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BEFORE THE S E C U R I T I E S AUi, EXCHA*GE COfc-fcl^IOK I n t h e M a t t e r of PILE HO. 1-2964 TRJtlSAaEHICA COKPOKATIQH .EkJRAftLMJS JF L. M. 31AKHXKI IK REPLY TO Kfc&PON&E *EM0RA*LUM .F COUNSEL FOR i t e SEcuRiMi-a AA, HtKAMbr. frtekisdift. y oh n o R t Ihe sole issue now b e f o r e the Commission i s i n t e r p r e t a t i o n o f the Agreement o f ? arch 10, 1941* the The Agreement I t s e l f i s couched i n p l a i n and u n e q u i v o c a l language. I t already has been i n t e r p r e t e d by the Commission end the Commission's s t a f f i n Washington i n accordance with the i n t e r p r e t a t i o n placed thereon by the Registrant* distorted. I t should not bs Repeated challenges of the good f a i t h of the F e g i a t r a n t , and assertions of unproven charges might v e i l prejudice the Registrant i n t h e eyes of the Commission, but cannot c o n t r i b u t e t e a proper determination of t h i s simple issue* -1- I t i s not my purpose to discuss mattere that are not e t r l e t l y w i t h i n the iasues but there are c e r t a i n s t a t e Bents t h a t I cannot permit to go unchallenged, I cannot overlook the f a c t that the Commlaelon'a i e t a f f has p i c t u r e d the Registrant as a "sup l i a n t " and accused i t of attempting to persuade the Commission to "bargain w i t h J u s t i c e I n n e g o t i a t i n g t h i s Agreement, the Registrant waa not a "suppliant'* nor was i t attempting to induce the Commission to "bargain w i t h j u s t i c e * " Such statements r e f l e c t upem both the Commission and the Registrant and serve only t o prejudice the Registrant before the Commission* Ike Commission and the R e g i s t r a n t have done e x a c t l y what the Report of the Aoheson Committee, appointed by the Attorney General a t the request of the President, recommends and preaoribes aa approp r i a t e i n the settlement of controversies w i t h a d m i n i s t r a t i v e bodies* I quote from s a i d r e p o r t as follows ( p . 64 ) i "the Committee believes t h a t perhapa the most f r u i t f u l p o s s i b i l i t i e s f o r e x p e d i t i n g and s i m p l i f y i n g formal a d m i n i s t r a t i v e proceedings l i e " i n the f i e l d of prehearing tecnnlques* I n Chapter I I I we have recommended that every e f f o r t be made, by conferences and n e g o t i a t i o n s , amicably to dispose of c o n t r o v e r s i e s , by s t i p u l a t i o n or other agreement* before there i s r e s o r t to forms1 proceedings* But even a f t e r n o t i c e has been issued and formal d e c i s i v e a c t i o n i s begun* there i s scope f o r f u r t h e r prehearing methods to dispose of the case* narrow i t s issues, or s i m p l i f y t h e subsequent methods of proof* Two main devices are reoommended to sccoapllsh t h l s i prehearing c o n f e r ences end s t i p u l a t i o n s * " 1/ Unless otherwise I n d i c a t e d h e r e i n a l l underscoring I s supplied. -2 The Coaaaieeion end t h e K e g i s t r a n t have f o l l o w e d t h e n o a t approved procedure i n agreeing w i t h r e g a r d t o the d i s p o s i t i o n o f t h e pending i s s u e s and both should be oooknended r a t h e r than o r i t i c l s e d * I sua sure t h e members o f t h e ©amission a r e conscious o f t h e e f f o r t s which I r a n s a t i e r i c a has xade over a p e r i o d ofrjwny months, i n c l u d i n g the g r a n t i n g o f f i f t e e n months' access t o I t s books end- r e c o r d s by r e p r e s e n t a t i v e s o f the •oa- a l a e i o n , t o f a c i l i t a t e t h e work o f t h e ;oaiaIaslon I n i t s effort t o a s c e r t a i n the f a c t s relevent t o i t s i n q u i r y i n t o the suffici- ency o f T r e n s e m e r l o a ' s A p p l i o s t i o n f o r ftegistretion* I t has cooperated noct l i b e r a l l y s t c o n s i d e r a b l e inconvenience and expenee* in view o f t h i s i t has f e l t t h a t i t o u l d be e s p e c i a l l y appropriate f o r the C o m i s s i o n t o c a r r y out the s a l u t a r y p r o cedure p r e e o r l b e d i n t h e Aoheson fro p o r t * The Agreement es t o t h e s o - c e l l e d bank Issues was made p o s s i b l e t h r o u g h the u n d e r s t s n d l n g r e s u l t i n g from a d d i t i o n a l i n f o r m a t i o n and from c o n f e r ences end n e g o t l a t l o n e which made t h e e x p e d i t i o u s and simple d i s p o s i t i o n o f suoh i s s u e s seem a p p r o p r i a t e * c o n s i s t e n t w i t h t h e Aoheson n o p o r t * This I s wholly I n the cirouaatances, the r e g i s t r a n t r e s e n t s b e i n g c h a r a c t e r i s e d as a " s u p p l i a n t " and accuaed o f a t t e m p t i n g t o Induce t h e Commission t o H bergaln w i t h Justice** I n the Memorandum prepared by the Coramsion 9 a counsel there i s reference to s prophecy made by one of them • 3 - the Commission* I do n o t b o l l eve t h e Commission w i l l be impressed by euoh prophecy* To me I t aeeme e g r o s s I m p r o p r i e t y f o r e member o f i t e s t a f f , e s p e c i a l l y en a t t o r n e y , t o I n d u l g e in prophecy w i t h r e s p e c t t o the a c t i o n o f t h e Jommlssion and t h e n t o make t h e prophecy t h e b a a l a f o r argument e h i c h eeeke t o i n d u c e t h e Commission t o b r i n g about i t e f u l f i l l m e n t t h e r e p u d i a t i o n o f an approved Agreement* through T h i s Agreement m i g h t w e l l have been s u b s t a n t i a l l y performed months ago i f the p r o p h e t had n o t d e e l r e d t o have h i e prophecy f u l f i l l e d , justice and e q u i t y t o t h e c o n t r a r y n o t w i t h e t e n d i n g * The e o n a l e t e n t l y a b u s i v e n o t e which f l o w s t h r o u g h t h e Memorandum o f Commission 9 s c o u n s e l should suggest why i t has been i m p o s s i b l e f o r t h e R e g i s t r a n t t o r e c e i v e f a i r and unprejudiced c o n a l d e r e t l o n from the staff* I now proceed t o answer the Memorandum o f couneel f o r the Coss&leslon* A M On page 2 o f t h e i r Memorandum, couneel f o r the Commiss i o n r e e o r t t o t h e t r i t e 1 H u e t r e t i o n o f the "red h e r r i n g * * S t r a n g e l y enough, while accusing Treneamerlce of an attesq?t to d o v l e t e from the issue I n v o l v e d , counsel f o r the Commission p r o ceed t o discuss subjects t h s t have e b s o l u t e l y nothing t o do w i t h t h e l a sue now b e f o r e t h e Commission* Commission* e counsel say t h s t t h e Bank smonrlmonte i n the form o f footnotes s r e I n f i n a l • 4 • approved form and t h e y poae t h e q u e s t i o n , "Why a r e t h e y not f i l e d ? " I t l a t h e n argued t h a t Transamerloa desires t h e Commission t o "bargeln with Justice*" They become o r a t o r i c a l and w i t h o u t reason accuse Traneamerice o f l a y i n g " b a r e I t s d i s i n g e n u o u s purpose*" The o n l y e f f e c t o f t h i s can be t o p r e j u d i c e t h e r e g i s t r a n t b e f o r e t h e v e r y body t h a t i s t o paea upon t h e pending issue* Commlaelon'a couneel know v e r y w e l l why t h e f o o t n o t e s were n o t f i l e d and who p r e v e n t e d t h e i r f i l i n g * X cannot state t h e f a c t e w i t h r e g a r d t o t h l a m a t t e r more c l e a r l y t h a n I d i d a y l e t t e r o f A p r i l 1 4 , 1 9 4 1 , i n answer t o t h e l e t t e r o f t h e General Counsel f o r t h e Cornelaalon, d a t e d A p r i l 1 1 , 1941* there atateds " w i t h r e f e r e n c e t o t h e l a a t p a r a g r a p h o f your l e t t e r , I f e e l s u r e , t o o , t h a t we u n d e r s t a n d e x e e t l y what o u r agreement o f ^ a r e h 10 meana* «*e have agreed w i t h t h e Commission on t h e bank amendments, accepted t h e f o r m o f p r e s s r e l e e s e and t h e f o r m o f o r d e r approved by t h e Commla* s i o n , and a r e p r e p a r e d t o f i l e the amendmenta, b u t on S a t u r d a y , A p r i l 5* cont^lfied ft those parsers, hs i d t h respect to S t ^ g f W f l g l w f a l f l tin orders a yid sug> j e s t e d t h a t I n the c l r e u m a t s ^ e s y d e f e r - 5 • filing I in The above quoted p o r t i o n o f my l e t t e r wee c a l l e d t o t h e a t t e n t i o n o f Mr* T r e a n o r , and he s t a t e d t h a t I t paraphrased h i s correctly position* The R e g i s t r a n t h e s i t a t e d t o f i l e the f o o t n o t e s in o r d e r n o t t o embarraas t h e Commission and i t s counsel i n the considers t i n o f t h e q u e s t i o n which a d m i s s i o n ' s counsel had r a i s e d I n c o n n e c t i o n w i t h the i n t e r p r e t a t i o n o f t h e i g r e e m e n t * Ho*ever, s i n c e t h e r e g i s t r a n t has been c h a l l e n g e d by counsel f o r t h e i o m i s s i o n t o . f i l e t h e f o o t n o t e s , i t i s assumed t h a t no embarrassment w i l l r e s u l t ; a n d , t h e r e f o r e , c o n c u r r e n t l y with t h i s Memorandum, t h e amendment i n t h e form o f f o o t n o t e s h e r e t o f o r e egreed upon i s o f f e r e d by t h e r e r i s t r a n t f o r f i l i n g with t h e Commission, p u r s u a n t t o t h e Agreement o f * e r c h 1 0 , 1041. I t would seem t h a t i t i s now a p p r o p r i a t e t h a t t h e Order and Press helease approved f o r Issuance by the Cot&nlssion be i s s u e d * A p p a r e n t l y c o u n s e l f o r t h e Conmlsslon e r e n o t i n a g r e e ment as t o t h e e t t l t u d e o f H e g l s t r e n t w i t h r e g a r d t o t h e filing o f t h e amendment f o r i n 4 r * Lane's I s t t e r t o me d a t e d A p r i l 1941, he s t e t e s 11, franklyi * I knew you a r e a n x i o u s t c f i l e , t h e bank amen&sente* A l l o f c o u n e e l ' e argument based upon an assumption o f u n w i l l i n g n e e e on t h e p a r t o f t h e H e e i a t r a n t t o f i l e the foot- n o t e s can now be d l e r e g e r d e d ueosuse t h e f o o t n o t e e e r e tendered f o r f i l i n g and t h e a e e u a p t l o n l a proved g r o u n d l e s s * • 6 - I n the second paragraph on page 5 , counsel f o r the Cossalaalon ate to t h a t under the circumstances they regard f u r t h e r dlepute as t o the meaning of the Agreement as " f u t i l e * " Further discussion can be f u t i l e only I f the Agreement I s t o be construed without regard t o i t s wording, and the circumstances under which I t waa entered I n t o * Counsel f o r the Commission next preeume t o g i r o reasons why the Commission should not have entered i n t o t h i s Agreement (Memorandum of Ccssaiss i o n ' s counsel, top page • ) » Such considerations were only important while the Agrees*nt was being negotiated and before i t had been approved* The f a c t t h a t counsel f o r the Commission msy regard the Agreement as d lead van. tageous l e no reason f o r g i v i n g t o i t an i n t e r p r e t a t i o n which doea violence t o i t s p l a i n language* Undsr the heading, "Purpose sod I n t e r p r e t a t i o n of the Agreement," C e m i s s i o n ' s sounael challenge mj statement mi page 12 of my Memorandum t o the e f f e c t t h a t a primary purpose of the Agreement "was t o e l i m i n a t e from those proceedings Issues r e l a t e d p r i m a r i l y t o the 3snJu" I n Mr* Lane's l e t t e r t o me o f A p r i l 11, 1941, he i n d i c a t e d (as I understand h i s l e t t e r ) t h a t the e f f e c t of the f i l i n g o f the Bank footnotes waa t o e l i m i n a t e the issues per* t a l n i n g p r i m a r i l y t o the Bank and t h a t he was favorable t o t h e i r f i l i n g f o r t h a t reason* He s t a t e d w i t h reference t o the f o o t * notest • T . " I know y o u e r e anxious t o f i l e the Sank amendments* I # t o o , s h o u l d l i k e t o eee them e l n c u they d e a l w i t h h i s t o r i c a l f i n a n c i a l problems o l t h e i>ank whlc^i have a l w a y s W e n raoro d i r e c t l y t h e "cotioorn o f t h e Compi r o E I o r o i p & o C u r r e n c y , and o t E S T » i a U i r Government o E i l c l a l s * t h a n o f t h i s CoaBxlaslon*" further, I n the s e v e r a l discussions w i t h Hon* Jerome N* ? r a n k , the t h e n Chairman, ond other members of the Commission and t h e i r e t a f f l e a d i n g up t o t h e execution o f the Agreement, t h e u l t i m a t e o b j e c t i v e was t o e l i m i n a t e from the 1 9 ( a ) ( 2 ) proceeding t h e Issues r e l a t i n g p r i m a r i l y t o the Bank* There oan be no doubt t h a t t h i s was i n the minds o f both p a r t i e s when the Agree* ment o f March 10 waa executed* On page 5 o f ay Memorandum, 1 c a l l e d a t t e n t i o n t o the f a s t t h a t i n the order e n t i t l e d , "carder Amending t h e Supplemental Amended Order f o r Bearing by S t r i k i n g ^herefrom C e r t a i n Portions T h e r e o f * and I n t h e Proas Release approved f o r issuance by t h e Commission, t h e Coaulsalon and t h e counsel f o r the Commission who prepared t h e Order and the Press Release wore i n harsraqr w i t h t h e i n t e r p r e t a t i o n o f the Agreement aa s e t f o r t h i n my Memorandum* Counsel f o r t h e C o w a l a s l o n have e n t i r e l y fact* Ignored t h ^ a flfiftlfl^nt For t h i s reason I a t t a c h h e r e t o copies t h e r e o f and mark t h e MUSS E x h i b i t A and E x h i b i t B, r e s p e c t i v e l y * Keferenoe i s a l s o mads t o t h e T r s n s o r l p t of rroseedings before t h e Commission on Jane 2 4 , 1 9 4 1 . I n t h e l e s t paragraph on page 7 , counsel f o r t h e Con. m i s s i o n c a l l a t t e n t i o n t o c e r t a i n p r o v i s i o n s of t h s Agreement sad . 8 « eay t h a t t i i e r e l e no p r o v i s i o n t h e r e i n t h a t s u p p o r t s ay s t a t e ment t h e t i t s purpose vms t o e l i m i n a t e t h e I s s u e s I n v o l v i n g t h e Bank* primarily H o t w i t h s t a n d i n g c o u n s e l ' s argument, X sub- m i t t h s t even a c e s u a l r e a d i n g o f t h e Agreement w i l l demonstrate t h a t t h e e l i m i n a t i o n o f ieCues p r i m a r i l y a f f e c t i n g t h e Benk waa i t s s a i n pur ose* C e r t e i n o t h e r p r o v i s i o n s o u t l i n e d an o p e r a t i v e procedure f o r d e v e l o p i n g t h e r e m a i n i n g issues* There was, t o o , a c o l l a t e r a l u n d e r s t a n d i n g by b o t h p a r t l e e concerning the o b t a i n i n g o f i n f o r m a t i o n r e l a t i n g t o the Bank and t h e s e t t l e m e n t o f d i s p u t e s * I t was t h o r o u g h l y u n d e r - s t o o d and agreed t h a t counsel f o r t h e Commission m i g h t d e s i r e to o b t a i n i n f o r m a t i o n f r o m t h e books and r e c o r d s o f t h e Bank o f AsMrloa n a t i o n a l T r u s t and Savings A s s o o l a t l o n which t h e o f f l o e r e o f t h e lisnk m i g h t h e a l t a t e t o g i v e them and t h a t t h e r e might be other dlaputes* I n t h a t case a Committee composed o f Honoreble Leo T* C r o w l e y , Chairman o f t h e F e d e r s l J e p o s l t Insurance C o r p o r a t i o n , Honorable Sumner T* P i k e , Commissioner o f t h e S e c u r i t i e e and Exchange commission, and Honorable Choster ? • L a n e , General Counsel f o r t h e S e c u r i t i e s and ' xohange Commission, waa t o s e t t l e t h e d i s p u t e s , d e f e r r i n g t o t h e Judgswnt o f Honorable Leo T* C r o w l e y , Chairmen o f t h e F e d e r a l D e p o e l t Insur- ance C o r p o r a t i o n , I n r e e p e o t t o m a t t a r e d i r e c t l y e f f e c t i n g t h e Bonk* S u r e l y t h i s i s i n d i o s t l v s o f s purpose t o e l l m l n s t e Bank lasuee* - 9 - At the top of page 8, counsel f o r the Commission f r a n k l y admit t h a t the primary purpose of the negotiations the previous f a l l sea the e l i m i n a t i o n o f mattere p r i m a r i l y a f f e c t i n g the jank, hut they aay t h a t beoauae the ncgotlatlona had f a i l e d and had boon abandoned, a near program was developed, and t h a t i n the new pro. gram Transamorioa appeared w i l l i n g t o agree upon the f a c t a i n the e n t i r e oaae* As ws have pointed o u t , the negotiations during the previous f a l l , and the present n e g o t i a t i o n s , had and have f o r t h e i r purpose the aecompllaisssnt of an I d e n t i c a l o b j e c t i v e , t o - w i t , e l i m i n a t i o n of the l a suae p r i m a r i l y concerning the Bank* the That which waa regarded as appropriate i n the f a l l was equally appro* p r l a t e i n the w i n t e r and was so regarded by the Commission* I n a l l the e f f o r t s of the hag l a t r e a t and the Ccmlsslon t o b r i n g t h i s long ponding proceeding t o an e a r l y and equitable conclusion, i b e l i e v e t h s t both the Commission and the Registrant have been sOndful of the d l f f e r e n o e s of viewpoint which have already r e s u l t e d i n p r o t r a c t e d l i t i g a t i o n terminating i n the Court o f Appeals f o r the D i s t r i c t of Columbia* I n t h i s l i t i g a t i o n there wore involved questions concerning the p r o p r i e t y of a o r t a i n pro* ceedlnga a f f e c t i n g the sank and l a connection w i t h i t l i m i t a t i o n s ware s p e c i f i e d by the Court* certain C e r t a i n l y the p a r t i e s have already boon overburdened w i t h l i t i g a t i o n and axpenee and both should bo content t o praised w i t h i n the l i m i t a t i o n s o f t h a t dec i s i o n and the l | p p n — i t o f March 10, 1941* A t the bottom of page 8 and continuing on page 9 of t h e i r msmsr>niiaa, s siwe e l r e f e r t o a condensed statement i n my former . 10 . memorandum of lsauaa to be e l i m i n a t e d (page 7 ) . They s a y j " r . 31annini • . • constructs them aa f o l l o w s t " and then they quote my summarisation* I f the Commleaion w i l l examine my comment, they w i l l eee t h a t I constructed nothing* I n f a c t , I meticu- l o u s l y avoided doing so, and l e e t my aummarisatlon might be queetioned 1 accompanied i t w i t h an e x h i b i t a t t a i l e d to my o r i g i n a l Memorandum f o r convenient r e f e r e n c e , ifcich consists of the f u l l t e x t of the subparagraphs to b e e l i m i n a t e d . The issues which I condensed ars constructed net by me but by the Coned eelon i n i t s own Order* This ststement i s followed by counsel's d e c l a r a t i o n t h a t the e l i m i n a t i o n of theae issues I s "inconsistent w i t h the pres^rvetion of the remaining Iteme of the Order." That t h i s I s not the f a c t l a demonstreted by t h i s and my previous Memorandum. There are many remaining Issues i n the Order ae to which evidence oan be produced without any reference whataoever to the e l i m i nated issues. Even es to some of the remaining "items" wr ich i I n v o l v e r e l a t i o n s with the Bank there a r e "remaining isauea" which can be developed, i f the f a c t a w a r r a n t , without again r a i a i n g the e l i m i n a t e d lesues* An inatance of t h l a l a given below* On page 9 , counsel f o r the Commieelon quote an example t o ehow t h a t my cone t r u e t l on of the Agreement would e l i m i n a t e c e r t a i n Issues contained i n subparagraphs ( 1 4 ) , (24) of (15), "aragraph I I I of t h e Amended Order, and subparagraph ( 1 ) of Paragraph I I of the Supplemental Amended Order, t h e (23) and - 11 - principal question i n which r e l a t e s t o "donations and c o n t r i b u t i o n s * " They proceed t o o u t l i n e a c e r t a i n t r a n a a o t l o n I n which they s t a t e t h a t the Bank sold c e r t a i n charged.off aasets t o 'ironsamerioa, and then repurchased then* Counsel haws had aeoeas t o the c o n f i d e n t i a l f i l e s i n the C o m p t r o l l e r s O f f i c e and they w e l l know t h a t t h e i r statement of f a c t a i n t h i s connection I s a l t o , gather inadequate* They a l s o know t h a t the matters r e f e r r e d t o a r e matters over which the Comptroller of the Currency has primary J u r i s d i c t i o n , and are nqt matters concerning which the Cossalsalon could a u b a t l t u t e i t a judgment f o r t h a t of the Camp, trailer (Bank va* Douglaa)* Commencing a t page 10 and f o l l o w i n g through page 1 1 portlone of the Agreement i n an attompt t o argue t h a t items wore t o bo e l i i a l n a t e d , and not issues* I n my Memorandum, * t poges 5 , 4 , and 6 , I polntod out t h a t the primary objoot of the Agreement waa t o e l i m i n a t e issues f o r the purpose o f ahsrtenlng the proceeding* I rspaat what I there s a i d i n substances To aay t h a t only itoms were t o bo a l i m i n e t o d , and t h a t the laauoa could bo r e t r i e d under other headings, would render the Agroesmnt ueeleaa and f u t i l s * Obviously, i t would take aa mxoh time sod o ff a r t to o s t s b l i s h the e l i m i n a t e d lssmea under another hooding sa i t would have taleen I f t h e ogolsod issue3 had remained* The ooa. t e n t ion o f the r i — i .lesion* a oounael t h a t Items and not laauoa wore i s t o a t o d t o bo e l i m i n a t e d demonstrates I t a owm absurdity • • It. Moreover, i n paragraph ( 6 ) of tha Agreement, rafaranoa l a made, not t o remaining i t erne* hat t o "the method by which any ^aaua other than items ( 4 ) t o (10) of the ^Supplemental Amended Order of Movember 22, 1940, s h a l l be u l t i m a t e l y d i e poo od of»" The foregoing p o r t i o n of the Agreement n u l l i f i e s the argument made by counsel f o r the Commission t o the e f f e c t t h a t the Agreement does not support my c o n s t r u c t ! j b t h e r e o f , hereto* f o r e concurred I n by the Comal^s ion i n I t s Order and Press Release* Again, i n paragraph ( 3 ) of the Agreement, reference l a made t o the f a a t t h a t "no new Is^uee a r e t o be r a i s e d i n t h i s proceeding*" This a l a o supports tha construction h e r e t o f o r e , given t o the Agreement by both p a r t i e s * At page 10, counsel f o r the Commission s t a t e t h a t if "issues" wore t o bo e l i m i n a t e d , "such* issues 1 would b e t t o r have boon defined than l o f t t o tha imagination of e i t h e r p a r t y * " The f a a t l a t h a t the meaning of tha word "laaues* l a c l e a r l y defined l a the Agreement* Tha C o n i e s i o n i n i t s Order and Press Release had no d i f f i c u l t y i n a r r i v i n g a t e x a o t l y what tha word "Issues" meant* Such d e f i n i t i o n l a c l e a r , and I t waa only whan Mr* Troaaer found f a u l t w i t h tha provisions of tha Agreement and I n t e r r u p t e d tha progros J which was being made thereunder t h a t any quaetion of tha d e f i n i t i o n o f tha terms used i n tha Agreement ma a r a i a a d * l a t h e i r Msawrandum a t pages 10, 1 1 and 1 2 , counsel f a r tha Cenmiaslon argue t h a t under tha Agreement they a r e e n t i t l e d t o produce any f a c t e wtiich they aonaldar p e r t i n e n t t o tha p r e * served itame i n tha Order and t h a t t h a Commission a h a l l not ha - 13 - f e t t e r e d I n I t e consents upon any f e e t a adduced as t o such Items* I have never contended otherwise* l have always conceded the r i g h t of the Commission t o Introduce evidence and e s t a b l i s h the f a c t s w i t h respect t o a l l preserved or remaining issues I n the Order* and 1 thought 1 had s t a t e d t h i s d e a r l y I n nqr o r i g i n a l Memorandum, and I b e l i e v e a c a r e f u l reading of t h a t Memorandum w i l l demonstrate t h i s t o he s f a c t * This r i g h t , however, l a sub. J cot t o the l i m i t a t i o n t h a t the Issues which were e l i m i n a t e d under the Agreement are not t o toe revlvou or t r l e a I n connection w i t h the remaining issues* Otherwise the purpose of the Agreement would be defeated* The example s i t e d by counsel f o r the Commission mi page 13 of t h e i r Meanrandusi discloses very c l e a r l y the exact nature of our d i f f e r e n o e a concerning the i n t e r p r e t a t i o n o f t h e Agreement * Subparagraph ( 5 ) of paragraph 12 of the Supplemental Amended order f o r Hearing contains the charge t h a t the Report of Earnings and Dividends of the Bank of Amerlsa f o r the years 1954, 1935 and 1936 Improperly includes ss items of income u n r e a l i s e d p r o f i t s c r e a t e d by w r i t i n g up the c a r r y i n g value o f government, municipal, and other s e c u r i t i e s * Ths footnotes which a r e being presented t o the C o m i c s I o n e x p l a i n t h i s eo. c a l l e d w r i t s , up and the manner i n which i t waa o f f a o t by c e r t a i n charges* I t was provided i n ths Agreement t h s t upon ths f i l i n g of ths amendment l a ths form of explanatory f o o t n o t e s , the issue contained i n Subparagraph ( 6 ) would bo e l i m i n a t e d * l a other words, sa 1 i n t e r p r e t the Agree- ment, upon the f i l i n g of the footnotes there i s no longer any content 1 a t h s t "ths Report o f Homings sad Dividends * * * • 14 • Improperly includea as items of Income unrealised p r o f i t s created by w r i t i n g up the carrying value of government, municip a l and other s e c u r l t l e e . " Y e t , aa appeara on page 13 of the »emorandum prepared by oounael f o r the Commission, they propose to e s t a b l i a h , i n making proof w i t h r e s p e c t to Subparagraph (9) of raragraph I I I of the Amended Order, t h a t the earnings of the Bank were o v e r - a t a t e d by reaaon of the bond w r i t e - u p . This, of courae, revives the very issue which i s the subject matter of Subparagraph ( 5 ) of the Supplemental Amended Order, which haa already been f u r t h e r explained i n the f o o t n o t e e , and which under the Agreement of arch 10, 1941:, waa to be e l i m i n a t e d . The issue r e l e e d by Subparagraph ( 9 ) i s t h a t the bank dividends received by Inter-America Corporstlon have been Improperly t r e a t e d by i t as income* Obviously, t h i s could be e s t s b l l s h e d e i t h e r on the theory t h a t the bank's Earnings and dividends Reports i n t h e form required by the Comptroller of the Currency are proper or on the theory that they a re n o t , as o r i g i n a l l y chargedj but t h e issue which challenged the c o r r e c t ness of the bank'e Farnlnga and Dividends Reports having been e l i m i n a t e d , the Commission should proceed under Subparagraph ( 9 ) upon the assumption t h a t the bank'e Earnings and Dividends Reports are cor a c t . I f the f a c t e w a r r a n t , i t may nevertheleee e s t a b l i s h i t s charge t h a t Inter-America Corporation Improperly t r e a t e d the bank dividends as inoome. I agree that the Commis- s i o n may produee evidence concerning the lssus contained i n Subparagraph ( 9 ) of Paragraph I I I of the Amended o r d e r , but 15- it i s my contention that i n making such p r o o f , the Commission1 • counsel should not r e v i v e the Issue which was e l i m i n a t e d by t he e l i m i n a t i o n of subparagraph (5) of Paragraph I I of the Supplemental Amended Order. A l l of the leauea contained i n the aifc- oaragraphe to b e e l i m i n a t e d are mattera which are w i t h i n t h e J u r i a d l e t l o n of the Comptroller of the Currency and have been t h o r o u g h l y considered by him* E l i m i n a t i o n of theae is auea from t h i a proceeding r e s u l t s i n avoiding any lnconaietenoiee of p o e i \ t l o n by the Commission and the O f f i c e of the Comptroller of t he Currency, and t h a t o b j e c t i v e waa an important p a r t of the Agreement of ?*arch 10, 1941. The Agreement i a e n t i r e l y oonaiatent w i t h t h i a p r i n c i p l e of comity, and i t should be c a r r i e d o u t . Another l l l u a t r a t l c n given by the Cocsmlasion's counsel r e l a t e s t o subparagraph (16) of Section I I I of the Amended Order. What i a aald above l a a p p l i c a b l e aa w e l l t o t h a t Illustration. I t w i l l r e a d i l y be eeen t h a t the contentione of counsel, i f ported by the Commission and c a r r i e d t o t h e i r l o g i c a l sup- conelualon, would burden the Commiesion and the Registrant w i t h a r e c l s s s i f i c a t l o n of the Rank'a assets and a redetermination of i t s 11ab l l l t l e a o r i g i n a t i n g i n tranaactlons of ten yeare* atending. The Coemileslon c o u l d not peeelbly exercise Independent judgment w i t h reepeot to such mattera without o v e r r i d i n g the judgment of e e v e r a l Comptrollers of t h e Currency. How csn such an under- t a k i n g be thought to s i m p l i f y the Commissi on* s taak or f a c i l i t a t e the determination of the i n s t a n t proceedlngf I t would of couree n u l l i f y a l l of the reaaonable and mutual advantages contemplated by the Agreement. - 16 - Counsel f o r the Commission i n the l a t t e r pert of t h e i r iemorandum develop the theory t h a t c e r t a i n issues r e l a t i n g pri- marily to the .ienk ere to be eliminated i n t h e i r e n t i r e t y , but t h a t where euoh issues would overlap o t h e r s , they would not be eliminated* This i s merely s t a t i n g the contention o f counsel f o r the Cotmolssion I n d i f f e r e n t words* I have answered theee contentions obove, but I may add t o what X have already said t h a t the l i f f e r e n t l a t i o n made by counsel f o r the Commission doee not take i n t o consideration the reasons f o r the e l i m i n a t i o n o f tha issuee r e l a t i n g p r i m a r i l y t o the Bank* Mr* ane stated the s i t u a t i o n c l e a r l y mfren he e a i d I n h i e l e t t e r o f A p r i l 1 1 , 1941, addressed t o met " I know you a r e anxious t o f i l e the Bank amendments • I , t o o , should l i k e to see them f i l e d , je^as8 o ^ t ^ e ^ I a n k ^ i ^ c S^fiav^alwav s^b e ao re^**" M & f t y Ihf. ^ g g ^ n ofTfltf p ^ r s ^ e * 0 Q h e ^ E T f ^ y j other s ^ m ^ r Gover^ept; p f f t Vw of m * mSSSSmSr Obviously, tha raaaona f o r the e l i m i n a t i o n of issues r e l a t i n g p r i m a r i l y t o tha Bank apply w i t h equal force to eaid issues atiether they atand alone or overlap othere* At tha bottom o f page I S , counsel f o r tha Commission states • « Mr* C l a n n i n i would r e q u i r e the Corasdas i on t o s t u l t i f y i t s e l f by accepting I r e n e amerlca'a o r i g i n a l f a l e e statement i n i t e f i n d i n g s and o p i n i o n , when Trenaamerica, by emending such o r i g i n a l statement, had d i e cloeed i t s faleeneea t o the world*" This statement l a g r o e a l y Improper and l a a g-retui* toua a f f r o n t * Tha o r i g i n a l e t a t em ant o f Traaaameriaa, which l a • 17 - r e f e r r e d t o as belii£ f a l s e , can be and I s none other than a statement w h i c h corcpiled r e p o r t s of t h e :sank s u b m i t t e d t o the comptroller o f t h e urgency* f r a n s a m e r l c a , by f i l i n g an amend- ment I n the form o f e x p l a n a t o r y f o o t n o t e s which do n o t >hazi£e any o f the f i g u r e s I n t h e r e l e v a n t r e p o r t s o f < o n U t l o n aivl o f a m i n e s and t l v l d e n d s o f t h e Honk, I s n o t a d m i t t i n g and c o n s i s t e n t w i t h accuracy cannot admit t h a t a n y t h i n g f i l e d I n l t a o r i g i n a l a p p l i c a t i o n was " e l s e , and who r e a d i n g o f the amendment c o n t a i n i n g t h e f o o t n o t e e w i l l convince any f a i r mlnu t h a t the o r l l n a l n e n t was n o t f a l s e * state- I t i s c e r t a i n l y t o be d e p l o r e d t h a t counsel f o r t h e Com l e s i o n s h o u l d r e s o r t t o such recKLessnese when by eo doln* t h e y a r e re l e c t i n ^ n o t m e r e l y upon the K e c l s t r e n t , upon o f f i c e r s o f t h e Bank ( w h i c h i s n o t a p a r t y t o t h i s ceedlng) and even upon t h e h i g h e s t o f f i c e r s i n the but pro- overran en t e x e r c i s i n g s u p e r v i s o r y a u t o r i t y over banks, i n c l u d i n g t h e < o m p t r o l l e r of the urrency, the -oard o f governors o f the F e d e r a l Beserve System and t h e board o f D i r e c t o r s o f the eposit Insurance ederal Corporation* At the bottom of pa&e 1 4 , counsel f o r the COSTS l e s i o n state that I n ank v* ouglaa the ank 'unsuccessfully sou h t t o e n j o i n the * ommlsslon on the ground t h a t , as a m a t t e r of law. had no r i g h t t o go I n t o matters a f f e c t i n g the Bank*" It I em accused of arguing t h a t the Commission has v l u n t a r l l y contracted away the b e n e f i t s of the ^ou^Xas caee* Mo u s e f u l purpose would hero bo served l a t r y i n g t o develop whet was a c t u a l l y deelded I n that esse, as the best evidence l e the d e c i s i o n I t s e l f * • 18 - Suffice it to say a t t h i s t i n e that the Bank vas not unsuccessful i n the Douglas case, and that the Court, by i t s decision, did i n e f f e c t r e s t r a i n the Coeualssion from c e r t a i n i l l e g a l and unlawful p r a c t l c e a , and would nave granted an i n j u n c t i o n i f i t had not been a ssured by counsel f o r the Commission t h a t the a a i d unlawful practlcea would not be repeated* But the most amasing p a r t of the counael'e Memorandum l e contained i n the f l r a t paragraph on page 15, i n which they undertake to t e l l entertain. the Commissionwhat propoeala the Coeimleelon could not If counsel f o r the Commission are empowered t o t e l l Commieelon what i t caimot e n t e r t a i n , of couree any comment that the I might siake would be f u t i l e . I n the a f o r e s a i d paragraph couneel f o r the Commieelon labor to e e t a b l l s h the admitted f a c t t h a t there are issues other than thoee e l i m i n a t e d by the f i l i n g of the footnotee which r e l a t e to the bank. Ae an exemple, Subparagraph ( 1 ) of Section I I I the Amended order i s r e f e r r e d to. of This subparagraph charges a f a i l u r e to discloee an a l l e g e d a f f i l i a t i o n between the Registrant and the Bank of America and v a r i o u s other i n s t i t u t i o n s . There i s nothing i n my eontentlone t h a t would pi event the Commission from e s t a b l i s h i n g by proper proof anything t h a t may be eet f o r t h i n e a i d subparagraph. This issue could be eetabliahed without tree- paaslng on any of the leeuee which have been e l i m i n a t e d by t h e f i l i n g of the f o o t n o t e e . On page 1 7 , under the heading of "ComTllct of J u r i a d l e t l o n between t h e Cemsdealon and the Comptroller of the Currency," couneel f a r the Commission admit t h a t the Comptroller - 19 - of the Currency i s given powers w i t h respect to n a t i o n a l b anks not possessed by the Commission, end they assert t h a t the Commission I s not seeking to a s s e r t any such powers. They then prooeed to argue that the Commiaalon's powers of disclosure a r l a e by reaaon of the f a c t that during the time i n queation the a took of the dank was owned by a subsidiar of rranaameriea, A oomplete answer to t h i s argument i s that i f the power of t h e Commission i s one of d i s c l o s u r e , t h a t disclosure i s f u l l y and f a i r l y made i n franaamarlca'o A p p l i c a t i o n f o r R e g i s t r a t i o n a m p l i f i e d by the Amendsient i n the form of approved footnotes. Counsel f o r the Commission i n a nots found a t the bottom of page 3 of t h e i r memorandum a t a t e i "As the Commission knows these amendment a have been examined by the Comaisslon's s t a f f and i t i s agreed t h a t they c o n s t i t u t e adequate d i s c l o s u r e . " On page 18, counsel f o r the Commission r e f e r t o my statement t h a t the Coseilaalon has w i s e l y detenained to a c c e p t the Benk i n the c o n d i t i o n i n which I t haa been found s a t i s f a c t o r y t o t h e Comptroller. Ifcey s t a t e t h a t the Cosq>troller haa repeatedly c r i t i c i s e d the preotlees of the Bank w i t h which the Cosmilsslon l a concerned. The f a c t l a however, t h a t the Comp- t r o l l e r of the Currency d i d not during any of the years i n queation o r l t l e l s s the Benk w i t h reference t o eny matter a f f e c t ing the Bank w i t h which the Commission i a concerned. Counael very w e l l know t h a t a t no t l s * haa the Comptroller r e q u i r e d the - 80 - r e v e r s a l of any e n t r l e a on the books of the Bank a f l o o t i n g these matters* The statement l a made a t page 20 t h a t the e l i m i n a t i o n of the Bank lasues would r e s u l t I n endless controversies w i t h regard t o the "norwdefined lasues vhloh wore t be excised* M I have shown t h a t the Issues r e f e r r e d t o i n the Agreement are not "non-defined" b u t , on the c o n t r a r y , each l a e p e o i f i o a l l y and separately a l l e g e d i n the Order* I n the l a a t paragraph, Commission's counsel ask t h a t the Agreement be not "permitted t o be perverted i n t o an indicat i o n of i n t e n t i o n by the Commission t o abandon a l l mattera Ohataoevor t h a t might p e r t a i n t o t h e Bank w i t h a consequent p a r a l y s i s of the e n t i r e proceeding*" A s i m i l a r statement i s made by counsel on page 5 of t h e i r Memorandum where they say t h a t Transamsrice "seeks t o induce the Commission t o abandon other major portions of I t s oaae*" 1 have repeatedly de*K>nstrated to t have not made any such r e q u e t or contention* l The remaining issues i n the order nay be proved by the Commission i f I t can produce proper evidence of the r e q u i s i t e f s c t s * U j sols con- t e n t i o n i s t h a t I n doing so counsel f o r the Connies ion s h a l l not r e t r y the e l i m i n a t e d laauoa* flBBBUBBI I r e s p e c t f u l l y submit, t h e r e f o r e t 1* That t h e Agreement of March 1 0 , 1941 i s c l e a r and unoqulvooal* - 21 - 2. h a t the Commission should n o t s t t h i s t l s m p l a c e a c o n s t r u c t i o n on t h s Agreement oentrary t o t h a t p l s e e d t h e r e o n by i t 3. heretofore I n I t s Order snd Press B e l e e s e . That the Agreement entered i n t o l a sccorianc© w i t h the procedure i r e s e r l b e d in the Ache son export should not be repudiated. 4. 1%et t h e Cownlsslon g i v e a f f e c t t o t h e f?reement by e l ! m i n e t i n e the Issues ( c o v e r e d by t h e f o o t n o t e s ) m a r i l y i n v o l v i n g the pri- a n k , which I n the words o f t h e Commis- s i o n s General C o u n s e l i • • deal w i t h h i s t o r i c a l f i n a n c i a l problems o f the bank which have s i ways been more d l r e o t l y the concern o f the C o m p t r o l l e r o f the Currency end o t h e r s i m i l a r "Jovemamnt o f f i c i a l s than o f t h i s Consul s s l o n . * 5* Thst the Commission as a m a t t e r of c o m i t y and i n the I n t e r e s t s of j u s t i c e should t a k e n o t i c e of the f e e t t h a t r a n k of Ameriee > e t l o n a l T r u s t and Sewings A s s o c i a t i o n a d e q u a t e l y s u p e r v i s e d by t h e C o m p t r o l l e r of t h e la urreney, Vederel r e s e r v e *oerd and f e d e r a l 7 * p o s i t I n s u r a n c e C o r p o r a t i o n , A*?ree-r»ent, p r o p e r l y i n t e r p r e t e d , g i v e s e f f e c t t o t h i s 6. ""hat the Commission f i l e the 'he principle. the footnotes pursuant to the terme of the Agreement, end Issue the Order ^sending Supplemental Amended ^rder For ' s a r i n * By S t r i k i n g "herefrom C e r t a i n Portions Thereof and f r e e s Heleese h e r e t o f o r e approved f o r issuance i n conformity w i t h the procedure a l r e a d y agreed upon* • 88 • 7* That the Agreement, * i i c h was f r u s t r a t e d i n the course o f performance by the e o t l o n of Commission's counsel, be given f u l l e f f e o t end t h e t henceforth i t be thoroughly and oonecientlouely c a r r i e d out t o the end t h a t t h i a proceeding be brought t o an e a r l y and e q u i t a b l e t e r m i n a t i o n w i t h the l e e s t possible a d d i t i o n a l cost and inconvenience t o the Government and the K e g l s t r m t a n d I t a shareholders* Respectfully submitted, L . M, GIANHIHI L . /I* f. IANHIHI August 2 3 , 1941* • 23
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