S Kies, and Philip Publicker, or
any one or more of them, with full power of substitution, the true and lawful
attorneys in fact and proxies of the undersigned at the special meeting of stockholders to be held July 21, 1933, at the office of the Corporation, Room 1628
Baltimore Trust Building, No. 10 Light Street, Baltimore, Maryland, or at
any adjournment or adjournments of said meeting, and at any such meeting or
meetings to vote the shares of stock of said Corporation owned and held by the
undersigned, in favor of the proposed amendments of the charter anfl the
certificate of incorporation and by-laws of the Corporation; and the ratification
of the proceedings of the Board of Directors, Executive Committee, and officers
of the Corporation, all as set forth in the notice of said special meeting, dated
July 10, 1933, a copy of which the undersigned has received; and upon any
and all other matters which may come before said meeting, pursuant to said
notice, and to do any and all acts and things which the undersigned might
or could do if personally present, hereby ratifying and confirming all that said
attorneys and proxies of the undersigned, or either of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
A majority of said attorneys and proxies shall be present and act at such
meeting, or if only one shall be present and act, then he may have and exercise
all powers hereunder
In witness whereof the undersigned this — day of July, 1933

And then there is a space for the signature of the stockholder,
and space for the signature of a witness.
Now, Mr. Brown, who appointed the four men who were named
as proxies or attorneys for the stockholders in this form of proxy?
Mr. BROWN. I assume they were appointed at the board meeting.
Mr. PECORA. They were appointed at the board meeting by
whom?
Mr. BROWN. By me, I imagine.
Mr. PECORA. YOU say by you?
Mr. BROWN. Yes, sir.
Mr. PECORA. The board

meeting to which you refer and as to
which said appointments were made, was the board meeting held
on June 30, 1933, was it not?
Mr. BROWN. I think that is correct; yes sir.
Mr. PECORA. And was this form of notice of this special meeting
of stockholders that I have read into the record, together with the
form of proxy attached, presented and approved at that board
meeting?
Mr. BROWN. I should assume so; yes, sir.
Mr. PECORA. A S bearing on that let me read from the minutes
of the board meeting held on June 30, 1933, the following extract:
Form of notice of meeting of stockholders to be held July 21, 1933, as aforesaid, with said form of proxy attached thereto, was presented and approved,
and a copy of said notice anfl proxy, marked " Exhibit A" are attached to the
minutes.
The secretary was directed to notify the New York Stock Exchange of a
proposed meeting, and the record date of stockholders entitled to vote thereat
in accordance with this corporation's agreement with said exchange
Enclosed is a copy of notice of meeting above referred to.

Do you recall that action?
Mr. BROWN. Yes, sir.
Mr. PECORA. Let me read

further what is inserted in the minutes
of the meeting of your board held on June 30, last, as follows:
In accordance with the authority conferred by the board of directors of the
American Commercial Alcohol Corporation at a meeting held June 30, 1933, I
hereby appoint Russell R Brown, Richard H Grimm, W S Kies, and Philip

STOCK EXCHANGE PRACTICES

6209

Publicker as proxies and attorneys in fact, to receive proxies from the stockholders, and to act on their behalf and on behalf of the corporation, at the
special meeting of stockholders to be held on July 21, 1933

And this is signed Kussell E. Brown, chairman of the board. Is
the signature reading " Kussell R. Brown " in your handwriting, Mr.
Brown?
Mr. BROWN (after looking at the paper). Yes, sir.
Mr. PECORA. NOW, I show you, or rather I first ask you, if this
printed notice of the special meeting of stockholders was in due
course sent to all stockholders of record?
Mr. BROWN. I assume so; yes, sir.
Mr. PECORA. With the attached form of proxy ?
Mr. BROWN. I assume so; yes, sir.
Mr. PECORA. Did you attnd this special meeting of stockholders
on July 21, last?
Mr. BROWN. I do not think so; no, sir.
Mr. PECORA. DO you know who did attend it?
Mr. BROWN. I think Mr. Page did.
Mr. PECORA. What was that?
Mr. BROWN. I say, I think Mr. Cecil Page attended.
Mr. PECORA. Mr. Page was not one of the proxies or attorneys m
fact named m the proxies, was he ?
Mr. BROWN. But as I understand, the proxy provides for a substitute.
Mr. PECORA. Yes; the form of proxy provides " with full power of
substitution."
Mr. BROWN. Yes, sir.
Mr. PECORA. Was such

substitution given by all four of the proxies
and attorneys in fact named m the form of proxy ?
Mr. BROWN. If I remember correctly, yes, sir.
Mr. PECORA. SO that Mr. Page was the one who acted under whatever proxies were sent by stockholders of your corporation, to
represent them at this special meeting held on July 21 last?
Mr. BROWN. I think that is correct
Mr. PECORA. DO you know how many stockholders were actually
present in person at that meeting?
Mr. BROWN. NO, sir.
Mr. PECORA. Have you ever learned?
Mr. BROWN. I do not remember; no, sir.
Mr. PECORA. Well, from your experience

with the stockholders of
your corporation, and of other corporations for that matter, would
it indicate that only a very few did attend ?
Mr. BROWN. That is right.
Mr. PECORA. According to the minute book of your corporation
which I have before me, the special meeting of stockholders of your
corporation, called originally for July 21, was adjourned to August
1, at which time it was held in the office of the corporation in the
Baltimore Trust Building, in Baltimore, Md. Do you recall that?
Mr. BROWN. Yes, sir.
Mr. PECORA. And I have

before me the minutes of that special
meeting of holders of stock of your corporation, on August 1, 1933,
those minutes being embodied in the minute book of the board of
directors of your corporation, which has been marked " Committee

6210

STOCK EXCHANGE PRACTICES

Exhibit No. 14 " for identification. And I will read the following
extract from the minutes of that special meeting:
The judges thereupon verified the stock holders present in person, and inspected said certified list of stockholders, and of said proxies, and ascertained
and reported to the meeting that there were present in person and by proxy
stockholders entitled to vote at the meeting, as follows:
Present in person: None.
Present by proxy: 179,614 shares.
Total shares present m person and by proxy: 179,614.
Out of a total number of 260,512 shares of common stock of the corporation
outstanding and entitled to vote, being the only issue of outstanding stock of
the corporation.
It appearing that there were present in person and by proxy a majority of
the stock outstanding entitled to vote, the chairman declared the meeting open
for the transaction of business

Now, I also want to read the following recital of attendance from
the minutes of this special meeting of stockholders of August 1,1933:
In the absence of the president and of the vice presidents of the Corporation,
McKenney W. Bdgerton, Esq., called the meeting to order, and! was unanimously elected chairman of the meeting
Mr. Cecil Page, secretary of the Corporation, acted as secretary of the
meeting
Dorothy M Gaston and Joseph T. Van Pelt were unanimously appointed
judges by the affirmative vote of the stockholders present and represented at
the meeting, and they being present were duly sworn to faithfully perform
their duties, and so forth.

Now, it would appear from those minutes that the only persons
attending the meeting were Mr. Page, who held the proxies of the
owners of 179,614 shares of the corporation.
Mr. BROWN. That is correct.
Mr. PECORA. There were no stockholders present in person.
Mr. BROWN. NO, sir.

Mr. PECORA. Who is Mr. McKenney W. Edgerton, who presided
at this meeting ?
Mr. BROWN. I imagine they are employees of the Trust Co. in
Baltimore, in whose office the meeting was held.
Mr. PECORA. Who were Dorothy M. Gaston and Joseph T. Van
Pelt?
Mr. BROWN. They were also employees, I should think.
Mr. PECORA. SO that virtually the organization at this stockholders'
meeting—that is, the officers of the meeting—were dummies consisting of employees of the Trust Co. in Baltimore, Md. ?
Mr. BROWN. I think the Corporation Trust Co. is the statutory
agent or something in Maryland, but I am not sure.
Mr. PECORA. They are not employees of the American Commercial
Alcohol Corporation, are they?
Mr. BROWN. NO, sir; in no way connected with it.
Mr. PECORA. Nor are they stockholders of the American Commercial Alcohol Corporation ?
Mr. BROWN. Not that I know of; no, sir.
Mr. PECORA. NOW, Mr. Brown, I want to read further to you the
following extract from the minutes of this special meeting of stockholders held on August 1, last;
The stockholders having examined the minute books heretofore read to the
meeting and presented for their inspection, upon motion duly made and
seconded a vote by ballot was taken on the following resolutions

STOCK EXCHANGE PRACTICES

6211

Resolved that minutes of meetings of the Executive Committee of the Board
of Directors of this Corporation held on April 12th and 26th, May 10th, 17th,
24th and 31st, June 7th, 14th, 21st, and 28th, July 5th, 14th and 19th, 1983,
and the minutes of meetings of the Board of Directors of this Corporation held
April 27th, May 2nd, May 4th, May 25th, May 31st, June 15th, June 29th, and
June 30th, 1933, in the form presented to this meeting, be and the same hereby
are in all respects approved, ratified, confirmed and adopted
Resolved that any and all acts, transactions, and proceedings taken or authorized by the Board of Directors, Executive Committee, and officers of the
Coiporation, or ratified thereby, were, pursuant to previous authorization by
the stockholders of the Corporation, or otherwise, as set forth in the minute
books, presented to the meeting, including without in any way limiting the
foregoing issuance of common stock of the Corporation m the acquisition of
the stock of other corporations as subsidiaries, whether wholly owned or otherwise, hereby are m all respects approved, ratified, confirmed and adopted.

Were you in due course advised of the adoption of these resolutions at this special meeting of stockholders of August 1 last 2
Mr. BROWN. Yes, sir.
Mr PECORA. NOW, as

a matter of fact, didn't the situation presented by these minutes, or disclosed by them, reveal that at this
special meeting of stockholders of your corporation, the meeting
virtually consisted of M^r. Cecil Page, one of the members of the
board of directors of the corporation, and an attorney, and its
secretary ?
Mr. BROWN. That is correct, representing the proxies.
Mr. PECORA. He represented the proxies?
Mr. BROWN. That is correct.
Mr. PECORA. And as the representative of the proxies to the number of 179,000-odd shares of stock, he unanimously voted for this
resolution?
Mr. BROWN. That is correct; yes, sir.
Mr. PECORA. And this resolution is a blanket ratification of all the
acts of the officers, the board of directors, members of the executive
committee of the board of directors, of the corporation, is it not ?
Mr. BROWN. That is correct. The intention of the meeting, however, was to provide for the increase in the authorized capital stock,
because at that time, as you will perhaps remember, there were all
sorts of things in the air, so to speak, involving the acquisition of
additional properties.
Mr. PECORA. Aren't you overlooking another important intention
or purpose of the meeting, namely, to ratify the acts of the officers,
directors, and members of the executive committee of the board?
Mr. BROWN. N O ; all of the matter prepared in connection with
that meeting, and so forth, were prepared by counsel.
Mr. PECORA. It was one purpose of this special meeting also,
wasn't it, to have the stockholders ratify all the acts of the officers^
directors, and members of the executive committee of the board of
directors of the corporation?
Mr. BROWN. Yes; and I think that is usual at these meetings.
Mr. PECORA. NOW, the specific acts of the officers and directors
and the executive committee of the board, the ratification of which
was sought from the stockholders at this special meeting, had to do,
among other things, with those corporate acts that you testified to
before this committee last week and this morning with respect to
Maister Laboratories, Inc., and Noxon, Inc., were they not?
Mr. BROWN. Yes,

sir.

6212

STOCK EXCHANGE PRACTICES

Mr. PECORA. NOW, in the notice that was sent to stockholders in the
form authorized by the board of directors of your corporation at this
meeting of June 30 last, I notice there is no statement or information
conveyed to stockholders as to what those acts were that were to be
ratified at this special meeting of stockholders.
Mr. BROWN. Well, I should assume that the stockholders were
notified. I haven't the records that you have there, and I don't know
what letters or anything else might have been sent out on that
matter.
Mr. PECORA. Are you advancing that statement seriously as a suggestion that possibly they were notified of the nature of those acts by
letter or otherwise?
Mr. BROWN. N O ; but as I say, all those things are handled by
counsel, and I assume they were taken care of properly.
Mr. PECORA. Whether they are handled by counsel or not, the effectuation of these things is by the formal act of the board of directors of the corporation.
Mr. BROWN. That is right.
Mr. PECORA. And you were the chairman of the board.
Mr. BROWN. That is correct.
Mr. PECORA. YOU are not professing ignorance of the kind of notice that was sent to stockholders for this special meeting, are you ?
Mr. BROWN. NO, sir.
Mr. PECORA. I show

you the insertion of a printed letter in the
minute book of the board of directors of your corporation, which
is addressed to stockholders, and bears date July 10,1933, signed by
Richard H. Grimm as president of the corporation and by yourself
as chairman of the board. Will you look at it and tell me ii that is
a copy of a printed letter sent to stockholders in connection with or
at the same time as the printed notice for the special meeting called
originally for July 21 last.
Mr. BROWN (after looking at the paper). Yes, sir.
Mr. PECORA. NOW, do you know of any other information that
was ever given or conveyed to your stockholders by the corporation,
or by anyone in behalf of the corporation, with regard to the
matters set forth in this letter of July 10,1933 ?
Mr. BROWN. NO, sir.
Mr. PECORA. I mean

the one that you have just identified, and I
mean other than that which is contained in this letter.
Mr. BROWN. NO, sir.
Mr. PECORA. SO it is

safe to say that the only information the
stockholders generally were given by the officers and directors of
the company with regard to certain of the acts which the board
desired to have the stockholders approve was that contained in
this letter?
Mr. BROWN. I think that is correct.
Mr. PECORA. I will read the letter into the record. I t is a printed
form letter.
AMERICAN COMMERCIAL ALCOHOL CORPORATION,

NEW YORK, NY., July 10, 1988.

To the Stockholders:
Since the annual meeting of your company held m April, business conditions
have been moving with unanticipated rapidity, making it desirable to bring
stockholders' information to date by this general letter

STOCK EXCHANGE PRACTICES

6213

We are seriously considering the production of medicinal and other spirituous liquors in the near future as permitted by existing laws, and the anticipated early repeal of the eighteenth amendment, and we are led to believe we
should take steps now to supply what will undoubtedly be a tremendous demand
for whisky and for high-grade cologne spirits which are used in rectifying
whiskies
Your plant at Pekm, 111, formerly used entirely for whisky and cologne
spirits, is in good condition and leady to resume immediately the manufacture
of such liquors, in order to be in position to meet the expected demand, your
officers and directors feel that the authorized common stock should be increased
to 500,000 shares.
While this stock would be available for any proper corporate purpose, it is
anticipated that it will be used, is deemed necessary or advisable, by your directors to acquire, by contract or purchase, other properties or stocks, or the
control or ownership of companies that would be helpful in enabling your
company to prepare itself completely to meet the expected requirements
Accordingly notice of a special stockholders' meeting to be held at Baltimore,
Md, July 21, 1933, is given, to increase the authorized common share capital
from 375,000 to 560,000 shares, and to make certain changes in the bylaws
as recommended by the board of directors, together with proxy to be signed
and returned by you, if you are unable to attend in person, are enclosed
The notice of meeting also refers to the acquisition of the stock of other
corporations as subsidiaries A substantial part of the problem of the management of your company lies in finding new uses or outlets for its production of alcohol and its by-products
For the purpose of increasing sales of alcohol your company has obtained
more than 65 percent of the stock of Noxon, I n c , which now has processes
and products which your board of directors believe of real value There
are also included the rights to new agricultural and horticultural plant sprays
which control or destroy a great number of plant insects without being poisonous
to human beings. Alcohol enters into the composition of these products, some
of them to the extent of 75 percent of their volume
With improvements of processes and products contemplated to be made by
the research laboratory of your company, and with the exclusive marketing
relations of your company over the country, it is expected that their sales and
the demand for them will be greatly increased
Maister Laboratories, I n c , a Maryland corporation, has also been acquired
as a wholly owned subsidiaiy That corporation is now the exclusive holder
of processes for the production of items particularly rich in vitamins
Each of the above companies has made a contract with your company under
which they will purchase from this corporation all their needed supplies of
materials for a period of years
By agreement of purchase made May 6, 1933, and May 8, 1933, respectively,
10,000 shares of the common stock of your company were issued in exchange
for 10,000 shares of the common stock of Maister Laboratories, I n c , the only
shares then issued of the 25,000 authorized shares, and 15,000 shares of your
company were issued for majority control and ownership of Noxon, I n c , your
company receiving in exchange 2,700 shares of the preferred stock of Noxon,
Inc, of the issue of 3,000 shares issued, and 3,900 of the 6,000 shares of common
stock as authorized
In view of the general banking situation, it was deemed important by your
officers and directors to improve your company's financial condition by increasing its common capital This was carried out by the approval of the stockholders which expired July 5, 1933
Your business is continuing in a satisfactory manner
Somewhat different merchandising plan has been pursued this, year as compared to 1932, with the result that antifreeze-alcohol sales have been postponed
until the latter part of this year rather than attempt to move this matenal m
the month of June as heretofore
It is hoped you will appear in person at the special meeting, or return your
proxy, so that action can be had with your consent.
Respectfully yours,

RICHARD H

GRIMM,
President
RUSSELL R BROWN,
Chairman of the "board

6214

STOCK EXCHANGE PRACTICES

Mr. Brown, this constitutes all the specific information given to
the stockholders ?
Mr. BROWN. Yes, sir.

Mr. PEOORA. Regarding those acts and transactions of the corporation?
Mr. BROWN. Yes, sir.
Mr. PECORA. There was

nothing told to the stockholders in this
letter, if you will notice, of that action taken by the board which
authorized the creation of an underwriting syndicate to underwrite
an issue of forty-and-odd thousand shares of capital common stock
of the company that were offered to stockholders and subscribed
for by the then-existing stockholders, was there?
Mr. BROWN. NO, sir.
Mr. PECORA. There was

nothing told to stockholders about the
secret interest that you and other officers and directors of the company had in that underwriting agreement, was there?
Mr. BROWN. NO, sir.

Mr. PECORA. There was nothing told to stockholders with regard
to the actual assets or the value of the assets of either Maister
Laboratories, Inc., or Noxon, Inc., was there?
Mr. BROWN. NO, sir.
Mr. PECORA. There was

nothing told to stockholders in any way,
shape, or form that notified or informed them that in the organization of Maister Laboratories, Inc., and Noxon, Inc., the American
Commercial Alcohol Corporation dealt with two dummies of your
selection, was there?
Mr. BROWN. NO, sir.

Mr. PECORA. And the stockholders were not in any way informed
of the fact of the giving of this option to Thomas E. Bragg of
25,000 shares of the capital common stock of the company at $18 a
share, were they ?
Mr. BROWN. NO, sir.
Mr. PECORA. Or the fact

that you and other officers and directors
of the company were secret participants with Bragg in the pool that
was organized to operate under that option ?
Mr. BROWN. NO, sir.

Mr. PECORA. And yet it was expected that those stockholders would
give their proxies to the very same officers and directors who were
associated with you in that underwriting agreement and in that
Bragg syndicate account?
Mr. BROWN. Yes,

sir.

Mr. PECORA. And vote approval of all the acts of those same officers
and directors?
Mr. BROWN. That is correct; yes, sir.
Mr. PECORA. DO you think that is a species of fair dealing with the
stockholders of the company, Mr. Brown?
Mr. BROWN. Well, I assume, if I had the thing to do over again
under the same conditions, I would probably do it. I think there is
a great deal to be
Mr. PECORA (interposing). You say you would probably do it
over again?
Mr. BROWN. I mean under the same conditions, where the company
needed financial assistance, as it did need it then. I think there was

STOCK EXCHANGE PBACTICES

6215

a great deal of merit to the consideration of other actions and other
conditions.
Mr. PECORA. Well, now, if you had the same thing to do over
again, you would do it in precisely the same way that those things
were done; is that what you say now ?
Mr. BROWN. NO. But if financial conditions, or the same conditions, existed, whereby this company was, as at that time, in bad
financial shape, we might have to go ahead and use unusual and
abnormal methods. But under ordinary conditions I should not do
that; no, sir.
Mr. PECORA. Well, why, when you sought approval subsequently
by the stockholders of the company of those acts and transactions,
didn't you give the stockholders full knowledge of what those acts
and transactions were, so that they might give their approval in an
intelligent manner, with full knowledge of the actual facts ?
Mr. BROWN. I assume that should be done.
Mr. PECORA. What did you say?
Mr. BROWN. I assume that should be done.
Mr. PECORA. YOU assumed that that was done?
Mr. BROWN. I say, I assume that should be done.
Mr. PECORA. Then why wasn't it done?
Mr. BROWN. I don't know.
Mr. PECORA. Who prepared that printed letter to stockholders I
last read into the record?
Mr. BROWN. I think Mr. Grimm and I did.
Mr. PECORA. Well, then, there was nothing to have prevented you
m the preparation of that letter from disclosing full information to
the stockholders.
Mr. BROWN. NO, sir.
Mr. PECORA. Well, did

you feel that it was necessary to have your
stockholders give their blanket approval to all those acts and transactions undertaken m behalf of the corporation by its officers and
directors?
Mr. BROWN. I assumed that all those documents having been prepared by counsel, in connection with proxies and all that stuff, that
they put it up in the usual form.
Mr. PECORA. Are you familiar with the provision of the pending
bill in Congress, which has been called the " Fletcher-Rayburn
bill," with respect to proxies of stockholders?
Mr. BROWN. NO, sir. I have been so busy I haven't had a chance
to read it. I am going to read it, though.
Mr. PECORA. Let me read the particular provision I have in mind
m this bill to you. It is section 13 of the bill, under the caption
" Proxies ", and reads as follows:
PROXIES

SEO. 13. (a) It shall be unlawful for any person by the use of the mails or
of any means or instrumentality of transportation or communication in interstate commerce or of any facility of any national securities exchange or otherwise to solicit or to permit the use of his name to solicit any proxy or consent
or authorization in respect of any security registered on any national securities exchange unless at such time prior to such solicitation as the Commission shall by rule or regulation prescribe the persons named to exercise
such proxy, consent, or authorization shall file with the Commission a statement, which shall be included as a part of every such solicitation, setting forth
175541—34—p

6216

STOCK EXCHANGE PRACTICED

the purposes of the proxy, consent, or authorization, the persons to exercise it,
their relations to and interest in the security, the names and addresses of the
persons from whom similar proxies, consents, or authorizations are being
solicited, and such further information, and m such form and detail as the
Commission may by rules and regulations prescribe in the public interest or
for the protection of investors.

Have you any comment to make about that provision ?
Mr. BROWN. NO. I should like to read it if you will permit me.
I could not follow you.
Mr. PECORA. All right. It is in that printed copy of the bill I
am now handing to you.
Mr. BROWN (after reading the section). No. In general it seems
all right to me, as long as you do not have to take all the minute
books, general ledgers, and everything to the stockholders.
Mr. PECORA. Well, if some such provision as this had been enacted
and was in force and effect at the time of the solicitation of these
proxies for your special meeting on July 21 last it is quite probable
that the stockholders would have obtained full information concerning the acts that were under consideration and that they were being
called upon to ratify by the giving of their proxies, I take it.
Mr. BROWN. That is correct.
Mr. PECORA. NOW, Mr. Brown, was any effort ever made to register
with the Federal Trade Commission under the provisions of the
Securities Act of 1933, the 25,000 shares of capital common stock of
your corporation to list which the company made application to the
New York Stock Exchange under date of July 19 last?
Mr. BROWN. I think the question was under discussion by counsel
with the Federal Trade Commission for some time. And I think
the opinion of counsel originally was that registration was not
necessary, but they were instructed to go ahead and find out just what
the requirements of the Commission were. That took a considerable
period of time. I think finally they gave an opinion that registration was not necessary, if my memory serves me.
Mr. PECORA. Don't you recall that I read into the record this
morning in connection with my examination of Mr. Frank Altschul,
the minutes of the proceedings of the hearing before the stock-list
committee of the New York Stock Exchange, which was attended
by you in behalf of your corporation, as well as by Mr. Egginton
and another gentleman acting as counsel for the corporation?
Mr. BROWN. Mr. Heiss.
Mr. PECORA. And don't you recall that at that hearing before the
stock-list committee both you and your counsel stated that in accordance with advice given to your corporation by your Washington
attorneys, this additional issue of stock would have to be registered
with the Federal Trade Commission, and that the corporation was
going to have appropriate action taken to that end?
Mr. BROWN. I remember something about it, but I think you are
wrong on that point of the opinion of the Washington attorneys,
although I may be wrong about it. But I think Larkin, Kathbone
& Perry took that matter up with the Federal Trade Commission
themselves. It seems to be that Mr Egginton expressed the opinion
that registration was not necessary.
Mr. PECORA. Yes; but he also stated to the stock-list committee at
that hearing on July 24, last, that although it was his opinion, other

STOCK EXCHANGE PRACTICES

6217

attorneys, the Washington correspondents of that firm, had been in
communication with the Federal Trade Commission, had discussed
the matter with the Federal Trade Commission, and had rendered
an opinion that registration was necessary, although Mr. Egginton
personally did not agree with that opinion.
Mr. BROWN. I think that is correct. I assume as a result of his
opinion he felt the matter should be taken up further, and apparently
it was taken up further by counsel, and it extended over a period of
time.
Mr. PECORA. At that hearing before the stock list committee the
statement was specifically made that although Mr. Eggenton did
not agree with the opinion of Washington counsel, nevertheless the
opinion of Washington counsel was going to be followed by registration of the additional issue of stock.
Mr. BROWN. I think, as I remember it, the discussion centered
around the fact that the registration would be filed there if necessary.
Mr. PECORA. Would you say that the reason why no application
was made by your corporation to register those additional 25,000
shares under the Securities Act was because of the provisions of that
act which required statements under oath concerning all the surrounding facts involved in the issuance of the proposed 25,000 additional shares?
Mr. BROWN. N O ; I think quite the contrary. As I have said to
you, the business of the company came along in such good shape
that we did not want to have out any more shares of stock than absolutely necessary. We were able to finance these transactions by
cash.
Mr. PECORA. AS recently as last December, according to the evidence introduced this morning, in your hearing, your corporation
caused to be filed supplemental statements with the stock-list committee of the New York Stock Exchange with reference to this issue
of the additional 25,000 shares. Isn't that so?
Mr. BROWN. That is correct, but, as I said to you, that came about
during this terrible rush in the business, when we were working
night/3, Sundays, and holidays. I was spending a great deal of my
time out at the plant so as to be sure the merchandise was getting
out. That just went out of the office, and should not have gone.
Mr. PECORA. Mr. Page is too careful to slip up on a thing like that,
is he not ?
Mr. BROWN. It was my carelessness, perhaps, in not advising him
at the time of the decision Mr. Grimm and I had arrived at, that the
deal would not go through because we could handle it by cash. Our
business started out, and the first really good earnings came along in
the month of October, and the indications of the contracts that were
signed for future deliveries were a real indication to us that we
could handle the whole transaction by cash.
Mr. PECORA. Has there been any formal corporate action taken by
the board of your corporation terminating those negotiations and
abandoning them completely?
Mr. BROWN. The meeting of the board was to be held on the 15th
of February. I was down there, and so the meeting has been adjourned, and it is going to be held, and that action is to be taken as

6218

STOCK EXCHANGE PRACTICES

soon as all, the legal mechanics have been complied with. I assume
that will be done sometime this week.
Mr. PECOEA. Was any action ever taken by the board, or by you
as chairman of the board, or by any of the officers of the company,
notifying the New York Stock Exchange that the company does not
propose to make any issue of that 25,000 additional shares ?
Mr. BROWN. No; I do not think so; not that I know of. I t should
have been done, but the thing we were wrapped up in mostly was in
getting the material out and getting the money in. I just overlooked
it.

Mr. PECORA. Mr. Brown, you have indicated to me that you wanted
to make some correction in the testimony heretofore given by you
with regard to anjr salary or compensation paid by the corporation
to Mr. Kies as chairman of the executive committee of its board of
directors.
Mr. BROWN. Yes. I had an opportunity to read only part of this
testimony, and glancing through, I caught a question in connection
with Mr. Kies' compensation. My answer was " No." My answer
should have been that "Mr. Kies is compensated at the rate of
$6,000 per annum." I understood your question at the time—you
were speaking about the adjustment of other compensation, and I
hurriedly thought you asked whether Mr. Kies' compensation was
adjusted. Instead of that, your question was " I s Mr. Kies paid
compensation? " That is $6,000 per annum.
Mr. PECORA. I think that is all.
(Witness excused.)
Mr. PECORA. Mr. Mason Day.
TESTIMONY OP HENRY MASON DAY, SYOSSET, LONG ISLAND,
MEMBER OP THE PIRM OP REDMOND & CO., NEW YORK
The CHAIRMAN. Mr. Day, you solemnly swear that you will tell
the truth, the whole truth, and nothing but the truth regarding
the matters now under investigation by the committee. So help
you God.
Mr. DAY. I do.
May I have the privilege, Mr. Pecora, of having the gentleman
who keeps the records of these things sit beside me?
Mr. PECORA. Yes. Will you please give your full name and
address ?
Mr. DAY. Mr. Henry Mason Day; Syosset, Long Island.
Mr. PECORA. Mr. Chairman, the evidence which I am now about
to submit to the committee relates to the market activities of certain
groups in a security known as the " common stock " of the LibbyOwens-Ford Glass Co., which is commonly referred to as one of
the repeal or alcohol stocks. I have already stated to this committee that early last August I requested the president of the New
York Stock Exchange to make an investigation, through the facilities and powers of the exchange, into the market activities of these
so-called alcohol stocks during the period covering the months of
May, June, and July of last year. Such an examination or investigation was made, and the results thereof were reported to me by
Mr. Whitney, of the stock exchange, and the report submitted by

STOCK EXCHANGE PRACTICES

6219

the examiners of the exchange with respect to these market activities tended to indicate that there was no manipulative activities in
those stocks during last summer.
I have already presented to the committee the evidence which we
have gathered with respect to activities or trading in the stock of
the American Commercial Alcohol Corporation, which, to my mind,
strongly establishes the fact that there were many manipulative devices, processes, and activities in the stock of that company last
summer.
Mr. Day, what is your business or occupation ?
Mr. DAY. Stock broker.
Mr. PEOORA. Are you a member of any stock exchange?
Mr. DAY. Yes, sir.
Mr. PECORA. Which one?
Mr. DAY. New York. I am not a member. I am a member of
a firm that is a member of the New York Stock Exchange.
Mr. PECORA. What is that firm ?
Mr. DAY. Redmond & Co.
Mr. PECORA. HOW long have you been a member of the firm of
Redmond & Co.?
Mr. DAY. Since November 1, 1931.
Mr. PECORA. Have you been an active member of the firm since
that time ?
Mr. DAY. Yes, sir.
Mr. PECORA. Who am the other partners in the firm ?
Mr. DAY. Arthur L. Goldsmith, Allan McLane, Jr., A. Perry Osborn, H. F. Osborn, Jr., Daniel T. Pierce, Jr., E. B. Shryver, and
J. B. Taylor. Do you want the special partners ?
Mr. PECORA. Yes.

Mr. DAY. F. Q. Brown, L. W. James, E. E. Moore and George H.
Pendleton.
Mr. PECORA. Who is the floor member of the exchange in that
firms?
Mr. DAY. Mr. Allan McLane, Jr., and Mr. Daniel T. Pierce, Jr.
Mr. PECORA. Does that firm hold any membership in any other
stock exchange than the New York Stock Exchange ?
Mr. DAY. The New York Curb Exchange.
Mr. PECORA. Any other?
Mr. DAY. NO, sir; I do not think so.
Mr. PECORA. Does it hold a membership in any commodities
exchange ?
Mr. DAY. I do not think it does, sir.
Mr. PECORA. Prior to your becoming a member of the firm of
Redmond & Co., what was your business or occupation?
Mr. DAY. I was in the oil business.
Mr. PECORA. What do you mean by that ?
Mr. DAY. Well, I was an executive in the oil business.
Mr. PECORA. Wliat was the name of the company?
Mr. DAY. At that time, the Sinclair Oil Co.
Mr. PECORA. Had that been your business for quite a number of
years ?
Mr. DAY. That particular position? No, sir.

6220

STOCK EXCHANGE PRACTICES

Mr. PECORA. Had you been connected with the oil company for a
number of years prior to November 1931 ?
Mr. DAY. I do not want to be technical. I think I was there 3
or 4 years. I don't remember that. Prior to that I was with the
Barnsdall Oil Co.
Mr. PECORA. Did you hear the testimony given before this committee yesterday by a witness named Charles C. Wright?
Mr. DAY. Part of it, sir.
Mr. PECORA. Did you hear any portion of his testimony in which
reference was made to a number of options on certain stocks issued
by different corporations which had been given either to Mr. Wright
or to his stock brokerage firm of Wright & Sexton by the firm of
Redmond & Co.?
Mr. DAY. Yes, sir. I think I heard two brought up.
Mr. PECORA. Which two were they?
Mr. DAY. I think there was one in National Distillers. I am not
sure about the other. I know approximately, because I read the
testimony yesterday afternoon, and I am confused in my mind
whether he said it in the morning or in the afternoon.
Mr. PECORA. During the year 1933, and particularly during the
months of May, June, and July 1933, did Redmond & Co., have
any options covering the stock of any of the so-called " alcohol companies or repeal stocks " ?
Mr. DAY. Yes, sir.
Mr. PECORA. HOW many such options did it have last summer ?
Mr. DAY. I do not know, sir. May I refer to the records?
Mr. PECORA. Surely. You are free to refer to any records available to you, Mr. Day, at any time m the course of your examination.
Mr. DAY (after conferring with an associate). I presume, from
your former statement, that you are referring to the so-called " Repeal stocks ", and that you mean Libbey-Owens-Ford.
Mr. PECORA. That would be one of them.
Mr. DAY. That is all we have.
Mr. PECORA. Did you have more than one option covering the stock
of the Libbey-Owens-Ford Glass Co. last summer ? When I say you,
I refer, of course, to the firm, Redmond & Co.
Mr. DAY. Yes, sir; I understand. There was one under date of
June 1.
Mr. PECORA. I show you what purports to be a photostatic reproduction of such option dated June 1, 1933. Will you look at it and
tell me if you recognize it as a true and correct copy of the option
to which you have just referred ?
Mr. DAY. I believe that is correct.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Copy of option, June 1, 1933, Libby-Owens Securities Corporation to Redmond & Co., was received in evidence, marked " Committee's Exhibit No. 67 ", Feb. 21, 1934, and the same was subsequently read into the record by Mr. Pecora.)
Mr. PECORA. The document received m evidence as " Committee's
Exhibit 67 " reads as follows [reading] :

STOCK EXCHANGE PRACTICES

6221
JUNE 1,

1933

REDMOND & Co,

48 Wall Street, New Yorh City
DEAR SIRS The undersigned, Libbey-Owens Securities Corporation, a Delaware coiporation, confirms its agreement as follows.
1. The undersigned has sold, and! you and others associated with you on
certain terms have purchased from the undersigned, 65,000 shares of common
stock without par value of Libbey-Owens-Ford Glass Company, an Ohio corporation, at the price of $26 50 per share flat Delivery of the certificates for
such shares and payment therefor shall be made in New York City at the
office of The Guaranty Trust Company of New York, 140 Broadway, on or
before 3 o'clock p.m , ( D S . T ) , June 5, 1933
2 In consideration of your agreeing to purchase as aforesaid the above
65,000 shares,, the undei signed agrees that it will sell, or cause to be sold, to
you and associates, at your option, a t any time and from time to time on or
before 3 o'clock P. M (DS.T.), July 3, 1933, all or any part of 20,000 additional shares of such common stock without par value of Libbey-Owens-Ford
Glass Company, at the price of $27.50 per share flat
3 In case you shall purchase the 20,000 additional shares referred to in
paragraph 2, the undersigned will sell, or cause to be sold, to you and associates,
at your option, at any time and from time to time on or beiore 3 o'clock P M.
(D S T ), August 1, 1933, all or any part of 20,000 additional shares of such
common stock without par value of Libbey-Owens-Ford Glass Company, at the
price of $28 50 per share flat
4 In case you shall purchase the 40,000 additional shares referred to in
paragiaphs 2 and 3, the undei signed will sell, or cause to be sold, to you and
associates, at your option, at any time and from time to time on or before
3 o'clock p m (D S T ), September 1, 1933, all or any part of 20,000 additional
shares of such common stock without par value of Libbey-Owen-Ford Glass
Company, at $30 50 per share flat
5. In case you shall purchase the 60,000 additional shares refeired to in
paragraphs 2, 3 and 4, the undersigned will sell, or cause to be sold, to you
and associates, at your option, at any time and from time to time on or before
3 o'clock p m ( D S T ), October 2, 1933, all or any part of 20,000 additional
shares of such common stock without par value of Libbey-Owen-Ford Glass
Company, at $30 50 per share flat
6 Redmond & Co may exercise any of the options referred to in paragraphs
2, 3 4 and 5 to purchase the additional shares of common stock without par
value of Libbey-Owens-Ford Glass Company mentioned therein from time to
time by giving one days' notice in writing of your election to purchase such
shares to the undersigned, in caie of Mr. J Donald Duncan, 50 Broadway,
New York City, and thereupon the undersigned will deliver or cause to be
delivered to you the certificates for such shares at said office of Guaranty Tiust
Company of New York on the day following such notice against payment
therefor.
7 It is understood that the undersigned shall be entitled to receive «m\
dividends which may be declared upon the shares of common stock without
par value of Libbey-Owens-Ford Glass Company covered by any of the above
mentioned options, which shall be payable to holders of record of a date prior
to the purchase by you of such shares, and that you shall be entitled to receive
all such dividends which shall be payable to holders of record of a date sub^e
quent to the purchase by you of such shares
8 All shares of common stock without par value of Libbey-Owens-Ford Glass
Company referred to in paragraphs 1 to 5 inclusive hereof which shall be
purchased by you are and shall be listed on the New York Stock -Exchange
The certificates for all such shares purchased by you hereunder are to be
delivered to you in negotiable form for delivery on the New York Stock Exchange, and the undersigned agrees to pay all requisite stock transfer taxes
payable in connection with the sale of any of such shares to you hereunder
All payments for shares purchased by you hereunder are to be made in New
York funds, by certified1 check
9 The undersigned agrees that it will not, so long as any of the above
options shall be in effect, sell any other shares of common stock without par

6222

STOCK EXCHANGE PBACTICES

value of Libbey-0wens-Ford Glass Company which it may own, except at a
price in excess of $35 00 per share
If the foregoing is in accordance with your understanding, will you please
confirm your agreement therewith
Yours very truly,
LlRBEY-OWENS SECURITIES CORPORATION
By GORDON AUOHINCSLOSS (signed)

President

Attest •
J. DONALD DUNCAN

(signed)

Secretary.
JUNE 1, 1933.

LLBBEY-OWENS SECURITIES CORPORATION

15 Exchange Place, Jersey City, New Jersey.

DEAR SIRS. The undersigned hereby confirm their agreement with you in-

accordance with the terms of your foregoing letter dated June 1, 1933.
Yours very truly,

BEDMOND & Co.
By PERRY OSBORN (signed)

Now, Mr. Day, this letter refers to Kedmond & Co. having some
associates in this option. Who were those associates?
Mr. DAY. The Hyva Corporation; Lehmann Bros.; Bell & Beckwith; Walter P. Chrysler; Joseph P . Kennedy; Kuhn Loeb & Co.;
Wright & Sexton; Kedmond & Co.
Mr. PECORA. What kind of a corporation is the Hyva Corporation?
Mr. DAY. I do not know, sir.
Mr. PECORA. DO you know who its officers are?
Mr. DAY. NO, sir.
Mr. PECORA. DO you know anything at all about the corporation?
Mr. DAY. I have a recollection that Mr. Sinclair is interested m
the Hyva Corporation.
Mr. PECORA. I S it a so-called "private corporation" of Mr.
Sinclair's ?
Mr. DAY. I know nothing about it.
Mr. PECORA. Who is Joseph P. Kennedy ?
Mr. DAY. Mr. Kennedy is a capitalist, or well-known private
citizen.
Mr. PECORA. DO you know what his business is?
Mr. DAY. I do not think he is in business.
Mr. PECORA. When you say he is a capitalist, does that cover
your understanding of what his business is ?
Mr. DAY. Well, I do not know. My understanding of a capitalist is somebody who has considerable funds and does not have
to work.
Mr. PECORA. I am not a capitalist.
Mr. DAY. Neither am I, sir. I have no objection to being.
Mr. PECORA. Who are Bell & Beckwith ?
Mr. DAY. They are a Toledo Stock Exchange house.
Mr. PECORA. With membership on any stock exchange?
Mr. DAY. I believe on the New York Stock Exchange.
Mr. PECORA. They have their principal office in Toledo, Ohio ?
Mr. DAY. That is my understanding.
Mr. PECORA. Who are Lehmann Bros. ?
Mr. DAY. Lehmann Bros, are a stock-exchange house; a banking
house.
Mr. PECORA. In New York City?

STOCK EXCHANGE PEACTICES

6223

Mr. DAY. Yes, sir.
Mr. PECORA. Who is W. P. Chrysler?
Mr. DAY. I understand Mr. Chrysler is in the automobile business.
Mr. PECORA. I think I have heard that. Kuhn, Loeb & Co. we
know something about, because one of the partners of the firm—in
fact several of the partners of the firm—have been witnesses before
this committee. Wright & Sexton we know something about
through the testimony we heard yesterday. Who organized this
group or syndicate that got the option that has been offered in evidence here in the name of Redmond & Co. ?
Mr. DAY. My recollection is that it was organized by Kuhn-Loeb.
Mr. PECORA. DO you know which particular member of that firm
actively dealt with the organization of this group or syndicate ?
Mr. DAY. I think Mr. Elisha Walker.
Mr. PECORA. Who managed whatever operations or transactions
were conducted in behalf of this group or syndicate under this
option?
Mr. DAY. Redmond & Co.
Mr. PECORA. What particular member of that firm had charge of
those transactions or operations?
Mr. DAY. I suppose I had the most to do with it—not all.
Mr. PECORA. What was the purpose of this group or syndicate in
obtaining this option and operating under it?
Mr. DAY. TO distribute the stock and make some money.
Mr. PECORA. The stock was listed on the New York Stock Exchange at the time.
Mr. DAY. Yes, sir; that is my understanding.
Mr. PECORA. Have you a copy of any agreement evidencing the
respective rights and interests of the different members or participants in this group or syndicate, Mr. Day?
Mr. DAY. I have a memorandum here from which I gave you the
names of the members. I think it is the same one, probably, which
you hold, showing a 5 percent interest for the Hyva Corporation—
am I answering your question?
Mr. PECORA. YOU do not mean 5 percent interest, do you?
Mr. DAY. I mean 5/65ths; Lermann Brothers, 6%/65ths; Bell &
Beckwith, 10/65ths; Walter P. Chrysler, 5/65ths; Joseph P. Kennedy, 10/65ths; Kuhn-Loeb & Co., 13%/65ths; Wright & Sexton,
5/65ths; Redmond & Co , 10/65ths.
Mr. PECORA. Was there not a formal agreement which defined the
participations, rights, interests, and liabilities of the various members of this syndicate or group ?
Mr. DAY. Unfortunately, Mr. Pecora, I have not that with me.
Mr. PECORA. There was such an agreement, however?
Mr. DAY. There was such an agreement, however. There was a
letter sent to each one defining it.
Mr. PECORA. Have you a copy of any such letter?
Mr. DAY. I am afraid that they did not bring me a letter on that,
but I have a subsequent letter, I think, on the second one. I think
this is the second one [handing paper to Mr. Pecora].
Mr. PECORA. I notice, in the option agreement which has been
offered in evidence and which has been marked " Committee's Ex-

6224

STOCK EXCHANGE PRACTICES

hibit No. 67", the following provision, marked paragraph 9
[reading] :
The undersigned [meaning Libbey-Owens Securities Corporation] agrees
that it will not, so long as any of the above options shall be in effect, sell any
other shares of common stock without par value of Libbey-Owens-Ford Glass
Co which it may own, except at a price in excess of $35 per share.

Mr. Day, what was the reason for the inclusion of that provision
in this option?
Mr. DAY. Because, as I recollect, or as I was told, their holdings
were very large, and if they were selling while this group was trying
to constructively liquidate their block, their holdings would have
made it so large, so impossible, at the same time, that a price of $35
was fixed.
Mr. PECORA. In other words, it was designed to keep off the market,
during the operations of the group or syndicate that was formed to
constructively, as you have said, dispose of the shares covered by this
option, such other shares of the stock as the Libbey-Owens Securities Co. owned?
Mr. DAY. I think that would be correct; yes, sir.
Mr. PECORA. I assume that that provision was put in there at the
instance of the optionees.
Mr. DAY. Yes, sir.
Mr. PECORA. And in order to facilitate them in effectuating their
purpose of disposing of this optioned stock at a profit to themselves ?
Mr. DAY. Yes, sir.
Mr. PECORA. HOW was it contemplated by this group, or the managers of the group, namely, Kedmond & Co., to dispose of the stock
covered by this option?
Mr. DAY. On the market.
Mr. PECORA. That is, through trading in the open market?
Mr. DAY. Yes, sir.
Mr. PECORA. This group or syndicate really constituted a pool, did
it not, to trade in this stock under this option ?
Mr. DAY. The word " pool " has been used in reference to so many
things—it was certainly a syndicate to distribute this stock.
Mr. PECORA. Such syndicates have commonly been called pools,
have they not ?
Mr. DAY. Yes, sir.
Mr. PEOORA. And this is that kind of a syndicate?
Mr. DAY. Yes, sir.
Mr. PECORA. In connection with the purposes of this pool, to dispose of the stock covered by this option, was it intended that the pool
should both buy and sell in its trading ?
Mr. DAY. Yes, sir.
Mr. PECORA. Why was it necessary to buy and sell in order to
enable the pool to dispose of this optioned stock at a profit?
Mr. DAY. TO have a free market in the stock.
Mr. PECORA. Was not the market free?
Mr. DAY. There was practically no market in the stock.
Mr. PECORA. Was it an inactive market on June 1 last, when this
option was obtained ?
Mr. DAY. I t was not an inactive market, but it was not a big
market.

STOCK EXCHANGE PRACTICES

6225

Mr, PECORA. And it was deemed necessary by the managers of
the pool to have a big or active market in order to enable the pool
to dispose of its optioned stock at a profit?
Mr. DAY. Yes.
Mr. PECORA. In other words the operations of the pool contemplated, among other things, buying and selling transactions in this
stock so as to create at least an outward appearance of activity in
the stock?
Mr. DAY. That was very largely left to the man who was operating
it on the floor.
Mr. PECORA. Who was that man?
Mr. DAY. Mr. Charles Wright.
Mr. PECORA. Were the trades, including both buying and selling,
conducted by the pool in its efforts to dispose of this option stock
at a profit left to the discretion of Mr. Wright?
Mr. DAY. At times; yes, sir.
Mr. PECORA. And when those trades were not made in the exercise of his discretion in whose discretion were they made ?
Mr. DAY. Well, when he made them they were always accepted.
Mr. PECORA. NO ; but when he did not make them whose discretion
controlled the trades that were made by or m behalf of the pool?
Mr. DAY. Whoever happened at that particular time to be in
charge of it or looking after it.
Mr. PECORA. Who other than Mr. Wright was ever in that position ?
Mr. DAY. Well, I think—this is purelv from recollection—Mr.
Bliss.
Mr. PECORA. Mr. Frank E. Bliss?
Mr. DAY. Yes, sir.
Mr. PECORA. And did he handle many of these operations or
trades?
Mr. DAY. He handled some.
Mr. PECORA. Who handled the greater part of it?
Mr. DAY. Charlie Wright.
Mr. PECORA. Were any other brokers or floor members of the stock
exchange used in executing the orders or putting through the trades
in behalf of this pool?
Mr. DAY. I think undoubtedly there were others.
Mr. PECORA. Who were the others?
Mr. DAY I think Mr. Lansburgh was.
Mr. PECORA. Lansburgh?
Mr. DAY. Yes.
Mr PECORA. DO you know what firm he is connected with?
Mr. DAY. Lansburgh & Co.
Mr. PECORA. What other brokers were used ?
Mr. DAY. Those are the principal ones that I can think of.
Mr. PECORA. Why was it necessary to use more than one brokerage
firm or more than one floor trader or floor member ?
Mr. DAY. Well, very often Charlie Wright, who I would ordinarily
look to to look after the floor operation, would be away.
Mr. PECORA. In you experience and activities as a stockbroker,
Mr. Day, have you heard before the term "jiggling" used in connection with stock market tradings and activities?
Mr. DAY. Yes, sir.

6226

STOCK EXCHANGE PBACTICES

Mr. PECORA. And what does that term signify to you?
Mr. DAY. Trading [a pause] in an entirely un—in a very big way.
Mr. PECORA. IS that the kind of trading indulged in in behalf of
this pool?
Mr. DAY. Not as generally would be considered jiggling as I
understand it.
Mr. PECORA. NOW, what is fully comprehended by you in the use
of the term " jiggling " as applied to stock market trading or activity,
Mr. Day?
Mr. DAY. In the limited time I have been there and limited knowledge that I have, I would say taking something that was perfectly
dead and just kicking it all over the place.
Mr. PECORA. That is, galvanizing it into life by buying and
selling?
Mr. DAY. Yes, sir. In great big spreads.
Mr. PECORA. Was this stock at the time you took this option
almost dead so far as the market trades were concerned ?
Mr. DAY. NO, it was an inactive stock.
Mr. PECORA. An inactive stock as distinguished from a dead
stock?
Mr. DAY. Yes, sir; and an inactive stock as distinguished from
Steel or Can or others.
Mr PECORA. For which there is always an active market ?
Mr. DAY. Yes.
Mr. PECORA. Standard stocks for which there is always an active
market?
Mr. DAY. Yes, sir.
Mr. PECORA. A S a result of the activities of this pool, Mr. Day,
would you say that the stock became much more active ?
Mr. DAY. Yes, sir.
Mr. PECORA. Not active enough to amount to a jiggle, though?
Mr. DAY. NO, sir.
Mr. PECORA. DO you know the volume of trading done by or at
the instance of this pool in this stock under this option?
Mr. DAY. The approximate number of shares?
Mr. PECORA. Yes.

Mr. DAY. I think I have got it about. I think it is on that piece
of paper there. About a million shares.
Mr. PECORA. That is during what period of time ?
Mr. DAY. June to October.
Mr. PECORA. That is a period of about 4 months ?
Mr. DAY. Yes, sir; approximately 4 months.
Mr. PECORA. DO you know what the total trading on the New
York Stock Exchange was in the stock of Libbey-Owens-Ford Glass
Co. during that period?
Mr. DAY. I do not, sir.
Mr. PECORA. DO you know what proportion of the total trading
represented the transactions in behalf of this pool ?
Mr. DAY. NO, sir.
Mr. PECORA. HOW many different accounts were handled by this
pool in the course of its operations ?
Mr. DAY. It was all one account, but it was broken up into six
parts.

STOCK EXCHANGE PRACTICES

6227

Mr. PECORA. And how were those accounts designated?
Mr. DAY. L.O.F. Syndicate, syndicate nos. 1, 2, 3,4, 5, and 6.
Mr. PECORA. Each of these accounts represented the operations of
this pool or syndicate?
Mr. DAY. Yes, sir.
Mr. PECORA. In account no. 1 of that syndicate, do you know how
many shares were bought and how many shares were sold for that
account?
Mr. DAY. There were 81,500 bought and 81,500 sold, according to
the record handed to me.
Mr. PECORA. YOU are not referring to market trading now, are
you, to the extent of 81,500 shares bought and sold?
(Mr. Day conferred with associates, but made no response.)
Mr. PECORA. Those 81,500 shares to which you have just
referred
Mr. DAY. Yes, sir.
Mr. PECORA continuing). Relate to the shares that were bought
from the optionor ?
Mr. DAY. Yes, sir.
Mr. PECORA. Isn't that so ?
Mr. DAY (after conferring with associates). The amount of shares,
so Mr. Gibson tells me, of the bought side is included in the 81,500
shares, which I think is what your statement was.
Mr. PECORA. Included in the 81,500 shares both bought and sold
in account no. 1 of this syndicate--—
Mr. DAY. Yes, sir.
Mr. PECORA (continuing). Were the 65,000 shares as to which
Redmond & Co., in behalx of itself and its pool associates, made a
firm commitment to purchase from the Libbey-Owens Securities Corporation in this agreement of June 1, 1933, at a flat price of $26.50
per share.
Mr. DAY. Yes.
Mr. PECORA. Isn't that so ?
Mr. DAY, Yes.
Mr. PECORA. HOW many shares were traded in under account no. 1
of the syndicate ?
Mr. DAY. Twenty-six thousand nine hundred bought and 26,900
sold, according to this statement.
Mr. PECORA. And what was the amount of trading done by the
pool under account no. 2 ?
Mr. DAY. Bought 104,723 and sold 104,723.
Mr. PECORA. And what was the amount of trading done under
account no. 3 of the syndicate ?
Mr. DAY. TWO hundred sixteen thousand seven hundred bought
and 216,700 sold.
Mr. PECORA. And what was the extent of the trading under account no. 4 belonging to the syndicate?
Mr. DAY. Forty-eight thousand seven hundred bought and 48,700
sold.
Mr. PECORA. And in account no. 5?
Mr. DAY. Forty-one thousand one hundred bought and 41,100
sold.
Mr. PECORA. Account no. 6 ?

6228

STOCK EXCHANGE PEACTICES

Mr. DAY. Five thousand four hundred bought and 5,400 sold.
Mr. PECORA. DO you know what the resultant profit, if any, was
to this pool from this trading?
Mr. DAY. According to the statement it was $395,238.12.
Mr. PECORA. And that was distributed among the various members of the pool in proportion to their respective participations ?
Mr. DAY. That is right, sir.
Mr. PECORA. I show you a typewritten statement purporting to be
a tabulation or compilation of the trading done for the account of
this pool and the resultant profits. Do you recognize it to be a true
and accurate statement or recapitulation thereof?
Mr. DAY. I recognize it as a copy of the one that was given to me
by our auditor.
Mr. PECORA. And do you believe it to be accurate ?
Mr. DAY. I have every reason to believe every statement he prepares is.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Tabulation of profits of Libbey-0 wens-Ford Syndicate accounts
was thereupon designated " Committee Exhibit No. 68, Feb. 21,
1934," and will appear in the record in full at the end of today's
proceedings.)
Mr. PECORA. Operations of this pool, Mr. Day, were designed to
create an agitation in the market in the shares of this stock so as to
increase the activity in public trading, were they not?
Mr. DAY. The object of this pool was to distribute this stock at a
profit.
Mr. PECORA. At a profit. And in order to do that it had to make
an active market 2
Mr. DAY. That was left to the floor operators.
Mr. PECORA. Yes; and that is what was done, wasn't it?
Mr. DAY. There was a great deal of buying and selling.
Mr. PECORA. By the pool ?
Mr. DAY. Both.
Mr. PECORA. Yes; and for the purpose of helping to make the
market more active?
Mr. DAY. For the purpose of distribution of stock of a security
that was thought to be undivided.
Mr. PECORA. Didn't you say before that the market at the time
this option was obtained under date of June 1, last, in Libby-OwensFord Glass Co. stock was inactive?
Mr. DAY. Comparatively.
Mr. PECORA. And that buying and selling was indulged in by the
pool under this option in order to create activity in the market so
that the pool might thereby be enabled to distribute, as you call it,
the stock it had under this option at a profit?
Mr. DAY. Yes, sir.
The CHAIRMAN. HOW was the stock quoted when the pool was
formed? What was the quotation?
Mr. DAY. Senator, I don't remember exactly, but I think it was
within a fraction or a point or something of that kind of the price at
which this block of stock was purchased.
The CHAIRMAN. DO you remember what that was ?

STOCK EXCHANGE PRACTICES

6229

Mr. DAY. I think it was somewhere around 20. [Addressing an
associate:] Have you it there? Around 27 or 27%. I don't know
exactly.
The CHAIRMAN. What was the quotation when the pool was terminated ?
Mr. DAY. I am just getting it from the record, sir.
(Mr. Day and associates examined records.)
Mr. DAY. I have not found the records yet exactly what it is. My
recollection is that it was probably somewhere around 32% or 33.
The CHAIRMAN. What Was the course afterward?
Mr. DAY. What was the course? It went up, sir.
Mr. PECORA. What was the highest price it reached on the New
York Stock Exchange during the period of the pool operation ?
Mr. DAY. Approximately 37, as I remember it.
Mr. PECORA. And what date was that reached, do you remember?
July 18, wasn't it?
Mr. DAY. I imagine it was somewhere around there.
Mr. PECORA. DO you know to what figure it had dropped by July
21?
Mr. DAY. Around 22.
Mr. PECORA. Around 21, wasn't it?
Mr. DAY. Well, 21. And at that time I bought on that decline, if
my recollection serves me correct, approximately twenty-odd thousand shares.
Mr. PECORA. For your own individual account?
Mr. DAY. NO, sir.
Mr. PECORA. For the account of the pool?
Mr. DAY. Yes, sir.
Mr. PECORA. All of which was subsequently distributed at higher
prices, wasn't it?
Mr. DAY Yes, sir. I hope so I am not sure, but I think so.
The CHAIRMAN. Where is it now ?
Mr. DAY. I bought it the other day, Senator, for my wife's investment trust and paid 41% for it, sir. I t is approximately in
the neighborhood of 40 today, or I mean as of yesterday. The
company was carefully studied, full analysis taken of it, its directors
talked to. I know them personally. I believed that the company
had a great future, which is apparently true.
Mr. PECORA. DO you know who the specialist was in this stock on
the floor of the New York Stock Exchange during the life of this
pool?
Mr. DAY. I have heard his name three or four times. I read it
in the testimony last night. I don't know him.
Mr. PECORA. Was it a member of the firm of Hewitt, Lauderdale
&Co.?
Mr. DAY. That I don't know, sir.
The CHAIRMAN. Does the company pay dividends now ?
Mr. DAY. Yes, sir.
The CHAIRMAN. What dividends?
Mr. DAY. My recollection is that thay are paying a dollar.
Mr. PECORA. Redmond & Co. issue market letters for the information of their customers, don't they ?
Mr. DAY. Yes, sir.

6230

STOCK EXCHANGE PBACTICES

Mr. PECORA. During the period of the activities of this pool were
market letters issued recommending this stock by Kedmond & Co. to
its customers?
Mr. DAY. I could not answer that, sir. I don't know.
Mr. PECORA. I S there anyone of your associates here that can
answer it?
Mr. DAY. That I don't know.
Mr. PECORA. Well, can't you inquire?
Mr. PERRY OSBORN. I don't think we did.
Mr. DAY. I have no recollection.
Mr. PECORA. Will you check that up?
Mr. DAY. With pleasure.
Mr. PECORA. Between now and tomorrow morning?
Mr. DAY. Yes, sir. If I cannot do it tomorrow morning, why, I
will probably be able to hand it to you by tomorrow afternoon,
because I think the market letter writer will have probably gone
by the time I will get him on the phone. Some people are fortunate. They have short hours.
The CHAIRMAN. The committee will take a recess until 10:30 tomorrow morning. All witnesses will report then.
(Accordingly, at 4:23 p.m., the committee adjourned until 10:30
o'clock on the following morning.)

COMMITTEE EXHIBIT N O . 68, FEBRUARY 21, 1934

Libbey-Owens-Ford Glass Company
Balance

Sold

Bought
Date

Name of account
Shares

Amount

1933
JunetoOct
Do
Do
Do
JulytoOct
Aug to Oet
Sept to Oet

81,500
26,900
104,723
216,700
48,700
41,100
5,400

L O F Syndicate
No 1
No 2
No 3
No 4
No 5
No 6

$2,306,562 50
769,272 50
3,130,965 95
6,783,893 48
1,339,460 00
1,245,915 00
164,222 50

525,023 15,740,291 93

$189,902 50
54,509 00
15,118 55
98,790 52
23,802 00
17,708 50

81,500
26,900
104,723
216,700
48,700
41,100
5,400

$2,496,465 00
823,781 50
3,146,084 50
6,882,684 00
1,363,262 00
1,263,623 50
157,929 00

*6,293 50

525,023

16,133,829 50

6,293 50

Legal services charged to L 0 F Syn
Telephone charges charged to L 0 F Sny
Dividend on 8,900 shares credited to L 0 F Syn #5

399,831 07
6,293 50

751 55
84 40

393,537 57

835 95

396,074 07
835 95

2,536 50

O
o
W

8
w
3
>

395,238 12
Check to order
Hyva Corporation
Lehman Brothers
Bell and Beckwith
Walter P Chrysler

DISTRIBUTION

Josp.ph P K e P ^ f t d y ,

Kutin, Loeb & Col
Wright and Sexton

Rflfjmnnd ft ("Jo

.... .

. _ ._

„

. >

.. .

. ,

, ..

65ths

10
5
10
13H
5
10

30,402 93
39,523 81
60,805 87
30,402 93
60,805 87
82,087 91
30,402 93
60,805 87

O
ftl
CO

395,238 12

to
00

STOCK-EXCHANGE PRACTICES
THURSDAY, FEBRUARY 22, 1 9 3 4
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.
The committee met at 10:30 a.m., pursuant to adjournment on
yesterday, in room 301 of the Senate Office Building, Senator Duncan
U. Fletcher presiding.
Present: Senators Fletcher (chairman), Adams, Kean, and
Couzens.
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.
The CHAIRMAN. The committee will please come to order. I believe Mr. Day was on the stand when the committee adjourned
yesterday afternoon.
Mr. PECORA. Mr. Day, will you please resume the stand ?
Mr. DAY. Certainly.
TESTIMONY OF HENRY MASON DAY, SYOSSET, LONG ISLAND
MEMBER OF THE FIRM OF REDMOND & CO., NEW YORK—
Resumed
Mr. PECORA. Mr. Day, at the end of the session yesterday you were
asked concerning market letters issued by your firm, and particularly as to whether or not in those market letters it was recommended
to your customers that they trade in the stock of the Libbey-OwensFord Glass Co.
Mr. DAY. Yes, sir.
Mr. PECORA. And you said you were going to get in touch with
your New York office with a view to ascertaining what the facts
were with respect to that matter, and give us the facts this morning.
Mr. DAY. Mr. Pecora, I have done what I could in that particular
connection. Of course, when I got to the hotel last night it was
rather late, and naturally, this being a holiday m New York, a
majority of our force had gone home. However, I have done the
best I could in that connection, and have had certain papers sent
down to me. I, however, find, in talking directly with that department of the firm, that we discontinued all market letters on April 1,
1933.
Mr. PECORA. Well, in the market letters that had been issued prior
to that time, did you find any mention of the Libbey-Owens-Ford
Glass Co.?
623a

6234

STOCK EXCHANGE PRACTICES

Mr. DAY. Did you say prior to that time?
Mr.

PECORA.

Yes.

Mr. DAY. Well, I haven't got those letters. But I do not believe
there was such mention.
Mr.

PECORA. NOW

Mr. DAY (continuing). I have here what has been gotten up, just
in analysis form.
Mr. PECORA. Have you been able to obtain, as you stated yesterday
afternoon you would undertake to do, copy of a letter or of letters
in connection with the pool in Libbey-Owens-Ford Glass Co. stock
that was referred to you in your testimony yesterday afternoon?
Mr. DAY. Yes, sir. I have here what is known to us as an exchange of letters relative to the purchase and distribution of this
stock, dated June 1, 1933.
Mr. PECORA. Will you produce that letter, please ^
Mr. DAY. Yes, sir.
Senator COUZENS. Was there more than one letter, Mr. Day ?
Mr. DAY. NO, sir. There are a number of similar letters, however.
Mr. PECORA. That is, the form of letter that passed between your
firm and the other participants in the pool ?
Mr. DAY. Well, I should like to offer in connection with that letter, Mr. Pecora, a specimen of the letter that went to an individual.
Mr. PECORA. All right. The letter produced by the witness, Mr,
Chairman, I now offer in evidence.
The CHAIRMAN. Let it be admitted.
(A letter dated June 1, 1933, addressed to Kuhn, Loeb & Co., was
marked " Committee Exhibit No. 69, February 22, 1934 ", and will
be found immediately following where read by Mr. Pecora.)
Mr. PECORA. The letter reads as follows:
JUNE 1, 1933
Messrs KUHN, LOEB & Co,

52 William Street, New York, N Y

GENTLEMEN We have purchased for ourselves and associates, including you,

65,000 shares of the common stock without par value, of the Libbey-OwensFord Glass Company, an Ohio Corporation, at the price of $26 50 per share, and
in accordance with previous understanding we confirm your interest in the
above purchase to the extent of 13,500 shares at such price.
We understand that you will leave this stock with us for sale proportionate
with the balance of said 65,000 shares, you to accept the average net avails of
such sales as determined by us in our absolute discretion, less brokerages, taxes,
and other expenses in connection therewith
In connection with our purchase of such 65,000 shares of common stock we
have obtained for ourselves and associates, options to purchase additional shares
of such common stock, as follows*
Up to 20,000 shares on or before July 3,1933, at $27 50
Up to 20,000 shares on or before August 1, 1933, at $28 50 a share
Up to 20,000 shares on or before September 1, 193<3, at $29 50 a share
Up to 20,000 shares on or before October 2, 1933, at $30 50 per share
Such options being, respectively, conditional on the full execution by us of
the preceding option within the period specified
We confirm your interest in the above options to the extent of 4,154 shares
of such common stock out of each of said application of 20,000 shares
And it is understood that to the extent to which we, in our absolute discretion, shall exercise such options the said purchases shall be proportionately
for your account, and that you will promptly make payment on our call for
the shares so purchased for you

STOCK EXCHANGE PBACTICES

6235

The stock! purchased under such options and remaining unsold shall not
exceed 20,000 shares at any one time
It is understood that any such additional stock purchased ~ by you will likewise be left with us for sale proportionately with the other stock purchased
by us under such options, on the same terms provided above with respect to
the original 65,000 shares
It is understood that we shall incur no liability for any action taken hereunder in good faith
If the foregoing is in accordance with your understanding you will please
confirm your agreement therewith by signing and returning the enclosed
duplicate of this letter
Yours very truly,
REDMOND & Co

Now, Mr. Day, did you receive a reply from Kuhn, Loeb & Co.
to this communication?
Mr. DAY. Yes, sir; we did.
Mr. PECORA. Have you got the reply letter with you?
Mr. DAY. Yes, sir; I have.
Mr. PECORA. Will you kindly produce it for us 3
Mr. DAY. I have here a letter handed to me from our files as
being the letter.
Mr. PECORA. Mr. Chairman, I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(A letter dated June 5,1913, from Kuhn, Loeb & Co. to Kedmond
& Co. was marked " Committee Exhibit No. 70, February 22, 1934 ",
and will be found immediately following where read by Mr. Pecora.)
Mr. PECORA. The letter just received in evidence and marked
committee exhibit no. 70, being on the letterhead of Kuhn, Loeb &
Co., reads as follows:
NEW YOBK, N Y, June 5, 19SS
Messrs REDMOND & Co,

48 Wall Street, New Yo7k, NY
DEAR SIRS We have your letter of June 1, 1933, legaiding Libbey-OwensFord Glass Co common stock, the contents of which letter are in accordance
with our understanding
We are enclosing duplicate copy of your letter, properly signed, and assunng
you of our pleasure in being associated with you in this business, believe us
Yours very truly,
KUHN, LOEB & Co

Senator COUZENS. Does it show who that letter was signed by?
Mr. PECORA. The initials on the left-hand corner of the letter are:
" P.M.S.-B B." Now, Mr. Day, do you know to whom the initials
"P.M.S." refer?
Mr. DAY. I do not. These papers were not gotten up by me
Mr. PECORA. I know that.
Mr. DAY. I know nothing of the formation of those papers.
Mr. PECORA. Possibly Percy M. Stewart, Now, Mr. Day, I notice
that in the letter which you addressed, or that your firm addressed,
to Kuhn, Loeb & Co. under date of June 1, 1933, and which has
been marked " Committee Exhibit No. 69," there is a reference to
what was apparently a firm commitment on behalf of the syndicate
for the purchase of 65,000 shares of the stock of the Libbey-OwensFord Glass Co. at $26.50 per share. It was understood by the parties to this syndicate that that was a firm commitment, wasn't it?
Mr. DAY. Yes, sir.

6236

STOCK EXCHANGE PRACTICES

Mr. PECORA. And the commitment was fulfilled by the purchase
of 65,000 shares in behalf of this pool from the Libbey-Owens
Securities Corporation?
Mr. DAY. Yes, sir.
Mr. PECORA. NOW, do you know who negotiated that transaction
with the Libbey-Owens Securities Corporation ?
Mr. DAY. Well, my recollection of it is that there were a number
of gentlemen in it.
Mr. PECORA. Well, who were they?
Mr. DAY. Well, there were representatives of this Securities Co,
which is not, as I understand the situation, the Libbey-Owens-Ford
Glass Co.; and there was Mr. Walker, my partner
Mr. PECORA (interposing). By Mr. Walker do you mean Mr
Elisha Walker, one of the partners of Kuhn, Loeb & Co. ?
Mr. DAY. Yes, sir.
Mr. PECORA. All right. Go ahead.
Mr. DAY. Mr. Perry Osborn, my partner. I personally for a long
time had been trying to buy a block of this stock myself. And the
gentlemen representing the Securities Co., which desired to sell this
block of stock, as I understood it, to pay off this big loan which they
liad—there was a gentleman by the name of Mr. Duncan, and Mr.
Auchincloss; and one of the Lehmans I know was in it, but which
one it was I don't remember exactly, or it was some one of their
partners. And I have a recollection, Mr. Pecora, of the name Solvay,
but just what the connection was is very hazy in my mind,
Mr. PECORA NOW, were all of the 80,000 shares which were optioned to the pool by the agreement or pool that was put in evidence
yesterday afternoon, drawn down?
Mr. DAY. Excuse me while my assistant looks that information
up.
Mr. PECORA. All right.
Mr. DAY. Mr. Pecora, while my assistant is looking it up may I
save your time by mentioning the testimony on yesterday in this respect: That when the chairman asked me on yesterday a question
I made a mistake in my answer. He asked me what the dividend
of Libbey-Owens-Ford Glass Co. was, and I stated: Mr. Chairman,
it is $1. As a matter of fact it is $1.20. You also asked me what
the market price was at the time the option was taken, and according to the record which was given to me, and which had been gotten
up very hastily, the opening was $29.
Mr. PECORA. That was on June 1,1933?
Mr. DAY. That is correct. Then you asked me the question:
What was the price of the stock when I would consider that the
distribution was over. You asked me that from the record. According to records that are handed to me, Mr. Chairman, it shows
that the market closed at 32%,
Mr. PECORA. What is the date of that?
Mr. DAY. The date of that, according to this statement now before
me, was September 18.
The CHAIRMAN. Then you were asked what was the low and what
was the high of the stock.
Mr. DAY. Yes, sir.

STOCK EXCHANGE PRACTICES

6237

The CHAIRMAN. I mean, during the time of the existence of the
pool.
Mr. DAY. Yes, sir. Mr. Chairman, I do not think that this statement represents it, because I think the testimony that was given
on yesterday, or at least the suggestion was made on papers which
I think Mr. Pecora had, but which I did not have, showed the high
at one time was 37 and the low was 21. I think we said that we
haven't got that figure here.
The CHAIRMAN. YOU said a low of 21. When it got to 211 believe
you said you bought 1,000 shares for your syndicate.
Mr. DAY. NO, sir. I started buying, I think my record will show,
at around 28, and bought all the way down to 21, and bought some
20,000-odd shares.
Mr. PECORA. Were those purchases for the account of the pool?
Mr. DAY. Yes, sir.
Mr. PECORA. Or were they for your individual account ?
Mr. DAY. AS you asked me on yesterday, they were for the
account of the syndicate. Then you asked me whether they were
distributed at a higher price, or at a profit, as I understood, and
I said I didn't know but I hoped so I think that was what I
testified.
Mr. PECORA. Well, have you since been able to learn whether
the distribution of the Stock that you bought during the market
movement for the pool, from 28 down to 21, was distributed at
higher prices?
Mr. DAY. I have not attempted to, and it would take a great deal
of time to do it.
Mr. PECORA. YOU have referred to four or five gentlemen as having conducted the negotiations with the officers of the Libbey-Owens
Securities Corporation, as a result of which the pool obtained this
option on June 1, last.
Mr. DAY. Yes, sir; that is correct.
Mr. PECORA. NOW, I presume there was a meeting of those various
gentlemen who became eventually pool participants, and an agreement was reached at that meeting with respect to the formation of
this pool or syndicate.
Mr. DAY. I do not think in this particular instance that that is so.
Mr. PECORA. Well, how did those three or four or five gentlemen
come-together and go to the offices of the Libbey-Owens Securities
Corporation with a view to negotiating for the obtaining of this
option? They did not go as independent agents, did they I
Mr. DAY. INO. I think my mind is clouded or confused on your
question. What I wanted to convey was—and the question that you
asked me before was—" Who took up these negotiations? " and I
gave you what my recollection of it was. I understand now you are
asking, although I am probably wrong: " Did the syndicate members
as a group go into these negotiations ? "
Mr. PECORA. Yes.

Mr. DAY. NO, sir; I don't think they did.
Mr. PECORA. Well, you stated that the negotiations which led to the
obtaining of this option were conducted in behalf of the group by
three or four persons, whose names you gave.
Mr. DAY. Yes, sir.

6238

STOCK EXCHANGE PBACTICES

Mr, PECORA. For instance, you mentioned Mr. Elisha Walker, of
Kuhn, Loeb & Co.
Mr. DAY. Yes, sir.
Mr. PECORA. And you mentioned one of the partners of Lehman
Bros.
Mr. DAY. Yes, sir.
Mr. PECORA. And yourself.
Mr. DAY. Yes, sir.
Mr. PECORA. And I think one other gentleman. Now, there must
have been conferences prior to the time when you gentlemen went
to the Libbey-Owens Securities Corporation and negotiated for this
option, at which you met, discussed the matter, and agreed to form
the pool, and tried to obtain the options. Isn't that so ?
Mr. DAY. I think that is so, as far as it goes, and naturally, anything you say is so, but what I was trying to make clear was that
I did not think, as an illustration, that all the pool members, or
syndicate members rather, did go. I mean that I have no recollection of ever seeing Mr. Chrysler there, for instance, and I have no
recollection of seeing Mr. Kennedy there.
Mr. PECORA. YOU have mentioned the names of three or four individuals who did that.
Mr. DAY. Yes, sir.
Mr. PECORA. Those three or four individuals, before they presented themselves to the officers of the Libbey-Owens Securities Corporation, must have met and had conferences among themselves, I
take it.
Mr. DAY. They did.
Mr. PECORA. In which they finally determined to organize this
pool and to try to obtain this option from the Libbey-Owens Securities Corporation.
Mr. DAY. There is no question about that. I recollect endless
meetings.
Mr. PECORA. Who took the initiative in calling together those conferences?
Mr. DAY. (The Witness pauses as if trying to recall the matter.)
Mr. PECORA. YOU see what I am trying to get at, Mr. Day, is
Mr. DAY (interposing). I appreciate it, and I am trying to give
the information, and was just trying to recall it.
Mr. PECORA (continuing). What I am trying to do is to get the
genesis of this pool.
Mr. DAY. Yes; and I appreciate exactly what you want, and in my
limited vocabulary am trying to get together language to convey
to you exactly what I believe you want.
Mr. PECORA. All right. Please do so.
Mr. DAY. I think I was the originator of the idea that this stock
was ridiculously undervalued. And I think I conveyed that idea,
as I remember it, to Mr. Elisha Walker, of Kuhn, Loeb & Co.; and
1 think through Mr. Elisha Walker, as my recollection of it now
is, through his former association and connection and his knowledge
of the ramifications of this investment trust, and his close acquaintanceship with the gentlemen who were in that trust, may be said to
have been the one who was the father of the origination of the syndicate to liquidate this loan for those gentlemen.

STOCK EXCHANGE PRACTICES

6239

Mr. PECORA. TO liquidate a loan for the investment trust called
Libbey-Owens Securities Corporation?
Mr. DAY. Yes, sir.
Mr. PECORA. That is, somebody had knowledge of the fact that the
Libbey-Owens Securities Corporation had a Joan which was maturing, and conceived the idea of approaching them with a view to
taking off their hands this large block of Libbey-Owens-Ford Glass
Co. stock. Is that right ?
Mr. DAY. That is correct
Mr. PECORA. And Mr. Walker engineered the details of the transactions or negotiations with the Libbey-Owens Securities Corporation?
Mr. DAY. I think so
Senator COUZENS. I suppose the idea was conceived m altruism
Mr. DAY. Well, Senator Couzens, very few of these things are, but
this one happened to be that, to have an altruistic note in the results.
Mr. PECORA. Mr. Day, you very frankly said on yesterday before
this committee that the pool was organized avowedly for the purpose
of redistributing the stock that you hoped to get under option at
higher prices and hence at a profit.
Mr. DAY. That is correct, sir.
Mr. PECORA. And that is what most pools are organized for.
Mr. DAY. I believe so I have always heard that they were. I do
not know what a pool means, and I do not think anybody else does;
nevertheless, that is certainly the conception of anything of the kind.
Mr. PECORA. Well, it is quite singular that no one knows what
the meaning of a " pool" is, and yet lots of persons are willing to
discuss pools very freely in a manner that indicates some understanding of the term.
Mr. DAY. Well, I have been there a very short time, but have heard
men who have been there for as long as 25 years attempt to tell what
a pool is, and yet when they got all through with their statement I
did not know what it was.
The CHAIRMAN. This was not a new issue of stock, was it^ This
was old stock held by this investment trust.
Mr. DAY. NO, sir; it was not new stock
Mr. PECORA. Someone has suggested that a pool is something in
which the public gets drowned [Laughter ]
Mr. DAY. Well, I have heard that the word " gigilo " has been applied to jiggling, and that people get drowned in it, perhaps both.
Mr. PECORA YOU mean jiggling in the market $
Mr. DAY. Yes.
Mr. PECORA. NOW, as a matter of fact, did this pool—and I will
continue to call it a " pool " because it is the popular term.
Mr. DAY. All right.
The CHAIRMAN. Let me ask you first right there. Do you know the
amount of this loan that was to be taken up ?
Mr. DAY. Mr. Chairman, I don't know. It was purely hearsay,
and I have never seen the figures I have heard it discussed a great
many times.
Mr. PECORA. I notice, Mr Day, that m the correspondence which
passed between your firm and Kuhn, Loeb & Co., and which has
been offered in evidence here this morning, there is no mention made

6240

STOCK EXCHANGE PBACTICES

of any margin which Kuhn, Loeb & Co as a participant in the
pool1, or syndicate, was required to put up. Is that true also of the
other participants ?
Mr. DAY (after getting a paper from Mr. Gibson). I think, Mr.
Pecora, on the second page, breaking in there, you will find:
And it is understood that to the extent to which we in our absolute discretion
shall exercise such options, such purchases shall be proportionately for your
account, and that you will promptly make payment on our call for the shares
so purchased for you

Mr. PECORA. NOW, Mr. Day, were the letters that were sent to the
other pool participants by your firm similar in form to this one
marked " Committee Exhibit No. 68 ", and which was sent to Kuhny
Loeb & Co., except for such details as would indicate the extent
of the particular participation?
Mr. DAY. Yes, sir; that is as I stated it to you.
Mr. PECORA. That was the form of the letter that was used ?
Mr. DAY. Yes, sir.
Mr. PECORA. NOW, were any members of the pool actually called
upon during the life of the operations and trading by the pool under
this option, required to put up any cash as a matter of fact ?
Mr. DAY. NO, sir.
Mr. PECORA. And what was that due to, and what circumstances
or facts were present during the life of the pool which rendered it
unnecessary for any pool participant to actually put up any cash
during the pool operations, although the pool closed with a profit
of close to $400,000, and traded in over 1,000,000 shares of the stock?
Mr. DAY. Will you let me get that record ?
Mr. PECORA. All right.
Mr. DAY. Rather than have a repetition of the statement here r
may I have Mr. Gibson give this information to you, as he holds
all the papers on the matter?
Mr. PECORA. Yes. And suppose we now have Mr. Gibson sworn*
The CHAIRMAN. Mr. Gibson, 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 the committee. So help you God.
Mr. GIBSON. I do.

TESTIMONY OF FRANK J. GIBSON, AUDITOR OF REDMOND & CO.,
NEW YORK CITY
Mr. PECORA. Mr. Gibson, please give your full name for the
record.
Mr. GIBSON. Frank J. Gibson.
Mr. PECORA. Where do you live?
Mr. GIBSON. New York City.
Mr. PECORA. Well, New York City is not a small place, and that
address would be rather indefinite.
Mr. GIBSON. 1501 Undercliff Avenue.
Senator COUZENS. What is your occupation?
Mr. GIBSON. Auditor with Redmond & Co.
Mr. PECORA. HOW long have you been connected with the brokerage
firm of Redmond & Co.?

STOCK EXCHANGE PRACTICES

6241

Mr. GIBSON. Seven years.
Mr. PECORA. NOW, can you answer the question which I last addressed to Mr. Day and which in the interest of conserving time he
has referred to you to answer?
Mr. GIBSON. I

can.

Mr. PECORA. Will you please proceed to do so ?
Mr. GIBSON. At the end of the first day
Mr. PECORA (interposing). Do you mean the first day of the life
of this option?
Mr. GIBSON. Yes, sir.
Mr. PECORA. And that was when, June
Mr. GIBSON. June 2, according to our

1, 193S ?
books, and we are always

one day late in posting.
Mr. PECORA. All right. Go ahead.
Mr. GIBSON. The account had a net short position in it of approximately 40,000 shares.
Mr. PECORA. NOW, do you mean by that that on June 2, the day
after this option was given to the pool by the Libbey-Owens Securities Corporation, the account had sold against that option to the
extent of 40,000 shares?
Mr. GIBSON. Net.
Mr. PECORA. That

is, it had both bought and sold, but it had a
short position of 40,000 shares on June 2.
Mr. GIBSON. It had sold 40,000 shares in excess of its purchases.
Mr. PECORA. Which was a short position against the option ?
Mr. GIBSON. Yes, sir.
Mr. PECORA. Did that

short position give a profit to the pool

under the option?
Mr. GIBSON. Yes,

sir.

Mr. PECORA. Of how much? You can give us the approximate
figure if you have it.
Mr. GIBSON. I know that the original take-down price is $26 50y
and I can tell approximately by looking at the sales prices.
Mr. PECORA. Yes.
Mr. GIBSON. That will be close
Mr. PECORA. Surely. That is

enough for your purposes
why I asked for the approximate

amount.
Mr. GIBSON I will say roughly $100,000.
Mr. PECORA. From that time on was the trading conducted on
behalf of this pool under this option of a character that enabled
the pool to make such profits as to cause it to take down the s^ock
under this option and pay for it out of the proceeds of the saleh it
had already made against the option ?
Mr. GIBSON. That is right.
Mr. PECORA. And that is the way it operated throughout?
Mr. GIBSON. Yes, sir.
Mr. PECORA. Hence it

was never necessary at any time for the pool,
or any of its participants, to put up a single penny, is that rights
Mr. GIBSON That is right.
Mr. PECORA. The moneys that they used to draw down stock under
the option were moneys that they had made currently in the market
through their trading in the stock against the option.

6242

STOCK EXCHANGE PRACTICES

Mr. GIBSON. Not moneys that they had made; moneys that they
received as the proceeds of sales.
Mr. PECORA. Yes.
Mr. GIBSON. A portion of
Mr. PECORA. That is the

that was money made.
way this pool operated throughout its

entire life.
Mr. GIBSON. That is right.
The CHAIRMAN. Who was the manager ?
Mr. PECORA. I think Mr. Day testified that Redmond & Co. were
the managers of the pool. Is that so ?
Mr. DAY. That is correct.
Senator KEAN. I would like to ask some questions. The market
is not such, in the ordinary case, that a pool can operate without
spending a lot of its own money before it takes down the option.
That is true, is it not 2
The CHAIRMAN. They did not have to do it in this case.
Senator KEAN. N O ; but there was a great market because they
believed that the eighteenth amendment was going to be repealed.
Mr. PECORA. Senator, the evidence yesterday was that the market
prior to the formation of this pool account was very inactive, and on
the first day after they obtained the option the pool bought and
sold to an extent that left them 40,000 shares short against the option.
Senator KEAN The other side of the thing, as I know the market,
is this. The market for all alcohol stocks or whisky stocks, or stocks
involving m any way drinks, was a very broad market, and a market
in which people were speculating m that kind of stocks.
Mr. PECORA. That is not the evidence with regard to this particular security, the Libbey-Owens-Ford Glass Co.
Senator KEAN. I am trying to get into the record what I happen
to know, and that was the reason for the question.
Mr. PECORA. The evidence here yesterday was to the effect that
this particular stock, namely, the common stock of the LibbeyOwens-Ford Glass Co., was very inactive up to the time of the
formation of this pool and the operation of the trading under this
option.
TESTIMONY OF HENRY MASON DAY—Resumed

Mr. PECORA. NOW, Mr. Day, let me ask you this. This stock, the
Libbey-Owens-Ford Glass Co. stock, was commonly known as one of
the " repeal stocks ", was it not 2
Mr. DAY. By the average person who never took the trouble to
look up what its business was.
Mr. PECORA. That is just what I am coming to. I t was commonly
known as a " repeal stock ", in the belief by those who regarded it as
a repeal stock, that the company did a kind of business that it was
assumed would be made considerably more profitable through the
repeal of the eighteenth amendment. Is not that so?
Mr. DAY. It is a rather hard question to answer the layman's
mind. Of course, the Libbey-Owens-Ford Glass Co., as I understand
it—I have tried to study it—does not make a bottle of any kind.
Mr. PECORA. And to that extent the public had a wrong impression concerning this stock being properly a repeal stock, in the sense
m which that term was used. JDon't you know that to be a fact ?

STOCK EXCHANGE PRACTICES

6243

Mr. DAY. I have heard it said a number of times that that was the
fact.
Mr. PECORA. The public apparently got the notion, from the title
of the company, namely, Libbey-Owens-Ford Glass Co., that it manufactured, among other things, glass bottles, and proceeded on the
assumption that the business of the company would be considerably
enhanced and made more profitable through the repeal of the eighteenth amendment. Was not that the common notion entertained by
the lay public?
Mr. DAY. I thought, from the number of people that have spoken
about it, that it, haying the name " Owens " in it, the average person
on the street, knowing that the Owens-Illinois
Mr. PECORA. The Owens-Illinois Glass Co.?
Mr. DAY. The Owens-Illinois Glass Co. being a big manufacturer
Mr. PECORA. It is a big manufacturer of bottles.
Mr. DAY. And wonderfully administered, with profits rising all
the time—that it was fair to assume that the layman m the street
confused the two.
Mr. PECORA. And got the impression that the Libbey-Owens-Ford
Glass Co. was also engaged in the business of manufacturing bottles,
which business would be considerably enhanced and improved
through the repeal of the eighteenth amendment?
Mr. DAY. I think that is true.
Mr. PECORA. Whereas the fact of the matter is that it was not that
kind of a company That is, it was not engaged in the kind of a
business that would necessarily be enhanced or improved through
the repeal of the eighteenth amendment.
Mr. DAY. That is absolutely true. The intelligentsia of the country knew that they were making an unbreakable glass, and that
throughout the country there were advertisements by General Motors
and all other outstanding motor companies that they, m their new
models, or old models, had Libbey-Owens unbreakable glass. Furthermore, the backbone or the brains of our country was originating
laws which made it absolutely necessary, when human life could be
spared through having unbreakable glass, that that particular city,
State, or section of the country use nothing but Libbey-Owens glass.
Mr. PECORA. Because it was nonshatterable glass.
Mr. DAY. That is correct.
Mr. PECORA. But that glass was not used in the manufacture of
bottles?
Mr. DAY. NO, sir; not in any way; according to my understanding.
Mr. PECORA. Did Redmond & Co., for the account of this pool, have
or acquire any option on stock of the Libbey-Owens-Ford Glass Co.
other than the one that has been put in evidence here ?
Mr. DAY. Yes, sir.
Mr. PECORA. HOW many other such options did it have?
Mr. DAY. Answering your first question, under date of June 16,
written, I presume, on the stationery of Kuhn-Loeb, noting in the
upper left-hand corner the name Kuhn-Loeb & Co., a letter was
addressed to Redmond & Co., 48 Wall Street, signed by Kuhn-Loeb.
There was a purchase made from the General Motors Corporation.
I produce this letter.

6244

STOCK EXCHANGE PRACTICES

The CHAIRMAN. Purchased by whom and from whom?
Mr. DAY. Purchased, Mr. Chairman, along the same line as the
first.
The CHAIRMAN. Was that part of the 80,000 shares?
Mr. DAY. NO ; I think this was another.
Mr. PECORA. This was an additional option. I show you what
purports to be a photostatic reproduction of the copy of the letter
you have just handed to me, dated June 16, 1933. Do you recognize
it as being a true and correct copy of the letter received by your
firm from Kuhn-Loeb & Co., bearing that date?
Mr. DAY. Unquestionably, if you say so.
Mr. PECORA. YOU might compare it with your copy so that you
may properly authenticate it.
Mr. DAY (after examining paper). Yes, sir.
Mr. PECORA. I offer in evidence the photostatic reproduction of it.
The CHAIRMAN. Let it be admitted.
(Copy of letter, Kuhn-Loeb & Co., to Eedmond & Co., June 16,
1933, was received in evidence, marked " Committee's Exhibit No.
71 ", Feb. 22, 1934, and the same was subsequently read into the
record by Mr. Pecora.)
Mr. PECORA. The document has been marked in evidence as " Committee's Exhibit No. 7 1 ' and reads as follows. I t is on the letterhead of Kuhn-Loeb & Co. [reading] :
Messrs REDMOND & Co,

JUNE 16, 1933

48 Wall Street, New York, N Y

DEAH SIRS * In accordance with previous understanding, we confirm that we

Ihave purchased for ourselves and associates 25 thousand shares of common
stock, without par value, of Libbey-Owens-Pord Glass Co, an Ohio corporation,
.at the price of $27.50 per share flat, and that in connection with our purchaseof said 25 thousand shares of said common stock we have obtained options to
purchase additional shares of such common stock as follows
Up to 25 thousand shares on or before July 12, 1933, at a price of $29 per
*hare flat
Up to 15 thousand shares on or before July 28, 1933, at a price of $30 per
^hare flat
All in accordance with letter of agreement dated June 13, 1933, between
<General Motors Corporation and ourselves, copy of which is enclosed
As arranged, the Toledo Trust Co has joined us in this purchase to the extent
of 5 thousand shares, but has no interest in the options referred to above.
We confirm that the balance of the above purchase, that is, 20 thousand
shares, and the options mentioned above, are for account of the associates,
ancludmg you and ourselves, referred to in your letter to us of June 1, 1933, in
proportion to the percentage of interest which said associates had in the
purchase and options referred to in your said letter.
We understand that you will confirm to the associates, including ourselves,
their respective interest in the purchase and options above referred to, so that
the above mentioned 20 thousand shares and the additional 40 thousand shares
covered "by the present options will be handled in the same manner as the shares
pui chased and under option as described in your letter of June 1 to us
If the foregoing is in accordance with your understanding will you please
•confirm your agreement by signing the enclosed copy of this letter?
Yonrs very truly,
(Signed) KUHN-LOEB & Co
This means that this commitment for the purchase of 25 thousand
shares from the General Motors Corporation at $27.50 per share,
plus an option on 40 thousand shares at prices of $29 and $30 per
shaixe, was pxit ink) the original pool agreement.

STOCK EXCHANGE PRACTICES

6245

Mr. DAY. It was put into the original syndicate agreement; yes,
sir.
Mr. PECORA. And dealt with in the same manner.
Mr. DAY. Yes, sir.
Mr. PECORA. AS the stock that was optioned to the syndicate under
date of June 1,1933, by the Libbey-Owens Securities Corporation.
Mr. DAY. That is correct, sir, absolutely.
Mr. PECORA. Were the trades that the syndicate made in the stock,
that have already been testified about by both you and Mr. Gibson,
trades which included trades under this option of June 16, 1933 ?
Mr. DAY. The trades which were testified to yesterday, in the
volume of stock which I gave you from the copy of the memorandum which you had, were part and parcel of this, and the same
syndicate were part and parcel of this, and had the same participation.
Mr. PECORA. And also operated without putting up any cash from
its own resources. That is to say, the syndicate was able to take
down the stock under this option out of the proceeds of sales of
the stock which it had already made in the open market against this
option.
Mr. DAY. They took down this with the differential.
Mr. PECORA. What was the difference ?
Mr. DAY. I do not know, but there would be a differential. There
was no money put up. There was enough money there to take it
in. I do not mean to quibble.
Mr. PECORA. On those options, during the operations of this pool
last summer, when stock was purchased on the way down, from
about 28 to 21, is it not a fact that those purchases were made to
cover a short position which the pool had taken in the stock?
Mr. DAY. I could not answer without, so to speak, matching up
trades.
Mr. PECORA. Perhaps Mr. Gibson, the auditor of your firm, could
inform you as to that.
Mr. I)AY. I think, if given sufficient time, we could answer that
question, and would be very glad to.
Mr. PECORA. HOW much time would you need, Mr. Day?
Mr. DAY. I do not know, sir. Personally, I think the answer
is that if that was true, we are perfectly willing to admit that.
Probably it was true. But, on the other hand, if we bought 25,000
at $27.50, and we bought 26,000 at $26.50, and the market went down
to 21 or 21%, or 21%, whatever happened to be the low, it is fair
to suppose that this group would have been only too glad to have
bought stock 5 or 6 points lower than the point at which they had
taken these on.
Mr. PECORA. The reason I asked you that is because our analysis
of the trades would tend to indicate that was what was done, but
I wanted to make sure of it so that the record will not in any way
do an injustice to the facts.
Mr. DAY. I have gentlemen here who could break it down. Possibly they could go outside and break it down. I have my two best
men here, who handled all these details. I, personally, did not. I
will be very glad, if it so shows, to testify that at that particular
moment there was a buying power in the syndicate.

6246

STOCK EXCHANGE PRACTICES

Mr. PECORA. I will tell you what I suggest might be done. Let
your Mr. Gibson make the break-down, and if he reaches a conclusion, from his analysis of the trades made by the syndicate, other
than the one that we have reached, let him so state, and we will put it
in the record.
Mr. DAY. I want to facilitate it all I can. At any rate, whether he
would be able to do it right here, without his tickets and other paraphernalia which they use in a matter of that kind, I do not know.
Mr. Gibson would be very glad to return here at any time and give
you the facts about it for your record.
Mr. PECORA. If we do not hear to the contrary in the next few days
from you or Mr. Gibson, it is safe to assume that these purchases on
the way down were made to cover short positions.
Mr. DAY. I think that is quite correct, sir.
Mr. PECORA. Was there any other option that this pool or syndicate
acquired during the time that it was trading m this stock last
summer ?
Mr. DAY. NO, sir.
Mr. PECORA. I have no further questions to ask, then, about these
pool operations m this particular stock. Is there anything yon want
to add to the testimony you have already given on this subject, Mr.
Day, without the necessity of being asked specific questions about it?
Mr. DAY. I do not think there is very much that I would like to
add, and I hesitate to add what I might say, but, in justice to my
partners and Redmond & Co., I would like to say that m this particular instance—and we try in every single instance, m any stock we
go into—I have heard this question raised here, which brings it to
my mind. We have a very large statistical department that makes a
very thorough analysis of any stock, and in this particular instance
we considered it was undervalued. I had a break-down made, to
correct an impression relative to the manner m which I handled this
situation. It was closed while I was away, but I had, I suppose, the
most to do with it, and, interpreted as it may be interpreted, there
was a profit of $395,000. There was a distribution of 165,000 shares.
According to the accounting department, they tell me that there was
a profit per share of $2.40. At a price of $80, this would represent
8-percent commission paid for distribution.
I have not anything to add further than that. I am giving you
the best of my recollection.
The CHAIRMAN. YOU may be excused.
Mr. PECORA I want Mr. Day to testify with regard to another
inquiry.
Mr. DAY. At this time ?
Mr. PECORA. Not at this time, but I want him to remain within call.
(Witness temporarily excused.)
Mr. PECORA. I now call Mr. Seton Porter.
TESTIMONY OF SETON PORTER, NEW YORK, PRESIDENT
NATIONAL DISTILLERS PRODUCTS CORPORATION
The CHAIRMAN. YOU solemnly swear that you will tell the truth,
the whole truth, and nothing but the truth, regarding the matters
now under investigation by the committee. So help you God.

STOCK EXCHANGE PRACTICES
Mr. PORTER. I do.
Mr. PECORA. State your full name an^
Mr. PORTER. Seton Porter; 52 William
Mr. PECORA. Are you the president

6247

address, please, Mr. Porter.
Street, New York.
of the National Distillers

Products Corporation?
Mr. PORTER. Yes, sir.
Mr. PECORA. HOW long have you been president
Mr. PORTER. Since its formation.
Mr. PECORA. That was when?
Mr. PORTER. 1924; 10 years.
Mr. PECORA. Since its formation, have you also

of that company ?

been a member of
the board of directors of the corporation ?
Mr. PORTER. Yes; always
Mr. PECORA. What is the capital structure, briefly, of the National Distillers Products Corporation?
Mr. PORTER. At the present time, sir ?
Mr. PECORA. YOU might give it at its formation in 1924, and then
briefly give any changes that have been made in its capital structure since that time.
Mr. PORTER It is quite a long story, sir, and, if you would permit
me to be approximate, I can give you roughly the idea.
Mr. PECORA. All right, sir. Do it that way.
Mr. PORTER. The company was formed in 1924 as the outgrowth
of a receivership and a bankruptcy. I came into the matter as an
engineer on reorganization, and subsequently was asked to become
the president when this company was formed as a reorganization.
It started with approximately three and one half millions of, I
think, about 7-percent bonds. Those bonds were sold to the public.
The proceeds of those bonds were used to pay
Mr. PECORA. Were they debenture bonds?
Mr. PORTER. Debentures; 10 years, I think they were, sir. The
proceeds of those bonds were used to pay the expenses of reorganization and trade creditors, and that sort of thing, and leave a small
amount of cash in the company.
The company had, m addition to those bonds, a little less than
$12,000,000 of 7-percent preferred stock, which was given in exchange or was given for the bank debt and a previous issue of bonds.
There were about six millions of bonds outstanding in the hands
of several thousand people of the old company and about six millions of bank debt. This preferred stock was, through the reorganization, given in exchange for those bonds and the bank debt,
so that this company you are now asking me about, sir, started in
1924 with some three and one half millions of debentures, elevenmilhon-and-odd of this preferred stock, and 168,000 shares of
common stock.
Mr. PECORA. NO par value.
Mr. PORTER. NO par value. Just to make the picture a little
more complete, that preferred stock, because of the difficulties, was
not made cumulative for a period of 6 years. At the end of 6
years it was to become cumulative. That is where we started.
As to the first change, roughly speaking, we succeeded m selling
a yeast company, known as the " Liberty Yeast Co.", and with the
proceeds of that sale at that time I think we succeeded in paying
175541—34—PT 14

6248

STOCK EXCHANGE PBACTICES

off our original debenture issue. I do not think that is very important now.
I come down, perhaps, to 1929. This company had originally
inherited—perhaps, if it does not take too long I can make it plain
tea you. There was the old large whisky corporation of preprohibition days, known as the " Distillers Corporation." They were also
engaged in the alcohol business, and they were engaged in the yeast
business. At the time of failure they, of course, had tried, due
to prohibition, to go into the food businesses. We inherited what
was left of that. We had a whisky business which, of course, was
limited by prohibition, this yeast business, and the alcohol business.
In 1929 we sold the alcohol company, known as the " Kentucky
Alcohol Corporation ", a wholly owned subsidiary, for 1 6 ^ million
dollars cash. That cash was taken and retired the debentures—we
subsequently had to issue a second set of debentures—retired the
debentures, and all the preferred stock, which was called at $110
a share, and the accumulated dividends. It had just then become
cumulative. That left us with some surplus cash in our treasury.
That was our position in the beginning of 1929, when things were
quite booming in the security markets. Our whisky business was
very quiescent, simply selling for medicinal trade, and we had the
largest medicinal business in the country. That was the picture in
the boom times of 1929, sir.
The CHAIRMAN. What was this you sold for 16*4 million?
Mr. PORTER. An industrial alcohol business.
Mr. PECORA. What changes thereafter were made in the capital
structure of the company?
Mr. PORTER. We issued 107 thousand shares in exchange for common stock of the American Medicinal Spirits Co., which was a
partially owned subsidiary company. That was done on December
31, 1929. That additional issue of common stock gave us 100 percent ownership of that subsidiary, the whisky company, and the
jiext change—I have not dealt at all with the preferred stock, but
perhaps you are not interested in that. The next change in the
<common stock structure, was in the spring of 1933, of 40 thousand
shares sold for cash; 12 thousand shares sold for cash; and 27
thousand shares which were sold through stock brokers.
Mr. PECORA. TO whom were those blocks of stock sold for cash
in 1933?
Mr. PORTER. The 40 thousand shares and the 12 thousand shares
were sold to a group represented by William E. Levis.
Mr. PECORA. William E. Levis at the time was president of the
Owens-Illinois Glass Co., was he not?
Mr. PORTER. Yes, sir.
Mr. PECORA. And the

40 thousand share block sold at $25 a share
to that group headed by Mr. Levis, or which included Mr. Levis?
Mr. PORTER. Yes, sir.
Mr. PECORA. With the

sale of those 40 thousand shares was not
an option given to the same group covering 12 thousand shares at
$25 a share?
Mr. PORTER. Twelve thousand shares at $27.50.
Mr. PECORA. Those 12 thousand shares were drawn down by that
group under that option ?

STOCK EXCHANGE PRACTICES

6249

Mr. PORTER. Yes, sir.
Mr. PECORA. What other

sales were made m 1933, of which you
have not given us the price* ?
Mr. PORTER. There were 27 thousand shares offered to the stockholders coincidentally with that sale to Mr. Levis, at the same price,
$25 per share. Then later there was some other. Following that,
m June, there were 106 thousand shares of common stock issued
in the purchase of the Overholt & Large Distilleries; 102 thousand
of it was for that purchase and 4 thousand shares for the purchase
of the Sunnybrook Distillery shares
Mr. PECORA. The block of 102 thousand shares issued in June
1933 was issued to D. A. Schulte & Co., or his interests, were they
not?
Mr. PORTER. Yes, sir.
Mr. PECORA. They1 acquired

control of certain distillery properties which the National Distillers Products Co. purchased through
this issue of 102 thousand shares; is that right?
Mr. PORTER. That is right.
Mr. PECORA. At what price were those 102 thousand shares issued
to Schulte & Co., or rather, what value was given to them?
Mr. PORTER. $60,1 believe.
Mr. PECORA. $60 a share?
Mr. PORTER. We have to state that, I believe. We have to place a
value on them. I think it was $60. It was an exchange of propGerties.
Mr. PECORA. Were any other sales of capital common stock of
the company made in 1933 by the company?
Mr. PORTER. That concludes all the shares from the formation of
the company to the present date.
Mr. PECORA. In 1932 did your company sell en bloc to anybody
any of its common stock?
Mr. PORTER Yes,

sir.

Mr. PECORA Will you give us the details of any such transaction
in 1932?
Mr. PORTER. AS I have just stated, m 1929, as a result of the sale
•of the Kentucky Alcohol Corporation for 16% million dollars in
cash—that was the most active subsidiary that we had—the company was left with considerable cash, and interest rates were very
high. At first we loaned the bulk of that on call, on the street. My
recollection is that we never got less than 6 percent. Interest rates
ran very high at that time—perhaps 7 or 8.
Mr. PECORA. DO you recall about the aggregate amount that the
company loaned on call m 1929?
Mr. PORTER. I think from a million and a half to two million,
roughly.
Mr. PECORA. Did it make those call loans directly, or did it
make them through any bank or other agent?
Mr. PORTER. We made them directly through banks.
Mr. PECORA. That is, you turned over the money to banks to be
loaned on call?
Mr. PORTER. TO loan it to stock-exchange houses.
Mr. PECORA. On call?
Mr. PORTER. On call.

6250

STOCK EXCHANGE PRACTICES

Mr. PECOKA And the bank charged its usual commission for
handling the loan &
Mr. PORTER. Yes; very small.
Mr. PECORA. About a quarter of 1 percent?
Mr. PORTER. Something of that kind; yes, sir. Following that,
interest rates fell, and we felt that some of this cash should be invested. We made two types of investment. We invested a considerable portion of it m our own common shares, which we bought on
the open market, and another portion of it m the common shares of
three other industrial corporations which we thought at that time
we were picking with great care, acumen, and skill. We had a lot
of bankers on our board, and I had their careful advice as to what
we should buy, and we put about $440,000 in cash in the common
shares of three companies that we had no interest in, that were very
active and large corporations.
Mr. PECORA. What were those companies ?
Mr. PORTER. They were the Anaconda Copper Co., the Kennicott
Copper Co., and the American Car & Foundry Co.
Mr. PECORA. HOW many shares of its own stock did your company
buy subsequent to 1929 with this cash surplus ?
Mr. PORTER. This was in 1929, sir.
Mr. PECORA. In 1929.
Mr. PORTER. In 1929 and
Mr. PECORA. Were those

1930.

purchases of its own stock, which you say
it made m the market, made after the big break came in October
1929?
Mr. PORTER NO, sir. Unfortunately all these investments were
made before the big break. We were like most people.
Mr. PECORA. Let me ask
Mr. PORTER (after conferring

with an associate). I may not be
quite correct in that. I can give you the prices, though, sir. After
the break perhaps started, and a long time before the debacle took
place, we bought a total of 26,393% shares of our stock which had
an aggregate cost of 31%. That was $836,000, roughly. We put
$43'0,000 into the five thousand of the stock of these other corporations.
Mr. PECORA. From the stocks that you bought, like Anaconda
Copper, and Kennicott Copper, I am led to infer that among the
bankers you had on your board there might have been directors of
the National City Bank.
Mr.

PORTER. NO, sir.

Mr. PECORA. That is not so ?
Mr PORTER. NO, sir. We had at that time the vice chairman of
the Irving Trust Co., who has since died; Mr. Jones, of the Bankers
Trust Co.; and Mr. Loosby, the present of the Equitable Trust Co.
Mr. PECORA. During the year 1932, did your company deal in any
puts and calls m its own stock ?
Mr. PORTER. Yes, sir. May I carry this just a little further?
Mr. PECORA. GO ahead.
Mr. PORTER. We began in 1931, as I have just stated, with twentysix thousand-odd shares of National Distillers' stock, at an average
cost of 31%, and this other investment. In 1932 the whole situation
changed We then needed money, and we determined to try to sell

STOCK EXCHANGE PRACTICES

6251

both these investments ultimately, and particularly our own stock.
That started in 1932. I will give you the over-all picture. Tn that
year we sold those entire holdings, and in the process of selling xhem
we bought additional shares, so that during the year 1932 the total
over-all figures would show purchases of 15,000 shares at an average
cost of 17%th, and sales of 40,000 shares, which included the 15,000
and the 26,000 we already owned, at 19%ths. In other words, if you
might think we were buying and selling, we were fortunate in having
bought a little lower than we sold. The loss on that National Distillers transaction from the beginning—in other words, the 26,000
shares at $800,000—was $200,000, from our capital investment, you
might say. Disregarding the fact that that stock paid dividends
during that period, and therefore the company did not have to disburse dividends on shares it held, we lost something like 25 percent of
the capital investment. On these other shares we invested m, with
really the greatest care, we lost over 90 percent of the money invested.
We got a recovery of less than 10 percent I cite that, not in defense
of our judgment, or anything else, but merely to tell you what the
result was. In selling that stock in that year we gave options, and
one or two puts, and so forth.
Mr. PECORA. During 1932 did you give puts and calls on your
capital common stock?
Mr. PORTER. Yes, sir.
Mr. PECORA. TO whom ?
Mr. PORTER. They were all given to Kedmond & Co. in 1932.
Mr. PECORA. That is, this firm of stock brokers ?
Mr. PORTER. Yes, sir.
Mr. PECORA. What was the purpose of giving those puts

and
calls in 1932, Mr. Porter?
Mr. PORTER. The market in this stock was very inactive. We had
started to try to sell this stock in 1931. We had given some options
to some other people in that year. We had a rather difficult experience. We were able to sell but very little without seriously breaking
the market, and such experience as I have had led me to believe that
giving an option for a short period, at or slightly in excess of the
current quotations, and stepping up a little bit, was probably the
best way we could dispose of this stock, or get the best price for it.
We were solely interested, if I may say so, in getting the most we
could for the company on the shares that we bought
Mr. PECORA. These puts and calls were given to a firm of stock
brokers with a view of having some activity in the market excited or
created?
Mr. PORTER. N O ; they were given purely with a view of getting
the best price we could. In other words, when we did this, as a
rule the price was at the market, or a little more, and was stepped up.
It was left to them to do as they saw fit with it.
Mr. PECORA. It was expected that as a result of the giving of these
puts and calls the market price of the stock would be beneficially
affected?
Mr. PORTER. Yes,

sir,

Mr. PECORA. And it would be beneficially affected through the
medium, among other things, of creating additional activity in the
market, is that right?

6252

STOCK EXCHANGE PRACTICES

Mr, PORTER. I presume so; yes.
Mr. PECORA. Can you tell the committee how many such puts and
calls the company gave in 1932 ?
Mr. PORTER. Probably, roughly, a total of eight, of which not all
were exercised, I believe. Only some were exercised.
Mr. PECORA. Was the giving of these puts and calls suggested to
you, or the other officers of your company, by anybody ?
Mr. PORTER. I can say this, as a frank answer to your question.
When a corporation is known to have an ownership of its own shares
of stock, Wall Street in general knows about it, and you are subjected to a good deal of solicitation as to whether you would not
like to sell it, or what you would like to do with it. A good many
people talked with us about it. We talked about it with a great
many different people, sir.
Mr. PECORA. Who suggested the giving of the puts and calls for
the purposes you have stated?
Mr. PORTER. I do not know that anyone in particular suggested it.
It was known that we were going to try to sell these shares. I do
not mean to say it was generally known. That would have been a
very depressing thing on the market. They knew we were going to
try to sell the shares, and I discussed it with Redmond & Co How
the thing came about, I do not remember, whether they came to us
or whether we went to them.
Mr. PECORA. When you say you discussed it with Redmond &
Co.
Mr. PORTER (interposing). I think perhaps they came to us.
Mr. PECORA. DO you recall which members of the firm?
Mr. PORTER. Mr. Mason Day primarily.
Mr. PECORA. Was the giving of these puts and calls approved by
the board of directors?
Mr. PORTER. Yes, sir.
Mr. PECORA. Were they

reported currently to the board of
directors ?
Mr. PORTER. What was done was this: These securities were
bought under a resolution, as I recall it, authorizing the proper
officers to spend a million dollars or thereabouts in the purchase;
that is the resolution. The actual detailed transactions were reported.
When the matter of selling these shares was decided upon a resolution was passed giving the proper officers, myself included, I think
very wide latitude to dispose of them to the best advantage, and
there were no detailed resolutions for every option.
Mr. PECORA. Were there any resolutions at all adopted by the
board of directors authorizing the giving of these puts and calls?
Mr. PORTER. Not specifically; no, sir.
Mr. PECORA. Was any formal report made?
Mr. PORTER. Oh; yes, sir.
Mr. PECORA. TO the board

of directors with regard to the giving
of these puts and calls at the time they were given or shortly
thereafter ?
Mr. PORTER. Oh, yes, sir; at the regular meetings the status was
always plain. I t was thoroughly understood; yes, sir.
Mr. PECORA. Does the fact of the making of those reports to the
board of directors appear in the minute books of the board of
directors?

STOCK EXCHANGE PRACTICES

6253

Mr. PORTER. I do not think so; no, sir. I may say in connection
with this matter that the board has an executive committee of which
I am not chairman. At that time it consisted of Mr. Loosby, Mr.
Jones, and Mr. Banks was a member of it, and Mr. Callahan, who is
since dead.
Mr. PECORA. That was the Mr. Callahan connected with the Chase ?
Mr. PORTER. Frank Callahan, originally of Rushmore, Bisbee &
Stern, first on our board and later with Chase. He was on our board
for many years, but he is dead.
And I discussed with the executive committee in great detail just
what we were doing from time to time. This was not an arbitrary
transaction.
Mr. PECORA. DO the minutes of the executive committee of the
board
Mr. PORTER. NO.

Mr. PECORA. Show any such discussions or show any report
Mr. PORTER. NO, sir.
Mr. PECORA. Being made to the executive committee
Mr. PORTER. NO.
Mr. PECORA. Of the giving of these puts and calls ?
Mr. PORTER. NO, sir.
The CHAIRMAN. Was the corportion paying dividends then?
Mr. PORTER. When we sold this stock, sir?
The CHAIRMAN. Yes.
Mr. PORTER. NO, sir. No, sir; we were paying dividends some

2
years, but we had stopped.
The CHAIRMAN. YOU seemed to have been m very fine condition.
You were able to loan a couple of million dollars to brokers, and all
that, at a good rate of interest, and now you seemed to need capital.
What had happened to the company ?
Mr. PORTER. Well, I will try to explain again, Mr. Chairman.
You see, we were possessed of a lot of assets that we received in a
reorganization, and we had all these debts. I t was quite a close
thing by the reorganization managers as to whether they would
liquidate this company as a result of the receivership or whether
they would go forward with it and give this preferred stock on their
debts. And it was our first purpose during the early years of managing this company to try to work out those creditors By the sale
of this alcohol company we succeeded in doing so, and that paid all
of the original creditors off really with interest.
Now, we were still possessed of this whisky company, which, of
course, had great potential value, which we held during all these
years, and we had it, Mr. Chairman, when we sold the alcohol company and had what appears like a great deal of cash—it was a great
deal of cash, a couple of million dollars—and it was at that time that
we made the investment in this stock.
Now, you see, events moved rather rapidly from 1929 and when
we got into 1932 we were in this general financial situation the
country was m and we were also beginning to come to the point
where we saw repeal coming where we needed capital. The thing
developed very rapidly. Tnat perhaps answers your inquiry.
Mr. PECORA. In connection with the giving oi these puts and
calls that you have testified about, do you know whether any of

^6254

STOCK EXCHANGE PRACTICES

them were given or assigned to the brokerage firm of Wright &
Sexton?
Mr. PORTER. I do now; sir. I don't think I did at the time.
Mr. PECORA. Mr. Porter, the stock of the National Distillers
Products Corporation was during all this period of time covered by
your testimony listed on the New York Stock Exchange, was it
not?
Mr. PORTER. From the beginning; yes, sir.
Mr. PECORA. From the beginning. These puts and calls are in
ireality forms of options, are they not?
Mr. PORTER. That is what we really call them; sir, yes. They
ivere options.
Mr. PECORA. They are options?
Mr. PORTER. Are options; yes, sir.
Mr. PECORA. Were the giving of these options in the form of
these puts and calls reported to the New York Stock Exchange?
Mr. PORTER. NO, sir.
Mr. PECORA. At any
Mr. PORTER. NO, sir.
Mr. PECORA. Isn't it

time?

required of corporations whose securities are
listed on the board of that exchange that they report to the exchange the giving of such options ?
Mr. PORTER. N O ; it was not at that time, sir. It is now, I believe.
It was not at that time.
Mr. PECORA. Have you before you a copy of the application made
to the New York Stock Exchange by or on behalf of the National
Distillers Products Corporation, dated February 8, 1932, for an
initial listing of preferred stock and an additional listing of common
stock?
Mr. PORTER. November 8; yes, sir.
Mr. PECORA. NO ; February 8,1932. I t bears the serial no. A-9880.
Mr. PORTER. Yes, sir.
Mr. PECORA. DO you have it before you ?
Mr. PORTER. Yes, sir.
Mr. PECORA. Will you turn to page 7 thereof?

The page number

is on the top of the page, Mr. Porter.
Mr. PORTER Oh, yes, sir.
Mr. PECORA. Under the caption

of " agreements ", isn't it set forth
in this application that the National Distillers Products Corporation
agrees with the New York Exchange as follows, among other things*
To notify the stock exchange promptly in the event of issuance of options or
warrants to purchase stock otherwise than (a) pro rata to stockholders, (&)

to officers and employees under general employee stock-purchase plan, (o) firm
offers of stock to be taken en bloc within 4 months from date of such offer, of
the numbei of shares covered by such options, of their terms and of the time
m which they may be exercised, and of any subsequent changes therfein or
thereafter, to include this information together with like information, as to any
options in existence at the time of approval of this application, so long as said
options are outstandingf in all annual financial reports furnished to stockholders
and in all formal published reports

Do you find that provision that I have read from this application?
Mr. PORTER. Yes, sir.
Mr. PECORA. These puts

and calls that you have testified to were
given subsequent to February 8, 1932, weren't they 2

STOCK EXCHANGE PRACTICES

6255

Mr. PORTER. Yes, sir.
Mr. PECORA. They were not reported to the Stock Exchange?
Mr. PORTER. NO, sir.
Mr. PECORA. Under this agreement on the part of your company?
Mr. PORTER. Not so required, sir.
Mr. PECORA. What is that?
Mr. PORTER. Not so required, as I understand it, because they are

exempted under (c) there, are they not, within 4 months?
Mr. PECORA. DO you consider puts and calls firm offers of stock!
Mr. PORTER. Options. Options is a firm offer, isn't it, sir?
Mr. PECORA. NO ; a firm offer would not be an option.
Mr. PORTER, Firm offers, I would certainly think, sir—I am not
a lawyer, but I would certainly think that an option was a firm
offer. It could not be any more firm. We agreed to sell it at a certain price on a certain date, didn't we ?
Mr. PECORA. According to that definition of the term " option "
there is no difference between an option and a firm offer,
Mr. PORTER. NO ; I would not think there was.
Mr. PECORA. Don't you consider that under a firm offer there is
a definite commitment?
Mr. PORTER. Yes.
Mr. PECORA. In the case of an option there is not ?
Mr. PORTER. There certainly is a definite commitment

if we agree
to deliver certain shares. That is what we do under an option.
The other fellow does not obligate himself, but we do.
Mr. PECORA. That is what distinguishes an option from a firm
offer, doesn't it, the fact that the other party, the party to whom the
option was given, is not obligated, whereas under a firm offer he is
obligated to take the stock ?
Mr. PORTER. I do not mean to disagree with you, sir, as a lawyer
on a legal point, but I would not so understand it.
Mr. PECORA. AS a matter of fact, did the optionees, or persons to
whom these puts and calls were given, exercise their options under
the puts and calls in all instances ?
Mr. PORTER. NO, sir.
Mr. PECORA. Doesn't that
Mr. PORTER. A firm offer

indicate that they were not firm offers ?
from us, sir, is what I understand. In
any event, sir, we did not report them, and we understood that we
did not have to. The rule is entirely changed now, sir, and we do
have to report any such things.
Mr. PECORA. What is that?
Mr. PORTER. That is a totally different rule now, and I specifically
do understand that we would have to report any such transactions
now to the stock exchange.
Mr. PECORA. I t is a rule and regulation of the stock exchange?
Mr. PORTER. Yes, sir.
Mr. PECOKA. But under

this application agreement you agreed to
do that very thing, didn't you ?
Mr. PORTER. NO ; the rule is now quite different from that, sir.
As I understand, what happens in these listing applications, you sign
what they put on at that time. You do not come under their new
rules necessarily until you sign again, as a matter of fact. We have
since signed and since agreed to a different rule from this.

6256

STUCK EXCHANGE PRACTICES

Mr. PECORA. Mr. Porter, isn't it a fact that when your corporation
filed this listing application with the New York Stock Exchange
Mr. PORTER (interposing). We agreed to that
Mr. PECORA. ' You entered into the covenants and agreements that
are set forth in the listing application itself ?
Mr. PORTER. Yes,

sir.

Mr PECORA. And those agreements include that which I read to
you from page 7 of the listing application?
Mr. PORTER. Yes, sir.
Mr. PECORA. NOW, will

you tell the committee at what prices, compared with market prices, these puts and calls were given ?
Mr. PORTER. These options, without going into each one, were
given at approximately the market or slightly in excess of the market
and stepped up, I think, in all the seven instances. I am saying
that is approximately.
Mr. PECORA. NOW, I show you what purports to be a copy of a
letter addressed to your corporation bj Redmond & Co. under date
of February 15,1932. Will you look at it and tell me if jrou recognize
it as one of the options that you have testified to was given to Redmond & Co.?
Mr. PORTER (after examining document). Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated Feb. 15, 1932, from Redmond & Co. to National
Distillers Products Corporation was thereupon designated "Committee Exhibit No. 72, Feb. 22, 1934", and appears m the record
in full immediately following, where read by Mr. Pecora.)
Mr. PECORA. The document has been received in evidence as committee exhibit no. 72 and reads as follows; it is on the letterhead of
Redmond & Co. [reading] :
FEBRUARY 15,

1932

NATIONAL DISTILLERS PRODUCTS CORPORATION,

And so forth.
Attention Seton Porter, Esq
GENTLEMEN : This will confirm that you have this clay given to Redmond and
Co a put to you at 21% dollars per share good for thirty days from" this date
on 2,500 shares of the common stock of the National Distillers Products Corporation which may be exercised in part or in whole by notifying the office of
the National Distillers Products Corporation, 52 William Street, 24 hours in
advance, with the exception that upon the last day the put may be exercised
without notice
We also confirm that you have today given us a call good for 30 days from
this date on 4,000 shares ot the common stock of the National Distillers Products Corporation in the following amounts at the following prices
500 shares at $22 per share
500 shares at $22 50 per share
500 shares at $23- per share
500 shares at $23 50 a share
500 shares at $24 a share
500 shares at $24 50 a share.
500 shares at $25 a share
500 shares at $25 50 per share
It is understood that this call may be exercised in part or in whole upon
24 hours' notice at the office of the National Distillers Products Corporation,
52 William Street, with the exception that upon the last day a call may be
exercised without notice

STOCK EXCHANGE PRACTICES

6257

We are sending you this letter in original and duplicate original, and for the
•completion of our records request that you sign the original duplicate and
return it to us at your convenience
Very truly yours,
(Signed)

REDMOND & Co.

Accepted:
NATIONAL DISTILLERS PRODUCTS CORPORATION

Now, I show you another letter or copy of a letter addressed to
Eedmond & Co. by yourself, as president of the National Distillers
Products Corporation, dated May 3, 1932. Will you look at it and
tell me if you recognize it to be a true and correct copy of a letter"
sent by you in behalf of your corporation to Redmond & Co. on or
about the date which it bears?
Mr. PORTER (after examining document). Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated May 3, 1932, from Seton Porter, president National
Distillers Products Corporation, to Redmond & Co., was thereupon
designated " Committee Exhibit No. 73, Feb. 22, 1934 ", and the same
appears in the record in full immediately following where read by
Mr. Pecora.)
Mr. PECORA. The document has been received in evidence as committee exhibit no. 73 and reads as follows, on the letterhead of National Distillers Products Corporation [reading:]
MAY 3, 1232

Hedmond & Co

And so forth
Attention Mr Mason Day
Gentlemen We confix m that we have todav given you put to us for 1,500
shares of National Distillers Products Coiporation common stock at $18 per
share and a call on 2500 shares as follows:
500 shares at 19
500 shares at 19%
500 shares at 20
500 shares at 21
500 shares at 22
all good for sixty days from this date
It is understood that the above put or call may be exercised in part or in
whole upon 24 hours' notice to us at our office, with the exception that upon
the last day a put or call may be exercised without notice.
If the foregoing properly confirms our understanding, please write us to
such effect
Very truly yours,
(Signed) SETON PORTER, President

Now, Mr. Porter, I assumed that you understand how persons
operating under the form of options known as "puts and calls"
operate under them ?
Mr. PORTER. HOW they do ?
Mr. PECORA.

Yes.

Mr. PORTER. Well, I think so. I don't know that I am clear
about it.
The CHAIRMAN. We cannot hear you, Mr. Porter.
Mr. PORTER. Yes,
Mr. PECORA. In

sir.

effect, the holder of the optiony namely, Redmond & Co., under this last option, marked " Exhibit No. 73",
was given the right to put or sell to your corporation 1,500 shares

6258

STOCK EXCHANGE PEACTICES

of your corporation's common stck at $18 a share and was given
the right to call upon your corporation to sell to it, Eedmond &i Co..
2.500 shares at the prices fixed m this letter, all at the option oi
Eedmond & Co. ?
Mr. PORTER. Yes
Mr. PECORA. Under

this option Redmond & Co. were given the
right to put to your company or to sell to your company 1,500
shares of its own common stock at $18 a share if they wanted to,
and to buy from your company 2,500 shares at prices ranging from
"$19 to $22 a share if they wanted to?
Mr. PORTER. Yes.
Mr. PECORA. SO that

if the price of the stock m the market fell
below $18 a share Eedmond & Co. were put in a position of obligating your company to take from them 1,500 shares at $18 a share ?
Mr. PORTER. That is right.
Mr. PBCORA. And under this option also if the market price went
up to above $19 to $22 Eedmond & Co. were given the right to
obtain from your company at those prices, 19 and 22, prices under
the market, up to 2,500 shares ?
Mr, PORTER. That is right.
Mr. PECORA. NO margin was put up by Eedmond & Co. under this
kind of an option?
Mr. PORTER. NO.
Mr. PECORA. None is required on
Mr. PORTER. Well, we only had

puts and calls of this kind ?
altogether in this whole transaction two of what you would call puts, just two altogether in the
whole year That was all the transactions ever
Mr. PECORA. Did Eedmond & Co under those put and call options
call upon your company to take from them
Mr. PORTER. We purchased I believe under this
Mr. PECORA (continuing). To take from them the shares that
they had the right to put to you at prices above the then market?
Mr. PORTER. That particular transaction, I believe, resulted in
their putting to us 1,500 shares at 18, which we did take; yes, sir,
Mr. PECORA. And what was the market at that time?
Mr. PORTER. The market was I think right at the moment probably below that.
Mr. PECORA. It was around 14 and a fraction, wasn't it?
Mr. PORTER. Probably. I don't know exactly, but assume that
it was.
Mr. PECORA. HOW would you expect that your company would
profit through the giving of such puts and calls ?
Mr. PORTER. I cannot answer that question any better than I have
said before. We sold in the year 1932, 40,000 shares, which included
the 15,000 shares purchased in that year. The 15,000 shares that
were purchased were purchased at an average price of 17%, and the
40,000 that were sold were sold at 19%.
Now, while I do not attempt to say that this was very cleverly
done, we did our best to obtain the very best price we could in the
selling of these shares, and I think that a careful study of the daily
quotations, monthly quotations, and the transactions, would indicate
that was the case.

STOCK EXCHANGE PRACTICES

6259

Mr. PECORA. But how did your company expect to benefit from
the giving of these puts and calls of the kind that have been put in
evidence here ?
Mr. PORTER. Well, we thought, I presume, rightly or wrongly,
that in order to interest someone to try to market these shares for us
we would have to give them an opportunity to—something to work
with.
Mr. PECORA. That is
Mr. PORTER. An option or something that would be of some advantage to them, presumably.
Mr. PECORA. That is, these puts and calls were given to these
brokers in order to induce the brokers to make a market for the
stock so that your company
Mr. PORTER Could market it.
Mr. PECORA. Could dispose of the shares which it had and which
it had bought m the open market previously, at a profit?
Mr. PORTER. Right.
Mr. PECORA Or under more advantageous terms than it otherwise
could have disposed of those shares if a market had not been made
by the brokers 2
Mr. PORTER. Right; yes, sir.
Mr. PECORA. That was the motive behind the giving of these puts
and calls, wasn't it 2
Mr. PORTER Yes, sir.
Mr. PECORA. TO put it m a nutshell 2
Mr. PORTER That is right.
Mr. PECORA. And the inducement to the

brokers in accepting these
options in the form of these puts and calls was that it enabled them
to operate in the market without losing themselves; isn't that so ?
Mr. PORTER. I presume so. There were only two puts in the whole
transaction. Only one of the puts was ever exercised, sir, in this
whole transaction. The one you have just referred to is the only
one that was ever exercised.
Mr. PECORA. At any time during the years 1932 and 1933 to your
knowledge did any of the officers and directors of the National Distillers Products Corporation become members of or participants
m any syndicates that were formed for the purpose of trading in
the market in the stock of the company ?
Mr. PORTER. Well, I can only speak for myself, sir. I was interested in two small syndicates, information of which I have given
you.
Mr. PECORA. Were there any officers or directors of the company
other than yourself interested in those two syndicates that you have
just referred to?
Mr. PORTER. Yes, sir; I think so.
Mr. PECORA. Who were they?
Mr. PORTER Mr. Loosby, myself, Mr. R. E. Wathen, Mr. O. H.
Wathen, Mr. D. K. Wiesskopf.
Mr PECORA HOW about Mr. Schwartzhaupt?
Mr. PORTER. Yes, sir.
Mr. PECORA. He was also one of the
Mr. PORTER. I did not mention him

he was a director at that time.

directors?
because I was not sure that

6260

STOCK EXCHANGE PRACTICES

Mr. PECORA. What is Mr. Schwartzhaupfs full name?
Mr. PORTER. Emil.
Mr. PECORA Are there any members of any stock brokerage firms
that are also members of either one of those two syndicates?
Mr. PORTER. There was no member in that syndicate that I have
just mentioned,
Mr. PECORA. When was that syndicate that you last mentioned
formed ?
Mr. PORTER. All that I have, sir, is a statement that was handed
to me by the man that handled that, which shows the purchases and
sales and the distribution, and the first purchase was in July.
Mr. PECORA. Of 1932?
Mr. PORTER. Of 1932; and it was concluded m August of 1932. It
only lasted for 2 months.
Mr. PEOORA. Wasn't there another syndicate formed also in July
1932 that included yourself, Mr. Loosby?
Mr. PORTER. Yes,

sir.

"Mr. PECORA. Mr. Elisha Walker?
Mr. PORTER. Yes,

sir.

Mr. PECORA. Mr. L. W. James?
Mr. PORTER. Yes, sir.
Mr. PECORA. Mr. James

was a special partner of the firm of Redmond & Co, wasn't he, at that time ?
Mr. PORTER. I don't really know, sir.
Mr. DAY. There seems to be a difference of opinion. I did not
think he was. My brother partners tell me he was not.
Mr. PORTER. I did not really know, sir.
Mr. PECORA. And m that syndicate to which I am now referring
NSLS there an attorney named Loucks ?
Mr. PORTER. Yes,

sir.

Mr. PECORA. W. B. Loucks, also a participant?
Mr. PORTER. Yes,
Mr. PECORA Mr.

sir.

Porter, on general principles do you think it is
good practice and ethical and sound practice for officers and directors
of a corporation to become members of syndicates to trade in the
stock of their own company?
Mr. PORTER. Of their own company?
Mr. PECORA. Yes; to their own personal profit?
Mr. PORTER. I don't think it is unethical to
Mr. PECORA. YOU don't think it is unethical for officers and directors of a company to do that?
Mr. PORTER. Not necessarily, sir; no. I know very few people that
are interested in companies that are stockholders that do not buy and.
sell shares in their own company.
Mr. PECORA. Buying and selling individually might be onething
Mr. PORTER. Yes.
Mr. PECORA. But

forming a syndicate to trade m the stock is
another thing, isn't it?
Mr. PORTER. These two syndicates were not formed for the purpose
of trading in the stock. The first syndicate referred to was formed
by a group of individuals who were all stockholders of the company
who believed that the price of the stock was, very Low, and we

STOCK EXCHANGE PRACTICES

626}

thought that an acquisition of some shares would result in a profit
and would probably help the market.
Mr. PECORA. In the operations of that syndicate did not the syndicate both buy and sell in order to enable its members to d i t b ^
the stock that they wanted to distribute at a profit ?
Mr. PORTER. It so happens, sir, that this syndicate purchased , Q
shares, and it commenced the purchase of those shares on July 26,
July 27, and on August 4 it completed them. And it so happens
that they had not sold a single share that they bought in the whole
3,900 and that they began after the acquisition—I am not quite correct, almost correct—they made one purchase apparently afterwards.
But the bulk, almost the entire purchase in that syndicate, was made
before any selling started, and then it was all sold out. In other
words, it was bought at 21, 22, and 20, and it was sold at 22, 24, and
25, and it resulted in a profit to me and it was divided equally among
the seven people, $1,400.
Mr. PECORA. HOW about the other syndicate? What was the extent of the trading done by the other syndicate?
Mr. PORTER. That I was not at all familiar with, but I have been
given since a statement of it. I was not apprised what they were
doing, and I have heard it began on July 25 and it started by purchasing apparently two or three thousand shares at 18 to 20.
Mr. PECORA. NOW, just give us the total amount of trading done
by it.
Mr. PORTER. I don't know that I can do that, sir. I t resulted in a
profit to me of $2,300.
Mr. PECORA. HOW many shares did they trade in ?
Mr. PORTER. It is not added up here, sir. There were quite a few
shares.
Mr. PECORA. Eighteen thousand eight hundred shares, wasn't it?
Mr PORTER. If that is what that adds up; yes, sir.
Mr. PECORA. NOW let us go to the year 1933. Did any of the officers and directors of your corporation in the year 1933 become members of or participants in any syndicates which traded in the stock
of the corporation ?
Mr. PORTER. NO, sir; not as far as I know.
Mr. PECORA. Not so far a^s you know?
Mr. PORTER. NO.
Mr. PECORA. During

the year 1933 did your corporation give to
anyone options on its common capital stock?
Mr. PORTER. We gave an option to William B. Levis and his
associates .for 12,000 shares in connection with the. purchase of
40,000 shares which he made
Mr. PECORA. Have you a copy of the option given to Mr. Levis?
Mr. PORTER. Yes, sir.
Mr. PECORA. Will you

product it, please?
(Mr. Porter searched for document.)
Mr. PECORA. While you are looking for it let me ask how many
options all told were given by the company on its common stock
during the year 1933?
Mr. PORTER. That was the sole one.
Mr. PECORA. Will you produce the copy of it if you can?
Mr. PORTER. We are trying to find it, sir.

6262

STOCK EXCHANGE PRACTICES

Mr. PECORA. Let me show you what purports to be a copy
Mr. PORTER (interposing). Yes, sir; here it is [handing document
to Mr. Pecora].
Mr PECORA. I offer m evidence the copy of the option produced by
the witness.
The CHAIRMAN. Let it be admitted.
(Letter dated- Apr. 28, 1933, from National Distillers Products
Corporation to William B. Levis was thereupon designated " Committee Exhibit No. 74, Feb. 22, 1934", and the same appears in
the record m full immediately following, where read by Mr. Pecora.)
Mr PECORA. It is received m evidence as committee exhibit no. 74,
and reads as follows:
APRIL 28,

1933

Mr WILLIAM E LEVIS,

965 Wall Street, Toledo, Ohio
DEAR MR LEVIS We hereby confiiin the sale to you of 20,000 shares of common stock of National Distilleis Pioducts Corporation, as and when listed
by the New York Stock Exchange, and on forty-eight hours' notice to you at
youi office, 965 Wall Street, Toledo, Ohio, at $25 a share, purchase price
payable on delivery of stock to you As these 20,000 shares are part of the
new issue of 200,000 shares just authorized at the stockholders' meeting on
April 19th, delivery will have to be delayed until we are able to consummate
certain details in connection with listing arrangements on the New York Stock
Exchange which Counsul advises us cannot be completed until about May 11th
Therefore, we agree to make delivery as soon as possible after these arrangements are completed, and in no event later than 30 days from date
It is understood m connection with this sale that it is the intent of the Corpoiation to issue to its present stockholders warrants covering the right to
subscribe to additional stock on the basis of one share for each ten shares
now held and that these warrants will not apply to the 20,000 shares covered
by this agreement
This sale is made with the understanding that you and one of your associates,
to be selected by you with our approval, will be elected Directors of our
Company
In consideiation of this purchase, we also grant you an option to purchase
additional common stock of our Company to the extent of 12,000 shares good
for 90 days from date of delivery of the 20,000 shares above referred to at a
price of $27 50 per share Upon acceptance of said option by notice to National
Distillers Products Corporation at its office, 52 William Street, New York,
N.Y, the stock, if not then listed, shall be immediately listed and delivered as
soon as possible on forty-eight hours' notice to you at your office, 965 Wall
Street, Toledo, Ohio, and payment therefor shall be made against delivery of
said stock
Very truly yours,
NATIONAL DISTILLERS PRODUCTS CORPORATION,

By SETON PORTER, President

Accepted by*
WM.

LEVIS

At about the same time as this option was given to Mr. Levis did
your corporation enter into any agreement with the Illinois Glass
Consolidated Corporation, of Alton, 111., to sell to it 10,000 shares
of common stock of your corporation at $25 per share?
Mr. PORTER. The same date ?
Mr. PECORA. Yes.
Mr. PORTER. Yes, sir.
Mr. PECORA. I show you

what purports to be a photostatic reproduction of a letter addressed by you as president of your company
to the Illinois Glass Consolidated Corporation, dated April 28,
1933, and I ask you if that is a true and correct copy of the letter
evidencing the fact of the sale you have just testified to?

STOCK EXCHANGE PBACTICES

6263

Mr. PORTER (after examining document). Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated April 28, 1933, from Seton Porter, president
National Distillers Products Corporation, to Illinois Glass Consolidated Corporation, was thereupon designated " Committee Exhibit
No. 75, February 22, 1934", and the same appears in the record
immediately following, where read by Mr. Pecora.)
Mr. PECORA. The document has been received in evidence as committee exhibit no. 75, and reads as follows:
The ILLINOIS GLASS CONSOLIDATED CORPORATION,

APRIL ^»,

Alton, III.
GENTLEMEN. We hereby confirm the same to you of 10,000 shares of the
common stock of National Distillers Products Corporation, as and when listed
by the New York Stock Exchange, on 48 hours' notice to you at the office of your
President, Mr. William E Levis, 965 Wall Street, Toledo, Ohio, at $25 per share,
purchase price payable on delivery of stock to you.
As these 10,000 shares are part of the new issue of'200,000 shares authorized
at the stockholders' meeting on April 19th, delivery will have to be delayed
until we are able to consummate certain details in connection with listing
arrangements on the New York Stock Exchange which counsel advises us can
not be completed until about May 11th. Therefore, we agree to make delivery
as soon as possible after these arrangements are completed and in no event
later than 30 days from date.
It is understood in connection with this sale that it is the intention of the
Corporation to issue to its present stockholders warrants covering the right
to subscribe to additional stock on the basis of 1 share for each 10 shares now
held and these warrants will not apply to the 10,000 shares covered by this
agreement
Very truly yours,
NATIONAL. DISTILLERS PRODUCTS

CORPORATION,

By SETON PORTER, President

Accepted by •
ILLINOIS GLASS CONSOLIDATED
By WILLIAM E LEVIS

CORPORATION,

Did your corporation on this same date, April 28, 1933, also make
a firm sale of 10,000 shares of its common stock to Redmond & Go. at
$25 a share?
Mr. PORTER. Yes,

sir.

Mr. PECORA. I show you what purports to be a photostatic reproduction of a letter addressed to Kedmond & Co. by you as president
of the National Distillers Products Corporation dated April 28,1933.
Will you please look at it and tell me if it is a true and correct copy
of the letter evidencing such sale?
Mr. PORTER (after examining document). Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated Apr. 28, 1933, from Seaton Porter, President National Distillers Products Corporation, to Redmond & Co., was thereupon designated " Committee Exhibit No. 76, Feb. 22,1934," and the
same appears in the record in full immediately following where read
by Mr. Pecora.)
Mr. PECORA. The letter has been received in evidence as committee
exhibit no. 76, and reads as follows:
REDMOND & Co,

APRIL 28,

1933.

48 Wall Street, New Yorh, N.T.
GENTLEMEN: We hereby confirm the sale to you of ten thousand (10,000)
shares of common stock of National Distillers Products Corporation, as and
175541—34—PT 14
7

6264

STOCK EXCHANGE PRACTICES

when listed by the New York Stock Exchange and on forty-eight hours' notice
to you at your main office, 48 Wall Street, New York, N.Y., at $25 a share, the
purchase price payable on delivery of the stock to you
As these 10,000 shares are part of the new issue of 200,000 shares just
authorized at the stockholders* meeting on April 19th, delivery will have to be
delayed until we are able to complete certain details in connection with listing
arrangements on the New York Stock Exchange which counsel advises us
cannot be completed until about May 11th. Therefore, we agree to make
delivery as soon as possible after these arrangements are completed and in any
event not later than thirty days from date.
It is understood in connection with this sale that it is the intent of the corporation to issue to its present stockholders warrants covering the right to subscribe to additional stock on the basis of one share for each ten shares now
held and that these warrants will not apply to the ten thousand shares covered
by this agreement. We understand that you have given an option to purchase
these shares to Mr. William E. Levis on behalf of himself and his associates.
Very truly yours,
NATIONAL DISTILLERS PRODUCTS CORPORATION,

By SBTON PORTER, President.

Accepted by:
REDMOND & COMPANY,
By MABON DAY.

Mr. Porter, referring to the option for 12,000 shares mentioned in
the letter to Mr. William E. Levis of April 28,19S3, which has been
received in evidence as exhibit no. 74, will you tell us whether or not
your corporation reported to the New York Stock Exchange the
granting of that option?
Mr. PORTER. We reported it on I think May 18. [After conferring
with associates.] I think it was May 18.
Mr. PECORA. Did you report it to the stock exchange?
Mr. PORTER. We sent a letter to the stockholders on May 18.
Mr. PECORA. N O ; to the stock exchange, New York Stock Exchange ?
Mr. PORTER. Certainly a letter was sent to all stockholders on
May 18.
Mr. PECORA. No; I am asking you if the giving of this option for
12,000 shares referred to in the letter to Mr. Levis of April 28, 1933,
which has been marked in evidence as committee exhibit no. 74, was
reported to the New York Stock Exchange by or on behalf of your
corporation.
Mr. PORTER. It was not reported at that time; no, sir.
Mr. PECORA. When was it reported ?
Mr. PORTER. I think officially reported when we applied for the
listing on May 25. I t was reported
Mr. PECORA. Oh, aren't you mistaken about that?
Mr. PORTER. I may be, sir.
Mr. PECORA. Well, you better

look up your records on that between
now and the reconvening of the committee after recess.
Mr. PORTER. Right.
The CHAIRMAN. The committee will take a recess until half past 2.
(Accordingly, at 1: 0G p.m., a recess was taken until 2:30 p.m. of
the same day.)
AFTERNOON SESSION

The committee resumed at 2:30 p.m. on the expiration of the
recess.
The CHAIRMAN. The committee will resume. I believe Mr. Porter
is on the stand.

STOCK EXCHANGE PRACTICES

6265

TESTIMONY OF SETON PORTER, PRESIDENT NATIONAL DISTILLERS PRODUCTS CORPORATION, NEW YORK CITY—Resumed
Mr. PECORA. Mr. Porter, wasn't the application for the listing of
the additional shares, that included those 12,000 shares covered by
that option, made on or about June 12, 1933 ?
Mr. PORTER. The application was made on that date. That is,
the stock exchange was put on notice of this option by a letter which
we mailed to our stockholders on May 18, a copy thereof being sent
to them. But the application is dated June 12, 1933, I believe, as
you have stated.
Mr. PECORA. NOW, Mr. Porter, during 1933 rights were given to
stockholders of record of your corporation, to subscribe for certain
shares of the common stock of the corporation, on the ratio of 1
share for each 10 shares then held, and what was the subscription
price at which the offer was made to the stockholders ?
Mr. PORTER. At $25 per share.
Mr. PECORA. When was that done?
Mr. PORTER. They were offered that at the same time that this
sale of 40,000 shares was made.
Mr. PECORA. And that was on April 27,1933, wasn't it?
Mr. PORTER. The board of directors made the authorization on that
date. That is, they met on that date and authorized it. And the
stockholders were notified shortly thereafter.
Mr. PECORA. HOW many shares were offered to stockholders on
these terms?
Mr. PORTER. The number was 27,591 shares.
Mr. PECORA. What was the market quotation of the stock on that
date?
Mr. PORTER. On what date?
Mr. PECORA. On the 27th of April 1933.
Mr. PORTER. I think on that day the low was about 30 and the
high was about 32. I mean on that particular day.
Mr. PECORA. The exact figures
I think are a low of 30% and a high.
B
of323/8.
/*
*
Mr. PORTER. That is right.
The CHAIRMAN. And how many shares did the stockholders take?
Mr. PORTER. I t was 25,000 shares, I believe.
Mr. PECORA. AS a matter of fact it was 27,450 shares, wasn't
it?
Mr. PORTER. I just gave the amount, 27,591 shares.
Mr. PECORA. NO. That was the number of shares offered to stockholders.
Mr. PORTER. Oh. And now you want to know how many
J sharea
they took?
Mr. PECORA. Yes. How many shares were subscribed for bv
J
them?
Mr. PORTER. Practically all of them.
Mr. PECORA. Practically all of them, did you say?
Mr PORTER. I find that they subscribed for all but 141 shares
ottered to them, substantially all.
Mr. PECORA. That offer was made to stockholders at about the
same time that the company entered into this agreement with Bed

6266

STOCK EXCHANGE PEACTICES

mond & Co., and with William E. Levis and with the Owens Illinois
Glass Co., to purchase larger blocks of that stock in the aggregate
than the 27,591 shares offered to stockholders at $25 a share, wasn't
it?
Mr. PORTER. Yes,

sir.

Mr. PECORA. Why were not the stockholders offered all of that
stock instead of only 27,591 shares ?
Mr. PORTER. Well, you see, market conditions had been such, and
I believe were such practically on that date, that there would have
been no opportunity, or no possibility, I might say, of a large offer
to stockholders being taken by them. In other words, in January
of that year the stock had a low of 17 and a high of 18%; in
February a low of 16% and a high of 22%; in March a low of
19ys and a high of 27%, and the over-all record for April was a
low of 25 and a high of 82%. Now, then, we commenced those
negotiations, which were not consummated at the end of April, is
that it?
Mr. PECORA. Yes, Aj>ril 28.
Mr. PORTER. On April 28; yes. Some 3 weeks prior to that time,
when the stock was selling around $25 a share, and when there was
no possible opportunity of the stockholders being willing to subscribe
to any considerable quantity of shares at any such price.
Mr. PECORA. Well, the fact of the matter is that at the same time
your company made these firm contracts with Redmond & Co., William E. Levis, and the Owens Illinois Glass Co., it made this offer
to its stockholders to take 27,591 shares at $25 a share, didn't it?
Mr. PORTER. Well
Mr. PECORA (continuing). And the fact is that your company
made that offer to its stockholders at the same time that it closed
deals with Redmond &> Co., William E. Levis, and the Owens Illinois
Glass Co.
Mr. PORTER. That is right.
Mr. PECORA. Well, then, at that time you must have had a pretty
well-defined notion that the stockholders would take the 27,591 shares
that were offered to them?
Mr. PORTER. That is right.
Mr. PECORA. Well, why didn't you think they would take the balance of that issue at $25 a share ?
Mr. PORTER. Oh. The balance of that issue you are talking about?
Mr.

PECORA. Yes.

Mr. PORTER. Well, of course, we had already made the commitment.
Mr. PECORA. Well, you did not make it until April 28.
Mr. PORTER. It was not ratified by the board of directors until that
date.
Mr. PECORA. But the firm commitment wasn't made until April
28, and it was ratified by the board of directors subsequently.
Mr. PORTER. On April 27; yes, sir.
Mr. PECORA. I t was at that same time that the 27,591 shares were
offered to your stockholders at $25 a share, wasn't it?
Mr. PORTER. That is right.
Mr. PECORA. Well, now, at that time you must have had the notion
that your stockholders would subscribe for those 27,591 shares at $25
a share.

STOCK EXCHANGE PBACTICES

6267

Mr. PCTRTER. That is right.
Mr. PECORA. Why didn't you make the offer to include all the shares
that you had agreed to sell on April 28 to Levis, Redmond & Co. and
Owens Illinois Glass Co. ?
Mr. PORTER. We had already agreed to sell those 40,000 shares to
them prior to that time.
Mr. PECORA. Oh, no. The agreement was evidenced on April 27.
Mr. PORTER. Yes; the written agreement.
Mr. PECORA. That was when it became a firm offer, didn't it?
Mr. PORTER. Yes. It could not have been legally binding until
ratified by the board of directors, which was not done until that day..
That is right. But
Mr. PECORA (interposing). All right. But go ahead.
Mr. PORTER. NOW, it was pursuant to negotiations which were conducted for about 3 weeks prior to that time, and to an understanding
verbally reached, with the general approval of the directors, to make
this sale at $25 a share; at least some 2 or 3 weeks prior to that time.
The market at the particular date that the directors met and ratified
the offering, was 31; you are quite correct on that.
Mr. PECORA. What I want to know is, why the stockholders of your
company were not given an opportunity to subscribe not only for the
27,591 shares which were offered to them, but for the 40,000
shares
Mr. PORTER (interposing). That we had already agreed to sell.
Mr. PECORA (continuing). That you agreed on Aj)ril 28, the following day, to sell to Redmond & Co., William E. Levis, and the Owens
Illinois Glass Co.
Mr. PORTER. AS I have already stated I think, we had agreed with
them verbally, and which was confirmed, to sell those shares at $25.
Mr. PECORA. When did you make that agreement for those private
sales?
Mr. PORTER. About 2 weeks prior to that time, 2 or 3 weeks prior
to that time.
Mr. PECORA. Are you sure of that?
Mr. PORTER. Yes,

sir.

Mr. PECORA. Well, now, I show you what purports to be a copy of
a letter sent by your corporation, over your signature as its president,
to Redmond & Co., dated April 27, 1933. Will you look at it and
tell me if you recognize it as being a true and correct copy of a letter
that you caused to be sent to Redmond & Co. on that date?
Mr. PORTER (after casually looking at the paper). No, sir; that
is not, I think, the correct letter that we did send to them. I do not
think that letter was ever signed. It is marked up here
Mr. PECORA (interposing). It might interest you to know that
that copy of a letter, the one I am showing you, came from the
files of Mr. Levis. If the letter was never sent, how did it happen
to be in hisfiles?
Mr. PORTER. Well, this, doubtless, is a part of the drafts of the
negotiations, or something of that kind. I do not doubt the existence of the thing, of its having been typed, but the letter was never
signed. That letter was never signed. That is the day before the
other letter was written.
Mr. PECORA. I t is dated April 27, 1933.

6268

STOCK EXCHANGE PRACTICES

Mr, PORTER. Yes.
Mr. PECORA. Are

you sure that the original of this letter was
never sent?
Mr. PORTER. I am very positive of it, sir.
Mr. PECORA. Well, you may sit down there at the table again.
Mr. PORTER. All right.
Mr. PECORA. Have you read this copy of the letter in full?
Mr. PORTER. NO.
Mr. PECORA. Just
Mr. PORTER. AH

take it and read it to yourself.
right. (After reading the paper.) Yes, sir;
that is the situation.
Mr. PECORA. NOW, are you sure, after having read it over, that
that letter was never sent$
Mr. PORTER. Yes, sir; I am sure of ity so far as I can be sure of
anything, sir. It is also marked " Not used " on here, as you will see
by looking at it.
Mr. PECORA. NOW, isn't it a fact that the original negotiations for
the sale of the 40,000 shares which were eventually sold by private
sale, as evidenced by the three letters put in evidence this morning,
to Redmond & Co., William E. Levis, and the Owens Illinois Glass
Co., were first proposed to be sold to Redmond & Co. in one block?
Mr, PORTER. NO.
Mr. PECORA. And

isn't that letter, a copy of which I have shown
you and which you say was never sent, a letter that was sent as an
evidence of such negotiations?
Mr. PORTER. NO, sir. From the beginning the intent of this whole
transaction was that the sale of these shares was to be to the Owens
people, of which Mr. Levis was the representative. They were to be
the purchasers.
Mr. PECORA. Well, then, why was any such letter ever drafted?
Mr. PORTER. Well, the only answer I can give you to that question
is that this letter seems to be substantially, or to contain some of the
same terms and conditions, as the letters which were finally written,
and that at some juncture in the negotiations it was suggested that
one letter be written to Redmond & Co. as Mr. Levis' bankers, I
presume. This draft must have been prepared, but was never signed
and never sent.
Mr. PECORA. Weren't you informed in the course of the negotiations to sell the whole block of 40,000 shares to Mr. Levis and his
associates—that MJr. Levis' company would not take the entire block
of 40,000 shares?
Mr. PORTER. That is correct; yes, sir.
Mr. PECORA. And weren't you apprized of that fact after April
27, 1933, which is the date of the copy of the letter I have just
shown you ?
Mr. PORTER. I think that is probably correct.
Mr. PECORA. And as a result of your being so notified that the
Owens Illinois Glass Co. would not take the entire block of 40,000
shares, weren't the negotiations changed so as to provide for the sale
of those 40,000 shares in these allotments: 20,000 shares to Levis,
10,000 shares to Owens Illinois Glass Co., and 10,000 shares to
Redmond & Co.?
Mr. PORTER. That is right.

STOCK EXCHANGE PRACTICES

6269

Mr. PECORA. And wasn't that form of the negotiations adopted on
April 28, as evidenced by the three letters that we put into the record
this morning?
Mr. PORTER. That is right; yes, sir.
Mr. PECORA. SO that up to April 27, the offer that your company
had, and which it was considering and negotiating to conclude, was
to sell the entire block of 40,000 snares directly to the Owens Illinois
Glass Co.
Mr. PORTER. That is right.
Mr. PECORA Then, when those negotiations fell down on April
27, why weren't those 40,000 shares made available to your stockholders at $25 per share instead of being made the subject of the
negotiations that were concluded the following day, to sell those
40,000 shares m the aggregate, in the allotments that I have already
indicated, to Mr. Lewis, to his company, and to Redmond & Co.?
Mr. PORTER. Well, Mr. Pecora, you now make your question clear
to me and I will try to answer it.
Mr. PECORA. Please do.
Mr. PORTER. If we were legally relieved by that change, from selling that block to that group of people, for $25 per share, your question is: Why didn't we then offer the whole lot of 40,000 shares to
our stockholders ?
Mr. PECORA. Yes; in addition to the 27,591 shares that you did
offer to them.
Mr. PORTER. My answer to that question is this: That in the opinion of myself and of our board the mere fact that the shares had
advanced temporarily to—well, we will say, had advanced to 31, or
were being quoted at that price on that day, was not a sufficiently
material change to have made it anywhere nearly possible to have
made the large offering to the stockholders alone without bankers'
underwriting.
Whether the knowledge of the fact that we had made a commitment to sell to the Owens Illinois group this block of shares at substantially the market price, and that they were going to put a million
dollars of their own money into it, and as a result of this transaction about $2,000,000 into our treasury, enabling it to pay off our
bank loans, and whether with these people coming on our board to
strengthen our picture, had anything to do with the advance in the
shares, I don't know, or whether that was the general advance of
the market. But the mere fact that the shares had advanced from
around 24, 25, and 26 to 30 and 31 did not, in the opinion of our
board, change the situation as to the great advisability of making
this sale to these people on exactly the same terms, if they would
still be willing to do it, as they had originally outlined; and the
board knew all about it, and we considered that this was an advantageous trade. Does that satisfactorily answer your question?
Mr. PECORA. I am not looking for a satisfactory answer, but an
answer based on the facts. It is not for me to say whether an answer
is satisfactory or not, and it makes no difference to me, so long as
it is based on the facts.
Mr. PORTER. All right. That is it.
Mr. PECORA. When did your board of directors conclude to offer
27,591 shares to the stockholders?
Mr. PORTER. At that time.

6270

STOCK EXCHANGE PRACTICES

Mr. PECORA. Well, when? Your minute book would show>
wouldn't it?
Mr, PORTER. Yes, sir. It was actually adopted on the 27th, was it
not [inquiring of an associate] ? Yes; it was April 27.
Mr. PECORA. NOW, that was when the formal resolution was
adopted by the board of directors of your corporation?
Mr. PORTER. Yes, sir.
Mr. PECORA. Providing for this offer to the stockholders?
Mr. PORTER. Yes, sir.
Mr. PECORA. I S that so?
Mr. PORTER. That is right.
Mr. PECORA. Have you a copy of the resolution that was

adopted
on April 27, 1933, by your board covering this offer to the stockholders?
Mr. PORTER. Yes, sir.
Mr. PECORA. Will you let me see it, please ?
Mr. PORTER. This is a copy taken from the minute book,
Mr. PECORA. NOW, the resolution you have shown me

I believe*
does not

relate to the offer to the stockholders, does it?
Mr. PORTER. I did not look it over after it was handed to me.
Mr. PECORA. Look at it and see. That relates to the offer of the
40,000 shares to Mr. Levis or his interests.
Mr. PORTER. All right. We will get the minute book.
Mr. PECORA. For your possible guidance, let me point out to you
that in the application which was made to the New York Stock
Exchange under date of May 8, 1933, for an additional listing of
79,833 shares, the statement was made that the board of directors
of your corporation authorized the offering to its stockholders of
27,591 of these additional shares.
Mr. PORTER. AS to the meeting of April 27, it would seem that
what I handed to you awhile ago was an extract from the original
resolution of the same minutes.
Mr. PECORA. May I look at the minute book, please?
Mr. PORTER. Yes, sir [handing a minute book to Mr. Pecora].
Mr. PECORA. This is what I want to call your attention to. Let
me read to you the following from the minutes of the board of
directors of your corporation held on April 27, 1933, at which were
adopted resolutions authorizing the sale of 40,000 shares at private
sale to Mr. Levis and the persons associated with him, and at which
meeting there was also adopted a resolution to offer 27,591 shares to
stockholders of record. I will read the extract as follows:
The chairman then advised that pursuant to the purpose for which such
additional 200,000 shares ot common stock had been authorized, that is, to be
issued by the board of directors in their discretion, if and when they believed
it to be in the best interests of the corpoiation so to do, in preparation for
meeting the anticipated expansion and development of the operations of the
corporation as outlined in the annual leport to stockholders dated March 21,
1933, recent negotiations had taken place, with which he believed the most of
the directors were familiar, with Mr William B Levis, president of the Illinois
Glass Consolidated Corporation, regarding a proposed sale to the Illinois Glass
Consolidated Corporation and to Mr William E Levis, and a group of individuals represented by him, of an aggregate of 40,000 shares of the common
stock of the corporation at a price of $25 per share
The chairman also advised that in such negotiations it had been considered
that the corporation would also offer for subscription to its stockholders rights
to subscribe, at the same price, namely, $25 per share, sufficient shares of new

STOCK EXCHANGE PRACTICES

6271

common stock to give each present common stockholder the light to subscribe for
one new share of common stock at the price of $25 per share for each 10 shares
of stock now held, which would call for the offering to stockholders of an
aggregate of 27,591 additional shares
He stated that it was not proposed that the 40,000 shares to be issued to
the Illinois Glass Consolidated Corporation, Mr Levis and his group, would
be entitled to participate in such rights to subscribe

Now, after having heard that extract from the minutes read, do
you recall that in connection with the very negotiations you had
been conducting in behalf of your corporation to sell to Mr. Levis
and his corporation and his group the 40,000 shares of your stock
at $25 per share, it had also been decided upon to offer 27,591 shares
to your stockholders at the same price of $25 per share?
Mr. PORTER. Yes, sir.
Mr. PECORA. And both

decisions were part and parcel of the
negotiations with Mr. Levis and his group, weren't they?
Mr. PORTER. That is right.
Mr. PECORA. Well, in view of that fact why didn't you conclude to
sell all those 67,591 shares directly to your stockholders, giving them
the benefit of subscribing for the shares at $25 per share, when the
shares of your company were selling at around $31 in the market?
Mr. PORTER. Because, as I previously stated, it was the judgment
of our board of directors that we could not make such an offering or
rather that if we made such an offering it would probably not be
taken up by the stockholders.
Mr. PECORA. Well, the 27,591 shares were all subscribed for by
your stockholders, weren't they?
Mr. PORTER. They were. But if there hadn't been this sale of
the block of 40,000 shares made to outside parties, with fresh capital
coming into our company, it was very doubtful whether any further
shares would have been taken by our existing stockholders; and, of
course, stockholders do not subscribe to rights unless there is a
prospective profit or advantage in it.
Mr. PECORA. Of course not. But when the stock was selling for
around $30 or $31 a share at the very time the stock was offered to
stockholders at $25 per share, had you any reason to believe the
stockholders would not have availed themselves of their rights and
subscribed for all of those shares ?
Mr. PORTER. There is no guarantee of such a thing, Mr. Pecora.
And I think we had to give them practically 30 days in which to
avail themselves of that right, and inasmuch as market fluctuations
are apt to be very wide, as we know, had there been any decline
in the period between the board meeting and the necessary authorizations and notices that would have had to be mailed, and the time
that would elapse before they had to make a decision, if the market
had declined- in that time, the stockholders probably would not have
taken even the 27,591 shares offered.
Mr. PECORA. Well, apparently at the period in those negotiations
between Mr. Levis and his group and the company, it was perfectly
safe to offer to the stockholders the 27,591 shares at $25 per share.
Mr. PORTER. It was safe, yes; but there was no assurance that they
would take them had the market gone back, and they probably would
not have done so. You must bear in mind that we were trying to

6272

STOCK EXCHANGE PEACTICES

accomplish something that would meet the conditions existing at
the time, when we had bank loans of upwards of one and a half
million dollars, and that
Mr. PECORA (interposing). In connection with that please bear in
mind the statement made to the board of directors at this meeting,
which I have read, which was that this additional stock was to be
issued in order to enable the company to expand its business, not to
pay off any maturing bank loans.
Mr. PORTER. Well, if you will carefully read that statement you
will also see that it refers to the annual report made to stockholders,
which was very complete, which gave a complete exposition of our
situation, and which was mailed late in March. We make a very
complete annual report to our stockholders, not only a verbal report
of the whole condition, but a financial statement, and that financial
statement showed that we had very substantial bank loans. That
annual report advised the stockholders, and that was following the
election which had taken place in the fall of the previous year, and
that the party which was placed in power by a large majority was
committed to repeal; and we had to look forward to the possibility
in the near future of repeal of the prohibition amendment. We
therefore would try to prepare ourselves financially for an expansion of our activities. The first step necessary in expansion would
be to relieve ourselves of our bank loans.
Mr. PECORA. NOW, that is not what the term " expansion " usually
means, is it?
Mr. PORTER. Most certainly, sir.
Mr. PECORA. When you raise capital for expansion purposes you
are not raising it to pay off maturing loans.
Mr. PORTER. We certainly would not have been permitted by the
bankers to have expanded until we discharged our current obligations. We were borrowing money on open account, that is, on 90
days, or 30 days, or 60 days, and this sale of those 40,000 shares,
which was a firm sale, produced a million dollars. Now
Mr. PECORA (interposing). But this firm sale did not become a
firm sale until April 28, did it?
Mr. PORTER. That is correct.
Mr. PECORA. And that was the date that the offer was made to
the stockholders of the 27,591 shares.
Mr. PORTER. That is right.
Mr. PECORA. Did it occur to you that by issuing and selling on
private terms to Mr. Levis and his group the 40,000 shares at the
same time you were offering the 27,591 shares to your stockholders,
that you might be prejudicing the value of the stock to the stockholders, I mean by the issuance and sale of the other 40,000 shares?
Mr. PORTER. That was very thoroughly discussed, yes, sir.
Mr. PECORA. And what conclusion did you come to?
Mr. PORTER. This was the conclusion we reached, the one adopted*
Mr. PECORA. That it would not prejudice the stockholders, do you
mean?
Mr. PORTER. We have on our board, who were familiar with this
matter, some of the large holders of the stock, and the thing was
very thoroughly discussed.

STOCK EXCHANGE PKACTICES

6273

Mr. PECORA. In the course of the discussions you must have reached
the conclusion that your stockholders would subscribe for the 27,591
shares.
Mr. PORTER. Not necessarily. But it looked, on the date when
that action was taken and the offer was made, that if we did not
have a decline in the market or a change in conditions, that they
would take it.
Mr. PECORA. And you did not expect a decline in the market at
the date you made this offer to your stockholders, did you?
Mr. PORTER. I beg your pardon, but the resolution was adopted
on the 27th of April, and the stockholders got it several1 days later t
after printing and mailing, and then they had 30 days, or at least
20 days, to avail themselves of the offer, and no one will avail himself
of an offer, practically speaking, until the eve of the expiration date,
Mr. PECORA. Was this offer to subscribe declined by anybody?
Mr. PORTER. NO, sir.
Mr. PECORA. Wasn't

it practically certain that the stockholders
would subscribe for all of it ?
Mr. PORTER. NO, sir. There was a risk. We decided we would not
pay the expense of underwriting. I had discussed with bankers prior
to these negotiations the cost of underwriting what would approximately produce a million or a million and a half dollars, and we
found that that would probably cost us a minimum of 2 or 2y2
points, and that we could only get such underwriting at such an
expense; and we would have been subjected, I believe, to much
criticism if the market had gone up and things had gone well1, had
we made the underwriting with bankers and agreed to pay them
2 or 2y2 points, or whatever we had to pay. If things had gone very
well the stockholders would then have said to us—and this is just on
the question you are asking me now—Why didn't you offer all of it
to us?
We felt that the fair thing to do here was to offer the shareholders 1 share in 10 at the same price, to put the company to no
expense for underwriting, and with the great hope and expectation
that the market would hold and the shareholders would take it,
which is what happened.
Mr. PECORA. For all you know, the same thing would have happened if the entire issue of 67,000 shares had been offered to the
stockholders.
Mr. PORTER. I do not think so, for this reason, that a good deal
of that stock was held in fairly large blocks. This was just after
the bank holiday in March. The country was in terrible condition.
Mr. PECORA. NO ; this was April 27.
Mr. PORTER I say, the bank holiday was in March, about 40 days
before that, and most of our largest shareholders, with whom we
could talk, while on the one hand anxious to preserve as much of
their equities as possible by not selling any more shares to anyone
else than necessary, were, on the other hand, in such financial condition that they would not be very enthusiastic about being asked to
make a further subscription to shares at or around the market, or
even below it.
Mr. PECORA. I think that is all of this witness. Have you any
statement to make or any information you would like to give the
committee without being questioned specifically, Mr. Porter?

6274

STOCK EXCHANGE PRACTICES

Mr. PORTER. I do not think so, sir.
Mr. PECORA. YOU have the opportunity now of doing it if you
desire to do so.
Mr. PORTER. I do not think there is anything else.
Mr. PECORA. I S there anything else you want to tell the committee
with regard to the various matters and transactions that you have
been examined about?
Mr. PORTER. I think that is a complete statement.
Mr. PECORA. All right.
The CHAIRMAN. YOU may be excused, Mr. Porter.
(Witness excused.)
Mr. PECORA. I S Mr. Levis here ?
I want to have marked for identification only, Mr. Chairman, the
copy of the letter shown the witness, and which he stated was not
sent. It was drafted, but not sent, dated April 27, 1933, and
addressed to Redmond & Co.
(Copy of draft of letter, Apr. 27, 1933, National Distillers to Redmond & Co., was marked " Committee's Exhibit No. 77 ", for identification, Feb. 22, 1934, and the same is held in the files of the
committee.)
TESTIMONY OF WILLIAM E. LEVIS, TOLEDO, OHIO, PRESIDENT
OWENS-ILLINOIS GLASS CORPORATION
The CHAIRMAN. YOU solemnly swear that you will tell the truth,
the whole truth, and nothing but the truth, regarding the matters
now under investigation by the committee. So help you God.
Mr. LEVIS. I do.
Mr. PECORA. Mr.

Levis are you connected with the Owens-Illinois
Glass Co.?
Mr. LEVIS. I am president of that company.
Mr. PECORA. HOW long have you been connected with the company
in that capacity?
Mr. LEVIS. Four and a half years, sir.
Mr. PECORA. YOU are also a director?
Mr. LEVIS. Yes, sir.
Mr. PECORA. And a stockholder, of
Mr. LEVIS. Yes, sir.
Mr PECORA. Have you heard the

course?

testimony given today before
this committee by the preceding witness, Mr. Set on Porter?
Mr. LEVIS. Yes, sir.
Mr. PECORA. YOU heard

references to William E. Levis in that

testimony?
Mr. LEVIS. Yes, sir.
Mr. PECORA. YOU are

the Mr. Levis referred to in that testimony,

are you not?
Mr. LEVIS. Yes, sir.
Mr. PECORA. Without

going over the details of the transactions
referred to by Mr. Porter, with respect to the options that were
given to you by the National Distillers Products Corporation, will
you tell the committee whether or not you exercised that option in
full?
Mr. LEVIS. I exercised the option in full.

STOCK EXCHANGE PRACTICES

6275

Mr. PECORA. YOU also purchased the 20,000 shares of stock referred to in that option letter in addition to the 12,000 shares that
were optioned to you ?
Mr. LEVIS. Yes, sir.
Mr. PECORA. Twenty

thousand shares were purchased by you at
$25 a share, and 12,000 shares were optioned to you at $27.50 a share?
Mr. LEVIS. Yes, sir.
Mr. PECORA. At the

same time did your corporation, namely, the
Owens-Illinois Glass Corporation, buy 10,000 shares at $25 a share,
referred to in the letter offered in evidence here this morning, dated
April 28, 1933?
Mr. LEVIS. May I correct that, Mr. Pecora? You have made that
statement before. The Owens-Illinois Glass Co. have never made an
investment in any of their customers' business. The investment was
made by the Illinois Glass Consolidated Corporation, now called
Illinois Glass Co., of which I am also president.
Mr. PECORA. I S that a corporation separate and distinct from the
Owens-Illinois Glass Corporation?
Mr. LEVIS. Yes, sir. I t has nothing to do with it except that it is
a large stockholder of Owens-Illinois Glass Co. stock. I t was formerly the Illinois company's assets that were sold that caused the
Owens Bottle Co. to become Owens-Illinois Glass Co.
Mr. PECORA. Then these 10,000 shares were not purchased by the
Glass Manufacturing Co. known as the Owens-Illinois Glass Co.,
but were purchased by this other corporation called the OwensIllinois
Mr. LEVIS. Called the Illinois Glass Consolidated Corporation.
Mr. PECORA. That company bought those 10,000 shares at $25 a
share ?
Mr. LEVIS. Yes, sir.
Mr. PECORA. Under the terms of the letter of April 28, 1933.
Mr. LEVIS. Yes, sir.
Mr. PECORA. NOW, at the same time, you heard Mr. Porter testify,

a sale was made to Redmond & Co. of 10,000 shares of the common
stock of National Distillers Products Corporation, also at $25 a
share.
Mr. LEVIS. Yes, sir.
Mr. PECORA. Did you
Mr. LEVIS. I had an

have any interest in that sale?
option on those 10,000 shares at $27, good

for 5 days.
Mr. PECORA. That option was given to you by Redmond & Co. ?
Mr. LEVIS. Yes,

sir.

Mr. PECORA. Did you exercise that option ?
Mr. LEVIS. Yes,

sir.

Mr. PECORA. And took down all the 10,000 shares?
Mr. LEVIS. Yes,

sir.

Mr. PECORA. SO that all told, you acquired individually 42,000
shares of the National Distillers Products Corporation ?
Mr. LEVIS. Yes,

sir.

Mr. PECORA. At these prices?
Mr. LEVIS. Yes,

sir.

Mr. PECORA. 20,000 shares at $25 a share, 10,000 shares at $27 a
share, and 12,000 shares at $27.50 a share.

6276

STOCK EXCHANGE PEACTICES

Mr. LEVIS. Yes, sir.
Mr. PECORA. Did you

hold those shares or did you dispose of
them shortly after you acquired them?
Mr. LEVIS. I disposed of them shortly after I acquired them.
Mr. PECORA. In the open market?
Mr. LEVIS. Yes, sir.
Mr. PECORA. Through what
Mr. LEVIS. Redmond & Co.
Mr. PECORA. Did you have

broker or brokers ?

a joint account with them in any of
those shares?
Mr. LEVIS. I had a joint account with Mr. Mason Day, of that
company, in the shares.
Mr. PECORA. When was that joint account formed, Mr. Levis?
Mr. LEVIS. Sir ?
Mr. PECORA. When was that joint
Mr. LEVIS. On April 29.
Mr. PECORA. 1933?
Mr. LEVIS. Yes, sir.
Mr. PECORA. HOW many shares

account formed with Mr. Day?

were involved in that joint
account?
Mr. LEVIS. On the original purchase, 20,000 shares were involved,
and of the option, I abandoned the joint account plan as outlined
in the letter, with Mr. Day's mutual consent. I took down all of
the optioned shares and actually sold to Mr, Day 7,250 shares at
$29.16 per share, retaining myself 4,750 shares, that cost me $27.50
a share.
Mr. PECORA. What was the purpose of the formation of the joint
account with Mr. Day, Mr. Levis?
Mr. LEVIS. I did not feel that I could at that time afford to purchase all the shares personally.
Mr. PECORA. AS a matter of fact, what was the apportionment of
interest between you and Mr. Day in that joint account?
Mr. LEVIS. May I state that there was an account, 10,000 of the
20,000, that ran to me, in which I had other associates of mine who
paid for 7,700 shares of that stock of the first 10,000 out of the 20,000
that ran to me. I took the balance of those shares directly myself,
with no participation on the part of Mr. Day. On the remaining
10,000 shaies, Mr. Day was joint account with me at a price of 26 or
better, and on the 10,000 shares that I received through Redmond, he
was joint account with me at 27 or better.
Mr. PECORA. What was the purpose of the formation of the joint
.account with Mr. Day?
Mr. LEVIS. I might answer it in Mr. Day's words and the words
of Mr. Wright, " to distribute the stock and make a profit."
Mr. PECORA. Was trading done for that joint account after its
formation?
Mr. LEVIS. Mr. Day was more or less the manager of the matter.
My records, as audited by Arthur Young & Co., indicate that in
one of the 10,000-share blocks 400 shares were bought that were subsequently distributed, and in the other 10,000-share blocks 13 hundred
shares were bought that were again distributed, so that we really, in
distributing 20,000 shares, dealt in 3,700 shares—I mean in 2,100
shares.

STOCK EXCHANGE PRACTICES

6277

The CHAIRMAN. Did you employ any publicity agents or make
any effort to boost the stock?
Mr. LEVIS. NO, Mr. Chairman. They were all open-market transactions.
Mr. PECORA. In those market transactions did not the account buy
and sell in order to enable it to make its distribution ?
Mr. LEVIS. In the only accounts that I had anything to do with,
Mr. Pecora, one account bought 400 shares which it subsequently
sold, and another account bought 13 hundred shares which it subsequently sold. The only shares purchased that were not received
directly from National Distillers or Redmond & Co. were those 17
hundred shares.
Mr. PECORA. Was that the only joint account or syndicate account
that you participated in which traded in the stock of the National
Distillers Products Corporation during the year 1933 ?
Mr. LEVIS. SO far as I can recall, sir.
Mr. PECORA. In connection with the operations to dispose of the
stock which you agreed to purchase, and did purchase directly from
the National Distillers Products Corporation, as well as the stock
that was optioned to you by that corporation, was it necessary at
any time for you to make any payments for that stock, except out of
proceeds derived by you from the sale of the stock in the market
against those purchases or options ?
Mr. LEVIS. In answering that, Mr. Pecora, I thought of it as an
entire block of 40,000 shares. There was paid by me $250,000 for
the Illinois Glass Co.'s 10,000; $192,500 for my other associates'
7,700; and I banked the balance of it at Redmond. It would have
been no different, in my own mind, had I gone to a bank at which
I had credit and borrowed the money and put the dollars at Redmond, than if I had gone to Redmond and put up my option agreement, or any other collateral, and borrowed the money from Redmond
with which to make the payment.
Mr. PECORA. The 10,000 shares that were taken over by the company, the Owens Glass Co., or corporation, were not a part of the
joint account with Day?
Mr. LEVIS. NO, sir.
Mr. PECORA. SO, we

will leave those 2,000 shares out of the reckoning for the time being. The corporation paid for 10,000 shares, of
course.
Mr. LEVIS. Yes, sir.
Mr. PECORA. And did

not dispose of them in any market operation,
and probably still have them.
Mr. LEVIS. They still have them.
Mr. PECORA. Confining ourselves, then, to the 32,000 shares, represented by the 20,000 you bought directly from the National Distillers,
and the 12,000 optioned to you by the National Distillers, and the
10,000 that you took over from Redmond at $27, was it necessary for
you to put up any moneys out of funds other than those derived from
sales which you had made in the market against those purchases and
against that option ?
Mr. LEVIS. Nothing other than the $192,500 that was put up by my
associates.

6278

STOCK EXCHANGE PRACTICES

Mr. PECORA. That covered the 7,700 shares that did not go into
the distribution.
Mr. LEVIS. That is right. Other than that, no funds were put up.
Mr. PECORA.. And that was due to the fact, was it not, that you sold
through Redmond & Co. shares from time to time against the purchase contracts and against the option?
Mr. LEVIS. Yes, sir; and on the same basis as the purchase contract
and the option. The option was never involved in that, Mr. Pecora.
On the 22,300 shares that I had, 20,000 of which was joint account
with Mr. Day, we were practically out of all those shares on an " asand-when-issued " basis, by the time we had delivery of shares that
we had a contract to be delivered to us on an " as-and-Avhen-issued "
basis.
Mr. PECORA. In other words, you had sold those shares short against
the purchase contracts and the option.
Mr. LEVIS. Technically short, Mr. Pecora.
Mr. PECORA. I do not mean short sales m the sense that short sales
are used as part of the process called " bear raiding." I do not mean
that.
Mr. LEVIS. I had secured an underwriting from others on the same
basis.
Mr. PECORA. When was that joint account you had with Mr. Day
terminated ?
Mr. LEVIS. I have a memorandum
Mr. PECORA. There was more than one joint account, was there not,
with Mr. Day?
Mr. LEVIS. I had three accounts, sir, dealing in the 30,000 shares,
namely, account 42, which dealt in the 10,000 shares that Mr. Day
did not participate in; account 44, which dealt in the 10,000 shares
which he did participate in above 26; and account 43, in which he
participated above 27.
Mr. PECORA. Yes.

Mr. LEVIS. All those accounts were closed, as per a letter from
Redmond & Co., dated May 13, sending me a complete statement of
those accounts and a remittance for whatever profit I had from those
accounts.
Mr. PECORA. Have you got that letter ?
Mr. LEVIS. Yes, sir.
Mr. PECORA. Will you give
Mr. LEVIS. Statement of

thefigures?
account no. 42, $22,298; account 43,
$18,014; account 44, $15,859.50. That letter is schedule no. 35 I filed
with your representative.
Mr. PECORA. The profits that you have given us were simply the
cash profits, were they not ?
Mr. LEVIS. They were the cash profits from those accounts.
Mr. PECORA. Was there not, in addition to that, a profit in stock?
Mr. LEVIS. Not from the 30,000.
Mr. PECORA. But frpm the 42,000 aggregate.
Mr. LEVIS. Yes, sir.
Mr. PECORA. What did
Mr. LEVIS. I received

that amount to ?
12,000 stares, which I paid $27.50 for, or
$330,000. I sold, of that, 9,500 shares for $345,000, making a cash
profit of $15,254 75, and 2,500 shares that had a cost price to me of
$68?750.

STOCK EXCHANGE PRACTICES

6279

Mr. PECORA. That is all, unless you have some statement to make,
or any other details you want to give with regard to these transactions.
Mr. LEVIS. Thank you.
(Witness excused.)
TESTIMONY OF HENRY MASON DAY—Resumed
Mr. PECORA. Mr. Day, did you hear the testimony of Mr. Seton
Porter with regard to the options in the form of puts and calls
which the National Distillers Products Corporation gave to Redmond & Co. during the year 1932 ?
Mr. DAY. Yes, sir.
Mr. PECORA. IS there anything you want to add to the testimony
which Mr. Porter gave with regard to those options?
Mr. DAY (after conferring with an associate). There is nothing
to add, Mr. Pecora.
Mr. PECORA. In connection with those puts and calls, did you
assign or give any interest therein to Wright and Sexton?
Mr. DAY. My recollection is that we did; yes, sir.
Mr. PECORA. What was that done for? What was your purpose
in doing that?
Mr. DAY. Because I personally am not on the floor of the stock
exchange, nor do I in any way pretend to know anything about the
floor operations, and I consider that Charlie Wright is an outstanding man in that respect.
Mr. PECORA. That is, he is in a better position to make a market?
Mr. DAY. Not only that, but he was m a better position to feel
the trend of the market.
Mr. PECORA. YOU heard the testimony also, I presume, of Mr.
Porter with regard to the options which his company gave on the
common stock of the company to Redmond & Co., or, rather, the
commitment it made to sell Redmond & Co. 25,000 shares ?
Mr. DAY. Yes, sir; I did.
Mr. PECORA. YOU heard the testimony about the option for 12,000
shares given to Mr. Levis?
Mr. DAY. I did, sir.
Mr. PECORA. Did you have any interest in that option covering the
12,000 shares?
Mr. DAY. Yes, sir; I did.
Mr. PECORA. Will you state the nature of it?
Mr. DAY. At the commencement I had a 50 percent interest in
that option, and on or before the 15th of Juiie—between the 10th and
the 15th—Mr. Levis told me that he wanted to clean it up and abandon it, and I said: " Well, if you feel that way about it, all right;
I will take what is left."
Mr. PECORA. Referring to the 42,000 shares of the common stock
of National Distillers Products Corporation which were sold by that
corporation to Levis and to Redmond & Co. under the agreements of
April 28,1933, that were put m evidence this morning, the total purchase price for those shares fixed by the agreements was $1,080,000,
was it not?
Mr. DAY. If vou have that figure there. Was it 42,000, Mr.
Pecora, or was it 40,000?
175541—34—PT14

6280

STOCK EXCHANGE PBACTICES

Mr. PECORA. Forty-two thousand. That includes the 12,000-share
option.
Mr. DAY. I see.
Mr. PECORA. And the 30 thousand shares, which excludes the 10
thousand shares that the glass corporation took over and paid
for.
Mr. DAY. Yes.
Mr. PECORA. That was $1,080,000, as I understand.
Mr. DAY. That is correct, sir.
Mr. PECORA. I S it not a fact that those shares, those 42,000 shares,
were disposed of shortly after their acquisition, and were taken
down without the necessity of putting up any money other than the
moneys realized from technical short sales that were made against
the purchase contracts and the option agreement?
Mr. DAY (after conferring with an associate). Mr. Gibson tells
me that that is the figure here, and according to the figures compiled
by him, there was a matter of $57,500 put up by Eedmond.
Mr. PECORA. By Redmond & Co.?
Mr. DAY. Yes, sir; in addition to the $192,000 which Mr. Levis
spoke of.
Mr. PECORA. That $192,000 was paid by the persons to whom an
aggregate of 77 thousand shares were sold direct, isn't that so?
Mr. DAY. That is right, sir.
Mr. PECORA. The balance of these 42 thousand shares was disposed
of in the open market through Redmond & Co.
Mr. DAY. Yes, sir.
Mr. PECORA. HOW long did the distribution take?
Mr. DAY. I do not know off-hand. [After conferring with an
associate.] Mr. Gibson tells me about June 15.
Mr. PECORA. What profits were distributed at the end of the
period of distribution of the stock, in cash, and what in stock?
Mr. DAY. AS far as Mr. Levis was concerned, just exactly what
he testified, from his Arthur Young statement; and I took over the
balance of that stock and carried it along in my accounts.
Mr. PECORA. What was the amount of stock that was left over at
the end of the account?
Mr. DAY (after conferring with an associated). Mr. Gibson tells
me I took down 21,000 shares of stock and certain cash profits, on
which he has not the figure.
Mr. PECORA. Have you the total cash profits from the transactions?
Mr. DAY. NO, sir; I have not, because it carried into the other
accounts. I simply put it in my accounts.
Mr. PECORA. Our analysis, made from records which Redmond &
Co. have made available to us, show a distribution of cash profits
of $252,158.75; and of 4,600 shares which, on July 26, 1933, had a
market value of about $345,000.
Mr. DAY. In other words, your figures show that the profit which
was made by us was approximately $345,000.
Mr. PECORA. In stock; and in cash of $252,000.
Mr. DAY. I have no figures on it.
Mr. PECORA. Making a total of about $597,000.
Mr. DAY. I have no figures on it, so I cannot very well answer. I
am perfectly willing to accept your figures.

STOCK EXCHANGE PRACTICES

6281

Mr. PECORA. If you find that our calculations are incorrect, will
you notify us, and we will have the correction made on the record?
Mr. DAY. I will be only too glad to. I have not closed the accounts, as far as I am concerned. Unfortunately, I took very considerable losses in other things in my accounts. However, Mr.
Pecora, I am very glad to accept those figures and, as you say, if
there is any difference that we find, we will send you a statement.
Mr. PECORA. Did your firm have any options covering any shares
listed on the New York Stock Exchange other than the options
that have been discussed here in the evidence, with respect to the
American Commercial Alcohol Corporation and the National Distillers Products Corporation?
Mr. DAY. What was the year?
Mr. PECORA. When I say your firm, I mean your firm or any of
the partners therein.
Mr. DAY. I have copies of them, which I think you are also
holding, the first one of which is the 1932, National Distillers Products; 1933, Libbey-Owens-Ford; 1933, American Water Works; 1931,
Petroleum Corporation of America; 1933 to February 1934, GrahamPaige; 1932 to 198'3, Warren Foundry and Pipe; 1933, Consolidated
Aircraft; 1932, Zonite Products; 1931, Houdaille-Hershey; 1933,
Barnsdall Corporation.
Mr. PECORA. I believe your firm has turned over to us photostatic
copies of all those options.
Mr. DAY. That is my understanding, sir.
Mr. PECORA. I have before me the photostatic copies that were
received from your firm. I will ask you to look at them and see
if they are true and correct copies of those option contracts [handing papers to the witness].
Mr. DAY. I notice that some of these that you hand me I have not
on my list here.
Mr. PECORA. DO you recognize them as copies of options that your
firm, or any member of your firm, had ?
Mr. DAY. I was neither a partner of my firm at this time, nor was
I an employee, which I was before I became a partner of this firm.
Some of them are dated 1930, which I know nothing about.
Mr. PECORA. Mr. Gibson, will you look at the photostatic copies
of options?
Mr. DAY. I just cannot tell about something I do not know the first
thing in the world about. I will say substantially, Mr. Pecora, unquestionably they are photostatic copies of records which you got
from our office, and our name seems to be contained in all of them,
back as far as 1929, and we had something to do with them.
Mr. PECORA. DO they constitute copies of all the options that were
given by anyone to Redmond & Co., or any of its partners, during
the years 1929 to 1933, both inclusive?
Mr. GIBSON. If these were submitted in answer to your questionnaire, they do.
Mr. PECORA. I will offer them in evidence, Mr. Chairman, as one
exhibit, and they can be marked. Each separate option may be
marked " A, B, C, D, E ", and so forth, with the exhibit number.
The CHAIRMAN. Let them be admitted.
(Copies of options given to Redmond & Co., 1929 to 1933, were
received in evidence, marked " Committee Exhibit No. 78, Feb. 22,

6282

STOCK EXCHANGE PBACTICES

1934", and the same will be found at the conclusion of today's;
proceedings.)
The CHAIRMAN. IS it the common practice for members of the
exchange to operate under options like these ?
Mr. DAY. I think it is, sir.
Mr. PECORA. And the purpose of obtaining these options is to
enable the optionee to distribute the stock covered by the options at
a profit through the medium of market operations?
Mr. DAY. Market or private. In other words, the object of obtaining one of these options, most naturally, is to make some money
legitimately.
Mr. PECORA. NOW, you are going to enter into a long controversy,
Mr. DAY. I will leave that out, rather than take the time. AIL
right; to make money. I want to finish as bad as anybody.
Mr. PECORA. I t was a practice under which members of the exchange from time to time conducted market operations at a profit t o
themselves; isn't that so?
Mr. DAY. Yes.
Mr. PECORA. And the operations would be both on the buying and
selling side in order to stimulate the market and create an additional
activity in the market by means of which the distribution at a profit
was effected?
Mr. DAY. Yes, sir.
Mr. PECORA. I think that is all I have to ask.
Mr. DAY. The same as they put the dummies in the bus to get
other people to ride.
The CHAIRMAN. YOU may be excused, Mr. Day.
Mr. PECORA. IS Mr. Bowers here?
TESTIMONY OF HENRY S. BOWEBS, PABTNEB IN GOLDMAN^
SACHS & CO., NEW YORK CITY

The CHAIRMAN. Mr. Bowers, come forward and be sworn, please.
You do solemnly swear that the testimony you are about to give
m the matters under investigation by this committee will be the
truth, the whole truth, and nothing but the truth. So help you God.
Mr. BOWERS. I do.
Mr. PECORA. Mr. Bowers,

what is your full name and address,
please ?
Mr. BOWERS. Henry S. Bowers, 30 Pine Street, New York.
Mr. PECORA. Are you connected with the firm of Goldman, Sachs
&Co.?
Mr. BOWERS. Yes,

sir.

Mr. PECORA. HOW long have you been connected with that firm ?
Mr. BOWERS. Thirty-four years.
Mr. PECORA. In what capacity are you now connected with them ?
Mr. BOWERS. First as an employee and since 1915 as a partner.
Mr. PECORA. And what is the business of Goldman, Sachs & Co.?
Mr. BOWERS. Banking, general.
Mr. PECORA. I show you what purports to be a photostatic copy of
a letter addressed to the secretary of the Committee on Business
Conduct of the New York Stock Exchange under date of August 4,
1933, signed " Goldman, Sachs & Co." Will you look at it and tell

STOCK EXCHANGE PRACTICES

6283

me if you recognize it to be a true and correct copy of a letter sent
by Goldman, Sachs & Co. to the secretary of the Committee on
^Business Conduct of the New York Stock Exchange on the date
which that copy bears?
Mr. BOWERS (after examining document). Yes, sir.
Mr. PECORA. Did you cause that letter to be sent, Mr. Bowers ?
Mr. BOWERS. NO. One of my partners.
Mr. PECORA. Are you familiar with the circumstances under which
it was sent?
Mr. BOWERS. Yes, sir.
Mr. PECORA. And are you

familiar with the transaction or matter

to which the letter refers ?
Mr. BOWERS. Yes,

sir.

Mr. PECORA. I offer that letter in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated Aug. 4, 1933, from Goldman, Sachs & Co. to secretary, committee on business conduct, New York Stock Exchange, was
thereupon designated " Committee Exhibit No. 79, Feb. 22, 1934 ",
and the same appears in the record in full immediately following,
where read by Mr. Pecora.)
Mr. PECORA. The letter received in evidence is exhibit no. 79 of
this date and written on the letterhead of Goldman, Sachs & Co.,
and reads as follows:
[CONFIDENTIAL]
KELSEY HAYES WHEEL COMPANY,

Neiv York, August 4, 19S3

SECRETARY, COMMITTE ON BUSINESS CONDUCT,

New York Stock Exchange, Room <608,
11 Wall Street, New York, New York
DEAR SIR : Referring to your circular C5222, there was existing at the close
of business on August 2, 1933, an account, managed by us, known as
KELSEY HAYES WHEEL COMPANY
CLASS A STOCK
AND
CLASS B STOCK
JOINT TRADING ACCOUNT

In which Lehman Brothers and ourselves each have a 50% interest A copy
of the agreement covering such Account, which expires August 5, 1933, is
enclosed herein.
Such Account is short 900 shares of Kelsey Hayes Wheel Company Class
"A" Stock and 1,000 shares of Class " B " Stock, the aforesaid short positions
being offset by long positions in Firm Account.
Such Joint Trading Account was organized for the purpose of creating a
iair market in such stock, at the request of the New York Stock Exchange
Very truly yours,
(Enclosure.)

(Signed)

GOLDMAN, SACHS & Co

Now, Mr. Bowers, will you tell the committee the details concerning the organization of the joint trading account referred to in
this letter?
Mr. BOWERS. Following the reorganization of the Kelsey-Hayes
Wheel Co., which was about completed m February in 1933, there
came into existence this class A and class B stock of the reorganized
company. The holders of the old Kelsey-Hayes Wheel Co. preferred
d common shares, which were listed on the stock exchange, were

6284

STOCK EXCHANGE PRACTICES

to receive in the reorganization, among others, certain amounts of
the new A and B stock, and in the ordinary course of business
application was made to the stock exchange to list these shares.
Mr. PECORA. Just a moment at that point: Is this the application
that was made to list those shares, or is that a copy of it [handing
paper to Mr. Bowers] ?
Mr. BOWERS (after examining document). I presume it is; yes,
sir.
Mr. PECORA. I offer it in evidence, but ask that it be not spread
in full in the minutes, because of its size.
The CHAIRMAN. Let it be admitted, under those conditions.
(Application of Kelsey-Hayes Wheel Co., dated Feb. 1, 1933, to
committee on stock list, New York Stock Exchange, was designated
" Committee Exhibit No. 80, February 22, 1934 ", is filed among the
records of the committee, but is not copied in this record.)
Mr. BOWERS. In connection with this application to list, the listing
committee of the stock exchange, with whom we were to take the
matter up, said to us that prior to listing they wished to be assured
that there would be an ordinary, orderly market in the new shares.
There had been no sales to the public of these new shares. They r
therefore, were uncertain as to just their status, and they wished
Lehman Bros, and ourselves, as reorganization managers, to undertake to see that the market in the shares was orderly for a reasonable
period of time—let us say for 4 to 6 months.
Their request, as detaile dto us, was that we should keep a bid for
the stock in the market for a few hundred shares and an offer for the
stock in the market for a few hundred shares at a reasonable spread,,
their fear being that the stock might be $2 bid and $8 or $10 offered,,
and they did not wish these old stockholders of the Kelsey-Hayes.
Wheel Co. to be penalized either in buying or selling the stock of the
reorganized company by the existence of a wide spread such as I
have mentioned.
We therefore told the listing committee, Lehman Bros, and ourselves, that we would endeavor to maintain an orderly market, and
by that that we would see that if other bids were not in the market
or other offers were not in the market at a reasonable spread, we
would undertake to put the bids in or offers in, as the case might
require, at a reasonable spread, and we so did for a period of upward
of 6 months—little over 6 months.
Mr. PECORA. And that is the joint trading account referred to in
this letter addressed to the secretary of the business conduct committee, which has been marked in evidence as exhibit no. 79 ?
Mr. BOWERS. Yes, sir.
The CHAIRMAN Were

there any others participating in that
arrangement ?
Mr. BOWERS. NO, Senator. Merely Lehman Brothers and ourselves, who were the reorganization managers of the old company.
It was a part of our job as completing the reorganization.
Mr. PECORA. Are there any other facts you want to bring to the
notice of the committee with regard to this matter, Mr. Bowers?
Mr. BOWERS. I would like to say, Mr. Pecora, that there was an
earlier letter written at the inception of the account to the stock
exchange embodying our undertaking, and I think you have a photostat copy of that letter.

STOCK EXCHANGE PBACTICES

6285

Mr. PECORA. I S this the letter to which you refer, copy of which
i now show you?
Mr. BOWERS (after examining document). Yes, sir; I would think
that perhaps that was it.
Mr. PECORA. I offer that in evidence.
Mr. BOWERS. And would you have that read also in the minutes?
The CHAIRMAN. Let it be admitted.
(Letter dated Feb. 7, 1933, from Goldman, Sachs & Co., and Lehman Bros, to committee on stock list, New York Stock Exchange,
was designated " Committee Exhibit No. 81, February 22,1934 ", and
appears in the record immediately following, where read by Mr.
Pecora.)
Mr. PECORA. The letter just received in evidence as committee
exhibit no. 81, on the letterhead of Goldman, Sachs & Co., reads as
follows (reading):
NEW YOKK, February 7, 19SS
COMMITTEE ON STOCK LIST, NEW YORK STOCK EXCHANGE,

New Yo)k City
(Attention of Mr Hoxsey )
DEAR SIB: In connection with the application of Kelsey-Hayes Wheel Company for the listing of shares of its Class A and the Class B stock on the New
York Stock Exchange, we shall, in accordance with your request, upon the
listing of these shares, put in bids and offers for these shares and endeavor to
maintain an orderly market therefor for a reasonable length of time thereafter. We shall do this unless extraordinary general market conditions
develop
With reference to so-called " lend or sell" letters—the words " lend or sell"
being in quotation marks—from among the largest stockholders of the company, we have communicated with the five largest and in each case have been
told that they will be glad to give such a letter We ai*e engaged in getting
these letters and shall promptly advise you when received.
Very truly yours,
(Signed)

GOLDMAN, SACHS & Co
LEHMAN BBOS.

Now, is there anything else you want to call to the attention of the
committee with regard to this matter, Mr. Bowers ?
Mr. BOWERS. The lend or sell letters were at the request of the listing committee, in order that there be no likelihood of a corner developing in the stock; that is, a demand for the stock which the
current supply might not fill, and the price be run up.
Mr. PEOORA. That is, the floating supply was rather small ?
Mr. BOWERS. Yes, sir. You see, it had been lodged—people who
had wished to sell, Mr. Pecora, had sold during the difficulties of the
company, and we were fearful that those who held stock would hold
to it and there might be a demand and the stock would run up
sharply and then be subject to sharp fluctuation downward, and
therefore we agreed that we would always supply stock so that there
would not be any corner.
Mr. PECORA. This joint account was undertaken by your firm and
Lehman Bros, at the request of the stock exchange and as a condition to the granting of the listing application ?
Mr.

BOWERS. Yes,

sir.

Mr. PECORA. I S there anything more?
Mr. BOWERS. One word more: That in connection with the 6
months' operations of that account the total purchases and the sales
by the joint account in the class A stock were, I think, about 1,500

6286

STOCK EXCHANGE PKACTICES

shares, both purchases and sales, and m the B stock a total of 2,000
shares at average prices of $4 and $5 a share and for a period of 6
months.
Mr. PECORA. That was a very inactive account.
Mr. BOWERS. In other words, it was, as per the stock exchange,
simply kept orderly. Plenty of time there were other bids, Mr.
Pecora, or other offers. They were perfectly close enough, and we
had nothing to do with that.
Mr. PECORA. In other words, the purpose of this joint trading
account as you understood it was to keep the market close on the
stock?
Mr. BOWERS. Just reasonably so; yes, sir. So that a buyer would
not be penalized by having to pay a higher price, or a seller would
not be penalized by having to sell at too low a price.
The CHAIRMAN. What became of the whole transaction after you
finished up?
Mr. BOWERS. Why, when we were through we had a balance of
900 shares that we had sold more than we had purchased in one class
of stock, and 450 of that was supplied by Lehman Bros, and 450 by
ourselves, and in the other class of stock, the class B stock, I think it
was, the margin was 1,000 shares, and 500 were supplied by Lehman
Bros, and 500 by ourselves. The accounts terminated, and the market
then just took care of itself in an orderly fashion.
The CHAIRMAN. YOU finally got rid of your entire holdings?
Mr. BOWERS. Oh; no, sir. All that we sold, Senator, as a result
of this operation over 6 months' time was 900 shares of one class
of stock, that is Lehman Bros, and ourselves, and 1,000 shares of
the other class of stock. The average prices of those two were about
$4 or $5 a share in 6 months' time. In other words, there was very
little activity, and it simply took care of itself.
The CHAIRMAN. We are much obliged to you and you are excused.
Mr. PECORA. I would just like to interrogate Mr. Altschul a little
further.
TESTIMONY OF FRANK ALTSCHUL, CHAIRMAN STOCK LIST
COMMITTEE, NEW YORK STOCK EXCHANGE, NEW YORK
CITY—Resumed
Mr. PECORA. Mr. Altschul, you heard the testimony of the preceding witness, Mr. Bowers, with regard to the formation of this
joint trading account in the stock of the Kelsey-Hayes Wheel Co.?
Mr. ALTSCHUL. I have, sir.
Mr. PECORA. And you heard him testify that that joint account was
formed at the request of the stock list committee of the New York
Stock Exchange?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. And was virtually

laid down as a condition to the
granting of the application for the listing of the shares after the
reorganization of this company that was made in February of last
year?
Mr. ALTSCHUL. That is my understanding; yes, sir.
Mr. PECORA. Will you explain to the committee the policy of the
stock list committee that prompted them to lay down that condition
in this case?

STOCK EXCHANGE PRACTICES

6287

Mr. ALTSCHUL. Mr. Pecora, I would like first to state that I was
not at this meeting. I was away at the time. But as you told p e
this was coming out, I have informed myself as best I could with
regard to the circumstances.
This was, as far as I know, my experience with the committee on
stock list, a unique case. I don't think we could say that there was
any policy covered by the particular transactions having to do with
the joint account.
So far as the lend or sell letters are concerned, that is a matter of
policy I would be glad to explain.
Mr. PECORA. Yes.
Mr. ALTSCHUL. The

circumstances of this particular case bearing
now on the joint account were these: The stock of the Kelsey-Hayes
Wheel Co. was listed on the floor. The company had gotten into
difficulties and was m the process of being reorganized.
In connection with the reorganization it was apparent from the
figures before us that there was a very large concentration of holdings, because a very preponderating amount of the A stock went to
the banking creditors—1 have made a few notes on the reorganization—the banking creditors and to the holders of some mortgage
bonds and some debentures.
About 220,000 shares, I think, out of about 290,000 in the course
of the reorganization went to the security holders or creditors of
those classes.
In connection with the B stock, out of 290,000 shares, 75,000 shares
went to the old commo-stock holders, and they had rights to subscribe under the plan of reorganization for an additional amount of
149,000 shares, more or less, and in the event that 149,000 shares were
not taken by the stockholders on their subscription, there would
again have been m the hands of underwriters a very large concentration of holdings.
There were 4,500 stockholders m this situation, and while the distribution was obviously one that would not have gotten by the committee as eligible for listing in the first instance, when the stock was
distributed to the stockholders of the listed company by virtue of a
reorganization we are very reluctant to see them further penalized
after they have been through a reorganization by losing the market
for their stock. So we wanted, if possible, to put the new securities that came on out of the old in the list, in the interest of these
4,500 stockholders. The distribution situation gave him concern—
and I hs*ve discussed this with my associate who handled it to find
out just what was in his mind—apparently faced with that distribution situation, he decided that it would be wise to see that there
was some orderly kind of a bid offer in there for the stock, so that
the market should not be as exposed as it otherwise would have been.
Mr. PECORA. That is; exposed to a corner?
Mr. ALTSCHUL. N O ; not to a corner. This would be exposed to
the fact that there were large concentrated blocks that might come
into the market and there would be no place for a small stockholder
to turn with his holdings. We wanted a regular, orderly market
within a narrow range.
Just to digress for one moment, the minutes of the meeting contain
a very full discussion of this question. I think you have them.

6288

STOCK EXCHANGE PRACTICES

Mr. PECORA. I have a copy of them before me.
Mr. ALTSCHTJL. And they indicate the reasoning just about I think
as I have outlined it to you, the reasoning behind that action.
Now, with regard to the lend-or-sell letters, which I take it was
part of your question
Mr. PECORA. Yes.

Mr. ALTSCHUL. Before leaving the other question, may I say that
this is the only case in my experience in which this action has been
taken, so I do not think we could describe it under any question of
a general policy, other than a sort of a general disposition to try
and see that the stockholders were protected in this situation where
there was anything that we could do to help them.
In other words, the lend or sell letters; that is a fairly usual
precaution that we take. When the distribution sheets indicate to
us that there is a very heavy concentration of holdings, but still
not a concentration so heavy that it would act as a bar to the listing
altogether, then we are in the habit of asking the large stockholders
to give us these lend or sell letters which will allow us to call upon
them to lend or sell the stock on the floor at our request in the event
that a situation develops in the market to make that necessary. Those
lend or sell letters we get very often. We have hundreds of them
on file. They are all there merely as a protection against untoward
developments, and m my recollection we have never had occasion
to use them. I mean they are taken just as a precaution, but it is a
precaution which we have never had occasion to use.
Mr. PECORA. Well, as a precaution against what?
Mr. ALTSCHUL. That is a precaution against an untoward development in the way of a corner in the stock.
The CHAIRMAN. Was this application granted?
Mr. ALTSCHUL The application was granted, sir; yes.
Mr. PECORA. And one of the thoughts underlying this condition
that was virtually imposed as a condition to the granting of the
listing application was that there would be stock available to 'meet
ordinary market requirements in a manner that would keep a close
market on the stock?
Mr. ALTSCHUL. Yes; I think that is substantially correct. Well, I
don't think there is anything—the discussion in the minutes, which
I take it you are going to incorporate in the record, sir, will give
all the circumstances in back 01 that. I think your statement is
substantially correct. I would not take exception to it in any way.
Mr. PECORA. I have what purports to be a photostatic copy of
the minutes of the meeting of the committee on stock list held on
February 6, 1933, at which action was taken on this application to
list the class A and class B shares of the Kelsey-Hayes Wheel Co.
Will you identify that as being true and correct copy of such
minutes ?
Mr. ALTSOHUL. I so do,

sir.

Mr. PECORA. I will offer that m evidence, but on account of its
voluminouls character I ask that it be not spread in full on the
minutes.
The CHAIRMAN Let it be admitted, under those conditions.

STOCK EXCHANGE PRACTICES

6289

(Minutes of meeting of Feb. 6, 1933, of committee on stock list
was designated "Committee Exhibit No. 82, Feb. 22, 1934", filed
among the records of the committee, but not incorporated in this
record in full.)
Mr. PECORA. This was virtually calling upon the sponsors of the
stock to make stock available for permanent requirements if the
necessity should arise ?
Mr. ALTSCHUL. Calling upon the sponsors, and as we understand,
the reorganization managers.
Mr. PECORA. I notice that there is no statement embodied in the
listing application in the final form of it with regard to this condition for the creation of this joint trading account that has been
referred to here. Is there any reason why that was not made
public?
Mr. ALTSCHUL. I did not participate in the discussions, but if
I had participated I would have urged that it not be made public,
and I suppose the same reasons would have guided me that guided
the committee.
Mr. PECORA. What was that ?
Mr. ALTSCHUL. Because the matter was one of relative unimportance. It was merely a request to keep a normal, natural market in
there during the time of the transition period from the old—I don't
remember whether it was bankruptcy—but anyway, the old reorganized company and the new company, and to give publicity to
the fact that two important banking firms were under agreement
which provided for doing certain things might have had a connotation in the minds of the public that was quite unwarranted. I t
might have provided the incentive—it might have provided the basis
for conclusion that would have had no justification. I t would have
given the transaction an importance that it did not have in our
minds. I will put it differently: I think it would have had an importance in the minds of the public that it certainly did not have
in ours, and I felt that it more dangerous to disclose—thai it might
be dangerous to disclose it, and there would be no harm in the
arrangement as it was concluded without publicity.
Mr. PECORA. Except whatever activity the stock had in the market
through the operation of this joint trading account would be misleading the public, in that the public would thereby be able to
assume that this was public trading?
Mr. ALTSCHUL. We would never have assumed that this trading
account, so-called, would have led to any added activity in the
market that would not have taken place anyway. We would have
assumed that such activity as originated on the part of a buyer
or a seller would have found a counterpart that would have given a
fair execution of his order.
The CHAIRMAN. That is all, Mr. Altschul. We will now take a
recess until 10:30 tomorrow morning.
(Accordingly, at 4:32 p.m., an adjournment was taken until
10:30 a.m. on the following morning.)

6290

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT 78-A—FEB 22, 1934
HAMMONS & Co.,

New Ywk City, August 23, 1983.
LEE WABBBN JAMBS, ESQ ,

New York, New York

DEAR SIR: In consideration of your purchasing 3,000 shares Consolidated
Aircraft Corporation Common Stock at $1000 per share, we hereby grant you
an option to purchase 14,000 shares of the above-mentioned stock as follows:
5,000 shares at $10 00 per share
4,000 shares at $10 50 per share
5,000 shares at $11.00 per share
The above option is good for a period of thirty (30) days from the date of
this letter or until the close of business Friday, September 22nd, 1933
In consideration of your exercising the above option, we hereby grant you
an additional option to purchase all or any part of 16,000 shares Consolidated
Aircraft Corporation Common Stock as follows:
4,000 shares at $11.50 per share
4,000 shares at $12 00 per share
4,000 shares at $1250 per share
4,000 shares at $13.00 per share
good for a period of forty-five (45) days from the date of this letter, terminating at the close of business Saturday, October 7th, 1933
If the above is in accordance with your understanding, please sign and,
return duplicate copy of this letter in the space provided below.
Yours very truly,
HAMMONS & Co, INCORPORATED,
LESTER W. PELL JR., Secretary.

LWP: HMD
Accepted •
LEE WARREN JAMES
JUNE 26, 1933.

Mr WARREN JAMES, Syndicate Manager,

New York City
DEAR SIRS . The undersigned, Charles W Sanford, of New York, confirms his
agreement with you as follows •
In consideration of the sum of $100 paid by you to the undersigned, receipt
whereof is hereby acknowledged, the undersigned has granted to you and others >
associated with you, on certain terms, options to purchase from the undersigned,
shares of the $100 par value Common stock of Graham-Paige Motors Corporation, a Michigan corporation, as follows:
Up to—
17,600 shares..
17,500 shares.17,500 shares. 17,500 shares--

Price

Date
On
On
On
On

or before 3 o'clock p m , D
or before 3 o'clock p m , D
or before 3 o'clock p m , D
or before 3 o'clock p m , D

ST
ST
9T
ST

July 26,1933
, Aug 26,1933
, Sept 26,1933
, Oct 26,1933

At
At
At
At

$3 00 per share
$3 60 per share
$4O0 per share
$4 50 per share

flat.
flat.
flat.
flat.

It is understood that the foregoing options, other than the first option, are
respectively conditional upon the full exercise by you within the period specified of the preceding option
You may exercise the options referred to above from time to time by giving,
within the periods above mentioned, notice in writing of your election to
purchase such shares to the undersigned at 1877 Broadway, New York City,
and the undersigned will deliver or cause to be delivered to you certificates
for the number of such shares which you shall so elect to purchase, at your
oflice, No 48 Wall Street, New York City, within
days following the day on
which such notice is given, against payment therefor

STOCK EXCHANGE PRACTICES

6291

It is understood that the undersigned shall be entitled to receive any dividends which may be declared upon any of the shares covered by any of the
above mentioned options, which shall be payable to holders of record thereof
of a date prior to the purchase by you of said shares, and that you shall be
entitled to receive all such dividends which shall be payable to holders of
record thereof of a date on or subsequent to the date of purchase by you of
such shares
All the shares of such common stock above referred to are now issued and
outstanding and all the shares of such common stock purchased by you hereunder are to be shares listed on the New York Stock Exchange. The certificates for all such shares are to be delivered to you in negotiable form for
delivery on the New York Stock Exchange, and the undersigned agrees to pay
all requisite stock transfer taxes payable in connection with the sale of any
of such shares to you hereunder.
If the foregoing is in accordance with your understanding, will you please
confirm your agreement herewith
Yours very truly,
(Signed)

OHAELBS W. SANFORD

COMMITTEE EXHIBIT 78-C
SANDEBSON & PORTEB, ENGINBEBS,

52 William Street, New York, May 8, 1983.
Mr. MASON DAY,

Redmond d Co, 48 Wall Street, New York, NY.
will confirm our understanding of the option given to
you on Voting Trust Certificates tor Common Stock of the American Water
Works & Electric Co., Inc., namely, all or part of 2,500 shares at 16, 2,500 shares
at 17, 2,500 shares at 18, 2,500 shares at 19, good through the close of business
June 8, 1933.
Yours very truly,
DEAR MB. DAY:—This

SANDERSON & POBTEB
COMMITTEE EXHIBIT 78-D
SANDERSON & PORTER, ENGINEERS,

52 Willtam Street, New York, May 8, 1938.
Mr. MASON DAY,

Redmond & Co, 48 Wall Street, New York, N Y.
will confirm our understanding of the option given
to you on Voting Trust Certificates for Common Stock of American Water
Works & Electric Co., Inc, namely, all or part of 2,500 shares at 14. 2,500
shares at 15, good through the close of business June 18, 1933
Yours very truly,
DEAR MR DAY:—This

SANDERSON & PORTER
COMMITTEE EXHIBIT 7&-E
SANDERSON & POSTER,
ENGINEERS,

52 William Street, New York, May 16,1988.
Mr. MASON DAY,

Redmond & Company, 48 Wall Street, New York, N Y
DEAR MR. DAY :—

This will confirm our understanding of the option given to you on Voting
Trust Certificates for Common Stock of American Water Works & Electric
Company, Inc, namely, all or part of 1,500 shares at 20 (called), 1,500 shares
at 21, good through the close of business June 15, 1933.
Yours very truly,

SANDERSON & PORTER.

6292

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT 78-F
LOTTCKS & CUIXEN,
ROOOMS 1505-1510 EQUITABLE BUILDING

120 Broadway, New York City, N Y, April 20, 1983.
Mr H MASON DAY,

G/O Redmond & Co , 48 Wall Street, New York, N.Y.
Re: Bamsdall Syndicate.
MY DEAR MASON •—For your information, the syndicate has a call on Post &
Flagg. dated March 9,1933, good for sixty days, on
3,250 shares at 4y2,
3,250 shares at 3%,
3,250 shares at 4.
It this is exercised, it has an additional call for an additional sixty days on
3,250 shares at 4%,
3,250 shares at 4%,
3,250 shares at 4%. July 7, 1933.
If this is exercised, it has a call for an additional sixty days on
3,250 shares at 5, July 7, 1933
3,250 shares at 5%, July 7, 1933.
3,250 shares at 5%.
If this is exercised, it has an additional call for an additional sixty days, on
lots of 3,250 shares from 5% up to 8%, inclusive The Barnsdall call is the
same as to date and all other terms, except the units are 1,750 shares.
We have exercised today on the first call 1,500 shares from Post & Flagg
and 1,000 shares from Barnsdall, at 3%. The date you want to keep in kind
is May 8th as the expiration date of the first call, and our drive, of course,
must be to exercise the full 15,000 shares before that date, which makes the
call operative for the next sixty days
Very turly yours,
WDL: B

WM DEWEY LOTJCKS
COMMITTEE EXHIBIT 78-G
REDMOND & Co,

48 Wall Stteet, New York, August 19, 19S1
Messrs. WEIGHT & SEXTON,

SO Broad Street, New York, N.Y.

Attention: Charles C. Wright, Esq.
DEAE SIRS : We confirm our understanding that we have given you an order
(the execution of any part of which is optional with you) to sell for our account all or any part of fifty thousand (50,000) shares of Petroleum Corporation of American Capital Stock in amounts and prices as follows *
5,000 shares at $8 75 per share
5,000 shares at $1000 per share
5,000 "
" 900 "
5,000 "
" 1025 "
5,000 "
" 9 25 "
5,000 "
" 1050 "
5,000 "
" 9 50 "
5,000 "
" 1075 "
5,000 "
" 9 75 "
5,000 "
" 1100 "
It is understood that the above prices are to be net to us and that this order
is to expire at the close of business on Friday, August 28, 1931. Certificates for
tfiese shares will be delivered to you or your nominee upon one day's notice and
upon payment of the aforesaid prices therefor at our office at #48 Wall Street,
New York City.
It is further understood that upon the expiration of this order, as above
noted, you will forward to us one half of any profits which you may realize
through the sale of these shares and it is also understood that Kedmond & Co.
shall not be responsible for any loss which may occur through such sales
This order is in addition to the order given to you under date of August 7,
1931.
Yours very truly,
Accepted •

REDMOND & Co
WEIGHT & SEXTON.

6293

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT 78-H
SANDERSON & PORTER, ENGINEERS,

52 William Street, New York, April U> 1938
Mr. MASON DAY,

Redmond & Company,
48 Wall Street, New York, N.Y.
DEAR MR. DAY This will confirm our undei standing of the option given
to you on Voting Trust Certificates for Common Stock of American Water
Works & Electric Company, Inc, namely, all or part of
3,000 shares at 12 called
3,000 shares at 13 called
3,000 shares at 14 called
6,000 shares at 15 2700 called
3,000 shares at 16
3,000 shares at 17
good through the close of business May 24, 1933
Tours very truly,
SANDERSON & PORTER
COMMITTEE EXHIBIT 78-1
B A N C A M E R I O A - B L A I R CORPORATION,

U Wall Street, New York, October 9, 1931
Messrs. REDMOND & Co,

48 Wall Street, New Yotk City.
(Attention of Mr. Mason Day )
DEAR SIRS: We hereby offer to sell to you all or any part of 25,000 shares
Julius Kayser & Co. Common Stock, in amounts and at prices as follows:
2,000 Shares at $8 50 per share
2,000 Shares at $10.50 per share
5,000
"
" 9 00 "
3,000
"
" 1100 "
4,000
"
" 1150 "
3,000
"
" 9.50 "
3,000
"
" 12 00 "
3,000
"
" 1000 "
It is understood that the above prices are to be net to us
Tliis offer shall run for a period of ninety (90) days, or until the close of
business on Tuesday, January 5, 1932, except that we shall have the right to
cancel this offer at any time upon ten day's previous notice to you in writing.
It is also understood that, after deducting expenses, any amount received
by you through the sale of any of these shares, in excess of the above net
prices, shall be divided 25% to us and 75% to yourselves.
It is further understood that we shall be privileged to sell in the market
any additional shares owned by us, but if we decide to sell such shares enblock,
we will do so through you
During the life of this offer, certificates for the above shares will be delivered
to you or your nominee, upon one day's previous notice, and upon payment
of the aforesaid prices therefor, at our Office, 44 Wall Street, New York City
Kindly acknowledge and confirm that the foregoing is in accordance with
your understanding by signing and returning to us copy of this letter enclosed
herewith
Yours very truly,
J. R

MONTGOMERY,

Vice President
COMMITTEE EXHIBIT 78- J
HARRIS, SMALL & Co,

Detroit, Mich, July 81, 1981
REDMOND & Co,

48 Wall St, New York City
DEARI SIRS We, the undersigned, Harris, Small & Co, hereby represent that
we either own or control not less than Twenty-five Thousand (25,000) Shares

6294

STOCK EXCHANGE PRACTICES

of the Class B No Par Value Stock of Houdaille-Hershey Corporation, a Michigan Corporation
In consideration of Five Dollais ($5) and other valuable considerations, the
leceipt of which is hereby acknowledged by us, we hereby give Redmond & Co
of New York, N Y, an option to purchase at any time on or before the first
day of October, 1931, not to exceed Twenty-five Thousand (25,000) Shares of
the Class B No Par Value Stock of Houdaille-Hershey Corporation, in the
following amounts and at the following respective prices, namely:
6,250 Shares at Seven Dollars ($7 00) per Share,
6,250 Shares at Eight Dollars ($800) per Share,
6,250 Shares at Nine Dollars ($900) per Share,
6,250 Shares at Ten Dollars ($10.00) per Share
The foregoing option may be exercised by you only in blocks of Six Thousand Two Hundred Fifty (6,250) Shares each, but may be so exercised in
blocks of Six Thousand Two Hundred Fifty (6,250) Shares each at any time
prior to October 1, 1931, as to all of said Twenty-five Thousand (25,000) Shares
or part thereof, and the exercising of said option as to part shall in no way
be construed as an election on your part to purchase the balance of said stock.
Very truly yours,
HARRIS, SMALL & Co.
MARCH 8,

1933.

BARNSDALL CORPORATION COMMON STOCK SYNDICATE AGREEMENT.

THIS AGREEMENT, made as of this 8th day of March, 1933, by and between
WM DEWEY LOUCKS, of New York City, N.Y., (hereinafter termed the
Manager), and the undersigned, hereinafter separately termed the Participants)
the Manager and the Participants together forming the Syndicate:—
WITNESSETH:—to wit:
The Participants hereby form a Syndicate and constitute the said Loucks
Manager thereof, to trade in the Common stock of Barnsdall Corporation,
upon the New York Stock Exchange, upon the understanding that the commitment of the Syndicate shall not at any one time exceed 25,000 shares for long
or short account, except that the Syndicate may be short additional stock
when covered by options. All transactions for account of the Syndicate shall
be in accordance with and subject to the rules and regulations of the New
York Stock Exchange Subject only to the limitations aforesaid, the Manager
in the trading account, upon books of account entitled " Barnsdall Corporation
Syndicate Account", shall have full power and authority hereby granted, in
his uncontrolled discretion and judgment, during the life and for account of
the Syndicate, to buy, sell and generally trade in the said shares of stock,
either long or short, and at either public or private sale, and to deliver and
receive any puts and calls thereon.
The profits and losses of the Syndicate shall be divided among and borne
by the Participants in the proportion which their respective participations, in
dollars, bear to the total aggregate of the dollars of all of the Participants
The Participants shall be deemed to participate in each transaction in proportion to their several interests in the Syndicate. Any loss resulting from
the failure of any Participant to carry out his obligation hereunder shall
not be charged as a loss to the Syndicate, but in respect of any such loss
incurred or threatened, resulting from such failure, the Manager shall have
full power and authority hereby granted to take such action, by sale or otherwise, and with or without notice, as in the Manager's uncontrolled discretion
is necessary to protect the Manager against loss
The Syndicate will expire at the close of business on the first day of December, 1933, unless sooner terminated by the Manager, and may be extended
at the discretion of the Manager for an additional period of four months, or
any part thereof
The Manager, from time to time, upon two days notice, may call and the
Participants shall thereupon pay in cash, such amounts on account of the
Syndicate liability, whether for purchase price, margin, or otherwise, as the

STOCK EXCHANGE PRACTICES

6295

Manager may deem proper. The Manager shall receive no compensation for
his services as Manager, but may, in his uncontrolled discretion, pay to such
assistants as he has and deems proper so to pay, at the close of the Syndicate,
not exceeding 10% of the Syndicate profits, it any, in kind, tor the services
of such assistants, or any assistant, provided that not more than 10% of the
said net Syndicate profits shall be so paid, and the same shall only be paid
upon the termination of the Syndicate. The Manager's determination in that
regard shall be final and binding upon all Participants.
The Manager shall not be responsible, as such, unless the Manager shall be
a Participant, and then only as a Participant, for any losses chargeable to the
Participants in the event that the result of the Syndicate shall be a loss rather
than a profit.
All expenses incidental to the operation of the Syndicate, including legal
expenses, advertising, printing, postage, and all clearance charges, floor charges,
and commissions payable by the Manager to brokers or otherwise, shall be a
charge upon and be paid by the Syndicate
The Manager agrees to arrange with Redmond & Co., members of the New
York Stock Exchange, to carry the account of the Syndicate and to endeavor to
arrange with such Stock Exchange house to carry the stock traded in upon a
margin basis maintained at fifty per cent. (50%), but in the event of the
Manager's inability to make such arrangements, there shall be no liability upon
him therefor
The Manager shall have full discretionary power and authority hereby
granted to borrow money, or to cause the same to be borrowed, by any firm
which is a member of the New York Stock Exchange and which firm shall then
be carrying assets of the Syndicate against margin paid in by the Participants
for account of the Syndicate, for any of the purposes covered by this agreement,
and to pledge as security therefor any of the Syndicate assets in the general
loans of such Stock Exchange firm, without regard to the Syndicate indebtedness
of the Participants to the Manager;.and also to pledge as security therefore this
agreement and the several obligations of the Participants hereunder; except
that where a Participant has taken up his proportion of the long stock and paid
any other requirements of the Syndicate Manager under the Syndicate, and
signified his intention of continuing to carry his proportionate share of the
long stock, the participation of such Participant shall not be pledged
The Manager may in his sole discretion release any participant for any cause
and/or substitute another satisfactory to the Manager, provided that such substitute assumes the obligations of the released Participant. In case of any
default upon the part of any Participant, his interest in the Syndicate, or any
shares which he may be required to take up, may be sold at public or private
sale, with or without notice, and the Manager or any Participant or Participants may be the purchaser or purchasers thereof, notwithstanding which, every
such defaulting Participant shall be responsible to the full extent of his full
liability therefor The Manager may, in his sole discretion, make any such
adiustment with any Participant as the Manager deems proper No Participant
shall in any manner be relieved of his obligations hereunder, by the default of
any other Participant, nor shall his obligations be in any manner increased
thereby
Any Participant, with the consent of the Manager, may take up and carry his
ratable share of Syndicate stock at the then cost thereof, provided such Participant shall agree with the Manager that the stock so taken up shall not be
sold during the life of the Syndicate without the consent of the Manager in
writing first obtained, and that the same shall be held during the life of the
Syndicate, subject to the call of the Manager
Upon the termination of the Syndicate, the Manager shall account to the
Participants upon the assets remaining m the Syndicate account, distributing to
the Participants against payment their respective proportions of any shares of
stock then in the hands of the Manager, for account of the Syndicate, together
with their respective proportions of any cash on hand, and in the event of a
loss, a statement of their respective proportions thereof, which the Participants
shall forthwith pay to the Manager
Apportionment and distribution by the Manager of the profits, losses, and
expenses shall be conclusive upon the Syndicate and upon the Participants,
as shall also be the written statement of the Manager of the result of the
175541—34—PT 14
9

6296

STOCK EXCHANGE PRACTICES

Syndicate operations. The Manager shall not be liable under any of the provisions of this agreement, or from any matter connected therewith, or for
the exercise of his judgment and discretion in the management of the Syndicate, except for want of good faith. No Participant shall be liable under any
circumstances in excess of the dollars the Participant has committed himself
for by his signature to this agreement.
Nothing herein contained shall constitute the Participants partners with
the Manager, or with one another, or render them liable for more than their
proportionate shares, respectively, of the entire Syndicate liability. Nothing
contained in this agreement shall be construed as creating any trust or obligation in favor of any person or corporation, other than the parties hereto, nor
any obligation in their favor otherwise than as herein expressly provided
This agreement shall extend to and bind the successors and personal representatives of the respective parties.
This agreement is entered into and is to be performed in the State of
New York, and shall be construed in accordance with the laws of said State.
Any notice from the Manager to any Participant shall be deemed to have been
duly given if mailed or telegraphed to such Participant at the address furnished
to the Manager by such Participant.
In witness whereof, the Manager has accepted the responsibilities herein contained by his execution of this agreement, and the Participants have become
parties hereto by the execution of this instrument and have affixed their respective addresses together with the amount of their dollar commitment, all
as of the day and year first above written.
WM. DBWEY LOTJCKS,

Syndicate Manager.
Dollar
Commitment
Utility Trading and Security Corp., by Wm. Dewey Loucks, 120 B'way. $20,000
Louis C. Blendeman, 52 William St
.
40,000
Lee Warren James, 48 Wall St
20,000
Bllery W. Mann, Chrysler Bldg
5,000
, 52 William St
5,000

COMMITTEE EXHIBIT

78-K
MABOH 7,

1932.

Messrs. REDMOND & Co.,

48 Wall Street, New York, N.Y.
GENTLEMEN: For a valuable consideration, I hereby grant you an option
to purchase all or any part of thirty thousand (30,000) shares of the common
stock of the Zonite Products Corporation, at the following prices:
10,000 shares @ $9.00 per share,
10,000 shares @ 10.00 per share,
10,000 shares @ 11.00 per share.
Should the stock sell ex-dividend during the period of this option, or any
extension thereto, you are not to receive the dividend on any stock not called
by you as of the day the stock sells ex-dividend. The expiration date of
this option is April 21, 1932.
It is further agreed that I will loan you, upon your request, for the period
of this option, through a New York Stock Exchange firm, up to fifteen thousand
(15,000) shares at the prevailing market price, so long as at least 15,000
shares remain uncalled under this option.
Your very truly,
ELLEY W. MANN.

Accepted:

KEDMOND &

By-,

Co.

STOCK EXCHANGE PBACTICES
KEDMOND & Co,

6297

NEW YORK, June 15,1982.

48 Wall Street, New York, N.Y.
GENTLEMEN: For a valuable consideration, I hereby grant you an option to
purchase all or any part of twenty thousand (20,000) shares of Zonite Products
Corporation common stock at the following prices:
Exercised 8/9/32, 5,000 shares @ 5
Exercised 8/11/32, 5,000 shares @ 5 ^ .
2,500 exercised 8/15/32, 5,000 shares @ 6.
5,000 shares @ 6%.
The expiration date of this option is August 15, 1932.
I agree to allow you to exercise a put on five thousand (5,000) shares during
the life of the agreement at five dollars ($5.00) per share.
Yours very truly,
ELLEKY W. MANN
Accepted:
COMMITTEE EXHIBIT

78-L

NEW YORK, September 8, 1982.
REDMOND & Co,

48 Wall Street, New York City.
Gentlemen: This will confirm arrangements made with your Mr. Day, giving you an option for 60 days from this date, on 16,000 shares (16,000) of the
common stock of the Warren Foundry & Pipe Corporation at the following
prices:
1,000 shares <?% $13 per share,
3,000 shares <i
I 14.
^(
ti
3,000
% 15.
3,000
a) 16
3,000
% 17
3,000
% 18.
Harris, Upham & Co. will deliver to you the above number of shares at the
prices stated, upon call.
It is understood and agreed that the option given you under date of September 1, 1932, is hereby cancelled, excepting as applied to such stock as had
already been delivered and paid for.
Please confirm the above described option by signing and returning to us the
attached duplicate of this letter.
Yours very truly,
J. LEONARD REPLOGLE
COMMITTEE EXHIBIT

78-M
AUGUST 21,

1931

Messrs. REDMOND & Co,

48 Wall Street, New York, N Y
GENTLEMEN : On August 19, 1931, you gave us an order to sell fifty thousand
(50,000) shares of the Capital Stock of the Petroleum Corporation of America
at certain prices, which prices have been corrected by you under today's date.
It is hereby agreed between us that you may, with our consent, give an order
to Messrs M. J. Meehan & Co to sell all or any part of fifteen thousand (15,000)
shares of the above mentioned stock, in amounts and prices as follows:
2,500 shares at 9 ^
2,500 shares at 9%
2,500 shares at 9%
5,000 shares at 10
2,500 shares at 10^4
Messrs. M J. Meehan & Co will agree to pay you forty percent (40%) of
any profits which they make in connection with these sales, if any, and will
agree that Redmond & Co. shall not be responsible for any loss which may
occur through such sales.
It is understood that you will forward to us one-half of any profits you may
receive from Messrs M. J. Meehan & Co.'s sales.
Yours very truly,
WRIGHT & SEXTON.

6298

STOCK EXCHANGE PRACTICES

The undersigned, as Syndicate Manager, has organized a Syndicate of which
you are part, to purchase under certain terms and conditions, a possible
maximum of 92,057 voting trust certificates representing shares of capital
stock of Molybdenum Corporation of America, a Corporation organized under
the laws of the State of Delaware, which voting Trust Certificates have been
listed on the Curb Exchange of New York. The number of voting Trust
Certificates purchased contemporaneously herewith is 16,871, representing the
aforesaid shares at the price of $5 per share. The remainder of said voting
Trust Certificates representing said shares are to be purchased under the
following conditions and at the following times.
10,000 shs at 5% as soon as any of said voting Trust Certificates are sold
on the New York Curb Exchange at $7% per share
10,000 shs at 5% as soon as any of said voting Trust Certificates are sold
on the New York Curb Exhange at $7% per share
10,000 shs at 5% as soon as any of said voting Trust Certificates are sold
on the New York Curb Exchange at $8%
10,000 shs at 6% as soon as any of said voting Trust Certificates are sold
on the New York Curb Exchange at $8%
11,681 shs at 6% as soon as any of said voting Trust Certificates are sold
on the New York Curb Exchange at $9%
12,000 shs at 7 as son as any of said voting Trust Certificates are sold
on the New York Curb Exchange at 9%
11,505 shs at 7% As soon as any of said voting Trust Certificates are sold
on the New York Curb Exchange at lO1/^
The agreement to purchase said voting Trust Certificates shall cease at the
expiration of 60 days from and after July 26, 1933 The undersigned confirms
your interest in this Syndicate to the extent of 3%, and i.t is understood that
to the extent to which the undersigned at his absolute discretion shall make
such purchases, same shall be proportionately confirmed and that you will
promptly make payment on call for the shares so purchased by you. It is
understood that any and all stock purchased pursuant to said agreement will
be left with Redmond & Co. for sale at the direction and discretion of the
undersigned. The undersigned shall incur no liability for any action taken
hereunder in good faith
If the foregoing is in accordance with your understanding, will you please
confirm your agreement herewith, by signing and returning the enclosed duplicate of this letter, and also your check for $2,53065 being your proportionate
amount of the cost of the initial purchase.
LEE WABEBN JAMES.
COMMITTEE EXHIBIT

78-N

DETPROIT, MIOB., July 8, 1931.
Messrs REDMOND & Co.,
48 Wall Street, New York, N F.
GENTLEMEN: This letter will confirm the fact that on June 26, 1931, we
formed a joint account to trade in the capital stock of Guardian Detroit Union
Group, Inc, a Michigan corporation.
The interests and liabilities in this account are as follows:
Messrs. Harris, Small & Co, 1400 Penobscot Building, Detroit, Michigan— 25%
Messrs William C. Roney & Co, 2232 Union Guardian Building,
Detroit, Michigan
25%
Messrs Edward B Smith & Co, 15 Broad Street, New York, New Yorkll 25%
Messrs. Redmond & Co, 48 Wall Street, New York, New York
25%
All losses which may accrue to this account will be shared in proportion to
the respective interests as outlined above, and all profits shared in like
proportion
Unless approved in writing by all parties to this agreement, it is expressly
understood that this account shall not be long at any time more than 2,000
shares of Guardian Detroit Union Group, Inc, capital stock The maximum
short position which this account may assume at any one time is 10,000
shares of the same stock .
The manager of this account shall be Messrs. Harris, Small & Co, who will
act without compensation and without liability for the conduct of the account

STOCK EXCHANGE PRACTICES

6299

except for lack of good faith The manager shall have the right to appoint
agents in connection with this operation without liability other than for the
exercise of ordinary care m the appointment The manager shall be relmbuised for commissions, taxes, counsel fees and other expenses in the discretion of the manager deemed necessary.
The members, by accepting an interest in this account, agree promptly to
meet, to the extent of their respective proportions, all calls of the manager for
capital and expenses incident to the trading operations The manager will
also have the right to call upon members to cairy, for the benefit of this
account, their proportionate share ol stock which the account may be long at
any time, which stock will be subject to recall by the manager Any notice or
call by the manager may be sent by mail or telegraph to the last known address
of the member
The recoids of this account will be kept in the offices of the manager
The manager will have the right to borrow money for the benefit of the
account and may hypothecate such assets as the account may hold as security
for such loan or loans as they may negotiate from time to time for the account's
benefit
We represent that we hold an option from Messrs Keane, Higbie & Oo to
purchase 17,500 shaies of the capital stock of Guardian Detroit Union Group,
Inc, in various amounts and prices ranging from $40 to $55 a share A copy
of this option is attached hereto
In consideration of $5, and other valuable considerations, paid to us by the
other parties to this agreement, we hereby assign the said option to this
account
Nothing in this lettei is to be constiued to mean that the manager of this
account is a partnei of the other members or that the members are partners
of each other
Unless soon dissolved by mutual consent, this account will extend for the life
of the option referred to above
It is agreed that any member of this account may withdraw upon ten days*
notice to the manager, without liability, except for the satisfaction of all
obligations of said withdrawing member under the terms of this agreement, to
the date of withdrawal
Upon failure of any mlember of this account to perform any of his undertakings, the manager shall have the right to exclude such member from further
interest and participation in this account and to hold such member liable for
damages caused by such failure
Anything in this agreement to the contrary notwithstanding, the obligations
in this agreement are several and not joint
No member of this account may sell, assign, transfer or pledge any interest
either in the assets of the account or its right as a member without written
consent of thle manager
Kindly indicate your approval of the terms of this agreement, as of June
26, 1931, by signing and returning to us the enclosed duplicate copy.
This agreement may be executed in one or more counterparts and each shall
constitute an original.
Yours very truly,
HARRIS SMALL
W. E LOREY CO

Accepted •
REDMOND CO
COMMITTEE EXHIBIT

78-0

B E D M O N D & CO

New York-Philadelphia
Cables " Mimosa " New York
48 WALL STREET, NEW YORK, July 21,1930.
W

BUESCHER,

Esq,

o/o Transamenoa Corporation,
U Wall Street, New YorJc City.
DEAR SIR . This letter will confirm the fact that we have this day formed an
undivided joint account between ourselves to trade in the common stock of

6300

STOCK EXCHANGE PBACTICES

Warren Foundry & Pipe Corporation as the same is now constituted. The
interests and liabilities in the account are as follows:
Redmond & Co
40%
Ned D. Biddison
40%
P W. Thirtle
10%
W J Buescher
10%
Any net losses arising from the operation of this account will be shared by
the members in proportion to their respective interests as above and any net
profits which may accrue to the account will be distributed as follows:
Redmond & Co
46%
Ned D Biddison
36%
P. W. Thirtle
9%
W. J. Buescher
9%
The division of profits, as outlined above in favor of Bedmond & Co, is
•compensation for valuable options confirmed below to the account and for the
services of Redmond & Co as Managers of the account, in which capacity they
will serve with full discretionary power and without responsibility except
for lack of good faith
This letter also confirms that Redmond & Co grants an option to this
account on all or any part of 10,000 shares of Warren Foundry & Pipe
Corporation common stock until the close of business September 15, 1930, at
the following prices:
1,000 shs. @ $32 p.s.
1,000 shs. @ $37 p.s.
1,000 shs. @ $33 p.s.
1,000 shs. @ $38 p.s.
1,000 shs. @ $34 p s.
1,000 shs. @ $39 p.s.
1,000 shs. @ $35 p s.
1,000 shs. @ $40 p.s.
1,000 shs. @ $136 p.s
1,000 shs. @ $41 p.s
Unless otherwise agreed in writing, this account will at no time have a
long commitment in the common stock of Warren Foundry & Pipe Corporation and will at no time have a short commitment for a greater amount of
stock than that which may be called for by the option from time to time
No member of this trading account shall be entitled, as of right, to receive
any assets which at any time may be held by it. Apportionment and distribution by the Managers of the profits, losses, and expenses, and the written
statement of the Managers with respect to same shall be conclusive upon the
participants.
The account will extend from this day until the close of business September
15, 1930, unless sooner dissolyed by the Managers and may be extended for a
further period or periods by mutual consent.
Nothing in this letter is to be construed to mean that the Managers of this
account are partners with the participants or that the participants are partners
with each other.
Kindly acknowledge the acceptance of your interest in this trading account
by signing and returning to us the enclosed duplicate copy of this letter.
Very truly yours,
BRGrT
Approved:
W. J. BUNCHEB.

COMMITTEE EXHIBIT

78-P

THE HABTMAN COBPOBATION,
WABASH AVENUE AND ADAMS STREET,

Chicago, Feo 19, 1981.
REDMOND &

Co,

48 Wall St., New York Oity.
(Attention Mr Charles Reed )
GENTLEMEN For and in consideration of One Dollar ($1.00), receipt of
which is hereby acknowledged, I hereby grant to Redmond & Co an option on
the " B " stock of The Hartman Corporation, as follows

6301

STOCK EXCHANGE PRACTICES

2,500 shares at $7 50 per share
5,000 shares at $500 per share
2,500 "
"800 " "
2,500 "
" 5 50 " "
2,500 "
" 6 00 " "
2,500 "
"850 " "
2,500 "
" 650 " "
2,500 "
" 9.00 " "
2,500 "
" 7 00 " "
Totalling 25,000 shares.
This option shall be good for thirty days from February 19, 1981.
I shall only have the right to cancel any uncalled amount of stock providing
the matter I spoke to you about shall become definite during this period.
Stock shall be called for in units of not less than one thousand (1,000)
shares. You shall pay for such A called " stock in cash at any place that I may
designate.
In consideration for the granting of this option, the said Redmond & Company agree to pay me upon the expiration of this option thirty-three and onethird per cent (33%%) of the net profits that shall accrue as a result of this
option. It is agreed that I, or my representative, shall have the right during
the life of the option or upon the settlement of the final profits, to inspect this
account.
Very truly yours
MARTIN L. STRAUS.

Accepted:
REDMOND & COMPANY.
MAEOH 31, 1931.

48 Wall Street, New York Q%ty.
GENTLEMEN : I hereby grant you an option on fifteen thousand (15,000) shares
of the " B " stock of the Hartman Corporation at five dollars per share, for
fifteen days.
In consideration of the granting of this option, I shall receive 33%% of the
profits in this account, with no liability.
Very truly yours,
MARTIN L. STRAUS.
JULY 15, 1930.
REDMOND & COMPANY,

48 Wall Street, New York City.

GENTLEMEN: For and in consideration of One Dollar, ($100), receipt of
which is) hereby acknowledged, I hereby grant to Redmond & Company, an
option on the common stock of the Hartman Corporation, as follows:
5,000 shares at $13. per share
5,000
"
14.
5,000
"
15.
5,000
"
16.
5,000
"
17.
This option shall be good for thirty days from July 15th, and shall cancel all
previous options granted by me
Very truly yours,
MARTIN L

STRAUS.

Accepted.
COMMITTEE EXHIBIT 78-Q

NEW YORK, N.Y., March 4, 1929.

Messrs. HALLGARTEN & Co.,

44 Pme Street, New York, N.Y.
DEAR SIRS : Referring to the proposed Agreement to bear even date herewith
between Morris Plan Shares Corporation, as party of the first part, and you
and the undersigned Redmond & Co, Manufacturers Trust Company and
Bertles, Rawls & Donaldson, Inc., as parties of the second part, we hereby confirm the understanding heretofore existing between you and ourselves that in
consideration of the execution by you simultaneously herewith of said Agree-

6302

STOCK EXCHANGE PRACTICES

ment, we hereby agree with you jointly and severally that said Agreement
when executed by you and said Redmond & Co., Manufacturers Trust Company
and Bertles, Rawls & Donaldson, Inc. shall be made for the joint account of
your firm and all of the undersigned, respectively, in the following proportions:
Hallgarten & Co
25%
Redmond & Co
25%
Manufacturers Trust Company
25%
Bertles, Rawls & Donaldson, Inc
25%
and the rights and benefits accruing from said Agreement when executed and
the obligations and liabilities resulting therefrom shall be borne by you and
us in like proportion Morris Plan Shares Corporation shall have an interest of not more than 12^%, subject to proportionate reduction, in the event
that the number of Units taken down by it from those purchased by the
Bankers under said Agreement does not equal that percentage, and the other
parties hereto hereby cede such interest to said corporation. Any reduction
in the participation of Morris Plan Shares Corporation shall be distributed
among the other participants in proportion to their respective interests
You are hereby authorized by us to act on behalf of the Bankers therein
in all respects, to exercise any and all options granted thereby or contained in
any agreement executed pursuant thereto, and to sign on behalf of yourselves
and the undersigned as Syndicate Managers separate Syndicate and/or Selling
Group agreements for the purchase and/or sale of so many of the Units or
warrants to be purchased or delivered to the Bankers under said Agreement
and on such terms, at such prices and in such form as you in your sole discretion may determine and to become members of and/or act as Managers of
such Syndicate Managers and/or Selling Group Managers; to keep the Syndicate
and/or Selling Group books for such Syndicates; to manage any trading account
in which you and we participate for the purpose of dealing in part in the
securities covered by said Agreement, and to sign all documents or letters in
connection with the Syndicates or Selling Groups on behalf of the Syndicate
and Selling Group Managers. You are hereby authorized to publish, in your
discretion, circulars and advertisements on behalf of the undersigned and on
behalf of any such Syndicate and/or Selling Group, in such form and signed
by such names as you may determine.
Kindly confirm your acceptance of the foregoing by placing your signature
under the word "Accepted " at the foot of this letter and the same will thereupon constitute a binding agreement between you and ourselves
Yours very truly,
REDMOND & Co,
MANUFACTURERS TRUST COMPANY,

, Vice President
BERTLES, RAWLS & DONALDSON, INC ,

, Treas.

MORRIS PLAN SHARES CORPORATION,
By ARTHUR J MORRIS, Pt

Accepted:
HALLGARTEN & Co,

By
COMMITTEE EXHIBIT

78-R

AGREEMENT, made this 27th day of June, 1929, by and between JOHN
BURNHAM & COMPANY, INC., of Chicago, Illinois, party of the first part, and
the other subscribers hereto, parties of the second part.
WHEREAS, the party of the first part and the second part desire to form a
Syndicate for the purpose of purchasing and selling the shares of Common
Stock (hereinafter called the "shares"), of ZENITH RADIO CORPORATION,
(hereinafter called the " Company ") (the said parties of the first part and the
second part being hereinafter called severally the "Participants" and collectively the "Syndicate"), and the party of the first part relying upon the
covenants and agreements of the participants as hereinafter set forth, is ready
and willing to undertake to form a Syndicate for the purpose herein mentioned.

STOCK EXCHANGE PBACTICES

6303

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereof, the Participants severally agree with each
other as follows .
FIRST. The Participants hereby constitute JOHN BURNHAM & COMPANY,
INC. the Syndicate Managers (hereinafter called the "Managers") under this
agreement.
SECOND* Each Participant, by this signature hereto, is bound for the
amount of his participation in the Syndicate as set opposite his signature affixed
hereto and agrees to comply with all directions of the Managers in regard to
Syndicate matters and to make all payments to the Managers as and when
called by the Managers. Calls by the Managers upon Participants to make
payment of their participation will be made ratably in the discretion of the
Managers, in full or from time to time in part. All payments shall be made
in cash at the office designated by the Managers and within five days after each
call by the Managers.
THIRD Participants shall share ratably in the profits and losses upon
Syndicate transactions, but nothing herein contained shall constitute the parties
hereto partners or shall render any one of the Participants liable to contribute
more than the amount of his participation as set opposite his name hereto
aflfixed.
FOURTH: The Managers are hereby specifically authorized by the Participants as follows(a) To purchase the shares in such amounts and at such times as in their
discretion they shall deem advisable, and also to purchase from themselves
in their individual capacity and from other Participants, and to purchase from
others, m the open market or at private sale or otherwise—shares m such
amounts and at such prices, in their discretion, as they may deem advisable,
and for all of the above mentioned purposes to apply the moneys paid by the
Participants and moneys received from the sale of shares or otherwise hereunder, provided, however, that at no time shall the total liability of the
Syndicate, either for long or short account, exceed the total number of shares
subscribed for by the Syndicate.
(b) To receive the shares so purchased for the benefit of the Syndicate.
(c) To buy, sell, purchase, repurchase and trade in the shares as they may
deem advantageous for the Syndicate, m their sole judgment and discretion,
with the right and privilege in their discretion to deal in puts and calls of the
shares if the same should seem advisable, and to ultiize for the purpose of
buying or trading in any such shares any funds of the Syndicate, whether
derived from participation hereunder, or from the proceeds of the sale of
shares acquired by the Syndicate, or otherwise, provided only that the participation or obligation of each Participant hereunder shall not be thereby
increased beyond the amount of his participation as stated herein.
(d) From time to time to borrow money on behalf of the Syndicate and
for the purposes thereof, and to pledge or hypothecate all shares in their possession or under their control, and also this Agreement and the obligations of
the participants hereunder, as collateral security for all sums so borrowed, or
to agree to pledge or hypothecate the same, as the Managers may deem wise,
provided always that the respective liabilities of the Participants shall not in
any event be increased above the full amount of their respective participation.
(e) During the life of this Syndicate and up to and including the final
distribution hereunder, the Managers, on behalf of the Syndicate, may make
any and all arrangements and may perform any and all acts not especially
mentioned herein that, in the exercise of their unrestricted discretion, they
shall deem to be expedient in order to consummate the performance of this
agieement or to promote or protect the interests of the Syndicate.
FIFTH: The title to all of the shares acquired by the Managers for and on
behalf of the Participants, as in this agreement provided, shall vest in the
Managers and the same shall be held by them for the joint account of the
Participants until the termination of this Agreement, and while the same shall
remain in their possession, the Managers shall collect all dividends declared
and paid on such stock for the joint account of the Participants and shall have
full power and authority to vote the said shares of stock as fully and with the
same effect as the Participants might or could do were they the absolute owners

6304

STOCK EXCHANGE PBACTICES

thereof. Any and all moneys received by the Managers hereunder may be held
by them as Bankers in general account.
SIXTH: The Syndicate will expire on Sept 27, 1929, but may be extended
by the Syndicate Managers, without notice, for an additional period or periods
not exceeding ninety (90) days in the aggregate. The Syndicate Managers
reserve the right, however, to terminate the Syndicate at any time.
SEVENTH: The Managers may incur such expenses and obligations in the
performance of this agreement as the Syndicate Managers may deem necessary or proper, including advertising expenses, counsel fees, and commissions
and brokerage on the purchase and sale of shares either at public or private
sale or purchase, and the Syndicate Managers are specifically authorized to
pay to themselves any such brokerage or commission upon the purchase or
sale of shares made by them hereunder, and all expenses and disbursements
paid or incurred by the Managers in connection with the Syndicate shall be
charged to the Syndicate hereunder.
EIGHTH: The Participants shall share the Syndicate profits and losses pro
rata, and upon the termination or expiration of the Syndicate the Managers
shall distribute to the Participants pro rata all shares and/or cash remaining
in the Syndicate account after deduction of all charges and expenses incurred
hereunder. The apportionment and distribution by the Managers of the profits,
expenses and losses of the Syndicate shall be binding and conclusive upon the
Participants, and upon such distribution the Managers shall be discharged from
all liability hereunder. The Managers, upon request, shall render to the Participants a full statement of the apportionment and distribution of profits and
expenses of the Syndicate.
NINTH: The Managers shall be Participants hereunder on the same terms as
other Participants and shall have full power to sell to the Syndicate shares
owned by them or associates, to the same extent as if they were neither Managers of or Participants in this Agreement, at such price or prices as in their
absolute discretion they may determine. The Managers shall not be liable
here under except for the failure to exercise good faith in carrying out the
obligations hereby imposed. In case any Participant shall fail to perform any
of his undertakings, other Participants may be received to take the place of the
Participant so failing to perform his undertaking upon the written consent of
the Managers Upon the failure of any of the Participants to perform any of
his undertakings hereunder, the Managers shall have the right, at their option,
and in their discretion, to preclude a participant from all existing and all
further interest and participation in the Syndicate, and thereupon all interest
and right of such defaulting Participant shall cease and determine, and inasmuch as the successful carrying out of this agreement depends upon full and
complete performance by each and every Participant, and inasmuch as the
damages resulting from any Participant's failure to perform would be of an
uncertain nature and incapable of exact ascertainment, the Managers shall have
the right, in their discretion, either to forfeit as liquidated damages any payments such Participant may have theretofore made hereunder and such Participant does hereby transfer and assign to the Syndicate Managers such sum or
sums as said Participant shall have theretofore paid, the acceptance thereof by
the Syndicate Managers to be full settlement and discharge of any liability of
the Participant to the Syndicate and of the Syndicate to the Participant; or
said Managers may hold such Participant liable for the balance of his subscription and recover from such Participant all damages caused to the Syndicate by the failure of such Participant to perform. The death or default of
any Participant shall not dissolve the Syndicate.
TENTH: No Participant shall have the right to transfer his participation or
any part thereof or any interest therein, either directly or indirectly, without
the written consent of the Managers. No Participant may withdraw and
receive his pro rata share of the shares at any time during the life of the Syndicate except with the written consent of the Managers and upon such terms
as they may determine.
ELEVENTH. Each Participant shall furnish to the Managers his address, to
which notices, calls or other communications may be sent, and any notice, call
or other communication mailed to the Participant at such address shall be
deemed to have been received by him.

STOCK EXCHANGE PBACTICES

6305

TWELFTH: This Agreement may be executed in counterpart and shall bind
and benefit the several parties and their respective executors, administrators,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto affixed their
hands and seals as of the date above first written.
JOHN BUBNHAM & Co.,

Syndicate Managers.
PARTICIPANTS
NAME

ADDRESS

Paul B. Klugh, 3620 Iron St., Chicago
9,700
Seneca Securities Corporation, by E. H. McDonald, Jr., Pres., 120 S. La
Salle St., Chicago
19,400
Irving Hewitt, 120 Si La Salle St., Chicago, Illinois
900
John Burnham & Co., 120 So. La Salle St
10,000
Redmond & Co., 48 Wall St., N.Y. City
7,000
Additional (Redmond & Co.)
3,000
AGREEMENT made this 30th day of April, 1930 between Redmond & Company, a co-partnership, Stroud & Company, Incorporated, a Delaware Corporation, and Chandler & Co. Inc., a New York Corporation, witnesseth
1. The parties hereto agree to form a joint account in which each party shall
have a one-third interest for the purpose of distributing and selling Class " B "
Common Stock of The United States Dairy Products Corporation.
2. For the purpose of providing stock for such joint account, Chandler & Co.
Inc. agrees to assign or cause to be assigned to the parties hereto, an option to
purchase all or any part of 60,000 shares of such Class " B " Common Stock
at $20.00 a share which said option extends until June 1, 1930. Chandler &
Co. Inc. further agrees to assign or cause to be assigned to the parties hereto
a further option to purchase all or any part of 40,000 additional shares of such
stock at $2250 per share which option extends until December 31, 1930 to be
effective only provided the option on all of the 60,000 shares hereinbefore mentioned has been exercised. The foregoing assignments shall be subject to the
following terms:
_
(a) Chandler & Co. Inc. shall have the right on or before May 20,1930 to exercise the foregoing option on its own behalf or to enter into a binding agreement
to exercise such option on its own behalf on or before June 1,1930 with respect
to the 15,000 shares out of the hereinbefore mentioned option for 60,000 shares
for the purpose of covering its present short position in such shares. Chandler
& Co. Inc. shall be required to exercise the option on the aforesaid 15,000 shares
provided the parties hereto shall notify Chandler & Co. Inc. that they desire to
borrow such 15,000 shares for the purpose of making deliveries against short
sales made for the joint account
(b) Chandler & Co. Inc. shall have the right in case on or before May 20, 1930
the option for the entire 60,000 shares is not exercised or a binding agreement
entered into by the parties hereto to exercise such option on or before June 1,
1930, to exercise the option for its own account with respect to any portion of
such shares the option for which has not been exercised or agreed to be exercised for the joint account as aforesaid. In the event that the additional
option for 40,000 shares becomes effective, Chandler & Co. Inc. shall have the
right in case, on or before December 15, 1930, the option for the entire 40,000
shares is not exercised or a binding agreement entered into by the parties
hereto, to exercise such option on or before December 31, 1930 to exercise the
option for its own account with respect to any portion of such shares the option
for which has not been exercised or agreed to be exercised as aforesaid.
(c) Chandler & Co. Inc. shall be entitled to a commission of $1.00 per share
on any or all of said shares the option for which is exercised by the parties
hereto for the joint account provided, however, said sum of $100 per share
shall not apply to the 15,000 shares or any part thereof the option for which
may be exercised or agreed to be exercised by Chandler & Co. Inc as aforesaid
3. Chandler & Co. Inc. will endeavor to obtain an option or options for the
benefit of the parties hereto to purchase 28,000 additional shares of said stock
at $21.50 per share said option or options to extend until December 31, 1930.
In order to enable Chandler & Co. Inc. to cover their short position at April 25,

6308

STOCK EXCHANGE PRACTICES

1930, over and above the 15,000 shares above referred to, as well as their short
position in joint account with Stroud & Company, Incorporated, Chandler &
Co. Inc shall have the first right to take up to but not exceeding 7,283 shares
of said stock for the purpose of covering such shortage
4. Chandler & Co. Inc agrees to procure letters from the owners of at least
105,000 shares of said stock agreeing not to sell the same before December 31,
1930 without the consent of the parties hereto.
5 Chandler & Co. Inc agrees that it will loan or cause to be loaned to the
joint account, if required, up to an aggregate amount of 35,000 shares of said
stock of which 20,000 shares will be provided by Stroud & Company, Incorporated and 15,000 shares by Chandler & Co Inc The price at which said stock
shall be loaned shall not exceed the option pi ice for said stock at that time in
effect and no demand shall be made for the return of said stock so loaned prior
to the expiration date of the options then in effect It is agreed that the joint
account shall never be short of a greater number of shares of said stock than
can be borrowed from Chandler & Co Inc or Stroud & Company, Incorporated
unless additional stock can be borrowed from others through Chandler & Co
Inc on terms similar to those above set forth Stock borrowed from others,
however, subsequent to June 1,1930 shall not be required to be loaned for the
entire period until the expiration of the option, but may be loaned for a period
not less than 60 days and notice requiring the return of such stock shall be
given 10 days before delivery is required
All stock so borrowed shall be returned by the joint account either through
their purchases in the operi market or through the exercise of the above mentioned options The moneys paid by the joint account against a loan of this
stock shall be non-interest bearing
6. All books and accounts with reference to said joint account shall be kept
by Chandler & Co Inc. No purchasing of shaies of such stock for the joint
account shall be made on the open market or otherwise except with the consent
of the parties hereto and then only to cover m whole or m part any short
position of the joint account. Such purchases when made shall be handled by
Chandler & Co Inc. as Syndicate Managers hereunder.
7 In order to assist in establishing a short position in the market and
thereby to aid in the distribution of such stock, Chandler & Co. Inc. agree that
until a short position of 5,000 shares has been established by the joint account,
the parties hereto for the joint account shall have the right to put to Chandler
& Co. Inc. up to but not exceeding 5,000 shares of such stock at a price not in
excess of $24 00 per share
8 The parties hereto agree to use their best efforts to place and distribute
such shares.
9. Chandler & Co. Inc agrees to arrange, by the establishment of a Committee or otherwise, that the parties hereto shall be kept fully informed with
respect to the operations and business of the United States Dairy Products
Corporation
10 All wholesaling shall be for the joint account The concession allowed to
dealers shall be mutually agreed upon by the members of the joint account
from time to time. The retail price on any day shall be governed by the closing
sale price in the market of the previous day
11 The joint account shall be charged only with the out-of-pocket expenses
of the parties hereto incurred for the joint account including advertising,
printing, etc and Chandler & Co Inc shall make no charge for their services
as Syndicate Managers or in keeping the records of the1 joint account
12 Any net profits of the joint account after paying all expenses as above
mentioned and the $100 per share to* Chandler & Co Inc as provided in
Paragraph 2 (c), hereof, shall be divided upon the termination of the joint
account equally between the parties hereto unless an earlier distribution m
whole or in part shall be mutually agreed upon
13 The joint account may be terminated by any one of the parties hereto
upon 10 days written notice to the other parties Upon such termination a
full accounting shall be made but no valuation shall be given to any portion
of the shares remaining in the option over and above that necessary to cover
the short position of the joint account The party giving notice of termination shall have no further interest in such option, but the same shall belong
to the other parties hereof. Unless terminated as aforesaid, this agreement
shall extend to and terminate on December 31, 1930

STOCK EXCHANGE PRACTICES

6307

14 At the request of the parties hereto, Chandler & Co Inc will cause the
United States Dairy Products Corporation to make application to list said
" B " shares of its stock upon the New York Stock Exchange.
15 Chandler & Co Inc agrees to procure letters from the owners of at
least 27,000 Stock Purchase Warrants, Series of 1934, to the effect that they
agree not to sell stock if such Warrants are exercised on or before December
31, 1930 without the consent of the parties hereto.
Witness:

STROUD & COMPANY, INCORPORATED,
HOMER REED, J r , Vice President
CHANDLER & Co,

Syndicate Managers

Witness:

R DTJNLAP, J r ,

REINE E AJAS
REDMOND & Co.
REDMOND & COMPANY,
By H O OSBORN, J r ,

Witness:

General Partner.

STOCK EXCHANGE PEACTICES
FRIDAY, PEBRTTARY 23, 1934
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

take a seat there at the committee table oppo-

site the microphone.
TESTIMONY OF ERNEST H. JOHNSTON, WESTEEELD, NJ., VICE
PEESIDENT CITIES SERVICE CO., NEW YOKE CITY
The CHAIRMAN. Mr. Johnston, please give your name, residence,
and occupation.
Mr. JOHNSTON. Ernest H. Johnston.
Mr. PECORA. DO you spell your last name J-o-h-n-s-t-o-n?
Mr. JOHNSTON. Yes,

sir.

Mr. PECORA. GO ahead and finish your answer.
Mr. JOHNSTON. 157 Lincoln Road, Westfield, N. J.
Mr. PECORA. What is your business or occupation?
Mr* JOHNSTON. Vice president of the Cities Service Co.
Mr. PECORA. HOW long have you been connected with the Cities
Service Co. in that capacity?
Mr. JOHNSTON. For about 15 years.
Mr. PECORA. Are you also a director of that company?

6309

6310

STOCK EXCHANGE PEACTICES

Mr. JOHNSTON. Yes, sir.
Mr. PEOORA. What is the

general nature of the business conducted
by that corporation ?
Mr. JOHNSTON. I t is a holding company for public utilities, oil,
and natural gas corporations.
Mr. PECORA. Where is the office or principal place of business of
the company?
Mr. JOHNSTON. NO. 60 Wall Street.
Mr. PECORA. In the city of New York?
Mr. JOHNSTON. In the city of New York; yes, sir.
Mr. PECORA. NOW, Mr. Johnston, in recent years has it been the
practice or custom for your company to issue monthly letters addressed to the executive committee?
Mr. JOHNSTON. Not since 1929.
Mr. PfccoRA. Well, did it do so in 1929 and prior thereto?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Who was the

author of the monthly letters that we
have in mind during the year 1928?
Mr. JOHNSTON. Charles H. E. Scheer.
Mr. PECORA. IS he employed by the company ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. In what capacity?
Mr. JOHNSTON. He has been with

us since 1914. He started in as
cadet engineer m Denver, and has been developed by the company
along engineering and other lines. He has shown an aptitude in
regard to economics, and has been employed in that capacity in
recent years.
Mr. PECORA. I show you what purports to be an excerpt from one
of the monthly letters, so-called, on economic conditions, addressed
to the executive committee of Henr^ L. Doherty & Co., for the month
of December 1928. Will you be good enough to look at it and tell
me if you recognize it to be an excerpt from such monthly letter?
Mr. JOHNSTON (after reading the paper). Yes, sir.
Mr. PECORA. Mr. Chairman, I now wish to offer it in evidence.
The CHAIRMAN. Let it be admitted.
(An excerpt from the monthly letter on economic conditions to the
executive committee of Henry L. Doherty & Co. for Dec. 1928, was
marked "Committee Exhibit No 83, Feb. 23, 1934", and will be
found immediately following where read by Mr. Pecora.)
Mr. PECORA. NOW, Mr. Chairman, this excerpt just received m
evidence as committee exhibit no. 83, reads as follows, under the
caption "A Pivotal Element in 1929? ":
The huge expansion of credit which took place in 1928 was made possible
largely by idle funds in the hands of individuals, corporations, and foreign
sources which were made available for security speculation through loans to
brokers Had it not been for this unforeseen large supply of credit there would
probably have been an actual shortage of credit in 1928 when as it happened
nothing more than an increase in interest rates took place If these sources
contmule to supply credit in increasing amounts during 1929 all will be well for
both the stock markets and business in general If they merely hold their own
or dry up to any degree, it seems highly probable that the driving force for both
speculation and business will be found definitely lacking It therefore seems
that for the year 1929 much may depend upon the course of brokers' loans which
are classified in banking figures as " for the account of others " This statement
without further elaboration may seem to be rather dogmatic and arbitrary; but

STOCK EXCHANGE PRACTICES

6311

its importance warrants mention at the first of the New Year, and the next
issue of this letter will devote more space to a detailed discussion of the
importance and trend of this factor.

Now, Mr. Johnston, I notice that this monthly letter on economic
conditions, from which this extract is taken, was addressed to the
executive committee of Henry L. Doherty & Co. What is the relationship between Henry L. Doherty & Co. and the Cities Service Co.?
Mr. JOHNSTON. Henry L. Doherty & Co. are fiscal agents for the
Cities Service Co.
Mr. PECORA. Well, as such fiscal agents, what are the functions
of Henry L. Doherty & Co.? How do they serve, in other words,
the Cities Service Co. ?
Mr. JOHNSTON. At that time the funds of Cities Service Co. and
certain of its subsidiaries were deposited with Henry L. Doherty &
Co.
Mr. PECORA. And what else?
Mr. JOHNSTON. Henry L. Doherty & Co. also maintained operating
departments and financial advisors.
Mr. PECORA. I S Henry L. Doherty & Co. a corporation or is it a
copartnership.
Mr. JOHNSTON. I t is now an individual. But Mr, Doherty has
no part in it.
Mr. PECORA. In 1929 was it a copartnership, firm, association, or
corporation, or what was its legal form?
Mr. JOHNSTON. I t was an individual doing business under the firm
name of Henry L. Doherty & Co., since 1922.
x
Mr. PECORA. And the the individual who did business under the
firm name of Henry L. Doherty & Co. was what person ?
Mr. JOHNSTON. Henry L. Doherty.
Mr. PECORA. NOW, was he also an officer or director of the Cities
Service Co.?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. What office did he hold in it?
Mr. JOHNSTON. President.
Mr. PECORA. DO you know how long he has been

president of the

Cities Service Co. ?
Mr. JOHNSTON. Since its organization.
Mr. PECORA. Which took place in what year?
Mr. JOHNSTON. In 1910.
Mr. PECORA. NOW, the Cities

Service Co. was organized as a holding company, I believe you said?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. And has functioned as such ever since its creation?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. DO you know the utilities companies whose shares are

principally held by the Cities Service Co. ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Can you name them?
Mr. JOHNSTON. The Electric Utilities

are a group under the Cities
Service Co. called the Cities Service Power & Light Co. The Cities
Service Power & Light Co. have subsidiaries, and the principal ones
are: Public Service Co. of Colorado, Ohio Public Service Co., Toledo
Edison Co., Empire District Electric Co., St. Joseph Eailway, Light,
175541—34—PT 14

6312

STOCK EXCHANGE PRACTICES

Heat & Power Co., East Tennessee Light & Power Co., DanburyBethel Gas & Electric Co., and a number of other smaller companies.
The CHAIRMAN. Are they all subsidiaries, do you say, or affiliates,
or what do you call them?
Mr. JOHNSTON. Subsidiaries of the Cities Service Power & Light
Co.
Senator TOWNSEND. I S the Eastern Shore Gas*& Electric Co. a
subsidiary of Henry L. Doherty & Co.?
Mr. JOHNSTON. The Eastern Shore?
Senator TOWNSEND. Yes.
Mr. JOHNSTON. NO, sir.
Mr. PECORA. NOW, Mr. Johnston,

I show you a printed document
entitled "Monthly Letter on Economic Conditions to the Executive
Committee, Henry L. Doherty & Co., January 1929."
Will you look at it and tell me if you recognize it as being a copy
of a monthly letter prepared by Mr. Scheer for the executive committee of the Cities Service Co. ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Mr. Chairman, I offer it
The CHAIRMAN. Let it be admitted.

in evidence.

(A printed document entitled " Confidential. Monthly Letter on
Economic Conditions to the Executive Committee, Henry L. Doherty
& Co., January 1929 ", was marked " Committee Exhibit No. 84, Feb.
23,1934 ", and the entire document will be retained with the files of
the committee, such portions thereof being read by Mr. Pecora immediately below as he wished to draw to the attention of the witness.)
Mr. PECORA. Mr. Chairman, this monthly letter is captioned or
entitled, on the first page beneath the cover, " The Present Troublesome Part of Brokers' Loans. Its Effect on Security Markets and
Business." And the first paragraph of it is as follows:
A new source of credit: Every few years some particular element in the
business system takes on new and possibly dominating importance by virtue
of its unusual expansions or contraction. In 1920 the climax of unprecedented
speculation in commodity markets and expansion of productive activity were
dominating factors affecting the subsequent depression. During 1928 the
appreciable loss of gold and expansion of speculative credit were the dominating
factors. This unusual expansion of credit for us in security markets was made
possible largely through loans made to brokers by corporations and individuals.
The chart reproduced below shows the rapid growth in brokers' loans over the
past 3 years, and in particular the sudden rise in loans for the account of others
(corporations, individuals, and foreign) during 1928.
In the last issue of this letter, under the heading "A Pivotal Element in
1929 ", it was stated that if this new source of credit merely holds its own or
dries up to any degree, it seems highly probable that the driving force for both
speculation and business will be found definitely lacking, and that therefore in
the coming year much may depend upon the course of that portion of brokers'
loans which is classified in banking reports as " for the account of others."
Origin of outside credit: Before discussing definite reasons for this view,
it might be well to summarize briefly the origin and development of this new
source of credit. As can be seen from the chart on page 5 of the August 1928
issue of this letter, bank credit and its base, gold, expanded rapidly from 1922
to early in 1928. Easy credit conditions during this period, aided by the Federal Reserve policy, and the /increasing gold stock, were availed of by real
estate enterprises, installment finance corporations, and by what is by far the
most important—buyers of securities. Money was most plentiful and corporations took advantage of this and of the great demand for securities to float
large amounts of new {securities, which were used to build up cash reserves
after bank loans were paid off, working capital increased, and some plant expansion taken care of. These cash reserves found employment in the call

STOCK EXCHANGE PRACTICES

6313

money market. This condition, in general then, accounts for the source fioin
which money is pouring into the security markets in the form of brokers* loans
not originating in the banks themselves.
The above chart shows the astounding rate at which brokers' loans for the
account of others (labelled uncontrolled) have advanced during 1928, a year
when the United States credit base of gold was narrowed by approximately 500
millions of dollars from a total of approximately 4 5 billions. This outside
credit has been termed uncontrolled because bank reserves need not be kept
against such loans and because such transoctions are practically as free and
unregulated as a personal loan from one individual to another. The other
curve on the chart showing the divisions of brokers' loans is labeled controlled
and shows the relatively small increase in broker's loans supplied by the banks
themselves.

And, Mr. Chairman, the chart on this page shows the astounding
rate at which broker's loans " for account of others " labeled " controlled " have advanced during 1928, the year that the United States
credit base of gold was carried up approximately $500,000,000, or
a total of approximately 4% billion
dollars. Then under the subheading " Present Importance of c Loans for Others'," I read the
following:
The great importance of the present huge amount of broker's loans from
outside sources lies in the fact that while the banks are not now directly
concerned with loans from others, these loans do represent a potential call
on bank credit. Any sudden withdrawal of money from the security markets
by individuals, corporations, or through foreign accounts, must be met by the
banks if chaos and disrupting gyrations in call money and in the stock market
are to be avoided. This is quite clear when the close relationship between
brokers' loans and stock prices is observed in the chart on the preceding page.

I might comment here, Mr. Chairman, that the chart to which
reference has just been made would seem to show that the trend
of stock prices almost parallel the trend of brokers' loans:
It is therefore quite certain that the present stock market cannot proceed
further without the aid of a corresponding increase in loans for others.
Should the stock market give ground, business would be adversely affected
in three ways, although such effects would not be simultaneous or drastic. In.
the first place, purchasing power gained by the sustained advance in the
stock market would be partially curtailed; secondly, the psychological effect
in the form of loss of confidence would cause business to be hesitant in making
future commitments; and finally, the ease with which new financing could
be launched would be seriously affected.
These are briefly the chief reasons behind the following statement made in
the December 1928 issue of this letter: "TLt therefore seems that for the year
1929 much may depend upon the course of brokers' loans which are classified
in banking figures as * for the account of others.'"

Now, Mr. Johnston, let me ask if you agree with the philosophy
expressed in this monthly letter I have just read into the record.
Mr. JOHNSTON. In the light of events that have occurred since
that letter was written, I think those points were well taken. But at
the time I did not agree with them.
Mr. PECORA. Were you a member of the executive committee to
whom this monthly confidential letter was addressed?
Mr. JOHNSTON. NO, sir.
Mr. PECORA. Who composed

the executive committee which received these monthly letters on economic conditions?
Mr. JOHNSTON. Mr. W. Alton Jones, chairman; Lewis F . Musil,
John M. McMillan, Paul E. Jones, Frank E. Coates, H. O. Caster,
F. C. Hamilton, T. F . Kennedy, E. G. Griswold.
Mr. PECORA. Of what corporation were these gentlemen the executive committee?

6314

STOCK EXCHANGE PEACTICES

Mr. JOHNSTON. Henry L. Doherty & Co., not the corporation.
Mr. PECORA. They were the executive committee of this what?
Mr. JOHNSTON. Of Henry L. Doherty & Co.
Mr. PECORA. YOU stated before that Henry L. Doherty & Co.
was simply Henry L. Doherty individually doing business under that
name or style, Henry L. Doherty & Co.
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Well, did he
Mr. JOHNSTON. AS fiscal

have an executive committee ?
agents for the Cities Service Co. and
its subsidiaries, he had an executive committee.
Mr. PECORA. Can you tell us what the purpose was in the preparation and circulation of these monthly letters back in 1928 *
Mr. JOHNSTON. In 1928?
Mr. PECORA. Yes; back in 1928 and 1929 among the members of
this so-called " executive committee " of Mr. Doherty's.
Mr. JOHNSTON. TO acquaint them with an economist's ideas of
the trend of finances and business generally, and also to explain the
earnings records of the Cities Service Co. and its subsidiaries.
Mr. PECORA. NOW, Mr. Johnston, I want to show you this printed
document, and let me ask you if it consists of an excerpt from the
monthly letter on economic conditions addressed to the executive
committee of Henry L. Doherty & Co. in February of 1929.
Mr. JOHNSTON (after looking at the paper). Yes, sir.
Mr. PECORA. Mr. Chairman, I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(A paper entitled " Further Developments in Brokers' Loans ",
was marked " Committee Exhibit No. 85, Feb. 23, 1934 ", and will
be found immediately following where read by Mr. Pecora.)
Mr. PECORA. The paper received in evidence as committee exhibit
no. 85 reads as follows, under the caption " Further Developments
in Brokers' Loans ":
The importance of the volume of brokeiV loans in the present credit and
general business situations wairant periodic checking up of the course of
these figures
In the January issue of this letter it was stated that the great importance
of the present huge amount of brokers' loans from outside sources lies in the
fact that, while banks are not directly concerned with loans from others, these
loans do represent a potential call on bank credit In the first week of the
new year this fact was clearly demonstrated Brokers' loans from outside
sources showed a sharp drop at the year end, due to the usual withdrawals
made at this time for year-end settlements and lequirements. These transactions left a void in brokers' loans of approximately $375,000,000 which the
New York banks promptly filled Since then loans for others have returned in
greater volume and the reporting member banks have withdrawn their relief
fund
The brief January drop in the stock market caused almost no liquidation of
total brokers' loans The more severe break in February did force a drop
of about $190,000,000 in a total of over 5 5 billion dollars At the end of
February the stock market has fully recovered to a new high and figures for
brokers' loans of the last week in February advanced $30,000,000, indicating
that liquidation has about run its course for the present movement at least
Thus we have the picture: Greater speculation, more and more uncontrolled
money in brokers' loans, and continuation of the trend toward higher money
which has been in process for over a year and a half The situation is not
comforting, from the business point of view

Now, Mr. Johnston, did you agree with the observations and the
philosophy of that monthly letter, or the portion thereof which I
have just read?

STOCK EXCHANGE PBACTICES

6315

Mr. JOHNSTON. I subscribe to these things now, in the light of
events, but at the time it seemed to me they were a little too alarmed.
Mr. PECORA. Did you recognize then, that is, during the period
when these letters were being written, that there was a direct relationship between brokers' loans and the trend of stock-market prices?
Mr. JOHNSTON. Yes,

sir.

Mr. PECORA. And has it been your experience that that relationship is manifest at all times, generally speaking?
Mr. JOHNSTON. I have only the charts that are published by various services to guide me, but I think the trend shown in those
charts is that there is such relationship.
Mr. PECORA. NOW, during the year 1929, to your knowledge, did
the Cities Service Co. make any loans on call?
Mr. JOHNSTON. Yes, sir. Henry L. Doherty & Co., acting as fiscal
agents for the Cities Service Co., made the loans.
Mr. PECORA. And do you know the number and amounts of such
loans made during the year 1929 by Henry L. Doherty & Co. as fiscal
agents for the Cities Service Co. ?
Mr. JOHNSTON. The total number of Street loans made in the callmoney market of New York City was 912.
Mr. PECORA. And what was the total amount of the Street loans
made in that year in the call-money market in New York City ?
Mr. JOHNSTON. By adding up all the individual loans as they were
made, even though some of them were made for only 1 day, we get
a total of $285,325,092.21. But, of course, not all this money was
outstanding at any one time. The largest amount outstanding at
any one time was $41,900,000.
Mr. PECORA. And on what date, if you know, was that peak in the
amount of loans outstanding ?
Mr. JOHNSTON. September 25, 1929.
Mr. PECORA. That was about a month before the big break in the
stock market?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Had the number

and the aggregate amount of callmoney loans made by or on behalf of the Cities Service Co. steadily
increased during the year 1929, from the beginning up to and including September of that year ?
Mr. JOHNSTON. They did not steadily increase. There were times
when the amount would increase, and other days when they would
decrease.
Mr. PECORA. But the general trend was rather toward an increase,
wasn't it?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. From the beginning of the year up
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. NOW, Mr. Johnston, following the

to September.

break in the stock
market, which, as you undoubtedly recall, took place in the latter
part of October of 1929, can you tell this committee whether or not
there was a perceptible drop in the number and amount of call loans
made by or on behalf of the Cities Service Co. for the balance of the
year 1929?
Mr. JOHNSTON. Yes, sir. We had no bank loans, or I mean
Mr. PECORA (interposing). I beg pardon?

6316

STOCK EXCHANGE PRACTICES

Mr. JOHNSTON. I say, we had no call loans by the end of the
year.
Mr. PECORA. NOW, had it been the policy of the Cities Service Co.
prior to the year 1929 to make call loans in the Street?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. HOW many years had

that policy been continued prior
to 1929?
Mr JOHNSTON. I do not recall the exact date, but there were callmoney loans placed in 1919, and possibly in 1926, and the beginning
of 1928, and
Mr. PECORA (interposing). This was a time of considerable activity
in the stock market as compared with the years immediately preceding, wasn't it?
Mr. JOHNSTON. I couldn't tell you about that.
Mr. PECORA. Had you completed your answer? I did not mean
to interrupt you, Mr. Johnston, when you referred to 1919 and 1926,
and were you beginning to mention some other period ?
Mr. JOHNSTON. And the beginning of 1928 and 1929.
Mr. PECORA. Well, you do recall that in 1928 and throughout that
year, and throughout the year 1929 and up to the latter part of
October there was increased activity in stock-market trading ?
Mr. JOHNSTON. Yes,

sir.

Mr. PECORA. NOW, who had charge of the making of these call
loans in behalf of the Cities Service Co. during the years 1928 and
1929?
Mr. JOHNSTON. The call loans were made under my supervision.
Mr. PECORA. Will you describe to the committee, briefly but concisely, the mechanism by which those loans were made ? Just describe
the general operation of the making of those call loans.
Mr JOHNSTON. During the day we would call a money broker on
the telephone and tell him how much money we wished to loan on
call that day.
Mr. PECORA. By " money broker " do you mean a member of the
New York Stock Exchange ?
Mr. JOHNSTON. They are usually members of the New York Stock
Exchange; yes, sir.
The CHAIRMAN. Does a money broker differ from other brokers,
or bankers, or investment people, or is he a specialist of some kind ?
Mr. JOHNSTON. I think in the case of certain firms that would be
the firm's specialty. In the case of other firms it would be just one
department.
Mr. PECORA. NOW, Mr. Johnston, will you continue with your explanation of the method or the machinery by which those call loans
were made by you?
Mr. JOHNSTON. A little later on the money broker, or the office of
the broker, would call up and give us the list of the loans which had
been made. And then later on in the afternoon the brokers' messengers would bring in to us envelops in which there was the collateral for the loans. Our clerks would take the envelops and the collateral, check it, and hand the messenger our check for the amount.
The CHAIRMAN. What would the collateral consist of?
Mr. JOHNSTON. A variety of stocks listed on the New York StockExchange.

STOCK EXCHANGE PRACTICES

6317

Senator TOWNSEND. Were all of your loans made through brokers
in the manner you have indicated ?
Mr. JOHNSTON. I believe the majority of them were. Occasionally
some broker would call us direct and ask if he could send around a
loan that day.
Mr. PECORA. Those loans were invariably made to brokers themselves, weren't they?
Mr. JOHNSTON. Yes; to members of the New York Stock Exchange.
Mr. PECORA. Were they made by the Cities Service Co. without
the interposition of any bank?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. That is, the

loans were made directly by the Cities
Service Co. to the various brokers who received them ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. And who determined

the interest rates at which those
loans were made?
Mr. JOHNSTON. The interest rates were determined on the floor of
the stock exchange and published.
Mr. PECORA. And they varied from day to day, did they ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. And sometimes
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. What was the

they varied during the day?

general range, Mr. Johnston, of the
interest rates, we will say, during the year 1929, beginning with
January and ending with October?
Mr. JOHNSTON. Well, roughly speaking, I should say from about
5 percent to about 15 percent.
The CHAIRMAN. The rate went as high as 20 percent, didn't it?
Mr. JOHNSTON. I recall a 20-percent rate during a prior period.
I don't recall whether it was during 1928 and 1929 that they reached
20 percent or not.
Mr. PECORA. DO you recall that in March, I think it was of 1929,
the National City Bank sent in $25,000,000 to the money posts of
the New York Stock Exchange, which was loaned at rates ranging
from 16 to 20 percent ?
Mr. JOHNSTON. I remember the incident; yes, sir.
Mr. PECORA. What was the incident?
Mr. JOHNSTON. Just as you have stated, only I do not recall definitely the rate.
Mr. PECORA. That money was loaned at the time when the Federal Reserve bank sought to put a check on speculation through raising of the rediscount rates, and that action wa^s nullified by this
action of the National City Bank. Do you recall that?
Mr. JOHNSTON. I think that is my recollection; yes, sir.
Mr. PECORA. Can you give this committee the amounts received
by the Cities Service Co. during the year 1929 by way of interest on
these street loans?
Mr. JOHNSTON. I am sorry, sir; I did not prepare myself with that
figure.
Mr. PECORA. Can you give us an approximation of the amount,
it being understood that it is only an approximation and subject of
course to correction?
Mr. JOHNSTON. The average daily amount of call loan,s outstanding was a little over $10,000,C

6318

STOCK EXCHANGE PRACTICES

Mr. PECORA. $10,375,000 approximately, wasn't it?
Mr. JOHNSTON. Yes, sir. So to take a percentage of 5 percent of
that
Mr. PECORA (interposing). Now you are taking the lowest rate,
aren't you ?
Mr. JOHNSTON. I was going to say, if you took 5 percent that
would be $500,000.
Mr. PECORA. At 5 percent?
Mr. JOHNSTON. Five percent.
Mr. PECORA. But the range of the interest rates ran from 5 to 15
percent ?
Mr. JOHNSTON. It was higher than 5; yes, sir. Those higher rates
were few and far between.
Mr. PECORA. Would it be possible for you to get, for the benefit of
this committee, after today from your office records the figure that
I have asked for ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Can you tell

us this, Mr. Johnston: What was the
average period of time for which those call loans were made in 1928
and 1929?
Mr. JOHNSTON. I should judge the average loan would stay out
4 or 5 days.
Senator TOWNSEND. Mr. Johnston, how was this surplus of money
which Cities Service was loaning in the Street obtained? Was it a
profit on their business or how was it obtained ?
Mr. JOHNSTON. Partly from the earnings of the operating companies, and partly from the sale of securities.
Senator TOWNSEND. Sale of securities—what do you mean by that?
Mr. JOHNSTON. Cities Service Co. and its subsidiaries.
The CHAIRMAN. Issuing stock and selling stock?
Mr. JOHNSTON. Different kinds of securities were issued. There
was stock issued; yes, sir.
Senator TOWNSEND. What portion of this money was received by
the sale of Cities Service stock itself ?
Mr. JOHNSTON. Well, it is hard to tell just where any portion of
certain sums of money comes from. Sources of income are varied,
and the disbursements are also varied.
Senator TOWNSEND. DO you recall the amount of Cities Service
stock sold, we will say, in the year 1929, and the prices obtained
for it?
Mr. JOHNSTON. I do not recall at the moment those figures; no, sir.
Mr. PECORA. Could you give the figure with some degree of
approximation ?
Mr. JOHNSTON. I t is too far back.
Mr. PECORA. What would be your best estimate at this time of that
figure?
Mr. JOHNSTON. The number of shares of stock ?
Mr. PECORA. N O ; the amount realized from the sale of stock in
that year.
(There was a pause without response.)
Senator TOWNSEND. I t would suffice if you would get that for the
record, the amount of stock sold in 1929 and the prices obtained and
the amount of money received.

STOCK EXCHANGE PRACTICES

6319

Mr. JOHNSTON. I t is quite a large amount, and it would be- just a
guess in any one year.
Mr. PECORA. Will you get that figure also, Mr. Johnston, and send
it to me at the New York office and I will submit it to the committee?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. YOU might give

us that figure for both the years 1928
and 1929 separately stated tor each of those years.
Mr. JOHNSTON. Yes,
Mr. PECORA. NOW I

sir.

show you, Mr. Johnston, a letter addressed to
me as counsel to this committee by some gentleman connected with
the Cities Service Co. whose signature I cannot read, dated November 1,1933, which refers to accompanying date. Will you look at it
and tell me if you recognize it to be a letter caused to be sent to me as
counsel for this committee by the Cities Service Co. on or about November 1,1933, with the accompanying data which I also show you?
Mr. JOHNSTON (after examining document). Yes, sir; the first
letter is signed by Mr. W. Alton Jones, and the second by Mr.
W. B. S. Wmans.
Mr. PECORA. Yes. I offer the letters and accompanying data m
evidence.
The CHAIRMAN. Let them be admitted.
(Letter dated Nov. 1, 1933, from W. A. Jones to Ferdinand Pecora, together with accompanying data, was designated " Committee Exhibit No. 86, February 23, 1934 ". The letter appears in the
record in full, immediately following, where read by Mr. Pecora, and
the exhibit appears in full at the close of the day's proceedings.)
Mr. PECORA. The exhibit has been marked no. 86 in evidence,
and the forwarding letter reads as follows [reading] :
CITIES SERVICE COMPANY,

November 1, 1933
Mr

FERDINAND PECORA, Counselr-

Et cetera—
MY DEAR MR PECORA •

With further reference to your inquiry of October 26, you. will find enclosed
herewith complete questionnaire, which we trust you will find in order.
Sincerely yours,
W

JONES.

Is that
Mr. JOHNSON. Yes, sir.
Mr. PECORA. W. Alton

Jones. The enclosures consist of the socalled " questionnaire ", entitled " Questions and answers regarding
call loans of year 1929 ", and gives the figures that have already
been testified to by the witness, namely, total number of loans in the
call money market in New York City that were made during the
year 1929 was 912; that the total amount of those loans in that year
was $285,325,092.21; that the maximum amount of call money on
any one day was $41,900,000; that the average daily amount of call
loans outstanding during the year made by the company was $10,375,778.23, and that the average amount of each call loan made was
$312,856.46, and that such loans were not made through any commercial bank, private bank, or any other agency, but made directly
to the borrower.

6320

STOCK EXCHANGE PRACTICES

The other letter, addressed to me on behalf of the Cities Service
Co.,, and signed by W. B. S. Winans, reads as follows [reading]:
NOVEMBER 11,

1933

Committee on Banking and Currency,

and so forth.
DBAE SIRS : In response to your telephone request we enclose herewith a statement accounting for the call loans outstanding on the day in the year 1929
when call loans were in the largest amount The list attached indicates to
whom loans were made and the amounts involved, the total of which was
$41,900,000.
In respect to your inquiry regarding the total number of shares transferred
in 1929, we wish to advise that from January 1st, 1929 to May 1st, 1929,3,936,159
shares of $20 per value stock were transferred, and from May 2,1929 to December 31,1929, 49,500,528 shares of no par value stock were transferred.
Yours very truly,
W. B. S. WINANS.

The stock referred to in this letter which I have just read into the
record, Mr. Johnston, was the stock of the Cities Service Co. ?
Mr. JOHNSTON. Yes,
Mr. PECORA. What

sir.

was the total number of shares of common
stock $20 per value that that company had outstanding in the year
1929?
Mr. JOHNSTON. Probably between seven and eight million shares.
Mr. PECORA. According to the information or data embodied in
this letter of Mr. Winans of November 11, 1933, the transfers made
on the books of the company of its common stock $20 par value during the year 1929 were about seven times the amount of stock outstanding, were they not, between six and seven times?
Mr. JOHNSTON. I did not get that.
Mr. PECORA. YOU said the total number of shares outstanding in
that year was between seven and eight million?
Mr. JOHNSTON. Yes.
Mr. PECORA. The total

number of shares transferred from January 1 to December 31, 1929, according to the advices embodied in
Mr. Winans' letter, was 53,486,787 shares.
Mr. JOHNSTON. That figure includes stock with no par value,
which in about May of 1929 was issued four shares for one of the
$20 par, and therefore the number of shares of no par value would'
be in the neighborhood of 30 to 35 million.
Mr. PECORA. That was after May 1929 ?
Mr. JOHNSTON. Yes; about May 1.
Mr. PECORA. These figures merely relate to the transfers made on
the books of the company, don't they ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. And you would

say, would you not, that those figures
would not include the total amount traded in in the shares of the
stock of your company during the year 1929 ?
Mr. JOHNSTON. The number of shares traded in and the number
of shares transferred would be two different figures.
Mr. PECORA. Yes. The number of shares traded in would be far
in excess of the number of shares transferred on the books ?
Mr. JOHNSTON. I would not say that, Mr. Pecora, because there
may be transfers for other purposes than just trading on the exchange.

STOCK EXCHANGE PRACTICES

6321

Mr. PECORA. Well, don't you find as a matter of experience and
observation that the number of shares of a given stock bought and
sold throughout the year on the floor of the exchange, assuming it is
a listed security, far exceeds the number of transfers made on the
books of the issuing company?
Mr. JOHNSTON. I think they would exceed them; yes.
Mr. PECORA. Several times over?
Mr. JOHNSTON. Probably not. In individual cases there may be
transfers of large blocks of stock that did not involve any trading.
The CHAIRMAN. Were there transfer taxes paid on these?
Mr. JOHNSTON. Oh, yes; the transfer tax was paid by the seller.
The CHAIRMAN. What would that amount to?
Mr. JOHNSTON. I have no figures for that at the moment.
Mr. PECORA. Could you also send to our office in New York within
the next few days from your records the total amount of shares
traded in during the year 1929 ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Bought and sold on the floor of the exchange?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. All right, sir. Now, among the data which accom-

panied the letter marked in evidence here as exhibit no. 86, and
which forms a part of that exhibit in this record, is a statement entitled " Details of maximum call loans outstanding any 1 day, 1929—
September 25, 1929 ", and gives the names of the brokers to whom
call loans were made on that day to an amount aggregating
$41,900,000.
I have no further questions to ask the witness, Mr. Chairman.
Have you any information or any statement you would like to make
to this committee without being asked specifically about it, Mr.
Johnston?
Mr. JOHNSON. NO, sir; not at this moment.
The CHAIRMAN. IS the H. L. Doherty Co. still the fiscal agent of
the Cities Service?
Mr. JOHNSTON. Yes, sir; but they do not carry the funds of the
corporations in their name in the banks at this time. The funds
of the Cities Service Co. and its subsidiaries are carried in the banks
in their own name.
The CHAIRMAN. Each subsidiary?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. IS there any

commission arrangement between Henry
L. Doherty & Co. and the Cities Service Co. determining the compensation paid to Henry L. Doherty & Co. for its services as fiscal
agent for the corporation?
Mr. JOHNSTON. NO, sir.
Mr. PECORA. I assume that

Henry L. Doherty & Co. do collect or
receive fees, commissions, or compensation in some form?
Mr. JOHNSTON. NO, sir.
Mr. PECORA. They render that service gratis?
Mr, JOHNSTON. Yes, sir. The expenses, of course,

are charged up
to Cities Service Co. also.
The CHAIRMAN. Were fees paid to the brokers with whom you
negotiated these loans?

6322

STOCK EXCHANGE PRACTICES

Mr. JOHNSTON. The borrower paid a small fee to the money broker.
We did not.
The CHAIRMAN. DO you know what that fee would amount to?
What was the small fee you mentioned?
Mr. JOHNSTON. I do not recall at this time.
Mr. PECORA. That is, the broker to whom the loan was made would
pay not only the interest on the loan but would also pay a small fee
to the money broker ?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. Through whose

instrumentality the loan from the

Cities Service Co. was secured?
Mr. JOHNSTON. Yes, sir.
Senator KEAN. That is not over one sixty-fourth of 1 percent, is it?
Mr. JOHNSTON. Well, it never passed through our office, so I could

not say exactly what the fee was.
Senator KEAN. I think it is about one sixty-fourth of 1 percent.
The CHAIRMAN. I believe that is all, Mr. Johnston. You will be
excused, sir.
Mr. JOHNSTON. Thank you.
Mr. PECORA. I S Mr. Groesbeck in the room, please ?
TESTIMONY OF C. E. GROESBECK, CHAIRMAN OF THE BOARD
OF ELECTRIC BOND & SHARE CO., NEW YORK CITY
The CHAIRMAN. Mr. Groesbeck, you do solemnly swear that the
testimony you are about to give in the matters under investigation
hy this committee will be the truth, the whole truth, and nothing
but the truth. So help you God.
Mr. GROESBECK. I do. May I bring my associate with my papers
here?
Mr. PECORA. Yes. What is your full name, Mr. Groesbeck; and
your address?
Mr. GROESBECK. C. E. Groesbeck. My office address is 2 Rector
Street, New York. My home address is Locust Valley, L.I.
Mr. PECORA. Mr. Groesbeck, are you connected with a corporation
called Electric Bond & Share Co. ?
Mr. GROESBECK. I am, sir.
Mr. PECORA. In what capacity?
Mr. GROESBECK. I am chairman of the board.
Mr. PECORA. HOW long have you been connected

in any capacity
with the Electric Bond & Share Co. ?
Mr. GROESBECK. Well, about 17 years.
Mr. PECORA. HOW long have you been the chairman of its board?
Mr. GROESBECK. About 11 months.
Mr. PECORA. And immediately prior to that were you connected
with it in any other official capacity?
Mr. GROESBECK. I was, sir. I was president of the company prior
to that time.
Mr. PECORA. And how long had you been president ?
Mr. GROESBECK. Well, for several years. I don't know that I
can—well, until sometime in 1929.
Mr. PECORA. And you have been a member of the board of directors
of the Electric Bond>& Share Co. for many years?

STOCK EXCHANGE PRACTICES

6323

Mr. GROESBECK. For several years; yes, sir.
Mr. PECORA. When was the Electric Bond & Share Co. organized ?
Mr. GROESBECK. In 1905.
Mr. PECORA. I S it a holding company ?
Mr. GROESBECK Well, it is a holding company

m the sense that it
owns the securities of a number of companies.
Mr. PECORA. What is the kind of business conducted by the various
companies whose securities it owns ?
Mr. GROESBECK. Public-utility business.
Mr. PECORA. During the year 1929, to your knowledge did the
Electric Bond & Share Co. make call-money loans to brokers in the
city of New York?
Mr. GROESBECK. It did.
Mr. PECORA. Were those

loans made by your company directly or
were they made through the medium of any banks or bankers?
Mr. GROESBECK. All through bankers; through banks and trust
companies. All through banks and trust companies.
Mr. PECORA. Will you name the banks and trust companies through
whom such loans were made by your company?
Mr. GROESBECK. May I have the privilege of referring to the
record ?
Mr. PECORA. Surely.
Mr. GROESBECK (referring to date). The Irving Trust Co., the
Ouaranty Trust Co., the Bankers Trust Co., the Central Hanover,
the Chemical Bank & Trust Co., the Chase National Bank, and the
National City Bank, all of New York.
Mr. PECORA. In those call-money loans that were made during that
year by your company, were there included loans made by a corporation called the "American & Foreign Power Co., Inc." ?
Mr. GROESBECK. Yes, sir.
Mr. PECORA. I S that one of

the subsidiaries of the Electric Bond &
Share Co., or is it one of the
Mr. GROESBECK. Well, it is one of the associated companies. We
control a very large amount of their stock.
Senator KEAN. YOU do not absolutely control that stock, do you?
Mr. GROESBECK. We have the majority of the stock, sir.
Mr. KEAN. YOU have it?
Mr. GROESBECK. Yes, sir; American & Foreign Power Co.
Mr. PECORA. YOU own 75 percent or more of its stock?
Mr. GROESBECK. NO. N O ; to be quite technical about it, we own
just a little under the 50 percent of the common stock, but we own
enough other stock so that we could make it over 50 in case it became
desirable to do so. I t is so close that it is rather a technical point
to make.
Mr. PECORA. There is no question that the stock owned by the
Electric Bond & Share of the American & Foreign Power Co., Inc.,
is enough to give it management control easily ?
Mr. GROESBECK. Yes, sir.
Mr. PECORA. What was the

total number of call loans made to
brokers in New York City by the Electric Bond & Share Co., either
in behalf of itself or itself and subsidiaries or associated companies
during the year 1929 ?
Mr. GROESBECK. One thousand six hundred and sixty-three.

6324

STOCK EXCHANGE PBACTICES

Mr. PECORA. And what was the aggregate amount of those loans
in the year 1929?
Mr. GROESBECK. By that you mean, Mr. Pecora, the accumulated
total?
Mr. PECORA. Aggregate amount of all of these 1,663 loans; yes.
Mr. GROESBECK. Regardless of whether they were turned over
daily?
Mr. PECORA. Yes.

Mr. GROESBECK. $867,295,000.
Senator KEAN. That means that loans were paid from day to day
and that you reloaned the money to somebody else?
Mr. GROESBECK. Right.
Senator KEAN. SO that it might be that $100,000 would make 865?
Mr. GROESBECK. Yes; that is it precisely.
Mr. PECORA. Yes; that is understood. This figure of $867,295,000
which you have given us, Mr. Groesbeck, represents the aggregate
amount of all of the 1,663 call loans which your company made during the year 1929?
Mr. GROESBECK. That is right.
Mr. PECORA. What was the highest amount of such loans outstanding on any single day during the year 1929 ?
Mr. GROESBECK. $187,900,000.
Mr. PECORA. And on what date was that amount outstanding?
Mr. GROESBECK. August 27,1929.
Mr. PECORA. What was the daily average of these loans for the
year 1929 which your corporation made ?
Mr. GROESBECK. $100,727,010.
Mr. PECORA. Which officer or board of officers of your corporation
supervises the making of these call loans?
Mr. GROESBECK. Directly the mechanics were carried by the treasurer of the company.
Mr. PECORA. Are you familiar with those mechanics, Mr.
Groesbeck?
Mr. GROESBECK. No; I am not, Mr. Pecora, but I can get you any
information you want.
Mr. PECORA. DO you know at what rates of interest these loans
were made during the year 1929? That is, what was the range?
Mr. GROESBECK. Well, generally speaking, I should say from recollection that they ran from around 5 to 15 percent.
Mr. PECORA. That is, they were made at the current rates ?
Mr. GROESBECK. At the current rates; yes, sir; whatever the prevailing rate was.
Mr. PECORA. And that ranged generally from 5 to 15 percent
throughout the year?
Mr. GROESBECK. I heard a statement made that the rate was higher
than that before, but I cannot speak of that of my own knowledge.
Mr. PECORA. DO you know the amount received by the Electric
Bond & Share Co. by way of interest on these loans for the year 1929 ?
Mr. GROESBECK. I am sorry, Mr. Pecora; I haven't that.
Mr. PECORA. That can be furnished to us by your company?
Mr. GROESBECK. I t can; yes, sir. And may I say that I received
this subpejia only yesterday at 1 o'clock, which was a holiday, and
our treasurer was in the country many miles from the office, and I

STOCK EXCHANGE PBACTICES

6325

did not get a hold of him until 3 o'clock yesterday afternoon. So
perhaps I have not quite as much information as I should have,
Mr, PECORA. That is quite all right, sir; if you will get us the
information at your early convenience and send it to me so that I
will present it to the committee.
Mr. GROESBECK. I will be very glad to, sir.
Mr. PECORA. Had it been the business or practice of the Electric
Bond & Share Co. and its associated companies to make call-money
loans to brokers prior to the year 1929 ?
Mr. GROESBECK. Yes; we had several years before, but not tobrokers, Mr. Pecora. Through the same channel, through the banks.
Mr. PECORA. Through the banks?
Mr. GROESBECK. Yes, sir.
Mr. PECORA. The loans were

made to brokers through the medium

of your banks?
Mr. GROESBECK. Yes, sir.
Mr. PECORA. For how many

jrears j>rior to 1929 had your company made such loans as part of its business operations ?
Mr. GROESBECK. Probably 3 years, Mr. Pecora, but we will be glad
to get that information exactly from our records, if you desire.
Would you like it?
Mr. PECORA. Yes. Would you say, Mr. Groesbeck, that the greatest number of these loans and for the greatest aggregate amount were
made in the year 1929 ?
Mr. GROESBECK. By far.
Mr. PECORA. And what was that due to ?
Mr. GROESBECK. The attractive interest rates.
Mr. PECORA. And those attractive interest rates

were due to the
very, very active speculation in securities ?
Mr. GROESBECK. Well, I don't know that I am qualified to pass
on that.
Mr. PECORA. I don't think you need be so modest.
Mr. GROESBECK. I am not an economist and I am not a banker, and
I really do not know that my opinion would be worth anything on
that, Mr. Pecora.
'
Mr. PECORA. Recognizing you are neither a banker nor an economist, your opinion might be of some value.
Mr. GROESBECK. Will you repeat the question, please ?
The SHORTHAND REPORTER. "And those attractive interest rates
were due to the verjr, very active speculation in securities ? "
Mr. PECORA. During the year 1929.
Mr. GROESBECK. I would like to answer you, but really all I can
do would be to give you a guess.
Mr. PECORA. Well, even your guess might be illuminating.
Mr. GROESBECK. My guess would be that the activity in the securities market contributed to the high interest rates. I am not trying
to evade the question, Mr. Pecora, but
Mr. PECORA. TO your knowledge that activity in the securities
market was unprecedented in the year 1929, wasn't it?
Mr. GROESBECK. Greatest I have even seen or heard of; yes, sir.
Mr. PECORA. And would you say, as executive of a corporation that
held securities of many utilities companies, that that speculation, in
its volume and the manner in which it was conducted, was a good,
wholesome thing for the national economy?

6326

STOCK EXCHANGE PRACTICES

Mr. GROESBECK. We had lots of advice in that period, both from
foreigners and Americans that we were in a new era and that things
were going on at that rate forever, but m the light of events we
know that that did not happen.
Mr. PECORA. YOU know that the reverse happened, in the light of
events?
Mr. GROESBECK. Something has happened; I know that.
Mr. PECORA. Something happened that had the opposite trend?
Mr. GROESBECK. Right; yes, sir.
Mr. PECORA. TO an advance or a continuation of that so-called
" prosperity " ?
Mr. GROESBECK. Yes, sir.
Mr. PECORA. YOU recall,

don't you, that there was a very severe
break in securities prices on the stock exchanges late in October 1929 ?
Mr. GROESBECK. I do.
Mr. PECORA. Following

that break or shortly thereafter did your
company cease making these call loans?
Mr. GROESBECK. We reduced.
Mr. PECORA. Very considerably?
Mr. GROESBECK. Very considerably; yes, sir.
Mr. PECORA. Because stock market activity reduced?
Mr. GROESBECK. Because we could not get the return, the interest
rate.
Mr. PECORA. Well, the severe drop in securities prices at that time
was a contributing factor to that, wasn't it?
Mr. GROESBECK. Again you are getting a little way out of my field,
Mr. Pecora.
The CHAIRMAN. The demand for these loans fell off after October ?
Mr. GROESBECK. Very materially, I assume Otherwise the interest rates would not have gone down so rapidly.
The CHAIRMAN. HOW did your loans run, say, in November and
December 1929?
Mr. GROESBECK. I am sorry, Mr. Chairman, I haven't the figures,
but I can say that they were reduced substantially, and I can get the
figures—be very glad to if you desire them.
Mr. PECORA. During the year 1930 did your company continue
making these call loans ?
Mr. GROESBECK. We did.
Mr. PECORA. But in a very much decreased
Mr. GROESBECK. Yes, sir.
Mr. PECORA. HOW about the year 1931 ?
Mr. GROESBECK. I should have to look that
Mr. PECORA. Will you look it up also for

amount ?
up, Mr. Pecora
the year 1932 and the

year 1933?
Mr. GROESBECK. Yes.
Senator KEAN. Mr. Groesbeck,

you had a large amount of money
loaned in 1929. Then the rates were very high?
Mr, GROESBECK. Yes,, sir.
Senator KEAN. After 1930

the rate on the stock exchange went
down to something like 2 percent, didn't it?
Mr. GROESBECK. I believe it did; yes, sir.
Senator KEAN. Therefore you could deposit this money in a trust
company and receive more money than you could on the stock
exchange for it?

STOCK EXCHANGE PRACTICES

6327

Mr. GROESBECK. I am not sure, Senator, that those are the facts.
I am not attempting to contradict you, but my own knowledge of the
thing is pretty hazy.
Senator EJBAN. If the trust company was paying for deposits Sy2
percent and the stock exchange loans were down to 2 percent, there
was a difference there that you ought to have taken cognizance of;
is that right?
Mr. GROESBECK. Yes, sir. And if those were the conditions, I think
undoubtedly we did take advantage of the conditions.
Mr. PECORA. Have you any thought, Mr. Groesbeck, that during
the year 1929 and during the year 1928 the unusual activity in the
stock market could have been possible, could have been sustained,
without the making available to brokers these tremendous sums of
money by way of call loans?
Mr. GROESBECK. I have no real opinion on that, Mr. Pecora.
Again, that is
Mr. PECORA (interposing). Again I think you are modest.
Mr. GROESBECK. Again that is a little out of my field.
Mr. RECORA. Do you know the average period of time for which
these call loans were made by your company in the year 1929 ?
Mr. GROESBECK. I haven't that, Mr. Pecora. I will have to get
it for you if you desire it. Shall we make a note of it?
Mr. PECORA. If you don't mind.
Senator KEAN. Mr. Groesbeck, these loans were call loans, so that
all you had to do was to notify the people that you had loaned the
money through that you wanted the money back and they would
have had to pay it by 2:15 ?
Mr. GROESBECK. That is correct, sir.
Mr. PECORA. Mr. Groesbeck, you have stated that the aggregate
amount of the 1,663 call loans which your company made in 1929
is $867,295,000; that the peak amount in any 1 day in that year was
$187,900,000, and that the daily average of those loans for the year
was $100,727,110.
Now, in view of the fact that the daily average of your call loans
for the year was over a hundred million dollars, isn't there an error
in the aggregate amount of those loans for the year as being only
$867,000,000?
Mr. (JROESBECK (after consulting associate). Well, I think the
figures are right, Mr. Pecora. I will be very glad to have them
checked.
Mr. PECORA. YOU see, the daily average being more than a hundred
million dollars, the total number of loans 1,663, I would think that
the aggregate amount of all those loans would greatly exceed
$867,000,000, if these were the usual kind of call-money loans made
for a few days at a time, usually 1 day.
Mr. GROESBECK (after consulting associate). Well, some of these
loans may have run for a week or 30 days or longer, which would
reduce the turn-over.
Mr. PECORA. Yes; but you had 1,600 loans. The daily average for
the year was a hundred million dollars. There were call loans
usually made for very short periods of time, as a rule a day or two.
I think perhaps there is a mistake somewhere in the figures that
you have given us as the aggregate.
175541—34—PT 14

6328

STOCK EXCHANGE PBACTICES

Mr.

GROESBECK. May we verify them and send you the answer?
Mr. PECORA. Yes.
Mr. GROESBECK. Thank you.
Mr. PECORA. NOW, I show you, Mr. Groesbeck, a communication

addressed to me as counsel to this committee by your company over
the signature of its treasurer under date of November 9, 1933. Will
you look at it and tell me if you recognize it to be a letter so addressed to me in behalf of your company? That was sent to us, if
you notice, in response to a questionnaire that we submitted to your
company.
Mr. GROESBECK (after examining document) I identify this as a
letter addressed to you by the treasurer of our company.
Mr. PECORA. Yes. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated Nov. 9, 1933, from A. C. Kay, treasurer Electric
Bond & Share Co., to Ferdinand Pecora, counsel, Committee on
Banking and Currency, was designated " Committee Exhibit No. 87,
February 23, 1934 ", and appears in full in the record at the end of
today's proceedings.)
Mr. PECORA. The letter has been marked in evidence as " Exhibit
No. 87 ", on the letterhead of the Electric Bond & Share Co., and
reads as follow [reading]:
NOVEMBER 9, 1933
DEAR MR PECORA. In accordance with the request contained in your letter

of October 28, I desire to repoit as follows in answer to your questionnaire:
A -1. The total number of shares of the Common Stock of Electric Bond and
Share Company appearing on our records as of June 18, 1929* in the name of
such stock brokerage firms as we were able to identify as stock brokerage firms
was 2,112,222

I t then states that the total number of such brokers and brokerage
firms on the records of the Electric Bond & Share as of June 18,
1929, as the owners of the common stock of that company was 510. I t
gives other information which will be spread in the record from the
reading of the letter.
It states also total number of shares of the common stock of Electric Bond & Share Co. transferred from the books from one ownership to another during the year 1929 was 10,796,073 shares. It states
further that the total number of transfers of common stock of Electric
Bond & Share Co. from one ownership to another during the year
1929 was 141,569. And then gives the other information with regard
to call money loans which the witness has already given in the course
of his examination.
The CHAIRMAN. What was the total capital of the Electric Bond
& Share Co.?
Mr. PECORA. That is, of its common stock, how many shares were
outstanding during the year 1929?
Mr. GROESBECK. Early in the spring of 1929 the capitalization of
the company was changed, and thereafter the outstanding common
stock was around 5 million shares.
Mr. PECORA. DO you know what the total volume of trading in
that stock was through the medium of any securities exchange during
that year?
Mr. GROESBECK. I do not.
Mr. PECORA. The stock was

listed, was it not, on the New York

STOCK EXCHANGE PRACTICES

6329

Mr. GROESBECK. On the curb; yes, sir.
The CHAIRMAN. Curb, or on the exchange?
Mr. GROESBECK. On the curb.
The CHAIRMAN. Not on the New York Stock Exchange?
Mr. GROESBECK. Not on the New York Stock Exchange.
The CHAIRMAN. What was the par value?
Mr. GROESBECK. $5 a share.
Mr. PECORA. NOW, I show you another communication in the form
of a letter addressed to me under date of November 9, 1933, by the
American & Foreign Power Co., Inc., through its treasurer, A. C.
Kay. Will you look at it and tell me if you recognize it as being a
letter caused to be sent on behalf of that company to me under date
of November 9, 1933?
Mr. GROESBECK (after exammg document). I identify this as a
letter from the treasurer of the American & Foreign Power Co.,
addressed to you.
Mr. PECORA. I offer it m evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated Nov. 9, 1933, from A. C. Kay, treasurer, American & Foreign Power Co., to Ferdinand Pecora, counsel, Committee
on Banking and Currency, was designated " Committee Exhibit No.
88, February 23, 1934 ", and appears m full in this record at the end
of today's proceedings )
Mr. PECORA. The letter has been received in evidence as exhibit no.
88 of this date, and I ask that it be spread in full on the minutes, and
I merely want to call the attention of the committee at this time to
the following information embodied in the letter: That the total number of shares in the common stock in the American & Foreign Power
Co., Inc., transferred on the books from one ownership to another
during the year 1929 was 1,930,679, and that the total number of
transfers on the books from one ownership to another of such common stock for the year 1929 was 32,159.
It also states that the total amount of street loans made during that
year by the American & Foreign Power Co. was $57,610,000; that
the peak amount of such call loans at any 1 day during that year
was $30,321,000, and that the daily average amount of such loans for
the year 1929 was $6,477,729, and that all those call loans were made
through commercial banks.
This letter further states that the figures with regard to call loans
made by the American & Foreign Power Co. during the year 1929
are included in the figures already put into the record through the
testimony of Mr. Groesbeck as the call loans made by Electric Bond
& Share Co.
Mr. GROESBECK. Correct.
Mr. PECORA. Were the shares of the common stock of the American & Foreign Power Co. listed on any securities exchange?
Mr. GROESBECK. The New York Stock Exchange.
Mr. PECORA. DO you know the total amount of common stock
that company had issued and outstanding during the year 1929?
Mr. GROESBECK. I am sorry I do not know offhand what it was at
that time, but I will be glad to send it to you.
Mr. PECORA. Also the total amount of trading in the common stock
of that company during the year 1929 ?

6330

STOCK EXCHANGE PRACTICES

Mr. GROESBECK. We will get that from the exchange turnover;
yes, sir.
Mr. PECORA. Also, in connection with this letter from the American & Foreign Power Co., it strikes me that the aggregate amount
for the entire year of the call loans made by that company and stated
here to be $57,610,000 might be erroneous in view of the fact that
the daily average of the call loans made by the company during the
year was $6,477,000. Will you also check up that total for the year?
Mr. GROESBECK. We will.
Mr. PECORA. From what source did these two companies, Electric
Bond & Share Co., and American & Foreign Power Co., obtain the
moneys which they used in the making of these call loans ?
Mr. GROESBECK. From the sale of securities, and in the Electric
Bond & Share figure, as stated here, we were loaning the money for
a considerable number of affiliated companies. We were handling
their funds for them.
Mr. PECORA. Were their funds also derived principally from the
sale of securities?
Mr. GROESBECK. The sale of securities and earnings. They have
peaks and valleys. During a period of months they will be accumulating earnings for interest or dividends. During that period their
money is idle. Then they get a demand, on the 1st of January, or
the 1st of July, or any other date, for dividend money, for construction money, or for interest money, and their surplus funds during this
period were employed to some extent in this manner,
Mr. PECORA. Mr. Groesbeck, is there any other evidence or information you feel like giving to this committee on this general subject
without being specifically questioned?
Mr. GROESBECK. I think not, Mr. Pecora.
Senator KEAN. I would like to ask some questions. Mr. Groesbeck, an electric company, in which you are interested or in which
the company is interested, sells some securities with the idea of
building a new powerhouse, and then it receives the money for those
securities. That is correct, is it not?
Mr. GROESBECK. Yes.
Senator KEAN. I t then

makes a contract with somebody to build
that powerhouse, and it pays that money out as a proportion of that
work is completed ?
Mr. GROESBECK. Yes.
Senator KEAN. Therefore,

they have the money on hand until that
project is completed.
Mr. GROESBECK. Eight.
Senator KEAN. And in order to earn some interest on that money
they either deposit it in a bank or loan it on call on the stock
exchange.
Mr. GROESBECK. Correct, sir.
Senator KEAN. That is all.
Mr. GROESBECK. And, if I may say a word on that, Senator, this
money is really bought in the monejr market, and you have to buy it
when you can. You sell your securities when you can. Funds pile
up, as you have pointed out, against commitments. If these are
mortgage obligations interest must be paid on those obligations from
the time the money is acquired. The purpose of this loaning is to

STOCK EXCHANGE PRACTICES

6331

secure some earnings to offset the interest charges against the time
the money becomes really productive in the business.
The CHAIRMAN. Has the Electric Bond & Share Co. kept up its
dividends?
Mr. GROESBECK. On preferred stock; yes, sir. We have discontinued dividends on our common stock.
The CHAIRMAN. HOW about these different corporations?
Mr. GROESBECK. Many of them have been obliged to cut or entirely
eliminate their preferred-stock dividends.
Mr. PECORA. Would you say that a very substantial portion of the
moneys the Electric Bond & Share Co. loaned on call in 1929 represented proceeds from the sale of its securities?
Mr. GROESBECK. I would not be able to give you an answer on
that, Mr. Pecora, without making an examination, and again may
I say that I had such short notice that I did not have a chance to
get in the office to get anything at all yesterday.
Mr. PECORA. That information can be furnished to us subsequently ?
Mr. GROESBECK. Very gladly. Shall we make a note of it?
Mr. PECORA. If you please. I think that is all, Mr. Groesbeck.
The CHAIRMAN. Did you have any losses on any of these call
loans, Mr. Groesbeck?
Mr. GROESBECK. None.
The CHAIRMAN. That is all.
Mr. PECORA. I S there an officer here from the Standard Oil Co. of
New Jersey?
TESTIMONY OF R. P. RESOR, BRONXVILLE, N.Y., ASSISTANT
TREASURER, STANDARD OIL CO., INC., NEW JERSEY
The CHAIRMAN. YOU solemnly swear that you will tell the truth,
the whole truth, and nothing but the truth regarding the matters
now under investigation by the committee, so help you God?
Mr. RESOR. I do.

Mr. PECORA. Will you state your full name, please ?
Mr. RESOR. R. P. Resor.
Mr. PECORA, Are you connected with the Standard Oil Co. of New
Jersey?
Mr. RESOR. I am assistant treasurer of the Standard Oil Co., Inc.,
in New Jersey, the parent company.
Mr. PECORA. That is a corporate name—the Standard Oil Co., Inc.y
of New Jersey ?
Mr. RESOR. The corporate name is Standard Oil Co. We identify it by calling it " Incorporated in New Jersey ", to show where.
Mr. PECORA. For purposes of convenience in description, I will
refer to it in my examination of you as the Standard Oil Co. of New
Jersey.
Mr. RESOR. There is a Standard Oil Co. of New Jersey, Mr. Pecorar
that is an operating company.
Mr. PECORA. Then I will refer to it as the Standard Oil Co. Mr.
Resor, who are the executive officers of the company of which you
are the assistant treasurer?
Mr. RESOR. At present?

6332
Mr.

STOCK EXCHANGE PBACTICES
PECORA. Yes,

sir.

Mr. RESOR. Mr. W. S. Farish, Mr. W. C. Teagle
Mr. PECORA. Give their respective offices.
Mr. RESOR. W. S. Fansh is chairman; W. C. Teagle, president;
Mr. Christy Payne, vice president and treasurer; E. J. Sadler, vice
president; Mr. C. O. Swam, general counsel.
Mr. PECORA. HOW long have you been assistant treasurer of the
company ?
Mr. RESOR. Since the latter part of 1911.
Mr. PECORA. During the year 1929 did that company make call
loans to brokers in the city of New York?
Mr. RESOR. Yes, sir; by an arrangement through a broker.
Mr. PECORA. What was the name of the broker ?
Mr. RESOR. Messrs. Jesup & Lamont.
Mr. PECORA. I S that broker a member of the New York Stock Exchange ?
Mr. RESOR. Yes, sir.
Mr. PECORA. What was

the total number of such call loans made
by your company to to biokers in New York City during the year
1929?
Mr. RESOR. I cannot tell you the exact number.
Mr. PECORA. What was the name of the brokerage firm?
Mr. RESOR. Messrs. Jesup & Lamont.
Mr. PECORA. YOU cannot give the number of those loans made
during the year 1929. Can you give the number of the borrowers ?
Mr. RESOR. I could if I added these all together, but you gentlemen
have the figures.
Mr. PECORA. I can perhaps simplify your examination, then, by
showing you this document addressed to me as counsel to this committee under date of November 3, 1933, signed by W. C. Teagle in
behalf of the company. Mr. Teagle, you said, was the president.
Will you look at it and tell me if you recognize it to be a communication caused to be sent to me in behalf of your company by
the president [exhibiting paper to the witness] ?
Mr. RESOR. Yes.
Mr. PECORA. I offer it m evidence.
The CHAIRMAN. Let it be admitted.

(Copy of communication, Nov. 3, 1933, Teagle to Pecora, was
received in evidence, marked " Committee's Exhibit No. 89," Feb.
23, 1934, and the same will be found at the conclusion of today's
proceedings )
Mr. PECORA. The document has been marked "Committee's Exhibit No. 89 " in evidence. According to this letter and the data
which accompany it, the Standard Oil Co., in behalf of itself and
subsidiary and affiliated companies, during the year 1929 made call
loans to brokers of New York City m the following amounts. The
amounts I will state represent the daily averages, by months, for
the year 1929. The recapitulation shows that in January 1929, the
total number of borrowers was 83, and the daily average of loans
made on call was $75,692,000.
Mr. RESOR. Right.
Mr. PECORA. In the month of February the number of borrowers
was 84, and the daily average of the call loans made to them was
$72,310,000.

STOCK EXCHANGE PRACTICES

6333

Mr. RESOR. Right.
Mr. PECORA. During the month of March the number of borrowers
was 92, and the daily average amount of the loans was $75,359,000.
During the month of April the number of borrowers was 102, and
the daily average of the loans was $79,736,000.
During the month of May the number of borrowers was 89, and
the daily average of loans was $76,857,000.
In the month of June the number of borrowers was 89, and the
daily average of the loans was $79,853,000.
In the month of July the number of borrowers was 91, and the
daily average of the loans was $83,838,000.
In the month of August the number of borrowers was 94, and the
daily average was $85,788,000.
In the month of September the number of borrowers was 96, and
the daily average of the loans was $86,650,000.
In the month of October the number of borrowers was 89, and the
daily average of the loans was $79,157,000.
In the month of November the number of borrowers was 25, and
the daily average of the loans was $16,372,000.
In the month of December the number of borrowers was 19, and
the daily average was $20,049,000.
The average number of borrowers per day for the entire year was
79, and the daily average of the loans for the year was $69,304,000.
The CHAIRMAN. That was not the regular business of the corporation, was it, to make these loans?
Mr. RESOR. We have always kept surplus funds on the street in
that way.
The CHAIRMAN. These were surplus funds you were loaning?
Mr. RESOR. These were surplus funds that we might need any
moment in the operation of our business, and represent funds of
other companies which are deposited with the parent company for
their use.
The CHAIRMAN. Were these funds derived from earnings and income, or sale of stock, or what?
Mr. RESOR. Not from sales of stock—from earnings, income, and
payment of bills to us.
Senator KEAN. They might be derived by a reduction in your inventory, might they not?
Mr. RESOR. Yes, somewhat.
Senator KEAN. In other words, at times you carry a very large
amount of oil on hand.
Mr. RESOR. Correct.
Senator KEAN. And at other times you dispose of that oil, and
therefore you have surplus funds.
Mr. RESOR. Yes. That is particularly true in the foreign business,
where inventories are built up against certain seasonal demands.
Mr. PECORA. Mr. Resor, can you give the committee the aggregate
amount of all these call loans that your company made during the
year 1929?
Mr. RESOR. Your office called up day before yesterday and put the
amount at 17 billions odd. That agrees with this figure, Mr. Pecora,
but it did not mean anything to us, for the reason that if we had had
one million dollars out every day of the year for the year 1929, we

6334

STOCK EXCHANGE PEACTICES

would certainly not have had $365,000,000 in the market. We would
only have had one million.
Mr. PECORA. What I am trying to find out, and what our office
tried to find out, was the aggregate amount of all these loans during
the year 1929. We recognize the fact that that amount would not
represent anything but loans made, collected and reloaned—that is,
reinvestments, you might say.
Mr. EESOR. It totals something like seventeen billion.
Mr. PECORA. The total of those loans would be something over
$17,000,000,000.
Mr. EESOR. AS recorded in these figures.
The CHAIRMAN. In other words, you received the interest on
$17,000,000,000?
Mr. EESOR. NO.
Mr. PECORA. Oh, no.
Mr. EESOR. If you had

$1,000,000 out for the year, you would not
get interest on $365,000,000. You would get it only on $1,000,000.
Mr. PECORA. Mr. Eesor, the fact is, according to your own figures,
that the average daily amount throughout the year, or, rather, the
outstanding call loans, all the call loans made by your company,
were $69,304,000, approximately.
Mr. EESOR. Eight.
Mr. PECORA. DO you know on what date in the year 1929 your
company had outstanding the largest amount in dollars and cents
of these call loans ?
Mr. EESOR. September 9; $97,824,000.
Mr. PECORA. On September 9 the peak amount was $97,824,000;
is that right?
Mr. EESOR. That is right.
Mr. PECORA. Under whose direction or supervision were those call
loans made that year?
Mr. EESOR. Mine.
Mr. PECORA. Will you describe to the committee very briefly the
mechanism that you used, or the procedure that you followed in
the making of these call loans ?
Mr. EESOR. We have for years done this business through Messrs.
Jesup & Lamont. We carry but one account. We did not have
during 1929 any brokers on our books except Jesup & Lamont, in a
total account for all the loans. We were in close touch with them,
because they are at 26 Broadway. If we had surplus funds that
we did not use, we merely said, " We have two, three, or four million dollars that we can put out today." I t was up to them to loan
the money on the floor of the exchange or direct to themselves at
times, or over the counter. I t is done in three ways. When they
took the money down, which they had to do before they got collateral, we gave them a check and took their receipt. Later in the day,
after the delivery hour of collateral, they would give us security for
the amounts covered by that day.
Mr. PECORA. Can you tell the committee whether or not the call
loans made by your company during the year 1929 exceeded in
amount those made in any year since you have been identified with
the company in any way?
Mr. EESOR. Yes; they did.

STOCK EXCHANGE PEACTICES

6335

Mr. PECORA. Did they greatly exceed those made by the company
in any year ?
Mr. KESOR. I should think in prior years we might loan up to
$30,000,000 to $35,000,000.
Mr. PECORA. A day, as a daily average ?
Mr. RESOR. At times, when we had surplus funds.
Mr. PECORA. But in 1929 the daily average of the loans was over
$69,000,000?
Mr. RESSOR. Yes.
Mr. PECORA. Were

those loans made at what were the prevailing
rates of interest for call loans?
Mr. RESOR. They were made at presumably very close rates. Most
of them were made at the renewal rates, which are established on
the floor of the exchange. We got that, less a commission of one
quarter of 1 percent. In other words, if the rate was 6 percent, we
would get 5%.
Mr. PECORA. YOU paid Jesup & Lamont a brokerage or commission
for their services in placing the loans.
Mr. RESOR. They deducted that when they gave us the interest.
Mr. PECORA. DO you recall what the range of rates of interest was
during the year 1929 on these call loans ?
Mr. RESOR. I think one day it touched 15.
Mr. PECORA. Didn't it go beyond 15 sometime during that year ?
Mr. RESOR. It may have, on loans that were made late in the afternoon, but I am speaking of the official rates as established on the
stock exchange.
Mr. PECORA. What was the range? You have given us the top.
Mr. RESOR. Something between 5 and 15. I should say it ran
mostly 6, 7, 8, and 9, along in there.
Mr. PECORA. DO you know, Mr. Resor, the total amount received by
your company by way of interest on these call loans during that
period ?
Mr. RESOR. Yes, sir.
Mr. PECORA. Will you give us the figure?
Mr. RESOR. I will [producing paper].
Mr. PECORA (after examining paper). I offer

in evidence the typewritten statement produced by the witness in answer to the last
question.
The CHAIRMAN. Let it be admitted.
(Statement entitled " Interest on Jesup & Lamont deposit account
for year 1929 ", was received in evidence, marked ^ Committee's Exhibit No. 90 ", Feb. 23, 1934, and the same will be found at the conclusion of today's proceedings.)
Mr. PECORA. The statement has been received in evidence as committee's exhibit no. 90, and is entitled " Interest on Jesup & Lamont
deposit account for year 1929." I t shows the total for the year of
$4,945,217.65, divided up into months as follows: January, $403,000.
I will merely give the thousands. February, $327,000; March,
$526,000; April, $485,000; May, $491,000; June, $455,000; July,
$600,000; August, $552,000; September, $565,000; October, $398,000;
November, $63,000; December, $74,000.
Senator KEAN. I would like to ask you what average rate that
makes for the money.

6336

STOCK EXCHANGE PRACTICES

Mr. RESOR. About 7 percent. You remember I said the rates ran
mostly around 6, 7, 8, and 9.
Senator KEAN. SO, you received about 7 percent on the amount
of money you were loaning on the exchanges
Mr. RESOR. Yes.

Mr. PECORA. That does not include the one quarter of 1 percent
which the broker, Jesup & Lamont, received out of the interest paid
by the borrower?
Mr. RESOR. That is right. This is net.
Mr. PECORA. That is net to your company?
Mr. RESOR. Yes.
Mr. PECORA. Did

the broker receive more than a quarter of 1
percent?
Mr. RESOR. Never.
Mr. PECORA. On what securities exchange is the stock of your
company listed?
Mr. RESOR. The New York Stock Echange.
Mr. PECORA. DO you know what the total number of common
shares issued and outstanding in the year 1929 was ?
Mr. RESOR. I t possibly was 23 million or 24 million—[after conferring with an associate]—from 25 to 25y2 million.
Mr. PECORA. DO do you know the total amount of trading in the
market in the common stock of your company in 1929 ?
Mr. RESOR. NO ; I would not have that figure.
Mr. PECORA. YOU gave the number of shares ?
Mr. RESOR. Twenty-five milhon shares, approximately.
Mr. PECORA. According to exhibit no. 89 in evidence, which is the
return to the questionnaire we addressed to your company, the total
number of shares of the capital stock of your company transferred
on the books during the year 1929 was 16,828,779.
Mr. RESOR. That is according to the letter.
Mr. PECORA. And the total number of transfers of that stock during the year 1929, made on the books, was 238,770; that is, where
stock was transferred from one ownership to another on the books.
Mr. RESOR. Right. I want to call your attention to that paragraph,
however, Mr. Pecora, m the split-up of stock, which is very important, and which illustrates that that 16,000,000 shares is very excessive, because m the split-up of stock we have given the total number
of transfers, whereas a great many of them were not, in effect, transfers to another name, but merely a split-up of the certificates.
Mr. PECORA. That is pait of the record here, because this entire
document has been put m evidence, Mr. Resor. I have not read the
entire document because of its length.
The CHAIRMAN. IS the stock listed on the New York Stock
Exchange ?
Mr. RESOR. Yes, sir.
The CHAIRMAN. Are the shares widely distributed or concentrated ?
Mr. RESOR. Very widely distributed.
Senator KEAN. HOW many stockholders have you ?
Mr. RESOR. I could not say at the present time, Senator.
Senator KEAN. I think it would be important to know.
Mr. SWAIN. It is in excess of 150,000.
Mr. PECORA. YOU can give the figure approximately, Mr. Resor.

STOCK EXCHANGE PRACTICES

6337

Mr. RESOR. The last I knew was about 140,000. Mr. Swain is probably more nearly correct.
Mr. SWAIN. Can we use the number as of the last day of record?
Mr. PECORA. Yes; and if you have in your files or among your
records the total amount of trading for the year 1929, we would like
to have that.
Mr SWAIN. We have not that.
Mr. PECORA. We can get that from the stock exchange statistical
records.
Mr. SWAIN. I will see if we have that.
Mr. EESOR. Mr. Pecora, that figure is the total as given by the
manuals. We can get it for you in any of the newspapers, if you
wish it. You want the actual number of shares outstanding?
Mr. PECORA. In the year 1929.
Mr. RESOR. And at present?
Mr. PECORA. And at present; and the amount of trading, the number of shares traded in on the exchange during the year 1929.
Mr. RESOR. And the number of stockholders.
Mr. PECORA* Yes.
The CHAIRMAN. What is the par value of the stock?
Mr. RESOR. Twenty-five dollars at the present time.
Mr, PECORA. Can you tell the committee, Mr. Resor, the

factors and
circumstances that led to such very heavy borrowings by brokers in
the year 1929, or at least up to the end of October of that year?
Mr. RESOR. I can tell you why we loaned so much money; because
there was a demand for it at excessively high rates, over and above
what we could get from what we would normally invest in, which
are Government securities, municipals, and things of that sort.
Mr. PECORA. What caused that great demand?
Mr. RESOR. Speculation in the stock market, of course.
Mr. PECORA. Without the furnishing of credit in the form of these
call loans, not only by banks, but by nonbanking corporations and
individuals, could that speculation have been sustained?
Mr. RESOR. Persoanlly I think so, Mr. Pecora. I have been loaning
money in this way for over 20 years, and if it had not been coming
from us, our money would have been in the banks; the money we
put into securities would have gone back to the sources where that
money comes from, and it would have been secured in just the same
way. I do not believe the volume of it would have been decreased
if we had not loaned it on the market.
Mr. PECORA. Could that excessive speculation have been maintained
without the credits extended to brokers, represented by call loans?
Mr. RESOR. N O ; I doubt it. The point I wanted to make is that
I believe if the demand is there, the money will be forthcoming. The
money was not there first, to make the demand.
Senator EJBAN. I would like to ask a question, if I may, Mr. Chairman. If the money had not come from you, and had not come from
the United States, there are other money markets m the world that
were sending money into the market to loan, isn't that true ?
Mr. RESOR. Absolutely. Foreign funds that were here, Senator,
were enormous, of course.
The CHAIRMAN. If the banks had been making the loans, they
would have been loaning depositors' money.

'6338

STOCK EXCHANGE PRACTICES

Mr. EESOR. That is what they loan in every case.
Mr. PECORA. I think that is all of this witness. Have you any
statement you would like to make to the committee, or information
to convey to the committee, without being questioned?
Mr. RESOR. I would like just to make this plain, Mr. Pecora. I
came to New York in 1908, and we were loaning money then. Probably it had been the practice of the company for years before that.
We are loaning it today, and that is a practice not because of the
speculation that brought more money in 1929 out into the market,
but it is our practice to always keep a large line of call money out
so that we can have it any minute we want it.
The CHAIRMAN. HOW is the demand today ?
Mr. KESOR. I t is not so high.
Mr. PECORA. I t is not nearly so high.
Mr. EESOR. I have no objection to telling you that we have only
about $11,000,000 out today.
Mr. PECORA. AS compared with a daily average of $69,000,000 in
1929.
The CHAIRMAN. What interest do you get today ?
Mr. RESOR. One percent, less commission, and sometimes less.
The CHAIRMAN. I t was the higher interest that made these loans
attractive to you at that time?
Mr. E-ESOR. But, Senator, we keep it out at the low rates, as I say,
because it is just a matter of principle to us, to have money available
when we can get it at any minute.
Mr. PECORA. I think that is all of this witness.
The CHAIRMAN. YOU may be excused.
(Witness excused.)
Mr. PECORA. There are other witnesses, Mr. Chairman, but the
usual hour of recess has arrived. I suggest that we take a recess at
this time.
The CHAIRMAN. The committee will now take a recess until 2
o'clock.
(Whereupon, at 1 p.m., Friday, Feb. 23, 1934, a recess was taken
until 2 p.m., of the same day.)
AFTERNOON SESSION

The committee resumed at 2 p.m. at the expiration of the recess.
The CHAIRMAN. The committee will please come to order.
Mr. PECORA. Mr. Sinclair.
Mr. SINCLAIR. DO you wish me to be sworn?
Mr. PECORA. N O ; you have heretofore been sworn and are now
being recalled.
TESTIMONY OP HARRY P. SINCLAIR, GREAT NECK, LONG ISLAND,
N.Y., CHAIRMAN OF THE EXECUTIVE COMMITTEE OF CONSOIIDATED OIL CORPORATION, NEW YORK CITY—Resumed
Mr. PECORA. Mr. Sinclair, you have heretofore testified before this
committee, and in connection with the testimony then given by you
it appeared that you were connected with a corporation known as
the Consolidated Oil Corporation, I believe.

STOCK EXCHANGE PRACTICES
Mr. SINCLAIR. Yes,
Mr. PECORA. NOW,

sir.

Mr. SINCLAIR. Yes,

sir.

6339

during the year 1929 what was the corporate
name of that corporation?
Mr. SINCLAIR. Sinclair Consolidated Oil Corporation.
Mr. PECORA. YOU were connected with that corporation that yeary
were you?
Mr. PECORA. In what capacity?
Mr. SINCLAIR. Chairman of the board.
Mr. PECORA. NOW, in the year 1929 did the Sinclair Consolidated
Oil Corporation make call loans to brokers in New York City?
Mr. SINCLAIR. They did.
Mr. PECORA. Did the Corporation make such loans generally
throughout that year?
Mr. SINCLAIR. They did.
Mr. PECORA. I show you what purports to be a statement in writing
signed by Mr. G. T. Stanford, general counsel of the Consolidated Oil
Corporation, entitled:
Questionnaire propounded by the Honorable Ferdinand Pecora, Counsel to
the Committee on Banking and Currency, to Consolidated Oil Corporation, and
answers thereto by said Corporation.

Will you look at it, Mr. Sinclair, and tell me if you can identify
it a$ a correct statement or answers to the questions propounded in
this questionnaire, that was submitted to your corporation?
Mr. SINCLAIR (after looking at the papers). I do.
Mr. PECORA. Mr. Chairman, I now oner these papers in evidence*
The CHAIRMAN. Let them be admitted.
(The answers made by the Consolidated Oil Corporation to the
questionnaire sent by the committee, marked " Committee Exhibit
No. 91, February 23, 1934 ", will be found at the end of the day's
proceedings.)
Mr. PECORA. The document has been received as committee exhibit
no. 91 of this date and will be spread in full on the record of the
hearings. I want to point out that, according to this exhibit, and
the schedule attached thereto and forming a part thereof, the Sinclair
Consolidated Oil Corporation, as it was called during the year 1929,
and its affiliated and subsidiary corporations named therein, made
call loans during the year 1929 aggregating in amount $211,000,000.
Those loans were made through various commercial banks, the names
of which are set forth in this exhibit or the schedule annexed to it and
made a part thereof; and that such loans were made in behalf of and
by the Sinclair Consolidated Oil Corporation, Sinclair Automobile
Service Corporation, Sinclair Pipe Line Co., Sinclair Crude Oil
Purchasing Co., and the Venezuelan Petroleum Co.
Now, Mr. Sinclair, do you know the highest amount of such call
loans outstanding on any one day during that year that were made
by or on behalf of those corporations ?
Mr. SINCLAIR. On October 9, $17,600,000.
Mr. PECORA. What was the daily average amount of those loans
made by your companies during the year 1929 ?
Mr. SINCLAIR. It was $12,595,636.
Mr. PECORA. Were they made at the call-money rates that were
prevailing at the time ?

6340

STOCK EXCHANGE PRACTICES

Mr. SINCLAIR. Presumably so.
Mr. PECORA. Are you familiar with the mechanism or procedure
by which your companies made those call loans during that year?
Mr. SINCLAIR. The loans were made through our banking connections for us.
Mr. PECORA. Had it been the custom or a part of the business of
your companies to make such call loans generally for any period
of time prior to 1929?
Mr. SINCLAIR. Yes. We made call loans in 1928, and I do not
recall the other years.
Mr. PECORA. Have your companies made such call loans since 1929 ?
Mr. SINCLAIR. Yes, sir.
Mr. PECORA. What would

you say was the amount of those loans
made by your companies during the year 1929, as to this point: Did
they far exceed any amount of similar loans made in any other year?
Mr. SINCLAIR. Yes,

sir.

Mr. PECORA. And what was that due to?
Mr. SINCLAIR. I would say partly on account of interest rates and
partly on account of demand. And also the fact that, perhaps, our
corporation did not have funds at other times.
Mr. PECORA. During the year 1929, as you recall it, would you say
that the amount of speculation in securities far exceeded that which
was witnessed in any other year m recent times, or, say, within as
much as a decade or two?
Mr. SINCLAIR. \ think so.
Mr. PECORA. This paper, which is committee exhibit no. 91, also
states that as of June 15, 1929, there were outstanding 3,563,502
shares of the common capital stock of the Sinclair Consolidated Oil
Corporation, and that certificates representing 2,891,805 of those
shares were on that date outstanding in the names of brokers or
brokerage firms. That is correct, isn't it, Mr. Sinclair?
Mr. SINCLAIR. Yes, sir; I think so.
Mr. PECORA. The questionnaire addressed to your firm in behalf
of this committee asked, among other things, for the following
information:
1. The total number of shares of the common stock of your corporation
transferred on your books from one ownership to another.
Can you give us that figure, Mr. Sinclair?
Mr. SINCLAIR. Yes. It is 8,910,126.
Mr. PECORA. NO. That is the total number of shares transferred
on the books. But what was the total number of transfers.
Mr. SINCLAIR. We do not have that information here, Mr. Pecora.
Mr. PECORA. But the total number of shares of common stock
transferred on the books during the calendar year 1929 was 8,910,126.
Mr. SINCLAIR. Yes, sir.
Mr. PECORA. About two

and a half times the total amount of
common stock outstanding.
Mr. SINCLAIR. I think so.
Mr. PECORA. DO you know jbhe total amount of trading that was
done in the market in the common stock of the company during
the year 1929?
Mr. SINCLAIR. I do
Mr. PECORA. Have

information ?

not.

you any figures that would give us that

STOCK EXCHANGE PRACTICES

6341

Mr. SINCLAIR. I have not.
Mr. PECORA. On what securities exchange was the common stock
listed at that time?
Mr. SINCLAIR. The New York Stock Exchange.
Mr. PECORA. Can you get the figure showing the total amount
traded m as to that stock for that year ?
Mr. SINCLAIR. I think so.
Mr. PECORA. Will you send it to our office in New York?
Mr. SINCLAIR. All right.
Mr. PECORA: Can you give this committee now the total amount
received by these companies affiliated with the Sinclair Consolidated
Oil Corporation, and by that corporation itself, in the year 1929 by
way of interest on those call loans ?
Mr. SINCLAIR. We have the information for all of our companies
except the Crude Oil Purchasing Co. and the Sinclair Pipe Line Co.,
whose books are in Tulsa, Okla., and we did not have time to get it
for them.
Mr. PECORA. Will you give us the figures so far as you are in
position to do it now ?
Mr. SINCLAIR. The figures show $833,593.24.
Mr. PECORA. That is exclusive of interest paid to these other two
companies?
Mr. SINCLAIR. Yes, sir.
Mr. PECORA. That is all that I want of Mr. Sinclair^ Mr. Chairman.
The CHAIRMAN. Then you are excused, Mr. Sinclair.
Mr. PECORA. Mr. Sinclair, is there anything that you would like to

give to the committee on the subject of these call loans at this time
without being specifically questioned thereon?
Mr. SINCLAIR. I believe not.
Mr. PECORA. All right. That is all.
The CHAIRMAN. That is all, Mr. Sinclair, and you are excused.
Mr. SINCLAIR. I thank you, gentlemen.
(Thereupon the witness was excused.)
Mr. PECORA. NOW, Mr. Chairman, there were sent questionnaires
similar in form to those which have been put in evidence here today,
to various other nonbanking corporations. The questionnaire called
for information concerning call loans made by the corporations to
which they were addressed, during the year 1929, and for certain
details with respect to such call loans. We have here the answers
made to those questionnaires, which I will put in evidence. But
before proceeding directly to put these documents in evidence, I want
to offer in evidence a recapitulation of the information conveyed
in those questionnaires with respect to Street loans made by these
corporations during the year 1929 in the call-money market of New
York City. This recapitulation has been prepared from the information embodied in the questionnaires, by members of the investigating staff of the committee, and I believe they will be found to
be accurate.
The CHAIRMAN. The statement will be admitted in evidence.
(The recapitulation made by members of the investigating staff
of the committee, entitled " Total number and amount of Street loans
made by private corporations for the year 1929 in the call money
market of New York City ", was marked " Committee Exhibit No.

6342

STOCK EXCHANGE PRACTICES

92, Feb. 23, 1934", and will be found at the end of the day's
proceedings.)
Mr. PECORA. Mr. Chairman, the corporations referred to in this
recapitulation, which has been marked in evidence " Committee
Exhibit 92 ", are as follows:
American Founders Corporation and subsidiaries; American & Foreign Power
Co., Inc., and subsidiaries; American Can Co ; Anaconda Copper Mining Co.;
Auburn Automobile Co., Bethlehem Steel Corporation and subsidiaries, Chrysler
Corporation; Cities Service Co.; Consolidated Oil Corporation; Electric Bond
& Share Co and subsidiaries; General Foods Corporation; - General Motors
Corporation; International Nickel Co, Inc ; Pan American Petroleum &
Transport Co.; Radio Corporation of America and subsidiaries; Radio-KeithOrpheum Corporation; Standard Oil Co of New Jersey and subsidiaries;
Tri-Continental Corporation and affiliated corporations; the United Corporation ; the United Gas & Improvement Co. and subsidiaries.

Mr. Chairman, I now offer in evidence and ask to have spread on
the record, the answers to the questionnaires submitted to the corporations which I have named, in behalf of this committee, and which
give details with regard not only to call loans made in the year 1929
by such corporations, but also give detailed information with respect
to the number of shares listed of the capital stock of such companies
that were transferred on the books of the companies, respectively,
during the calendar year 1929.
The first answer to the questionnaire is that of the American Can
Co., which shows a total amount of call loans in 1929 of $149,000,000,
with an average amount outstanding of $9,424,000, and with the
total number of call loans made, 374. The maximum amount outstanding at any one time was $16,000,000, which was for a period of
8 days, January 17 to January 25, 1929.
The CHAIRMAN. Let it be admitted.
(The answer of the American Can Co. to the committee's questionnaire was marked " Committee Exhibit No. 93, Feb. 23, 1934 ",
and will be found at the end of the day's proceedings.)
Mr. PECORA. Mr. Chairman, the next one is the return to the
questionnaire made by the Anaconda Copper Mining Co., and it
shows the total amount of Street loans made in the call money
market of New York City wa>s $32,500,000, and that the total number
of Street loans made by the corporation was 147.
The CHAIRMAN. Let it be admitted.
(The answer made by the Anaconda Copper Mining Co. to the
committee's questionnaire was marked " Committee Exhibit No. 94,
Feb. 23, 1934", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the answer made by the Auburn Automobile Co., and it shows that the total number of Street loans made
was 13, and that the total amount was $1,600,000.
The CHAIRMAN. Let it be admitted.
(The answer by the Auburn Automobile Co. to the committee's
questionnaire was marked " Committee Exhibit No. 95, Feb. 23,
1934 ", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next return made is in behalf of the Bethlehem
Steel Corporation, and, Mr. Chairman, I might call attention to
the fact that in this return to our questionnaire, the Bethlehem
Steel Corporation stated that the peak amount of call loans out

STOCK EXCHANGE PRACTICES

6343

standing at any one time in the year 1929 was $157,450,000, and
that the total number of loans made was 517.
The CHAIRMAN. Let it be admitted.
(The answer by the Bethlehem Steel Corporation to the committee's questionnaire w&s marked " Committee Exhibit No. 96,
Feb. 23, 1934", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return to our questionnaire made
in behalf of the Chrysler Corporation, showing that the loans were
made through three banks, and that the largest amount made
through the first bank was on September 26, when there were 114
loans amounting to $60,150,000; the largest amount through the
second bank was on October 9, when there were 26 loans amounting
to $15,000,000; and the largest amount through the third bank was
on October 28, when there were 33 loans, amounting to $15,400,000.
The CHAIRMAN. Let it be admitted.
(The answer by the Chrysler Corporation to the committee's
questionnaire was marked " Committee Exhibit No. 97, Feb. 23,
1934 ", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return to our questionnaire made
in behalf of the General Foods Corporation, which states that the
loans were all made through banks, and that the total number was
187; that the total amount of Street loans made by the corporation
in the call-money market of New York in 1929 was $36,000,000.
The CHAIRMAN. Let it be admitted.
(The answer of the General Foods Corporation to the committee's
questionnaire was marked " Committee Exhibit No. 98, Feb. 23,
1934 ", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return made in behalf of General
Motors Corporation and subsidiaries, in the year 1929, and shows a
total of $103,700,000, and the General Motors Truck Corporation
made four loans for a total of $2,000,000.
The CHAIRMAN. Let it be admitted.
(The answer of the General Motors Corporation and subsidiaries
to the committee's questionnaire was marked " Committee Exhibit
No. 99, Feb. 23, 1934 ", and will be found at the end of the day's
proceedings.)
Mr. PECORA. The next one- is the return to the questionnaire made
in behalf of the International Nickel Co. of Canada, Ltd., and shows
for the year 1929 they made 14 Street loans in the call-money market
of New York City for a total of $3,000,000.
The CHAIRMAN. Let it be admitted.
(The return made by the International Nickel Co. of Canada, Ltd.,
to the committee's questionnaire was marked " Committee Exhibit No.
100, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return to the questionnaire made
in behalf of the Pan American Petroleum & Transport Co., which
shows a total of $9,500,000.
The CHAIRMAN. Let it be admitted.
(The return made by the Pan American Petroleum & Transport
Co. to the committee's questionnaire was marked " Committee Exhibit No. 101, Feb. 23, 1934 ", and will be found at the end of the
day's proceedings.)
175541—34—PT 14

6344

STOCK EXCHANGE PRACTICES

Mr. PECORA. The next one is the return made in behalf of the Radio
Corporation of America and subsidiaries, and shows that loans were
made through three banks in New York City for a total of
$18,600,000.
The CHAIRMAN. Let it be admitted.
(Return made by the Radio Corporation of America to the committee's questionnaire was marked "Committee Exhibit No. 102,
Feb. 23, 1934", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return made in behalf of the
Radio-Keith-Orpheum Corporation, and states that the largest
amount invested in the call-money market by that corporation and
its subsidiaries and affiliates was in March of 1929, when $8,000,000
was so invested.
The CHAIRMAN. Let it be admitted.
(The answer submitted by the Radio-Keith-Orpheum Corporation
to the committee's questionnaire was marked " Committee's Exhibit
No. 103, Feb. 23, 1934 ", and will be found at the end of the day's
proceedings.)
Mr. PECORA. The next one is the return made in behalf of the TriContinental Corporation showing an aggregate of call loans made
$86,525,000.
The CHAIRMAN. Let it be admitted.
(The return made by the Tri-Continental Corporation to the committee's questionnaire was marked " Committee's Exhibit No. 104,
Feb. 23, 1934", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return made in behalf of the
United Corporation, which states that it did not make directly any
Street loans in the call-money market of New York City during the
year 1929, but that on January 25, 1929, the United Corporation
obtained an interest through J. P. Morgan & Co. to the extent of
$7,400,000 in six such loans.
The CHAIRMAN. Let it be admitted.
(The answer made by the United Corporation to the committee's
questionnaire was marked " Committee Exhibit No. 105, Feb. 23,
1934 ", and will be found at the end of the day's proceedings.)
Mr. PECORA. The next one is the return made by the United Gas
Improvement Co. and subsidiaries, and states that the maximum
amount loaned by way of Street loans at any one time was $3,600,000.
The CHAIRMAN. Let it be admitted.
(The answer made by the United Gas Improvement Co. to the
committee's questionnaire was marked " Committee Exhibit No. 106,
Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)
The CHAIRMAN. May I ask you, Mr. Pecora, if those are what
are known as " bootleg " loans, or if they represent what are called
"bootleg" loans.
Mr. PECORA. Mr. Chairman, they have often been called " bootleg "
loans, not only in the parlance of the Street, but I think some textbook writers have referred to brokers' loans as " bootleg " loans as
distinguished from loans made by banks.

STOCK EXCHANGE PBACTICES

6345

I have in mind in that respect a reference to such loans as " bootleg " loans, which will be found in a book called " Brokers' Loans ",
written by Profs. Louis EL Haney, Lyman S. Logan, and Henry S.
Gavens, of New York University. And some observations with regard to these so-called "bootleg" loans made by these authors in
that book, might not be out of place at this time, Mr. Chairman, and
if you wish I will read a few statements culled from that book.
The CHAIRMAN. All right. I think they might be in order now
so as to give us a clearer idea of that.
Mr. PECORA. Quoting from this book I will read as follows:
The so-called "bootleg" loans
One of the most important problems connected with brokers' loans is found
in that part of such loans which comes fiom the nonbankmg lenders or
"others" Such loans have been a disturbing factor and in 1929 developed
to extraordinary proportions It is estimated that at times they constitute
a large part of the loans made for the account of out-of-town banks and
were probably over one half of the out-of-town bank loans in the faU of 1929.
Loans by " others " swell to enormous proportions in periods of speculative
mania. They are drawn largely fiom the surplus funds of corporations built
up out of past earnings or sales of securities; from funds secured by new
investors through far-sighted liquidation of securities; and from foreign
sources.

But probably considerable Reserve bank credit is diverted into brokers*
loans reported as being made by " others ", as a result of the inability of the
authorities to control the use of credit extended through the rediscount
privilege.
When large corporation surpluses exist as in, 1928 and 1929, and low yields
on securities both invite tjie sale of stock and retard investment in plant and
equipment, the existence of high call loan rates is bound to cause a strong
trend toward a large volume of brokers' loans by " others "
These loans, having been subject to little control were long a source of great
danger. Not only did they deprive industry and trade of funds at reasonable
rates, but they threw fuel on the speculative fire. There comes a time when,
the private lenders not having the responsibility of banks, are apt to become
panicky and withdraw loans suddenly, thus precipitating a crisis. The experience of 1929 but repeats that of 1907 and other similar periods
The essence of the situation in this respect is inflation. The higher stocks go
and the larger the volume of trading by speculators, the greater the demand for
brokers' loans and the higher money rates. There is no limit to the speculative
appetite. To argue that loans by " others " relieve the situation by furnishing
credit which the banks would otherwise have to supply seems fut Je. It assumes
that such credit should be furnished—that it is desirable and connected with a
sound condition. This begs the question. It is not a service to throw fuel on a
dangerous fire.
Nor do such loans by " others " represent a mere shifting of credit without
any disturbance of the relation between deposits and loans We find in 1928-29
declining deposits and an abnormal volume of loans, largely brokers' loans made
for the account of " others."
As to the argument that these loans by " others " are part of a means which
enables corporations to raise capital, it hardly seems that a refutation is needed
since our experience in 1929-30 They have been proved to have become but a
link in an endless chain of inflation whereby funds were raised wh^ch were used
not for investment, but to allow speculative purchases of stocks, and were then
re-lent to allow speculative purchases of more stock.
The fact is that when speculative funds become relatively so scarce that
money rates are bid up to 6, 8, 10, 12, or even 15 percent, the funds supplied by
" others" become a causal factor in promoting excessive speculation and preventing effective credit control by the central banking system.
Desirability of control.
Loans by nonbankmg lenders on a large scale were a new phenomenon in
1928-29 They were called " bootleg loans " and were widely attacked because
they were feared and their economic significance not understood It was

6346

STOCK EXCHANGE PBACTICES

argued that they had an unfavorable effect upon our economic structure
because•
1. They took away money from " legitimate business "
2 They brought on the inflation in stocks.
3. If the lenders became frightened by some economic distuibance and withdrew them, a grave panic would follow.
4. They were a liability on the banking system, for banks must be prepared to
supplant them in case they should be withdrawn suddenly.
5 They were dangerous because the lenders were not generally competent
to function in this field.
6 They were not controlled by banks and were usurping a field not properly
belonging to them.
On the other hand, there were many economists who defended every aspect
of brokers' loans and denied that they had any unfavorable effect on our
economic structure.
Although it is fair to point out that originally such loans were a result of
the speculative situation, and that in some cases the lenders had no other
equally good outlet for their funds, it is our conclusion that they did become
part of a vicious circle in stock-market inflation, and that subsequent events
justified much of the fear concerning the rapid withdrawal of funds supplied
by irresponsible lenders, with a resulting great burden thrown upon the banks
The chief point, however, is to prevent the development of the excessive
speculation and the runaway stock and money markets which make the
occasion for a large volume of loans to brokers by nonbanking lenders.
In late 1929, when the market declined, nonbanking and out-of-town lenders
hastily withdrew their funds, forcing the New York banks to expand their
loans to brokers in order to prevent an utter credit debacle.
It is to be remembered, however, that even if the loans others called
were placed on deposit in New York City as was true only m part, their
withdrawal from brokers tending to aggravate the situation, in that for
every $100,000 which a nonbanking lender called, the banks could return only
$87,000, since they have to keep about 13 percent of their deposits as a reserve
However, it does seem that when coiporations withhold accumulated surplus
funds instead of paying them out as dividends, or sell new stock in order ta
make loans m the call-money market and thereby to some extent make it possible
for speculators to carry that very stock, they tend to overstep the boundaries of
normality.
I think, Mr. Chairman, those statements are very pertinent and
are supported very largely by testimony that has been presented here
today with regard to these call loans.
Senator KEAN. Where did those statements come from?
Mr. PECORA. A book written by professors of New York University, Professors Haney, Logan, and Gavens, a book called " Brokers*
Loans."
Among the returns I want to offer in evidence are two of them
made on behalf of the American Founders Corporation, the first one
dated November 6, 1933, and the second one dated February 21,
1934.
The CHAIRMAN. Let them be admitted.
(Return to questionnaire, dated Nov. 6, 1933, from L. H.
Seagrave, president American Founders Corporation, to Ferdinand
Pecora, counsel, Committee on Banking and Currency, and supplemental return from L. H. Seagrave to Ferdinand Irecora, dated
Feb. 21, 1934, were marked as one exhibit " Committee Exhibit No.
107, Feb. 23, 1934", and they appear in full in the record at
the end of today's proceedings.)
Mr. PECORA. I S Mr. George U. Harris here?

STOCK EXCHANGE PBACTICES

6347

TESTIMONY OF GEORGE TJ. HARRIS, MEMBER BROKERAGE FIRM
HARRIS, UPHAM & CO., AND MEMBER PUBLICITY COMMITTEE
NEW YORK STOCK EXCHANGE
The CHAIRMAN. YOU may come forward, Mr. Harris, and be
sworn. You do solemnly swear that the testimony you are about to
give in regard to the matters now under investigation by this committee will be the truth, the whole truth, and nothing but the truth.
So help you, God.
Mr. HARRIS. I do.

Mr. PECORA. Will you give your full name, Mr. Harris, and your
address and business?
Mr. HARRIS. George U. Harris, 11 Wall Street.
Mr. PECORA. And what is your business?
Mr. HARRIS. I am a member of the New York Stock Exchange,
brokerage business.
Mr. PECORA. Are you connected with any firms ?
Mr. HARRIS. Connected with the firm of Harris, Upham & Co.
Mr. PECORA. And how long have you been connected with that
firm, Mr. Harris ?
Mr. HARRIS. Seven years.
Mr. PECORA. And how long have you been a member of the New
York Stock Exchange?
Mr. HARRIS. Seven years.
Mr. PECORA. Are you an officer of that exchange at the present
time?
Mr. HARRIS. NO, sir; I am not an officer.
Mr. PECORA. Are you a member of the board of governors of that
exchange?
Mr. HARRIS. I am.
Mr. PECORA. HOW

long have you been a member of its board of
governors ?
Mr. HARRIS. Approximately 5 years.
Mr. PECORA. Are you a member of any of the committees of the
exchange, any of its standing or special committees ?
Mr. HARRIS. Yes, sir; I am.
Mr. PECORA. Of what committee or committees
Mr. HARRIS. Business conduct committee, the

are you a member ?
committee on pub-

licity.
Mr. PECORA. HOW long have you been a member of the committee
on business conduct?
Mr. HARRIS. Approximately 4 years.
Mr. PECORA. And how long have you been a member of its committee on publicity?
Mr. HARRIS. Approximately 4 years.
Mr. PECORA. Are you the chairman of the last named committee?
Mr. HARRIS. NO, sir; I am

not.

Mr. PECORA. Who is the chairman of that committee?
Mr. HARRIS. Mr. James Auchincloss.
The CHAIRMAN. What is your age, Mr. Harris?
Mr. HARRIS. Thirty-six.
Mr. PECORA. What are the functions of the committee on publicity
of the New York Stock Exchange, Mr. Harris ?

6348

STOCK EXCHANGE PBACTICES

Mr. HARRIS. They pertain to statistical matter mostly that is gotten out by the stock exchange in its various functions.
Mr. PECORA. Well, statistical matter relating to what?
Mr. HARRIS. Volume of transactions and general questions of how
the business is conducted on the floor of the exchange.
Mr. PECORA. DO you happen to have with you at the present time
copy of the constitution, bylaws, rules, and regulations of tlie New
York Stock Exchange now in force and effect?
Mr. REDMOND. NO ; we haven't a copy, Mr. Pecora.
Mr. PECORA. I think I have a copy here.
Mr. REDMOND. YOU are looking for the committee on publicity ?
Mr. PECORA. Yes.
Mr. REDMOND. I can

turn right to it.
(Mr. Redmond turned to desired place in book.)
Mr. PECORA. I have before me what purports to be a copy of the
constitution of the New York Stock Exchange and rules added by the
governing committee of that institution pursuant to the constitution,
with amendments to October 10, 1933, and there have also been
inserted in this volume changes down to and including January 24,
1934.
Will you look at it, Mr. Harris, and tell me if you can identify it
as being a copy of the constitution of the New York Stock Exchange
with such rules as adopted by the governing committee and changes
made therein down to and including January 24 of this year?
Mr. HARRIS (after examining document). Yes; that is a correct
copy.
Mr. PECORA. I ask that it be marked for identification.
(Constitution, rules, together with amendments thereto, of the
New York Stock Exchange was thereupon marked for identification "Committee Exhibit No. 108 for Identification, February 23,
1934 ", and the same is filed among the records of the committee.)
Mr. PECORA. On page 23 of this exhibit no. 108 let me read the
following paragraph marked " paragraph 9, article 10, of the Constitution of the New York Stock Exchange ", which reads as follows
[reading]:
Committee of five to be known as the committee on publicity.
It shall be the duty of this committee, under the direction of the president,
to keep the public correctly informed concerning matters of public interest
having to do with the exchange

Now, the committee on publicity that is referred to there is the
committee of which you are now a member and have been a member
for the past 4 years ?
Mr. HARRIS. Approximately; yes, sir.
Mr. PECORA. And according to the powers, duties, and functions
of the committee as contained in this paragraph ninth of article 10
of the constitution of the exchange, the duty of the committee is " to
keep the public correctly informed concerning matters of public interest having to do with the exchange."
Do you know of any other power, duty, or responsibility that
might not be comprehended within that language that is conferred
upon or exercised by the committee on publicity?
Mr. HARRIS. NO ; I know of no other; no, sir.

STOCK EXCHANGE PRACTICES

6349

Mr. PECORA. HOW often does the committee on publicity meet?
Mr. HARRIS. There is no regular time for its meeting. At intervals when something that is of importance to that committee comes
up a meeting is called. I t has no other regular dates.
Mr. PECORA. It has no regular stated times for holding meetings?
Mr. HARRIS. None.
Mr. PECORA. Its meetings are held upon the call of somebody f
Mr. HARRIS. Upon the call of the chairman.
Mr. PECORA. And is the president of the exchange ex officio a
member of the committee?
Mr. HARRIS. He is.
Mr. PECORA. Are there

any other officers of the exchange who are
ex officio members of the committee?
Mr. HARRIS. There are not any.
The CHAIRMAN. HOW many members are there?
Mr. HARRIS. Five.
Mr. PECORA. The chairman is James Auchincloss ?
Mr. HARRIS. Yes.
Mr. PECORA. HOW

are the members of the committee on publicity
chosen?
Mr. HARRIS. They are appointed by the president.
Mr. PECORA. I S that true generally of the membership of all the
standing committees of the stock exchange ?
Mr. HARRIS. That is true of all the committees, standing committees.
Mr. PECORA. NOW, can you tell this committee how many meetings
have been held by the committee on publicity since the first of this
year?
Mr. HARRIS. I believe there has only been one meeting.
Mr. PECORA. HOW long ago was that held?
Mr. HARRIS. Day before yesterday.
Mr. PECORA. At whose instance was that called ?
Mr. HARRIS. At the instance of the chairman.
Mr. PECORA. Did you attend that meeting?
Mr. HARRIS. I did.
Mr. PECORA. Are minutes

kept of the meetings of the committee
on publicity when such meetings are held?
Mr. HARRIS. Complete minutes are kept.
Mr. PECORA. When was the meeting immediately prior to the one
that was held the day before yesterday ?
Mr. HARRIS. Mr. Pecora, I am not absolutely certain, but I would
say some 6 weeks ago. There may possibly have been another meeting since the first of the year, but at the moment it does not come to
my recollection.
Mr. PECORA. If you can give it to us by access or reference to any
records, I prefer that you do so; but if you have no such records,
tell us from your general recollection how many meetings of the
committee on publicity were held during the calendar year 1933.
Mr. HARRIS. I cannot even make an estimate as to that. I have
no recollection of it.
Mr. PECORA. Can't you tell us from general recollection?
Mr. HARRIS. Well, a rough estimate would be maybe 12.
Mr. PECORA. DO you happen to have the minute book of the meetings of the committee on publicity with you?

6350

STOCK EXCHANGE PRACTICES

Mr. HARRIS. NO, sir; I have not.
Mr. REDMOND. Mr. Pecora, I might say that while the subpena
covered all documents and papers, et cetera, Mr. Harris was not
informed as to what papers you wanted, and inasmuch as the rest
of the question referred to answers in regard to the publicity committee, he came down to Washington simply with the answers to that
questionnaire. He had no notice of any other documents that you
wanted.
The CHAIRMAN. Let the record show who is speaking.
Mr. PECORA. Mr. Roland Redmond, who has heretofore appeared
before the committee. And I think you were sworn.
Mr. REDMOND. Twice.
Mr. HARRIS. Of course, Mr. Pecora, I will be glad to furnish any
records that the committee desire.
Mr. PECORA. Yes; I understand. Now, can you tell this committee
in a general way what the activities were of the committee on publicity by way of keeping the public correctly informed during the
past year concerning matters of public interest having to do with
the exchange?
Mr. HARRIS. They have been purely routine and the same as ever
since I have .been connected with the committee. That is, sending
out a certain number of pamphlets, showing people through the
exchange through the medium of the gallery, sending various documents to educational institutions.
Mr. PECORA. That is all routine work?
Mr. HARRIS. Yes.
Mr. PECORA. T O what

extent or to what number were pamphlets
sent out during the calendar year 1933, if you can tell us f
Mr. HARRIS. Yes; I think I have that
right here. For the year
(
1933?
Mr. PECORA. Yes,
Mr. HARRIS. We

sir.

have it only up to October 1. There were three
different pamphlets sent and 55,000 copies.
Mr. PECORA. Fifty-five thousand copies of each of these three
pamphlets ?
Mr. HARRIS. N O ; that is the total number of copies.
Mr. PECORA. Oh, of all three?
Mr. HARRIS. Of all three.
Mr. PECORA. And to whom were they sent, to what classes of
persons?
Mr. HARRIS. Well, it is the usual mailing list, primarily educational
institutions.
Mr. PECORA. Are there that many in the country—55,000?
Mr. HARRIS. Of course, members and brokers are included in that
list.
Mr. PECORA. There are 1,375 members?
Mr. HARRIS. Yes.
Mr. PECORA. That still leaves a very, very
Mr. HARRIS. Yes; but each member would

large number.
probably desire a great

many copies.
Mr. PECORA. What was the nature and title of the three pamphlets
sent out in the year 1933 ?

STOCK EXCHANGE PRACTICES

6351

Mr. HARRIS. The titles were as follows: Writing Down Assets and
Writing oft Losses; Security Investors and The Future; Statement
of Richard Whitney, President.
Mr. PECORA. During the year 1932 did the exchange under the direction of its committee on publicity distribute any large number of
printed pamphlets ?
Mr. HARRIS. Yes, sir; they distributed six pamphlets to their regular mailing list, with a total number of copies of 260,000.
Mr. PECORA. What were the titles of those six pamphlets, Mr.
Harris ?
Mr. HARRIS. Statement of Eichard Whitney, President; Statement of Eichard Whitney, President, Two; Statement of Eichard
Whitney, President, Three; The New York Stock Exchange; Eeport
of the President; New York Stock Exchange Year Book. Those
are the six pamphlets.
Mr. PECORA. During the calendar year 1931 did the exchange distribute any printed pamphlets under the direction of the committee on publicity?
Mr. HARRIS. Yes, sir; they distributed 12, with a total of 2,250,000
copies.
Mr. PECORA. And what were the titles of those 12 pamphlets ?
Mr. HARRIS. Titles were as follows: Place of the Stock Exchange
in American Business; Measuring the Stock Market; Public Opinion
and the Stock Market; Business Honesty; Statement on Investment
Trusts, Management Type; Special Eequirements for Listing Investment Trust Securities and Eeport of the President; Economic
Law .and Business; The Stock Exchange on Investment Trusts; Short
Selling; Short Selling and Liquidation; Statistics in Eegard to Short
Selling; New York Stock Exchange Year Book.
Mr. PECORA. I notice the tremendous number of copies of those 12
pamphlets that were distributed by the exchange in the year 1981 as
being 2,250,000, compared with distribution of 55,000 copies in the
aggregate of pamphlets sent out in the year 1933 to October 1. Was
there any special reason, Mr. Harris, why the committee deemed it
necessary or advisable or expedient to send out 2^4 million copies of
12 different printed pamphlets in the year 1931 ?
Mr. HARRIS. Yes, sir. There were two pamphlets sent out for
which there was a great demand from the public.
Mr. PECORA. And which were those two pamphlets ?
Mr. HARRIS. Short Selling, and Short Selling and Liquidation.
Mr. PECORA. Who was the author of those two pamphlets ?
Mr. HARRIS. One was an address by Eichard Whitney before the
Hartford Chamber of Commerce in Hartford, and the other was
an address by Eichard Whitney, president, before the Syracuse
Chamber of Commerce in Syracuse, N.Y.
Mr. PECORA. Isn't there a pulication distributed by the stock exchange on short selling by a man named Meeker?
Mr. HARRIS. Mr. Meeker wrote a book, I believe, on short selling,
Mr. Pecora.
Mr. PECORA. I beg pardon?
Mr. HARRIS. Mr. Meeker wrote a book on short selling, but that
was his own enterprise.

6352

STOCK EXCHANGE PRACTICES

Mr. PECORA. Had the stock exchange caused to be made any distribution of copies on that book?
Mr. HARRIS. I am not absolutely certain as to that.
Mr. PECORA. DO you know the book to which I refer ?
Mr. HARRIS. I know the book to which you refer.
Mr. PECORA. Have you read it?
Mr. HARRIS. I have not.
Mr. PECORA. Who is Mr. Meeker, the author of that book 2
Mr. HARRIS. He is the economist for the stock exchange.
Mr. PECORA. He is employed by the stock exchange ?
Mr. HARRIS. He is employed by the stock exchange.
Mr. PECORA. AS an economist?
Mr. HARRIS. AS an economist.
Senator STEIWER. May I ask, Mr. Chairman, why the stock exchange needs an economist ?
Mr. HARRIS. The stock exchange is constantly being asked various
questions, to study general conditions. That is a rather difficult
question to answer m a way, but he serves a very useful function.
There is a large demand for his services by the public.
Mr. PECORA. TO your knowledge, you cannot tell us whether or
not the stock exchange has caused to be distributed copies of this book
on short selling written by Mr. Meeker, its economist?
(Mr. Harris and Mr. Redmond examined data.)
Mr. HARRIS. It may be here, Mr. Pecora.
Mr. PECORA. I am a little bit surprised that as a member of the
committee on publicity for the last 4 years you cannot tell us that,
Mr. Harris, as a matter of personal knowledge.
Mr. HARRIS. Yes; here is the data on this, Mr. Pecora.
Mr. PECORA. What data are you reading from on that?
Mr. HARRIS. This is a copy of a questionnaire that is in the hands
of your committee.
Mr. PECORA. Did you have anything to do with the preparation of
the answers to that questionnaire ?
Mr. HARRIS. Not this; no; I did not.
Mr. PECORA. Did your committee have anything to do with the
preparation of the answers to that questionnaire ?
Mr. HARRIS. Yes, sir; the chairman was consulted.
Mr. PECORA. Mr. Au chine1 oss. Is he the only member of the committee that formulated the answers to the questionnaire, so far as
you know ? Or have you any knowledge on the subject at all ?
Mr. HARRIS. I believe that Mr. Auchmcloss is the only one that
was consulted in the answers to this questionnaire, because they were
all taken right out of the records. There was DO reason to consult
with the committee. They were just facts that were to be presented
to you. I have some data here about the book on short selling if
you care to hear it.
Mr. PECORA. All right; tell us.
Mr. HARRIS. The book Short Selling was published in 1932, and
1,500 copies were purchased by the exchange and its subsidiaries.
This is Mr. Meekers book that I referred to.
Mr. PECORA. Yes?
Mr. HARRIS. All through the committee on publicity. The distribution of the book so purchased was as follows: To members or

STOCK EXCHANGE PRACTICES

6353

to employees of the exchange and students of New York Stock
Exchange Institute
Mr. PECORA. NO.
Mr. HARRIS. N O ;

that is right; to officers and employees of the
•exchange, 103; to economics faculties of colleges, 144; foreign economists, 63; to colleges and other libraries, 155; to newspapers, magazines, and so forth, 321; public officials, 583; miscellaneous, on hand,
and so forth, 131.
Mr. PEOORA. What was the nature of the public officials who received 583 copies of this book on short selling during the year 1932 ?
What kind of offices did they hold ?
(Mr. Harris examined data.)
Mr. PECORA. Can't you tell us these things of your own personal
knowledge, Mr. Harris 9
Mr. HARRIS. Well, I believe a large number of these were sent to
Members of Congress.
Mr. PECORA. And that was all done on the initiative of the stock
•exchange, wasn't it?
Mr. HARRIS. I believe so.
Mr. PECORA. There had not been any widespread demand from
Members of Congress to be enlightened on short selling?
Mr. HARRIS. NO ; but it was a topic particularly at that time that
they were much interested in.
Mr. PECORA. HOW was that evidenced to you ?
Mr. HARRIS. Why, there was a great deal of talk about it in the
press.
Mr. PECORA. That is, the general subject of short selling was being
considerably publicly agitated throughout the calendar year 1932?
Mr. HARRIS. A S I remember, there was considerable agitation m
the press on the subject of short selling.
Mr. PECORA. And in that agitation much argument was heard and
advanced against short selling, was there not?
Mr. HARRIS. Yes; naturally there was considerable talk on both
sides of the question.
Mr. PECORA. On both sides of the question; that is, both for and
against the practice of short selling; is that right?
Mr. HARRIS. Yes.
Mr. PECORA. SO was

it because of that that the stock exchange had
its economist, Mr. Meeker, write this book?
Mr. HARRIS. Mr. Meeker wrote this book on his own free will and
accord and on his own time, not in the hours he was employed by the
stock exchange. I t was his book.
Mr. PECORA. I presume, however, from the fact that the stock exchange as an institution has caused to be made at its own expense
the distribution of that book that you have testified to, that the sentiments expressed in the book are approved by the exchange. Is that
the correct assumption of fact, Mr. Harris ?
Mr. HARRIS. Yes. Mr. Meeker published that. The stock exchange did not pay for the publishing of that book. The exchange
did purchase some copies from him. The exchange naturally
thought that it was a fine article on the subject of short selling and
explained it clearly and adequately.
Mr. PECORA. DO you know what Mr. Meeker set forth in that book?
Mr. HARRIS. I have not read the book.

6354

STOCK EXCHANGE PRACTICES

Mr. PECORA. The exchange gave this public distribution to this
book in 1932 through the committee on publicity, didn't it?
Mr. HARRIS. Yes, sir.
Mr. PECORA. Well, now,

as a member of the committee on publicity
that year, did you approve of the purchase of 1,500 copies of the
book and their distribution to hundreds of people, including Members of Congress, without knowing what the contents of the book
were?
Mr. HARRIS. I had not actually read the book, Mr. Pecora. I
thought that I knew the basic arguments in the book.
Mr. PECORA. HOW did you know
Mr. HARRIS (interposing). Not word for word.
Mr. PECORA. That without having read them? If the book represented the product of Mr. Meeker's mind
Mr. HARRIS. Well, I knew Mr. Meeker's attitude on short selling.
Mr. PECORA. Oh, then you knew that from the fact that he had
been for a number of years an economist in the employ of the stock
exchange ?
Mr. HARRIS. Well, through conversation with him.
Mr. PECORA. And do you happen to know what salary or compensation Mr. Meeker receives as economist for the stock exchange?
Mr. HARRIS. I haven't got that figure here.
Mr. PECORA. DO you know whether or not he is on salary?
Mr. HARRIS. He is on salary.
Mr. PECORA. Could you tell this committee, Mr. Harris, how much
was expended during the calendar year 1931 by the committee on
publicity in connection with its duty of—and I am quoting now
from the constitution:
* * * duty to keep the public correctly informed concerning matters of
public interest having to do with the exchange?
Mr. HARRIS. Yes, sir.

Mr. PECORA. HOW much?
Mr. HARRIS. The approximate total is $239,000.
Mr. PECORA. For the year 1931?
Mr. HARRIS. For the year of 1931, which is broken up as follows r
Salaries and wages, $52,893.64; president's speeches, $64,449; president's annual report, $13,988.20.
The office of the economist spent, further, an approximate total
of $45,000, which was divided as follows: $44,203.55, salaries and
wages; $1,404.99, stationery, supplies, books, subscriptions, and so
forth.
Mr. PECORA. Making a grand total of $284,863.94 for the year«
Mr. HARRIS. Correct.
Mr. PECORA. I S that right?
Mr. HARRIS. Yes, sir.
Mr. PECORA. NOW I notice

that among the figures given by you
representing the moneys expended by the committee on publicity in
the fulfillment of its duty of keeping the public correctly informed
during the year 1931 is the figure of $52,893.64 representing salaries
and wages of the committee on publicity. To what kind of employees
does it pay salaries and wages aggregating a little over a thousand
dollars a week?

STOCK EXCHANGE PRACTICES

6355

Mr. HARRIS. Of course, that is divided up among 24 employees, Mr.
Pecora.
Mr, PECORA. N O ; it is 24?
Mr. HARRIS. I am sorry. I t

is 15. I was adding in the department
of the economist.
Mr. PECORA. What sort of services are performed by these 15
employees of the committee on publicity?
Mr. HARRIS. They have a great deal of statistical work to do.
They are getting up data of all sorts all the time. There are these
educational pamphlets that are sent out which have to be prepared
and very carefully gone over, which requires a great deal of time
and a great deal of work.
Mr. PECORA. I notice that most of the pamphlets sent out during
the year 1931 were copies of two addresses of Mr. Whitney.
Mr. HARRIS. Yes, sir.
Mr. PECORA. Those addresses

were not prepared by the employees
of the committee on publicity, were they?
Mr. HARRIS. N O ; those were not.
Mr. PECORA. Or any of them.
Mr. HARRIS. A great many of the pamphlets are. Of course, the
year book, Mr. Pecora, takes a great deal of work, and there is a
great deal of mail constantly coming into that department that must
be answered, various members of the public asking questions.
Mr. PECORA. I show you, Mr. Harris, a typewritten statement entitled "Schedule C. Committee on Publicity", covering items of
expenditures for the years 1929 to 1933, both inclusive. Will you
look at it and tell us if it is a true and correct statement of the items
referred to therein?
Mr. HARRIS (after examining paper). That is a true statement.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Copy of statement entitled " Schedule C, Committee on Publicity", 1929, to 1933, both inclusive, was received in evidence,
marked " Committee Exhibit No. 109 ", Feb. 23, 1934, and the same
will be found at the conclusion of today's proceedings.)
Mr. PECORA. The document has been marked in evidence as " Committee's Exhibit No. 109 " of this date, and shows the moneys expended by the committee on publicity for each of the years in the
5-year period, 1929 to 1933, both inclusive, as follows: For the year
1929, $174,846.11; for the year 1930, $243,964.91; for the year 1931,
$284,863.94; for the year 1932, $206,439.25; for the year 1933,
$92,970,51.
Mr. HARRIS. Mr. Pecora, that is only up to September 1.
Mr. PECORA. That is, for 1933?
Mr. HARRIS. For 1933.
Mr. PECORA. That makes

a total for that approximate 5-year
period of $1,001,084.72, if our calculation is correct.
Mr. HARRIS. I have not totaled it here yet.
Mr. PECORA. Subject to correction, I think you can safely accept
that total.
Now, I notice in this statement or recapitulation marked " Committee's Exhibit No. 109 ", an item of expenses attributed to " yearbooks, miscellaneous, other publications, gallery pamphlets, motion

6356

STOCK EXCHANGE PRACTICES

picture expenses, postage, et cetera." What are the motion-picture
expenses included therein?
Mr. HARRIS. Several years ago the exchange had two films showing the trading floor of the New York Stock Exchange, and actual
trading conditions as they existed, and those have been shown in
various theaters throughout the country.
Mr. PECORA. What were the titles of these two motion-picture
films?
Mr. HARRIS. I am sorry. I have seen them both. They have
slipped my mind. One was called " The Nation's Market Place."
Mr. PECORA. When was that film made?
Mr. HARRIS. Several years ago. I have not got the exact date.
Mr. PECORA. What is the title of the other one?
Mr. HARRIS. I do not remember. I have no recollection.
Mr. PECORA. Isn't it The Mechanics of the Nation's Market Place*
Part I, The Training of the Boys?
Mr. HARRIS. Yes; that is right.
Mr. PECORA. When was that picture made ?
Mr. HARRIS. Likewise several years ago. There have been new
cuts put into it within 2 years, but it is an old picture.
Mr. PECORA. I t was brought down to date, that is, up to 2 years
ago, by revisions.
Mr. HARRIS. I believe so.
Mr. PECORA. Are they sound pictures?
Mr. HARRIS. The original picture was not a sound picture. I
believe the second picture is a sound picture—at least parts of it.
Mr. PECORA. HOW are these two pictures exhibited, under the
direction of the committee on publicity?
Mr. HARRIS. They were shown in various theaters throughout the
country. One concern had exclusive rights. They were shown
where there seemed to be a demand in any locality. If there was
a demand for a stock-exchange picture, this picture was put on.
Mr. PECORA. HOW would that demand become manifest to stock
exchange's committee on publicity?
Mr. HARRIS. The agent of these pictures would get a demand from
a certain theater for a picture of this type, and would then write
the stock exchange about it.
Mr. PECORA. Would he get the demand, or would he go out and
create it?
Mr. HARRIS. I cannot speak for the agent, Mr. Pecora.
Mr. PECORA. Was the use of these films made available free of
charge by the stock exchange?
Mr. HARRIS. I t was.
Mr PECORA. DO you

know throughout what area they were exhibited?
Mr. HARRIS. Practically throughout the country.
Mr. PECORA. Were they exhibited in motion-picture houses principally?
Mr. HARRIS. Principally motion-picture houses.
Mr. PECORA. Have you any notion that the owners of motion-picture houses observed any demand on the part of their patrons for
the exhibition of these pictures?

STOCK EXCHANGE PKACTICES

6357

Mr. HARRIS. Yes; from time to time the committee on publicity
has had letters from various theaters saying that there was a demand
from the public for one of these two pictures.
Mr. PECORA. Have you available to you any records or statistics
showing the aggregate number, approximately, that composed the
audiences to whom these pictures were exhibited during the year
1931?
Mr. HARRIS. I have not, Mr. Pecora, but we might be able to furnish you with those figures.
Mr. PECORA. There is a yearbook issued annually by the New York
Stock Exchange, is there not?
Mr. HARRIS. Yes, sir.
Mr. PECORA. Don't you

know that that yearbook contains those
figures?
Mr. HARRIS. AS I say, I came down very hurriedly and, as this
was not specified, I did not bring it.
Mr. PECORA. Have you ever read the yearbook?
Mr. HARRIS. I do not think I have read it word for word, but I
have always gone through it yearly as it comes out.
Mr. PECORA. DO you recall that at one time, or at any time when
you have read the yearbook, reference was made to the number of
exhibitions of these motion pictures as a part of the work done by
your committee on publicity 1
Mr. HARRIS. Yes; I believe it is so mentioned.
Mr. PECORA. I have what purports to be a copy of the yearbook of
the New York Stock Exchange for 1931 and 1932. From page 73
thereof let me read as follows [reading] :
Two motion pictures of the activities of the exchange have been made under
the supervision of the committee on publicity and are now available for exhibition purposes. The two films are entitled "The Nation's Market Place" and
"The Mechanics of the Nation's Market Place, Part I, The Training of the
Boys."

By the way, who picked out that title ?
Mr. HARRIS. I do not know. I did not.
The CHAIRMAN. Who was the agent who handled these films ?
Mr. HARRIS. The committee on publicity controlled the pictures.
The CHAIRMAN. YOU made your contract with some agent for the
handling of the films You did not go about the country exhibiting
them yourself.
Mr. HARRIS. Oh, no. It was a company that acted as our agents.
The CHAIRMAN. I am asking who that was.
Mr. HARRIS. They recently went bankrupt, Mr. Chairman, and
we had to get the films back from them. I cannot think of their
name.
Mr. PECORA. Apparently the demand for these films has died
down.
Mr. HARRIS. I do not think that is what caused their bankruptcy.
The CHAIRMAN. That does not quite identify them.
Mr. PECORA. In the title of this second picture, called " The Mechanics of the Nation's Market Place, Part I, the Training of the
Boys ", does the word " mechanics " refer to the machinery of the
exchange, or to any of its members ?
Mr. HARRIS. They are more or less combined. I t refers to the
general operation, the general mechanism of the exchange.

6358

STOCK EXCHANGE PRACTICES

Mr. PECORA. I will read further from page 73 of this yearbook for
1931 and 1932 [reading] :
The first film tells a connected story of the methods by which business is
done on the floor of the exchange; and the second film deals with the personnel
of the exchange, showing the thorough training of its employees, as a result
of which the exchange's high standard of public service is maintained Since
December 1928, when the film " The Nation's Market Place " was produced, it
has been shown to audiences throughout the United States totaling more than
3,500,000 people. During the last year a sound track lecture has been added
to this film Arrangements are being made to show this film both theatrically
and nontheatrically throughout the United States. Requests for prints of this
film have been received from Japan, Czechoslovakia, and other foreign countries The projection time of " The Nation's Market Place " is approximately
12 minutes; that of "The Mechanics of the Nation's Market Place" is 20 minutes. These films may be obtained for exhibition upon application to the committee on publicity of the exchange. There is no charge except the express
costs of transporting the film from New York and back.

Who prepares the yearbook for the exchange ?
Mr. HARRIS. The committee on publicity prepares the yearbook.
Mr. PECORA. What particular individual or individuals, or employees ?
Mr. HARRIS. TWO employees. Mr. Jason Westerfield and Mr.
Charles Klem.
Mr. PECORA. DO they prepare it in accordance with their ideas
of what its contents should be, or do they prepare it under the
instructions as to such content that they get from someone else?
Mr. HARRIS. There is more or less routine work, of course, that
comes in yearly, and the balance is gone over by the president and
the committee.
Mr. PECORA. Mr. Harris, how much has been appropriated for
use by the committee on publicity of the stock exchange for the
current year, 1934?
Mr. HARRIS. The budget figure for 1934?
Mr. PECORA. Yes.

Mr. HARRIS. $200,000.
Mr. PECORA. Has there been any appropriation made outside of
that budget figure?
Mr. HARRIS. None that I know of. I believe the budget is the
same as last year, when it was also $200,000, and only $92,000 was
spent.
Mr. PECORA. What was the special occasion for calling this meeting of the committee on publicity day before yesterday which, according to your recollection this afternoon, is the only meeting it
has held so far this year?
Mr. HARRIS. It was a very minor, unimportant matter, Mr. Pecora.
I t was a question whether or not the exchange would spend $2,000
to fix up an anteroom outside the gallery for vistors so that they
could sit down while they were waiting to go in the gallery. That
was the purpose of the meeting.
Mr. PECORA. Mr. Chairman, it is now very close to 4 o'clock.
The CHAIRMAN. Mr. Harris, does this committee do any more in
the way of publicity than what you have mentioned? Do they
furnish statements for the press, or anything of that sort?
Mr. HARRIS. On rare occasions the committee on publicity does,
yes. If there is an important announcement coming out, or a change
in rulings, it is given to the press through the secretary of the committee on publicity.

STOCK EXCHANGE PRACTICES

6359

Mr. PECORA. Mr. Chairman, I have not any other matters I want
to examine this witness about. I will ask that he return here at
the next session of the committee on Monday morning.
The CHAIRMAN. The committee will take a recess until Monday
morning at 10:30. We will go on with these hearings then. In
the afternoon of Monday we expect to take up the bill, but we will
not reach that until Monday afternoon.
(Whereupon, at 3:34 p.m., Friday, Feb. 23, 1934, an adjournment was taken until Monday, Feb. 26, 1934, at 10:30 a.m.)
COMMITTEE E X H I B H NO 86, FEBRUARY 23,

1934

CITIES SERVICE COMPANY,
SIXTY WAUL STREET,

New York, N Y, November 1, 1983.
Mr. FERDINAND PECORA,

Counsel, Committee on Banking and Currency,
285 Madison* Avenue, New York, New York
MY DEAR MR PECORA With further reference to your inquiry of October 26th,
you will find enclosed herewith completed questionnaire, which we trust you
will find in order
Sincerely yours,
W

JONES

WAJ g
QUESTIONS AND ANSWERS REGARDING CALL LOANS OF YEAR 1929

A Give the following data for the year 1929.
1 Total number of street loans made by your Corporation in the call money
market in New York City
Answer: The total numbei of street loans made m the call money market in
New York City was 912
2 The total amount of stieet loans made by your Corporation in the call
money market m New York City
Answer- The total amount of street loans in the call money market m New
York City was $285,325,092 21
Note This amount represents the cumulative amount of street loans made
during the year. You will appreciate that street loans may be made one day
and paid the next day Consequently the total amount represents the loaning of
the same funds over and over again The maximum amount of call money in
any one day loaned by Cities Service Company was $41,900,000 This is shown,
together with other data, m the listing shown below, which was- not requested
in your questionnaire but which we thought might be of value or interest
(a) Maximum amount of call money, one day
$41,900,000 00
(b) Average daily amount of call loans outstanding
10, 375,778 23
(c) Average amount of each loan made
312, 856 46
3 State the manner or method in which the loans made in the call money
market in New York City were effected, whether effected through commercial
banks, private banks, or other agency, describing the agency, or directly to
borrower
Answer, The above loans were made direct to borrower
COMMITTEE EXHIBIT NO 87, FEBRUARY 23,

1934

CITIES SERVICE COMPANY,
SIXTY WALL STREET,

New York, N Y, November 11, 1933
COMMITTEE ON BANKING AND CURRENCY,

285 Madison Avenue, New York, N Y
Attention Mr Ellis
DEAR SIRS : In response to your telephone request, we enclose herewith a
statement accounting for the call loans outstanding on the day in the year
175541—34—PT 14
13

6360

STOCK EXCHANGE PRACTICES

1929 when call loans were in the largest amount The list attached indicates
to whom loans were made and the amounts involved, the total of which was
$41,900,000.
In respect to your inquiry regarding the total number of shares transferred
in 1929, we wish to advise that from January 1, 1929 to May 1, 1929, 3,936,159
shares of $20 par value stock were transferred, and from May 2, 1929 to
December 31, 1929, 49,500,528 shares of no par value stock were transferred
Yours very truly,
W

WINANS.

DETAILS OF MAXIMUM CALL LOANS OUTSTANDING ANY ONE DAY 1929—SEPTEMBER
25, 1929

Name:
Anderson & Fox
Annenberg Stein & Co
Appenzeller, Allen & Hill
Blake Bros & Co
Blyth & Company
Buell & Company
Campbell Starring & Company
Carreau & Snedeker
S B Chapm & Company
Clark Childs & Company
Colvm & Company
Frank B Cohn & Company
Collins Hall & Peckham
Curtis & Sanger
De Saint Phalle & Company
De Basque & De Witt & Company
Drayton Pennington & Colket
Emmanuel & Company
Euc & Shrevers
Walter J Fahy & Company
Faroll Bros
Fenner & Beane
Frazier Jelke & Company
Gardner & Company
Goodbody & Company
Gray & Wilmerdmg
Gurnett & Company
C D Halsey & Company
Harde and Sharp
H Hentz & Company
Benjamin Hill & Company
J H Colmes & Company
E F Hutton & Company
W E Hutton & Company
Hyman & Company
Ingalls & Snyder
Lamborn Hutchmgs & Company
Arthur Lipper & Company
Luher & Shackon
Ludwig Robertson & Company
Livingston & Company
Luke Banks & Weeks
McGlenn & Company
Joseph Madrian & Company
John Medady & Company
M. J Meehan & Company
Morris Joseph & Company
Morrison & Townsend
Moyse & Holmes
Munds & Wmslow
Newburger Henderson & Loeb

Amount
$100, 000 00
100,000 00
200, 000 00
100,000 00
2,000, 000 00
300,000 00
800,000 00
100,000 00
200,000 00
1,400, 000 00
500,000 00
100, 000 00
200,000 00
200,000 00
1,000,000 00
200,000 00
300, 000 00
300,000 00
500,000 00
500, 000 00
900,000 00
300,000 00
1, 000,000 00
100,000 00
500,000 00
700,000 00
900,000 00
500,000 00
100, 000 00
2,000, 000 00
1, 600,000 00
2,100,000 00
500, 000 00
500,000 00
700,000.00
400,000 00
20O, 000 00
500, 000 00
100,000 00
700,000 00
1,000, 000 00
300,000 00
200,000 00
100,000 03
500,000 00
500,000 00
100,000 00
1,650, 000 00
100,000 00
800, 000 00
1,000, 0C0 00

6361

STOCK EXCHANGE PRACTICES
Name
Newman Bros & Womes
Naumberg Dixon & Company
Orton Kent & Company
Otis & Company
Palmer & Company
Parker Mcelroy & Company
Prentice & Slepack
Pynchon & Company
Arthur J Rosenthal & Company
Russell Miller & Company
Smith, Graham & Rockwell
Stevens & Legg
Sulzbacker Granger & Company
Samuel Ungerlieder & Company
Tobey & Kirk
Tooker & Company
Tucker Anthony & Company
Watson & White
Edwin Weisl & Company

Amount
$700,000 00
500,000 00
300,000 00
2,000,000 00
300,000 00
100,000 00*
500,000 00*
1,000,000 00
1,200,000 00
1,200,000 00>
250,000 00
100,000 00
100,000 00
1,000,000 00
800,000 00
400,000 0O>
700,000 00
100, 000 03>
1,000 000 00

Total

$41, 900,000 0O

COMMITTEE EXHIBIT NO 88,

FEBRUARY 23,

1934

AMERICAN & FOREIGN POWER COMPANY, INC ,

New York, N Y, November 9, 19SS
FERDINAND PECORA, Esq.

Counsel Committee on Banking and Currency, United States Senate,
285 Madison Avenue, New York City
DEAR MR PECORA In accordance with the request contained in your letterof October 17th, I desire to report as follows in answer to your questionnane:
A - 1 The total number of shares of the Common Stock of American & Foreign
Power Company Inc appearing on our records as of March 1, 1929 * in thev
name of such stock brokerage firms as we were able to identify as stock brokerage firms was 345,250
2 The total number of such biokers and brokerage firms as we weie able to
identify as brokers and brokei age firms appearing on the records of American
& Foreign Power Company Inc as of March 11, 1929 as the owners of Common
Stock of that Company was 340
3 The total number of shares appearing on our records as of Maich 11, 1929
in each of the names of such brokers or biokerage firms as we were able to
identify as brokers and brokerage firms and who are the first ten largest brokei
holders of record of shares of Common Stock was 104,977 The designation by
number in order of numerical holdings is as follows:
1
21,950
8,265
2
36, 200
6,379
3
11, 003 9—
5,760
4
10, 603 10.
5,645
5
10,410
6
8,762
Total
104,977
B - l The total number of shares of the Common Stock of Ameiican & Foreign Power Company Inc transferred on our books from one ownership tc*
another during the year 1929 was 1,930,679
2 The total number of transfers of the Common Stock of American & Foreign Power Company Inc from one ownership to another for the year 1929
was 32,159
A - 1 The total number of street loans made by American^ & Foreign Power
Company Inc in the call money market of New York City for the year 1929
was 91
1
This date selected as it was nearest date to July 1, 1929. We already had a stockholders' list as of Mar 11, 1929, and had it available

6362

STOCK EXCHANGE PRACTICES

2 The total amount of street loans made by American & Foieign Power
Company Inc in the call money market in 1929 was $57,610,000 The peak
amount on loan, at any one time, however, was $30,321,000 and the daily
aveiage for the year was $6,477,729 This includes loans made by American &
Foreign Power Company Inc and by any and all of its subsidiary holding
companies, entities or any other agency under direct or indirect control and
management of American & Foreign Power Company Inc I£or your information, the amounts included herein are also included in the answers to the
Questionnaire filed by Electnc Bond and Share Company
3 All of the above call loans were made through commercial banks
Very truly yours,
AMERICAN & FOREIGN POWER COMPANY INC ,

By A C RAY, Treasure**

AMERICAN & FOREIGN POWER COMPANY, I N O ,

New York, N Y, February 19, 193/f
Mr

DAVID SOHENKER,

Associate Counsel Committee on Banking d Currency,
United States Senate, 285 Madison Avenue, New York City
DEAR SIR In accordance with the request over the telephone today from
your office I wish to confirm that the peak amount of street loans m the call
money maiket of New York City at any one time during the year 1929 for
American & Foieign Power Company Inc and by any and all of its subsidiary
holding companies, entities or any other agency under direct or indirect control and management of American & Foreign Power Company Inc was
$30,321,000, and the lowest amount during the year 1929 was $100,000
As previously stated in our letter to Mr Pecora dated November 9, 1933,
all of the above call loans were made through commercial banks
Very truly yours,
AMERICAN & FOREIGN POWER COMPANY I N C ,

A C RAY, Treasurer

COMMITTEE E X H I B I T NO 89, FEBRUARY 23

1934

STANDARD O I L COMPANY,

New York, November Third, 1933
Honorable FERDINAND PECORA,

Counsel United States Senate Committee on- Banking and Currency,
285 Madison Avenue, New York, N Y
DEAR MR PECORA Reference is made to your letter of October 17th, 1933.
requesting certain information in response to the two questionnaires enclosed,
and to your letter of October 26th, 1933, relative to the same matter
The first questionnaire dealt with the matter of call-money loans and the
second questionnaire with ownership and transfer information in connection
with our capital stock Answering these requests for information in that order
the following is submitted
I

CALL-MONEY LOANS

The business of this Company has required at all times the maintenance of
a substantial working capital in liquid form Beyond our actual cash needs
it has of course been important to us to keep this profitably invested to the
extent possible, and to that end we have been accustomed to buy federal,
state and municipal short-termed obligations and also to avail ourselves of the
even more liquid field of the New Yoik call-money market For the latter
purpose, during 1929, the loaning of our surplus funds was handled under
arrangement with a brokerage firm, members of the New York Stock Exchange
We attach hereto as Schedule "A" (13 pages) a statement showing, for each
day of the year 1929, the total number of borrowers and the total amount of
the funds of this Company and its subsidiaries and affiliates thus outstanding

6363

STOCK EXCHANGE PRACTICES

The schedule also shows recapitulation for the year by months, at the foot of
which is given the daily average during the year in numbers of borrowers and
amounts of loans
2 DATA ON CAPITAL STOCK OWNERSHIP AND TRANSFER

The Guaranty Trust Company of New York, as transfer agent of our capital
stock, advises as follows
Al Shares outstanding in the names of stock-brokerage firms as of the clo^e
of business May 25, 1929, 2,244,221
A2 Number of brokers or brokerage firms appearing as recoid owneis at the
close of business May 25, 1929, 475
A3 First 10 largest broker holders as of record May 25, 1929
f 53,069 shares
222,826 shares
g 46,881 shares
128,475 shares
123,685 shares
h 42,058 shares
73.277 shares
/ 37,355 shares
54,276 shares
3 34,700 shares
Bl Total number of shaies transferred during the calendar year 1929,
16,828,779
B2 Total numbei of transfers during the year 1929, 238,770
The Trust Company advises us that the answers to Bl and B2, as given
above, do not strictly comply with your questionnaire in representing transfers
tiom one ownership to another and that it would requne a tremendous amount
of woik and analysis to secure such information The reasons for this are
as follows If a stockholder sends m a ceitificate for 100 shares, ol which 20
shaies have been sold and are to be transferred to a new owner, the Transfer
Agent will issue a new certificate for 20 shares m the name of the new
owner and a new ceitificate for 80 shaies m the name ot the original ownei
This will appear on the Transfer Agent's records as two transfeis aggregating
100 shaies ^hen in fact but a smgle transfer of owneiship in 20 shaies has
occurred A similai situation arises when a certificate for a number of
shaies is sent in to be split into smaller certificates issued to the same owner,
the figuies therefore given in answer to B l and B2 contain a considerable
number of technical transfers which do not represent changes of ownership.
Tiusting that the toregomg information answers youi question, I am
Respectfully yours,
W

TBAGLE

SCHEDULE A —1929 recapitulation Standard Oil Co (New Jersey) with subsidiary
and affiliated companies (daily averages by months)
[000 omitted in amount column]
Number of
borrowers

Month
January.
February
March
April
May
June
July.
August
September...
October
November
December

—
—

Average per day
(yearly) .
Jan
Jan
Jan
Jan
Jan
Jan

1
2
3__
4
7
8-_

84
92
102
89
89
91
94
96
89
25
19

$75,692
72,310
75,359
79,736
76,857
79,853
83,838
85,788
86,650
79,157
16,372
20,049

69,304
70,631
71,681
74,581
74,889
75,164
75.504

Number of
borrowers

Month

Amount
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan

9.
10
11
14
15
16
17
18._
19.-. .
21
22.
23
24
25._
28..
29__
30
31_. . .

$72, 264
69,424
72,054
69, 759
73,809
73,059
76,884
79,284
79,484
82,309
82,459
83,259
83,359
78,444
75,694
75,544
75,044
72,019

...
—
.

Average per day

75,692

6364

STOCK EXCHANGE PBACTICES

SCHEDULE A —1929 recapitulation Standard Oil Co {New Jersey) with subsidiary
and affiliated companies {daily averages by months)—Continued
[000 omitted in amount column]
Month
Feb
Feb
"Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb
Feb

1__
4 .
5...
6...
7 ..
8 ..
11..
13..
14.
15 .
18..
19..
20..
21.
25.
26.
27.
28.

Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar
Mar

1 .
4 ....
5—
6
7—..
8™.
11—
12—
13—
14. .
15—
18—
19...
20—
21—

Average per day

TUTar 2 2 . . .

Mar
Mar
Mar
Mar

25 .
26 .
27...
28-

Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Api
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
4.pr

1...
2 .
3 —
4...
5..
8. .
9...
10 .
11..
12..
15 .
16 .
1718 .
19..
22..
23.
24..
25..
26..
29.
30..

Average per d a y —

Average per day - . .
May 1...
May2...
May 3 . . .
May 6...
May 7 .
May8—
May9...
May 10..
May 13-

Number of
borrowers

73,662
72,772
72,472
72,872
72,472
70,975
70,200
68,950
70,000
71,300
74,000
72,550
75,100
74,750
74,775
75,840

72,310

76,830
76,580
77,283
76,983
76,958
75,558
73,308
74,573
74,798

87
85
87
89
78
84
90
90
97
97
107
108
103

69,018
71,768
72,618
75,068
75,468
75,993
75,718
76,868
81,168
80,718

75,359

101
102
106
102
102
101
101
103
102
101
93
94
101
105
106
104
104
108
103
106
103
103

77,843
78,693
78,543
80,021
80,971

102

86
87

79,146
79,596
79,896
79,421
75,221
74,921
78,571
79,996
79,371
80,921
81,311
82,161
82,861
82,861
80,636
80,536
79,736
80,786
80,806
79,891
77,891
78,416
76,891
76,291
76,841
76,191

Number of
borrowers

Month

Amount

May 14
May 15.—
May 16
May 17
May 20—
May 21
May 22
May 23
May 24
May 27
May 28
May 29
May 31

Average per day.
June 1
June 3
June 4
June 5.
June 6
June 7—
June 10.
June 11
June 12
June 13
June 14
June 17.
June 18.
June 19
June 20
June 21—
June 24
June 25
June 26
June 27
June 28

—

Average per day
Julyl
July 2
July 3
July 5
July 8
July 9
July 10
July 11
July 12
July 15
July 16
July 17
July 18
July 19
July 22
July 23.
July 24.
July 25
July 26
July 29
July 30
July 31 .

—

Average per day
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug

1
2
5
6—
7
8
9
12
13
14
15
16—
19

Amount

6365

STOCK EXCHANGE PRACTICES

SCHEDULE A —1929 recapitulation Standa? d Oil Co {New Jersey) with subsidiary
and affiliated companies {daily averages by months)—Continued
[000 omitted m amount column]
Number of
borrowers

Month
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug
Aug

20..
212223..
26272829..
30 .
Average per day

Sept 1 —
Sept 3—
Sept 4—
Sept 5—
Sept 6—
Sept 9 Sept 13..
Sept 11..
Sept 12..
Sept 13Sept 16..
Sept 17..
Sept 18..
Sept 19Sept 20..
Sept 23..
Sept 24..
Sept 25..
Sept 26..
Sept 27..
Sept 30..

101
98
101

$81,940
81,890
85,625
88,325
89,200
90,095
91,745
92,345
92,370

85,788

100
103
102
99
91
92
93
94
102
95
100
95
93
94
90

Aveiage per day...
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct
Oct

1-.
2__
3..
4__
7_.
8_.
9._
1011141
15161718.
21.
22_
2324.

92,370
94,145
94,620
95,970
96,624
97,824
95,724
97,774
96,774
94,774
75,224
75,924
75,874
76,024
78,874
77,974
79,924
80,049
81,099
82,699
79,399
86,650

99
96
100
96
89
87
87
100
97
99
100
105

Month

Amount

81,696
82,199
83,599
85,499
85,802
86,002
85,402
85,502
86,002
83,202
80,052
78,602
83,052
84,252
89,052
88,852
87,702
91,152

COMMITTEE EXHIBIT N O

Oct
Oct
Oct
Oct
Oct

Number of
borrowers

25.
28.
29_
30.
31.

103
93
67
47
41

Amount
|$91,692
85,500
56,100
31,516
28,266

Average per day—.

79,157

Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov
Nov

1....
4....
6....
7....
8
11...
12...
13...
14...
15...
18...
19...
20...
21. .
22...
25...
26...
27...

26,316
25,316
23,316
21,308
20,133
17,383
16,583
14,833
13,683
12,578
12,578
12,053
11,628
11,128
11,428
14,128
14,678
15,628

Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec

1...
2...
3...
4...
5...
6...
9...
10.
11..
12.
13.
16.
17..
18..
19.
20..
23
24
26
27.
30.
31

Average per d a y —

16,372
15,628
20,628
20,441
20,391
20,391
24,211
20,541
17,691
18,441
18,791
17,131
20,931
22,731
23,131
20,406
23,106
20,106
19,606
20,776
21,576
17,241
17,191

Average per day

90, FEBRUARY 23,

20,049

1934

Interest on Jesup & Lamont deposit account for year 1929
1920

January
February
March
April
May
June
July
August
September
October
November
December

$403,664 47
327, 082 64
526, 922. 75
485,131. 04
491, 818 29
455, 953 03
600, 940 47
552, 201 24
565,228 41
398, 890 12
63,304 18
74, 081. 01

Total

4, 945, 217. 65

6366

STOCK EXCHANGE PEACTICES
COMMITTEE EXHIBIT NO

91, FEBRUARY 23,

1934

CONSOLIDATED OIL CORPORATION
45 Nassau Street, New York City
CHICAGO, ILLINOIS,

Honorable FERDINAND PECORA,

October 25, 1938.

Counsel Committee on Banking and Currency,
285 Madison Avenue,
New York City, N Y
DEAR SIR Complying with your request of October 17th, we enclose herewith
copy of your questionnaire and" answer thereto by Consolidated Oil Corporation*
Yours very truly,
G T STANFORD,

VII-2

General Counsel

QUESTIONNAIRE PROPOUNDED BY THE HONORABLE FERDINAND PECORA, COUNSEL
TO THE COMMITTEE ON BANKING AND CURRENCY, TO CONSOLIDATED OIL
CORPORATION, AND ANSWERS THERETO BY SAID CORPORATION

1 Give the total number of shaies of the common stock of your Corporation
appearing on your records in the names of stock brokerage firms as of
July 1, 1929, and July 1, 1933
Answer We give the information as of June 15, 1929, for the reason that
to give the information as of July 1st would entail a great deal of detail
work which would delay materially the answer to the questionnaire
The list as of June 15, 1929, was compiled at the time for dividend purposes As of June 15, 1929, there were outstanding 3,563,502 shares of
the common capital stock of Sinclair Consolidated Oil Corporation in the
names of brokers and/or broker firms, and as of July 1, 1933, there were
2,891,805 shares outstanding in the names of brokers and/or broker firms
2 Give the total number of brokers and brokerage firms appearing upon
your records as the owners of common stock of your Corporation
Answer As of June 15, 1929, there were 739 brokers and/or broker firms
appearing on our records as the owners of the common capital stock of
our Corporation, and as of July 1, 1933, there were 878 brokers and/or
broker firms appearing on our records as the owners of the common
capital stock of our Corporation
3 Give as of July 1, 1929, and July 1, 1933, the total number of shares appearing upon your records in each of the names of brokers or brokerage firms who are the first ten largest broker holders of record of shares
of common stock Designation need not be made by name, but may
be by number, in order of numerical holdings
Answer The ten largest broker accounts of record as of June 15, 1929, were
as follows
No 1
277,620 shares
2
137,222
3
117,705
4
110,467
5
94,035
6
87,612
7
81,815
8
73,881
9
68,259
10
61,234
The ten largest broker accounts of record as of July 1, 1933, were as
follows
No 1
412,650 shares
2
120,275
3
85,629
4
63,675
5
58,931
6
54,996
7
53,969
8
36,074
9
35,453
10
31,966

STOCK EXCHANGE PKACTICES

6367

B Give the following information for the year 1929
1 The total number of shares of the common stock of your Corporation
transferred on your books from one ownership to another
2 The total number of transfers of the common stock of your Corporation
from one corporation to another
Answer During the calendar year 1929, new certificates were issued and old
certificates cancelled for a total of 8,910,126 shares of the common capital
stock of Sinclair Consolidated Oil Corporation
There was a total of twelve transfers of the common stock of Sinclair
Consolidated Oil Corporation during 1929 from the name of one corporation of record to another corporation, and such transactions involved a total of 7,175 shares
C (A?) Give the following data for the vear 1929
1 Total number of street loans made by your Corporation in the call
money market of New York City
2 The total amount of the street loans made by your Corporation in the
call money market of New York City
In replying to (1) and (2) include the loans made by your Corporation and by any and all of its subsidiaries, holding companies, affiliates,
or any other agency or entity under direct or indirect control and
management of the parent corporation The total amount so loaned
by the parent corporation and its subsidiaries, holding companies,
affiliates and other agency or legal entities under such direct or indirect
control or management need only be given, without allocation to the
particular entity
3 State the manner or method in which the loans made in the call money
market in New York City were effected whether effected through
commercial banks, private banks, or other agency, describing the
agency, or directly to the borrower
Answer The answer to this questionnaire is set forth in "Exhibit A", hereto
attached All loans therein listed made by Consolidated Oil Corporation
and/or any subsidiaries or affiliated corporations during the year 1929
were made in the call money market through banks, no loans being made
direct to the borrower You will note there are included in "Exhibit A"
certain loans made by Sinclair Pipe Line Company and Sinclair Crude Oil
Purchasing Company Consolidated Oil Corporation (name changed from
Sinclair Consolidated Oil Corporation) does not at this time own any
interest in either of these two corporations, but did during the year 1929
The information with regard to the loans made by these two corporations
is taken from memorandum records only
Respectfully submitted,

CONSOLIDATED OIL CORPORATION,

By G T STANFORD, General Counsel

EXHIBIT A —Call loans
MADE BY CONSOLIDATED OIL CORPORATION

Total

In Force At—
1/1/29
3/12/29.—
3/26/29.—
4/11/29....
4/15/29—
4/18/29.—
4/29/29—
5/7/29 —
5/8/29
5/20/29—
7/12/29—
7/1S/29.—
9/25/29—
10/1/29....
10/14/29 . .
10/21/29...
11/7/29..-.
11/13/29—
11/14/29—
11/15/29 _.
12/31/29—

$15,000,000
13,000,000
14,000,000
12,500,000
11,000,000
10,000,000
10,600,000
11,100,000
11,600,000
11,600,000
7,600,000
7,100,000
10,000,000
11,000,000
7,000,000
6,800,000
6,000,000
3,600,000
1,500,000
2,500,000
2,500,000

Chase
National
Bank of
NY

National Chemical Chatham
Phenix
City Bk & T r Nat'l
Bk
Bank of
Co of
&
T r Co
N
Y
NY
of N Y

$15,000,000
13,000,000
13,000,000
11,500,000
10,000,000
9,000,000
9,000,000
9,000,000
9,000,000
9,000,000
5,000,000
4,500,000
6,500,000 $400,000 $300,000
6,500,000 400,000 300,000
2,500,000 400,000 300,000
2,500,000 400,000 300,000
2,000,000 400,000
2,000,000
1,500,000
2,500,000
2,500,000

$500,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
500,000

Blair &
Co of
NY

Bank of
America,
N A ,of
NY

$300,000
300,000
300,000
$300,000
300,000
300,000
200,000

1,200,000
1,200,000
1,000,000
1,000,000
500,000

Central
Hanover
Bk & T r
Co of
NY

Amer
Exchange
Irving
Tr Co
of N Y

1st National
Bank of
Chicago

Cont Illinois Bk &
Tr Co of
Chicago

$1,000,000
1,000,000
1,000,000
1,000,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,600,000
1,600,000
1,600,000
1,600,000
1,600,000
600,000

3
O
O

W
X
Q

8
S
9

M A D E BY SINCLAIR AUTOMOBILE SERVICE CORPORATION
Loan placed 10/9/29
Loans reduced 12/11/29
In force at 12/31/29

$200,000
100,000
100,000

$200,000
100,000
100,000
MADE BY SINCLAIR P I P E L I N E CO

Loan placed 9/25/29
Loan reduced 12/10/29
In force at 12/31/29

$2,000,000
1,000,000
1,000,000

$1,000,000
500,000
500,000

MADE BY SINCLAIR CRUDE OIL PURCHASING CO
9/23/29 to between 11/2 and 12/12/29
Between 11/2 and 12/12/29 to and at 12/31/29

$3,000,000
5,000,000

$1,600,000
2,500,000

$1,500,000
2,500,000

MADE BY VENEZUELAN P E T R O L E U M CO
In force at—
1/ 1/29..
1/15/29..
1/18/29.,
5/13/29..
5/14/29..
5/15/29..
11/ 4/29..
11/11/29.
11/14/29.
11/15/29.
12/31/29.

$800,000
1,100,000 $1,100,000
1,500,000
1,500,000
1,300,000
1,300,000
900,000
900,000
1,400,000
1,400,000
1,300,000
1,300,000
1,200,000
1,200,000
700,000
700,000
1,200,000
1,200,000
1,200,000
1,200,000

$800,000

3
O

o
W
a
W

1
o
CO
C

6370

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT N O 92, FEBRUARY 23,

1934

Total number and amount of street loans made by private corporations for year
in the call money market of New York City
No of
Street
Loans
Made

Name of Corporation

American Founders Corporation and Subsidiaries
American & Foreign Power Company, Inc and Subsidiaries
American Can Company
Anaconda Copper Mining Co
Auburn Automobile Company
Bethlehem Steel Corporation and Subsidiaries
Chrysler Corporation
-Cities Service Company
•Consolidated Oil Corportaion
Electric Bond & Share Co and Subsidiaries..
General Foods Corporation 2
General Motors Corporation
International Nickel Co I n c .
Pan American Petroleum & Transport Co
Kadio Corporation of America and Subsidiaries
Badio-Keith Orpheum Corporation
Standard Oil Co of N J and Subsidiaries
Tn-Continental Corp and Affiliated Corps
The United Corporation
The United Gas & Improvement Co and Subsidiaries..

Total Amount

1,583
91
374
147
13
911
0)

$424,450,000 00

$23,629,166 66

57,610,000 00
149,000,000 00
79,800,000 00
1,600,000 00
539,100,000 00

30,321,000 00
16,000,000 00
32,500,000 00

912

285,325,092 21
211,000,000 00
809,685,000 00
36,000,000 00
105,700,000 00
3,000,000 00
9,500,000 00
18,600,000 00

0)
1,572
187
201
14

0)
0)

3 20,466
209
6
53

17,672,520,000 00
219,250,000 00
7,400,000 00

Made Through
Commercial
Banks

Name of Corporation
American Founders Corporation and Subsidiaries
American & Foreign Power Company, Inc and Subsidiaries
American Can Company
Anaconda Copper Mining Co
Auburn Automobile Company
Bethlehem Steel Corporation and Subsidiaries
Chrysler Corporation
Cities Service Company
Consolidated Oil Corporation.Electric Bond & Share Co and Subsidiaries
General Foods Corporation
General Motors Corporation 2
International Nickel Co Inc.
Pan American Petroleum & Transport Co
Radio Corporation of America and Subsidiaries..
Hadio-Keith-Orpheum Corporation_
Standard Oil Co ofNJ and Subsidiaries
Tn-Contmental Corp and Affiliated Corps
The United Corporation
The United Gas & Improvement Co and Subsidianes.

Peak Amount

157,450,000 00
60,150,000 00
41,900,000 00
15,000,000 00
157,579,000 00
3,400,000 00
25,000,000 00
500,000 00
8,000,000 00
1,000,000 00
8,000,000 00
97,824,000 00
62,150,000 00
3,000,000 00
3,600,000 00

Made Direct to
Borrowers

Made to
Private
Bankers

Yes
Yes.
Yes
Yes
Yes.
Yes.
Yes.

Yes
Yes.
Yes.
Yes
Yes.
Yes.
Yes.
Yes

Yes (one)

Partially.

Yes
Partially.

Yes
Yes

1
Not answered
2 First loan placed Oct 7, 1929
Cumulative figure of loans
Cumulative figure computed by multiplying daily average by number of days on which loans were
outstanding
3
4

COMMITTEE EXHIBIT N O

93, FEBRUARY 23,

1934

AMERICAN CAN COMPANY,

New York, November #, 1988
^FERDINAND PECORA, Esq ,

Counsel, Committee on Banking and Currency,
285 Madison Avenue, New Yorkf N. Y.
DEAR SIR Pursuant to your letters of October 17 and October 26 addressed to
the president of this company, I herewith furnish the following information in
.answer to the questionnaire contained in your first letter inquiring with reference
to the transfers of stock

6371

STOCK EXCHANGE PRACTICES
QUESTION A AS OF JULY 31, 1929

Item 1
Item 2
Item 3
1
2
3
4
5
6
7
8
9
10

977,035
397
115,325
76,898
61,260
52,700
34,850
28,924
20, 158
19,400
18,945
18,049

QUESTION B

Item 1
3,926,423
Item 2
57,857
The following information is in answer to your questionnaire with respect ta
Street Loans
QUESTION A

Item 1 374
Item 2 Average amount outstanding during the year was $9,424,000 Maximum amount outstanding at any one time was $16,000,000 which was for a
period of eight days only
Item 3 Loans were effected through The First National Bank of New York
at our request
Yours very truly,
AMERICAN CAN COMPANY,
R A BURGER, Secretary.

American Can Co , 1929 call loans
Total
number

Month
January .
February..
March
April
May
June
July
August
September
October...
November.
December.

Total
amount

Average
amount
outstanding

$32,000,000 $14,666,000
5,700,000 11,928,000
1,300,000 11,000,000
15,100,000 11,250,000
16,000,000 12,935,000
2,500,000
6,200,000
5,100,000
4,387,000
6,100,000
4,177,000
15,700,000
7,000,000
32,600,000 10,693,000
12,800,000
9,850,000
4,100,000
9,000,000

Year.

374

149,000,000

9,424,000

Maximum amount outstanding at any one time was $16,000,000 which was for a period of eight (8) days
only, January 17th-January 25th
COMMITTEE EXHIBIT N O

94, FEBRUARY 23,

1934

ANACONDA COPPER MINING COMPANY,

New York, February 21, 19S4
FERDINAND PECORA, ESQ ,

Counsel, Committee on Banking and Currency,
285 Madison Avenue, New York, N Y

Attention Mr Paul Leebell
With further reference to your letters of October 16th and October
26th, 1933, and telephone conversation with Mr Paul Leebell of your staff this
date.
In answering questionnaire as to the total amount of street loans made by this
corporation in the call money market of New York City, we assumed the total
DEAR SIR

6372

STOCK EXCHANGE PRACTICES

amount had reference to the highest amount loaned at any one time, which
amounted to $32,500,000, as shown in reply to question No 2 of the questionnaire.
In your telephone conversation today, you stated you wanted the gross sum to
which all loans made would total, which includes duplications of moneys loaned,
where loans were made for a short time and repaid and then reloaned. This
gross sum amounted to $79,800,000
We trust the foregoing gives you the information you desire
Yours very truly,
ROBERT E

DWYER,

Vice President

ANACONDA COPPER MINING COMPANY,

New York, November 23, 1933

FERDINAND PECORA, Esq ,

Counsel Committee on Banking and Currency,
285 Madison Ave , New York, N Y
DEAR SIR With our letter of November 13th we forwarded part of the data
requested in your letters of October 16th and October 26th, 1933, and informed
you that as soon as we received information pertaining to stock transfers from
our Transfer Agent the same would be fort\ arded to you
That information has now been received and we beg to enclose herewith
.answers to such of the questions contained in your questionnaire as were not
answered in the data submitted with our letter of November 13, 1933
Yours very truly,
ROBERT E

DWYER,

Vice President

QUESTIONNAIRE

B Give the following information for the year 1929
1 The total number of shares of the Common Stock of your Corporation transferred on your books from one ownership to another
12,940,717
2 The total number of transfers of the Common Stock of your corporation
from one ownership to another
198,624
ANACONDA COPPER MINING COMPANY,

New York, November 13, 1933

IFERDINAND PECORA, ESQ ,

Counsel Committee on Banking and Currency,
285 Madison Ave , New York, N Y
DEAR SIR Further referring to your letters of October 16th and October 26th,
1933
We beg to enclose herewith the answers to the several questions contained m
your questionnaire, except the total number of shares of common stock transferred on "the books of the company from one ownership to another m 1929 and
the number of transfers involved
Upon receipt of your letter we requested the Transfer Agent to gather this
information, which Transfer Agent has been engaged in obtaining similar information for your Committee on behalf of other corporations They advise that they
will be able to complete this information during the coming week and we shall
endeavor to foward the same to you upon its receipt by us.
Yours very truly,
ROBERT E DWYER,

Vice President

QUESTIONNAIRE

A Give the following information as of July 1, 1929, and July 1, 1933
1 The total number of shares of the Common Stock of your corporation
appearing on your records in the names of stock brokerage firms
July 13, 1929, 3,439,318.
April 21, 1933, 1,249,828.

6373

STOCK EXCHANGE PRACTICES

2 The total number of brokers and brokerage firms appearing upon your
records as the owners of Common Stock of your Corporation
July 13, 1929, 620
April 21, 1933, 562
3 The total number of shares appearing upon your records in each of the
names of brokers or brokerage firms who are the first ten largest broker holders
of record of shares of Common Stock Designation need not be made by name,
but may be made by number, in order of numerical holdings
July 13, 1929.
April 21, 1933
1
235,289
1
146,271
2
96, 543
2
89, 465
3
96, 388
3
40, 996
4
92, 338
5
28, 676
5
72, 726
5
26, 609
6
71, 877
6
26, 536
7
63,386
7
24, 515
8
62, 294
8
23, 153
9
57, 643
9
21, 932
10...
55, 291
10
21, 594
QUESTIONNAIRE

A Give the following data for the year 1929
1 Total number of street loans made by your Corporation in the call money
market of New York City
$147
2 The total amount of the street loans made by your Corporation in the call
money market of New York City
$32,500,000
3 State the manner or method m which the loans made in the call money
market in New York City were effected whether effected through commercial
banks, private banks, or other agency, describing the agency, or directly to the
borrower
All loans were made through commercial banks
COMMITTEE EXHIBIT NO 95, FEBRUARY 23,

1934

LAW OFFICES PRUITT & GREALIS,

Chicago, November 28', 1983

Esquire,
Counsel, Committee on Banking & Currency,
285 Madison Avenue, New York, N Y
DEAR SIR Mr W. H Beal, President of Auburn Automobile Company
asked me to gather together the information and reply to your questionnaire
I am therefore writing to give you the following information.
A 1 The records of the transfer office of Auburn Automobile Company
show that on July 1, 1929 a total of 102,263 shares of the outstanding stock of
the company were registered in the names of stock brokerage firms.
2 As of said date, the total number of brokers and brokerage firms appearing
on the transfer records as the owners of stock of the Auburn Automobile Company was 208
3 As of said date the total number of shares of stock of Auburn Automobile
Company registered in the names of the brokerage firms who were the ten largest
holders of record of shares of common stock were as follows
FERDINAND PECORA,

2,864
1
21, 669 7.
2,778
2
10, 200 8.
2,305
3
.._ 5, 029 9.
1,861
4
4, 789 10.
5
3, 797
6
2, 868
Total
58,160
B 1 For the year 1929 the total number of shares of common stock of Auburn
Automobile Company transferred on the books of the transfer office from one
ownership to another was 584,652 shares

6374

STOCK EXCHANGE PBACTICES

2 For the said year the total number of transfers of the common stock of the
corporation from one ownership to another was 17,059
You have also asked for certain information regarding street loans in the call
money market in New York City The records of the corporation show that the
total number of such street loans made was thirteen (13) and the total amount of
the same $1,600,000 All of these loans were made by Auburn Automobile
Company through the Guaranty Trust Company of New York
Yours very truly,
R S PRUITT,

Secretary and General Counsel Auburn Automobile Company

RSPMR

COMMITTEE EXHIBIT NO 96, FEBRUARY 23,

1934

BETHLEHEM STEEL CORPORATION,

New Yotk, NY,

February 21, 1934

Mr. FERDINAND PECORA,

Counsel, Committee on Banking and Currency, United States Senate,
285 Madison Avenue, New York, N Y.
DEAR SIR In accordance with the request of Mr Leebell of your office, we
confirm our statement made over the telephone to him today that the peak
amount of street loans (including call and time loans) outstanding for our account
at any one time in the year 1929 was $157,450,000
Very truly yours,
WM J BROWN, Treasurer
BETHLEHEM STEEL CORPORATION,

New York, N Y, November 8, 1983
Referring to your two letters of the 17th and 27th ult, respectively,
enclosing questionnaires which you requested us to have filled out and returned
to you, the answers to your questionnaire are as follows, the information requested
m Section "A" being given as of July 19, 1929, which was the nearest date to
July 1 as of which we had a stock list
1 The total number of shares of the Common Stock of this Corporation
appearing on our records in the names of stock brokerage firms was 1,108,115.
2 The total number of brokers and brokerage firms appearing upon our
records as the owners of Common Stock of this Corporation was 517
3 The total number of shares appearing upon our records m each of the names
of brokers or brokerage firms who are the first ten largest broker holders of record
of shares of Common Stock, designation being made by number, m order of
numerical holdings, was as follows
1
31,839 7
19, 693
2
29, 034 8
18, 653
18, 353
3
23, 661 9
4
22, 146 10
17, 690
5
21, 971
6
21, 655
Total
224,695
For the year 1929
1 The total number of shares of the Common Stock of this Corporation transferred on our books from one ownership to another was 6,340,165
2 The total number of transfers of the Common Stock of this Corporation from
one ownership to another was 144,679
With reference to your other questionnaire regarding brokerage loans, I call
your attention to my letter of October 23, 1933, inquiring as to the basis upon
which the answers to that questionnaire were to be prepared. If I may have a
reply to my letter of October 23 we will be able to give you the information desired
promptly
Very truly yours,
DEAR SIR

R
Mr. FERDINAND PECORA,

E. MCMATH,

Vice President

Counsel Committee on Banking and Currency, United States Senate,
285 Madison Avenue, New York City

STOCK EXCHANGE PRACTICES

6375

BETHLEHEM STEEL CORPORATION,

New York, NY,
Mr

November 17, 1988

FERDINAND PECORA,

Counsel Committee on Banking and Currency, United States Senate,
285 Madison Avenue, New York City
DEAR SIR Referring to my letters to you of the 23rd ult and the 3rd instant
regarding the questionnaires which you requested us to have filled out and returned to you
I understand from a telephone conversation with a representative in your office
that you wish the questionnane regarding "street loans" answered in the form
originally submitted, with the understanding that both time loans and call loans
are to be included Accordingly, I am enclosing a copy of your questionnaire,
on the margin of which is noted the answers on behalf of this Corporation and
of its subsidiaries, affiliates, etc You will understand, of course, that, as pointed
out in my letter of October 23rd, the loans referred to in the answers were not
all outstanding at the same time, so that the total amount loaned, as reported
in the questionnaire, very greatly exceeds the amount outstanding on any given
date
Very truly yours,
R

MCMATH,

Vice President
QUESTIONNAIRE

A Give the following data for the year 1929
1 Total number of street loans made by your Corporation m the call money
market of New York City
911
2 The total amount of the street loans made by your Corporation m the call
money market of New York City
$539,100,000
In replying to (1) and (2) include the loans made by your Corporation and by
any and all of its subsidiaries, holding companies, affiliates, or any other agency
or entity under direct or indirect control and management of the parent corporation The total amount so loaned by the parent corporation and its subsidiaries,
holding companies, affiliates and other agency or legal entities under such direct
or indirect control or management need only be given, without allocation to the
particular entity
3 State the manner or method in which the loans made in the call money
market in New York City were effected Whether effected through commercial
banks, private banks, or other agency, describing the agency, or directly to the
borrower
Loans made for our account through commercial banks in New York City
COMMITTEE EXHIBIT NO 97, FEBRUARY 23,

1934

CHRYSLER CORPORATION,

Detroit, Michigan, November 20, 1988
FERDINAND PECORA,

Esq,

Counsel, Committee on Banking and Currency,
United States Senate, Washington, D C
DEAR MR PECORA With further reference to my letter of October 27th,.
you will find tabulated below the information required by you relative to this
Company
CAPITAL STOCK

Stock held by Brokers on July 1, 1929
Shares held 2,859,148

175541—34—PT 14

No of Brokers 556

Amount of

6376

STOCK EXCHANGE PRACTICES

Ten Largest Holders
65, 740
436, 091 6
58, 965
120, 773 7
58, 829
120, 715 8
45, 613
119, 647 9
44, 176
33, 719 10
Stock held by Brokers on July 1, 1933 No of Brokers 440 Amount of
Shares held 1,668,275
Ten Largest Holders
34, 190
1
255, 329 6
32, 109
2
109, 610 7
31, 047
3
49, 734 8
29, 716
4
38, 313 9
26, 901
5
35, 096 10
7,207,052 Shares changed ownership during the year 1929; the number of
transfers 109,614.
November 20, 1933.

1
2
3
4
5

STBEET LOANS

The making of street loans by this Corporation through New York banks in the
call money market of New York City in the year 1929 continued all through the
year Some borrowers continued their loans from day to day over longer or
shorter periods, subject to a rate of interest determined daily, others paid off and
made new loans sometimes on the same day and in the same amount The total
amount of street loans varied from day to day. The loans were made through
three banks The largest amount through the first bank was on September 26th,
when there were 114 loans amounting to $60,150,000 00, and the least amount
was on December 31st, when there were 35 loans amounting to $7,500,000 00
The largest amount through the second bank was on October 9th, when there were
26 loans amounting to $15,000,000 00, and the least amount was on December
31st, when there were 13 loans amounting to $8,200,000 00 The largest amount
through the third bank was on October 28th, when there were 33 loans amounting
to $15,400,000 00, and the least amount was from May 20th to September 18th,
when there was one loan amounting to $100,000 00
Very truly yours,
B E HUTCHINSON,

Vice President and Treasurer
COMMITTEE EXHIBIT NO 98, FEBRUARY 23,

1934

GENERAL FOODS CORPORATION,

Postum Building; New York, November 6, 1933
FERDINAND PECORA,

Esq,

Counsel Committee on Banking & Currency,
285 Madison Avenue, New York, N Y
DEAR SIR AS I stated to one of your assistants over the telephone, Mr C M
Chester, President of General Foods Corporation, has referred to this office your
letter of October 17, 1933, enclosing questionnaires requiring certain data in
connection with the pending investigation being conducted by the Senate Committee on Banking and Currency Mr Chester also has referred to us your
supplementary letter of October 27, 1933
Following are the answers to the questionnaire relating to holdings by brokerage

firms and to transfers of shares
"A Give the following information as of July 1, 1929
" 1 The total number of shai es of the Common Stock of your Corporation appearing
on your records in the names of stock brokerage firms "

Answer According to the list of stockholders of Postum Company, Incorporated taken by our transfer agent, The New York Trust Company, at July 15,
1929, which is the date nearest to July 1, 1929, for which thesefiguresare readily
available, there were 972,826 shares of Postum Company, Incorporated common
stock in the hands of stock brokerage firms which, according to the New York
Stock Exchange Directory, dated September, 1929, were member firms of the
New York Stock Exchange located in New York City Reference is made to the
name "Po&tum Company, Incorporated" because the name of our corporation

STOCK EXCHANGE PRACTICES

6377

was changed from Postum Company, Incorporated to General Foods Corporation,
effective July 24, 1929

"2 The total number of brokers and brokerage firms appearing upon yow records
as the owners of Common Stock of your Corporation "

Answer According to the list of stockholders referred to in the answer to
question 1, there were 355 stock brokerage firms holding Postum Company,
Incorporated common stock at July 15, 1929, the expression " stock brokerage
firms" being limited to member firms of the New York Stock Exchange located
in New York City, as shown in the New York Stock Exchange Directory dated
September, 1929

" 3 The total number of shares appearing upon your records in each of the names
of brokers or brokerage firms who are the first ten largest broker holders of record of
shares of Common Stock Designation need not be made by name, but may be by
number, in order of numerical holdings "

Answer The ten largest of the broker holdings of Postum Company, Incorporated common stock referred to in the answer to question 2, were as follows
1
129, 825 6
20, 951
2
111,890 7
20, 505
20, 301
3
38, 908 8
4
24, 792 9
17, 397
17, 331
5
23, 174 10
" B Give the following information for the year 1929
" 1 The total number of shares of the Common Stock of your Corporation transJerred on your books from one ownership to another "

Answer. According to our transfer agent, The New York Trust Company, the
total number of shares of the common stock of this corporation transferred during
the year 1929 was 5,067,653 So far as reasonably possible there have been eliminated from consideration mere exchanges of Postum Company, Incorporated
certificates for General Foods Corporation certificates The figure given is
substantially the total number of shares transferred from one ownership to
another, but it undoubtedly includes some cases where a number of certificates
in one name were replaced by a single certificate issued in the same name and
cases where a single certificate in one name was replaced by a number of certi
ficates issued in the same name

"2 The total number of transfers of the Common Stock of your Corporation
from one ownership to another

Answer. According to our transfer agent, The New York Trust Company,
during the year 1929 a total of 145,276 new certificates was used by them m effecting transfers of our stock The figure given includes all of the transfers of our
stock from one ownership to another It undoubtedly includes also some cases
where a number of certificates in one name were replaced by a single certificate
issued in the same name and cases where a single certificate in one name was
replaced by a number of certificates issued in the same name The.figurealso
includes cases where stockholders surrendered Postum Company, Incorporated
certificates for certificates in the new name of the corporation
Following
are answers to the questionnaire relating to street loans
11
A Give the following data for the year 1929 •
" 1 Total number of street loans made by your Corporation in the call money
market of New York City "

Answer The treasurer of General Foods Corporation advises that the total
number of loans is not available The loans were all made through banks, and
the total number of transactions with the banks was 187.
" 2 The total amount of the street loans made by your Corporation in the call
money market of New York City "

Answer The total amount of street loans made by this corporation in the call
money market of New York City in the year 1929 was $36,000,000 00. The
maximum amount outstanding in such market at any one time was $3,400,000 00
" 3 State the manner or method in which the loans made in the call money market
in New York City were effected Whether effected through commercial banks, private
banks, or other agency, describing the agency, or directly to the borrower

Answer. The street loans referred to in the answers to questions 1 and 2 were
effected through two commercial banks and one private bank doing business in
New York City
Very truly yours,

LESTER E WATERBURY.

6378

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT N O

99, FEBRUARY 27,

1934

GENERAL MOTORS CORPORATION,
BROADWAY AT 57TH STREET,

New York, NY,

February 21, 1984.

FERDINAND PECORA, ESQ ,

U S Committee on Banking & Currency,
285 Madison Avenue,New York, N.Y
Attention of Mr Leebell
DEAR MR PECORA Supplementing my letter of November 10, 1933 and confirming today's conversation with Mr Leebell, the amount of street loans made
by General Motors Corporation m the call loan market in New York City for the
year 1929 was $103,700,000
We wish to call your attention, however, to the fact that the maximum amount
of street loans outstanding in any one day m the year 1929 was $25,000,000
As shown in our letter to you under date of November 10, 1933, street loans
were first placed by General Motors Corporation on October 7,1929 The average
daily amount of street loans outstanding from October 7, 1929 to December 30,
1929, inclusive, was $17,417,647.
Yours very truly,
B

V. BORELLA,

Assistant Treaswer
GENERAL MOTORS CORPORATION,
BROADWAY AT 57TH STREET,

New York, N Y, November 10, 1983
FERDINAND PECORA, Esq ,

Counsel Committee on Banking & Currency,
285 Madison Avenue, New York City
DEAR MR PECORA We are m receipt of your letter of November 8, 1933, toMr Alfred P Sloan, Jr , President of General Motors Corporation, attaching a
questionnaire requesting certain data in connection with the pending investigation by the Senate Committee on banking and currency
In answer to your request for certain information as of July 1st, 1929, and
July 1st, 1933, m regard to the total number of shares of the common stock
appearing on our books in the names of stock brokerage firms, the number of
brokers or brokerage firms appearing on the record, and a list showing the first
ten largest broker holders of record, we beg to advise that the corporation took a
record of its stockholders for common dividend purposes on May 18th and on
August 17th, 1929, and May 11th and August 17th, 1933, and the information
which you ask is available for the above dates and is attached hereto
We
trust that this information will answer your purpose
We are unable to furnish you the information requested for the year 1929 as
to the total number of shares of common stock transferred on the books from one
ownership to another, and the total number of transfers from one ownership to
another, for the reason that the corporation does not keep such records, nor do
we believe that this information could be obtained even if an attempt were made
to examine the 524,400 entries on the 40,200 transfer sheets for the year 1929.
From time to time, the corporation prepares a statement showing the distribution
of the stock, and we are attaching hereto statement covering distribution as of
February 16, 1929, and January 24, 1930
The corporation makes a practice of computing the number of stockholders for
each quarter and the number of holders of record for each quarter of the year
1929, are stated on the attached distribution sheet
We are attaching hereto a schedule showing the number and amount of street
loans made by the corporation m the call money market of New York City for the
year 1929
In addition, we are attaching a schedule covering the same information on
General Motors Truck Corporation, a company which is wholly owned by Yellow
Truck & Coach Manufacturing Company
The loans were effected through commercial banks of New York City
Very truly yours,

BORELLA,

Assistant Treasurer.

6379

STOCK EXCHANGE PRACTICES

'General Motors Corporation, common stock issued and outstanding, 1^,500,000 par
value $10
NUMBER OF SHARES HELD BY FIRST TEN LARGEST BROKER HOLDERS
May 18,
1929

May 11,
1933

415,119
372,223
254,962
215,658
212,260
171,158
169,695
169,331
153,591
145,332

114,381
105,278
97,610
77,656
65,890
60,599
58,530
57,741
52,733
43,413

August 17, August 17,
1929
1933
132,641
110,981
100,643
100,184
72,330
67,142
62,368
56,227
55,022
53,400

458,305
351,834
262,218
218,358
185,859
162,974
156,745
154,047
153,294
144,296

NUMBER OF BROKERS
485

469

472

491

NUMBER OF SHARES REGISTERED IN NAMES OF BROKERS
6,432,842

2,702,318 1 6,091,055

3,165,607

Statement showing comparison of the classifications of stockholders and shares held
of the common stock of the General Motors Corporation at the close of business
Feb 16, 1929 and Jan 24, 1980
Jan 24, 1930

Feb 16,1929
Classifications

Stockholders

1-10
11-20
21-50
51-100
101-200
201-300
301-400
401-500
501-1,000
1,001-10,000—.
10,001-100,000..
100,001-& over.

Stockholders

774, 292

1,823
1,933
270
44

422,358
562,274
1,354,388
5,205,089
7,717, 271
24, 769,429

99,159
34,581
45,155
18,281
10,256
3,606
1,888
1,586
1,932
1,673
258

622,088
518,308
1,513,616
1,514,804
1,299,952
798,480
528,970
715,648
1,321,233
4,380,291
6,697,416
23,589,194

82,415

43,500,000

218,413

43,500,000

24,106
12,854
20,229
9,504
6,250
3,069
1,165
1,168

110,958
200,203
698,146
760,094
925,498

Common-stock holders the fourth quarter of the year from 1917 to 1928 inclusive
1917
1918
1919
1920
1921
1922

894
2, 103
6, 245
17, 025
44; 640
44, 049

1923
1924
1925
1926
1927
1928

46, 567
45, 217
29, 792
30, 210
43, 116
48, 169

Common-stock holders for each quarter of 1929
1st quarter
2nd quarter

82,451 3rd quarter
102, 306 4th quarter

117,767
176, 693

6380

STOCK EXCHANGE PRACTICES
General Motors Corporation, call loans, 1929
Date

October

November

7,000,000
7,000,000
7,000,000
7,000,000
7,000,000
7,000,000
7,000,000
7 000,000
11,000,000
11,000,000
17,000,000
17,000,000
17,000,000
19,000,000
19,000,000
18,000,000
18,000,000
19,000,000
19,000,000
19,000,000
22,000,000
22,000,000
23,000,000
23,000,000
10,000,000
14,000,000
16,500,000
16,500,000
16,500,000
16,500,000

16,500,000
16,500,000
20,000,000
21,500,000
23,000,000
23,000,000
20,000,000
20,000,000
20,000,000
17,000,000
17,000,000
17,000 000
17,000,000
38,500,000
18,500,000
7,000,000
9,000,000
19,000,000
19,000,000
19,000,000
18,000,000
18,000,000
16,600,000
16,600,000
16,600,000
14,600,000
14,600,000
16,000,000
16,000,000
14,600,000

440,000,000

520,100,000

5 —

7 .
8
9
10
11
12 . . .
13_
14
15
16
17
18
19
20
21
22. _ .
23.
24.
25
26
_
27__
28
29.
30
31
Total .

„

. .

_~_
. .

15,000,000
23,400,000
25,000,000
23,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
25,000,000
12,000,000
12,000,000
14,000,000
7,000,000
7,000,000
7,000,000
520,400,000

In October, total number of loans placed
outstanding at end of month
In November, total number of loans placed
outstanding at end of month
In December, total number of loans placed
outstanding at end of month

December

72
15
62
36
63
none

General Motors Truck Corporation, subsidiary of Yellow Truck & Coach
Manufacturing Company
CALL LOANS
1929
Sept 20.
Sept 21
Oct 11
Oct 16
Oct 29
Nov 29...
Total .

Loans
Placed

Cumulative

1
1
1
1

$500,000
500,000
500,000
500,000
350,000
1,650,000

$500,000
100,000,000
1,500,000
2,000,000
1,650,000

2,000,000

No of
Loans

COMMITTEE EXHIBIT N O 100, FEBRUARY 23,

1934

T H E INTERNATIONAL NICKEL COMPANY OF CANADA, LIMITED,
OFFICE OF THE PRESIDENT,

New York, October 27, 19SS
FERDINAND PECORA, Esq ,

285 Madison Avenue, New York City
DEAR SIR With reference to my letter of October 20th, 1933, I am submitting
the following data concerning The International Nickel Company of Canada,
Limited, a Canadian corporation, which has been compiled with a view to giving
you as promptly as possible, and with the least expense to our shareholders, the

6381

STOCK EXCHANGE PEACTICES

essential information requested As an illustration of the foregoing, in connection with your Questionnaire respecting common stock, our United States Transfer Agent advised that the information asked for under A could be furnished
fairly easily as of June 1st, 1929 (a dividend record date) and October 21st, 1933,
whereas it would require considerable time and substantial additional expense
to reconstruct the common stock records as of July 1st, 1929 and July 1st, 1933
I hope, however, that this, and any other slight deviations from the exact form of
your Questionnaires, will be unimportant to you
As was indicated in my previous letter, the stock record information furnished
herewith is with respect only to the United States transfer agency of the Company
Your questions are answered in the order in which they appear in your Questionnaires
COMMON STOCK

Question A
June 1,
1929
Iteml
Item 2
Item 3
1
2
3
4

October 21,
1933

5,054,779
466

2,441,732
520

701,124
541,330
521,531
417,682

239,070
162,066
78,409
76,520

June 1,
1929
Item 3 —Continued
5 .
6
7 .
8
9
10

October 21,
1933

290,588
209,188
154,575
121,521
108,822
81,984

68,491
57,357
51,050
45,322
37,688
35,902

The above information is with respect only to brokers and brokerage firms
having addresses within the United States
Question B

Year 1929

Item 1
9, 676, 800
Item 2
27, 707
Thefiguresgiven in answer to Question B include spht-ups of stock in the same
name; in other words, transfers which did not involve change of ownership
CALL LOANS

1 During 1929 we made fourteen (14) street loans in the call money market
of New York City
2 The total amount of these street loans was exactly Three Million Dollars
($3,000,000)
3 All of these loans were effected through commercial banks in New York
City, and at no time did we have any direct or indirect contact with the borrowers
Trusting that the above will adequately serve your purpose,
Very truly yours,
RCS/WLM
, President.
THE INTERNATIONAL NICKEL COMPANY OF CANADA, LIMITED,
OFFICE OF THE PRESIDENT,

New York, February 21, 1984.

FERDINAND PECORA., ESQ ,

285 Madison Avenue, New York, City
DE \R SIR Confirming telephone conversation with Mr. Leebell this afternoon
and referring to my letter of October 27th, 1933 I beg to advise you that the
largest amount of any one of the fourteen (14) street loans made in the call
money market of New York City during 1929 was $500,000. As Mr Leebell was
advised this figure does not take into account the amount of loans previously
made to the debtor bank in question
Yours very truly,
R

RCS/JJS

STANLEY

President

6382

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT NO

101, FEBRUARY 23,

1934

PAN AMERICAN PETROLEUM & TRANSPORT COMPANY
AND SUBSIDIARY COMPANIES,

New York, February 21, 1984
Mr

PAUL LEEBELL,

United States Senate Committee on Banking and Currency,
New York, N Y
DEAR SIR Confirming our conversation today with your Mr Leebell regarding
street loans made and outstanding during the year 1929, we desire to confirm that
the total amount of street loans made during 1929, from October 9th to December
-31st, was $9,500,000 The peak amount outstanding at any one time during
this period amounted to $8,000,000
This is the information as requested and we believe the same to be correct
Yours very truly,
PAN AMERICAN PETROLEUM & TRANSPORT COMPANY,

A N PENN, Asst Secty & Asst Treas
PAN AMERICAN PETROLEUM & TRANSPORT COMPANY
AND SUBSIDIARY COMPANIES,

New York, October 28, 1988
Mr

FERDINAND PECORA,

Counsel United States Senate,
Committee on Banking and Currency,
New York, N Y
Subject Pan American Petroleum & Transport Company.
DEAR MR PECORA Next below we are supplying information as called for in
questionnaire transmitted to me with your letter of October 17th
Question A-l The total number of shares of the Common Stock of your
Corporation appearing on your records in the names of stock brokerage firms, as
of July 1, 1929
8hare8
Common Stock
165, 584
Class " B " Common Stock
1, 214, 689
Total
1, 380, 273
Question A-2 The total number of brokers and brokerage firms appearing
upon your records as the owners of Common Stock of your Corporation, as of
July 1, 1929
Five hundred and forty (540) (Including Common and Class " B " Common
Stock)
Question A-3 The total number of shares appearing upon your records in each
of the names of brokers or brokerage firms who are the first ten largest broker
holders of record of shares of Common Stock, as of July 1, 1929 Designation
need not be made by name, but may be by number, in order of numerical holdings
1
2
3
4
5
6

67, 436 7
29, 136
49, 609 8
29, 124
37, 429 9
28, 752
35, 695 10
26,862
32, 628
30,068
366, 739
QUESTION B-l The total number of shares of the Common Stock of your
Corporation transferred on your books from one ownership to another, during
the year 1929.
shares
Common Stock
1,287,408
Class " B " Common Stock
4,586,468
Total

5,873,876

STOCK EXCHANGE PRACTICES

6383

QUESTION B-2 The total number of transfers of the Common Stock of
your Corporation from one ownership to another, during the year 1929
Shares

Common Stock
Class " B " Common Stock

3,064
20, 202

Total

23,266

QUESTION A-l Total number of street loans made by your Corporation in
the call money market of New York City, during the year 1929
This question cannot be answered See attached letter from Chase National
Bank in which they state that the records of the Equitable Trust Company,
which would enable them to give us the answer to this question, have been
destroyed
QUESTION A-2 The total amount of the street loans made by your Corporation in the call money market of New York City
In view of the fact that the records of the Equitable Trust Company have been
destroyed, we can only answer this question by saying that the largest amount
which we had in street loans during 1929 was $8,000,000 This was the highest
figure standing on the ledger during 1929, and ran from December 17th to 31st,
inclusive
QUESTION A-3 State the manner or method in which the loans made in the
call money market in New York City were effected whether effected through
commercial banks, private banks, or other agency, describing the agency, or
directly to the borrower
All of our loans were effected through a commercial bank viz the Equitable
Trust Company of New York, which has since been consolidated with the Chase
National Bank of the City of New York
Yours very truly,
PAN AMERICAN PETROLEUM & TRANSPORT COMPANY,

L BLANSTON, President

COMMITTEE EXHIBIT NO

102,

FEBRUARY 23,

1934

RADIO CORPORATION OF AMERICA,

RCA Building, New York, November 8, 1983
Mr

FERDINAND PECORA,

Counsel Committee on Banking and Currency,
New York City
MY DEAR MR PECORA Will you please refer to your letter of October 16, 1933
requesting certain data and to your supplemental letter of October 26, 1933, modifying the dates as of which the information was to be stated
The information requested is herewith submitted
Very truly yours,
MANTON DAVIS
THE CORPORATION TRUST COMPANY

New York, N Y, November 8, 1933.
Mr

MACCONNACH,

Secretary Radio Corporation of America,
New York, N Y
DEAR Mr MACCONNACH We submit below the data called for by the questionnaire which you recently turned over to us—assembled from your common stockholders' lists of April 13, 1929, and April 12, 1933
A Give the following information as of July 1, 1929, and July 1, 1933
1 The total number of shares of the common stock of
1933
your Corporation appearing on your records in the
i^29
names of stock brokerage
firms
3, 107, 002 2, 304, 401
2 The total number of brokers and brokerage firms appearing upon your records as the owners of common
stock of your Corporation
607
1, 367

6384

STOCK EXCHANGE PEACTICES

The total number of shares appearing upon your
records m each of the names of brokers or brokerage
firms who are the first ten largest broker holders of
record of shares of common stock Designation need
not be made by name, but may be made by number,
.in order of numerical holdings

1929

1933

228, 589
191, 203
123, 565
117, 106
100, 265
96, 076
87, 456
86, 025
81, 380
78, 812

65, 585
52, 882
52, 300
51, 437
48, 254
45, 324
43, 135
42, 970
42, 677
41, 181

3 Give the following information for the year 1929
1. The total number of shares of the common stock of your Corporation transferred on your books from one ownership to another.. 9, 853, 280
2 The total number of transfers of the common stock of your corporation from one ownership to another
120, 565
While the data submitted above has been compiled with the greatest care by
trained members of our Transfer Department staff, it must be considered but
approximately correct, inasmuch as we accepted your instruction to dispense
with the detail of a re-check
Very truly yours,
The CORPORATION TRUST COMPANY,
B S MANTZ, Vice President

Radio Corporation of America and subsidiaries
Call loans made during
1929
Banks through which Loans were effected

Amount of Street Loans
outstanding at—

Bankers Trust
Company

National Bank of
Commerce

New York Trust
Co

TOTAL

Amount Amount Amount Amount Amount Amount Amount Amount
of Call of Loan of Call of Loan of Call of Loan of Call of Loan
Recalled
Recalled Loan Recalled Loan
Loan
Kecalled
Loan
January 1,1929
January 3, 1929,
made,.
January 10,1929,
recalled
January 11,1929,
recalled
January 14, 1929,
made
January 17,1929,
made
January 22,1929,
recalled
February 2,1929,
made..
February 4,1929,
recalled. __
February 7,1929,
recalled
February 9,1929,
recalled

Loan

$9,500,000

Loan

200,000
$800,000
200,000
1,000,000

1,000,000

500,000

500,000
1,000,000

1,000,000

Loan

$6,500,000

Loan
Loan

$15,400,000

200,000

Loan
Loan

$300,000

$800,000

Loan

$5,600,000

100,000
10,000,000
11,500,000 11,500,000 6,600,000 6,600,000 500,000

$500,000

7,000,000
100,000
10,000,000

500,000 18,600,000 18,600,000

NOTE All Street Loans were discontinued on Feb 9,1929 and no other Street Loans made during balance of 1929

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT NO

103, FEBRUARY 23,

6385
1934

IRVING TRUST COMPANY,
RECEIVER IN EQUITY OP
RADIO-KEITH-ORPHEUM CORPORATION,

1270 Sixth Avenue, New York, October 27, 1988.
FERDINAND PECORA, Esq ,

Counsel, Committee on Banking and Currency,
285 Madison Avenue, New York, N Y,
Re Radio-Keith-Orpheum Corporation
Att Mr Schenker
DEAR SIR Your letter of October 17, 1933, addressed to Mr Merlin H Aylesworth, President, Radio-Keith-Orpheum Corporation, relating to certain data
desired by the Committee on Banking and Currency has been referred to us for
acknowledgment
We are writing to inform you that Irving Trust Company was appointed
receiver m equity of Radio-Keith-Orpheum Corporation by orders dated January
27 and February 17, 1933, made by the District Court of the United States for
the Southern District of New York, and that the business of said corporation
is being continued by Irving Trust Company pursuant to orders of said Court.
The assets of Radio-Keith-Orpheum Corporation, a holding company, consist
almost entirely of stocks and obligations of subsidiary companies which have
been pledged to secure certain obligations of the corporation
The cash position
of the corporation is extremely weak and its ability to raise funds for any purpose
severely restricted
As we advised you by telephone on October 25th, 1933, it would be extremely
difficult for the corporation to meet in full the request for information contained
in the questionnaire enclosed with your letter of October 17th The transfer
agent, Commercial National Bank & Trust Company, has stated that in order
to supply the data covered by the questionnaire with respect to the shares of
common stock m the names of stock brokerage firms, the total number of brokers
And brokerage firms appearing as owners of such common stock, the total number of shares transferred during the year 1929 and the total number of transfers
of such stock from one ownership to another, a cost of approximately $1,000
would be incurred
In addition, before any such expenditure could be incurred,
it would be necessary to obtain authority from the District Court under whose
jurisdiction the receivership is being conducted
At your request, we communicated with the Transfer Agent and requested them to advise you if this data
<could be supplied as of some other date and what cost would be involved
On our instructions, the data requested relating to street loans has been
•compiled by the Accounting Department of the corporation wittiout any substantial expense, and this information is attached hereto
Accordingly, we hope that you will notify us that it will be unnecessary to
consider further the matter of supplying the information as to which substantial
expense would be incurred, or to take up with the District Judge in charge of
this case the question of making such expenditure, in view of the severely limited
-cash resources of the estate
Very truly yours,
IRVING TRUST COMPANY

(Receiver in Equity),
By

MCCAUSLAND

A Give the following data for the year 1929
1 Total number of street loans made by your Corporation in the call money
market in New York City —Radio-Keith-Orpheum Corporation, its subsidiaries
and affiliates invested in the call money market through four commercial banks
in New York City
Such banks made periodical returns to the corporation of
the interest earned on such investments but only in one instance did the bank
report m detail the number of such street loans This particular bank, Commercial National Bank and Trust Company of New York reported to the corporation
eB,ch loan when called and each new loan when made
2 The total amount of the street loans made by your Corporation in the call money
market in New York City—The largest amount of money invested in the call
money market by Radio-Keith-Orpheum Corporation, its subsidiaries and affiliates was in March, 1929, when $8,000,000 was so invested
This amount
changed from time to time during the balance of the year 1929 and at the end of
such year $900,000 was so invested

6386

STOCK EXCHANGE PRACTICES

3 State the manner or method in which the loans made in the call money maiket
in New York City were effected, whether effected through commercial banks, private
banks or other agency describing svch agency, or directly to the borrower —Loans
made in the call money market m New York City were effected through four
commercial banks which were instructed to invest in call loans for the account of
the Corporation, lU subsidiaries and affiliates Such four commercial banks
were as follows
The Chase National Bank of the City of New York
The Commercial National Bank and Trust Company of New York
The Bank of America National Association
Empire Trust Company
Mr

MERLIN H

285 MADISON AVENUE, N E W YORK,
AGLESWORTH,

N Y , October 17,

1933

Pres Radio-Keith-Orpheum Corp , 1564 Broadway, New York, N Y
DEAR M R AGLESWORTH AS counsel for the Senate Committee on Banking
and Currency in its pending investigation, I send you herewith enclosed a questionnaire requesting certain data
I am resorting to this means of obtaining the information because I believe it
is a speedier and more convenient method than compelling attendance and the
production of books and records before the Committee in Washington, D C
I earnestly trust that I shall have the cooperation of your institution in this
matter so that I may be m a position to submit a compilation and analysis of this
information to the Committee by November 6th
Will you not inform me immediately whether you intend to comply with this
request and furnish the required data in due time?
Sincerely yours,
FERDINAND PECORA,

Counsel Committee on Banking and Currency.
COMMITTEE EXHIBIT NO

104,

FEBRUARY 23,

1934

TRI-CONTINENTAL CORPORATION,

New York, November 2, 1933
FERDINAND PECORA, Esq ,

Counsel Committee on Banking and Currency,
285 Madison Avenue, New York
DEAR M R PECORA Referring to your letter of October 26, 1933, and ques"
tionnaire regarding Street loans made by this Corporation in the call money
market in New York City m 1929, we would advise you as follows
1 During the year 1929, this Corporation and its affiliated Corporation, TriContinental Allied Company, Incorporated, made such Street loans to 209
borrowers, in all but a few cases members of the New York Stock Exchange
The amount of the loans to these borrowers increased or decreased from time
to time according to the amounts of cash which our corporations had free for this
purpose and the individual requests of the borrowers, on some occasions their
loans being paid off in full and reinstated at a later date
2 The maximum amount of such Street loans by the two corporations at anyone time outstanding was $62,150,000, the minimum at any one time outstanding $5,000,000, and the average amount during the yeaj was $29,268,624 64
This average is computed by taking the aggregate amount of loans outstanding
at the close of each day and dividing that aggregate by 349, the total number
of days subsequent to January 16, 1929, during which our corporations had call
loans outstanding
3 These loans were made through commercial banks and/or a New York
Stock Exchange house
Our own records do not have the complete details of all the loans but we have
been able to ascertain what our records lacked from the banks and Stock Exchange house which acted as our loaning agencies We shall be glad to furnish
you with such additional data regarding these loans as you may desire
Very truly yours,

TRI-CONTINENTAL CORPORATION,
By FRANCIS F RANDOLPH, President.

6387

STOCK EXCHANGE PRACTICES
TRI-CONTINENTAL

CORPORATION,

New York, February 20, 1984
PAUL LEIVELL, Esq.

United States Senate, Committee on Banking and Currency,
285 Madison Avenue, New York, N Y
DEAR MR. LEIVELL Confirming telephone conversation with you today and
supplementing information contained in Mr Randolph's letter dated November
2, 1933, to Mr Pecora I am pleased to give you the following data taken from the
records in our office with regard to questions number 1 and 2 of the questionnaire
Attached to Mr Pecora's letter of October 26, 1933
Tn-Continental Corporation made loans on call on sixty-two days during the
year 1929 Adding the total of such loans on said days makes an aggregate of
$131,325,000 of call loans made from time to time during the year Call loans
were paid off on 145 days during the year, and the aggregate amount of said
payments was $118,925,000
Tn-Continental Allied Company, Incorporated, Tri-Continental Corporation 's affiliated company, made loans on call on eighteen days during the year
1929 Adding the total of such loans on said days makes an aggregate of
$87,925,000 of call loans made from time to time during the yeai Call loans
were paid off on forty-two days during the year, and the aggregate amount of
said payments was $86,525,000
Each of the two corporations mentioned had an initial capital of $50,000,000
and had no borrowed money It is evident, therefore, that the above figures
include large amounts of loans which were made in substitution for loans that
were repaid
Very truly yours,
TRI-CONTINENTAL CORPORATION,
PAUL BARTHOLET, Comptroller

COMMITTEE EXHIBIT N O 105, FEBRUARY 23, 1934
THE UNITED CORPORATION,

Wilmington, Delaware, October 31, 1983
Honorable FERDINAND PECORA,

Counsel, United States Senate Committee on Banking and Currency,
285 Madison Avenue, New York, N Y
DEAR MR PECORA I have caused to be prepared and hand you herewith the
data as to The United Corporation, asked for in the Questionnaire enclosed with
your letter of October 17, 1933
As suggested in your further letter of October 26, 1933, the reply to Questions
A-l, 2 and 3 is as of July 10 for the year 1929
In 1929, The United Corporation had several small subsidiaries, all inactive,
which were the only corporations under the direct or indirect control and management of The United Corporation No loans were made by any such subsidiary In consequence the information in regard to loans applies only to The
United Corporation
Very truly yours,
GEORGE H HOWARD
The United Corporation, information in reply to questionnaire from the United
States Senate Committee on Banking and Currency
As of July
10,1929
Question A
1 Total Number of Shares of Common Stock in the Names of Brokers and
Brokerage Firms
1,493,951
2 Total number of brokers and brokerage firms appearing on records as
owners of Common Stock
553
3 Brokers and Brokerage firms who are the ten largest Broker holders of
record of shares of Common Stock
0)
Question B
1 The total number of shares of Common Stock transferred from one owner40,757,810
ship to another during the year 1929 was
2 The total number of transfers of Common Stock from one ownership to
another during the year 1929 was.
111, 658

As of July
1,1933

2,202,246
398

i No 1, 53,307, No 2, 31,949, No 3, 30,400, No 4, 28,224, No 5, 26,238, No 6, 22,737, No 7, 21,486, No
8, 21,309, No 9, 19,893, No 10, 18,999
* No 1, 117,455, No 2, 64,963, No 3, 59,460, No 4, 49,169, No 5, 47,331, No 6, 43,022, No 7, 41,21 , No
8, 39,108, No 9, 38,824, No 10,37,996

6388

STOCK EXCHANGE PRACTICES
QUESTIONNAIRE NO 2

Question A-l, 2, and 3—The United Corporation did not make directly any
street loans in the call money market of New York City during the year 1929
However, on January 25, 1929, The United Corporation obtained an interest
through J P Morgan & Co to the extent of $7,400,000 in six such loans These
loans were repaid as follows
January 30, 1929
$2, 500, 000
February 5, 1929
500, 000
February 9, 1929
3,000,000
February 18, 1929
1, 400, 000
Total

7, 400, 000
THE

UNITED CORPORATION,

Wilmington, Del, November 17, 1933
Honorable FERDINAND PECORA,

Counsel, United States Senate Committee on Banking and Currency,
285 Madison Avenue, New York, N Y
DEAR SIR Your associate, Mr Ellis, telephoned me with reference to the
40,757,810 shares of stock of The United Corporation transferred during the year
1929, and asked if I knew why so many shares were transferred I have inquired
of the transfer agent, and I can suggest no reason other than the very large volume of transactions in many stocks during the year 1929 resulting from the general
speculative conditions throughout the world in the early part of that year and
the panic that fall
Yours very truly,
GEORGE H HOWARD

COMMITTEE EXHIBIT NO 106, FEBRUARY 23, 1934
THE

UNITED GAS IMPROVEMENT CO

Philadelphia, October 25, 1988
FERDINAND PECORA, Esq,

Counsel, Committee on Banking and Currency,
No 285 Madison Avenue, New York, N Y
DEAR MR PECORA Supplementing my letter of October 19th, enclosed please
find this Company's answers to the questionnaires in reference to transfers, etc y
of our Common Stock and loans made by this Company or subsidiaries in the
call money market m New York City
Yours very truly,
THE UNITED GAS IMPROVEMENT COMPANY,
JOHN E ZIMMERMANN, President
THE

UNITED GAS IMPROVEMENT COMPANY

ANSWERS TO QUESTIONNAIRE OP COMMITTEE ON BANKING AND CURRENCY UNITED*
STATES SENATE

"A Give the following data for the year 1929
1. Total number of street loans made by your Corporation in the call money
market of New York City "
Ans During the year 1929 The United Gas Improvement Company loaned
no money on call in the New York call money market
Subsidiaries of The United Gas Improvement Company made 53 such loans
"2 The total amount of the street loans made by your Corporation in the call
money market of New York City "
Ans The maximum amount loaned at any one time by subsidiaries of The
United Gas Improvement Company was $3,600,000
"3 State the manner or method in which the loans made in the call money
market in New York City were effected whether effected through commercial
banks, private banks, or other agency, describing the agency, or directly to the
borrower "
Ans All loans were effected through National Banks and Trust Companies

6389

STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT NO

107, FEBRUARY 23,

AMERICAN FOUNDERS

1934

CORPORATION,

New York, November 6, 1938.
FERDINAND PECORA, Esq ,

Counsel Committee on Banking and Currency, United States Senate,
285 Madison Avenue, Ne
N Y
DEAR M R PECORA In answer to your letter of October 26, 1933 we submit
herewith answers to the questionnaire with respect to street loans made by this
Corporation in the New York City call money market during the year 1929
Our replies include loans made by this Corporation and the following controlled subsidiaries International Securities Corporation of America, Second
International Securities Corporation, United States & British International
Company, L t d , American & General Securities Corporation and Founders
General Corporation
Answer to Question 1 The total numbei of street loans made in the call
money market during 1929 was 1,588 loans Each loan made to a broker, regardless of the length of time for which the loan may have run, has been treated
as a separate loan and counted accordingly
Answer to Question 2 The amount placed in the call money market during
1929 averaged $23,629,166 66 The largest loan was $5,000,000, the smallest
loan was $25,000
Answer to Question 3 All loans made in the call money market m New York
City were effected for the account of this Corporation and its subsidiaries through
commercial banks
We trust this is the information you desire
Yours very truly,
L H SEAGRAVE, President
AMERICAN FOUNDERS CORPORATION,

New York, February 21, 1934
FERDINAND PECORA, Esq ,

Counsel Committee on Banking and Currency, United States Senate,
285 Madison Ave , New York City,
DEAR M R PECORA Supplementing our letter of November 6, 1933, we wish
to advise that the sum total of all of the 1,583 separate street loans made in the
call-money market during 1929 and reported by us in answer to question no 1
aggregated $424,450,000
We did not believe this figure was of any particular significance as a given
amount of money may have been placed on loan and called and then reloaned a
number of times, and the figure is merely a total of all the different loans, and we
therefore reported to you the average amount of money placed in the call-money
market during 1929 by us and our controlled subsidiaries of $23,629,166 66
We trust this is the information you require
Very truly yours.
L H SEAGRAVE
COMMITTEE EXHIBIT N O

109,

FEBRUARY 23,

1934

Schedule C
1929
Committee on publicity
Salaries and wages
President's speeches
President's annual report
Year Books, miscellaneous, other publications, gallery pamhlets, motionpicture expenses, postage, etc
Total
Office of economist
Salaries and wages
Stationery supplies, books, subscriptions, etc . .
.
Total
Subtotal

1930

1931

1932

$45,951 96 $53,020 20 $52,893 64 $46,514 64
16,788 44 36,799 74 64,449 00 12,942 50
16,084 18 18,422 65 13,988 20 16,597 50

1933

$28,750 00
1,357 00

55,091 21

84,299 96

107,924 56

89,669 84

32,628 97

133,915 79

192,542 55

239,255 40

165,724 48

62,735 97

34,510 66

45,941 62

44,203 55

38,879 67

28,320 90

6,419 66

5,480 74

1,404 99

1,835 10

1,913 64

40,930 32

51,422 36

45,608 54

40,714 77

30,234 54

174,846 11 243,964 91 284,863 94

206,439 25

92,970 51

NOTE —The expense of publication of statistical data prepared by the Department of the Economist is
included in the expense of the Committee on Publicity

STOCK EXCHANGE PRACTICES
MONDAY, FEBRUARY 26, 1934
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.
The committee met at 10:30 a.m., pursuant to adjournment on
Friday, February 23,1934, in room 301 of the Senate Office Building,
Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman) and Adams.
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; and Roland L.
Redmond, attorney for the New York Stock Exchange.
The CHAIRMAN. The committee will come to order, please.
I believe Mr. Harris was on the stand when we adjourned Friday.
Mr. PECORA. Mr. Harris, please resume the stand.
TESTIMONY OP GEORGE XI. HARRIS, MEMBER OP BROKERAGE
PIRM OP HARRIS, TTPHAM & CO., AND MEMBER PUBLICITY
COMMITTEE NEW YORK STOCK EXCHANGE—Resumed
Mr. PECORA. NOW, Mr. Harris, you testified, in substance, last
Friday, before this committee to the effect that the committee on
publicity had caused to be distributed many thousands of copies of
different pamphlets that deal with various subjects.
Mr. HARRIS. Yes, sir.
Mr. PECORA. Who selected those pamphlets for such distribution?
Mr. HARRIS. Just which pamphlets are you referring to?
Mr. PECORA. All of them.
Mr. HARRIS. Well, among others there were various speeches of the

president of the exchange.
Mr. PECORA. Yes; we know that.
Mr. HARRIS. Which he has written, and they have been distributed.
Mr. PECORA. Yes. But who selected the pamphlets that were to
be used for general public distribution by the exchange?
Mr. HARRIS. Well, the committee on publicity has put out all documents that they thought would be of real interest to the general
public.
Mr. PECORA. Well, did the committee on publicity decide what
pamphlets would be of general interest to the public, or did that
committee follow the judgment of anyone else with regard to that
matter ?
Mr. HARRIS. That matter is usually handled by the president's
office.
175541—34—PT 14

6391

6392

STOCK EXCHANGE PBACTICES

Mr. PECORA. Then, do you mean by that answer that the committee
on publicity, as such committee of the exchange, such documents,
pamphlets, or books as the president of the exchange thought should
be put out to the public 2
Mr. HARRIS. That is correct.
Mr. PECORA. And the committee itself did not exercise any independent judgment about those things.
Mr. HARRIS. NO, sir.
Mr. PECORA. I beg pardon, but I did not catch your answer.
Mr. HARRIS. NO ; they did not.
Mr. PECORA. And that is true of the way the committee on public-

ity has functioned ever since you have been a member of it, which
as I recall is for the past 4 years ?
Mr. HARRIS. Yes. I stated before that I had been a member of the
committee for 4 years. That was an error. My dates are wrong.
It is about 2 years. But since I have been a member of the committee all documents have been put out in that manner.
Mr. PECORA. And were you in error when you said you were a
member of the governing board for 4 years past?
Mr. HARRIS. N O ; that was correct.
Mr. PECORA. That answer is correct ?
Mr. HARRIS. Yes, sir.

Mr. PECORA. Have you read the various pamphlets that have been
circulated among the public by the New York Stock Exchange in
the last 2 years, since you have been a member of its committee on
publicity?
Mr. HARRIS. I cannot say that I have read every pamphlet carefully, but I know the contents of all pamphlets, and I have read the
most of them.
Mr. PECORA. What pamphlets were put out during the year 1931 ?
Mr. HARRIS. Would you like a detailed list of them ?
Mr. PECORA. Yes.
Mr. HARRIS. In 1931 there

were distributed:
The Place of the Stock Exchange in American Business. I t was
an address by the president.
Measuring the Stock Market. An address by Mr. Meeker, an
economist.
Public Opinion and the Stock Market. An address by the president.
Business Honesty. An address by the president.
Statement on Investment Trusts (Management Type) Special
Requirements Where Listing Investment Trust Securities.
Report of the president.
Economic Law in Business. An address by the president.
The Stock Exchange and Investment Trusts. An address by
George L. Tirrell, chief examiner of the committee on stock list.
Short Selling. An address by the president.
Short Selling and Liquidation. An address by the president.
Statistics in Regard to Short Selling.
New York Stock Exchange Year Book.
Mr. PECORA. If I have kept a correct tally of the publications you
have referred to, there were 15 of them that were put out during
the year 1931 Is that correct?

STOCK EXCHANGE PRACTICES

6393

Mr. HARRIS (counting them). I think there are only 12.
Mr. PECORA. Well, I will take your figures. Perhaps I jotted
down portions of titles as being a full title. There were 12, then*
Mr. HARRIS. Yes, sir.
Mr. PECORA. Have you read those 12?
Mr. HARRIS. Yes, sir.
Mr. PECORA. When?
Mr. HARRIS. Oh, I beg pardon. I misunderstood

your question*

Have I read all 12 of those?
Mr. PECORA. Yes.
Mr. HARRIS. I would not say that I have read all 12 of them.
Mr. PECORA. HOW many of the 12 have you read ?
Mr. HARRIS I would say I have read 50 percent of them, or six.
Mr. PECORA. YOU have read six of them.
Mr. HARRIS. Yes, sir.
Mr. PECORA. HOW many of the different pamphlets or publications

were distributed by the stock exchange to the public in the year
1932?
Mr. HARRIS. Six pamphlets.
Mr. PECORA. Can you give the titles of them ?
Mr. HARRIS. Yes, sir. Those distributed in 1932 were:
Statement of Richard Whitney, president.
Statement of Richard Whitney, president, before the Committee
on Finance of the United States Senate.
Statement of Richard Whitney, president, made to the governing
committee and the membership.
New York Stock Exchange, address by the president.
Report of the president.
New York Stock Exchange Year Book.
Mr. PECORA. Are you familiar with the contents of those six
pamphlets or publications?
Mr. HARRIS. I was at the time.
Mr. PECORA. Did you read all six of them?
Mr. HARRIS. I think I have read all six of those; yes.
Some time has passed and I don't remember now all of their
contents.
Mr. PECORA. NOW, in 1933 how many pamphlets, documents, or
publications were distributed to the public by the New York Stock
Exchange?
Mr. HARRIS. Three altogether, as follows:
Writing Down Assets and Writing Off Losses.
Securities Investors m the Future.
Statement of Richard Whitney, president.
Mr. PECORA. Did you read those?
Mr. HARRIS. I believe I only read one of them entirely.
Mr. PECORA. Which one was that?
Mr. HARRIS. The Statement of Richard Whitney, president. No;
I read two of them, which includes Securities Investors in the
Future. So I read two of the three.
Mr. PECORA. Which one was it that you did not read?
Mr. HARRIS. I did not read the one entitled "Writing Down
Assets and Writing Off Losses ", being an address by Mr. Hoxsey.

6394

STOCK EXCHANGE PBACTICES

Mr. PECORA. NOW, in 1930, how many different pamphlets, documents, or publications, were circulated among the public by the
New York Stock Exchange ?
Mr. HARRIS. There were 13 altogether. They were:
The Principal Causes of the Stock Market Crisis of 1929
Mr. PECORA (interposing). Whose address was that?
Mr. HARRIS. An address by Mr. E. H. H. Simmons, who was
then the president of the New York Stock Exchange.
Mr. PECORA. Was that the one delivered in January of 1930
before the Transportation Club?
Mr. HARRIS. Yes, sir.
Mr. PECORA. Have you
Mr. HARRIS. That was

read that address?
some time ago, but I think I did read it.
I have forgotten the details of it.
Mr. PECORA. Have you any recollection of the contents of that
speech that would enable you to summarize it for the benefit of this
committee now, as to what Mr. Simmons' claimed were the causes
of the stock market panic of 1929?
Mr. HARRIS. I am sorry, but I cannot remember the details of that
speech.
Mr. PECORA. All right. Now, Mr. Harris, how many of the 13
pamphlets, speeches, or publications that were distributed in 1930
have you read?
Mr. HARRIS. Mr. Pecora, it is very difficult for me to say now as
to that. That was 3 years ago and I would not want to guess at it.
I don't know.
Mr. PECORA. Would you guess that you read all of them?
Mr. HARRIS. I do not think I read all of them, but I may have.
Mr. PECORA. HOW many different pamphlets, documents, or publications were circulated by the stock exchange in 1929?
Mr. HARRIS. Eleven altogether.
Mr. PECORA. HOW many of them have you read, if you can tell us ?
Mr. HARRIS. I cannot tell you. I t was too long ago.
Mr. PECORA. NOW, in 1929, according to the information furnished
by the New York Stock Exchange to this committee in answer to a
questionnaire that the committee caused to be submitted to it, there
were distributed 466,000 copies, approximately, of the 11 pamphlets
that you have referred to, were there not?
Mr. HARRIS. There were.
Mr. PECORA. And in the following year, 1930, there were distributed approximately 790,000 copies of the 13 publications, were
there not?
Mr. HARRIS. That is correct.
Mr. PECORA. And in the year 1931 there were distributed 2,250,000
copies, approximately, of all the 12 publication that were circulated
to the public by the New York Stock Exchange.
Mr. HARRIS. Yes, sir.
Mr. PECORA. And in the

year 1932 there were only 260,000 copies,
approximately, of the six pamphlets distributed for the year.
Mr. HARRIS. That is true.
Mr. PECORA. And for the year 1933, or, rather, the first 9 months
of the year 1933, there were 55,000 copies, approximately, of the
three publications distributed in that year.

STOCK EXCHANGE PRACTICES

6395

Mr. HARRIS. That is true.
Mr. PECORA. Mr. Harris, what was the reason for the tremendous
increase in the number of copies of pamphlets distributed by the
New York Stock Exchange to the public m the year 1930 over the
preceding year, 1929 ?
Mr. HARRIS. I t happened that in the year 1930 there were two
speeches made for which there was an enormous demand from the
public, many requests coming in for additional copies of those
pamphlets.
Mr. PECORA. The approximate number of copies of pamphlets
distributed in the year 1929 was 466,000, while in 1930 it was
790,000.
Mr. HARRIS. Yes, sir.
Mr. PECORA. I S that accounted

for entirely by this demand that
you speak of?
Mr. HARRIS. I believe it is.
Mr. PECORA. NOW, Mr. Harris, in the year 1931 there was a much
greater increase in the circulation or distribution of copies of pamphlets over the number for the year 1930, because in 1931 there were
2.250,000 copies of the 12 different pamphlets distributed.
Mr. HARRIS. That is right.
Mr. PECORA. What was the reason for that tremendous increase
over the preceding year?
Mr. HARRIS. In that year there were two addresses given by the
president, Mr. Whitney, for which there was, again, an enormous
public demand. In one case I know that 400,000 requests came into
the exchange for additional copies.
Mr. PECORA. Yes. And in the year 1932 the number of copies of
pamphlets distributed by the New York Stock Exhange dwindled
from the number of 2*4 million in 1931 to 260,000 in 1932. Was that
due to the fact that the public had lost interest to a considerable
degree in speeches of officers of the stock exchange and that that
curtailed and lessened their demand for copies of them.
Mr. HARRIS. N O ; not entirely. There were only half as many
pamphlets sent out in 1932 as were sent out in 1931.
Mr. PECORA. That is, there were 6 sent out in 1932 as compared
to 12 in 1931«
Mr. HARRIS. Yes,

sir.

Mr. PECORA. But there were, approximately, one eighth the aggregate number went out.
Mr. HARRIS. That is right. That also just happened; that is, as
to the speeches made by the president of the exchange, there wasn't
the popular demand for them as was the case in the 2 preceding
years.
Mr. PECORA. What were the titles of the speeches that were distributed in 1932?
Mr. HARRIS. The one that had the largest circulation was the statement made by Kichard Whitney, president of the New York Stock
Exchange, before the Committee on Finance of the United States
Senate in regard to the Revenue Act of 1932,
Mr. PECORA. What were the other five phamphlets sent out in
1932?

6396

STOCK EXCHANGE PRACTICES

Mr. HARRIS. There was the statement of Richard Whitney, president, made to the governing committee and the membership, in
regard to the investigation of stock exchange practices by the Committee on Banking and Currency of the United States Senate, which
was August 24. The other one that had a rather large circulation
was the address made by Richard Whitney, president, before the
Industrial Club of St. Louis and the chamber of commerce of St.
Louis, St. Louis, Mo., entitled " New York Stock Exchange."
Mr. PECORA. What 1 am trying to find out from you, Mr. Harris,
if you can possibly help us to learn the fact, is why m the year
1932 there was such a considerable falling off of distribution of
pamphlets to the public by the New York Stock Exchange
Mr. HARRIS. Well, a part of that was
Mr. PECORA (continuing). A falling off measured by a difference
between 2,250,000 copies distributed m 1931 and only 260,000 copies
distributed in 1932.
Mr. HARRIS. Well, a part of that was in deference to the committee that was investigating the stock exchange. The president
did not make as many speeches as he had made theretofore.
Mr. PECORA. AS a matter of fact, one of the six pamphlets I believe, the one that you stated had the greatest circulation m 1932,
was his report based upon the investigation that had proceeded up
to that time, wasn't it 2
Mr. HARRIS. Yes. One was just a stenographic copy, and the other
was a statement made to the governing committee and the membership in regard to the investigation.
Mr. PECORA. HOW does that support your reasoning that the lessening in the distribution of pamphlets was due to the desire of the
committee on publication to accord deference to this Senate committee which was conducting the stock-market investigation?
Mr. HARRIS. Well, I think it was a sort of forbearance on the part
of the officers of the exchange. There was the investigation going
on here in Washington that we all knew about. As a consequence
the president did not make as many speeches as he normally does.
Mr. PECORA. But he did make some speeches and some reports, that
were printed and distributed to the public, did he not?
Mr. HARRIS. That is true.
Mr. PECORA. It was not to be expected that every speech he was
going to make that year was going to deal with this investigation,
was it?
Mr. HARRIS. NO.
Mr. PECORA. AS a

matter of fact, he did make one speech or report
which covered his observations on the investigation?
Mr. HARRIS. That is true.
Mr. PECORA. Up to the date of the delivery of that report by
him?
Mr. HARRIS. That is true.
Mr. PECORA. SO, where was that a deference to the committee, that
you speak of?
Mr. HARRIS. I do not see how I could explain it any more clearly.
I t seems to me that was obvious.
Mr. PECORA. All right. Now, Mr. Harris, for the first 9 months
of the year 1933 there were only 55,000 copies of pamphlets distrib

STOCK EXCHANGE PBACTICES

6397

uted by the New York Stock Exchange. What was the reason for v
that very considerable reduction from the number distributed in
the preceding year ?
Mr. HARRIS. In 1933, during the entire year, the president only
made one address, and there was one statement issued by him to
the board of estimate and apportionment of the city of New York.
Mr. PECORA. And that had to do with the attempt of the municipal
authorities of the city of New York early last fall to impose some
tax on the business of the members of the New York Stock Exchange.
Mr. HARRIS. That is true.
Mr. PECORA. Well, didn't the president of the New York {Stock
Exchange make speeches throughout the country during the year
1933?
Mr. HARRIS. NO, sir. According to my figures here he only made
one address, and there was very little public demand for it.
Mr. PECORA. What was the title of that address &
Mr. HARRIS. The title was " Securities Investors in the Future."
Mr. PECORA. There was very little demand for that?
Mr. HARRIS. Only 45,000 copies, which in comparison with other
speeches was very small.
Mr. PECORA. Who was the author of those speeches?
Mr. HARRIS. Mr. Whitney, of the one I just referred to, if that is
what you have in mind ?
Mr. PECORA. Ye*s.
Mr. HARRIS. Mr. Whitney was the author of it.
Mr. PECORA. Who was the author of the speeches delivered by Mr.
Simmons in 1928 and 1929, if you know?
Mr. HARRIS. I am not certain, but I imagine the author was Mr.
Simmons.
The CHAIRMAN. Public interest in securities had diminished a good
deal in 1933, hadn't it?
Mr. HARRIS. Well, there seemed to be less interest on the part of
the public so far as judged by their asking for copies of the various
speeches.
Mr. PECORA. Well, in order that the chairman's question may be
more fully answered, let me ask: Isn't it fair to say that trading on
the New York Stock Exchange in the year 1933 showed a measurable
increase over that which was done during the year 1932?
Mr. HARRIS. It did. As to whether or not that would have anything to do with demand for those speeches, I don't know.
Mr. PECORA. N O ; except that it might reflect the interest of the
public in the stock market.
Mr. HARRIS. It might do so, but I don't know it.
Mr. PECORA. HOW often does the board of governors of the New
York Stock Exchange meet?
Mr. HARRIS. They have a regular meeting every 2 weeks.
Mr. PEOORA. Every 2 weeks ?
Mr. HARRIS. Yes, sir.
Mr. PECORA. And special meetings at
Mr. HARRIS. Yes, sir.
Mr. PECORA. Those special meetings

president ?

other times?
are held at the call of the

6398

STOCK EXCHANGE PRACTICES

Mr. HARRIS. Or they may be at the request of some standing com' mittee, in order to bring up some important matter.
Mr. PECORA. Can you give us an approximate idea of the number
of meetings the governing committee held during the calendar year
1933?
Mr. HARRIS. NO, sir; I cannot.
The CHAIRMAN. HOW many members are there of the governing
committee ? Forty-one ?
Mr. HARRIS. Yes; I think the number is 41 or 40.
Mr. PECORA. Plus two ex-officio members?
Mr. HARRIS. Yes, sir; 40,1 believe.
Mr. PECORA. Are the members of the governing committee chosen
every year, or is only a portion of them chosen every year?
Mr. HARRIS. DO you want the exact language? I can give it to
you. There are one quarter of the membership chosen every year.
Mr. PECORA. Ten of the forty are chosen every year ?
Mr. HARRIS. Yes, sir.
Mr. PECORA. And for

what period of time are they elected annually?
Mr. HARRIS. They are elected to serve for 4 years.
Mr. PECORA. HOW are nominations for officers and members of
those committees made ?
Mr. HARRIS. There is a nominating committee appointed.
Mr. PECORA. Appointed by whom?
Mr. HARRIS. Just one minute. I have it here in the book and wilL
find it for you.
The CHAIRMAN. I think you said all committees were appointed
by the president of the exchange.
Mr. HARRIS. Yes, sir.

Mr. PECORA. NO ; not the governors.
Mr. HARRIS. The nominating committee is elected by the membership of the exchange, which committee consists of five members.
Mr. PECORA. That is, the nominating committee consists of five*
members ?
Mr. HARRIS. Yes, sir; and they are elected by the membership.
Mr. PECORA. That is, the nominating committee is elected by the
membership of the New York Stock Exchange.
Mr. HARRIS. Yes, sir.
Mr. PECORA. And are

the members of the nominating committee
named a year in advance of their functioning?
Mr. HARRIS. Well, not as to the exact time, but they are named
some time in advance.
Mr. PECORA. And they are named about a year in advance ?
Mr. HARRIS. I think that is correct.
Mr. PECORA. In other words, when is the annual election of officers of the New York Stock Exchange held?
Mr. HARRIS. On the second Monday of May.
Mr. PECORA. Of each year ?
Mr. HARRIS. Of each year; yes, sir.
Mr. PECORA. And when is the " slate ", so-called, of the nominating committee to be voted upon at the annual election, put out by
the nominating committee?

STOCK EXCHANGE PRACTICES

6399

Mr. HARRIS. On the second Monday in April of each year.
Mr. PECORA. And in that slate is there included the nominating
committee for the enusing year? In other words, will there be included in the slate put out for the annual election to be held next
May, by the present nominating committee, the names of the memboiJr oi the nominating committee who will make the slate for the
annual election of 1935!
Mr. HARRIS. Yes; I believe that is true.
Mr. PECORA. NOW, what are the duties and the powers of the socalled " governing committee " ?
Mr. HARRIS. They are as follows:
The governing committee shall be vested with all powers necessary for the
government of the exchange, the regulation of the business conduct of its members, and the promotion of its welfare, objects, and purposes
In the exercise of its powers, it may adopt such rules, issue such orders and
directions, and make such decisions as it may deem appropriate

Mr. PECORA. What provision of the constitution of the exchange
are you reading from ?
Mr. HARRIS. I am reading from page 2, article I I I , section 2.
Mr. PECORA. NOW, under section 3, the governing committee has
the power to appoint and dissolve all standing and other committees
•except the nominating committee, hasn't it ?
Mr. HARRIS. Yes,

sir.

Mr. PECORA. It also has the power to define, alter, and regulate
their jurisdiction, hasn't it?
Mr. HARRIS. Yes, sir.
Mr. PECORA. It has the

power of discipline o v r the members of
the exchange?
Mr. HARRIS. That is right.
Mr. PECORA. And the power of discipline extends to that of
•expulsion ?
Mr. HARRIS. Yes, sir.
The CHAIRMAN. Would

you say from that that the governing
committee is the real authority in control of the New York Stock
Exchange?
Mr. HARRIS. Yes, sir.
Mr. PECORA. NOW, Mr.

Harris, is there another committee known
as the " law committee " ?
Mr. HARRIS. There is.
Mr. PECORA. And what are the powers and duties of the law
committee of the New York Stock Exchange?
Mr. HARRIS. It provides:
A law committee, to consist of five members, which shall deal with matters
of law affecting the interests of the Exchange
It shall act in an advisory capacity to the president when requested by him
and shall, m association with the president, represent the exchange in all
matters affecting its general interests, and is authorized and empowered, in
its discretion, to examine into the dealings of any member of the exchange.

Mr. PECORA. The members of the law committee are appdmted by
the president, are they not?
Mr. HARRIS. Yes, sir.
Mr. PECORA. NOW, has

this law committee virtually superseded
the governing committee with regard to the representation of the
exchange in matters affecting its general interests ?

6400

STOCK EXCHANGE PRACTICES

Mr. HARRIS. I am sorry, Mr. Pecora, but I did not catch the first
part of your question.
Mr. PECORA. The committee reporter will read it to you. [Which
was done.]
Mr. HARRIS. NO, sir; I would not say that.
Mr. PECORA. Well, then, let me refer you to the eighth paragraph
of article 10 of the constitution, providing for the creation of a law
committee, and defining its duties and powers, which paragraph
says, in part, regarding the law committee:
It shall act in an advisory capacity to the president, when requested by him,
and shall, in association with the president, represent the exchange in aU
matters affecting its general interests

Doesn't that give the committee very, very broad powers, a very
broad grant of power, to function for the exchange m all matters
that might be deemed to affect the interests of the exchange?
Mr. HARRIS. Yes. But I believe that paragraph starts by saying
it shall act in an advisory capacity.
Mr. PECORA. I t starts out that way and then it says:
and shall, in association with the President, represent the exchange in all
matters affecting its general interests

Mr. HARRIS. Well, that is true.
Mr. PECORA. NOW, under that grant of authority, hasn't the law
committee virtually assumed the functions covered by the grant of
power to the governing committee ?
Mr. HARRIS. I do not think so, because in section 3 of the constitution, at page 3, it says:
The governing committee shall determine the manner and form by which
its proceedings shall be conducted; it shall appoint and may dissolve aU standing and other committees except the nominating committee, define, alter, and
regulate their jurisdiction as stated in this instrument and have original
and supervisory jurisdiction over any and all subjects and matters referred
to said committees, and may direct and control their actions or proceedings at
any stage thereof

Mr. PECORA. Aren't the members of the law committee referred to,
as a matter of fact, as being virtually the governing power of the
exchange in association with the president, and thus more so than
the governing committee?
Mr. HARRIS. I would not say that. Some of the older men, men
who have been on the governing board for a long time, are on the
law committee. But the exchange is governed by the governing
committee, as a whole.
Mr. PECORA. Has the matter of the action to be taken by the exchange with respect to the bill now pending in Congress to regulate
securities exchanges throughout the country been taken before the
governing committee of the exchange?
Mr. HARRIS. NO, sir; it has not.
Mr. PECORA. YOU say it has not?
Mr. HARRIS. NO, sir.
Mr. PECORA. Has it been taken before

the law committee of the
exchange ?
Mr. HARRIS. I don't know. I am not a member of the law committee.

STOCK EXCHANGE PRACTICES

6401

Mr. PECORA. YOU haven't heard one wav or other as to whether
it has?
Mr. HARRIS. I imagine it would be discussed there.
Mr. PECORA. The governing committee has not been called upon
to consider the position or attitude of the New York Stock Exchange, that is, the position or attitude it should take with respect
to the so-called Fletcher-Rayburn bill that is now awaiting action
by Congress?
Mr. HARRIS. Yes, sir. There was a meeting of the governing committee called, in which the matter was brought up, and the president
was to make an address and suggestions, and he asked for the approval of the governing committee.
Mr. PECORA. Mr. Committee Reporter, will you read back there
and give me the answer that Mr. Harris first made in that respect?
Mr. HARRIS. There was one place there where I realize the question
was incorrect
Mr. PECORA (interposing). You mean that your answer to one of
my questions was incorrect?
Mr HARRIS. Yes, sir; the answer given by me was incorrect.
Mr. PECORA, Well, let me hear the committee reporter read what
the incorrect answer was that you made.
(Thereupon the committee reporter read, as follows:)
Mr. PECORA Has the matter of the action to be taken by the exchange with
respect to the bill now pending m Congress to regulate securities exchanges
throughout the country, been taken before the governing committee of the
exchange?
Mr HARRIS NO, sir; it has not.

Mr. PECORA. YOU say it has not9
Mr HARRIS. NO, sir

Mr. HARRIS. I should like to correct that answer.
Mr. PECORA. What is your answer to that question now?
Mr. HARRIS. That it has, and I forgot this special meeting.
Mr. PECORA. YOU forgot the special meetings of the governing
committee at which that subject wag brought up?
Mr. HARRIS. Yes, sir.
Mr. PECORA. Was not

the business transacted at those special
meetings of outstanding importance ?
Mr. HARRIS. There are a good many meetings, Mr. Pecora. I did
forget that particular meeting. I remember distinctly now.
Mr. PECORA. What took place at that meeting, at which that
subject was considered?
Mr. HARRIS. The president asked for the approval of the governing committee of the stand he was going to take. Approval was
granted.
Mr. PECORA. What did he say was the stand he was going to take ?
Mr. HARRIS. Well, I cannot remember the details of it.
Mr. PECORA. What was the substance of it ?
Mr. HARRIS. It was his suggestion—the suggestion, rather, that he
made before the House committee here within 3 or 4 days—with
regard to having an authority in charge of exchange matters, the
authority to consist of two members appointed by the President, and
so forth, as was described at that meeting.
Mr. PECORA. I S that all you can tell us about the substance of what
took place at that meeting with respect to that subject?

6402

STOCK EXCHANGE PRACTICES

Mr. HARRIS. The president outlined his plan
Mr. PECORA. What was the plan that he outlined?
Mr. HARRIS. He outlined that in lieu of suggestions made, that a
committee be appointed, 2 members to be appointed by the President of the United States, 1 member to be appointed by the Federal
Keserve, 2 members of the Cabinet, 1 member to be appointed by
the New York Stock Exchange, and 1 by the other exchanges
throughout the country, they to be an authority to have control of
the stock exchanges.
Mr. PECORA YOU are stating now the substance of the suggestion
that Mr. Whitney made to the governing committee with regard to
the kind of legislation that should be asked of the Congress on this
subject of regulation of securities exchanges.
Mr. HARRIS True.
Mr. PECORA What I am asking you to tell us is what attitude was
suggested to the governing committee at that special meeting by Mr.
Whitney should be the attitude taken by the stock exchange on the
so-called " Fletcher-Rayburn bill."
Mr HARRIS This attitude we have just been over.
Mr. PECORA. I S that all that was discussed at that meeting ?
Mr. HARRIS. Yes. He asked for the approval of that matter, and
it was granted.
Mr. PECORA. Did he report to the governing committee, so far as
you know, his own views with regard to the Fletcher-Rayburn bill %
Mr. HARRIS. He reported to the entire membership.
Mr. PECORA. I am talking about this meeting of the governing
committee, this special meeting, at which the subject of the attitude
to be taken by the stock exchange on this bill was discussed.
Mr. HARRIS. NO ; not at that time.
Mr PECORA. Did he at any other time, at any other meeting of the
governing committee, enter into any such discussion?
Mr. HARRIS. NO ; he did not take that up, and I imagine due to the
fact that he had already sent a letter to all members.
Mr. PECORA. What was the letter he sent to all the members, to
which you refer? Have you a copy of it?
Mr. HARRIS. Yes; I have.
Mr. PECORA. Will you produce it, please 2
(Mr. Harris produced a paper and handed the same to Mr. Pecora.)
The CHAIRMAN. Did Mr. Whitney take the position, before the
governing committee, that there was need for some regulation of the
stock exchange by some authority, when he recommended this commission that you mentioned?
Mr. HARRIS. He did not say that he thought there was any need
of it, but he thought that if regulatory powers were going to be
granted to some authority, the suggestion that he made would be a
wise one
Mr. PECORA. I offer for the record the copy of the letter produced
by the witness.
The CHAIRMAN. Let it be admitted.
(Copy of letter, Feb. 14, 1934, Whitney to stock exchange members, was received m evidence and marked "Committee's Exhibit
No. 110 ", Feb. 26, 1934, and the same will be found at the conclusion of today's proceedings.)

STOCK EXCHANGE PRACTICES

6403

Mr. PECORA. This letter is dated February 14, 1934, and is a
printed form addressed to all members, signed by Richard Whitney,
president.
Was this special meeting of the governing committee held prior
to February 14, 1934?
Mr. HARRIS. I do not remember the date, Mr. Pecora.
Mr PECORA. At that meeting was this letter produced, or any
copy thereof, for the consideration of the governing committee ?
Mr. HARRIS. I t was not.
Mr. PECORA. Did the governing

committee at any time pass specifically upon this letter and authorize its distribution 2
Mr. HARRIS. NO, sir.
Mr. PECORA. Has the

governing committee at any time taken any
formal action with regard to the attitude to be taken by the New
York Stock Exchange with respect to this Fletcher-Rayburn bill?
Mr. HARRIS. That covers a long period of time.
Mr. PECORA. NO ; it would not cover a longer period of time than
that embraced by the time which has elapsed since the bill was
introduced, less than 3 weeks ago, as I recall it.
Mr. HARRIS. NO, it has not. I thought you meant since the investigation started.
Mr. PECORA. I am confining myself now to the bill. Has the governing committee taken any formal action with regard to determining the attitude of the stock exchange with reference to the FletcherRayburn bill?
Mr. HARRIS. None other than the one I have already told you
about.
Mr. PECORA. What was the action it took then, at that special
meeting you have referred to ^
Mr. HARRIS. It granted its approval to the President.
Mr. PECORA. Approval of what 2
Mr. HARRIS. Of his suggestion.
Mr. PECORA. What was the suggestion?
Mr. HARRIS. The suggestion about an authority, a supreme command. I gave the details of that before. Do you want me to go
over it again ?
Mr. PECORA. DO you mean the suggestion Mr. Whitney gave expression to at the hearings held recently, I believe last week, before
the House committee on this bill ?
Mr. HARRIS. That is the matter I refer to.
Mr. PECORA. IS that the only action taken by the governing committee with respect to the position of the stock exchange with reference to this Fletcher-Rayburn bill ?
Mr. HARRIS. Yes,
Mr. PECORA. DO

sir.

you know what has been done by or on behalf
of the New York Stock Exchange m lining up opposition to the
Mr HARRIS. I know of no attempt on the part of the New York
Stock Exchange to line up opposition to the bill.
Mr. PECORA DO you know of a letter which was addressed by Mr.
Whitney to the executive heads of several hundred corporations
throughout the country whose .securities are listed on the New York
Stock Exchange?

6404

STOCK EXCHANGE PEACTICES

Mr. HARRIS. I have seen the letter.
Mr. PECORA. Would you say that that letter was in pursuance of
an attempt to line up opposition to the bill?
Mr. HARRIS. I would say that that letter was a statement of fact,
as seen in the eyes of the exchange, by companies which have paid
moneys to have their stocks listed.
Mr. PECORA. And designed to line up those companies in oppo,sition to the bill ?
Mr. HARRIS. I do not think that, Mr. Pecora.
Mr. PECORA. YOU would not say that?
Mr. HARRI. I would say it was a statement
Mr. PECORA. What was the statement sent out for, if it was not
to arouse that opposition to the bill on the part of the executives
of these corporations?
Mr. HARRIS. I think it was the duty of the New York Stock Exchange to point out to these various corporations that they might
be greatly affected.
Mr. PECORA. The letter itself you have read, have you not?
Mr. HARRIS. Yes, sir.
Mr. PECORA. The letter

points out certain alleged defects or shortcomings or weaknesses in the bill, does it not?
Mr. HARRIS. I t does.
Mr. PECORA. Would you not say that the letter was intended to
line up opposition to the bill among the corporations or their executive officers?
Mr. HARRIS. NO ; I would not put it that way. I think it is merely
pointing out facts to those corporations—the duty of the exchange.
Mr. PECORA. It pointed out facts that would prompt them to oppose the enactment of the bill, did it not?
Mr. HARRIS. That is quite likely.
Mr. PECORA. Was that sent out with the approval of the governing
committee ?
Mr. HARRIS. NO, sir.
The CHAIRMAN. What

are the fees that these corporations have to
pay for listing?
Mr. HARRIS. Mr. Chairman, I cannot tell you those offhand.
Mr. REDMOND. They vary, Mr. Chairman. Prior to about 1927
they used to be the equivalent of 1 cent per share^ and I think now
on new listings it is 1.2 cents per share on original listings, with lower
fees m the case of a listing that grows out of a merger, consolidation,
change/of name, and other similar things, where it is not exactly a
new issue being brought on the list. I can get you the exact charges
and state them for the record, if you would like to have them.
The CHAIRMAN. I think we ought to have those. How do the
fees run when there is an additional listing?
Mr. REDMOND. I t depends upon the nature of the listing. If it
grows out of a reorganization or consolidation, it may have a lower
rate than an original listing.
Mr. PECORA. Mr. Harris, have you a copy of the letter which was
addressed by Mr. Whitney to the executive heads of these corporations with respect to the Fletcher-Rayburn bill ?
Mr. HARRIS. Yes, sir.

STOCK EXCHANGE PBACTICES

6405

Mr. PECORA. Will you produce it, please?
(Mr. Harris produced a paper and handed the same to Mr. Pecora.)
Mr. PECORA. I offer this m evidence.
The CHAIRMAN. Let it be admitted.
(Copy of letter, Feb. 14, 1934, Whitney to member corporations,
was received in evidence, marked " Committee Exhibit No. I l l , "
Feb. 26,1934, and the same will be found at the conclusion of today's
proceedings.)
Mr. PECORA. DO you know of any other letters that have been
sent out by Mr. Whitney in behalf of the New York Stock Exchange,
or as president of that institution, with respect to the FletcherRayburn bill?
Mr. HARRIS. Yes; I know of one other document that went out,
in memorandum form.
Mr. PECORA. Can you produce a copy of it?
Mr. HARRIS. I am not certain. I think I have one [producing a
paper and handing it to Mr. Pecora].
Mr. PECORA. I offer this in evidence.
Mr. HARRIS. Mr. Pecora, that last document or memorandum was
not sent out. I think that was only given out when requested, but
it was not generally sent out. As you notice, it is not addressed to
anyone, I believe.
Mr. PECORA. I will offer it in evidence anyway, with that explanation of what it is.
The CHAIRMAN. Let it be admitted. Does it bear any date?
Mr. PECORA. I do not think it does. I only took a hasty glance
at it.
Mr. REDMOND. NO, sir.
Mr. PECORA. And it is not
Mr, HARRIS. N O ; it is not

signed either?
signed.
(Copy of undated, unsigned, memorandum in re effect of National
Securities Act, was received in evidence and marked " Committee
Exhibit No. 112 ", Feb. 26, 1934, and the same will be found at the
conclusion of today's proceedings.)
Mr. PECORA. SO far as you know, was this last document which
you
have handed me, and which has been marked in evidence as
u
Committee's Exhibit 112 ", submitted to the governing committee
for its consideration ?
Mr. HARRIS. NO, sir.
Mr. PECORA. DO you know

who prepared this last document, which
bears no name?
Mr. HARRIS. I believe the president.
Mr. REDMOND. I can correct that, Mr. Pecora. That document
was prepared in my office in response to a request from the exchange
for a document analyzing the Fletcher-Rayburn bill, as it affected
unlisted corporations and nonmembers of the exchange.
,Mr. PECORA. Mr. Harris, do you know who prepared the letter
marked in evidence as " Committee's Exhibit No. 110 " of this date,
and which is the letter signed by Mr. Whitney as president, and addressed to all members of the New York Stock Exchange ?
Mr. HARRIS. I believe that letter was sent out by Mr. Whitney.
He prepared it.
Mr. PECORA. Was it prepared by him ?

6406

STOCK EXCHANGE PEACTICES

Mr. HARRIS. I believe so.
Mr. PECORA (addressing Mr. Eedmond). That was not prepared
in your office?
Mr. REDMOND. Very largely Mr. Whitney's; checked, of course, by
my firm in regard to its legal aspects and the correctness of the
analysis of the language of the bill.
,Mr. PECORA. DO you know who prepared the letter addressed to
the presidents of all listed corporations, which is marked " Committee's Exhibit No. I l l " ?
Mr. REDMOND. The same procedure was followed. With regard
to the analysis of the bill, it was very largely prepared by me, or by
my office, and the balance of it was entirely Mr. Whitney's.
Mr. PECORA. The greater part of the document deals with an
analysis of the bill and its provisions.
Mr. REDMOND. Naturally.
Mr. PECORA. That was the part that your office prepared?
Mr. REDMOND. Because it deals with the specific provisions of the
bill, Mr. Pecora, yes.
Mr. PECORA. That is also true of exhibit no. 112, which is the
memorandum which is not signed nor addressed to any particulai
person ?
Mr. REDMOND. That was entirely prepared m my office.
Mr. PECORA. DO you know of any other communications that have
been addressed by or on behalf of the Stock Exchange, or any of its
officers or members, with regard to the Fletcher-Rayburn bill ?
Mr. HARRIS. I know of no others.
Mr. PECORA. DO you know whether or not the members of the
Exchange have, in turn, circularized their clients or customers m
connection with the Fletcher-Rayburn bill ?
Mr. HARRIS. I do not know.
Mr. PECORA. YOU have not heard of any such thing?
Mr. HARRIS. I can not say as to that, Mr. Pecora. I do not
know whether member firms have done it or not.
Mr. PECORA. Did your firm undertake any such activity? Can
you tell us about that?
Mr. HARRIS. We stated that we had these 3 letters we have been
discussing, or 2 letters, rather, 1 addressed to members and 1 addressed to the presidents of all listed corporations.
Mr. PECORA. YOU stated that to whom ?
Mr. HARRIS We stated that to our various branch officers and
correspondents, and asked them if they would like copies of this
literature. They practically all said they did, and we sent out a
large number of copies.
Mr. PECORA. About how many did your firm send out?
Mr. HARRIS. I did not handle that. I do not know.
Mr. PECORA. But a large number ?
Mr. HARRIS. Quite a few.
The CHAIRMAN. HOW many branch offices have you, of the New
York Stock Exchange?
Mr. HARRIS. I think it is 23 I am not certain as to that.
Mr. PECORA. Are they located m as many different communities ?
Mr. HARRIS. Yes. They are widely spread over the country.
Mr. PECORA. DO you know whether other members or member firms
of the stock exchange did likewise ?

STOCK EXCHANGE PRACTICES

6407

Mr. HARRIS I do not know, Mr. Pecora.
Mr. PECORA. Could you produce a copy of the communication that
your firm caused to be sent out ?
Mr. HARRIS. I do not think we sent out any communication as a
firm. I think we merely used the wire to state that we had these
letters, to individuals and various officers, and asked them if they
would like copies.
The CHAIRMAN. YOU spoke about correspondents. How many
correspondents have you ?
Mr. HARRIS. I think we have about 10 correspondents.
The CHAIRMAN. In addition to the branch offices ?
Mr. HARRIS. Yes, sir.
Mr. PECORA. What was the substance of the wire that you
Mr. HARRIS I did not send the wire out, Mr. Pecora,

sent out?
but as I
remember it, we just stated in the wire that we had these two letters.
Mr. PECORA. Three.
Mr. HARRIS. TWO. The exchange did not send out the others—
1 to members and 1 to presidents of all listed corporations—and that
we would supply them with them if they would care to have them.
Mr. PECORA. Have you got the minute books of the committee on
publicity, Mr. Redmond?
Mr. REDMOND. I have [producing books and handing the same to
Mr. Pecora].
Mr. PECORA. I notice from the minute book which has just been
handed to me, Mr. Harris, that the last meeting of the committee
on publicity was held on February 21,1934.
Mr. HARRIS. Yes, sir.
Mr. PECORA. The meeting

just prior to that was held on November

13, 1933.
Mr. HARRIS. Yes, sir.
Mr PECORA. And the

meeting prior to that was held on October
31, 1933
Mr. HARRIS. That is correct.
Mr PECORA. In glancing over the minutes of the meeting of October 31, 1933, I find the following statement (reading):
The committee discussed the possible extension of publicity work through
the medium of speeches, pamphlets, radio talk*>, and magazine and newspaper
articles.

Can you tell us more in detail about that discussion ?
Mr. HARRIS There is not much more to say about it, Mr. Pecora.
Those matters came up and were discussed, and the committee de
cided not to do anything about them.
Mr PECORA In the minutes of the meeting of the committee on
publicity held on August 21 last, I notice the following item [reading] •
The committee did not approve of a proposal of the New York Evening Post
that the exchange sponsor an advertisement or a series of advertisements
with reference to the National Recovery Administration

Do you recall that action?
Mr. HARRIS Yes, sir; I recall that action. The exchange never
goes into that type of advertising and publicity, and we so notified
the Evening Post.
175541—34—PT 14

6408

STOCK EXCHANGE PRACTICES

Mr. PECORA. What kind of advertising or publicity does the exchange go in for, as distinguished from newspaper advertising?
Mr. HARRIS. They do no advertising whatsoever. Their publicity
is mostly the publishing of these documents and various letters and
speeches of the president, and sending them out.
Mr. PECORA. I notice in the minutes of the meeting of the committee on publicity held on May 19, 1933, the following item [reading] :
The suggestion of Mr. Westerfield that our present mailing list of college
professors be expanded to include all of the economics faculty of the principal
universities was approved

Do you recall that action?
Mr. HARRIS. Yes, sir.
Mr. PECORA. Who is Mr. Westerfield, who made that
Mr. HARRIS. Mr. Westerfield is an assistant secretary

suggestion?
of the stock

exchange. He is not an officer.
The CHAIRMAN. Does not the stock exchange issue a bulletin?
Mr. HARRIS. Yes, sir. The stock exchange issues a bulletin weekly,
which gives all data pertaining to sales of memberships, dividends,
and other statistical matter; and another bulletin monthly that is
gotten out by the Department of the Economist, that shows the
averages of all stocks, the number of sales of bonds and stocks, the
number of shares traded in, and a chart showing the dividend yields,
jand statistical data of that sort.
The CHAIRMAN. I S that handled by your committee ?
Mr. HARRIS. That is handled by the Department of Economist.
The committee on publicity pay for it, though. The expenses are
charged to the committee on publicity for those statistical data.
Mr. PECORA. I notice in the minutes of the meeting of the committee on publicity held on March 24, 1933, the following item
[reading] :
Mr Westerfield reported on conveisations he has had with a Mr. Amos,
of The American Federationist, published by the American Federation of
Labor, with reference to the exchange running a series of paid articles in
that paper The president also reported on correspondence with a Mr. Widden,
of the Journal of Commerce, with reference to a suggestion that the stock
exchange advertise The committee did not approve

Do you recall that?
Mr. HARRIS. Yes; I recall that. Mr. Pecora, I was present at
that meeting, was I not?
Mr PECORA. Yes; according to the recital in the minutes. Did
the committee, at this meeting of March 24 last,x disapprove of the
suggestion that the exchange run a series of paid articles in the
American Federationist?
Mr. HARRIS. They did.
Mr. PECORA And also disapproved of the suggestion made in
behalf of the Journal of Commerce?
Mr. HARRIS Yes,

sir.

Mr. PECORA. I notice in the minutes of the meeting held on February 27 last the following entry [reading] :
The secretary submitted the following memorandum from the president giving
an opinion of the law committee wi'h refeience to giving publicity material to
public schools

STOCK EXCHANGE PRACTICES

6409

*' I have youi memorandum of January 27 regarding the giving of publicity
matenal to public schools This matter I have referred to the law committee
today, and they agree to the present piactice ot the committee on publicity, it
being understood that the material furnished should be the general publicity
material of the exchange, from which the desired information can be compiled
by the inquirers foi use in textbooks, et ceteia It was specifically agieed that
no employee of the exchange should actually write the text of the books to be
used "
Mr Westei field asked the ad\ice of the committee as to whether the above
authorization included pei mission to gne copynghted photographs of the exchange to reputable writers and pubhsheis for use m school textbooks The
committee approved, subject to the general policy, which is to give such publicity
material only on specific solicited requests

Do you recall that?
Mr. HARRIS. Yes, sir.
Mr. PECORA. What is

meant by the expression in the concluding
sentence of that item, which I will read again to you (reading):
The committee approved, subject to the general policy, which is to give such
publicity material only on specific solicited lequests

Mr. HARRIS. In other words, the exchange would send out none of
its publicity material unless it were requested. Unsolicited, they
would not send anything. Does not that paragraph, at the start, take
up the sending of it to schools ?
Mr. PECORA. Yes.
Mr. HARRIS. They

would send it, then, to no school that did not
request it.
Mr. PECORA. I am a little uncertain about the meaning of the
phrase " specific solicited requests." Does that mean requests of the
stock exchange were to be solicited by the stock exchange?
Mr. HARRIS. NO, sir.
Mr. PECORA. Then why the reference to " solicited
Mr. HARRIS. If the institution, if the school, should

requests " ?
solicit from the

stock exchange or should ask for these data
Mr. PECORA. That would be a request, would it not ?
Mr. HARRIS. Yes; but that is the meaning of that phrase.
Mr. PECORA. Why the use of the adjective " solicited " ?
Mr. HARRIS. That is the intent of that meaning there.
Mr. PECORA. A request in that form would not be a solicited request.
Mr. HARRIS. The secretary may be m error in his English m writing it up, but the purpose of the committee was never to send out
any of those data to any school unless the school first requested
them of the stock exchange.
Mr. PECORA. What would be a solicited request, as distinguished
from an unsolicited request ?
Mr. HARRIS. Well, I should think an example would be if a school
here in Washington should write to the New Yoik Stock Exchange
requesting them to send them a certain specific pamphlet, or any documents that they had sent out that year to educational institutions
Mr. PECORA. That would be a solicited request?
Mr. HARRIS. Yes, sir.

Mr. PECORA. What would be an unsolicited request?
Mr. HARRIS. In case the stock exchange—and it is their policy
never to do so—should send to a school, unsolicited, of the.r o n
free will, on their own initiative, documents dealing with the \\ orkings of the exchange.

6410

STOCK EXCHANGE PBACTICES

Mr. PECORA. That would not be a request at all, would it?
Mr. HARRIS. N O ; it is not a request. I say it would be done on
their own initiative.
Mr. PECORA. On the initiative of the exchange.
Mr. HARRIS. Of the New York Stock Exchange.
Mr. PECORA. In the minutes of the meeting of the committee on
publicity held on January 26,1933,1 find the expression " unsolicited
requests " used as follows [reading] :
A request of the board of public education of the school district of Philadelphia for a loan for an extended period of the stock exchange films was
approved The president was requested to secure from the law committee
an opinion for the future guidance of his committee, with respect to policy
m connection with supplying public schools with publicity matenal, such as
copyrighted photographs of the exchange for school textbooks, pamphlet material in quantities, and the loan of our motion-picture films The feeling of
the committee on publicity was that there can be no ob3ection to the sending
of publicity material to schools on specific unsolicited requests

What did that mean2 What did you understand by the use of
the term " unsolicited requests " m this entry m the minutes ?
Mr. HARRIS. I know the policy of the committee on that matter,
Mr. Pecora, and that is just as I explained before, never to send
any data unless they have been requested by the school first.
Mr. PECORA. YOU have references m these minutes both to unsolicited requests for publicity matenal and solicited requests. There
is some difference between the two As I understand your definition
of a solicited request, it is a request that was not solicited by the
stock exchange.
Mr. HARRIS. Yes.
Mr. PECORA. Then what is an unsolicited request ?
Mr. REDMOND. May we see the minute book there ^
Mr. PECORA. Yes [handing book to Mr. Redmond].
Mr. REDMOND. Mr. Pecora, I think it is clear that it

is " unsolicited
requests " in both cases. The typewriting is not very clear in this
second meeting, but it was clearly written " unsolicited ", and it was
intended, as the witness has said, to express the policy of the committee that the requests should be unsolicited in both instances. Is
it not perfectly clear that it was typewritten " unsolicited " in both
cases 2
Mr. PECORA. It is also perfectly clear that the prefix " u n " in
one instance is marked out, is it not?
Mr. REDMOND. N O ; I think it is blurred, but I would not say it
was marked out.
Mr. PECORA. Well, I think it is a little bit more than blurred.
Mr. HARRIS. I am sure that this is a typographical error, Mr.
Pecora.
Mr PECORA Well, why any reference at all to " unsolicited requests " if there were no solicited requests? Why that characterization of requests 2
Mr. HARRIS Mr. Pecora, I cannot say any more on that than it
expressed the policy of the committee since I have been on it, and
that is that they never send data of the description that we are
discussing unsolicited to schools, unless the schools ask for it first.
Mr. PECORA (after examining document further). Mr. Redmond,
don't you think there is an ink stroke drawn through the prefix

STOCK EXCHANGE PRACTICES

6411

"" un " at page 112 of the minute book of the committee on publicity ?
Mr. KEDMOND. It is blurred, and there may be an ink stroke, but
clearly, if there was intended to be a correction of the minutes, we
would have found that prefix rubbed out or we would have found
it clearly stricken out. I t is possible that there is an accidental
pen stroke there that has blurred the prefix, but it was clearly
typed " unsolicited " m both bases, and that is the policy of the
committee.
Mr. PECORA. HOW can a request be solicited ? What is the reason
for defining some requests as u solicited" and others as " unsolicited"*
Mr. HARRIS. I do not think there is, Mr. Pecora. I think there
is just one class; that is, subject to the question whether or not
that " unsolicited " is crossed out or not. I think it is a typographical error, but I really cannot say more than
Mr. PECORA (interposing). Why is there any necessity for mentioning unsolicited requests? at all if the exchange does not solicit
the making of any requests
Mr. HARRIS. I cannot speak for the English in the book. All I
can do is repeat the policy of the committee.
Mr. PECORA. NOW, Mr. Harris, you have been a member of the
exchange for 7 years, I think you said &
Mr. HARRIS. Yes, sir; I believe it is 7 years
Mr. PECORA. And a member of the board of governors, or the
governing committee for 4 years ?
Mr. HARRIS. I have been a member of the governing committee
since May 15, 1928.
Mr. PECORA. That is nearly 5 years.
Mr. HARRIS. Nearly 5 years, yes
Mr. PECORA Has a treasurer's report for the exchange as an
institution ever been seen by you 2
Mr. HARRIS. Yes,

sir.

Mr. PECORA. I S it ever circulated among the members ?
Mr HARRIS. I am not on the finance committee. I am not certain as to that. I see it regularly.
Mr. PECORA. YOU would know as a member whether or not an
annual balance sheet, we will say, of the exchange is given to the
members ?
Mr. HARRIS. I see it myself regularly and—no; I don't think it is.
Mr. PECORA. DO you know the reason for that?
Mr. HARRIS. NO, sir.
Mr. PECORA. And it is not published in
Mr. HARRIS. I believe it is not.
Mr. PECORA. I t is not published m any

any year book, is it?

report issued in behalf of
the exchange or made to the exchange by any of its officers ?
Mr. HARRIS. NO, sir.
Mr. PECORA. I want to

call your attention to the provisions of section 1 of article 6 of the constitution of the stock exchange, reading
as follows:
It shall be the duty of the treasurer to leceive, and, acting under instructions from thefinancecommittee, to take charge of and disburse moneys of
the exchange He shall report fully to thefinancecommittee m regard thereto
at its stated meetings He shall present to the governing committee at its
first regular meeting m January of each year a report of thefinancesof the

6412

STOCK EXCHA1TGE PRACTICES

exchange for the 12 months ending December 31, preceding He shall also
present to the governing committee at its first regular meeting in January r
April July and October, a report of finances of the exchange for the 3 months
preceding

Has it ever been the practice or rule of procedure or custom for
the stock exchange to make public to its membership—not to the
general public, but to its membership—a report of its finances;
that is, of its income and operating expenses, and so forth, and disbursements?
Mr. HARRIS. I believe not.
Mr. PECORA. D O you know any reason why that information is not
given to the members of the exchange 2
Mr. HARRIS. NO, sir; but I think any member of the exchange
could go to the president of the exchange and discuss it with him.
Mr. JPECORA. DO you know any reason at all why it is not given
to members of the exchange as a matter of routine ?
Mr. HARRIS. I do not.
Mr. PECORA. AS a member

of the governing committee of the
exchange, I assume that at the meeting that was held last month
the treasurer, under the provisions of section 1 of article 6, reported
or presented to it a report of the finances of the exchange for the
12 months ending December 31 last?
Mr. HARRIS. He did.
Mr. PECORA. D O you recall what that
Mr. HARRIS. I am sorry, Mr Pecora

report showed?
I haven't a good memory.

I do not remember the figures
Mr. PECORA. Can't you tell us what the figures were even approximately ?
Mr. HARRIS. I am sorry. I would not want to guess at them
Mr. PECORA. YOU heard the report only within the past month,
didn't you ?
Mr. HARRIS. I did.

Mr. PECORA. And didn't it make enough of an impression on you
to cause you to recall now even approximately what the figures
were?
Mr. HARRIS. NO, sir; the figures appeared satisfactory, and I dismissed them from my mind.
Mr. PECORA. Just what consideration did you give them that made
you to conclude they were satisfactory and cause you to dismiss them
from your mind from that time on?
Mr. HARRIS. I mean by the term " satisfactory " it did not appear
to me that the exchange was going to go bankrupt. As a consequence, they were satisfactory.
Mr. PECORA. DO you recall what was the amount of income reported by the treasurer?
Mr. HARRIS. NO, sir; I do not.
Mr. PECORA. In the year 1933?
Mr. HARRIS. I cannot recall the figure.
Mr. PECORA. Can't you even aproximate?
Mr. HARRIS. I do not want to guess, Mr.

Pecora, and I cannot
do it.
Mr. PECORA. Was it several millions of dollars?
Mr. HARRIS. I cannot guess.

STOCK EXCHANGE PEACTICES

6413

Mr. PECORA. YOU don't even know whether it was a million or
more?
Mr. HARRIS. I will be very glad to get those figures for you, Mr.
Pecora, but I cannot guess at them now, because, as I said before,
my memory is not accurate, and I would not want to make statements that would be all out of line.
Mr. PECORA. I am not expecting you from memory to tell us the
figures accurately. I would like to get the closest degree of approximation to the figure that your memory will enable you to give us.
Mr. HARRIS. I am sorry I cannot give you any.
Mr. PECORA. Cannot give us any at all on that?
Mr. HARRIS. NO, sir. I look at a great many statements in my
business, of various concerns.
Mr. PECORA. I am just talking now about the stock exchange.
Mr. HARRIS. Exactly.
Mr. PECORA. Of which you are one of the governors.
Mr. HARRIS. And that is one of the reasons why I cannot remember these figures, because I see so many statements.
Mr. PECORA. DO you recall what the expenses reported by the
treasurer were?
Mr. HARRIS. NO, sir.
Mr. PECORA. Not even approximately?
Mr. HARRIS. NO, sir.
Mr. PECORA. YOU do not know whether

it was in the millions of
dollars or less than a million ?
Mr. HARRIS. The stock exchange is a large institution. It was a
sizable amount of money, but I cannot guess.
Mr. PECORA. DO you recall what it was for the year 1932 2
Mr. HARRIS. NO, sir.
The CHAIRMAN. Has

there been any recent sale of a seat on the
stock exchange?
Mr. HARRIS. DO I remember the last sale^
The CHAIRMAN. Yes.
Mr. HARRIS. I think I

do, but I may be in error. I think I know
the price of the last seat, but I am not certain of it.
The CHAIRMAN. State what your best recollection is.
Mr. HARRIS. My best recollection is $190,000.
Mr. PECORA. A S one of the governors of the stock exchange, Mr.
Harris, can you give the reason underlying this policy of not giving
annual report of income and disbursements to the members of the
stock exchange themselves?
Mr. HARRIS. NO, sir; I cannot. I am not a member of the finance
committee and I do not know the policy.
Mr. PECORA. Can you think of any good reason why that information should not be given to the members of the exchange as a matter
of routine?
Mr. HARRIS. Well, I have never thought a great deal about the
matter, but I repeat that I think if any member of the stock exchange
will go to the president he would be very glad to discuss the matter
withliim and give him figures.
Mr. PECORA. YOU have no experience of any kind that prompts that
statement, have you?
Mr. HARRIS. NO, sir.

6414

STOCK EXCHANGE PEACTICES

Mr. PECORA. SO it is merely an assumption by you not based upon
any actual fact within your knowledge where a member not a member
of the finance committee or the governing committee went to the
president or the treasurer and got a statement of the income and
disbursements of the exchange for any year?
Mr, HARRIS. NO ; excepting that I know that the general policy of
the president has always been to be perfectly open with all members.
Mr. PECORA. Why isn't that policy effectuated so far as giving the
member's statement of income and disbursements in an annual report
or in the yearbook ?
Mr. HARRIS. I do not know, Mr. Pecora. Maybe the members have
no interest in it.
Mr. PECORA. IS that the best reason you can give, that maybe the
members have no interest m knowing how much their institution
receives and how much it spends and how it spends it?
Mr. HARRIS Yes; I cannot give you any reasons for it.
Mr. PECORA. DO you recall the principal items of disbursements
that the treasurer presented in the report which you heard read last
month?
Mr. HARRIS. NO, sir, Mr. Pecora; I do not remember that report.
Mr. PECORA. Was the report of slight consequence to you, that you
do not remember a single detail about it?
Mr. HARRIS. NO ; it was not of slight—it was of importance, but I
see no reason why I should burden my mind with details like that
over a time.
Mr. PECORA. DO you remember any detail of that report at all?
Mr. HARRIS. None at all.
Mr. PECORA. Was it a written report?
Mr. HARRIS. Yes, sir.
Mr. PECORA. Did it state

the sources of income as well as the respective amounts received from those sources ?
Mr. HARRIS. Yes, sir; it was a full financial report.
Mr. PECORA. What were the sources of income that were in the
report ?
Mr. HARRIS. Well, the usual sources of income.
Mr. PECORA. What are they—not the usual ?
Mr. HARRIS. There are a great many of them, of course. Various
items from the committee on arrangements, such as telephone space
on the floor of the exchange, leased wires, telephone clerk badges on
the floor, various receipts from the medical department, transfers
of memberships, tax thereon, the income from the listing of securities. I cannot remember all the details, Mr. Pecora.
Mr. PECORA. DO you recall what the principal items of disbursements were ?
Mr. HARRIS. I do not.
Mr. PECORA. DO you

recall whether the report showed a deficit
or a surplus for the year 1933 ?
Mr. HARRIS. I t showed a deficit.
Mr. PECORA. Of how much?
Mr. HARRIS. I do not remember.
Mr. PECORA. Was it a substantial deficit?
Mr. HARRIS. Mr. Pecora, I cannot remember those figures; I would
like to, and I will be glad to get them and send them to you.

STOCK EXCHANGE PRACTICES

6415

Mr. PECORA. When could you get them ?
Mr. REDMOND. I can arrange to send to New York and get it,
Mr. Pecora, if the committee feels that it is necessary to put it into
the record. Those are figures that have never been publicly disclosed.
Mr. PECORA. Why have they never been publicly disclosed? Mr.
Harris cannot give us any reason, so far as he knows.
Mr. REDMOND. The constitution!, Mr. Pecora, the very provision
that you read, provides that that financial statement shall be rendered
to the governing committee and to the finance committee.
Mr. PECORA. I read that.
Mr. REDMOND. But it does not provide that it shall be sent to the
members.
Mr. PECORA I know that. I am trying to find out the reason for
that.
Mr. REDMOND. Because it is the provision of the constitution,
which is the contract adopted by the members themselves. They
themselves by adopting the constitution have agreed that they will
not receive financial statements.
Mr. PECORA. Have agreed that they will not receive financial
statements ?
Mr. REDMOND. That is it.
Mr. PECORA. That is your interpretation of the reason, is it, why
that provision is in the constitution &
Mr. REDMOND. I t is a contract, Mr. Pecora, and the members
having agreed to that provision, are not in a position to demand &
financial statement. That is their own agreement.
Mr. PECORA. But what is the policy that underlies this provision
in the constitution, if you can tell us that?
Mr. REDMOND. I think it has beeni in the constitution—well, proba*
bly 50 or 60 years.
Mr. PECORA. But what is the policy underlying it?
Mr. REDMOND. I do not know what policy actuated the original
members of the exchange to adopt that provision in the constitution,
Mr. Pecora, because I was not alive, probably.
Mr. PECORA. DO you know of any good reason now, Mr. Redmond,
why that information is not given as a matter of right to the
membership of the stock exchange annually?
Mr. REDMOND. AS Mr. Harris said, he felt that it would be given
to any member who inquired.
Mr. PECORA. That does not answer the question. Mr. Harris
also said that he never knew of a member that went to the president
and got the information.
Mr. REDMOND. YOU asked him whether he had ever had the experience, Mr. Pecora.
Mr. PECORA. Whether he ever had any experience.
Mr. REDMOND. That does not mean whether he ever knew of any
other member doing that.
Mr. PECORA. DO you know, Mr. Harris, whether any member ever
wentj to the president and asked for this information and got it?
Mr. HARRIS. I think I know of a case; yes.
Mr. PECORA. What was that case and when did it arise?

6416

S10CK EXCHANGE PKACTIOES

Mr. HARRIS. This man spoke to me about it. I am not positive
if he went or not.
Mr. PECORA. Oh, then do not tell us if you arei not positive if he
went or not. Let us have no guess about it.
Are you going to get that for us tomorrow ?
Mr. REDMOND. I will send to New York and get and it will
probably be down by tomorrow morning, Mr. Pecora.
The CHAIRMAN. Seats on the exchange have sold how much
higher than the present price?
Mr. HARRIS. The highest they ever sold, I believe, was $625,000.
The CHAIRMAN. HOW long ago was that ?
Mr. HARRIS. 1928, I think.
Mr. PECORA. Mr. Harris, I show you a document, very voluminous
in form, entitled *
Answers submitted by the New York Stock Exchange to the questions asked
of it by counsel for the United States Senate Committee on Banking and
Currency (such questions being in the form agreed to in conferences with
members of the staff of the counsel to the committee, and the representatives
of the Exchange m conferences held in New York City on Oct 10 and 11)

Will you look at it and tell me if you are able to identify it as
the original answers submitted by the New York Stock Exchange
to the questions referred to ?
(Mr. Redmond and Mr. Harris compared two documents.)
Mr. HARRIS. Yes, sir.
Mr. PECORA. I offer it

in evidence, but, Mr. Chairman, in view of
its voluminous character, ask that it be not spread on the stenographic minutes but be ordered printed in the printed copies of the
hearings.
The CHAIRMAN. Let it be admitted.
(Document entitled "Answers Submitted by the New York Stock
Exchange to the Questions Asked of I t by Counsel for the United
States Senate Committee on Banking and Currency" was thereupon designated " Committee Exhibit No. 113, February 26, 1934 ",
and the same appears m full in the printed record at the end of
today's proceedings.)
Mr. PECORA. Mr. Chairman, I have before me a communication
which was received by me as counsel for the committee from the
president of the San Francisco Mining Exchange m response to a
request that was addressed to them in behalf of the committee. I
want to offer it in evidence.
The CHAIRMAN. Let it be admitted.
(Letter dated Nov. 27, 1933, from Charles E. Hudson, president
San Francisco Mining Exchange, to Ferdinand Pecora, together
with accompanying data, was thereupon designated " Committee
Exhibit No. 114, February 26, 1934." The letter appears in the record in full immediately following where read by Mr. Pecora. The
accompanying data appears in the printed record at the end pf
today's proceedings.)
Mr. PECORA. The document has been received in evidence as Committee Exhibit No. 114, and I would like to read the covering letter.
It is on the letterhead of the San Francisco Mining Exchange, 327
Bush Street, San Francisco. [Reading:]

STOCK EXCHANGE PRACTICES

6417
NOVEMBER 29,

1933

FERDINAND PECOKA,

Counsel, Committee on Banking and Currency,
285 Madison Avenue, New York City
DEAR SIR: Complying with your request we are enclosing herewith today's
quotation sheet which gives the bids and offers and sales of stock listed in this
exchange, together with the names and addresses of the members of the
exchange
In this connection, I wish to remark that our exchange may be termed a
white chip trading rendezvous for stock Mining and oil stocks are necessarily
of a speculative character, and we do not attempt to make the public think
they are anything else A hole in the ground today may be a mine of value
tomorrow, and the mine of immense development may run out of its ore and be
a tremendous hole m the ground the next day. Our stocks, for that reason, as
I said before, are speculative and do not have the immense quantity of water
that many of the industrial stocks contain The fact is, we have to supply
water from the desert area while the industrials are usually organized by promoters and supplied with water with great hydraulic pumps from the Atlantic
Ocean
If we can be of further service, we are at your command
Yours very truly,
(Signed)

CHARLES B HUDSON, President

P S —The bankers generally don't help us, because our activities interfere
with their game

[Laughter.]
Is there any statement you want to make, Mr. Harris, to the committee, or any information you want to give to it, without the necessity of being specifically questioned thereon 2
Mr. HARRIS. TThere is just one thing I would like to take up, Mr.
Pecora.
Mr. PECORA. All right.
Mr. HARRIS. Friday, when I was here, I saw afterward in the press
a report to the effect that the committee on publicity had spent a
million dollars in the past 5 years. That is not quite accurate. The
committee on publicity spent $794,174.19, of which $228,130.44 was
salaries and wages, leaving a total of $566,043.75, which is a little in
excess of $100,000 a year for 5 years spent by the committee on
publicity. That includes all documents of every sort that they
sent out, all their printed matter.
Mr. PECORA. Does not the figure of a million dollars approximately for the last 5 years include the disbursements and expenses
of the economist's office, the economist of the stock exchange ?
Mr. HARRIS. Yes, sir.
Mr. PECORA. And were

given to us on the tabulation that was put
in evidence here on Friday relating to those expenditures ?
Mr. HARRIS. Yes, but I
Mr. PECORA (interposing). Given to us by the stock
Mr. REDMOND. In answer to the questionnaire that

exchange?
required that

the two be combined.
Mr. PECORA. We gave the figures, as I recall it, last Friday on the
record as shown m that recapitulation both for the committee on
publicity and the economist's office.
Mr. REDMOND. I think also the statement was made on the record,
Mr. Pecora, that the exchange had expended more than a million
dollars on publicity. That, of course, overlooks the fact that the
economist's department is a purely statistical department engaged
in collection or statistics and is not in any sense publicity work of

6418

STOCK EXCHANGE PRACTICES

any kind whatsoever. And that is the point which Mr. Harris apparently wished to bring out.
Mr. PECORA. DO not the members of the economist's staff furnish
material to the publicity committee?
Mr. REDMOND. AS they do to all other departments of the exchange, when called upon.
Mr. PECORA. And its office?
Mr. REDMOND. Exactly.
Mr. PECORA. And are used m the preparation of speeches, I presume, that are deliverel by officers of the exchange from time to time ?
Mr. REDMOND. Occasionally, but it is primarily work in the collection of statistics which appear in the monthly bulletin of the exchange, which consists of absolutely nothing but a mass of graphs
and figures and charts. I t is purely statistical.
Mr. PECORA. I S there any other statement or evidence or information you want to give the committee, Mr. Harris, without being specifically questioned for the purpose?
Mr. HARRIS. NO, sir. No, Mr Pecora; I do not think there is anything else.
Mr. PECORA. What is that?
Mr. HARRIS. N O ; there is nothing else.
Mr. PECORA. HOW about you, Mr. Redmond? Is there anything
you would like to say to the committee on the subjects covered m the
examination of Mr. Harris?
Mr. REDMOND. NO, Mr. Pecora; I think that I am appearing here
as counsel, not precisely as a witness.
Mr. PECORA. But you have given some answers to questions
Mr. REDMOND. Purely to facilitate the investigation.
Mr. PECORA. I know it. That is why I am extending now in
behalf of the committee the invitation to you to make any statement,
give any information in regard to the general subject 01 the examination of Mr. Harris, that you might see fit to make.
Mr. REDMOND. I do not think there is anything I want to say at
this time, Mr. Pecora.
Mr. PECORA. All right.
The CHAIRMAN. Then Mr. Harris will be excused.
Mr. PECORA. May I ask Mr. Harris just one question more: MrHarris, I have before me a printed document. Will you look
at it and tell me if you recognize it to be a statement made by
Mr. Whitney before the House committee in the hearings on the
Fletcher-Rayburn bill held before that committee last week, and
which sets forth m outline, at least, the proposal of Mr. Whitney
for regulation of securities exchanges that was referred to by you
in the course of your testimony 2
Mr. HARRIS, ifes, sir; that is the document.
Mr. PECORA. I ask that it be marked in evidence.
The CHAIRMAN. Let it be admitted.
Mr. REDMOND. I would like to call your attention to the fact that
that is just a proof. We would like to submit a final copy, as there
may be some minor corrections made in that one.
Mr. PECORA. Very well then; we will just mark this for identification and supplement it with the final form to be submitted by
Mr. Redmond.

STOCK EXCHANGE PRACTICES

6419

(Document purporting to be statement of Mr. Richard Whitney
before the House Committee
on Interstate and Foreign Commerce
was thereupon designated u Committee Exhibit No. 115 for identification, February 26, 1934 ", and the same appears m the printed
record at the end of today's proceedings.)
(Document purporting to be final proof of statement or proposal
of Mr. Richard Whitney before the House Committee on Interstate
and Foreign Commerce was later furnished by Mr. Redmond, designated " Committee Exhibit No. 116, February 26, 1934", and the
same appears in the printed record at the end of today's proceedings.)
The CHAIRMAN. These hearings before the subcommittee will be
resumed on call. At 2:30 today the full committee meets, and we
will take up the bill S. 2693.
(Accordingly, at 1:03 p.m., the subcommittee adjourned, to meet
again at the call of the chairman.)

Full text of Stock Exchange Practices : Hearings Before the Committee on Banking and Currency, United States Senate, (1932-1934) : Hearings on S. Res. 84 and S. Res. 56 and S. Res. 97 : Part 14, Alcohol Pools, Pages 6171-6419

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