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STOCK EXCHANGE PRACTICES

HEARINGS
BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-SECOND CONGRESS
SECOND SESSION
ON

S. Res. 84 and S. Res. 239
RESOLUTIONS TO THOROU GH LY IN VE STIG ATE PRACTICES
OF STOCK EXCHANGES W ITH RESPECT TO THE
BU YIN G AN D SELLING AND THE B ORRO W IN G
A N D LEN D IN G OF LISTE D SECURITIES
TH E VALUES OF SUCH SECURITIES
AN D TH E EFFECTS OF SUCH
PRACTICES

PART 5
(INSULL)
FE B R U A R Y 15, 16, AN D 17, 1933

Printed for the use of the Committee on Banking and Currency

119852




UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1933

CO M M IT T E E ON B A N K IN G A N D C U R R E N C Y
P E T E R N O R B E C K , South Dakota, Chairman
S M IT H W . B R O O K H A R T , Iowa.
’ D U N C A N U. F L E T C H E R , Florida.
P H IL L IP S L E E G O L D S B O R O U G H , M aryland. C A R T E R GLA SS, Virginia.
R O B E R T F . W A G N E R , N ew Y ork.
J O H N G. T O W N S E N D , Jb ., Delaware.
A L B E N W . B A R K L E Y , K entucky.
F R E D E R I C C. W A L C O T T , Connecticut.
J O H N J. B L A IN E , Wisconsin.
R O B E R T J. B U L K L E Y , Ohio.
T H O M A S P . G O R E , Oklahoma.
R O B E R T D . C A R E Y , W yom ing.
E D W A R D P. C O S T IG A N , Colorado.
J A M E S E . W A T S O N , Indiana.
C O R D E L L H U L L , Tennessee.
J A M E S C O U ZE N S, Michigan.
R O B E R T R . R E Y N O L D S , North Carolina.
F R E D E R I C K S T E IW E R , Oregon.
J u lia n W . B lo u n t , Clerk

S u b c o m m it t e e

on

Sen ate R

e s o l u t io n s

84

and

239

P E T E R N O R B E C K , South Dakota, Chairman
JO H N G. T O W N S E N D , Jb., Delaware.
J O H N J. B L A IN E , Wisconsin.
J A M E S C O U ZE N S, Michigan.
II




D U N C A N U. F L E T C H E R , Florida.
C A R T E R G LA SS, Virginia.
E D W A R D P. C O S T IG A N , Colorado.

CONTENTS
Statement of—
Broeksmit, John S., vice president, Harris Trust & Savings Bank,
Chicago, 111_____________________________________________________
Davis, Paul H., president Chicago Stock Exchange________________
Dawes, Charles G., Central Republic Bank & Trust C o____________
Insull, jr., Samuel_________ '________________________________________
Insull, jr., Samuel (resumed)______________________________________
Insull, jr., Samuel (resumed)_______________________________________
O’ Keefe, John F ___________________________________________________
Stilwell, Abner J., vice president, Continental-Illinois National Bank
& Trust Co., Chicago, 111_______________________________________
Stuart, Harold L., president Halsey, Stuart & Co., Chicago, 111____
Stuart, Harold L., president Halsey, Stuart & Co., Chicago, 111.
(resumed)_______________________________________________________
Timmerman, Louis F., assistant vice president, Central Hanover
Bank & Trust Co., New York City______________________________
Traylor, Melvin A., president First National Bank, Chicago, 111____
Tyler, Eduard M., certified public accountant, Washington, D .C ___
Young, Owen D., chairman of the board of directors General Electric
C o______________________________________________________________




in

P age

1742
1566
1529
1397
1434
1501
1499
1728
1589
1642
1544
1677
1688
1507




STOCK EXCHANGE PRACTICES
WEDNESDAY, FEBRUARY 15, 1933
U
S u b c o m m it t e e

of

C o m m it t e e

n it e d

on

B

States S en ate,
and C urren cy,

a n k in g

Washington, D. C.

The subcommittee met, pursuant to call, at 10 o’clock a. m. in
room 301, Senate Office Building, Senator Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Couzens, Townsend,
Blaine, Fletcher, and Costigan.
Present also: Senators Brookhart and Walcott.
Further present: Ferdinand Pecora, special counsel to the com­
mittee; Julius Silver and James B. McDonough, jr., associate counsel
to the committee.
The C h a i r m a n . The committee will come to order. Mr. Pecora,
who will be your first witness?
Mr. P e c o r a . Samuel Insull, jr., will please come forward and take
* seat at the table opposite the committee reporter.
The C h a i r m a n . Mr. Insull, you will stand up and be sworn. You
do solemnly swear that you will tell the truth, the whole truth, and
nothing but the truth, regarding the matter now under investigation
by the committee, so help you God?
Mr. I n s u l l . Yes, sir; I do.
The C h a i r m a n . Y ou may take a seat.
TESTIMONY OF SAMUEL INSULL, JR., 72 W. ADAMS STREET,
CHICAGO, ILL.

The C h a i r m a n . Y ou may proceed, Mr. Pecora.
Mr. P e c o r a . Mr. Insull, will you give your full name and address
to the committee reporter?
Mr. I n s u l l . Samuel Insull, jr., 72 West Adams Street, Chicago.
That is my business address.
Mr. P e c o r a . What is your home address?
Mr. I n s u l l . 1242 Lake Shore Drive, Chicago.
Mr. P e c o r a . Are you connected with a corporation called Insull
Utility Investments (Inc.)?
Mr. I n s u l l . I was, sir, up to the time of the receivership, and still
hold a nominal office in the corporate entity.
Mr. P e c o r a . When did you become connected with that corpora­
tion originally?
Mr. I n s u l l . I was elected a vice president at or shortly after its
formation in December, 1928, and subsequently was elected presi­
dent. The exact date of my election as president I do not recall.
Mr. P e c o r a . About w h e n w a s it?




1397

1398

STOCK EXCHANGE PEACTICES

Mr. I n s t jl l . The record will show, but offhand I should say some
time in 1930.
Mr. P e c o r a . What month, do you recall?
Mr. I n s t j l l . I would say about May, but that is just the best
recollection that I have.
Mr. P e c o r a . When was that corporation organized?
Mr. I n s t j l l . It was organized either in December of 1928 or
January of 1929.
Mr. P e c o r a . And you became vice president at the outset?
Mr. I n s t j l l . Yes, sir.
Mr. P e c o r a . Who were the other executive officers of that cor­
poration at the outset?
Mr. I n s t j l l . Samuel Insull, president, and-----Mr. P e c o r a (interposing). Is that your father?
Mr. I n s u l l . Yes, sir. Martin J. Insull, vice president, and-----Mr. P e c o r a (interposing). Is that your uncle?
Mr. I n s u l l . Yes, sir. Philip J. McEnroe, treasurer, and I think
secretary; John F. O’Keefe, either secretary or assistant secretary
depending upon whether McEnroe occupied both offices, secretary
and treasurer, or not.
Senator F l e t c h e r . And yourself?
Mr. I n s u l l . Yes; as one of the vice presidents.
Mr. P e c o r a . What business relationship, if any, did Mr. O’Keefe
bear to your company?
Mr. I n s u l l . I just said what I thought it was.
Mr. P e c o r a . Well, what business relationship, if any, did Mr.
O’Keefe bear to your father?
Mr. I n s u l l . He was his private secretary.
Mr. P e c o r a . And what business relationship, if any, did Mr.
McEnroe bear to your father?
Mr. I n s u l l . I suppose you would call him his bookkeeper. But I
do not mean to imply that he was merely a clerk.
Mr. P e c o r a . D o you know how long Mr. O’Keefe had been your
father’s private secretary before the incorporation of Insull Utility
Investments (Inc.)?
Mr. I n s u l l . I entered business in 1922, and I think he was either
his private secretary then or became so within a year or two, or cer­
tainly since 1925, or earlier.
Mr. P e c o r a . What was the form of organization of the corporation
called Insull Utility Investments (Inc.)?
Mr. I n s u l l . Do you mean the personnel?
Mr. P e c o r a . What business was it organized to transact?
Mr. I n s u l l . It was organized, and it had charter powers to buy,
hold, and trade in securities generally. The announced purpose was
mainly to acquire and hold securities of the Commonwealth Edison
Co., Peoples Gas Light & Coke Co., Public Service Co. of Northern
Illinois, Middle-West Utilities Co., and their affiliated companies, but
it did not necessarily restrict itself to such investments.
Mr. P e c o r a . Would you say, in other words, that the business it
was organized to do was in the nature of an investment trust business?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And an investment trust designed to deal in publicutility company securities?
M r . I n s u l l . I n th e m a in ; y e s , sir.




STOCK EXCHANGE PRACTICES

1399

Mr.
Mr.
Mr.

P e c o r a . In the main.
I n s u l l . Yes, sir.
P e c o r a . A s a m a t t e r o f f a c t , in th e c o u r s e o f th e o p e r a t io n s
c o n d u c t e d b y t h a t c o m p a n y f r o m th e t im e o f it s in c o r p o r a t io n , t h a t
is w h a t i t d id ?
Mr. I n s u l l . Yes, sir; in the main.
Mr. P e c o r a . What was the capital structure of the corporation at

the outset?
Mr. I n s u l l . I can not from my direct recollection, or from the
personal notes that I have, testify exactly, but I think the record
will show it.
Mr. P e c o r a . What records would show that, Mr. Insull?
Mr. I n s u l l . I would say that the minute books and books of
account of the company would show it. Since the receivership I
have had no custody of those books.
Mr. P e c o r a . I now show you a book which is marked on the bind­
ing “ Insull Utility Investments (Inc.), No. 1, Stockholders and
Directors.” I ask you if that is the minute book that you have just
referred to.
Mr. I n s u l l . To the best of my knowledge and belief it is. But
Fdid not myself keep the minutes.
* Mr. P e c o r a . Do you recognize it as being the original minute
book of stockholders and directors meeting of that corporation?
Mr. I n s u l l . To the best of my knowledge; yes. I never had the
custody of this particular book, so I don’t think I should testify as
to that.
Mr. P e c o r a . Will you look at it and see if you can not assure your­
self from any signatures and entries contained in the book, that it is
the real minute book of the company?
Mr. I n s u l l . If I might make a suggestion: It is signed, according
to my belief, by Mr. McEnroe at some places, and some by Mr.
O’Keefe, and if they identify their signatures then I identify the book.
I just don’t want to accept the responsibility for what I do not myself
know.
Mr. P e c o r a . Was the minute book produced at meetings of the
directors of the corporation at which you were present?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And you often s a w it?
Mr. I n s u l l . Yes, sir.
M r . P e c o r a . I s t h a t th e b o o k t h a t y o u s a w , a n d d o y o u r e c o g n iz e
i t as th e m in u te b o o k o f th e c o r p o r a t io n ?
Mr. I n s u l l . To the best of my knowledge and belief; yes. But I

did not at that time make any mmutes that I could look through and
identify.
Mr. P e c o r a . Mr. Chairman, may this book be marked as an
exhibit for identification?
The C h a i r m a n . Yes.
(The book referred to by special counsel to the committee as being
marked “ Insull Utility Investments (Inc.), No. 1, Stockholders and
Directors, ” was received in evidence and identified by being marked
“ Exhibit No. 1. ” )
Mr. P e c o r a . Mr. Insull, will you consult that minute book for
the purpose of refreshing your recollection, in order to enable you to
tell us what the capital structure was of this company at its organ­
ization?



1400

STOCK EXCHANGE PRACTICES

Mr. I n s u l l . Well, on page 7, there is a subscription to capital
stock for 200 shares of stock, so I suppose it is the first incorporation.
Mr. P e c o r a . Those were merely tor qualifying purposes, were
they not?
Mr. I n s u l l . Yes, sir.
Senator F l e t c h e r . What was the par value of the stock?
Mr. I n s u l l . They say here in the certificate of incorporation—
well, let me find it: No par value, sir.
Mr. P e c o r a . Let me ask you at that point-----Mr. I n s u l l (continuing). I am looking to see if there is a circular
or statement.
Mr. P e c o r a . Well, perhaps we can get at it in this way: Do you
know how many shares of stock the company was authorized to issue?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . N o w , h o w m a n y a n d o f w h a t c la s s ific a t io n s ?
M r . I n s u l l . I t w a s a u t h o r iz e d t o is su e 2 5 0 ,0 0 0 s h a r e s o f p r io r
p r e f e r r e d s t o c k , a n d -------Mr. P e c o r a (interposing). Of no par value?
Mr. I n s u l l . No par value; 250,000 shares of preferred stock, of no

par value; and 3,000,000 of common stock, of no par value.
Senator C o u z e n s . D o you know what was put up in exchange for
those shares?
Mr. I n s u l l . I may have that information, Senator, and will look.
Senator C o u z e n s . I did not want to interrupt the examination,
but it seemed appropriate to put that in the record at this time.
Mr. P e c o r a . Yes; Senator Couzens.
Mr. I n s u l l . I f I have not got it I will say that there are certain
other witnesses here who, I think, will have it. I have not got it in
my memorandum, but I think I could find it in the book.
Mr. P e c o r a . Will you please do that, Mr. Insull?
Mr. I n s u l l . Yes; I think I can. It was at one of the early
meetings.
Mr. P e c o r a . Suppose you look at the minutes of the meeting held
January 11, 1929, in that minute book.
Mr. I n s u l l . Well, there is a statement here but it refers to a
previous meeting. It says—
The president then stated that there bad been issued 40,000 shares of preferred
stock and 7(54,200 shares of common stock.

Mr. P e c o r a . N o w , according to that minute to whom were those
shares issued at the outset?
Mr. I n s u l l . I f I might continue reading:
Two hundred shares of common stock had been issued to the directors for cash*
and were really directors’ qualifying shares; 40,000 shares of preferred stock, and
the remaining 764,000 shares of common stock had been issued to Samuel Insull,
Margaret A. Insull, Martin J. Insull, and Samuel Insull, jr., in return for securi
ties transferred by them to the company.

Mr. P e c o r a . N o w , the Samuel Insull mentioned there, and the
Margaret A. Insull mentioned there, are your father and mother,
respectively, aren’t they?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . D o you find a minute of the issue of stock to any
other person or persons at the outset?
Mr. I n s u l l . Well, it says this:




STOCK EXCHANGE PRACTICES

1401

It was then decided to sell 60,000 shares of $5.50 prior preferred stock, without
par value of the company, with nondetachable common stock purchase warrants
attached, and $6,000,000 in principal amount of the company’s 5 per cent gold
debentures series A with nondetachable common stock purchase warrants
attached.

Then follows a resolution.
Mr. P e c o r a . Sell those to whom?
Mr. I n s u l l . That the company had issued and sold to Halsey,
Stuart & Co. at $100 per share and accrued dividends, 60,000 shares
of 5)2 prior preferred stock. Then there is a subsequent resolution
to sell bonds to Halsey, Stuart & Co.
Mr. P e c o r a . Before we get to that, go back to the issue of stock
to your father, mother, and uncle; 764,000 shares of common stock
and 40,000 shares of preferred stock. What was the consideration
that was paid for those two blocks of stock by your father, your
mother, and your uncle?
Mr. I n s u l l . And m y s e lf?
Mr. P e c o r a . Yes; a n d yourself.
Mr. I n s u l l . Well, we put in stocks of the Commonwealth Edison
Co., Peoples Gas, Public Service Co., and Middle-West Co., and
related utilities stocks, on the basis of their then market value.
Mr. P e c o r a . Well?
Mr. I n s u l l . We received in exchange for those the securities
referred to. I should like to point out something there which does
not show in the record.
Mr. P e c o r a . Well, now, of what value at the market did your
family group turn over the securities of the companies that you have
mentioned in return for those two blocks of preferred stock and com­
mon stock of the Insull Utility Investments (Inc.)?
Mr. I n s u l l . The securities we turned in were at the market at or
near the day they were turned in.
Mr. P e c o r a . At what gross or total value?
Senator T o w n s e n d . Were they listed on the Exchange?
Mr. I n s u l l . Yes, sir; they were listed. I think I can answer that
question directly in this way, and it bears on the situation.
Mr. P e c o r a . All right.
Mr. I n s u l l . On January 11, 1929, the value of the securities pat
into Insull Utility Investments (Inc.) by my father, myself, and my
mother—and I can not testify very well about my uncle because I
have never kept his records—were of the aggregate market on that
date of $8,752,468.20.
Subsequently we had transactions in and out of securities of Insull
Utility Investments (Inc.) and of Corporations Securities Co. of
Chicago. But if you take the two together, at the time of the
receivership the three individuals mentioned still had a net invest­
ment in stocks of the Insull Utility Investments (Inc.) and the Cor­
porations Securities Co., based on the cost, less anything they had
sold, plus anything additional they had bought, of $8,523,658.99.
On that is based some statements I have heard made that my father,
my mother, and myself had unloaded.
Mr. P e c o r a . Before we get down to the securities in the portfolio
of this investment company at the time of the receivership, let us go
back to the issuance of those securities at the time of organization.
Isn’t it a fact that the 754,000 shares of common stock which were



1402

STOCK EXCHANGE PRACTICES

issued to your family group on or about January 11, 1929, by Insull
Utility Investments (Inc.), were issued at a price of $7.54 per share?
Mr. I n s u l l . Yes, sir. And I should like to point out something
in addition in that connection, however-----Mr. P e c o r a (interposing). Well now, wait. Isn’t it also a fact
that the 40,000 shares of preferred stock that were then issued to
your family group were issued at a price or rate of $100 per share?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And that made a total of $9,765,908 at which the
754,000 shares of common stock and the 40,000 shares of preferred
stock were issued to your family group.
Mr. I n s u l l . Kather than testify as to detail figures I prefer to
confer with some other witnesses who are more closely in touch with
them. Although I have no reason to believe that what you say is
not so.
Mr. P e c o r a . Won’t you find it in the minute book?
Mr. I n s u l l . It is rather difficult to put together, in a single state­
ment, many resolutions. I could look it up but I would be afraid of
wasting your time.
Mr. P e c o r a . Which witness do you want to confer with?
Mr. I n s u l l . Mr. Philip J. McEnroe.
Mr. P e c o r a . Mr. Chairman, I suggest that the witness be given
that privilege.
The C h a i r m a n . There is no objection.
Senator F l e t c h e r . Before you go to confer with Mr. McEnroe
may I ask: What is the difference between this prior preferred stock
and the preferred stock? You had 250,000 of prior preferred stock
and 250,000 of preferred stock, and I am talking now about shares.
Mr. I n s u l l . Yes.
Senator F l e t c h e r . What is the distinction between prior preferred
and preferred as to rights?
Mr. I n s u l l . This prior preferred stock had a senior call on both
earnings and assets in liquidation, and was the stock which was at
that time sold to the public. The preferred stock was senior to the
common stock but junior to the prior preferred stock.
Mr. P e c o r a . What voting rights did these various classes of stocks
have?
Mr. I n s u l l . I think that each share of stock had a vote.
Mr. P e c o r a . Equal voting rights?
Mr. I n s u l l . That is my present impression. I think that is the
Illinois law. I see nothing here that says otherwise.
Mr. P e c o r a . Did the shares of preferred stock carry with them any
warrants or rights to purchase common stock at a given price?
Mr. I n s u l l . The preferred stock, 40,000 shares which my family
took, and I among them, did not have its full dividend from the start.
The record will show here that it started out at a rate of aggregate
dividend less than the income on the securities we had turned in,
and gradually increased. In other words, we gave up some of our
dividends at the start.
And we did one other thing. You will note here in these resolu­
tions that the securities were sold—that is, the debentures and the
preferred stock, which was sold to Halsey, Stuart & Co., was sold to
them at 100, and the record will show that that was the price at
which they in turn offered it to the public.



STOCK EXCHANGE PRACTICES

1403

Mr. P e c o r a . N o , Mr. Insull, my question is not that. The ques­
tion propounded to you was whether or not the 40,000 shares of pre­
ferred stock that were issued at the outset to your family group,
carried with them certain rights or warrants to purchase common
stock at a specified figure.
Mr. I n s u l l . We had the right to purchase—well, I will have to
look it up. It was at 15, I believe, 200,000 shares for a period of two
years, which we got in consideration of our taking a lower dividend
on the preferred, and on our agreeing to serve the company without
compensation for, I think, two years, and although it was not a direct
consideration I wanted to point out in connection with that, because
I think it is all material, that we provided Halsey, Stuart & Co. the
selling or underwriting expense by giving them some of the 764,000
shares of common stock which was issued to us. We did that in
order to enable the company to start off clear, without any discount
on the securities.
Mr. P e c o r a . N o w , Mr. Insull, 40,000 shares of preferred stock
carried with them the right to purchase 200,000 shares of common
stock at a price of $15 per share.
Mr. I nsull. I think it was $15 a share. I think the record some­
where shows that. If I could see a copy of those circulars they would
likely show it, the original circulars.
Mr. P e c o r a . At $15 per share it says.
Mr. I n s u l l . All right.
Mr. P e c o r a . Were those rights exercised?
Mr. I n s u l l . Yes; those rights were exercised.
Mr. P e c o r a . When?
Mr. I n s u l l . I think I could tell you that if I could find out about
it from Mr. McEnroe. He has the information in detail.
Senator T o w n s e n d . Would you like to consult Mr. McEnroe now?
Mr. I n s u l l . I t m ig h t s a v e th e tim e of th e c o m m it t e e , a n d would
h e lp .

Senator T o w n s e n d . Suppose we let Mr. McEnroe come up here
to the table.
The C h a i r m a n . The witness may confer with Mr. McEnroe at
any time.
Mr. I n s u l l . Mr. McEnroe, please come up here to the committee
table and take a seat by me. I find it is December 31, 1929.
Mr. P e c o r a . The rights were exercized December 31, 1929?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . That is to say, your family group then purchased
200,000 shares of common stock at $15 per share?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . That made 964,000 shares of common stock that passed
into the hands of your family group?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . N o w , in addition, at the outset of this corporation
were not your family group given an option to buy an additional
block of common stock at a special price?
Mr. I n s u l l . I do not know that the option did run. I will con­
sult Mr. McEnroe. My father undertook or was contracted to either
buy or cause to be sold 250,000 shares at $12 per share.
Mr. P e c o r a . That option was given to your father at the outset
of this company?



1404

STOCK EXCHANGE PRACTICES

Mr. I n s u l l . It was given before any stock was listed and before
they knew what the value of it would be. But he in turn had the
obligation to pay the money.
Mr. P e c o r a . What m o n e y ?
Mr. I n s u l l . $3,000,000 for 250,000 shares at $12. It was not an
option. It was a contract as I understand it.
Mr. P e c o r a . It was an agreement or an option, wasn’t it?
Mr. I n s u l l . I t s a y s :
The stockholder, Samuel Insull, hereby agrees to purchase or cause to be
purchased within one year from the date hereof 250,000 additional shares of the
common stock without par value o f the company.

Mr. P e c o r a . That is, he obligated himself to buy 250,000 shares
at $12 per share?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Within one year?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Was that agreement carried out?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . When?
Mr. I n s u l l . Well, b y the 1st o f March.
Mr. P e c o r a . Of 1929?
Mr. I n s u l l . Yes, sir. That is the best of m y recollection.
Mr. P e c o r a . Within three months after the company was organ­
ized?
Mr. I n s u l l . Yes, sir; it was done right away.
Mr. P e c o r a . N o w , t h a t m a d e a t o t a l o f 1,214,000 s h a r e s o f
c o m m o n s t o c k o f th is c o m p a n y t h a t p a s s e d in t o th e h a n d s o f y o u r
fa m ily .
Mr. I n s u l l . No; that stock did not pass into the hands of m y

family. He contracted to either acquire it or cause it to be pur­
chased. He caused it to be purchased by other people.
Mr. P e c o r a . At what price?
Mr. I n s u l l . At $12 per share.
Mr. P e c o r a . When was that done?
Mr. I n s u l l . It was done right at the formation of the company.
Whether it was before the stock was listed or afterward, I do not
know. My impression is that it was before the stock was listed.
Mr. P e c o r a . When was the stock listed?
Mr. I n s u l l . The stock was listed at some date in January of 1929.
Mr. P e c o r a . I thought you said this 250,000 shares were trans­
ferred to your father, or issued to your father, some time in March
of 1929.
Mr. I n s u l l . I said they were issued to him some time before
March. Not having the record before me I do not want to make a
statement that might have to be upset later on.
Mr. P e c o r a . The stock was listed in January of 1929?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . On which board or exchange?
Mr. I n s u l l . The Chicago Stock Exchange.
Mr. P e c o r a . Are you certain that those 250,000 shares at $12 a
share were issued to your father before or after the stock was listed?
Mr. I n s u l l . Well, they were not issued to my father. They w e r e
issued direct to-----


STOCK EXCHANGE PRACTICES

1405

Mr. P e c o r a (interposing). They were issued either to your father
or his assignees.
Mr. I n s u l l . That is right. I can not be positive, but I know the
record will show the date of listing, and the date on which this stock
was issued.
Mr. P e c o r a . What record will show the date o f the issuance o f
250.000 shares at $12 a share?
Mr. I n s u l l . I should think the minute book would show it. I do
not know that this is the right one to look at, and this includes the
minutes of the directors. Mr. McEnroe, are the minutes of the
finance committee also in here?
M r . M c E n r o e . N o , sir.
Mr. I n s u l l . It is in the

finance committee, I think. There was a
directors’ meeting in January, and then another one in March.
Mr. P e c o r a . Is this book that I now show you the minute book of
the finance committee to which you have just referred?
Mr. I n s u l l . Yes, sir; I think so. January 2 1 ,1 see here, is the
first minute, but it does not here show it. Well, certainly the account
books would show it.
Mr. P e c o r a . Have you the agreement that was made between the
company and your father, your mother, and yourself, and your uncle,
with respect to the purchase of those 250,000 shares at $12 a share?
Mr. I n s u l l . That ran to my family only, and Mr. McEnroe has a
copy here. Both the options are together.
Mr. P e c o r a . Produce the original, will you?
Mr. I n s u l l . Mr. McEnroe, have you got the original?
M r. M

cE n r o e .

N o ; b u t h e r e is a c o p y .

Mr. I n s u l l . The original is in the custody of the receivers.
Mr. P e c o r a . I s this a c o p y o f the agreement?
Mr. I n s u l l . Yes, sir. Mr. McEnroe says this is a copy.
Mr. P e c o r a . Mr. Chairman, I now desire to offer this in evidence.
Senator F l e t c h e r (presiding). It will be received and made a part
of the record.
COPT

Agreement, made this 17th day of January, 1929, by and between Samue
Insull, Margaret A. Insull, Samuel Insull, jr., and Martin J. Insull (hereinafterl
called the stockholders), parties of the first part, and Insull Utility Investments
(Inc.), a corporation organized and existing under and by virtue of the laws of
the State of Illinois (hereinafter called the company), party of the second part,
witnesseth as follows:
Whereas the company has been organized and is about to issue at $100 per share
40.000 shares cf its preferred stock first series without par value as part consid­
eration for certain securities to be conveyed by the stockholders to the company,
said 40,000 shares of stock to be issued as follows:
Twenty-five thousand four hundred fifty-six shares to Samuel Insull; 3,692
shares to Margaret A. Insull; 5,928 shares to Samuel Insull, jr.; and 4,924 shares
to Martin J. Insull; and
Whereas each of the stockholders as a holder of such preferred stock is desirous
of having the option of purchasing within a period of 2 years 5 shares of the com­
mon stock of the company at $15 per share for each share of such preferred stock
first series so issued to him or her, and the company is willing to give such option
upon the terms, conditions and agreements hereinafter stated:
Now, therefore, in consideration of the premises, of the agreements hereinafter
contained and of the fact that in contemplation of the execution of this agreement
the annual dividend payable on said preferred stock first series has been fixed at
$2 per share for the first year, $3 per share for the next year, $4 per share for the
next year, $5 per share for the next year, and $6 per share thereafter, the parties
hereto do agree with each other as follows:
1. The company hereby gives—



1406

STOCK EXCHANGE PRACTICES

(а) To the stockholder, Samuel Insull, the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 127,280 shares
of the common stock without par value of the company.
(б) To the stockholder, Margaret A. Insull, the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 18,460 shares of
the common stock without par value of the company.
(c) To the stockholder, Samuel Insull, jr., the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 29,640 shares of
the common stock without par value of the company.
(d) To the stockholder, Martin J. Insull, the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 24,620 shares
of the common stock without par value of the company.
The option hereby given to any stockholder may be assigned by such stock­
holder in whole or in part to anyone and may be exercised by such assignee
without reference to the ownership of preferred stock.
2. The stockholders, Samuel Insull, Samuel Insull, jr., and Martin J. Insull,
agree to serve the company for a period of two years from the date of this con­
tract in any official capacity desired by the company without compensation.
3. The stockholder, Samuel Insull, hereby agrees to purchase or cause to be
purchased within one year from the date hereof, 250,000 additional shares of the
common stock without par value of the company at $12 per share, and the
company agrees to issue said shares to said Samuel Insull, or his nominees, from
time to time during the year as the purchase price therefor is paid.
In witness whereof, the parties of the first part have hereunto set their hands
and seals, and the party of the second part has caused this instrument to be
executed as of the date first above mentioned.

By

Sam uel I n sull.
M a r t i n J. I n s u l l .
S a m u e l I n s u l l , Jr.
M a r g a r e t A. I n s u l l .
I n s u l l U t il it y I n v e s t m e n t s
S a m u e l I n s u l l , President.

[ s e a l .]
[ s e a l .]
[ s e a l .]
[ s e a l .]
( I n c .),

Attest:
P. J.

M

cE n r o e ,

Secretary.

Mr. P e c o r a . Now, Mr. Insull, that agreement just received in
evidence and spread on the record is dated January 17, 1929, isn’t it?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And it was made between Samuel Insull, Margaret
A. Insull, Samuel Insull, jr., and Martin J. Insull, parties of the first
part, and Insull Utility Investments (Inc.), as party of the second
part?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Under its terms and provisions, as you know, your
father agreed to purchase or cause to be purchased within one year
250,000 shares of the common stock at $12 per share. Is that right?
Mr. I n s u l l . That is right.
Mr. P e c o r a . N o w , some time after the making of this agreement
your father had issued to him or to his nominees this 250,000 shares
of stock at $12 per share.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Do you know what disposition was made of those
shares by your father?
Mr. I n s u l l . I n other words, to whom they were sold?
Mr. P e c o r a . Yes, sir. To whom were they eventually assigned,
sold, or transferred?
Mr. I n s u l l . The list is in the receiver’s records. Mr. O’Keefe
have you got that? Well, I don’t see him close by here.
M r . M c E n r o e . T h e s e e x a m in e r s h e r e h a v e a ll o f it.
Mr. P e c o r a . I s Mr. O’Keefe in the room?




STOCK EXCHANGE PRACTICES

1407

Mr. J o h n F. O ’ K e e f e . Yes. I do not have that list with me. It
is my recollection that it was presented to the Federal court at the
bankruptcy hearing.
Mr. P e c o r a . Mr. Insull, I show you what purports to be a photo­
static reproduction of a list entitled “ Common Stock List.” Will
you look at it and see if you recognize it as being a true copy of a list
of names of persons to whom were assigned or issued any of those
250,000 shares and the amount to each of those persons respectively?
Mr. I n s u l l . Yes, sir; to the best of m y recollection it is.
Mr. P e c o r a . N o w , do you know any of the persons named on that
list as being persons holding any public office?
Mr. I n s u l l . Let me see.
Senator B l a i n e . At that time or now.
Mr. P e c o r a . At that time, sir.
Mr. I n s u l l . Well, Senator Blaine, or Mr. Pecora, I do not know
all these people personally, so that I take it you merely want to know
such of them as I know of.
Mr. P e c o r a . Yes.
Senator B l a i n e . Y ou probably would know those who are holding
office.
Mr. I n s u l l . Well, I did not make up the list. I was responsible
for putting certain people on it. It so happens that this is the first
time I have gone through it in detail. Might I confer with one other
gentleman, Mr. Condon, who is here, in order to refresh my recol­
lection?
Mr. P e c o r a . Undoubtedly.
Mr. I n s u l l . There is one name here, Mr. Samuel A. Ettelson,
room 514, City Hall, Chicago, 250 shares. He has been corporation
counsel of Chicago, and from the address given I have reason to be­
lieve he was at that time.
Senator B l a i n e . Has he been counsel for any of the Insull Utilities?
Mr. I n s u l l . I do not know, sir, but not for any I was directly
connected with. I only had certain definite responsibilities. At the
present moment he is not, nor is he to my knowledge counsel for any
of the receivers. Might I ask, would a general in the National Guard
interest you. I do not know whether that is a public office or not,
Milton J. Foreman.
Senator B l a i n e . It is a public service, but is not an executive
public office.
Mr. I n s u l l . He was a general in the National Guard.
Mr. P e c o r a . Can you find any more?
Mr. I nsull. There is one name here I can not read. I will ask
Mr. McEnroe to help me. Who is Herbert Lawler—oh, that is a
chauffeur. [Laughter.] Here is L. E. Myers. Was he the president
of the school board? At least there was one gentleman associated
with my father in business, and he was also president of the school
board at one time, but whether he was the president of the Chicago
School Board at the time the stock was issued I do not know, because
the address does not show it. Some of these names did not photostat
very well. But Mr. McEnroe says this man I could not very well
make out is a member of a trust company. Let me see, this is our
common stock list, and what is this attached to it? Oh, here is the
Middle West list, which is a part of the same thing, I believe. I will
look that over. No, the names I mentioned, if I may ask the com­
mittee reporter to check them, are all that I can recall.



1408

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . N o w , you stated that you had some responsibility
for some of the names on this list of persons who were permitted to
acquire this common stock at $12 per share.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Who were those persons?
Mr. I n s u l l . At that time my principal job was vice president in
executive charge of some utilities in Indiana. All the people for whom
I was responsible were associates of mine in those utility companies.
I could take them out if you want them. There were about eight or
ten or them, but none of them was a public official.
Mr. P e c o r a . Isn’t it a fact that this stock was listed and that
trading took place in the stock on the Chicago Stock Exchange on
Januarv 17, 1929, for the first time?
Mr. I n s u l l . Well, it w about that tim according to my recol­
as
e,

lection. I think the record show it all right.
s

Mr. P e c o r a . That was the date of this agreement under which
your father acquired the right, or assumed the obligation, which ever
you want to call it, of purchasing 250,000 shares of the common
stock at $12 per share.
Mr. I n s u l l . Yes, sir; that is the date of the agreement.
Mr. P e c o r a . D o you know at what price this stock was traded in
on the Chicago Stock Exchange on the opening day?
Mr. I n s u l l . I should not attempt to testify to it, but I can give
you what my impression is.
Mr. P e c o r a . Well, let us have your impression if that is the best
you can do.
Mr. I n s u l l . Around $30 a share.
Mr. P e c o r a . It was exactly $30 a share, wasn’t it?
Mr. I n s u l l . I f the record shows that, yes. That is my best
recollection.
Mr. P e c o r a . Do you know the extent of the trading on the floor
of the Chicago Stock Exchange in the common shares of this com­
pany on that date?
Mr. I n s u l l . No, sir. I do not think I ever saw how many shares
were traded in.
Mr. P e c o r a . N o w , on the opening day for trading the only shares
of common stock that actually were outstanding and that had been
issued, were those that had been issued to your family group and to
Halsey, Stuart & Co., were they not?
Mr. I n s u l l . Yes. This other stock was subscribed for, but that
was the only stock to my recollection that was outstanding.
Mr. P e c o r a . And the stock which had been issued on or about
January 17; or between December 28, 1928, which was the date of
the incorporation of the company, and January 17, 1929, which was
the date at which this stock was first traded in on the Chicago Stock
Exchange, consisted of 764,000 shares issued to your family group,
250.000 shares referred to in this agreement of January 17, 1929; and
those 764,000 shares were transferred to your father at a price of
$7.54 a share.
Mr. I n s u l l . Yes, sir. But as I made the point, that won’t tie in
with his records, because we all turned around and gave some to the
bankers in order to take care of their expense.
Mr. P e c o r a . That was the price the company received for those
764.000 shares from your family group, wasn’t it?



STOCK EXCHANGE PRACTICES

1409

Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . That is $7.54 a share?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And within three weeks of the incorporation of the
company those shares were traded in on the stock exchange in
Chicago at an opening market price of $30 per share?
Mr. I n s u l l . Yes, sir.
Senator B r o o k h a r t . Just a moment. I find in this list of namesr
South Trimble, Washington Apartments, Washington, D. C., placed
by Judge George A. Cooke, 1,000 shares. Who is Judge George A.
Cooke?
Mr. I n s u l l . George A. Cooke is an attorney in Chicago who at
that time and still is, I think, counsel for the Peoples Gas Light &
Coke Co.
Mr. P e c o r a . I s that one of the operating companies that was
formed to operate the so-called Insull group of public utilities?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Did he hold any public office at the time?
Mr. I n s u l l . I don’t know who he was. Do you mean Judge
Cooke?
Mr. P e c o r a . No. I mean South Trimble.
Mr. I nsull. I do not know who he was. As I say, I put certain
names there, and I know all about them, and as to the others I only
have general knowledge.
Mr. P e c o r a . H o w many men did Judge Cooke recommend for
allotment to purchase shares at $12 per share?
Mr. I n s u l l . I do not know. All I can do is to look up the number
of people in his firm, and I do not know about the others, like that
South Trimble one.
Mr. P e c o r a . I will come back to that later.
Mr. I n s u l l . I mean that I did not make up that list and so I do
not know.
Mr. P e c o r a . Do you know the circumstances under which your
father assigned to the various persons named in the list, I mean the
list which has been offered in evidence here, the rights to buy those
common shares at $12 per share?
Mr. I n s u l l . Well, he had the right and the obligation to purchase
stock. The most of those people there, as you go through the list,
are the employees of the operating companies in Chicago.
Mr. P e c o r a . By “ employees” do you mean officers?
Mr. I n s u l l . Officers, and they go down, as I pointed out, and as it
happened here, with one of them who was a chauffeur, they go all
the way down the line. Some are officers and some are employees.
All that I directly know is that he asked me if there were any people
in the Indiana properties, for which I was then responsible, who should
be put on the fist. I gave him the names. So I assumed he asked
other people the similar question and that they gave him names.
Mr. P e c o r a . D o you know to what price those common shares
rose on the second day on which they were traded in on the Chicago
Stock Exchange?
Mr. I n s u l l . No, sir.
Mr. P e c o r a . Have you recollection that on the second day’s
trading those shares reached a price of $40?
119852— 33—



pt

5-------2

141 0

STOCK EXCHANGE PRACTICES

Mr. I n s u l l . No, sir. The next independent recollection I have
was after some time, and I don’t know whether that was in May or
June, they were selling for 40 or 42. What they did in the meantime
I do not know. No, I believe I now have an earlier recollection.
M y father was quite sick, and he had to go out of town, and he got a
long-distance call that they were up to 40 some time in February.
That was the next recollection I had. I am not saying they did not
go to 40 the next day, but I just say I did not watch them in that
way.
Mr. P e c o r a . When did your father or his nominees pay over to the
company the $12 per share for those 250,000 shares?
Mr. I n s u l l . Mr. McEnroe tells me that the direct answer to that
is in the records, now under the control of the receivers. But gen­
erally speaking it was within a short time.
Mr. P e c o r a . That is, within a short time after January 17?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . T w o hundred and fifty thousand shares at $12 per
share would give an aggregate of $3,000,000.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And at the market value that those shares acquired
on the opening day, namely, January 17, 1929, they were worth
$7,500,000.
Mr. I n s u l l . Yes, sir.
Senator F l e t c h e r . What was the peak? In other words, how
high did they go?
Mr. I n s u l l . Senator, they went to 147 or 149 some time in July
or August. I always thought it was 147, but I heard the other day
it was 149. What the day was I don’t know. We may have some
record of it here. The quotations of the Chicago Stock Exchange
will show that.
Mr. P e c o r a . It was on August 2, 1929, when it reached a peak of
$149 a share.
Mr. I n s u l l . Somewhere along there.
Senator B r o o k h a r t . What was the lowest point to which they
went after that?
Mr. I n s u l l . Well, the records will show. I think they went
down to a nominal value of $1 or $2 a share.
Mr. P e c o r a . But through the year 1929 they never dropped
below $100 a share after they reached the peak of $149 a share,
did they?
Mr. I n s u l l . There was a severe break in all kinds of stocks in
1929. [Laughter.! I do not recall those figures. I f anybody has
a compilation of the Chicago Stock Exchange here it will show where
they went to. But I would not be surprised if they did go below
100 in 1929.
Mr. P e c o r a . In 1929 did they ever reach a point below the opening
price of $30 a share as of January 17, 1929?
Mr. I n s u l l . I do not think so.
Senator B r o o k h a r t . When did they reach this low figure you
have given?
Mr. I n s u l l . I n March or April of 1 9 3 2 , just prior to the receiver­
ship.
Mr. P e c o r a . D o you know what consideration, if any, was paid
by your father for this privilege of buying 250,000 shares at $12 per



STOCK EXCHANGE PEACTICES

1411

share on the same date that the stock was traded in on the exchange
at $30 a share, the opening day?
Mr. I nsull . Well, in the first place he did not buy them. He
caused them to be sold to other people. He did have the right if he
had wanted to exercise it. Although that agreement is dated January
17, the whole set-up under which this company was formed was more
or less decided by the end of December, before any stock was listed
&nd before anything happened. Obviously, you see, we had to get
the stock listed before it could be traded in, and we had to have the
whole set-up before we could list it.
Mr. P ecora . Your father did not bind himself, so to speak, to buy
these 250,000 shares at $12 a share until January 17, after all arrange­
ments for listing the stock had been completed, did he?
Mr. I nsull . He did not bind himself to the company. But he
had verbally bound himself to the bankers who were going to offer
the securities of the company.
Mr. P ecora . He bound himself to the company by this agreement
of January 17, 1929, didn’t he?
Mr. I nsull . Yes, sir.
Mr. P ecora . And that was after all arrangements had been made
for listing the stock on the exchange?
Mr. I nsull . Yes. But we did not know that the company could
be formed until that was the understanding.
Mr. P ecora . Is not it a fact that these 250,000 shares at $12 a
share, for which your father agreed to pay a total of $3,000,000, were
given a market value of $4,500,000 in excess of that figure on the
very day that he made the agreement with the company at the rate
of $12 per share?
Mr. I nsull . On the day that the agreement was formally executed,
yes. But, of course, we always feel when any of us make a verbal
agreement, and he had agreed verbally to do something with people,
that we are bound. He bound himself that way some days before.
Mr. P e c o r a . What people are you referring to now?
Mr. I nsull . Halsey, Stuart & Co.
Mr. P ecora . Did not Halsey, Stuart & Co. themselves, at the out­
set of this corporation, acquire large blocks of common stock at a
price way below $30 a share?
Mr. I nsull . Yes; but as I recall it, not from the corporation. I
mentioned that earlier, and I thought I had a statement of it here.
If you will give me a moment, I may be able to find that I have it
here.
Mr. P ecora . All right.
Mr. I nsull . It is a rather complicated matter to testify to without
a summary. Here is what happened, as I mentioned in reading the
minutes, Halsey, Stuart & Co. bought the preferred stock and the
bonds from the company at $100 per share and at par for the bonds.
Mr. P ecora . You mean the prior preferred stock?
Mr. I nsull . Yes, sir.
Mr. P ecora . And that came ahead of the 40,000 shares of pre­
ferred stock that your family group bought at $100 a share?
Mr. I nsull . Yes.
Mr. P ecora . And how many shares of common stock did Halsey,
Stuart & Co. agree to buy?




1412

STOCK EXCHANGE PRACTICES

Mr. I nsull . Well, it may show in that list. But if they did not
agree to buy any in the $12 list, that photo static list-----Senator F l e t c h e r (interposing). How many bonds did they buy?
Mr. I nsull . $6,000,000.
Mr. P e c o r a . Here is the list.
Mr. I nsull . Halsey, Stuart & Co. 43,000 shares.
Mr. P e c o r a . Well, they were the buyers of the other 43,000 shares
on this list?
Mr. I nsull , Yes, sir.
Mr. P e c o r a . And the assignees or nominees of your father with
respect to the 250,000 shares of common at $12 a share?
Mr. I nsull . Yes, sir.
Mr. P e c o r a . What was the arrangement between your father and
Halsey, Stuart & Co. that prompted your father to assign to them the
right to buy 43,000 shares of this common stock at $12 a share?
Mr. I nsull. In justice to Halsey, Stuart & Co., who can testify,
and to my father who is not here, I should like to testify to what I
knew about it.
Mr. P e c o r a . Tell us what you knew about it.
Mr. I nsull . Halsey, Stuart & Co. bought $6,000,000 of prior pre­
ferred and $6,000,000 par value of series A debentures, the preferred
at $100 a share and the debentures at par, from the company. Of
course, they bought them firm; it was not on a consignment
basis. They had their expenses, and normally they would have been
entitled to an underwriting fee. Now, my father, my mother, and
myself—oh, they resold them to the public at the same price at which
they bought them from the company.
Mr. P e c o r a . They resold all the preferred stock or the debentures.
Mr. I nsull . Both the debentures and the preferred, as I under­
stand it.
Mr. P e c o r a . All right. Go ahead.
Mr. I nsull. I am not quite sure about the preferred, but I am
under that impression. In any case I can testify to the fact that they
made no fee or profit out of the sale.
Mr. P e c o r a . We will examine them about that.
Mr. I nsull . This is my understanding about it. And you will
see why I had the understanding, because my father and mother and I,
in consideration of their doing that, of not charging the company for
the sale of the securities as we understood it, made over to them
49,983 shares of common out of the stock that we got.
Mr. P e c o r a . Are you reading that answer from any prepared
statement?
Mr. I nsull . Yes.
Mr. P e c o r a . Who prepared the statement that you are now
reading from?
Mr. I nsull . This statement was prepared by my bookkeeper, who
at one time kept my father’s and mother’s books.
Mr. P e c o r a . What is his name?
Mr. I nsull . C. W. Daniels.
Mr. P e c o r a . I s he still your bookkeeper?
Mr. I nsull . Yes, sir. He does that job nights and has another
job in the daytime.
Mr. P e c o r a . Where does Mr. Daniels live?
Mr. I nsull . In Chicago.



STOCK EXCHANGE PRACTICES

1413

Mr. P e c o r a . What is his address?
Mr. I n s u l l . I do not know.
Mr. P e c o r a . What is his business address?
Mr. I n s u l l . 72 West Adams Street.
Mr. P e c o r a . All right.
Mr. I n s u l l . N o w , we have got to the point where our family gave
Halsey, Stuart & Co., that is, the three of them as to whom I can
testify reasonably correctly about, 49,983 common shares, and I
understood my uncle contributed to bring that up to 57,000 shares,
thereby relieving the Insull Utility Investments (Inc.) of any under­
writing expense in connection with the issuance of these securities.
Mr. P e c o r a . Are you still reading your answer from this prepared
statement?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Are the facts set forth in that statement matters of
your own knowledge?
Mr. I n s u l l . Not all of them. As I have already mentioned, I am
testifying to my own part of it, and as to my mother and father, and
what I said about my uncle, it is my belief.
Mr. P e c o r a . Who asked Mr. Daniels to prepare that statement
for your use?
Mr. I n s u l l . I did.
Mr. P e c o r a . Did you check up any of the data embodied in that
statement that he prepared, before you brought it here to use?
Mr. I n s u l l . I am willing to swear to all that I can check up on,
which is my own part of it.
Mr. P e c o r a . Have you checked up on the others?
Mr. I n s u l l . No, sir; not my mother and father. I never kept their
books. But I have every reason to believe these figures include their
transactions. But I could not testify to it.
Mr. P e c o r a . May I look at the statement from which you are
reading?
Mr. I n s u l l . Yes, sir. Here it is.
Senator F l e t c h e r . While Mr. Pecora is looking at that statement
let me ask: What became of the main shares of stock that your
family group acquired?
Mr. I n s u l l . That is what this statement is a summary of; of all
stock we got and what we did with it. We bought some more, and we
sold some, and we finished up with very substantial holdings at the
time the company went into receivership. And as I have said our
cost of that stock was within $200,000 of what it originally cost.
Senator F l e t c h e r . Did you sell some of your stock at 149?
Mr. I n s u l l . No, sir. And I have only met one man who did. I
wasn’t one of them. We sold our stock but not at that price at all.
Well, wait a minute. My father had one trading account in our stock.
Mr. P e c o r a . With whom?
Mr. I n s u l l . With George Pick & Co., who traded in 9,500 shares
as a total of Insull Utility Investments common.
Mr. P e c o r a . With regard to the opening trades on January 17,
1929, on the Chicago Stock Exchange do you know who fixed the
market price of $30 a share for those shares?
Mr. I n s u l l . I have not the slightest idea.
Mr. P e c o r a . Did you ever participate in any conferences or dis­
cussions of that question with anybody?



1414

STOCK EXCHANGE PRACTICES

Mr. I n s u l l . No, sir. I appeared before the listing committee
of the stock exchange.
Mr. P e c o r a . But the application for the listing of the stock on
the stock exchange set forth the terms under which 764,000 shares of
common were issued to your family group, did it?
Mr. I n s u l l . I t m u s t have. Mr. McEnroe may have a copy of
that application here.
Mr. P e c o r a . Are you familiar with the contents of that appli­
cation?
Mr. I n s u l l . Yes; generally. But I remember more clearly theverbal testimony before that committee, because that impressed
itself more on my mind.
Mr. P e c o r a . You have stated that you appeared before the stock
exchange listing committee in connection with the application for
listing.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Well, do you recall any discussion there at which it
was made known that this common stock was a block, 764,000 shares
of it, which had been allotted to your family group at the price of
$7.54 a share?
Mr. I n s u l l . Yes, sir; I do remember that.
Mr. P e c o r a . It was done?
Mr. I n s u l l . Yes, sir. They went into that. You now recall to
my mind that they figured it out about as you have, and that they
asked me questions about it. These applications do not show that,
but I recall very clearly that a figure of $7 and some cents a share wasdiscussed in the committee.
Senator F l e t c h e r . Y o u have made a statement about the listing
of common stock. Was this prior preferred and the preferred stock
also listed on the exchange?
Mr. I n s u l l . I know the common was, and the prior preferred;
yes; the debentures, the prior preferred and the common stock were
all listed.
Senator F l e t c h e r . H o w were those listed, the prior preferred and
the preferred and the debentures?
Mr. I n s u l l . The preferred stock which came to our family entirely,
was not listed. The common, the prior preferred and the debentures
were listed by the stock exchange, and as I now recall it—well, I
know I only appeared at one hearing, and they discussed all three
classes of securities.
Senator F l e t c h e r . When was the listing of the prior preferred and.
the debentures?
Mr. I n s u l l . January 17.
Senator F l e t c h e r . At what price?
Mr. I n s u l l . Do you mean the first trading?
Senator F l e t c h e r . Yes.
Mr. I n s u l l . I do not recall, because both the debentures and the
prior preferred had attached to them nondetachable warrants.
Senator F l e t c h e r . And you say Halsey, Stuart & Co. paid $100’ a
share for the prior preferred and bought the debentures at par?
Mr. I n s u l l . Yes, sir.
Senator F l e t c h e r . I was wondering what the trading was in them.
Mr. I n s u l l . I do not know. They resold them to the public at par
as I am informed.



STOCK EXCHANGE PEACTICES

1415

Senator B r o o k h a r t . Did you offer some of this stock for sale im­
mediately on the stock exchange?
Mr. I n s u l l . I did not, sir. I do not know whether m y father did
or not. It does not show here.
Mr. P e c o r a . Well, whose shares of common stock could have been
the subject of transactions on the stock exchange, and the subject of
deliveries, except the shares which had been delivered to your family
group and those which had been delivered to Halsey, Stuart & Co.?
Mr. I n s u l l . When the prior preferred stock—well, I am not very
familiar with stock exchange procedure, sir, so I do not know that I
am a very good witness on that. But I do know that the prior pre­
ferred and the debentures carried warrants to buy common stock at
$15 a share. And, presumably, the buyers of this preferred stock and
the debentures could exercise their warrants and make delivery.
Senator B r o o k h a r t . I was wanting to know who started that
market and how it was done.
Mr. I n s u l l . I do not know.
Senator B r o o k h a r t . Who offered the stock, and what was asked
for it, and what were the bids at first.
Mr. I n s u l l . I could not testify to that. I do not even know who
was the specialist at the time, or who dealt in them.
Mr. P e c o r a . You were a member of the board of directors of this
company from the outset, were you not?
Mr. I n s u l l . Yes, sir; and I think also of the finance committee.
Mr. P e c o r a . Did you take part in any discussions among the
board members and officers of the company that led to the making of
this agreement of January 17, 1929, under which your father acquired
the right to buy these 250,000 shares at $12 a share?
Mr. I n s u l l . Yes, sir. I was present at the meeting where it was
voted on.
Senator B r o o k h a r t . When these stocks went so high were any
pools or groups organized to handle them?
Mr. I n s u l l . Not to my knowledge. I checked that very carefully
to see about the 695,000 shares my father bought. I find he bought
4,500 shares in one month, and----Senator B r o o k h a r t (interposing). At what price?
Mr. I n s u l l . They are in the figures I gave to your counsel.
Senator F l e t c h e r . Do you want that put in the record?
Mr. P e c o r a . Yes.
Mr. I n s u l l . I t doesn’t state at what price. I could find out at
what price. He bought it in June or July, and in that month'—well,
he bought first 4,500 shares, about 100,000 shares the next month,
and he bought 52 shares, and I think, only, say, 800 were sold. I
don’t think that boomed the stock.
Senator B r o o k h a r t . The stock was going up when he bought this?
Mr. I n s u l l . Yes, sir.
Senator B r o o k h a r t . And he sold out while it was up?
Mr. I n s u l l . Fairly well u p .
Senator F l e t c h e r (presiding). The statement furnished the coun­
sel for the committee will be made a part of the record at this point.
(The statements furnished are as follows:)




1416

STOCK EXCHANGE PRACTICES

Insull Utility Investments {Inc.) first series preferred, consolidated statement of
purchases and sales
First series preferred shares acquired in exchange for various securities at
organization of company__________________ T________________________ 35, 076
Less shares given as gifts______________________________________________
250
Number of shares on hand______________________________________ 34, 826
Insull Utility Investments (Inc.) second series preferred, consolidated statement of
purchases and sales
Shares purchased_______________________________________________________ 4, 650
Less shares sold________________________________________________________ 4, 500
Number of shares on hand_______________________________________

150

Insull Utility Investments (Inc.) common, consolidated statement of purchases and
sales
Common shares acquired in exchange for various securities at organiza­
tion of company___________________________________________________ 669, 878
Less shares given Halsey, Stuart & Co. for underwriting 5 per cent de­
bentures and $5.50 prior preferred issues of Insull Utility Investments
(Inc.)______________________________________________________________ 49,983
N o t e .— The Insull family gave 57,000 shares of this stock to Halsey,
Stuart & Co., thereby relieving Insull Utility Investments (Inc.) of any
underwriting expense in connection with the issuance of these securities.
Shares remaining after above transaction______________________ 619, 895
Directors qualifying shares received from company___________________
187
Shares purchased by exercising option given to owners of first series pre­
ferred____________________ _____________________ ____________________ 175, 380
Received in exchange of 4,000 shares second Utilities Syndicate stock -- 10, 960
Received in exchange of 190 A and B units of Peoples Gas Light & Coke
Co. investment fund No. 5_________________________________________
810
Purchased by exercising right to purchase additional shares___________
103
9, 720
Shares purchased____________________________________________________
Total shares acquired as shown above_____________ ____________ 817, 055
Dividends received, including scrip purchased________________________ 108, 824
Total shares acquired__________________________________________ 925, 879
Less shares exchanged for 66,762.7815 shares of Western Securities Co.
stock, which later was exchanged for 35,076 shares preferred, 35,076
shares common, and 876,900 shares voting trust common of Corpora­
tion Securities Co. of Chicago_______________________ ______________ 133, 526
Shares exchanged for 31,4589$oo shares of Corporation Securities Co. of
Chicago common. Trade was with Middle West Utilities C o_______ 14, 200
147, 726
Number of
Less:
Shares
Shares
Shares

shares remaining after above exchanges___________________

778, 153

sold for cash______________________________________ 79, 602
given in settlement of indebtedness_______________ 87, 139
given as gifts____ ________________________________ 20, 585
------------ 187,326

Number of shares remaining__________________________________________ 590, 827
Less shares sold on forced liquidation_________________________________ 72{, 892
Number of shares on hand_____________________________________517, 935




1417

STOCK EXCHANGE PRACTICES

Corporation Securities Co. of Chicago units consolidated statement of purchases and
Units purchased______________________________________________________ 20, 115
Less:
Units sold_________________________________________________ 2, 500
Units given in settlement of indebtedness__________________ 5, 172
---------- 7,672
Units remaining_______________________________________________________ 12, 443
Less 12,443 units exchanged for 12,443 shares common and 12,443 shares
preferred___________________________________________________________ 12, 443
Corporation Securities Co. of Chicago $8 optional preferred consolidated statement of
purchases and sales
$3 optional preferred shares acquired in exchange of 48,452.314 shares
Western Securities Co. capital stock_________________________________ 39, 843
Received in split-up of 12,443 units____________________________________ 12, 443
Shares purchased______________________________________________________
100
Total shares acquired----------------------------------------------------------------- 52, 386
Less shares given as gifts______________________________________________
310
Shares remaining_______________________________________________ 52, 076
Less shares sold on forced liquidation__________________________________ 4, 694
Number of shares on hand_____________________________________

47, 382

Corporation Securities Co. of Chicago common consolidated statement of purchases
and sales
Common shares acquired in exchange of 66,762.7815 shares of
Western Securities Co. capital stock__________________________
Directors qualifying share received from company_______________
Received from Middle West Utilities Co. in exchange for 14,200
shares Insull Utility Investments (Inc.) common______________
Received from Corporation Securities Co. of Chicago in exchange
for common and preferred rights of Insull Utilities Investment
(In c.)________________________________________________________
Received in split up of 12,443 units_____________________________
Shares purchased_______________________________________________
Total shares acquired as shown above____________________
Dividends received including scrip purchased____________________

39, 843
1
31, 4589^>o»
31,140
12, 443
100
114, 9859%oo
8, 299^ o o

Total shares acquired____________________________________ 123, 284n %oo
Less:
Shares sold for cash________________________________ 27, 003
Shares given as gifts________________________________ 3, 710
----------- 30, 713
Number of shares remaining______________________________
Less shares sold on forced liquidation___________________________
Number of shares on hand_______________________________

92, 57111%oa
5, 308
87, 263n %oo

Corporation Securities Co. of Chicago voting trust common consolidated statement
of purchases and sales
Voting trust common shares acquired in exchange of 66,762.7815
shares Western Securities Co. capital stock____________________ 876, 900
Dividends received______________________________________________ 96, 0775%oo
Total shares acquired____________________________________ 972, 9775%oo
Less:
Shares sold_____________________________________
39^oo
Shares given as gifts____________________________ 5, 500
--------------5 ,5039%oo
Number of shares on hand__________________________________ 967, 4 7 315%o»




1418

STOCK EXCHANGE PRACTICES

Agreement made this 17th day of January, 1929, by and between Samuel
Insull, Margaret A. Insull, Samuel Insull, jr., and Martin J. Insull (hereinafter
called the stockholders), parties of the first part, and Insull Utility Investments
(Inc.), a corporation organized and existing under and by virtue of the laws of
the State of Illinois (hereinafter called the company), party of the second part,
witnesseth as follows:
Whereas the company has been organized and is about to issue at $100 per
share 40,000 shares of its preferred stock, first series, without par value, as part
consideration for certain securities to be conveyed by the stockholders to the
company, said 40,000 shares of stock to be issued as follows: 25,456 shares to
Samuel Insull, 3,692 shares to Margaret A. Insull, 5,928 shares to Samuel Insull,
jr., 4,924 shares to Martin J. Insull; and
Whereas each of the stockholders as a holder of such preferred stock is desirous
of having the option of purchasing within a period of two years five shares of
the common stock of the company at $15 per share for each share of such pre­
ferred stock, first series, so issued to him or her, and the company is willing to
give such option upon the terms, conditions, and agreements hereinafter stated:
Now, therefore, in consideration of the premises, of the agreements hereinafter
contained and of the fact that in contemplation of the execution of this agreement
the annual dividend payable on said preferred stock first series has been fixed at
$2 per share for the first year, $3 per share for the next year, $4 per share for the
next year, $5 per share for the next year, and $6 per share thereafter, the parties
hereto do agree with each other as follows:
1. The company hereby gives—
(а) To the stockholder, Samuel Insull, the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 127,280 shares
o f the common stock without par value of the company.
(б) To the stockholder, Margaret A. Insull, the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 18,460 shares of
the common stock without par value of the company .
(c) To the stockholder, Samuel Insull, jr., the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 29,640 shares
o f the common stock without par value of the company.
(d) To the stockholder, Martin J. Insull, the option to purchase at any time
within two years after the date of this agreement, at $15 a share, 24,620 shares
of the common stock without par value of the company.
The option hereby given to any stockholder may be assigned by such stock­
holder in whole or in part to anyone and may be exercised by such assignee
without reference to the ownership of preferred stock.
2. The stockholders, Samuel Insull, Samuel Insull, jr., and Martin J. Insull,
agree to serve the company for a period of two years from the date of this con­
tract in any official capacity desired by the company without compensation.
3. The stockholder, Samuel Insull, hereby agrees to purchase or cause to be
purchased within one year from the date hereof 250,000 additional shares of the
common stock without par value of the company, at $12 per share, and the com­
pany agrees to issue said shares to said Samuel Insull, or his nominees, from time
to time during the year as the purchase price therefor is paid.
In witness whereof the parties of the first part have hereunto set their hands
and seals, and the party of the second part has caused this instrument to be
executed as of the date first above mentioned.

By

Sam uel In su ll.
M a r t i n J. I n s u l l .
S a m u e l I n s u l l , Jr.
M a r g a r e t A. I n s u l l .
I n s u l l U t il it y I n v e s t m e n t s
S a m u e l I n s u l l , President.

[ s e a l .]
[ s e a l .]
[ s e a l .]
[ s e a l .]

(Inc.),

Attest:
P. J. M c E n r o e , Secretary.

Mr. P e c o r a . Mr. Insull, do you know whether the agreement of
January 17, 1929, was executed after the market closed on that day?
Mr. I n s u l l . N o , sir; I don’t know. I do think I am one of the
people who executed it but I don’t just recall.
Mr. P e c o r a . Y o u are a party individually to that agreement,
aren’t you?
Mr. I n s u l l . Yes.



STOCK EXCHANGE PRACTICES

1419

Mr. P e c o r a . Well, what were the conferences or discussions that
led to the making of this agreement on January 17, 1929?
Mr. I n s u l l . I do not think, to be quite frank, there were many
discussions in January, on January 17-----Mr. P e c o r a (interposing). Well, I did not specify that the dis­
cussions must have been had on that date, but what discussions had
been had which led to the making of this agreement of January 17,
1929.
Mr. I n s u l l . Well, the only discussions that I recall were not dis­
cussions where this agreement was mentioned alone, but where it was
mentioned along with a good many other things.
Mr. P e c o r a . What mention was made of that particular provision
of this agreement relating to the purchase or the right to purchase
these 250,000 shares at $12 a share?
Mr. I n s u l l . Well, I only recall one mention, and I don’t want it
to appear as material, but that was that somebody said my father was
a darn fool not to exercise it himself and to pass it on.
Mr. P e c o r a . What discussion was had that prompted the com­
pany, through its officers and directors, to make that agreement with
your father on that date?
Mr. I n s u l l . Well, you see, the discussions took place a consider­
able time before the listing. Now, none of us in the company knew
that this stock was going to sell for anything like $30 a share.
Mr. P e c o r a . Were you all in complete ignorance of the price at
which this stock was going to be traded in on the opening day’s
transaction?
Mr. I n s u l l . We made guesses, but we did not know what it was
going to be.
Mr. P e c o r a . Were you surprised at the figure of $30 a share?
Mr. I n s u l l . We were.
Mr. P e c o r a . Did you have any conversations with anybody
about it when you learned the figure that had been reached on the
opening day?

Mr. I n s u l l . Well, it is some time ago and a good deal has hap­
pened. I do not recall, no. I might have said something like that
I thought it went to a high price all of a sudden.
Mr. P e c o r a . Y o u felt a price of $30 a share was an excessive price,
didn’t you?
Mr. I n s u l l . Yes, sir; we thought it was high.
Mr. P e c o r a . By how much?
Mr. I n s u l l . I don’t know.
Mr. P e c o r a . Well, what was your own personal opinion about it?
Mr. I n s u l l . Well, my guess was, which was purely a guess, that
some time within the next—mind you, in January of 1929 we did not
foresee the summer rise any more than we saw the other things that
were going to happen—my guess was that within five or six months
it might go to around $20 a share.
Mr. P e c o r a . Within five or six months, or to be more exact,
within seven months, that is, from January to August, it went to
$149 a share.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Then you expected it would only reach about $20
or $25 a share?
Mr. I n s u l l . Twenty was what I thought.



1420

STOCK EXCHANGE PRACTICES

Senator B r o o k h a r t . It was not worth $149 a share at any time,,
was it?
Mr. I n s u l l . I don’t know, Senator, what it was worth.
Senator B r o o k h a r t . You know something about what it would
earn?
Mr. I n s u l l . Yes, sir. And if you want my impression I thought
it went too high.
Senator F l e t c h e r . What dividend did it pay?
Mr. I n s u l l . At the time it went to 149 it wasn’t paying any
dividends. No statement had been made about dividends. Sub­
sequently it paid 6 per cent in stock.
Senator B r o o k h a r t . In stock?
Mr. I n s u l l . Yes, sir.
Senator F l e t c h e r . Before August had it paid any dividends?
Mr. I n s u l l . No sir.
Senator B r o o k h a r t . Y o u did nothing to warn the public about
that in any way?
Mr. I n s u l l . I do not know whether we made any public state­
ments or not. M y father had had an unfortunate experience in 1926,
when he put out a statement that he thought some securities were
too high. That was in connection with a company I was not directly
connected with, and so I can not testify except by way of hearsay,
what he told me about it. He said he thought it was too high, and
immediately gossip started that he was short, and of course it went up_
Mr. P e c o r a . That was in 1928?
Mr. I n s u l l . In 1926 or 1928. I know by 1929 we had come to the
conclusion that if you put out a statement it might be taken any way
at all.
Senator B r o o k h a r t . And was he short?

Mr. I n s u l l . N o , sir. He has never been short. He is long of this
stock to-day.
Mr. P e c o r a . N o w let us get back to January 17, 1929. At 10
o’clock that day the market opened on this stock, didn’t it?
Mr. I n s u l l . Yes, or 9 o’clock in Chicago.
Mr. P e c o r a . At 9 o ’ c lo c k .
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And some time that day the company made this
written agreement to which your father, mother, and others were
parties.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Providing for the issuance to him of 250,000 shares
common at $12.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Was that agreement entered into before the opening
of the market at 9 o’clock that morning, or was it entered into later
in the day and while the market was in progress?
Mr. I n s u l l . I don’t know at what time of day it was.
Mr. P e c o r a . Well, now, let us see about that. In whose office was
the agreement signed.
Mr. I n s u l l . That I do not know. I t may have been signed in my
father’s office, and it may have been signed in the company’s office,,
it may have been signed in the attorney’s office, and it may have beensigned by being sent from one to the other for signature.
Mr. P e c o r a . Y o u were present at the time, were you not?



STOCK EXCHANGE PRACTICES

1421

Mr. I nsull . Well, I certainly signed it.
Mr. P ecora . Y ou signed it in your individual capacity.
Mr. I nsull . Yes, but I don’t know whether I signed it in the
presence of the others or not.
Mr. P ecora . Do you recall any other person signing it?
M r. I nsull . In m y presence?
Mr. P ecora . Yes.
Mr. I nsull . I do not, but they might well have.

I am not trying
to dodge this but I do not recall what occurred from hour to hour
two years ago when a lot has happened in the meantime.
Mr. P ecora . Let us see what was your daily custom back of
January of 1929. At what time did you usually get to your place of
business?
Mr. I nsull . About 20 minutes past 8.
Mr. P ecora . And your father?
Mr. I nsull . Well, I could not testify to that because I was not
down that early. He got down about 7.30.
Mr. P ecora . And your uncle?
Mr. I nsull . I don’t know. He lived out in the country. I think
he got in about a quarter to 9.
Mr. P ecora . And your mother was a party to this agreement of
January 17. Do you know where she signed it?
Mr. I n su ll . No, sir.
Mr. P ecora . D o you recall seeing her at the office on January 17?
Mr. I nsull . No, sir. It might have been taken home the night
before and she might have signed it there.
Mr. P ecora . N ow , the second day’s trading in this stock on the
Exchange reached a price of $40 per share. Do you recall that?
Mr. I nsull . N o, sir. But the record would show whether it did
or not.
Mr. P ecora . Do you recall that on the second day’s trading it
reached a price substantially in excess of the opening of $30 a share
the day before?
Mr. I nsull . No. I really do not recall anything except the opening
and this price of around 40 in February or March when I was away.
And a price of about 42 that I saw when I was out of the country m
July, or maybe June. And then a price of 147 or 149. I have not a
recollection of the day by day market.
Mr. P ecora . Well, you did learn of the opening day price reached?
Mr. I nsull . Yes, sir.
Mr. P ecora . And you were surprised?
Mr. I nsull . Oh, I undoubtedly looked at the close every day as I
read my paper in the evening. But I could not testify now as to
what it was.
Mr. P ecora . So your surprise substantially increased by the prices
at which the stock was sold on the second day of trading.
M r. I nsull . I should think so, yes.
Mr. P ecora . Have you discussed that with neighbors or your

family?
Mr. I nsull . I don’t remember. There was no official conference
or anything of that kind that impressed itself on my mind. What I
might have said in walking down the hall with my father, or something
of that kind, I don’t recall.




1422

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . Who proposed the original inclusion of this provision
for the 250,000 shares at $12 a share for your father’s benefit, in this
agreement?
Mr. I n s u l l . I don’t know. It was in the draft of the circulars of
the company that we were discussing in January and March—no, I
mean in December and January. And if you will recall, at that time
a lot of investment trusts were being formed, in some of which the
sponsors had the option to buy without putting up any money. The
only discussion I recall was my father saying that he or his assigns
were to have the obligation to buy this stock. No specific considera­
tion like the right attached to the preferred was given; he thought he
ought to have the right to buy it firm, whether it went up or down, so
whatever criticism there might be he could not be criticized for having
a speculation at the company’s expense, so to speak. That is all
that I recall.
Mr. P e c o r a . Y o u do not believe that this agreement was entered
into before the opening of the market at 9 a. m., do you?
Mr. I n s u l l . I do not know when it was formally signed. I know
that the whole scheme, of which this agreement was one incident, was
completely discussed and verbally agreed to by people who always
regarded themselves bound whenever they gave their verbal agree­
ment, several days before the stock was listed or traded in.
Mr. P e c o r a . Who exercised the judgment in behalf of Insull
Utility Investment (Inc.) when this agreement was made by that
company with your family group?
Mr. I n s u l l . I would want to look to see whether it was the
directors or the finance committee or the executive committee.
Mr. P e c o r a . Look at anything you may have that will refresh
your recollection.
Mr. I n s u l l . I am sorry to be a little slow, but you understand
this first meeting was a long meeting.
Mr. P e c o r a . Who were present at the meeting, and perhaps that
will tell you who exercised the judgment?
Mr. I n s u l l . I want to see about this particular meeting. [Look­
ing over minutes of meeting.] Those that we have here are present:
Samuel Insull, Martin J. Insull, Samuel Insull, jr., P. J. McEnroe,
John F. Gilchrist, Louis A. Ferguson, Edward J. Doyle, John H.
Gulick, Walter S. Brewster, Britton I. Budd, George F. Mitchell,
Marshall E. Sampsell, Stuyvesant Peabody, H. L. Stuart, and Waldo
F. Tobey.
Mr. P e c o r a . And those men were either personal employees of
your father or officers or employees of companies in the so-called
Insull group of public utilities controlled by your father, were they
not?
Mr. I n s u l l . N o.
Mr. P e c o r a . How many of them were not?
Mr. I n s u l l . Walter S. Brewster is a partner in a stock brokerage
firm. H. L. Stuart, a partner of Halsey, Stuart & Co. Waldo F.
Tobey is an attorney. He was my father’s attorney, but not an
employee in that sense.
Mr. P e c o r a . All other directors whose names you read were either
personal employees of your father or officers or employees of com­
panies controlled by your father?




STOCK EXCHANGE PRACTICES

1423

Mr. I n s i j l l . There is only one to be called a personal employee
of my father. That is Mr. McEnroe—outside of myself, and about
me take what position you would like. These gentlemen were all
officers of companies with which he was connected.
Mr. P e c o r a . Which he controlled?
Mr. I n s u l l . No, sir; he did not control them.
Mr. P e c o r a . Didn’t your father frequently make reference to his
control of these companies in public statements made by him?
Mr. I n s u l l . N o . He never made reference to any control. That
goes back to the basis for which this institution was formed. This
agreement is approved on page 27 of the minutes, January 4. I t
was then presented to the meeting, the agreement as drawn, to be
executed by the company. So it was approved by the company
January 4.
Mr. P e c o r a . Approved by a board consisting of the persons whose
names and characterizations you have already answered about?
Mr. I n s u l l . Yes, sir. And that answers one of your previous
questions, too, that it was on January 4, long before the stock was
listed.
Mr. P e c o r a . All right.
Mr. I n s u l l . I t says that there was then presented to the meeting
an agreement drawn and to be executed by the company to the four
persons who are to become the original preferred stockholders of the
company, which agreement provides that in consideration of its
terms and conditions, and in further consideration of the agreement of
the four preferred stockholders to take dividends, and so forth. And
it goes on to outline the provisions. That was on January 4.
Mr. P e c o r a . Y ou just referred to something about a discussion.
Do you recall what the discussion there was?
M r . I n s u l l . N o , sir.
Mr. P e c o r a . Have you any recollection at all about it?
Mr. I n s u l l . N o , sir. It was a long meeting. It was over

three
years ago.
Mr. P e c o r a . At the time of that meeting which of the persons
named as directors there had any real financial interest or investment
in the company?
Mr. I n s u l l . Well, of course I can not testify to all their personal
affairs.
Mr. P e c o r a . Y o u know the original financing of the company,
don’t you?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And the original financing involved a payment to
the company for stock by only the Insull family group and Halsey,
Stuart & Co., isn’t that it?
Mr. I n s u l l . Well, each director had a qualifying share.
Mr. P e c o r a . Y o u don’t call that an investment in the company,
do you? You would not say that that calls for such ownership?
Mr. I n s u l l . It is not a material investment; no.
M r . P e c o r a . Y ou w o u l d n o t c a ll i t a r e a l in v e s t m e n t in th e c o m ­
p a n y , w o u ld y o u ?
Mr. I n s u l l . Well, it all depends.
Mr. P e c o r a . If a director in order to qualify has 1 or 10 shares

of stock in a company you don’t consider that an investment in the
company in the ordinary sense of the term, do you?



1424

STOCK EXCHANGE PEACTICES

Mr. I n s u l l . N o . But I just mean it depends on how much money
a director has.
Mr. P e c o r a . In this particular company’s case do you know
whether or not any of the directors named in that meeting as having
taken part in the meeting, had any real financial investment in the
company at the time that they voted for this agreement?
Mr. I n s u l l . Well, I don’t know whether Halsey, Stuart & Co.
received their stock that they got from our family as a part of the
consideration for the underwriting, before or after the date of this
meeting. That would be the only material block. Mr. Stuart might
have had an interest or might not. I could not testify as to that.
Mr. P e c o r a . S o far, then, has any of the persons sitting on that
board of directors at that meeting, to which you have referred, had
any real financial investment in this company, didn’t it resolve itself
into the question that your father, your uncle, and yourself were
making an agreement as officers and directors of the company with
yourselves as individuals-----Mr. I n s u l l (interposing). No, sir.
Mr. P e c o r a (continuing). To buy this stock under option for $15
a share, and under this originally for $12 a share?
Mr. I n s u l l . N o , sir. But because I can not say whether those
gentlemen had a big financial interest in it or not, if the transaction
was improper-----Mr. P e c o r a (interposing). I have not said anything about its being
improper. I am asking for the facts.
Mr. I n s u l l . All right. Put it this way: That the obligation upon
them to pass upon the propriety of the transaction—and I am not an
attorney, so maybe I should not take up legal matters—but I should
say that the obligation upon a director to pass upon the appropri­
ateness of a transaction is not increased by his having a financial
interest in the company, nor lessened by his not having a financial
interest in the company.
Mr. P e c o r a . As a moral principle that would be so, but as a prac­
tical proposition wouldn’t you expect that a director who had a real
financial interest or investment of his own in the company would be
a little bit more keen in the discharge of his duties as a director?
Mr. I n s u l l . N o ; I do not think so in these days when directors
are being called to consider the-----Mr. P e c o r a (interposing). But I am talking about those days, the
early part of 1929. and not these days.
Mr. I n s u l l . I do not see that it alters it. I n other words, I do not
think that those gentlemen were subject to the charge of having a
priee upon the independence of their judgment. And I think the
supposition that whether or not they would discharge honestly their
duty depended upon whether or not they had a financial interest is
another way of saying that they could be got for a price.
Mr. P e c o r a . But you do not recall anything said in the discussion
that the minutes show ensued with regard to this proposition by any
of the directors present on the matter of the benefits that would ac­
crue to the company from this arrangement or agreement, do you?
Mr. I n s u l l . No; but that does not mean it was not said. As I
have said—and I would like to be clearly understood— this is a long
meeting itself. It is one of several. It is three years ago. A lot has




STOCK EXCHANGE PRACTICES

1425

happened in the meantime, and I doubt if any man would recall,
unless he personally took part in this and took rather a decided stand.
Mr. P e c o r a . Did you personally take part in the discussion?
Mr. I n s u l l . Apparently I did not, because I don’t recall what was
said.
Senator B l a i n e . Mr. Chairman, if I may interrupt, I am compelled
to go over to the Chamber. I just want to know whether I was clear
with respect to this common-stock list, of which I have a photostat
copy, 250,000 shares. Is that right?
Mr. P e c o r a . T w o hundred and fifty thousand.
Senator B l a i n e . T w o hundred and fifty thousand at $ 1 2 a share.
Mr. I n s u l l . Yes.
Senator B l a i n e . N o w I just want to find out the significance of
this, Mr. Insull. For instance, Barrett, P. R., evidently the name of a
subscriber to the stock.
Mr. I n s u l l . Yes.
Senator B l a i n e . Care Cooke, Sullivan & Ricks, 210 South Michi­
gan Avenue, Chicago. It meant that-----Mr. I n s u l l . He was a partner in that firm, Senator.
Senator B l a i n e . Let us take another one, then.
Mr. I n s u l l . I can answer most of-----Senator B l a i n e . Dines, for instance.
Mr. I n s u l l . Dines was a partner in the firm.
Senator B l a i n e . Also partner in Cooke, Sullivan & Ricks?
Mr. I n s u l l . Cooke, Sullivan & Ricks firm.
Senator B l a i n e . And for instance Feeder?
Mr. I n s u l l . Whether he is a partner or an employee. You know,
in a law firm there is a line and there is some of them above and some
below, and he is one of the fellows below.
Senator B l a i n e . All of those whose names are mentioned whose
stock was in care of Cooke, Sullivan & Ricks were associated in some
form with the law firm of Cooke, Sullivan & Ricks?
Mr. I n s u l l . All of those that you have mentioned. I can look
over it and see if there are some others.
Senator B l a i n e . Well, it may be. I have that straightened out.
Now, Mr. Insull, had Mr. Cooke been an employee of any of the
Insull companies, either investment companies, finance companies,
or subsidiary utility companies?
Mr. I n s u l l . Oh, yes, sir. He had been—well, that firm had been
counsel for the Peoples Gas, Light & Coke Co. since away back before
my father had any connection with it.
Senator B l a i n e . How long before?
Mr. I n s u l l . Before my father?
Senator B l a i n e . No, how long before 1929, and before this com­
mon stock transaction.
Mr. I n s u l l . Well, put it this way: I remember back in 1916 when
the firm then had a different name, but it later became Cooke,
Sullivan & Ricks; was counsel for the gas company. Judge Cooke
was not then a member of the firm. He was a member—this I can
testify to—by 1923, when I first went to work.
Senator B l a i n e . Judge Cooke joined this firm along about 1919
or 1920, isn’t that correct?
Mr. I n s u l l . I t probably is . You would know better than I
would.
119852— 33— pt 5------- 3



1426

STOCK EXCHANGE PEACTICES

Senator B l a i n e . All right. Now then, he became attorney for
the Peoples Gas Co.?
Mr. I n s u l l . Yes, sir.
Senator B l a i n e . What is there significant about the fact that
such large blocks of stock were sold to the Cooke firm or to Mr.
Cooke personally or to the members of the firm for $12 per share?
Is there anything significant about that?
Mr. I n s u l l . The only significance is, quite frankly, that this
underwriting, whereas it was thought to be—<or rather this right to
purchase stock—whereas it was thought to be a proper thing, was
thought to have a possibility of profit, as I indicated, it profited more
than any of us thought.
Senator B l a i n e . Who is Mr. Sullivan in this firm?
Mr. I n s u l l . He is a partner.
Senator B l a i n e . The son of whom?
Mr. I n s u l l . Rodger C. Sullivan.
Senator B l a i n e . And Rodger C. Sullivan was a very prominent
Democratic leader in Illinois?
Mr. I n s u l l . Yes, sir.
Senator B l a i n e . And what was Mr. Cook’s political relationships
through Illinois?
Mr. I n s u l l . That goes back before my time. As a kid, I think he
was a supreme court judge.
Senator B l a i n e . Of course, as you know, I live very close to the
city of Chicago.
M r . I n s u l l . Y ou k n o w m o r e a b o u t it th a n I d o .
Senator B l a i n e . The Peoples Gas Co. was a company

in which
Mr. Insull, your father, owned a large share?
. Mr. I n s u l l . Yes.
Senator B l a i n e . It was considered an Insull company?
Mr. I n s u l l . Yes, that is right.
Senator B l a i n e . D o you recall the suit that was brought against
Peoples Gas Co., oh, 12, 15, 16 years ago?
Mr. I n s u l l . I recall it this way, that that was while I was still in
school and I heard my father mention it.
Senator B l a i n e . Do you recall that Donald Richberg was attorney
in that suit?
Mr. I n s u l l . I recall that he was attorney in some suits against
the gas company.
Senator B l a i n e . And Professor Beamis of the University of Chi­
cago had assisted as an expert economist in that matter?
Mr. I n s u l l . I did not happen to hear his name mentioned.
Senator B l a i n e . Do you recall that that suit was for the purpose
of having repayments or refunds made to the gas users of the city of
Chicago?
Mr. I n s u l l . I recall the final disposition of that suit since I have
been in business.
Senator B l a i n e . D o you recall that the amount involved finally
that the trial court held to have been unlawfully collected from the
users of gas was about $10,000,000?
Mr. I n s u l l . No, sir; I do not. I was not connected with the gas
company.
Senator B l a i n e . D o you recall at that time that this Mr. Cooke,
who later became a member of this firm and attorney for the Peoples



STOCK EXCHANGE PRACTICES

1427

Gas Co.,r was a member of the Supreme Court of the State of
Illinois?
Mr. I n s u l l . No, sir; I do not recall.
Senator B l a i n e . Y ou do not recall?
Mr. I n s u l l . My impression is that the suit was settled after he
got off the court.
Senator B l a i n e . I am not so sure about that.
Mr. I n s u l l . I am not, because-----Senator B l a i n e . A s I recall, Judge Cooke was a member of the
supreme court. Now I may be mistaken in this.
Mr. I n s u l l . Well, I may be, because all I can do is date what
happened before I went to work and after.
Senator B l a i n e . And he joined in the opinion that reversed this
decision, thereby losing to the people of the city of Chicago some
$10,000,000 overcharges for gas?
Mr. I n s u l l . I don’t recall the amount.
Senator B l a i n e . I am not certain about the exact amount. I am
using round numbers.
Mr. I n s u l l . I don’t know whether Judge Cooke----- Senator B l a i n e . And do you recall that Judge Cooke resigned
from the Supreme Court bench of the State of Illinois in 1919?
Mr. I n s u l l . Well, that was before my time. I was still in school.
Senator B l a i n e . And that thereupon he became attorney for the
Peoples Gas Co., or very shortly after that?
Mr. I n s u l l . I know he was attorney in 1923 when I went to work.
Now as to the amounts of stock, Senator, I think you will find that the
amounts-----Senator B l a i n e . I was merely endeavoring to trace the political
ramifications of the Insull company respecting the Peoples Gas Co.
and the litigation concerning the over-charges for service for gas at
the time that Mr. Cooke was a member of the Supreme Court of the
State of Illinois. I have not gone into this recently. I have been
asking these questions rather from vague recollection of rather
ancient history, but I am inclined to think I am substantially correct.
Mr. I n s u l l . In other words, the only light I can shed on it is that
the amounts awarded to Judge Cooke and his partners were about
the same, the amounts for which they subscribed were about the
same, as the amounts subscribed for by other partners in other law
firms relatively in the same situation. For instance, Isham, Lincoln
& Beale.
Senator B l a i n e . A s to their being retained b y the Insull interests?
Mr. I n s u l l . Yes. For instance, here are several-----Senator B l a i n e . Of course, that perhaps would not be quite as
important or material to the law firm or the members of the law firm
as the original employment following resignation from supreme court
bench following a decision favorable to the utility company.
Mr. I n s u l l . As I said, that is all before my time, 1923. That is
when I date from.
Senator F l e t c h e r . What was the drop in this stock in October,
1929, do you remember, at the time of the collapse on Wall Street?
Mr. I n s u l l . During 1929, Senator, the low point it went to was
about 42 for the common.
Senator F l e t c h e r . And the bonds and preferred, do you know?




1428

STOCK EXCHANGE PRACTICES

Mr. I n s u l l . I don’t know how the bonds and preferred were. If
there is some stock exchange record I could look it up.
Mr. P e c o r a . Y o u spoke before of Halsey, Stuart & Co. subscribing
for the $6,000,000 of debenture bonds that were put out by this
company. Did Halsey, Stuart & Co. afterward return those deben­
ture bonds or any portion of them to the company?
Mr. I n s u l l . Yes. We bought back some bonds and canceled
them at a lower price.
:Mr. P e c o r a . How m u c h o f a d is c o u n t ?
Mr. I n s u l l . I would like to see if Mr. McEnroe has the figures on
that.
M r . M c E n r o e . I h a v e n ’ t a n y fig u r e s u n le s s i t is in th is a n n u a l
rep ort.

:- Mr. I n s u l l . I don’t know that even they were bought direct from
them. I know that they were bought back.
Mr. P e c o r a . D o y o u k n o w a n y t h in g a b o u t t h a t ?
:u Mr. I n s u l l . I don’t know whether— I don’t offhand recall any­
thing, There may well be something in the record about it.
Mr. P e c o r a . These debentures carried with them rights or warirants to buy shares of common stock at $15 per share, did they not?
Mr. I n s u l l . Yes, sir.
.) Mr. P e c o r a . When those debenture bonds were turned back to
the Insull Utility Investments Co. is it not a fact that those rights or
warrants had been detached?
, . Mr. I n s u l l . Yes. I would like to say that both the debentures
and the prior preferred stock had such warrants attached to them.
Mr. P e c o r a . Yes; I k n o w .
Mr. I n s u l l . And the company was buying in the market, and
.generally they could not have bought any from me, because I did
not have any. I do not think any other members of the family had
any. They were buying that stock back as it became ex-warrants
and canceling it at less than its issuance price. I recall that, that
situation generally. Where the bonds or the stock came from I do
not offhand recall.
Mr, P e c o r a . N o w , Mr. Insull, under this agreement of January
17, 1929, you acquired specifically an option to buy at any time within
two years 29,640 shares of the common stock at $15 a share, did you
J L O t?

Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Did you exercise that option?
Mr. I n s u l l . About December 31, 1929.
Mr. P e c o r a . That was about two and a half weeks before the
opening trades on the stock exchange at $30 a shate were made, is
that correct?
i Mr. I n s u l l . No, sir; December 31, 1929.
Mr. P e c o r a . Oh, 1929; I beg your pardon. And what were the
public quotations on the common stock at that time, December 1929,
do you recall?
Mr. I n s u l l . It was about 65, I recall, because I bought the stock
.at 15 and sold a portion of it to Corporation Securities Co. at 40,
which I remember as being about 25 points below the then market.
Mr. P e c o r a . Y o u did not exercise this option until December, 1929,
when the public quotation for the stock was about $65 a share. Now,
do you recall what discussion was had at the meeting of the board of



STOCK EXCHANGE PEACTICES

1429

directors at which this agreement was approved with respect to giving
to you this option to buy 29,640 shares at $15 a share?
Mr. I nsull . Yes, in a general way, I do; yes, at the meeting or
meetings.
Mr. P ecora . Yes.
Mr. I nsull . I recall that the amount of preferred stock I received
was such that dividends on it at $6 per share per year would about
equal the income I gave up by putting in the securities that I put in
Insull Utilities, or a little less than that. Then we turned around and
instead of taking $6 a share we took $2 the first year, as it shows
here, and a graduated rate. And I recall the discussion about the right
to buy the common stock at 15, upon which, at the time it was dis­
cussed, January 4, we might have made a profit, and as it turned out
we did make a profit; that that was conceded to be a fair compensa­
tion for giving up the hard cash in the reduction of the dividend rates.
There was some minor reference to our serving the company at no
salary, but in my case, being a young man, I was not giving up so
very much.
Mr. P ecora . H ow much did you figure you were being deprived
on account of the dividends through your ownership of preferred
stock?
Mr. I nsull . Well, I gave up 59—I got 5,900 shares of preferred.
Mr. P ecora . What was the difference in dollars and cents on ac­
count of the dividend item?
;
Mr. I nsull . I want to see how that was paid. There was a differ
ence of $4 for one year, $3 for another year, $2 for another year, and
$1. There was a difference of—6 and 4 are 10—$10 on dividends.
Mr. P ecora . What was the gross difference in dollars and cents to
you?
Mr. I nsull . The gross difference in dollars and cents to me wais'
about $59,000 hard cash.
■'
Mr. P ecora . Hard cash.
Mr. I nsull . And I got this right to make what later turned out to:
be a very valuable profit, but at the time it was given it was soft cash;
in other words, it might be a profit.
Mr. P ecora . When you exercised this option to buy 29,640 shares
at $15 a share the stock had a public or a market value of $65 a share,
which made a total of $1,836,600, was it not?
Mr. I nsull . Yes.
Mr. P ecora . A s the market value of that stock?
Mr. I nsull . Yes, but I didn’t-----Mr. P ecora . And you got that stock for less than one-quarter of
that price?
Mr. I nsull . But I turned around and sold it to the affiliated com­
pany, a considerable portion of it, at $40 a share.
Mr. P ecora . Which still gave you a profit of the difference be­
tween $15 a share and $40 a share on that?
Mr. I nsull . Well, an unrealized profit. I still have the stock, or
most of it, to-day.
Mr. P ecora . But you got something which at the market was
worth over $1,800,000 for a purchase price of less than 25 per cent of
that?
Mr. I nsull . At the then market quotations.
Mr. P ecora . At the then market quotations.
'1
The C hairman . Who else got that?



1430

STOCK EXCHANGE PRACTICES

Mr. I nsull . That was limited to members-----The C hairman . Members of the-----Mr. I nsull . I think I ought to point out this fact in connection
with this, if I may.
Mr. P ecora . I suggest you answer the chairman’s question.
Mr. I nsull . Yes, Senator.
The C hairman . I was simply asking what other persons got that
advantage—you getting nearly $2,000,000 worth of stock for about
$500,000.
Mr. I nsull . M y father.
The C hairman . And afterwards presenting the company with
$58,000 in dividends.
Mr. I nsull . M y father.
The C hairman . Your father got it?
Mr. I nsull . In a different relative amount my father, and I think,
my uncle.
The C hairman . Some of them were very large holders, were they
not?
Mr. I nsull . Yes. The point I make is that I have held this stock.
To-day I am busted. And that stock which I have held down through
the crash, later on it had a market value of $65 a share, is not worth
anything to me to-day to try and pay my debts with, and I don’t
think you can just saw off the transaction at any one time and say
a fellow got a benefit which he did not exercise when he has stuck
with the ship and gone down with it.
Mr. P ecora . It was a benefit which you could have exercised in
your own discretion at any time after December, 1929, when you
got your stock, was it not?
Mr. I n s u ll. N o ; it was not, sir; because due to the formation of
this company, the name of it, and my serving as a director and an
officer, although I might have been legally free to sell it out, so to
speak, except for selling some stock and finally finishing up selling
less than I received as dividends, I did not feel free to sell stock.
Although I might have legally done so, morally I felt bound, and I
lived up to that moral obligation. That is why I am where I find
myself to-day financially.
Mr. P e c o r a . D o you consider yourself in that position financially
to-day because of this transaction?
Mr. I nsull . N o, sir.
Mr. P ecora . Under this agreement of January 17, 1929?
Mr. I n s u ll. N o, sir. I consider myself in that position, if I might
say so—and I don’t care to be indelicate and air my personal troubles
and burden the Senate committee with them—but I consider the fact
that a man who is an officer of the company, who may have been
said to have gotten privileges from that fact, but who held his stock
right down through the crash, is in a different position than if he sold
it out—sold that stock.
The C hairman . Not knowing the crash was coming? That is
what he gets credit for? If he had known it was coming, then there
is no certainty he would have held it.
Mr. I nsull . Well, I don’t see that it makes any difference, Senator,
whether he knew it or not, if he stuck with the ship.
The C hairman . It does not take courage to stick with it if he does
not know the ship is going to sink.



STOCK EXCHANGE PRACTICES

1431

Mr. I nsull . But I hung on to these securities all the time con­
ditions were getting lower and lower. I hung on to them through a
period when, if I had been an uncontrolled, free agent I would have
certainly sold out and paid my debts and at least been square.
The C hairman . A few million farmers consider that if they had
seen what was coming they might have sold, but they do not come
and claim any credit for hanging on.
Mr. I nsull . I am not claiming credit, Senator. I am just trying
to get the facts before you.
Mr. P ecora . Mr. Insull, on January 17, 1929, when you acquired
this option which you exercised in December, 1929, you had no ex­
pectation or feeling that the stock was going to depreciate in value
subsequent to 1929 as it has done?
Mr. I nsull . I never considered that. I felt kind of obligated to
maintain my holdings to a reasonable limit.
Mr. P ecora . At the time this agreement was made not only did
the stock market open at a price more than double the price at which
you were exercising the option or given this option right, but it con­
tinued right up to the time that you exercised it to increase, did it
not?
Mr. I n s u ll. N o , sir. I exercised it in December, 1929, and there
had been a— —
Mr. P ecora . There had been a drop from August?
Mr. I nsull . Yes.
Mr. P ecora . T o December?
Mr. I nsull . Yes.
Mr. P ecora . But in December, 1929, when you exercised your
option, even after the depreciation, the stock was selling for $65?
Mr. I nsull . Yes, sir; that is correct. Oh, yes. No question
about that.
Senator F letcher . H ow much stock did you receive, Mr. Insull,
as dividends.
Mr. I nsull . I have got that here, Senator. (After a pause.)
Dividends received, including scrip purchased, of 22,710 shares.
Now, what that scrip purchase means is that if I wanted I might get
one share; if it was three-tenths I might buy another seven-tenths to
make up an odd share. And I sold for cash, gave in settlement for
indebtedness, and gave away as gifts, an aggregate of 21,513 shares.
That is not including 16,941 shares of forced sale that was made on
me to sell out a brokerage account in the spring of 1932.
Mr. P ecora . Mr. Insull, didn’t you actually dispose of some fortyodd thousand shares of the common stock that had been issued to
you before 1932?
Mr. I nsull . Well, do you want me to—I can go through my whole
transaction.
Mr. P ecora . No; just answer that one question.
Mr. I nsull . I only sold for cash and gave in settlement of indebt­
edness a total of 21,513 shares. Now, my share of this stock that
was given to Halsey, Stuart as compensation for underwriting was
8,447 shares. I put 22,566 shares into the Western Securities Co.,
through which I later acquired Corporation Securities. So I dis­
posed of Insull of 22,566, but I got Corporation Securities.
The C hairman . But they were both your companies?



1432

STOCK EXCHANGE PRACTICES

Mr. I nsull . Yes, sir; but the point I am making with the attorney
is that I did not sell it out or get cash for it.
Mr. P ecora . Mr. Insull, what was the reason for making this
arrangement with Halsey, Stuart & Co. as the underwriters?
Mr. I nsull . We thought that the whole company would look a
whole lot better starting oflj perfectly clean with no discount on
securities. In other words, iif the statement could be made that—
have you got a copy of that circular [addressing Mr. McEnroe]? I f
we could make the statement substantially that the company was
not at any expense for underwriting its securities, so the Insull
family would compensate Halsey, Stuart in stock and Halsey, Stuart
made the concession in taking their compensation in stock instead of
cash.
Mr. P ecora . To what extent was Halsey, Stuart & Co. compen­
sated by the members of your family under that arrangement?
Mr. I nsull . I think those figures—well, maybe you have given
them back to me—those figures there—I think they got a total of
57,000 shares common.
Mr. P ecora . At $12 a share?
Mr. I nsull . N o . I forget what price it was figured at.
Mr. P ecora . Did not Halsey, Stuart & Co. under their under­
writing agreement with the company make certain other benefits,
acquire certain other benefits and profits, aside from this private
arrangement your family made with them?
Mr. I nsull . I don’t recall any, but there may have been.
Mr. P ecora . Didn’t they, for instance, in various forms acquire
options to purchase 600,000 shares of the common stock at $12 and
$15 a share at the outset, as part of their underwriting understanding
or agreement?
M r. I nsull . Probably where that figure comes from is adding in
the detachable warrants from the— no, they were nondetachable
warrants, weren’t they, on the debentures and the prior preferred?
M r. M cE nroe . Detachable.
Mr. I nsull . Y ou see, there were detachable warrants attached to

the prior preferred and the debentures. Now, if you add the com­
mon stock they could have all got together, it comes to a big figure.
Mr. P ecora . It comes to 600,000 shares of common stock?
Mr. I nsull . But that Halsey-Stuart turned around and sold to the
public with those warrants still attached.
Mr. P ecora . Did they?
Mr. I nsull . That is my impression, because they offered them. I
am not testifying for Halsey-Stuart, but it is my impression that they
did.
Mr. P ecora . Or did they attach those warrants and exercise them
themselves?
Mr. I nsull . We would not know that. I really should not testify
for them. I am just giving you my understanding of the arrange­
ments, what impelled us to go into it.
The C hairman . The committee will recess until to-morrow morn­
ing at 10 o’clock and meet in this room. The witness will continue
at that time. All other witnesses under subpoena will remain and
be in attendance to-morrow morning.
(Accordingly, at 12.23 o’clock p. m., the committee adjourned until
10 o’clock a. m. of the next morning, Thursday, February 16, 1933.)



STOCK EXCHANGE PEACTICES
THURSDAY, FEBRUARY 16, 1933

U nited States S enate ,
Subcommittee of C ommittee on B anking and C urrency ,

Washington, D. C.

The subcommittee met, pursuant to adjournment from Wednesday,
February 15, 1933, at 10 o’clock a. m., in room 301 Senate Office
Building, Senator Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Couzens, Townsend, Flet­
cher, and Costigan.
Present also: Senators Brookhart, Watson, and Gore.
Further present: Ferdinand Pecora, special counsel to the com­
mittee; Julius Silver, and James B. McDonough, jr., associate counsel
to the committee.
The C hairman . The committee will come to order. Senator
Couzens desires to make a statement this morning.
Senator C ouzens . I understand from counsel for the committee
that Mr. George W. Davison, chairman of the Central Hanover
National Bank & Trust Co. of New York, was subpoenaed to appear
here to-morrow. The Michigan and Detroit bank situation was such
that they desired Mr. Davison’s presence in Detroit to-day to assist
the bankers in working out a clearing-house plan, because of Mr.
Davison’s long familiarity with it. It appears that Mr. Davison
operated the clearing-house plan in 1907 during the money panic or
bank panic, and I took it upon myself to say to Mr. Davison that he
might go to Detroit last night, and he did, and I would leave it up to
the subcommittee this morning to determine whether he could remain
over in Detroit for the balance of the week and appear some time after
this week at the convenience of the committee. The committee met
this morning at 9.45 and decided that was agreeable.
The C hairman . Providing the other witnesses develop the facts
we wanted, and if not, that Mr. Davison would come back here and
testify. Is that right?
Senator C ouzens . That is not right, exactly. The understanding
was that if the committee decided they wanted Mr. Davison at
another time-----The C hairman . After this week.
Senator C ouzens . After this week.
The C hairman . But I think it was understood that if the testi­
mony was developed by other witnesses, he might not be called at all.
Senator C ouzens . That was to be determined after we heard from
the other witnesses, yes.
The C hairman . Correct.
Senator C ouzens . But he is excused for this week.




1433

1434

STOCK EXCHANGE PRACTICES

The C hairman . The subpoena still holds.
trying to make.
Senator C ouzens . That is true.
Mr. P ecora . Mr. Samuel Insull, jr.

That is the point I am

FURTHER TESTIMONY OF SAMUEL INSULL, JR., CHICAGO, ILL.

Mr. P ecora . Mr. Insull, how many corporations were affiliated
iji the so-called Insull group of public-utilities companies?
Mr. I nsull . I do not think I could answer offhand. I could name
over the principal ones.
Mr. P ecora . What is your best estimate of the total number of
corporations combined in the Insull group of public-utilities com­
panies?
Mr. I nsull . I have no estimate at all, because to give one I should
have to be familiar with questions with which I am not. There were
subsidiary corporations in a good many systems where I was not
directly in charge.
Mr. P ecora . Would you say that their number exceeded a
hundred?
Mr. I nsull . Yes; I would say that it exceeded a hundred;
Mr. P ecora . In how many of them were you an officer?
Mr. I nsull . I think they naturally headed themselves up into
seven groups. I was an officer in all seven of the groups, in one or
more of the companies.
Mr. P ecora . In how many companies, all told, were you an
officer?
Mr. I nsull . I have not any idea.
Mr. P ecora . Would you say as many as 50 of them?
Mr. I nsull . Yes.
Mr. P ecora . An executive officer of as many as 50 of them?
Mr. I nsull . No; I was not an executive officer of 50 of them. I
would like to withdraw that. I am confused between officer and
director. I was an officer or director in 50 of them.
Mr. P ecora . Y ou were an officer or director in many more than
50, were you not?
Mr. I n sull . Possibly, I would say so. I would be glad to submit
from my records, but I remember what my direct work was, and my
responsibilities were, naturally, rather clearly.
Mr. P ecora . This general structure that I would refer to as the
Insull group of public-utility companies had many ramifications and
complications, did it not?
Mr. I nsull . Well, it comprised companies doing a gas, electricity>
and transportation business in, I think, 30 States, with certain affili­
ates in other lines of business where they were an adjunct to the main
business.
Mr. P ecora . H ow many of the companies in the group were
operating companies, if you can tell us?
Mr. I nsull . I would not have any estimate of that any more than
of the total number.
Mr. P ecor? . D o you know any individual who could answer the
question as to the number of companies that were grouped in this
combination?



STOCK EXCHANGE PEACTICES

1435

Mr. I nsull . N o one individual; no. Any individual would have
to do what I would have to do to have access to a number of different
reports which have all been published and prepare from them a con­
solidated list.
Mr. P ecora . Would you say that half of the total number of com­
panies in the group were operating companies, or was the proportion
less than that?
Mr. I nsull . I would not want to say.
Mr. P ecora . H ow many of these companies in the group were
holding companies, as distinguished from operating companies?
Mr. I nsull . I would not want to say, because it is the other side
of the same question. I would have to prepare a schedule.
Senator C ouzens . Why not let us get the facts, and let him submit
the facts, Mr. Counsel?
Mr. P ecora . Very well. How many of them were investment
companies?
Mr. I nsull . There were at least three investment companies, and
there may have been others.
Senator T ownsend . That will be shown in your report?
Mr. I nsull . In my schedule.
Mr. P ecora . Let me show you this booklet, entitled “ The Insull
Group of Public Utility Properties.” Are you familiar with that
booklet?
Mr. I nsull . Yes; I have een the booklet.
Mr. P ecora . That was put out by the Insull Utility Investments
Co., of which you were president?
Mr. I nsull . Yes, sir.
Mr. P ecora . Do you know who prepared that booklet?
Mr. I nsull . I am not quite sure—if I might have the privilege of
consulting other witnesses.
Mr. P ecora . It is not important at this moment. Does that
booklet set forth, so far as you know, the number and kind of com­
panies that were combined in the so-called Insull group of puhlicutility companies?
M r. I nsull . I notice in the back a list, and from one of the groups
with which I was more familiar than the other, I would say that this
book, this list, includes most of the companies which were active,
either in the sense that they were doing business with the public, or
in the sense that their securities were held in the public. It does not
attempt to cover, I should believe, corporations which were kept
alive to protect a name, or that sort of thing.
Senator C ostigan . From what pages of the booklet are you

reading?
Mr. I nsull . I am reading, sir, from pages 42 through 45, inclusive.
Mr. P ecora . Can you refer us to any other piece of company
literature that correctly and fully sets forth the names and kinds of
companies that were united or grouped in the Insull group of public
utility companies?
Mr. I nsull . Well, I would suggest that in this list, it is divided
into headings, and at the head of each heading is a parent company.
I would suggest that the annual reports of those parent companies,
and in the case of the larger ones, sometimes from time to time they
put out—the Middle West Utilities Co. put out—a schedule of com­
panies. I would suggest that the annual reports of all the companies,



1436

STOCK EXCHANGE PEACTICES

and that schedule of companies put out by the Middle West, would
probably give the most comprehensive list that could be found.
Mr. P e c o r a . I s there a single piece of literature put out by any
of the companies that correctly sets forth the companies united in
the group?
Mr. I n sull . Not all of them, no; not to my knowledge.
Senator F letcher . What were those seven groups? You could
specify those, perhaps?
Mr. I nsull . There was the Commonwealth Edison Co.-----Senator F le t c h e r . I s that one group?
Mr. I nsull . That is one group—and its affiliates, which do an
electric business in the Chicago city limits. There is the Public
Service Co. of Northern Illinois, which does an electric business and
some gas business in an area surrounding Chicago to the north and
west, through northern Illinois. There is the Peoples Gas Light &
Coke Co., which does a gas business within the city limits of Chicago.
There is the Middle West Utilities Co. and its subsidiaries, which did
mainly a gas, electric, and transportation business in about 30 States,
including all the subsidiaries—30 or 32. There is the Midland
United Co., whose subsidiaries did a gas and electric business generally
in Indiana, and to some degree in Ohio. That is five. And there
were the two investment trusts, Senator, the Insull Utilities and the
Corporation Securities. I have left out some names on this schedule,
but they would come in as affiliates of one or the other seven, one
or more of them.
Senator F letcher . What was the need of forming these 100 com­
panies or more that were formed? Were they speculative enter­
prises, or just for the purpose of putting out the stock, or what was
the real need for them?
Mr. I nsull. Well, sir, I could speak only in respect to those of
them where I had a direct responsibility at the time of formation.
In a good many of them, at the time I became an officer, a certain
corporate structure existed, with mortgages, stock, and so forth,
which could not be disturbed, and in those cases I can not very well
go back to the formation. In the ones I was directly familiar with,
the reasons for the differences, I should say, were primarily threefold.
: First, in the electric and gas business, regulation being by States,
it is the general custom not only in these companies but in all groups,
to have operating companies confined to State units, so that the cor­
porate limits will coincide with the regulatory limits. Otherwise, you
could get into a situation embarrassing not only to the company but
to ,the public, where, for example, the State commission on one side
of a line may have one idea regarding discretionary matters, issuance
of securities, and so forth, and the State commission on the other side
of the line might have another idea, and if the corporation overlaps
the line, you would be in the unpleasant position of being told by two
competent authorities to do two different things. That is the first
reason—in other words, to make the corporate lines conform to the
regulatory lines.
The second reason is what I might call the credit reason, generally
speaking. I do not want to be taken as a banking witness, but I am
speaking only from my own limited experience. In that experience,
the credit of an electric company is, one might say, grade A. The
credit of a gas company—there is nothing against the gas business,



STOCK EXCHANGE PRACTICES

1437

but it is a fact—we might say, is about grade A minus; and the credit
of a street-railway company is pretty well down in the alphabet.
If I am going into too great detail, I hope the Senator will stop me.
Senator F l e t c h e r . N o.
Mr. I n s u l l . Suppose you had a corporation which did a gross
business—which is quite a reasonable proportion—say, of $2,000,000
in electric business, and half a million dollars in street railway business.
The electric business in normal times has to expand from year to
year, taking capital for new extensions, new plant to hook on new
customers. I t is not only good business, but it is mandatory under
the regulatory authorities that you do expand to meet the require­
ments of the public. You put in that $500,000 of street railway
business with the $2,000,000 of electric business, and you only help
your ability to raise money for the half a million of business which is
not expanding, and you hurt your ability to raise money for the
$2,000,000 of business which is expanding. Therefore, a second
reason I would give for a multiplicity of corporations is to keep the
transportation business, in so far as possible, by itself.
The third reason I would give is this, that it is always desirable—iii
this system as a whole, one might gain the impression that there was
a gentleman sitting at the top of it somewhere who opened and closed
every switch, so to speak, on the whole system. That, manifestly, is
impossible in the electric, gas and transportation business, which
are essentially local businesses. You can not compare it to a rail­
road, which is essentially a through business. The essential part of
the electric business, the gas business and the street railway business
is its local business. It gets all its revenue locally. Therefore, there
is a natural tendency to split up into corporate units that are small
enough so that you can put a competent man at the head of them and,
subject to outlining the general policies, leave him pretty free to run
the local business.
Senator B r o o k h a r t . Does not that add an expense to the whole
thing, when you have a holding company, and put an overhead over
the top of that local organization?
Mr. I n s u l l . That is a very pertinent question, Senator. I t is oiie
that you can only work out in administrative procedure. One finds
this: The problems of day to day management manifestly are ones
requiring local attention. On the other hand, with no disrespect to
a local man, if you get a good man and put him in a town of 50,000
people to run an electric property, he is busy with the local problems.
He has got to get service to these local customers. He does not have
time to design big transmission lines, locate power plants, and so
forth. So that if a holding company correctly fulfills its function—
and this is purely individual opinion, and I do not want to be taken
as discussing the industry, but my individual opinion is that there
is a field for the holding company in doing general engineering work
of a nature which can not be done locally.
Senator B r o o k h a r t . But why does the local company need so
much general engineering?
Mr. I n s u l l . I will cite you a case where I had experience. Take
the State of Indiana, where I had experience direct. There are only
about six places in the State of Indiana where you can generate any
appreciable amount of electric power. That is an offhand estimate.
It might be seven, or it might be five.



1438

STOCK EXCHANGE PRACTICES

Senator B rookhart . Y ou can do it with steam plants everywhere.
Mr. I nsull . But for every pound of coal you burn you have to
circulate through your condensers about 600 to 800 pounds of water,
and even with the steam plant, access to water is a very important
factor. In fact, it is the controlling factor. That is why we do not
build more plants at coal mines.
Senator B rookhart . I know an instance, in the case of the village
of Hinsdale, 111., a suburb of Chicago, surrounded by Insull plants in
other villages, where this village at Hinsdale has charged the Insull
rates all the time, and has paid for its plant, enlarged the plant, built
a garbage disposal plant out of the proceeds, and furnished $100,000
toward the city hall. They have abolished most of the village taxes,
and yet they have charged only the same rates as the Insull plants
around there.
Mr. I nsull . I know of that plant. It is a very well-run plant,
Senator; it deserves to be complimented.
Two things happen there that do not happen generally. In the
first place, you have a very high-grade corps of citizens who give a
great deal of service to that; and in the second place, there is no manu­
facturing load of any great proportion. I know a great many of the
residents of Hinsdale, and a great many of them are my friends.
They would not like to see somebody put down a big chemical works,
a steel plant, or something of that nature in Hinsdale. If that were
done, however, you would have to go to Lake Michigan or to the Illi­
nois River, to get enough condensing water to supply power to such
works.
Senator B rookhart . We do not expect to have those big plants in
every village in the country.
Mr. I nsull . No; but in the aggregate of the territory as a whole,
comprising residential towns like Hinsdale, towns of 30,000 to 40,000,
manufacturing places, and so forth, you find an industrial demand for
power which forces you to build a system. I think the interesting
point about this is that it is one point on which both advocates of
public ownership and private ownership agree. You have to build a
system of trunk transmission lines, to get the power from the few
points where you can get access to enough condensing water to gener­
ate it, to the points where you have to use it. It is that sort of work
that a local man can not very well do, because you have to look at
the picture as a whole.
Senator F letcher . Y ou have to do with electricity, gas, and trans­
portation?
Mr. I nsull . Yes.
Senator F letcher . Is your transportation confined to street
railways?
Mr. I nsull . Street railways; a small amount of interurban electric
railways; an ownership of one short-line steam railroad; and large
ownership and control, with a strong minority partner, in another
short-line steam railroad, a very short switching road.
Senator C ouzens . Before you leave that line, I think the young
man has perhaps not stated^ one of the most important reasons for
all these subsidiaries, and particularly the holding company sub­
sidiaries. By that process they are able to keep without the jurisdic­
tion of the States. In other words, you have intercompany relations
which can not be reached by the local utility commissions, because



STOCK EXCHANGE PEACTICES

1439

they are not subject to subpoena, being foreign corporations. In
other words, that has been evidenced throughout the Nation by the
inability of local regulatory commissions to reach the American
Telephone & Telegraph Co., to get their books and their intercompany
fees and charges, because they are not subject to the jurisdiction of
the State commissions. Is not that one of the interesting facts?
Mr. I nsull . That is undoubtedly a collateral effect, and it may
in some cases be a cause for forming these corporations.
Senator C ouzens . I think that the collateral effect came ahead of
the organization.
Mr. P ecora . Mr. Insull, from how many of these corporations
did you personally draw a salary at one time, if you can tell us?
Mr. I nsull . I might miss some of them. I can tell you what my
aggregate salaries were, if that gets at the same thing.
Mr. P ecora . Tell us that.
Mr. I nsull . I remember looking it up to testify in a Federal court.
My aggregate salaries in 1930—I would like this testimony to be sub­
ject to that record, where I looked it up directly—were $106,000.
They got up to a peak of $113,000, I think, in 1931. At the present
time, my salary is $50,000 a year. Not that my personal troubles
are of interest to the Senate, but because the press is here, I would like
the privilege of stating that my debts are over $800,000.
Mr. P ecoea . I do not think we are concerned with your debts.
Senator W atson . Your salary is $50,000. Do you get it?
Mr. I nsull . I get a look at it, Senator.
Mr. P ecora . Was the supervision of all these companies in the
Insull group, numbering a hundred or more, centered in any one man?
Mr. I nsull . I am not trying to hedge the question, sir, but that
involves the definition of “ supervision.”
Mr. P ecora . I am using the word in its ordinary sense.
Mr. I nsull. In its ordinary sense, no.
Senator C ouzens . But, in effect, it was there to be exercised if
desired at any time?
Mr. I nsull . That is true, Senator.
Mr. P ecora . Who was the individual?
Mr. I nsull . M y father, Mr. Samuel Insull. The reason for my
strange kind of answer is that I was naturally in a peculiar position
with respect to him, being both his only son and one of his employees.
Mr. P ecora . You have answered the question.
Mr. I nsull . His peculiarity was that he gave subordinates a good
deal of responsibility and freedom.
Mr. P ecora . Was not the primary purpose of the incorporation
of the investment trust known as the Insull Utility Investments Co.
to enable your father and his family group to have a control, through
stock ownership, of the principal operating companies?
Mr. I nsull . Yes, sir.
Mr. P ecora . And was not the main purpose of the incorporation
of the Corporation Securities Co. of Chicago likewise to enable your
father and his family group to exercise control, through stock owner­
ship of the holding companies’ securities, of the main operating
companies?
Mr. I nsull . Well, yes. In general, I would like to put it this
way, that the general purpose of both corporations was to perpetu­
ate, not necessarily control of the family, but the control of a group



1440

STOCK EXCHANGE PRACTICES

of operating people, including in the companies not a full control,
but sufficient control—I think it is expressed in some of these docu­
ments—that if the public generally were sympathetic with the
operating management there should be, in these investment com­
panies, a large enough block of stock, together with the general
public, to offset any other interests that might want to come in and
get control.
On the other hand, there was never a large enough block of stock,
nor was there ever contemplated there should be—because it would
be impossible— to hold control as against a united group of general
outside stockholders, the public generally. The purpose was to hold
control as against some compact financial interests, if you had the
support of the public generally.
Mr. P ecora . When was the Corporation Securities Co. of Chicago
organized?
Mr. I nsull . I think in September or October, 1929; the fall of 1929.
Mr. P ecora . In October, 1929?
Mr. I nsull . Yes.
Mr. P ecora . That was about 10 months after the organization of
the Insull Utility Investments Co.?
Mr. I nsull . Yes.
Mr. P ecora . And the Corporation Securities Co. of Chicago was
set up as an investment trust, and functioned as such?
Mr. I nsull . Yes, sir.
Mr. P ecora . In the same way as the earlier company, the Insull
Utility Investments Co.?
Mr. I nsull . The same general way.
Mr. P ecora . And it had about the same board of officers and
directors as the Utility Investments?
Mr. I nsull . No; the officers and directors were somewhat differ­
ent. I think the records show that. If this is what is of interest
to you, my father and my uncle and myself were officers of both, and
there were certain other officers in common. All the directors were
not in common.
Mr. P ecora . Were not the other executive officers of the Corpo­
ration Securities Co. of Chicago persons connected with the organi­
zation called Halsey, Stuart & Co.?
Mr. I nsull . Yes, sir; between October and some date— I think it
was April or May, 1930.
Mr. P ecora . And another one of the gentlemen who was an officer
or director of both these investment trusts, was a Mr. Brewster?
Mr. I nsull . I wonder if there is a record of Corporation Securities
here. Was he a director at first?
Mr. P ecora . Whether at first or subsequently, was he a director of
both these investment companies?
Mr. I nsull . He was a director of Insull Utility Investments from
its formation. He was a director of the Corporation Securities Co.
since the annual meeting in 1932, I believe—pardon me if I may, to
consult, Mr. McEnroe. I would like to be particular about testifying
about somebody else. [After conferring with Mr. McEnroe.] He
was elected subsequent to this, so that he was elected at the annual
meeting in 1932.
Mr. P ecora . Mr. Brewster, I think you said yesterday, was a stock
broker by occupation?
Mr. I nsull . He is a broker.



STOCK EXCHANGE PEACTICES

1441

Mr. P e c o r a . I s it not a fact that there was a considerable exchange,
back and forth, of securities between these two investment trusts
during the years 1929, 1930, 1931, and 1932?
Mr. I n s u l l . I recall one particular exchange.
Mr. P e c o r a . Were there not many, without calling attention to
any particular one? I want the general situation.
Mr. I n s u l l . I do not know whether there were many, or not, sir.
Could I consult Mr. McEnroe? [After consulting Mr. McEnroe.]
Yes; there were a number.
Mr. P e c o r a . There were very many, weren’t there?
Mr. I n s u l l . “ Very” is an indefinite term.
Mr. P e c o r a . They were very frequent, were they not—these
exchanges and trades of securities back and forth?
Mr. I n s u l l . I do not want to quibble, but “ very frequent” is so
indefinite.
Mr. P e c o r a . They were not rare, were they?
Mr. I n s u l l . I am wondering if this would answer the question:
The record undoubtedly shows such transactions-----Mr. P e c o r a . No; I want your recollection as an officer of both
companies, if you have any.
Mr. I n s u l l . Y o u said in the years 1929, 1930, and 1931?
Mr. P e c o r a . Yes.
Mr. I n s u l l (after conferring with associates). I do not recall any.
That does not mean they did not take place, but you asked me for
my recollection. I do not recall any up until the end of 1930, when
I recall one, and I recall several in 1931.
Mr. P e c o r a . During the-----Mr. I n s u l l . During the first half of 1931, or the rest of the period
mentioned, I do not recall them without reference to the record.
Mr. P e c o r a . During the operation of these two investment trusts,
up to the time that they went into receivership in April, 1932, they
purchased large quantities of securities issued by other Insull com­
panies, principally operating companies, did they not?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And put those securities in their portfolios?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And the so-called earnings shown by the Insull
Utility Investments Co., which was the older of these two investment
trusts, and which were made public from time to time, were derived
in large part from so-called appreciations of the value of those port­
folio securities, were they not?
Mr. I n s u l l . No, sir.
Mr. P e c o r a . What were other sources of revenue that entered
into earnings? Do you mean dividends paid to the companies on the
stock of the operating companies which they held in their portfolios?
Mr. I n s u l l . Each annual report, which is certified to, incidentally,
not only by outside auditors but independent auditors in the two
corporations, shows'—for instance, I am reading from the one from
December 27, 1928, to December 31, 1929:
Cash dividends—

This is as published to the public—
stock dividends, taken in at market value at date of receipt; interest on bonds,
notes, etc.; profit on sale of securities; profit from syndicate participation; sale
of rights; miscellaneous income.

119852—33— 5------4




pt

1442

STOCK EXCHANGE PRACTICES

There is an example for that year, in Insull Utility Investments.
Senator B rookhart . I notice you mentioned syndicate participa­
tion. Yesterday, I believe, in answer to my question, you said there
were no syndicates to boom these Insull stocks. Was not that the
purpose of these syndicates?
Mr. I nsull . I thought, Senator, you had asked me whether there
were market pools to boom the stock.
Senator B rookhart . I meant any kind of a combination. I said,
syndicate, pool, or group.
Mr. I nsull . Then I incorrectly answered you. There were one
or two syndicates whose purpose was to underwrite the distribution
of stock offered for rights.
Senator B rookhart . Was not that the purpose of these exchanges
that you mentioned?
Mr. I n s u ll. Y ou mean to boom the market?
Senator B rookhart . Yes.
Mr. I nsull . Some of the exchanges, Senator, involved securities
that had been acquired in the market.
Senator B rookhart . They exchanged them with other Insull
securities, is that the idea?
Mr. I nsull . Yes, sir.
Senator B rookhart . And then both securities were exchanged at a
higher price, usually?
Mr. I nsull . I do not recall what the prices were that they were
exchanged at. I think the record will show that pretty fully.
Senator B rookhart . Was not that the purpose of these exchanges?
Mr. I nsull . No; I don’t think you could say that was the purpose
of the exchanges.
Senator B r o o k h a r t . That is generally the way it happened, is it
not?
Mr. I nsull . A s I said, a good many of the exchanges involved
securities which had been purchased in the market.
Senator B rookhart . Why were they exchanged? That is what
I am trying to get at. Was not that in order to show a higher price,
an advancing price?
Mr. I nsull . They were exchanged because the investments were
thought proper for the two companies.
Senator B rookhart . But both of them were Insull investment
companies, and what purpose could there be in exchanging them
back and forth, from one to the other, if it was not to raise the price?
Mr. I nsull . I do not want to appear to dodge the question, but I
do not recall any mark-up in exchanges in these corporations. There
may have been.
Senator F letcher . Did either of these companies, of which
you were an officer, engage brokers in different parts of the country,
and in Chicago, to manage affairs for you on the stock exchange, or
did you engage agents or representatives throughout these 30 States
and elsewhere, to sell the stock to the public?
Mr. I nsull . These two companies did make purchases of securities
on the exchanges through brokers. I think that answers the first
part of your question.
Senator F letcher . H ow about sales to the public?
Mr. I nsull . Most of the sales to the public were made through
the Utility Securities Co., and these companies did sell securities



STOCK EXCHANGE PEACTICES

1443

to the Utility Securities Co. I was not in charge of its security dis­
tribution, so I do not think I can very well testify on how it distrib­
uted those stocks to the public. I know they were so distributed.
Senator F le t c h e r . D o you know whether you had agents, or not,
in these different States to sell them to the public?
Mr. I nsull . I do not know, myself, sir.
Mr. P ecora . Mr. Insull, are you familiar with the income-tax
returns made to the Government by the Insull Utility Invest­
ments Co.?
Mr. I nsull . I undoubtedly executed some of them on the certi­
fication of the attorneys, or of the company’s auditors, or the outside
auditors, that they were correct. I did not myself prepare them, and
I do not know much about income tax law ruling.
Mr. P ecoea . Do you recall whether or not the income tax returns
filed by the Insull Utility Investments Co. showed a profit or a loss?
Mr. I nsull . No, sir, I do not; without looking at them.
Mr. P ecora . D on’t you recall that they showed a loss?
Mr. I n s u ll. N o, sir; I do not recall that they showed anything.
Mr. P ecora . Do you know whether or not that company paid any
income tax to the Government?
Mr. I nsull . I can find that out, I think, from these annual reports.
I am sorry, but I have to testify a good deal from the record on figures,
because I am not a financial expert.
There was a provision in 1929 for income tax of $213,457.78. In
1930, there was a provision for income taxes of $56,746.47; and in
1931, there was a provision for income taxes of $27,456.18. Whether
those were paid or not, I could not testify. Possibly the former
treasurer, or somebody else, could.
Mr. P ecoea . I show you this booklet entitled, “ Report of Cor­
poration Securities Co. of Chicago for the fiscal year ended December
31, 1931,” and ask you if that was a report issued by that corporation
to the public?
Mr. I nsull . Yes, sir.
Mr. P ecoea . And what are the net earnings for the fiscal year
ending December 31, 1931, according to the report of that company?
Mr. I nsull . According to page 5—let me see if I am looking at
the right page—yes; this is the certified public accountants’ statement.
It is shown on page 10 of this same statement, and it is $2,569,370.03.
Mr. P ecora . N ow , will you look at this photostatic copy of the
corporation’s income tax return for the calendar year 1931, of the
Corporation Securities Corporation of Chicago. Do you recognize
that, those several pages in photostat, as being copies of the income
tax return filed by that company for the year 1931, which was pro­
cured from the files of that company in its Chicago office.
Mr. I nsull . I have no reason to assume that they are not. But
they are not signed and I can not identify them because I didn’t work
on them myself, except possibly to sign them.
Mr. P ecora . Will you look at the figures— —
M t I n s u ll (continuing). So while I can not identify them, yet I
\
have no reason to believe they are not the same.
Mr. P ecoea . Will you look at the figures indicating net earnings
or a loss, and tell the committee what they show in that respect.
Mr. I nsull . Well, the photostat shows the figures $3,463,620.81.




1444

STOCK EXCHANGE PEACTICES

And there is written in front of them, I presume because if it was in
red it would not photostat, the word “ loss.”
Mr. P ecora . A loss?
Mr. I nsull . Yes, sir.
Mr. P ecora . While the published report of earnings of the com­
pany for that year showed net earnings of upwards of two and onehalf million of dollars, is that correct?
Mr. I nsull . Yes, sir; $2,569,370.03.
Mr. P ecora . Mr. Chairman, I now offer in evidence the printed
pamphlet, being report of Corporation Securities Co. of Chicago for
the fiscal year ended December 31, 1931, and ask to have it made a
part of the record.
The C hairman . There being no objection it is so ordered.
(A printed pamphlet entitled “ Report of Corporation Securities
Co. of Chicago for the fiscal year ended December 31, 1931,” was
thereupon received in evidence and marked “ Exhibit No. 2,” and
will be included in the original transcript for the purpose of printing,,
as follows:)
E xhibit No. 2
R eport

of

C orporation Securities C o . of C hicago
E nded D ecember 31, 1931

for the

F iscal Y ear .

notice of annual meeting of stockholders

The stockholders of Corporation Securities Co. of Chicago are hereby notified
that the annual meeting of the stockholders of said corporation will be held at
the Civic Theater, southwest corner of Wacker Drive and Washington Street, in
the city of Chicago, 111., on Monday, the 15th day of February, 1932, at 2.30'
o ’clock p. m., for the purpose of the election of members of the board of directors
and the transaction of any and all other business which may properly be brought
before said meeting.
All stockholders and allotment certificate holders are requested to be present
at such meeting in person or represented by proxy.
Allotment certificate holders are hereby notified that the Northern Trust Co.,
depositary of the capital stock represented by the allotment certificates, has
deposited with the secretary of the corporation a duly executed proxy constituting
the allotment certificate holders its proxies to represent and vote the shares o f
stock represented by the allotment certificates held by such allotment certificate
holders, respectively, on February 5, 1932, the record date fixed by the board o f
directors of Corporation Securities Co. of Chicago, and giving to said allotment
certificate holders the right to appoint substitute proxies in their stead. For
such purpose a form of proxy is herewith inclosed, and all allotment certificate
holders who do not expect to be present in person are requested to sign the inclosed
proxy and return it to the corporation in the envelope inclosed for the purpose.
Under the provisions of the proxy of the Northern Trust Co., in the event that
any stock represented by allotment certificates is not represented at said meeting
by the holders of such certificates in person or by proxy, such stock may then be
voted by its alternate proxies, Samuel Insull, H. L. Stuart, and Samuel Insull, jr.,
or any of them then and there present.
Only stockholders of record on the books of the corporation at the close o f
business on February 5, 1932, will be entitled to vote at said meeting.
J o h n F. O ’ K e e f e , Secretary.
Board of directors: Samuel Insull, Samuel Insull, jr., C. W. Sills, H. L. Stuart,
Stanley Field, C. B. Stuart, Edward J. Doyle, Martin J. Insull, Edward F. Swift,
F. K. Shrader, John H. Gulick.
Executive committee: Samuel Insull, H. L. Stuart, Samuel Insull, jr., Martin
J. Insull.
Officers: Samuel Insull, chairman; Samuel Insull, jr., president; Martin J.
Insull, vice president; P. J. McEnore, vice president; John F. O’ Keefe, secretary
and treasurer; C. W. Daniels, assistant secretary and assistant treasurer; W. J.
McElligott, assistant secretary; W. R. Irwin, auditor.



STOCK EXCHANGE PRACTICES

1445

Registrars of stocks and allotment certificates: Central Republic Bank and
Trust Co., Chicago, 111.; The Chase National Bank, New York, N. Y.
Transfer agents of stocks and allotment certificates: The Northern Trust Co.,
Chicago, 111.; Central Hanover Bank & Trust Co., New York, N. Y.
To the Stockholders of Corporation Securities Co. of Chicago:
By direction of the board of directors, I submit to you herewith a report of the
company’s operations for the fiscal year ended December 31, 1931.
S a m u e l I n s u l l , Chairman.

To the stockholders of Corporation Securities Co. of Chicago:
The board of directors submits this annual report of the affairs of the company
for the fiscal year ended December 31, 1931.
Following is a summary of the consolidated income account of the company
and its wholly owned subsidiary, Corporation Syndicates (Inc.), for said fiscal
year:
Income_______________________________________________________ $5, 416, 058. 63
Expenses______________________________________________________
559, 446. 93
Net income before interest charges______________________
Interest charges:
Interest on serial gold notes_______________ $1, 379, 742. 92
Other interest charges_____________________
907, 498. 75
-----------------------

4, 856, 611. 70

Net income for year____________________________________

2, 569, 370. 03

2,287,241.67

The net income for the year was $2,569,370.03. The dividend requirements
on the $3 optional preferred stock, 1929 series, amounted to $1,823,199.36,
leaving a balance of $746,170.67 available for the payment of common stock
dividends, which is the equivalent of 17 cents per share on 4,400,639 shares of
common stock, the average amount of common stock outstanding during the
year. Common stock dividends were paid in common stock issued against
earnings and surplus on the basis of $5 a share. Inasmuch as the earnings for
the year were not sufficient to take care of these dividends $514,099.46 of the
amount required for them was charged against surplus previously accumulated
from earnings. Since the close of the year, the board of directors has decided,
in view of existing conditions, to suspend the payment of dividends on all classes
of stock.
In the accounts of the company for the year stock dividends received have
been taken upon the books of the company at their market value on the day
received. On this basis the securities held in the investment account of the
company on December 31, 1931, had on that date an aggregate book value of
$145,455,705.65, and an aggregate market value of $33,970,252.09. Owing to
the continued decline in market levels, there has been a further depreciation in
the market value of these securities since December 31, 1931.
In the portfolio of the securities held by the company is a substantial amount
of Insull Utility Investments (Inc.), a company closely allied with this company
and organized for practically the same purposes. The two companies own
substantial blocks of stocks in Commonwealth Edison Co., the Peoples Gas
Light & Coke Co., Public Service Co. of Northern Illinois, Middle West Utilities
Co. and subsidiaries, and Midland United Co. and subsidiaries, all well established
public utility operating and holding companies. The earnings of all of these
operating and holding companies for the year 1931 were very satisfactory, and
after meeting all dividend requirements, all but one of them were, as a result of
the year’s operation, able to add to their earned surplus.
On September 1 the company paid off and canceled $8,000,000 in principal
amount of its serial gold notes which matured on that date. Earlier in the year
the company issued and sold $2,033,000 in principal amount of serial gold notes
of later maturities. The company now has outstanding $24,033,000 in principal
amount of these notes. Of this amount, $8,000,000 in principal amount mature
on September 1, 1932, $7,033,000 in principal amount on September 1, 1933,
$4,500,000 in principal amount on September 1, 1934, and $4,500,000 in principal
amount on September 1, 1935. The company’s total indebtedness on December




1446

STOCK EXCHANGE PRACTICES

31, 1931, with the exception of the “ liability to deliver borrowed securities”
amounted to $57,755,960.96, as compared with $54,780,368.90 on December 31,
1930.
The items appearing in the balance sheet as borrowed securities and loaned
securities represent transactions between the company and affiliated companies.
These transactions were made for the mutual benefit of the parties involved.
A reserve has been created against a portion of the securities loaned and
another reserve has been created against the payment of notes and accounts
receivable.
During the first nine months of the year the company acquired some of its own
securities. Such of these as were sold during the year were sold at a loss of
$150,966.12, and such as were on hand on December 31, 1931, were written down
to the market value on that date.
The management of the company realizes that, as a result of the decline in
market value of the securities in its portfolio, a reorganization of the company
must be effected as soon as market conditions show sufficient improvement to
warrant such an undertaking. Any such action might involve a consolidation
with Insull Utility Investments (Inc.), as the two companies were organized for
practically the same purposes. They have always been closely affiliated and have
a substantial ownership each in the other. It might be found desirable to make
other plans for merger or consolidation with some other company under the same
general management.
There has been no change during the year in the number of shares of the
company’s capital stock outstanding excepting the increase in common stock
resulting from the issuance of 263,551 shares of common stock as common-stock
dividends.
On December 31, 1930, there were 24,142 stockholders of all classes after
eliminating duplications where a stockholder held more than one class of stock.
On December 31, 1931, there were 26,030 stockholders of all classes, after elimi­
nating duplications.
Appended is a certificate of audit of the company’s books and accounts, a
balance sheet, income account, surplus accounts, and a schedule of the securities
owned, showing cost and market value on December 31, 1931, submitted after
an examination by Touche, Niven & Co., certified public accountants.
By order of the board,
S a m u e l I n s u l l , Jr., President.

& Co.,
Chicago, February 10, 1982.
To the Chairman and Board of Directors, Corporation Securities Co. of Chicago:
We have examined the books and accounts of Corporation Securities Co. of
Chicago and its wholly owned subsidiary, Corporation Syndicates (Inc.), for
the year ended December 31, 1931, and certify that the accompanying consoli­
dated balance sheet, income and surplus accounts, in our opinion, set forth the
financial condition of the combined companies at December 31, 1931, and the
result of their operations for the year then ended on the basis indicated therein.
All securities held by the company, as detailed on accompanying summary of
investments, were produced for our inspection or otherwise accounted for.
T o u c h e , N i v e n & Co.
T o u c h e , N iv e n

Balance sheet of the Corporation Securities Co. of Chicago and Corporation
Syndicates {Inc) for the year ended December 81, 1981
c o n s o l id a t e d

in c o m e

and

expenses

Income:
Cash dividends__________________ _____ $1,853,081.48
Stock dividends at market value when re­
ceived_________________________________ 3, 424, 801.
Interest earned__________________________
187, 448.
Rights on hand taken up at subsequent
sale price______________________________
143, 581.
Commissions earned______________________
41, 709.
Sale of rights____________________________
1, 472.
Total......................................... ....................



58
31
75
06
62

5,652,094.80

STOCK EXCHANGE PRACTICES
$236, 036. 17
----------------------Expenses_____________________________________________________

1447

Deduct losses from sale of securities__________

$5, 416, 058. 63
559, 446. 93

Net income before interest charges_____________________
Interest charges:
Interest on serial gold notes______________ 1, 379, 742. 92
Other interest charges____________________
907, 498. 75
_______ !_______

4, 856, 611. 70

Net income for year___________________________________

2, 569, 370. 03

_
2, 287, 241. 67

CONSOLIDATED EARNED SURPLUS ACCOUNT

Balance, Jan. 1, 1931_________________________________________
Net income for year__________________________________________

4, 492, 603. 86
2, 569, 370. 03

Total_________________________________________________
Deduct dividends paid:
$3 optional preferred stock—
Paid in cash_________________________ $1, 819, 685. 00
Paid in common stock at the rate of 10
shares for every 100 shares per an­
num, 70217%oo shares, at $5 per
3, 514. 36
share_____________________________

7, 061, 973. 89

Total___________________ __________ 1, 823, 199. 36
Common stock— Paid in common stock at
the rate of 6 shares for every 100 shares
owned per annum, 252,054%oo shares, at
$5 per share___________________________
1, 260, 270. 13
v
___ !____!_______
Balance, Dec. 31, 1931________________________________

_
..
3, 083, 469. 49
3, 978, 504. 40

CONSOLIDATED CAPITAL SURPLUS ACCOUNT

Balance, Jan. 1, 1931_________________________________________
Add: Adjustment of organization expense pre­
viously charged to capital surplus__________________________

31, 730, 104. 86

Total__________________________________________________
Deduct:
Discount and expense on serial gold notes. $1, 209, 860. 99
Realized loss on purchase and sale of com­
pany’s own securities__________________
150, 966. 12
Write-down of company’s own securities
purchased and on hand to market value,
Dec. 31, 1931__________________________ 4, 467, 437. 03
Reserved against notes and accounts re­
ceivable from affiliated companies and
others_________________________________
573, 935. 48
Reserved against investment securities
loaned to affiliated companies__________
538, 471. 37

31, 731, 810. 26

Total__________________________________
Less amount previously reserved for con­
tingencies______________________________

1, 705. 40

6, 940, 670. 99
750,000.00
_______ !_______

6, 190, 670. 99

Balance, Dec. 31, 1931____________ ____________________

25, 541, 139. 27

ASSETS

Cash_________________________________________________________
Notes and accounts due from affiliated com­
panies and others_________________________
$1, 028, 060. 46
Less reserve____________________________
573, 935. 48
------------------------Interest and dividends receivable_____________________________



1, 092, 717. 54

454, 124. 98
136, 706. 24

1448

STOCK EXCHANGE PRACTICES

Investment securities:
Unpledged--------------------------------------------$4, 591, 238. 78
Pledged________________________________
136, 185, 839. 77
Loaned to affiliated companies__________
1, 536, 953. 03
3, 141, 674. 07
Syndicate participations________________
Total_________________________________ 145, 455, 705. 65
Less reserve against loaned securities____
538, 471. 37
------------------------- $144,917,234. 28
rriru
+
i +
,
(The aggregate market value of the
above securities at Dec. 31, 1931,
amounts to $33,970,252.09)
Company’ s own securities at market value,
Dec. 31, 1931:
482, 099. 69
214,265.53 shares common stock________
19,725 shares preferred stock____________
93, 693. 75
$700,000 5 per cent serial gold notes due
140, 000. 00
1934_________________________________
Of the above there are:
^
Unpledged-............................. ......................
334, 357. 86
P l e d g e d - _______ ________ ______ ______
381, 435. 58
Total____________________________ ____
715, 793. 44
Borrowed securities at market value, Dec. 31, 1931, per contra,
pledged......... ........................................................ ............................
6, 326, 112. 25
Deferred charges____________________________________________ _
207, 456. 24
Total........................................................................................... 153, 850, 144. 97
LIABILITIE S

Bank loans, secured________________ ______ __________________
Notes and accounts payable, partly secured___________________
Accrued interest payable_____________________________ _______
Purchase contract liabilities, due 1933-34_____________________
Liability under syndicate participations............... ...................... ..
Liability to deliver borrowed securities at market value Dec.
31, 1931, per contra, partly secured_________________________
Deferred profits on undelivered stock sales____________________
Serial gold notes (authorized $40,000,000):
Issued__________________________________ $32,033,000.00
Less matured and retired________________
8, 000“ 000. 00
,
------------------------Common stock scrip unconverted_____________________________
Capital stock:
Prior preferred, no par— AuShares
thorized___________________ 1, 000, 000
$3 optional preferred 1929
series, no par—
Authorized______________ 1, 000, 000
Less issued and converted
into common stock____
37, 153
962, 847
Issued and outstanding. __
748,481
=
=
Common, no par—
Authorized______________ 6, 000, 000
Reserved for conversion
of preferred stock_____ 1, 122, 722
Total. _ ........................... 4,877,278
Issued__________________ 4, 560, 004 22, 800, 018. 75
Less held in treasury for
exchange of scrip_____
22, 041
----------------110, 203. 75

15, 750, 000.
14, 491, 502.
390, 633.
759, 500.
2, 331, 325.

00
29
33
00
34

6, 326, 112. 25
24, 359. 34

24, 033, 000. 00
110, 203. 75

37, 424, 050. 00

22, 689, 815. 00
Issued and outstanding. _ 4, 537, 963
Surplus:
Capital surplus paid in, reduced to _______
Earned surplus_________________________

25, 541, 139. 27
3, 978, 504. 40

29, 519, 643. 67
Total. . ............................................... .................................... .. 153, 850,144. 97



1449

STOCK EXCHANGE PEACTICES

( N o t e .— In addition to the above liabilities, there is a contingent liability aris­
ing out of a 15 per cent interest in an unclosed stock syndicate, which, if liquidated
as of Dec. 31, 1931, would show a loss to the company of $679,394.85. Dividends
have not been accrued on the $3 optional preferred stock, 1929 series, for the
months of November and December, 1931.)

Corporation Securities Co. of Chicago and Corporation Syndicates (Inc.) consolidated
summary of investments December 31, 1931
Shares
B ook value
Pledged

Central and South W est Utilities
Co. common stock (M iddle
West Utilities Co. subsidiary). .
30,718
Commonwealth Edison Co., cap­
63,834
ital stock.................. ........ ............
Insull Utility Investments (In c.):
949,464
Comm on stock_______ ______
$6 preferred stock, second
95,626
series................ . ..................
29,899
$6.50 prior preferred stock____
M iddle West Utilities Co.:
C omm on stock........................ . 1,618,283
$6 convertible preferred stock
32,397
series A .......... - ............ ..........
M idland United Co., com m on
stock__________ ________________
N orth American Light & Power
8,625
Co., com m on stock____________
T he Peoples Gas Light & Coke
34,807
Co., capital stock................. .......
Public Service Co. of Northern
Illinois:
13,782
Comm on stock................ .........
334
6 per cent preferred stock____
108
7 per cent preferred stock____
Public Service Trust, participa­
tion certificates, $50 par value. . .
Second Utilities Syndicate (Inc.),
capital stock________ _________
Miscellaneous investments:
Pledged________________
Loaned..... ............ ............
Unpledged_______ _____
Total.
Grand total.

Un­
pledged

Loaned

Market value
Dec. 31,1931

Total

30,718

$572,187.30

$153,590.00

63,834

20,345,060.27

7.596.246.00

949,464

48.124.609.07

5, 578,101.00

95,626
29,899

8,322,985.30
2,480,506.32

1.386.577.00
448.485.00

23,000 1,646,517

38.766.202.07

9.879.102.00

40,220

3,978,159.03

1, 538,415.00

1,031

1,031

26,578.82

6,186.00

212

8,837

536,024. 22

220.927.00

34,807

10, 221,403.91

4.107.226.00

13,782
334
108

4,046,460.64
43,023.02
14,710. 21

1,783,850.00
35.070.00
11.556.00

5,000

5,000

1,335,180.00

2,500

2,500

577,040. 00

(0
i 121,100.00

5,234
4,823

3,000

111,804.93
721,669.00
5, 232,101.54
6,065,575. 47
145,455,705. (

1,103,821.09
33,970, 252.09

1 Market value, based on liquidating value.

Mr. P ecora . N ow let me ask you-----Senator B rookhart (interposing). Mr. Insull, how do you explain
that discrepancy in the report to the public and the income-tax
return?
Mr. I nsull . Well, Senator, in the first place, I do not attempt to
explain income-tax figures because I know nothing about income tax
at all. As to the published report, all that I know is this, that it is
certified to by independent, outside auditors, and I, therefore, have
reason to believe it is correct as stated.
Senator B rookhaet . Is the income-tax return incorrect, then?
Mr. I nsull . N o. As I have stated, I hesitate to say anything
about an income-tax return.
Senator B rookhart . Well, It seems to me it is impossible for both
of these to be correct.
Mr. I nsull . Well, I am not an accountant, and while I am not
trying to dodge your question, I just don’t know.



145 0

STOCK EXCHANGE PRACTICES

Senator B rookhart . On the one hand, there is shown in the pub­
lished report a profit of over $2,000,000, while the income-tax return
shows a loss, as I understand it.
The C hairman . Well, you are an officer in this company, or were?
Mr. I nsull . Yes, sir.
The C hairman . Do you know whether the company operated that
year at a profit or a loss?
Mr. I nsull . Well, if I am right-----The C hairman (interposing). No, my question is this: Do you
know whether it operated then at a profit or a loss?
Mr. I nsull . Yes, sir. Here is the statement.
The C hairman . Well, which was it, a profit or a loss?
Mr. I nsull. It operated at a profit as certified to by the independ­
ent auditors.
The C hairman . And yet it seems to have been returned for incometax purposes as a loss.
Mr. I nsull . If that is the tax return; yes, sir.
The C hairman . And you do not know about that?
Mr. I nsull . No, sir.
The C hairman . Well, we will go into that further.
Mr. P ecora . That is all at tins time on that. Now, Mr. Insull,
were yon a member of the finance committee of Insull Utility Invest­
ments (Inc.)
Mr. I nsull . Yes, sir.
Mr. P ecora . And the finance committee met at almost weekly
intervals?
Mr. I nsull . Yes, sir.
Mr. P ecora . Mr. Chairman, may I ask at this point that this
photostatic copy of the income-tax return be spread on the record?
The C hairman . There being no objection, it is so ordered.
(The photostatic copy of the Corporation Securities Co. of Chicago
tax returns for 1931 is marked “ Exhibit No. 3,” and will her be
printed as a part of the record.)
E xhibit No. 3
C orporation I ncombs T a x R eturn

for

C alendar Y ear 1931

Corporation Securities Co. of Chicago, 72 West Adams Street, Chicago, 111.
Date of incorporation: October 5, 1929.
Under the laws of what State or country: Illinois.
Kind of business: Investments.
Is this a consolidated return of two or more corporations? Yes.
If so, how many? Two.
g ro ss i n c o m e

5. Interest on bank deposits, notes, mortgages, and corporation
bonds___________________________ ______ _____ _____ _____ _ $187,448.31
8. Profit from sale of real estate, stocks, bonds, and other capital
assets (from Schedule B) (loss)___________________________
804, $68.11
9. Dividends on stock of domestic corporations________________ 1, 853, 081. 48
10. Other income (including dividends received on stock of foreign
corporations). (State nature of incom e):
(а) Profit from syndicate participations____________________
6, 379. 30
(б) Commission earned on notes___________________________
41, 709. 06
11. Total income in Items 3 to 10_______________________________ 1, 784, 355. 04




1451

STOCK EXCHANGE PRACTICES
DEDUCTIONS

12.
13.
15.
16.
19.
22.

Compensation of officers (from Schedule C )____________ :____
$8, 623. 92
5, 549. 64
Rent on business property__________________________________
Interest____________________________________________________ 2,287,241.67
Taxes (from Schedule E )___________________________________
57, 387. 55
Dividends (from Schedule H )_______________________________ 1, 853, 081. 48
Other deductions not reported above. (Explain below, or on
separate sheet): (c) Other deductions____________________ 1, 036, 091. 59

23.

Total deductions in Items 12 to 22___________________ 5, 247, 975. 85

24.

Net income (Item 11 minus Item 23) as per Schedule A
attached (loss)____________________________________ 3, 468, 620. 81
COMPUTATION OF T A X

25. Net income (Item 24 above) (loss)__________________________ 8, 468, 620. 81
C
S chedule

o r p o r a t io n

S e c u r it ie s C

o.

of

C

h ic a g o

A.— Consolidated income account supporting Form 1120, calendar
year, 1981
Corporation
Securities
Co. of
Chicago

Corporation
Syndicates
(Inc.)

$187,448.31
1 240,942.85
1,853,081.48

i $63,320.26

Gross income:
Profit and loss from sale of securities (Schedule B ).............
Dividends on stock of domestic corporations........................
Other income:
Profit from syndicate participations................ ................... .

> 63,320.26

Deductions:
Compensation of officers (Schedule C ) ...................................

8,623.92
5,549.64
2,287,241.67
57,377. 55
Cash dividends on stock of domestic corporations............... 1,853,081.48
1,036,091.59

$187,448.31
i 304,263.11
1,853,081.48
6,379.30
41,709.06

6,379.30
41,709.06
1,847,675.30

Intercom­
pany elimi­
nations—
Consolidated

10.00

1,784,355.04
8,623.92
5,549.64
2,287,241.67
57,387.55
1,853,081.48
1,036,091. 59

5,247,965. 85

10.00

5,247,975. 85

i 3,400,290.55

Total deductions_________ _______________________ _____

i 63,330.26

i 3,463,620.81

1 Loss.
Schedule

B.— Profit and loss from sale of securities supporting Form 1120,
calendar year 1981
Date ac­
quired

Description
Corporation Securities Co. of Chicago:
60,492 shares M iddle W est Utilities Co.

f
<
{

1929
1930
1931

Am ount re­
ceived

Cost

I
} $5,575,310.46 $5,817, 725.93
I

3,399 stock subscription rights, Common-

Profit or
loss

1 $242,415.47

1930

40.788.00

40,363.13

424.87

1930

32.660.00

31,843. 50

816. 50

3,266 stock subscription rights, Peoples Gas
370 stock subscription rights, Public Service

Corporation Syndicates (Inc.): 68,64313f£oo shares
Corporation Securities Co. of Chicago (com1931

i Loss.



6,243.75

6,012.50

231.25

5,655,002.21

1930

5,895,945.06

1 240,942.85

1,300,538.01

1,363,858.27

1 63,320.26

1452

STOCK EXCHANGE PRACTICES

S chedule

C.— Compensation of officers supporting Form 1120, calendar year, 1931

Name

P. J. M cE n roe,..............................
John F. O’ Keefe.............................
____________________

Official title

Tim e de­
voted to
business

Shares of stock
owned—
Comm on Preferred

Vice president.................. Part...........
Secretary and treasurer— . . . d o ...........
Assistant secretary and
assistant treasure.
W . R Irwin
Auditor....... ....................... .. . d o ______

948
111

$4,080.00
1,879.92
744.00
1,920.00
8,623.92

Total_____________ _______

Schedule

200
100

A m ount of
com pen­
sation

22 (c).— Other deductions supporting Form 1120, calendar year 1931

Advertising____________________ _______ ________________________
Alterations_____________________________________________ _______
Commissions_________________ _________________________ _______
Directors’ fees______ _____________________________ . _____________
Expense on notes__________________________________________ ____
Dividend expense______________________________________________
Executive committee fees_______________________________________
Expense of New York office_________________ ___________________
Expense of stockholders’ meetings_____________ ______ __________
Insurance______________________________________________________
Legal and auditing_____________________________________________
Miscellaneous__________________________________________________
Office salaries_________________________________________________ _
Periodicals and financial services______________________________ _
Printing and postage___________________________________________
Registrar fees and expenses____ ________________________________
Stock expense__________________________________________________
Telephone and telegraph_______________________________________
Transfer fees and expenses__________________________ _______ ___
Trustee fees and expenses______________________________________
Office supplies__________________________________________________
Amortization of discount and expense on serial gold notes_______

$28,435.68
154. 08
178, 681. 50
380. 00
3, 834. 72
45, 230. 44
540. 00
1, 166. 67
14, 937. 45
1, 931. 26
20, 515. 00
2, 247. 00
19, 935. 95
412. 84
965. 86
27, 341. 20
29, 841. 39
845. 64
90, 508. 43
835. 00
2, 530. 77
564, 820. 71

Total____ ___________ _____ ______________________________ 1,036,091.59
S chedule

K - l . — Consolidating

balance sheet, December 31, 1930, supporting
Form 1120, calendar year 1931
Corporation
Securities Co.
of Chicago

Corporation
Syndicates
(Inc.)

Cash______ ______ ________________ _____ _
$7, 233,875.32
Notes and accounts receivable......... ........... .
1,607,706.12
Investment securities.............. ......................... 140,696,328.70
Unamortized debt discount and expense___
1,134,860.99
Prepayments.....................................................
27,863.80
Furniture and fixtures.......... ..........................
463.82

$49,999.00

Intercom­
pany elimi­
nations

Consolidated

ASSETS

Total assets............. ..............................

150. 701,098. 75

i $40,000.00
1 10,000.00

49,999.00

150,000.00

40,000.00

i 40,000.00

10,000.00

i 10,000.00

$7, 283,874.32
1,567, 706.12
140,686,328.70
1,134,860.99
27,863.80
463.82
150,701,097.75

XJABILITIES

Notes payable____________________________
Account payable......... . ......................... - ........
Interest accrued_______ ___________________
Dividends accrued____________ __________
Purchase contract obligations.........................
Serial gold notes payable_______ ______ ____

15.881.745.00
29,228. 50
502,874.90
374,240.50
7,992, 280.00
30,000,000.00
41,709.06
750,000.00

Reserve for contingencies.................. ..............
Capital stock:
Preferred..................................................... 37.424.050.00
Comm on_______ _______________________ 21,412,340.02
69,922.05
Comm on stock scrip unconverted........
Capital surplus................................................
31,730,104.86
Earned surplus....... ..........................................
4,492,603.86
T otal liabilities....................................... 150,701,098.75

i Loss.




1 1.00
49,999.00

> 50,000.00

15.881.745.00
29,228.50
502,874.90
374,240. 50
7,992,280.00
30,000,000.00
41, 709.06
750,000.00
37.424.050.00
21,412,340.02
69, 922.05
31,730,104.86
4,492,602.86
150,701,097.75

1453

STOCK EXCHANGE PRACTICES
S chedule

K -2. — Consolidating balance sheet, December 31, 1931, supporting form
1120, calendar year 1931
Corporation
Securities Co.
of Chicago

Corporation
Syndicates
(Inc.)

ASSETS
Cash----------- ---------------------------------------------$5,914.00
$1,086,803. 54
Notes and accounts receivable.......................
1,028,060.46
Interest and dividends receivable_________
148,372.91
Investm ents....................................................... 145,807,213. 51 3,023,928.89
Furniture and fixtures....................... - ............
463.82
TJnamortized debt discount and expense—
133,250.00
Prepayments and deferred charges...............
73,742.42
Advances to affiliated com p a n y .. . ........ .......
516,602.50
Investment in affiliated com pany_________
10,000.00
Total assets........................ ............ ........
LIABILITIES

148,804,509.16

Serial gold n otes._______ _________________
Notes payable------------------ ------------------------Accounts payables_______________ _________
Purchase contract obligations_____________
Liability on account of syndicate participa­
tions...................... ............ ..............................
Interest accrued_____ ___________ _________
Deferred profits on undelivered stock sales.
Advances from affiliated com pany..............
Reserves:
Against accounts and notes receivable..
Against investment securities loaned.. .
For com pany’s own securities held b y
subsidiary__________________________
For loss on sale of com pany’s own stock
b y subsidiary........................................
Capital stock:
Preferred s to c k ................ .................... .
Common s to c k ..._________ ___________
Paid-in surplus___________________________
Earned surplus............ .......................... ..........

24,033,000.00
27,269,851.25
445,921. 24
759.500.00

Total liabilities................ .......................

148,804,509.16

Schedule

3,029,842.89

Inter­
com pany
eliminations

me,60s. 60
10,000.00

586,602.60

516,602. 50

$1,092, 717.54
1,028,060.46
148,372.91
148,831,142.40
463.82
133, 250.00
73,742.42

151,307,749. 55
24,033,000.00
27, 269,851.25
2,971,651.04
759.500.00

2,525,729.80

2,331,325.34
402.300.00
24,359.34

Consolidated

516,60S. 60

2,331,325.34
402.300.00
24,359.34

573,935.48
538,471. 37

573,935.48
538,471.37

2,659,643. 31

2,659,643.31

63,320.26
37,424,050.00
22,800,018.75
25,541,139.27
3,937,673. 55

10,000.00

10,000.00

3,029,842.89

6i6,609.60

63,320.26

37,424,050.00
22,800,018.75
25,604,459.53
3,915,184.14
151,307,749.55

L.— Reconciliation of net income and analysis of changes in surplus
supporting Form 1120, calendar year 1931
Corporation
Securities Co.
of Chicago

Corporation
Syndicates
(Inc.)

N et taxable income (Schedule A ) . . .............. 1 $3,400,290.55
Additions:
Cash dividends on stocks of domestic
corporations..
1,853,081.48
Stock dividends receiv ed ................ .......
3,424,801.58
Subscription rights taken into income
at market value (not sold in 1931)____
143, 581.75
Amortization of discount and expense
on serial gold notes applicable to 1931
(entire unamortized portion was
charged to capital surplus)........ ..........
564,820.71
Total additions.......................................
5,986,285.52
Balance............................... .......... ...................
2,585,995.97
Deductions:
Donations.............. ............................. .......
12,863.80
Federal tax on interest..............................
3, 750.14
Total deductions__________ _____ ___
16,613.94

i $63,330. 26

Net income as shown b y books of
account___________________________
Surplus, Jan. 1,1931_________________

2, 569,381.03
4,492,603.86

Total________ _______ _________ ____

7,061,984.89

40,841.85

Intercom­
pany elim­
inations

Consolidated
1 $3,463,620.8

i $40,841.85

1,853,081.48
3,424,801.58
143,581. 75

40,841.85

i 40,841.85

564,820.71
5,986,285.52

i 22,488. 41

> 40,841.85

2,522,664. 71
12,863.80
3,750.14
16,613.94

i 40,841.85

2, 506,050. 77
4,492,602.86

i 40,841.85

6,998,653.63

1 40,841.85

i 22,488.41
1.00
22,489. 41

1,823,199. 36
1, 260,270.13

Deduct dividends paid:
1,823,199.36
1,301,111.98
T otal.......................................................
Surplus, Dec. 31, 1931..... .....................

1Loss.




3,124, 311. 34
3,937,673. 55

1 40,841.85
i 22,489.41

3,083,469. 49
3,915,184.14

1454

STOCK EXCHANGE PRACTICES
A

f f il ia t io n s

S chedule

(To be filed with each consolidated return (see article 12 (c) of regulations 75)
I
Taxable year ended December 31, 1931.
Parent corporation: Corporation Securities Co. of Chicago.
Address: 72 West Adams Street, Chicago, 111.
The information required below must be submitted for all corporations which
are affiliated. This includes all corporations in which at least 95 per cent of the
stock is owned directly by the parent corporation, and in which an aggregate of
at least 95 per cent of the stock is owned directly by the parent corporation
and/or one or more of the other corporations the income of which is included in
the consolidated returns. See section 141 of the revenue act of 1928, and articles
711 to 715 of regulations 74 and articles 1 to 16 of regulations 75.

Nam e and address of
corporation

Parent corporation: Cor­
poration Securities Co.
of Chicago.
Subsidiary corporation:
C orp oration S yn d i­
cates (Inc.), 72 W est
Adams Street, Chicago,
HI.

State or
country
Date o f incor­ in which
poration
incor­
porated

Oct. 5,1929

Stock holdings at beginning
of year
Capital stock out­
standing at begin­
ning of y e a r 1

N um ber
of shares

Owned
b y cor­
poration
N o.—

Per
cent

5,058,918-82/200 shares
having no par value.

Mar. 12,1930 . . . d o ____ 2,000 shares, no par
value.

2,000

i

100

i A ll classes of stock outstanding must be shown except nonvoting stock which is both lim ited and pre­
ferred as to dividends. Information relative to the nature of the limitation, and preference as to dividends,
should be furnished below regarding all classes of nonvoting stock not shown. If any corporation was not
in existence at beginning of the year, show stock outstanding at date issued.
3 It is not necessary to show the number of shares and stockholders of parent corporation.

Changes in stock holdings during the year:
No change.
We, the undersigned, president and treasurer of the parent corporation, being
severally duly sworn, each for himself deposes and says that the above information
and statements have been examined by him and are, to the best of his knowledge
and belief, true and complete for the taxable year as stated.
[ s e a l .]

P. J.

M

cE n r o e

,

President.
John

F. O ’K

eefe

,

Treasurer.

Mr. P e c o r a . Now, Mr. Insull, look at this pamphlet entitled
“ Report of Corporation Securities Co. of Chicago for the Fiscal
Year Ended December 31, 1930.” And tell us if you recognize that
as a published statement of that company.
Mr. I n s u ll. Yes, sir.
Mr. P e c o r a . And according to that report was there a profit or
a loss on its business operations for the year 1930?
Mr. I n s u ll. Yes; on page 11, and I think that is the right page,
there is shown net income for the year, according to the statement
of Touche, Niven & Co., public accountants, of $8,006,804.05.
Senator B r o o k h a r t . That was certified by those outside account­
ants?
Mr. I n s u ll. Yes, sir.
Senator B r o o k h a r t. And, of course, they got their information
from the books and officers of the company, didn’t they?




1455

STOCK EXCHANGE PRACTICES

Mr. In s t jll. Well, they made a direct examination—well, I did
not participate in it, but my understanding is, and possibly this will
answer your question [reading]:
We have examined the books and accounts of Corporation Securities Co. of
Chicago.

Now, I take that as meaning that they made their own examina­
tion of the books direct.
Senator B r o o k h a r t . And the company’s records showed this profit
of $8,000,000?
Mr. I n s u ll. Yes, sir.
Mr. P e c o r a . Mr. Chairman, I now ask that this report may be
made a part of the record.
The Chairm an. Without objection, it is so ordered.
(Thereupon the printed pamphlet entitled “ Report of Corporation
Securities Co. of Chicago for the Fiscal Year Ended December 31,
1930,” was marked “ Exhibit 4,” and will be printed at this point
in the record:)
E
R

eport

of

C

o r p o r a t io n

E
NOTICE

x h ib it

S e c u r i t i e s Co.
D ecem ber

nded
of

annual

4
of

C

h ic a g o

.,

for

the

F is c a l Y

ear

31, 1930

m e e t in g

of

stockh olders

The stockholders of Corporation Securities Co. of Chicago, are hereby notified
that the annual meeting of the stockholders of said corporation will be held at the
Civic Theater, southwest corner of Wacker Drive and Washington Street, in the
city of Chicago, 111., on Monday, the 16th day of February, 1931, at 12 o ’ clock
noon, the time fixed by the by-laws of said corporation, for the purpose of the
election of members of the board of directors and the transaction of any and all
other business which may properly be brought before said meeting.
All stockholders and allotment certificate holders are requested to be present
at such meeting in person or represented by proxy.
Allotment certificate holders are hereby notified that the Northern Trust Co.,
depositary of the capital stock represented by the allotment certificates, has de­
posited with the secretary of the corporation a duly executed proxy constituting
the allotment certificate holders its proxies to represent and vote the shares of
stock represented by the allotment certificates held by such allotment certificate
holders, respectively, on January 28, 1931, the date fixed by the board of directors
of Corporation Securities Co. of Chicago for closing the transfer books of allot­
ment certificates, and giving to said allotment certificate holders the right to
appoint substitute proxies in their stead. For such purpose a form of proxy is
herewith inclosed, and all allotment certificate holders who do not expect to be
present in person are requested to sign the inclosed proxy and return it to the
corporation in the envelope inclosed for the purpose.
Under the provisions of the proxy of the Northern Trust Co., in the event
that any stock represented by allotment certificates is not represented at said
meeting by the holders of such certificates in person or by proxy, such stock may
then be voted by its alternate proxies, Samuel Insull, H. L. Stuart, and Samuel
Insull, jr., or any of them then and there present.
Stockholders of record at the close of business on Wednesday, January 28,
1931, will be entitled to vote at such meeting. After said date transfer of stock
or allotment certificates on the books of the corporation will not be permitted prior
to said meeting.
J o h n F. O ’ K e e f e , Secretary.
Board of directors: Samuel Insull, Samuel Insull, jr., C. W. Sills, H. L. Stuart,
Stanley Field, C. B. Stuart, Martin J. Insull, Edward F. Swift, F. K. Shrader,
Edward J. Doyle, John H. Gulick.
Executive committee: Samuel Insull, H. L. Stuart, Martin J. Insull, Samuel
Insull, jr.
Officers: Samuel Insull, chairman; Samuel Insull, jr., vice chairman; H. L.
Stuart, president; Martin J. Insull, vice president; C. W. Sills, vice president;




1456

STOCK EXCHANGE PRACTICES

P. J. McEnroe, vice president; John F. O’ Keefe, secretary and treasurer; C. W.
Daniels, assistant secretary and assistant treasurer; W. J. McEUigott, assistant
secretary.
Registrar of stocks and allotment certificates: Central Trust Co. of Illinois,
Chicago, 111.; The Chase National Bank, New York City, N. Y.
Transfer agent of stocks and allotment certificates: Northern Trust Co.,
Chicago, 111.; Central Hanover Bank & Trust Co., New York City, N. Y.

To the stockholders of Corporation Securities Co. of Chicago:
The board of directors submits this annual report of the affairs of the company
for the fiscal year ended December 31, 1930.
The income, expenses, and earned surplus for the fiscal period were as follows:
Income------------------------------------------------------------------------------------ $9, 685, 399. 94
Expenses______________________________________________________
621, 835. 79
Net income before interest charges______________________
Interest charges:
Interest on serial gold notes_______________
$393, 389. 64
Other interest charges_____________________
663, 370. 46
------------------------

9, 063, 564. 15

Net income for the year________________________________
$3 optional preferred stock, dividends paid and
accrued:
2,122, 967. 01
In cash___________________________________
In common stock at the rate of 10 .shares for
every 100 shares per annum— 934 shares,
at $5 per share__________________________
4, 670. 00
------------------------

8, 006, 804. 05

Total___________________________________________________
Common stock dividend at the rate of 6 shares for every 100
shares per annum— 183,3316%oo shares, at $5 per share______

5, 879, 167. 04

Surplus income for the year___________________________________
Appropriated to reserve for contingencies______________________

4, 962, 510. 57
750, 000. 00

Total_______________ ________ ______ _______________ ____
Surplus, Dec. 31, 1929_________________________________________

4,212,510.57
280, 093. 29

1, 056, 760. 10

2, 127, 637. 01

916, 656. 47

Surplus, Dec. 31, 1930_________________________________________ 4, 492, 603. 86
It will be noted from the foregoing figures that after deducting the dividend
requirements on the $3 optional preferred stock, 1929 series, amounting to
$2,127,637.01, the balance of income available for common stock amounted to
$5,879,167.04, which is equivalent to $1.55 per share on 3,791,027 shares of
common stock, the average number of shares outstanding during the year.
By reference to the above income and surplus account, it will be seen that there
was appropriated out of the year’s earnings a reserve of $750,000 for contingencies.
The company made arrangements for the temporary financing covered by the
notes payable of $15,881,745 secured by pledged securities at cost of $29,524,592.05
as shown by the balance sheet, pending permanent financial arrangements.
In the accounts of the company for the year, stock dividends received have
been taken at the market value on the day received, and stock rights received,
if sold, have been taken at the amount realized and, if exercised or held to be
exercised, at no value. On this basis securities held in the investment account
of the company on December 31, 1930, had an aggregate book value of
$140,696,328.70 and an aggregate market value of $95,448,578.96. On February
11, 1931, the same securities had an aggregate market value of $133,200,054.60.
During the year the company acquired substantial blocks of stock of Insull
Utility Investments (Inc.), Commonwealth Edison Co., Central and South
West Utilities Co., Middle West Utilities Co., Midland United Co., The Peoples
Gas Light & Coke Co., and Public Service Co. of Northern Illinois, all of which
are under the same general management as this company. The company was
organized for the specific purpose of acquiring and holding securities of the




STOCK EXCHANGE PEACTICES

1457

above-named companies in order to insure continuity of the policy and manage­
ment that have been responsible for their success, and at the end of the year,
97.4 per cent of the portfolio of the company was represented by securities of
these companies.
This company and Insull Utility Investments (Inc.), are closely allied and in
their investment policies generally act together. This company with Insull Utility
Investments (Inc.), Public Service Trust, and Second Utilities Syndicate (Inc.),
(the latter two being owned jointly by this company and Insull Utility Invest­
ments, (Inc.)) owns 17.19 per cent of the outstanding stock of the Commonwealth
Edison Co.; 29.21 per cent of the outstanding stock of Middle West Utilities
C o.; 28.78 per cent of the outstanding stock of .the Peoples Gas Light & Coke
Co.; and 11.45 per cent of the outstanding stock of Public Service Co. of Northern
Illinois. As most of these corporations, the securities of which are so held, have
a substantial interest in North American Light & Power Co., it was considered
advisable for this company to add the securities of North American Light &
Power Co. to its portfolio. With all of these holdings this company and Insull
Utility Investments (Inc.), have an influential position in the ownership of the
outstanding public utility properties above mentioned. The value of this
intangible asset to this company is of great importance.
The company also acquired, during the year, a 25 per cent interest in Public
Service Trust, and a 25 per cent interest in Second Utilities Syndicate (Inc.),
the assets of which are made up of securities of the same corporations as those
in -which the funds of this company are invested. The income received through
these two acquisitions in the form of dividends during the year, amounting to
$94,000, is reflected in the statement of income appended hereto. These interests
were acquired from Insull Utility Investments (Inc.), in accordance with the
policy adopted by both companies of participating in new investments made for
their mutual benefit. The present policy is to divide investments so far as prac­
ticable between this company and Insull Utility Investments (Inc.), in the
ratio of 40 to 60.
On March 17, 1930, the board of directors authorized the issuance and sale of
1,250,000 shares of the common stock of the company. This issue was sold,
and the proceeds used for the acquisition of additional securities. At the time
o f this offering the common stock of the company was listed for trading on the
Chicago Stock Exchange.
During the year the company also sold 85,634 units, each representing one
share of $3 optional preferred stock, 1929 series, and one share of common stock,
represented by allotment certificates. The proceeds of the sale of the units were
used to liquidate indebtedness incurred in connection with the acquisition of
securities.
On March 22, 1930, the board of directors declared the first quarterly dividend
of 1% per cent on the common stock of the company, payable in common stock
to holders of common stock of record June 2, 1930. This dividend was paid on
June 20, 1930, and since then a similar dividend has been paid quarterly.
During the year the regular quarterly dividends have been paid upon the $3
optional preferred stock, 1929 series, and under the options given to the stock­
holders such dividends to the extent of $1,748,726.51 were paid in cash and the
remainder in common stock.
In September, 1930, the board of directors authorized an issue of $40,000,000
aggregate principal amount of serial gold notes, dated September 1, 1930, and
payable $8,000,000 September 1, 1931, with interest at 4}i per cent per annum,
and $8,000,000 on September 1 of each of the four succeeding years, with interest
at 5 per cent per annum. Notes of this issue to the aggregate principal amount
of $30,000,000 were sold, and the proceeds used in payment of accounts and notes
payable of the company.
Thirty-seven thousand one hundred and fifty shares of the $3 optional preferred
stock, 1929 series, had been converted into common stock as of December 31,
1930, leaving 748,481 shares outstanding.
The company does not hold any of its own securities in its treasury, except
the common stock represented by fractional scrip outstanding.
On June 11, 1930, the stockholders voted to increase ;the membership of the
board of directors of the company from 7 to 11 and elected Messrs. E. J. Doyle,
Stanley Field, John H. Gulick, and Edward F. Swift as the 4 additional directors.
On January 1,1930, the company had 4,425 holders of its allotment certificates
and on December 31, 1930, there were 24,142 holders of allotment certificates
and common stock of the company, after eliminating duplications where a stock­
holder held both.

119853—33—pt 5 -— 5




1458

STOCK EXCHANGE PRACTICES

On May 19, 1930, the offices of the company were moved from 201 South La
Salle Street and now occupy quarters with Insull Utility Investments (Inc.), at
72 West Adams Street, Chicago, 111. This arrangement adds to the economy of
operation and places both companies under the same management in all depart­
ments.
Appended is a certificate of audit of the company’s books and accounts, a
statement of income account for the year, a balance sheet and a schedule of the
securities owned, showing book value and market value on December 31,1930,
and market value on February 11, 1931, submitted after an examination by
Touche, Niven & Co., certified public accountants.
By order of the board:
S am u el I n s tjll,

Chairman.

F ebruary 14, 1931.
Touche, Niven & Co.,

Chicago, February 13, 1931.
To the Chairman and the Board of Directors,
Corporation Securities Co. of Chicago:
We have examined the books and accounts of Corporation Securities Co. of
Chicago for the year ended December 31,1930, and certify that the accompanying
balance sheet and relative statement of profit and loss and earned surplus account
have been correctly prepared therefrom.
The investments were actually counted or otherwise verified as at December 31,
1930. The list of investment securities appended hereto shows the book value,
market value as of December 31, 1930, and market value as of February 11,
1931; and
We report that, in our opinion, the foregoing balance sheet and relative state­
ment of profit and loss and earned surplus fairly set forth the financial condition
of the company at December 31, 1930, and the result of operations for the year
then ended.
T ouche, N iven & Co.

Statement of the Corporation Securities Co. of Chicago for the year ended December
31, 1930
income , expenses , and earned surplus
Income:
Cash dividends______________________________________________ $1, 914,
Stock dividends, taken in at market value at date of re­
ceipt_______________________________________________________ 5, 180,
Interest on bonds, notes, etc________________________________
335,
Profit on sale of securities___________________________________
137,
Profit on syndicate participations___________________________
560,
Sale of rights-------------------------------------------------------------------------1, 497,
Commissions earned_________________________________________
58,

489. 96
457.
745.
685.
966.
763.
290.

95
98
09
39
63
94

Total----------------------------------------------------------------------------------Expenses_________________________________________________________

9, 685, 399. 94
621,835.79

Net income before interest charges______ _______________________
Interest charges:
Interest on serial gold notes__________________ $393, 389. 64
Other interest charges________________________
663, 370. 46
----------------------

9, 063, 564. 15

Net income for the year__________________________________________
$3 optional preferred stock dividends paid and

8, 006, 804. 05

oapimipH*

-•

In cash____________________________________ _ $2,122, 967. 01
In common stock at the rate of 10 shares
for every 100 shares per annum, 934
shares at $5 per share____________________
4, 670. 00
------------------------Total............................................................... ..................................
Common-stock dividend on common stock at the rate of 6 shares,
for every 100 shares per annum— 183,331-58/200ths shares at
$5 per share____________________________________________________




1, 056, 760. 10

2,127, 637. 01
5, 879, 167. 04
916, 656. 47

STOCK EXCHANGE PRACTICES

1459

Surplus income for the year___________________________________ $4, 962, 510. 57
Appropriated to reserve for contingencies______________________
750, 000. 00
Total........................... ................................ ................................ 4, 212, 510. 57
Surplus, Deo. 31, 1929_________________________________________
280, 093. 29
Surplus, Dec. 31, 1930_________________________________________ 4, 492, 603. 86
ASSETS

Cash_________________________________________________________
7, 233, 875.
Notes and accounts receivable_________________________________
1, 607, 706.
Unamortized discount and expense on serial gold notes, etc___
1, 163, 188.
Investment securities:
Pledged (under temporary loans)________$29, 524, 592. 05
Unpledged______________________________ 97, 867, 936. 65
Under contract of purchase_____________
13, 303, 800. 00
------------------------- 140, 696, 328.
The aggregate market value of above Invest­
ment securities was:
95, 448, 578. 96
As of Dec. 31, 1930_____ _______________
As of Feb. 11, 1931_____ _______________ 133, 200, 054. 60
Total__________________ ______________ ____ ____________ 150, 701, 098.

32
12
61

70

75

LIA BILITIE S

Notes payable_______________________________________________
Accounts payable, including interest accrued__________________
Dividends accrued___________________________________________
Liability under contract of purchase (due 1931)_______________
Unearned commissions on loan_______________________________
Serial gold notes (authorized $40,000,000) outstanding________
Common stock scrip, unconverted— 13,984 s%oo shares________
Capital stock:

15, 881, 745.
532, 103.
374, 240.
7, 992, 280.
41, 709,
30, 000, 000.
69, 922.

00
40
50
00
06
00
05

Shares

Prior preferred, no par—
Authorized_____________
$3 optional preferred, 1929
series no par—
Authorized__________
Less issued and con­
verted into com­
mon_______________

1, 000, 000
1, 000, 000
37, 153
962, 847

Issued and outstand­
ing________________
748,481
Common, no par—
Authorized_______________
6, 000, 000
Reserved under option and
for conversion of pre­
ferred stock_________________ 1, 631, 061
4, 368, 939
Issued___________________
Less: Held in treas­
ury for exchange of
scrip______________

37,424,050.00

4, 296, 453 $21,482,262. 07
13, 985

69, 922. 05
4, 282, 468 --------------------Reserve for contingencies____________________________________
Surplus:
Capital surplus, paid in—
Balance Jan. 1, 1930,
reduced to _________ 3, 455, 827. 86
Net additions during
year_______________ 28,274,277.00
31, 730, 104. 86
Earned surplus__________________________
4, 492, 603. 86

21, 412, 340. 02
750, 000. 00

36, 222, 708. 72
Total___ ______ _________________ _____ - ...................... ..



150, 701,098.75

14 60

STOCK EXCHANGE PRACTICES

Corporation Securities Co. of Chicago, investment securities, December SI, 1980
Shares

Central & South W est Utilities C o., com m on
24,365
stock (M iddle W est Utilities Co. subsidiary)..
62,169
Commonwealth Edison C o.. capital stock............
Insull U tility Investments (Inc.):
893,432
Comm on stock.....................................................
91,814
$6 preferred stock.................................................
29,768
$5.50 prior preferred stock..................................
M iddle West Utilities Co.:
C om m on stock..................................................... 1, 511,196
80,993
$6 convertible preferred stock...........................
970
M idland United C o., com m on stock.....................
N orth American Light & Power C o., com m on
stock...........................................................................
7,984
T he Peoples Gas Light & Coke C o., capital
32,607
stock...........................................................................
P ublic Service Co. of Northern Illinois:
13,329
Com m on s to ck .......... ........................ ...............
6 per cent preferred stock...................................
334
108
7 per cent preferred stock...................................
Public Service Trust, $50 par value participation
5,000
certificates______________________ _____________
2,500
Second Utilities Syndicate (Inc.) capital s t o c k ..

Book value

Market value, M arket value,
Dec. 31,1930
Feb. 11,1931

$461,815.15
19,988,362.52

$414,205.00
13,739,349.00

$590,851.25
15,635,503.50

46,587,150.37
7,971,805.30
2,460,713.32

26,132,890.68
6,886,050.00
2,232,600.00

43,889,855.15
8,263,260.00
2,768,424.00

36,376,908.33
8,467,464.13
25,665.20

26,068,131.00
7,896,817.50
18,187.50

37,591,000.50
8,099,300.00
22,310.00

489,020.00

502,992.00

510,976.00

9,818,803.91

6,554,007.00

8,119,143.00

3,934,598.14
43,023.02
14,710.21

2,672,464.50
41,082.00
13,392.00

3,465,540.00
43,837.50
15,444.00

1,335,180.00
577,040.00

1692,250.00
1 373,325.00

U , 149,500.00
1 522,400.00

801,286.69

650,160.00

723,69a 00

29,106.51

29,400.00

31,150.00

1,313,676.00

79,600.00
119,400.00
332,275.78

318,400.00
398,000.00
1,041,469.70

140,696,328.70

95,448,578.96

133,200,054.60

BONDS

$774,000 Insull U tility Investments (In c.), 6 per
$35,000 Insull U tility Investments (in c.), 5 per
SUNDRIES

M iddle W est Utilities Co.:
Comm on stock purchase warrants, series A ..
Comm on stock purchase warrants, series B ~
Miscellaneous investments.......................................
Total...................................................................

79,600
79,600

__

Market value based on liquidating value.

Mr. P ecora . N ow , Mr. Insull, I show you a photostatic copy of
what purports to be the corporation income-tax return for the calendar
year 1930 of Corporation Securities Co. of Chicago, taken from a copy
of that report in the files at the company’s offices in Chicago. Will
you look at it and tell us whether it shows a profit or a loss; that
while the published report showed net earnings of over $8,000,000,
this does not return a loss of $788,786.29?
. Mr. I nsull . This report, which I can not identify, because I did
not make it up; that is, it has no signature on it that I can identify-----Mr. P ecora . I did not hear you.
Mr. I nsull . I say, this is a report which I can not identify because
I did not make it up, and because it has no signature on it. But I
have no reason to say that it is not what it purports to be. It shows
a net loss of $788,786.29.
Mr. P ecora . N ow, during the years 1930 and 1931, the period of
time covered by the published reports of earnings, and by these cor­
poration income-tax returns, was the Corporation Securities Co. en­
gaged in selling its stock to the public on the basis of the return of
earnings in the published statements?
Mr. I nsull . Yes, sir.
Mr. P ecora . And did the same thing occur with respect to the
stock of Insull Utility Investments Corporation during those two
years?
Mr. I nsull . That is, 1929 and 1930?



STOCK EXCHANGE PEACTICES

1461

Mr. P ecora . Yes.
Mr. I nsull . Yes. They sold stock to brokers from time to time,
who sold it to the public, and furnished statements of earnings.
Mr. P ecora . D on’t you know also in the case of Insull Utility
Investments Corporation the published reports to the public showed
net earnings for each of those years of millions of dollars, whereas
the income-tax returns showed a loss for each of those years?
Mr. I nsull . Well, the returns which you have just shown me
show losses as enumerated. So I take it to be that that is what the
income-tax returns showed.
Senator B rookhart . And you don’t know about that yourself?
Mr. I nsull . No, I do not.
Senator B rookhart . Y ou don’t know whether you paid an income
tax or not?
Mr. I nsull . No, sir. The treasurer would know that.
Mr. C ondon . Might I make a suggestion to Mr. Insull?
Mr. P ecora . No. Please don’t interrupt.
Mr. I nsull . I did not myself see the checks for payment of income
tax, and I do not have direct supervision over the accounting and
the -work of the treasurer.
Senator B rookhart . Wasn’t that a question of enough impor­
tance to be talked over by all of the executive officers?
Mr. I n s u ll. N o, sir. Quite frankly what would happen with that
was that the accountants and the lawyers would prepare the incometax return, and I do not know whether they furnished formal certifi­
cates and opinions as to its soundness or whether they furnished
verbal ones. But when the experts passed on it we took it as done.
Senator B rookhart . You might not know the details, but you
certainly would know the result, whether or not you had to pay any
particular income tax.
Mr. I nsull . I have read that the provision was made, and I
assume that the tax return was paid, but I merely do not want to put
myself in the position of testifying that something was done when
maybe it was not, something of which I have no direct knowledge.
Mr. P ecora . Mr. Insull, let me show you this pamphlet entitled
“ Report of Insull Utility Investments (Inc.), for the Fiscal Year
Ended December 31, 1930.” Please look at it and tell us if that is a
piece of literature put out publicly by the company as a report of is
operations during the year 1930.
Mr. I nsull . Yes, sir.
Mr. P ecora . And according to that report were there net earnings
or losses incurred by the company during that year of its operations?
Mr. I nsull . According to the certificate of Arthur Young & Co.,
accountants and auditors-----Mr. P ecora (interposing). No; according to that published report.
Mr. I nsull . Yes, sir; which includes Arthur Young & Co.’s
certificates, on page 10, there were net earnings of $10,343,072.24.
Mr. P ecora . N ow , Mr. Chairman, I should like at this point to
have placed in the record the photostatic copy of the corporation
income-tax return of Corporation Securities Co. of Chicago for 1930
and the printed report of the Insull Utility Investments (Inc.), for
the fiscal year ended December 31, 1930.
The C hairman . There being no objection it is so ordered.




14 62

STOCK EXCHANGE PEACTIOES

(The photostatic copy of corporation income-tax return for the
calendar year 1930 of Corporation Securities Corporation of Chicago,
marked “ Exhibit 5 ” will here be printed as a part of the record:)
E xhibit No. 5
C orporation I ncome-T a x R eturn

for

C alendar Y ear 1930

Corporation Securities Co. of Chicago, 72 West Adams Street, Chicago, 111.
Date of incorporation, October 5, 1929.
Under the laws of what State or country: Illinois.
Kind of business: Investments.
Is this a consolidated return or two or more corporations? Yes. If so, how
many? Two.
gross income

5. Interest on bank deposits, notes, mortgages, and corporation
bonds____________________________________________________
$353, 246. 18
8. Loss from sale of real estate, stocks, bonds, and other capital
assets (from Schedule B) (loss)____________________________
889, 951. 46
9. Dividends on stock of domestic corporations________________ 1, 580, 479. 09
10. Other income (including dividends received on stock of foreign
corporations). (State nature of incom e):
(a) Profit from syndicate participations_________________
610,714.89
(b) Commission earned on loan________________________
58, 290. 94
11.

Total income in items 3 to 10________________________ 2, 372, 779. 64
d e d u c t io n s

12.
13.
15.
16.
19.

20.
22.
2 3.
24.

Compensation of officers (from Schedule C )_________________
3, 817. 82
4,153. 03
Rent on business property__________________________________
Interest_________________________________ ____________ ______ 1,072,510.10
Taxes (from Schedule E )___________________________________
81, 571. 81
Dividends (from Schedule H )_______________________________ 1, 580, 479. 09
Depreciation (resulting from exhaustion, wear and tear, or
obsolescence) (from Schedule I ) __________________________
617. 80
Other deductions not reported above. (Explain below, or on
separate sheet): (c) Schedule attached____________________
418,416.28
Total deductions in items 12 to 22_________________ 3, 161, 565. 93
Net (loss) (item 11 minus item 23)_________________
c o m p u t a t io n

of

788, 786. 89

tax

25. Net income (item 24 above) (loss)___________________________
30. Total tax (item 28 plus item 29)_____________________________
33. Balance of tax (item 30 minus items 31 and 32)_____________
C orporation Securities Co.

of

788, 786. 89
None.
None.

C hicago

Schedule A.— Consolidating income statement supporting Form 1180— Calendar

year 1980
Corporation
Securities
Co. of
Chicago
'Gross income:
Interest received___________________________ $335,745.98
Profit and loss from sale of securities
(schedule B ) ..................................................... i 229,951.46
Dividends on stocks of dom estic corpora­
tions____________________________________ 1,881,931.45
Other income:
Profit from syndicate participations.............. > 310,966.39
Commission earnnri on loan
.
58,290.94
Total gross incom e.........................................

2,356,983.30

Corporation
Syndicates
(Inc.)

Intercom­
pany elim­
inations

$17,500.20

Consolidated

$353,246.18
*229,951.46
>$301,452.36

299,748.50
317,248.70

1,580,479.09
610,714.89
58,290.94

* 301,452.36

2,372,779.64

‘ T he books of account of Corporation Securities Co. of Chicago show the sum of $560,966.39 as profit
f rom syndicate participations. In preparing this return there has been deducted the sum of $250,000 which
was charged on the books to capital surplus. T he expenditure of $250,000 is directly applicable to a trans­
action in which Corporation Syndicates (Inc.) realized its profit of $299,748.50.
* Loss.




1463

STOCK EXCHANGE PRACTICES
C
S chedule

o r p o r a t io n

C o.

S e c u r it ie s

of

C

h ic a g o

— Continued

A .— Consolidating income statement supporting Form 1120— Calendar
year 1980— Continued
Corporation
Securities
Co. of
Chicago

Deductions:
Compensation of officers (schedule C )..........

Corporation
Syndicates
(Inc.)

$3,817.82
4,153.03
1,056,760.10
81,571.81

Intercom­
pany elim­
inations

Consolidated

$3,817.82
4,153.03
1,072,510.10
81,571.81

$15,750.00

Cash dividends on stocks of domestic cor1,580,479.09

8$301,452.36

1,881,931.45
Depreciation and amortization of alteraOther deductions (schedule 22)...... ................

617.80
418,368.94

617.80
418,416.28

47.34

Total deductions............. ..................... ......... 3,447,220.95

15,797.34

21,090,236.65

3,161,565.93

301,451.36

! 301,452.36

! 788,786.29

8 Loss.
Schedule

B .— Profit and loss from sale of securities supporting Form 1120—
calendar year 1930
Date
ac­
quired

Description

50 shares United Gas Im provem ent Co. com m on stock.
1 share Chicago N orth Shore & Milwaukee E . E . Co.
preferred stock...................... ..............................................
3,340 shares St. Louis & Southwestern E . E . Co. pre­
ferred s t o c k - ........................................................................
2,150 shares St. Louis & Southwestern E . E . Co. com­
mon stock. .........................................................................
34,146 shares Insull U tility Investments (Inc.), common
s to c k ...................................... ....................... ............ ..........
20,300 shares Peoples Qas, Light & Coke Co., capital
stock_____ _________ ________________________________
1,039 shares Commonwealth Edison C o., capital stock ..
Cities Service Co. d eb en tu res...........................................
63,208 stock subscription rights, Commonwealth E di­
son C o __________________ ____ ______________ _______
52,907 stock subscription rights, Peoples Gas, Light &
Coke C o ................. ............................................................
13,771 stock subscription rights, Public Service Co. of
Northern Illinois__________ _______________ _____ ___
T otal.................................. .............. ..............................

S chedule

C .—

A m ount re­
ceived

Profit or
loss
(minus)

Cost

1929

$1,840.50

$1,249.00

$591.50

1929

34.98

56.00

-2 1.0 2

1930

333,474.86

299,977.19

33,497.67

1930

160,820.00

168,805. 77

-7,985.77

1930

1,912,220.00

1,786,739.16

125,480.84

1930
1930
1930

7,105,000.00
336,445. 58
975,000.00

6,761,906.65
319,037.21
1,000,000.00

343,093.35
17, 408.37
-25,000.00

1930

761, 584.38

1,073,457.85 -311,873.47

1930

515,843. 25

819,103.80 -303,260.55

1930

220,336.00

322,218.38 -101,882.38

12,322,599.55 12,552,551.01 -229,951.46

Compensation of officers supporting Form 1120— Calendar year 1980

Name




Official title

Tim e
devoted
to busi­
ness

Part____
Secretary and treasurer...........................
Assistant secretary and assistant treas­
urer.

Shares of stock
held
Compen­
sation
C om ­
mon
709
625

Pre­
ferred

100

$2,350.00
427.82
245.00
795.00
3,817.82

14 6 4

STOCK EXCHANGE PRACTICES

Schedule 22.— Other deductions supporting Form 1120— Calendar year 1980
Corporation
Securities
Co. of
Chicago
Advertising_______■___________________________ ______________
«
Directors’ fees________ , . . . . ______________________ ___________
Discount and expensA on onrinl gold notes
D ividend expense___________________________________________
Exchange____ ____ ..,___ ____________________________________
Expense of stockholders’ meetings___________________________
Insurance
- ■ ......................... ............... ...........................
Legal and accounting________________________________________
Miscellaneous e x p e n s e _____ ______. . . ______ _.
Office salaries________________________________________________
Office supplies_______________________________________________
Periodicals and financial sarvir>ns....... .
Printing and postage________________________________________
Registrar and transfer fees and expenses_________________ ___
Stock expense_____________________________________________
Telephone and telegraph_____________________________________
Totals_______ . . . » _________- __________ ____ . . . . . ________

$4,506.15
120.00
219,934.56
33,738. 32
51.18
3,807.52
930.04
25,870.44
4,109.19
16,943.07
2,832.34
212.03
1,962.21
73, 555. 78
28,907.09
889.02

Corporation
Syndicates
(Inc.)

$47.34

418,368.94

47.34

Consoli­
dated
$4,506.15
120.00
219,934.56
33,738.32
51.18
3.807.52
930.04
25,870.44
4.156.53
16,943.07
2,832.34
212.03
1,962.21
73,555.78
28,907.09
889.02
418,416.28

S chedule K - l .— Balance sheet, December SI, 1929, supporting Form 1120— Cal­

endar year 1980
ASSETS

Cash and call loa n s..______ ___________________________________ $6, 992, 596. 42
Notes receivable_____ __________________________ ______________
3, 437, 364. 31
225, 598. 90
Accounts receivable___________________________________________
Investments___________________________ _______ ______ _____ _
53, 826, 263. 63
Total assets__________ _________________________________ 64, 481, 823. 26
LIA BILITIE S

Purchase contract obligations and accounts payable-----------------Capital stock:
Preferred____ ______ _______ ______________________________
Common_____________ ____________________________________
Total capital stock_____________________________________
Capital surplus. _______________________________________________
Earned surplus__________________________ _____________________
Total liabilities_________________________________________

12, 246, 029. 61
~
34,999,850.00
13, 500, 022. 50
48, 499, 872. 50
3, 455, 827. 86
280, 093. 29
64, 481, 823. 26

Schedule K -2 . — Consolidating balance sheet, December 81, 1980, supporting Form

1120— Calendar year 1980
Corporation Corporation Intercom ­
Securities Co. Syndicates p a n y elim i­ Consolidated
nations
of Chicago
(Inc.)
ASSETS
Cash__________________________________________
Notes and accounts receivable...............................

$7,233,875.32
1,607,706.12
140,696,328.70
1,134,860.99
Unamortized debt discount and expense.............
27,863.80
463.82
Furniture and fixtures.............................................
Total assets...................................................... 150,701,098.75
LIABILITIES
Accounts p a y a b le ....................................................

15.881.745.00
29.228. 50
502,874.90
374,240.50
7,992,280.00
30,000,000.00
41,709.06
750,000.00

$49,999.00
i $40,000.00
1 10,000.00

49,999.00

150,000.00

40,000.00

140,000.00

10,000.00

1 10,000.00

Capital stock:
Comm on stock...................................... ............
Comm on stock, scrip, unconverted...............

37.424.050.00
21,412,340.02
69,922.05
31,730,104.86
4,492,603.86

Earned surplus..........................................................
Total liabilities....... ....................................... 150,701,098.75

i Loss.




1.00
49,999.00

150,000.00

$7,283,874.32
1,567,706.12
140,686,328.70
1,134,860.99
27,863.80
463.82
150,701,097.75
15.881.745.00
29,228.50
502,874.90
374,240. 50
7,992,280.00
30,000,000.00
41,709.06
750,000.00
37.424.050.00
21,412,340.02
69,922.05
31,730,104. 86
4,492,602.86
150,701,097. 75

1465

STOCK EXCHANGE PRACTICES
S

chedule

L.— Reconciliation of net income and analysis of'changes in surplus,
supporting F orm 1120— Calendar year 1930
Corporation
Securities Co.
of Chicago

Corpora­
Intercom­
tion Syndi­ pany elim­ Consolidated
cates (Inc.)
inations

N et taxable income (schedule A ) ...... ....................... i $1,090,237.65 *$301,451.36
A dd:
Cash dividends on stocks of domestic corpora­
tions......................................................................
Cash dividends on com pany’s own stock held
in treasury...........................................................
Stock dividends received........- ..........................
Profit on com pany’s own stock reacquired
and sold................- ......................................—
Cost assignable to stock subscriptions rights
sold............. ....................... .................................
Adjustment of cost of 1 share Chicago, North
Shore & Milwaukee R . R . Co. 6 per cent
preferred sold b y reason of write-down to
market value thereof as at N ov. 15, 1929...
Expenditure applicable to transaction in
which subsidiary com pany—Corporation
Syndicates (Inc.)—is reporting a profit of
$299,748.50............................................................

1,881,931.45

>301,452.36

19,400.00
5,180,457.95

1,580,479.09
19,400.00
5,180,457.95

136,586.71

136,586.71

2,214,780.03

2,214,780.03

16.00

16.00

250,000.00

250,000.00

9,683,172.14

Total additions.

i $788,786.29

9,381,719.78

8,592,934.49 ‘ 301,451.36 1301,452.36
Deduct:
Donations...............................................................
Stock expense not deducted...............................
Cost of alterations to office, etc., less amorti­
zation, 1930.........................................................
Commissions not deducted.................................
Adjustment of book cost of stocks sold for por­
tion of cost assigned to subscription rights..
Adjustment of book cost of stocks sold for por­
tion of cost assigned to stock received as
dividend..............................................................

301,452.36

8,592,933.49

1,949.86
26,199.25

1,949.86
26,199.25

2,993.53
82,163. 75

2,993.53
82,163.76

360,501.72

360,501.72

125,480.84

125,480.84
599,288.95

Total deductions.
N et income as shown b y books of account............
Surplus, beginning of period.................................. Credits to surplus:
Adjustment of cost of stocks acquired in reor­
ganization in 1929_____ __________________

7,993,645.54
280,093.29

301,451.36

301,452.36

7,993,644.54
280,093.29

Debits to surplus:
Dividends paid—
Cash................................................................
Stock_______ ______________ ____________
Appropriation of surplus to reserve for con­
tingencies________________________________

13,158.51

13,158.51

8,286,897.34

Balance.

8,286,896.34

2,122,967.01
921,326.47

301,452.36 ‘ 301,452.36

2,122,967.01
921,326.47

Total debits__________

3,794,293.48 ‘ 301,452.36 ‘ 301,452.36

3,794,293.48

Surplus end of period.

4,492,603.86

750,000.00

750,000.00

‘

1 .0 0

4,492,602.86

1 Loss.
S chedule

L - l. — Analysis of changes in capital surplus supporting Form 1 1 2 0 Calendar year 1930

Capital surplus, Dec. 31, 1929_____ _____ ______________________ $3, 455, 827. 86
Add:
Restatement, upon sale of company’s own
stock reacquired, of write-down to mar­
ket value thereof on Nov. 15, 1929 (the
write-down of cost was charged to capital
surplus in 1929)________________________
$383, 470. 00
Consideration received in sale of common
stock in excess of stated value of $5 per
share___________________________________ 26, 561, 932. 00




1466

STOCK EXCHANGE PRACTICES

Add— Continued.
Surplus arising from conversion of preferred
capital stock and units into common
s to c k ._________________________________ $1,578,865.00
Total a d d ition s-.______________________________________ $28, 524, 277. 00
31, 980,104. 86
Deduct: Payment to Utility Securities Co. to apply against loss to
members of syndicate and cost of protecting market, in con­
nection with the issue and sale of 1,250,000 shares of common
stock of Corporation Securities Co. of Chicago_______________
Capital surplus, Dec. 31, 1930__________________________
A

f f il ia t io n s

250, 000. 00
31, 730,104. 86

Schedu le

(To be filed with each consolidated return (see article 12(c) of Regulations 75))
Taxable year ended December 31, 1930.
Parent corporation: Corporation Securities Co. of Chicago.
Address: 72 West Adams Street, Chicago, 111.
The information required below must be submitted for all corporations which
are affiliated. This includes all corporations in which at least 95 per cent of the
stock is owned directly by the parent corporation, and in which an aggregate of
at least 95 per cent of the stock is owned directly by the parent corporation and/or
one or more of the other corporations the income of which is included in the
consolidated returns. See section 141 of the revenue act of 1928, and articles
711 to 715 of regulations 74 and articles 1 to 16 of regulations 75.

N o.

Name and address of corporation

1

Parent corporation: Corporation Se­
curities Co. of Chicago.
Subsidiary corporation: Corporation
Syndicates (Inc.). 72 West Adams
Street, Chicago, 111.

2

State or
country
Date of incor­ in which
poration
incor­
porated
Oct.

5,1929

Capital stock out­
standing at beginning
of y e a r 1

Stock
holdings
at begin­
ning of
year

Illin ois.. 3,400,001H shares hav­
ing no par value.

Mar. 12,1930 . . . d o ____

(»)
None.

i A ll classes of stock outstanding must be shown except nonvoting stock which is both lim ited and p re­
ferred as to dividends. Information relative to the nature of the limitation, and preference as to dividends,
should be furnished below regarding all classes of nonvoting stock not shown. If any corporation was not
in existence at beginning of the year, show stock outstanding at date issued.
* It is not necessary to show the number of shares and stockholders of"parent corporation.

Changes in stock holdings during the year
Corporation

N o.1

Name

2

Corporation Syn­
dicates (In c.).

Shares
Stock­
held at
holders
begin­
(corpora­ ning of
tion N o .)1 year
1

None.

Changes
Per
cent
Date

None.

M arch, 1930

Shares
acquired
2,000

Shares
Shares held at
end of
dis­
year
posed
of
None.

2,000

Per
cent

100

• T he number used must agree with the corporation number above.

In case additional stock was issued, or if any stock was retired during the year,
dates and amounts of such transactions should be shown.
If the equitable owners of any capital stock shown above were other than the
holders of record, full particulars must be given.
Remarks: Corporation Syndicates (Inc.) was organized on March 12, 1930,
with an authorized capital stock of 500,000 shares having no par value. Cor­
poration Securities Co. of Chicago acquired 2,000 shares at the inception of busi­
ness of Corporation Syndicates (Inc.), which represents the entire outstanding
capital stock.



1467

STOCK EXCHANGE PEACTICES

(The printed pamphlet entitled “ Report of Insull Utility Invest­
ments (Inc.), for the fiscal year ended December 31, 1930,” is marked
“ Exhibit 6,” and will here be printed as a part of the record:)
E
R

eport

of

I n stjll U

t il it y

x h ib it

6

I n v e s t m e n t s ( I n c .) , f o r
D e c e m b e r 31, 1930
C

n o t ic e

of

annual

m e e t in g

h ic a g o ,
of

the

F

is c a l

Y

ear

E

nded

III., January 28, 1931.

stockh olders

The stockholders of Insull Utility Investments (Inc.) are hereby notified that
the regular annual meeting of the stockholders of said company will be held,
pursuant to the by-laws, at civic theater, southwest corner of Wacker Drive and
Washington Street, in the city of Chicago, 111., on Monday, the 16th day of
February, 1931, at 11 o ’clock a. m., for the purpose of electing a board of directors
and of transacting such other business as may properly be brought before such
meeting.
All stockholders are requested to be present in person or by proxy. Stock­
holders who do not expect to be present in person are requested to sign the
inclosed proxy and return it to the company in the envelope inclosed for the
purpose.
J o h n F. O ’ K e e f e , Secretary.
The transfer books of the company will be closed at the close of business on
Wednesday, January 28, and will be reopened at the opening of business on
Tuesday, February 17, 1931.
Board of directors: Walter S. Brewster, Britton I. Budd, Edward J. Doyle,
Louis A. Ferguson, John F. Gilchrist, John H. Gulick, Martin J. Insull, Samuel
Insull, Samuel Insull, jr., P. J. McEnroe, George F. Mitchell, Stuyvesant Pea­
body, Marshall E. Sampsell, H. L. Stuart, Waldo F. Tobey.
Executive committee: Walter S. Brewster, Martin J. Insull, Edward J. Doyle,
Samuel Insull, H. L. Stuart, John H. Gulick, Samuel Insull, jr.
Finance committee: Walter S. Brewster, Martin J. Insull, Samuel Insull,
Samuel Insull, jr., H. L. Stuart.
Officers: Samuel Insull, chairman; Samuel Insull, jr., president; Martin J.
Insull, vice president; P. J. McEnroe, vice president; John F. O ’ Keefe, secretary
and treasurer; W. J. McElligott, assistant secretary; C. W. Daniels, assistant
treasurer; W. R. Irwin, auditor.
Stock transfer agents: Utilities Stock Transfer Co., Chicago, 111.; Bankers
Trust Co., New York City, N. Y.
Registrars of stock: Central Trust Co. of Illinois, Chicago, 111.; City Bank
Farmers Trust Co., New York City, N. Y.
To the stockholders of Insull Utility Investments (Inc.):
By the direction of the board of directors, I submit to you herewith a report
of the company’s operations for the fiscal year ended December 31, 1930.
S a m u e l I n s u l l , Chairman.
To the stockholders of Insull Utility Investments (Inc.):
The board of directors submits this annual report for the fiscal year ended
December 31, 1930.
Following is a summary of the consolidated income and surplus account of the
company and its wholly owned subsidiary, Insull, Son & Co. (Inc.), for the year
ended December 31, 1930:
Income___________________________ __________________________ $16, 502, 821. 70
Expenses:
Administrative and general expenses.
Provision for income taxes
Net income before interest charges




$992, 270. 88
56, 746. 47
1, 049, 017. 35
15, 453, 804. 35

1 46 8

STOCK EXCHANGE PBACTICES

Interest charges:
Interest on 5 per cent gold debentures,
series A _________________________________ $123, 200. 00
Interest on 6 per cent gold debentures,
series B_________________________________ 3, 168, 228. 29
Other interest charges_____________________ 1, 819, 303. 82
---------------------Net income for the year_______________________________
Cash dividends paid and accrued:
Prior preferred stock______________________
169, 057. 43
Preferred stock, second series______________ 2, 592, 481. 50
Preferred stock, first series________________
120, 000. 00
----------------------

$5, 110, 732. 11
10, 343, 072. 24

2, 881, 538. 93
7, 461, 533. 31

1930 stock dividend on common stock at the rate of 6 shares for
every 100 shares per annum:
161,072 119/200 shares, at $20 per share__________________

3, 221, 451. 90

Surplus income for the year__________________________________
Appropriated to reserve for contingencies_____________________

4, 240, 081. 41
1, 000, 000. 00
3, 240, 081. 41

Earned surplus, Dec. 31, 1929_________________ $6, 782, 094. 18
1929 stock dividend on common stock— being ad­
ditional to the amount already provided for
out of the 1929 income figured on the shares
outstanding at Dec. 31, 1929, due to and being
upon the common stock issued subsequent to
that date on which this dividend declaration
also applies— 11,503 12/200 shares, at $20 per
share________________________________________
230, 061. 20
----------------------

6, 552, 032. 98

Earned surplus, Dec, 31, 1930________________________________

9, 792,114. 39

The net income for the year 1930 was $10,343,072.24. The dividend require
ments on the company’s preferred stocks amounted to $2,881,538.93. The
balance of income available for common stock was therefore $7,461,533.31 which
is equivalent to $2.76 per share on 2,705,168 shares of common stock, the average
number of shares of common stock outstanding during the year.
It will be noted that $1,000,000 was appropriated out of surplus earnings to
the reserve for contingencies. This reserve (formerly called reserve for invest­
ment securities) now amounts to $2,000,000.
Pending permanent financing, the company made arrangements for the tem­
porary financing covered by notes payable of $58,476,218.92 secured by pledged
securities having a cost of $110,448,282.99 as shown by the balance sheet.
In the accounts of the company for the year stock dividends received have
been taken at their market value on the day received, and stock rights received,
if sold, have been taken at the amount realized and, if exercised or held to be
exercised, at no value. On this basis the securities held in the investment
account of the company on December 31, 1930, had an aggregate cost of $253,726.626.99 and an aggregate market value of $188,315,665.17. On February 11,
1931, the same securities had an aggregate market value of $236,957,355.92.
Approximately 92.7 per cent of the securities held by the company are listed
on the Chicago or New York Stock Exchange or on the New York Curb, and
90.74 per cent of them are securities of the following companies: Central &
South West Utilities Co., Commonwealth Edison Co., Corporation Securities
Co. of Chicago, Middle West Utilities Co., Midland United Co. and its sub­
sidiaries, the Peoples Gas Light & Coke Co., and Public Service Co. of Northern
Illinois.
The company was organized for the specific purpose of acquiring and holding
a substantial amount of securities of the Commonwealth Edison Co., Midland
United Co., the Peoples Gas Light & Coke Co., Public Service Co. of Northern
Illinois, and Middle West Utilities Co. and subsidiaries, all of which are under
the same general management as the company. Afterwards, Corporation



STOCK EXCHANGE PRACTICES

1469

Securities Co. of Chicago was formed for practically the same purpose. The
two companies, through management, ownership each in the other, and simi­
larity of investment portfolios, are closely allied, and in their investment policy
generally act together.
This company and Corporation Securities Co. of Chicago, together with Public
Service Trust and Second Utilities Syndicate (Inc.), (the latter two being owned
owned jointly by this company and Corporation Securities Co. of Chicago) hold
17.19 per cent of the outstanding stock of the Commonwealth Edison Co., 29.21
per cent of the outstanding stock of the Middle West Utilities Co., 28.78 per cent
of the outstanding stock of the Peoples Gas Light & Coke Co., and 11.45 per cent
of the outstanding stock of the Public Service Co. of Northern Illinois. As most
of these corporations, the securities of which are so held, have a very substantial
interest in North American Light & Power Co. it was considered advisable for
this company to add the securities of North American Light & Power Co. to its
portfolio.
The holdings in the corporations above mentioned give this company and the
Corporation Securities Co. of Chicago an important position in the ownership of
these corporations and an influence which will naturally be used toward insuring
continuity of the policies and management that have made them successful.
This position is an intangible asset of great value to this company and Corpora­
tion Securities Co. of Chicago and is in conformity with the objects for which
the companies were formed. The policy of the two companies will be to strengthen
this position form time to time whenever practicable.
On January 20, 1930, the company issued and sold $60,000,000 in principal
amount of its 6 per cent gold debentures, series B. Each of these debentures was
in the denomination of $1,000, and each carried two common stock purchase
warrants, one entitling the holder of the debenture to purchase 10 shares of
common stock of the company during the year 1930, only at $65 per share, and
the other entitling the holder of the debenture to receive, upon the surrender of
the debenture at any time prior to January 1, 1935, common stock of the company
as follows: 15,384 shares if the debenture is surrendered during the year 1930,
13,793 shares if surrendered during the year 1931, 11,428 shares if surrendered
during the year 1932, 9,524 shares if surrendered during the year 1933, and 8
shares if surrendered during the year 1934. The last-mentioned warrant also
entitles the holder of the debenture to purchase ten shares of common stock of the
company, at the time of the surrender of the debenture, at the following prices:
$62.50 per share during 1931, $77.50 per share during 1932, $95 per share during
1933 and $115 per share during 1934.
As a result of the exercise of these warrants, 135,952 shares of common stock
of the company were issued during the year, 1930: 62,970 shares to satisfy the
warrants exercisable only during 1930, and 72,982 shares to satisfy the warrants
exercisable at any time prior to January 1, 1935. Through the exercise of warrants
$4,744,000 in principal amount of the debentures were retired and cancelled.
The discount and expense incurred in the sale of these debentures, amounting
to $3,778,512.98, were entirely written off out of the company’s paid in surplus
as may be seen by a reference to the balance sheet attached to this report.
There were mentioned in the last annual report two matters which have to do
with the company’s 1930 operations, namely the modification of the stock pur­
chase warrants attached to the company’s preferred stock, second series, in order
to conform more closely to changed market conditions, and the increase in the
authorized common stock o f the company to 6,000,000 shares. No further
comment on either of these matters seems necessary.
The board of directors on July 28, 1930, directed that 600,000 additional shares
of common stock be issued and offered pro rata to stockholders. The shares
were offered to stockholders of record August 30, 1930, at $50 a share, which
was substantially below the market price at that time, on the basis of one share
of new common stock for each five shares of common stock held and one share of
new common stock for each 11 shares of preferred stock held. Stockholders
were granted the right to purchase the new stock for cash or upon the 10-payment
plan, first payment being due, in full or in part, on or before September 15, 1930,
and final payment, under the 10-payment plan, not later than June 15, 1931.
All of the 600,000 shares so offered were subscribed for.
The board of directors during the year declared, out of the earnings of the
year, on the common stock of the company four quarterly dividends of 1% per
cent payable in common stock. Three of these were paid in 1930: On April 15,
July 15, and October 15, respectively, and the fourth was paid since the close of
the year on January 15, 1931. In addition, there was paid during the year in



14 7 0

STOCK EXCHANGE PRACTICES

common stock the 6 per cent dividend declared on the common stock of the com­
pany out of the earnings of 1929 and payable quarterly in 1930. The first install­
ment of the 1929 dividend was paid on January 15, 1930. The other three
installments were paid concurrently with the first, second, and third quarterly
installments of the 1930 dividend, and this accounts for the fact that the common
stockholders received on April 15, July 15, and October 15 dividends in common
stock aggregating 3 per cent of their holdings on the record date.
Early in the year, the company acquired all of the oustanding participation
certificates of Public Service Trust in exchange for 51,084 shares of common
stock of the company, and later during the year, it acquired all of the outstand­
ing stock of Second Utilities Syndicate (Inc.), in exchange for 27,400 shares of
common stock. As a result of these acquisitions (which have been valued in the
appended list of investments at their liquidating value), the company acquired a
substantial additional amount of the securities which constitute the principal
items of its portfolio. Subsequently, a 25 per cent interest in Public Service
Trust and Second Utilities Syndicate (Inc.) was sold to Corporation Securities
Co. of Chicago. The present policy, so far as practicable, is to divide new invest­
ments as between this company and Corporation Securities Co. of Chicago in
the ratio of 60 to 40.
Dividends received by the company from Public Service Trust during the year
amounted to $347,765.62, and dividends received from Second Utilities Syndicate
(Inc.) amounted to $123,680.90. Both of these items are reflected in the income
statement appended hereto.
At the close of the year there were outstanding 60,000 shares of $5.50 for pre­
ferred stock, 40,000 shares of preferred stock, first series, 450,000 shares o f pre­
ferred stock, second series, and 2,984,438 shares of common stock. In addition
to the outstanding stock there were at the end of the year 11,973 shares of common
stock held in the treasury of the company representing fractional scrip then out­
standing. Following is a summary of the purposes for which common stock was
issued during the year:
Shares
Issued in payment of dividends_______________________________________ 276, 615
Issued in connection with acquisition of Public Service Trust_________
51, 084
Issued in connection with acquisition of Second Utilities Syndicate (Inc.)
27, 400
Issued in connection with the acquisition of securities from the Peoples
Gas Light & Coke Co. employes’ investment fund___________________
43, 583
Issued in connection with other acquisitions of securities_____________ _
8, 555
Issued on account of exercise of warrants attached to 6 per cent gold de­
bentures, series B __________________________________________________ 135, 952
Issued on account of exercise of warrants attached to $5.50 prior pre­
ferred stock________________________________________________________
6
Issued in connection with subscriptions of stockholders_______________ 148, 852
Total shares of common stock issued during the year___________ 692, 047
The company does not hold any of its own securities in its treasury, except the
common stock represented by fractional scrip outstanding.
On January 1,1930, the company had a total of 35,323 stockholders, after elimin­
ating duplications where stockholders held more than one class of stock. On
December 31, 1930, there were 43,737 stockholders after similar elimination.
Appended is a certificate of audit of the company’s books and accounts, a state­
ment of income account for the year, a balance sheet and a schedule of securities
owned, showing cost and market value on December 31, 1930, and market value
on February 11, 1931, submitted after an examination by Arthur Young & Co.,
certified public accountants.
By order of the board,
S a m u e l I n s u l l , Jr., President.
F e b r u a r y 14, 1931.

A

To

the

C

h a ir m a n

and

B

oard

of

D

Y o u n g & Co.,
Chicago, February 18, 1981.

rthur

ir e c t o r s ,

Insull Utility Investments (Inc.), Chicago.
D e a r s i r s : We have examined the accounts of Insull Utility Investments
<Inc.) and of its wholly owned subsidiary, Insull, Son & Co. (Inc.), for the year
ended December 31, 1930, and certify that the accompanying consolidated bal­




STOCK EXCHANGE PRACTICES

1471

ance sheet, income and surplus account are in accordance therewith and, in our
opinion, are drawn up to correctly exhibit the financial position of the company
as of December 31, 1930 and the result of its operations for the year ended that
date. All securities held by the company were produced for our inspection or
otherwise accounted for.
The list of investment securities appended hereto shows the cost value, market
value as of December 31, 1930, and market value as of February 11, 1931.
Yours faithfully,
A r t h u r Y o u n g & Co.,
Certified Public Accountants.
Consolidated income and surplus account for the year ended December SI, 19S0
Income:
Cash dividends___________________________________________ $4, 326, 417. 78
Stock dividends, taken in at market value at date of receipt- 5, 051, 832. 04
Interest on bonds, notes, etc______________________________
917, 440. 43
Profit on sale of securities_________________________________
1, 970, 063. 86
Profit from syndicate participations_______________________
550, 012. 54
3, 681, 078. 17
Sale of rights_____________________________________________
Miscellaneous income_____________________________________
5, 976. 88
16, 502, 821. 70
Expenses:
Administrative and general expenses________
Provision for income taxes__________________

$992, 270. 88
56, 746. 47
----------------------

1, 049, 017. 35

Net income before interest charges____________________________ 15, 453, 804. 35
Interest charges:
Interest on 5 per cent gold debentures,
series A __________________________________
123, 200. 00
Interest on 6 per cent gold debentures,
series B_'_______:_________________________ 3, 168, 228. 29
Other interest charges______________________ 1, 819, 303. 82
---------------------- 5, 110, 732. 11
Net income for the year_______________________________________ 10, 343, 072. 24
Cash dividends paid and accrued:
Prior preferred stock_______________________
169, 057. 43
Preferred stock, second series_______________ 2, 592, 481. 50
Preferred stock, first series_________________
120, 000. 00
---------------------- 2,881,538.93
7, 461, 533. 31
1930 stock dividend on common stock at the rate of 6 shares for
every 100 shares per annum—
161,072-119/200 shares at $20 per share-----------------------------

3, 221, 451. 90

Surplus income for the year___________________________________
Appropriated to reserve for contingencies______________________

4, 240, 081. 41
1, 000, 000. 00
3, 240, 081. 41

Earned surplus, December 31, 1929-------------------- $6, 782, 094. 18
1929 stock dividend on common stock— being
additional to the amount already provided for
out of the 1929 income figured on the shares
outstanding at December 31, 1929, due to and
being upon the common stock issued subsequent
to that date on which this dividend declaration
also applies— 11,503-12/200 shares at $20 per
share____________________________ ____________
230, 061. 20
----------------------

6,552,032.98

Earned surplus, December 31, 1930.

9, 792,114. 39




1472

STOCK EXCHANGE PRACTICES

Consolidated balance sheet— December 81, 1980
ASSETS

Cash______________ _____ ____________________________________
$6,003,591.12
Notes and accounts receivable________________________________ 10, 376, 577. 67
12, 778, 510. 45
Due from subscribers to common stock_______________________
Interest and dividends receivable_____________________________
893, 686. 72
Organization expense, etc_____________________________________
1, 227, 304. 47
Investment securities— at cost:
Pledged (under temporary loans)________$110, 448, 282. 99
Unpledged______________________________ 135, 085, 949. 30
Under contract o f purchase_____________
8,192, 394. 70
------------------------- 253, 726, 626. 99
The aggregate market value of the above
investment securities was:
As of Dec. 31, 1930____________________
188, 315, 665. 17
As of Feb. 11, 1931__________ _______ _
236, 957, 335. 92
285, 006, 297. 42
L IA BILITIE S

Notes p a y a b le ___— _____ __________________________________ $58, 476, 218. 92
5, 672, 985. 15
Accounts payable, including interest and taxes accrued_______
Dividends accrued___________________________________________
277, 512. 28
Liability under contract of purchase (due 1931-1934)_________
3, 941, 166. 25
Funded debt:
5 per cent gold debentures, series A— due
Jan. 1, 1949__________________________
$2, 469, 000. 00
6 per cent gold debentures, series B— due
Jan. 1, 1940___________________ ______
55, 256, 000. 00
------------------------- 57,725,000.00
Common stock dividend declared and payable Jan.; 15, 1931, in
common stock_____________________________________________
895, 026. 30
Common stock scrip, unconverted— 11,972-786/1,000 shares_
_
239, 649. 70
Capital stock:
Prior preferred, without par value—
Authorized— 250,000 shares.
Issued—-first series $5.50 cumulative— 60,000 shares. _ - 6, 000r 000. 00
Preferred, without par value:
Authorized— 500,000 shares.
Issued—
First series, 40,000 s h a r e s . _________________
4, 000, 000. 00
Entitled to cumulative dividends— $4, 1931;
$5, 1932; $6, 1933, and thereafter.
Second series $6 cumulative— 450,000 shares____
36, 000, 000. 00
Common, without par value—
Shares
Authorized__________________ 6, 000, 000
Reserved for sale and conver­
sion to holders of:
Preferred stock, second
series_________________
675,000
6 per cent debentures,
series B _______________ 1, 314, 706
Reserved for stock dividend
declared________________ 44,752
Reserved for common stock
_
451, 148
subscribed but not issued_




2, 485, 606
3, 514, 394

1473

STOCK EXCHANGE PEACTICES

Common, without par value— Con.
Shares
Is s u e d ______________________ 2, 996, 411 $74, 697, 387. 11
Less: Held in treasury for
exchange of scrip_____
11, 973
239, 649. 70
2, 984, 438 74, 457, 737. 41
451, 148 22, 557, 400. 00
------------------------------------------ $97, 015, 137. 41
3, 435, 586
Reserve for contingencies____________________________________
2, 000, 000. 00
Surplus:
Earned surplus_________________________
9, 792, 114. 39
Paid in surplus__________$6, 750, 000. 00
Less: Discount and ex­
pense on series B deben­
3, 778, 512. 98
tures written off______
----------------------2, 971, 487. 02
------------------------- 12, 763, 601. 41
Subscribed but not issued____

285, 006, 297. 42
Investment securities December 31, 1930
Cost

Shares

179,450
365,255
263,532
2,619,000
47,685
14,820
132,263
6,078
1,603
11, 271
4,841
34,940
144,135
2,298
1,820
58,195
15,000
10,100
7,500
2,096

Central & South W est Utilities Co. common
stock (M iddle W est Utilities Co. subsidiary).
Commonwealth Edison Co. capital stock.........
Corporation Securities Co. of Chicago units
for $3 optional preferred stock, 1929 series,
and com m on stock............. ...............................
Corporation Securities Co. of Chicago com ­
mon stock..............................................................
M iddle W est Utilities Co. com m on stock.........
M iddle W est Utilities Co. $6 convertible pre­
ferred stock........ ................................. ...............
M idland United Co. $3 preferred stock----------M idland United Co. com m on stock ..................
M idland Utilities Co. 7 per cent prior lien stock
M idland Utilities Co. 7 per cent preferred
stock, class A . ..................... ...............................
M idland Utilities Co. 6 per cent prior lien
stock............. .................... .................... .............
M idland Utilities Co. 6 per cent preferred
stock, class A ....................... ................................
North American Light & Power Co. common
stock.................. ...................................................
The Peoples Gas Light & Coke Co. capital
stock.....................................................................
Public Service Co. of Northern Illinois 6 per
cent preferred stock----- ------- -------- -------------Public Service Co. of Northern Illinois 7 per
cent preferred stock____ __________________
Public Service Co. of Northern Illinois com ­
m on stock....... ............... ............ ..................... .
Public Service Trust participation certificates
$50 par value_____ ______________ __________
Seaboard Public Service Co. $3.25 convertible
preferred stock (M iddle West Utilities Co.
subsidiary)—....................................................... .
Second Utilities Syndicate, incorporated, cap­
ital stock____ _______........................................
Southwestern Light < Power Co. $6 preferred
fe
stock( M iddle West Utilities Go. subsidiary)
Miscellaneous investments____________ ______

Market value
Dec. 31,1930

Market *alue
Feb. 11,1931

$8,277,764.91
59,399,931.89

$8,276,246.00 $11,805,821.50
39,658,450.00 45,131,675.00

25,^12,244.96

18, 262,750.00

21.915.300.00

5,825, 363.94
57,685,813.75

3,952,988.55
45,177, 751.04

5,665,950.26
65.147.625.00

4,774,021.45
683,391. 25
3, 218,673. 35
664,339.19

4,649,287. 50
614.980.00
2,479,951.78
583.488.00

4.768.500.00
615.030.00
3.042.072.00
591,085. 50

161, 582.30

149,479.75

150,481.63

1,100,489. 37

991.848.00

946.764.00

460,993.36

396.962.00

388,490.25

2.135.734.00

2, 201,228.08

2, 236,170.24

42,740,863.99

29,115, 270.00

35.889.615.00

282,549. 21

282.654.00

301, 612. 50

239,513.98

225.680.00

260.260.00

16,416,659.18

11,668,097.50

14, 821,007. 50

3,145,837.40

1 2,076, 750.00

i 3,448, 500.00

444,400.00

478,487. 50

474.700.00

1.630.300.00

i 1,119,975.00

i 1,567,200.00

189,941.50
18,336,218.01

194.928.00
15,758,412.47

194.142.00
17,595,333.54

253,726,626.99

188,315,665.17 236,957,335.92

1 Market value based on liquidating value.

Mr. P e c o r a . N o w , Mr. Insull, I show you a photostatic repro­
duction of what purports to be corporation income tax return for
calendar year 1930 of Insull Utility Investments (Inc.), for the
calendar year 1930, obtained from the files of the company in its
Chicago office. Will you look at it and tell us if that shows net
119852—33— p t 5-------- 6



147 4

STOCK EXCHANGE PRACTICES

earnings for that company for the year 1930 of something like six
and one-half million dollars?
Mr. I n s u l l . This report, as near as I can make out— and I don’t
know for sure but I presume this means a loss. I t has something
written in here which seems to be the word “ red” and in that case it
would represent a loss.
Mr. P e c o r a . What is the figure you are referring to?
Mr. I n s u l l . I t is $6,493,377.53.
Mr. P e c o r a . As a loss?
*
Mr. I n s u l l . I assume it is a loss. Yes; it says here “ red” with
an arrow pointing to those figures.
Mr. P e c o r a . Mr. Chairman, I ask that that may be spread in full
on the minutes of the committee.
The C h a i r m a n . There being no objection it will be printed in the
record.
(The photostatic copy cf the corporation income tax return for the
calendar year 1930 of Insull Utility Investments (Inc.) was marked
“ Exhibit 7,” and will here be printed as a part of this record:)
»

Exhibit 7
C orporation I ncome T a x R eturn

for

C alendar Y ear 1930

Insull Utility Investments (Inc.), 72 West Adams Street, Chicago, 111.
Date of incorporation, December, 1928.
Under the laws of what State or country: Illinois.
Kind of business: Investments.
Is this a consolicated return of two or more corporations? Yes.
If so, how many? Four.
GROSS INCOME

5. Interest on bank deposits, notes, mortgages, and corporation
bonds___________________________________________________
8. Profit from sale of real estate, stocks, bonds, and other
capital assets (from Schedule B )________________________
9. Dividends on stock of domestic corporations______________
10. Other income (including dividends received on stock of
foreign corporations). (State nature of incom e):
(а) Dividends on stocks of foreign corporations_______
(б) Profit from syndicate participations_______________
(c) Syndicate managers’ fee___________________________
Miscellaneous_____________________________________
Total income in Items 3 to 10_______________________

$939, 128. 86
1, 735, 044. 82
4, 158, 032. 40
2, 783. 15
145, 504. 22
347,611.00
5, 198. 27
3, 863, 213. 08

d e d u c t io n s

Compensation of officers (from Schedule C)______________
46, 734. 92
Rent on business property___ ______ ___________________
21,935.27
Interest___ __________________________________________ 5, 155, 305. 05
Taxes (from Schedule E)______________________________
60, 722. 80
Dividends (from Schedule H )______________________________ 4, 158, 032. 40
Depreciation (resulting from exhaustion, wear and tear, or
obsolescence) (from Schedule I)______________________
1, 098. 58
22. Other deductions not reported above. (Explain below, or on
separate sheet): (c) Schedule attached________________
912, 761. 59
23.
Total deductions in items 12 to 22__________________ 10, 356, 590. 61
12.
13.
15.
16.
19.
20.

24.

Net income (item 11 minus item 23)________________

6, 493, 377.53

COMPUTATION OF T A X

25. Net income (item 24 above)_______________________________ 1 6, 493, 377. 53
33. Balance of tax (item 30 minus items 31 and 32)____________
None.

1Loss.



STOCK EXCHANGE PEACTICES

1475

SCHEDULE L---- RECONCILIATION OF N ET INCOME AND ANALYSIS OF CHANGES IN
SURPLUS.
SCHEDULE ATTACHED

Kind of business: (a) General class H. (6) Investment trust.
Affiliations with other corporations: 4. Is this a consolidated return of two or
more corporations? Yes.
5. Did the corporation file a consolidated return for the preceding taxable
year? Yes.
Predecessor business: 6. Did the corporation file a return under the same name
for the preceding taxable year? Yes. Was the corporation in any way an out­
growth, result, continuation, or reorganization of a business or businesses in
existence during this or any prior year since December 31, 1917? No.
Basis of return: 7. Is this return made on the basis of actual receipts and dis­
bursements? No. If not, describe fully what other basis or method was used
in computing net income: Accrual basis.
Valuation of inventories: 8. State whether the inventories at the beginning and
end of the taxable year were valued at cost, or cost or market, whichever is lower.
If other basis was used, describe fully, state why used and the date inventory was
last reconciled with stock: Cost.
List of attached schedules: 9. Enter below a list of all schedules accompany­
ing this return, giving for each a brief title and the schedule number. The name
and address of the corporation should be placed on each separate schedule accom­
panying the return.
Schedule A, consolidating income statement.
Schedule B, profit and loss on sale of securities.
Schedule C, compensation of officers.
Schedule 22c, other deductions.
Schedule K, balance sheets.
Schedule L, reconciliation of net income and analysis of changes in surplus.
Form 851, affiliations schedule.
Forms 1122, information returns.
The corporation’s books are in care of P. J. McEnroe, located at 72 West
Adams Street, Chicago, 111.
T reasu ry D epartm en t,
I n t e r n a l R e v e n u e S e r v ic e ,

Chicago, III., June IS, 1931.
(Inc.),
72 West Adams Street,
Chicago, III.:
Reference is made to your letter of June 12, 1931, requesting, for the reason
therein stated, a further extension of time within which to file your income-tax
return for the period ending December 31, 1930.
A further extension of time to September 15, 1931, is hereby granted within
which the above-mentioned return may be filed, provided the conditions set
forth in previous extensions were complied with.
Any deficiency in the installments will bear interest at the rate of one-half of
1 per cent a month from the original due date until the date of payment.
A copy of this letter must be attached to the return when it is filed, as authority
for the extension herein granted.
D a v i d B u r n e t , Commissioner.
B y R o b e r t E. N e e l y , Acting Collector.
I nsull U

t il it y




I nvestm en ts

1476

STOCK EXCHANGE PRACTICES
Insull U

S chedule

t il it y

In vestm

en ts,

Inc.

A .— Consolidating income statement supporting Form 1120, calendar
year 1930
Second
Utilities
Public
Syndi­
Service
InsuU U til­
cate,
Insull Son &
T ru st,p e ­ Intercompany
ity Invest­
Consolidated
(Inc.),
riod Mar. eliminations
ments (Inc.) Co. (Inc.)
period
1 to June
January
1, to June 30, 1930
30, 1930

Gross income:
Interest received.......... $742,164.81 $183,912.74
$197.78
Profit from sale of se­
curities (Schedule
B )................................ >638,364.01 1,492,879.83
Dividends on stocks of
domestic
corpora4,117,901.41
305,333.33 18,197.67
Other income—
Cash dividends on
stocks of foreign
corporations____
2,783.15
Profit from syndi­
cate participa­
tions___________
120,224.48
15,008.50 7,521.24
Fees for services
rendered_______
67,975.84
Syndicate manag­
er’s fee........ .........
347,611.00
Miscellaneous____
Total gross in­
come_____ ____ 4,341,926.69 2,415,504.39 25,916.69
Deductions:
Compensation of offi­
cers (Schedule C ) . . .
E ent____________ ____

11,782.17
11,935.27
4,876,997.22
Taxes_____ _____ ____
55,878.32
Cash dividends on
stocks of domestic
corporations............... 4,117,901.41
Depreciation and am­
ortization of alterna1,098.58
Other d e d u c t i o n s
(Schedule 22)....... ..... 893,335.34
Total deductions___ 9,968,928.31

34,752.75
10,000.00
243,517.78
4,844.48




$939,128.89
$2,589,560.64 11,735,044.82

1 16,434.08

>299,834.09

4,158,032.40

2,783.15
145,504.22

12,750.00
167,975.84

347,611.00
5,198.27

15,198.27
1 37,235.88

> 2,957,370.57

3,863,213.08

46,734.92
21,935.27
5,155,305.05
60,722.80

i 200.00
33.78

134,756.27

305,333.33 18,197.67

1 16,434.08

1299,834.09

4,158,032.40

291.83

1 1,755.52

167,975.84

912,761.59

683,803.08 18,523.28

153,145.87

>367,809.93 10,356,590.61

i 15,909.99

12,589,56a 64 16,493,377.65

1,098.58
85,354.74

N et taxable incom e.. ‘5,627,001.62 1,731,701.31
1 Loss

$12,85a 53

7,393.41

1477

STOCK EXCHANGE PRACTICES
S

chedule

B.— Profit and loss from sale of securities supporting Form 1120,
calendar year 1930
Date ac­
quired

Description

Insull U tility Investments (Inc.):
Corporation Securities Co. of Chicago, stocks.__
M etropolitan Gas & Electric Co., preferred stock.
Union Gas & Electric C o., preferred stock...........
General R ealty & Utilities Corporation, com ­
m on stock........... ..................... ...............................
American Public Service Co., preferred s to c k ...
M iddle W est Utilities C o . C om m on stock........... .........................................
Preferred stocks...................................................
Peoples Gas, Light & Coke Co., capital s to c k ...
Commonwealth Edison Co., capital stock...........
Cities Service Co., debentures........... ....................
Commonwealth Edison C o., stock subscription
rights.................................... ...................................
Peoples Gas, Light & Coke Co., stock subscrip­
tion rights.................................................................
Public Service Co. of Northern Illinois, stock
subscription rights..................................................

Am ount re­
ceived

Cost

1930
1929
1929

$330,367.50
7.035.00
5.250.00

$332,020.05
6.030.00
4.500.00

i $1,652.55
1,005.00
750.00

1929
1929

36,917.61
58,065.00

11.790.00
59.241.00

25,127.61
J 1,176.00

1929-30
1929-30
1929
1929
1930

443.193.00
336,018. 25
549.200.00
599.200.00
975,000.00

298,473.40
347,869.00
435,272.68
437,212.58

1,000,000.00

144,719.60
1 11,850.75
113,927.32
161,987.42
i 25,000.00

1930

2,252,438.87

2,942,078.57

i 689,639.70

1930

505, 479.25

699,636.16

i 194,156.91

1930

898.988.00

1,061,611.25

i 162,623.25

6,997,152.48

7,635,734.69

i 638,582.21

Total..........................................................................
Adjustment of cost of stocks bought for others taken
up as profit......................................................................

Profit or loss

218.20

Total to Schedule A .
Insull Son & Co. (Inc.):
Insull Utility Investments (Inc.), com m on stock
sold to Insull U tility Investments (Inc.) (elim­
inated as an intercompany transaction)............
Insull Utility Investments (Inc.), preferred stock
sold to Insull U tility Investments (Inc.) (elim­
inated as an intercompany transaction)............
N et loss on sale of Insull U tility Investments
(Inc.), stocks and miscellaneous securities, to
others (particulars shown b y records of com ­
pany).........................................................................

1929-30 13,290,417.49 10,700,847.10

2,589,570.39

305,962.07

19.75

1929-30

305,952.32

1 1,096,680.81

Total (Schedule A ) .

1,492,879.83

1 Loss.
S

chedule

C.— Compensation of officers, supporting Form, 1120, calendar year 1930
Shares of stock held

N am e and official title

P . J. M cEnroe, vice president..............
P . J. M cEnroe, secretary and treasurer.
John F. O’ Keefe, secretary and
treasurer.
O. W . Daniels, assistant treasurer.......
W . R . Irwin, auditor...............................
E . Ogden Ketting, vice president........
P . J. Fallon, treasurer.............................
W . E . Carney, assistant secretary........
J. A . R yan, vice president.....................
J. P. Orchard, assistant treasurer.........
E . V . Graham, vice president...............
Total-




Tim e de­
voted to
business

Com ­
m on

P a r t ....
...d o .......
...d o .......

3,285
None.
1,032

...d o ____
...d o ........
.. do.......
...d o .......
...d o ........
...d o ........
A ll..........
Part___

215
15
None.
None.
None.
None.
None.
None.

Pre­
ferred

Insull
U tility
Invest­
ments
Inc.

Insull, Son
& Co.
(Inc.)

$7,250.00
100

Public
Service
Trust

$200.00

1,322.17
755.00
2,455.00
$9,107.75
2.250.00
500.00

1.200.00
1,695.00

20,000.00
11,782.17

34,752.75

200.00

1478
S c h e d u le

STOCK EXCHANGE PRACTICES
22c.— Other deductions supporting Form 1120— calendar year 1930

Insull U til­ Insull Son
ity Invest­
& Co.
ments
(Inc.)
(Inc.)

Executive committee fees_____
Expense of stockholders’ meet­
ings________________________
Financial committee fees_____
Insurance____________________
T/figftl and auditing

. . . ..

$7,352.51
1,300.00
60,723.04
58,758.58
280.00
12,420.36
1,360.00
2,625.84
49,376.98
9,131.79
35,992.00
4,998.37

Office supplies________________
Periodicals and financial serv­
ices_________________________
999.47
Printing and postage_________
14,568.53
Registrar and transfer fees and
expenses__________________ . 149,819.43
Stock expense________________
87,394.51
RnvnmiA stamps
42,728.87
Telephone and telegraph_____
1,292.02
Trustees fees and expenses____
2,461.16
Amortization of discount and
expense on debentures______ 349,751.88
Traveling expense____________
N ew York office expense_____
London expense______________

T otal___________________ 893,335.34

Schedule

K .—

Second
Utilities Public Serv­
Syndicate ice Trust, Intercom­
period
(Inc.),
pany elimi­
period
M ar. 1 to
nations
Jan. 1 to
June 30,
June 30,
1930
1930

$57,781.09

$8,484.29
2,484.98
9,621.01

$291.83

Consoli­
dated

$7,352.61
1,300.00
2.94L95
58,768.68
280.00
12,420.36
1,360.00
2,625.84
57,861.27
12,664.12
46,613.01
4,998.37

$755.52
1,000.00

999.47
14,568.53
10,194.75
34,809.60
16,661.37

349,751.88
2,965.03
6,728.46
3,600.00

2,965.03
6,728.46
3,600.00
85,354.74

149,819.43
77,199.76
77,538.47
17,963.39
2,461.16

291.83

1,755.52

67,975.84

912,761.59

Balance sheets supporting Form 1120— Calendar year 1930—
Second Utilities Syndicate, (Inc.)
January 13,
1930

ASSETS
C ash.................................................................................................................................
Investments:
Stocks of domestic corporations_________________________________________
Bonds__________________________________________________________________
Miscellaneous........ ....................... ........................... .............................................
Interest and dividends receivable................................................................. ............
Prepayments........................................................................... ..................... ................
Organization expense............. ................................................................................. .

June 30, 1930

$21,923.01
$935,569.13
51,275.00
30,000.00

1,254,015.71
51,275.00

Total assets........ ......................................... ....................................... ................ 1,016,834.13

1,333,270.19

2,041.67
116.67
3,898.13

LIABILITIES
Dividend payable......................................................................................................
Capital stock: C om m on____________________________________________________
Capital surplus....................... ........................................................... ................... . . .
Earned surplus........... .................... ................................ ................................. ..........

1,016,834.13

46,430.90
1,016,834.13
254,208.63
15,796.63

Total liabilities_______________________________________________________

1,016,834.13

1,333,270.19

N ote .—C apital surplus results from the donation to the com pany of 25 per cent of its capital stock.


/


1479

STOCK EXCHANGE PRACTICES
S chedule

K .— Balance sheets supporting Form 1120— Calendar year 1930— Public
Service Trmt
M arch 1,1930 June 30,1930
ASSETS
$204,350.36
3,535,153.83
12,500.00
8,988.58
3,760,992.77

4,525,946.09

1,971,220.00
385,280.00
6,125.00

398,367.77

2.015.000.00
130,040.00
6,125.00
143,015.62
640,091.20
1.000.000.00
250,000.00
341,674.27

3,760,992.77

Interest and dividends receivable_____ _____ _______ _________________ ____

$64,989.39
4,431,737.18
12,500.00
16,719.52

4,525,946.09

LIABILITIES
Liability under syndicate subscription agreement__________ ________________

1,000,000.00

N ote .—Capital surplus results from the donation to Public Service Trust of 25 per cent of its participa­
tion certificates.
Schedule K - l .—

Consolidating balance sheet, December 31, 1929, supporting Form
1120— Calendar year 1930
Insull Utility
Investments
(Inc.)

ASSETS
Cash........................ .......................................... $4,986,823.33
Notes and accounts receivable......................
330,000.00
170,235.25
Interest and dividends receivable_________
283,884.75
Organization expense......................................
6,551.92
Furniture and fix tu re s..................................
24,707.23
Prepayments.....................................................
2,619,033.50
Reacquired securities......................................
Advances for purchase of securities.............
Investment securities............ .............. - ........ 139,229,271.67
Earnings receivable—Insull, Son < Co.
fe
1,298,397.48
(In c.)...............................................................
6,153,147.05
Intercom pany account..................... ..............
Investment in stock o f subsidiary com pany
1,250,000.00
Total assets.

156,352,052.18

Insull, Son &
Co. (Inc.)

Eliminations

$626,222.72
405,928.02

1,228,362.00
4,400,000.00
6,325,456.44

$204,300.70

Consolidated

$5,613,046.05
735,928.02
170,235.25
283,884.75
6,551.92
24,707.23
3,847,395.50
4,400,000.00
145,759,028.81

1 1,093,227.40
>6,153,147.05
11,250,000.00
12,985,969.18

205,170.08

8,292,073.75

161,045,947.61

LIABILITIES AND CAPITAL
Notes payable..................................................
Accounts payable----------- --------------- ---------Interest accrued_________ ________________
Dividends accrued_______ _______________
Reserve for Federal income taxes...... ..........
Purchase contract obligations..................... .
5 per cent gold debentures—Series A -------Reserve for investment securities............... .
Stock dividends accrued on com m on stock.
Intercom pany account...................................
Capital stock:
Prior preferred stock______ __________
Preferred stock........................................ .
Paid-in surplus resulting from war­
rants attaching to preferred stock....
Comm on s to c k ...................................... .
Surplus............................................ .................
Total liabilities and capital.
i Deduct.




27,875,000.00
18,946.04
85,236.56
285,899.17
28,000.00
16,968,630.00
2.469.000.00

27,875,000.00
512,323.45
171,810. 56
285,899.17
141,944.02
20,968,630.00
2.469.000.00

493,377.41
86,574.00
113,944.02
4,000,000.00

1.000.000.00

1.000.000.00

2,828,080.00

2,828,080.00
6,153,147.05

> 6,153,147.05

6,000,000.00

6,000,000.00

40,000,000.00

40,000,000.00
6,750,000.00
45,261,166.23
6,782,094.18

5,000.00
2,133,926.70

156,352,052.18

12,085,969.18

>5,000.00
2,133,926.70

6,750,000.00
45,261,166.23
6,782,094.18

18,292,073. 75 I 161,045,947.61

14 8 0

STOCK EXCHANGE PRACTICES

S ch e d u le K -2 .—

Consolidating balance sheet December 31, 1930, supporting Form
1120— Calendar year 1930
Insull Utility
Investments
(Inc.)

ASSETS
Cash...................................................................
$5,406,116.13
2,216,526.78
Notes and accounts receivable......................
13,615,930.45
D u e from subscribers to capital stock.........
626,029.38
Interest and dividends receivable...............
Organization expense.... .......................- ........
1,063.704.75
Furniture and fixtures....................................
20,299.94
51,456.34
Prepayments and deferred charges.............
Investment securities............................ ........ 236,188,509.39
1,547,597.46
Earnings receivable—Insull, Son & C o ___
Intercom pany account............................ ......
Investment in stock of subsidiary com ­
p a n y ...............................................................
3,245,000.00
Total assets.

Insull, Son &
Co.

Eliminations

$348,474.48
8,134,776.03
1 $837,420.00
283,648.73
91,843.44
17,443,714.63
6,800.82

204,300.70
1 1,123,392.01
>6,800.82

Consolidated

$5,754,590.61
10,351,302.81
12,778,510.45
910,578.11
1,063,704.75
20,299.94
143,299.78
253,836,524.72
424,205.45

13,245,000.00

263,982,070.62

26,309,258.13

44,227, 873.
U, 838.
941, 166.
1,816, 801.
282, 310.
895, 026.
2,469, 000.
.
55,256,

9,000,000.00
9,018,431.22
3,837,420.00
289,315.60

285,283,016.62

LIABILITIES
Notes payable................ ....... ;...................
Accounts payable..................... ...............
Purchase contract obligations..................
Interest accrued..........................................
D ividends accrued.....................................
Stock dividends accrued on com m on stock.
5 per cent gold debentures—Series A _____
6 per cent gold debentures—Series B _____
Reserve for investment securities............... .
Reserve for Federal income taxes............... .
Capital stock:
Prior preferred stock.............................. .
Preferred stock........................................ .
Comm on stock........................................ .
C om m on stock subscribed but not
issued..................................................... .
Com m on stock scrip unconverted____
Surplus............................................................
Paid-in surplus...............................................

000

2, 000, 000.




33,665.26

6,000,000.00

6,000,000.00
40,000,000.00
74,457,737.41
22,557,400.00
239,649.70
9,792,114.39
2,971,487.02

53,227,873.62
9,023,468.68
3,941,166.25
2,136,117.45
282,310.54
895,026.30
2.469.000.00
56.256.000.00

2.000.000.00

33, 665.

Total liabilities...................................... 263,982,070.62
‘ D edu ct.

1 6,800.82
1 837,420.00

2,000,000.00

2,000,000.00

2,164,091.31

12,164,091.31

26,309,258.13

1 5,008,312.13

40.000.000.00
74,457,737.41
22,557,400.00
239,649.70
9,792,114.39
2,971,487.02
285,283,016.62

S

chedule

L.— Reconciliation of net income and analysis of changes in surplus, supporting Form 1120— calendar year 1930
Second
P ublic Serv­
Utilities
ice Trust,
Syndicate,
period M ar.
Inc., period 1 to June 30,
Jan. 1 to
1930
June 30, 1930

N et taxable incom e (Schedule A ) ........................... . ............ ..................................................

$5,627,001.62

$1, 731,701.31

$7,393.41

4,117,901.41
4,968, 725.38

305,333. 33
220,740.96

18,197.67
36,636.45

Intercom pany
eliminations

Consolidated

$15,909.99

i $2, 589,560.64

1 $6,493,377. 53

16,434.08
80,221. 53

i 299, 384.09
i 163,055.36

4,158,482.40
5,143, 268.96

2,589,560.64

2, 658,807.37
4, 703,325. 98

69,246.73
4, 703,325.98

349, 751.88

349,751.88
2,244,199.98

1 2,025,164.61

219,035.37

30,000.00

30,000.00
526,074.29

54,834.12

96,655.61

101,956.58

17,262,671.96

10,856,149.74

2,257,775.60

62,227.53

80, 745. 62

i 2,487,604.06

10, 769,294. 43

3, 760.14
15,647.45
131,277.33
5,220.60

1,000.00

D educt:
Federal tax on interest_____ _________________ _____ __________ _____ __________
A djustm ent of book cost of stocks sold, for portion of cost assigned to subscrip­
tion rights____________ _______________________________ ___________ ____________
A djustm ent of cost of stocks of parent com pany sold in intercompany transac-

4, 760.14
15,647.45
131,277.33
5,220. 60

109,600.11

109,600.11
109,990.25
94,430.40
27,190.34

Adjustm ent of cost of stocks sold, for stock dividends included in cost__________
Expense of conversion of Insull U tility Investments (Inc.), debentures_________
Total d ed u ction s.......... ............................................................................................... .

265,505.63
10,590,644.11
6, 782,094.18

2,025,164.61
2,133,926.70

109,990.25
94,430.40
27,190.34

232,610.99

N et income as shown b y books of account.............................................................................
Surplus, beginning of period.....................................................................................................

498,116.62
62,227.53

80,745. 62
398, 367.77

* 2,487,604.06
i 2,532,294.47

10,271,177.81
6, 782,094.18

1481




PEACTICES

16,483,151.36

EXCHANGE

A d d:
D ividends on stocks of dom estic corporations................................................................
Stock dividends receiv ed ................................................ .................................................
Profit on com pany’s own stock reacquired and sold (including sale of subscrip­
tion rights)___ ________________________________________________________________
Cost assignable to stock subscription rights sold____ ____________________________
Amortization of discount and expense on debentures (entire amount of discount
and expense was charged to paid-in surplus; this adjustment reflects annual
amortization applicable to the year 1930)____ ____ ____________________________
Earnings of Insull, Son & C o. (In c.), and its foreign subsidiaries recorded on the
b ooks....................................... ............ .................................................. ..........................
Docum entary stamp tax on debentures, charged to discount and expense on
debentures, and thence to paid-in surplus (this amount not included in dis­
count and expense for annual amortization)............................ .............................. .

Insull, Son &
C o. (Inc.)

STOCK

Insull U tility
Investments
(Inc.)

L.— Reconciliation of net income and analysis of changes in surplus, supporting Form 1120— calendar year 1930— Continued

Insull U tility
Investm ents
(Inc.)

Insull, Son &
C o. (Inc.)

Second
P u b lic Serv­
Utilities
ice Trust,
Syndicate,
period M ar. Intercom pany
In c., period 1 to June 30,
eliminations
Jan. 1 to
1930
June 30, 1930

Other credits:
Adjustm ent of accrued interest receivable on notes receivable applicable to

Consolidated

$17,372,738.29

$5,576.50
17,058,848.49

$62,227.63

484,689.89

2,991,476.60 ]• 1,996,000.00
3,689,147.40

46,430.90

143,015.62

$i 5,019,898. 53

1 299,384.09
i 163,055.36 |
i 1,995,000.00

1,000,000.00

2,881,638.93
3,426,092.04
1,000,000.00

Total debits__________________________________________________ '_______________

7,680,623.90

1,996,000.00

46,430.90

143,015.62

> 2,457,439.45

7,307,630.97

Surplus, end of period.......................................................................................................

9,792,114.39

2,164,091.31

15,796.63

341,674.27

J 2,562,459.08

9, 751,217. 52




PEACTICES

1 Deduct.

EXCHANGE

$4,159,091.31

STOCK

$5,576.50

Debits to surplus:
D ividends paid—
Cash______________ __ ____________________________________ _______ ________
_
S tock_______________________________ _________________________________ ______

1482

Schedule

1483

STOCK EXCHANGE PRACTICES

Affiliations Schedule, taxable year ended December 31, 1930, parent corporation
Insull Utility Investments (Inc.), 72 West Adams Street, Chicago, III.

Name and address of cor­
poration

(1) Parent corporation: In­
sull U tility Investments
(Inc.).
Subsidiary corporation:
(2) Insull, Son & Co.
(Inc.), 20 North Wacker
Drive, Chicago, HI.
(3) Second Utilities Syn­
dicate (Inc.), 72 West
Adams St., Chicago,
111.
(4) Public Service Trust
Co., 72 West Adams St.,
Chicago, HI.

Date of incorportation

State or
country in
which in­
corporated

Capital stock out­
standing at begin­ Stock holdings at begin­
ning of year, par
ning of year
va lu e 1

Per
share

Total

December, 1928. Illinois___

»1,000

December, 1929. Delaware

Per
cent

Owned
b y cor­
pora­
tion
N o .—

>3,048,588

August, 1924___ __ d o ______

N um ­
ber of
shares

None.

........

July, 1918............ (<)

1,000

100

1

$60 1,000,000

1 A ll classes of stock outstanding must be shown except nonvoting stock which is both limited and pre­
ferred as to dividends.
* Shares (all classes) having no par value.
* Shares of no par valile.
4 B y trust agreement.
CHANGES IN STOCK HOLDINGS DURING THE YE A R

Corporation name

Stock­
Shares
holder
held at
(corpora­ beginning
tion N o.) of year

(3) Second Utilities Syn­
dicate (In c.)___________

1

(4) Public Service Trust.

1

None.
2,972

Changes
Per
cent

None.

Date

January
fJanuary
14.86 \t,o March }

Shares
acquired

10,000
17,028

Shares
disposed
of

Shares
held at
end of
year

Per
cent

2,500

7,500

75

5,000

15,000

75

N ote .— One hundred per cent capital stock of com pany N o. 3 was acquired early in January, 1930, shortly
after its issuance. Twenty-five per cent thereof was disposed of on June 30, 1930. Holdings of com pany
N o. 1 in com pany No. 4 reached 95 per cent of the total shortly after M ar. 1, 1930, the balance of 100 per cent
being acquired later. Twenty-five per cent thereof was disposed of on June 30, 1930.
R e m a r k s : Capital stock of Insull, Son & Co. (Inc.) (company No. 2) was
changed during year from no par value to stock of a par value of $100. A stock
dividend was also declared, so that at the end of the year Insull Utility Invest­
ments (Inc.) held 20,000 shares having a par value of $100 each, which is all of
the outstanding capital stock.

Mr. P e c o r a . N o w , Mr. Insull, I show you this pamphlet entitled
“ Report of Insull Utility Investments (Inc.) for the fiscal year ended
December 31, 1931/’ and ask you if that is the published report of
the financial operations and position of the company for that fiscal
year that was given to the public?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . And according to that report did the company have
net earnings for that year; and if so, how much?
Mr. I n s u l l . According to this report, on page 10, the net earnings
were $5,240,540.36.
Mr. P e c o r a . Mr. Chairman, I ask that that likewise be spread in
full on the minutes of the committee hearings.
The C h a i r m a n . There being no objection it is so ordered.
(The printed pamphlet headed “ Report of Insull Utility Invest­
ments (Inc.) for the fiscal year ended December 31, 1931,” was
marked “ Exhibit 8, ” and will here be printed in full in the proceedings:)



1484

STOCK EXCHANGE PRACTICES
E

R

eport of

Insull U

t il it y

x h ib it

8

I n v e s t m e n t s ( I n c .) f o r
D e c e m b e r 31, 1931

the

Y

ear

F

is c a l

E

nded

N OTICE OF ANN U AL M EETING OF STOCKHOLDERS
C h i c a g o , I I I . , January 27, 19S2.
The stockholders of Insull Utility Investments (Inc.), are hereby notified that
the regular annual meeting of the stockholders of said company will be held, pur­
suant to the by-laws at the Civic Theater, southwest corner of Wacker Drive and
Washington Street, in the city of Chicago, 111., on Monday, the 15th day of Febru­
ary, 1932, at 11 o ’clock a. m., for the purpose of electing a board of directors and of
transactions such other business as may properly be brought before such meetings.
All stockholders are requested to be present in person or by proxy. Stock­
holders who do not expect to be present in person are requested to sign the
enclosed proxy and return it to the company in the envelope enclosed for the
purpose.
J o h n F . O ’ K e e f e , Secretary.

Only stockholders of record on the books of the company at the close of busi­
ness on February 5, 1932, will be entitled to vote at said meeting.
Board of directors: Walter S. Brewster, Britton I. Budd, Edward J. Doyle,
Louis A. Ferguson, John F. Gilchrist, John H. Gulick, Martin J. Insull, Samuel
Insull, Samuel Insull, ji\, P. J. McEnroe, George F. Mitchell, Stuyvesant Peabody,
Marshall E. Sampsell, H. L. Stuart, Waldo F. Tobey.
Executive committee: Walter S. Brewster, Martin J. Insull, Edward J. Doyle,
Samuel Insull, H. L. Stuart, John H. Gulick, Samuel Insull, jr.
Finance committee: Walter S. Brewster, Martin J. Insull, Samuel Insull,
Samuel Insull, jr., H. L. Stuart.
Officers: Samuel Insull, chairman; Samuel Insull, jr., president; Martin J.
Insull, vice president; P. J. McEnroe, vice president; John F. O’Keefe, secretary
and treasurer; C. W. Daniels, assistant secretary and assistant treasurer; W. J.
McElligott, assistant secretary; W. R. Irwin, auditor.
Stock transfer agents: Utilities Stock Transfer Co., Chicago, 111.; Bankers
Trust Co., New York City, N. Y.
Registrars of stock: Central Republic Bank & Trust Co., Chicago, 111.; City
Bank Farmers Trust Co., New York City, N. Y.

To the Stockholders of Insull Utility Investments (In c.):
By direction of the board of directors, I submit to you herewith a report of the
company’s operations for the fiscal year ended December 31, 1931.
S a m u e l I n s u l l , Chairman.
To the Stockholders of Insull Utility Investments (In c.):
The board of directors submits this annual report for the fiscal year ended
December 31, 1931.
Following is a summary of the consolidated income account of the company
and its wholly owned subsidiary, Insull, Son & Co. (Inc.), for said fiscal year:
Income______________________________________________________ $12, 225, 643. 93
Expenses:
Administrative and general expenses_______ $750,117. 38
Provision for foreign exchange_____________
76, 897. 02
Provision for income taxes________________
27, 456. 18
---------------------854, 470. 58
Net income before interest charges___________________________
11, 371,173. 35
Interest charges:
Interest on 5 per cent gold debentures,
series A _________________________________
123, 320. 27
Interest on 6 per cent gold debentures,
series B _________________________________ 3 ,315,324 51
Interest on bank loans, etc________________ 2, 691, 988. 21
--------------------6, 130, 632. 99
N et incom e for the year________________________________________




5, 240, 540. 36

STOCK EXCHANGE PRACTICES

1485

The net income for the year 1931 was $5,240,540.36. The dividend require­
ments on the company’s prior preferred and preferred stocks amounted to
$2,888,125.95. The balance of income available for dividends on common stock
was, therefore, $2,352,414.41, which is equivalent to $0.70 per share on 3,359,100
shares, the average number of shares of common stock outstanding during the
year. As the company throughout the year paid dividends at the rate of 6 per
cent upon its common stock payable in common stock issued against earnings
and surplus on the basis of $20 per share, the company’s common stock dividend
requirements amounted to $3,977,962.80, which is $1,625,548.39 in excess of the
earnings for the year. This excess was charged against surplus previously accu­
mulated out of earnings. Subsequent to December 31,1931, the board of directors
has announced a suspension of dividends upon all classes of the companys’ stock;
This action was taken in the belief that in the present disturbed times the sound
policy for the company to pursue is to hold all of its earnings, irrespective of
what they may be, available to reduce the amount of its notes payable and other
indebtedness.
In the accounts of the company stock dividends received have been taken
upon the books of the company at their market value on the day received. On
this basis securities held in the investment account of the company on December
31, 1931, had an aggregate cost of $252,378,626.07, and an aggregate market
value of $77,975,461.66. These values in detail are shown in the list of securities
appended to this report. Since December 31 there has been a decline in market
values of securities generally and the securities owned by the company have
followed the general trend.
The major portion of the company’s portfolio consists (as it always has con­
sisted) of securities of well-established public-utility operating and holding com­
panies, namely, Commonwealth Edison Co., the Peoples Gas Light & Coke Co.,
Public Service Co. of Northern Illinois, Middle West Utilities Co. and subsidiaries,
and Midland United Co. and subsidiaries, all of which are under the same general
management as this company, a fact that gives to the management of this com­
pany intimate knowledge of the earning power and intrinsic value of the securities
held. The income of these companies, even during the trying year of 1931, has
been very satisfactory, and with one exception each of them has added to its
surplus during the year after taking care of all its dividend requirements. It
seems apparent, therefore, that the downward trend of the market values of the
securities of these companies during the year was the result of general market
conditions and that their present market value is no indication of their actual
intrinsic value.
The floating debt of the company as of December 31, 1931, represented by
bank loans and notes payable, amounts to $53,257,145, as shown by the balance
sheet appended hereto. This is a reduction of $5,219,073.92 from the amount
of bank loans and notes payable as of December 31, 1930. It was stated at the
last annual meeting of stockholders that the policy of the company for the year
1931 would be to make every effort to reduce this floating debt either through
the sale of miscellaneous preferred stocks in the company’s portfolio or by per­
manent financing. The policy so stated had to be abandoned as the year ad­
vanced. The demoralized financial conditions which prevailed throughout the
year made it impossible for the company to do any adantageous permanent
financing and inadvisable for the company to liquidate any substantial portion
of its miscellaneous securities.
The items appearing in the balance sheet as borrowed securities on the one
hand and loaned securities on the other represent in the main securities borrowed
from or loaned to affiliated companies, especially the Corporation Securities Co.
of Chicago. The securities loaned to the Corporation Securities Co. of Chicago
were so loaned to protect the very substantial investment which this company
has in the Corporation Securities Co. of Chicago. For the same reason the
company has advanced money from time to time to the Corporation Securities
Co. of Chicago and other institutions affiliated with the company and these
advances are included in the balance sheet uuder the title “ Notes and accounts
due by affiliated companies and others, partly secured.” If present conditions
continue, some of the securities loaned to affiliated companies will not be returned
and some of the notes and accounts due from them will not be paid. To protect
such contingencies a reserve has been set up against each of the two items.
During the first nine mon hs of the year the company purchased some of its
own securities. A portion of these were resold at an aggregate loss of $713,766.61.
The remainder were on hand on December 31, and were written down to their
market value on that date.



1486

STOCK EXCHANGE PRACTICES

This company and the Corporation Securities Co. of Chicago, which are under
the same general management, continue to pursue the same general policy in the
conduct of their respective affairs and to act together whenever the occasion arises.
Their ownership each in the other and the similarity of their investment portfolios
make this most desirable. In fact, the interests and objects of the two companies
are so nearly identical that in their reorganizations, which must come as soon as
financial conditions permit, they may even be consolidated with each other or
merged with a third company under the same general management, on some
mutually fair basis. This important subject is now receiving serious attention.
There was no change during the year in the number of shares outstanding of
prior preferred stock and preferred stock, first and second series, but 443,756
shares of common stock were issued during the year to satisfy common stock
subscribed for during the preceding year and paid for in 1931, and 196,455 shares
of common stock were issued as dividends on common stock.
On December 31, 1931, the company had a total of 51,678 stockholders after
eliminating duplications where stockholders held more than one class of stock.
On December 31, 1930, there were 43,737 stockholders after similar elimination.
Appended is a certificate of audit of the company’s books and accounts; a
balance sheet, income account, surplus account and a schedule of securities
owned, showing cost and market value on December 31, 1931, submitted after
an examination by Arthur Young & Co., certified public accountants.
By order of the board:
S a m u e l I n s u l l , Jr., President.
A

Y o u n g & Co.,
Chicago, February 9, 1982.

rthur

To the Chairman and Board of Directors, Insull Utility Investments (Inc.), Chicago.
D e a r S i r s : We have examined the accounts of Insull Utility Investments
(Inc.), and of its wholly owned subsidiary, Insull, Son & Co. (Inc.), for the year
ended December 31,1931, and certify that the accompanying consolidated balance
sheet, income account and surplus account are in accordance therewith and, in
our opinion, are drawn up to correctly exhibit the financial position of the com­
pany as of December 31, 1931, and the result of its operations for the year ended
that date, on the basis indicated. All securities held by the company were pro­
duced for our inspection or otherwise accounted for.
The list of investment securities appended hereto shows the cost value and mar­
ket value as of December 31, 1931.
Yours faithfully,
A

rthur

Y

oung,

Certified Public Accountants.
Statement of Insull Utility Investments (Inc.) and Insull, Son < Co. (Inc.) for the
fc
year ended December 81, 1981
CONSOLIDATED INCOME ACCOUNT

Income:
Cash dividends__________________________________________
Stock dividends, taken in at market value at date of re­
ceipt---------------------------------------------------------------------------Interest on bonds, notes, etc_____________________________
Sale of rights during year________________________________
Rights on hand, taken in at subsequent sale price________
Management fees________________________________________
Miscellaneous income____________________________________

$4, 449, 975. 72
5, 228,
851,
926,
500,
199,
68,

935.
547.
042.
543.
836.
763.

77
29
23.
50
00
42

Total_________ _______ ______ _________________________
Expenses:
Administrative and general expenses____
$750,117. 38
Provision for foreign exchange__________
76, 897. 02
Provision for income taxes______________
27, 456. 18
-------------------------

12,225,643.93

Net income before interest charges_____________________

11, 371,173. 35




854, 470. 58

STOCK EXCHANGE PRACTICES
Interest charges:
Interest on 5 per cent gold debentures,
series A ______________________________
Interest on 6 per cent gold debentures,
series B ______________________________
Interest on bank loans, etc______________

1487

$123, 320. 27
3, 315, 324. 51
2, 691, 988. 21
------ ’------!-----------

^
$6, 130, 632. 99

Net income for the year_______________________________

5, 240, 540. 36

CONSOLIDATED SULHPUS ACCOUNT

Surplus, Dec. 31, 1930____________________________________ ___
Net income for the year_____________ ______ _________________

$9, 792, 114. 39
5, 240, 540. 36

Total_______ _______________________ ______ ____________
Cash dividends paid and declared:
Prior preferred stock____________________
$325, 757. 29
Preferred stock, second series___________
2, 415, 702. 00
Preferred stock, first series______________
146, 666. 66
-------------------------

15, 032, 654. 75

Total_____________________ _______________ ____________
Stock dividend paid and declared on common stock at the rate
of 6 shares for every 100 shares per annum— 198,898-28/200
shares at $20 per share_____________________________________

12,144, 528. 80

Total__________________________________ _____ __________
Paid-in surplus, Dec. 31, 1930________________________________

8,166, 566. 00
2, 971, 487. 02

Total________________ ________ ______ _______ __________
Deduct:
Realized loss on purchase and sale of com­
$713, 766. 61
pany’s own securities_________________
Write-down of company’s own securities
purchased and on hand, to market
value, Dec. 31, 1931__________________
5, 702, 841. 26
Reserve against notes and accounts due by
affiliated companies and others________
10, 000, 000. 00
Reserve against investment securities
loaned to affiliated companies and
others________________________________ 12, 000, 000. 00
Reserve against company’s own securities
loaned to affiliated companies and
others_________________________ ______
100, 000. 00

11, 138, 053. 02

Total___________ ________ ____ _____
Less: Amount previously reserved for contin­
gencies------------------------------ -----------------------

2, 888, 125. 95

3, 977, 962. 80

28, 516, 607. 87
2,000,000.00
------ !------!-----------

26, 516, 607. 87

Deficit, Dec. 31, 1931________________________________________

15, 378, 554. 85

ASSETS

Cash.......................................................................................... ............
Notes and accounts due by affiliated comanies and others— partly secured________ $12,152, 418. 99
iess reserve_______________________________ 10, 000, 000. 00
------------------------Subscribers to common stock, 7,392 shares___________________
Deferred payment plan sales, Insull Utility Investments (Inc.),
common stock, 5,784 shares________________________________
Interest and dividends receivable____ _______ ______ __________
Organization expense, etc_______ _______ _____________________
Borrowed securities, at market value, per contra:
Pledged_____________ _______ ___________ $4, 085, 721. 50
Loaned—
--------- - ...........:
To affiliated company______________
780, 800. 00
T ooth ers_____ _____________________
12,656.00

$1, 679, 893. 85

793, 456. 00
------------- ’-----------

_
$4, 879, 177. 50

E




2, 152, 418. 99
256, 754. 58
250, 900. 59
229, 617. 99
1, 165, 569. 54

1488

STOCK EXCHANGE PRACTICES

Investment securities, at cost (aggregate mar­
ket value Dec. 31, 1931, $77,975,461.66):
Pledged_______ _____ ___________________ $206, 626, 035. 82
Unpledged______________________________ 32, 906, 651. 91
Total____________________ _______ 239, 532, 687. 73
Loaned—
■■ ■
■
■
T o affiliated companies, partly se­
cured____________________________
12, 677, 631. 52
168, 306. 82
To others__________________________
12, 845, 938. 34
Total_____________________ ______ 252,378,626.07
Less reserve against loaned securities____ 12, 000, 000. 00
Company’s own securities, at market value,
$240, 378, 626. 07
Dec. 31, 1931:
$7,000 5 per cent gold debentures, series A .
1, 680. 00
$37,000 6 per cent gold debentures, series
B __________________________________ _
11,100.00
1,212 shares prior preferred stock, first
series__________ _______ ______________
18,180. 00
20,249 shares preferred stock, second
series_________________________________
293, 610. 50
137,839.46 shares common stock______. . .
809, 806. 82
Total____________________ _______
Less reserve against loaned securities_ _
_

1,134, 377. 32
100, 000. 00

Of the above there are—
Pledged. _ _ ____________ _ _____________
712, 967. 25
Unpledged______________________________
75, 260. 07
■
■
■
■
Loaned—
— ■—.. —■
To affiliated company_____ _____ ___
235,000.00
T ooth ers________________ _____ _
111,150.00

^

346,150. 00
T o t a l.,_________ ________________
1,134, 377. 32
___________
Grand total_______________ _______ _______________ 252, 027, 336. 43
Notes payable:
liabilities
Bank loans, secured_____________________$51, 247, 500. 00
Others, partly secured_______ ; __________ : 2, 009, 645. 00
_
----------------------- -- $53, 257,145. 00
Accounts payable, partly secured_____________________________
1, 927, 504. 97
Taxes and interest accrued___________ _____ ___ ____________
145, 554. 00
Purchase contract obligations, due 1932-1934____ _____ ____ _
1, 202, 137. 50
Liability to deliver borrowed securities, at market value, per
contra, partly secured______________________________________
4, 879, 177. 50
Common stock dividend declared and payable Jan. 15, 1932, in
common stock______________________________________ ______
1, 085, 498. 40
Funded debt:
5 per cent gold debentures, series A, due
Jan. 1, 1949___________________ . . . . . .
$2, 469, 000. 00
6 per cent gold debentures, series B, due
Jan. 1, 1940__________ _______________
55,256,000.00
Capital stock:
— --------------------- 57,725,000.00
Prior preferred without par value— Au­
thorized 250,000 shares; issued, first
series $5.50 cumulative, 60,000 shares. .
6, 000, 000. 00
Preferred without par value, authorized,
500,000 shares—
Issued—
First series (entitled to cumula­
tive dividends, $5, 1932; $6,
1933, and thereafter), 40,000
shares_____ ____ ______ ___ ___
4, 000, 000. 00
Second series, $6 cumulative,
. 450,000 shares_______________ 36, 000, 000. 00



STOCK EXCHANGE PEACTICES

1489

Capital stock— Continued.
Common, without par value, authorized,
6,000,000 shares— Issued, including
scrip, 3,636,622 shares; subscribed but
not issued, 7,392 shares; total, 3,644,014
shares________________________________ $101, 183, 873. 91
Total______________________________ 147, 183, 873. 91
Deduct: Deficit______________________________ 15, 378, 554. 85
------------------------- $131, 805, 319. 06
( N o t e .— In addition to the above liabilities there is a con­
tingent liability arising out of participations by Insull Utility
Investments, Inc. and Insull, Son & Co. (Inc.), in an unclosed
stock syndicate. If the syndicate had been liquidated as of
Dec. 31, 1931, there would have been a combined loss to the
two companies of $1,585,254.65. Dividends have not been ac­
crued on preferred stock, second series and preferred stock, first
series, for the month of December, 1931.)
Total_________________________________________________

252,027,336.43

Insull Utility Investments (Inc.), including Insull, Son & Co. (Inc.), Investment
Securities, December 31, 1931
Shares
Cost

Market value
Dec. 31, 1931

539, 564

$9,157,601. 70

$2,697,820.00

181,639

59,858,874.64

21,615,041.00

675, 278
371, 755

14, 516,681.89
18,051,962.40

1, 519,376.75
1, 765,836. 25

51,082 2,895,096
145
19,645

62,441, 209. 23
1,969,696.11

17,370,576.00
751,421.25

Pledged
Central & South West Utilities
Co., common stock (M iddle
West Utilities Co. subsidiary)Commonwealth Edison Co.,

U n­
pledged

Loaned

451,842

82, 722

5,000
3,024
3,000
3,000

178,615
Corporation Securities Co. of
Chicago:
Comm on stock_____________
504, 508
$3 optional preferred s to c k .. 327,908
M iddle West Utilities Co.:
Comm on stock_____________ 2,438,818
$6 convertible preferred stock
18, 725
M idland United Co.:
Comm on stock_____________
134,459
7 per cent prior-lien stock___
5,078
7 per cent preferred stock,
603
6 per cent prior-lien stock___
7,843
6 per cent preferred stock,
3,491
North American Light & Power
Co., com m on stock___________
42,402
The Peoples Gas Light & Coke
Co., capital stock____________
120,948
Public Service Co. of Northern
44,205
Public Service Trust, participa-

167,770
40,847
405,196
775
11,191
1,000

Total

5,400

151,050
6,078

3,595,432.91
664,339.19

906,300.00
303,140.25

1,000

1,603
10, 571

161, 582.30
1,036, 264.37

80,150.00
496,837.00

2,728

5,300

429,193.36

202,095.00

3,771,064. 53

1,540,177.50

23,187

144,137

42,741,122.19

17,008,166.00

13,990

58,195

16,416,659.18

7, 538,975.00

15,000
Seaboard Public Service Co.,
$3.25 convertible preferred
stock (M iddle West Utilities
Co. subsidiary)____________ _
Second Utilities Syndicate (In c.),
capital stock______ __________

4,491
61,607

15,000

3,145,837.40

89

5,389

237,116.00

188,615.00

7,500

7,500

1,630,300.00

1 363,300.00

1,000
19,205
2

(')

Miscellaneous investments:
1,928,718.31
10,258,374.16
366,596.20
Total____ _____ __________

12,553,688.67

3,627,634.66

252,378,626.07

77,975,461.66

1 Market value based on liquidating value.

Mr. P e c o r a . Mr. Insull, I now show you a photostatic copy of
what purports to be the corporation income tax return for the calendar
year 1931 of Insull Utility Investments (Inc.), which was also ob­
tained from the files of the company at its Chicago office, and ask you
119852—33— pt 5------ 7



14 90

STOCK EXCHANGE PRACTICES

if that reports to the Government earnings of $5,240,540.36, or any
earnings whatsoever?
Mr. I nsull . On the line marked “ Net income” I see the word
“ red” is written in, which I assume was because in photostating the
red figures, if there were such, did not show.
Mr. P e c o r a . The earnings there are shown in red?
Mr. I nsull . Yes; which I should take it to mean to be a loss.
Mr. P ecora . You know it to be a loss as shown there, don’t you?
Mr. I nsull . Well, I did not make up the report.
Mr. P ecora . But as you read it you know it is referred to there
as a loss?
M r. I nsull . It says “ net incom e,” and then it says “ red,” which
I take it to be a loss of $9,213,586.03.
Mr. P ecora . Mr. Chairman, I ask that that may be spread in full

on the record.
The C h airman . Without objection it is so ordered.
(The photostatic copy of corporation income tax return for the
calendar year 1931 of Insull Utility Investments (Inc.), was marked
“ Exhibit 9,” and will here be printed in the record:)
Exh
C

o r p o r a t io n

Income

T

ax

R

ib it

eturn

9
for

C

alendar

Y

ear

1931

Insull Utility Investments (Inc.), 72 West Adams Street, Chicago, 111.
Date of incorporation: December, 1928.
Under the laws of what State or country: Illinois.
Kind of business: Investments.
Is this a consolidated return of two or more corporations? Yes; if so, how
many? Two.
g ro ss

in c o m e

5. Interest on bank deposits, notes, mortgages,
$860, 292. 73
and corporation bonds___________________
8. Profit from sale of real estate, stocks, bonds,
and other capital assets (From Schedule B) _ 1 866, 333. 66
9. Dividends on stock of domestic corporations. 4, 441, 346. 20
10. Other income (including dividends received
on stock of foreign corporations):
(a) Dividends on stocks of foreign cor­
4, 014. 46
porations_______________ ________
(b) Profit from syndicate participations.
9, 254. 29
199, 836. 00
(c) Management fees__________________
11.
Total income in items 3 to 10__________________ $4, 648, 410. 02
DEDUCTIONS

12.
13.
15.
16.
19.
20.

Compensation of officers (from Schedule C)__
24, 056. 00
Rent on business property__________________
18, 324. 40
Interest____________________________________ 6, 139, 526. 74
Taxes (from Schedule E )___________________
74, 066. 55
Dividends (from Schedule H )_______________ 4, 441, 346. 20
Depreciation (resulting from exhaustion, wear
and tear, or obsolescence) (from Schedule I) _
1, 099. 50
22. Other deductions not reported above:
(b) Net loss for 1929-1930 (submit
schedule)____ ____________________ 2, 335, 345. 13
(c) Other deductions__________________
828, 231. 53
23.
Total deductions in items 12 to 22_______________ 13,861,996.05
24.
Net income (item 11 minus item
23) as per Schedule A attached______________ 1 9, 213, 586. 03
1Loss.




1491

STOCK EXCHANGE PEACTICES
COMPUTATION OP T A X

25. Net low (item 24 above): $9,213, 586.03.
33. Balance of tax (item 30 minus items 31 and 32): None.
Q

u e s t io n s

Kind of business: Class H, Investments.
AFFILIATION S W ITH OTHER CORPORATIONS

4. Is this a consolidated return of two or more corporations? Yes.
5. Did the corporation file a consolidated return for the preceding taxable year?
Yes.
PREDECESSOR BUSINESS

6. Did the corporation file a return under the same name for the preceding
taxable year? Yes. Was the corporation in any way an outgrowth, result, con­
tinuation, or reorganization of a business or businesses in existence during this
or any prior year since December 31, 1917? No.
BASIS OF RETURN

7. Is this return made on the basis of actual receipts and disbursements? No,
If not, describe fully what other basis or method was used in computing net
income. Accrual basis.
LIST OF ATTACHED SCHEDULES

9.
Enter below a list of all schedules accompanying this return, giving for each
a brief title and the schedule number. The name and address of the corporation
should be placed on each separate schedule accompanying the return:
Schedule A, consolidating income statement.
Schedule B, profit and loss from sale of securities.
Schedule C, compensation of officers.
Schedule 22 (b), net loss of prior year.
Schedule 22 (c), other deductions.
Schedules K - l and K -2, balance sheets.
Schedule L, reconciliation of net income and analysis of changes in surplus.
Forms 851 and 1122.
The corporation's books are in care of P. J. McEnroe, 72 W. Adams Street,
Chicago, 111.
T reasu ry D epartm en t,
I n t e r n a l R e v e n u e Se r v ic e ,

Chicago, III., March 15, 1932„
I nsull

U t il it y

In vestm en ts

( I n c .) ,

Chicago, III.
In compliance with request dated March 15, 1932, you are hereby
granted an extension of time to June 15, 1932, within which to file your return of
income for the year ending December 31, 1931.
A tentative return properly signed and sworn to must be filed on or before
March 15, 1932, and payment made at that time of not less than one-fourth of
the total estimated tax shown thereon to be due.
Any deficiency in the first installment of tax will bear interest at the rate of
one-half of 1 per cent a month fro mthe original due date.
By a “ tentative return” is meant a return on the appropriate income tax
form showing only the name and address of the taxpayer and the estimated
amount, if any, of the tax due. The items and schedules shown on the form need
not be filled in.
A copy of this letter must be attached to both the tentative and completed
returns, as authority for the extension of time for filing herein granted.
G

entlem en

:




D

a v id

B

G

regory

urnet,

Commissioner.
T.

V

an

M

eter

,

Collector,

1 49 2

STOCK EXCHANGE PRACTICES
Insull U

S chedule

A.

t il it y

I n v e s t m e n t s ( I n c .)

-Consolidating income statement, supporting Form 1120, calendar
year 1931
Insull Utility
Investments
(Inc.)

Gross income:
Interest received_______ ____________
Profit and loss from sale of securities
(Schedule B ) . . . ............................... .
Dividends on stocks of domestic cor­
porations....... ................. ....................
Other income—
Cash dividends on stocks of
foreign corporations.....................
Profit from syndicate participa­
tions. ..............................................
Management fees............................
T otal gross income .
.Deductions:
Compensation of officers (Sched­
ule C )...................................................
R ent________________________________
Interest...... ............................................. .
Taxes................................. ......................
Cash dividends on stocks of domestic
corporations.........................................
Depreciation..........................................
Other deductions (Schedule 22 ( c ) ) . . .

Insull, Son &
Co. (Inc.)

$295,984.18

$564,308.55

J 132,408.60

» 733,925.06

4,219,936.24

278,762.67

Intercom ­
pany elimi­
nations

Consolidated

$860,292.73"
866,333.66
i $57,352.71

4,441,346. 20s

4,014.46

4,014.46

199,836.00

9,254.29
199,836.00

9,254.29
4,392,766.11

312,996.62

12,936.00
8,324.40
5,466,249.33
72,652.87

673,277.41
1,413.68

i 57,352.71

,
,

11 120.00
10 000.00

4,219,936.24
1,099.50
778,635.01

278, 762.67

T otal.................................................

10,559,833.35

1,024,170.28

Balance___________ ___________
Net loss of prior year (Schedule 22 (b )).

i 6,167,067.24

4,648,410.02

24,056.00
18,324.4a
6,139, 526.74
74,066.55

• 711,173. (

i 57,352. 71

49,596.52
1 57,352.71

4,441,346.20
1,099.50
828,231.53
11,526,650.92
i 6,878,240.90
2,335,345.13

Taxable net income, loss.

i 9,213,586.03

1 Loss.
Schedule

B.— Profit and loss from sale of securities supportimg Form 1120,
calendar year 1931
Description

Insull U tility Investments (Inc.):
129 shares M iddle W est Utilities Co. convertible
preferred......................................................... .........
6,667-252/100 shares Cities Service Co. com m on

Date ac­
quired

Am ount re­
ceived

Basis

Profit or

288 shares Central & Southwest Utilities Co. pre­
ferred s t o c k ............................................................
5 shares Lake Superior District Power C o---------2,298 shares Public Service Co. of Northern Illi­
nois 6 per cent preferred.................................. .
1,820 shares Public Service Co. of Northern Illi­
nois 7 per cent preferred............. ..........................
$100,000 par value Chicago N orth Shore & M il­
waukee R . R . 6 per cent gold notes— ...............
$25,290 par value Cities Service Co. 5 per cent
debentures-----------------------------------------------------52,907 stock subscription rights, Peoples Gas
Light & Coke C o ......................................- ............
13,771 stock subscription rights, P ublic Service
Co. of Northern Illinois.........................................
10,345 stock subscription rights, P ublic Service
Co. of Northern Illinois.......... .............................
72,618 stock subscription rights, Peoples Gas
Light & Coke C o ____________________________
T ota l.
Insull, Son & Co. (In c.):
Loss on sales of securities during year (including
loss on sales of stocks of Insull U tility Invest­
ments (Inc.)) particulars are shown b y rec­
ords o f the com pany..............................................
i Loss.




1929

$12,126.00

$13,606.53

i $1,480.53

1929-1931

132,495.69

105,980.87

i 26,514.82

1929
1929

27,492.50
500.00

28.368.00
520.00

1 875.50
120.00

1929-30

271.164.00

194,327.02

76,836.98

1929-30

218.400.00

171,046.74

47,353.26

1930

100,000.00

98.120.00

1,880.00

1930

20,209.62

25.290.00

i 5,080.38

1930

529.070.00

515,843.25

13,226.76

1930

232,385.63

220,336.00

12,049.63

1930

174,571.87

211,329.41

i 36,757.54

1930

726,193.98

992,250.07

i 266,056.09

2,444,609.29

2,577,017.89

1 132,408.60

733,925.06

1493

STOCK EXCHANGE PEACTICES
Schedule

C .— Compensation of officers supporting Form 1120, calendar year 1981
Shares of stock
held
Official title

Tim e
de­
voted
to busi­
ness

P a r t ..
Secretary and treasurer............. . . . d o . .
__ d o . .
__ d o__
W . R . Irwin......................
...d o ..
...d o ..
Assistant secretary..................... . . . d o . _
__ d o . .
All

Com ­
mon

3,204
1,260
246

Pre­
ferred

100

Compensation

Insull
Utility
Invest­
ments
(Inc.)
$6,120
2,820
1,116
2,880

$4,500
3,000
500
1,200
1,920
12,936

Schedule

Insull,
Son &
Co.
(Inc.)

11,120

22 (b).— Net loss of prior year supporting Form 1120, calendar year 1931

Consolidated loss as shown by return filed for the calendar year
1930________________________________________________________ $6, 493, 377. 53
Deduct: Dividends on stocks of domestic corporations_________
4, 158, 032. 40
Net loss of prior year deducted in Schedule A __________
Schedule

2, 335, 345. 13

22(c).— Other deductions supporting Form 1120, calendar year 1931
Insull Utility Insull, Son
Investments & Co. (Inc.)
(Inc.)

Advertising....................... ..................... .......... ..................
Alterations_____________ _________________________
Commissions....................................................- ..................
Directors’ fees.......................... ...........................................
Expense on debentures_____________________________
D ividend expense............................- ................................
Exchange_________ _____- ....................- .............................
Executive committee fees..................................................
Expense of New Y ork o ffic e ......................................... .
Expense of stockholders meetings...... .............................
Finance committee fees......................................................
Insurance............ .................................. ..................- ...........
Legal and accounting..................................... - ................ .
Miscellaneous____ _____- ....................................... ...........
Office salaries— ..................................................................
Office supplies..____ ________________________________
Periodicals and financial services....................................
Printing and postage........ ................................... .............
Registrars’ fees and expenses...........................................
Stock expense...... ...............................................................
Telephone and telegraph............. ...................................
Transfer fees and expenses................................................
Amortization of discount and expense on debentures.
Traveling expenses........ ....................................................
London expense.......................... ................ ......................
Total-




$42,643.
231.
5.
940.
31,080.
63,455.
161.
460.
1,833.
20,964.
1,440.
2,722.
52,541.
3,498.
29,903.
3,395.
619.
1,707.
16,489.
50,780.
1,262.
107,287.
345,213.

$3,994.30

10,725.00
874.99
6,872.50
994.67
5,542.86
15,992.20

1,000.00

Consoli­
dated

$42,643.02
231.13
5.00
940.00
31,080.53
63.455.30
181.15
460.00
5,827.63
20.964.31
1,44a 00
2,722.59
63,266.35
4,373.12
36,776.06
4.390.29
619.26
7.250.29
16.489.75
50,780.38
17.254.76
107,287.55
345,213.06

1,000.00

3,600.00
778, 635.01

3,600.00'

49, 596. 52

828, 231.53

1494

STOCK EXCHANGE PRACTICES

Schedule

K - l . — Consolidating

balance sheet, December 31, 1930, supporting
Form 1120, calendar year 1931
Insull Utility
Investments
(Inc.)

Insull, Son &
Co.

Eliminations

Consolidated

ASSETS

Cash......................................................

$5,406,116.13

Notes and accounts receivable..............
2,216,526. 78
Due from subscribers to capital stock.. 13,615,930.45
Interest and dividends receivable.........
626,929. 38
Organization expense..............................
1,063, 704. 75
Furniture and fixtures...........................
20,299.94
Prepayments and deferred charges.......
51,456.34
Investment securities........................ .
236,188,509.39
Earnings receivable—Insull, Son & Co.
1, 547,597.46
Intercompay account............................
Investment in stock of subsidiary com­
pany..................... ..............................
3,245,000.00
Total assets .

$348,474.48
8,134,776.03
i $837,420.00
283,648.73
91,843.44
17,443,714.63
6,800.82

204,300. 70
» 1,123,392.01
i 6,800.82

$5,754,590.61
10,351,302.81
12,778,510.45
910, 578.11
1,063,704.75
20,299.94
143,299.78
253,836,524.72
424,205.45

i 3,245,000.00

263,982,070. 62

26,309,258.13

15,008,312.13

285,283,016. 62

44,227,873.62
11,838.28
941,166. 25
1,846,801.85
282,310. 54

9,000,000.00
9,018,431. 22
3,837,420. 00
289,315. 60

i 6,800.82
i 837,420.00

53,227,873.62
9,023,468.68
3,941,166.25
2,136,117.45
282,310.54

LIABILITIES

Notes payable.................. ......................
Accounts payable...................................
Purchase contract obligations____ ____
Interest accrued......................................
Dividends accrued................................
Stock dividends accrued on common
►stock__________ ______ _____ _____ _
5'per cent gold debentures, series A ___
6 per cent gold debentures, series B ___
Reserve for investment securities_____
Reserve for Federal income taxes..........
Capital stock:
Prior preferred stock........................
Preferred stock................................
Common stock__________________
Common stock subscribed but not
issued.......................... .................
Common stock scrip unconverted..
Surplus....................................................
Paid-in surplus.......................... ............
Total liabilities.

895,026.30
2.469.000.00
55.256.000.00

895,026.30
2.469.000.00
55.256.000.00

2.000.000.00

2.000.000.00

33, 665. 26

33,665.26

6,000,000.00

6,000,000.00

40.000.000.00
74,457,737.41
22,557,400.00
239,649. 70
9,792,114.39
2,971,487.02
263,982,070.82

2,000,000.00

i 2,000,000.00

2,164,091.31

1 2,164,091. 31

26,309,258.13

15,008,312.13

40.000.000.00
74,457,737.41
22,557,400.00
239,649.70
9,792,114.39
2,971,487.02
285,283,016.62

i D educt.
Schedule

K -2 .—

Consolidating balance sheet December 1, 1931, supporting Form
1120, calendar year 1931
Insull Utility
Investments
(Inc.)

Insull Son &
C o. (Inc.)

$1,513,393.88
6,883,741.99
256,754.58
164,660. 30
1,063,704.75
21,351.17
78,195.47
244,985,830. 21
Advances to subsidiary com pany........ .
4,651, 516.31
Investment in stock of subsidiary com3,245,000.00

$42,486.35
5,453, 706.41

Inter-Company
eliminations

Consolidated

A SSETS

Cash.... ............ ..................................... .......
Notes and accounts receivable...............
D ue from subscribers to capital s to c k ...
Interest and dividends receivable...........
Organization expense........... ....................
Furniture and fixtures_________________
Prepayments and deferred charges........

Total assets............... .......................

66,492.25
2,068. 43
8,180,065.28

$204,300.70
i 4,651,516.31

$1,555,880.23
12, 337,448.40
256, 754.58
231,152.55
1,063, 704. 75
21,351.17
80, 263.90
253,370,196.19

i 3,245,000.00

262,864,148.66

13,744,818.72

45, 897,145.00
35, 237.72
1,130, 812.50
69,991.84
82,800.00

7,360,000.00
1,806.030.32
88,200.00

17,692,215.61

268,916, 751.77

L IA B IL IT IE S A N D CAPITAL

Notes p a ya b le................................... .........
Accounts payable.......................................
Interest accrued_________ ______ _______

53, 257,145.00
1,841,268.04
1,219,012.50
69,991.84
82,800.00

Stock dividends accrued on com m on
5 per cent gold debentures, series A ........
6 per cent gold debentures, series B ____
i Deduct.




1,085,498.40
2,469,000.00
55, 256,000. 00

1,085,498.40
2,469,000.00
55, 256,000.00

1495

STOCK EXCHANGE PRACTICES
Schedule

K -2 . — Consolidating balance sheet December 1, 1981, supporting Form
1120, calendar year 1981— Continued
Insull Utility
Investments
(Inc.)

Unclaimed dividends................................
$999. 65
33,665.26
Reserve for incom e taxes............... ..........
Reserves:
6,000,000.00
For notes and accounts receivable..
For investment securities lo a n e d ... 12 000 000.00
Advances from affiliated com p a n y..___
Capital stock:
6,000,000.00
Prior preferred stock....................... .
Preferred stock____ ________________ 40, 000,000.00
Com m on stock___ _________________ 100,814,273.91
369,600.00
Comm on stock subscribed_________
Surplus_______ ________________________ i 8,380, 875.62

,,

Total liabilities and capital...........

262,864,148.66

Insull Son &
Co. (Inc.)

Inter-Company
eliminations

Consolidated

$999.65
33,665.26

, ,
, ,

10 000 000.00
12 100 000.00

$4,000,000.00

100,000.00

4, 651, 516.31

>$4,651,516. 31

2,000,000.00

i 2,000,000.00

! 6, 260, 927. 91
13, 744,818.72

J 1,040, 699.30

40,000,000.00
100,814,273.91
369,600.00
* 15, 682,502.83

i 7,692, 215.61

268,916,751.77

6,000,000.00

1 Deduct.
Schedule

L.— Reconciliation of net income and analysis of changes in surplus,
supporting Form 1120, calendar year 1981
Insull U tility
Investments
(Inc.)

Insull, Son &
Eliminations Consolidated
Co. (Inc.)
$9,213, 586. 03
2, 335,345.13

i $6,167,067. 24 i $711,173. 66
Add:
Dividends on stocks of domestic cor­
porations______________________________
Stock dividends received________________
Cost assignable to subscription rights sold.
Subscription rights taken into income at
market price (not sold in 1931)________
Amortization of discount and expense on
debentures applicable to 1931 (entire

4, 219,936. 24
5,145, 467.00
1, 203, 579.48

278, 762.67
177,906.07

6,878, 240.90

i $57,352. 71

4,441,346.20
5,323, 373.07
1,203,579.48

500, 543. 50

500,543. 50

345, 213.06

345, 213.06

Amortization of office improvements, etc.
1,044.00
Total additions ____________________

1,044.00

11, 415, 783. 28
5,248, 716.04

456, 668. 74
i 254,504.92

i 57, 352. 71
i 57,352. 71

11,815, 099. 31
4,936,858.41

22,670, 20
31, 265.91

1,000.00

23,670.20
31, 265.91

22, 438. 89

66,898.04

89,336.93

Deduct:
Adjustment of cost of stocks sold, for
stock dividends included........................
Adjustment of cost of stocks sold, for por­
tion of cost assigned to subscription
Total d eductions............................ .......
N et income as shown b y books of account___
Surplus beginning of period...............................
Other credits:
Paid-in surplus transferred_______ ______
Reserve for investment securities transProfit on sale of com pany’s own s tock s.~
T otal...................................................... .......
Debits to surplus:
Earnings receivable from Insull, Son &
Co. (Inc.), reversed___________ ________
Write-down to market value of securities
of Insull U tility Investments (Inc.),
reacquired____________________________
Reserved for notes and accounts receivable.
Reserved for investment securities

156, 689.43
233,064.43
5,015,651.61
9, 792,114.39

156,689.43
67,898.04
i 332,402.96
i 57, 352.71
2,164,091.31 12,164,091.31

300,962.47
4,635,895.94
9, 792,114.39

2,971,487.02

2,971,487.02

2,000,000. 00
7,316.91

2, 000,000.00
7, 316.91

19, 786, 569.93

1,841, 688.35 12,221,444.02

19, 406.814.26

1,547,597.46

1,123,392.01

424, 205. 45

1, 597, 269. 33
6,000, O X 00
C ).

4,002,616.26
4,000,000.00

12,000,000.00

5,599,885.59
10,000,000.00

100,000.00

12,100,000.00

Dividends paid:
57, 352.71

2,892,825.95
4,072,400.10

28,167, 445. 55 8,102, 616. 26 1,180,744.72
i 8,380,875.62 <6,260,927.91 11,040,699.30

35,089,317.09
15,682,502.83

2, 950,178.66
4,072,400.10
Total debits........................ ..................
Surplus, end of period..........................................




1496

STOCK EXCHANGE PEACTICES
A f f il i a t io n s S c h e d u l e

Taxable year ended December 31, 1931.
Parent corporation: Insull Utility Investments (Inc.).
: Address: 72 West Adams Street, Chicago, 111.
The information required below must be submitted for all corporations which
are affiliated. This includes all corporations in which at least 95 per cent of the
stock is owned directly by the parent corporation, and in which an aggregate of
at least 95 per cent of the stock is owned directly by the parent corporation and/or
one or more of the other corporations, the income of which is included in the con­
solidated returns. See section 141 of the revenue act of 1928, and articles 711
to 715 of regulations 74 and articles 1 to 16 of regulations 75.

State or
No.

1
2

Name and address of
corporation

Parent corporation: In­
sull Utility Invest­
ments (Inc.).
Subsidiary corporation:
Insull, Son & Co.
(Inc.), 72 W. Adams
St., Chicago, Hi.

Date of incor­
poration

Capital stock
outstanding at
beginning of
year (par value)

in which
incor­
porated Per
share

Total

Stock holdings at
beginning of year

Number
of shares

Per
cent

Owned
by cor*
poration,
num­
ber—

100

1

13,546,411

December, 1928—
August, 1924___ — do___ $100 $2,000,000

20,000

1 Shares (all classes) having no par value.

Changes in stock holdings during the year, no change.
We, the undersigned president and treasurer of the parent corporation, being
severally duly sworn, each for himself deposes and says that the above informa*
tion and statements have been examined by him and are, to the best of his knowl­
edge and belief, true and complete for the taxable year as stated.
P. J. M c E l l r o e ,
Vice President.
Jo h n

F. O 'K e e f e ,
Treasurer.

Mr. P e c o r a . N o w , Mr. Insull-----Mr. I n s u l l (interposing). I notice here under “ Deductions” as I
said before, and I can not testify to income tax because I do not know
much about it, but the explanation of these discrepancies may exist
in these deductions, in items 12 to 24. I notice here such things as
dividends $4,441,346.20, that is treated as a deduction. I do not
know why it is so treated, but I mention it as possibly explaining
certain deductions allowable under the income tax law, that perhaps
those figures in items 12 to 24 may properly reconcile that statement
on an accounting basis with the annual reports.
Senator B r o o k h a r t . D o you mean to say by that, that dividends
paid to stockholders are deducted from the earnings of the company?
Mr. I n s u l l . I do not know what that means. But quite naturally
this raises a question in my mind. Shall I look at this report to see
what the deductions were?
Senator B r o o k h a r t . The Federal income tax law as to corporations
has no such provision as that.
Mr. I n s u l l . I have never heard of it.




STOCK EXCHANGE PRACTICES

1497

Mr. P e c o r a . Mr, Insull, during the years covered by these two
reports, 1930 and 1931, did Insim Utility Investments (Inc.) offer
and sell its securities to the public on the basis of a return of the net
earnings that have been reported in these two pamphlets?
Mr. I n s u l l . I n 1930 a n d 1931?
Mr. P e c o r a . Yes.
Mr. I n s u l l . Yes, sir; through dealers.
Mr. P e c o r a . Through dealers?
Mr. I n s u l l . Yes, sir.
Senator B r o o k h a r t . And through banks?
Mr. I n s u l l . I do not know. Did you say the Insull Utilities sold
through banks?
Senator B r o o k h a r t . That is m y question.
Mr. I n s u l l . Senator, the Insull Utilities in 1930, in January, sold
to Halsey, Stuart & Co. an issue of debentures, and I think some of
those—and that is purely hearsay on my part, but you can develop it
because advertisements were printed—I think those securities were
also distributed by banks. But so far as the company knew we sold
them to Halsey, Stuart & Co.
Senator B r o o k h a r t . On the basis of these net earnings as shown
in these reports?
Mr. I n s u l l . Yes, sir.
Senator B r o o k h a r t . And then after showing those great earnings
or income, the income tax report showed losses in each case?
Mr. I n s u l l . I do not know that it is so in each and every case, but
as reported.
Senator B r o o k h a r t . In this last case, where there were shown
something like $4,000,000 o f net earnings there was shown a loss Of
some $9,000,000 on the income tax report?
Mr. I n s u l l . Yes; there is a $9,000,000 loss shown, but I think the
earnings as shown were about $5,000,000.
Mr. P e c o r a . Mr. Insull, I asked you before if you were not a
member of the finance committee of Insull Utility Investments (Inc.),
and you said yes, I believe.
Mr. I n s u l l . Yes.
Mr. P e c o r a . And if that finance committee met at frequent
intervals.
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . That is, about every week.
Mr. I n s u l l . About every Monday morning.
Mr. P e c o r a . I show you this book entitled “ Insull Utility Invest­
ments (Inc.) Finance Committee,” and ask you if you recognize it as
being the original minute book of the finance committee of that
corporation.
Mr. I n s u l l . I f I might ask Mr. McEnroe, as it is his signature.
Mr. P e c o r a . All rig h t.
Mr. I n s u l l . Yes; mis is the book.
Mr. P e c o r a . N o w , may I have it back again?
Mr. I n s u l l . Yes; certainly.
Mr. P e c o r a . You were quite regular in your attendance at the
meetings of the finance committee, were you not?
Mr. I n s u l l . Yes, sir; I attended every time I was in town, and I
was in town the most of the time.



1498

STOCK EXCHANGE PRACTICES

Mr. P ecora . Let me call your attention to the following excerpt
from the minutes of the regular meeting of the finance committee of
Insull Utility Investments (Inc.), held on Monday, July 29, 1929,
which I will read from page 54:
The president then reported that he had made application through Goldman,
Sacks & Co. (Inc.) for participation in the underwriting syndicate of 25,000
shares of optional 6 per cent preference stock, at $50 par value, and 25,000 shares
of no par common stock of the Shenandoah Corporation, but that he had done
so with the knowledge that he would need 1,000 shares of each class of stock to
take care of certain people.

Do you know what that refers to?
Mr. I n s u l l . D o you mean to the Shenandoah Corporation?
Mr. P e c o r a . N o; to take care of certain people. What was that?
Mr. I n s u l l . No, sir; I do not.
Mr. P e c o r a . You were present at that meeting, were you not?
Mr. I n s u l l . Yes, sir.
Mr. P ecora . And the chairman referred to in that entry was your
father, was he not?
Mr. I n s u l l . Yes, sir.
Mr. P e c o r a . Haven’t you any recollection of what that item from
the minutes of that meeting refers to?
Mr. I n s u l l . No; except that I have only the impression that he
did not tell me who the 1,000 shares were for, or I would probably have
remembered it. He might have told me and I might have forgotten it.
Mr. P ecora . Do you know any people whom your father was
under obligation to at that time to take care of?
Mr. I n s u l l . No; not in this sense— I mean except in this sense,
that he was supporting members of his family and that sort of thing.
Mr. P ecora . Was he supporting members of his family at the ex­
pense of this corporation?
Mr. I n s u l l . N o, sir.
Mr. P ecora . Was it a usual thing for a request of the kind I have
read to be made to the members of the finance committee, to take care
of certain people?
Mr. I n s u l l . Well, I do not draw the inference from this-----Mr. P ecora (interposing). No; I am simply asking now if that was
the usual thing.
Mr. I n s u l l . N o, sir.
Mr. P ecora . I s this the only instance you can recall where such a
request was presented or reported to the finance committee for con­
sideration?
Mr. I n s u l l . The only one I recall, although there might be others.
Mr. P ecora . It being the only one of its kind, don’t you recall
what your father may have said regarding why it was made, why he
was to take care of certain people?
Mr. I n s u l l . N o ; q u ite h o n e s tly I d o n o t.
Mr. P ecora . Y ou voted for corporate action that had the effect
of enabling your father to take care of certain people in the fashion
indicated by the minutes, didn’t you?
Mr. I n s u l l . But in taking care of them I take it as meaning this
corporation did not put up the money and the other people get the
stock; that a part of the subscription was assigned.




STOCK EXCHANGE PRACTICES

1499

Mr. P ecora . Haven’t you any recollection at all as to certain
people, as to who the certain people were, that had to be taken care
of, according to that minute?
Mr. I nsull . No, sir.
Mr. P ecora . Do you know anybody who would know that?
Mr. I nsull . N o ; I do not. My father might remember it, and,
frankly, he might have forgotten it by this time.
The C hairman . How may we find that out from him?
Mr. I nsull . I presume, if you want me to, I could write him and
ask him.
The C hairman . I wish you would.
Mr. P ecora . Whose name is signed here?
Mr. I nsull . It is signed by John F. O’Keefe.
Mr. P ecora . I s Mr. O’Keefe here?
Mr. I nsull . Yes; I think so.
Mr. P ecora . Mr. Chairman, might I ask that I be permitted to
suspend with this witness while I examine Mr. O’Keefe?
The C hairman . Yes; Mr. Insull may stand aside for a few moments.
(Thereupon Mr. Insull temporarily left the stand.)
The C hairman . Mr. O ’Keefe, hold up your right hand: You
solemnly swear you will tell the truth, the whole truth, and nothing
but the truth about the matter now under investigation by this
committee, so help you God?
Mr. O ’K eefe . I do.
TESTIMONY OF JOHN F. O’KEEFE, 2914 LOGAN BOULEVARD,
CHICAGO, ILL.

Mr. P ecora . Mr. O ’Keefe, what is your residence, please?
Mr. O ’K ee fe . 2914 Logan Boulevard, Chicago, 111.
Mr. P ecora . What is your business or occupation?
Mr. O ’K eefe . At the present time I am assistant secretary of the
Commonwealth Edison Co.
Mr. P ecora . What were you before that?
Mr. O ’K eefe . I have had that position for about four years.
Mr. P ecora . Do you know Mr. Samuel Insull?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . Have you ever borne any business relationship to
him?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . What kind?
Mr. O ’K eefe . I was his secretary.
Mr. P ecora . Private secretary?
Mr. O ’K eefe . Yes; private secretary.
Mr. P ecora . Were you also an officer or director of any companies
that are combined in the so-called Insull group of public utility
companies?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . In how many of them?
Mr. O ’K eefe . About nine.
Mr. P ecora . What was that?
Mr. O ’K eefe . About nine.
Mr. P ecora . Y ou are not sure of the number, are you?



15 0 0

STOCK EXCHANGE PRACTICES

Mr. O ’K eefe . Well, there were some others that would not be
classified as public utilities, civic institutions, and so forth, that I was
connected with. Mr. Insull was in them.
Mr. P ecora . Were you connected in any capacity with a corpora­
tion called Insull Utility Investments (Inc.)?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . In what capacity?
Mr. O ’K eefe . I originally was assistant secretary and assistant
treasurer, elected January 4, 1929. On February 18, 1930, I was
elected secretary and assistant treasurer. On July 18, 1930, I was
elected treasurer, so that from then on I was secretary and treasurer.
Mr. P ecora . Did you frequently attend meetings of the finance
committee of that corporation?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . During the course of its existence?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . Will you look at the book that is on the table before
you and tell us if that is the original minute book received by the
meetings of the finance committee of that corporation?
Mr. O ’K eefe . Yes, sir; it is.
Mr. P ecora . Will you look at the entry commencing at the top of
,page 52, or rather 54, I believe, and read it?
Mr. O ’K eefe . Yes, sir.
The president then reported that he had made an application through Goldman,
Sacks & Co. (Inc.) for participation in the underwriting syndicate of 25,000
shares of optional 6 per cent preferred stock, $50 par value, and 25,000 shares of
no par common stock of the Shenandoah Corporation, but that he had done so
with the knowledge that he would need 1,000 shares of each class of stock to take
care of certain people, and that he wished to report confirmation from Goldman,
Sacks & Co. (Inc.) of the allotment of 7,000 shares in the underwriting syndicate
of each class of stock, at a cost of $456,750.

Mr. P ecora . Is your name signed to the minutes of that meeting
as it appears in the book before you?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . Y ou acted as secretary of the meeting?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . Have you any recollection at this time of the trans­
actions referred to in the entry you have just read?
Mr. O ’K eefe . I have no definite recollection, but I have a vague
recollection of the transaction.
Mr. P ecora . Give us your recollection even though it be vague,
the best that you recall.
Senator C ouzens . Might I ask if we are interpreting the taking
care of certain persons to have the same meaning as others might
have? Does counsel for the committee interpret that to mean that
the 1,000 shares are given or are to be sold at the underwriting price?
What is counsel’s interpretation of that?
Mr. P ecora . I do not know, and that is why I am asking the
witness to tell us the meaning of it.
Senator C ouzens . I wanted to know whether it was a gift or was
it to go at the underwriting price.
Mr. P ecora . That is what I am trying to find out.
Senator C ouzens . There is a general misunderstanding among
some people that that naturally infers a gift, and I do not know that
that is conclusive.



STOCK EXCHANGE PRACTICES

1501

Mr. P ecora . It is language capable of intrepretation either way.
Senator T ownsend . Suppose we let the witness give us his inter­
pretation.
Mr. O ’K eefe . My recollection of that transaction is, as I say,
vague, but Mr. Insull took that participation I think after consult­
ing a fellow named George Pick, who was an investment banker in
Chicago, and my impression is—however, I should like to check it
with the records—that Mr. Pick stated to Mr. Insull that of the
amount taken by Insull Utility Investments (Inc.), he would take this
amount referred to in the minutes, purchased at the same price ap­
parently for which it was sold to the Insull Utility Investments.
That is my recollection of the transaction. It happened in July of
1929, however.
Mr. P ecora . If that was the transaction was there any reason for
not making mention in the minutes of the name or names referred to
in the minutes as the certain people who had to be taken care of?
Mr. O ’K eefe . I do not think so. I would not think so.
Mr. P ecora . Y ou wrote those minutes, didn’t you?
Mr. O ’K eefe . Yes, sir.
Mr. P ecora . Did you prepare them yourself or were they prepared
by some one else and signed by you?
Mr. O ’K ee fe . They may have been prepared by the attorneys
with me. Sometimes they used to dictate minutes to me, and
sometimes I would write them myself.
Mr. P ecora . A s a matter of fact, were not the most of these
^minutes prepared or dictated by attorneys instead of being written
by you as secretary or assistant secretary?
Mr. O ’K eefe . Sometimes they were and sometimes they were not.
Mr. P ecora . But more frequently they were, isn’t that correct?
Mr. O ’K eefe . No; I do not think so, especially in the case of the
finance committee, where the most of them were just presentation of
the weekly statements.
Mr. P e c o r a . Who were the attorneys you have in mind as possibly
having prepared those minutes?
Mr. O’K eefe . Mr. Waldo F. Tobey, of Isham, Lincoln & Beale.
Mr. P ecora . Mr. Chairman, I will now resume with Mr. Samuel
Insull, jr.
(Thereupon, Mr. O’Keefe left the committee table.)
The C hairman . All right, Mr. Insull, please come around again to
the committee table.
TESTIMONY OF SAMUEL INSULL, Jr.— Resumed

Mr. P ecora . Mr. Insull, you were also a member of the board of
directors during the year 1929 of Insull Utility Investments (Inc.),,
were you not?
Mr. I nsull . Yes, sir.
Mr. P ecora . H ow frequently did the board of directors meet?
Mr. I nsull . I think the records will show, but about quarterly.
Mr. P ecora . Quarterly?
Mr. I nsull . That is my recollection.
Senator T ownsend . That is, four times a year?




1602

STOCK EXCHANGE PRACTICES

Mr. I nsull . About four times a year. That was the general
scheme, but I think the records will show how often they did meet.
I don’t know whether it shows in this book or in the other one.

Mr. P e c o r a . Were you connected with a company called Insull,
Son & Co. (Inc.)?
Mr. I n s u ll. Yes, sir.
Mr. P e c o r a . In what capacity?
Mr. I nsull . I think I was a vice president, or secretary. I was not
Very active. May I again consult Mr. O’Keefe?
Mr. P e c o r a . D o you have to consult Mr. O’Keefe in order to tell
us what office you held in that company?
Mr. I nsull . At any particular year that I was occupying an office.
I would like to inquire of him.
Mr. P e c o r a . All right.
|# Mr. I nsull . The offices changed, and I am not sure at what time
they did change. That is, in 1929?
Mr. P e c o r a . Yes.
Mr. I n s u ll. I was secretary.
Mr. P e c o r a . Y ou were secretary then?
Mr. I n s u ll. Yes, sir.
Mr. P e c o r a . What was the general business of that company?
Mr. I nsull . Its general business was of two kinds. Distribution
of securities, and acting as fiscal agent for syndicates.
^Mr. P ecora . When you say that its business was that of distribu­
tion of securities, don’t you really mean that it was a trading company?
Mr. I nsull . No; it owned. Its original business, going way back,
it owned stock of a corporation known as Insull, Son & Co. (Ltd),
which had offices in London and sold securities in London.
Mr. P ecora . Didn’t it also sell securities in America through the
medium of the various exchanges?
Mr. I nsull . Yes; I think it did. I was not active in that concern.
I was secretary, and acted as secretary at the meetings.
Mr. P ecora . Did you draw any salary from it?
Mr. I n s u ll. N o.
Mr. P ecora . Are you sure of that?
Mr. I nsull . Pretty sure of that. Let me inquire of Mr. O’Keefe.
Mr. P ecora . Who was the operating manager of the business of
that company during the year 1929?
Mr. I n s u ll. Mr. E. Y. Graham.
Mr. P ecora . It is a fact, isn’t it, that during the years 1929, 1930,
and 1931 this company, called Insull, Son & Co. (Inc.), handled
many so-called syndicate accounts for the common stock of Insull
Utility Investments (Inc.)?
, ijMr. I nsull . Yes, sir; I am so informed.
F ^Senator B rookhart . Mr. Chairman, I should like to ask a few
questions in reference to those net incomes and the income tax re­
ports. A part of it, as it seems to me, might be explained here. I
do not know about all of it, and we want to be fair about it at least.
The C hairman . Proceed, Senator Brookhart.
Senator B rookhart . Mr. Insull, take the report of Insull Utility
Investments (Inc.), of December 31, 1930. What are the total stock
dividends of that year?
Mr. I nsull . The stock dividends were $5,051,832.04. Those
would not be in the income.



STOCK EXCHANGE PRACTICES

1503

Senator B r o o k h a r t . In the tax return?
Mr. I n s u ll. That is my understanding.
Senator B r o o k h a r t . But your net income is over $10,000,000
there, isn’t it?
Mr. I n s u ll. Yes, sir.
Senator B rookhart . How do you figure out that discrepancy be­
tween five million and odd dollars and ten million and odd dollars?
What does that income tax return show for that year? I have for­
gotten that, but if you will refer to that, please tell me.
Mr. I nsull . That is for the year 1930. These are not marked so
I can tell the years, I am afraid.
Senator B r o o k h a r t. That year is among those papers there.
Mr. I n s u ll. I know it is. Here are some annual statements, but
the years are not marked on them. Might I ask counsel what year
they are for?
Mr. P ecora . Here it is, for the calendar year 1930.
Mr. I nsull . That is the one. Well, I do not know that I can make
a full reconciliation of this. I notice in the deductions from income
there is an item of dividends of $4,158,032.
Senator B rookhart . That would still leave over $6,000,000 in­
come to pay taxes on.
Mr. I nsull . Well, that, as I take it here, is an offset against—that
is the cash dividend item, because it is within a few hundred thousand
dollars of the cash dividends item of $4,326,473.
Senator B rookhart . There is no tax return because it is a tax—
or I mean cash dividends.
Mr. I nsull . I think if you receive cash dividends where the in­
come was taxed at the source—and I hope I am not testifying now
about income taxes—but it is my impression there was a deduction
from the income tax; not from the super tax but the income tax.
Senator B rookhart . This is the source where the tax is paid, isn’t
it?
Mr. I n s u l l . N o; my impression is, and I think an accountant could
clear it up better than I can, but that these cash dividends received
by Insull Utility Investments (Inc.), are allowed as a deduction from
the income for tax purposes, because those dividends had the tax
paid on them by the corporations which originally paid them to
Insull Utility Investments (Inc.)
Senator B rookhart . By the holding corporations themselves?
Mr. I nsull . Yes, sir. And then I notice this figure you mention
of stock dividends, isn’t taken into the income at all. Well now, there
is a discrepancy. That would outline a discrepancy, and the two
together, and if my reasoning is right, they would be $5,051,000 and
$4,158,000, which makes $9,200,000. Now, I will see if there are
other items. Here is sale of rights—no—yes, sale of rights, which as
I recall it was for cash, $3,681,078.17, which isn’t in this income.
A part of it may be in, but it is not in as that. I am sorry not to be
able to answer your question.
Senator B r o o k h a r t . We will take it up with other witnesses more
familiar with it than you are.
Mr. I n s u ll. Yes. I am not much of an income tax expert.
Mr. P ecora . Let me have that minute book, Mr. Insull.
M r. I nsull . All right.
Mr. P e c o r a . Let me call attention to the following excerpt from the
minutes of the regular meeting of the finance committee of Insull



15 0 4

STOCK EXCHANGE PRACTICES

Utility Investments (Inc.), held on November 25, 1929, at which
yon were referred to as having been present, and which is taken from
page 92 of the minute book:
The president said that in all statements that had, to date, been made in regard
to the assets of the company, the value of the stock of Insull, Son & Co. (Inc.),
had been taken at the amount paid for it, namely, $1,250,000, and that he thought
in all statements hereafter made, whether at meetings of this committee or pub­
licly, the value should be given this stock which would be more nearly correct.
The value of the stock was then discussed from the standpoint of earnings, and
so forth, and, upon motion, duly made and seconded, it was unanimously voted
that in all statements hereafter made in respect to the assets of the company, the
value of the stock of Insull, Son & Co. (Inc.), should be reckoned at $ 5 ,0 0 0 ,0 0 0 ,
but that no change in the value of the stock should be made upon the financial
books of the company.

Do you recall the transaction that culminated in the adoption of
that motion?
Mr. I nsull . I recall that, and I also seem to recall a subsequent
—oh, yes—no—well, I recall that, and I recall the discussion.
Mr. P ecora . What was the discussion? Give us just the substance
of it.
Mr. I nsull . It was very brief. That company had been owned by
the Insull family, and was put into Insull Utility Investments (Inc.),
at a value of one and one-quarter million dollars. There was no
tnarket for the stock. That was on, I think, a 20 per cent earning
basis, based on previous earnings. Yes; that is about right, or a little
less than that, on an 18 per cent basis. In the year 1929 that company
earned— and this was the subject of discussion, that it was going to
earn, since we could tell then, something above a million dollars.
Mr. P ecora . It was going to earn?
Mr. I nsull . Well, it had earned up to that date, and that was
November 25-----Mr. P ecora (interposing). November 25, 1929.
Mr. I nsull . Yes, sir. And there would be only 35 days to the end
of the year. Or I will put it more properly: The statement of the year
up to November 25 actually, and from then on estimated, only 35
days being estimated, showed something over a million dollars, and
the discussion was that it should therefore be taken at a value on ap­
proximately the same basis, as the basis for the value it was put in,
namely, about 18 or 20 per cent. That is very general, but I just
happen to recollect that.
Mr. P ecora . Well, what was the purpose of this action which had
for its effect the reporting to the public of a value of $5,000,000 for
the stock of Insull, Son & Co. (Inc.), all of which was owned by
Insull Utility Investments (Inc.), and carrying it on its books at the
cost of that stock, to the latter company, $1,250,000?
Mr. I nsull . Well, I don’t know. I mil suggest that—I have got
the impression that the book figure was later changed.
Mr. P ecora . Can’t you answer that question, with regard to what
was done on November 25, 1929?

Mr.
Mr.
Mr.
Mr.
Mr.
time.
Mr.

I n s u ll. Yes.
P ecora . All right. Please do so.
I nsull . I have just said I remember the discussion.
P ecora . What was the purpose of doing this?
I nsull . Well, I remember asking myself that question at that

[Laughter.]
P ecora . Well, did you get an answer to it?




STOCK EXCHANGE PRACTICES

15 0 5

Mr. I n s u ll. Yes; because I gave myself time to answer.
Mr. P ecora . Do you mean that you answered the question?

Mr. I n s u ll. T o myself.
Mr. P e c o r a . Oh. I see.
Mr. I nsull . I said I asked myself that question. And the dis­
cussion was—I was looking over it—there was no other discussion,
and no other motive than a revaluation along the line of having the
books reflect as nearly as possible at that time, or rather the then
value of the stock.
Mr. P e c o r a . What was referred to by the committee?
Mr. I nsull . I, frankly, asked myself: Why do it?
Mr. P ecora . And how did you answer yourself?
Mr. I nsitll. Well, the argument put up—or I asked some other
people, and the argument put up, which satisfied me at the time—
was that it was a good thing to have the books reflect a permanent
investment, which has no market value, as nearly as possible at the
estimated real value.
Mr. P ecora . All right. The books, according to this motion,
were to carry the value of this stock as $1,250,000. Is that what you
referred to as the real value?
Mr. I n s u ll. No. I am saying that I am under the impression the
book value was later changed.
Mr. P ecora . But I am asking about November 25,1929, not about
what took place later.
Mr. I nsull . Well, I mean almost immediately, in the next pub­
lished statement.
Mr. P ecora . Well, for the present let us stick to November 25,
1929, and as to what was done later we will come to in a few minutes.
Senator F letcher . The effect was to increase the assets of Insull
Utility Investments (Inc.) over $4,000,000.
Mr. I n s u ll. Yes, sir; three and three-fourths million dollars.
Mr. P ecora . The effect was to report to the public that increase,
but to keep it on the books actually as it was, is that right?
Mr. I nsull . N o, sir. That is what I am saying. I am not sure
that that was done, but I am under the impression it was not.
Mr. P ecora . Have you any further explanation to make of the
reason why this action was taken by the finance committee on Novem­
ber 25, 1929?
Mr. I nsull . N o, sir. As I stated, at the time I looked around in
my own mind for a reason, and I could not get any, except to try to
have the books reflect as nearly as possible the real value of that1
investment, or rather the statement.
Mr. P ecora . The members of the finance committee who attended
that meeting, according to the minutes of the meeting, were Samuel
Insull, Martin J. Insull, W. S. Brewster, and yourself?
Mr. I nsull . Yes, sir.
Mr. P e c o r a . Did the other members of the committee ask them­
selves, if you know, the same question, and get an answer?
Mr. I n s u ll. We had a general discussion.
Mr. P ecora . Did you all get the same answer, and was it that
which prompted you to adopt this motion?
Mr. I nsull . Yes, sir.
Mr. P e c o r a . Mr. Chairman, I want to shorten at this time the
examination of this witness, so I will go out of the chronological order,
if I may, and interrogate the witness about another phase of this
119852— 33— PT 5------- 8




1506

STOCK EXCHANGE PRACTICES

picture, but with the right to come back later and resume the chron­
ological order of the evidence.
The C hairman . That may be done.
Mr. P ecora . Mr. Insull, do you recall that large bank loans were
made to the Insull Utility Investment (Inc.), and to the Corporation
Securities Co. of Chicago, during the years 1930 and 1931?
Mr. I n s u ll. Yes, sir.
Mr. P e c o r a . What was the aggregate amount, the largest amount
outstanding of the aggregate of those loans?
Mr. I n s u ll. I could not recall that from memory. Do you mean
of the two together?
M r. P ecora . Yes, sir.
Mr. I nsull . This is purely my recollection, and I have missed

some figures in it before, but it was around or slightly over $75,000,000.
Mr. P ecora . Wasn’t it over $80,000,000 for the two?
Mr. I nsull . It may well have been. I have the figures in my
head of about $50,000,000 for Insull Utilities, and I don’t remember
whether it was $27,500,000 or $32,500,000 for Corporation Securities.

Mr. P e c o r a . About when did those loans reach the highest
aggregate figure?
Mr. I nsull . I do not remember that. These figures I have in
my mind are, as they state, on December 16, 1931, a date I remember
pretty well.
Mr. P ecora . That is exactly four months to the day prior to the
date when these two companies went into equity receivership; is that
right?
Mr. I nsull . Yes, sir. I remember it, however, as the date when
I started out to try to negotiate the so-called standstill agreement.
Well, I won’t say negotiate, but when I began acting as messenger
between the corporation and its creditors, to try to bring about a
standstill agreement between it and the banks.
Mr. P ecora . D o you recall that when you were engaged in your
efforts to bring about a standstill agreement with the banks, that you
had any communication with Mr. Owen D. Young?
Mr. I nsull . No; I did not.
Mr. P e c o r a . Your father did?
Mr. I nsull . So I am told.
Mr. P ecora . And that was about in December, 1931, wasn’t it?
Mr. I nsull . Yes.
Mr. P ecora . May I ask, Mr. Chairman, that the examination of
this witness be suspended at this point so that the committee may
hear Mr. Young, who is present?
The C hairman . There being no objection it is so ordered.
Mr. P ecora . But that tais witness be permitted to remain within
call preparatory to a resumption of his testimony.
The C hairman . It is so understood.
(Thereupon, Mr. Insull temporarily left the committee table.)
Mr. P ecora . Mr. Young, please.
The C hairman . Mr. Young, please hold up your right hand.
You solemnly swear to tell the truth, the whole truth, and nothing
but the truth regarding the matter now under investigation by this
committee, so help you God?
Mr. Y o u n g . I do.




STOCK EXCHANGE PEACTICES

1507

TESTIMONY OF OWEN D. YOUNG, VAN HORNESVILIE, N. Y.

Mr. P ecora . Mr. Young, will you give the committee reporter
your residence and your business, occupation or profession?
Mr. Y oung . My name is Owen D. Young. My residence is Van
Hornesville, N. Y . I am chairman of the board of directors of the
General Electric Co. and chairman of the executive committee of the
Radio Corporation of America.
Mr. P ecora . H ow long have you been chairman of the board of
directors of the General Electric Co.?
Mr. Y oung . Since May of 1922.
Mr. P ecora . Will you state the general business of that company?
Is it to generate, transmit, and sell electrical power?
Mr. Y oung . No, sir. Its business is to manufacture electrical
apparatus for the generation and transmission by others of electrical
power.
Mr. P ecora . In the operation of its business did it have many
business transactions with the so-called Insull group of public utility
companies?
Mr. Y oung . Very many.
Mr. P ecora . Over many years?
Mr. Y oung . During its entire life.
Mr. P ecora . Mr. Young, did you personally know Mr. Samuel
Insull of that group?
Mr. Y oung . I did.
Mr. P e c o r a . D o you recall in December of 1931 whether or not
the General Electric Co. made a loan to any companies embraced
within the so-called Insull group of public utilties?
Mr. Y oung . It did.
Mr. P ecora . When was the loan made, if you can give us the
specific date?
Mr. Y o u n g . The loan I think was actually made on December 22,
1931.

Mr. P ecora . Well, now, Mr. Young, with as little questioning on
my part as may be necessary will you tell the committee in your own
way the general circumstances surrounding the making of this loan?
Mr. Y oung . Mr. Insull came in to see me in December, the early
part of December.
Senator F letcher . 1931?
Mr. Y oung . Yes. And I have been able to fix the date since the
bankruptcy hearing, Mr. Chairman, by a memorandum in Mr.
Swope’s possession as December 10, 1931.
Mr. Insull said that he would like to talk with Mr. Swope and me
about obtaining a loan of $2,000,000 from the General Electric Co.;
that he would deposit as collateral for that loan securities having a
market value of 40 per cent in excess of the amount of the loan;
and that he would undertake to keep the collateral with that margin
during the life of the loan. And that, by way of further assurance
to us as to the loan and of the fact that the collateral would have his
personal attention, he offered to indorse the loan personally.
Senator F letcher . H ow long was the loan to run?




15 08

STOCK EXCHANGE PRACTICES

Mr. Y oung . The details of it were not discussed in that conversa­
tion. But, as a matter of fact, the loan was made for six months,
Senator.

Mr. P e c o r a . Please go ahead.
Mr. Y oung . Mr. Insull did not at that time state to which of his
companies he desired the loan. And, of course, it was not a matter
of great importance to me which of the companies was the borrower
because I was relying upon the value of the collateral deposited, upon
the agreement to maintain the collateral with the stated margin of
40 per cent, and on Mr. Insull’s personal indorsement.
Mr. Swope and I discussed the matter of making the loan to Mr.
Insull, in his presence. He recalled the fact that in the earlier years
the General Electric Co. had made him loans, or loans to his companies;
that they had all been paid, and that he had not asked for accommo­
dation from the General Electric Co. since 1915. During all that
period he had been a very large customer of the company, the pur­
chases running each year into many millions of dollars.
Mr. Swope and I, in the light of Mr. InsulFs statement, the satis­
factory relationship of his companies to the General Electric Co., the
fact that his companies had always paid promptly their bills to us,
amounting to many, many millions of dollars each year, we agreed
to recommend to our executive committee the making of the loan
requested.
Mr. P ecora . If I may interrupt right there. The Mr. Swope, to
whom you have referred, is Mr. Gerard Swope?
Mr. Y oung . Mr. Gerard Swope, president of the General Electric
Co.
Senator C ostig a n . Did Mr. Insull explain the reason for requesting
of you this particular loan?
Mr. Y oung . He did to Mr. Swope. I do not recall that he made
the statement to me. But he explained to Mr. Swope, if I may be
permitted to speak of hearsay.
Mr. P ecora . Very well.
Mr. Y o u n g . He explained to Mr. Swope that the banks, that
some banks which were loaning to his companies, had requested a
diminution of their loans, and that he would like this loan from the
General Electric Co. for the purpose of diminishing his bank loans.
Mr. P ecora . Did he specify which banks had taken that attitude,
Mr. Young?
Mr. Y oung . M y recollection is that Mr. Swope told me that the
Central Hanover was one, and I do not recall whether there were
others or not. That is, the Central Hanover in New York.
Mr. P e c o r a . Yes, sir. Go ahead.
Mr. Y oung . It was understood at this first conversation that Mr.
Insull would work out the details of the loan, that the details of the
loan were to be worked out by Mr. Swope and Mr. Insull and Mr.
O ’Keefe later. And I think then Mr. O ’Keefe came in to see Mr.
Swope, and the loans and the collateral were arranged. When that
was done Mr. Swope and I asked at least three members of our
executive committee, who were not members of the General Electric
organization other than as directors, in fact three bankers, whether
they would approve our making of the loan. They expressed infor­
mally their approval, and therefore the loan was made on the 22d of
December, 1931, although it was not formerly ratified by the execu­



STOCK EXCHANGE PRACTICES

1509

tive committee until its next regular meeting subsequently, on De­
cember 29,1 think, or 30. Yes, it was December 30, 1931.
Mr. P e c o r a . Might I interrupt again? Was this loan made in
the form of one loan or was it divided up into several loans?
Mr. Y o u n g . There were three loans.
M * . P e c o r a . To whom were they made and in what amounts,
respectively?
Mr. Y o u n g . May I refer to the minutes of the executive committee
to make sure that my statement is correct?
Mr. P e c o r a . If y o u w ill.
Mr. Y o u n g . $500,000 to Insull Utility Investments (Inc.), the
note to run for six months, and to bear interest at the rate of 5 per
cent per annum. The collateral that was given for this loan was
approximately 31 per cent in excess of the face value of the note.
One million dollars to Corporation Securities Co. of Chicago.
The note to run for six months, to bear interest at the rate of 5 per
cent, and collateral was given for this loan to approximately 30 per
cent in excess of the face value of the note.
Five hundred thousand dollars to Middle West Utilities Co. Note
to rim for six months, bearing interest at the rate of 5 per cent,
collateral to be given for this loan was approximately 69 per cent in
excess of the face value of the note.
Mr. P e c o r a . Mr. Young, can you tell the committee the general
nature of the collateral that was placed against these loans?
Mr. Y o u n g . I will give you exactly the collateral.
The note of Insull Utility Investments (Inc.), carried 15,000 voting
trust certificates of common stock of North American light & Power
Co., having a market value at that time of 20 or $300,000; 25,999
shares of Midland United Co. common stock at 6, or $155,994; 390
shares of Peoples Gas light & Coke Co. capital stock at 117, making
$45,630; 1,000 Midland Utilities Co. 7 per cent prior lien stock at 47,
making $47,000; 2,700 Midland Utilities Co. 6 per cent prior hen
stock at 40, making $108,000, or a total value of collateral against
that note at the then market prices of $656,624.
The following additional collateral was put up, was to be sent from
Chicago: 1 share Midland United common stock at 20, which added
$20 to the total; 27 shares of Midland Utilities 6 per cent prior Ken
stock at 40, making $1,080, or a total collateral against the note of
$657,724.
Senator F l e t c h e r . Was that additional collateral sent?
Mr. Y o u n g . I think it was.
Mr. P e c o r a . G o ah ead .
Mr. Y o u n g . The note of Corporation Securities Co. for $ 1 ,0 0 0 ,0 0 0 ,
carried the following collateral: 529 shares of Central & Southwestern
Utilities Co. at five and three-fourths dollars, $4,175; 10,000 shares of
Middle West Utilities Co. preferred at 37, $370,000; 136,246 shares of
Middle West Utilities Co. common at 6, $817,776; 691 shares of Com­
monwealth Edison Co. stock at 117, $80,847; 6,622 shares of Insull
Utility Investments (Inc.) common at 5%, $38,077, or a total collateral
market value at that time of $1,310,875.
The note of the Middle West Utilities Co. for $500,000 carried the
following collateral: 33,411 voting trust certificates for common
stock of North American light & Power Co. at $20, making $668,220;
3,000 Midland United Co. 6 per cent preferred at 40, $120,000; 15,000



1510

STOCK EXCHANGE PRACTICES

shares of Central & Southwest Utilities Co. common at 5%, $86,250,
making a total collateral value against that note for $500,000 of
$874,470.
Senator F letcher . Did Mr. Insull indorse the notes?
Mr. Y oung . He indorsed the notes personally; yes, Senator.
Mr. P ecora . N ow, Mr. Young, what subsequently occurred with
respect to those loans, or the proceeds of those loans?
Mr. Y oung . I do not know what occurred with reference to the pro­
ceeds of the loans. The sums were paid to the companies borrowing.
Mr. P ecora . Do you recall that in February of 1932, following the
making of those loans, you had some conferences with Mr. Samuel
Insull, and with certain bank officers with respect to the bank loans
to the Insull companies?
Mr. Y oung . I do.
Mr. P ecora . Will you tell the committee generally the substance
of those conferences and the circumstances under which they were
held?
Mr. Y oung . Some time about the middle of February, 1932, Mr.
Insull came to me and said that he and his associates had been arrangeing for a standstill agreement by the bank creditors of their companies,
explaining that by standstill he meant that all banks would extend
their loans to a definite date in the future; that the banks generally
were agreeable to doing that but that the Central Hanover Bank in
New York and the Irving Trust Co. in New York had not agreed to
the standstill, and that therefore the agreement of course was not
binding on the other banks, because each bank had undertaken to
enter the standstill only on condition that all agree.
Mr. P ecora . Was the purpose of this so-called standstill agreement
made known to you at the time, Mr. Young?
Mr. Y oung . I think so. And it was quite obvious in any event
without an explanation, that it was necessary in view of the financial
situation at that time, that none of those bank loans should mature
because there would be no way by which the company could meet
the maturing loans. And I think Mr. Insull felt, and the banks felt
broadly, that it was better under those conditions to extend the loans
provided they all matured at the same time, and not state different
maturities at different times lest it might result either in the precipi­
tation of bankruptcy of the company, or might result in some of the
banks procuring advantages due to earlier maturities which the later
ones would not obtain.
Mr. P ecora . Well, did you have any conferences with regard to
the situation as it then existed, particularly with regard to the
desirability of the banks entering into this standstill agreement,
with any bank officials?
Mr. Y oung . I did. Mr. Insull asked me if I would undertake to
find out the reason why the Central Hanover and the Irving Trust
Co. were withholding their assents to the standstill. I tola him I
would endeavor to do so, and as a result I had several interviews with
Mr. Louis Pierson, the chairman, and Mr. Ward, the president, and
Mr. Matthews, the vice president of the Irving Trust Co., and also
several talks with Mr. Davison and Mr. Gray, the chief executive
officers of the Central Hanover.
They explained to me that their hesitation about entering the
standstill was that they felt they had no adequate information as to



STOCK EXCHANGE PRACTICES

1511

the current activities of the Insull companies, and that they did not
feel at liberty to rely on the reports of the Chicago banks, or the
check of the Chicago banks, on those activities, which they would
naturally do, for the reason that the collateral in the New York banks
differed from that in the Chicago banks, and that therefore while the
Chicago banks would be interested in checking the transactions which
affected their collateral, they would not be so interested in checking
the transactions which affected the collateral of the New York banks.
I later had some talks with other bankers, lending money to the
Insull companies, such as the Bankers Trust Co., and Mr. Potter of
the Guaranty, and I found that all the New York banks had that same
apprehension about the Insull situation. The structure was very
complicated, the movement of funds between those companies was
difficult to follow, and the New York banks felt that if they were to
agree to a standstill they should have better sources of information.
Senator B rookhart . Did this loan of yours take the place of any
of the New York banks?
Mr. Y oung . Oh, no. The New York bank loans were very large.
This small loan of ours of $2,000,000 made a slight impression on the
situation.
Senator B rookhart . And if they should agree to the stand­
still-----Mr. Y oung (continuing). May I go on with the story?
Senator B rookhart . Yes.
Mr. Y oung . Finding this apprehension-on the part of the New York
banks, which seemed to me entirely justified so far as they were con­
cerned, and that their request for some avenue of information was
proper, I went to Chicago to discuss the matter with Mr. Insull and
the representatives of the Chicago banks, to see if some arrangement
could not be made by which the New York banks could currently be
informed of the transactions of the Insull companies.
I attended a meeting in Mr. Insull’s office—and when I say Mr.
Insull I mean Mr. Samuel Insull, sr.—at which there were present
the representatives of all the principal banks of Chicago. I made
the explanation about the feeling of the New York banks, and
expressed my view that some arrangement should be made so that a
person satisfactory to the New York banks would have current infor­
mation of the activities of the Insull companies. That was agreed to
by Mr. Insull in principle, and by all the Chicago banks, they them­
selves not wishing to assume the responsibility of checking the situa­
tion for the New York banks.
We then had a long discussion in the endeavor to find some one in
Chicago who was not connected either as officer or director with the
Chicago banks or as officer or director of the Insull companies, and
who was competent to make this kind of report. We finally dis­
covered, as a result of discussion, Mr. Arthur Anderson, of Arthur
Anderson & Co., well-known public accountants and auditors in
Chicago.
Mr. Anderson happened to be free. I mean free from affiliations
either with the Insull companies or with the Chicago banks, any
official affiliation, I mean. And we tentatively agreed that if Mr.
Anderson were acceptable to the New York banks, which I would
undertake to ascertain on my return to New York, that he should be
given full access by the Insull companies to all current transactions,



1512

STOCK EXCHANGE PRACTICES

and that if he felt any particular transaction was prejudicial to any
collateral held by New York banks, that the transaction would not go
through until Mr. Anderson had finally approved it.
Mr. Insull also undertook that his company should pay Mr.
Anderson for that service.
I had an interview with Mr. Anderson and he was willing to under­
take the employment if the New York banks wished him to do so.
I came back to New York, consulted with all representatives of
New York banks. Many of them knew Mr. Anderson personally
and others knew him by reputation. I found him entirely acceptable
to the banks, and then I asked Mr. Anderson to come to New York,
undertake to familiarize himself personally with the collateral of each
bank, the kind of information which each bank wished to have, and
then to go to Chicago and furnish the information.
I have the impression, although I am not certain about this because
it was not my business, that the standstill agreement was not formally
executed. But I do know that the banks went on after that for some
little period to accept Mr. Anderson’s report and without precipitat­
ing their maturities.
I think that is all, sir, until the later interview, if you would like to
have me speak on that.
Mr. P ecora . If you will just continue with the narration.
Mr. Y oung . I heard very little more about it, except that Mr.
Anderson occasionally called me on the telephone, or sent his repre­
sentative to see me in New York when questions arose in which he
was not quite sure himself as to whether or not the particular trans­
action did or did not affect disadvantageously the collateral of a
particular bank. I may have had half a dozen talks with Mr. Ander­
son, either over the telephone or with his representative in New York,
during the period between the latter part of February, when this
arrangement was made, and the latter part of March.
Either very late in March or early in April Mr. Insull came on and
reviewed again the situation of his companies.
Mr. P ecora . Can you state the substance of what he told you
then, Mr. Young, in that review?
Mr. Y oung . I do not think I can, sir. The whole purpose of the
interview related to the question of whether or not those companies
could go on. There were some maturities coming along in some of
the companies. The detail of it I have forgotten. As the structure
was very complicated, and there was no money available in that
particular company to meet that maturity, and as I recall it, the ques­
tion there arose as to whether or not the banks would assent to the
transfer of funds by some companies which happened to have available
cash to the company which not having the cash was facing the
maturity.
As a result of that entire discussion it seemed to me that the transfer
of funds between companies could not be longer justified without
prejudicing some lenders or some stockholders, and that therefore if
those maturities could not be met by the resources of the companies
making them, it was much wiser in the interest of all creditors and
all stockholders that there be receiverships for those companies, or
some other conservation proceeding.
Mr. P ecora . Which companies did Mr. Insull allude to in that
general fashion?



STOCK EXCHANGE PEACTICES

1513

Mr. Y o u n g . I am unable to recall that.
Mr. P e c o r a . Were they investment trusts?
Mr. Y o u n g . No.
Mr. P e c o r a . Or operating companies?
Mr. Y o u n g . My recollection is that they were some subsidiary
holding companies. I do not recall that there were any operating
companies involved.
Senator F l e t c h e r . About what was the aggregate of the indebted­
ness to the New York banks that was involved?
Mr. Y ou n g. I do not think that I can state that, Senator. It
would be so much better for you to get it from the books of thos6
companies and get it correctly.
Senator F l e t c h e r . You spoke of it being a large sum. I thought
possibly you might know what would be something like approaching
the sum.
Mr. Y oung . It would not surprise me if the indebtedness to the
New York banks by the Insull companies aggregated well toward
$50,000,000, or perhaps more.
Mr. P e c o r a . It was over $50,000,000, and to the Chicago banks
over $30,000,000.
Mr. Y oung . I had the impression it was in excess of $50,000,000.
Now would you like to have me continue?
Mr. P ecora . If you will continue your narration of your conver­
sation with Mr. Insull in April of 1932, regarding bank loans.
Mr. Y oung. Having expressed the view that in fairness to all those
creditors a conservation proceeding, through receivership or other­
wise, should take place, and having been very firm in my own view
that that was the only right thing to do, Mr. Insull suggested that I
invite Mr. Brown of the First National Bank of Chicago, and Mr.
Stillwell of the Continental Bank, to come to New York and discuss
the matter with us and with the New York bankers. Mr. Brown and
Mr. Stillwell came on, and after laying the situation before them, they
agreed that the wise course to take was receivership or a conservation
proceeding in the interest of all creditors.
I then asked representatives of all the New York banks to come to
my office and to discuss with us the same question. They came,
and I think it was the unanimous agreement of all that the wisest
course and the fairest course under the circumstances was to have a
receivership. Thereupon Mr. Insull and Mr. Brown and Mr. Still­
well said: “ Well, if there is to be receivership of course those pro­
ceedings will take place in Chicago, and we will go back to Chicago
and undertake to see that the proceedings are started.” That I
think was the end of my connection with the matter.
Mr. P ecora . Now, Mr. Young, do you recall that at the time the
General Electric Co., in December of 1931, made those loans aggre­
gating $2,000,000 to the three Insull corporations that you men­
tioned, there was anything said with respect to using the proceeds in
whole or in part of those loans to reduce certain loans then outstand­
ing held by some banks?
Mr. Y ou n g. I have already stated that Mr. Swope has said that
Mr. Insull explained to him that he expected to use that $2,000,000
in reduction of some of his bank loans.
Mr. P ecora . Did you in the course of your conversations with the
various bank officers you have referred to and with Mr. Insull, and



1514

STOCK EXCHANGE PEACTICES

with your associate, Mr. Swope, learn when those bank loans were
made, how they were collateralized, and so on?
Mr. Y ou n g. At the time we made our loan I do not think that
either Mr. Swope or I knew either the total amount or the character
of the collateral against the respective bank loans. Later, when I
came in contact with the banks, in February-----Mr. P ecora (interposing). 1932?
Mr. Y oung . Of 1932, yes. I naturally learned more about it.
Although even then there was little occasion for me to go into the
matter of the size of the loan or the character of the collateral back of
any individual loan. My sole purpose was, as is apparent from what
I have said, to aid Mr. Insull and the banks in coming to some agree­
ment, if they could, regarding a standstill, which all then seemed to
agree to be in the interest both of the Insull companies and of the
creditors.
Of course, I was very much interested in the standstill because
from the standpoint of the General Electric Co., not so much because
of the loan of $2,000,000 as because a collapse of the Insull enter­
prises would have a great and serious repercussion upon the credit
of all public utilities in the country; and as public utilities are the
largest customers of the General Electric Co. and anything which
impaired their credit impaired, of course, quite naturally their buy­
ing power from the General Electric Co. and threatened our business.
So I was much more concerned about the Insull companies being
able to go on from the standpoint of its effect on the business of the
General Electric Co., broadly, than on the question of the $2,000,000
loan.
Mr. P e c o r a . The solution that was then being sought to the prob­
lem was through the means of having the bank creditors of the Insull
companies postpone uniformly the debt maturities of their respective
loans.
M r . Y o u n g . Y e s , sir.

Mr. P e c o r a . That was the purpose of this so-called standstill
agreement?
M r . Y o u n g . Y e s , sir.

Mr. P e c o r a . That standstill agreement was never entered into
in any form or way, was it, but more by virtue of an understanding
among the banks?
Mr. Y ou n g. I think there was to be a formal agreement.
Mr. P e c o r a . Did all of the creditor banks participate in it, if you
know?
Mr. Y o u n g . I am not sure about that. I have the impression
that some of them signed, but I think the Irving Trust Co. did not
sign, although it went along in this arrangement with Mr. Anderson.
But it was my impression that it was not formally completed.
Mr. P e c o r a . But it was informally agreed to?
M r . Y o u n g . Y e s.

Mr. P ecora . N ow , at any time during your conferences with these
various gentlemen concerning that financial situation, was any refer­
ence made to the fact that the Insull Utility Investments (Inc.) and
the Corporation Securities Co., of Chicago, which were two of the
three companies to which your company made its loans in December
of 1931, had issued previously millions of dollars of debenture bonds
which had been sold to the public?



STOCK EXCHANGE PBACTICES

1515

Mr. Y o u n g . N o . I recall no mention of the debentures at any
time.
Mr. P e c o r a . Was that situation subsequently brought to your
notice?
Mr. Y o u n g . It was brought to my notice by Mr. Jacobson in the
bankruptcy hearings in New York.
Mr. P e c o r a . And was that the first time, Mr. Young, that that
angle of the situation had been brought to your notice?
M r . Y o u n g . Specifically, yes.
Senator B r o o k h a r t . What was the proposition about those de­
bentures?

Mr. Y o u n g . The question which Mr. Jacobson brought to my
attention was the clause in the debentures relating to the right of the
promisor to pledge property without securing the debentures. And
Mr. Jacobson called it to my attention for the purpose of ascertaining
whether or not the General Electric Co., through its officers, had notice
of that clause in the debentures.
Senator B r o o k h a r t . Did that mean that they pledged securities
to you they had no right to pledge under those loans?
Mr. Y o u n g . Well, I am unable to say just what the legal aspect of
that is. I assumed from Mr. Jacobson’s inquiry to me, and his in­
quiry of others, that he felt if the banks or the General Electric
Co. had notice of this particular clause, and had accepted the collat­
eral with that knowledge, that then there was a flaw in their collateral.
Senator B r o o k h a r t . And that they would have to surrender that
collateral?
Mr. Y o u n g . Or participate in the same way.
Mr. P e c o r a . That is a proceeding that is now being threshed out
in the proceedings in New York, or in the proceedings that were had
some weeks ago.
M r. Y oung. Y es.
Mr. P e c o r a . The General Electric
Mr. Y o u n g . Nothing.
Mr. P e c o r a . Y ou referred in the

Co. has nothing to do with that.

course of your testimony here
to the structure of the Insull Companies being a very complicated
one.
M r. Y oung. Y es.
Mr. P e c o r a . A s chairman

of the Board of the General Electric
Co., you have found it necessary and advisable through the years
to observe and study conditions in the public utility field, have you
not?
Mr. Y o u n g . I have.
Mr. P e c o r a . When you refer to the structure of the Insull Com­
panies as being a very complicated one, will you tell the committee
just what you mean by that?
Mr. Y o u n g . Well, I confess to a feeling of helplessness as I began
to examine in February, 1932, the complicated structure of that
organization.
Mr. P e c o r a . Did you find that it embraced a large number of
companies of various kinds?
Mr. Y o u n g . Great numbers of operating utilities, with holding
companies superimposed on the utilities, and holding companies super­
imposed on those holding companies, investment companies and




15 16

STOCK EXCHANGE PRACTICES

affiliates, which made it, as I thought then and think now, impossible
for any man however able really to grasp the real situation.
Senator B r o o k h a r t . And all overcapitalized?
Mr. Y o u n g . I express no information on that because I do not
know. But I say it is impossible for any man to grasp the situation
of that vast structure. And if I may add: I should like to say here
that I believe Mr. Samuel Insull was very largely the victim of that
complicated structure, which got even beyond his power, competent
as he was, to understand it.
Senator B r o o k h a r t . Although he created it himself?
Mr. Y o u n g . I think all the people in administrative and executive
positions in those different units, looking at their particular problem,
did the thing which they thought was wise. But if one company
needed money and another company had it, and they had control of
both companies, they naturally transferred funds from the company
which had it to the company which did not have it. And all the way
along in this vast structure.
The Chairm an. Resulting in certain loss to stockholders.
Mr. Y o u n g . When bankruptcy came it did. If it could have been
kept going all obligations would have been paid and there would have
been no loss.
The C hairm an. It was so set up that it could not be kept going.
Mr. Y o u n g . I would not say that. But I would say it was so set
up that it was impossible really for anyone to comprehend its entire
aspect; and it was so set up that you could not possibly get an account­
ing system which would not mislead even the officers themselves of
that complicated structure.
Mr. P e c o r a . Mr. Young, would you say that the system of super­
imposition of company upon company in a structure of that kind,
would easily lend itself to over capitalization of the various
companies?
Mr. Y o u n g . It would lend itself, I think, to overcapitalization,
but it is not that aspect, or not that so much, which disturbs me. It
is this: If I am right in thinking that Mr. Insull himself was not able
ultimately to understand that structure, how can the ordinary
investor, buying shares or buying obligations, especially of the last
companies, on the top, how can they be expected to know, or even to
inform themselves, conscientious and able as they might be, really
as to the value of those securities?
Senator B r o o k h a r t . On that proposition, Mr. Young, isn’t
there some duty on the stock exchange where those things are dealt
in, to protect the public from losses in buying that sort of stock?
Mr. Y o u n g . I am not casting reflections on those shares, Senator,
at the moment, or on any shares in these holding company groups.
All I am pointing out is that I think it is unfortunate that we should
have developed such a complicated financial structure.
Senator B r o o k h a r t . Well, is it right that those stocks and bonds
should be listed on stock exchanges and sold to the public at large
without a duty or any obligation of that kind?
Mr. Y o u n g . Well, I think it would be better, stock exchange or
no stock exchange, to try and work toward the objective in this
country of having these structures simplified.
Mr. P e c o r a . H ow would you provide for that, if you care to give
the committee your views and suggestions about it?



STOCK EXCHANGE PEACTICES

1517

Mr. Y oung . I should like to see us work toward the end of having
not more than one holding company superimposed on the operating
companies in the public utility field.
Senator B eookhaet . Why have any?
Mr. Y oung . I think there is a very real reason, Senator, for having
a holding company. A public utility company, in the first place,
has to be organized in the State of its operation, and should be. It
does, as Mr. Insull, jr., said this morning, a purely local business.
There is a great advantage, not only from the standpoint of connecting
different units with transmisson, but there is a great advantage on the
technical side in unifying those different operating companies; and
there is also on the financial side justification for it through diversify­
ing the risk. If you take one operating utility in an industrial com­
munity, and another operating utility in an agricultural secton which
produces cotton, and another operating utility in an agricultural
section which produces wheat, and another operating utility perhaps
in the fruit district of California, I think you will find that the securi­
ties of that holding company, in which all those utilities are
grouped-----Senator B eookhaet (interposing). Why do you need to group
them?
Mr. Y oung . Excuse me. Is a safer investment than an investment
in any one of those operating companies. For instance, if the cotton
crop fails your utility earnings there may go down; if the fruit crop
fails they may go down there; if the industry of a particular town is
paralyzed they may go down there, but the general average, if you
can create a situation where, through holding company, the earnings
of these utilities have something like the same diversity that the
country itself has, then you get in the security of the hoding company
a better security through diversification, especially in the common
shares, than you would in any one operating company.
Senator B bookhart . Your idea is that if cotton would be a loss
you would charge that to wheat and fruit, and if wheat and fruit
would prove a loss it would be charged to cotton?
Mr. Y oung . No; not at all, Senator. If the earnings of an indi­
vidual operating company in the Cotton Belt should go down, it may
well be that the earnings in the fruit belt may have gone up, and
therefore the fruit belt company may be able to continue its dividends
even if the Cotton Belt company may have had to suspend them.
The C h aieman . But, as a matter of fact, that has never happened
in the history of the United States covering any long period.
Mr. Y oung . Oh, it is constantly happening that there is a sub­
stantial variation in the earnings of these operating units.
The C haieman . That may be for a year, but I said for a long time.
Can you point to any utility where that has been true?
Mr. Y oung . That is the point. That in each year through these
unifications you get something of the same kind of diversity, some­
thing of the same kind of safety, that you could not get through a
long period with each individual company.
Mr. P ecoea . Might not the desirable things that you have referred
to be effected through an operating company with branches in the
various sections or States?
Mr. Y oung . Y ou see, in the case of the General Electric Co.,
which is not a public utility company, we own plants in Fort Wayne,



1518

STOCK EXCHANGE PRACTICES

Ind., in Erie, Pa., in S c h e n e c t a d y , N. Y., in Pittsfield, Mass., in
Bridgeport, Conn., in Lynn, Mass., in Philadelphia, Pa., and so we are
able to get diversity, because one corporation may own plants located
in different communities. But in the case of public utilities, where
each unit has to be incorporated within the State of its operation,
and subject to the commission of that State, it is impossible to get
the same diversity without the use of a holding company. You can
only get the same diversity in the public utility field through a
holding company, whereas in the manufacturing business you are
able to get it by one straight operating company.
Mr. P e c o r a . Y o u think, though, one holding company would
suffice for a number of units of operating companies?
Mr. Y o u n g . I should like to see us work toward, and I say work
toward because it is important in these sensitive times not to disturb
more than we are obliged to the existing structures, but I should like
to see us work toward the final objective of not having more than
one holding company superimposed on operating units in the public
utility field.
Senator B r o o k h a r t . I cited an instance the other day, and I
want to cite it again to you: Right out in the center of the Insull
organizations, at Hinsdale, 111., they have a little town of 6,000 or
7,000 people, and which has of course a steam plant for its electric
lighting and its service for the whole town, and it is municipally
owned and operated. It charges the same rate as the Insull rates in
the villages all around it. And it was the only village that had money
enough to open the schools in that section this year. It paid for its
plant out of earnings, and enlarged the plant. And after that they
built a garbage plant, and they paid $100,000 on the city hall. And
now they have canceled the most of the village taxes out of the earn­
ings of that plant,which is right in the center of these Insull utilities
that have gone broke under the holding system. Now, isn’t it better
for those communities to .have their own unit than to be tied up with
some other community through a holding corporation?
Mr. Y o u n g . Well, I do not know anything about the particular
instance which you cite, Senator. But I think it fair to say that the
electrical art has developed to the point where it is uneconomical to
have little producing units in each village of 5,000 or 6,000 people.
Senator B r o o k h a r t . Well, this one has certainly proved eco­
nomical for that village.
Mr. Y o u n g . It may have been there.
Senator B r o o k h a r t . A witness before a subcommittee of this
Banking and Currency Committee the other day stated that there
were 93 cities and towns in the United States in similar condition to
this Hinsdale plant, in that they have entirely abolished the village
taxes, and that the rates were lower than public utility rates generally.
Mr. Y o u n g . That I do not know about. All that I am trying to
say is, and I am not discussing the question of Government ownership;
all I am trying to say is that if you are contemplating Government
ownership and expecting to get the most economical operation of your
units, I think your ownership must cover a larger territory than a.
single municipality.
Mr. P e c o r a . Mr. Young, in the course of your testimony, in
which you made reference to the Insull structure, you pointed out as
I recall it that one of the evils emanating from that kind of structure



STOCK EXCHANGE PRACTICES

1519

was the i m p o s s i b i l i t y of one through any system of accountancy to
really soundly appraise the value of the securities sold to the public
by the various units of this great structure. Do you recall that?
M r . Y o u n g . Y e s, sir.

Mr. P ecora . Have you any suggestion to advance to the com­
mittee with respect to the curbing or elimination of that evil, by
means of legislation?
Mr. Y oung . Well, even if we were to succeed ultimately in having
only one holding company in the public utility field, I should like to
see it so provided that money should move only from the holding
company toward the operating companies, except as the operating
companies paid for services rendered by the holding company, or
paid for capital investment by the holding company. In other
words, I should like to see the transfers of funds as between operating
companies, and certainly any loaning of funds by operating companies
to the holding company, prohibited.
Mr. P ecora . Well, Mr. Young, may I call attention to a suggestion
generally along these lines as possibly affording a measure of protec­
tion to the investing public from such evils as have been discussed
here by you: That a Federal agency be created, patterned very much
on the style of the so-called blue sky commissions the various States
have created, to pass upon offerings or issues of securities sold through­
out the various States, where, for instance, the mails are used in the
selling process through the mailing of prospectuses, and so forth, and
give that commission or agency the power to license or refuse to
license companies issuing such securities and seeldng to get them to
the investing public through the mails.
Mr. Y oung . I think if you had one holding company, probably
complete publicity regarding its affairs would furnish the necessary
check.
Mr. P ecora . Well, such a holding company would be a state or­
ganization.
Mr. Y oung . But I am saying that I think publicity there might
furnish the necessary check.
Mr. P ecora . But that would be dependent, wouldn’t it, on the
law of a particular state in which the holding company was locally
domiciled.
Mr. Y oung . It would. And if there were not adequate provision
for full publicity in the state, then it seems to me the Federal law
should in some way, if it may be constitutionally done, provide either
for commission approval in advance, or, what I think is perhaps as
good, provide for very complete publicity, so that investors themselves
may know exactly the situation.
Senator F letcher . If you had a holding company handling securi­
ties and so forth you would not allow these different units to be issuing
stocks and bonds and selling them.
Mr. Y oung . Yes. I think they might, for example, issue bonds.
I should hope they would issue them only to a small percentage of the
total investment.
Mr. P ecora . Meaning by that, what percentage?
Mr. Y oung . Well, I should hope that we would not be issuing
bonds of operating companies in excess of 50, or at the most, 60 per
cent, of the total investment or existing value of those companies.
Mr. P ecora . That is, operating companies?



1520

STOCK EXCHANGE PEACTICES

Mr. Y oung . Yes. The great advantage of the holding company
does not lie so much in the bond issue as it lies in the diversity affect­
ing the common stocks of operating companies.

Mr. P e c o r a . Now, when you contemplated this combination called
the Insull group of public utility companies, that you characterized I
think very properly as a very complicated structure, you regarded its
structure as virtually being under one control or management.
Mr. Y o u n g . I did.
Mr. P ecora . And all the interests of the constituent units or com­
panies in this structure forming a homeogeneous structure or organiza­
tion.
Mr. Y oung . Forming an organization at least which finally came
under the dominating influence of Samuel Insull, sr.
Mr. P ecora . N ow , in your consideration of the questions revolv­
ing around the difficulties that were precipitated for those companies
in December of 1931, through the maturity or the impending maturity
of various large bank loans, did you give any consideration to the
question from a public standpoint of any of these banks making
separate loans to different units in this great structure, to an aggre­
gate that exceeded the legal limit that banks could loan to a single
borrower? Do you know what I mean, Mr. Young?
Mr. Y oung . I do. And of course the multiplication of those com­
panies, one on top of another, leads to the very thing which you
outline, and in a sense tends to avoid the restrictions existing in the
bank act.
Mr. P ecora . And you think that should be curbed by appropriate
legislation?
Mr. Y oung . I think if we could finally get back to what I am now
suggesting, of not more than one holding company in the public
utility field, that objectionable aspect from the bank side would
automatically disappear. At least it would be impossible for a bank
to make more than two—that is, then you could not make ten loans.
Mr. P ecora . The legal limit for national banks which have made
loans to any one borrower is 10 per cent of its capital and surplus, is
it not, so far as you recall?
Mr. Y oung . It is my recollection that that is so.
Mr. P ecora . Did you ever hear of that limitation exceeding 15
per cent under any State law?
Mr. Y oung . Well, I am sorry, but I am not familiar with the
State laws in that respect.
Mr. P ecora . Are there any other suggestions you would care to
make to the committee, Mr. Young, on this general subject before
you leave the stand?
Mr. Y oung . I think not. Might I inquire whether you are through
with me, Mr. Chairman?
Mr. P ecora . I am.
Mr. Y oung . Might I make this personal statement?
The C hairman . G o ahead.
Mr. Y oung . There has been reference made here to the fact that
I am personally investing in the Insull companies. I do not wish
to burden this committee with a statement about my personal affairs,
and have no right to do so, but I should be glad to make an explana­
tion of that for the record if you have any interest in it.



STOCK EXCHANGE PRACTICES

1521

The Chairm an. If it is brief, we have no objection, but it is now
about time for us to recess.
Mr. P e c o r a . Are you referring to your subscription to a certain
number of shares of the common stock of Insull Utility Investments
(Inc.)?
Mr. Y ou n g. I am.
Mr. P ecora . From this list that was put in evidence yesterday?
Mr. Y oung . I am.
Mr. P e c o r a . Well, I think the committee would be interested in
having anything you have to say so far as it touches you.
Mr. Y oung . In December of 1928 Mr. Samuel Insull came to me
and stated that there were two or three groups who were accumulat­
ing or threatening to accumulate large holdings in his operating units,
having in mind particularly the Commonwealth Edsion Co., Peoples
Gas Light Co., Public Service of Northern Illinois, and Middle West
Utilities, treating that for this purpose as an operating unit. You
will remember that at that time there was a great boom on. Some
of us can only barely recall it.
Mr. P ecora . And others painfully recall it.
Mr. Y oung . Yes, others painfully recall it. In fact, the most of
us painfully recall it. And Mr. Insull said that that threat was
having a very bad effect upon the morale of his operating organiza­
tion. They were fearful that those outside groups, who then could
buy the shares of those operating companies and sell shares of invest­
ment trusts against them even at higher prices than the aggregate
value of the market shares they held, would be able in that way to
accumulate such a block of shares that they might threaten the exist­
ing management. And that the men in important positions in his
operating companies were very nervous about it, particularly in view
of the fact that he, Mr. Samuel Insull, was getting along in years,
and that his natural span of life, in the natural course, would be short;
and because his son was not then old enough to come along and take
his place.
Mr. Insull said that in order to guard against that situation he had
conceived the notion of organizing an investment company, into
which he would put some or all the family holdings, and that then
that company could issue shares to the public and acquire with the
proceeds of those shares additional blocks of these four operating
units to which I have referred.
Mr. Insull stated that he hoped, through that machinery, to be in
a position to withstand any attempt to thus take the control away,
and thereby he would also tend to assure the thousands of men in his
operating units, who were devoting their lives to that business, that
their position in the management would not be threatened even
boastfully.
Mr. Insull said that he would appreciate it very much, and he was
sure that his entire operating management would too, if I would
personally subscribe for a small block of those shares. That it was
not so much the amount I subscribed as the fact that his associates in
the company would know that I would be available in the holding
company in case anything happened to Mr. Insull. He asked me
if I would be willing to invest as much as $50,000 of my money in
that stock. I told him that I thought for that purpose I would.
He said: It is obvious that if you are to do that you will have to hold
119852—33—pt 5----- 9



1522

STOCK EXCHANGE PRACTICES

those shares, because what I am interested in is having you go along
permanently with this company as a shareholder, and that is what
my operating organization would be interested in.
Mr. Insull said that he had not worked out his plans for his invest­
ment company, but that he expected to do so, and that if I would
invest something like $50,000 in it, he would go back to Chicago and
when his plans were worked out he would assign to me shares of
approximately the value of $50,000. I had the greatest confidence
in him, and I said I would do that, that that would be perfectly
satisfactory to me, and if I could aid him in his organization to that
effect I would be glad to do so.

I then went abroad on the reparations program in January. I left
word with my office to take up any assignment of stock which Mr.
Insull made, not exceeding $50,000, during my absence. The papers
came through. As I learned on my return from abroad in June, I was
assigned 4,000 shares of a company known as Insull Utility Invest­
ments (Inc.), at $12 per share.
Mr. P e c o r a . Was that the first knowledge you had of the price^at
which you were to purchase that stock?
Mr. Y oung . Yes. It was the only knowledge I had, because I did
not know how many shares I was to have or the price at which they
were to be allocated.
Mr. P e c o r a . And for how long were you requested by Mr. Insull
when he first spoke to you about that proposition, to hold that stock
if you acquired it?
Mr. Y oung . Well, I think in the agreements themselves there was
some definite undertaking about holding it. But of course regardless
of the agreement, the purpose which Mr. Insull had in mind for me
meant that I would have to hold that stock indefinitely. And that
is what I had assumed.
The C h airman . Then you made your purchase of stock virtually
as an indorsement of his promotion scheme.
Mr. Y oung . I do not think, Senator, my name was ever used, not
so far as I know, in the exploitation of those companies. I was never
a director or an officer of the companies. I never followed their
reports. I did not even follow the market price of their shares,
because it was not of the slightest interest to me, for I could not have
sold them no matter what price they went to or what profit they
showed me.
Mr. P e c o r a . Was any written agreement ever proposed or entered
into with respect to your holding those shares for any specified period
of time?
Mr. Y oung . I am sorry but I did not pay enough attention to it
to know, because, as I say, whatever the agreement was it was not as
important to me as my general commitment to Mr. Insull. M y
impression is that there was some limitation expressed in the papers
of the right to sell those shares.
M r . P e c o r a . D o y o u re ca ll th a t it w a s fo r a b o u t tw o y e a rs fr o m
th e d a te o f the issu a n ce o f th e s to c k ?

Mr. Y oung . Well, it might have been. But, as I say, it made no
impression on me because I should not have felt free at the end of
two years, because of the character of my relationship to the enter­
prise, to sell my shares.




STOCK EXCHANGE PEACTICES

1523

Mr. P ecora . D o you know that many hundred thousands, yes,
over 2,000,000 shares of that stock was sold to the public without
any such limitation or understanding?
Mr. Y oung . I do not know about it, sir. I am sorry, but you
can see how little attention I was paying to it. I was not making
that as an investment, because I personally was selecting it, but I
was making it because Mr. Insull asked me to go along to help assure
the management of his operating companies of their position. And
I never followed it as an investment.
Mr. P ecora . Did Mr. Insull tell you how many shares of stock
were going to be offered or sold with that general understanding and
for that purpose?
Mr. Y oung . No. As I have said to you, Mr. Insull stated that
he had not made up his plans, that he did not know the structure of
the company, that all he would do would be to assign to me securities,
whatever form they might take, of an amount not to exceed $50,000.
I thank you for the privilege of making that statement about my
personal investment, because I would like to have you understand
why I made it, and why I was not interested in the market price,
why I could not sell it, and why it still remains.
Mr. P ecora . Why it still remains, or it is a case of “ still remains” ?
M r . Y o u n g . Y e s , sir.

Mr. P ecora . Mr. Young, did you ever have any purpose whatso­
ever, either to ascertain the value of this stock, make any survey of
its value, or of the factors that entered into its value?
Mr. Y oung . I never did.
M r . P e c o r a . D o y o u k n o w a n y th in g a b o u t th a t?

Mr. Y oung . I do not. The only thing I know about it is the
operating statement and the balance sheet of Insull Utility Invest­
ments (Inc.) which was submitted to Mr. Swope, and to me, at the
time we made the loan of the General Electric Co. in December of
1931. At that time I saw for the first time the operating statement
and balance sheet.
Mr. P ecora . Did they submit to you a consolidated financial
statement for the two investment companies?
Mr. Y oung . They submitted I think a consolidated statement for
both. And in that case they took only the report for the y;ear 1930,
the annual report for 1931 not having come out, and they interlined
the figures in ink, to show the operating situation of the companies,
Corporation Securities and Insull Utility Investments, as the matter
stood at the time the loan was made, as they estimated it would be
at the end of the year 1931, which was approximately the time of
the loan.
Mr. P ecora . For the purpose of your company making this loan
of $2,000,000 in December of 1931 you did not cause any independent
audits to be made of those two companies, did you?
Mr. Y oung . N o, sir. We accepted the consolidated statement as
they presented it to us.
The C h airm an . Mr. Young, you may have covered this, but I am
not clear on it. I think you said at what price per share the stock
was sold to you, which was $12.
M r . Y o u n g . Y e s , sir.

The C h airman . What was the market price as of that time?



1524

STOCK EXCHANGE PRACTICES

Mr. Y o u n g . I am sorry that I can not tell you, but you see I was
in Paris at the time.

The C h a ir m a n . Have you the date at which that stock was sent
to you?
Mr. Y o u n g . I have not. I was in Paris at the time. The stock
was sent to my office. As I learned when I returned there were
4,000 shares at $12 a share. I do not recall ever having looked at
the market price of those shares.
The C h a i r m a n . The company had been in existence for some time.
Mr. Y o u n g . Well, it was in June when I saw it on my return.
The C h a i r m a n . And this other was preceding the opening?
Mr. Y o u n g . The talk with Mr. Insull was in the December before.
Mr. P e c o r a . In December of 1928?
Mr. Y o u n g . Yes, sir.
The C h a i r m a n . And he was liberal with you in the matter of
price, as the stock opened at $30 a share and went right on up to
$149.
Mr. Y o u n g . Well, I think you gentlemen know more about that
than I do.
M r . P e c o r a . I s th ere a n y th in g else?
Mr. Y o u n g . Have you any desire,

Mr. Pecora, for these state­
ments?
Mr. P e c o r a . Would you leave that consolidated statement with
the committee if you can spare it?
Mr. Y o u n g . I will.
Mr. P e c o r a . Or if you have a photostatic copy of it we will be
glad to have that.
Mr. Y o u n g . Yes; in lieu of that we will be glad to have a photo­
static copy made.
Mr. P e c o r a . Mr. Chairman, I ask that they be spread in full on
the minutes of our hearing.
The C h a i r m a n . The request is that they be placed in the record.
If there is no objection it is so ordered.
(A photostatic copy of a portion of a pamphlet entitled “ Report
of Insull Utility Investments (Inc.) for the fiscal year ended Decem­
ber 31, 1930,” was furnished by the witness and is here made a part
of the record, as follows:)
R

eport

of

Insull U

t il it y

I n v e s t m e n t s ( I n c .), f o r
D e c e m b e r 31, 1930

the

F

is c a l

Y

ear

E

nded

Income:
Gash dividends______________________________________________ $4, 505, 931. 72
Stock dividends, taken in at market value at date of receipt__ 5, 186, 990. 21
Interest on bonds, notes, etc________________________________
817, 580. 05
Profit on sale of securities___________________________________
676, 578. 18
Sale of rights. _______________________________________________
926, 042. 23
Miscellaneous income_______________________________________
38, 647. 35
Expenses:
Administrative and general expenses__________
Provision for income taxes____________________

10, 798, 613. 38
$655, 784. 15
74, 557. 93
----------------------

730, 342. 08

Net income before interest charges____________________________ 10, 068, 271. 30
Interest charges:
Interest on 5% gold debentures, series “ A ” __
113, 066. 10
Interest on 6 % gold debentures, series “ B ” ___ 3, 039, 080. 00
Other interest charges________________________ 2, 507, 187. 35
---------------------- 5, 659, 333. 45



STOCK EXCHANGE PBACTICES

15 2 5

Net income for the year_____ _________________________________ _ $4, 408, 937. 85
Cash dividends paid and accrued:
Prior preferred stock___________________________
$299, 385. 31
Preferred stock, second series__________________ 2, 434,121. 25
Preferred stock, first series__________ __________
146, 666. 66
------------------------ 2 ,8 8 0 ,1 7 3 .2 2
1, 528, 764. 63
1931 stock dividend on common stock at the rate of 6 shares for
every 100 shares per annum— 200 shares at $20 per share____

2, 934, 652. 80

Surplus income for the year______________________________________

1, 405, 888.17

Earned surplus, Dec. 31, 1930___________________________________
Earned surplus, Nov. 30, 1931___________________________________

9,792,114. 39
8, 386, 226. 22

I nsull U tility I nvestments, I nc.
C onsolidated B alance Sheet— N ovember 30, 1931
ASSETS
Cash........................... ...............................................................................
Notes and accounts receivable_________________________________
Due from subscribers to common stock_______________________
Interest and dividends receivable______________________________
Organization expense, etc______________________________________
Investment securities— at cost:
Pledged (under temporary loans)_________ $188,008, 288. 48
Unpledged............................................................. 51, 204, 846. 57
Under contract of purchase________________
138,400. 00
Loaned to affiliated companies—
Secured-.............................................. . ..........
10, 084, 233. 80
Unsecured_______________________________
1,194, 722. 84
--------------------------Borrowed securities— at market (contra)
P led g ed ..!............ ................................................
Unpledged_________________________________
Loaned to affiliated companies— secured___
Reacquired securities— at cost:
Pledged............. .................................. .................
Unpledged_________________________________
Loaned to affiliated companies____________
Loaned to outsiders_______________________

2 ,9 9 0 ,2 8 3 .7 5
2, 276,965. 00
745,925. 00
4 ,6 3 1 ,5 4 4 .6 1
611,939. 82
1, 309, 851. 46
241, 484 25
---------------------------

$4,002, 608. 87
12, 872, 365. 74
256, 859. 58
324,122. 83
1,150, 326. 97

2 5 0 ,6 3 0 ,4 9 1 .6 9

6,013,173. 75

6, 794, 820.14
282, 044, 769. 57

LIABILITIES
Notes payable_________________________________________________
Accounts payable, including interest and taxes accrued----------Dividends accrued_____________________________________________
Liability under contract of purchase (due 1931-1934)________
Funded debt:
5 % gold debentures, series A— due Jan.
1,1 9 4 9 ......... ...................................................... $ 2 ,4 6 9 ,0 0 0 .0 0
6 % gold debentures, series B— due Jan.
1, 1940............................— ............................ 55,256,000. 00
--------------------------Liability for borrowed securities (contra) secured______________
Common stock scrip, unconverted— 11,972-786/1000 shaies—
Capital stock:
Prior preferred, without par value—
Authorized— 250,000 shares.
Issued— First series $5.50 cumulative— 60,000 shares--------




53, 257,145. 00
3, 552, 388. 67
770, 200. 00
185, 275. 00

57, 725, 000. 00
6,013,173. 75
383, 262. 29

6,000,000. 00

1526

STOCK EXCHANGE PEACTICES

Capital stock— Continued.
Preferred, without par value—
Authorized— 500,000 shares.
Issued—
First series, 40,000 shares_____________________________
Entitled to cumulative dividends— $4-1931: $5-1932:
$6-1933 and thereafter.
Second series $ 6 cumulative— 450,000 shares__________
Common, without par value:
Authorized— 6,000,000 shares.
Reserved for sale and conver­
sion to holders of—
Preferred stock, second
Shares
series--------------------675, 000
6 % debentures series B.
1, 314, 706
Reserved for common
stock subscribed but
not issued___________
7, 400
1, 997,106
4, 002, 894
Issued......... ..........................
3, 636, 614 $100, 813, 873. 91
Less: Held in Treasury
for
exchange
of
scrip.......... ...............
19,160
383,262.29
3, 617, 454 100, 430, 611. 62
Subscribed but not issued7,400
370, 000. 00
1
.
3, 624, 854
Reserve for contingencies____________________________________
Surplus:
Earned surplus________________ __________________________
Paid-in surplus___________________________ $6 , 750, 000. 00
Less: Discount and expense on series B
3,778,512.98
debentures written off________________

$4, 000, 000. 00
36, 000, 0 0 0 . 0 0

1 0 0 , 800, 611. 62

2, 000, 000. 00
8,386,226.22

2, 971, 487. 02
282, 044, 769. 57
C
S

chedule

o r p o r a t io n

S e c u r it ie s

Co.

of

C

h ic a g o

L - l.— Analysis of changes in capital surplus supporting Form 1120,
calendar year 1931

Capital surplus, December 31, 1930___________________________$31, 730, 104. 86
Additions:
Adjustment of organization expense previously charged to
capital surplus_________________________________________
1, 705. 40
Reserve for contingencies transferred_____________________
750, 000. 00
^
32, 481, 810. 26
Deductions:
Unamortized discount and expense on serial gold notes
charged off____________________________________________
1, 209, 860. 99
Appropriated to reserve for loss on securities loaned______
538, 471. 37
Appropriated to reserve for loss on notes and accounts re­
ceivable_______________________________________________
573, 935. 48
Write-down of company’s own securities reacquired, to
market value__________________________________________
1, 807, 793. 72
Loss on sale of company’s own securities_________________
87, 645. 86
Appropriated to reserve for company’s own securities held
by subsidiary company____ ____________________________
2, 659, 643. 31
Appropriated to reserve for loss sustained by subsidiary
company on sales of stock of Corporation Securities Co.
of Chicago____________________________________________ ______1 63, 320. 26
Total deductions______________________________________
6 , 940, 670. 99
Capital surplus, December 31, 1931___________________________ 25, 541, 139. 27
i This item is eliminated in consolidated balance sheet, as the loss is reflected in consolidated earned
surplus.




STOCK EXCHANGE PEACTICES

1527

(The witness loaned to the committee reporter his original copy of
a pamphlet entitled “ Report of Corporation Securities Co. of Chicago
for the fiscal year ended December 31, 1930/’ bearing the changes
made in ink when said pamphlet was submitted to him for the purpose
of making a loan, and the reporter had the particular pages referred
to photostated, and they are here made a part of the record as follows,
the said statement having been changed to read “ For the period
January 1, 1931 to November 30, 1931” in pen and ink.)
Statement of income, expenses, and earned surplus of Corporation Securities Co. of
Chicago, for the period, January 1, 1931, to November SO, 1931
Income:
Cash dividends___________________________________________ $1, 824, 227. 21
Stock dividends, taken in at market value at date of
receipt_________________________________________________
3, 424, 714. 04
Interest on bonds, notes, etc______________________________
180, 503. 22
Profit on sale of securities_________________________________
227, 600. 50
Commissions earned______________________________________
41, 709. 06
Total__________________________________________________
Expenses______________________________________________________

5, 243, 553. 03
652, 114. 55

Net income before interest charges____________________________
Other interest charges____________________________________

4, 591, 438. 48
2, 081, 433. 93

Net income for the year_______________________________________
$3-optional preferred stock dividends paid and accrued:
In cash___________________________________ $2, 000, 793. 75
In common stock at the rate of 10 shares for
every 100 shares per annum, at $5 per
share___________________________________
3, 514. 36
-----------------------

2 , 510, 004. 55

Total___________________________________________________
Common stock dividend on common stock at the rate of 6 shares
for every 100 shares per annum, at $5 per share_____________

505, 696. 44
1, 276, 710. 50

Surplus income for the year___________________________________
Surplus, Dec. 31, 1930_________________________________________

771, 014. 06
4, 492, 602. 86

Surplus. Nov. 30, 1931________________________________________

3, 721, 588. 80

B

alance

Sheet, N

ovem ber

2, 004, 308. 11

30, 1931

ASSETS

Cash_________________________________________ _______________
Notes and accounts receivable________________________________
Unamortized discount and expense on serial gold notes, etc___
Investment securities:
Pledged (under temporary loans)________$125, 888 , 160. 73
Unpledged______________________________ 16, 078, 885. 58
Loaned to affiliated company___________
506, 284. 03

$1,056,854.80
1, 331, 424. 06
2 1 2 , 043. 87

142, 473, 330. 34
Reacquired securities:
Pledged__________________ _____ ________
Unpledged________ _____ _______________

3,154,231.74
2, 086, 493. 18
5, 240, 724. 92

Borrowed securities, at market (contra) secured, pledged______




6 , 540, 035. 00

156, 854, 412. 99

1528

STOCK EXCHANGE PRACTICES
LIA B IL IT IE S

Liability to deliver borrowed securities at market (contra)
secured____________________________________________________
Notes payable_______________ ________________________________
Accounts'payable, including interest accrued__________________
Dividends accrued___________________________________________
Common stock dividend declared and payable in common stock.
Liability under contract of purchase (due 1931)_______________
Unearned commissions on loan_______________________________
Serial gold notes (authorized $40,000,000) outstanding________
Common stock scrip, unconverted— 15,942-916/1,000 shares_
_
Liability to deliver stock_____________________________________
Capital stock:

$6 , 540, 035. 00
27,269,851.25
757, 911. 35
181, 108. 75
335, 759. 15
2, 549, 207. 30
______________
24, 033, 000. 00
79, 714. 58
335, 336. 27

Shares

Prior preferred, no par: Au­
thorized___________________ 1 , 0 0 0 , 00 0
$3 optional preferred, 1929
series no par—
Authorized______________ 1, 000, 000
Less issued and converted
into common_________
37, 153
T otal_________________

962,847

Issued and outstanding __
748,481
Common, no par—
Authorized__________________ 6 , 000, 000
Reserved under option and for
conversion of preferred stock 1, 122, 722
T otal_____________________

37,424,050.00

4, 877, 278

Issued_______________________ 4, 492, 852 $ 2 2 , 464, 259. 60
Less: Held in treasury for
exchange of scrip_____
15, 943
79, 714. 58
Total_____________________ 4,476,909 22,384,545.02
Reserve for contingencies_____________________________________
Surplus:
Capital surplus, paid in—
Balance Nov. 30, 1931, re­
duced t o _________________________
Net additions during year__________
30, 492, 305. 52
Earned surplus_________________________
3, 721, 588. 80

750, 000. 00

34, 213, 894. 32
156, 854, 412. 99

Senator C ostig a n . Mr. Young, are the annotations in writing on
the margin of the annual reports, referred to by you, the same anno­
tations which were there at the time it was originally shown to you?
Mr. Y o u n g . Yes, sir. These are the figures on which we relied in
making the General Electric Co. loan.
Senator C ostig a n . Y ou refer to the figures entered in ink on
those printed pamphlets, do you not?
M r . Y o u n g . Y e s , sir.

The Chairm an. You are excused, Mr. Young.
Mr. Y o u n g . Am I now discharged so that I may go home?
The Chairm an. Yes. The committee will rise to meet here with­
in an hour.
(Thereupon, at 1.20 p. m., the committee recessed for one hour.)




STOCK EXCHANGE PRACTICES

1529

AFTER RECESS

(The committee reconvened at the expiration of the recess, at 2.30
o’clock, p. m.)
The C hairman . General Dawes, please come forward.
You do solemnly swear that you will tell the truth, the whole truth,
and nothing but the truth, regarding the matter now under investi­
gation by the committee, so help you God?
Mr. D a w es . I do.
TESTIMONY OF CHARLES GATES DAWES, FORMER VICE PRESIDENT
OF THE UNITED STATES, EVANSTON, ILL.

Mr. P ecora . General Dawes, will you please give your full name
and address?
Mr. D a w es . Charles Gates Dawes; 225 Greenwood Boulevard,
Evanston, 1 1
1.
Mr. P ecora . Your business or profession, General Dawes?
Mr. D aw es . I am a banker at present.
Mr. P ecora . Were you at one time connected with the bank known
as the Central Republic Bank & Trust Co. of Chicago?
Mr. D aw es . I have not been an officer or director of the Central
Republic Bank & Trust Co., except from the 26th of June to Octo­
ber 5.
Mr. P ecora . Of what year?
Mr. D a w es . 1932. I was chairman of the board for that period.
Mr. P ecora . General Dawes, have you produced here at the re­
quest of the committee a statement of bank loans made by that
bank to any of the Insull group of companies?
Mr. D a w es . Yes. I asked the vice president in charge to make
that list in response to the request of Mr. James E. Stewart. That
was what he said he wanted. [Producing papers.]
Mr. P e c o r a . I notice this list includes a number of such loans to
so-called Insull companies, affiliates, directors, officers and employees
of such companies, as of April 16, 1932, and as of January 10, 1933.
Do you know the aggregate amount of such of these loans as were
outstanding on April 16, 1932?
Mr. D a w e s . I counted them up there. I think there are 40 or 41
different loans, separate loans. As of April 16, the gross amount is
$11,977,400.68, and the aggregate on January 10, the other day, was
$11,130,233.70.
Senator C ouzens . May I ask at this point if all those loans are in
the possession of that bank now?
Mr. D aw es . Yes.
Senator C ouzens . None of them have been put up as security for
the loans from the Reconstruction Finance Corporation?
Mr. D aw es . Yes. Part of the loans that were in the bank at the
time the loan was made from the Reconstruction Finance Corpora­
tion are still in that collateral.
Senator C ouzens . What I meant to imply was, General, that these
loans are not all in your possession now. They are in the possession
of the Reconstruction Finance Corporation.
Mr. D aw es . In the possession of the Reconstruction Finance Cor­
poration as collateral for that loan, yes.



1530

STOCK EXCHANGE PEACTICES

Senator C ouzens . Have you segregated those that are in the posses­
sion of the bank itself, and those that are in the possession of the
Reconstruction Finance Corporation?
Mr. D a w es . They are all in the possession of the Reconstruction
Finance Corporation.
Senator C ouzens . Those that you specified as being $11,000,000
plus, are now in the hands of the Reconstruction Finance Corporation?
Mr. D a w es . Yes.
Mr. P ecora . Are you familiar, General, with the circumstances
under which any of these loans, which on April 16, 1932, aggregated
$11,977,400, were made to the borrowers?
Mr. D aw es . No; I am not familiar with the circumstances.
Mr. P ecora . D o you know over what period of time these loans,
aggregating that figure, were made?
Mr. D a w e s . I can not tell you as to what period of time these
particular loans have run, but the Insull companies have done business
with the Central Trust Co. of Illinois, and I presume the National
Republic Bank, for many years, over 15 or 20 years.
Mr. P ecora . General, do you know what the capital and surplus
was of the bank on April 16, 1932?
Mr. D a w e s . Of the Central Republic Bank?
Mr. P ecora . Yes, sir.
Mr. D a w e s . Well, the capital was $14,000,000, and the surplus
was $10,000,000; the undivided profits, I think, were about $3,000,000.
Mr. P ecora . What was the other?
Mr. D a w es . Undivided profits; but you wanted capital and surplus.
Mr. P ecora . Undivided profits, about $3,000,000?
Mr. D a w es . Yes.
Mr. P ecora . That made a total of about $27,000,000, representing
capital, surplus, and undivided profits?
Mr. D a w es . Yes.
Mr. P ecora . This bank is a State bank, is it not?
Mr. D aw es . Yes.
Mr. P ecora . Chartered under the laws of the State of Illinois?
Mr. D a w e s . Yes.
Mr. P ecora . What is the limitation placed by law, under the
laws of the State of Illinois, upon any bank in making a loan to a single
borrower?
Mr. D a w es . Fifteen per cent of the capital and surplus.
Mr. P ecora . In the case of the making of these loans to the socalled Insull companies and affiliates, directors, officers and employees
of those companies, had all those loans been made to one corporation
or entity, or person in that group, they would have exceeded, by a
very substantial margin, the legal limitation, would they not?
Mr. D a w es . They would, yes.
Mr. P ecora . But these loans were not so made to one person only?
Mr. D aw es . They were made to separate corporations and sepa­
rate entities, and therefore came within the law.
I would like to say here, in connection with this discussion as to
method of changing the law and preventing the loaning of money to
corporations in a group controlled by somebody, that I think there
was one thing that was overlooked, and that is that a great many of
these corporations are controlled almost by proxy committees alone.




STOCK EXCHANGE PRACTICES

1531

It is very seldom that you find in control of one of these great groups
any one who has any large property interest.
Mr. P ecora . That is, the control usually is vested in a person or
group whose total stock interest represents a minority.
Mr. D a w e s . Yes, a very small minority. And what apparently
largely wrecked Mr. Insull was his trying to go out and buy a property
interest in great companies like the Commonwealth Edison and the
Peoples Gas, so that he could cement his proxy by actual control, and
he paid such prices for the stock that it ruined him.
The point I want to make in connection with this matter of the limi­
tation of loans is this: Remember, if you should pass any law to
prevent any company controlled by a group, as you call it, from mak­
ing loans which, added to the loans made by the rest of the group,
would exceed the legal limit, you are going to cut off from credit prop­
erties which may need it, and which are owned by tens of thousands of
stockholders who would be benefited by proper credit to that company.
You would cut it off, because some fellows with the stock control or
proxy control put it in a group, so called.
The C hairman . But, is not the answer along another line, to pre­
vent this kind of corporate set-up being carried so far?
Mr. D a w es . Y ou can not safely limit the right to borrow money
of a corporation with 50,000 or 100,000 stockholders by any law de­
signed to prevent some unscrupulous men getting control of it in the
future and it is very dangerous, by law, to fit such a statute into cer­
tain situations where the equities of stockholders and of individual
corporations are concerned.
Take the case of the Insull group, for instance. The Common­
wealth Edison Co. and the Peoples Gas Co. require very large amounts
of money every year for expenditure. Samuel Insull owned only a
very small amount of that stock up until the time he tried to buy a
controlling interest. Whether the credit of that company should
depend in any way upon Mr. Insull’s accidental control of the
proxy-----The C hairman . I s not that a thing that has to be accomplished
before we can restore confidence in corporation stocks?
Mr. D a w es . It will be difficult to restore confidence in stocks as
long as men who are not fit to manage companies get at the head of
them. But it would be a mistake to endanger the interests of stock­
holders and their equitable rights by curtailing a company and pre­
venting it from exercising the right to borrow whatever money is
necessary for the conduct of its business.
The C hairman . For example, the loans made by your bank were
made to a large number of corporations, I presume, and still it was,
in effect, to one interest. Would not that law have been helpful to
the bank, if it would prevent that kind of a situation?
Mr. D aw es . I am not acquainted with these particular loans, but
I venture to say this, that those loans are to different corporations,
with different sets of stockolders, controlled as a unit, we will say, in
their general methods by Mr. Insull, but each of them has its own
property and its own legal status. The stockholders have their own
rights, and it would be very difficult, it seems to me, even with any of
those companies, especially a company like the Peoples Gas Co. or the
Commonwealth Edison Co., controlled by a small minority, to pass a
law saying that that company could not borrow money except in a
certain proportion.



1532

STOCK EXCHANGE PRACTICES

The C hairman . I do not think anyone here had any such thought
as that. They had the thought that the very complexity of it makes
it possible to borrow more from banks than was intended by the
banking laws.
Mr. D aw es . Certainly; but laws along the line suggested by Mr.
Young, for lessening the possibility of creation of companies of that
sort, it seems to me, are the way that this will have to be gone at, in
my judgment, and not by the limitation on any company in the
borrowing of whatever money is in the interest of its stockholders
and in the interest of its business.
Mr. P ecora . General Dawes, you recognize, do you not, that the
underlying principle of public policy in these laws limiting the power
or right of the bank to loan more than 10 or 15 per cent of its capital
and surplus to a single borrower, was to prevent banks from putting
themselves in jeopardy by putting too many of their eggs in one
basket?
Mr. D aw e s . Certainly.
Mr. P e c o r a . I s not that purpose or principle or policy virtually
defeated in any instance through the medium of the creation of cor­
porate structures of the compacted character of the Insull group, as
was described here this morning by Mr. Young, being enabled to
obtain individual loans on the application of constituent units in that
aggregate corporate structure, from the same bank or group of banks?
Mr. D a w es . If the control is an improper control, it certainly
does.
Mr. P ecora . Whether or not the control is improper, the possi­
bility for such an evasion of this principle of public policy in these
banking laws still exists, does it not?
Mr. D a w e s . Unquestionably.
Mr. P ecora . Should not the banks, by making their own inquiry
into the existence of those complicated corporate structures, prevent
that kind of evasion of the principle or spirit of these banking laws?
Mr. D aw e s . That should be their every effort at all times, because
that goes to the very question of whether or not the loan is safe.
Those investigations should be made, and banks should do every­
thing they could, of course, to keep too large a proportion of their
funds from going into one risk.
Mr. P ecora . General, do you know whether or not those precau­
tions were exercised and those inquiries made by the officers of the
Central Republic Trust Co. in connection with the making by that
bank of these loans to these Insull companies, aggregating nearly
one-half of its total capital and surplus?
Mr. D aw es . I do not want to seem evasive, Mr. Pecora, but I
am ignorant of the negotiations which took place in connection with
any of these loans.
Mr. P ecora . Y ou were then not in the country, I believe, when
these loans were made, or most of them?
Mr. D aw e s . When I was Vice President, I was neither an officer
nor director of any bank. I severed all my corporate connections,
and had no relation or activity in connection with the business of the
bank at all. Then, after my term as Vice President expired, March
4, 1929, I expected to go back to a position in the Central Trust Co.
of Illinois which I had left some four years before, and was elected




STOCK EXCHANGE PRACTICES

1533

chairman of the board, but, while I was down in Santo Domingo for
three or four weeks, I was appointed as ambassador to Great Britain.
As a matter of fact, I remained as chairman of the board without
salary during my absence until along later in the year when they
selected another chairman. I was thus chairman of the board of
the Central Trust Co. of Illinois part of the time in 1929, but I have
had no active connection with the banking business until this sum­
mer, when, because my name had been used in connection with
that bank from 1902 up until the present time, being neither an
officer nor director, but honorary chairman of the board of the Central
Republic Bank & Trust Co., I came back to the Central Republic
Bank & Trust Co. the successor of the Central Trust Co. and the
National Bank of the Republic as a matter of duty and assumed
official relationship.

Mr. P e c o r a . General, looking at the actions of the officers of the
bank in making these loans in the retrospect that the present time
affords us, what would you say as to whether or not-----Mr. D a w e s . I would say that the retrospect of the average banker
all over the country is a sad one. I have no knowledge of these
particular negotiations and what was done, but I would assume that
the same feeling of sadness would come over anybody that had been
connected with making these loans to the Insull company, in this bank
as in any other.
At the time these loans were made, all of them were supposed to be
well secured on the basis of then existing values. These bankers all
had confidence in the integrity of Mr. Insull, gained through contact
of a great many years, and those loans were made and were considered
among the best loans that banks had.
Then this collapse came, and, of course, looking back over the
wreck, everybody feels sad that had anything to do with it, of course.
I would be glad to see any laws passed that would aid them to
avoid such a thing in the future.
Mr. P e c o r a . What laws, in your opinion—if you care to express
such an opinion—would accomplish that purpose?
Mr. D a w e s . * do not want to go off half-baked in the suggestion
of new laws. That is a habit which is not peculiarly unknown in
Washington at this particular time. If a man has some general
reform to inaugurate, he ought to study it at least a little while, and
not go off in any half-baked way. I do not know. I know that laws
should be put into effect here that will make it more difficult for dis­
honest men to get proxy control of large properties belonging to
thousands and thousands of stockholders, and make it more difficult
for them to borrow money for the purpose of increasing their power
and making money off innocent stockholders by the misuse of the
corporation. But that is a very difficult thing, sometimes, to cure
entirely. One of the elements involved is human nature. If you
can get laws which will change human nature, you will have some
chance of a perfect solution.
Mr. P e c o r a . General, do you know that the majority, if not all of
these loans aggregating nearly $12,000,000, that have been referred
to by you in your testimony, were made to these Insull companies at
a time when Samuel Insull was engaged in a stock buying race with
Mr. Eaton for control of the Insull companies?



1534

STOCK EXCHANGE PRACTICES

Mr. D awes. A s I say, I have not compared the dates of these
things at all, so I can not answer that.
Mr. P ecora . The policy, as we have agreed, of the banking
laws-----Mr. D a w es . As to whether any of these loans were made at the
time he was doing that, I do not know.
Mr. P ecora . It is agreed, is it not, that the policy underlying
these banking laws, and the placing of a limitation of 10 or 15 per
cent, as the case might be, on banks, in the amount of loans they
may make to a single borrower, bears no relationship, as such, to the
question of security underlying loans so made?
Mr. D a w es . That is true.
Mr. P ecora . It simply establishes the principle that a bank should
not put more than 10 or 15 per cent of its eggs in one basket.
Mr. D a w e s . Yes. I think most of the loans made by the Insull
corporations were made on securities affording a proper margin at the
then market.
Mr. P ecora . But the question of security underlying those loans
does not enter into the principle of those laws?
Mr. D a w es . Not at all; in no way.
Mr. P ecora . So that the principle was violated, regardless of the
security underlying the loans?
Mr. D a w e s . Certainly.
Mr. P ecora . Let me ask you this: In view of the fact that you
have given many years of your life to the banking business, let me
ask you whether or not you have any suggestions you would care to
advance to this committee with respect to the enactment of measures
that would prevent that form of evasion of that principle of the
banking laws in the future?
Mr. D a w es . The difficulty I would anticipate in drawing legisla­
tion of that sort, if legislation of that sort is needed, would be to
differentiate in the cases of the different kinds of corporations.
Take a corporation which is independent, and whose control is held
by a very large number of stockholders. The only thing I would be
afraid of in the matter of restriction of loans, is the question of how
you would protect the equitable rights of the vast majority of the
stockholders in a corporation of that sort. I have not given any
thought to that question. I would like to see legislation of that
kind passed, myself. Anything to prevent a repetition of these
things is to be desired in our laws.
Mr. P ecora . Mr. Chairman, may I offer this statement or report
produced by General Dawes in evidence, and ask that it be spread
on the minutes? You can leave it with us, can you not, General?
Mr. D a w e s . Yes.
The C h airman . It will be entered in the record.
(The statement referred to is as follows:)
Attached hereto is a copy of a report describing loans by the Central Republic
Trust Co. to so-called Insull companies and affiliates, directors, officers, and
employees of such companies, as of April 16, 1932, and January 10, 1933, the
original report having been sent to Mr. James Stewart, agent for the Senate
investigating committee.
I hereby certify that the information contained in the attached report is
correct.




C

R e p u b i c T r u s t C o .,
F r e e m a n , Vice President.

entral

W. C.

STOCK EXCHANGE PEACTICES

1535

Debtor: John P. Brice, former employee Metropolitan District Finance Co.
Amount of loan: April 16, 1932, $2,150; January 10, 1933, $2,150.
Notes held January 1 0 , 1933: Dated March 24, 1932; due, demand; rate, 6
per cent; amount, $2,150; secured.
Collateral held January 10, 1933: Insull Utilities Investment Co. common,
107; Insull Utilities Investment Co. second preferred W /W , 6 .
Debtor: B. I. Budd, president Chicago Rapid Transit Co.
Amount of loan: April 16, 1932, $46,000.
Purchased by City National Bank & Trust Co. October 6 , 1932. Amount
owing at time of purchase, $46,000.
Debtor: Chicago North Shore & Milwaukee Railroad.
Amount of loan: April 16, 1932, $550,000; January 10, 1933, $545,980.58.
Notes held January 10, 1933: Dated April 1 , 1932; due, April 1, 1935; rate,
6 per cent; amount, $545,980.58; secured.
Collateral held January 1 0 , 1933: Chicago North Shore & Milwaukee Railroad
5 y2, 56-B, $666,000.
Debtor: Consolidated Properties Trust.
Amount of loan: April 16, 1932, $1,055,000; January 10, 1933, $1,070,023.97.
Notes held January 10, 1933: Dated, June 28, 1932; due, September 26, 1932;
rate, 6 per cent; amount, $1,055,000; secured. Dated June 28, 1932; due,
September 26, 1932; rate, 6 per cent; amount, $15,023.97; secured.
Collateral held January 10,1933: Consol. Prop. Tr. Deb. “ A ” 6-41, $1,250,000.
Debtor: Harry A. Cornelius, engineer Public Service Co. of Northern Illinois.
Amount of loan: April 16, 1932, $225; January 10, 1933, $50.
Notes held January 10, 1933: Dated January 3, 1933; due, February 2, 1933;
rate, 6 per cent: amount, $50; unsecured.
Indorser: R. E. Little.
Debtor: Charles W. Daniels, former assistant secretary to Samuel Insull.
Amount of loan: April 16, 1932, $5,900; January 10, 1933, $5,790.
Notes held January 10, 1933: Dated, June 6 , 1932; due, demand; rate, 6 per
cent; amount, $5,790; secured.
Collateral held January 10, 1933: Part, receipt Insull Utility Inv. Synd. Ctf.
241, $1,250; insurance policy Union Mutual Life Insurance Co., $6,000.
Debtor: B. J. Fallon, vice president Chicago Rapid Transit Co.
Amount of loan: April 16, 1932, $154,227.35; January 10, 1933, $150,000.
Notes held January 10, 1933: Dated, June 4, 1932; due, June 4, 1935; rate, 3
per cent; amount, $100,000; secured. Dated June 4, 1932; due, demand; rate,
none; amount, $50,000; unsecured.
Collateral held January 10, 1933:
par value
Midwest C o-------------------------------------------------------------------------------15, 000
Midwest, preferred______________________________________________
300
$5, 000
Union Elevated, first 5 -4 5 ______________________________________
Chicago, Rapid Transit first refunding, 6-53_____________________
8 , 000
Empire Oil & Refining, first coll. 5J4-42__________________________
4, 000
Insull Utilities, common_________________________________________
1, 000
Continental Chicago, preferred__________________________________
100
J. R. Thompson, common_______________________________________
100
Central Illinois Securities, preferred______________________________
100
Chicago Rapid Transit, V. T. C _________________________________
333
Insull Utilities, 6-40_____________________________________________$20, 000
Middle West 5-34_______________________________________________
4, 000
Middle West 5-35_______________________________________________
6 , 000
Central Illinois Securities, common______________________________
100
Ercole Marelli Electric Manufacturing Co. A6}£-53______________
5, 000
Roman Catholic Church in Bavaria 6J4-46_______________________
15, 000
General Rayon Co. (Ltd.), debenture A 6-48_____________________
5, 000
Italian Superpower A6-63_______________________________________
5, 000
Department Cauca Valley Est. S. F. 7-48________________________
5, 000
Aetna Life Insurance policy_____________________________________
45, 000
Metropolitan Life Insurance policy______________________________
4, 000
Jewelers Building, Chicago 6s-50 c /d ____________________________
5, 000
Union League Club Chicago, 6-45_______________________________
500
Cubian Cane Products Co. 6 -5 0-------------------------------------------------5, 000
Village of Westchester Imp. 6-34________________________________
3, 500
Village of Westchester Imp. 6-35________________________________
5, 000
Village of Westchester Imp. 6-36________________________________
1, 000
Debtor: Federal Electric Co.
Amount of loan: April 16, 1932, $140,000; January 10, 1933, $140,000.



1536

STOCK EXCHANGE PRACTICES

Notes held January 10, 1933; due, demand; rate, 6 per cent:
Dated Apr. 18, 1932_____________________________________________ $15, 000
Dated May 16, 1932_____________________________________________
15, 000
Dated Apr. 22, 1932_____________________________________________
15, 000
Dated Apr. 20, 1932_________ ________ ___________________________
25, 000
Dated Apr. 19, 1932______________________________________ ______
25, 000
Dated Apr. 15, 1932_____________________________________________
20, 000
Dated May 4, 1932______________________________________ _______
25, 000
Debtor: Washington Flexner, President Lincoln Printing Co.
Amount of loan: April 16, 1932, $115,000; January 10, 1933, $114,250.
Notes held January 10, 1933: Dated May 31, 1932; due, demand; rate, 4}£
per cent; amount, $99,250; secured. Dated October 7, 1932; due, demand;
rate, 4% per cent; amount, $15,000; secured.
Shares or

Collateral held January 1 0 , 1933:
par value
United Light & Power A common_ _____ _________________________
_
100
Phillips Morris Consolidated (Inc.) common________________________ 1, 100
500
Armour & Co. Illinois A common________________ __________________
Phillip Morris & Co. (L td .)________________________________________ 1, 500
Insull second preferred_____________________________________________
750
Lincoln Printing_______________________:___________________________ 1, 000
Debtor: Flexner & Insull (Washington Flexner and Martin J. Insull).
Amount of loan: April 16, 1932, $172,500; January 10, 1933, $170,168.24.
Notes held January 10, 1933: Dated June 6 , 1932; due, demand; rate, 4%
per cent; amount, $82,500; secured. Dated May 16, 1932; due; demand; rate,
VA per cent; amount, $87,668.24; secured.
Shares or

Collateral held January 1 0 , 1933:
par value
Insull Utility common___________________________________________
2, 918
Producers Refiners common_______________________________________
2, 000
Houdaille B ______________________________________________________
500
2 0 Wacker Drive preferred________________________________________
100
International Match Part preferred_____________ __________________
600
Omnibus Corporation V. T. C ____________________________________
1, 100
Fansteel Products Co_____________________________________________
2, 320
2,900
Centrifugal Pipe____________________________ _____ _______________
United American Utility common_______ __________________________
1, 500
Interstate Equities common_______________________________________
100
1, 000
Public Utility Hoi. common W. W ________________________________
Interstate Equities cumulative preferred A ________________________
100
Phillip Morris (L td .)_________ ______ _____________________________
500
National Security Investment Co. Common_____________________ 1, 050
Western Pacific R. R. preferred___________________________________
300
Eitingon Schild Co. common______________________________________
950
North American Co. common_____________________________________
62
Lincoln Printing_________ ________________________________________
3, 800
Corp. Sec. V. T. C. common______________________________________ 28, 000
Debtor: Clinton B. Gosling, former employee Utility Securities Co.
Amount of loan: April 16, 1932, $2,300; January 10, 1933, $2,089.40.
Notes held January 10, 1933: Dated September 19, 1932; due, October 19,
1932; rate, 6 per cent; amount, $2,089.40; secured.
Collateral held January 10, 1933: Lincoln Printing Co. common, 200; Para­
mount Publix Corporation common, 50.
Debtor: W. V. Griffin, vice president and treasurer Chicago Rapid Transit
lines.
Amount of loan: April 16, 1932, $9,600; January 10, 1933, $9,350.
Notes held January 10, 1933: Dated, January 3, 1933; due, February 2, 1933;
rate, 6 per cent; amount, $9,350; secured.
Shares or

Collateral held Jan. 10, 1933:
par value
Public Service Northern Illinois 6 per cent preferred__________________
50
Insull Utility Investment common____________________________________ 108
Central Illinois Securities Co. preferred_______________________________ 100
Midland United Co. common_________________________________________ 100
Central Illinois Securities Co. common________________________________ 100
Debtor: Harry G. Hardin, vice president Chicago Rapid Transit Co.
Amount of loan: April 16, 1932, $6,170; January 10, 1933, $5,550.



STOCK EXCHANGE PEACTICES

1537

Notes held January 10, 1933: Dated, November 23, 1932; due, January 23,.
1933; rate, 6 per cent; amount, $5,550; secured.
Collateral held Jan. 1 0 , 1933:
par value
Middle West Utilities common_____________________________________ 1 , 037
North American Light & Power common___________________________
100
Insull Utility Investment (Inc.) preferred, second series W /W _______
35
Penroad Corporation, common_____________________________________
100
Debtor: Hill, Joiner & Co.
Amount of loan: April 16, 1932, $122,978.07; January 10, 1933, $122,978.07.
Notes held January 10, 1933: Dated, May 10, 1931; due, demand; rate, 6
per cent; amount, $122,978.07; secured.
Shares or
Collateral held Jan. 10, 1933:
par value
Central & Southwest common_____________________________________ 6 ,000
Insull Utility common____________________________________________ 3,000
Middle West common____________________________________________
200
Midland United convertible preferred A ___________________________
25
1, 800
Midland United common_________________________________________
Northwest Utilities 7 per cent preferred___________________________
550
Midland United 6 per cent preferred, series 1______________________ 1, 500
Corporation Securities preferred___________________________________ 1, 000
Chicago North Shore & Milwaukee 6 ’s, 55________________________ $2 , 000
Corporation Securities 5’s, 34, notes_______________________________ 34, 000
Corporation Securities 5’s, 35, notes______________________________
7, 000
Hydro Electric Co., Virginia, 6 ’s, 58, first mortgage_______________ 1,00©
Insull Utility 6 ’s, 40, notes________________________________________ 1, 000
Missouri Gas & Electric 6 ’s, 44, first mortgage____________________
1, 300
National Public Service 5’s, 78, debentures________________________ 39, 000
National Electric Power 6 ’s, 78, debentures_______________________
2,000
Central Power Light 6%, 51, first mortgage________________________ 1, 000
Wisconsin Power & Light 5’s, 56, first mortgage___________________ 2,000
Debtor: Hallan Huffman, former attorney, United Public Service Co.
Amount of loan: April 16,1932, $9,500: January 10,1933, $9,500,
Notes held January 10, 1933: Dated, June 2, 1932; due July 7, 1932; rate, 5)4
per cent; amount, $9,500; secured.
„
*
’
> > >
Shares or
Collateral held Jan. 10, 1932:
par value
Middle West Utility common_________________________________________601
North West Utility Co. 7 per cent preferred---------------------------------------- 30
North West Utility Co. 7 per cent preferred L. preferred______________ 40
Midland United Co. common_________________________________________800
Debtor: Martin J. Insull, formerly president Middle West Utility Co.
Amount of loan: April 16, 1932, $263,000; January 10, 1933, $262,200.
Notes held January 10,1933: Dated November 5.1931; due, February 4,1932;
rate, 4K per cent; amount, $12,200; secured. Dated November 16, 1931; due,
February 15, 1932; rate 4}i per cent, amount, $100,000; secured. Dated Septem­
ber 29,1931; due January 29,1932; rate, 4% per cent; amount, $150,000; secured.
Shares or
Collateral held Jan. 10, 1933:
par value
Associated Telegraph Utility common-------------------------------------------- 2,040
North American Light & Power common__________________________
515
Standard Oil of New Jersey------------------------- --------------------------------400
Insull first preferred______________________________________________
1, 500
Insull common___________________________________________________ 19, 000
Corporation Securities common___________________________________ 5,000
Debtor: Samuel Insull.
Amount of loan: April 16, 1932, $500,000; January 10, 1933, $500,000.
Notes held January 10, 1933: Dated. February 20, 1931; due demand; rate,
per cent; amount, $500,000; secured.
Shares or
Collateral held Jan. 10, 1933:
vaIue
Corporation Securities V. T. C. common---------------------------------------- 98, 800
Corporation Securities Allot, certificates---------------------------------------1,000
Insull Utilities first preferred--------------------------------------------------------4,000
Insull Utilities common----------------------------------------- ----------- ..............17, 500
Corporation Securities common___________________________________
1, 856
Corporation Securities units---------------------------------------------------------300

119852—33—pt 5----- 10




1538

STOCK EXCHANGE PRACTICES

Debtor: Insull Utility Inv. (Inc.)
Amount of loan: April 1 6 ,1932;$2,840,286.70; January 10,1933, $2,812,577.70.
Notes held January 10, 1933: Dated, December 31, 1931; due, demand; rate,
5 per cent; amount, $2,821,577.70; secured.
r

'

’

’

’

’

Collateral held Jan. 10, 1933:
Commonwealth Edison___________________________________________
Middle West common_____________________________________________
Public Service N. I. N. P. common________________________________
Peoples Gas---------------------------------------------------------------------------------Corporate Section of Chicago 3 Opt. preferred_____________________
Corporate Section of Chicago common____________________________

Shares or
par value

12,
96,
3,
4,
35,
36,

547
256
467
200
650
950

Debtor: F. R. Jenkins, manager Central Station Institute, affiliated with
Commonwealth Edison, etc.
Amount of loan: April 16, 1932, $22,597.78; January 10, 1933, $3,966.86.
Notes held January 10, 1933: Dated, December 23, 1932; due, January 23,
1933; rate, 5% per cent; amount, $3,966.86; secured.
Shares or

Collateral held January 10, 1933:
par value
Insull Utilities Investments 5/50-P/preferred_____________________
10
Central & South West Utilities Co. common_____________________
101
Insull Utilities Investments common_____________________________
10
100
Insull Utilities Investments second preferred_____________________
Middle West Utilities preferred__________________________________
5
Bendix Aviation_________________________________________________
180
Lincoln Printing_________________________________________________
200
Midland TJnited common________________________________________
650
Federal reserve officer’s check____________________________________ $177. 00
Federal reserve officer’s check____________________________________
$10. 91
American Steel Foundries common_______________________________
100
International Telephone & Telegraph common___________________
25
Federal reserve bank officer’s check______________________________
$32. 50
Debtor: George R. Jones, treasurer Public Service Co. of Northern Illinois.
Amount of loan: April 16, 1932, $40,124.65.
Purchased by City National Bank & Trust Co. January 4, 1933. Amount
owing at time of purchase, $31,124.65.
Debtor: Kathleen Keating, employee Commonwealth Edison Co.
Amount of loan: April 16, 1932, $1,000; January 10, 1933, $475.
Notes held January 10, 1933: Dated, December 16, 1932; due, January 16,
1933; rate, 6 per cent; amount, $475.
Shares or

Collateral held January 10, 1933:
par value
Insull Utilities Investments C o_______________________________________ 37
Middle West Utilities Co. common___________________________________
50
Commonwealth Edison_______________________________________________
1
Debtor: George A. Kemp, assistant secretary Utilities Security Co.
Amount of loan: April 16, 1932, $6,750; January 10, 1933, $6,198.79.
Notes held January 10, 1933: Dated, December 30, 1932; due, January 30,
1933; rate, 5% per cent; amount, $6,198.79; secured.

Shares or

Collateral held January 10, 1933:
par value
Middle West Utilities common_______________________________________ 200
Commonwealth Edison common______________________________________ 10
Debtor: A. B. Leach & Co.
Amount of loan: April 16, 1932, $820,330.98; January 10, 1933, $291,795.05.
Notes held
Dated
Dated
Dated
Dated
Dated
Dated
Dated
Dated
Dated
Dated

Jan. 10, 1933, due, demand; rate, 6 per cent:
Amount secured
July 28, 1931__________________________________________ $14, 617. 83
June 4, 1931_______________________________ ___________
9, 136. 08
Sept. 11, 1930_____ _____ ______________ _______ _______
36, 544. 00
July 10, 1930__________________________________________
91, 361. 50
May 10, 1930_______________________ __________________
92, 667. 25
9, 136. 08
July 16, 1931_________________________________ ________
July 9, 1931___________________________________________
9, 136. 08
May 4, 1931__________________________________________
25, 580. 50
Apr. 24, 1931__________________________________________
3, 606. 29
May 21, 1931__________________________________________
9. 44




STOCK EXCHANGE PRACTICES

1539
Shares or

Collateral held Jan. 10, 1933:
par value
Allied Motor Industries (Inc.), common___________________________ 8 , 600
Allied Motor Industries, $4, cumulative preferred_________________
785
Allied Motor Industries, 5-year 6 per cent, 34 convertible gold notes. 10, 000
American Service Co., common----------------------------------------------------7, 650
Mississippi Valley Utility Investment Co., common_______________
5, 000
Middle West Utilities Co., common_______________________________
1, 729
National Terminal Corporation, 7 per cent cumulative convertible pre­
ferred, par $25_________________________________________________
7
National Terminal Corporation, $1 preferred, no par----------------------- 1 , 050
Seaboard Public Service Co., $3.25 cumulative preferred---------------25
Van Sicklen Corporation, participating class A ____________________
2, 145
Western Power Light & Telegraph Co., 7 per cent cumulative pre­
ferred 1 0 0 ___________________________________________ _________1 0 1
Debtor: H. J. Ludwig, assistant secretary Middle West Utilities Co.
Amount of loan: April 16, 1932, $1,000; January 10, 1933, $1,000.
Notes held January 10, 1933: Dated, May 17, 1932; due, June 15, 1932; rate,
6 per cent; amount, $ 1 ,0 0 0 ; unsecured.
Debtor: Oliver E. McCormick, vice president Middle West Utilities Co.
Amount of loan: April 16, 1932, $137,175.44; January 10, 1933, $134,999.84.
Notes held January 10, 1933: Dated, July 11, 1930; due, demand; rate, 1 per
•cent; amount, $57,971, secured; $77,028.84, unsecured; total, $134,999.84.
Shares or

Collateral held Jan. 10, 1933:
par value
Columbian Carbon V. T. C ---------------------------------------------------------------- 100
Continental Can_____________________________________________________ 100
DuPont De Nemours common_____________ _________________ ______ 100
General Food-------------- -------- -------------------------------------------------------------- 100
Hershey Chocolate___________________________________________________ 100
International Nickel of Canada______________________________________ 100
International Telephone & Telegraph--------------------------------------- -------- - 100
Kennecott Copper------------------------------------------------------------------------------ 100
Paramount- Publix___________________________________________________ 100
United States Steel____ ______________________________________________ 100
Warner Bros. Picture common________________________________________ 100
Middle West Utility Co. common___________________________ _________500
Debtor: Helen McElligott, employee, Peoples Gas Co.
Amount of loan: April 16, 1932, $600; January 10, 1933, $200.
Notes held January 10, 1933: Dated January 9, 1933; due February 8 , 1933;
rate, 6 per cent; amount, $ 2 0 0 ; secured.
Shares or

Collateral held Jan. 10, 1933:
par value
Insull Utility common_______________________________________________
39
Peoples Gas Light & Coke----------------------------------------------------------------1
Corporation Securities Co. of Chicago common_______________________
10
Insull Utilitylnvestment (Inc.) 5.50 prior preferred___________________
5
Middle West Utilities Co. common___________________________________ 110
Debtor: Metropolitan District Realty Trust.
Amount of loan: April 16, 1932, $300,000; January 10, 1933, $291,363.53.
Notes held January 10, 1933, dated September 1, 1932; due October 31, 1932;
Tate, 6 per cent; amount, $291,363.53; secured.
Shares or

Collateral held Jan. 10, 1933:
par value
Metropolitan Real Estate Improvement C o________________________ 2, 490
Suburban Construction C o------------------------------------------------------------240
Debtor: Metropolitan Real Estate Improvement Corporation successor to
Metropolitan District Finance Co.
Amount of loan: April 16, 1932, $200,000; January 10, 1933, $187,460.43.
Notes held January 10, 1933: Dated September 1, 1932; due, October 31, 1932;
rate, 6 per cent; amount, $187,460.43; secured.




1540

STOCK EXCHANGE PRACTICES
Shares or

Collateral held Jan. 10, 1933:
par valueSundry real estate mortgages, first-----------------------------------------231, 445
Niles Center Improvement 6-2100, S/A 38, Dec. 31, 1933; 4,000,
S/A 22, Dec. 31, 1935____________________ - ________________
6 , 100
Sundry junior real estate mortgages----------------------------------------$50, 783. 72
Debtor: Middle West Utilities Co.
Amount of loan: April 16,1932, $1,820,652.57; January 10,1933, $1,820, 652.57.
Notes held January 10, 1933: Dated, October 9, 1931; due, demand; rate, 4y2
per cent; amount, $1,820,652.57; secured.
Shares or

Collateral held Jan; 10, 1932:
par value
263
Arkansas-Missouri Power Co., preferred---------- -----------------------------Central Illinois Public Service_____________________________________ 2, 103
Central & Southwest Utilities—
Common_____________________________________________________ 77, 859
7 per cent preferred__________________________________________
1, 174
6 per cent P /L ________________________________________________
1, 700
Inland Power & Light, preferred__________________________________
91
Kentucky Utilities, common____________________ _________________ 12, 525
8 , 491
Kansas Electric Power_________________ ____ ______ _______________
Michigan Gas & Electric— C om m on ______________________________
1, 180*
P /L ________________________________________ _____ ____________
678
National Electric Power Co.—
A ____________________________________________ _____ __________31,397
B ____________________________________________________________ 71, 105
6 per cent preferred__________________________________________
105
Northwest Utility Co.—
Common_____________________________________________________ 40, 524
6 per cent preferred__________________________________________
3, 800
7 per cent P /L ________________________________________________ 1, 500
7 per cent preferred__________________________________________
2, 221
Southwestern Light & Power, 6 per cent preferred___________ _____
1 , 370
Commonwealth Edison___________________________________________
307
270
Peoples Gas C o_____________________________ - ____________________
Public Service, Illinois, com m on__________________________________
12
Arkansas-Missouri Power Co.—
6J4-35 debentures____________________________________________ 31, 100<
First 6-53 first mortgage_____________________________________ 36, 0001
Indiana Electric Corporation, first C -5 -5 1 ___________ _____________
8 , 000
Inland Power & Light, first collection—
A -6 -3 6 _______________________________________________________ 30, 100*
B -6 -4 1 _______________________________________________________ 67,000
C -6 -5 7 _______________________________________________________ 39,500
Debentures, 7-35_____________________________________________46, 100
National Electric Power debenture, 5-78__________________________ 26, 700
National Public Service debenture, 5-78 __________________________
4, 500
Northwest Public Service, first 5-57_______________________________ 30, 000
West Texas Utilities, first 5 - 5 7 ____________ ______ _______________ 10, 000
Pecos Valley Power & Light, first A 6%-37_________________ ______ 25, 000
Debtor: Mississippi Valley Utility Investment Co.
Amount of loan: April 16, 1932, $148,204.36; January 10, 1933, none.
Purchased by City National Bank & Trust Co., December 5, 1932. Amount
owing at time of purchase, $142,854.36.
Debtor: Belle M. Morrison, former employee Commonwealth Edison Co.
Amount of loan: April 16, 1932, $600; January 10, 1933, $586.50.
Notes held January 10, 1933: Dated March 14, 1932; due, May 13, 1932;
rate, 6 per cent; amount, $586.50; secured.
Shares or

Collateral held January 1 0 , 1933:
par va lu e
Middle West common______________________________________________
66
Commonwealth Edison_____________________________________________
3
Debtor: Florence M. O’ Donnell, employee Chicago Rapid Transit Co.
Amount of loan: April 16, 1932, $11,600; January 10, 1933, $11,460.
Notes held January 10, 1933: Dated, December 9, 1932; due,. January 9,1933;
rate, 6 per cent; amount, $11,460; secured.



STOCK EXCHANGE PEACTICES

1541

Shares or
Collateral held Jan. 10, 1933:
par value
Middle West common_____________________________________________
500
Central South West Utilities com m on _____________________________
100
North American Light & Power Co. common_______________________
60
50
Cinema Color Corporation, no par_________________________________
General Electric Co. common, $10 par_____________________________
115
American Radiator & Standard Sanitary Corporation common______
35
Chicago, South Shore & South Bend R. R. A preferred_____________
50
19
Lake Superior District Power preferred____________________________
Consolidated Properties Trust_____________________________________
398
Debtor: Fred H. Scheel, vice president Utility Security Co.
Amount of loan: April 16, 1932, $128,059; January 10, 1933, $117,315.
Notes held January 10, 1933: Dated December 5, 1932; due, February 3, 1933;
rate, 6 per cent; amount, $104,515, secured; dated June 30,1931; due, demand;
rate, 4% per cent; amount,$12,800, secured; total, $117,315.
Shares or
Collateral held Jan. 10, 1933:
par value
250
Consolidated Properties Trust not incorporated common_________
Midwest common_______________________________________________
5,000
Public Utilities Holding W. W ___________________________________
500
Central & Southwestern Utilities com m on _______________________
195
Peoples Gas_____________________________________________________
10
27
Continental Illinois Bank & Trust_______________________________
Central Power & Light first 6 H» 51_______________________________
$5, 000
Commonwealth Light & Power refunding 7, 62___________________$10, 000
Southern United Gas Co. first L. 6 , 37___________________________
$5, 000
Lincoln Printing Co. common______________________ ______________
475
110
Public Service Northern Illinois no par com m on.________________
Insull A 5, 59_______________________ ____________________________$16,000
Southland Ice first A 6 , 42_______________________________________
$5, 000
International Utilities Corporation:
3.50 prior preferred_____________________________ j ___________
70
1/75 preferred_______________________________________________
40
B _________ __________________________________________ ______
500
B warrants_________________________________________________
200
Ohio Public Service 5}i 61 first mortgage_________________________
$5, 000
Chrysler Corporation____________________________________________
100
Standard Oil of Indiana_________________________________________
100
Sears, Roebuck & C o ____________________________________________
50
National Public Service A _______________________________________
100
100
National Tea Co. common_______________________ _______________
New York Central Railroad_____________________________________
50
Public Service sub A 5J4, 49 debentures----------------------------------------$12,000
Southwestern Gas & Electric 6— 61 first mortgage________________
$5,000
Midwest preferred_______________________________________________
50
Middle West Utilities:
5, 34 notes__________________________________________________
$9, 000
5, 35 notes__________________________________________________
$9, 000
South Building Corporation income two 5, 4 6 ----------------------------$1, 750
City of Chicago public benefit 4, 35______________________________
$5, 000
Western Power, Light & Telephone common_____________________
2,000
Public Service Northern Illinois 6 per cent preferred_____________
10
■Quivira Development Co. preferred----------------------------------------- 50
New England Public Service common-----------------------------------------100
Montgomery Ward & Co. common______________________________
100
Northern Indiana Public Service preferred_______________________
18
500
Leach Corporation preferred____________________________________
Allegheny Corporation preferred A ---------------------------------------------100
Insull common__________________________________________________
5,000
Electric Bond & Share (new)------------------------------------------------------52
Wabash Railroad common------------------ -------- ----------------------- -------100
Continental Chicago Corporation common---------------------------------300
Central Illinois securities preferred_______________________________
100
Central Illinois securities common________________________________
100
Corporation second 5-33 notes---------------------------------------------------$5, 000
Corporation second 5-35 notes---------- ----------------------------------------- $10,000




1542

STOCK EXCHANGE PRACTICES
Shares o r

Collateral held Jan. 10, 1933— Continued. '
par value
Central Illinois, Public Service 6 per cent preferred_ ___________
_
50
Central & South Western Utility preferred $7___________________
50
Commonwealth subs. 5% 48_____________________________________
$5, 000
Arkansas Missouri Power, 6 % 35________________________________
$5, 000
North American Light & Power 5%, 56___________________________
$5, 000
Standard Power & Light 6 57____________________________________
$5, 000
Gary Electric & Gas 5, 36_______________________________________
$5, 000
Debtor: John A. Seymour, auditor Chicago Rapid Transit Co.
Amount of loan: April 16, 1932, $3,250; Jan. 10, 1933, $3,100.
Notes held Jan. 10, 1933, dated, Nov. 9, 1932; due, Jan. 9, 1933; rate, 5% per
cent; amount, $3,100; secured.
Guarantor: Anna E. Seymour.
Shares or
Collateral held Jan. 10, 1933:
par value
25
Insull Utilities second prior preferred____________________________
Chicago Rapid Transit preferred A _______________________________
5
Chicago Rapid Transit adjustment debentures, 6 , 63 C /D ____+ ___
2 , 000*
Middle West Utilities common___________________________________
500
Chicago Rapid Transit 6j4, 44___________________________________
1 , 000
Debtor: Nan Siljestrom.
Amount of loan: April 16, 1932, $2,350; Jan. 10, 1933, $1,830.
Notes held Jan. 10, 1933, Dated, June 15,1932; due, June 1, 1933; rate, 6 per
cent; amount, $1,830; secured.
’
’
1
Shares or
Collateral held Jan. 10, 1933:
par value
153
Insull Utilities Investment common________________________________
Corporation Securities common__________________ __________________
2’
J. D. Adams Manufacturing Co____ _______________________________
50
Midland United Co. common__ ____________________________________
2'
1
North American Light & Power Co. common_______________________
Lincoln Printing Co. 7 per cent preferred___ _____ __________________
11
Middle West Utilities Co. common_______________________________
5
Debtor: Skokie Valley Realty Association.
Amount of loan: April 16, 1932, $460,000; January 10, 1933, $460,000.
Notes held January 10, 1933, dated December 5, 1930; due, demand; rate*
6 per cent; amount, $460,000; secured.
Shares o r

Collateral held Jan. 10, 1933:
par value
Chicago, North Shore & Milwaukee R. R. preferred______ _____ ___ 12, 351
Chicago, North Shore & Milwaukee R. R. 7 per cent P /L _________
5, 400
Debtor: Lloyd O. Taylor, former employee Middle West Stock Transfer Co.
Amount of loan: April 16, 1932, $2,150; January 10, 1933, $2,004.03.
Notes held January 10, 1933, dated June 8 , 1932; due, July 8 , 1932; rate,.
5Yi per cent; amount, $2,004.03; secured.
Collateral held January 10, 1933: Insurance policy New York Life Insurance
Co., $2 ,0 0 0 .
Debtor: Charles E. Thompson, vice president Chicago Rapid Transit.
Amount of loan: April 16, 1932, $50,500; January 10, 1933, $50,500.
Notes held January 10, 1933, dated January 1 2 , 1932; due, demand; rate,
6 per cent; amount, $50,500; secured.
Shares o r

Collateral held Jan. 10, 1933:
parvalueChicago, North Shore, Milwaukee R. R. common_________________
276
Chicago, North Shore, Milwaukee R. R. 6 per cent preferred______
276
Chicago Aurora Elgin P/P 7 per cent preferred____________________
90'
Consolidated Prop, trust certificate for common___________________
2 , 985
Lake Co. Land Association common_______________________________
50
Insull common____________________________________________________
300
Inland investment________________________________________________
200
Corporation Securities common___________________________________
200
Life insurance policy, Aetna_______________________________________ 23, 000'
D o ___________________________________________________________ 20,000
Corporation Securities preferred 3 optional________________________
200*
Debtor: Utility Securities'Corporation.
Amount of loan: April 16,1932, $1,789,965,53; January 10, 1933, $1,787,014.89.



1543

STOCK EXCHANGE PRACTICES

Notes held Jan. 10, 1933:
Dated Mar. 25,1931; due, demand; rate 4y2 per cent; amount
(secured)_________________________________________________
Dated, Nov. 4, 1929; due, demand; rate, 4x per cent;
/
%
amount (secured)_________________________________________
Dated, June 10, 1931; due, demand; rate, 4% per cent; amount
(secured)_________________________________________________
Dated, Oct. 22, 1929; due, demand; rate, 4% per cent;
amount (secured)_________________________________________
Less participation sold to Central Illinois Security Co________

$500, 000. 00f
500, 000. 00
500, 000. 00
512,014.89

2, 012, 014. 89
225, 000. 00
1, 787, 014. 89

Collateral held Jan. 10, 1932:
Consumers 6 per cent prior preferred____________________________
Michigan Public Service 6 per cent preferred_____________________
Municipal service preferred W /W ________________________________
Insull Utility common__________________________________________
Midland United convertible preferred A __________________________
Corporation Securities common-------------- -------- -------- -------------------Peoples Gas_____________________________________________________
Midwest common_______________________________________________
Midwest preferred_______________________________________________
Insull Utility second preferred________________________________ _
Central & Southwest common___________________________________
Commonwealth Edison__________________________________________
Midland United common________________________________________
Public Service $100 par common_________________________________
Public Service no par common___________________________________
Southwest Light & Power preferred_______________ _______________
Georgia Power & Light preferred__________________ ’______________
Seaboard P. S. 6 per cent preferred______________________________
Insull first preferred_____________________________________________
Corporation Securities preferred_________________________________
National Electric Power A _______________________________________
Midland Utilities 7 per cent preferred A __________________________
Midland Utilities 6 per cent P /L _________________________________
Western United Gas & Electric 6 per cent preferred______________
New England Public Service 7 per cent P /L _____________________
Insull Utility 6 per cent 40______________________________________
American Service 6^-34 debentures C /D _________________________

Shares or
par value
1, 842
100
5, 300
83, 267
4, 900
61, 460'
1, 7001
97, 001
300
2, 630
76, 906
700<
51, 091
400
300
600
132:
567
1, 000
5, 350
11, 832
2, 000!
3, 100
314
371
149, 000
108, 000;

Debtor: George W. Williamson, treasurer, Commonweath Edison Co.
Amount of loan: April 16, 1932, $27,344.50; January 10, 1933, $27,434.50.
Notes held January 10, 1933, dated, April 3, 1931; due, demand; 4}£ per cent;
amount, $27,434.50; secured.
Shares or
Collateral held Jan. 10, 1933:
par value
Commonwealth Edison__________________________________________
235
Columbia Gas & Electric common_______________________________
100
Midwest common_______________________________________________
600
Insurance policies—
New York Life_____________________________________________
5, 000
Aetna Life____________________________________ _____________
5, 000’
Debtor: M. A. Williamson, sister of George W. Williamson.
Amount of loan: April 16, 1932, $8,218.75; January 10, 1933, $8,218.75.
Notes held January 10, 1933:
Dated, October 6 , 1930; due, demand; rate, 6 per cent; amount (secured)
$2,700.00.
Dated, November 13, 1929; due, demand; rate, 6 per cent; amount (secured)$5,518.75.




1544

STOCK EXCHANGE PRACTICES
Shares or

Collateral held Jan. 1 0 , 1933:
Midwest common________________________________________________
Consolidated Gas New York common____________________________
Commonwealth Edison_________ ________________________________
Public Service Co. Northern Illinois 1 0 0 par_____________________
Columbia Gas & Electric________________________________________

par value
196
25
35
2

100

Aggregate of the attached loans April 16, 1932, $11,977,400.68.
Aggregate of the attached loans January 10, 1933, $11,130,233.70.

Mr. P ecora . General, are you personally familiar with the cir­
cumstances surrounding the creation of this so-called stand-still agree­
ment among the banks that were creditors of the Insull companies,
in December of 1931?
Mr. D aw e s . No; I know nothing about that. I was out of the
country. When all these things occurred that were testified to this
morning, I was out of the country. I have been over here only a
few months in the last two or three years.
Mr. P ecora . I think there is nothing more we want of the general,
Senator.
The C hairman . That will be all. The witness will be excused.
Mr. P ecora . Mr. Timmerman, will you please come forward?
The C h airman . Mr. Timmerman, you do solemnly swear that you
will tell the truth, the whole truth, and nothing but the truth, regard­
ing the matter now under investigation by the committee, so help
you God?
Mr. T immerman . I do.
STATEMENT OF LOUIS F. TIMMERMAN, ASSISTANT VICE PRESI­
DENT, CENTRAL HANOVER BANK & TRUST CO., NEW YORK
CITY

Mr. P ecora . Will you give your full name, address, and business
or occupation to the reporter, please?
Mr. T immerman . Louis F. Timmerman; an officer of the Central
Hanover Bank & Trust Co., 70 Broadway, New York City.
Mr. P ecora . What office do you hold in that bank?
Mr. T immerman . I am assistant vice president.
Mr. P ecora . H ow long have you been connected in that capacity?
Mr. T immerman . I have been connected in that capacity since the
latter part of 1930.
Mr. P ecora . Before that, were you connected with the bank in
any other capacity?
Mr. T immerman . I came with the bank in July of 1930, as manager
of one of their branch offices.
Mr. P ecora . Have you familiarized yourself, Mr. Timmerman,
with the general nature of loans made by that bank prior to 1932,
to any of the so-called Insull companies?
Mr. T immerman . Yes; I have.
Mr. P ecora . What was the total amount of loans which were
outstanding, and which have been made by your bank to any of those
companies, on the 31st of December, 1931?
Mr. T immerman . There is $3,500,000, secured-----Mr. P ecora . Made to whom?
Mr. Timmerman. T o the Insull Utility Investments. There is
$4,000,000 secured to the Corporation Securities Co.



STOCK EXCHANGE PRACTICES

1545

Mr. P ecora . That is the Corporation Securities Co. of Chicago?
Mr. T immerman . Yes.
Mr. P ecora . That is an Insull investment trust?
Mr. T immerman . An Insull investment trust; Insull Utility, Cor­
poration Securities, and companies of a similar nature.
Mr. P ecora . Were there any other loans outstanding at that time
to any Insull companies?
Mr. T immerman . We had another loan that had no connection
with this group, secured by an entirely different collateral, of eastern
properties.
Mr. P ecora . When was the loan of $3,500,000 to the Insull Utility
Investments Co. made?
Mr. T immerman . That was made on June 26 of 1931.
Mr. P ecora . When was the loan of $4,000,000 made to the Corporation Securities Co. of Chicago?
Mr. T immerman . The latter part of December, 1930. Both these
loans, I might add, had come on for shorter periods. These repre­
sented renewals. You are asking for the original date now?
Mr. P ecora . Yes.
Mr. T immerman . December of 1930.
Mr. P ecora . Can you give me the exact date in December, 1930?
Mr. T immerman . December 17, 1930.
Mr. P ecora . Did you handle any of the negotiations leading up
to the making of either one of these loans, Mr. Timmerman?

Mr. Timmerman. No; but I am familiar with them.
Mr. P ecora . From what sources did you become familiar with
them, through what channels?
Mr. T immerman . I first heard about these loans in the latter part
of June, 1931, and Mr. Gray told me that our bank had agreed to
make the loan to Insull Utility Investments.
Mr. P ecora . Who is Mr. Gray? What is his full name, and what
connection has he with your bank?
Mr. T immerman .' Mr. Gray is now the president of our bank. At
that time, he was a vice president of the bank.
Mr. P ecora . Did you have anything to do with the negotiations
that culminated in the making of the $4,000,000 loan on December
17, 1930 to the Corporation Securities Co.?
Mr. T immerman . N o . That loan was already on when I first
heard about it.
Mr. P ecora . Have you familiarized yourself with the circum­
stances of the making of that loan?
Mr. T immerman . I am familiar with the circumstances of the
making of both loans.
Mr. P ecora . Let us take the first loan, made in point of time,
that is, the $4,000,000 loan to the Corporation Securities Co. of
Chicago. That was made December 17, 1930, you say?
Mr. T immerman . Yes; a six months loan.
Mr. P ecora . Will you please narrate the circumstances, so far as
you understand them, that surrounded the making of that loan?
In stating them, also tell the committee the source of your information
with respect to those circumstances.
Mr. T immerman . Yes. Part of it is general information. I think
you will see as I go along how it works out.
Mr. P ecora . All right, sir.



1 5 46

STOCK EXCHANGE PRACTICES

Mr. T immerman . We had had an account from the Peoples Gas
Co. of Chicago, one of the operating companies, for about 40 years,
a very valuable account. I think it ran some three or four hundred
thousand dollars. Mr. Samuel Insull was chairman of the board of
that company. The loans to Corporation Securities Co. and to
Insull Utility Investments were made at the request of Mr. Insull,
based on the collateral that was offered, with a margin of 40 per cent
that was to be maintained. This collateral consisted of the highest
grade operating company stocks, Commonwealth Edison, Peoples
Gas, and Public Service of Northern Illinois, all with active markets,
all having substantial earnings. At the tirpe the loans were made,
the Insull companies and the entire Insull structure were in highest
repute in the banking world. Most other banks in New York and
Chicago already had loans at that time, and it was looked upon as
entirely acceptable, and good business, to make loans against this type
o f collateral, with the margin that was to be maintained.
Mr. P ecora . Was it known at that time by the officers of your
bank that Insull Utility Investments Co. and Corporation Securities
Co. of Chicago were simply investment trusts for the Insull operating
•companies and other Insull companies? Can you answer that?
Mr. T immerman . I am not certain that it was known at the time
the loans were agreed to. They were made primarily against the
-collateral. We learned that, of course, 8s we went along.
Mr. P ecora . At the time these loans were made, were there any
other loans outstanding which had been made by your bank to any
other companies in the so-called Insull group?
Mr. T immerman . Yes; there was. There was a loan, as I said
before, against entirely different collateral, in eastern companies.
Mr. P ecora . What was the aggregate amount of those outstanding
loans?
Mr. T immerman . The aggregate amount of that loan on December
17, 1931-----Mr. P ecora . 1930, wasn’t it?
Mr. T immerman . I am not sure there was any out at that date,
but on the other date you asked me about— —
Mr. P ecora . What was the amount? You mean June 26, 1931?
Mr. T immerman . On June 26, there was $10,000,000 out to that
company.
Mr. P e c o r a . T o what company?
Mr. T immerman . In December, there was $5,000,000.
Mr. P e c o r a . T o what company?
Mr. T immerman . National Public Service.
Mr. P ecora . Was that an Insull company?
Mr. T immerman . That was known as an Insull company. It
was a holding company for eastern properties, and had no relation.
"The collateral was collateral of companies in the East.
Mr. P ecora . What other loans were outstanding to any Insull
company?
Mr. T immerman . Those were the only loans.
Mr. P ecora . $10,000,000?
Mr. T immerman . You asked about a certain date. I think it was
December, 1931. That loan was $5,000,000.
Mr. P ecora . No. I mean, when the two loans, respectively, for
$3,500,000 to the Insull Utility Investments, and of $4,000,000 to the
Corporation Securities Co. of Chicago, were made—



STOCK EXCHANGE PEACTICES

1547

Mr. T immerman . $10,000,000 at that time.
Mr. P ecora . Were there any other loans that your bank had made,
and which were still outstanding, to any other Insull company?
Mr. T immerman . The Corporation Securities loan was made in
December, 1930, the Insull Utility Investments in June of 1931.

Mr. P e c o r a . Yes.
Mr. T immerman . I think between those two dates the National
Public Service loan was made.
Mr. P ecora . For $10,000,000?
Mr. T immerman . Yes.. I know the amount, and I think it was
between those two dates.
Mr. P ecora . D o you know of any other outstanding loan in 1930
or 1931, made by your bank to any Insull corporation?
Mr. Timmerman. N o ; I do not. Those are the only ones.
Mr. P ecora . At the time the loan that has been referred to as a
loan for $3,500,000 to the Insull Utility Investments was made, was
it originally made for that sum?
Mr. Timmerman. N o.
Mr. P ecora . What was the original amount of the loan?
Mr. T immerman . Both the Corporation Securities and the Insull
Utility Investments were originally $5,000,000 each.
Mr. P ecora . When were they originally made at those figures?
Mr. T immerman . As I said.
Mr. P ecora . When?
Mr. T immerman . The Corporation Securities, in December of
1930, and the Insull Utility Investments in June of 1931.
Mr. P ecora . When was the loan of $10,000,000 to the National
Public Service Corporation or company made?
Mr. T immerman . M y best memory on that— that loan came to
an entirely separate division that I had no close contact with, but my
best memory is that it was between those two dates.
Mr. P ecora . Some time in the first six months of 1931, is that
right?
Mr. T immerman . That is what I think it was.
Mr. P ecora . Was that the last one of these three loans that
Aggregated $20,000,000?
Mr. T immerman . Was the Insull Utility-----Mr. P e c o r a . The one made on June 2 6 , 1 9 3 1 , to the Insull Utility
Investments Co.
Mr. T immerman . That is correct.
Mr. P ecora . And on that date, namely, June 26, 1931, what
was the capital and surplus of your bank?
Mr. T immerman . I can not answer you exactly, but it was in
excess of $100,000,000. I think about $104,000,000.
Mr. P ecora . It was not in excess of $200,000,000, was it?
Mr. T immerman . No; it was not.
Mr. P ecora . I s your bank a State bank or a national bank?
Mr. T immerman . It is a State bank.
Mr. P ecora . Incorporated under the laws of the State of New
York?
Mr. T immerman . New York State.
Mr. P ecora . And the legal limitation, under the banking laws of
that State, upon the amount that any bank may lend to a borrower,
is 10 per cent of its capital and surplus, is it not?



1548

STOCK EXCHANGE PEACTICES

Mr. T immerman . Only on unsecured loans; on secured loans, 25
per cent.
Mr. P ecora . At the time the $5,000,000 loan was made to the
Insull Utility Investments Co. on June 26,1931, do you know whether
or not your bank treated that loan as having been made to the socalled Insull group, or to a corporation that was a component or unit
of the I dsuII group?
Mr. T immerman . I do not know that we considered it particularly
from the point of view of the borrower. We considered it from the
point of view of the collateral.
Mr. P ecora . I do not think that answers the question.
Mr. T immerman . Y ou asked me, I think, if we considered that as
a loan-----Mr. P ecora . As a loan that was being made to a unit of the
Insull group of public utility companies.
Mr. T immerman . It was a loan to a unit of the Insull companies.
Mr. P ecora . Was it known to be such to your bank at the time,,
if you can tell us?
Mr. T immerman . It is difficult for me to answer that, because I
actually did not take part in those negotiations. I think it was
looked upon as a loan that Mr. Insull had asked for, against satis­
factory and ample collateral.
Mr. P ecora . Had he asked for the other two loans, namely, the
one of $5,000,000 made in December, 1930, to the Corporation
Securities Co., and the one of $10,000,000 that was made early in
1931 to the National Public Service Co.?
Mr. T immerman . I do not know whether he did. I have an
impression that the National Public Service loan was entirely handled
by its own officers in New York City, but I may be incorrect in that.
I had nothing to do with any of the dealings on that.
Mr. P ecora . Did you take part in any discussions or conferences
that were hfeld during the month of December, 1931, with respect to
the loans which your bank then had outstanding against the Insull
companies?
Mr. T immerman . Not conferences with anyone outside of our
bank, or outside of the officers of the Insull companies, that I recall.
Mr. P ecora . So far as you know, who did have such conferences
with persons outside of your bank, among those officials connected
with your bank?
Mr. T immerman . I do not recall that there were any such con­
ferences in December of 1931.
Mr. P ecora . Were there any prior to December, 1931, with respect
to the maturity, or impending maturity of any of these loans held by
your bank?
Mr. T immerman . Not that I know of; and I am reasonably certain
there were none.
Mr. P ecora . Do you know a Mr. C. B. Stuart?
Mr. T immerman . I have met a Mr. Stuart of Hasley, Stuart &
Co. I am not sure which one Mr. C. B. Stuart is. Is he the New
York man?
Mr. P ecora . Yes, I believe he is.
Mr. T immerman . That is the one I have met, then. I have met
him once or twice.




STOCK EXCHANGE PRACTICES

1549

Mr. P ecora . D o you know him to be a brother of Mr. H. L. Stuart,
president of Hasley, Stuart & Co.?
Mr. T immerman . He is.
Mr. P ecora . Halsey, Stuart & Co. have offices at 35 Wall Street
in New York, have they not?
Mr. T immerman . They have an office in New York.
Mr. P ecora . Their business is that of investment bankers and deal­
ers in securities?
Mr. T immerman . That is what I have heard them termed. I am
not particularly familiar with their operations.
Mr. P ecora . Did you have any conversations with Mr. C. B.
Stuart with respect to the loan that was made to the Insull Utility
Investments Co.?
Mr. T immerman . Yes. I had a very brief conversation with him
in July of 1931. I asked him for certain data which he supplied me
with, on the ownership of the two corporations, Insull Utility and
Corporation Securities.
Mr. P ecora . Did he furnish those data in writing, or by word of
mouth?
Mr. T immerman . He furnished it in writing, I think.
Mr. P ecora . Have you got the writing?
Mr. T immerman . I believe I have.
Mr. P ecora . Will you produce it, please?
Mr. T immerman . It may take some little time.
Mr. P ecora . Just pick it out. Take whatever time is necessary.
Mr. T immerman . Here is a letter from Mr. Stuart inclosing that
information [producing paper].
Mr. P ecora . Mr. Chairman, the witness produces a letter pur­
porting to be signed by C. B. Stuart, written on the letterhead of
Halsey, Stuart & Co., dated New York, August 17, 1931, from No.
35 Wall Street, New York. The letter is brief, Mr. Chairman. May
I read it right into the record?
The C h a i r m a n . Read it into the record.
Mr. P ecora (reading):
L. F. T i m m e r m a n ,
Assistant Vice President Central Hanover Bank & Trust Co.,
70 Broadway, New York City.
D e a r M r . T i m m e r m a n : Inclosed you will find copy of a letter from Mr.
Insull, together with two memorandums setting forth the ownership of various
stocks of Insull Utility Investments (Inc.), and Corporation Securities Co. of
Chicago. 1 sincerely hope that this is what you want, but if not, please let me
know. I am sorry that I could not get this information to you sooner, but it
just was not possible. Will you be sure and see that this matter is brought to
the attention of Mr. Davison? Please keep this information in confidence.
Very sincerely,
C. B . S t u a r t .
M r.

The witness also hands me with this letter what purports to be a
copy of a letter addressed under date of August 14, 1931, to Messrs.
Halsey, Stuart & Co., 201 South La Salle Street, Chicago, 111.,
reading as follows:
D e a r S i r s : Referring to Mr. Charles B. Stuart’s letter to Mr. F. K. Schrader of
August 4, asking for information as to the approximate distribution of Insull
Utility Investments (Inc.), common stock, and the extent of ownership of the
Insull family and yourselves, I thought it better to give you a statement, not only
of Insull Utility Investments (Inc.), ownership of both preferred and common
stocks, but also a similar statement with relation to Corporation Securities Co. of
Chicago.




1550

STOCK EXCHANGE PRACTICES

You may remember the Corporation Securities Co. of Chicago was originally
formed so as to establish a voting control of Insull Utility Investments (Inc.).
You are quite welcome to hand these two statements inclosed to Mr. Davison, o f
the Central Hanover Bank & Trust Co., for whom Mr. Charles B. Stuart made
the inquiry.
Yours truly,
Sam

uel

Insull.

The Mr. Davison referred to in these two communications is
Mr. George W. Davison, who then was president of your bank, iff
it not?
Mr. T immerman . Yes, sir.
Mr. P ecora . What is his connection with the bank to-day?
Mr. T immerman . Mr. Davison is chairman of the board of our bank.
Mr. P ecora . The letter that I first read into the record, being the
one addressed to you by Mr. C. B. Stuart, refers to an inclosure o f
two memorandums. You have produced only one. Have you the
other memorandum referred to in Mr. Stuart’s letter to you?
Mr. T immerman . I think so. You will have to give me a little
time here. There are several captions to go through.
Mr. P e c o r a . G o ahead. While you are looking for that second
memorandum that accompanied Mr. Stuart’s letter to you of August
17, 1931, let me ask you, Mr. Timmerman, if you have with you a
copy of Mr. Charles B. Stuart’s letter to Mr. F. K. Schrader of August
4, which is referred to in the copy of Mr. Samuel Insull’s letter to
Halsey, Stuart & Co. dated August 14, 1931?
Mr. T immerman . No; we have not got that.
Mr. P ecora . Who is Mr. F. K. Schrader, who is referred to in Mr.
Insull’s letter of August 14, 1931?
Mr. T immerman . I do not know who he is.
Mr. P ecora . D o you know him to be an officer or person connected
with Halsey, Stuart & Co.’s organization?
Mr. T immerman . The name is entirely unfamiliar to me. I da
not know.
Mr. P ecora . Have you any other letter, document, or memoran­
dum of any kind in your file relating to the subject matter of Mr. C. B.
Stuart’s letter to you of August 17, 1931?
Mr. T i m m e r m a n . I do not think so . We have those memorandums
he refers to, and that is all. I can not locate those at the moment*
but we will find them.
Mr. P ecora . Mr. Stuart’s letter to you refers to the hope that the
information that he is conveying to you by his letter is what you want.
Was it what you wanted?
Mr. T immerman . It was.
Mr. P ecora . What, exactly, was the information that you were
then seeking?
Mr. T immerman . I wanted to know who controlled these two
companies.
Mr. P ecora . Y ou were making this inquiry after the loans had
been made by your bank?
Mr. T immerman . Exactly so.
Mr. P ecora . What was your purpose in seeking that information
some months after the loans had been made?
Mr. T immerman . Purely as a matter of information.
Mr. P ecora . Did you consider it of importance to the bank?



STOCK EXCHANGE PRACTICES

1551

Mr. T immerman . In my position as the loaning officer, questions
like that might occur to me, and at a convenient opportunity I
might ask for them. That is exactly what happened in this case.
Mr. P ecora . In your testimony at the outset you emphasized the
proposition that in the making of these loans to these companies, the
collateral was the important thing, and not anything concerning the
identity of the borrowers. Do you recall that?
Mr. T immerman . That is true.
Mr. P ecora . Why did you want this information that you sought
of Mr. Stuart, and which you got through the medium of his letter
to you of August 17, 1931?
Mr. T immerman . Simply as a matter of general information. I
was supposed to be familiar with those loans, to follow them, and in
my capacity as such, I asked these questions, with no second thought
behind them.
Mr. P ecora . Did you attempt to get this information from any
of the officers of your bank before you sought it through Mr. Stuart?
Mr. T immerman . No; I did not. I did not exactly seek it from
him. It came up naturally.
Mr. P ecora . Why did you seek it from Mr. Stuart, or Halsey,
Stuart & Co. What prompted you to believe that Mr. Stuart could
give you that information?
Mr. T immerman . A s I recall the circumstances, Mr. Stuart was
in the office one day. I was introduced to him at that time, and the
suggestion was made that if there was anything I wanted to ask him
about the Insull companies, I might ask him for it, and I asked him
for this information.
Mr. P ecora . Y ou then had some reason to believe that the
Insull Utility Investments Co. and the Corporation Securities Co. of
Chicago were Insull corporations, and you wanted to verify the fact.
Was that your purpose?
Mr. T immerman . No. I knew they were Insull corporations at
that time.
Mr. P ecora . You were seeking information concerning the extent
of the ownership of the preferred and common stocks of Insull Utility
Investments (Inc.), of Mr. Samuel Insull and members of his family,
were you not?
Mr. T immerman . That is correct.
Mr. P ecora . Why did you want that information?
Mr. T immerman . I explained to you why I wanted it, before, Mr.
Pecora, for no other reason than general information.
Mr. P ecora . H ow was it of value to you to know, in view of the
fact that the loans had been made months before by your bank, the
extent of the stock ownership of Mr. Samuel Insull and members of
his family in these two investment trusts?
Mr. T immerman . It was not particularly valuable, except as a
matter of general information.
Mr. P ecora . Did you ask concerning the stock ownership of any
other persons in these two investment trusts?
Mr. T immerman . No; I did not.
Mr. P ecora . When was the first payment on account of any of
these loans?
Mr. T immerman . The first payment made was on the National
Public Service loan of $3,000,000. I can not give you the exact date,



1552

STOCK EXCHANGE PRACTICES

but it was made some time in June of 1931, or July of 1931. The
first payment on these two particular loans, which are of the same type,
the Insull Utility and Corporation Securities, was made in September
of 1931, on the Insull Utility Investments loan. That was a pay­
ment of $1,000,000.

Mr. P e c o r a . H ow was that apportioned as between the two
loans?
Mr. Timmerman. That was only against the one loan.
Mr. P e c o r a . Which was it?
Mr. T immerman . The Insull Utility loan was a 3-month loan,
coming due in September, and at that time the payment of $1,000,000
was made against that. The Corporation Securities was a 6-months
loan, renewed from the end of June, and coming due at the end of
December.
Mr. P ecora . Was it renewed for the full amount in June, 1931?
Mr. T immerman . Renewed for the full amount.
Mr. P ecora . When was the first payment made in reduction of
that loan?
Mr. T immerman . In December of 1931.
Mr. P ecora . H ow much of a payment was then made on account
of that loan?
Mr. T immerman . On the Corporation Securities, $1,000,000 was
paid in December.
Mr. P ecora . At that time was any payment made in reduction of
the loan of the Insull Utility Investments Co.
Mr. T immerman . $500,000.
Mr. P ecora . At that time was any payment made in reduction
of the loan of the National Public Service Co.?
Mr. T immerman . The National Public Service had been reduced
twice by that time, once by $3,000,000, and again by $2,000,000, so
it stood at $5,000,000 at the time.
Mr. P ecora . When was the $2,000,000 payment made on account
of that loan?
Mr. T immerman . In October.
Mr. P ecora . In December, 1931, when the Corporation Securities
Co. loan was reduced by $1,000,000, and the Insull Utility Invest­
ments loan was reduced by $500,000, had your bank been in com­
munication or conference with any other bank or banks, either in
New York or Chicago, that were creditors of the Insull companies?
Mr. Timmerman. Yes.
Mr. P ecora . Had you personally taken part in those communica­
tions, or conferences?
Mr. T immerman . I do not recall any definite conferences between
the banks at that time.
Mr. P ecora . If there were any, you did not take part in them
personally?
Mr. T immerman . Exactly. In the latter part of December, the
question of this stand-still agreement came up.
Mr. P ecora . Who brought it to your notice originally?
Mr. T immerman . I think Mr. Davison and Mr. Gray, and about
the same time Mr. Samuel Insull, jr.
Mr. P e c o r a . Were you requested by Mr. Davison and Mr. Gray,
or either of them, to do anything on behalf of your bank with respect
to this stand-still proposed agreement?



STOCK EXCHANGE PRACTICES

1553

Mr. T immerman . I had to do with the handling of all these things.
Mr. P ecora . What did you do in respect of it?
Mr. T immerman . At the time that they requested it, we signified
that, in principle, we would go along on the proposition if the rest of
the banks did.
Mr. P ecora . What was that proposition?
Mr. T immerman . That all the banks renew their loans until, I
think, June 15, of 1932, approximately six months; that none of the
banks ask for additional collateral during that period. Now, then,
at that time, when they asked for that, I asked Mr. Samuel Insull, jr.,
for certain data to prove to me that the Insull Utility and the Cor­
poration Securities could get by during the succeeding year, and they
supplied me with those data.
Mr. P ecora . Were the data satisfactory to you, and did they con­
vey to you the assurances that you were seeking?
Mr. T immerman . They did; and after that we formally-----Mr. P ecora . What were the data that they submitted to you at
that tme?
Mr. T immerman . It was an estimate income and disbursement
account for the succeeding year.

Mr. P e c o r a . Estimated income?
Mr. T immerman . It had to be. I think they had an actual one
up to that date, of the current year 1931, and a projected one for the
succeeding year.
Mr. P ecora . Were the earnings shown on that statement of the
estimated earnings for 1932 greater than those which were shown to
have accrued for the year 1931?
Mr. T immerman . I can not answer that. The best answer I can
give you to what you are getting at, is that both showed, as I recall,
a comparatively moderate deficit for the succeeding year, something
like $100,000, whereas they both had cash on hand very substantially
in excess of that.
Mr. P ecora . Did you think that they could get by for the ensuing
year on statements showing deficits?
Mr. T immerman . Yes. The chief trouble is that their obligations
were coming due, and they were to be deferred for six months, which
automatically took care of their major problem.
Mr. P ecora . The obligations you refer to were all the bank loans?
Mr. T immerman . Exactly.
Mr. P ecora . There were a number of banks that held those loans?
Mr. T immerman . Exactly.

Mr. P e c o r a . Some in Chicago and some in New York?
Mr. T immerman . Yes.
Mr. P e c o r a . D o you know what the aggregate amount was of
the bank loans at that time?
Mr. T immerman . Yes, I do.
Mr. P ecora . And what was it?
Mr. T immerman . The aggregate amount of the loans was about
$78,000,000, split, roughly, $51,000,000 to one of the companies-----Mr. P ecora . Which one?
Mr. T immerman . Insull Utility Investments, to my memory,
and $26,000,000 or $27,000,000 to the other compay.
Mr. P ecora . The Corporation Securities Co.?
119852— 33—



pt

5------------- 11

1554

STOCK EXCHANGE PEACTICES

Mr. T immerman . Yes. That was the aggregate amount of loans
by quite a large group of banks, both in Chicago and New York.
Mr. P ecora . H ow was that aggregate amount apportioned as
between the New York banks as a group, and the Chicago banks as
a group? Can you tell us that?
Mr. T immerman . In a general way, I should say that the major
portion was held in Chicago, possibly in the ratio of 3 to 2, or some­
thing of that sort.
Mr. P ecora . D o you know from what sources-----Senator F letcher . The testimony here was that the major por­
tion was held in New York.
Mr. T immerman . I know; but as far as these two companies go,
that certainly is not my memory. I can almost name offhand-----Senator F letcher . Had these companies met their obligations to
your bank promptly?
Mr. T immerman . Yes, they had. They had handled their loans
correctly throughout our experience with them.
Senator F letcher . Had you been pressing them any before this
talk about a stand-still agreement?

Mr. Timmerman. We had not.
Mr. P ecora . Are you sure of that, Mr. Timmerman, that you had
not been pressing them for any payment on account of these loans?
Mr. T immerman . We had not been pressing them for payment on
account of these loans. We expected payments on these loans at
maturity, and we were given those payments.
Mr. P ecora . Did you indicate that your bank would not go into
the stand-still agreement with the other banks unless some payments
were made in reduction of your loans?
Mr. T immerman . Absolutely not. Those arrangements were made
before the stand-still agreements were ever spoken of.
Mr. P ecora . Who made those arrangements in behalf of your
bank?
Mr. T immerman . Mr. Davison and Mr. Samuel Insull, but I am
familiar with that.
Mr. P ecora . Y ou are familiar with that from hearsay, are you
not?
Mr. T immerman . Exactly.
Mr. P ecora . Have you a copy of the proposed stand-still agree­
ment that you have referred to?
Mr. T immerman . Yes, I have.
Mr. P e c o r a . Will you produce it, please?
Mr. T immerman . Would you like to read an excerpt I made at the
time we signed it, that sums it up?
Mr. P ecora . No; I would rather have the agreement itself.
Have you a copy of the agreement?
Mr. T immerman . Yes. [Producing papers.]
Mr. P ecora . The one you produce purports to be attached to an
original document.
Mr. Timmerman. The original was returned to the company.
Mr. P ecora . During the pendency of these loans by your bank
prior to December, 1931, had your bank made any demands upon the
borrowers for additional collateral to secure these loans?
Mr. T immerman . Yes. The original agreement was that the 40
per cent margin was to be maintained. As the market declined on
these stocks, we sent out margin calls for additional collateral.



STOCK EXCHANGE PRACTICES

1555

Mr. P e c o r a . Were those margin calls responded to?
Mr. Timmerman. They were.
Mr. P e c o r a . H ow many times were those calls made and re­
sponded to, up to-----Mr. T immerman . I can not definitely answer that, but they were
rather frequent, particularly in the fall of 1931.
Mr. P ecora . Did you know that both these companies that had
borrowed these moneys from your bank had issued and sold to the
public, to the extent of millions of dollars, certain debenture bonds or
so-called gold notes, which were really debentures?
Mr. T immerman . Our bank has no security selling affiliate. We
are not engaged in the distribution of securities. I learned that
subsequent to the making of the loans.
Mr. P ecora . Did you learn that before the last call for additional
collateral was made by your bank and responded to by the borrowers?
Mr. T immerman . I must have learned that as soon as I got financial
statements, some time in the summer of 1931.
Mr. P ecora . Have you brought with you any data from the files
of your bank that would show the dates on which calls for additional
collateral were made and complied with?
Mr. Timmerman. No; I have not. I can only give you a general
idea. There were a few during the summer.
Mr. P ecora . Do you not have such information as a matter of
record in the files of your bank?
Mr. Timmerman. We have that in the mechanical end of the loan
department, where they are sent out from.
Mr. P ecora . Were you not asked to produce here the files of your
bank with regard to the making of these loans, and the operations
during the pendency of these loans?
Mr. Timmerman. Yes; and I have substantially done that. That
is purely a routine matter.
Mr. P ecora . Can you give me the dates when, in response to the
calls of the bank, additional collateral was pledged?
Mr. T immerman . Here are some dates which, to the best of my
knowledge, indicate——
Mr. P e c o r a . Will you give us those dates?
Mr. Timmerman. On Insull Utility Investments the dates are Sep­
tember 8, 1931, and September 10, 1931; and another date, Septem­
ber 17, 1931, and October 7 of 1931; and then a date that may or
may not be the date of collateral, December 4, 1931.
Mr. P ecora . With the exception of the date you last mentioned,
December 4, 1931, did the other dates indicate times when the bank
received additional collateral from the borrowers on these loans?
Mr. T immerman . I think so.
Mr. P ecora . By the way, Mr. Timmerman, when did you learn
of these debenture bonds that I alluded to a few moments ago?
Mr. T immerman . I first heard about them the latter part of June,
1931—June 29, to be exact. I heard them referred to as the debt
of the two companies.
Mr. P e c o r a . From whom did you hear that then?
Mr. Timmerman. I heard that from a Chicago bank, the Northern
Trust Co.
Mr. P e c o r a . What did you hear about it at that time?



1 5 56

STOQK EXCHANGE PRACTICES

Mr. T immerman . Simply that there were debentures outstanding.
Mr. P ecora . Did you make any written memorandum of that
information?
Mr. T immerman . I did.
Mr. P ecora . Have you that with you?
Mr. T immerman . I have.
Mr. P ecora . Will you produce it, please? While the witness is
searching for it, may I ask that the so-called standstill agreement, in
its general form, as produced by the witness, and the letter accom­
panying the same, addressed to Central Hanover Bank & Trust Co.,
and signed by Samuel Insull, jr., as president of Insull Utility Invest­
ments (Inc.), be spread upon the record?
Senator F letcher . The witness’s name seems to have been stricken
out.
M r. M uhleman . He can explain all that, Senator.

, Senator F letcher . I do not know whether this is a valid document
or not, or whether it was destroyed and replaced.
M r. M uhleman . This is merely a copy. The original was returned
to the Insull group. They have the original, or ought to have it.
Mr. P ecora . The witness produces a memorandum which I will
read into the record, Mr. Chairman, with your permission [reading]:
I nsull U

t il it y

I n vestm

ents

( I n c .),

Chicago, III., June 29, 1931.
Mr. D. B. M cDougal, Vice President of the Northern Trust Co., Chicago,
called up to-day. He said that Mr. Smith, their president, is on the board of
some of the Insull operating companies, mentioning the Commonwealth Edison
and the Public Service Co. of Northern Illinois. For that reason they used
the greatest discretion in giving out information on the company, and this in­
formation should be so treated. They are loaning the Commonwealth Edison
up to their legal limit of $900,000 on an unsecured basis. They have in the past
loaned to the Public Service Co. of Northern Illinois similarly up to the same
amount. The former is bn their books for the full amount at the present time,
and the latter is not borrowing. They thought very well of both of these
companies.
From a statistical point of view, Mr. McDougal said, very confidentially, that
the investment companies of Mr. Insull, to wit, Insull Utility Investments (Inc.),
and Corporation Securities Co. of Chicago, are borrowing heavily. They made
up a consolidated statement as of the two companies, for their own information,
as of December 31, 1930. This showed the following liabilities: Due banks,
$74,000,000; debentures, $86,000,000: contracts, $10,000,000.
The Insull Utility Investments (Inc.) alone showed the following liabilities:
Due banks, $58,000,000; debentures, $57,000,000; contracts, $4,000,000.
He said that as far as the capital stock of these companies is concerned, that
these are both listed on the Chicago Stock Exchange, and that exchange has
shown some inability to absorb very large blocks of their offerings. However,
as far as the stocks behind our loans to these two companies are concerned, they
have a good market and the companies themselves, particularly the Common­
wealth Edison and the Middle West Utilities, are very well regarded. He sug­
gested the Continental Illinois as the source of information on the Insull interests,
as far as their banking relationships go.

Did you make any inquiries, Mr. Timmerman, upon receipt of this
information embodied in this memorandum of June 29, 1931, or sub­
sequently, concerning the nature of the $86,000,000 of debenture
obligations outstanding on the part of the Insull Utility Investments,
and the Corporation Securities Co.?
Mr. T immerman . No; I did not. I knew that they were liabilities
that were not due for a considerable period.
Mr. P ecora . H ow did you know that? It does not appear from
this memorandum that you knew it, does it?



STOCK EXCHANGE PRACTICES

1557

Mr. T immerman . No; but we had statements taken off subsequent
to that time, giving the date of maturity. You asked me the first
time I had heard of those debentures. That was the first occasion.
Mr. P ecora . Yes.
Mr. T immerman . Subsequent to that, we had statements of these
companies.
Mr. P ecora . When did you get those statements concerning these
debentures, subsequent to June 29?
Mr. T immerman . This statement here of December 31,1930— that
one and prior ones were the ones available at that time, December
31, 1930.
Mr. P ecora . Then there was something in the record of your bank
concerning the fact that these debentures had been issued and were
outstanding obligations of the companies, in December, 1930?
Mr. Timmerman. N o. From this statement, the nearest date I
can reconcile that we secured it was July 7, 1931. We have the date
on here when this statement was taken off. At that time, that shows
that these debentures— there were two series of them. The nearest
maturity was 1940. The next maturity was 1949.
Mr. P ecora . Did you inquire into the rights of the debenture
holders under their debentures, or under any indenture agreement
involving the issuance of the debentures?
Mr. T immerman . We did not.
Mr. P ecora . Have you told the committee the full extent of the
information which you then sought and subsequently obtained with
regard to these debentures?
Mr. T immerman . I have. I do not recall anything else about
them, until the discussion that came up subsequent to the bank­
ruptcy.
Mr. P ecora . When did your bank actually sign and become a
party to the standstill agreement that has been referred to here?
Mr. T im m e r m a n . We signed the standstill agreement on the date
of the memorandum that I gave you, of the excerpt, January 7 of
1931.
Mr. P ecora . 1932, you mean?
Mr. T immerman . 1932. Excuse me. That agreement, however,
did not become operative until signed by all the banks.
Mr. P ecora . When did it become so operative?
Mr. T immerman . It never did.
Mr. P ecora . That provision was in the agreement itself, was it
not, that it should not become operative until signed by all the
creditor banks?
Mr. T immerman . Exactly.
Senator F letcher . What banks refused?
Mr. P ecora . What banks refused, the Senator has asked?
Mr. T immerman . There were two banks in New York, the Irving
Trust Co. and the Commerical National Bank, that, as far as I know,
never signed the agreement, although they never definitely refused
to sign it.
Mr. P ecora . That is all I want to ask this witness, but Mr. Gray
will have to appear and give testimony which this witness seems
unable to furnish, because he had no personal connection with the
transactions regarding which I want to question him.



1558

STOCK EXCHANGE PRACTICES

I may say, Mr. Chairman, that the attorney representing the bank
is in the room here, and has made an informal request of me, that on
account of the fact that his presence is required in the office of the
bank in New York to-morrow, that Mr. Gray be excused from attend­
ing to-morrow. I was in hopes that the information we want to elicit
might be obtained from this witness, but unfortunately, on account of
his not having had anything to do, substantially, with the actual
negotiations in these transactions, I do not see how we can excuse
Mr. Gray.
Mr. M tjhleman. May I make a suggestion, Senator? Mr. Gray,
as far as I understand the transaction in connection with all three
loans—and I have gone into them very thoroughly—did not have a
direct connection with the Insull matter. Mr. Davison is the one
who arranged the loan. All of that has been brought out in the
testimony of Mr. Davison and Mr. Gray-----Mr. P ecora . Not in this hearing.
Mr. M tjhleman. At the hearing held before the referee in bank­
ruptcy; and I think that will show how the transactions concerning
these three loans were made.
As to the National Public Service loan that Mr. Timmerman has
spoken of, I think that Mr. Davison is the only one who talked with
Martin Insull about it, and I was personally present when the loan
was made, and I did not see any officer of the bank in there.
Mr. P ecora . But, according to the facts presented here this morn­
ing by Senator Couzens, Mr. Davison has had to be excused from
attendance before this committee.
M r. M uhleman . He did not create that position. He wanted to
be here to-day, as I arranged with you.
Mr. P ecora . I know it is not his fault.
Mr. M uhleman . Mr. Gray is the president of the bank, and the
chief executive officer of the bank. Mr. Davison, with Mr. Turnbull,
executive vice president of the bank, happen to be in Detroit, not
because they wanted to be there, but because they were called there.
If you bring Mr. Gray down here to-morrow, you will not have a
head of the bank in the place, and they never leave the Central Han­
over in that condition. It never has been left in that condition as
far as I know. I would suggest that possibly it might be postponed
until Saturday morning. I might say that Mr. Davison will be here
with the Federal reserve on Sunday, Monday, and Tuesday. Mon­
day or Tuesday will suit him quite all right, and he will be glad
to come.
Mr. P ecora . I would suggest, Mr. Chairman, that under the cir­
cumstances Mr. Davison be asked to attend before this committee as
a witness on next Tuesday, and that Mr. Gray then be excused from
attendance to-morrow.
M r. M uhleman . I thank you, M r. Pecora.
Mr. P ecora . Will you be good enough to have Mr. Timmerman
leave with us, in our custody, such of the record as he has produced
here?

Mr. M u h lem an . D o you mean the material that you have brought
out here?
Mr. P ecora . Yes.
Mr. M uhleman . I do not know. He has got the records of the
bank. We have no photostatic copies. If you want us to give you




1559

STOCK EXCHANGE PRACTICES

a photostatic copy of everything we have there, we will gladly send
them to you.
Mr. P ecora . There are really only one or two original documents
among them.
M r. M uhleman . Copies are all we have.
Mr. P ecora . Mr. Davison will get those when he comes here next
Tuesday.
Mr. M uhleman . I expect to be here with Mr. Davison on Tuesday,
but if you will let me take them back, I can bring them down on
Tuesday.
Mr. P ecora . The reporter will not be able to spread them on the
record if you take them away now.
M r. M uhleman . I am giving you photostatic copies.
Mr. P ecora . Have you the copies here?
Mr. M uhleman . I assume you simply want these as exhibits. All
that is not to be put in the record? They are to be received as
exhibits, are they not?
Mr. P ecora . They are spread in full on the record.
Mr. M uhleman . If you will let us go now, we will go back to
New York now, and I will have these things copied in the bank,
photostated in the bank, and will forward them to you here sometime
to-morrow, so that you will have the record complete. I want to do
everything I can to help in it.
Senator F letcher . Do I understand you are not going to ask Mr.
Gray to come Saturday, or any time?
Mr. P ecora . Mr. Davison is in Detroit. I think we can wait until
next Tuesday, and then have Mr. Davison.
Mr. M uhleman . I do not think you need Mr. Gray, as you have
read the evidence, I assume.
Mr. P ecora . It would seem now, from the testimony of Mr.
Timmerman, that Mr. Davison is the officer of the bank who can
give the most testimony from personal knowledge of these transac­
tions.
Mr. M uhleman . I think you will find that to be true, Mr. Pecora.
Mr. T immerman . Is that all you want with me?
Mr. P ecora . Yes.
The C hairman . Let the record show that Mr. Davison will be
here Tuesday morning at 10 o’clock, and will be the first witness, and
that his attorney, Mr. Muhleman, has assured us that he will be here.
(The documents submitted by Mr. Timmerman are as follows:)
I nsull U

t il it y

I nvestm en ts

( I n c .) ,

Chicago, III., January 7, 1982.
C

entral

H

anover

B

ank

& T

ru st

C

o

.,

New York, N. Y.
G e n t l e m e n : Insull Utility Investments (Inc.), is indebted to the following
banks on short-term collateral notes having various maturities for the principal
amounts set opposite their respective names:
Continental Illinois Bank & Trust C o ____________________________$18, 987, 500
5, 000, 000
First National Bank of Chicago_________________________________
Guaranty Trust C o______________________________________________
5, 000, 000
Irving Trust C o________________ ________________________________
5, 000, 000
Central Hanover Bank & Trust C o______________________________
3, 500, 000
3, 000, 000
Central Republic Bank & Trust C o______________________________
Commercial National Bank & Trust C o__________________________
1, 500, 000
The Northern Trust C o_________________________________________
900, 000
Harris Trust & Savings Bank____________________________________
500, 000
Bankers Trust C o_______________________________________________
500, 000



1560

STOCK EXCHANGE PRACTICES

: Each bank has pledged to it, collateral consisting of shares of stocks of differ­
ent corporations in varying amounts.
Insull, Son & Co. (Inc.), all the stock of which, except directors’ qualifying
shares, is owned by Insull Utility Investments, (Inc.), in addition owes to the
Continental Illinois Bank & Trust Co. $7,360,000 principal amount, collaterally
secured by shares of stock of various corporations.
It has been suggested to the undersigned by certain of the foregoing banks that
it is to the best interests of the undersigned and of the foregoing banks that the
undersigned, in place of the notes now held by such banks, give them notes hav­
ing a common maturity, and that Insull, Son & Co. (In c.), give the Continental
Illinois Bank & Trust Co. a note having a like maturity, and that certain agree­
ments be entered into between the banks listed above and the undersigned.
The undersigned, therefore, subject to your approval and the approval of all
the other banks listed above proposes:
1. To give to each bank the undersigned’s collateral note, bearing 5 per cent
interest payable on the 1 st day of each month, for the principal amount owing
to it, such note to be due on June 15, 1932, or on demand prior thereto, and to
be in the form attached hereto as Exhibit A, and each such note to be secured
by the respective collateral now pledged to such bank.
You will observe that the form of note does not give any right to demand
additional collateral in the event of a decline in market value of the collateral
held or to sell collateral in the event of such a decline.
2. To cause Insull, Son & Co. (Inc.) to give its note of similar form and matu­
rity to the Continental Illinois Bank & Trust Co., to be secured by the same
collateral now pledged by Insull, Son & Co. (Inc.) to said bank.
3. To give its limited guaranty in the form attached hereto as Exhibit B to
the Continental Illinois Bank & Trust Co. covering the indebtedness of Insull,
Son & Co. (Inc.) to that bank.
Such notes are to be given by the undersigned and by Insull, Son & Co. (In c.),
and accepted by the respective banks, on the understanding that prior to June
15, 1932, which is the absolute maturity of the proposed notes, payment thereof
shall not be demanded by any bank without the consent of banks holding a
majority in number and amount of such notes, provided that if consent is so
given to any one or more banks to demand payment of its note, or their notes,
any bank holding a note of the undersigned or Insull, Son & Co. (Inc.) issued
pursuant to the terms of this letter may demand payment on such note there­
after without any further consent being required.
If the proposed notes are issued and accepted in lieu of the notes now held by
the respective banks listed above, the undersigned agrees that it will, as far as
reasonably practicable, prorate and maintain its balances among the banks
holding such notes in proportion to the respective amounts of such notes, and
further agrees that it will not, prior to June 30, 1932, without the consent of all
the banks listed above, pledge or assign any interest in any of the free securities
now held by it (a list of which is hereto attached as Exhibit C), as security for
any existing indebtedness or for any new indebtedness, direct or contingent, and
further agrees that it will deposit the said securities with the Northern Trust Co.,
of Chicago, for safe-keeping until June 30, 1932. The undersigned shall have the
right to sell or exchange any of said securities while in safe-keeping, but only on
terms approved by, and with the written consent of, Herman Waldeck, or some
other vice president of the Continental Illinois Bank & Trust Co., and of Edward
E. Brown or some other vice president of the First National Bank of Chicago;
and if such sale is in whole or in part for cash, the undersigned shall have the right
to receive such cash.
If the proposals and arrangements set out in this letter are satisfactory to you,
kindly indicate your approval on the carbon inclosed herewith and return it to
the undersigned.
As soon as the approval of all the banks listed above is obtained, the under­
signed will issue and cause to be issued the new notes, adjusting interest to the
date of exchange, and carry out the other undertakings given by it herein.
By
E

I n s u l l U t i l i t y I n v e s t m e n t s ( I n c .) ,
S a m u e l I n s u l l , Jr., President,

x h ib it

A
C

h ic a g o

,

II I., January — , 1932.

On June 15, 1932, or on demand prior thereto, we prom ise to pay to the order
o f ------------------ dollars, a t ------------------- for value received, with interest at the rate
o f 5 per cent per annum, after date, payable m onthly on the 1st day o f each




1561

STOCK EXCHANGE PRACTICES

month, having deposited herewith as collateral security for payment of this or
any other liability or liabilities (except liabilities evidenced by securities publicly
marketed), direct or contingent, of the undersigned to the legal holder hereof at
any time, whether due or to become due, or that may be hereafter contracted or
existing, howsoever acquired by said legal holder, the following property, viz,
-----------------with full power and authority in the holder to sell and assign and
deliver the whole of said property, or any part thereof, or any substitute therefor,
or any additions thereto, at any brokers’ board, or at public or private sale, at
the option of such legal holder and with the right in such holder to be purchaser
itself at such brokers’ board or public sale, at any time, on the nonperformance
of this promise, or the nonpayment of any of the liabilities above mentioned, or
at any time or times thereafter, without advertisement or notice. And after
deducting all legal or other costs and expenses for collection, sale, and delivery,
to apply the residue of the proceeds of such sale or sales to pay any, either or all
of said liabilities, as such legal holder shall deem proper, returning the overplus
to the undersigned. In case of the insolvency of the undersigned, any indebted­
ness due from the legal holder hereof to the undersigned may be appropriated
hereon at any time, as well before as after the maturity hereof.
I n sull U

t il it y

I n vestm en ts

( I n c .),

--------------------- , President.
--------------------- , Treasurer.
E

x h ib it

B

Know all men by these presents, that whereas, Continental Illinois Bank &
Trust Co., Chicago, 111. (hereinafter referred to as the “ Bank” ), is the holder of
a promissory note of Insull, Son & Co. (Inc.) (hereinafter referred to as the
“ company” ), for the principal sum of $----------, dated ---------- , and maturing
----------, which said note is collaterally secured by securities deposited by the
company.
Now, therefore, in consideration of $1 in hand paid to the undersigned by said
bank, and for other good and valuable considerations received from said bank,
the undersigned hereby unconditionally guarantees to pay at the maturity of
said notie (regardless of whether such maturity shall be the date specified in
said note or any earlier maturity pursuant to the terms thereof) to the holder of
said note the amount of any loss which such holder may incur in connection with
said note. For all purposes of this guaranty, the term “ loss” shall be deemed
to be the amount due on such note at such maturity less (a) any amount paid to
said holder by the company on account of such note at such maturity, and (b)
the value at such maturity of such collateral security deposited by the company
and then held by said holder, and any such loss shall be deemed to be incurred
at such maturity, regardless of whether or not said holder shall pursue any of
its remedies against the company or said collateral security. The term “ value
at such maturity of such collateral security” shall for all purposes of this guaranty
be deemed to be, at the option of said holder, either (a) any value thereof as of
said maturity agreed upon between said holder and said company, or (b) the
value thereof as of said maturity as determined by the then president of the
Chicago Stock Exchange, or (c) the amount actually received, at any time or
from time to time after such maturity, by said holder as the net proceeds of said
collateral security upon any sale or other disposition thereof in accordance with
the terms of said note. Until payment in full to said holder of all amounts due
on said note at said maturity the undersigned shall not be subrogated to any
rights of said holder against the company on account of said note, or against said
collateral security.
The undersigned hereby waives any acceptance of this guaranty, and notice
of such acceptance or of default in the payment of said note or any installment
of interest thereon, presentment of said note, protest and the necessity for any
sale of said collateral security and notice of any such sale.
Said holder is hereby given the right to extend or renew said note, or any
renewals or extensions thereof, without in any manner affecting the obligations
of the undersigned hereunder and wherever said note is herein referred to such
reference shall be deemed to include any such renewals or extensions.
This guaranty shall be binding upon the successors and assigns of the under­
signed, and shall inure to the benefit of the successors and assigns of said holder.




15 62

STOCK EXCHANGE PEACTICES

In witness whereof, the undersigned has caused this guaranty to be duly 1
executed in its name and under its corporate seal by its proper corporate officers,
all duly authorized in the premises by resolution of its executive conimittee, this
■
--------- day o f ----------- , 1932.
Insull

U

t il it y

I nvestm en ts

( I n c .),

B y --------------------- , President.
Attest:
--------------------- , Secretary.
E x h ib it C

British Power & Light Corporation (1929) (Ltd.) shares of £1 each.
1 276, 000
Central & South West Utilities C o.:
Preferred stock $7 dividend series__________________________ ________ 77
82,722
Common________________________ _________________________
499
Chicago, Aurora & Elgin R. R. Co., 7 per cent prior lien________
Chicago City & Connecting Rys. Co., certificates of deposit for
collateral trust preferred participation certificates_____________
900
Chicago, North Shore & Milwaukee R. R. Co.:
7 per cent prior lien________________________________________ ________ 10
6 per cent noncumulative preferred_________________________
4, 8 6 6
Voting trust certificates for 6 per cent noncumulative pre­
ferred___________________________________________________
1 , 106
Common___________________________________________________
2, 460
Voting trust certificates for common________________________
1, 106
Chicago Rapid Transit Co., certificates of deposit for 7.8 per cent
prior preferred_____________________________________________
125
2, 750
Consumers Co., common stock $5 par value___________________ _
Continental Chicago Corporation:
Common___________________________________________________
23, 135
$3 convertible preferred__________ _________________________
5,000
Corporation Securities Co. of Chicago:
$3 optional preference, 1929 series__________________________
40, 297
Common___________________________________________________
151, 398
Voting trust certificates for common_______________________
9, 839
Electric Shareholdings Corporation, common___________________
11, 208
General Realty & Utilities Corporation, common________________
38, 821
General Theaters Equipment (In c.):
Voting trust certificates for $3 convertible preferred________
2, 988#
Voting trust certificates for common____ ___________________
5, 976%
Insull, Son & Co. (Inc.), capital stock___________________________
20, 000
International Utilities Corporation:
$3.50 prior preferred, series 1931___________________________
1, 400
800
$1.75 preferred stock, series 1931___________________________
Class B stock___________________ __________________________
10, 000
Lake Superior District Power Co., 7 per cent preferred........ .........................60
A. B. Leach & Co., capital stock $100 par______________________
750
Leach Corporation, 6 per cent cumulative preferred_____________
2, 500
Metropolitan Gas & Electric Co., common $10, par value_______
500
Middle West Utilities Co.:
$ 6 convertible preferred____________________________________
543
Common_._________ _____ _______________ ___________________
404, 984
Midland United Co., common_________________________________ _
10, 814
Midland Utilities Co.:
7 per cent prior lien________________________________________
1, 000
6 per cent prior lien___________________ _____ ______________
2, 728
National Securities Investment Co.:
6 per cent preferred________________________________________
1 , 00 0
Common___________________________________________________
500
New England Public Service Co.:
Common, no par__________________________________________
874
$7 preferred dividend series________________________________
240
North American Light & Power Co.:
Common stock_____________________________________________ _______ 306
Voting trust certificates for common________________________
18, 898
J Held b y Insull, Son & Co. (L td.) of London, England, for account of Insull U tility Investments (Inc.).




STOCK EXCHANGE PRACTICES

1563

Peabody Goal Co.:
Shares.
Class A common, $25 par_________________ _____ ^______ _
218
Class B common, no par__________________ ____ _____ ______
75, 861
Public Service Co. of Indiana:
$7 cumulative prior preferred__________ _______ ____________ __________ 1
$ 6 cumulative preferred_________ _____ _________ ____________ ________ 1 1
Public Service Trust, $50 par value participation certificates____
15, 000
7, 500
Second Utilities Syndicate (Inc.), capital stock .__ ______________
Shenandoah Corporation:
Optional 6 per cent convertible preferred stock._____________
857
897
Common__________________________________________________
Stone & Webster (Inc.), capital stock___________________________
250
Union Gas & Electric Co., common, $10 par value______________
1, 834
Utility Securities Co., capital stock_____________________________
7, 408
Utilities Stock Transfer Co., capital sto ck ._____________________ ________ 38
The West Penn Electric Co., 7 per cent preferred_______________ ________ 20
Wilkinson Process Rubber Sales Corporation:
Preferred__________________________________________________
450
Common__________________________________________________
450
Insull Utility Investments (In c.):
Common__________________________________________________
5, 165
$5.50 prior preferred_______________________________________
100
900
Second series preferred____________________ ________________
BONDS

Chicago North Shore & Milwaukee R. R. Co., income debentures
series A, 6 per cent, 1955______________________ _________ ____
Chicago Rys. Co., first mortgage, 5 per cent gold bonds due Feb. 1,
1927_________________________________________________________
Chicago Rapid Transit Co. temporary certificates of deposit
for adjustment debentures, July 1, 1963______________________
Chicago City Ry. Co. certificates of deposit for first mortgage
5 per cent gold bonds, due Feb. 1, 1927_______________________
Saline County Coal Corporation, first mortgage, 6 }£ per cent bonds.
Insull Utility Investments (Inc.), 5 per cent series A gold deben­
tures_____________________________________________ ___________

Paramount
$125, 000
12, 750. 00
243, 500. 80
4, 500. 00
175, 000. 00
7, 000. 00

SYNDICATE PARTICIPATIONS

35 per cent payment of subscription of $1,713,750 in Consumers
Co. Syndicate____________________________________________ - - 5 per cent payment of subscription of $250,000 in Insull Utility
Investments Syndicate_____________________________ _____ ____
84 per cent payment of subscription of $12,500 in Chicago, North
Shore & Milwaukee R. R. Co. Syndicate______________________
Participation in Utility Securities Syndicate____________________

599, 812. 50
12, 500. 00
10, 500. 00
8 6 , 098. 72

MISCELLANEOUS

Subscription warrants to purchase International Utilities Corpor­
ation class B stock___________________________________________
Middle West Utilities Co., stock purchase warrant, series A, 1932__
Middle West Utilities Co., stock purchase warrant, series B, 1933. National Securities Investment Co., common stock purchase war­
rants, Jan. 1, 1934___________________________________________
Note receivable from Corporation Securities Co. of Chicago in the
amount of--------------------------- -------------------------------------------------- 4, 769,
Collaterally secured by the following:
300.000 shares Insull Utility Investments (Inc.), common.
255.000 shares Middle West Utilities Co. common stock.

4, 000
43, 216
43, 216
500
851. 25

Mr. D. B. McDougal, vice president of the Northern Trust Co., Chicago,
called up to-day. He said that Mr. Smith, their president, is on the board of
some of the Insull Operating companies, mentioning the Commonwealth Edison
and the Public Service Co. of Northern Illinois. For that reason they use the
greatest discretion in giving out information on the company, and this informa­
tion should be so treated:



1564

STOCK EXCHANGE PRACTICES

They are loaning the Commonwealth Edison up to their legal limit of $900,000
on an unsecured basis. They have in the past loaned the Public Service Co. of
Northern Illinois similarly up to the same amount. The former is on their books
for the full amount at the present time and the latter is not borrowing. They
think very well of both of these companies.
From a statistical point of view Mr. McDougal said, very confidentially, that
the investment companies of Mr. Insull, to wit, Insull Utility Investments (Inc.)
and Corporation Securities Co. of Chicago, are borrowing heavily. They made
up consolidated statement as of the two companies for their own information
as of December 31, 1930. This showed the following liabilities:
Due banks_____ _________________________________________________ $74,000,000
Debentures__ ___________________________________________________
86,000,000
1 0 , 0 0 0 , 000
Contracts______ _________________________________________________
The Insull Utility Investments (Inc.) alone showed the following liabilities:
Due banks_______________________________________________________$58, 000, 000
Debentures______________________________________________________
57, 0 0 0 , 000
Contracts________________________________ ____________ _______ ___
4, 0 0 0 , 0 0 0
He said that as far as the capital stock of these companies is concerned that
these are both listed on the Chicago Stock Exchange, and that exchange has
shown some inability to absorb very large blocks of their offerings. However,
as far as the stocks behind our loans to these two companies are concerned they
have a good market and the companies themselves, particularly the Common­
wealth Edison and the Middle West Utilities, are very well regarded. He sug­
gested the Continental Illinois as a source of information on the Insull interests
as far as their banking relationships go.
CON FIDENTIAL

We today signed two agreements— one for the Insull Utility Investments
(Inc.), and one for the Corporation Securities Co.— through which, subject to
all the other interested banks doing likewise, we have agreed to renew our notes
until June 15, 1932. Insull Utility Investments (Inc.) are owing us $3,500,000
secured, and Corporation Securities Co., $4,000,000 secured.
These agreements provide that the banks will not call for additional margin
on their loans, nor will they sell any underlying collateral during the period of the
agreement, unless a majority of the banks consent.
The rate is to be 5 percent, and interest is to be collected monthly. Balances
of both companies will be prorated among their banks. Copy of the agreements
signed are lodged with the loan department.

C h i c a g o , I I I . , August 14, 1981.
Messrs. H a l s e y , S t u a r t & Co.,
Chicago, III.
D e a r S i r s : Referring to Mr. Charles B. Stuart’ s letter to Mr. F. K . Shrader,
of August 4, asking for information as to the approximate distribution of Insull
Utility Investments (Inc.), common stock and the extent of ownership of the
Insull family and voursleves, I thought it better to give you a statement not only
of Insull Utility Investments (Inc.), ownership of both preferred and common
stocks, but also a similar statement with relation to Corporation Securities Co. of
Chicago. You may remember that Corporation Securities Co. of Chicago was
originally formed so as to establish a voting control of Insull Utility Investments
(Inc.).
You are quite welcome to hand these two statements inclosed to Mr. Davison
of the Central Hanover Bank & Trust Co., for whom Mr. Charles B. Stuart
made the inquiry.
Yours truly,




Sam uel I n su ll.

1565

STOCK EXCHANGE PRACTICES

H a l s e y , S t u a r t & Co.,
New York, N. Y., August 17, 1931.

Mr. L. F. T i m m e r m a n ,
Assistant Vice President, Central Hanover Bank cfe Trust Co.,
New York City.
D e a r M r . T im m e r m a n : Inclosed you will find copy of a letter from Mr.
Insull, together with two memorandums, setting forth the ownership of various
stocks of Insull Utility Investments (Inc.) and Corporation Securities Co. of
Chicago.
I sincerely hope that this is what you want, but if not, please let me know;.
I am sorry that I could not get this information to you sooner, but it just
wasn’t possible.
Will you be sure and see that this matter is brought to the attention of Mr.
Davison? Please keep this information in confidence.
Very sincerely,
C. B. S t u a r t .
Corporation Securities Co. of Chicago, ownership of capital stock, preferred and
common, by companies managed by Samuel Insull

$3 pre­
ferred

Insull Utility Investments (In c.)...........
Insull family................................................
Halsey, Stuart & C o ..................................
Stock owned directly or indirectly b y
Corporation Securities Co. of Chicago.
Various employees’ savings funds and
investment corporations, owned b y
various companies under Insull man­
agement...................................................

Shares
357,305
62,579
27,618

Voting
trust
repre­
senting
com m on

14,200

Total

Shares
559,219
106,790
28,949

Shares
567,686
1,175,990
1,097,764

Shares
924,991
1,238,569
1,125,382

17.93
24.01
21.81

288,728

8,467
1,069,200
1,068,815

T otal com ­
m on and
voting
trust for
com m on

288,728

302,928

5.87

242,161

4.69

Comm on

Per­
centage

55,245

8,085

178,831

186,916

2,154,567

1,162,517

Stock owned b y the public......................

516,947
69.07
231,534

1,094,027

3,317,084
7 9
*5
1,094,027

3,834,031
74.31
74.31
1,325,561 " ’ 2&69

Shares outstanding.........................

748,481

2,154,567

2,256,544

4,411,111

5,159,592

T otal................................................ .

100.00

Insull Utility Investments {Inc.), ownership of capital stock, preferred and common,
by companies managed by Samuel Insull, August 11, 1931
First se­
$5.50 prior ries pre­ Second se­
ries pre­
preferred
ferred
ferred

Comm on

534
95,626

Shares
722,313
935,432

762,847
1,060,957

18.79
26.14

96,063

96,063

2.37

40,000
Corporation Securities Co. of Chicago........
Stock owned directly or indirectly b y In­
sull U tility Investments (In c.)................
Various employees’ savings funds and in­
vestment corporations owned b y var­
ious companies under Insull manage­
m ent..............................................................

29,899

T otal......................................................
Percentage...................... ............. .................
Stock owned b y the public.........................

31,623
52.71
28,377

40,000
100

60,000

40,000

Shares outstanding.........................

1,724

Total

Per­
centage

41,109

337,307

380,140

9.37

137,269
30.5
312,731

2,091,115
59.6
1,417,705

2,300,007
56.67
1,758,813

43.33

450,000

3,508,820

4,058,820

100.00

56.67

Mr. P e c o r a . Mr. Davis, will you come forward, please?
The C h a i r m a n . Mr. Davis, do you solemnly swear that you will
tell the truth, the whole truth, and nothing but the truth, regarding
the matter now under investigation by the committee, so help you
God?
Mr. D a v i s . I do.



1566

STOCK EXCHANGE PRACTICES

TESTIMONY OF PAUL H. DAVIS, KENILWORTH, ILL.

Mr. P e c o r a . Mr. Davis, will you give your full name, business,
and home addresss, and occupation?
. Mr. D a v i s . Paul H. Davis. My residence is 256 Woodstock
Avenue, Kenilworth, 111.; my business, that of stockbroker.
Mr. P e c o r a . Are you a member of any exchange, Mr. Davis?
Mr. D a v i s . Yes, sir. I am a member of the Chicago Stock Ex­
change.
Mr. P e c o r a . H o w long have you been a member of it ?
Mr. D a v i s . If I remember correctly, since 1919.
Mr. P e c o r a . Are you an officer of that institution at the present
time?
Mr. D a v i s . Yes, sir. I am president of the Chicago Stock Ex­
change at the present time.
Mr. P e c o r a . H ow long have you been president of it?
Mr. D a v i s . Since June, 1931.
Mr. P e c o r a . Did you hold any subordinate office in that institu­
tion prior to your becoming president?
Mr. D a v i s . Yes, sir. Prior to that time, I was vice president of
the Chicago Stock Exchange.
Mr. P e c o r a . For what period of time?
Mr. D a v i s . For two or thrfee years before that time.
Mr. P e c o r a . Have you produced here, in response to a subpoena
served upon you, issued by this committee, the records of the Chicago
Stock Exchange with respect to the listing of the stock of a corporation
called the Insull Utility Investments Co.?
' Mr. D a v i s . Yes, sir.
Mr. P e c o r a . Will you produce those records now?
Mr. D a v i s . First of all, I have here the formal application of
Insull Utility Investments (Inc.), which is dated and sworn to before
a notary on the 11th day of January, 1929.
Mr. P e c o r a . By whom is it signed and sworn to?
Mr. D a v i s . This is signed by Samuel Insull, president, and P. J.
McEnroe, as secretary, and is attested before a notary.
Mr. P e c o r a . May I have it?
Mr. D a v i s . Yes [handing paper to Mr. Pecora].
Mr. P e c o r a . What are the rules, or what were the rules and
requirements of the Chicago Stock Exchange in December, 1928,
with respect to applications for the listing of securities for trading
purposes on its board?
Mr. D a v i s . I have a pamphlet which I would like to introduce,
which I think will give you that information. [Producing pamphlet.]
Mr. P e c o r a . Very well.
Senator F l e t c h e r . What was the purpose of this application?
Is it in the nature of an application to have stock listed?
Mr. D a v i s . Yes. It is the formal application.
Senator F l e t c h e r . Your rules require that?
Mr. D a v i s . Our rules require a formal application, which must be
supported by a number of exhibits, and I have the complete file.
Senator F l e t c h e r . Did you have any hearing on that at all, or
just accept the application?
Mr. D a v i s . We had a hearing on that application; yes, sir.
Mr. P e c o r a . The application produced by the witness I ask to
have spread upon the record.



1567

STOCK EXCHANGE PEACTICES

Mr. D a v i s . May we substitute photostatic copies, which we have?
Mr. P e c o r a . Yes, sir.
(The application referred to is as follows:)
( N o t e .— One copy of the application is attached to the original of the transcript
for printing purposes.)
T

he

C

h ic a g o

a p p l ic a t io n

Stock
to

E xchange

l is t

stocks

1. Name of company: Insull Utility Investments (Inc.).
2 . Date of incorporation: December 27, 1928.

3. Under what laws incorporated: State of Illinois.
4. Nature of business: To acquire, dispose of, underwrite and deal in securities
and to do a general investment business.
5. Duration of charter, franchises, etc.: Perpetual.
6 . Capital stock:
Class I
(а) Brief designation of each
issue.
(б) N um ber of shares author­
ized.
(c) Num ber of shares issued___
(d) N um ber of shares to be
listed under this applica­
tion.
(e) Par value of shares................
(J) Am ount paid in on each
share:
I. In cash.............................
II. In property.....................
III. In services or other­
wise.
(g) Whether fully or partially
paid.
(ft) Whether stock is assessable,
(i) Whether personal liability
attaches to ownership.
(?) Voting power..... ....................
(k) Bate of dividend and
months payable.
<0 Preference as to dividends..
(m) Whether cumulative or
noncumulative.
(m) Preference or other rights
upon distribution of as­
sets.
<o) N um ber of shares unissued,
for what purpose re­
served, and options or
contracts on shares (con­
vertibility) .

Class II

Class III

Prior preferred.............

P referred ...

Common.

250.00 0

250,000..........

3,000,000.

60.000 shares $5.50
prior preferred.

N one______

1,614,200.

W ithout par value___

W ithout par value___

W ithout par value.

(0

(0

N o n e .............................
0)
N one..... .........................
____d o ....... ..................... N o n e ............................

(*
)

(»)

0)

0)

None.

(0

Nonassessable............... Nonassessable.............. Nonassessable.
N o liability attaches.. N o liability attaches.. N o liability attaches.
1 vote for each share... 1 vote for each share... 1 vote for each share.
$5.50 quarterly, Jan. 1,
N ot fixed.
(a)
Apr. 1, July 1, Oct. 1.
Preferred over pre­ Preferred over com ­ None.
mon.
ferred and common.
Cumulative................... Cumulative...................
Preferred over pre­
ferred and common.

Preferred over com ­
mon.

190,000 to be disposed
of as determined by
directors.

210,000 to be disposed
of as determined b y
directors.

300,000 reserved to com­
ply with warrants
attached to prior pre­
ferred stocks; 300,000
reserved to com ply
with warrants at­
tached to deben­
tures; 1,385,800 shares
to be disposed of as
determined b y direc­
tors.

1 Sixty thousand shares of $5.50 prior preferred stock will be issued at once and will be fully paid in cash
at the rate of $100 per share and accrued dividends. Forty thousand shares of preferred stock first series
and 764,000 shares of com m on stock will be issued at once and will be fully paid b y the transfer to the com­
pany of certain securities of the character stated in item 16 of this application, said securities having a
value, as of Dec. 7, 1928, of $9,765,908. (Dec. 7,1928, was the date upon which agreements for the acquisi­
tion of said securities were consummated. The present value of said securities is substantially greater
than said amount of $9,765,908.) T w o hundred and fifty thousand shares of common stock have been
subscribed for at the rate of $12 per share in cash and upon the payment of such sum said shares will be
fully paid. A portion of said shares, however, will be paid for in quarterly installments over a period of
1 year. T w o hundred shares of com m on stock have been issued to the original subscribers and have been
fully paid in cash at the rate of $5 per share.
1929, $2; 1930, $3; 1931, $4; 1932, $5; thereafter, $6. Quarterly, Mar. 1, June 1, Sept. 1, and Dec. 1.




1568

STOCK EXCHANGE PRACTICES

7. Funded indebtedness:
Class 1

Class II

Class III

(a) Brief designation of each issue______ 5 per cent gold deben­
tures, series A .
(b) Date of issue.......................................... Jan. 1, 1929.....................
(c) Interest rate_______________________ 5 per cent____________
(<i) A m o u n t. flnthorir.Bfi
$6,000,000........................
(e) Am ount issued..................................... $6,000,000........................
(f) Date of maturity and where payable. Jan. 1, 1949, Chicago
and N ew York.
(g) Convertibility_____________________ N ot convertible______

8 . Indebtedness or liabilities not reflected in balance sheet, such as leases,
guarantees, contingent liabilities, etc.: None.
9. Fiscal year: End of December annually.
1 0 . Place and date of annual meeting: 72 West Adams Street, Chicago; third
Monday in February.
1 1 . Location of (a) principal office: 72 West Adams Street, Chicago, 111.;
(6) executive offices: 72 West Adams Street, Chicago, 111.
1 2 . Names and residences of officers:
Name

Address

President: Samuel Insull__________________ ____

72 W est Adam s Street_____ ______

Vice president: Martin J, Tnsnll . ,

Vice president: Samuel Insull, jr............................ 122 South M ichigan Avenue...........
Secretary: P . J. M cEnroe.........................- ............ 72 W est Adam s Street____________
Treasurer: P . J. M cEnroe__________ ____ ______ ____ d o ____________________________

C ity
Chicago, IU.
D o.
D o.
D o.
D o.

Other officers: None.
13. Names, residences, and terms of directors:
Name

Residence

T erm expires

Samuel Insull....................................... 72 W est Adams Street, Chicago, HI...................... Until annual stock­
holders’ meeting,
February, 1030.
____ d o _________________________________________
D o.
Samuel Insull, jr.................................. 122 South Michigan Avenue, Chicago, 111______
D o.
P. J. M cEnroe..................................... 72 W est Adams Street, Chicago, 1 1 1 ..................
D o.
John F. Gilchrist__________________ ____ d o _________________________________________
Do.
Louis A . Ferguson________________
D o.
Edward J. D o y l e .._______________
D o.
John H . Gulick_____ _____________ ____ d o _________________________________________
D o.
W alter S. Brewster............................. 112 W est Adams Street, Chicago, 111....................
D o.
Britton I. B udd....... ........................... 72 W est Adams Street, Chicago, HI......................
D o.
George F. Mitchell............................. 122 South Michigan Avenue, Chicago, HI...........
D o.
Marshall E . Sampsell......................... 72 West Adams Street, Chicago, 111......................
D o.
Stuyvesant Peabody.......................... 332 South Michigan Avenue, Chicago, HI...........
D o.
H . L. S tu a rt..____________________ 201 South LaSalle Street, Chicago, 111..................
D o.
W aldo F. T o b e y .................................. 72 West Adams Street, Chicago, 111......................
D o.

14. Name and address of transfer agents: Illinois Merchants Trust Co., 231
South LaSalle Street, Chicago, 111.
15. Name and address of registrars: Central Trust Co. of Illinois, 125 West
Monroe Street, Chicago, 111.
16. Location and description of property and equipment: Stocks, bonds,
debentures, voting trust certificates and participation certificates, etc., of public
utility corporations; located in Chicago, 111.
17. History of company; Newly organized corporation.
18. Constituent companies— Name, description, and how each is controlled:
Insull, Son & Co. (Inc.), an Illinois corporation organized to acquire, own, and
dispose of and to deal generally in stocks, bonds, debentures and other obligations




STOCK EXCHANGE PRACTICES

1569

and securities, all of the stock of which company, except directors’ qualifying
shares, is owned by Insull Utility Investments (Inc.).
19. Supplementary information not included above: There is attached to each
certificate for shares of said $5.50 prior preferred stock a nondetachable common
stock purchase warrant entitling the stockholder named in the certificate to pur­
chase from the company for each share represented by such certificate, 5 shares
of common stock of the company at the price of $15 per share upon surrender of
the certificate before June 30, 1929; or 4 shares of common stock of the company
at the price of $20, per share upon the surrender of the certificate after June 30,
1929, and before January 1, 1930; or 3 shares of common stock of the company
at the price of $25 per share upon the surrender of the certificate after December
31,1929, and before July 1, 1930.
20. Depreciation policy: None.
AGREEM ENTS

The above-named company does hereby agree:
(1) Not to dispose of an integral asset, nor its stock interest in any constituent,
subsidiary, owned or controlled company, except in the regular course of business,
or allow any of said constituent, subsidiary, owned or controlled companies to
dispose of an integral asset or stock interest in other companies, except in the
regular course of business, without notice to the Chicago Stock Exchange.
(2) To publish once in each year and submit to the stockholders and the Chi­
cago Stock Exchange, a statement of its financial condition, a consolidated income
account covering the previous fiscal year, a consolidated balance sheet showing
assets and liabilities at the end of the year, or an income account and balance
sheet of the parent company and of all constituent, subsidiary, owned or con­
trolled companies.
(3) To maintain, in the city of Chicago, within the vicinity of the exchange a
transfer office or agency (which may be the company), where all listed securities
shall be directly transferable.
(4) Also to maintain, in the city of Chicago, within the vicinity of the exchange
a registry office, not identical with the transfer office, where all listed securities
shall be registered and which shall be a responsible bank or trust company satis­
factory to the committee on stock list.
(5) In case it makes transfers of its shares in other cities as well as in Chicago,
all certificates of stock shall be interchangeably transferable and bear a legend
reciting the right of transfer in Chicago and other cities. All such certificates
shall be identical in color and form, except as to names of transfer agent and
registrar, and the combined amounts of stocks registered in all such cities shall
at no time exceed the amount authorized to be listed.
(6 ) To give the Chicago Stock Exchange at least 15 days' notice of any proposed
increase in the authorized or outstanding capital stock of the corporation and
forthwith to apply for the listing thereof, if the original issue of the same class
of stock has previously been listed.
(7) Not to make any change without the approval of the committee on stock
list: (a) In listed securities, (b) of a transfer agency, (c) of a registrar of its
stock.
(8 ) To notify the Chicago Stock Exchange in the event of the issuance or
creation in any form or manner of any rights to subscribe to or to be allotted its
securities, or of any other rights or benefits pertaining to ownership in its securi­
ties, so as to afford the holders of its securities a proper period within which to
record their interests and so that all rights to subscribe or to receive allotments
and all other such rights and benefits shall be transferable, and shall be trans­
ferable and deliverable in the city of Chicago.
(9) T o publish promptly to holders of stocks any action in respect to dividends
on shares, or allotment of rights for subscription to securities, notice thereof to
be sent to the stock exchange, and to give the Chicago Stock Exchange at least
1 0 days’ notice in advance of the closing of the transfer books or extensions, or
of the time of the taking of a record of holders for any purpose.
(10) To furnish to the Chicago Stock Exchange, at any time, on demand, such
reasonable information concerning the company or its condition, as may be
required.
( 1 1 ) To have on hand at all times a sufficient supply of certificates to meet the
demands for transfer.
The above-named company hereby applies to have the stocks mentioned above
listed on the Chicago Stock Exchange, and the undersigned hereby certify that

119852—33—FT 5------12



1570

STOCK EXCHANGE PEACTICES

the answers given by them above and in the papers hereto annexed or referred
to, are true at the best of their knowledge and belief.
[c o m p a n y ’ s s e a l .]

Sa m u e l I n s u l l ,

President.
P. J. M c E n r o e ,
Secretary.
Approved.
W allace

C. W

in t e r ,

Chairman.
W . A. L a m s o n ,
L e e d s M it c h e l l ,
M . J. O ’ B b y a n ,
R o b e r t J. F is c h e r ,

Committee on Stock List.
State of Illinois
County of C ook / '
On the 11th day of January, 1929, personally appeared before me, Samuel
Insull, and P. J. McEnroe, and severally made oath that they are respectively,
president and secretary of the above-named company, and that the foregoing
statement by them subscribed is true.
In witness whereof, I have hereunto set my hand and affixed my official seal,
the day and year first above written.
C harles L. Sheppard,

Notary Public.

Mr. P e c o r a . Mr. Davis, will you please tell the committee the
procedure followed by the Chicago Stock Exchange upon receipt of
an application for the listing of securities?
Mr. D a v i s . Upon receipt of an application, the application, o f
course, goes to the secretary of the stock exchange. It is then
referred by the s e c r e t a r y of the stock exchange to an examiner, w h o
checks through the application to make certain that all the require­
ments are met and all exhibits are attached to the application.
Mr. P ecora . Is that examiner a certified public accountant?
Mr. D a v i s . He is n o t.

Mr. P e c o r a . Go ahead.
Mr. D a v i s . The examiner then checks over, first, all the formal
part of the application, to make sure we have all the supporting
exhibits, which are outlined as required in that application. The
matter then is referred to the listing committee. If you will notice
on the last page, a representative of the corporation making the
application is authorized by the corporation to appear on behalf of
the corporation.
Mr. P e c o r a . Do you know who appeared on behalf of the Insull
Utility Investments (Inc.), in connection with its application to list
its shares on your board?
Mr. D a v i s . T o my best knowledge, Mr. Samuel Insull, jr., ap­
peared; Mr. Cyrus Adams, an attorney; and Mr. Tobey, who is also
an attorney.
Mr. P e c o r a . Mr. Samuel Insull, jr., appeared with two attorneys,
is that it?
Mr. D a v i s . Appeared with two attorneys.
Mr. P e c o r a . Were you a member of the committee on stock list
of your exchange at that time?
Mr. D a v i s . Yes, sir. I did not, however, attend that meeting
of the stock list committee.
Mr. P e c o r a . D o you know what members o f your committee
attended that meeting or hearing?
Mr. D a v i s . Yes.



STOCK EXCHANGE PEACTICES

1571

Mr. P e c o r a . Who?
Mr. D a v i s . The application was approved by the following mem­
bers of the committee: Mr. Wallace E. Winter, chairman; Mr. W. A.
Lamson; Mr. Leeds Mitchell; Mr. M. J. O’Brien; and Mr. Robert J.
Fisher.
Mr. P e c o r a . Was a record, stenographic or otherwise, made of the
proceedings at that hearing?
Mr. D a v i s . Yes, sir.
Mr. P e c o r a . Have you the transcript of that record?
Mr. D a v i s . Yes, sir; I have.
Mr. P e c o r a . Will you produce it, please?
Mr. D a v i s . Records are not always kept of all hearings, depending
upon the nature of the hearing. In this particular case, a transcript
was kept of the hearing, and I have that here [producing paper].
In addition to the members present, Mr. Charles T. Atkinson, who
was then secretary of the stock exchange, acted as secretary of the
committee; and Mr. Clark J. W. Colby, who was assistant secretary,
acted in this application in the capacity of examiner. I have there the
transcript [producing a document].
Mr. P e c o r a . This is a rather voluminous record. I do not want
to take the time of the committee in public session to familiarize
myself with it, but do you expect to be here for further examination,
after I get through to-day with you?
Mr. D a v i s . If you wish; yes, sir.
Mr. P e c o r a . Mr. Davis, pending our reading of the transcript
you have furnished us with of the proceedings or hearing before your
stock list committee, let me ask you if you noticed in the application
for the listing of the stock that it was set forth that 250,000 shares
of the common stock had been subscribed for at the rate of $12 per
share in cash? Did you notice that?
Mr. D a v i s . Yes, sir. That is a part of the application.
Mr. P e c o r a . A part of the application. There is a reference in
the application to the proposed issuance of 40,000 shares of preferred
stock, first series, and 764,000 shares of common stock, for a con­
sideration of $9,765,908. Do you observe that?
Mr. D a v i s . Yes, sir.
Mr. P e c o r a . Do you observe that the price at which the 764,000
shares of common stock referred to there was to be issued is not
mentioned?
Mr. D a v i s . It is not mentioned, and, of course, that is one of the
reasons why, in certain instances, we have these rather lengthy hear­
ings that you spoke about there. The purpose of that hearing
is to elucidate matters that are referred to in the application which
are not made clear. You will find in that transcript a reference made
to that point.
Mr. P e c o r a . Without my taking the time now to go through
that transcript which is quite voluminous, I will ask you if you can
inform the committee whether, at the hearing held upon this applica­
tion, it was brought out that these 764,000 shares of common stock
were to be issued at a price cost of $7.54 a share to Mr. Samuel Insull?
Mr. D a v i s . It is referred to there in that transcript as being at a
price of something over $7.50 a share.




1 572

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . The application to list this stock was received on.
January 11.
Mr. D a v i s . I am not certain as to when it was received. It was
received at some time on or before the 15th.
Mr. P e c o r a . On the 15th of January a hearing was held on the
application.
Mr. D a v i s . That was the day of the meeting of the list committee,
so it must have been received some time before that.
Mr. P e c o r a . Was the stock admitted to the floor?
Mr. D a v i s . No. The stock list committee met for the consider­
ation of this application and others on the 15th.
Mr. P e c o r a . Was it then admitted to your list?
Mr. D a v i s . It was not. It was approved—the application was
then approved by the stock list committee— and was referred to the
meeting of the governing committee which took place the following
day.
Mr. P e c o r a . When was the stock permitted to be listed on this
application?
Mr. D a v i s . The stock was listed for trading at the opening of the
market, or after the opening of the market, on the‘17th.
Mr. P e c o r a . The 17th of January.
Mr. D a v i s . The 17th of January.
Mr. P e c o r a . That is, two days after the hearing was held by the
stock list committee of the exchange?
Mr. D a v i s . Yes, sir.
Mr. P e c o r a . D o you know at what price trading on it opened on
the 17th of January, 1929?
Mr. D a v i s . I have a record here of that. The records which are
compiled from the tape records of the transactions are compiled by
our clerical force. The record shows that on the 17th day of January
there were a total of 4,150 shares traded in, and the market that day
was 30 for each transaction, so obviously the stock opened at $30 a
share.
Mr. P e c o r a . H o w many sales were recorded in the stock on the
opening day?
Mr. D a v i s . There was a total volume of 4,150 shares.
Mr. P e c o r a . I know that, but how many sales or transactions
does that volume represent?
Mr. D a v i s . I c a n n o t g iv e y o u th a t.
Mr. P e c o r a . Y ou h a v e n o t g o t th a t?
Mr. D a v i s . I have not got the number of transactions.
Mr. P e c o r a . Does not your exchange keep records of each trans­
action cleared on its floor?
Mr. D a v i s . We keep a daily quotation sheet, which is taken from
the tape record.
Mr. P e c o r a . Do you not also keep records of the transactions?
Mr. D a v i s . Of each individual transaction?
Mr. P e c o r a . Yes.
M r. D a v is . N o.
Mr. P e c o r a . Whatever

transactions occurred, they were all at a
price of $30 a share?
Mr. D a v i s . They were all at a price of $30 a share.




STOCK EXCHANGE PRACTICES

1573

Mr. P ecora . What was the range of prices of the second day’s
trading in the common stock of this company?
Mr. D a vis . On the second day there were 16,950 shares—and that
is a round figure, because we do not count the odd lots in those figures.
The low was 33){. The high was 40, and the close was 40, so it had
a range of from 33){to 40 on the second day of trading.
Mr. P ecora . The second day’s trading amounted to some 16,000
shares?
Mr. D a vis . Sixteen thousand nine hundred and fifty shares. That
is a round figure.
Mr. P ecora . Do your records show who made those transactions,
who participated in them, either on the first day or the second day?
Mr. D avis . The records of the stock exchange would not show
that; no.
Mr. P ecora . In view of the fact that the application to list this
common stock showed to the authorities of your exchange that
764,000 shares of the common stock were to be issued or had been
issued at a price of $7.54 a share, and that 250,000 other shares of the
same common stock were to be issued, or had been issued at $12 a
■share, did any of the authorities or officers of your stock exchange take
any action when they noticed that on the first day’s trading, two
days after the hearing on this application, the stock opened at $30
a share, and on the second day the trades were within a range of prices
from $33.50 low to $40 high?
Mr. D a vis . N o, sir; and I do not think it is the function of the
stock exchange to take any action, because the stock exchange does
not make any sales. It does not itself buy or sell stock, or fix a price.
It furnishes a place where stocks can be dealt in.
Mr. P ecora . It furnishes a medium for dealing in stocks by trans­
actions of buying and selling?
Mr. D avis . Yes, sir.
Mr. P ecora . And without that medium, such transactions would
be much more limited and exceedingly difficult of accomplishment,
isn’t that so?
Mr. D a vis . It undoubtedly facilitates trading; yes, sir.
Mr. P ecora . In view of the fact that the facilities afforded by the
stock exchange are of that character, and serve those purposes, don’t
you think that it is the function of the stock exchange to pay some
attention to such elements as I have brought to your notice here in
the case of the Insull Utility Investments Co. stock?
Mr. D a vis . The price of any stock at any time is, of course, made
by the balance between the buying orders and the selling orders.
Mr. P ecora . Is not the price also made frequently by manipula­
tions of those trades in the market?
Mr. D a v is . That, I do not know.
Mr. P ecora . How long have you been a stock broker—since 1919?
Mr. D a vis . 1919, and before that.
Mr. P ecora . Do you profess absolute ignorance of that, Mr. Davis?
Mr. D avis . No. That was not the answer I gave you.
Mr. P ecora . Y ou said you did not know.
Mr. D avis . I do not know of any instances.
Mr. P ecora . Y ou never heard of that having been done?
Mr. D a v is . I have heard of it being done, yes; but if you ask me
for an instance of it, I could not give you one.



1574

STOCK EXCHANGE PRACTICES

Mr. P ecora . Did you ever hear of wash sales of securities through
the medium of a stock exchange?
Mr. D a v is . Yes; but we have none on our exchange.
Mr. P ecora . But you have heard the term?
Mr. D a v is . I have heard the term; yes.
Mr. P ecora . What do you understand by the term? What
kind of a transaction does that term convey to your mind?
Mr. D a v is . A transaction where there is no change in ownership.
Mr. P ecora . That is, where there is no real buying or selling
which involves a transfer of ownership of the security that is the
subject of the trade; is that right?
Mr. D a v is . Yes, sir.
Mr. P ecora . And you know it is against the law to indulge in
wash sales in some States?
Mr. D avis . Yes, sir. I understand it is against the law in the
State of Illinois.
Mr. P ecora . What steps are taken, if any, by your exchange, to
see to it that the law is not violated? Can you tell us?
Mr. D a vis . We have a very definite rule pertaining to that.
Mr. P ecora . Apart from rules, what do you do to see that that
rule, or the State law, is not violated; can you tell us?
Mr. D avis . We have a business conduct committee, one of whose
functions is to watch out for just such violations, if there were any.
Mr. P ecora . Did you ever ascertain, or do you know of any
instance, where your business conduct committee brought to light
such a violation? [The witness turned to confer with an associate.]
No; I am asking you, Mr. Davis; not the gentleman sitting behind
you.
Mr. D avis . May I refer to records we have had of the cases on
that?
Mr. P ecora . Can you not tell me from recollection? You are the
president of the exchange. You have been a member for 14 years.
Can you not tell me from recollection?
Mr. D avis . There have been no cases of this kind while I have been
president of the exchange.
Mr. P ecora . During the 14 years of your membership on your
board, have you heard of the business conduct committee of your
institution bringing to light any such case of wash sales?
Mr. D a vis . There is one case that I would like to refer to the file
on, that took place several years ago. If I may look at my file on
that—I am not sure whether the technical point was wash sales, or
not. I want to be absolutely sure of that.
Mr. P ecora . With the exception of that one possible case, can you
recall any other?
Mr. D avis . I can recall no other. I am not certain that was that
sort of a case.
Mr. P ecora . Mr. Davis, would that indicate to you that during
the last 14 years there have been no wash-sales transactions indulged
in in your institution?
Mr. D a vis . I think that the members of our exchange are very
well informed with regard to the rule of the exchange and also the
State law pertaining to that.
Mr. P ecora . No; what I want to know is, how well informed the
officers of your exchange are with respect to any violations of that
rule and of that State law.



STOCK EXCHANGE PRACTICES

1575

Mr. D a vis . I am sure if there had been any violations, they would
have been brought to our attention, or the business conduct com­
mittee would have found out about that, and would have proceeded
against these and would have taken care of any violations, had there
been any.
Mr. P ecora . H ow would a wash sale be effected, Mr. Davis?
Mr. D a vis . I have never had any personal experience with wash
sales, so I would not know that.
Mr. P ecora . I do not mean to imply, of course, that you could
tell me from personal experience, but from your knowledge of opera­
tions and methods of transacting trades and business on the floor of
the exchange, could you tell me how a wash sale could be effected?
That is, by what mechanics it could be effected?
Mr. D a vis . A wash sale would, of course, have to be where a
man sells something to himself.
Mr. P ecora . H ow could he do that?
Mr. D a vis . I do not see how he could do it, under the rules of the
exchange.
Mr. P ecora . H ow could he do it in violation of the rules of the
exchange, or by evading or getting around the rules of the exchange?
Mr. D a vis . I do not believe I could answer that. I am not trying
to evade the question.
Mr. P ecora . Could he do it by giving a buying order to one
broker, and giving a selling order, in the same security and for the
same amount, and for the same price, to another broker?
Mr. D a vis . I am not certain that that would result in a wash
transaction, particularly if the stock—if you had an active market
in the stock, it might or might not result in a wash transaction, be­
cause if he gave the order to buy to one broker, that broker would be
buying as against all the stock offered for sale, and if he gave another
order to sell stock, in turn, that would be offered to any buyer who
would want to buy it.
Mr. P ecora . You do not mean, Mr. Davis, to tell the committee
that it is physically impossible for wash sales to be consummated
through the facilities of your exchange by any of its members?
Mr. D avis . It would certainly take collusion of two members to
do it, would it not?
Mr. P ecora . Probably. Well, it could be done, assuming that
two or more members wanted to violate the rule?
Mr. D a vis . Yes.
Mr. P ecora . What would be the physical process by which they
could violate it?
Mr. D a vis . There would have to be collusion between two members.
Mr. P ecora . Assuming it would be by collusion, what would be
the mechanics of the operation?
Mr. D a vis . I think you have outlined what would happen.
Mr. P e c o r a . Y ou outline it. You can probably do it better.
Mr. D avis . I am not certain that that would result in a wash sale.
Mr. P ecora . What kind of transactions would result in a wash
sale, as a wash sale is defined and prohibited by the rulings of your
exchange?
Mr. D a vis . If a man were to buy and sell on the exchange with no'
change of ownership.




1576

STOCK EXCHANGE PRACTICES

Mr. P ecora . H ow could that be effected? What would be the
mechanical steps or process by which that could be effected?
Mr. D avis . If a man himself, a broker, were to offer stock for sale,
and buy it for his own account—he might do it a few times, but the
stock exchange has auditors who audit the books of its members and
those transactions would be discovered.
Mr. P ecora . It could easily be done by collusion between two or
more brokers, could it not, executing, buying, and selling orders for
the same customer?

Mr. D avis. My impression is that would be detected.
Mr. P e c o r a . I mean, it could be done that way.
Mr. D avis. Yes; by collusion, it could be done.
Senator F letcher . H ow many members have you?
Mr. D a v is . We have at the present time about 390 members.
Senator F letcher . Have they decreased in number in the last few
years?
Mr. D avis . Originally we had 235 members. Then the member­
ship was doubled to a total of 470 memberships, the old members
each holding two memberships, Senator. Many of our members
have sold their dividend membership, so-called, so that I think our
total membership has materially increased in the last few years.
Mr. P ecora . Mr. Davis, take, for instance, the action of the list­
ing and the opening trades in the stock of Insull Utility Investments
(Inc.). When a stock is first listed and traded upon, it is usual for
somebody to make the market for the stock in its opening trades,
is it not?
Mr. D a vis . Someone watches the market, acting as a specialist
or acting as a broker, to be particularly interested in that security;
yes, sir.
Mr. P ecora . The market would be made by those having an
existing interest in the stock?
Mr. D a v is . That is usually the case.
Mr. P ecora . So that if, on January 17, 1929, which was the open­
ing day of the trading in the common stock on your exchange of
the Insull Utility Investments (Inc.), the only persons to whom stock
had actually been issued by that corporation were Samuel Insull
and other individuals connected with Ins family and Halsey, Stuart
& Co., they would be the persons interested in making the market.
Is that a fair assumption?
Mr. D a v is . They might be; yes.
Mr. P ecora . When a market was made, as indicated by the
opening of $30 a share for this stock, would not that price be re­
garded as considerably out of line with the value of the stock, as
such value was indicated by the listing application, which set forth,
among other things, that 764,000 shares of that stock had been or
were to be sold or issued to Samuel Insull for $7.54 a share, and
another 250,000 shares had been or were to be issued at a price of
$12 a share?
Mr. D a vis. Of course, the value was placed on the security by
the people who wanted to either buy or sell. As a matter of fact, on
the mornng when that stock opened, I personally was not on the
floor. I have checked this up, however. At the time of the opening
of this stock, or when it was to be opened, there were no selling orders




STOCK EXCHANGE PRACTICES

1577

at all. Every order that was on the floor, so I am told by associates
on the floor, was to buy the stock.
Mr. P ecora . At what price? At $30?
Mr. D a v is . At the market.
Mr. P ecora . The market was made by those who gave the only
orders, was it not?
Mr. D a v is . There was no opening. The stock could not be opened
at first, because there were only buying orders. It was necessary,
therefore, to find stock for sale.
Mr. P ecora . That stock appeared in the course of the day’s
trading, did it not?
Mr. D a v is . I am told that after some difficulty, that is, a lot of
telephoning to find selling orders, selling orders were secured to sell
the stock at $30 a share.
Mr. P ecora . Do you know where those selling orders came from?
Mr. D avis . I do not know the names of the people who sold.
Mr. P ecora . I s there any record of them in the files of your
exchange?
Mr. D avis . The clearing-house records would show how the sales
were cleared at the end of the day, but I do not believe there is a
record of the actual transactions of who bought and sold.
Mr. P ecora . Have you the clearing-house record of the first day’s
trading in this stock?
Mr. D a vis . Yes.
Mr. P ecora . Are they still in existence?
Mr. D avis . Yes. That is a separate institution, though, from the
stock exchange.
Mr. P ecora . That institution is more or less under the control of
the stock exchange, is it not?
Mr. D avis . Yes, it is; but I did not bring those records with me.
May I say one word more about the opening, because I looked into
that rather carefully?
Mr. P ecora . All right, sir.
Mr. D avis . I was told that the stock for the opening was obtained
from people who had bought the debentures that were listed at the
same time. In other words, each debenture, as I recall, carried the
right to buy 50 shares of common stock for each $1,000 of debenture,
so that as the debentures were being sold, certain people who were not
connected directly with the company, these people that you referred
to, were given the right to buy blocks of common stock, and they, in
turn, were possible sellers of the securities on that first day.
Mr. P ecora . Did you ascertain, from your clearing-house records,
whether they were or not?
Mr. D a vis . The records would not show that, anyway, because
they would show merely the names of the brokers.
Mr. P ecora . Was there any specialist on this stock?
Mr. D a vis . I can not say as to the opening day.
Mr. P ecora . At any time since the opening day?
Mr. D a vis . There have been a number of people that have special­
ized in it from time to time. A specialist does not necessarily stay a
specialist in the same security for any length of time.
Mr. P ecora . Do you know who the first specialist was in this
stock, say, in the year 1929?
Mr. D a vis . I do not.



1578

STOCK EXCHANGE PEACTICES

Mr. P ecora . Could you find out for us? Have you got the name,
Mr. Halsted?
Mr. H alsted . I do not think we had a specialist in existence at
that time.
Mr. D av is . May 23,1929, Mr. John E. Wheeler, of Moses, Wheeler
& Scheinman, was appointed a specialist.
Senator F letcher . Are Halsey, Stuart & Co. members, or are any
of their firm members of your stock exchange?
Mr. D a vis . Mr. Stuart is a member of the Chicago Stock Exchange.
Mr. P ecora . Which Mr. Stuart is that?
Mr. D a vis . Mr. H. L. Stuart. But I might say in that connection
that the rules of the stock exchange provide that a member of a cor­
poration dealing with the public in securities can not be a member of
our stock exchange. That rule was put into effect a number of
years ago, but it was not made-----Mr. P ecora . It is not rigidly enforced?
Mr. D a v is . Yes, it is; but it was not made retroactive, and at
the time that rule was put into effect, we had several men who were
then connected with corporations, and by a gentlemen's agreement,
we will say—one or two of those men were high officials in our banks
in Chicago-—they have never used their privileges as members of the
stock exchange so far as I know, and I am quite certain on this point.
Mr. Stuart has never used his privilege on the stock exchange.
Mr. P ecora . Mr. Davis, will you tell us whether or not the listing
applications which your exchange requires to be filed with it are
designed, among other things, to get information under oath con­
cerning the capital structure of the corporation which desires to have
its securities admitted for trading?
M r . D a v i s . Yes, sir; and the exhibits, too, that accompany that
application are also of equal importance. By that I refer to the
opinions of counsel and the copies of the articles of incorporation, and
the certification by the public accountants.
Mr. P ecora . In other words, the listing application is designed to
convey enough information so as to enable the exchange authorities
to appraise the value of the securities that are to be admitted by the
■exchange for trading purposes?
Mr. D a v is . N o, sir. The purpose of the listing application is to
furnish information, complete information concerning the company,
which information can be available to the investors by way of the
members of the stock exchange. The stock exchange makes no
effort to estimate values of a company.
Mr. P ecora . No; I do not say the stock exchange itself makes any
off ort to estimate values, but the information it requires of applicants
for listing is of a character that would enable one examining the
application form to learn something about the real value?
Mr. D avis . Yes, sir.
Mr. P ecora . T o whom are these applications made available after
they have been favorably acted upon by the exchange?
Mr. D av is . First of all, these applications, and all the information
■contained, all the correlary information, are available to any Gov­
ernment agency.
Mr. P ecora . Governments agencies are not buying and selling
securities.




STOCK EXCHANGE PRACTICES

1579

Mr. D avis . But they want information. The blue sky com­
missions drop in to see us. In addition to that, of course, all this in­
formation is available to any member of the stock exchange, and,
through him, is available to any customer who buys or sells stocks or
other securities through that broker.
Mr. P e c o r a . I s it made directly available to anyone among the
investing public desiring such information?
Mr. D a v is . I do not know of any case where an individual that had
a reason for looking at this, coming in as an individual, has been
refused access to it.
Mr. P ecora . H ow many persons have sought that who were not
members of the exchange, or were not Government officials of some
kind or other, as a matter of actual practice?
Mr. D avis . May I ask the secretary of the exchange that, because
the inquiry would come to him in that connection?
Mr. P ecora . All right.
Mr. D avis (after conferring with an associate). Up until the last
year or two, we have been very open about all this information. It
has been thrown wide open to the public, as they care to come in.
During the last year, we have made it a little harder to get, because
of various people searching for information for nuisance suits, and
we have requested them to get it through the regular channels, which
would be through some regular broker.
Mr. P ecora . H ow long have you been president of the Chicago
Stock Exchange?
Mr. D avis . Since June, 1931.
Mr. P ecora . During your presidency, do you know, from personal
knowledge, to what extent individuals among the investing public
have sought to avail themselves of any facilities that you say your
institution would offer, to examine these applications?
Mr. D avis . Those inquiries would not come to me, except in the
case of my personal friends, and I have had a number of them ask
me for information from these applications, which I have furnished
to them. A casual person—and by a casual person, I mean some one
who is not personally known to one of us—would go direct to the
secretary’s office for this information, and we, of course, have many
inquiries that come by way of the members.
Mr. P ecora . I am not speaking now of the rights of members
I am asking you about the rights or privileges accorded to individualnot members, and not public officials, to examine these listing appli
cations upon their mere request.
Mr. D a v is . A s I say, I do not know of any case where information
has been refused to anyone who had a reason for knowing about it.
Mr. P ecora . What would be considered a reason which would
actuate the exchange in making available these application lists to
one of the investing public?
Mr. D a vis . If a man wanted to buy or sell the security, that would
be a reason.
Senator F letcher . H ow were these debentures listed on the
17th of January?
Mr. D avis . They were listed on the 17th—that is, they were
listed for trading on the 17th.
Senator F letcher . The debentures?
Mr. D avis . Yes.



1580

STOCK EXCHANGE PEACTICES

Senator F letcher . H ow were they traded in on the 17th—at what
prices?
Mr. D avis . That I do not know, because most of the bonds that
have been listed on our exchange have not had active markets on our
exchange.
Senator F letcher . These bonds evidently were being traded in,
because they were the basis of sales of stock, as you state now.
Mr. D avis . That is correct.
Senator F letcher . Could you give us an idea of what trades
were shown as to the debentures on the opening day?
Mr. D avis . I am very sorry that I have no information available
here. There is no reason except that the subpoena did not cover that
point, and I did not bring it down. But most of the activity in
connection with bonds at that time would have been not on the ex­
change in any event.
Mr. P ecora . Mr. Davis, how many instances do you personally
know of during the 14 years you have been connected with the ex­
change where one not a member of the exchange and not a govern­
mental officer was permitted to examine a listing application? D o
you know actually of any?
Mr. D avis . Yes.
Mr. P ecora . H ow many?
Mr. D avis . I do not know. But a number of them.
Mr. P ecora . A small number?
Mr. D avis . Y ou see, I would not have a way of knowing that
unless some one had inquired of me about a security, and I would say,
“ Go over to the exchange and see the listing/’ and they would go.
Mr. P ecora . H ow many instances have you any knowledge of
that kind?
Mr. D avis . I would not venture a guess.
Mr. P ecora . As many as 10?
Mr. D avis . Yes.
Mr. P ecora . Over the whole 14 years?
Mr. D avis . Yes. But I would not even want to venture a state­

ment because it would be simply a guess.
Mr. P ecora . When you say a number of them, how many do- you
mean?
Mr. D avis . That I do not know. I have never given any thought
to it, and I have not tried to remember. But I know the underlying
theory of it, that any one who wished to know about these things had
ready access to them if they had a reason for knowing it.
Mr. P ecora . Who passes on their right or the legitimacy of their
reason for looking at these applications?
Mr. D a v is . The secretary’s office would pass on that.
Mr. P ecora . The secretary’s office. Do you mean the secretary
himself?
Mr. D av is . Yes; or one of his assistants. But if any one wants
to buy or sell anything on the stock exchange he must necessarily
do it through a member of our exchange, and if he is interested enough
to buy or sell stock and cares to ask the broker who is a member o f
the exchange to get the information for him, the broker has completeaccess to the whole file. And therefore in turn, have the public.
Mr. P ecora . We know that the broker has access to it, but I am
talking about the direct access of the investing public. Not the access


STOCK EXCHANGE PRACTICES

1581

of any broker who is a member. Now Mr. Davis, do you know of any
instance where your institution has taken the stock from its trading
list because of operations in it that caused sales to be made at prices
far in excess of the true value of the security?
Mr. D a v is . I do not think I know of any case, because I do not
think that the stock exchange would undertake, and I do not think it
is its function, providing there is a free and open market in the stock—
I do not think it is its function to say what is the price at which the
stock should be traded in.
Mr. P ecora . Well, how could a free and open market be restrained
or limited or prevented?
Mr. D a v is . Well, the conventional way would be the corner
where somebody buys up all the stock there is outstanding.
Mr. P ecora . That is only one way, is it not?
Mr. D a vis . That is only one way.
Mr. P ecora . What are the other ways?
Mr. D a v is . I personally have had no experience with any-----Mr. P ecora . I mean, from general knowledge as distinguished
from personal experience.
Mr. D a v is . I do not believe I could answer that without looking
up and seeing how it can be done, because I have never had any
experience along that line.
Mr. P ecora . Well, where stock has been manipulated for the pur­
pose of effecting a corner; what action would betaken by the exchange
in such cases?
Mr. D avis . I do not believe I could answer that without all of the
facts pertaining to it, because I have never had any experience with a
cornered market.
Mr. P ecora . D o you not know from your knowledge of the rules
and regulations of the stock exchange what its officers would do in
such a case?
Mr. D a v is . I think I would have to know all the circumstances
pertaining to it.
Mr. P ecora . Well, what circumstances would have to present
themselves to you to justify striking an issue from its trading list?
Mr. D a v is . Well, one of the ways— this happens very frequently
where an issue of stock will be retired—a preferred issue will be re­
tired, and it will finally get down to the point where there is not
enough stock outstanding to warrant a public market, in which case
the stock is taken from the list.
Mr. P ecora . Any other circumstances?
Mr. D avis . If the companies do not comply with the points of the
contract set forth on the back of the application.
Mr. P ecora . Are there any other circumstances based upon
methods of trading?
Mr. D a vis . I can not think of any point that has come up, and I
would not want to try to guess as to a theoretical reason.
Mr. P ecora . Do you not think it is legitimately a function of the
exchange to take whatever action might be within its power in its
supervision of the conduct of its members, to prevent buying and
selling operations that would serve to advance or depress the price of
a security to an extent that would make that price out of line with
the actual value of the security?



1582

STOCK EXCHANGE PRACTICES

Mr. D a vis . Well, that again conies back to the point of the stock
exchange attempting to say what securities are worth.
Mr. P ecora . Does the stock exchange completely ignore that ele­
ment in admitting and permitting trades on issues?
Mr. D a v is . When there is a broad market for securities and a
large volume of stock being bought and sold and a general participa­
tion on the part of the public, certainly the public makes the price
rather than any institution.
Mr. P ecora . Well, that does not answer my question. I ask you
if the stock exchange completely ignores the element of trading result­
ing either in an inflation or deflation of the price at which the security
is sold at a figure out of line with its real value. Does it completely
ignore that element?
Mr. D avis . I do not know how to answer that question, because it
is a theoretical question. If you give me a practical case in point I
will try to answer.
Mr. P ecora . Well, I will let you from your knowledge and experi­
ence furnish the basis of the application of such a power or the exer­
cise of such a power by the exchange.
Mr. D a vis . Well, I do not believe I could get what is in your
mind and make the proper case.
Mr. P ecora . Well, what is in my mind simply is this, to find out
from you, from the standpoint of your experience as a broker and as
president of the Chicago Stock Exchange, whether or not the exchange
as an institution having control over the conduct of its members
ignores completely any trading the result of which might be to raise
the price or depress the price at which a given security is traded in,
to a figure that is completely out of line with the actual value of the
security.
Mr. D a vis . The stock exchange would be interested in any methods
that are contrary to its rules. The price, I think, would be entirely
a matter of—I do not believe the price is a thing that would influence
the stock exchange. I think it would be a matter of the methods that
were used.
Mr. P ecora . So that if with a method that you considered in
keeping with its rules and regulations a result were to be attained
where a stock would be traded in so as to produce a figure way above
the true value of the stock, then the exchange would do nothing
about it?
Mr. D a vis . Well, I do not know how you are going to say what the
true value is.
Mr. P ecora . By inquiring, would be one way?
Mr. D a vis . The stock exchange itself then would have to say
what was high and what was low, which it can not.
Mr. P ecora . Well, how would you ascertain, say, attempt to
ascertain the true value of the security? If you wanted to ascertain
its true value?
IVfr. D avis . There are too many factors there. It would depend on
the particular security.
Mr. P ecora . Well, you could find out; you could make an inquiry
that would enable you to ascertain generally, at least, the value
of a particular security if you saw fit, could you not?
Mr. D a vis . Any two or three people might with equal facility and
with the same facts analyze the company and one would think the



STOCK EXCHANGE PRACTICES

1583

price was high and the other would think it was low. That is what
makes buying and selling all day long where there is a market.
Mr. P ecora . And where the buying and selling is indulged in by
members of a pool operating in that stock you would not call those
operations as operations in a free and unrestrained market, would
you, that would tend to fix values?
Mr. D avis . Well, I suppose whether or not, would depend on the
purpose of the pool.
Mr. P ecora . Well, if the purpose of the pool were to advance the
price of a stock or to lower the price of a stock?
Mr. D a vis . I think it would depend upon the method in which
the brokers execute the orders, the buying and selling orders.
Mr. P ecora . Well, they can only execute them by executing what­
ever orders they receive either to buy or to sell, can they not?
Mr. D a vis . That is right.
Mr. P ecora . That process is very simple?
Mr. D a vis . That process is very simple.
Mr. P ecora . The mechanics is very simple?
Mr. D avis . The mechanics is very simple.
Mr. P ecora . It is simply a question of the agreement or intent or
purpose on the part of those organizing a pool or syndicate to operate
in a certain stock?
Mr. D av is . It is a matter of intent.
Mr. P ecora . Yes, and that intent can often be ascertained or
inferred from a scrutiny of the exchange operations or tradings in
the stock, can it not?
Mr. D avis . That I am not sure.
Mr. P ecora . Would not such an intent be manifested frequently
by a series of trades that would bring the price of a stock up to a
figure way beyond its true value?
Mr. D avis . Well, of course you have got other factors there.
Any individual or group or pool or syndicate buying—if they are
interested in having a stock go up they have got to buy all the stock
that is offered for sale, and very often there is more stock offered for
sale than any individual buys and the market goes the other way.
Mr. P ecora . Mr. Davis, you do not mean they would have to buy
all the stock that is offered for sale, do you?
Mr. D avis . All the stock offered for sale below the price that they
want to eventually put the stock to following your hypothesis.
Mr. P ecora . Yes. And in the wave of mounting prices they could
put out some of their own accumulated stock and sell at the advancing
prices?
Mr. D avis . Yes, sir.
Mr. P ecora . And that is the way it is done, is it not?
Mr. D avis . Yes, sir.
Mr. P ecora . Does the exchange ever inquire into those operations
where they are manifested by a series of steadily advancing prices or
steadily declining prices?
Mr. D avis . I do not recall that they have. As long as there is a
free and open market for the stock.
Mr. P ecora . Well, how could a free and open market be restrained
by pool operations?
Mr. D avis . If an individual or a group were to acquire all of the
stock that is available for sale.



1584

STOCK EXCHANGE PRACTICES

Mr. P ecora . N ow you do not mean that seriously, do you, Mr.
Davis?
Mr. D avis . Yes.
Mr. P ecora . That it would be necessary for a pool to acquire all
of the stock?
Mr. D a v is . Well, a substantial amount. You have got to acquire
enough to take awav the supply of the stock.
Mr. P ecora . Well, take for instance, a stock that is freely traded
in or generally traded in in day by day operations. What propor­
tion of that stock is usually regarded as free or floating stock, as the
brokers understand that term?
Mr. D av is . That I do not know. It would depend on the company.
Mr. P ecora . Well, take an average company selling its securities
to the public through the medium of the stock exchange.
Mr. D a v is . Well, all of the stock that is not tied up in manage­
ment control, or something like that, is free stock as far as the exchange
is concerned.
Mr. P ecora . Well, as a matter of actual fact, what proportion of
it is free stock that finds its way into the daily trades?
Mr. D a vis . That I do not know. It would differ with every
company.
Mr. P ecora . The averages would represent a proportion of far
less than half, would they not?
Mr. D a vis . I do not know.
Mr. P ecora . Did you ever hear of such operations as “ selling
against the box” ?
Mr. D a vis . Yes, sir.
Mr. P ecora . What does that term imply to you as a broker?
Mr. D avis . M y understanding of it is that a man has a block of
100 shares of stock in his safety-deposit box. He does not care, for
some reason of his own, to deliver that 100 shares of stock on a trans­
action. Therefore he sells the stock through a broker, has the broker
borrow the stock, and then later, if he sees fit, buys the stock in the
market at a higher or lower or at the same price through his broker,
who in turn repays the loaned stock back from where it was borrowed,
and he has not disturbed his stock in his box at all.
Mr. P ecora . Is that a species of short selling?
Mr. D a v is . I think that is a matter of definition, whether it is
short selling or not.
Mr. P ecora . Weil, what would you say?
Mr. D a v is . I do not know.
Mr. P ecora . Y ou do not know? Well, who could define it if a
broker of 14 years of experience could not?
Mr. D a v is . Well, it is again a matter of definition.
Mr. P ecora . D o you feel that you are unable to define the term
or define that application of the term as being a proper application
of the term?
Mr. D a v is . I think there is probably an accepted definition of it.
I do not happen to know the accepted definition of it. I have defined
it as best I can with a practical illustration. Now whether that is a
short sale again I think is a matter of definition. If you will tell me
what a short sale is-----Mr. P ecora . I am not a broker.




STOCK EXCHANGE PRACTICES

1585

Mr. D a v is . If you will give me a definition I will tell you whether
that is a short sale.
Mr. P ecora . I am not a broker.
Mr. D a v is . I think that is probably a matter of definition, that
is all.
Mr. P ecora . Well, what do you regard as a short sale? I will let
you apply your definition to it.
Mr. D a v is . I am not very good on definitions, but I will try. A
short sale is probably one where the sale of a stock is completed by
borrowing the security sold.
Mr. P ecora . Mr. Davis, have you any idea of the percentage of
the trades on the exchange which actually lead to a transfer of
ownership of the securities traded in?
Mr. D a v is . On the Chicago Stock Exchange?
Mr. P ecora . Yes.
Mr. D a vis . Well, it is almost 100 per cent. Now I can not give
you records. I can bring them.
Mr. P ecora . When I say trades, I mean deliveries of the stock
and registration of that stock on the books of the corporation issuing
the stock.
Mr. D avis . Well, there are two different points there When you
are talking about the delivering and registration.
Mr. P ecora . I meant to include a transfer of ownership that is
reflected on the books of the issuing company or its registrar.

Mr. D avis. At the present time from my own knowledge there is
considerably more stock being transferred immediately into the name
of the purchaser than there has been for a long while.
Mr. P e c o r a . Well, at the present time what would be the propor­
tion?
Mr. D a v i s . I would have no way of knowing without checking
that up, but I would say it is a very considerable amount. Now ate
you referring to short sales?
Mr. P ecora . No, I am referring to something entirely different
now.
Mr. D a v is . There is practically no short selling on the Chicago
Exchange.
Mr. P ecora . I am referring to transactions that actually result
in a transfer of ownership on the books of record.
Mr. D a vis . Well, I would have no way of knowing that. The
only way that you could find that out would be to talk to the cor­
porations themselves and find out from their record books.
Mr. P ecora . Could you not give us some idea about that from your
experience, 14 years’ experience as a broker, where your customers
whom you buy for ask you to have the stock registered?
Mr. D avis. I could not give you a guess on that. That is a matter
I would want to check up.
Mr. P ecora . N ow your own transactions in your 14 years of ex­
perience are very rare, are they not, where a customer who gives you
a buying order asks you to, after the purchase, have the stock
transferred in his name?
Mr. D avis . Oh, no, they are not rare at all. They are common.
Mr. P ecora . Well, what proportion of the trading?
Mr. D avis . I could not say what proportion.
119852—33—pt 5----- 13



1586

STOCK EXCHANGE PEACTICES

Mr. P e c o r a . Can you not give us some idea, Mr. Davis?
Mr. D a vis . No, sir. I do not guess on that point.
Mr. P e c o r a . Is it as much as 10 per cent?
Mr. D a vis . I do not guess.
Mr. P e c o r a . Give us your best idea without a guess.
Mr. D a v is . N o, sir; you are asking me something that I can not
say definitely. Therefore I won’t venture a guess.
Mr. P e c o r a . Tell us indefinitely, if you can not tell definitely, but
I want your best opinion about it, if that is the best you can give us.
Mr. D a vis . I am sorry, but I do not want to guess on a matter
like that.
Mr. P e c o r a . Take, for instance, the experience you have bad as
a broker in the past year. You have executed many buying orders,
have you not?
Mr. D a v i s . Yes, sir.
Mr. P e c o r a . N o w what percentage of those buying orders were
accompanied by instructions from your customer to have the stock
transferred to his name?
Mr. D a vis . That I do not know.
Mr. P e c o r a . What proportion generally of those transactions do
you know of in your own personal experience within the last month?
Mr. D avis . That I do not know.
Mr. P e c o r a . Who would know if you would not know?
Mr. D a v i s . Any bookkeeper in any brokerage office could answer
that question for you.
Mr. P e c o r a . Well, can you not answer that as far as your own
personal business as a broker is concerned?
Mr. D a v i s . P erson ally I handle no business as a broker.
Mr. P ecora . When did you cease handling business as a broker?
Mr. D a v i s . I personally handle no orders myself at all. Never
have.
Mr. P e c o r a . You are a member of a firm?
M r. D a vis . I am a member o f a firm.
Mr. P e c o r a . And you have a floor broker, I suppose?
Mr. D avis . That is correct. But I do not check up on the details
of that.
Mr. P e c o r a . Haven’t you any information on that?
Mr. D avis . N o, sir. I can get it for you very quickly, but I could
not give it to you offhand.
Mr. P e c o r a . Have you got with you, Mr. Davis, the application
for listing of the securities of the Corporation Securities Co., of
Chicago?
Mr. D a v i s . Yes, sir.
Mr. P e c o r a . Will you produce it, please?
Mr. D a v i s . Coming back to that other point: If you want me to
I will get that information for you accurately. Mr. Pecora, may I
call your attention to the fact that in these exhibits there is an inde­
pendent audit of these companies in each case which information is
available.
Mr. P e c o r a . When were the independent audits made?
Mr. D a v i s . They were made at the time of the applications. For
instance, we have this one, January 4, of Arthur Young & Co.
Mr. P e c o r a . That accompanied the application?




STOCK EXCHANGE PRACTICES

1587

Mr. D a vis . That accompanied the application. That is one of the
exhibits to the application.
Mr. P ecora . May I have this for the time being?
Mr. D a vis . Yes.
Mr. P ecora . Have you got a photostatic copy of it?
Mr. D avis . Yes.
Mr. P ecora . Let me have the photostatic copy of it. Is this sheet
the independent audit?
Mr. D avis. N o ; this is what took the place of the transcript.
That is the analysis. On this particular issue we did not have the
formal transcript. But that is the same thing prepared by the
examiner at the time. Now in connection with this Corporation
Securities Co. we have the audit of Touche-Niven. Here is the
certification of Touche-Niven in connection with that. Also here
are the articles of incorporation.
Mr. P ecora . Any other documents connected with these appli­
cations?
Mr. H alsted . Yes.
Mr. P ecora . May we have them just overnight, Mr. Halsted?
Mr. H alsted . Yes.
Mr. P ecora . Can you leave these papers?
Mr. D avis . They are entirely at your service.
The C hairman . We will recess at this time until 10 o’clock to­
morrow. And all witnesses now under subpoena will be here to­
morrow morning, except those who have been excused.
(Thereupon, at 6 o’clock p. m., Thursday, February 16, 1933, an
adjournment was taken until 10 o’clock a. m. the next day, February
17, 1933.)







STOCK EXCHANGE PEACTICES
FRIDAY, FEBRUARY 17, 1038

U nited States S enate ,
S ubcommittee of C ommittee on
B anking and C urrency ,

,

Washington D. O.
The subcommittee met, pursuant to adjournment on Thursday,
February 16, 1933, at 10 o’clock a. m., in room 301, Senate Office
Building, Senator Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Townsend, Fletcher, and
Costigan.
Present also: Senators Brookhart, Steiwer, Walcott, and Reynolds.
Further present: Ferdinand Pecora, special counsel to the com­
mittee; Julius Silver and James B. McDonough, jr., associate counsel
to the committee.
The C hairman . The committee will come to order. Mr. Pecora,
who will be your first witness?
Mr. P ecora . Mr. Harold L. Stuart.
The C hairman . Hold up your right hand, please, and be sworn:
You solemnly swear that you will tell the truth, the whole truth, and
nothing but the truth regarding the matter now under investigation
by this committee, so help you God.
Mr. Stuart . I do.
TESTIMONY OF HAROLD L. STUART, PRESIDENT OF HALSEY,
STUART & CO., CHICAGO, ILL.

Mr. P ecora . Mr. Stuart, will jrou kindly give to the committee
reporter your full name, and business address, and residence, and
your business or occupation.
Mr. Stu art . My name is Harold Leonard Stuart; business address
201 South La Salle Street, Chicago; residence address 999 Lake
Shore Drive, Chicago; president of Halsey, Stuart & Co., dealers in
bonds.
Mr. P ecora . Is Halsey, Stuart & Co. a corporation or a partnership?
Mr. S tuart . It is a corporation.
Mr. P ecora . In what State is it incorporated?
Mr. Stu art . In Illinois.
Mr. P ecora . Does it maintain its principal place of business or
office there?
Mr. S tu art . The principal place of business is Chicago.
Mr. P ecora . In what other cities, if any, does it maintain branch

offices?
Mr. Stuart . In Boston, New York, Philadelphia, St. Louis, and
Detroit.




1589

1590

STOCK EXCHANGE PRACTICES

Mr. P ecora . H ow long has the corporation been in existence?
Mr. S tuart . Well, as a corporation it has been in existence since
the fall of 1911—I mean as a corporation. It was N. W. Halsey &
Co., and it was afterwards changed to Halsey, Stuart & Co., in 1916.
Mr. P ecora . H ow long have you been identified with that com­
pany?
Mr. Stu art . Well, with this company and the predecessor partner­
ship since September 1, 1903.
Mr. P ecora . How long have you been president of the existing
company?
Mr. S tu art . Since 1911.
Mr. P ecora . Since its incorporation?
Mr. S tuart . Yes, sir.
Mr. P ecora . And you say the business of the corporation is the
dealing in bonds?
Mr. Stuart . Only that.
Mr. P ecora . Only of dealing in bonds?
Mr. Stu art . Only bonds.
Mr. P ecora . Are you a member of any stock exchange?
Mr. Stu art . I am personally a member of the Chicago Stock
Exchange.
Mr. P ecora . Is that the only direct affiliation that company has
with any stock exchange?
Mr. S tuart . Yes.
Mr. P ecora . D o you know a corporation called Insull Utility
Investments (Inc.)?
Mr. Stu art . I do.
Mr. P ecora . Did you have any affiliation with that corporation?
Mr. Stuart . I was a member of the finance committee and a
director.
Mr. P ecora . Did you take any part in the organization of that
corporation?
M r. Stuart . Only in—well, perhaps I was consulted a little
about it.
Mr. P ecora . By whom?
Mr. Stu art . Mr. Samuel Insull.
Mr. P ecora . Did you or your company have any participation
in the organization of the financial set-up of that company?
Mr. S tu art . Yes.
Mr. P ecora . What was the nature of it?
Mr. Stuart . We bought $6,000,000 of 5 per cent debentures with
warrants attached, and $6,000,000 preferred 5% per cent stock, also
with warrants attached.
Mr. P ecora . What was the nature of those warrants that were
attached to the debentures that you have referred to? In other
words, what rights were conferred by them?
Mr. S tuart . I have forgotten. I haven’t the circular, but it was
the right to buy certain shares of common stock at a price.
Mr. P ecora . At what price?
Mr. S tuart . Well, I have forgotten. If I could get a copy of the
circular I could identify it probably.
Mr. P ecora . Would this circular which I now hand you help you
to answer that question?
Mr. S tuart . Shall I read from this? This is the fact.
Mr. P ecora . Just give us an answer after consulting that circular.



STOCK EXCHANGE PRACTICES

1591

Mr. S tuart . On the debentures I mentioned, and on the prior pre­
ferred stock, there were warrants which entitled the holder to pur­
chase common stock of the company, on or before June 30, 1929, five
shares for each $100 at $15 a share.
Mr. P ecora . H ow many of those debentures did you or your
company acquire as a total?
Mr. Stu art . $6,000,000 face value.
Senator B rookhart . At what price?

Mr. S tu a r t. At par and accrued interest.
Mr. P ecora . That meant 60,000 debentures, did it?

Mr. S tu a r t. $6,000,000 face value.
Senator F letcher . Y ou mentioned a while ago preferred stock.
Did you then mean prior preferred stock?
Mr. Stuart . Prior preferred stock, I should have said.

Senator T ow n sen d . What was the price of the prior preferred
stock?
Mr. Stuart . We paid par for the preferred stock.
Senator B rookh art . That is, for the prior preferred stock?
Mr. S tu a r t. Yes, sir.
Senator B rookhart . What did you pay for the common stock?
Mr. Stuart . The common we paid nothing for. But ordinarily
in the investment buisness of course one buys securities at a discount,
that is, a banker gets a discount. In this case we thought it would
be to the best interests of the company to have the company receive
par for its securities in cash, and we received the common stock for
nothing for our services.
Senator B rookhart . And then they would advertise that those
debentures had been sold at par.
Mr. S tu a r t. They were sold at par.
Senator B rookhart . When in fact they had not been, because they
gave other securities in order to consummate that deal?
Mr. S tuart . Senator, the company got par for the debentures
then. They got the full face value of the debentures in cash.
Senator B rookhart . And they got it by giving you a lot of other
stock for nothing.
Mr. S tuart . That was the common stock.
Senator B rookhart . D o you call that a fair deal when there is a
side understanding of that kind?
Mr. S tuart . Oh, yes. That would be a very favorable deal to the
company.
Mr. P ecora . And unfavorable to the purchaser.
Mr. Stuart . It would be a very favorable deal to the company.
And I would not say unfavorable to the purchaser. But it was a very
unusual thing so far as the sale by the company at par was concerned.
Senator B rookhart . It tended to make the company’s credit look
better than it really was.
Mr. S tuart . I do not get that angle of it, Senator.
Mr. P ecora . Well, now, Mr. Stuart, this is the situation as I
understand it. You bought 60,000 shares of prior preferred stock
of this Insull Utility Investments (Inc.), upon its organization, and
when I say you, of course I mean Halsey, Stuart & Co.
Mr. S tu art . Yes, sir.
Mr. P ecora . And each share of that prior preferred stock had
warrants attached, giving the holder the right to purchase five shares
of common stock of that company at $15 a share; is that correct?



159 2

STOCK EXCHANGE PRACTICES

M r. S tuart . Yes, sir.
Mr. P ecora . Sq that your company thereby, through its acquisi­

tion of those 60,000 shares of prior preferred stock, acquired the right
to buy 300,000 shares of Insull Utility Investments (Inc.), common
stock at $15 a share; is that correct?
Mr. Stu art . We did not acquire the right. The rights went to
the holders of those securities.
Mr. P ecora . Your company as the holder of those securities
acquired those rights?
Mr. S tuart . Yes, for the moment.
Mr. P ecora . For the moment?
M r. S tuart . Yes, sir.
Mr. P ecora . Those rights were exercised, were they not?
Mr. S tuart . I think the rights were all exercised.
M r. P eoqra . By whom?
Mr. S tuart . By the holders of the securities.
Mr. P ecora . Who were the holders of those securities originally
issued to your company who exercised those rights to buy common
stock at $15 a share?
Mr. S tu a r t. We sold the prior preferred stock, the whole of the
§0,000 shares of the prior preferred stock, to the Utility Securities Co.

at 95%.
Mr. P ecora . And the Utility Securities Co. was a subsidiary or
affiliate of the Insull Utility Investments (Inc.) which was the
epmpany that issued that prior preferred stock, was it not?
Mr. S tuart . I did not so understand it.
Mr. P ecora . Don’t you Imow that the stock of that company was
entirely owned by Insull Utility Investments (Inc.)?
Mr. S tuart . N o, sir. M y understanding of the—well, I never
knew, but my understanding in a general way was that the stock­
holders of the Utility Securities Co., were the various Insull com­
panies, that owned some share in the capitalization, one of them
being Insull Utility Investments (Inc.), and Insull Utility Invests
ments (Inc.) was an Insull company.
Mr. P ecora . Insull Utility Investments (Inc.) was an Insull
company.
Mr. S tu art . Yes, sir.
Mr. P ecora . And Utility Securities Co., to which you say you sold
the 60,000 shares of prior preferred stock of Insull Utility Invest­
ments (Inc.), was another Insull company, was it not?
Mr. Stu art . Yes, sir.
The C h airman . D o I understand that those securities were issued
by one Insull company, and sold to Halsey, Stuart & Co., and then
by them sold to another Insull company? Mr. Pecora, will you bring
that out?
Mr. P ecora . Is that a correct assumption, Mr. Stuart?
Mr. S tu art . Yes, sir.
Senator B rookhart . Who were the profiteers in that kind of deal?
Mr. S tuart . Well, we bought the prior preferred stock from Insull
Utility Investments (Inc.) at par. We sold it to the Utility Securities
Co. at 95K- That was the stock-distributing company. They dis­
tributed that stock to the public at par.
Mr. P ecora . And made sales, many o f them?
Mr. S tuart . Oh, yes.




STOCK EXCHANGE PRACTICES

1593

Mr. P ecora . H ow did you get your money back?
Mr. S tuart . In our common stock.
Mr. P e c o r a . H ow much profit did you get out of that?
Mr. Stu art . We got a total of 57,000 shares of common stock
given to us at the time we underwrote this.
Mr. P ecora . Y ou got that for nothing?
Mr. S tu art . Yes, sir.
Mr. P ecora . Did that cover your losses?
Mr. Stuart . We figured that that was going to be worth $10 a share,
and we were willing to take it on that basis instead of cash.
Mr. P ecora . How much was your loss?
Mr. S tuart . Well, the actual cash loss on this sale of prior preferred
stock was the difference between par and 95%.
Mr. P ecora . H ow much was the total?
Mr. Stu art . $270,000.
Mr. P ecora . And this was, this other was $570,000?
Mr. S tuart . Yes. But, then, the debentures that we bought at
par and sold at par, had we in the ordinary routine bought them for
cash, we would have paid 95, and so we figured that that was also
chargeable up to the cost of our common stock at $10 a share.
Mr. P ecora . That is the way I figure it-----Senator F letcher (interposing). The common stock sold at 30.
Mr. P ecora . I was coming to that, Senator.
Senator F letcher . All right.
Mr. P ecora . Mr. Stuart, what was the reason for the financial
operation that you have just told us about, namely, the purchase by
your company from this Insull company, called Insull Utility Invest­
ments (Inc.), of 60,000 shares of prior preferred stock, with warrants
attached, at par, $100, and the sale of those shares by your company
to another Insull company at 95K ex warrants?
Mr. S tu a r t. N o ; at 95% with warrants.
Mr. P ecora . With warrants?
Mr. Stuart . Yes; with warrants.
Mr. P ecora . What was the reason for that deal?
Mr. S tuart . Well, we thought it would be better for this kind of
company, and so did the management, if they realized the full face
value of their obligations, which were debentures and their prior
preferred stock, in cash.
Senator B rookhart . It was better for them because it would give
the public an exaggerated idea of their financial condition, wasn't
it?

Mr. Stu a r t . I wouldn’t look at it that way. That was not the
idea. There was no such idea in mind.
Senator B rookhart . I can not see why they would do it for any
other reason.
Senator F letcher . Well, Mr. Stuart, you were an officer and direc­
tor of the Insull Co.?
Mr. S tuart . Yes, sir.
Senator F letch er . And you were president of Halsey, Stuart
& Co.?
Mr. S tu a r t . Yes, sir.
Senator F letcher . So as an officer of the Insull Co. you sold to
the other concern, of which you were president, certain debentures
and stock, and then you sold that as the president of Halsey, Stuart



159 4

STOCK EXCHANGE PEACTICES

& Co. to another Insull company, owned by the first Insull company,
and made a profit.
Mr. Stu art . Well, I was a director in Insull Utility Investments
(Inc.). That was all, I wasn’t running the company. I was one of
many directors.
Senator F letcher . Was there a conflict of interest between the
Insull Company and your company?
Mr. S taurt . Well, I shouldn’t think there would be, any more
than there would be in the case of a banker who is on the board of
any corporation with which he does business.
Mr. P ecora . In addition to being a director of Insull Utility
Investments (Inc.), you were a member of its finance committee,
were you not?
Mr. S tuart . I was.
Mr. P ecora . H ow frequently did the board of directors meet?
Mr. S tu art . Infrequently.
Mr. P ecora . Quarterly, wasn’t it?
Mr. S tu art . I am not sure, but quite infrequently.
Mr. P ecora . The finance committee met weekly, didn’t it?
Mr. Stu art . Yes, sir.
Mr. P ecora . Was the real management of Insull Utility Invest­
ments (Inc.) in a practical sense vested in the members of the finance
committee rather than in the board of directors?
Mr. Stuart . I should say that all current operations were.
Mr. P ecora . And the process was, for that finance committee to
meet weekly, the board of directors to meet quarterly, and that the
quarterly meetings of the board of directors reports would be made
of some activities of the finance committee in the intervening period,
is that right?
Mr. S tuart . Yes, sir.
Mr. P ecora . Who besides you composed the finance committee
of Insull Utility Investments (Inc.) during the first year of its exist­
ence, 1929?
Mr. S tu art . Could I get the annual report from some one here?
Here it is: Mr. Samuel Insull, sr., Samuel Insull, jr., Martin J. Insull,
Walter S. Brewster, and myself.
Mr. P ecora . Mr. Brewster is a stockbroker in Chicago?.
Mr. Stu art . Mr. Brewster is a stockbroker; yes, sir.
Mr. P ecora . Y ou attended the meetings of the finance committee
quite regularly, didn’t you?
Mr. S tuart . Quite regularly, as regularly as I could.
Mr. P ecora . Was there any special reason for your company
turning back to the Utility Securities Co. 60,000 shares of prior pre­
ferred stock?
Mr. Stuart . Yes, sir.
Mr. P ecora . At a discount from the par value which your com­
pany paid for them; is that so?
Mr. Stuart . Yes, sir.
Mr. P ecora . What was the reason for that?
Mr. Stu art . The lawyers agreed that for some reason or other
the transactions ought to be made together. Now, we do not sell
stocks at all, never sold any stocks to anybody. We had 'to find a
buyer for that stock. This arrangement was really made between
the management of Insull Utility Investments (Inc.) and Utility



STOCK EXCHANGE PRACTICES

1595

Securities Co., but the securities came through us because it all had
to be done in one transaction.
Senator B rookhart . Why did they have to come through you?
Mr. S tuart . I do not know. The lawyers decided it ought to be
done that way.
Mr. P ecora . In order to have it done that way, the facilities of
your company were loaned, would you say, or permitted to be used
m the working out of this arrangement?
Mr. S tuart . Yes, sir.
Mr. P ecora . And for that your company received 57,000 shares
of the common stock of Insull Utility Investments (Inc.)?
Mr. Stuart . Yes, sir. But we took an actual cash loss on $270,000
on the 60,000 shares of prior preferred that we passed on to Utility
Securities Co., because we paid par for it and got 95K for it.
Mr. P ecora . Were those 57,000 shares of common stock for the
purpose of enabling you to make up that loss?
Mr. S tuart . Yes, sir.
Mr. P ecora . That was the sole consideration for the issuance to
you of those 57,000 shares of common stock?
Mr. S tuart . No; plus the usual 5 per cent commission on the
debentures. You see, if we had bought those debentures for cash
we would have paid about 95 for them, and that leaves 5 there.
Senator B rookhart . Why couldn’t you have passed that spread
over to the other company and saved that 5 per cent commission, and
saved this excess value of common stock? I can not see any use of
going round the ring there.
Mr. S tuart . Except, that the company got par for the prior pre­
ferred stock.
Mr. P ecora . The company got par for the prior preferred stock
from your company?
Mr. S tuart . Yes.
Mr. P ecora . And you transferred it to another Insull company at
95%?
Mr. S tuart . Yes.
Mr. P ecora . Leaving your company out a matter of $240,000.
Mr. S tuart . No; $270,000.
Mr. P ecora . And to reimburse or recompense your company for
that loss your company received at the same time and as part and
parcel of the transaction, a block of 57,000 shares of common stock
of Insull Utility Investments (Inc.).
Mr. Stuart . Yes, sir; in connection with that, and also in connec­
tion with the 5 points discount which we would have got had we paid
95 for those debentures.
Mr. P ecora . You mean if you had underwritten the debentures in
the ordinary market way you would have been allowed a 5-point
spread, is that it?
Mr. S tuart . That is it.
Mr. M iller . Might I add a correction to the witness’s testimony
there?
Mr. P ecora . What is your name?
Mr. M iller . M y name is Miller.
Mr. P ecora . I s Mr. Miller your attorney, Mr. Stuart?
Mr. S tuart . Yes, sir.




1596

STOCK EXCHANGE PEACTICES

Mr. M iller. There is one correction I want to suggest, if you will
permit it.
Mr. P e c o r a . I have no objection to a cbrrection.
Mi4 MiLLER. As to the 57,000 shares, did they come from the com­
.
pany or from the Insulls?
Mr. S t u a r t . Oh, that came from the Insull family.
Senator B r o o k h a r t . It w a s still the same thing, coming from the
Insull family.
Mr. S t u a r t . But those came out of their own personal holdings.
Mr. P e c o r a . The Value of the stock to you remaiiied the same,
whether given to you directly by the company dr by Mr. Insull or
members of his family.
Mi*. S t u a r t , That is right.
Mr. P e c o r a . N o w , as a matter of fact, vour company did not
actually risk the amount of money that it paid oyer when it took over
those 60,000 shares of prior preferred stock at par, did it?
Mr. S t u a r t . No. We knew we were going to sell that stock
iirimediately to the Utility Securities Co.
Mr. P e c o r a . Was there really any actual transfer of funds amount­
ing to $6,000,000, or thereabouts, from your company to Insull
Utility Investments (Inc.) in that operation?
Mr. S t u a r t . No. We knew that they would take the stock.
Mr. P e c o r a . Y o u lent yourselves to that process as an accommoda­
tion.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And for that accommodation you received 57,000
shares of common stock from Mr. Insull, is that right?
Mr. S t u a r t . No; it is not. We actually bought, took the risk and
paid over the whole $12,000,000 in the way of the securities of the-----Mr. P e c o r a (interposing). Wait a minute. Let us confine our­
selves, first, to the 60,000 shares of prior preferred stock, and then
I will take up the acquisition by your company of $6,000,000 of
debentures.
Mr. S t u a r t . But the 57,000 shares of common stock applied to the
debentures as well as to the prior preferred stock.
Mr. P e c o r a . Well, I will take that up later.
Mr. S t u a r t . S o the 57,000 shares of common stock were not a
consideration for simply that prior preferred stock.
Mr. P e c o r a . That is , it was a consideration not only for your
lending yourself to this thing that Senator Brookhart has termed
round-the-ring process, but also for your company taking at par
$6,000,000 of debenture notes that were issued at the same time by
Insull Utility Investments (Inc.); is that correct?
Mr. S t u a r t . Well, if you will let me correct this round-the-ring
expression: Utility Securities Co. was a regularly organized company
to distribute stocks to the public. We bought from Insull Utility
Investments (Inc.), $6,000,000 of prior preferred stock, for which we
paid par to the company.
Mr. P e c o r a . That is $6,000,000.
Mr. S t u a r t . Yes, sir. We sold that same stock to the Utility
Securities Co. for $270,000 less than par. That was an actual outof-pocket loss to Halsey, Stuart & Co. of $270,000.
Mr. P e c o r a . We understand that. But-----


STOCK EXCHANGE PRACTICES

1597

Senator F letcher (interposing). You had already done that before
you bought it.
Mr. S tu art . Yes; they had agreed to do that. But that was our
loss, $270,000.
Mr. P ecora . That was a loss you had agreed in advance to take.
Mr. Stuart . Yes. Now, we agreed to take 27,000 shares of stock,
which we were willing to take at $10 a share, for that $270,000 loss
that applied to the preferred stock. But please do not get the idea
that this was any intercompany transaction, where the money went
back into some body’s pocket in connection with the transaction.
That was all sold to the public.
Mr. P ecora . Eventually that went to the public?
Mr. Stuart . Immediately.
Senator B rookhart . Those 27,000 shares that you took at $10,
you disposed of them?
Mr. Stuart . We disposed of it later in connection with the Cor­
poration Securities Co.
Senator B rookhart . Do you remember what you got for that?
Mr. Stuart . Par.
Senator B rookhart . What was the value of it?
Mr. S tuart . The value of all the stock we had went into many
millions of dollars, for which we took Corporation Securities Co.
common stock.
Senator B rookhart . This stock sold for 30 the first day, didn’t it?
Mr. Stuart . I have forgotten.
Senator R eynolds . Mr. Chairman, I should like to ask a question
or two with your permission.
The C h airman . Very well.
Senator R eynolds . Mr. Stuart, you got 27,000 shares of stock,
and you took it over at $10 a share, didn’t you?
Mr. S tuart . Yes, sir.
Senator R eynolds . And ten times 27,000 is $270,000.
Mr. Stuart . Yes, sir.
Senator R eynolds . Which wiped out any loss that you say you
might have had?
Mr. S tuart . Yes, sir.
Senator R eynolds . And that you took in the beginning?
Mr. Stuart . Yes; we figured that would do that.
Senator R eynolds . What did those 27,000 shares of stock sell for
actually? I understand that you took it in at $10 a share. Now what
did you get for it?
Mr. Stuart . Well, we never sold it except to the Corporation
Securities Co. for paper.
Senator R eynolds . For what kind of paper?
Mr. Stuart . Common stock.
Senator R eynolds . For common stock. Did you get 27,000 shares
of common stock?
Mr. S tuart . Of Insull Utility- Investments (Inc.), yes.
Senator R eynolds . Y ou took that in at $10 a share. What did
you do with it?
Mr. S tuart . That, with some other stock, we eventually ex­
changed for Corporation Securities Co. common stock.
Senator R eynolds . I understood that your company did not deal
in stocks.



159 8

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . Well, we do not.
Senator R e y n o l d s . But you d id then.
Mr. S t u a r t . No. That was our own stock.
Senator R e y n o l d s . Y o u have that now, haven’t you, the 27,000
shares of common stock?
Mr. S t u a r t . Y e s .
Senator R e y n o l d s . In view of the fact that the Insull Co. is broke
you are out $270,000, aren’t you?
Mr. S t u a r t . Yes.
Senator R e y n o l d s . Y o u never did get back that $270,000, did
you?
Mr. S t u a r t . It seems to me we did, when the corporation-----Senator R e y n o l d s (interposing). You are the president of that
company. I assumed that you knew as to whether or not you lost
$270,000. Now, did you lose it or didn’t you lose it?
Mr. S t u a r t . No. I think we got that $270,000 back in the or­
ganization of Corporation Securities Co.
Senator R e y n o l d s . Are you sure you did?
Mr. S t u a r t . I am quite sure.
Senator R e y n o l d s . That you got that back?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . I want to know this: Why you bought
$6,000,000 of debentures with warrants attached and immediately
sold them to another Insull company at a loss of $270,000? That
was the question Mr. Pecora put to you a moment ago but I can not
get it through my head why you were willing to take a chance of losing
all that money.
Mr. S t u a r t . Oh, we sold the preferred stock to the Utility Securi­
ties Co.
Senator R e y n o l d s . I understood you to say a while ago that your
company never dealt in stocks.
Mr. S t u a r t . We passed those right along.
Senator R e y n o l d s . Why did you in this instance, when you
never did anything of the kind before, deal in those stocks?
Mr. S t u a r t . If I may be permitted to explain that.
Senator R e y n o l d s . Yes, I want you to explain it.
Mr. S t u a r t . Well, please let me explain it. I said when the
company was organized the lawyers thought it would be better for
the company to sell the preferred and the debentures all at the same
time, through one source, but why I do not know.
Senator R e y n o l d s . Well, you were the president of the company,
were you not?
Mr. S t u a r t . Of Halsey, Stuart & Co.
Senator R e y n o l d s . N o w , this transaction was taking place
through your company.
Mr. S t u a r t . Oh, y e s ,
Senator R e y n o l d s . Didn’t you even ask your lawyer why they
had to do that; that merry-go-round business which is talked about
here?
Mr. S t u a r t . Well, Senator, it really did not make any difference
because we were not going to distribute that stock to the public.
Here was a utility over here that wanted to buy. We paid for it all
at one time and passed it right through to Utility Securities Co., at
95K



STOCK EXCHANGE PRACTICES

1599

Senator R eynolds . And they sold it at par?
Mr. Stu art . Yes; I think so.
Senator R eynolds . Didn’t you say a while ago that you paid
par for it so it would look better?
Mr. S tu art . Yes; we wanted to pay par, and-----Senator R eynolds (interposing). So it would appear. But why
did you want to pay par, to make something for the Insull Co. look
better to the public?
Mr. S tuart . Will you let me have time to make a little statement
about that?
Senator R eynolds . Yes.
Mr. S tuart . When Insull Utility Investments (Inc.) was formed
Mr. Insull debated it for a long, long time, before he formed it, for
many, many months. He said that he wanted, or that his idea was
to form an investment company which he and his family would put
all their securities into, securities of his various companies into, and
it would be a relatively small company so that they could consolidate
their holdings. When we discussed the price at which we would buy
those securities he said that he thought, being a personal company,
and every company always having to pay a discount on securities, if
we could work it out so that the company would receive par for those
debentures and the preferred stock, it would please him very much
indeed, as it was a personal matter with him. So we worked out this
scheme to pay par and get no compensation other than the compensa­
tion we would get in the common stock.
Senator R eynolds . A s a matter of fact, the Insulls were interested
in having your particular company pay par for that stock. The
Insulls themselves, I say, were interested in having your company
pay par for that stock; is that right?
Mr. Stu art . I presume so.
Senator R eynolds . Well, they were interested to the extent of
giving you 27,000 shares of their own common stock, weren’t they?
Mr. S tuart . Yes, sir.
Senator R eynolds . N ow, you knew why they were interested in
that then, didn’t you?
Mr. S tuart . Only for the reason I have given you.
Senator R eynolds . Didn’t you know it was for the purpose of
making those securities look better to the public?
Mr. Stuart . Well, I think it would make the securities look better
to the public, for the company to get par for them.
Senator R eynolds . And therefore Insull gave to you out of his
own personal possession $27,000?-----Mr. P ecora (interposing). Gave them 27,000 shares.
Senator R eynolds . Yes, gave your company 27,000 shares, in order
to make this look better to the suckers who were going to buy. That
was right, wasn’t it?
Mr. S tuart . Well, I wouldn’t put it that way.
Senator R eynolds . Well, you could put it a little milder perhaps,
but that is true, isn’t it?
Mr. Stuart . No; I wouldn’t put it that way at all.
Senator R eynolds . N ow, what you asked, Mr. Pecora, and what
I am trying to get at is this: Why Insull was so interested in taking
out of ms own pocket 27,000 shares of stock and giving it to Mr. Stuart
just to get him to buy it at par. That is what I want to know.



16 00

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . I c o u ld o n l y g iv e y o u th e r e a s o n s a n d t h e d is c u s s io n
t h a t t o o k p la c e .
Senator R e y n o l d s . I want to ask you this: You finally sold those
27,000 shares, didn’t you?
Mr. S t u a r t . Yes; we finally sold them.
Senator R e y n o l d s . What did you get a share for them?
Mr. S t u a r t . Exactly what we paid for them.
Senator R e y n o l d s . $10 a share?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . Didn’t you jmt them on the market, which
paid $30 a share for them in the beginning?
M r . S t u a r t . We didn’t sell any stock.
Senator R e y n o l d s . Y o u didn’t sell any stock at all?
Mr. S t u a r t . N o .
Senator R e y n o l d s . H o w much did your company make out of this
transaction?
Mr. S t u a r t . Well, our company-----Senator R e y n o l d s (interposing). Taking the transaction as a
whole, pertaining to 60,000 shares of prior preferred stock with
Warrants and $6,000,000 of debentures. Now $12,000,000 were
involved there.
Mr. S t u a r t . Yes, sir.
{Senator R e y n o l d s . How much money d id you actually put up, i f
any?
Mr. S t u a r t . Well, we put up all the money. We paid for it all.
Senator R e y n o l d s . Did you actually transfer the money?
Mr. S t u a r t . Oh, yes; actually.
Senator R e y n o l d s . There is no question about that?
Mr. S tu a r t. N o. We actually paid the money.
Senator R e y n o l d s . H o w much money did your company make
out of this transaction?
Mr. S t u a r t . Well, on the prior preferred stock of course we lost
in cash and got that 27,000 shares of common stock.
Senator R e y n o l d s . You got that back?
Mr. S t u a r t . Yes; we got that back, but no profit.
Senator R e y n o l d s . All right, How much money on the other? '
Mr. S t u a r t . For the $ 6 ,0 0 0 ,0 0 0 of debentures we bought at par,
we sold $4,000,000 of them to the public at par, and kept $2,000,000,
or approximately $2,000,000 of them, at par.
Senator R e y n o l d s . Have you still got them?
M r. Stu a r t. N o.
Senator R e y n o l d s . When d id y o u sell them?
Mr. S t u a r t . Well, we sold them some time later.

I have not the
details of tha,t. But we have statistics here with us. But let me
give you this picture: As soon as this Insull Utility Investments
(Inc.) was organized there was a trememdous demand, not only for
those bonds, those debentures, but we could have sold $50,000,000
just as easily as we could have sold $6,000,000. The demapd was
something tremendous in anything that Iusull’s name was attached
to, particularly as he had announced that his whole personal fortune
was in that common stock and in some second preferred that he took,
everybody wanted to become a partner of Samuel Insull.
Senator W a l c o t t . What was the date of the issue?
Mr. S t u a r t . In January of 1929.



STOCK EXCHANGE PRACTICES

1601

Senator R eynolds . Let me interrupt you there-----Mr. S tuart (continuing). Just let me give you the general sur­
roundings in order to let you see that this was something we did not
expect, and nobody else did. Those debentures sold in a very short
time up to over 200 per cent, because of those common-stock war­
rants. Those common-stock warrants called for stock at $15 a
share. Now, as a matter of fast, the price at which those warrants
were made, was the subject of discussion for weeks before it was put
up, whether it should be 11, or 12, or 15, or 16, or what. Nobody
knew what the stock would sell at. But there was nobody who was
consulted in regard to this stock so far as I know who thought that
the stock would sell at higher than $20 a share in six months. And
yet it sold at 30 the first day on the stock exchange.
Senator R eynolds . That was the common stock?
Mr. Stuart . Yes, sir.
Senator R eynolds . I understood you to say a while ago it only
sold for $10 a share.
Mr. Stuart . We took it at $10 a share.
Senator R eynolds . But you sold it at $30 a share?
Mr. Stuart . No; we did not sell it at all.
Senator R eynolds . What about the $30 a share for the stock?
Mr. Stuart . Well, some stock that they had. And also don’t
forget that people could detach those warrants and convert them
into stock, and that supplied stock to be sold, and that was what
made the enormous call for it.
Senator B rookhart . Y ou also had 27,000 more shares on the
debentures?
Mr. Stuart . No, 30,000 shares. We figured 5 per cent on the
debentures, and that was $300,000, that we would have paid in cash.
Instead of that we took the stock at $10 a share, which gave us
30,000 shares.
Senator B rookhart . And that stock went up to 149 at one time?
Mr. Stuart . Yes, sir.
Senator W alcott . How many shares of common stock did Mr.
Insull get?
Mr. S tuart . I can not answer that.
Senator W alcott . H ow many were issued altogether? That
would likely show.
Mr. Stuart . Originally 1,014,000 shares.
Senator W alcott . Well now, those came out when the prior pref­
erence stock was issued, probably.
Mr. Stuart . Yes; when the debentures came out.
Senator W alcott . So that Mr. Insull would have kept all of that

except 27,000 shares, and then others were issued to cover the warrants
later?
Mr. Stuart . Yes. But there was some sale there, that has been
referred to, but I am not clear on the details, of some 250,000 shares
at 12.
Senator W alcott . That would have given Mr. Insull a profit at
the top of the market, if he got his shares, of about $150,000,000.
Mr. Stuart . Yes, sir; but he did not have the shares. He had a
very large paper profit, however.
Senator F letcher . Y ou received from the second Insull company
the entire amount that you paid for the debentures yourself, less

119852—33—pt 5----- 14




1602

STOCK EXCHANGE PEACTICES

$270,000. You sold them in one transaction. You paid cash, but
you got that cash from the other company to which you delivered
the debentures.
Mr. P e c o r a . It was not debentures but prior preferred stock that
was handled in that way.
Mr. S t u a r t . Yes.
Senator F l e t c h e r . Y o u got that all back from the other company?
Mr. S t u a r t . At 95%. They paid us 95% for something that we
paid par for. I want to make this clear: No one had any realization
what this stock would sell at.
Senator R e y n o l d s . Is this the prospectus that you used?
Mr. S t u a r t . N o ; this is the prospectus that the Utility Securities
Co. used on prior preferred stock.
Senator T o w n s e n d . Do you class prior preferred stock as bonds?
Mr. S t u a r t . No, sir. That is just stock.
Senator T o w n s e n d . I understood you to say you did not deal in
stock but only in bonds.

Mr. S t u a r t . That is true. We just took those and passed them
through our office to another dealer. We never distributed any
stock.
Senator T o w n s e n d . It was just an accommodation transaction?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . And you were paid for that accommodation?
Mr. S t u a r t . In the sense that we were permitted to buy 27,000
shares at $10 a share.
Senator R e y n o l d s . I understood that Mr. Insull gave you 27,000
shares.
Mr. S t u a r t . He gave us 27,000 shares, but we took a loss of
$270,000, and for that he gave us 27,000 shares.
Senator R e y n o l d s . And that made it even as to that?
Mr. S t u a r t . Yes, sir.
The C h a i r m a n . Now then, on those 27,000 shares I want to bring
out the profit on the transaction as being the difference between what
he took them for and what they went to. This seems to have been
talked about as a loss, and the two transactions should go into the
record, Mr. Pecora.
Mr. P e c o r a . All right. Mr. Stuart, the 27,000 shares that you
have been referring to, you say your company disposed of eventually
by turning them over to Corporation Securities Co. of Chicago, is
that correct?
Mr. S t u a r t . That is correct.
Mr. P e c o r a . Corporation Securities Co. of Chicago was another
Insull investment trust, was it not?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Which was organized in October of 1929, wasn’t it?
Mr. S t u a r t . Yes, sir; I believe so.
Mr. P e c o r a . About 10 months after the organization of Insull
Utility Investments (Inc.)?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And organized to do the same thing, the same kind
of business, as Insull Utility Investments, wasn’t it?
Mr. S t u a r t . Yes; plus—well, it was organized primarily to main­
tain Mr. Insull’s control of Insull Utility Investments (Inc.).



STOCK EXCHANGE PRACTICES

1603

Mr. P ecora . And officers of Halsey, Stuart & Co. became executive
officers of Corporation Securities Co. of Chicago from the very
beginning of its existence.
Mr. S tu art . Yes, sir.
Mr. P ecora . And the offices of Corporation Securities Co. of Chi­
cago were the sarrte offices as Halsey, Stuart & Co., were they not?
That is, they were housed in the same building.
Mr. Stu art . 201 South LaSalle Street, but they were not the same
offices but were in the same building.
Mr. P ecora . In the same building.
Mr. S tuart . Yes, sir.
Mr. P ecora . The building of Halsey, Stuart & Co. in Chicago.
Mr. Stuart . In the Rookery Building.
Mr. P ecora . N ow then, when your company transferred those
27,000 shares of common stock of Insull Utility Investments (Inc.),
to Corporation Securities Co. of Chicago, at what figure were they so
transferred, at what price?
Mr. S tuart . Mr. McNeill will have the details-----Mr. P ecora (interposing). Don’t you recall the price at which
they were taken over by Corporation Securities Co. of Chicago?
Mr. Stuart . They were taken over at just what the shares cost us.
Mr. P ecora . Weren’t they taken over at $100 par value?
Mr. Stuart . In cash.
Mr. P ecora . Weren’t they taken over at a valuation of $100?
Mr. S tuart . At market value.
Mr. P ecora . At a valuation of $100, whether market value or not?
Mr. Stuart . That is correct.
Mr. P ecora . Those shares that were given to you at an apportioned
value of $10 a share at the outset, were thereafter transferred by your
company to another Insull company, of which the officers of your
company were the executive officers, at a valuation of $100 per share;
is that correct, Mr. Stuart?
Mr. Stuart . The market value was 100. But won’t you let me say
something, because this does not sound right if left in that way.
Mr. P ecora . Well, we let you say many things, but I just want to
question you about this first.
Mr. S tuart . I should like to reply to that.
Mr. P ecora . I s that a correct statement? The statement em­
bodied in my question is correct, is it not?
Mr. S tuart . I think the statement is correct, but the inference to
be drawn from it is not correct.
Mr. P ecora . The inference that you would draw might be different
from the inference some one else would draw, do you mean?
Mr. Stu art . Won’t you let me-----Mr. P ecora [interposing]. I don’t think we ought to stop here and
discuss inferences with the witness, Mr. Chairman. Let us get the
facts on the record.
Mr. Stuart . Well, I should like to explain that.
Mr. P ecora . At the time of the organization of Insull Utility
Investments (Inc.), which took place in December of 1928, there was
another angle to the financial set-up of that company in which Halsey,
Stuart & Co. participated, and that has reference to your company
acquiring at the outset $6,000,000 at par of those debenture notes,
is that correct?



16 04

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . N o w , those debentures had warrants attached to
them, did they not?

Mr. S t u a r t . Yes.
Mr. P e c o r a . And what rights were conferred by those warrants
upon the holders?
Mr. S t u a r t . May I see that prospectus, Senator?
Senator R e y n o l d s . Certainly.
Mr. S t u a r t . The same as o n the prior preferred.
Mr. P e c o r a . That is, to buy five shares of common stock at $ 1 5
a share for each $100 of par value of debentures, is that correct?
Mr. S t u a r t . Yes.
Mr. P e c o r a . N o w , when your company purchased those $6,000,000
face value of debenture notes, it thereby acquired the right to buy
300,000 shares of common stock of Insull Utility Investments (Inc.)
at $15 a share, is that correct?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Were those rights exercised by your company?
Mr. S t u a r t . The rights—just one second. $4,000,000 of them
were sold to the public.
Mr. P e c o r a . No; that is not my question. Were those rights to
buy 300,000 shares of common stock of Insull Utility Investments
(Inc.) at $15 per share exercised by you?
Mr. S t u a r t . No; they were not.
Mr. P e c o r a . Did y o u sell the rights?
Mr. S t u a r t . We sold $4,000,000 of debentures and kept $2,000,000
of them.
Mr. P ecora. Did you sell the rights that you kept?
M r. S tuart . We did.
Mr. PpcoRA. Did you sell the $4,000,000 of debentures ex warrants
or with warrants?
Mr. S t u a r t . With warrants.
Mr. P e c o r a . Are you sure of that?
Mr. S t u a r t . Yes, sir.
Mr- P e c o r a . N o w when did your company exercise the rights
attaching to the $2,000,000 worth of debenture notes that you kept
and did not sell to the public? If you can not answer that now, we
will come back to it later, Mr. Stuart.
Well now, just answer the question, Mr. Stuart, and do not give
us a statement that you have just referred to in a desire to give the
whole picture. We will get the whole picture question by question.
Can you not answer the question, Mr. Stuart?
Mr. S t u a r t . Y o u are asking me the time, and I am looking it up.
May I hear that question once more?
(Thereupon the question referred to was read to the witness, as
follows:)
Now when did your company exercise the rights attaching to the $ 2 ,0 0 0 ,0 0 0
worth of debenture notes that you kept and did not sell to the public?

Mr. S t u a r t . I will have to look it up and tell you. I can not
tell you.
Mr. P e c o r a . Well, now, the $4,000,000 par value of those deben­
ture notes that your company sold to the public were sold at a
premium, were they not?



STOCK EXCHANGE PRACTICES

1605

Mr. Stu art . They were sold at par.
Mr. P ecora . All sold at par?
Mr. S tuart . Yes, sir.
Mr. P ecora . Are you sure of that?
Mr. S tuart . Yes, sir.
Mr. P ecora . H ow long after your company acquired those
debentures did it sell at par to the public?
Mr. S tuart . Oh, at once.
Mr. P ecora . At once?
Mr. Stuart . Yes, sir.
Mr. P ecora . That is, you had a market ready for them at the time
you acquired them, did you?
Mr. S tuart . Well, within a day or two of it.
Mr. P e c o r a . Now what was the profit to your company from that
transaction?
Mr. Stuart . Only the 30,000 shares of common stock which we
bought at 10.
Mr. P ecora . Did you buy it at 10 or was it allocated to you at the
valuation of 10, which was given to you without any consideration?
Mr. Stuart . That is right; it was allocated at 10.
Mr. P e c o r a . N o w , did your company look into that transaction
in order to get a profit represented by the 3 0 ,0 0 0 shares of the common
stock allocated to you at $10?
Mr. Stuart . Yes, sir.
Mr. P ecora . That is all it expected to make out of this 2 or 3-day
transaction?
Mr. Stuart . That is right.
Mr. P e c o r a . N o w , did your company dispose of those 3 0 ,0 0 0 shares
of the common stock?
Mr. S tuart . Ultimately, in the same way as the 27,000 shares.
Mr. P ecora . That is, you transferred those shares to the Corpor­
ation Securities Co. of Chicago shares at $100?
Mr. Stuart . At the market, yes.
Mr. P ecora . And it was then the market value, was it?
Mr. Stuart . Yes, sir.
Mr. P ecora . That $100 was then the market value of this common
stock?
Mr. Stu art . Yes, sir.
Mr. P ecora . That you took over at 10?
Mr. S tuart . Yes, sir.
Mr. P ecora . That would be $3,000,000 valuation at the market
at the time you transferred it to the Corporation Securities Co. of
Chicago?
Mr. S tuart . Yes, sir.
Mr. P ecora . The $2,700,000 valuation at the market when you
transferred the other 27,000 shares?
Mr. S tuart . Yes, sir.
Mr. P ecora . And that was the consideration, commission, bonus,
or call it whatever you please, that your company got from this
Insull company for the 2 or 3 day participation in the financial set-up
of the company at its outset?
Mr. S tu a r t. N o; we got the 57,000 shares which were allocated at
$10. That was the value to us. We decided not to sell that stock.
It ultimately became worth, at the highest point, nearly $150 a share.



1606

STOCK EXCHANGE PRACTICES

It is not fair to say that such a fund represents our compensation.
Our total compensation, so far as this transaction was concerned,
was 57,000 shares of stock allocated to us at $10 a share, which was
all we were willing to pay for it.
Mr. P ecora . Y ou do not mean to say that you actually paid
anything for it in dollars and cents, do you?
Mr. S tuart . Oh, yes.
Mr. P ecora . Well, the only thing you paid for it in dollars and
and cents was the difference for the $6,000,000 valuation in price at
which you took over 60,000 shares of the preferred stock, and the
reselling of that same stock within a day or two thereafter-----Mr. Stuart (interposing). No; the 6,000,000 debentures.
Mr. P ecora . The 6,000,000 debentures you sold, then, within two
or three days, to the public at par?
Mr. S tu art . Yes, sir.
Mr. P ecora . And you took no loss on those?
Mr. S tu a r t. N o, sir.
Mr. P ecora . And the $2,000,000 of debentures which remained in
your company were sold eventually in what fashion and to whom?
Mr. S tuart . Eventually the warrants were detached.
Mr. P ecora . Y ou mean those warrants-----Mr. S tuart (interposing). On the 2,000,000.
Mr. P ecora . Y ou mean warrant® which represented rights to buy
five shares for every one of the stock at $15 a share; is that right?
Mr. S tuart . Yes, sir.
Mr. P e c o r a . So that beyond the right to buy 100,000 shares of the
common stock at $15 a share, that is all?
Mr. Stu art . Yes, sir.
Mr. P ecora . When did you turn those $2,000,000 of debentures
back?
Mr. S tu art . I would have to look that up.
Mr. P ecora . Well, about when?
Mr. Stuart . In the fall of 1929.
Mr. P ecora . Was it not in June, 1929?
Mr. Stu art . I had better look it up to be sure.
Mr. P ecora . Well, it was some time in 1929?
Mr. S tuart . It was some time in 1929.
Mr. P ecora . Before the incorporation of the Corporation Securi­
ties Co. of Chicago?
Mr. S tu art . Yes, sir.
Mr. P ecora . N ow , at the time you turned those $2,000,000 of
debentures back to the other Insull company, you kept those rights?
Mr. S tu art . Yes, sir.
Mr. P ecora . What was the market price of the common stock of
the Insull Utility Investments (Inc.) at the time you turned back
those $2,000,000 of debentures?
Mr. S tu art . Well, I don’t have the-----, Mr. P ecora . Well, it was around 100, was it not?
Mr. S tu a r t . I do not know.
Mr. P ecora . It was much more than $10, was it not?
Mr. S tu art . It was much more than $10.
Mr. P ecora . It was at least $50 a share, was it not?




STOCK EXCHANGE PEACTICES

1607

Mr. S t u a r t . It was an amount which realized a total profit of
about $2,000,000, which we voluntarily gave the Insull Utility Invest­
ments (Inc.) about one-third of it.
Mr. P e c o r a . Well, you say you voluntarily gave that corporation
one-third of $2,000,000?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . A s a g if t ?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . What was the Insull Utility Investments (Inc.) doing,
standing on a comer with a tin cup and you dropped in $666,000
into it for it?
Mr. S t u a r t . No; but as I have already tried to explain, that the
price of the stock went so high, and so fast, away beyond anybody’s
dream, or the thought of anybody that it would do, that we decided
that we would keep 2,000,000 of debentures, and we thought we
should give it back-----Mr. P e c o r a (interposing). You were conscience-stricken and you
decided to give it back?
Mr. S t u a r t . We thought the company should have it back.
Senator R e y n o l d s . Y o u were a member o f the finance committee
o f the Insull Utility Investments (Inc.)?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . And also a director of the Insull company?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . S o when you handed that money back to the
Insull company you were really taking the money out of your righthand pocket and putting it into your left-hand pocket?
Mr. S t u a r t . No.
Senator R eynolds . Why, you had a large interest in that com­
pany?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . Y o u were interested in the company as a
director, and financially interested. If you had not been financially
interested, do you think you would have turned that money back
to them?
Mr. S t u a r t . Yes; we might have under those circumstances.
Senator R eynolds . You might have, but would you have?
Mr. S t u a r t . Yes; we would, because we wanted to in this case.
Senator R e y n o l d s . Y o u were greatly interested in the Insull
company?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . Financially interested?
Mr. S t u a r t . Financially interested.
Senator R e y n o l d s . Y ou were going to get your pro rata share of
the profits?
Mr. S t u a r t . We were interested; yes.
Senator R e y n o l d s . Isn’t that a fact, you were?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . And then you were transferring that money
from one of your pockets to the other?
Mr. S t u a r t . I would not say that.
Senator R e y n o l d s . Would you not say that was really the case?
Mr. S t u a r t . N o .
Senator R e y n o l d s . Did you not get a part of that money?



1608

STOCK EXCHANGE PEACTICES

Mr. S t u a r t . Only what little came back to us as a relatively small
stockholder.
Senator R e y n o l d s . But you were a stockholder?
Mr. S t u a r t . Yes, sir. But a comparatively small stockholder.
Senator R e y n o l d s . And you knew that some of that money would
come back?
Mr. S t u a r t . Yes.
The C h a i r m a n . Why did you not give it back to the public who
had overpaid?

Mr. S t u a r t . Senator, we did not act for everybody. We were
buying.
The C h a ir m a n . They were misled by the circulars of the company
of which you were a director.
Mr. S t u a r t . Well, I did not know that the public wanted the stock
so badly, they paid a big price for it.
Senator R e y n o l d s . Did you sell any of that stock to your com­
pany, the company of which you are president?
Mr. S t u a r t . No; w e s o l d n o s t o c k .
Senator R e y n o l d s . Y o u sold debentures?
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . Have you one of the prospectuses of that?
Mr. S t u a r t . Of the debentures?
Senator R e y n o l d s . Yes.
Mr. S t u a r t . Yes.
Senator R e y n o l d s . May I see one of the prospectuses?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . I s this one of them, Mr. Stuart (handing paper to the
witness)?
| jM r. S t u a r t . Yes; this is one of them.
[
£ Senator W a l c o t t . Mr. Stuart, what were the approximate earn­
ings on these shares of common stock; do you remember?
Mr. S t u a r t . No; I do not remember what it was.
Senator W a l c o t t . Well, it would be the earnings of all the Insull
securities after paying fixed charges?
Mr. S t u a r t . Yes; all of the surplus earnings of the company.
Senator W a l c o t t . Y o u do not remember what that was?
Mr. S t u a r t . No, sir.
Senator W a l c o t t . Do you remember what it was at any time?
Mr. S t u a r t . No; there Were no earnings given in this original
statement.
Mr. P e c o r a . N o w , Mr. Stuart, in February, 1 9 2 9 , was your com­
pany interested only in the 57,000 shares of common stock of the
Insull Utility Investments (Inc.) that you have told us you got from
Insull for yotlr participation in the financial setup of the company?
Mr. S t u a r t . No; we bought 43,000 shares at 12.
Mr. P e c o r a . From whom?
Mr. S t u a r t . Well, from either the Insull family or the company.
Mr. P e c o r a . When?
Mr. S t u a r t . I should say in January, 1929.
Mr. P e c o r a . Well, did you not buy that under an option? I will
withdraw that. Are those the 43,000 shares that Samuel Insull
individually permitted you to subscribe for at $12 a share out of a
total allotment of 250,000 shares?
Mr. S t u a r t . That is my recollection.



STOOK EXCHANGE PRACTICES

1609

Mr. P ecora . That the company had given to Samuel Insull the
right to buy at $12 a share?
Mr. Stuart . That is my recollection.
Mr. P e c o r a . N o w , when you subscribed for those 4 3 ,0 0 0 shares
at $12 a share were you under any agreement with Mr. Insull not to
dispose of those shares for a substantial period of time?
Mr. Stu art . I think there was, yes; but I do not remember.
Mr. P ecora . Well, now, you answered that question after a con­
sultation with some other gentleman.
Mr. S tu art . Mr. McNeille; yes, sir.
Mr. P ecora . And Mr. McNeille is an officer of the Insull Utility
Investments (Inc.)?
Mr. Stu art . Yes, sir.
Mr. P ecora . His full name is what?
Mr. Stu art . Clarence T. McNeille.
Mr. P ecora . And this Mr. McNeille with whom you just con­
sulted before answering the question, was the president of the Cor­
poration Securities Co. of Chicago when it was organized in October,
1929, was he not?
Mr. Stu art . N o; I think he was secretary.
Mr. P ecora . Secretary?
Mr. Stu art . Yes, sir.
Mr. P ecora . N ow , did you have to consult with Mr. McNeille
before you were able to answer the question as to whether or not
Mr. Insull put you under any agreement or understanding not to
sell those 43,000 shares?
Mr. S tuart . I could not remember. I thought he could remember.
You see, this is four years ago.
Mr. P ecora . Now, did your company have any interest in other
shares of the Insull Utility Investments (Inc.) in February of 1929?
Mr. Stuart . I can not answer.
Mr. P ecora . Why can you not answer?
Mr. Stuart . I do not know what we had in February, 1929.
Mr. P ecora . Y ou were subpoenaed to produce certain documents
and records from the files of your company at this hearing, were you
not?
Mr. S tuart . Yes, sir.
Mr. P ecora . Have you produced the records that the subpoena
called for?
Mr. S tu a r t. N o, sir.
Mr. P ecora . Why not?
Mr. Stuart . Because we were relieved from doing that, I thought.
Mr. P ecora . Well, you were asked to bring in certain specific
documents, were you not?
Mr. Stu art . No, sir. No, sir; my subpoena reads—
Bring with you and deliver to the committee the books and records bearing
upon transactions of the Corporation Securities Co. of Chicago, Insull Utility
Investments (Inc.), and any other Insull subsidiaries.

Mr. P ecora . Have you produced any of the records called for in
that subpoena?
Mr. Stuart . I have not the records, because I thought we were
not to bring any.
Mr. P ecora . Have you produced any records whatsoever?
Mr. Stuart . I have no records; no, sir.



16 1 0

STOCK EXCHANGE PEACTICES

Mr, P ecora . Has Mr. McNeille, to your knowledge, produced
any records from the files of Halsey, Stuart & Go., in answer to the
subpoena?
Mr. Stuart . I think Mr. McNeille has any records that Mr.
Stewart wanted him to get.
Mr. P ecora . N ow, will you see if you can produce a letter ad­
dressed to Utility Securities Co., by Halsey, Stuart & Co., under date
of February 7, 1929?
Mr. M cN e ille . Mr. Pecora, I have two files, and it may help
us—I think, Mr. Tyler, you have numbered those letters. If you can
give me the number I could get it very quickly.
Mr. T y l e r . N o. 238-R.
M r. M cN eille . Is that in the Utility Investments file?
Mr. T y le r . That is written to the Utility Co.
M r. M cN eille . And the number is what?
Mr. T y le r . 238-R.
Senator R eynolds . Mr. Stuart, while they are looking that up,

I want to ask you a question. That prospectus or circular was put
out by your company, was it not?
Mr. S tuart . Yes, sir.
Senator R eynolds . Who wrote that circular?
Mr. Stuart . Well, it was written by some one in our office, I
suppose.
Senator R eynolds . Have you read it?
Mr. S tuart . Oh, yes; undoubtedly.
Senator R eynolds . Was this distributed to the public? It was
distributed to the public, was it not?
Mr. S tuart . Yes, sir.
Senator R eynolds . Over the signature, as it were, of your com­
pany?
Mr. S tuart . Yes, sir.
Senator R eynolds . And for the express and only purpose of making
sale of these securities to the public?
Mr. Stuart . Yes, sir.
Senator R eynolds . I will ask you to state to this committee if
anywhere in that prospectus there is a statement to the effect that
your company was deriving 57,000 shares of common stock?
Mr. S tuart . No; there would not be.
Senator R eynolds . Y ou did not advise them as to anything that
had transpired between you and Mr. Insull?
M r. S tuart . N o, sir.
Senator R eynolds . All right.

There was a Mr. Stuart connected
with the University of Chicago. What Stuart was that?
Mr. S tu art . That is nobody I know.
Senator R eynolds . That is nobody you know?
Mr. Stu art . I do not think so.
Senator R eynolds . N ow , there was a man who worked for the
University of Chicago as a professor, or something, who used to talk
over the radio. You did not know some man who talked over the
radio, by the name of “ Old Counsellor?”
Mr. S tu art . Yes, sir.
Senator R eynolds . I tried to get the name. Do you know any­
thing about that gentleman?
Mr. S tuart . Yes, sir.



STOCK EXCHANGE PRACTICES

1611

Senator R eynolds . Yes. Who employed that gentleman?
Mr. Stuart . We employed him.
Senator R eynolds . Who gave him the name of “ Old Counsellor” ?
Who gave him that name?
Mr. Stuart . I think it was originally selected by the National
Broadcasting Co.
Senator R eynolds . Who selected that name?
Mr. S tuart . I think they did. It was the original plan.
Senator R eynolds . They selected the name of “ Old Counsellor” ?
Mr. S tuart . Yes, sir.
Senator R eynolds . Do you know why they selected the name
of “ Old Counsellor” ?
Mr. Stuart . Yes. I think that Mr. Aylesworth, president of the
National Broadcasting Co., had been looking around for some time to
get somebody to sponsor a financial program——
Senator R eynolds (interposing). To sell your securities?
Mr. Stuart . Well, he wanted to get a bank or an insurance com­
pany, or some financial institution to give some financial program.
Senator R e y n o ld s . T o sell securities?
Mr. S tu a r t. N o ; I would not say that.
Senator R eynolds . Well, who paid the “ Old Counsellor” ?
Mr. S tuart . Well, just let me finish. So they decided that they
wanted an investment broker, or some well-known investment house,
and they had the idea that this program should be fathered by some
one called “ Old Counsellor.”
Senator R eynolds . The “ Old Counsellor” ?
Mr. Stuart. We agreed to that, but under our agreement we agreed
never to mention the name of a bond or security over the radio, or the
price. So there were never any bonds sold over the radio, or any
attempt made to sell bonds.
Senator R eynolds . Well, was there any mention made by this
“ old gentleman with the mellow voice” as to your company?
Mr. S tuart . Oh, yes; we sponsored his programs.
Senator R eynolds . Of course. And every time the “ Old Coun­
sellor” talked to the old folks by the fireside, he mentioned the name
of your company?
Mr. S tuart . I presume he did.
Senator R eynolds . You presume he did?
Mr. S tuart . Yes, sir.
Senator R eynolds . And you paid him?
Mr. Stu art . Yes, sir.
Senator R eynolds . And you did that for the purpose of selling
these Insull securities?
Mr. S tuart . Oh, no; I beg your pardon.
Senator R eynolds . At the time you issued this prospectus had
you, as president of that company, made a thorough investigation as
to the actual physical holdings of the Insull company?
Mr. Stuart . Oh, yes; we went into it fully.
Senator R eynolds . And you knew that these securities were worth
dollar for dollar?
Mr. Stuart . We knew that the assets behind them were worth a
great deal more than the gold debentures.
Senator R eynolds . Well, would the Insull company pay to the
investors for the assets now a great deal more?



1612

STOCK EXCHANGE PEACTICES

Mr. S tu a r t. Then they were-----Senator R eynolds (interposing). I mean now.
Mr. S tu a r t. At the present time they are worth*very little.
Senator R eynolds . H ow much?
Mr. S tu art . Practically nothing.
Senator R e y n o ld s . We would like to know.
Mr. S tuart . Practically nothing.
Senator R eynolds . Thank you.
Senator F letcher . N ow , those 43,000 shares that you got, Mr.
Stuart, did you sell those to the public?
Mr. S tu art . N o ; we sold those afterwards to the Corporation
Securities Co. of Chicago.
Senator F l e t c h e r . T o the Corporation Securities Co. of Chicago?
Mr. S tu a r t. Yes, sir.
Senator F letcher . Well, you got them as an investment, rather
than for sale?
Mr. S tuart . Yes; we never sold any of the stock we acquired,
except to the Corporation Securities Co. of Chicago.
Mr. P ecora . N ow, when you sold those 43,000 shares which you
acquired at $12 a share to the Corporation Securities Co. of Chicago,
they were transferred at the then market of approximately $100 a
share?
Mr. S tu a r t. Yes, sir.
Mr. P ecora . Making a profit of $88 a share on them?
Mr. S t u a r t . N o, sir.
Mr. P ecora . Well, the difference between $100 a share and $12 a
share is $88 a share?
Mr. S tuart . I ask you to let me explain.
Mr. P ecora . Mr. Stuart, is there anything wrong with the mathe­
matical calculation which reaches the conclusion that taking $12 a
share from $100 a share makes a difference of $88 a share?
Mr. S tuart . Yes; but it was not that. We took common stock.
We did not take cash.
Mr. P ecora . Did you consider, in taking that common stock of
the Corporation Securities Co. of Chicago that you were getting
bilked?
Mr. Stu art . N o ; but it was common stock, a sale for common
stock.
Mr. P ecora . And at the time you sold it it was $100 a share?
Mr. S tu art . It was selling $100 a share.
Senator R eynolds . Who got all this money?
Mr. S tu art . What m oney?
Senator R eynolds . All this money you collected from the public.
Mr. S tuart . Who got it? We took stock for it, as I just explained.
Senator R eynolds . Who got all the money that these investors
paid in? Where is the money?
Mr. S tu art . I do n ot think I know what you mean b y the public.
Mr. P ecora . On the debentures.
Senator R eynolds . The debentures. Where is it?
Mr. S tuart . Technically, Senator-----Senator R eynolds . H ow much is in the company?
Senator B rookhart . Some of it is in Greece.
Senator R eynolds . H ow much is in the treasury?
Mr. S tuart . It is bankrupt.



STOCK EXCHANGE PRACTICES

1613

Senator R eynolds . I know, but where did the money go to?
Mr. S tu art . It went into the company and was invested in se­
curities.
Mr. P ecora . The Insull securities?
Mr. S tuart . Yes, sir.
The C hairman . A s the “ Old Counsellor” recommended.
Senator R eynolds . I want to know whether there were a large
number of the public invested in it.
Mr. S tuart . A large number?
Senator R eynolds . Five hundred thousand? That is not many
in buying securities, is it?
Mr. Stuart . Yes, sir.
Senator R eynolds . Who got that money?
Mr. S tuart . It was like any other securities that were sold. The
money went into the treasury.
Senator R eynolds . All right. Who has hold of the treasury now?
Mr. Stuart . I do not know.
Senator R eynolds . Y ou are a director?
Mr. Stuart . Yes; but the company is in bankruptcy.
Senator R eynolds . What became of the money that came in from
the sale of securities?
Mr. Stuart . It was all invested.
Senator R eynolds . What securities?
Mr. Stuart . Mostly securities of Insull companies.
Senator R eynolds . All right. Those who bought the stock, where
is that money?
Mr. Stuart . Depreciation, that is the answer to it.
Mr. P ecora . Mr. Stuart, when were those radio talks initiated by
your company?
Mr. Stuart . I think in the spring of 1928.
Mr. P ecora . And they were delivered weekly?
Mr. Stuart . Delivered weekly.
Mr. P ecora . To the accompaniment of music?
Mr. Stuart . Yes, sir.
Mr. Stuart . Yes, sir.
Mr. P ecora . And how long did they continue?
Mr. Stuart . Until June or July of 1932.
Mr. P ecora . And do you recall who made the first talk upon the
initiation of the radio program policy of your company back in 1928?
Mr. S tuart . Yes, sir.
Mr. P ecora . Who?
Mr. Stuart . Representative McFadden.
Mr. P ecora . Congressman Louis T. McFadden, of Pennsylvania?
Mr. S tuart . Yes, sir.
Mr. P ecora . Who asked him to do it?
Mr. Stuart . I think the National Broadcasting Co. Perhaps I
may have asked him. I do not remember.
Mr. P ecora . Well, the National Broadcasting Co. would not pick
out your introducer, would it?
Mr. Stuart . Oh, they might.
Mr. P ecora . Well, as a matter of fact, did not you ask Congress­
man McFadden to do it?
Mr. S tuart . I may have done so.



1614

STOCK EXCHANGE PRACTICES

Mr. P ecora . Congressman McFadden at that time was a member
of the Banking Committee of the House, was he not?
Mr. Stuart . Yes, sir.
Mr. P ecora . And known as such throughout the country?
Mr. S tuart . Yes, sir.
Mr. P ecora . Who wrote the speech that Congressman McFadden
delivered upon the initiation of this policy?
Mr. Stuart . He wrote it himself.
Mr. P ecora . What is that?
Mr. S tuart . So far as I know, he wrote it himself.
Mr. P ecora . I am reminded that Congressman McFadden at that
time was the chairman of the House Banking Committee; is that so?
Mr. S tuart . I think it says so.
Mr. P ecora . N ow , I show you this printed pamphlet entitled
“ The Purpose of the Halsey, Stuart & Co. Radio Programs, a Re­
print of the Talk by Congressman Louis T. McFadden of Pennsyl­
vania, who, as Guest Speaker, Introduced the Halsey, Stuart «& Co.
radio program on April 5, 1928. ”
Do you recognize that as being the speech delivered by the Con­
gressman on that occasion?
Mr. S tu art . Yes, sir.
Mr. P ecora . May I read it into the record, Mr. Chairman? It is
not so very long.
The C hairman . Yes.
Mr. P ecora . (Reading:)
T

he

P urpose

of th e

L

H

alsey

o u is

T.

, S t u a r t & Co. R a d i o P r o g r a m s
M cF a d d e n o f P e n n s y l v a n ia

by

C

o n gressm an

When I was asked to introduce this new Halsey, Stuart & Co., radio hour,
I accepted very willingly. I did so because of my own deep personal interest in
matters of banking and finance, but more particularly because of the need that
I know exists so widely for a broader understanding of investment fundamentals
to meet which is, I understand, the purpose of this interesting undertaking.
I have been connected with banks and banking now for 36 years; practically
my first job was in a bank, first as office boy and then progressing through the
various stages to the position of cashier, and finally to the presidency of a bank
in my home community. It was that experience which guided me in shaping
the now well-known details of the McFadden Banking Act. It was the same
experience which brought home to me the urgent need that exists for more en­
lightened understanding of investment.
Never before in the world’s history have so many people had a surplus above
living requirements as in this fortunate country of ours during the past several
years. Not only has there been a vast increase in wealth, but a widespread
distribution of it.
And with the broader distribution of wealth, there has undoubtedly come a
better understanding of how to use it, but yet much, I fear, still remains to be
done along this line. The vast sums that find their way into fraudulent schemes
every year is convincing evidence of that. The law, of course, has done much to
protect credulous investors against what is the flagrantly, but that does not touch
the broad field of honest investment in which the average man also needs to be
guided.
So I think the house of Halsey, Stuart & Co., is doing a fine public service in
employing this vast network of radio communication to broadcast the principles
of sound investment to millions of listeners. It is really a unique undertaking
in the history of finance. Never before, to my knowledge has the subject of
investment been broadly discussed over the radio. People, to be sure, have read
much editorial comment and theoretic discussion of the subject. This certainly
is the first instance of practical knowledge and experience of a great investment
house being made so directly available to the general public.




STOCK EXCHANGE PEACTICES

1615

There are great social as well as economic potentialities in a sound investment
viewpoint among the people of our Nation. Clearly there can be no economic
progress unless people conserve some part of their earnings. If every one lived
up to his income, manifestly there would be no surplus left either for his own pro­
tection or for financing the great undertakings which are a part of to-day’s life.
The will to save, despite its importance, is, however, only a part of the task.
There must be knowledge of how to employ one’s savings after they have been
accumulated.
With both the will to save prevalent among our people, and the knowledge of
how to make use of their savings, America will inevitably march forward in a
material way even faster than in the prosperous years behind us. Nor will this
progress be merely material. It is bound to be reflected also in social, yes, even
in the spiritual standards of the people. Give our average citizen an invested
surplus, be it only a small amount, perhaps employed in the ownership of his
home or in the form of sound securities, and you have a better, more useful citizen
He is more stabilized, more interested in affairs of state and of business, less
inclined to be carried away by spurious leaders and unsound doctrines. A nation
of investors will inevitably lend balance to our thinking, our actions, and perhaps
more than any single influence, will fortify and strengthen the foundation upon
which our Government rests.
And so I venture to say, if this forward-looking venture of Halsey, Stuart & Co.
contributes even in part toward the realization of any such accomplishment, vast
good is bound to spring from it. I wish it well.

Senator B rookhart . What is the date of that?
Mr. P ecora . April 5, 1928.
Senator B rookhart . Louis has learned a great deal since that
time.
Senator R e y n o l d s . What did they pay men to make speeches
like that?
Mr. S tuart . Not a dollar.
Senator R eynolds . I mean your lecturers.
Mr. S tuart . The “ Old Counsellor” ?
Senator R eynolds . The “ Old Counsellor.”
Mr. Stuart . We paid him so much a week.
Senator R eynolds . Did you pay him in stock?
Mr. Stuart . Y ou want to be fair, do you not?
Mr. P ecora . Of course.
Mr. S tu art . D o not create the impression that every security
we sold is bad. Of the amount of securities we sold there was an
extremely small part that were bad, so that we are proud of our
record. Now this security that we sold, while 1 in 20 may have gone
wrong, the other 19 were very good. So when you are riding me so
much about the “ Old Counsellor, ” you are giving the impression
that we were selling securities that were bad only. We have sold
some securities that turned out bad, that is true. So has every one
else, but it is a very small proportion of what we have sold.
Mr. P ecora . Mr. Stuart, do you think it is sound of an investment
house offering investments to the public to disclose to the investing
public any and all things in connection with its issues and allied
securities?
Mr. S tuart . I think it should be done.
Mr. P ecora . Y ou think it should be done?
Mr. S tuart . Yes, sir.
Mr. P ecora . Was it done when your company put out the circular
which has already been called to your attention and in which it
offered the 5 per cent gold debenture bonds to the public in the Insull
Utility Investments (Inc.)?
Mr. S tuart . It was not done.



1616

STOCK EXCHANGE PRACTICES

Mr. P e c o b a . It was not done?
Mr._ S t u a r t . It was not the custom in the profession to do it at
that time.
Mr. P e c o r a . You mean it is not the custom to disclose it to the
public-----Mr. S t u a r t . It is not customary when offering securities of cor­
porations or affiliates, and whether they——
Mr. P e c or a (interposing). It was not then fair to the public?
Mr. S t u a r t . Excuse me. I think it should be in the future.
Mr. P e c o r a . It was not done in the past?
Mr. S t u a r t . No.
The C h a ir m a n . It may have to be done in the future.
Senator W a l c Ot t . I was going to say that the law in England
prohibits this sort of thing.

Mr. P e c o r a . The British companies act is based upon full disclosure.
Senator W a l c o tt . Yes.
Mr. P e c o r a . Now, Mr. Stuart, when your company put out this
circular advertising debenture bonds of the Insull Utility Investments
(Inc.), instead of consulting the public, it was concealing its Own
profit interests in the Insull Utility Investments (Inc.)?
M r . S t u a r t . No.
Mr. P e c o r a . It concealed it in not putting it out?
Mr. S t u a r t . It was not the customary thing to do.
Mr. P e Co r a . The fact is, it was concealed?
Mr. S t u a r t . We did not state it, that is true.
Mr. P e c o r a . Whether it was customary or not.
Mr. S t u a r t . Yes, sir.
Senator R e y n o l d s . And you did not state in that circular that you
were a member of the finance committee and a director of the Insull
Utility Investments (Inc.) at the time your company was endeavoring
to make the sale to the public?
Mr. S t u a r t . Yes; it is there as a director. At least as a director.
Senator R e y n o l d s . A director?
Mr. S t u a r t . Yes; I am not sure it says finance committee, but
perhaps it does. I am on there as a director, on the prospectus.
Mr. P e c o r a . N o w , Mr. Stuart, this transaction by which your
company acquired the securities from the Insull Utility Investments
(Inc.) all took place on Juanry 17, did it not, of 1929?
Mr. S t u a r t . Yes—just a moment, please.
Mr. P e c o r a . And that happens to be the date on which the trading
in the common stock of the Insull Utility Investments (Inc.) took
place on the Chicago Stock Exchange?
Mr. S t u a r T. May I correct that and make it the 16th?
Mr. P e c o r a . The 16th of January?
Mr. S t u a r t . Yes, please.
Mr. P e c o r a . Well, the 17th of January was the date on which the
trading in these issues commenced on the Chicago Stock Exchange,
was it not?
Mr. S t u a r t . I do not know. I have not that information.
Mr. P e c o r a . I s there any way by which you can ascertain that,
either by consultation with Mr. McNeille, or anybody else?
Mr. M cN e il l e . I think that was brought out by Mr. Davis of
the Chicago Stock Exchange.



STOCK EXCHANGE PRACTICES

1617

Mr. P e c o r a . Yes. Mr. Stuart, you have attended all these
sessions of the committee this week?

Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And you have heard all the witnesses who have
testified this week?
Mr. S t u a r t . I have heard most of them.
Mr. P e c o r a . Yes. Now it is agreed that January 17, 1929, was
the date on which the trading began on the Chicago Stock Exchange
in the Insull Utility Investments (Inc.)?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . D o you know at what price the common stock of the
Insull Utility Investments (Inc.) sold on the Chicago Stock Exchange
on that opening day?
Mr. S t u a r t . I do not know.
Mr. P ec o r a . Was it not $30 a share?
Mr. S t u a r t . I do not know.
Mr. P ec o r a . Have you not heard this week witnesses say that?
Mr. S t u a r t . Yes; I have heard that.
The C h a ir m a n . The witness said it inadvertently this morning.
Mr. P ec o r a . And then you heard the witnesses testify that on the
second day’s trading in that stock the stock went up to $40 a share?
Mr. S t u a r t . I heard that yesterday. I heard Mr. Davis say it.
Mr. P ec o r a . N o w when you took over the 43,000 shares of stock
from Mr. Insull under the conditions you have described, in January,
1929, it was allocated to you because of discussions among you and
you considered that was the fair and reasonable value of that stock?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And the following day it opened at $30 a share; is
that right, on the public exchange?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And the second day at $40 a share?
Mr. S t u a r t . Yes.
Mr. P e c o r a . It reached $ 4 0 a share; is that correct?'
Mr. S t u a r t . I so understand.
Mr. P e c o r a . Well, then, did you consider that the public was
being put in the position, by these quotations on the stock exchange,
of paying three or four times what you thought that stock was worth?
Mr. S t u a r t . Well, we did not have anything to do with that, you
see. We did not sell any of the stock. We did not have anything to
do with it.
Mr. P e c o r a . Are you sure you did not buy any of that stock in
open trade?
Mr. S t u a r t . No. We may have bought for the account of some
customer.
Mr. P e c o r a . Then, if you bought stock of the Insull Utility
Investments (Inc.) at $40 and paid that for it, you bought stock
which had been allocated to you the day before at $10 a share, and
which had been agreed upon as a fair and reasonable price in con­
ferences between you and the Insulls?
Mr. S t u a r t . Yes; that would be so.
Mr. P ec o r a . Did you advise your customer about buying that
at that price, that it was three or four times what you had bought it
for?

119852—33—PT5----- 15




1618

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . No; we would not buy any. The only way we would
do it would be by some one asking us to buy it. We were not dealing
in stock.
Mr. P e c o r a . D o you know how anybody not acquainted with it
could have acquired a notion of the actual value of those common
issues on the day they were issued to you and Insull?
Mr. S t u a r t . Excepting the public’s notion what it was worth.
Mr. P e c o r a . What did the public have before it on the 17th of
January?
Mr. S t u a r t . I should say all they had was a prospectus.
Mr. P e c o r a . That your company had put out?

Mr. S t u a r t . Or the Utility Securities Co. (Inc.) had put out.
Mr. P e c o r a . Then that prospectus you have was worded in such
a fashion as to cause the investing public to believe that the comm on
stock was worth $40 a share?
Mr. S t u a r t . Apparently it did.
Mr. P e c o r a . Apparently it did?
Mr. S t u a r t . Yes, sir.
Mr. P ec o r a . That was put out by the people who, after discusssion,
had come to the conclusion that it was worth $10 a share?
Mr. S t u a r t . The public did not agree with us. They thought it
was worth much more.
Mr. P e c o r a . And you knew much more than the public, did you
not?
Mr. S t u a r t . We thought we did.
Mr. P ec o r a . Y ou had greater facilities for knowing?
Mr. S t u a r t . We thought $10 a share was enough for this.
Mr. P e c o r a . And you were the organizers of tins company?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And were familiar with all its assets?
Mr. S t u a r t . Yes, sir.
Senator B r o o k h a r t . Does the circular say that i t is worth $ 1 0 a
share?
Senator R e y n o l d s . No.
Mr. P e c o r a . No; it does not show $10 a share.
Senator W a l c o tt . Mr. Chairman, does the prospectus give any
earnings per share? That would be a guide. You do not recall
what that was?
Mr. S t u a r t . No.
Mr. P e c o r a . I ask that this circular relating to the Insull Utility
Investments (Inc.), for the $6,000,000, 5 per cent gold debentures,
series A, be spread on the record.
The C h a ir m a n . Without objection, that will be done.
(The circular is printed in the record in full, as follows:)
E xhibit 7

New Issue— Insull Utility Investments (Inc.) $6,000,000 5 per cent gold
debentures, series A (with stock purchase warrants) dated January 1, 1929— due
January 1, 1949.
In sull U

Investm
O f f ic e o f

t il it y

ents
the

( I n c .),
P r e s id e n t ,

Chicago, January 16, 1929.
& Co. (Inc.).
G e n t l e m e n : In connection with your purchase of $6,000,000 5 per cent gold
debentures, series A, of Insull Utility Investments (Inc.), I take pleasure in
giving you the following information:
H

alsey,

St u a r t




1619

STOCK EXCHANGE PRACTICES
BUSINESS

Insull Utility Investments (Inc.) has been organized under the laws of Illinois
to carry on an investment business and to acquire, hold, sell, and underwrite
securities of all kinds. The company, in consideration of the issuance of 40,000
shares of preferred stock and 764,000 shares of common stock and from the pro­
ceeds of the sale of these debentures and 60,000 shares of prior preferred stock,
will acquire the entire capital stock of Insull, Son & Co. (Inc.), and among other
securities, substantial blocks of common stock of Commonwealth Edison Co.,
The Peoples Gas Light & Coke Co., Middle West Utilities Co., and Public Service
Co. of northern Illinois. The assets of the company, including its initial acquisi­
tions of securities (valued at current market prices) and cash on hand and cash
to be received prior to December 31, 1929, pursuant to contracts made, have an
aggregate value of approximately $27,000,000 as compared with the $6,000,000
principal amount of debentures to be presently outstanding. The company will
receive par and accrued interest in cash for this issue of its debentures and $100
per share and accrued dividends in cash for this issue of its prior preferred stock.
Capitalization
[Upon completion of the present financing]
Author­
ized

Pnndp.d debt: fi ner <wit, eold debentures, series A (this issue-)
Capital stock:
250.000
$5.50 prior preferred (no par)............................................................. ........ shares..
Preferred (no par)................................................................................
250.000
Comm on (no par)................................................................................. ............do___ *3,000,000

T o be out­
standing
$6,000,000
60,000
140,000
3 1,014,200

1 Annual dividends will be payable for the first year at $2 per share, for the next year at $3 per share, for
the next year at $4 per share, for the next year at $5 per share, and thereafter at $6 per share.
2 Sufficient shares of com m on stock will be reserved against the exercise of warrants attached to the
debentures and the prior preferred stock. The purchasers of the 40,000 shares of preferred stock have been
given an option for 2 years to purchase 200,000 shares of com m on stock at $15 per share.
a The 1,014,200 shares of com m on stock will be issued in part paym ent for the assets constituting the
initial acquisitions of the com pany, as above stated, and for $3,000,000 in cash to be paid to the com pany
before Dec. 31, 1929.

STOCK PURCHASE WARRANTS

Each debenture will have attached thereto a nondetachable warrant (exercis­
able as an entirety only) entitling the holder of the debenture, upon presentation
thereof to the company for the detachment and cancellation of the warrant, to
purchase common stock of the company as follows: Fifty shares at $15 per share
if purchased on or before June 30, 1929; or 40 shares at $20 per share if purchased
after June 30, 1929 and before January 1, 1930; or 30 shares at $25 per share if
purchased after December 31, 1929 and before July 1, 1930. The holders of the
60,000 original shares of prior preferred stock will also be given the right for each
share held by them to purchase common stock as follows: Five shares at $15 per
share on or before June 30, 1929, or four shares at $20 per share between June 30,
1929, and January 1, 1930, or three shares at $25 per share between December
31, 1929, and July 1, 1930. Certificates covering stock purchased through the
exercise of such warrants will be delivered to the purchaser 30 days after the date
of purchase.
EARNINGS

The following is a statement of estimated annual net earnings applicable to
interest charges on these debentures, based upon the present annual income from
the securities to be acquired initially and in 1929 under contracts already made
and the average annual net earnings of Insull, Son & Co. (In c.);
Net income after deducting all expenses and taxes, $1,053,000.
The annual interest requirements on the present issue of $6,000,000 debentures
will be $300,000.
The above statement of earnings does not reflect any cash realization from stock
rights on stocks to be included in the company’s initial acquisitions. Based on
existing market prices of such stocks it is estimated that these rights will have in
the year 1929 a value of approximately $1,015,000.




162 0

STOCK EXCHANGE PRACTICES
DEBENTURE PROVISIONS

The company will covenant in each debenture that so long as any of these’ debentures are outstanding, it will not mortgage or pledge any of its assets without
securing the debentures equally and ratably with the other obligations secured
or to be secured by such mortgage or pledge, except that the company, without so
securing the debentures, may mortgage or pledge any of its assets for the purpose
o f securing loans in the usual course of business for periods not exceeding one year
and may mortgage or pledge property hereafter acquired to secure the purchase
price thereof in whole or in part. The company will further covenant that its
capital stock of any class shall not be redeemed or purchased in whole or in part
when such redemption or purchase will reduce the value of its assets to less than
150 per cent of its indebtedness then outstanding.
DESCRIPTION OF DEBENTURES

These debentures will be dated January 1, 1929, and will be due January 1,
1949. They will be noncallable prior to July J, 1930. Thereafter, they will be
redeemable as a whole or in part at any time upon 30 days’ published notice at
the following prices and accrued interest; to and including January 1, 1934, at
105; thereafter, to and including January 1, 1939, at 104; thereafter, to and
including January 1, 1944, at 103; thereafter: To and including January 1,1946,
at 102; thereafter, to and including January 1, 1948, at 101; thereafter, to ma­
turity at 100. Both principal and interest will be payable at the office or agency
of„the company in Chicago and New York. The interest will be payable semi­
annually February 1 and August 1, in each year (except that the interest for the
first seven months will be payable August 1, 1929, and the interest for the last
five months will be payable at maturity) without deduction for Federal income
taxes now or hereafter deductible at the source not in excess of 2 per cent. Halsey,
Stuart & Co. (Inc.) will be appointed paying agent of the company for the making
of such interest payments. The debentures will be in coupon form, in the de­
nomination of $1,000, and will be registerable as to principal only.
DIRECTORS AND OFFICERS

The following are the directors and officers of the company. The president
and the two vice presidents of the company have agreed to serve the company
for a period of two years without compensation.
Samuel Insull, president; Martin J. Insull, vice president; Samuel Insull, jr.,
vice president; P. J. McEnroe, secretary and treasurer; Walter S. Brewster, of
Russell, Brewster & Co.; Britton I. Budd, president Public Service Co. of Northern
Illinois; Edward J. Doyle, vice president Commonwealth Edison Co.; Louis A.
Ferguson, vice president Commonwealth Edison Co.; John F. Gilchrist, vice
president Commonwealth Edison Co.; John H. Gulick, vice president Common­
wealth Edison Co.; George F. Mitchell, vice president The Peoples Gas Light
& Coke Co.; Stuyvesant Peabody, president Peabody Coal Co.; Marshall E.
Sampsell, president Central Illinois Public Service Co.; H. L. Stuart, president
Halsey, Stuart & Co. (Inc.); Waldo F. Tobey of Isham, Lincoln & Beale.
Very truly yours,
S am u el I n su ll , President.
These debentures are offered for delivery when, as and if issued and accepted
by us and subject to the approval of counsel. It is expected that temporary
debentures will be ready for delivery by Halsey, Stuart & Co. (Inc.), on or about
January 25, 1929. All statements herein are official or are based on information
which we regard as reliable and while we do not guarantee them, we ourselves
have relied upon them in the purchase of this security.
Chicago, 111., January 16, 1929.
Circular No. 2409.

Mr. P e c o r a . Your company prides itself on the claim of being the
largest investment dealers in bonds in the country, does it not?
Mr. S t u a r t . We have never made such a statement.
The C h a i r m a n . As a matter of fact, are you not the largest, or
one of the largest?
Mr. S t u a r t . I could not say about the volume, Senator, other
people do.



STOCK EXCHANGE PRACTICES

1621

Mr. P e c o r a . N o w , Mr. Stuart, the only holders of any of the stock
of the Insull Utility Investments (Inc.) on January 17, 1929—that is
the date?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a (continuing). When trading opened on it on the stock
exchange, was your company, you individually, and the Insull
family group; is that not so?
Mr. S t u a r t . I could not answer that. I could not answer.
Mr. P e c o r a . Well, you have heard that testified to by other wit­
nesses here this morning, have you not?
Mr. S t u a r t . I have heard something to that effect, but I know
nothing about it. We took so much stock, subscribed for it, and that
is the limit of our knowledge.
Mr. P e c o r a . D o you know who made the market for the common
stock, of $30 a share, on opening day?
Mr. S t u a r t . I do not.
Mr. P e c o r a . H o w is th e m a r k e t u s u a lly m a d e ?
Mr. S t u a r t . I presume by buyers and sellers.
Mr. P e c o r a . Buyers and sellers representing what class of persons?
Mr. S t u a r t . Buyers and sellers trading through brokers, selling
and buying through brokers.
Mr. P e c o r a . As a matter of fact, do you not know that the mak­
ing of the market is done for a new issue by the persons who are
promoters of the issue?
Mr. S t u a r t . I am entirely unfamiliar with stock operations.
Mr. P e c o r a . Y ou have been a member of the exchange foT many
years?
Mr. S t u a r t . I have been a member of the exchange for 24 years
and I have been on the floor two times in my life.
Mr. P e c o r a . Y o u do not have to be on the floor to be familiar
with their methods, do you?
Mr. S t u a r t . We do not deal in stocks, and I individually do not
deal in stocks, and never have.
Senator F l e t c h e r . Do you have any broker representing you?
Mr. S t u a r t . Oh, no; if a customer asks us to buy anything for
him, we might telephone to a half-dozen different brokers to buy it.
Senator F l e t c h e r . Mr. Stuart, did you, or your “ Old Counsellor”
ever advise the public that these stocks were going wild, and for the
public to beware?
Mr. S t u a r t . Frequently. If you will look at our radio programs
you will see that he did talk, in talk after talk, in the great rises of
1928 and 1929, telling people that the stocks they bought were too
high. He did that over and over again. But no one was paying
any attention to that. Everybody wanted the stock. Bonds were
away down, and stocks were away up. Nobody paid any attention
t o us.
Mr. P e c o r a . Mr. Stuart, did your company ever participate in
any market operations in the stock of Insull Utility Investments
(Inc.)?
Mr. S t u a r t . Not that I recall; no, sir.
Mr. P e c o r a . But you might without your being able at thfe
present time to recall it?
Mr. S t u a r t . We might, yes. I can not say. But I do not
recall it.



1622

STOCK EXCHANGE PEACTICES

Mr. P e c o r a . Have you consulted any of the records of your
office for the purpose of refreshing your recollection about that?
Mr. S t u a r t . No, sir.
Mr. P e c o r a . Have you got that letter, Mr. MacNeille, of Febru­
ary 7, 1929, which I called for?
Mr. M acN eille. Yes, sir.
Mr. P e c o r a . Will you kindly produce it?
Mr. M acN eille. Yes, sir.
Mr. P e c o r a . Now, Mr. Stuart, Mr. MacNeille, of your company,
has just handed me what appears to be a dupliatce original of a letter
dated February 7, 1929, addressed by Halsey, Stuart & Co. to
Utility Securities Co. Will you look at that letter? [Handing same
to the witness.]
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Read it, to yourself.
While the witness is reading that letter, may I read into the record
from a print of one of the “ Old Counsellor's” radio talks on sound
investments, given on May 10, 1928, entitled “ How Should a Widow
with $10,000 Invest Her Money?”
The C h a i r m a n . Y o u may read it.
Mr. P e c o r a . (Reading:)
I am a widow and have just received $10,000 in insurance money. This rep­
resents my total resources. I know nothing about investments and I have already
been besieged by people wanting me to put my money into various things— some
promising a very large return. Can you tell me how to meet the problem of
investing my money safely and getting a good return from it?

I just want to read that portion at this time.
Now, after reading that letter of February 7, 1929, Mr. Stuart,
does that refresh your recollection that as early as February 7, 1929,
or within about three weeks after the opening of the market on the
Chicago Stock Exchange, the opening of trading rather, in the Insull
Utility Investments (Inc.), your corporation entered into a stockselling syndicate agreement with Utility Securities Co., which you
described as another Insull company, with respect to the shares of
the common stock of the Insull Utility Investments (Inc.)?
Mr. S t u a r t . Yes; this letter says that we agreed to sell to Utility
Securities for so much stock.
Mr. P e c o r a . H o w many shares?
Mr. S t u a r t . Ninety-three thousand five hundred shares.
Mr. P e c o r a . Of the common stock of the Insull Utility Invest­
ments (Inc.)?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Now, you said, in the early part of your examination,
that the total number of shares that you and your company acquired
upon the set-up of the Insull Utility Investments (Inc.) was some­
thing like 57,000 shares. Had your company, in the meanwhile,
between January 16, 1929, and the date of this letter, February 7,
1929, acquired a number of shares equivalent to the difference
between the 93,500 shares and the 57,000 shares?
Mr. S t u a r t . No, sir; this stock was stock that was attached to the
2,000,000 debentures that I spoke of that we had not sold.
Mr. P e c o r a . Then you detached the warrants from those $2,000,000 of debentures?
Mr. S t u a r t . Yes, sir.



STOCK EXCHANGE PRACTICES

1623

Mr. P e c o r a . That gave you the right to buy 150,000 shares of
stock?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And had you exercised those rights prior to February
7, 1929?
Mr. S t u a r t . No; I do not think we had. We might have done so.
I am not sure. But that is the arrangement on stock where we gave
one-third of our profit.
Mr. P e c o r a . No; that transaction took place in the fall of 1929,
did it not? You said some time between June and the fall of 1929.
Mr. S t u a r t . It was all a part of the same transaction.
Mr. P e c o r a . Well, in this connection here your company, accord­
ing to this letter of February 7, 1929, was entering into a marketing
operation with another Insull company called Utility Securities Co.,
haying for its purpose the selling in the market of 93,500 shares of
the common stock of Insull Utility Investments (Inc.), was it not?
Mr. S t u a r t . Yes; but so far as we were concerned, it was not a
market operation. We agreed to sell Insull Utility Investments (Inc.)
so much stock.
Mr. P e c o r a . At what price?
Mr. S t u a r t . At not less than $40 a share.
Mr. P e c o r a . Is that all that this letter means, that you were
simply agreeing to sell it at not less than $40 a share?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Ninety-three thousand five hundred shares of this
Insull Utility Investments (Inc.)?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Have you read the letter in full?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . N o w , let us see. The second paragraph of that letter
reads as follows, does it not? (Reading:)
As compensation for your services in this matter you shall retain the selling
price for all shares sold in excess of $40 and up to $42 per share and one-half
of the selling price for all shares sold in excess of $42 per share. The purchase
price for all shares sold by you under this authority, less your commissions,
shall be remitted to us as and when received by you.

Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Well, did not the agreement embodied in this letter
constitute something more than a mere arrangement under which
your company was selling Utility Securities Co.'s 93,500 shares of the
common stock of Insull Utility Investments (Inc.) at a price of not
less than $40 a share?
Mr. S t u a r t . N o , sir; I do not think so.
Mr. P e c o r a . Does it not constitute an arrangement under which
the Utility Securities Co. is to sell those 93,500 shares in the market,
and if it gets more than $42 a share for it, it was to divide with your
company equally all moneys received from those sales in excess of
$42 per share?
Mr. S t u a r t . Yes; but that is simply arranged as to the price we
were to receive for it. That is simply an arrangement in regard to
price.
Mr. P e c o r a . Well, now, is it not a syndicate account—is not this
letter based on a syndicate account whereby your company and the



.1 6 2 4

STOCK EXCHANGE PRACTICES

Utility Securities Co. agreed to stage a market operation for 93,500
shares of the common stock of the Insull Utility Investments (Inc.)?
Mr. S t u a r t . N o , sir; I should say not, so far as we are concerned.
It is simply a sale so far as we are concerned.
Mr. P e c o r a . You could have sold it in the market? There was
an open and free market?
Mr. S t u a r t . Yes; there was an open and free market, had we
chose to sell it that way.
Mr. P e c o r a . Y o u chose to sell it to another company controlled
by the Insulls on terms differing from those prevailing in the free
and open market; is that right?
Mr. S t u a r t . Well, I do not know what the conditions of the open
market were. We chose to sell this stock to this company on those
terms.
Mr. P e c o r a . Well, the Utility Securities Co. was a subsidiary of the
Insull Utility Investments (Inc.), was it not?
Mr. S t u a r t . N o , sir. M y understanding of the Utility Securities
Co. was that it was owned by a great many different Insull companies:
The Commonwealth Edison; Peoples Gas; Middle West, and that
Insull Utility Investments (Inc.) owned a portion of the stock of that
company, but I never saw a list of the stockholders, so I do not know
who owned it.
Mr. P e c o r a . Y o u attended a meeting of the finance committee of
the Insull Utility Investments (Inc.) which was held on June 17,1929,
according to the minute book of that finance committee, did you not?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Will you turn to page 41 of that minute book, of the
minutes of that meeting. Now, will you read the second paragraph
on page 41.
Mr. S t u a r t (reading):
The president then presented to the meeting an offer of the Utility Securities
Co. to purchase 250,000 shares of the common stock of the company at $40 per
share, the stock to be paid for as follows: A million------

Mr. P e c o r a (interposing). No; you are not reading the paragraph
I intended you should. I said the second one.
Mr. S t u a r t (reading):
The president stated that he had entered into an agreement on behalf of the
company, with Halsey, Stuart & Co., and that in his belief the net profits accruing
therefrom to the company would be in the neighborhood of $650,000.

Mr. P e c o r a . N o w , you were present at the meeting of that finance
committee at which that action was taken?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . N o w , what was the action referred to by the president
of the Insull Utility Investments (Inc.)?
Mr. S t u a r t . The one I spoke of where I said we gave them back,
as a voluntary arrangement, the sum of $600,000 for $700,000.
Mr. P e c o r a . Was that properly referred to as a joint account?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Was this gift to that company a voluntary gift, a s
you call it, then?
Mr. S t u a r t . Yes; we made a voluntary joint account.
Mr. P e c o r a . A voluntary joint account?
Mr. S t u a r t . Yes, sir.



STOCK EXCHANGE PRACTICES

1625

Mr. P ecora . What is the difference between a voluntary joint
account and a voluntary gift?
Mr. S tu art . Well, I do not know that there is any.
Mr. P ecora . Well, when you make a gift to one do you have a
joint account with him?
Mr. Stu art . Well, you might take a man into a piece of business
and voluntarily go to him and take him in, in which you knew you
were going to make money for him.
Mr. P ecora . I s that a joint account, or a gift?
Mr. S tuart . It is a joint account, customarily so called.
Mr. P ecora . I offer in evidence and ask to have spread on the
record in full the letter of February 7, 1929, which this witness has
identified.
Senator F letcher (presiding). It may go into the record.
(The letter of February 7, 1929, is printed in the record in full, as
follows:)
F e b r u a r y 7, 1929.
Co.,
Chicago, III.
G e n t l e m e n : We hereby authorize you as our broker to sell for us at any
time within 60 days from the date hereof, 93,500 shares of common stock of
Insull Utility Investments (Inc.) at not less than $40 per share. Of these shares
we now have on hand 60,200, certificates for which we can deliver immediately,
and the remaining 33,300 we will be in a position to deliver as soon as we receive
from the company the certificates therefor. Please advise us whether you wish
us to make request for these additional shares, the certificates for which will be
delivered 30 days after making such request.
As compensation for your services in this matter you shall retain the selling
price for all shares sold in excess of $40 and up to $42 per share, and one-half
of the selling price for all shares sold in excess of $42 per share. The purchase
price for all shares sold by you under this authority, less your commissions, shall
be remitted to us as and when received by you.
If the foregoing arrangement is satisfactory to you, please indorse a memo­
randum to that effect upon the inclosed duplicate of this letter and return the
same to us.
H a l s e y , S t u a r t & Co.,
F. K . S h r a d e r ,
Vice President.
The foregoing is satisfactory to us.
U t i l i t y S e c u r it i e s Co.,
F r e d H. S c h e e l ,
Vice President.
U t i l i t y S e c u r it i e s

Senator R e y n o l d s . What was the name of the “ Old Counsellor” ?
What was his name?
Mr. Stuart . I ought to remember it. He is a professor of note at
the University of Chicago.
Senator R eynolds . At the University of Chicago?
Mr. S tuart . Yes, sir.
Senator R eynolds . How much did you pay him per week?
Mr. S tuart . $50 a week. I will probably think of it later. It was
Nelson.
Senator R eynolds . Professor Nelson?
Mr. Stuart . Yes, sir.
Senator R eynolds . Is he still at the university?
Mr. Stuart . I think so. Of course, everything he delivered was
written for him. He was simply the deliverer of it.
Senator R eynolds . Who wrote it?
Mr. Stuart . It was written in our office.




1626

STOCK EXCHANGE PRACTICES

Mr. P ecora . How much did Halsey, Stuart & Co. realize from the
agreement embodied in this letter of February 7,1929, to the Utility
Securities Co.?
Mr. Stu art . I have not the—let me see if I understand your ques­
tion.
Mr. P ecora . H ow much did your company realize in the stockselling agreement represented by that letter?
Mr. Stuart . D o you mean the total proceeds, or those that came
to us?
Mr. P ecora . Yes.
Mr. Stuart . The total proceeds that came to us were, roughly,
$3,900,000.
Senator T ownsend . How much of that was profit?
Mr. S tuart . And the gross profit on it was, roughly, $2,450,000.
I would prefer to submit a detailed statement, because as a part of
that transaction we turned back to the company a lot of debentures
at 85 which we had previously paid par for, so all of that came out
of the profit. The net profit in the joint account, I should say, was
about $2,000,000.
Senator T ownsend . And of that you gave back one-third?
Mr. S tuart . We gave back one-third; yes, sir.
Mr. P ecora . Mr. Stuart, will you be good enough to produce from
the files of your company which you brought here, the letter addressed
by Halsey, Stuart & Co. on February 26, 1931, to Miss Evaline
McNeil. I think it is No. 17.
Mr. Stuart . Which letter, please?
Mr. P ecora . Letter dated February 26, 1931, by Halsey, Stuart
& Co. to Miss Evaline McNeil.
Mr. Stuart . Yes; I have it.
Mr. P ecora . Will you let me have it?
I ask that this letter, or a copy thereof produced by the witness, be
spread on the record. And I want to read to the witness the follow­
ing excerpts therefrom. [Reading:]
D e a r M is s M c N e i l : At the request of M r. E. J. Redden, we are writing to
suggest several securities which we feel you would do well to purchase in ex­
change for your present holdings of United States Government obligations.
Our reasons for feeling that such an exchange would be to your advantage are
twofold.
While the Government obligations are, of course, the outstanding securities
in the country as to their liquidity and safety, they are in such great demand by
the larger institutions and banks which are required to keep a certain proportion
of their funds invested in this manner that their market is artificially stimulated
to a great extent.
We are inclosing a chart which we have drawn up with our recommendations,
and you will notice a material increase in you annual income should you decide
to accept our recommendations.

Now, among the recommendations that you made to this Miss
McNeil, Mr. Stuart, was for her to sell her United States Govern­
ment bonds and to invest part of the proceeds of the sale in deben­
ture notes of the Corporation Securities Co. of Chicago; is that not
correct?
Mr. Stuart . May I see it? I have never seen it before.
Mr. P ecora . There it is. [Handing same to the witness.]
Well, Mr. Stuart, is it necessary for you to take all that time to
assure yourself that your company recommended, in February, 1931,
to Miss McNeil that she sell her Government bonds and purchase



STOCK EXCHANGE PEACTICES

1627

with the money derived from the proceeds the bonds of the Corpora­
tion Securities Co. of Chicago?
Mr. S tuart . Yes; that is what it says.
Mr. P ecora . That is what it says?
Mr. Stuart . Yes, sir.
Mr. P ecora . And that is what your company did?
Mr. Stuart . Yes, sir.
Mr. P ecora . And this woman bought $1,000 worth, par value, of
Corporation Securities Co. of Chicago bonds out of the proceeds of
the sale of her Government bonds that she had previously owned; is
that right?
Mr. Stuart . Well, apparently she bought them, and some other
things.
Mr. P ecora . Well, I mean, in part.
Mr. S tuart . Yes; in part. Yes.
Mr. P ecora . N ow, this Corporation Securities Co. of Chicago is
the same company that was officered, in large part, by officers of
Halsey, Stuart & Co., was it not?
Mr. Stuart . It was at the very beginning; yes, sir.
Mr. Mr. P ecora . And it still is, in part, so officered?
Mr. Stuart . We have directors; yes, sir.
Mr. P ecora . Y ou did not tell Miss McNeil in this communication
that your company had an interest, through stock ownership, in the
Corporation Securities Co. of Chicago, did you?
Mr. Stuart . No, sir; apparently not.
Mr. P ecora . And did you think it was sound advice to give this
woman, to sell her Government bonds for debentures that to-day are
worth practically nothing?
Mr. Stu art . Well, you see, all these other securities are good.
Corporation Securities Co. of Chicago is the one that is not good.
Mr. P ecora . The Corporation Securities Co. of Chicago which you
advised her to buy from the proceeds of the sale of her Government
bonds represented about 20 per cent?
Mr. Stuart . Yes, sir.
Mr. P ecora . The other four-fifths was good, and that one-fifth
was not good?
Mr. S tuart . Yes, sir.
Mr. P ecora . And the one-fifth that was not good was the security
issued by the Corporation Securities Co. of Chicago in which your
company had a very extensive stock interest, and it was officered by
officers of your company?
Mr. S tuart . Yes, sir.
Mr. P ecora . At any time was Miss McNeil advised of the com­
munity of interest between your company and the Corporation
Securities Co. of Chicago?
Mr. S tuart . I would have to find out. I would not know. But
there was no reason why she should not be told. It was common
knowledge.
Mr. P ecora . It was common knowledge?
Mr. S tuart . Oh, I think it was common knowledge.
Mr. P ecora . Was any prospectus of the securities of the Corpora­
tion Securities Co. of Chicago, or did Halsey, Stuart & Co. ever issue
or put its name upon a prospectus that contained a statement in any




1 6 28

STOCK EXCHANGE PRACTICES

way, shape, or form that Halsey, Stuart & Co. had a large stock
interest in the Corporation Securities Co. of Chicago?
Mr. S tuart . I am not sure.
Mr. P ecora . Well, you know that no such thing was done, do you
not?

Mr. Stu art . Oh, no, sir; because in some of the prospectuses-----Mr. P ecora (interposing). I will ask you to produce a single pro­
spectus put out by Halsey, Stuart & Co. covering issues of the Cor­
poration Securities Co. of Chicago in which mention is made of the
fact that Halsey, Stuart & Co. ever had a large stock interest, through
ownership of the common stock, in Corporation Securities Co. of
Chicago. Will you do that?
Mr. Stuart . I will endeavor to find one.
Mr. P ecora . And if you find any such prospectuses let me have
them, and we will put them in the record.
I ask that there be spread on the record the letters, or copies
thereof, produced by the witness, from which I have already read
certain excerpts, dated February 26, 1931, addressed to Miss Evaline
McNeil, by Halsey, Stuart & Co.; and the chart, so-called, accom­
panying that letter.
And also this letter of March 6, 1931, also produced by the witness,
addressed to Miss Evaline McNeil, advising her of the receipt of
certain securities for safe keeping for her account.
Senator F letcher (presiding). Without objection, they may be put
into the record.
(The letter of February 26, 1931; the chart accompanying same;
and the letter of March 6, 1931, are here printed in the record in
full, as follows:)
F

ebruary

26, 1931.

M iss E v a l i n e M c N e i l ,

4556 Woodlawn Avenue, Chicago, III.
At the request of M r. E. J. Redden, we are writing to
suggest several securities which we feel you would do well to purchase in exchange
for your present holdings of the United States Government obligations. Our
reasons for feeling that such an exchange would be to your advantage are twofold.
While the Government obligations are, of course, the outstanding securities
in the country as to their liquidity and safety, they are in such great demand by
the larger institutions and banks which are required to keep a certain proportion
of their funds invested in this manner that their market is artificially stimulated
to a great extent. This results, of course, in a comparatively low return which
will accrue to the holder of these securities, and we feel that you can well take
advantage of some of the present opportunities among the higher type of corpora­
tion bonds to increase both your yield to maturity and your annual income, at the
same time preserving an extremely high degree of safety through the application
of the principles of diversification.
While we do not know exactly what securities you hold at present, your brother
John has given us some idea, and we have made our recommendations on the
basis of $5,000 par amount divided in two blocks, one of $3,000 United States
Liberty loan fourth 4%’s and $2,000 first 3J4’s. Such minor adjustments as are
necessary to make our suggestions conform to your actual holdings can easily be
made through Mr. Redden.
We are inclosing a chart which we have drawn up with our recommendations,
and you will notice a material increase in your annual income should you decide
to accept our recommendations. Mr. Redden has asked us to say that he will
be glad to talk with you or your brother at any time, but that his primary con­
sideration has been for the intrinsic safety of the obligation involved in each case.
You will find descriptive circulars included in this folder and will understand that
we make this offer strictly subject to prior sale and price change.
We are grateful for the opportunity of serving you in this way, and trust that
we may have the privilege of a continued business relationship in the future.
Very truly yours,
D e a r M is s M c N e i l :




1629

STOCK EXCHANGE PRACTICES
Investment recommendations for M iss Evaline M cN eil

Issue

Par
amount

Rate

M aturity

Price

Principal Annual
amount income Yield

SELL

Per cent

Per cent
United States Liberty loan, fou rth .. $3,000
United States Liberty loan, first........ 2,000
Total............................ ............. .

$3,095. 70 $127.50
2,023.00
70.00

3
y2

5,000

5,118.70

2.88

2.34

197.50

BUT

Corporation Securities C o., serial
notes........ .......... ..................................
Illinois Power & Light Corporation,
first and refunding mortgage..........
Michigan Gas & Electric Co., first
mortgage..............................................
Monongahela Western Pennsylvania
Public Service C o., first lien and
refunding.......................................—
P eabody Coal C o., first mortgage
sinking fund........................................
Virginia Public Service C o., first
mortgage and refunding. .................
Total..............................................

1,000

5

Sept.

1,1932

$97.13

971.30

50.00

1,000

5

Dec.

1,1956

97.75

977.50

50.00

5.15

500

5

____d o_______

96.50

965.00

25.00

5.25

1 0 .0
,0 0 0

55.00

5.50

7.00

1,000

5 Feb.
H

1,1953

100.00

1,000

5

M ay

1,1953

80.00

800.00

50.00

6.75

1,000

5

Dec.

1,1950

90.00

900.00

50.00

5.85

5,500

i 5,136.50 280.00

1 N ote error.
M
E

v a l in e

M

arch

6 , 1931.

c N e il ,

4556 Woodlawn Avenue, Chicago, III.
M i s s M c N e i l : To-day we have placed in safekeeping the following
securities which you have purchased in trade as follows:
D

ear

Sale TH96864, Peabody Coal 5’s______ _____ _____________ $797. 22
Sale TH96868, Monongahela Western Pennsylvania Public
Service 5 ^ ’s___________________________________________ 1, 005. 19
Sale TH96867, Illinois Power & Light 5’s________________
990. 56
Sale TH96865, Corporation Securities 5’s_________________
971. 86
Sale TH96869, Michigan Gas & Electric 5’s______________
489. 03
913. 06
Sale TH96866, Virginia Public Service 5’s________________
--------------- $5, 166. 92
Purchased TH12335, United States Liberty 4J4’s_________ 1, 036. 32
Purchased TH12336, United States Treasury
________ 3, 050. 54
Purchased TH12337, United States Liberty fourth 4%’s_ 1 , 052. 78
_
--------------- 5, 139. 64
Balance due us___________________________________________
27. 28
There is a balance due of $27.28 for which we shall be pleased to receive remit­
tance.
Yours very truly,

Mr. P ecora . N ow this Corporation Securities Co. of Chicago, that
we have been talking about here was incorporated on October 5,
1929, was it not?
Mr. Stuart . Yes, sir.
Mr. P ecora . And from its very outset your Company acquired a
very substantial interest, through the ownership of common stock, in
that company?
Mr. Stuart . Yes, sir.
Mr. P ecora . Did not your company make preliminary arrange­
ments to dispose of the senior securities of the Corporation Securities
Co. of Chicago, in advance of the actual incorporation of that com­
pany?



1630

STOCK EXCHANGE PRACTICES

Mr. Stuart . Well, we had nothing to do with the disposition of
the securities or stocks of the Corporation Securities Co. of Chicago.
Mr. P ecora . I said of the senior securities, which means the
bonds and the preferred stock.
Mr. Stuart . The senior securities? No; we had nothing to do
with the preferred stock.
Mr. P ecora . H ow about the bonds?
Mr. Stuart . There were not any sold until about a year later, or
something like.
Mr. P ecora . Now, let us see. Will you produce from the files of
your company its daily bulletin bearing date September 20, 1929.
The number of it is 1.
Mr. Stu art . September 20?
Mr. P ecora . September 20, 1929, numbered 1.
Mr. Stuart . Yes; I have it.
Mr. P ecora . May I have it, please. Now, this daily bulletin
was issued to the salesmen and employees of your company, was it
not?
Mr. Stuart . Yes, sir.
Mr. P ecora . A s a guidance to them in their efforts to sell to the
investing public securities sponsored by your company; is that right?
Mr. Stuart . And items of general information.
Mr. P ecora . And items of general information?
Mr. S tuart . Yes, sir.
Mr. P ecora . N ow at the time of the incorporation of the Corpora­
tion Securities Co. of Chicago, in October, 1929, there was merged
in that company an older company which had been organized in 1919
by Halsey, Stuart & Co., called Corporation Securities Co., was there
not?
Mr. Stuart . Yes, sir.
Mr. P ecora . And this bulletin issued by your company on Septem­
ber 20, 1929, to your employees and salesmen related, in part, to the
proposed incorporation of the Corporation Securities Co. of Chicago,
did it not?
Mr. Stuart . Yes, sir.
Mr. P ecora . I ask that this bulletin be spread in full on the record.
The C hairman . It is so ordered.
(The Daily Bulletin, dated September 20, 1929, is printed in the
record in full, as follows:)
H a ls e y , S t u a r t &

Co.,

D a ily B u lle t in

Chicago, III., September 20, 1929.
IMPORTANT NOTICE

The Corporation Securities Co. was organized by Halsey, Stuart & Co. in 1919
to buy, sell, and hold securities of all kinds, including shares of stock. The
corporation has not been active for a number of years. All of the stock hereto­
fore has been owned by Halsey, Stuart & Co. They recently agreed with the
Insull interests to expand this corporation so that it becomes the holder of shares
of stock in some of the Insull companies. In order to facilitate this enlargement
and the plans in connection therewith, it became necessary to raise some new
money, all of which is being done by the Corporation Securities Co. itself.
Halsey, Stuart & Co. will continue to be stockholders. It is expected that any
publicity will be limited to a simple announcement of the facts by the Corporation
Securities Co.




STOCK EXCHANGE PRACTICES

1631

Because of Halsey, Stuart & Co.’s ownership of stock in the corporation, there
may be inquiries made of the various members of the organization and the only
reply is that Halsey, Stuart & Co. have no part in the sale of the new securities
as they do not deal in stocks of any kind. They understand that arrangements
have been undertaken with private sources for all of the money to be raised at
this time.
Plans are being worked on with a view to permitting at least some of the
members of Halsey, Stuart & Co.’s organization to subscribe to a limited amount
of the stock of the Corporation Securities Co., on the basis of permanent invest­
ment. Until these plans have been further developed, no inquiries concerning
participation by members of Halsey, Stuart & Co.’s organization can be answered.

Mr. P e c o r a . N o w let me read from this daily bulletin to you,
Mr. Stuart, and then I will ask you some questions about it.
[Reading:]
IMPORTANT NOTICE

The Corporation Securities Co. was organized by Halsey, Stuart & Co. in 1919
to buy, sell, and hold securities of all kinds, including shares of stock. The
corporation has not been active for a number of years. All of the stock hereto­
fore has been owned by Halsey, Stuart & Co. They recently agreed with the
Insull interests to expand this corporation so that it becomes the holder of shares
of stock in some of the Insull companies. In order to facilitate this enlarge­
ment and the plans in connection therewith, it became necessary to raise some
new money, all of which is being done by the Corporation Securities Co. itself.
Halsey, Stuart & Co. will continue to be stockholders. It is expected that any
publicity will be limited to a simple announcement of the facts by the Corpora­
tion Securities Co.
Because of Halsey, Stuart & Co.’s ownership of stock in the corporation, there
may be inquiries made of the various members of the organization and the only
reply is that Halsey, Stuart & Co. have no part in the sale of the new securities
as they do not deal in stocks of any kind.

Now, was that a correct statement of the facts?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Let me read further from this bulletin.

[Reading :1

They understand------

That is, Halsey, Stuart & Co., understand.

[Continuing reading:]

that arrangements have been undertaken with private sources for all of the
money to be raised at this time.

Is that a correct statement, Mr. Stuart?
Mr. S t u a r t . I do not recall.
Mr. P e c o r a . Y ou d o n o t reca ll?
Mr. S t u a r t . N o ; I do not recall.
Mr. P e c o r a . Did Halsey, Stuart & Co. have anything to do with
the major finances of the Corporation Securities Co. of Chicago in
October, 1929, when that company was organized?
Mr. S t u a r t . N o ; only to exchange our securities—only to exchange
our Insull securities for Corporation Securities Co. of Chicago.
Mr. P e c o r a . Well, that was the time that you exchanged these
shares of Insull Utility Investments (Inc.), which your company had
acquired early in that year, in January of that year at $12 to $15 a
share, at $100 a share, which was then the market?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . N o w , upon the incorporation of the Corporation
Securities Co. of Chicago in October, 1929, Halsey, Stuart & Co.
acquired a considerable amount of its securities, did it not—securities
to be issued?
Mr. S t u a r t . Of its common stock; yes, sir.



16 32

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . Of its common stock only?
Mr. S t u a r t . Yes, s ir .
Mr. P e c o r a . N o w d id it n o t a cq u ire a lso its u n its?
Mr. S t u a r t . No; I do not think so. I do not think so.
Mr. P e c o r a . Who were the officers of Halsey, Stuart & Co. that
became officers of Corporation Securities Co. of Chicago upon the
incorporation of the latter company?
Mr. S t u a r t . I think myself; M r .-----Mr. P e c o r a (interposing). What office did you hold?
M r . S t u a r t . P resid en t.

Mr. P e c o r a . Y ou became president of the Corporation Securities
Co. of Chicago?
Mr. S t u a r t . Yes; I became president of the Corporation Securities
Co. of Chicago.
Mr. P e c o r a . Is your brother, C. B. Stuart an officer of Halsey,
Stuart & Co.?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Did he become an officer of Corporation Securities
Co. of Chicago?
Mr. S t u a r t . I think he became vice president.
Mr. P e c o r a . H o w about Mr. C. T. MacNeille?
Mr. S t u a r t . Mr. MacNeille is vice president of Halsey, Stuart &
Co. I think he became secretary treasurer.
Mr. P e c o r a . How about Mr. T. V. Lamont?
Mr. S t u a r t . Mr. Lamont was not an officer of ours, but he was
connected with us.
Mr. P e c o r a . Now do you recall that on October 14, 1929, nine
days after the formal incorporation of the company, at a meeting of
the board of directors of the company that included yourself, a
resolution was adopted providing, in part, as follows [reading]:
That the remainder of such units of stock to the number of 654,564 are hereby
authorized to be sold by the officers of this corporation to such persons or cor­
porations and at such prices, not less than $75 per unit, as to said officers, or any
of them, shall seem advisable; and allotment certificates representing such units
so sold shall be issued by said depository and registered.

And so forth.
Do you recall such action?
Mr. S t u a r t . No, sir; I do not recall that meeting.
Mr. P e c o r a . Well, now, in what form were the stock issues of
Corporation Securities Co. (Inc.) made?
Mr. S t u a r t . They were made in a unit of 1 share of preferred,
$3 dividend preferred; and 1 common.
Mr. P e c o r a . Did the preferred warrants carry with them any
rights to purchase common stock?
Mr. S t u a r t . I have forgotten.
Mr. P e c o r a . Perhaps Mr. MacNeille can tell y o u .
Mr. M a c N e i l l e . I was just trying to think, Mr. Pecora. I think
it was convertible, but I am trying to refresh my memory.
Mr. P e c o r a . Well, did it have the right to convert 2% preferred
for one common?
M r . M a c N e i l l e . I think it did.
Mr. P e c o r a . In other words, each unit, which included 1 share
of preferred and 1 share of common, carried with it the right at any



STOCK EXCHANGE PEACTICES

1633

time within five years to convert the 1 share of preferred into 1}i
shares of common?
M r . M a c N e i l l e . Yes, sir.
Mr. P e c o r a . That was a matter at the option of the holder at any
time within five years.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . N o w at what price were those units originally issued
to the public?
Mr. S t u a r t . $75.
Mr. P e c o r a . $75?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And that made an allocation of how much to the com­
mon stock? You would divide the 75 by 2K, would you not?
Mr. M acN e i l l e . May I answer that? $50 to the preferred stock,
and $25 to the common.
Mr. P e c o r a . That made an allocation of $50 to the preferred stock?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And $25 to the common?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . N ow how many of those units were issued to Halsey,
Stuart & Co.?
Mr. S t u a r t . I do not recall. If any were issued, I would have to
look it up.
Mr. P e c o r a . Well, will you please look it up?
Mr. S t u a r t . Yes, sir. There were none issued to Halsey, Stuart
& Co. for its own account.
Mr. P e c o r a . Did the sales organization of Halsey, Stuart & Co.
undertake to sell those units to the public?
Mr. S t u a r t . N o , sir.
Mr. P e c o r a . Did it undertake to sell any of the securities issued
by Corporation Securities Co. of Chicago to the public?
Mr. S t u a r t . N o ; not until the debenture notes were put out.
Mr. P e c o r a . And when were those debenture notes put out?
Mr. S t u a r t . M y recollection is, in the fall of 1930.
Mr. P e c o r a . In the fall of 1930?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Will you produce from the records of your company
the daily bulletin to its salesmen dated October 21, 1929?
M r . M a c N e i l l e . T h e n u m b e r?
Mr. P e c o r a . N o. 7.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Have you got it, Mr. Stuart?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . I ask that this daily bulletin, dated

October 21, 1929,
produced by the witness, be spread upon the record.
The C h a i r m a n . It will be so ordered.
(The daily bulletin of Halsey, Stuart & Co., under date of October
21, 1929, is printed in the record in full, as follows:)
H

alsey,

Stuart

& Co.

D

a il y

B u l l e t in

C h ic a g o , I I I . ,

October 21, 1929.

SPECIAL MEMORANDUM REGARDING CORPORATION SECURITIES OFFERING

For the guidance of our organization relative to the public offering of shares
by the Corporation Securities, the following course of action is outlined and must
be adhered to without exception.
119852— 33— pt 5-------16




1634

STOCK EXCHANGE PRACTICES

On Saturday, the Corporation Securities Co. mailed letters to a selected list
of names, inviting formal subscriptions for its shares. Included in this list were
many of the customers of Halsey, Stuart & Co. whose names were suggested to
the Corporation Securities Co. by members of our organization. Because the
Corporation Securities Co. in its present form is new and as yet not extensively
or well known, our managers and salesmen should capitalize the opportunity for
which we are responsible by getting in touch with customers immediately as the
books may close quickly. In all such instances there must be absolute adherence
to the following line of thought:
“ Possibly you are already familiar with the formation of the Corporation
Securities Co. to be controlled jointly by interests associated with Halsey,
Stuart & Co. and the Insull interests. Halsey, Stuart & Co. does not underwrite
or recommend stocks, but it is possible you will receive an invitation from the
Corporation Securities Co. to participate in the offering of its shares.
“ Any such letter will be the result of a suggestion on our part that such an
invitation be extended to you. We have no recommendation to make and no
interest in what your decision may be, other than to let you know of our major
interest in the enterprise.”
A circular describing the new offering will be inclosed in all invitation letters.
There will be no harm in helping any of our customers to interpret the statements
therein. Under no circumstances, however, may any of the members of our
organization go beyond a discussion of actual facts set forth in the circular and
the general expression set forth in quotation marks.
All subscriptions by customers or others must be communicated by them
direct to the Corporation Securities Co. They will not be accepted on any other
basis.
E. H i l l L e i t h .
ASSOCIATED GAS & ELECTRIC CO. RIGHTS

Associated Gas & Electric Co. has offered to its stockholders, and to certain
other security holders of record at the close of business October 31, 1929, rights
to purchase one $ 8 interest-bearing allotment certificate at $133 for each eight
shares of stock then held.
The securities covered by each allotment certificate with their current value
are as follows:
1 share of common stock, class A, of General Gas & Electric Corporation,
or 5 new split up shares (at New York Curb Exchange prices for split
$106
up shares)___________________________________________________________
% share of $5 dividend series preferred stock of Associated Gas & Elec­
tric C o_______________________________________________________________
19
1 debenture right of Associated Gas & Electric C o______________________
' 25
T otal____________________________________________________________
150
Among the classes of securities which are entitled to these rights are the
Associated Gas & Electric Co. 5}4 per cent convertible investment certificates
of 1938. These rights are to be obtained by the exchange of the 5)4 per cent
certificates of 1938 for the stock of Eastern Utilities Investing corporation, as
provided for in the certificates. If it is wished to make such an exchange, the
certificates should be deposited on or before October 30, 1929, with the Irving
Trust Co. if in bearer form, or with the company if in registered form. This
delivery will constitute such owners as stockholders of record as of October 31,
1929.
EASTERN UTILITIES INVESTING CORPORATION

Stockholders of this corporation are to receive the same rights offered to stock­
holders of Associated Gas & Electric Co. Further, the holders of debentures
of Eastern Utilities Investing Corporation are entitled to these rights provided
they exercise their stock purchase warrants, and permission has been granted
them to do so on or before October 30, 1929. Such exercise will constitute them
stockholders of record on October 31, 1929.
In exercising these purchase warrants the debentures should be delivered or
sent by registered mail to the New York Trust Co., 100 Broadway, accompanied
by check payable to Eastern Utilities Investing Corporation for $15 for each
share of class A common stock covered by the purchase warrants. Such ship­
ments should be made so as to reach the New York Trust Co. not later than



1635

STOCK EXCHANGE PRACTICES

October 30. The debentures will be returned after the warrants have been
detached.
Rights will then be mailed to debenture holders on or about November 15.
The class A common stock will be delivered as soon as practicable after 30 days
after December 31, 1929. Holders may upon request, however, receive imme­
diately transferable class A common stock warrants pending the issue of the
definitive stock.
A

n a l y t ic a l

S e r v ic e .

Taxable securities listed
Name of issue

Brooklyn C ity R y . E q ____
Central Power C o............... .
Chgo. A ur. & E lg in ........... .
D o .....................................
Chgo. N . S. & M ilw . E q . .,
D o .....................................
Chgo. S. S. & So. Bend Eq,
D o ............. .......... .......... .
Cinn. Ham. & D ayton E q .
Cinn. Traction E q .............. .
Gary Railways.....................
H ydro Elec. Corp. of Va.__.
Long Bell Lum ber................
M tge. Guar. Assoc.1.............
So. West Lt. & P r................
Texarkana W ater..________

Rate

M

Price

Yield

Code

Conct

1931
1
1957
4
1934
1
1931
2
1931
1
1933
1934
1
1
1936
1934
4
1930 .
1945
3
,1958
1931
1
1930 36
1957
1958
5

98.16
92.60
95.20
98.67
97.70
96.76
96.15
94.61
96.50
99.31
90.00
90.00
97.00
98.75
91.00
91.00

6.50
5.53
6.75
7.00
7.00
6.625
6.50
6.50
7.00
7.00
7.00
5.70
7.50
7.00
5.65
5.65

Q .K E
i.
i.
i.
Q .K E
i.
i.
i.

.U K
.U K
N ot
.U K
.U K
.U K
.U K
.U K
.U K
.U K
.U K
.U K
.U K
.U K
.U K
.U K

M aturity

Per
cent
5
Jan.
5
July
5 y9 Apr.
,
«
M ar.
5
Jan.
Jan.
5H Apr.
5H July
6
Apr.
6
July
Aug.
a?
y,
5
Dec.
6
Dec.
5
June
5
Jb'eb.
5
Feb.

15
1
1
1
1
1
1
1
1
1
15
1
1
1
1
1

C
.
U
.

T.
i.
i.
Q .K E
i.
i.

i N ot included in real estate campaign.

Mr. P e c o r a . N o w , let me read from this bulletin of October 21,
1929, the following excerpts to you [reading]:
SPECIAL MEMORANDUM REGARDING CORPORATION SECURITIES

For the guidance of our organization relative to the public offering of shares
by the Corporation Securities, the following course of action is outlined and must
be adhered to without exception.
On Saturday, the Corporation Securities Co. mailed letters to a selected list of
names, inviting formal subscriptions for its shares. Included in this list were
many of the customers of Halsey, Stuart & Co. whose names were suggested to
the Corporation Securities Co. by members of our organization.

Now, let me ask you, Mr. Stuart, what names were referred to in
that portion of this daily bulletin?
Mr. S t u a r t . Well, I presume they were just what it says.
Mr. P e c o r a . Well, were they a large number of names of customers
generally of Halsey, Stuart & Co.?
Mr. S t u a r t . I could not answer.
Mr. P e c o r a . Do you know anybody that can answer? You were
president of Halsey, Stuart & Co.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And you were the president of the Corporation Se­
curities Co. of Chicago at the same time?
Mr. S t u a r t . Yes; but I would not know what names were
suggested.
Mr. P e c o r a . Well, without knowing particular names, would you
know the kind of names, or would you know from what list those
names were compiled?
Mr. S t u a r t . No; I would not.




1636

STOCK EXCHANGE PRACTICES

Mr. P ecora . Well, as you read that information on this daily
bulletin, does it occur to you that probably the list of names referred
to here was a list taken from the customers of Halsey, Stuart & Co.?
Mr. S tu art . Yes; because it says so.
The C hairman . That is the corporation that never sells stock?
Mr. P ecora . Yes. Do you know how many names of customers
of Halsey, Stuart & Co. were given-----Mr. S tuart (interposing). I do not.
Mr. P ecora (continuing). To the Corporation Securities Co. of
Chicago by members of your company?
Mr. S tu art . I do not; no, sir.
Mr. P ecora . It was a large number, was it not?
Mr. S tuart . I really do not know.
Mr. P ecora . D o you know o f anyone who would know?
Mr. S tuart . I think sombody in our office being in the sales de­
partment would know; yes. They might remember.
Mr. P ecora . Now, let me read further from this daily bulletin
[reading]:
Because the Corporation Securities Co. in its present form is new and as yet
not extensively or well known, our managers and salesmen should capitalize the
opportunity for which we are responsible by getting in touch with customers
immediately as the books may close quickly.

That was in the nature, was it not, of a summons or request to
your sales force to push the sale of the stock of the Corporation
Securities Co. of Chicago?
Mr. Stuart . No, sir; I would not take it that way.
Mr. P ecora . Well, what does this mean when you say to your
salesmen in this bulletin, “ Our managers and salesmen should capi­
talize the opportunity for which we are responsible by getting in
touch with customers immediately as the books may close quickly” ?
Mr. S tuart . Well, I think there was a howling mob stock market
at that time, and, as I said before, everyone was buying stocks and
not bonds, and that this was thought by everybody to be a tre­
mendous opportunity.
Mr. P ecora . Well, you mean thought by the general public to be
a tremendous opportunity to buy the common stock of the Cor­
poration Securities Co. of Chicago; is that what you mean, Mr.
Stuart?
Mr. S tuart . That is what the public thought.
Mr. P ecora . That is what you think the public thought?
Mr. Stuart . Yes, sir.
Mr. P ecora . Did you not say in this bulletin to your salesmen that
the public knew very little about this security because it was a new
issue?
Mr. S tuart . Well, you see, the mere rumor of it, as I remember,
the brokers on the mere rumor, brokers were selling it on the Street
at more than $100.
Mr. P ecora . The mere rumor of this issue-----Mr. Stuart (interposing) Yes, sir.
Mr. P ecora (continuing). Caused a tremendous demand for it?
Mr. S tuart . Yes, sir.
Mr. P ecora . Despite the fact, as you advised your company,
that the “ Corporation Securities Co. in its present form is new and
as yet not extensively or well known” ?



STOCK EXCHANGE PRACTICES

1637

Mr. Stuart . Yes, sir.
Mr. P ecora . Y ou still think-----Mr. S tuart (interposing). Oh, I know there were actual sales.
Mr. P ecora (continuing). The public were exceedingly anxious to
buy the securities?
Mr. S tuart . There were actual sales between brokers of over $100
a unit.
Mr. P ecora . Between brokers?
Mr. S tuart . Yes, sir; between brokers.
The C hairman . Speaking of tremendous opportunities, did it not
turn out to be a tremendous opportunity for those who were selling,
rather than for those who were buying?
Mr. Stuart . Well, it turned out unfortunately.
Mr. P ecora . N ow , in this bulletin you were stating to your sales­
men, among other things, that they “ should capitalize the opportun­
ity for which we are responsible.” What did you mean; for which
Halsey, Stuart & Co. were responsible?
Mr. S tuart . Well, I think it included, what it says in the early
paragraphs, that many of the names were suggested by members of
our organization.
Mr. P ecora . N o ; but this injunction is to your managers and sales­
men to capitalize the opportunity.
Mr. S tuart . Yes, sir.
Mr. P ecora . What did that mean? The opportunity to sell
common stock of Corporation Securities Co. of Chicago to the
public?
Mr. S tuart . N o ; I think it means just what it says here, to tell
people that they might receive an invitation to join this group. I
think that is what it means.
Mr. P ecora . Were the salesmen of your company given commis­
sions on the sales of this stock?
Mr. S tuart . N o, sir.
Mr. P ecora . Then how could they capitalize it, if they were not
getting commissions?
Mr. Stu art . I think they could capitalize in this way: I have
already said the sales were at $100 a unit, and we suggested to the
organization that they should send names in, and then we told the
customer that they had presented his name. I think that is what it
meant. There was not anything in it for us.
Senator B rookhart . That was the stongest kind of a recom­
mendation. You opened it up by buying the Insull stock. You
meant the record of the Insull stock; on account of the record you
put it up?
Mr. S tu art . Oh, I do not know. I should not think so.
Mr. P ecora . Let me read further from this bulletin. [Reading:]
In all such instances there must be absolute adherence to the following line of
thought:

And then there follow two paragraphs in this bulletin in quota­
tions. Is that so?
Mr. S tuart . Yes, sir.
Mr. P ecora . Those two paragraphs in quotation marks were
intended to be the line of talk which the salesmen of your company
were to use in any representations they made to customers of Halsey,



1638

STOCK EXCHANGE PRACTICES

Stuart & Co. of the securities of the Corporation Securities Co. of
Chicago?
Mr. Stu art . Yes, sir.
Mr. P e c o r a . I s that right?
Mr. S tuart . Yes, sir.
Mr. P e c o r a . D o you know who prepared this bulletin?
Mr. S tuart . I think Mr. Leith, whose name is signed below.
Mr. P ecora . What was Mr. Leith’s position with your company?
Mr. S tuart . Mr. Leith is vice president.
Mr. P ecora . N ow , let me read these two paragraphs in quotation
marks from this bulletin. [Reading:]
Possibly you are already familiar with the formation of the Corporation
Securities Co. to be controlled jointly by interests associated with Halsey,
Stuart & Co. and the Insull interests. Halsey, Stuart & Co. does not under­
write or recommend stocks, but it is possible you will receive an invitation from
the Corporation Securities Co. to participate in the offering of its shares.
Any such letter will be the result of a suggestion on our part that such an
invitation be extended to you. We have no recommendation to make and no
interest in what your decision may be, other than to let you know of our major
interest in the enterprise.

Now, in that so-called line of talk, Mr. Stuart, is there not subtly
conveyed to the prospective purchaser of these securites, or the sales­
men of your company a recommendation that the common stock of
Corporation Securites Co. of Chicago would be a good purchase?
Mr. S tu art . I would not so regard it, Mr. Pecora.
Mr. P ecora . Y ou do not think that the language is capable of
any such interpretation, do you?
Mr. S tuart . It would not, to me.
Mr. P ecora . What would it mean to you, if it did not mean that?
Mr. S tuart . What would it mean to me? It just meant that
somebody called my attention to it, take it or not. No recommenda­
tion.
Mr. P ecora . Does not that mean that somebody in Halsey,
Stuart & Co. called to the attention of the prospective purchaser or
buyer an issue which Halsfcy, Stuart & Co. were not recommending,
but in which Halsey, Stuart & Co. were interested; is not that what
it means? .
Mr. S tu art . Yes; it says that.
Mr. P ecora . And does not that convey the idea that Halsey,
Stuart & Co. were interested in the security, or in the company
issuing the security? In other words, a recommendation?
Mr. S tu art . It would not to me.
Mr. P ecora . From Halsey, Stuart & Co.?
Mr. S tu a r t. N o, sir; I do not think so.
Senator B rookhart . Then why mention it?
Mr. S tuart . Well, just for the reason that is given here, that is all.
It would not be any recommendation to buy.
Mr. P ecora . Well, when Halsey, Stuart & Co. was giving Cor­
poration Securities Co. of Chicago a list of names of its customers
or purchasers of securities in the latter company, it did it for the
purpose of enabling the latter company to sell to them?
Mr. S tu art . It gave them an opportunity to buy.
Mr. P ecora . It gave an opportunity to contact the customers of
Halsey, Stuart & Co., a contact to be utilized in an effort to sell the
common stock of that company to those persons, would it not?



STOCK EXCHANGE PEACTICES

1639

Mr. S t u a r t . Well, it was given as an opportunity to the investor
if he wanted to exercise it.
Senator B r o o k h a r t . Did that include your entire list of customers?
Mr. S t u a r t . I do not know. He asked me that before, and I do
not know what kind of list it means.
Mr. P e c o r a . You had in these quoted portions of this bulletin for
your salesmen to tell the customers of your company who were to
receive these letters from the Corporation Securities Co. of Chicago
to subscribe to its stock, that Halsey, Stuart & Co. had a major
interest.
Mr. S t u a r t . Yes; that is what it says here.
Mr. P e c o r a . Yes. And Halsey, Stuart & Co.’s major interest
would be served, would it not, by a substantial sale of the stock of the
Corporation Securities Co. of Chicago to the investing public?
Mr. S t u a r t . Well, not to our customers.
Mr. P e c o r a . Well, why did you put your customers’ names on the
list of the Corporation Securities Co. of Chicago?
Mr. S t u a r t . I understood your question was our customers.
There were plenty of other people that wanted to buy. The thing was
oversubscribed in three or four hours.
Mr. P e c o r a . Then why did you give the Corporation Securities Co.
of Chicago the names of your customers to be written to?
Mr. S t u a r t . I do not know. It was done, I suppose, days in
advance.
Mr. P e c o r a . It was done days in advance?
Mr. S t u a r t . I t was done days in advance, I suppose.
Senator B r o o k h a r t . That is the reason it was oversubscribed?
Mr. S t u a r t . I do not know how many names were on it. I
imagine there were thousands of people who got it.
Mr. P e c o r a . N o w let me read the following excerpts from the
bulletin. This is not in quotes. [Reading:]
A circular describing the new offering will be inclosed in all invitation letters.
There will be no harm in helping any of our customers to interpret the statements
therein.

Now what was meant by that instruction to your salesmen?
Mr. S t u a r t . That I do not know, unless they could answer any
remarks. That is what it says here.
Mr. P e c o r a . Well, when you say: “ There will be no harm in
helping any of our customers to interpret the statements therein,”
you meant the statements that would be in the circular that was to
be sent to your customers in the event of Corporation Securities Co.
of Chicago offering its common stock to them for sale?
Mr. S t u a r t . I think that is what it means; yes.
Mr. P e c o r a . Now I will ask you if you will be good enough to
produce a letter from your files dated August 12, 1932, addressed to
Halsey, Stuart & Co., by a man named Frank J. Bunker? I think
it is No. 6.
Mr. S t u a r t . August, 1932?
Mr. P e c o r a . August 12, 1932.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . May I have it, please?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . I ask that this letter be spread on the record, the
letter produced by the witness; and also the reply to that letter made



1640

STOCK EXCHANGE PRACTICES

by Halsey, Stuart & Co. under date of August 18, 1932, also produced
by the witness.
The C h airm an . There being no objection, it is so ordered.
(The letter of August 12, 1932, and also the letter of August 18,
1932, are printed in full in the record, as follows:)
N

ew

L

is b o n

, W

is

.,

August 12, 1932.
& Co.,
Milwaukee, Wis.
(Attention of Mr. Adams.)
G e n t l e m e n : F o r ------- sake, is there any issue that Halsey Stuart sold me
that hasn’t or isn’t going to default? I refer to Northwestern Elevated. American
Ice, State and Washington Building, LaSalle Wacker Building, etc., Corporation
Securities.
Please let me have a little information on the above-named issues as to when
some of them will again pay interest, especially on the American service issue
which I cursed from the start but was always soaped along to think it was
all right.
Also what is happening to LaSalle Wacker Building and State and Washington
Building, Corporation Securities, etc. When I think of the small fortune I
sunk in Halsey Stuart sound bonds it gives me a headache, and I am writing you
to find out if these things are about to start paying out.
H

alsey

Stu a rt

F

rank

A

Mr.

F

rank

J.

B

unker

J.

u gust

B

unker

.

18, 1932.

,

New Lisbon, Wis.
M r. B u n k e r : Replying to your letter of August 12, addressed to Mr.
Adams, we are sorry we can not give you any definite information as to when
Northwestern Elevated Railroad, American Service Co., State and Washington
Buildings, La Salle Wacker Building, or Corporation Securities Co., securities,
will resume interest payments.
In the case of the Northwestern Elevated first 5’s we have a situation where
traffic has declined to a point where earnings are not sufficient to meet charges.
How soon business is going to increase to a point where these charges can again
be met is something nobody can predict. However, you have a first mortgage on
an important part of the rapid transit system in Chicago and you should be
accorded consideration in a reorganization.
In the case of the American Service Co., you have probably deposited your
bonds with the bondholders’ committee and have received the information this
committee has been sending out from time to time. The last communication
was sent out on April 5 of this year, which gave a balance sheet and earnings
statement. We have no detailed figures since that date. The company is not
in receivership, and so far no plans for reorganization have been taken up. If
you do not have a copy of the committee’s letter of April 5, we shall be glad to
send you one, as this gives you the information in rather complete form.
In the case of the State and Washington Buildings, this situation is one where
you have a first mortgage on a piece of property which has always been con­
sidered very valuable and one of the best in Chicago. The difficulties of its
principal tenant are, of course, responsible for the impending default in interest
on September 1 .
In the case of the La Salle Wacker Building Corporation, this situation is one
we have been working on for some time and we hope to be able to advise you
further in this connection before very long. You will be interested in knowing
that the building is now paying its way, although it is not yet able to pay its bond
interest.
The Corporation Securities Co. notes are probably the most unsatisfactory of
the issues mentioned in your letter. Figures are of little use to you in this
instance, as the value of the collateral owned by the company has changed and
we have no way of knowing what the action of the courts or bank creditors will
be. With these factors it is impossible to make any prediction as to the near,
or ultimate outlook for these notes.
In going over your list of purchases we note there are a number of issues about
which we do not think you should have any concern; also, in this connection we
D

ear




STOCK EXCHANGE PRACTICES

1641

note that some of the issues referred to in your letter were purchased at very
substantial discounts.
We realize that there is nothing tangible, or very encouraging, we have been
able to tell you in this letter; but we assure you that we are doing all we can to
cooperate with the responsible individuals in the working out of these situations
on the best possible terms for those who purchased the securities from us.
Very truly yours,

Mr. P ecora . The letter reads as follows—this is the letter to
Halsey, Stuart & Co., dated August 12, 1932. [Reading:]
(Attention of Mr. Adams.)
: For ------ sake, is there any issue that Halsey, Stuart sold me
that hasn’t or isn’t going to default. I refer to Northwestern Elevated, Ameri­
can Ice, State & Wash Building, LaSalle Wacker Building, etc., Corporation
Securities.
Please let me have a little information on the above-named issues as to when
some of them will again pay interest, especially on the American Service issue
which I cursed from the start but was always soaped along to think it was all right.
Also what is happening to LaSalle Wacker Building and State & Wash Building,
Corporation Securities, etc. When I think of the small fortune I sunk in Halsey,
Stuart sound bonds it gives me a headache, and I am writing you to find out if
these things are about to start paying out.
F r a n k J. B u n k e r .
G

entlem en

And there is a pencil memorandum at the bottom of the letter
reading as follows:
Barney: Reply to this.

Who was Barney?
Mr. S tuart . I do not know.
Mr. P ecora . He is an employee of the company?
Mr. S tuart . Yes; but I do not know who it is.
Mr. P ecora . N ow in the reply, which was written by your com­
pany to Mr. Bunker, under date of August 18, 1932, I want to call
your attention, Mr. Stuart, to the following paragraph [reading]:
The Corporation Securities Co. notes are probably the most unsatisfactory
of the issues mentioned in your letter. Figures are of little use to you in this
instance, as the value of the collateral owned by the company has changed and
we have no way of knowing what the action of the courts or bank creditors will be.
With these factors it is impossible to make any prediction as to the near, or ulti­
mate outlook for these notes.
In going over your list of purchases we note there are a number of issues about
which we do not think you should have any concern; also, in this connection we
note that some of the issues referred to in your letter were purchased at very
substantial discounts.
We realize that there is nothing tangible, or very encouraging, we have been
able to tell you in this letter; but we assure you that we are doing all we can to
cooperate with the responsible individuals in the working out of these situations
on the best possible terms for those who purchased the securities from us.

Now all of the securities referred to in Mr. Bunker’s letter are in
default, are they not?
Mr. Stuart . Yes, sir.
Mr. P ecora . And have continued in default?
Mr. Stuart . Yes; I think so; all of them.
Mr. P ecora . Are you in a better position now than you were in
August, 1932, to say what the debenture holders of the Corporation
Securities Co. of Chicago will get for their debentures?
Mr. Stu art . To-day, I presume, yes; I think so.
Mr. P ecora . What?




164 2

STOCK EXCHANGE PRACTICES

Mr. Stu art . I think we could say to-day that they will get very
little.
M r. P ecora . If anything?
Mr. S tuart . They will get very little.
Mr. P ecora . They will get very little, if anything?
Mr. Stu art . Yes; that would be my judgment.
The C hairman . The committee will now take a recess until 2.15
o'clock this afternoon, and convene again in this room. All witnesses
who are under subpoena will return and be in attendance at that time.
(Thereupon, at 1 o’clock p. m., the committee stood in recess until
2.15 o’clock p. m. of the same day.)
AFTER RECESS

The subcommittee resumed at 2.15 p. m. on the expiration of the
recess.
The C hairman . The committee will resume.
TESTIMONY OF HAROLD L. STUART, PRESIDENT, HALSEY, STUART
& CO., CHICAGO, ILL— Resumed

Mr. S tuart . Mr. Pecora, you asked me to produce any literature
that we may have gotten out which showed that we had some large
connection with Corporation Securities Co. of Chicago.
Mr. P ecora . Not particularly any large connection, but a connec­
tion which represented a considerable or large stock ownership.
Mr. S tuart . Which indicated that, you meant?
M r. P ecora . Yes.
Mr. S tuart . Here is a circular on the issue of $40,000,000 of gold

notes, that explains about a voting trust on a very large amount of
stock.
Mr. P ecora . Y ou have produced, Mr. Stuart, from your files this
prospectus relating to the issue of $40,000,000 of serial gold notes, by
the Corporation Securities Co. of Chicago, as being a prospectus put
out by your company to the public, in which it is indicated that your
company had a substantial interest, represented through stock owner­
ship in the Corporation Securities Co. of Chicago. Is that your
purpose in giving me this prospectus?
Mr. S tuart . Yes, sir.
Mr. P ecora . Will you point out any language in that prospec­
tus which has that effect?
Mr. S tuart . I should say that this last paragraph would have that
effect.
Mr. P ecora . Do you mean that portion of the prospectus which
reads as follows:
Two million, thirty thousand shares of 4,116,403 shares of common stock now
issued or held in voting trust expiring on November 1, 1934, with option to renew
for an additional five years. The voting trustees under this trust are Samuel
Insull, H. L. Stuart, and Samuel Insull, jr.

Is that the portion of this prospectus that you maintain informs the
public of a large stock ownership by Halsey, Stuart & Co. of common
stock of the Corporation Securities Co. of Chicago?
Mr. S tuart . Yes; I should say so.



STOCK EXCHANGE PRACTICES

1643

Mr. P ecora . I s there anything at all said there about Halsey,
Stuart & Co. being the owner of any common stock of Corporation
Securities Co. of Chicago?
Mr. S tuart . I think this indicates a large ownership.
Mr. P ecora . Well, as a matter of fact, doesn’t it indicate that you
individually were one of three trustees who had the right to vote a
large block of the common stock of the Corporation Securities Co. of
Chicago? Isn’t that all that that statement means?
Mr. S tuart . Yes; but I understood your question to me to be
anything that would indicate that we had a large interest in it, and I
think this would indicate that.
Senator B rookhart . From that how could one tell who were the
owners of the common stock?
Mr. S tuart . I was one of the voting trustees.
Mr. P ecora . Well, can not one be a voting trustee without being
the owner of a single share of stock?
Mr. Stuart . Yes, but----- Mr. P ecora (continuing). So that all that circular states is that
you were one of three voting trustees; and yet it was possible for you
or anyone else to be a voting trustee without being the owner of a
single share of stock?
Mr. Stuart . Yes; but it indicates that we had an interest there,
and also that we had something to say about management, too.
Mr. P ecora . And that something to say about management flowed
from the voting trust agreement and not from the ownership of any
shares.
Mr. Stuart . Yes, sir; but-----Mr. P ecora (continuing). And it is a device that is often resorted
to in order to obtain control of the operation and management of a
corporation at a minimum of actual investment.
Mr. Stuart . Yes; and-----Mr. P ecora (interposing). And that is what you are pointing to as
evidence, and the only evidence you have been able to produce, by
which your company informed the public through the medium of a
circular that it had a substantial interest in a company whose securi­
ties you were offering to the public, represented by ownership of
stock. Is that right?
Mr. S tuart . That is the only thing I have been able to find so far.
Mr. P ecora . What is the date of that circular?
Mr. Stu art . September 10, 1930.
Mr. P ecora . And that was nearly a year after that company was
first organized?
Mr. Stuart . Yes, sir.
Mr. P ecora . Now, in view of the fact that you have referred to
this voting trust agreement, let me ask you something about it:
When was that voting trust agreement effected?
Mr. Stuart . I think it was effected right after the organization
of the company.
Mr. P ecora . That is, on or about October 5, 1929?
Mr. S tuart . Yes, sir.
Mr. P ecora . At that time the public held no shares of the common
stock of the company?
Mr. Stuart . No; not up to the time of the public offering.



1644

STOCK EXCHANGE PRACTICES

Mr. P ecora . And the officers and directors, or rather the directors
of Corporation Securities Co. of Chicago, of which you were presi­
dent, created this voting trust, and attached it to a large block of
the common stock of the company.
Mr. S tuart . Yes.
Mr. P ecora . And the voting trustees designated in that trust
agreement were Mr. Samuel Insull, sr., Samuel Insull, jr., and yourself.
Mr. S tuart . Yes, sir.
Mr. P ecora . And the purpose of it was to enable the three voting
trustees, you, Mr. Samuel Insull, sr., and Mr. Samuel Insull, jr.,
without necessarily investing a single dollar of your own money in
the corporation, to retain the management and control of it through
the creation of that voting trust, attaching to over a million shares
of stock? Isn’t that right?
Mr. Stuart . Well, of course we actually owned shares.
Mr. P ecora . But you need not have owned any shares at all in
order to have obtained that control through the medium of that
voting trust.
Mr. Stu art . I presume a voting trust could be created without
the trustees owning stock.
Mr. P ecora . Under the terms of this voting trust and the manner
in which it was created, it was made possible for you and the other
two trustees to control the company without owning a single share
of the stock.
Mr. Stu art . But we actually did.
Mr. P ecora . But, I say, it was made possible by this voting trust.
Mr. S tu art . Perhaps.
Mr. P ecora . And that was done by the directors at the outset.
Mr. S tuart . Perhaps it was.
Mr. P ecora . And the directors and officers were all persons that
were connected with either the Insull companies or Halsey, Stuart &
Co., weren’t they?
Mr. Stu art . That is my recollection.
Mr. P ecora . Is there anything more that you want to tell us
about this voting trust agreement?
Mr. Stu art . I think the circular put out by the company when
offering the original allotment units also said something about a
voting trust, but I have not a copy of that circular.
Mr. P ecora . Well, Mr. Stuart, I take it you are not pointing with
pride to this voting trust in the light of the things that have since
transpired.
Mr. Stuart . No. But you asked me this morning to produce such
a document, and I think that document answers your question.
Mr. P e c o r a . Y ou still think it answers the question I asked you
this morning?
Mr. S tuart . I think it indicates a large ownership.
Mr. P ecora . At the time of the incorporation of Corporation
Securities Co. of Chicago a certificate of such incorporation was
filed under the laws of the State of Illinois in the office of the secretary
of state, wasn’t it?
Mr. Stuart . I presume so.
Mr. P ecora . And under the laws of the State of Illinois such certifi­
cate was required to show the stockholders at the time of the filing
of the certificate.



STOCK EXCHANGE PRACTICES

1645

Mr. S tuart . I presume so,
Mr. P ecora . And at the time of the filing of this certificate were
Halsey, Stuart & Co. the owners, either legally or equitably, of any
common stock of Corporation Securities Co. of Chicago?
Mr. Stuart . I could not answer without looking that up.
Mr. P ecora . Will you look that up if you have any records
available?
Mr. Stuart . All right.
Mr. P ecora . Let me remind you, and perhaps it will save you the
trouble of looking it up: Were any shares of the common stock of the
corporation acquired by Halsey, Stuart & Co. at the time of the
incorporation on October 5, 1929?
Mr. Stuart . I presume so, but I couldn’t tell you definitely without
looking it up.
Mr. P ecora . Don’t you recall that at the outset of that corpora­
tion a million shares of its common stock were allotted to Halsey,
Stuart & Co., and a little more than a million shares to Samuel
Insull, sr.?
Mr. Stuart . I recall those amounts, but I do not know the dates
of the allotment.
Mr. P ecora . N ow , in whose name was the subscription for those
million shares allotted to Halsey, Stuart & Co.?
Mr. S tuart . I could not answer.
Mr. P e co ra . D o you know a man named Walter F. Darfier?
Mr. S tuart . Yes, sir.
Mr. P ecora . Who is he?
Mr. S tuart . He is connected with Halsey, Stuart & Co.
Mr. P ecora . In what capacity?
Mr. Stuart . He is assistant secretary or assistant treasurer, I find
by inquiry.
Mr. P ecora . Isn’t it a fact that at the time of the filing of this
certificate of incorporation with the secretary of state of Illinois the
certificate showed that Walter F. Darfier gave the address of 201
South La Salle Street, Chicago, and that he was the owner or was
one of the stockholders to the corporation to the extent of 999,996
shares of common stock?
Mr. Stuart . I could not say. But if that is the record, that is
true.
Mr. P ecora . For which he was supposed to have paid in to the
company the sum of $13,778,034.45?
Mr. Stuart . If that is the record.
Mr. P ecora . Let me show you the original certificate of the sec­
retary of state of Illinois, dated October 11, 1929, of the articles of
incorporation of the Corporation Securities Co. of Chicago.
Mr. S tuart . All right.
Mr. P ecora . Will you turn to the photostatic pages attached to
that certificate, the one that contains the list of stockholders of
Corporation Securities Co. of Chicago?
Mr. Stuart . All right.
Mr. P ecora . I will point it out to you if you wish.
Mr. S tuart . I have it here.
Mr. P ecora . Do you see Mr. Darfier’s name on that?
Mr. Stuart . Yes, sir.
Mr. P ecora . I s Halsey, Stuart & Co.’s name shown on that list?



1646

STOCK EXCHANGE PEACTICES

Mr. S t u a r t . N o, sir.
Mr. P e c o r a . The fact of the matter is that Darfler, a subordinate
officer of Halsey, Stuart & Co., is shown to be the owner of nearly
1,000,000 shares, in fact 1,000,000 shares less 4 shares, of the common
stock of the company.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And Darfler was not the owner of those shares,
was he?
Mr. S t u a r t . N o, sir.
Mr. P e c o r a . He was a dummy or nominee with respect to such
shares of Halsey, Stuart & Co.?
Mr. S t u a r t . He w a s the nominee, our nominee.
Mr. P e c o r a . Now, was there any purpose in concealing from the
public records the fact that Halsey, Stuart & Co. and not Darfler
were the actual owners of those 1,000,000 shares of common stock?
Mr. S t u a r t . There was no point of concealment there.
Mr. P e c o r a . Why was it done?
Mr. S t u a r t . We wanted some individual's name instead of the
name of a corporation.
Mr. P e c o r a . For what reason?.
Mr. S t u a r t . I do not know. I suppose it was done in order
that-----Mr. P e c o r a (interposing). Wasn’t it because you did not want a
public record of the fact that Halsey, Stuart & Co. owned a million
shares of the common stock of this corporation in view of the fact
that Halsey, Stuart & Co. had planned to offer and sell to the public
the debentures of the Corporation Securities Co. of Chicago in the
matter of some millions of dollars?
Mr. S t u a r t . No, sir. There was no attempt at concealment.
Mr. P e c o r a . But there was concealment.
Mr. S t u a r t . It was done for that purpose. There was no attempt
at concealment.
Mr. P e c o r a . It was a concealment, but was it done for any other
purpose that you can now think of?
Mr. S t u a r t . None, except that it was easier to handle it in that
way.
Mr. P e c o r a . Was it easier to write in the name of Walter F. Darfler
than to write in the name of Halsey, Stuart & Co.?
Mr. S t u a r t . N o, sir. But it was easier to handle in the case of an
individual.
Mr. P e c o r a . Those million shares of common stock were not
handled by Darfler but by Halsey, Stuart & Co.?
Mr. S t u a r t . That is right.
Mr. P e c o r a . So that there was no ease that accrued in the handling
of this stock from the mention of the name of Darfler as the owner of
those shares instead of the name of Halsey, Stuart & Co.?
Mr. S t u a r t . Well, it is frequently done. We always do it.
The C h a i r m a n . Well, Mr. Stuart, you are an individual. You
could have used your own name.
Mr. S t u a r t . Yes. I do not know why we used his name partic­
ularly.
The C h a i r m a n . I noticed when a question was asked you a moment
ago by counsel to the committee you didn’t know even who he was.




STOCK EXCHANGE PRACTICES

1647

Mr. S t u a r t . Oh, I know him all right. But I asked about his
title or office.
Senator C o u z e n s . I s there anything in the statutes of the State of
Illinois which prohibit a copartnership or corporation from holding
stock in another corporation?
Mr. S t u a r t . I do not know. I can not answer that.
Mr. P e c o r a . Y ou know, as a matter of fact-----Mr. I s a a c H. M a y e r (interposing). Mr. Chairman, I am counsel
for one of the Chicago banks, and perhaps I might answer that.
The C h a i r m a n . Very well.
M r . M a y e r . The Illinois law expressly permits an Illinois corpora­
tion to own stock in another corporation, with certain exceptions, the
exceptions being along the line calculated to prevent a monopoly.
But speaking generally-----Senator C o u z e n s (interposing). In other words, there was no pro­
hibition in the Illinois statute preventing Halsey, Stuart & Co. from
being subscribers to the stock of that corporation?
Mr. M a y e r . N o ; assuming that Halsey, Stuart & Co. were not a
bank. I do not know anything about them or their charter as to that
matter.
The C h a i r m a n . I s Halsey, Stuart & C o . a bank?
Mr. S t u a r t . No, sir. We are a corporation under the general
corporation law.
The C h a i r m a n . Y ou said this morning you never claimed you were
the largest bank.
Mr. P e c o r a . I think he said investment dealer.
Mr. S t u a r t . Investment dealer, I think I said.
The C h a i r m a n . Do you know anyone that is larger than your­
selves?
Mr. S t u a r t . Well, as I said this morning, I do not know about the
volume of business done by others.
The C h a i r m a n . But you are not sure that there are any in the
United States which are larger than yours?
Mr. S t u a r t . I do not know about that.
Senator C o u z e n s . You are the concern that used to broadcast
The Old Counsellor?
Mr. S t u a r t . Yes, sir.
The C h a i r m a n . That was gone into fully this morning, Senator
Couzens, but I am not saying that in order to stop you, but merely
to inform you that that has been fully gone into.
Senator C o u z e n s . I do not want to repeat it. I was not able to
be here this morning.
The C h a i r m a n . Mr. Stuart admitted that he employed The Old
Counsellor.
Senator C o u z e n s . Well, I hope he did not take The Old Coun­
sellor’s advice. [Laughter.]
Mr. P e c o r a . What did Halsey, Stuart & Co. pay to Corporation
Securities Co. of Chicago for those million shares of its common stock.
Mr. S t u a r t . One hundred fifty two thousand two hundred sev­
enty shares of Insull Utility Investments, (Inc.) common, which then
had a market value of between fifteen and sixteen million dollars.
Mr. P e c o r a . In other words, a market value of about 100?
Mr. S t u a r t . A market value of about 100, between 100 and 106
on the day that it was organized.



1648

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . Yes.
Mr. S t u a r t . A value of between fifteen and sixteen million
dollars, and-----Mr. P e c o r a (interposing). And those are the shares that your
company got at $10 and $12 a share originally?
Mr. S t u a r t . Well, some higher than that.
Senator C o u z e n s . What was the average?
Mr. S t u a r t . I think our average cost was around 40 or 41.
Senator C o u z e n s . And you put them in at over 100?
Mr. S t u a r t . Yes. There was a market value of 100, but the way
we got paid for them was not in cash. The actual cash cost of that
stuff to us had been about $3,400,000. That was our actual cash
cost, which was somewhere around or a little over $20 a share.
Senator C o u z e n s . And you got in return for that some $13,000,000
of this Corporation Securities Co.’s stock?
Mr. S t u a r t . Just a moment. We sold that—all the stock we
had, which cost us $3,400,000, to the Corporation Securities Co., for
our cost price, and the average was about—for the high we paid as
much as 40, but our average was about 20. And that gave us back
our actual cash, and there was a real market at that time, well, a
very big market for it—and then we took the common stock in the
corporation for the balance.
Senator C o u z e n s . What was the par value of the stock you took
from the Corporation Securities Co.?
Mr. S t u a r t . It was stock without par value. A million shares I
think without par value.
Senator C o u z e n s . That is what is represented in the articles of
incorporation originally $13,000,000 plus.
Mr. S t u a r t . Yes. The point is that we did not get any cash
profit. That is what I want to emphasize.
Mr. P e c o r a . At what price per share did your company take
over a million shares in October of 1929 from the Corporation Securi­
ties Co.?
Mr. S t u a r t . We took them over at the difference between the
then market value and the cash.
Mr. P e c o r a . At what price per share was it? Wasn’t it $12 and
a fraction per share?
Mr. S t u a r t . I think that is the way it would figure out. But I
have not the exact figures.
Mr. P e c o r a . It was $12 and a fraction per share, wasn’t it?
Mr. S t u a r t . I do not know.
Mr. M a c N e i l l e . If I understood just what Mr. Pecora is asking
about, if he agrees for me to answer it?
Mr. S t u a r t . Would you like to leave that until Mr. MacNeille
can answer it?
Mr. P e c o r a . At the outset of the existence of Corporation Securi­
ties Co. you recall, don’t you, that 1,045,433 shares of common stock
were sold to Samuel Insull and members of his family, and 1,000,000
shares to Halsey, Stuart & Co., at a price of $12.11 per share?
Mr. S t u a r t . I do not remember the price.
Mr. P e c o r a . Y ou wouldn’t dispute that that is a fact, would you?
Mr. S t u a r t . Oh, no; I would not dispute it. I just do not re­
member what it was.




STOCK EXCHANGE PRACTICES

1649

Mr. P e c o r a . N o w , this common stock of Corporation Securities
Co. of Chicago was shortly thereafter listed on the Chicago Stock
Exchange, wasn’t it?
Mr. S t u a r t . That is my recollection.
Mr. P e c o r a . D o you know at what price the stock was sold on
the opening day on the Chicago Stock Exchange?
Mr. S t u a r t . I do not know.
Mr. P e c o r a . Don’t you recall that this common stock was issued
and traded in in units, each unit calling for one share of preferred
convertible and one share of common?
Mr. S t u a r t . Yes.
Mr. P e c o r a . And that the conversion privilege attached to the
preferred shares was to exchange the preferred for one and one-half
shares of common?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Don’t you recall that the opening day’s trades on
the Chicago Stock Exchange for those units was at $100 per unit,
giving a value of $40 to the common shares?
Mr. S t u a r t . I do not remember what it sold at.
Senator C o u z e n s . I should like to ask just what counsel for the
committee means. Does he mean to indicate that the preferred was
worth 60 and the common worth 40?
Mr. P e c o r a . Yes, sir; because each unit consisted of 1 share of
preferred convertible into 1% shares of common, and also 1 share of
common. So that a unit selling for $100 would represent 2}i shares
of common stock, -making $40 a share for the common stock.
Senator C o u z e n s . That is on the assumption that the conversion
was made?
Mr. P e c o r a . Yes.
Senator C o u z e n s . But your conclusion does not follow until the
conversion was made?
Mr. P e c o r a . But the conversion, at the option of the holder,
would be made, I take it, and that was the valuation.
Senator C o u z e n s . But conversions are not always made.
Mr. P e c o r a . No.
Senator C o u z e n s . All right.
Mr. P e c o r a . Now, Mr. Stuart, how many units did Halsey,
Stuart & Co. acquire?
Mr. S t u a r t . We did not acquire any units of that original offering,
for our own account.
Mr. P e c o r a . At what price per unit did Halsey, Stuart & Co.
acquire those units?
Mr. S t u a r t . Well, as I say, we did not acquire any for our own
account. If we acquired them it was for somebody else’s account,
and then at the unit price, which I think was 75.
Mr. P e c o r a . Well, now, didn’t Halsey, Stuart & Co. sell those
units through its selling organization to the public?
Mr. S t u a r t . No; not at all.
Mr. P e c o r a . Were not those units offered to the public in the
name of Corporation Securities Co. of Chicago but to customers of
Halsey, Stuart & Co. whose names were furnished by Halsey, Stuart
& Co. to Corporation Securities Co. of Chicago?
119852— 33—




pt

5-------- 1 7

165 0

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . Yes. We furnished some names to the Corporation
Securities Co., and they sent a circular direct. We had nothing
whatever to do with the sale.
Mr. P e c o r a . At what price were the units offered to the public
at that time?
Mr. S t u a r t . It is my recollection at 75.
Mr. P e c o r a . N o w , did Halsey, Stuart & Co. at any time enter into
any syndicate agreements with anyone for the purpose of supporting
the market for the common stock of either Insull Utility Investments
(Inc.) or Corporation Securities Co. of Chicago?
Mr. S t u a r t . Not that I recall.
Mr. P e c o r a . D o you mean by that answer that there may have
been some such instances but they are not now within your recol­
lection?
Mr. S t u a r t . I do not remember any such instance.
Mr. P e c o r a . I show you this letter, written on the letterhead of
Halsey, Stuart & Co., dated December 31, 1929, addressed to Mr.
Samuel Insull, chairman Insull Utility Investments (Inc.). Will
you kindly look at it and read it?
Mr. S t u a r t . All right. I remember it.
Mr. P e c o r a . After reading that letter is your recollection refreshed
as to whether or not Halsey, Stuart & Co. entered into any syndicate
agreement with anyone with respect to maintaining the market for
the common shares of Insull Utility Investments (Inc.)?
Mr. S t u a r t . Yes. That statement still holds. Here is what we
did here: After we bought these $60,000,000 of debentures for the
account of the buying syndicates, a part of the conditions of the trade
was that the company would have to maintain the market on the
common stock at the closing price on the day prior to the dealers’
offering for four business days thereafter. That was a part of the con­
sideration of purchase. We had nothing to do with supporting that
stock or buying any of it.
Mr. P e c o r a . That is, you agreed to take over those debentures?
Mr S t u a r t . Yes, sir.
Mr. P e c o r a . And the company issuing those debentures was to
agree to maintain the market for the common stock?
Mr. S t u a r t . Yes, sir; that is right.

Mr. P e c o r a . What did you mean by maintaining the market for
the common stock?
Mr. S t u a r t . It s a y s:
We also understand that you agree to maintain the market on Insull Utility
Investments (Inc.) common stock at the closing price on the day prior to dealers’
offerings for four business days thereafter.

Mr. P e c o r a . What did you understand Insull Utility Investments
(Inc.) was to do under that arrangement?
Mr. S t u a r t . They would have to maintain the market, keep the
price at what it was at that time.
The C h a i r m a n . Well, now, Mr. Stuart, I thought you said a while
ago it was the public that made the price. Now you are getting into
another line.
Mr. S t u a r t . Well, Mr. Chairman, this is a particular transaction.
Mr. Pecora was asking me what this meant.




STOCK EXCHANGE PRACTICES

1651

The C h a i r m a n . But you said the market was maintained by public
buying. Here it would seem that it was to be maintained by some­
body else.
Mr. S t u a r t . Here was a different matter. It is true that generally
the prices must be made by the public. This was a particular trans­
action, connected with $60,000,000 of gold debentures with conversion
and stock purchase warrants attached.
The C h a i r m a n . And it says that the market must be maintained
for four days. Is that in order that the public may be protected or
that the syndicate may be protected?
Mr. S t u a r t . Well, in order that the public may be protected.
The C h a i r m a n . I can not see that at all.
Mr. S t u a r t . Connected with the purchase of the gold debentures.
Mr. P e c o r a . But did it not in this case work the other way for the
public?
Mr. S t u a r t . Well, you see-----The C h a ir m a n (interposing). But what I want to know is: Who
is making the market? It has been reported so often to this com­
mittee that markets were never made but were just the result of
natural conditions of buying and selling. Here for the first time is
something sprung on us, and in writing, that calls for maintaining
the market at a high price, or at least at a certain price, until some­
thing else takes place.
Mr. S t u a r t . I think you have me confused with Mr. Davis. I do
not know anything about stocks.
The C h a i r m a n . I do not know anything about what happened
yesterday at all. I am talking about what has been happening
before this committee.
Mr. P e c o r a . Mr. Stuart, doesn’t this letter refer to maintaining the
market for the common stock of Insull Utility Investments (Inc.)?
Mr. S t u a r t . That is correct.
Mr. P e c o r a . And that expression is in a letter from your company
to Mr. Samuel Insull.
Mr. S t u a r t . Yes, sir. But it might have worked the other way.
When the Senator said it might hurt the public, don’t forget, or please
try in all these things to keep before yourself this picture: In 1929 the
public was mad for speculation. They bought anything in the way
of common stock. They were not looking for safe investments,
apparently, but bought anything. If they knew the name of a stock
they would buy it.
The C h a i r m a n . If it was recommended by investment bankers or
specialists.
Mr. S t u a r t . It would not make any difference whether it was
recommended or not. The public wanted to buy stocks. They
bought them. And they paid any price for them. And in the light
of what has happened since it would seem that everybody must have
gone crazy. And so it is that I ask you: In discussing this thing
put yourself back as things were then. Neither you nor we had any
control over that.
The C h a i r m a n . Well, we have had witnesses before this committee
connected with stock exchanges saying markets are not made. Now,
on the other hand, here is plain evidence of the market being made by
interested parties.
Mr. S t u a r t . Well, that is a fact, anyway, of what was done here.



1652

STOCK EXCHANGE PRACTICES

The C h a i r m a n . And your testimony is that markets are made by
interested parties.
Mr. S t u a r t . On this d eal.
The C h a i r m a n . Well, in this case, we will say.
Mr. S t u a r t . Yes, sir; it was maintained, whatever it was.
Senator B r o o k h a r t . Aren’t markets made that way nearly all
the time? Isn’t there someone whose duty it is to sustain them
whenever you float a bond issue?
Mr. S t u a r t . No; I do not recall ever making a similar arrange­
ment before.
Senator B r o o k h a r t . The president of the New York Stock
Exchange testified in regard to an issue of $98,000,000 of foreign
bonds, floated by J. P. Morgan & Co., and said that they first got
brokers to sell it, and then Mr. Whitney’s own company, and he was
the president of the Exchange, was to buy some of the bonds at the
same time that these other brokers were selling them, and that
Whitney was instructed not to let them go below 90, and that he
bought back some $10,000,000 for J. P. Morgan & Co. while they
were getting rid of the bonds. Isn’t that the usual method?
Mr. S t u a r t . Well, I will say that I never had that particular type
of experience.
Senator B r o o k h a r t . Well, that was the president of the New York
T
Stock Exchange who was testifying, and certainly he ought to know.
Mr. S t u a r t . Well, that may be.
Senator C o u z e n s . What did the people have to do in order to work
this out?
Mr. S t u a r t . I do not know how it worked out.
Senator C o u z e n s . It is a fact, possibly, that nothing was neces­
sary for them to do, that the public themselves maintained the
market.
Mr. S t u a r t . I think that was probably so. As I remember, those
debentures were put out at par or at 99}£.
Mr. P e c o r a . What did you acquire them at?
Mr. S t u a r t . I would have to look that up.
Mr. P e c o r a . Perhaps this letter will enlighten you.
Mr. S t u a r t . Well, they sold right afterward, or shortly afterward
at 114, and there was no such manipulation or arrangement as you
have suggested. They naturally sold at 114.
Senator B r o o k h a r t . But if they had gone the other way there
would have been manipulation of the market?
Mr. S t u a r t . There might have been, but in this case there was no
such thing. We acquired these $60,000,000 of gold debentures at 94
and accrued interest.
Senator C o u z e n s . In other words, when you wrote that letter you
had in mind that you wanted to unload those $60,000,000 of deben­
tures before there should be any drop in the market?
Mr. S t u a r t . Yes. Then we were also afraid of that hectic stock
market, that was going on all the time. We didn’t know what would
happen, and I don’t think anyone else knew what would happen.
Senator C o u z e n s . In other words, you had fixed it so you would
be able to get out no matter what happened to the market?
Mr. S t u a r t . Oh, no, indeed; we did not.
Senator C o u z e n s . Why, certainly you did.
Mr. S t u a r t . No, indeed.



STOCK EXCHANGE PRACTICES

1653

Senator C o u z e n s . Just a minute and let me complete my question:
You obliged the Insulls to maintain the market for the stock.
Mr. S t u a r t . For four d a y s .
Senator C o u z e n s . I understand, but long enough in any event for
you at least to unload $60,000,000 of debentures. Now, evidently
you could have had no other intention than to oblige the Insull Co.
to do that. And after the $60,000,000 of debentures had been
unloaded on the public you were not at all interested in regard to
the course of the stock.
Mr. S t u a r t . N o . But, Senator, the mere fact that-----Senator C o u z e n s (interposing). Well, that answers it.
Mr. S t u a r t . I was going to say that we might have been adversely
affected by the stock. But it so happens that we sold.
Senator C o u z e n s . Y o u got out yourself.
Mr. S t u a r t . Well, that happened.
Mr. P e c o r a . This agreement between your company and Insull
to maintain the market for the common stock of Insull Utility
Investments (Inc.), was made at the time that your company was
offering to the public $60,000,000 of gold debentures?
Mr. S t u a r t . Yes.
Mr. P e c o r a . N o w , those gold debentures carried with them,
didn’t they, certain warrants?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And what was the nature of those warrants in so far
as they related to the common stock of the company?
Mr. S t u a r t . May I read from this? It is the only way I can
tell you.
Mr. P e c o r a . Surely.
Mr. S t u a r t . T h is s a y s :
Each $1,000 debenture will carry a non-detachable warrant whereby the de­
benture may be surrendered at its principal amount in exchange for common
stock of the company at the following prices per share: During the calendar year
1930 at $65—

Mr.
Mr.

P ecora
S tu a rt.

(interposing). What were the prices?
I was going to read them:

During the calendar year 1930 at $65; during 1931 at $72.50; during 1932 at
$87.50; during 1933 at 105; and during 1934 at 125.

This is rather long. Shall I continue?
Mr. P e c o r a . I think that goes far enough.
Mr. S t u a r t . There were some other matters.
Senator B r o o k h a r t . H o w far in the future does it go?
Mr. S t u a r t . Up to 1934, five years.
Senator C o u z e n s . What are the debentures worth now?
Mr. S t u a r t . Oh, practically nothing.
Senator B r o o k h a r t . Was there any property value or earning
value to base such a prediction as that upon at the time it was made?
Mr. S t u a r t . Yes. There was an earnings statement in there.
Mr. P e c o r a . D o you know what the market quotation was in
December of 1929 or m Janury of 1930, the average price during those
months, on the common stock of Insull Utility Investments (Inc.)?
Mr. S t u a r t . I do not.
Mr. P e c o r a . Did your company succeed in selling to the public
those $60,000,000 worth of gold debenture notes?



16 5 4

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . They were sold immediately.
Mr. P e c o r a . Sold within the 4-day period?
Mr. S t u a r t . Yes.
Mr. P e c o r a . After Insull obligated himself to maintain the market?
Mr. S t u a r t . Yes.
Mr. P e c o r a . D o you recall any other occasions when Halsey
Stuart & Co. entered into any agreement or understanding with
anyone else to maintain a market for the common shares of either
Insull Utility Investments (Inc.), or Corporation Securities Co., of
Chicago?
Mr. S t u a r t . No; I do not. I do not recall.
Mr. P e c o r a . Do you know Mr. Fred H. Scheel, vice president of
Utility Securities Co.?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . The Utility Securities Co. of which he was vice
president was another Insull subsidiary or affiliate, wasn’t it?
Mr. S t u a r t . It was a stock-distributing company, owned by a
number of Insull companies. I never saw a list of the stockholders
and I do not know how it was owned.
Mr. P e c o r a . It was a sort of trading company, wasn’t it, for th e
Insull interests?
Mr. S t u a r t . I think it was a stock-distributing company. As I
understand it distributed stocks.
Mr. P e c o r a . Will you look at this letter which I now show you,
dated March 31, 1930, addressed to Mr. Fred H. Scheel, vice presi­
dent of the Utility Securities Co., signed by Corporation Securities
Co. of Chicago through C. T. MacNeille, secretary, and tell us if
that letter does not refer to another market operation for supporting
or maintaining the market for the common shares of Corporation
Securities Co. of Chicago?
Senator C o u z e n s . Mr. Chairman, it does seem to me the com­
mittee ought to know what is in these letters before they are passed
over to the witness, who is asked to comment on them.
Mr. P e c o r a . All right.
The C h a i r m a n . Let Senator Couzens see the letters.
Mr. P e c o r a . Certainly. I now want to ask that this last letter
of December 31, 1929, with respect to which the witness has been
questioned, be spread in full on the record.
The C h a i r m a n . There being no objection, it is so ordered.
H

Mr.

, S t t j a r t & Co.,
Chicago, December SI, 1929.

alsey

S am u el In s u ll,

Chairman Insull Utility Investments (Inc.),
Chicago, III.
D e a r S i r : Confirming conversation with you, we have agreed to purchase,
and you have agreed to sell, $60,000,000 Insull Utility Investments (Inc.) 10-year
6 per cent gold debentures, with characteristics substantially as described in the
attached proof of circular dated December 31. The purchase price is to be 94
and accrued interest to the date of delivery, such delivery to be made to us at
our office in Chicago on January 20 next.
We understand that you will furnish, free of expense to us, the approving legal
opinion of Messrs. Isham, Lincoln & Beale.
We also understand that you agree to maintain the market on Insull Utility
Investments (Inc.) common stock at the closing price on the day prior to dealers’
offerings for four business days thereafter.




1655

STOCK EXCHANGE PEACTICES

If the foregoing is in accordance with your understanding, will you kindly
confirm by signing and returning the attached carbon copy of this letter to us?
Yours very truly,
H a l s e y , S t u a r t & Co.
Accepted: Subject to the legally authorized increase in common stock.
I n s u l l U t il it y I n v e s t m e n t s
S a m u e l I n s u l l , Chairman.

( I n c .).

N e w I ssue — I nsull U tility I nvestments (I nc .)— $60,000,000 10-Y ear 6
Per cent G old D ebentures Series B (W ith C onversion and Stock
P urchase W arrants)— D ated January 1, 1930, D ue January 1, 1940

Balance sheet of the Insull Utility Investments (Inc.), November SO, 1929, as cer­
tified by independent auditors
After giving effect to (a) the proposed sale of $60,000,000 in principal amount of
10-year 6 per cent gold debentures, series B and the application of the proceeds
therefrom to the liquidation of floating indebtedness incurred in the purchase
of securities and the remainder added to cash and (b) the proposed increase in
the amount of authorized common stock. No part of the cost of investment
stocks has been transferred or assigned to the stock rights received thereon on
sale or other disposition of these rights.
assets

Investment securities (aggregate market value, Nov. 30, 1929,
$130,554,700.54)________ _____ ___________________________ $130, 199, 900. 98
Insull Son & Co. (Inc.), capital stock_______________________
1 , 250, 000. 00
Investments not yet completed______________________________
2, 513, 511. 30
Advances for purchase of securities__________________________
3, 000, 000. 00
Advances to affiliated company_____________________________
7, 500, 000. 00
80, 300. 00
Subscribers to capital stock_________________________________
Cash_______________________ ________________________________
19,657,789.20
Notes receivable____________________________________________
300, 000. 00
Interest, dividends, and earnings receivable accrued not due __
1, 206, 052. 42
6 , 551. 92
Furniture and fixtures______________________________________
Unamortized discount on debentures, organization expense,
etc_______________________________________________________
3, 863, 970. 89
Reacquired securities: Prior preferred stock, without par value,
20,000 shares_____________________________________________
1, 750, 000. 00
Total assets__________________________________________

171, 328, 076. 71

l ia b il it ie s

Capital stock:
Prior preferred, without par value; authorized, 250,000
shares; issued, first series $5.50 cumulative, 60,000
shares_______________________________________________
Preferred, without par value; authorized 500,000 shares:
Issued—
First series, entitled to cumulative dividends as fol­
lows, 40,000 shares______________________________
Year 1929, $2.
Year 1930, $3.
Year 1931, $4.
Year 1932, $5.
Each year after 1932, $6 .
Second series $ 6 cumulative, 450,000 shares________
Paid-in surplus arising from this issue of second
series____________________________________________
Common, without par value; authorized, 6,000,000 shares.
Less: Reserved for sale and exchange to holders of 5
per cent gold debentures, 40 shares; prior preferred
stock, 8 shares. Preferred stock, first series, 200,000
shares; second series, 360,000 shares; 6 per cent gold
debentures, 2,028,000 shares; total, 3,411,952 shares.




6 , 0 0 0 , 00 0 . 00

4, 000, 000. 00

36, 000, 000. 00
6 , 750, 000. 00

1656

STOCK EXCHANGE PKACTICES

Capital stock— Continued.
Issued, 2,077,224 shares_________________________________
Subscribed for but not issued, 27,100 shares_____________
T o t a l..______ _____ __________________________________
Gold debentures:
5 per cent, series A, due Jan. 1, 1949____ $2, 469, 000. 00
6 per cent, series B, due Jan. 1 , 1940____ 60, 000, 000. 00
----------------------Purchase contract obligations, due 1930-31__________________
Accrued interest on gold debentures, series A ________________
Accrued preferred dividends_________________________________
Surplus (before provision for 1929 Federal income ta x)_______

$41, 935, 166. 23
325, 200. 00
95,010,366.23

62, 469, 000. 00
2 , 2 1 1 , 300. 0 0
41, 150. 00
731, 86 6 . 67
1 0 , 864, 393. 81

Total______ _______ __________________________________
171,328,076.71
Contingent liability as subscriber to the amount of $4,700,000 to the Middle
West Syndicate agreement.
Statement of shares of stock receivable under conversion and stock purchase warrants
attached to Insull Utility Investments (Inc.), 10-year 6 per cent gold debentures,
based upon cost of $995 per $1,000 debenture fractional shares deliverable in form
of bearer scrip
S H A R E S R E C E IV A B L E
Through purchase for
cash

U pon sur­
During the
render of
calendar year each $1,000
debenture

1930..................
1931..................
1932..................
1933..................
1934..................

15.384
13.793
11.428
9. 524
8.000

N um ber
of shares

10
1 10
1 10
1 10
1 10

Cost per
share

T otal shares

Average cost per share

Result if
Result if
stock pur­
stock pur­
chased in
Result if
Result if
chased in
debentures 1930 and1de­ debentures 1930 and de­
surrendered bentures sur­ surrendered bentures sur­
and stock rendered and and stock rendered and
additional
additional
purchased
purchased
stock pur­
in the re­
in the re­
stock pur­
chased in
chased in
spective
spective
year
succeeding
year
succeeding
respective
respective
year
year

$65.00
62.50
77.50
95.00
115.00

25.384
23. 793
21.428
19. 524
18.000

10.000
33. 793
31.428
29.524
28.000

$64.804
68.087
82.602
99.621
119.167

$65,000
67.173
77.001
87.894
99.821

1 Purchasable only if debentures are exchanged for stock.
Insull U

I n v e s t m e n t s ( I n c .),
O f f ic e o f t h e C h a ir m a n ,

t il it y

Chicago, December 1, 1929.
& Co. ( I n c . ) .
G e n t l e m e n : In connection with your purchase of $60,000,000 10-year 6 per
cent gold debentures, series B (with conversion and stock purchase warrants) of
Insull Utility Investments (Inc.), I take pleasure in giving you the following
information:
H

alsey,

Stuart

BUSINESS

Insull Utility Investments (Inc.), was organized under the laws of Illinois on
December 27, 1928, to carry on an investment business and to acquire, hold, sell
and underwrite securities of all kinds. It now owns, among other securities,
substantial blocks of stock of Commonwealth Edison Co., the Peoples Gas
Light & Coke Co., Middle West Utilities Co. and subsidiaries, Public Service
Co. of Northern Illinois, and the entire capital stock of its subsidiary, Insull
Son & Co. (Inc.).
The value of the company’s assets, including securities now owned and to be
acquired under existing contracts valued at market prices as of the date of this
letter, is in excess of $163,000,000.



STOCK EXCHANGE PRACTICES

1657

CAPITALIZATION

(Upon completion of the present financing)
Funded debt:
5 per cent gold debentures, series A due Jan. 1, 1949, outstanding, $2,469,000;
6 per cent gold debentures, series B (this issue), outstanding, $60,000,000.
Capital stock:
$5.50 prior preferred (no par value), authorized 250,000 shares; outstanding,
40.000 shares.
Preferred (no par value), authorized, 500,000 shares, first series1 outstanding,
40.000 shares; second series, $ 6 , outstanding, 450,000 shares.
Common (no par value), authorized, 6,000,000 shares2, outstanding,
2,304,408 shares.
DESCRIPTION OF DEBENTURES

These debentures will be dated January 1, 1930, and will be due January 1,
1940. They will be redeemable as a whole or in part at any time upon 30
days' published notice at the following prices and accrued interest: To and in­
cluding December 31, 1930, at 105; thereafter less one-half per cent for each year
or fraction elapsed to December 31, 1934; thereafter to and including December
31, 1938, at 101; thereafter to maturity at 100. Both principal and interest will
be payable at the office or agency of the company in Chicago and New York. The
interest will be payable semiannually January 1 and July 1 without deduction for
Federal income taxes now or hereafter deductible at the source not in excess of
2 per cent per annum. Halsey, Stuart & Co. (Inc.), will be appointed paying
agent of the company for the making of such interest payments. The debentures
will be in coupon form, in the denomination of $ 1 ,0 0 0 , and will be registerable as
to principal only.
Application will be made to list these debentures on the Chicago Stock
Exchange.
DEBENTURE PROVISIONS

The company will covenant in each debenture that so long as any of the series
B debentures are outstanding, it will not mortgage or pledge any of its assets
without securing the debentures equally and ratably with the other obligations
secured or to be secured by such mortgage or pledge, except that the company,
without so securing the debentures, may mortgage or pledge any of its assets for
the purpose of securing loans in the usual course of business for periods not
exceeding one year and may mortgage or pledge property hereafter acquired to
secure the purchase price thereof in whole or in part. The company will further
covenant that it will neither pay cash dividends on its common stock nor redeem
or purchase its capital stock of any class in whole or in part when such payment
or redemption or purchase will reduce the value of its assets to less than 150 per
cent of its indebtedness then outstanding. The company will also covenant that
so long as any of the series B debentures are outstanding, it will not create or
assume any additional indebtedness if as a result thereof its total indebtedness
will exceed 50 per cent of the then value of its assets.
CONVERSION AND STOCK PURCHASE W ARRANTS

Each $1,000 debenture will carry a nondetachable warrant whereby the deben­
ture may be surrendered at its principal amount in exchange for common stock
of the company at the following prices per share: During the calendar year 1930
at $65; during 1931 at $72.50; during 1932 at $87.50; during 1933 at $105; and
during 1934 at $125. Each such warrant will also provide that in case the deben­
ture to which it is attached is so surrendered in exchange for common stock during
the year 1931 the holder thereof may simultaneously purchase 10 additional
shares of common stock at $62.50; if so surrendered during 1932, 10 additional
shares of common stock at $77.50; if so surrendered during 1933, 10 additional
shares of common stock at $95, and if so surrendered during 1934, 10 additional
shares of common stock at $115. Bearer stock scrip will be issued for fractional
1 M aximum dividends on preferred stock, first series, are payable as follows: $3 per share during the
year 1930; $4 per share during the year 1931; $5 per share during the year 1932; and $6 per share per annum
after the year 1932.
2 There will be reserved 360,000 shares of com m on stock which m ay be issued during the year 1931 to sat­
isfy warrants attached to preferred stock, second series. Sufficient additional shares of com m on stock will
also be reserved to provide against the exercise of the warrants attached to the 10-year 6 per cent gold deben­
tures, series B.




16 5 8

STOCK EXCHANGE PRACTICES

shares and cash adjustments will be made for interest accrued on the debenture
to the date of any such exchange. In addition, each $1,000 debenture will carry
a nondetachable warrant giving the holder of the debenture the unconditional
right to purchase 10 shares of common stock during the year 1930 at $65 per
share. This latter warrant will be detachable in the event the debenture is
redeemed prior to its exercise. Arrangements have been made with Insull, Son
& Co. (Inc.), whereby all common stock of the company to which a debenture
holder may be entitled through the exercise of warrants will be acquired by him
from Insull, Son & Co. (Inc.), within 30 days from the date of surrender to it
of the debenture or the payment of the purchase price, as the case may be. In
case the company subdivides its outstanding shares of common stock into a
greater number of shares, then the number of shares deliverable on the exercise
thereafter of each warrant shall be proportionately increased without requiring
any payment by the warrant holder in addition to the aggregate purchase price
specified in the warrants.
COMMON STOCK DIVIDENDS

The company has already declared a 6 per cent dividend on the common stock
out of 1929 earnings payable in common stock in quarterly instalments during
1930. The first instalment will be paid on January 15, to stockholders of record
on January 1. In addition, the company has announced its intention to declare
dividends of 6 per cent in common stock during 1930 out of earnings for that
year of which 4}i per cent if declared will be paid in 1930.
EARNINGS

The consolidated earnings of the company and its wholly owned subsidiary
from all sources applicable to the interest charges for the calendar year 1929 with
the month of December partly estimated, amounted to $12,227,282.85 as against
which the annual interest requirements on all debentures to be presently out­
standing will be $3,723,450. These figures are not necessarily a true reflection of
the earnings of the company inasmuch as they do not include income on all the
securities that will be owned upon the completion of this financing nor on approxi­
mately $19,500,000 of free cash that will be in the Treasury. On the other hand,
they do include an unusually large sum received during the year, representing
proceeds of the sale of stock rights, which, while recurring, may not always
realize the same amount. The estimate for 1930 indicates net earnings of at least
$13,450,000 available for interest, which may be considered as a more accurate
reflection of the present earning capacity of the company. This latter figure is
based upon proceeds of the sale of rights on an average of the past five years and
from the receipt of stock dividends taken at the present market.
PURPOSE OF ISSUE

The proceeds of this financing will furnish sufficient funds to pay off all current
indebtedness and acquire all securities now contracted for, and will further pro­
vide the company with a substantial cash sum.
OFFICERS AND DIRECTORS

The following are the officers of the company: Samuel Insull, chairman; Samuel
Insull, jr., president; Martin J. Insull, vice president; P. J. McEnroe, secretary
and treasurer; John F. O’ Keefe, assistant secretary and assistant treasurer.
The following are the directors of the company: Walter S. Brewster, of Russell,
Brewster & Co.; Britton I. Budd, president, Public Service Co. of Northern
Illinois; Edward J. Doyle, vice president, Commonwealth Edison Co.; Louis A.
Ferguson, vice president Commonwealth Edison Co.; John F. Gilchrist, vice
president Commonwealth Edison Co.; John H. Gulick, vice president. Common­
wealth Edison Co.; Martin J. Insull, president Middle West Utilities Co.; Samuel
Insull, president Commonwealth Edison Co.; Samuel Insull, jr. president Midland
United Co.; P. J. McEnroe, secretary and treasurer Insull Utility Investments
(Inc.); George F. Mitchell, vice president the Peoples Gas Light & Coke Co.;
Stuyvesant Peabody, president Peabody Coal Co.; Marshall E. Sampsell,
president Central Illinois Public Service Co.; H. L. Stuart, president Halsey,
Stuart & Co. (Inc.); Waldo F. Tobey, of Isham, Lincoln & Beale.




STOCK EXCHANGE PEACTICES

1659

Your attention is called to the accompanying balance sheet of November 30,
1929.
Very truly yours,
--------------------- , Chairman.
These debentures are offered for delivery when, as and if issued and accepted
by us and subject to the approval of counsel. It is expected that definitive
debentures will be ready for delivery by Halsey, Stuart & Co. (Inc.) on or about
___________ All statements herein are official or are based on information
which we regard as reliable and while we do not guarantee them, we ourselves
have relied upon them in the purchase of this security.
Chicago, 111., December — , 1929.

Senator C o u z e n s . How does the committee know what is in a
letter which is handed to the witness, and whether he interprets it
correctly or not?
M r. P e c o r a . I will have that other letter spread on the record
after the witness identifies it.
Senator C o u z e n s . All right.
M r. P e c o r a . M r. Stuart can you now answer that question?
M r. S t u a r t . This letter of March 31, 1930, addressed to M r. Fred
H . Scheel, vice president, Utility Securities Co., has nothing to do
with Halsey, Stuart & Co. It is an agreement between Corporation
Securities Co. of Chicago and Utility Securities Co.
M r. P e c o r a . Halsey, Stuart & Co. had a major interest in the
Corporation Securities Co. of Chicago.
M r. S t u a r t . W e owned a million shares of common stock:
M r. P e c o r a . Y o u had what Halsey, Stuart & Co. described in its
bulletin to its salesmen, which was spread on the record this morning
as a major interest.
M r. S t u a r t . W e had a large interest. But this agreement does
not refer to that issue.
M r. P e c o r a . Y o u were president of Corporation Securities Co.
and also of Halsey, Stuart & Co.?
M r. S t u a r t . Yes, sir.
M r. P e c o r a . In your opinion does this letter relate to another
agreement to maintain or support the market for the securities of
Corporation Securities Co. of Chicago?
M r. S t u a r t . Oh, it does as between Corporation Securities Co.
and the other company, but not as to Halsey, Stuart & Co. at all.
Senator C o u z e n s . In this letter that is addressed to Utility Securi­
ties Co., dated March 31, 1930, it says, in the second paragraph:
Corporation Securities Co. of Chicago will protect the market on its allotment
certificates between $69.50 and $70 per unit.

Then it goes on and makes the statement, in paragraph 3, that:
You are to purchase from Insull, Son & Co. (Inc.) and Corporation Syndicates
(Inc.), jointly 1,250,000 shares of common stock of Corporation Securities Co. of
Chicago at $25.50 per share net to the sellers.

W hat is the difference between this reference to common stock
shares and the allotment certificates?
M r. S t u a r t . The allotment certificates included one share of
preferred and one share of common. They were together. And
the common stock was something else all by itself.
Senator C o u z e n s . W hat relation did the allotment certificates
have to the common shares, making it necessary to maintain the price
at two or three times that of the common stock?




1660

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . There was preferred stock in the allotment certificates.
Senator C o u z e n s . Why was it necessary to maintain that price?
Mr. S t u a r t . I do not know. I suppose the Utility Securities Co.
figured out that there would have to be that sort of spread between
the price they paid and the market price on the allotment certificates.
But that is merely a guess on my part.
Senator C o u z e n s . On that basis you would figure the preferred
share at about $44 a share, if that was the spread?
Mr. S t u a r t . That is the way it would figure out there. It was
a $3 stock.
Mr. P e c o r a . Mr. Chairman, I also ask that there be spread on the
record the letter of Corporation Securities Co. of Chicago to Fred H.
Scheel, vice president of Utility Securities Co., dated April 3, 1930,
which refers to the previous letter of March 31, 1930; and both of
them be made a part of the record.
The C h a i r m a n . There being no objection, it is so ordered.
C o r p o r a t io n S e c u r it i e s C o . op C h i c a g o ,

Chicago, March 31, 1930.
M r. F r e d H . S c h e e l ,

Vice President Utilities Securities Co.,
Chicago, III.
D e a r S i r s : Confirming the writer’ s verbal understanding with you to-day,
you will enter into a contract with Insull, Son & Co. (Inc.) and Corporation
Syndicates (Inc.), jointly, which will include the following provisions:
First, Corporation Securities Co. of Chicago will immediately apply for the listing
of 2,500,000 shares of its common stock and if the listing is accepted and we have
had no advices to lead us to believe otherwise, trading will commence on Thurs­
day, April 3, next, you to name the specialist who will handle the stock, and take
care of all market operations at your own expense and in connection therewith
you agree to maintain a market for the common stock between $27 and $28 per
share.
Second, Corporation Securities Co. of Chicago will protect the market on its
allotment certificates between $69.50 and $70 per unit until you complete the
sale of the 1,250,000 shares of common stock of Corporation Securities Co. of
Chicago, which you are purchasing but in no event for a period exceeding 90
days from this date and further provided that in so doing it is not required to
purchase in the aggregate over 10 0 ,0 0 0 units.
Third, you are to purchase from Insull, Son & Co. (Inc.) and Corporation
Syndicates (Inc.), jointly, 1,250,000 shares of common stock of Corporation
Securities Co. of Chicago at $25.50 per share net to the sellers.
Fourth, you are to be given the privilege by Insull, Son & Co. (Inc.) and Cor­
poration Syndicates (Inc.) to make payment for your purchases as above set
forth during a period of 60 days after the date of the public offering but in no
event for a longer period than 90 days from the date of this letter. Deliveries
to you of said stock will be in such amounts and on such dates as you may desig­
nate within the period above specified.
Fifth, in consideration of your entering into an agreement as above set forth,
Corporation Securities Co. of Chicago hereby gives you an option to purchase
from it all or any part of 250,000 shares of common stock of Corporation Securi­
ties Co. of Chicago at a price of $25.50 per share net to the seller, said option to
extend for a period of 30 days beyond the date on which you complete the selling
of the original purchase of 1,250,000 shares, but in no event for a period exceed­
ing 1 2 0 days from the date of this letter.
Will you kindly confirm this understanding by signing and returning the
accompanying carbon copy of this letter?
Yours very truly,
C o r p o r a t io n S e c u r it i e s C o . op C h i c a g o ,

By C. T. M a c N e i l l e .
The above and foregoing is correct in accordance with our understanding.
U t i l i t y S e c u r it i e s Co.,
By F r e d H. S c h e e l .



STOCK EXCHANGE PEACTICES

1661

C o r p o r a t io n S e c u r it i e s C o . of C h ic a g o ,

Chicago, April 3, 1930.
M r. F r e d H . S c h e e l ,

Vice President Utility Securities Co., Chicago, III.
Please refer to the second paragraph in our agreement with you
incorporated in our letter of March 31, which reads as follows:
“ Second, Corporation Securities Co. of Chicago will protect the market on its
allotment certificates between $69.50 and $70 per unit until you complete the
sale of the 1,250,000 shares of common stock of Corporation Securities Co. of
Chicago, which you are purchasing but in no event for a period exceeding 90
days from this date and further provided that in so doing it is not required to
purchase in the aggregate over 10 0 ,0 0 0 units.”
And consider this letter as our confirmation of your telephone conversation
with the writer wherein he requested you to handle the market of said allotment
certificates in accordance with the terms of said paragraph for the account of
Corporation Securities Co. of Chicago pending instructions from us to the
contrary.
It is our understanding that in your judgment it may be to our advantage to
pay slightly above $70 per unit for small amounts in special cases from time to
time and that in so doing, it will reduce the aggregate number of units that might
otherwise be necessary for us to purchase in accordance with the terms of our
agreement with you. Under these circumstances we are willing to authorize
you to make such purchases from time to time if in your judgment they are fully
justified.
You will please have either Miss Carden or Miss Brown in the writer’s organiza­
tion advised by telephone at the close of the market each day of such purchases
as you have made and confirm such oral advices by letter.
Will you please signify your willingness to handle the market in accordance
with the foregoing letter by signing and returning the carbon copy inclosed?
Yours very truly,
D e a r Si r :

C o r p o r a t io n S e c u r it ie s C o . of C h ic a g o ,

By C . T. M a c N e i l l e .
Accepted.
U t i l i t i e s S e c u r it ie s

C o.

Mr. P e c o r a . Mr. Stuart, do you recall any other occasion when
Corporation Securities Co. of Chicago or Insull Utility Investments
(Inc.), or any of their subsidiaries or affiliates, entered into any under­
standing or agreement to maintain or support the market for the
common shares of these two companies?
Mr. S t u a r t . I do not recall it.
Mr. P e c o r a . Let me show you, Mr. Stuart, this printed form of
syndicate agreement, bearing date August 15, 1930, by and between
Insull, Son & Co. (Inc.), called the “ syndicate manager” and certain
subscribers called the “ subscribers” and Insull Utility Investments
(Inc.), party of the third part. Will you look at that printed form
and tell us if that recalls to your mind the fact that in August of 1930
there was another syndicate agreement, to which Insull Utility Invest­
ments (Inc.) was a party, calling for the supporting or maintaining
of the market for the common shares of that corporation?
Mr. S t u a r t . I think I remember this.
Mr. P e c o r a . Do you know who the subscribers were to that agree­
ment? That is, those persons that are collectively termed the syn­
dicate?
Mr. S t u a r t . I do not know.
Mr. P e c o r a . Were you one of them?
Mr. S t u a r t . I doubt it. It might be that Halsey, Stuart & Co.,
were subscribers.
Mr. P e c o r a . I was going to ask you that for the next question.
Mr. S t u a r t . They might have subscribed, but I do not remember
being in on any syndicate list.



1662

STOCK EXCHANGE PEACTICES

Mr. P e c o r a . Were you familiar with the operations of that syndidate account?
Mr. S t u a r t . N o, sir.
Mr. P e c o r a . D o you know anything about it?
Mr. S t u a r t . N o ; I d o n o t k n o w a n y th in g a b o u t it.
Mr. P e c o r a . Y o u recognize from that printed form I handed you
that there was such a snydicate agreement initiated and consum­
mated, do you not?
Mr. S t u a r t . I think I d o ; yes, sir.
Mr. P e c o r a . Mr. Chairman, I ask that the form of syndicate agree­
ment be spread on the record.
Senator C o u z e n s (presiding). Without objection it is so ordered.
(A printed form headed “ Insull Utility Investments, Syndicate
Agreement” will here be printed in the record, as follows:)
INSULL U TILITY IN VESTM ENTS, SYNDICATE AGREEM EN T

This agreement, dated August 15, 1930, by and between Insull, Son & Co.
(Inc.), an Illinois corporation (hereinafter called the “ syndicate manager” ),
party of the first part, the subscribers hereto (hereinafter called severally the
“ subscribers” and collectively the “ syndicate” ), parties of the second part,
and Insull Utility Investments (Inc.), an Illinois corporation (hereinafter called
the “ investments com pany” ), party of the third part, witnesseth:
Whereas the investments company pursuant to a resolution of its board of
directors adopted at a meeting of said board on July 28, 1930, is offering for
subscription to the holders of its outstanding stock of all classes, 600,000 shares
of the common stock of the investments company at a price of $50 per share;
and
Whereas the investments company has requested the syndicate manager to
form a syndicate to purchase so many of said shares of common stock, if any,
as shall not be subscribed, pursuant to the terms of said offer, by the persons
entitled to subscribe therefor and to purchase in the market shares of the common
stock of the investments company and the subscription rights with respect thereto;
and
Whereas the syndicate manager and the subscribers desire to form a syndicate
for said purposes and the investments company and the syndicate desire to enter
into an agreement fixing the terms of such purchase and the conditions with
respect to supporting the market for such shares and such rights and the com­
pensation to be paid to the syndicate;
Now, therefore, in consideration of the premises and of the mutual under­
takings herein contained, the parties have agreed and do agree as follows:
First. The'subscribers hereby form a syndicate for the purpose (1) of purchas­
ing from the investments company so many of said 600,000 shares of common stock
of the investments company to be offered to its stockholders pursuant to said
resolution as shall not be subscribed by the persons entitled to subscribe therefor
and (2 ) of purchasing in the market shares of the common stock of the invest­
ments company and subscription rights with respect thereto, all upon the terms
and conditions provided in the agreement between the investments company
and the syndicate manager set forth in paragraph 10 hereof. Insull, Son & Co.
(Inc.) is hereby appointed the syndicate manager of the syndicate. The sub­
scribers hereto severally subscribe and agree to pay to the syndicate manager
at its office, 20 North Waker Drive, Chicago, 111., the amounts set opposite their
respective names. Each subscriber shall make payment of his subscription as
follows: Five per cent of the amount of his subscription shall be paid when and
as called for by the syndicate manager after this agreement shall have been
declared by the syndicate manager to be in effect and the remainder of each
subscription shall be paid from time to time when and as called for by the syndi­
cate manager but only after notice to the subscribers of not less than five days
as to each call. The several subscribers shall be called upon to make payment
of their subscriptions only ratably according to the several amounts thereof;
but to the full extent of his undertakings each subscriber shall be responsible
regardless of performance or nonperformance by any other subscriber. In the
same proportion, except as otherwise herein provided, each subscriber shall be




STOCK EXCHANGE PRACTICES

1663

entitled to share in the benefits and shall bear any loss resulting to the syndicate
under this agreement. Nothing herein contained shall constitute the parties
hereto partners or shall render any one of the subscribers liable to contribute
more than the amount of his several subscriptions.
Second. In case of the failure of any subscriber promptly to perform any of
his undertakings hereunder, the syndicate manager, in behalf of itself and the
syndicate, shall have, and at its sole and exclusive option may exercise, the
right to exclude such subscriber from all interest in or under the syndicate; and
in the discretion of the syndicate manager, without any proceedings either at
law or in equity, in such manner and on such terms as it shall deem expedient,
and without demand or notice, it may at public or private sale dispose of such
participation hereunder or of any interest or right of such subscriber hereunder,
and thereupon all interest and right of such defaulting subscriber hereunder shall
cease and determine. At any public sale under this article of any interest or
right of any subscriber or his transferee, the syndicate manager, or any party
hereto, may become purchaser for its, or for his, own benefit, without accounta­
bility. Notwithstanding any sale, whether public or private, the defaulting
subscriber shall be responsible to the syndicate manager for the benefit of the
syndicate for all damages resulting from any such failure on his part not ex­
ceeding the amount unpaid on his subscription hereto with lawful interest.
Third. The subscribers nominate and appoint the syndicate manager their
agent and attorney, with full power and authority to do any and all acts and
things and to enter into and execute any and all agreements or other instruments
necessary, proper or expedient in the premises to carry out and perform this
agreement according to its true intent and meaning. The syndicate manager is
expressly authorized and directed for the account of the syndicate to purchase
upon all the terms and conditions stated in paragraph 1 0 hereof, and subject to
the express limitations in said paragraph contained, shares of the common stock of
the investments company and subscription rights with respect thereto and in
general shall have full power and authority to carry out the undertakings and
agreements of the syndicate manager with the investments company, all as
provided in said paragraph 10 hereof. The syndicate manager shall also have
full power and authority to exercise subscription rights acquired by it and in its
discretion to sell, at one time or from time to time, the shares of common stock
and rights of the investments company held for the account of the syndicate in
such manner and at such price or prices as the syndicate manager may deem
expedient. All sales shall be for the account of the syndicate and the proceeds
therefrom may be applied to any of the purposes of this agreement. The syndi­
cate manager may make advances or may borrow money for the account of the
syndicate as from time to time it may deem expedient for any of the purposes of
this agreement and may pledge any stock or property of the syndicate, including
the obligations of the respective subscribers hereunder, as security for moneys
borrowed.
Fourth. All dividends payable on any stock held for the syndicate may be
collected and received by the syndicate manager for the account of the syndicate.
The syndicate manager shall have authority to vote all stock held by it for the
account of the syndicate at any and all meetings of the investments company.
The syndicate manager shall be the sole manager of the syndicate, and in behafl
of the syndicate may make any and all arrangements and do and perform any
and all acts, even if not herein provided for, that in its opinion shall be or may
become necessary or expedient in order to consummate the purposes of this
agreement or to promote or protect what the syndicate manager shall deem to
be the best interests of the syndicate. The enumeration of specific powers in
any paragraph of this agreement shall not be construed as in any way abridging
the general powers by this or any other paragraph intended to be conferred upon
or reserved to the syndicate manager.
Fifth. As compensation for its services hereunder the syndicate manager shall
be paid a fee of one-tenth of 1 per cent of the aggregate subscription price of the
number of shares underwritten by the syndicate. The syndicate manager shall
have authority, from time to time and at any time, to incur such expenses as it
may deem proper in carrying out, or in endeavoring to carry out, this agreement,
or in doing any act or thing which it may deem to be in the interest of the syndi­
cate. All expenses incurred hereunder by the syndicate manager and the fee of
the syndicate manager hereinbefore provided for shall be paid out of moneys of
the syndicate in the hands of the syndicate manager and shall be a prior charge
in favor of the syndicate manager upon any and all moneys, stocks, and property
received or held hereunder for the syndicate.



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STOCK EXCHANGE PEACTICES

Sixth. The syndicate manager shall, by notice to the subscribers, declare this
agreement in effect and operative when and not before subscriptions, approved
by the syndicate manager, for a total of $30,000,000 shall have been made here­
under. Unless $30,000,000 shall have been subscribed for hereunder on or
before August 25, 1930, this agreement on that date shall be and become void
and of no effect. This agreement shall continue in force and operation until
December 15, 1930, but the syndicate manager may in its discretion extend the
same to a date not later than March 16, 1931, in which event this agreement shall
continue in force until such extended date, provided that the syndicate manager
may in its uncontrolled discretion terminate this agreement at any time before
its termination under the foregoing provisions. Upon the termination of this
agreement and after first paying all expenses and liabilities incurred hereunder,
including the fee provided for in paragraph 5 hereof, the syndicate manager
shall pay over, assign, and distribute to the subscribers all shares of common
stock then remaining in the hands of the syndicate manager and all remaining
cash and other assets then held hereunder, such distribution and payment to be
made ratably in the proportion of the several amounts subscribed hereunder by
the subscriber, except only that in lieu of the distribution of fractional shares of
stock, adjustments shall be made in cash, on the basis of the average cost to the
syndicate of all shares purchased on its account. No subscriber shall be entitled
to receive any stock, or the proceeds thereof, held for the syndicate under this
agreement until the termination of the syndicate under the provisions hereof.
Seventh. The syndicate manager shall not be liable under any provision of
this agreement, or for any matter therewith connected, except for lack of good
faith in performing the obligations by it herein expressly assumed, the implica­
tion of any obligation not herein expressly assumed by it being hereby expressly
denied and waived. It is understood that, in the same manner as other sub­
scribers, the syndicate manager and/or the investments company may become
subscribers hereto; that as such subscribers they shall be liable for any sub­
scriptions by them made; and that in all respects they shall be entitled to the
same rights and benefits as any other subscribers.
Eighth. Each subscriber shall set opposite his subscription hereunder an
address to which notices, calls or other communications may be sent, and any
notice, call or other communication addressed to any subscriber at the address
so given, and either left at such address or mailed, shall be deemed actually given
to such subscriber and shall be sufficient for all the purposes hereof. If any
subscriber shall fail so to furnish his address to the syndicate manager he shall
not be entitled to any notice of calls or offers or any other notice hereunder and
he shall be deemed to assent to any action of the syndicate manager.
Ninth. The syndicate manager shall issue to the several subscribers suitable
receipts in respect of moneys paid or advanced hereunder, or certificates of
interest of such tenor and form as it may deem suitable. Such certificates of
interest and all rights and obligations hereunder of the respective subscribers
may be made transferable in such manner and on such terms and conditions as
the syndicate manager may prescribe; but no transfer hereunder shall be valid
unless assented to in writing by the syndicate manager, and, unless otherwise
expressly provided in such assent, the transferor shall continue to be liable for
the payment of the unpaid part of the transferred subscription until the same
shall be fully paid.
Tenth, (a) The investments company hereby agrees to sell to the syndicate
and the syndicate manager hereby agrees to purchase from the investments
company for and on behalf of the syndicate, at the price of $50 per share, such
number of said 600,000 shares of common stock of the investments company to
be offered for subscription to its stockholders pursuant to the resolution of July 28,
1930, as shall not be subscribed for on or before September 15, 1930, pursuant to
the offer of subscription, by the persons entitled to subscribe therefor. For the
shares purchased hereunder the syndicate manager shall pay the investments
company under one or both of the two following plans, to-wit: ( 1 ) in one payment
of $50 per share on September 15, 1930; or (2 ) in 10 equal installments of $5 per
share each, one on September 15, 1930, and one on the 15th day of each of the
nine calendar months in the period commencing with the month of October,
1930, and ending with the month of June, 1931 (except that the February and
March, 1931, installments shall be payable on the 16th instead of the 15th of
those months). Any installment may be prepaid at any time. The number of
shares to be paid for under each of said plans shall be determined by the syndicate
manager and within five days after September 15, 1930, the syndicate manager
shall notify the investments company of the number of shares to be paid for



STOCK EXCHANGE PRACTICES

1665

under each of said plans. As to all shares agreed to be purchased hereunder
with respect to which such notice shall not be given, the syndicate manager shall
be conclusively deemed to have selected the 10-payment plan. Deliveries of
any of the shares purchased shall be made from time to time as desired by the
syndicate manager upon full payment to the investments company at its office
for the shares delivered. In the case of all shares paid for in installments the
investments company shall pay to the syndicate manager interest to the exdividend date next preceding the date of issue, upon all installments paid prior
to such preceding ex-dividend date, at the rate of 4 per cent per annum. Ex-divi­
dend dates, hereinabove referred to, are as follows: September 30, 1930, December
15, 1930, and March 15, 1931.
(6) The syndicate manager agrees to support the market for shares of the
common stock of the investments company and the subscription rights with
respect thereto, making use, to the extent required for the purpose, of all the
means and resources available to it as syndicate manager hereunder, provided
that no purchase need be made on the market on behalf of the syndicate at a
price in excess of $57.50 per share for shares of said common stock or in excess
of $1.50 per right for rights issued to holders of common stock or in excess of
$0 .6 8 per right for rights issued to holders of preferred stock, and provided further
that the obligation to support the market, as herein expressed, shall terminate
upon the termination of this agreement or whenever prior thereto a total of
12 0 ,0 0 0 shares or the equivalent thereof in rights, shall have been purchased in
the market by the syndicate manager. For the purpose of this subparagraph (b)
five fractional rights issued to holders of common stock or 1 1 fractional rights
issued to holders of preferred stock shall be taken as equivalent to one share.
(c) The investments company, in consideration of the agreements of the syndi­
cate manager in this paragraph 1 0 contained, and as compensation to the syndi­
cate for its ■
undertakings herein, shall pay to the syndicate manager for the
account of the syndicate the sum of $600,000, being at the rate of $ 1 for each
share of common stock underwritten by the syndicate and $1.50 for each share
of stock or the equivalent thereof in rights (but not to exceed 12 0 ,0 0 0 shares)
purchased by the syndicate manager pursuant to the provisions of subparagraph
(b) of this paragraph 10. Such payment shall be made on or prior to the termina­
tion of this agreement at the option of the investments company.
(d) This agreement between the investments company and the syndicate
manager may be modified by their mutual consent in any respect except as to
the purchase price of the stock and the compensation to be paid to the syndicate
manager.
Eleventh. This agreement shall bind, and is for the benefit of, the parties
hereto and their successors, executors and administrators, severally and respec­
tively.
In witness whereof, the syndicate manager has caused this agreement to be
executed in its corporate name by its proper officers under its corporate seal,
and the investments company, to evidence the undertakings and agreements
made by it as expressed in paragraph 1 0 hereof, has caused this agreement to be
executed in its corporate name by its proper officers under its corporate seal,
and the subscribers at various dates have made their subscriptions hereto, it
being understood that for convenience this agreement may be subscribed in
several parts and copies with like force and effect as though all the subscriptions
were upon one part or copy thereof.
I n s u l l , S o n & C o . (I n c .),

By E. V. G r a h a m ,
Vice President.
Attest:
M. E. C a r n e t ,
Assistant Secretary.
By

I n s u l l U t il i t y I n v e s t m e n t s (I n c .),
S a m u e l I n s u l l , Jr., President.

Attest:
Jo hn

F. O ’ K e e f e ,
Secretary.

Mr. P e c o r a . Mr. Stuart, this last syndicate agreement related
to a transaction involving the marketing of 600,000 shares of the
common stock of Insull Utility Investments (Inc.), didn’t it?

Mr.

S tu a rt.

That is what it said.

119852—33—p t 5------18



1666

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . Y o u would call that a major market operation,
wouldn’t you?
Mr. S t u a r t . I call it a large amount, but it is a new stock, isn’t
it? It is not maintaining an outstanding stock.
Mr. P e c o r a . Look at it again and let it refresh your recollection
in whatever way it will do so.
Senator C o u z e n s . What is counsel trying to do? To prove by
this witness that the market is rigged or maintained without cus­
tomer demand?
Mr. P e c o r a . Yes, sir; that the market is artificially stimulated
in that manner.
Mr. S t u a r t . I should say that this was a new stock.
Mr. P e c o r a . A new stock that was to be put out by Insull Utility
Investments (Inc.).
Mr. S t u a r t . That is what I take it to be here.
Mr. P e c o r a . New shares of common stock.
Mr. S t u a r t . New shares of common stock.
Senator B r o o k h a r t . But it was the same stock as the old stock,
wasn’t it?
Mr. S t u a r t . The same kind of stock.
Senator B r o o k h a r t . Stock that had not been marketed before.
Mr. S t u a r t . This was new money, stock that evidently had not
been sold before.
Senator B r o o k h a r t . Was that a new stock issue?
Mr. S t u a r t . Yes, sir; a new issue, but the same grade of stock as
the other, undoubtedly.
Mr. P e c o r a . It was an issue of 600,000 additional shares of com­
mon stock of the same kind as had been previously issued.
Mr. S t u a r t . I take it that is so.
Senator B r o o k h a r t . And this syndicate agreement was to main­
tain the price while it was being put off on the public, was it?
Mr. P e c o r a . Mr. Stuart, did you hear Senator Brookhart’s ques­
tion?
Mr. S t u a r t . Yes, sir. But let me read this. Just excuse me for a
minute while I read this.
Mr. P e c o r a . All right.
Mr. S t u a r t . Yes; it is provided in this agreement for the mainte­
nance of the market and the right to acquire up to 120,000 shares of
stock at not to exceed 57}{.
Senator B r o o k h a r t . And that means that the members of the
syndicate would bid the price up to that level all the time and keep it
there.
Mr. S t u a r t . Yes, sir. Of course, a syndicate manager who
handles a thing like this, it is his job to sell 600,000 shares of stock.
Now, in the process of doing that he is permitted to buy back 120,000.
Mr. P e c o r a . 120,000 shares, you mean.
Mr. S t u a r t . Yes, sir; that is the way I read this.
Senator B r o o k h a r t . He can buy back that much in order to main­
tain the price on the 600,000 shares?
Mr. S t u a r t . Yes, sir.
Senator B r o o k h a r t . And of course he sells the 120,000 shares
again?
Mr. S t u a r t . Yes, sir.



STOCK EXCHANGE PEACTICES

1667

Senator B r o o k h a r t . So that it is all cleaned up at the end and
the public has paid the higher price.
Mr. S t u a r t . Yes, sir; th a t m a y be so.
Mr. P e c o r a . Mr. Stuart, let me call your attention to the minutes
of the finance committee of Insull Utility Investments (Inc.), at a
meeting held on April 7, 1930, which read as follows at page 142 of
the minutes:
The chairman stated that the company had purchased during the last few
months a substantial number of allotment certificates of the Corporation Securi­
ties Co. of Chicago, and explained that as a result of the offering of common
stock of Corporation Securities Co. of Chicago, that company had undertaken
to support the allotment certificate market for a period of about three months,
and he wondered therefore whether the company should continue to purchase
those allotment certificates. After full discussion of the subject it was agreed
that the company would discontinue purchasing allotment certificates of Cor­
poration Securities Co. of Chicago for the time being.

That relates to the transaction set forth in the letters of March 31,
1930, and April 3, 1930, that passed from the Corporation Securities
Co. of Chicago to Mr. Fred H. Scheel, vice president of the Utility
Securities Co., doesn't it?
Mr. S t u a r t . Did you say Utility Securities Co.?
Mr. P e c o r a . Yes.
Mr. S t u a r t . I do not know but presume it does.
Mr. P e c o r a . I mean this excerpt that I have read from the minute
book of the company.
Mr. S t u a r t . I do not know that m y se lf.
Mr. P e c o r a . D o you recall any other occasion when the Insull
Utility Investments (Inc.) or the Corporation Securities Co. of Chicago
entered into any agreement, arrangement, or understanding with
anyone else with respect to supporting or maintaining the market for
the common shares of either of those companies?
Mr. S t u a r t . No; I do not recall.
Mr. P e c o r a . Would you say there were any others?
Mr. S t u a r t . I would not say there were not others. I say I d o
not recall.
Mr. P e c o r a . These three or four that I have brought to your notice
in the last few minutes you were unable to recall at the outset.
Mr. S t u a r t . The only one was where we bought the Insull deben­
tures. The others I did not recall at all.
Mr. P e c o r a . Mr. Stuart, do you think that is a fair practice, fair
to the investing public, for corporations to indulge in, when issuing
and offering their securities to the investing public?
Mr. S t u a r t . Oh, yes; I think it is necessary. If a corporation is
going to borrow large amounts of money they must make it possible
to sell the securities.
Mr. P e c o r a . In order to make it possible to sell the securities you
think it is justifiable to maintain a syndicate agreement to produce
artificial stimulation and activity in the market for those securities?
Mr. S t u a r t . Well, but it might not be an artificial stimulation.
Stocks sometimes go the other way, you know.
Mr. P e c o r a . Well, then, the stimulation has had the wrong
effect, not the desired effect, but the intent is to produce artificial
stimulation.
Mr. S t u a r t . I w o u ld n o t p u t it th a t w a y . I w o u ld p u t it as som e
k in d o f base, to h a v e a solid base to sell secu rities on .



1668

STOCK EXCHANGE PEACTICES

Mr. P e c o r a . By having a solid base don’t you really mean to
establish a price and maintain it over a period of time during which
the corporation is offering the securities to the public?
Mr. S t u a r t . Yes, sir; I think that is necessary and desirable, and
I think it has to be done in large financial transactions in some cases.
Mr. P e c o r a . D o you think it desirable for the investing public or
the corporations?
Mr. S t u a r t . I think it is desirable in order to raise money.

Mr. P e c o r a . That is, desirable for the company issuing the securi­
ties, but not for the investing public; isn’t that so?
Mr. S t u a r t . Well, I do not think I would agree with you there.
You take these same Insull Utility Investments debentures we are
talking about, and there was a clause in there which says “ Maintain
the market.” In talking about that here we seem to have been under
the idea that that was something that was artificially maintained to
unload something on the public. I think that was the expression
used. As a matter of fact, those debentures went up to 114.
Mr. P e c o r a . After your house had put them out.
Mr. S t u a r t . After the issue. So that unless there had been a
demand from the public for the stock, which helped to send the
debentures up, why, they would not have gone to 114.
Mr. P e c o r a . H o w long after your house sold them to the public
until they went up to 114?
Mr. S t u a r t . I could not answer that.
Mr. P e c o r a . Was it a long time or a short time?
Mr. S t u a r t . I would say a comparatively short time.
Mr. P e c o r a . What do you mean by that, about what period of
time?
Mr. S t u a r t . If I were guessing at it I would say within six weeks.
Mr. P e c o r a . Your company bought those debentures at 94 and
accrued interest?
Mr. S t u a r t . I think that is the price stated; yes, sir.
Mr. P e c o r a . And it disposed of them within three or four days
to the public at 100?
Mr. S t u a r t . I think the stated price was 99%.
Mr. P e c o r a . In the circulars that your company put out offering
those shares to the public at 99% or 100, whichever it was, did your
company indicate to the public the price at which your company
had acquired or underwritten those debentures?
Mr. S t u a r t . N o, sir.
Senator B r o o k h a r t . Y o u say it is necessary to protect the price
in all cases where you are selling debentures or bonds in that way?
Is that right?
Mr. S t u a r t . Yes; in large amounts. If you deal with a very large
amount of securities, such as $60,000,000, which after all is a very
large amount-----Senator B r o o k h a r t (interposing). You do not rely on the market
to maintain the price?
Mr. S t u a r t . N o . It is merchandise that has to be sold.
Senator B r o o k h a r t . Why isn’t that about the same thing as I
described as coming from J. P . Morgan & Co. in the case of foreign
bonds, the price of which was maintained by Mr. Whitney, president
of the New York Stock Exchange, or the firm of which he was a
member? Why isn’t it the same deal?



STOCK EXCHANGE PRACTICES

1669

Mr. S t u a r t . Perhaps there may be the same principles underlying
them, but in this particular case the debentures you see had warrants
to buy stock attached to them.
Senator B r o o k h a r t . Well, take the most of your business, and
that is the selling of bonds, isn’t it?
Mr. S t u a r t . Entirely the selling of bonds.
Senator B r o o k h a r t . Well, now, do you underwrite those bonds?
Mr. S t u a r t . Oh, y es.
Senator B r o o k h a r t . Well, then, do you have the market pro­
tected in each case?
Mr. S t u a r t . Well, the question does not come up unless it is a very
large transaction.
Senator B r o o k h a r t . And you have very large transactions?
Mr. S t u a r t . Yes, sir. But I say that question of protecting the
market comes up very infrequently.
Senator B r o o k h a r t . But when you have these large transactions
it does come up?
Mr. S t u a r t . And you must do something to protect the market,
and you do it one way or the other: You make a trade with the
company whereby it protects the market, or the companv gives you
more commission in order for you to protect yourself. It costs
something to do that.
Senator B r o o k h a r t . Y ou go in, or the company with which you
have dealt goes in and keeps the price of the bonds up to the agreed
price, and you do not let them fall below that price on the market
until you have finally disposed of the issue?
Mr. S t u a r t . Yes; th a t is a b o u t th e w a y it g oes.
Senator B r o o k h a r t . And that is the way you do it in every ca se
that is a big and important issue.
Mr. S t u a r t . Yes, exactly. That is the accepted practice. You
could not sell securities without you did some such thing.
Senator B r o o k h a r t . In other words, you can not resell them there
upon the market until you have rigged the market to dispose of them?
Mr. S t u a r t . Y ou have to have something on which an organiza­
tion can go out and dispose of all the bonds. Once they are finally
placed then there is a free and open market, because the transactions
are small, may be a few thousands dollars every day.
Senator B r o o k h a r t . In this case the market went up, but in the
case I referred to a while ago after the support was withdrawn they
went down promptly.
Mr. S t u a r t . The market goes both ways.
Senator B r o o k h a r t . I think in Mr. Whitney’s case it dropped
from 90 to 86 the first day after he quit maintaining the market.
And when he was testifying here they were down to 32.
Mr. S t u a r t . That may be.
Mr. P e c o r a . Mr. Stuart, when your company undertook and did
sell the $60,000,000 par value of debentures of Insull Utility Invest­
ments (Inc.), it marketed those debentures through groups of dealers,
did it not?
Mr. S t u a r t . Yes.
Mr. P e c o r a . And were not confidential advices sent out by your
company to those dealers for their guidance and instruction given with
respect to the marketing of those $60,000,000 of debentures?
Mr. S t u a r t . I think so; yes, sir.



1670

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . I show you this printed paper, and I ask you if that
is a printed paper containing such confidential advices to dealers.
Mr. S t u a r t . Yes, sir; it is.
Mr. P e c o r a . I will read a paragraph from this printed paper:
The selling group members will have the privilege of trading in these deben­
tures with other members of the group at the list price less any part of the selling
commission. This privilege, however, is to be exercised only between members of
the selling group. The public offering price must be maintained on all sales or
resales to other than members of the selling group.

Halsey, Stuart & Co. were the selling group managers in this
undertaking, were they not?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . Mr. Chairman, I ask that that be spread in full on the
record.
Senator C o u z e n s (presiding). There being no objection it is so
ordered.
(A photostatic copy of a circular headed “ Confidential Dealers’
Offering, $60,000,000 Insull Utilities Investments (Inc.) 10-Year
6 per cent Gold Debentures, Series B, With Conversion and Stock
Purchases Warrants, ” is here furnished in the original transcript to be
printed in the record as follows:)
$60,000,000 IN SU LL U TILITY IN VESTM ENTS (IN C .), 10-YEAR 6 PE R CEN T GOLD DE B EN ­
TU RES, SERIES B , W ITH CONVERSION AND STOCK PURCHASES W A R R A N T S, DUE
JAN U ARY 1, 1940
(Selling group, confidential dealers' offering)
N e w Y o r k , January 2, 1980.
We have purchased and will offer, if, when and as issued and received by us,
and subject to the approval of counsel, the above debentures which are more
fully described in the inclosed circular. The public advertisement will appear
on Monday, January 6 , 1930, and the price is to be 99% and interest yielding
about 6.07 per cent. A concession of % per cent may be allowed to banks, dealers
and institutions. No modifications of the above terms may be allowed unless
authorized by the selling group managers, who reserve the right to make such
modifications, as they may deem advisable for the interests of the offering.
We are forming a selling group to distribute these debentures in which we invite
you to participate. The price to the selling group will be 96 % and interest, which
allows you a gross profit of 3 per cent against which expenses not to exceed Y
&
per cent may be charged.
Definitive debentures are expected to be ready for delivery on or about January
20, 1930, against payment at the Chicago office of Halsey, Stuart & Co. (Inc.),
in Chicago funds, at 99% and interest.
Under this agreement we reserve the right to withhold delivery of 10 per cent
of the amount of debentures allotted to selling group members during the life
of the selling group.
The selling commission will be payable following the termination of the group,
except on such debentures as may be repurchased or contracted for by us in the
market at or below full list price and interest, prior to the termination of the
group. On such debentures we reserve the right to retain the entire selling com­
mission and, in addition, to charge members $ 2 broker’s commission per $ 1,0 0 0
debenture in instances where such commission has been paid by us. In lieu
thereof we may redeliver such debentures to members of the group, at the cost
to us, even though debentures against such purchases may not be delivered to
us until after the termination of the group. In the event we exercise the option
to require members to take up such repurchased debentures from us at cost, we
reserve the right to deliver any numbers, even though not the ones originally
delivered to them. The selling group will expire at the close of business March
3, 1930, but we reserve the right in our discretion to dissolve the group at an
earlier date and also to extend it for a period not exceeding 60 days.
The selling group members will have the privilege of trading in these debentures
with other members of the group at the list price less any part of the selling




STOCK EXCHANGE PRACTICES

1671

commission. This privilege, however, is to be exercised only between member
of the selling group. The public offering price must be maintained on all sales
or resales to other than members of the selling group.
The managers agree with the selling group members to cause to be published a
State notice respecting the securities to be offered to the public in New York State
under this agreement, in the form required by and pursuant to the provisions of
Article 23A of the general business law of the State of New York.
Members of the selling group will be free to advertise at their own expense the
day following the appearance of the advertisement over our names.
All subscriptions will be taken strictly subject to allotment and should be re­
ported immediately to Halsey, Stuart & Co. (Inc.), 35 Wall Street, New York
City, by wire or telephone. We reserve the right to close the subscription books
or withdraw the offering without notice, to reject any and all applications and to
award a smaller amount than applied for.
Yours very truly,
H a l s e y , S ttjart & C o . ( I n c .),
C o n t i n e n t a l I l l in o is C o . ( I n c .),
H a r r is , F o r b e s & C o .,
C e n t r a l I l l in o is C o .,
F ir s t U n io n T r u s t & S a v in g s B a n k ,
F ie l d , G l o r e & C o .,
F o r e m a n -S t a t e C o r p o r a t io n ,
T h e N a t io n a l R e p u b l ic C o .,
I n s u l l , S o n & C o . ( I n c .),
I n s u l l , S o n & C o . (L t d .), L o n d o n , E n g l a n d ,
B y H a l s e y , S t u a r t & C o . ( I n c .),

Selling Group Managers.

Mr. P e c o r a . N o w , Mr. Stuart, the units of Corporation Securities
Co. of Chicago were listed on the Chicago Stock Exchange on or about
October 19, 1929, or within about two weeks after the company was
incorporated, were they not?
Mr. S t u a r t . I do not remember the date.
Mr. P e c o r a . D o you recall the prices realized on the first day’s
trading on the floor of the exchange in those units?
Mr. S t u a r t . I do not.
Mr. P e c o r a . Was it $100 a u n it?
Mr. S t u a r t . I do not remember.
Mr. P e c o r a . Do you recall whether or not either you personally
or your company made the market or helped to make the market for
those units on the first day of trading?
Mr. S t u a r t . That is, of the Corporation Securities Co. of Chicago?
Mr. P e c o r a . N o ; either Halsey, Stuart & Co. or you individually
or the Corporation Securities Co. of Chicago.
Mr. S t u a r t . I d o n o t recall.
Mr. P e c o r a . Do you recall how many shares, or how many units
rather, were traded in on the first day?
Mr. S t u a r t . I do not.
Mr. P e c o r a . D o you recall that the aggregate amount was a
thousand units on the first day of trading, and that of those 1,000
units either you or Halsey, Stuart & Co. bought 250 units and sold
600 units?
Mr. S t u a r t . No; I do not recall.
Mr. P e c o r a . It would not surprise you if that were the fact,
would it?
Mr. S t u a r t . Yes; it would a little. I do not get it.
Mr. P e c o r a . Do you know who made the market for those units
on that opening day?
Mr. S t u a r t . N o. But I am surprised that our name is mentioned
in connection with it.



1672

STOCK EXCHANGE PEACTICES

Mr. P e c o r a . Mr. Chairman, I have no further questions to ask
this witness.
Senator B r o o k h a r t . I have here your statement in the bank­
ruptcy court on October 11, 1932, in which you say:
I looked through the files, and I find a clipping from the Wall Street Journal
of February 20, 1932, which gives the volume of business done publicly, and I
mean by that through public advertisement, by a great many issuing houses,
including ourselves, for the past five years, and this states that we have orig­
inated $1,681,000,000 of bonds, and participated in $2,433,000,000 additional,
for a total of approximately $4,100,000,000 in five years.

Does that represent your volume of business?
Mr. S t u a r t . N o. Those would be the volume that is taken by
the Wall Street Journal from public advertisements. But if you
came into our office and sold us $5,000 of bonds, or if Senator Couzens
were to do that, that would not be in there. That is just public
sales.
Senator B r o o k h a r t . So the volume is much greater than this?
Mr. S t u a r t . Yes. But you must understand that these figures
are awfully misleading. You see as to certain participations, syndi­
cate participations, I mean, it is a very large amount, but-----Senator B r o o k h a r t (interposing). The question I am getting at
is this: What proportion of this business had been sustained by those
supporting the market?
Mr. S t u a r t . Oh, I would say a small percentage, a very small
percentage.
Senator B r o o k h a r t . Y ou say you originated over a billion
dollars.
Mr. S t u a r t . Have you now finished with me?
Mr. P e c o r a . Yes, sir.
Mr. S t u a r t . There are two or three things I should like to clear up
that I said, and one that I did not explain that I should like to have
the opportunity of explaining.
Mr. P e c o r a . Oh, by the way. Mr. Stuart, do you recall in
September of 1930 your company underwrote an issue of $40,000,000
of debenture notes of Corporation Secruities Co. of Chicago?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And actually sold some $30,000,000 worth of those
to the public?
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And then Corporation Securities Co. of Chicago took
back from you the remaining $10,000,000 of debentures that you had
not sold?
Mr. S t u a r t . I have forgotten what that trade was. I know that
we had some Corporation Securities Co. notes, but I have forgotten
the trade.
Mr. P e c o r a . Apart from the terms of the trade, do you recall the
incident of the Corporaion Securities Co. of Chicago taking back
from your company $10,000,000 worth of those gold debentures?
Mr. S t u a r t . I recall something about it.
Mr. P e c o r a . That you had originally underwritten?
Mr. S t u a r t . But I have not the details in mind.
Mr. P e c o r a . D o y o u recall the incident?
Mr. S t u a r t . I recall the issue; yes, sir.




STOCK EXCHANGE PEACTICES

1673

Mr. P e c o r a . N o w , in the summer and fall of 1931 do you recall
that there was a steadily declining market and a steady shrinkage in
market values of those securities?
Mr. S t u a r t . In 1930?
Mr. P e c o r a . In the summer and fall of 1931.
Mr. S t u a r t . Yes, sir.
Mr. P e c o r a . And that the depreciation affected as well the securi­
ties that were in the portfolio of the Corporation Securities Co. of
Chicago?
Mr. S t u a r t . I presume so; yes, sir.
Mr. P e c o r a . And those securities in its portfolio were the assets
of the company substantially, were they not? I mean that the com­
pany’s assets, whatever they were, consisted mainly of those portfolio
securities?
Mr. S t u a r t . I think mainly so; yes, sir.
Mr. P e c o r a . Now, with that steadily depreciating value of those
assets, did your company continue to sell those debenture notes to
the public right throughout the year 1931?
Mr. S t u a r t . I can not answer that without looking it up.
Mr. P e c o r a . Where w o u ld y o u have to lo o k it u p ?
Mr. S t u a r t . From our sales records in Chicago.
Mr. P e c o r a . Are any of your employees here who could tell you?
Mr. S t u a r t . Mr. MacNeille is here if he could answer.
M r . M a c N e i l l e . I c o u ld n o t a n sw er w ith o u t lo o k in g i t u p .
Mr. P e c o r a . Will you look it up and inform the committee through
the medium of a written statement?
Mr. S t u a r t . Whether we made sales then?
Mr. P e c o r a . Whether you continued to sell the debentures of
Corporation Securities Co. of Chicago to the public while the market
value of the assets of that company were depreciating, during the
summer and fall of 1931.
Mr. S t u a r t . All right.
Mr. P e c o r a . That is all.
Mr. S t u a r t . May I now explain one or two things?
Senator B r o o k h a r t . One other matter right there: In this volume
of business that you originated there is mentioned here business of
$1,681,000,000 that you headed. What does that mean?
Mr. S t u a r t . That means that we were the head of that syndicate.
We might have had four or five or a dozen with us, but we were the
head of it, and we were given the credit in public advertisements with
its origination.
Senator B r o o k h a r t . What proportion of those securities were sold
in the exchanges?
Mr. S t u a r t . Oh, a very small proportion.
Senator B r o o k h a r t . But even those that you had protected in the
exchanges, only a small proportion of them were sold through the
exchanges?
Mr. S t u a r t . Yes, sir.
Senator B r o o k h a r t . Y ou protected your market outside of the
exchange as well as inside?
Mr. S t u a r t . Oh, y e s.
Senator B r o o k h a r t . All right.
Senator C o u z e n s (presiding). Now, Mr. Stuart, you may proceed
to make your explanation.



16 74

STOCK EXCHANGE PRACTICES

Mr. S t u a r t . In the record here where I have frequently said that
we never sold stocks, what I mean is that we have never sold stocks
to the public. Naturally, in the course of our business we have sold
stocks to brokers, or we have underwritten stocks with our own
capital, but we have never sold stocks to the public.
Senator C o u z e n s . You have sold worse than stocks, for you have
sold some second, third, and fourth rate bonds.
Mr. S t u a r t . Well, I am afraid we have done some of that, as it
has turned out in these times, but a small percentage of them. Our
record is pretty good I think.
Senator C o u z e n s . I s your record good here in Washington in con­
nection with the Mayflower Hotel bonds?
Mr. S t u a r t . It is not so good in some places, perhaps, but it is
pretty good on the whole.
Senator C o u z e n s (presiding). Go ahead.
Mr. S t u a r t . In connection with the organization of Corporation
Securities Co. of Chicago, it should be clearly understood that Halsey,
Stuart & Co. never made a cent of profit out of that.
Senator C o u z e n s . That wasn’t your fault, was it?
Mr. S t u a r t . Oh, yes. We traded in our stock, which had cost us
an average of $20 and was then worth 100, and took a million shares
of Corporation Securities Co. of Chicago stock, and we still have it.
Senator C o u z e n s . But when you took those million shares you
expected to make a profit?
Mr. S t u a r t . We never expected to sell it. That is the reason it
was in the form of that voting trust.
Senator C o u z e n s . But you expected to make a profit by holding
it?
Mr. S t u a r t . Well, perhaps at some time. But we never intended
to sell it. It was a 5-year voting trust, with option to continue for
five years.
Senator C o u z e n s . Don’t try to put before us the thought that
you were wholly unselfish.
Mr. S t u a r t . I do not mean to do that. [Laughter.] I could not
if I tried it, with you, Senator Couzens.
Senator C o u z e n s . I hope you would not take a million shares of
any stock without expecting to make a profit out of it.
Mr. S t u a r t . N o w , I do not know whether this committee would
wish me to go into such a subject, but I have some ideas about what
ought to be done in the future in the investment business. Is the
committee interested in hearing from me on that?
Senator C o u z e n s (presiding). Certainly. You may proceed now.
Mr. S t u a r t . I will speak briefly, because I know that you have
not much time and want to hear others. I think that we should
adopt the English practice of not only having very complete pro­
spectuses of all issues, but that we should state right in the prospectus
what the security cost; what the company got for it.
Senator C o u z e n s . I s that along the line of the British companies’
act?
Mr. S t u a r t . Yes, sir. The investor in England sees, therefore,
when he buys a security just what the company got for it, and how
much spread there is between the price the company got and the
price he is expected to pay.




STOCK EXCHANGE PRACTICES

1675

Senator B r o o k h a r t . What would you say about stopping this
protection of the market?
Mr. S t u a r t . I would put that right in the prospectus, because it
is a thing that has to be done. You can not sell bonds, you can not
sell securities, any more than you can sell shoes without its costing
money to do it. In this so-called protection of the market, that is
another way to help sell bonds.
Senator B r o o k h a r t . Y ou mean that you could not get a loan a t
the bank?
Mr. S t u a r t . Y ou could not distribute securities without you did
some such thing as that.
Senator C o u z e n s . In that respect there isn’t any very great differ­
ence as to steel corporations getting together and maintaining a price
of $40 per ton for steel rails, and you getting together and maintaining
the prices of your securities.
Mr. S t u a r t . N o. It is about the same thing, too, but different
from that.
Senator B r o o k h a r t . And both of them are violations of the anti­
trust law.
Mr. S t u a r t . I do not know about the legal end of this thing, but
that is common practice in the business, and Senator Couzens knows
it just as well as I do, or better.
Mr. P e c o r a . D o you know of any reason why Halsey, Stuart & Co.
in making the public offerings in the past could not have given the
public the information that you now say the public ought to have in
the future?
Mr. S t u a r t . Well, I can only say in reply to that question that it
has not been the custom to do it.
Mr. P e c o r a . And the custom was established by the investment
houses making those offerings to the public in the past, wasn’t it?
Mr. S t u a r t . Yes, I think so. Investment houses and bank affili­
ates, any one who sold securities.
Senator C o u z e n s (presiding). Go ahead.
Mr. S t u a r t . I would also have stated in the circular making an
offering a list of all participants or have made available all of the
selling group. If you have 50 or if you have 500 you could attach a
list showing it, so that if somebody in Lansing, Mich., or anywhere
else, was participating-----Senator C o u z e n s (interposing). Michigan is not in very good shape
now to buy securities.
Mr. S t u a r t . Perhaps not, but it is a grand old State.
Senator C o u z e n s . Before you go on with that explanation, let me
ask: Would you also incorporate a statement as to the amount of
securities held by the controlling interests, that is, the directors and
officers?
Mr. S t u a r t . Oh, yes. I would give the whole thing. In other
words, I have mentioned the English system, which has a very com­
plete prospectus. In fact, it is so complete that I can not imagine
one investor in ten reading their prospectus, but at any rate it is
there if a prospective investor wants to read it. The publicity is
there.
And then another thing that is just a little different from this, but
I am inclining to the view it is the thing to do: The most popular
bonds to-day are public utility bonds, or bonds of operating pas and



1676

STOCK EXCHANGE PRACTICES

electric companies. That is one business that has shown itself to be
a stable business during all these bad times. Earnings have been less
affected. And the bonds of those companies that we have sold,
many millions of dollars, the operating companies are still good and
paying interest.
In the most of the States they have a public service commission
which regulates the issuance of securities. I think it is well worth
considering having these public utility commissions put these bonds
up at auction and sell them to the highest bidder instead of by some
private concerns. They are easily sold, and-----Senator B r o o k h a r t (interposing). Do you mean to put up bonds
in public utility companies at public sale?
Mr. S t u a r t . Yes, sir; the same as the Interstate Commerce Com­
mission did in the matter of the railroad equipment trusts.
Senator C o u z e n s . Mr. Stuart, I would suggest that you better
not appear in Wall Street after making that statement.
Mr. S t u a r t . Well, you understand, I say I am leaning toward
that view.
Senator C o u z e n s . And you better not go too far or you will run
across Mr. Roosevelt.
Mr. S t u a r t . I think it well worth consideration. As a matter of
fact, neither of these ideas is new. I will be glad to see them done.
Now, in reading a book written by Mr. Justice Brandeis, and you
will remember that he published a book back in 1914-----Mr. P e c o r a (interposing). The book entitled “ Other Peoples’
Money” ?
Mr. S t u a r t . Yes, sir. In that he covered this and other things
that I think are worthy of more consideration to-day.
Mr. P e c o r a . The original edition of that book was published in
1914Mr. S t u a r t . Yes. But I just read a new edition of it the other
day.
Mr. P e c o r a . Did you read it in 1914?
Mr. S t u a r t . I am sorry but I did not.
Senator B r o o k h a r t . And you are just now finding out about it?
Mr. S t u a r t . Well, he is that much ahead of me.
Senator C o u z e n s . H o w long are you going to take, Mr. Stuart, to
conclude?
Mr. S t u a r t . I am through now. May I go back to Chicago?
Mr. P e c o r a . Yes.
Senator C o u z e n s (presiding). Then you are excused, Mr. Stuart.
(And thereupon Mr. Stuart was excused.)
Senator C o u z e n s (presiding), Mr. Traylor, will you come around?
Oh, here is the chairman now.
The C h a i r m a n . Hold up your right hand: You solemnly swear
that you will tell the truth, the whole truth, and nothing but the
truth regarding the matter now under investigation by this committee,
so help you God.
Mr. T r a y l o r . I do.




STOCK EXCHANGE PRACTICES

1677

TESTIMONY OF MELVIN A. TRAYLOR, PRESIDENT FIRST NA­
TIONAL BANK OF CHICAGO

Mr. P e c o r a . Mr. Traylor, will you give your full name, and ad­
dress, and your business or occupation to the committee reporter,
please?
Mr. T r a y l o r . My name is Melvin A. Traylor. I am president of
the First National Bank of Chicago.
Mr. P e c o r a . H ow long have you been president of that bank?
Mr. T r a y l o r . Since January of 1925.
Mr. P e c o r a . Since that time has that bank made a number of
loans which are still outstanding to corporations or persons con­
nected with the so-called Insull group of public utility companies?
M r . T r a y l o r . Y e s , sir.
Mr. P e c o r a . Have you

for the sake of convenience prepared a
written statement containing a list of those loans now outstanding?
Mr. T r a y l o r . I h ave.
Mr. P e c o r a . Will you produce it, please?
Mr. T r a y l o r . Here it is.
Mr. P e c o r a . In view of the hour, Mr. Chairman, and the fact
that the witness wants to get away, I will ask that this be spread on
the record.
The C h a ir m a n . There being no objection it is so ordered.
F e b r u a r y 17, 1933.
Hon. P e t e r N o r b e c k ,
Chairman Committee on Banking and Currency,
United States Senate, Washington, D. C.
M y D e a r M r . C h a i r m a n : A s president of the First National Bank, of Chicago,
111., and the First Union Trust & Savings Bank of that city, I am attaching hereto
a list of the loans due those banks by the so-called Insull companies together with
a list of loans to individuals and corporations, collateralized in the main by
Insull securities, all as of the date of April 16, 1932. The attached list sets out in
detail the collateral held in each instance against the specific loan of the particular
borrower and is prepared from the records of the banks.
The dealings of the First National Bank with the Insull companies and the
other borrowers whose names appear upon the attached list covers a considerable
period of time. Loans to many of the companies and individuals were at times
partially paid and additional loans later made, hence it would require a long,
detailed search to give a full history of the loan transactions with any particular
borrower. We will, however, be glad to furnish such information upon request.
The attached list, however, does correctly portray our relations with the borrow­
ers and our loans to them as of the date above mentioned, April 16, 1932.
In the case of the First Union Trust & Savings Bank, the only borrower in the
Insull group was Mr. Samuel Insull, jr.
The First National Bank of Chicago took over the assets and assumed the
deposit liabilities of the Foreman-State National Bank on June 6, 1931. Among
the assets of that bank was a loan to the Mississippi Valley Utilities Investment
Co., aggregating $1,048,303.29. That loan remained unpaid on April 16, 1932,
and I attach list of collateral securing that loan.
On April 16, 1932, the First National Bank of Chicago had capital of $25,000,000, surplus $25,000,000, undivided profits and reserves of about $3,000,000. On
the same date the First Union Trust and Savings Bank had capital of $10,000,000,
surplus of $5,000,000, undivided profits and reserves of about $5,000,000.
Respectfully submitted,
M e l v i n A. T r a y l o r .

(The tabulation furnished with the foregoing letter is here inserted as follows:)




1678

F IR S T N A T IO N A L B A N K

N am e of maker

Due

Date

June 9,1930 D em and.
July 15.1930 ....... do___

Insull U tility Investments (Inc.)....... do..................................................

Rate

P er cent
5

6

Balance, A pr.
16,1932

$1,233,608.03
1.500.000.00

..

2 000 000.00

M a y 28,1931

.d o .

Corporation Securities C o.

4,880,093.05

July 14,1930
July 29,1930

.d o .
.d o .

M id d le W est Utilities C o.
____d o .....................................

2,692,903.46
1.250.000.00
1 000 000.00

June

.d o .

5,1931

.d o .

4,733,701.08

. .

4,942,903.46

57.100 shares Corporation Securities Co. com m on; 71,100 shares Corpo­
ration Securities C o. $3 preferred.
9,924 shares Com m onwealth Edison C o.; 5,924 shares Public Service Co.
of Northern Illinois no par; 33,849 shares Insull U tility Investments
second preferred; 6,182 shares Insull U tility Investments $5.50 prior
preferred; 12,200 shares Peoples Gas Light & Coke C o.; 252,035 shares
M iddle W est com m on; 5,000 shares M iddle W est $6 preferred; 10,000
shares Insull U tility Investments com m on.
10.100 shares N orthwest Utilities C o. 6 per cent preferred.
244 shares Inland Power & Light C o. 7 per cent preferred.
2.100 shares M ichigan Gas & Electric 6 per cent prior lien.
193,000 shares N ational Electric Power C o. class B com m on; 734 shares
Peoples Gas Light & Coke C o.; 3,300 shares M ichigan Gas & Electric
Co. com m on; 22,000 shares Kansas Electric Power C o. com m on; 5,600
shares Central Illinois Public Service C o. com m on 110,000 shares
N orth W estern U tility Co. com m on; 829 shares Comm onwealth E d i­
son C o.; 730 shares Arkansas-Missouri Power Co. preferred; 34 shares
P ublic Service Co. of Northern Illinois com m on; 4,900 shares Central
& South W estern Utilities 6 per cent prior lien; 3,200 shares Central
6 South W estern Utilities 7 per cent preferred; $97,000 ArkansasM issouri Power C o. 6 per cent first 1953; 6,900 shares N orth Western
fe
U tility Co. 7 per cent preferred; 210,300 shares Central < South West­
ern Utilities com m on; $85,000 Arkansas-Missouri Power C o. deben­
tures 6 per cent 1935; $80,000 Inland Power & Light Co. 6 per cent
collateral 1936; $21,000 Indiana Electric Corporation 5 per cent first
1951; $72,100 National Electric Power C o. 5 per cent debentures 1978;
$173,000 Inland Power & Light Co. 6 per cent collateral 1957; $23,000
W est Texas U tility Co. 5 per cent first 1957; $80,000 N orth Western
P ublic Service 5 per cent first 1957; $121,000 Inland Power & Light
Corporation 7 per cent debenture, 1935; 250 shares N ational Electric
Power 6 per cent preferred; 3,800 shares N orth W estern U tility Co.
7 per cent prior lien; $176,000 Inland Power & Light Corporation 6 per
cent collateral, 1941; 32,700 shares K en tu cky U tility C o. com m on;
85,100 shares National Electric Power Co. class A com m on; 3,600
shares South W estern Light & Power C o. preferred no par; $14,000
National P ublic Service Corporation 5 per cent debenture, 1978.

PRACTICES




.d o .

EXCHANGE

-d o ,

28,218 shares Com m onwealth Edison Co.
183,355 shares M id d le W est com m on.
2,733 shares P u b lic Service C o. of Northern Illinois com m on.

STOCK

9,1930

Oct.

Collateral

Oct. 30,1930 ____ do

Associated Employees Investm ent.

Feb. 16,1931
A pr. 18,1931

d o.
do.

U tility Securities C o.
........d o . . ........ .............

A pr. 21,1931

do.

.d o .

m

275,000.00

150,033.81
500.000.00
500.000.00
1,150,033.81

July
9,1931 -------d o .
July 15,1931 -------d o .
Sept. 9,1931 -------d o .

.d o .
-d o .
.d o .

190,956.33
50.000.00

,

100 000.00
50.000.00
115.000.00
350.000.00
400.000.00
50.000.00

1679




Hill Joiner & C o.
____ d o ....................
____ d o ................
____ d o ....................
____ d o ....................

PRACTICES

____ d o .
____ d o .
____ d o .
-------d o .
........ d o .

EXCHANGE

16,1931
20,1931
22,1931
1,1931
24,1931

14 shares M ichigan Gas & Electric 6 per cent preferred; 6,586 shares
Insull Utilities Investm ent second preferred; 7,000 shares Insull
Utilities Investm ent $5.50 preferred; 94,400 shares Central & South
W estern Utilities com m on; 600 shares Consumers Co. 6 per cent prior
preferred; 584 shares Consumers Co. 7 per cent preferred; 950 shares
M idland United Co. convertible preferred; 1,868 shares M id d le
W est Utilities 6 per cent preferred; 2,000 shares Peoples Gas Light &
Coke C o.; 1,000 shares M idlan d Utilities Co. 7 per cent prior
lien; 40,502 shares M id d le W est Utilities com m on; 1,508 shares
Com m onwealth Edison C o.; 700 shares P ublic Service C o. of N orth
Illinois no par; 500 shares M idlan d Utilities Co. 7 per cent preferred
class A ; 28,620 shares Corporation Securities Co. com m on; 20,000
shares M idland United Co. com m on; 5,662 shares Insull Utilities
Investm ent com m on; 200 shares Public Service C o. of N orth
Illinois $100 par; 33,877 shares National Electric Power C o. class A
com m on; 1,200 shares M idlan d U nited Co. 6 per cent preferred.
$20,000 Arkansas-Missouri Power C o. 6 per cent first, 1953.
$3,000 Ashland Light, Power & Street Railw ay C o. first, 1939.
$26,000 Centra] Power & Light C o. 6J^ per cent first, 1951.
44.500 shares Central & South Western Utilities com m on.
$4,000 Chicago Northern Shore & M ilwaukee Railroad 6 per cent first
and refunding, 1955.
200 shares Corporation Securities C o. com m on.
3,000 shares Corporation Securities C o. preferred.
$81,000 Corporation Securities C o. 5 per cent, 1932-1935; $13,000 Eastern
Shore Public Service C o. 5 per cent first, 1955; $13,000 Federal Utilities
Co. S^i per cent first lien, 1957; $2,000 H ydro Electric Corporation of
Virginia 5 per cent, 1958; $25,000 Illinois Northern Utilities C o. 5 per
cent first and refunding, 1957; 6,000 shares Insull U tility Investm ent
C o. com m on; 1,722 shares Insull U tility Investment C o. $6 second
preferred; $1,000 Ironw ood& B essem er Railw ay & Light C o. 5 p er cent
first, 1936; $22,000 M etropolitan District Finance C o. 6 per cent
collateral, 1943; $28,000 M etropolitan District Finance C o. 6J^ per
cent collateral, 1944; 12,917 shares M iddle W est Utilities C o. com m on;
21,700 shares M idland U nited C o. com m on; 965 shares M idlan d
United C o. $3 preferred convertible ex rights; 3,520 shares M idlan d
United C o. $3 preferred class A convertible with warrants; 16,500
shares M idland United C o. $6 preferred; 5,000 shares Mississippi
Valley U tility com m on; 1,600 shares Mississippi V alley U tility
6 per cent prior lien preferred; 1,000 Missouri Edison C o. 5j| per cent

STOCK

Apr.
M ay
M ay
July
June

111,635 shares M iddle W est Utilities com m on; 10,277 shares Associated
Telephone Utilities C o. com m on; 5,439 shares Central & South
Western Utilities Co. com m on; 11,260 shares Corporation Securities
Co. com m on; 2,500 shares Insull U tility Investm ent second preferred;
4,426 shares M id d le W est Utilities 6 per cent preferred; 250 shares
Insull Utilities Investm ent Co. $5.50 prior preferred; 650 shares
Corporation Securities C o. $3 optional preferred; 12,925 shares Insull
Utilities Investm ent com m on.
315 shares N orth American Light & Power $6 preferred.
2.500 American Service Co. 6^> per cent debenture 1934.
25 shares M ichigan Electric Power C o. 6 per cent preferred.

1680

F IR S T N A T IO N A L B A N K — Continued

Due

Date

Sept. 9, 1931

do_

$50,000.00

13, 080.24
1,045,
1, 250,
472,
180,

00 0
0 .0
00 0
0 .0
00 0
0 .0
00 0
0 .0
120, 0 0 0
0 .0

466, 700.00
103, 390.83

3, 650,170. 07

Collateral

first, 1947; 6,300 shares National Electric Power C o. com m on class A ;
1,000 shares National Electric Power C o. $6 preferred; 500 shares
National Electric Power C o. $7 preferred; $151,000 National Electric
Power C o. 5 per cent, 1978; $221,000 National Public Service C o.
5 per cent note, 1978; 300 shares N ew England Public Service 6 per
cent preferred prior lien; 1,133 shares N orth W est U tility Co. 7 per
cent preferred; 256 shares N orth W est U tility C o. 7 per cent prior
lien; 1,000 shares Seaboard Public Service Co. 6 per cent preferred;
1,568 shares Seaboard Public Service C o. $3.25 preferred; $33,100
Southland Ice Co. 6 per cent first, 1942; $4,700 South W estern Gas &
Electric Co. 6 per cent first, 1961; $2,100 South Western Light & Power
Co. 5 per cent first, 1957; $20,000 Starrett Investment Corporation
5 per cent, 1950; $500 Swiss Oil Corporation 6 per cent first and col­
lateral, 1931-1933; 2,400 shares W isconsin Power & Light C o. com ­
mon; $1,000 W isconsin Power & Light C o. 5 per cent first lien, 1961;
$1,000 Seneca Coal & Coke C o. 6 per cent first, 1933.
$507,000 Central W est Public Service Co. 3-year first lien collateral,
Series C, 5 per cent, 1933.
$1,300,000 Allied M otors Industries, Inc., 5-year convertible gold notes,
6 per cent, 1934.
$25,000 American Service Co. convertible debenture first mortgage, 15year, series A , 6 per cent, 1944.
$327,000 American Service C o., convertible debenture, 5-year co n v e rt­
ible debenture,
per cent, 1934.
$11,000 American Service Co. convertible debenture, 3-year convertible
gold notes, 7 per cent, 1932; $20,000 Central Power & Light, first,
per cent, 1951; $137,000 Central West P ublic Service, first, 53^ per cent
1956; $100 Cities Service Co. convertible debenture, 5 per cent, 1950;
$30,000 Florida Portland Cement Co., first, 6Yi per cent, 1932; $189,500
M id Continent Laundries (Inc.), first lien collateral gold, 6 per cent,
1939; $126,000 M id Continent Laundries (Inc.) convertible gold de­
bentures, 7 per cent, 1939; $12,000 M unicipal Light & Power Co.,
N ew Jersey, 5-year secured gold debenture, 6 per cent, 1935; $58,000
National Terminals Corporation convertible debenture, 614 per cent,
1940; $1,500 Ohio Terminal Co. first sinking-fund, 6 per cent, 1947;
$15,000 Super Power Co. of Illinois, first, 4}4 per cent, 1970; $39,000
Van Sicklen Corporation convertible debenture, 5-year convertible
gold notes, 6 per cent, 1934; $1,000 W ardman E . E . Properties (Inc.),
first and refunding,
per cent, 1938; $1,000 W ardman R . E. Proper­
ties (Inc.), first and refunding, 6}4 per cent, due, 1948; $129,000 W ard­
man R ealty & Construction Co. gold debenture, 6}4 per cent, 1938;
$30,000 Western Power Light & Telephone C o., first lien collateral,
series A , 6 per cent, 1948; $31,000 Corporation Securities Co. of Chicago,
5 per cent, 1933; $65,000 Corporation Securities C o. of Chicago, 5 per

PRACTICES




A . B. Leach & C o.
____d o .................. .
d o____________
.d o .
-d o.
_do.
_do.
-d o.

Per cent
5

Balance, A pr.
16,1932

EXCHANGE

..d o .
27,1931
21.1930
31.1929 ____ do_-do_
15.1931
_-d o.
25.1930
--d o .
25.1930
--d o .
3,1931
-_d02,1929

H ill J o in e r* C o..

Bate

STOCK

N ov.
Jan.
Dec.
Sept.
Sept.
Jan.
Mar.
Dec.

D em and.

N am e of maker

Dec. 28, 1931.

M . J. Insull and M . E. Sampsell.

Dec. 14,1931
M ar. 26,1931

A pr. 14, 1932.
D em and____

M . J. Insull.
____ d o ______

29,000.00

»200,000.00

5
H

E. J. Murnane.
____do........... .
____do_________

5
'A

171,000.00
28, 240. 00
11,760.00

5H

M ar. 25,1931

___ d o ..

EL Q. Clabaugh.

5
H

48,161.25

Feb. 2,1932
Mar. 1,1932
Mar. 29,1932

A pr. 1,
July 1 ,:
July 1,

A . L. Tossell____
____do___________
____ do___________

5
5
5

11,932.55
11,288.08
11,143.61

PRACTICES

June 20,1930 ........ d o ..
Oct. 7,1930 ........ d o ..
Oct. 21,1930 ____ d o ..

70,000.00

EXCHANGE

Aug. 27,1931

STOCK

119852—33— pt 5g

cent, 1934; $1,000 Corporation Securities Co. of Chicago, 5 per cent,
1935; $45,000 Corporation Securities Co. of Chicago, 5 per cent, 1932;
$300 O-Cedar Corporation, first mortgage, 6 per cent, 1932; 100 shares
Certain-Teed Products Corporation, com m on; 5,900 shares Jersey
Central Power & Light C o., 514 per cent preferred; 10,187 shares Allied
M otors Industries (Inc.), com m on; 1,225 shares Allied M otors Indus­
tries (Inc.), preferred; 10,260 shares American Service C o., common;
1,350 shares American Service C o., preferred; 750 shares Copeland
Products (Inc.), class A ; 300 shares Oodshaux Sugars (In c.), class B;
300 shares Leach Corporation, preferred; 10,300 shares M id Continent
Laundries (Inc.) com m on; 2,380 shares National Terminals Corpora­
tion, participating preferred; 108 shares National Terminals Corpora­
tion, cumulative convertible preferred; 5 shares 20 W acker Drive
Building Corporation, 6 per cent cumulative preferred; 4,863 shares
Van Sicklen Corporation, participating, class A ; 1,600 shares Western
Power, Light & Telephone Co. participating, class A ; 3,554 shares
W oodruff & Edwards, class A ; 45,000 shares Aeronautical Corporation;
327 shares M iddle W est U tility C o., com m on.
2.000 shares Insull Utilities Investm ent com m on; 1,000 shares M iddle
W est Utilities com m on; 2,000 shares Associated Telephone Utilities
common.
1,200 shares Producers & Refiners Corporation common.
2,500 shares Insull Utilities Investm ent com m on; 800 shares Western
Pacific R . R . preferred; 1,000 shares United D ry Docks (Inc.), com ­
mon; 1,424 shares Insull Utilities Investm ent first preferred; 1,900
shares Corporation Securities Co. convertible voting trust certificate;
500 shares Corporation Securities Co. $3 preferred; $100,000 T hird
Avenue R y . Co. 5 per cent adjusted incom e 1960.
100 shares Bendix A viation com m on.
200 shares Paramount Publix com m on.
10,600 shares Insull Utilities Investment com m on; 3,373 shares M iddle
W est Utilities com m on; 23,200 shares Corporation Securities Co.
com m on; 20,900 shares Corporation Securities Co. voting trust cer­
tificate; 200 shares Corporation Securities Co.
1.000 shares M iddle W est Utilities com m on; 525 shares Commonwealth
Edison Co.
150 shares Union Carbide & Carbon.
1,900 shares M iddle W est Utilities com m on.
334 shares Peoples Qas Light & Coke C o.; 50 shares Inland Investm ent
C o.; 100 shares N orth American Light & Power com m on; 30 shares
Continental Chicago Corporation com m on; 30 shares Continental
Chicago Corporation preferred; 100 shares Lake Co. Land Association
common.

» Of this am ount $1,400,000 was charged to contingent reserve A -C prior to A pril 16,
1 Of this amount, $160,000 was charged to contingent reserve prior to Apr. 16,1932.

1681




1682

F IR S T N A T IO N A L B A N K — Continued
Balance, A pr.
16,1932

Due

N am e of maker

Rate

D ec. 16,1931
M ar. 25,1932

M ar. 15, 1932...............
Dem and_____________

Federal Electric C o . . . ...............................
Virginia Insull Rafferty..............................

Per cent
5
5^

$20,000.00
4 40,000.00

M ar. 25,1931 ........ d o ............................

Green Acre Farms (I n c .)8.........................

5^

* 60,000.00

5

301,843.75

Oct.

3,1930 ........ d o................... ......... W ashington Flexner and M . J. I n s u ll...

Collateral

F IR S T U N IO N T R U S T A N D S A V IN G S B A N K
D em and........................




Samuel Insull, jr ..........................................

5

$730,000.00

31,834 shares Insull U tility Investment com m on; 728 shares Corporation
Security Co. com m on; 600 shares Corporation Security Co. optional
preferred; 90 shares Arlington Park Jockey Club preferred; 90 shares
American National Jockey Club Trust; 25 shares Chicago South
Shore & South Bend 6H Per cent preferred; $25,000 Elizabeth Cordell
Hospital 5 per cent notes; 175 shares Standard A uto Signal Corpo­
ration com m on; 50 shares Peoples Gas Light & Coke Co. full paid
units, fund N o. 6; $100 Chicago R iding Club 6 per cent general 1932;
278 shares Peabody Coal Co. A com m on; $1,000 Electric Club note,
1945; N o. 119 Post & Paddock C lub membership; $531.25 Central
P ublic Service Corporation notes, 1934; $147,000 T racy C. Drake.
Various demand notes secured b y 5,000 shares W hitestone Co. and
100 shares Continental Illinois Bank & Trust C o.; $2,000 demand
note of John Ashenhurst, secured b y 20 shares Commonwealth
Edison Co.

PEACTICES

Feb. 26,1931

EXCHANGE

Plain note.
1,507 shares Green A cre Farms C o. com m on; 3,315 shares M id d le West
U tility com m on.
2,850 shares Lincoln Printing C o. com m on; 200 shares M id d le W est
U tility $6 preferred; 682 shares Insull U tility Investm ent com m on;
100 shares Associated Telephone U tility C o. com m on; 300 shares
M iddle W est U tility com m on; 300 shares Insull U tility Investment
preferred first lien.
6,000 shares Lincoln Printing Co. com m on; 700 shares International
Harvester C o. com m on; 800 shares Insull U tility Investm ent second
preferred w ith warrants; 300 shares General M otors Corporation
com m on; 2,100 shares Sears, R oebuck & C o.; $25,000 General Theatres
Equipm ent convertible debenture 6 per cent A pr. 1, 1940; 25 shares
Adam s M illis Corporation 7 per cent preferred; 300 shares Cities
Service com m on.

STOCK

D ate

FOREMAN-STATE NATIONAL BANK

M ar. 11,1932

D em and_____________

Mississippi Valley Utilities Investment
Co.

Per cent
5

M ar. 24,1932 ____ d o ______ _________

900,000. 00

15,000 shares N orth American Light & Power common.
10,750 shares Texas H ydro Electric Corporation com m on; 357 shares
Southern Nebraska Power Co. preferred; 3,090 shares M idland
United Co. com m on; 3,000shares Corporation Securities Co. preferred;
200 shares South Western Light & Power Co. preferred; $930,000
Texas H ydro Electric Corporation first 6 per cent 1956; 200 shares
American P ublic U tility Co. preferred; 14,500 shares Texas H ydro
Electric Corporation preferred.

EXCHANGE
PRACTICES
1683




$148,303. 29

STOCK

3 Endorser: Virginia Insull Rafferty.
* $37,000 charged to contingent reserve prior to Apr. 16,1932.
{ $60,000 charged to contingent reserve prior to Apr. 16, 1932.
6 17,066 shares Insull U tility Investm ent: 28,000 shares Corporation Securities Co.

5

1684

STOCK EXCHANGE PRACTICES

Mr. P e c o r a . Mr. Traylor, if the aggregate amount of those loans
made to units of the Insull group had been made to one borrower,
would they have exceeded the amount which under the law could have
been loaned by the bank to a single borrower?
Mr. T r a y l o r . They would, had they been grouped to just one
borrower.
Mr. P e c o r a . Those loans were made to how many different per­
sons or units?
Mr. T r a y l o r . There must be a dozen, or more than that, probably
15. As a matter of fact, on looking at it I find there are about 22
corporations and individuals. But I might say they include other
collateral as well as Insull collateral.
Mr. P e c o r a . Mr. Traylor, did your bank have a so-called invest­
ment affiliate?
Mr. T r a y l o r . We do have now. We did not have at the time I
became president.
Mr. P e c o r a . What is the name of the affiliate?
Mr. T r a y l o r . The First Chicago Corporation.
M r. P e c o r a . How long has it been in existence and operation?

Mr. T r a y l o r . Well, it has never operated, in that it has neither
underwritten nor distributed securities. T h e capitalization of the
present company was set up in 1928.
Senator C o u z e n s . For what purpose?
Mr. T r a y l o r . Oh, we did not have much idea, Senator Couzens,
what we would do at the time. We were consolidating at that time
with the Union Trust Co., and we had some surplus assets, and we
created the First Chicago Corporation and paid in $5,000,000 of
capital.
Senator C o u z e n s . What was the consideration back of the organ­
ization?
Mr. T r a y l o r . As I say, we did not have a very clear idea of what
we might do with it. We thought some day we might use it for our
distribution of securities. As a matter of fact we have never done
anything with it. We invested in bonds and securities of one kind
and another, and have lost about a quarter, or perhaps a third of it.
It is not active at all.
Mr. P e c o r a . Is the First Union Trust & Savings Bank affiliated
with your bank?
Mr. T r a y l o r . Yes, sir. The First Union Trust was organized
originally in 1903 as the First Trust & Savings Bank. It is a state
institution, and the stock is held by trustees for the beneficial interest
of the stockholders of the First National Bank. The First National
Bank carries an indorsement that the stockholder participate pro
rata in the assets of the First Union Trust & Savings Bank.
Mr. P e c o r a . So that the shareholders of the First National Bank
of Chicago, through this trustee form of ownership, are also share­
holders of the stock of the First Union Trust & Savings Bank?
Mr. T r a y l o r . Yes, sir.
Senator C o u z e n s . Does that constitute a double liability also?
Mr. T r a y l o r . It does. Specifically the trustees are guaranteed
against personal double liability by the assumption on the part of
the stockholders of the First National Bank of that double liability.
Mr. P e c o r a . Now, the loans that the First National Bank made
±o these Insull corporations or groups, were secured by stock or



STOCK EXCHANGE PBACTICES

1685

securities, consisting of stock of these Insull groups for the most
part, were they not?
Mr. T r a y l o r . Largely stocks. There are some bonds and deben­
tures scattered through the collateral.
Mr. P e c o r a . You are acquainted with a corporation called Insull
Utility Investments (Inc.)?
Mr. T r a y l o r . Yes, sir.
Mr. P e c o r a . And also with a corporation called Corporation Secu­
rities Co. of Chicago?
Mr. T r a y l o r . Yes, sir.
Mr. P e c o r a . Those are two Insull companies?
Mr. T r a y l o r . They are.
Mr. P e c o r a . In the form of investment trusts?
Mr. T r a y l o r . They are.
Mr. P e c o r a . Among the loans made by your bank to the Insull
group were loans to those two investment trusts, is that correct?
Mr. T r a y l o r . We had a loan to each; yes, sir.
Mr. P e c o r a . Are you familiar with the debenture notes that were
issued and sold to the public by those two investment trusts?
Mr. T r a y l o r . I am .
Mr. P e c o r a . Do you know whether the First Union Trust & Sav­
ings Bank distributed any of those shares to the investing public?
Mr. T r a y l o r . They did.
Mr. P e c o r a . Do you know to what extent?
Mr. T r a y l o r . N o; because it was a trading account. That is,
we were in and out on the open market for the securities. In other
words, we would buy from somebody who wanted to sell, or sell to
somebody who wanted to buy. But the original participation in
the Insull Utility Investments (Inc.), if I am not mistaken, was in
the neighborhood of one and one-fourth million dollars of the deben­
tures and less than $500,000 of the Corporation Securities debentures.
Mr. P e c o r a . Y ou know that in December of 1931 there were out­
standing bank loans to the aggregate of $78,000,000 which had been
made to those two investment trusts of the Insull group?
Mr. T r a y l o r . Well, the sum I am not familiar with, but I know
it was a large sum.
Mr. P e c o r a . And those loans were held by a number of banks in
Chicago and some banks in New York?
Mr. T r a y l o r . Yes, sir.
Mr. P e c o r a . Including your bank in Chicago?
Mr. T r a y l o r . That is right.
Mr. P e c o r a . There was a so-called standstill agreement discussed
by the officers of the various bank creditors of these two Insull
investment trusts, was there not?
Mr. T r a y l o r . In January and February, and carried along for
some time.
Senator C o u z e n s . How much was involved in the stand-by agree­
ment?
Mr. T r a y l o r . I could not tell you, but it involved the loans of the
banks in Chicago and the banks in New York. It would be easy
enough to ascertain what the total was, but I am assuming it was in
the neighborhood of what Mr. Pecora said.
Senator C o u z e n s . Were the banks in the stand-by agreement?



1686

STOCK EXCHANGE PRACTICES

Mr. T raylor . The standstill agreement as a matter of fact was
never consummated. It was permitted to run along without any­
body tipping the apple cart over, so to speak, for a while, but it was
never signed up.

Senator C ouzens. H ow much did your bank have by way of
interest in this stand-by agreement?
Mr. P ecora . Standstill agreement they call it, Senator.
Senator C ouzens . Well, standstill agreement.
Mr. T raylor . Well, with respect to those two companies it was
something just under $5,000,000 in each case. The loans had been
for $5,000,000 and had some payments on them.
Mr. P ecora . Now it developed, did it not, that with regard to
those banks loans which aggregated around $78,000,000 last Decem­
ber, that virtually all the assets in the possession of those two
companies had been pledged with the banks to secure those loans?
Mr. T r a y lo r . That is substantially correct; yes, sir.
Mr. P e c o r a . And that left substantially no security for the
debenture bonds that had been sold to the public?
Mr. T raylor . That is correct. But may I say that the debentures
on their face specifically authorized the companies to pledge their
assets for current borrowings, so long as the total indebtedness in
either case would not exceed 50 per cent of the assets. Of course,
the finish was that the assets depreciated so rapidly that when the
breakdown came there was not much for anyone.
Senator C ouzens. What were those borrowings used for, Mr.
Traylor?
Mr. T raylor . I would assume, without any knowledge—and we
did not ask— that they were invested largely in the purchase of other
Insull securities.
Senator C ouzens . And in their purchasing these other Insull securi­
ties with this borrowed money, did they add that to the securities
they owned?
Mr. T raylor . That went into their general assets, and probably
was pledged to buy more.
Senator C ouzens . But your security was not augmented by those
purchases?
Mr. T r a y lo r . It is altogether probable, in taking additional
collateral as our margin went down, that we may have gotten back as
collateral some of the securities that were purchased with the pro­
ceeds of our loan. I am not in a position to say that, but that is a fair
assumption.
Mr. P ecora . The covenant in the indenture, in pursuance of which
these debentures were issued, provided that the indebtedness should
at no time exceed 50 per cent of the assets?
Mr. T r a y lo r . That is right.
Mr. P ecora . And one reading that provision would assume that no
indebtedness would be contracted that would exceed the value of
50 per cent of the assets, and that provided the other 50 per cent of
the assets which would give security to the debenture holdings.
Mr. T raylo r . That was the assumption.
Mr. P e c o r a . That was the assumption?
Mr. T raylor . Yes, sir.
Mr. P ecora . N ow, in practice it worked out that in the depreciat­
ing value of the debentures the banks called for more and more



STOCK EXCHANGE PRACTICES

1687

collateral, and those demands were complied with, so that in De­
cember of 1931, at the time this standstill agreement was first proposed
the banks had virtually all of the assets of those two companies; was
not that the practical operation?
Mr. T raylor . That was the practical operation. The practical
result, however, of the failure, assuming that the loans were made at
a time when the assets exceeded the 50 per cent requirement, and a
break in the market, and depreciating collateral, the net result would
have been, had there not been call for additional collateral, they
would have further depreciated, and we would have come, probably,
to the same net result as we have to-day.

Mr. P e c o r a . And the banks that called for that additional col­
lateral were some of the banks that distributed these debentures to
the public, were they not?
Mr. T raylor . Undoubtedly. We were, in our case.
Mr. P ecora . That is all.
Senator B rookhart . I want to ask a few questions. Mr. Young
testified that when General Electric made its loan to Mr. Insull it
took his personal indorsement, and also took his agreement that he
would maintain the market of those securities that were pledged.
Mr. T raylor . The market, or margin?
Mr. P ecora . The margin, I think, of 40 per cent.
Senator B rookhart . Yes, the margin; I believe that is the way
he stated it.
Mr. T raylor . Yes, sir.
Senator B rookhart . N ow is there an agreement made by banks
when they make loans, to float those securities?
Mr. T raylor . When we make current loans, as this one, from time
to time, and our loans were current, they would probably borrow
five million to pay off three or four, and then come back and get
additional money. They had a line of credit, and the loan provides
that the margin shall be maintained.
Senator B rookhart . In the market?
Mr. T raylor . Well, that is our contract with the borrower, that
if his margin goes below whatever it is, 20, or 30, or 40, he will main­
tain the margin.
Senator B rookhart . The margin is determined by the market for
those securities?
Mr. T raylor . That is right.
Senator B rookhart . And that, you say, is the universal practice
of the banks?
Mr. T raylor . That is the only way they can safely make collateral
loans.
Senator B rookhart . So that means an artificial support of the
market by the holders of those securities whenever the market is
dropping, in particular?
Mr. T raylor . Well, I suppose that the borrower on collateral
would be anxious to see the market maintained if he could; yes.
Senator B rookhart . That is all, Mr. Traylor.
(The witness was excused.)
Mr. P ecora . Mr. Tyler.
The C hairman . Mr. Tyler, raise your right hand. You do
solemnly swear that the testimony you will give before this com­



1688

STOCK EXCHANGE PRACTICES

mittee will be tbe truth, the whole, truth, and nothing but the truth;
so help you God.
Mr. T y ler . I do.
TESTIMONY OF EDWARD M. TYLER, CERTIFIED PUBLIC AC­
COUNTANT, WOODWARD BUILDING, WASHINGTON, D. C.

Mr. P ecora . Mr. Tyler, give your full name, your address, and
your business.
Mr. T y ler . Edward M. Tyler, certified public accountant, Wood­
ward Building, Washington, D. C.
Senator C ouzens . Who are you employed by now?
Mr. T y le r . I have a firm of my own, Tyler, Stovall & Co.
Senator C ouzens . And are you employed by this committee?
Mr. T yle r . Yes, sir.
Mr. P ecora . What education have you had in the field of ac­
countancy?
Mr. T y le r . I graduated from the Washington School of Account­
ancy, as I recall it, about 1917.
Mr. P ecora . When did you become a certified public accountant?
Mr. T y le r . I became a certified public accountant in the State of
North Carolina in June of 1919; and in the District of Columbia
immediately upon the passage of that act, on February 17, 1923.
Mr. P ecora . Since that time what have been your activities and
experience in the field of accountancy?
Mr. T y le r . In 1920 I became a partner of William Clabaugh,
practicing as William Clabaugh & Co. He is since deceased.
In 1926 I engaged in individual practice.
In 1929 I became a partner of Clyde B. Stovall, practicing as Tyler,
Stovall & Co., with offices in the Woodward Building; and my ac­
tivities were transferred to New York.
About the same time I became comptroller of Harris, Winthrop
& Co., members of the New York Stock Exchange, with offices at 11
Wall Street, the Stock Exchange Building; and was comptroller for
Harris, Upham & Co., the succeeding company to Harris, Winthrop
& Co.
Mr. P ecora . Does that comprehend your training and experience
and education in the field of accountancy?
Mr. T yler . I believe that covers it briefly.
Mr. P ecora . Were you employed as a certified public accountant
by this committee to make certain examinations, investigations, and
analyses of the records of the Insull Utility Investments (Inc.), and
the Corporation Securities Co. of Chicago, and collateral records?
Mr. T y ler . I was.
Mr. P ecora . H ow long have you been engaged in making such
examination and analyses?
Mr. T yler . Since about October 1.
Mr. P ecora . Of 1932?
Mr. T yler . Of 1932.
Mr. P ecora . And have you also, in your research along this line

and in your investigations, inquired into and examined into and
analyzed the records of transactions in the stock of those two
companies?
Mr. T yler . I have.



STOCK EXCHANGE PRACTICES

1689

Mr. P ecora . Of certain persons or corporations?
Mr. T y le r . Yes; I have.
Mr. P ecora . Before I come to that portion of your testimony, let
me ask you if, among other things, you examined the financial state­
ment to the public of Corporation Securities Co. of Chicago for the
year 1929 with respect to the item thereon showing the organization
expense?
Mr. T yler . Yes, sir.
Mr. P ecora . What was the organization expense shown in that
statement to the public?
Mr. T yler . I will have to refer to one of my records here.
Mr. P ecora . Very well. Have you got it?
Mr. T y le r . Yes; here is the item referred to, amounting to
$347,000'-----Mr. P ecora (interposing). No; I mean, in the statement put out
to the public, what was the amount of the item for operating expenses
for the year 1929 of that company?
Mr. T y ler . The operating expenses, according to their statement,
was $4,980.
Mr. P ecora . N ow , have you seen in the offices of that company a
copy of its income-tax return for the year 1929, showing the item for
operating expenses for that year of 1929?
Mr. T y le r . Yes; I have.
Mr. P ecora . What is the amount shown on the income-tax return
for operating expenses?
Mr. T y ler . $347,446.03.
Mr. P ecora . N ow , let me invite your attention to a corporation
called Insull Utility Investments (Inc.).
Mr. T y ler . Yes, sir.
Mr. P ecora . Having in mind that the opening trades on the
Chicago Stock Exchange for the common stock of that company were
had on January 17, 1929, will you tell us who were the only holders
of outstanding common stock of the company on that date, according
to the corporation records?
Mr. T y le r . According to the corporation records, the only out­
standing stock at that date were the so-called Insull family, with the
possibility of warrants in connection with the issue of debenture A’s.
Mr. P ecora . Who were the only holders of the common stock
actually issued and outstanding?
Mr. T y le r . The only holders were the Insull family.
Mr. P ecora . H ow about Halsey, Stuart & Co.?
Mr. T y le r . Halsey, Stuart & Co., so far as my records go, had no
actual stock.
Mr. P ecora . What were the sales made on the exchange on the
opening day in the common stock of that company; that is, of the
Insull Utility Investments (Inc.)?
Mr. T y le r . According to the stock exchange records, there were
4,150 shares traded in on that day.
Mr. P ecora . At what price?
Mr. T y l e r . At the price of 30.
The C hairman . None below and none above?
Mr. T y le r . All at 30, all day long.
Mr. P ecora . Have you made any investigation to ascertain what
person or persons engaged in those trades on the opening day?



1690

STOCK EXCHANGE PRACTICES

Mr. T y le r . Yes; I made an analysis of all of those trades as to the
purchasers. We determined that approximately 750 shares of this
stock was bought by employees of the Civic Opera Co., one of Mr.
Insull’s hobbies. As to the sales, we were not able to determine the
actual sellers, but we find that they were all sold by two brokers,
namely, Famum, Winter & Co. and M. D . Cahn & Co. Farnum,
Winter & Co. and M. D . Cahn & Co. are known as brokers for both the
Insull group and for Halsey, Stuart & Co.
Mr. P ecora . N ow , can you give us a recapitulation, by week or
month, of the course of trading in that security during January,
February, and March, we will say, of 1929?
Mr. T y le r . I can give you—by the course of trading, Mr. Pecora,
I presume you mean the volume?
Mr. P ecora . The volume and the range of prices.
Mr. T y le r . The volume and the range of prices?
Mr. P ecora . Yes, sir.
Mr. T yle r . I have stated that on January 17 the volume was
4,150 shares. January 18 the volume was 16,950 shares.
Mr. P ecora . Y ou are talking about the number of shares now?
Mr. T y le r . Yes; when I say volume, I mean the number of shares.
They ranged from 33 K to 40, closing at 40.
On the 19th the volume was 9,250 shares, with a range from 37%
to 38 y2.
On the 21st, 15,650 shares, ranging from 33 to 39, closing at 35.
On the 22d-----Mr. P ecora . D o not give it to us by days. Have you not a weekly
or monthly recapitulation?
Mr. T y ler . The monthly volume I have recapitulated. I have
not the monthly range in price, but I can give that very quickly by
a glance at my sheets here.
Mr. P ecora . All right.
Mr. T yler . The monthly volume of Insull Utility Investments
(Inc.), for January, was 91,525 shares.
February, 122,250 shares.
Mr. P ecora . Give us the range as you go along by month, will
you? The range in price, so we will know from month to month
what the range was.
Mr. T y ler . The range in January was from 30 to a high of 40,
closing the month at 35%.
In February the range was from 35^ to a high of 48K, closing at 46.
The volume for March was 54,400; the range for March was from
37 to 46, closing at 40%.
The volume for April was 26,150, with a range from 40% to 44,
closing at 41%.
Mr. P ecora . Mr. Tyler, as you give those monthly volumes, can
you also include what number of those tradings, or the volume of
those tradings that you traced or attributed to any of the Insull
group corporations, or any of the individuals connected with it, or
Halsey, Stuart & Co.?
Mr. T y le r . I can. I was up to May, I believe. I can go back to
January. The Insull group bought—I might say, before I give these
statistics, that we examined approximately 8 or 10 brokers to find
the trades, and all that we had an opportunity to examine before
being called here. Of those 8 or 10 brokers we found in the Insull



STOCK EXCHANGE PRACTICES

1691

group that they had bought during January 8,035 shares, and sold
2,000 shares.
Bought in February 1,970 shares, and sold 3,070 shares.
Bought in March 4,820 shares, and sold 200 shares.
Bought in April 500 shares, and sold 1,545 shares.
In May the total volume was 22,200. The Insull group bought
1,080 shares, and sold 2,190 shares.
Mr. P ecora . When you say the Insull group, do you include
trades of Halsey, Stuart & Co. under it?
Mr. T yler . Yes, sir.
Mr. P ecora . All right. Go ahead.
Mr. T yler . The range during that month was from 38% to 41,
closing at 38.
In June the volume was 101,450 shares. The Insull group bought
4,143 shares, and sold 5,535 shares. In June the range was from 38
to a high of 54, closing at 51 %
.
In July the volume was 942,050 shares. The Insull group bought
6,325 shares, and sold 46,192.
Mr. P ecora . What was the range?
Mr. T y le r . The range in that month was from a low of 52 to a
high of 127%, closing at 126.
In August the total volume was 794,480 shares. The Insull group
bought 28,964 shares, and sold 21,072 shares. The range was from a
low of 104 to a high of 149%, closing at 110%.
The September total volume was 436,550 shares. The Insull group
bought 6,993 shares, and sold 3,964 shares. The range during Sep­
tember was from a low of 104% to a high of 116, closing at 107.
In October the total volume was 435,650 shares. The Insull group
purchased 51,005 shares, and sold 2,284 shares. The October range
was from 40 low to a high of 108, closing at 70.
The November total volume was 273,150 shares. The Insull
group bought 16,989 shares, and sold 247 shares. The range during
November was from 39% to 55, closing at 55%.
The December total volume was 297,200 shares. The Insull
roup purchased 6,198 shares, and sold 4,109 shares. The range for
)ecember, 1929, was from 54 low to a high of 66, closing at 60%.
Mr. P ecora . Have you made an analysis of the same operations
in the market for the year 1930?
Mr. T yler . Yes; I have. I have a complete analysis of 1930,
also, along the same lines.

f

Mr. P e c o r a . Will you give it to us month by month?
Mr. T y le r . January, 1930, the total volume was 149,050 shares.
The Insull group purchased 42,091 shares, and sold 12,830 shares.
The range was from 53 low to a high of 64%, closing at 63%.
In February, 1930, the total volume was 151,850 shares. The
Insull group purchased 59,160 shares, and sold 9,230 shares. The
range during February was from 63% to a high of 70%, closing at 67%.
The March total volume was 223,650 shares. The Insull group
bought 68,500 shares, and sold 18,620 shares. The range was from
67% low to a high of 70%, closing at 68%.
The April total volume was 160,350 shares. The Insull group
purchased 68,500 shares, and sold 18,620 shares. The April range
was from 67% to 69%, closing at 68%.



16 9 2

STOCK EXCHANGE PEACTICES

The May total volume was 139,600 shares. The Insull group
bought 47,100 shares, and sold 42,114.
Senator B rookhart . What was the purchase?
Mr. T y ler . Forty-seven thousand and one hundred shares pur­
chased by the Insull group, and sold 42,114 shares.
Senator B rookhart . They were getting their stock back now?
Mr. T yler . The range for May was 64 low to a high of 67, closing
at 65.
The June total volume was 236,800 shares. The Insull group pur­
chased 110,800 shares, and sold 72,460 shares. In June the range was
from 52 to 67%, closing at 56.
In July the total volume was 220,650 shares. The Insull group
purchased 122,700 shares, and sold 86,583 shares. The range during
July was from 55% low to a high of 62%, closing at 61 %
.
Mr. P ecora . Mr. Tyler, have you a separate recapitulation or
tabulation in one document of these monthly sales and purchases?
Mr. T y le r . Yes, sir.
Mr. P ecora . I mean have you got it here?
Mr. T y le r . Yes; that is what I am reading from.
Mr. P ecora . I will get you to let me have that, and we will spread
that on the record without the necessity of reading all these tabula­
tions. It takes a lot of time.
Mr. T y ler . That does not include the prices, Mr. Pecora, but I
have a detail here, day by day, of the high, low, and closing.
Mr. P ecora . Well, will you supplement this recapitulation with
the information showing the range of prices month by month?
Mr. T y le r . Just add that to this?
Mr. P ecora . Yes, and submit it to the committee as soon as you
are able to do it, and it can be spread in full on the record.
The C h airman . There will be no objection to that.
Mr. P ecora . And have you, Mr. Tyler, prepared a similar report
based upon an examination and investigation of similar records with
respect to the Corporation Securities Co. of Chicago?
Mr. T y le r . I have.
Mr. P ecora . Will you recapitulate those transactions in the same
manner, and when you have completed it submit it to the reporter
so that it may be spread on the record?
Mr. T y ler . I will do that.
The C h airman . Does that record also include transactions of the
Insull family and Halsey, Stuart & Co. interests?
Mr. T y le r . Well, we have included the Insull group.
The C h airm an . That includes Halsey, Stuart &Co.?
Mr. T y le r . It includes Halsey, Stuart & Co.; yes, sir.
Mr. P ecora . And when you do that, let me have it and we will
put it in the record.
Mr. T yler . All right.
(The witness was excused.)
(The report thereafter furnished by Mr. Tyler is here printed in
the record as follows:)
W a s h i n g t o n , D. C., March IS, 1933.
The following is a report of the result of the investigation of Corporation Securi­
ties Co. of Chicago and Insull Utility Investments (Inc.) for the Committee on
Banking and Currency of the United States Senate by myself and associates.
The report discloses that inordinate profits were made by the individuals and
firms in connection with the organization and financing of these corporations.




1693

STOCK EXCHANGE PRACTICES

The investment house of Halsey, Stuart & Co. appears to have obtained the
greater portion of these profits, a partial summary of their share being as follows:
Profit on sale of $2,000,000 debentures A back to Insull Utility In­
vestments (In c.)________________________________________________$3, 995, 388
Profit Insull Utility Investments (Inc.) $5.50, preferred warrants____ 7, 500, 000
Value of 57,000 shares of Insull Utility Investments (Inc.) received
as a bonus for sale of stock and debentures_______________________
2 , 280, 00 0
Profit on sale of $60,000,000 Insull Utility Investments (Inc.) de­
bentures B _____________________________________________________ 3, 300, 000
Excess of opening market value over cost of Corporation Securities
Co. of Chicago, common stock__________________________________ 27, 800, 000
Total______________________________________________________ 44,955,388
The investigation in my opinion disclosed the existence of various unsound
practices.
In the succeeding section of this report is presented further information in
addition to that presented by oral evidence which was ascertained from the
investigation of the affairs of Insull Utility Investments, (Inc.) and Corporation
Securities Co. of Chicago.
Respectfully submitted.
E d w a r d M. T y l e r , C. P. A.
Member of firm, Tyler, Stovall & Co.T
Certified Public Accountants.
O r g a n iz a t io n

op

I nvestm en t

in s u l l

u t il it y

T

ru sts

and

in v e s t m e n t s

Stock

F

l o t a t io n s

( i n c .)

Insull Utility Investments (Inc.) was incorporated under the laws of the State
of Illinois on December 27, 1928.
The initial issue of stock of 200 shares was to the incorporators for $1,000 on
January 4, 1929.
On January 11, 1929, the corporation acquired from the Insull family the follow­
ing securities and at the following values:
Value

1,000 shares Insull, Son & Co. common________________________ $ 1 , 250, 000. 00
19,293.6 shares Middle West Utilities Co. 6 per cent preferred. _ 2 , 006, 534. 40
29,928 shares Middle West Utilities Co. common_______________ 5, 147, 441. 60
472 shares Midland Utilities Co. A preferred..________ ________
46, 492. 0 0
6,090 shares Peoples Gas Light & Coke Co. capital stock________ 1 , 315, 440. 00
Total___________________________________________________
Stock was issued in payment as follows:
T o-

Preferred

Am ount

9, 765, 908. 00

Common

Am ount

Shares
25,456 $2,545,600.00
369.200.00
3,692
4,924
492.400.00
592.800.00
5,928
T otal___________________________________________

Shares
486,176
70,461
94,122
113,241

$3,669,170.27
531,769.17
710,338.73
854,629.83

4,000,000.00

764,000

5,765,908.00

40,000

As a part of this purchase a contract was entered into with the stockholders
and reduced to writing on January 17, 1929, which contained the following
provisions:
1. Preferred stock (first series) were to have dividends at the following rates:
First year______________________________________________________________ $2 . 00
Second year---------------- -------- ----------------------------------------------------------------3. 00
Third year--------------------- ----------- ------------------------------ ---------------------------- 4 .0 0
Fourth year--------------------------------------- -------------------------------------------------5. 00
Fifth year______________________________________________________________ 6 . 00




169 4

STOCK EXCHANGE PEACTICES

2 . The stockholders were given an option to purchase 200,000 shares of common
stock at $15 per share within two years.
3. Samuel Insull, Samuel Insull, jr., and Martin J. Insull agreed to serve the
corporation in any capacity for a period of two years without compensation.
4. Samuel Insull agreed to purchase or cause to be purchased 250,000 shares
of common stock within one year at the price of $ 1 2 per share.
The sale in accordance with item No. 2 on the foregoing page was made on
December 28,1929, at which time 200,000 shares were sold for a total of $3,000,000.
The sale of 250,000 shares at $12 per share was made in accordance with the
fourth section to individuals as per the attached schedule A.
On January 17, 1932, $6,000,000 in 5 per cent gold debentures, with warrants
to purchase 5 shares of common stock for each $100 of debentures at $15 per share
within the first six months, were sold to Halsey, Stuart & Co. at par.
On July 31, 1929, the corporation reacquired, ex warrants, from Halsey, Stuart
& Co., $2 ,0 0 0 ,0 0 0 par value of these debentures at 90 plus accrued interest in
exchange for 46,458 shares of common at 40. The market closed on July 31,
1929, for Insull Utility Investments (Inc.), at a price of 126.
At that time this represented to Halsey, Stuart & Co., an unrealized profit,
in the common stock, of $3,995,388.
Additional debentures A were reacquired, ex-warrants, from Halsey, Stuart
& Co. as follows:

August 24, 1929, $250,000 at 90_________________ _______ ___________
September 25, 1929, $500,000 at 95_________________________________
October 3, 1929, $250,000 at 95________ ____________________________
November 5, 1929, $276,000 at 93.80_______________________________

$225,
475,
237,
258,

000
000
500
888

Total ($1,276,000)_________________________________ _________ 1 , 196, 388
There was reacquired, ex-warrants, from Insull Son & Co., the following:
September 3, 1929, $255,000 at 88 and 89___________________________ $226, 400
December 31, 1930, $10,000 at 90.25___________________ _____ _____ 9, 025
Total ($265,000)_________________________________ _______ ____

235, 425

There were also purchased, ex-warrants, from Field, Glore & Co. $7,000 at
66.35 or $4,645.
January 18, 1929, the corporation sold to Halsey, Stuart & Co. 60,000 shares
of $5.50 prior preferred stock, with warrants to purchase 5 shares of common at
$15 per share prior to June 30, 1929, for the sum of $6,000,000.
Insull Utility Investments (Inc.) common stock closed at $40 per share on
January 18, 1929, and continued to rise until August 2, 1929, at which time it
reached the price of 149%. On the basis of the January 18, 1929, closing the
warrants were worth $25 per share ($40—$15=$25). The 60,000 shares of $5.50
prior preferred carried warrants for 300,000 shares of common which, valued at
$25 per share would result in $7,500,000 as a profit or bonus to Halsey, Stuart
& Co. at the time of purchase.
As additional compensation for the underwriting of the $6,000,000 in debentures
and $6,000,000 in $5.50 prior preferred stock, Halsey, Stuart & Co. were given
57,000 shares of common stock by the stockholders. The value of these on
January 18, 1929, was $2,280,000 on the basis of $40 per share.
On August 31, 1929, 450,000 shares of preferred stock, second series, with
conversion warrants, were sold to Utilities Securities Co. at 95 allocating 80 to
the preferred stock and 15 to the value of the warrants. The total amount thus
received was $42,750,000.
On January 1, 1930, the corporation issued $60,000,000 6 per cent gold deben­
tures with warrants at 94. These were underwritten by Halsey, Stuart & Co.
and retailed at 99% with warrants. This represents a profit to Halsey, Stuart
& Co. of $3,300,000.
The foregoing constitutes the major financing of Insull Utility Investments
(Inc.), but from the inception of the corporation to August 30, 1930, common
stock was sold, including the before mentioned, on which the corporation realized
$101,845,293.56. If this stock had been sold in the market at the price prevailing
during each month in which it was sold the corporation would have realized




STOCK EXCHANGE PEACTICES

1695

$231,387,442.37. In other words the corporation sold this stock for $129,542 148.81 less than the market value.
On August 2, 1929, the common stock of this company attained the price of
$149 per share. On July 30, 1929, there was outstanding 2,027,146 shares of
common for which the company had received an average price of $19.88 per share
or a total of $40,330,502.48. Had these shares been sold on the market during the
same months in which they were sold for the mean (average) price obtainable,
the sum of $101,701,725 would have been realized. The difference is $61,371,222.52.
At $149 a share, this stock had a market value as of August 2 , 1929, seven
months after the corporation was formed, of $302,044,754, or seven and one-half
times the invested capital. That any such value should be placed on this stock
is ridiculous may be illustrated by the fact that to earn 6 per cent on the market
value on August 2 , 1929, the corporation would have to earn $18,122,685.24
yearly or 44 per cent on the invested capital of $40,330,502.48.
As a matter of fact the net profit for the entire year of 1929, exclusive of stock
dividends, and the sale of rights, both of which do not constitute income (stock
dividends recorded as $234,144.09 and sale of rights $8,059,555.26), was $1,948,265.85. This amount covering the entire year, lacks $16,174,419.39 of the re­
quired amount or in other words the earnings amounted to less than one-fifteenth
the amount that would have been required to have paid a 6 per cent return on
the market value at the end of the first seven months of operation. The earnings,
in terms of percentage, on the market value as o f August 2, 1929, were fourtenths of 1 per cent.
CORPORATION SECURITIES CO. OF CHICAGO

Corporation Securities Co. of Chicago was organized on October 5, 1929.
The opening transaction on that day was the issue of 1,045,433 shares to Samuel
Insull and family and 1,000,000 shares to Halsey, Stuart & Co. at a price of
$12,112 plus per share. In addition, 45,436 shares of “ Three dollar optional
preferred stock” were sold to Samuel Insull and family at $50 per share.
Payment was made in the following manner, cash $65,750.83, organization
expense carried forward $36,647.25 and 304,540 shares of Insull Utility Invest­
ments (Inc.) common stock, at price of $100, totaling $30,454,000. At the same
time the company assumed indebtedness of $3,510,000.
On October 14, 1929, the corporation issued 654,564 units consisting of one
share of preferred and one share of common stock at $75 per unit. The cor­
poration realized $49,092,300 and applied $50 per share to the preferred stock
and $25 per share to the common stock.
That these units were sold at too high a figure may be illustrated if it is borne
in mind that after selling the 654,564 units the company could only liquidate on
the basis of $3.94 in cash and 0.11279 share of Insull Utility Investments (Inc.)
common stock for each share of the company’s common stock. In other words,
a purchaser of common stock at $25 per share paid $21.06 ($25 less $3.94) for
0.11279 share of Insull Utility Investments (Inc.) common stock at the rate of
$186.74. October 14, 1929, Insull Utility Investments (Inc.), common, closed
at 104HOn October 19, 1929, the first trading in the units took place at $100 per unit.
Due to a conversion privilege in the preferred stock in the unit one share of
preferred was worth one and one half shares of common. Therefore, a unit
was worth two and one half shares of common. A price of $100 per unit is equal
to $40 per share for the common. A purchaser of common stock at $40 per share
was paying $36.06 ($40 less $3.94) for 0.11279 share of Insull Utility Investments
(Inc.) common stock or purchasing Insull Utility Investments (Inc), common
stock at the rate of $319.73 per share. On this day (October 19, 1929) the stock
closed at a price of $97 per share.
On November 15, 1929 (1 month and 10 days after the purchase), it was neces­
sary to write down Insull Utility Investments (Inc.) common stock to $15,074,730
or by more than half.
On April 4, 1930, 1,250,000 shares of common stock was issued at $25 per share
to Corporation Syndicates and Insull, Son & Co. for which $31,250,000 in cash
was realized.




169 6

STOCK EXCHANGE PEACTICES

On September 15, 1930, by resolution of the board of directors $40,000,000 of
serial gold notes were sold to Halsey, Stuart & Co. at $95.45 plus accrued interest.
However, only $30,000,000 were issued for which the corporation received $28,865,139.01 in cash and Halsey, Stuart & Co. were relieved of the necessity of buy­
ing the balance of $ 1 0 ,0 0 0 ,0 0 0 . This completes the public financing of Corpora­
tion Securities Co. of Chicago.
M A R KE T M ANIPULATIONS

On January 17, 1929, the common stock of Insull Utility Investments (Inc.)
was listed and trading began that day. The volume of trading on this first day
consisted of 4,150 shares, all at $30 per share. At this time the only stock out­
standing was in the hands of the Insull family so it was possible for them to dic­
tate the price to prevail. The price of 30 is four times the price which the Insull
family paid for their stock just 6 days previously. All sales on this day were made
by the brokerage houses of M. D. Cahn & Co. and Farnum Winter & Co. Both
houses were brokers for Insull and Halsey, Stuart & Co.
On February 7, 1929, Halsey, Stuart & Co. made a contract with Utility
Securities Co. whereby Utility Securities Co. was to sell 93,500 shares of stock
of Insull Utility Investments (Inc.) common stock at $40 or better. Utilities
Securities Co. was to have the excess over $40 and up to $42, but above that
amount the excess was to be divided equally. Mr. Stuart, president of Halsey,
Stuart & Co., stated that 57,000 shares of this amount were given to them as
additional compensation in connection with the sale of the $6 ,0 0 0 ,0 0 0 preferred
stock and $6,000,000 of debentures and the balance of the 93,500 shares was
from the exercise of warrants on the debentures. The profit on the 57,000 shares
has been accounted for (see p. 1695), but there remains to be accounted for the
profit on 36,500 shares acquired through the exercise of warrants detached from
debentures A. This is explained in the following paragraph.
In addition to what debentures A were sold, ex warrants, to the public by
Halsey, Stuart & Co., the corporation bought back $3,176,000 worth, ex warrants,
from Halsey, Stuart & Co., which means that Halsey, Stuart & Co. exercised
warrants and acquired 158,800 shares of Insull Utility common. Therefore, the
36,500 shares required to complete the sale of 93,500 shares must have come from
the warrants at $15 per share. The sale of these 36,500 shares at $40 gives a
profit of $912,500.
On June 2 1 , 1929, 250,000 shares of Insull Utility Investments (Inc.) were sold
to Utility Securities Co. under the same arrangement as that made between
Halsey, Stuart & Co. and Utility Securities Co. The price obtained was at an
average of $41,854 per share or $10,463,512.73 net to the corporation. At this
time a program of publicity was started with an advertisement in many Chicago
apers which included a statement of estimated 1929 earnings of $2,819,103.
'he actual earnings for the year were $1,948,265.85, or less than the advertised
estimate by $870,837.15. Following this several news articles stated similar
estimates and there were several references to rumors of new properties being
acquired. The result of this propaganda was to run the price up to 149)4 on
August 2, 1929, during which time Utility Securities Co. was selling Insull Utility
Investments (Inc.) common stock in the market as well as privately. During
the period from June 21 to July 30, 1929, the Chicago Daily News carried 23
items on Insull and the Chicago Daily Tribune 2 1 items. The monthly volume
and price range are shown on Schedule B following this report. The total trades
in the market from June 21 to July 30, 1929, were 998,100 shares.
On January 20,1930, at which time Halsey, Stuart & Co. purchased $60,000,000
of debentures B, a contract was entered into between Halsey, Stuart & Co. and
Insull Utility Investments (Inc.) wherein Insull Utility Investments (Inc.)
agree to maintain the market in their common stock for four days after the offer
of the debentures to the public. See photostatic copy of letter attached.
(Schedule C.)
Insull, Son & Co. were designated to maintain this price on the common stock
and between January 23 and 31, 1930, the following trades were made in the
market by them.

?




STOCK EXCHANGE PRACTICES

Bought

1930

Jan. 29..... ............ .................... -

4,800
2,050
3,150
2,900
1,750

Sold
1,700
650
3,600
1,000
1,650

1697

1930

Bought

Jan. 30..... ......................... ..........
Jan. 31..... ...................................

Sold

9,350
1,050

500
200

25,050

9,300

On August 15, 1930, a syndicate was formed with Insull, Son & Co. in which
Insull, Son & Co. were to maintain the market on Insull Utility Investments
(Inc.) common at a price of $57.50 per share. They were to maintain the market
on common rights at $1.50 per right and $0.68 per right on preferred rights.
The trades of this syndicate are shown on Schedule D attached. The total
trades were 107,601 shares purchased and 64,503 shares sold.
Photostatic copy of syndicate agreement is attached. (Schedule E.)
Corporation Securities Co. of Chicago units were listed on October 19, 1929,
on the Chicago Stock Exchange. That day 1,140 units were sold at a price range
between 99% and 1 0 0 % closing at 1 0 0 %. Of the total sales during this first day,
H. L. Stuart purchased 250 units (100 at 99% and 150 at 100) and sold 600 units
(150 at 100, 100 at 100%, 200 at 100% and 150 at 100%). As these units had not
been offered to the public until October 14, it is apparent that there was only a
very small quantity available for public sale and in view of the fact that H. L.
Stuart sold more than 50 per cent of the total volume traded on the exchange,
it is also apparent that the price was made by his trades.
On the basis of the market value thus established at $40 per share for the com­
mon stock the organizers of Corporation Securities Co. of Chicago reaped a
large profit. That of Halsey, Stuart & Co. was $27,880,000 and the Insull family
of $29,146,671.
On March 31, 1930, a contract was made between Corporation Securities Co.
of Chicago and Utility Securities Co. wherein Corporation Securities Co. of
Chicago was to protect the market on allotment certificates between $69.50 and
$70 for a period of 90 days after April 3, 1930. During the months of April,
May, and June, 1930, the trades in Corporation Securities Co. of Chicago were
as follows (see also Schedule I ) :
Insull group:
Bought___________________________________________________________63, 125
Sold______________________________________________________________
7, 541
Total volume_____________________________________________________ 83, 900
Price range:
High_______________________________________________________________ _72%
Low________________________________________________________________ _62
Close_______________________________________________________________ _63%
BAN K LOANS, POSITION OP COLLATERAL, ETC.

From almost the very beginning these corporations were very large borrowers
from banks using as collateral the securities held by the two corporations. The
following is a statement of bank loans at the end of the year.
1929

$27,949,163

1930

1931

$15,881,745
58,476, 218

$15, 750,000
53,257,145

In addition to loans to the corporations named above loans were made to other
corporations and individuals of the Insull group and the following is a summary
of loans by Chicago banks which exceeded the legal limit in the aggregate.

119852—33—p t 5----- 20




1698

STOCK EXCHANGE PRACTICES

First National Bank of Chicago, III.
Total loans to Insull group April 16, 1932_____________________$20, 080, 267. 21
Capital_____________ _____ _____________ _____ ________________
Surplus______________________________________________________
Total capital and surplus____________ _______ __________

25, 0 0 0 , 0 0 0 . 0 0
25, 000, 00 0 . 00
50, 000, 000. 00

Percentage of loans to combined capital and surplus, 40 per cent.
Percentage of loans to capital, 80 per cent.
Continental Illinois Bank & Trust Co., Chicago, III.
Total loans to Insull group April 16, 1932_____________________$59, 857, 135. 23
Capital______________________________________________________
Surplus________________________________ - _____________________

75, 0 0 0 , 000. 00
65,000,000.00

Total capital and surplus______________________________ 140, 000, 000. 00
Percentage of loans to combined capital and surplus, 43 per cent.
Percentage of loans to capital, 80 per cent.
Central Republic Bank & Trust Co., Chicago, III.
Total loans to Insull group April 16, 1932------------------------------- $ 1 1 , 157, 069. 70
Capital_______________________________________________________
Surplus_________________________ _____ _______________________

14, 0 0 0 , 0 0 0 . 00
10,000,000.00

Total capital and surplus______________________________

24, 000, 000. 00

Percentage of loans to combined capital and surplus, 46 per cent.
Percentage of loans to capital, 80 per cent.
All debentures issued by these two corpoiatione contained covenants that the
assets of the corporations would not be pledged to the extent of more than 50
per cent of such assets unless the debentures were secured ratably with the loans
so secured. On October 1 , 1931, the 50 per cent point was exceeded, and it
increased month by month thereafter until December 31, 1931, and remained
the same until the date of bankruptcy. Statements of the condition of loans,
etc., were made to the boards of directors and finance committees weekly, and
each member of the board and the finance committee knew when the covenants
in the debentures were broken. H. L. Stuart, president of Halsey, Stuart &
Co., was a member of these boards and finance committees and had knowledge
of the breach of the covenant, but the firm of Halsey, Stuart & Co. continued
to sell these debentures. A list of the sales taken from the sales tickets of Hal­
sey, Stuart & Co. from October 1 , 1931, to, and in some cases beyond, the date of
receivership is attached hereto. (Schedule F.)
All statements issued by these companies contained inflated income reports,
and the balance sheets were inflated to the extent that stock dividends and pro­
ceeds from the sale of subscription rights were included in the value of assets.
When stock dividends aie received, nothing has been added of value to the
original stock. This point was decided by the Supreme Court of the United
States in the case of Eisner v. Macomber (252 U. S. 189). The sale of rights
should not be treated as income except for the amount by which the proceeds
exceed the equity which attaches to the rights. In no case were rights sold
by the companies sold at a profit.
In 1929 a corporation was formed which existed for less than a month
and whose only activity was to purchase from Insull Utility Investments (Inc.)
a number of stock subscription rights, upon which a value was placed of $8,059,000. The rights were paid for with 100 shares, the total capital of this cor­
poration and the value of $8,059,000 applied to the capital. This $8,059,000
was improperly included in income of Insull Utility Investments (Inc.). Sched­
ule G-H shows the adjustments of income for these corporations to the proper
amount.




STOCK EXCHANGE PEACTICES

1699

These statements were more misleading to the public in that they were cer­
tified to by firms of accountants. The auditors in the case of Insull Utility
Investment (Inc.) were Arthur Young & Co., and for Corporation Securities Co.
of Chicago— Touche, Niven & Co.
In June, 1930, after a contest between Samuel Insull and Cyrus J. Eaton for
the control of the Insull group of corporations, the two investment trusts pur­
chased from Mr. Eaton the securities which he had acquired paying him $350
per share which was more than $ 1 0 0 per share above the then market value of
these securities. The total consideration for this purchase was $56,000,000
which was paid by $48,000,000 cash and $8,000,000 in stock of the two invest­
ment trusts.
An interesting example of the inflationary methods pursued and which were
finally reflected in the books of account of the Corporation Securities Co. of
Chicago, and which tended to obscure the true state of affairs of the company,
is contained in the following description of a purchase and immediate write-up
of the value of 557,000 shares of Middle West Utilities, new common stock.
It appears from their books that on October 14, 1929, just nine days after
organization, the Corporation Securities Co. of Chicago contracted to buy on
open account 557,000 shares of Middle West Utilities, new common, at $24,136
plus per share, or a total purchase price of $13,443,794.26. This was the first
purchase of securities by the new corporation, other than the original securities
obtained as a result of the consolidation of the old Corporation Securities Co.
and Western Securities Co.
On this same day, October 14, 1929, the corporation made entries on its books
increasing the book value of this 557,000 shares of Middle West Utilities stock
by over 86 per cent above cost, or $11,611,301.92; thus making this investment
appear on its books at a value of $25,055,096.18.
Although the market value of the stock at that time was about equal to the
increased value shown, the corporation followed an unsound practice in carrying
this increase into its investment account and absorbing the credit therefor in
its common capital stock account and in surplus reserves.
The application of the increase was as follows:
Common stock________________________________________________ $4, 1 1 1 , 301. 92
Reserve for contingencies, investments, market value decline, or
for other purposes___________________________________________ 7, 000, 000. 00
Reserve for organization expense______________________________
500, 000. 00
Total_ ______ _________________________________________ 11,611,301.92
_
The effect of the foregoing was to “ water” the then outstanding common
stock of Corporation Securities Co. of Chicago to the extent of about 47 per
cent. It also caused the books to reflect an apparent but fictitious surplus
equal to, approximately, 24 per cent of the total preferred and common stock
outstanding, although up to this point the books showed no surplus or surplus
reserves of any character whatsoever.
Schedule J attached shows purchases and sales by the Insull group of Cor­
poration Securities Co. of Chicago, common stock, also the monthly volume of
trades and the price range from April, 1930, to April, 1932.
Schedule

A

Insull Utility Investments (Inc.) common stock sold at $12 -per share
Shares

Albright, Chas. D., care of Isham, Lincoln & Beal, 72 West Adams
Street_____________________________________________________________
Andrus, L. B., Guaranty Building, Indianapolis, Ind_________________
Annan, J. Gilroy, 32 Bishopsgate, London, E. C. 2, England__________
Adams, C. C., 137 South La Salle Street, Chicago____________________
W. L. Abbott, 72 West Adams Street, Chicago_______________________
Alschuler, Benj. P., 57 Fox Street, Aurora, 111________________________
Arthur, William, care of Isham, Lincoln & Beale, 72 West Adams
Street, Chicago______________________________________________ _____




1, 500
1, 000
1, 125
500
1, 000
1, 000
500

1700

STOCK EXCHANGE PRACTICES
Shares

Bullard, Edward M., care of Isham, Lincoln & Beale, 72 West Adams
Street______________________________________________________________
Budd, Britton I., 72 West Adams Street, Chicago_____________________
Barrett, Oliver R., care of Cooke, Sullivan & Ricks, 310 South Michi­
gan Avenue, Chicago_______________________________________________
Blackinton, Fred L., care of Cooke, Sullivan & Ricks, 310 South Michi­
gan Avenue, Chicago_______________________________________________
Brewster, Walter S., 1 1 2 West Adams Street, Chicago________________
Brice, John P., care of Lake County Land Association, 72 West Adams
Street______________________________________________________________
Burns, Geo. E., 72 West Adams Street, Chicago______________________
Bird, Miss Esther, care of P. J. McEnroe, 72 West Adams Street______
Bradley, Ralph R., The Rookery, 209 South La Salle Street, Chicago. _
Busby, Leonard A., 38 South Dearborn Street, Chicago_______________
Barkman, Alice M., care of Chicago Civic Opera Co., Chicago, 111_____
Cooke, Judge, Geo. A., care of Cooke, Sullivan & Ricks, 310 South Mich­
igan Avenue, Chicago______________________________________________
Conerty, Jos. A., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Chase, C. W., 1085 Broadway, Gary, Ind_____________________________
Curtin, Emmett R., The Lima Trust Co., Lima, Ohio_________________
Clinch, R. Floyd, The Rookery, 209 South La Salle Street, Chicago___
Cunningham, James A., 72 West Adams Street, Chicago______________
Crum, Miss I. Ruth, 72 West Adams Street, Chicago__________________
Cooke, Sullivan & Ricks Investment Fund, care of Judge Geo. A. Cooke,
310 South Michigan Avenue, Chicago______________________________
Culver, Wm. H., 72 West Adams Street, Chicago_____________________
De Clercq, A. G., 72 West Adams Street, Chicago____________________
Dunbaugh, Harry J., care of Isham, Lincoln & Beale, 72 West Adams. _
Doyle, E. J., 72 West Adams Street, Chicago_________________________
Dines, Homer D., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Daily, F. L., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Dell Plain, Morse, 649 Hohman Street, Hammond, Ind_______________
Daniels, Charles W., 72 West Adams Street, Chicago_________________
Evers, Frank R., Utility Securities Co., 230 South La Salle Street,
Chicago______________________________________________________ ____
Ellis, George Corson, 122 South Michigan Avenue, Chicago______ !____
Evers, J. W., jr., 72 West Adams Street, Chicago____________________
Elliott, Dr. Arthur R.. 30 North Michigan Avenue, Chicago__________
Ettelson, Samuel A., Room 514, City Hall, Chicago___________________
Elliott, R. L., 72 West Adams Street, Chicago________________________
Ferguson, Louis A., 72 West Adams Street, Chicago__________________
Fiedler, Edw. H., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Feustel, Robert M., care of Indiana Service Corporation, 310 West
Maine Street, Fort Wayne, Ind____________________________________
Forscey, P. G., 32 Bishopsgate, London, E. C. 2, England____________
Foreman, Gen. Milton J., 38 South Dearborn Street, Chicago_________
Flexner, Washington, 732 Sherman Street, Chicago___________________
Fox, William A., 72 West Adams Street, room 1124, Chicago_________
Gilchrist, John F., 72 West Adams Street, Chicago___________________
Gulick, John H., 72 West Adams Street, Chicago_____________________
Guinan, James J., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Graham, E. V., 72 West Adams Street, Chicago______________________
Gear, H. B., 72 West Adams Street, Chicago_________________________
Griffin, W. V., 72 West Adams Street, Chicago_______________________
Gorman, W. S., Midland Utilities Co., 1 2 2 South Michigan Avenue,
Chicago____________________________________________________________
Gardner, Addison L., jr., 134 South La Salle Street, Chicago__________




500
2 , 195

300
250
6 , 000

100
100
350
500
750
50
3, 000
750
1 , 000

1, 000
1, 000
100
100
1 , 000

500
1 , 000

2, 000
2, 000
1, 000
1, 000
1, 000
200
500
500
1, 000
200
250
100
2, 000
2 , 000

1, 000
250
1, 000
500
500
2, 000
2, 000
1, 500
1, 500
500
250
200

500

STOCK EXCHANGE PRACTICES

1701
Shares

Geddes, William, care of Illinois Merchants Trust Co., 231 South La
Salle Street, Chicago_______________________________________________
Gamashe, Harry, 1828 No. Springfield Avenue, Chicago______________
Hedrick, Edwin, care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Heign, Harry B., 137 South La Salle Street, Chicago_________________
Harsbarger, Miss Dema, care of Civic Concert Service (Inc.) 58 East
Congress Street, Chicago___________________________________________
Hare, Mrs. S. Johnson, care of P. J. McEnroe, 72 West Adams Street,
Chicago___________________________________________________________
Hare, F. Lumsden, care of P. J. McEnroe, 72 West Adams Street,
Chicago___________________________________________________________
Harding, Charles A., 72 West Adams Street, Chicago________________
Harcourt, Mrs. Alice, care of P. M. McEnroe, 72 West Adams Street,
Chicago___________________________________________________________
Halsey, Stuart & Co., 201 South La Salle Street, Chicago_____________
Hansen, Miss I. F., Hawthorne Farm, Lake County, 111______________
Insull, Son & Co. (Inc.), 72 West Adams Street, Chicago_____________
Insull, Martin J., 72 West Adams Street, Chicago____________________
Jenkins, Paul A., 230 South La Salle Street, Chicago_________________
James, Lieut. Col. R. H., 72 West Adams Street, Chicago_____________
Joiner, T. E., 137 South La Salle Street, Chicago_____________________
Johnson, H. M., Auditorium Theater, 58 East Congress Street, Chicago.
Jones, Geo. R., 72 West Adams Street, Chicago______________________
Jay, N. Dean, care of J. P. Morgan & Co., Wall and Broad Streets,
New York C ity____________________________________________________
Kemp, Geo. A., 230 South La Salle Street, Chicago___________________
Ketting, E. Odgen, care of P. J. McEnroe, 72 West Adams Street,
Chicago___________________________________________________________
Keily, W. E., 72 West Adams Street, Chicago________________________
Kulbker, Miss Ruby, Hawthorn Farms, Lake County, 111_____________
Lawyer, John C., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Lloyd, E. W., 72 West Adams Street, Chicago________________________
Lucey, P. J., 10 South La Salle Street, Chicago_______________________
Lewis, C. W., 72 West Adams Street, Chicago________________________
Learned, John G., 72 West Adams Street, Chicago___________________
Larsonn, Wm. E., Libertyville Trust & Savings Bank, Libertyville, 111-.
Lawler, Herbert F., 3658 Flournoy Street, Chicago___________________
McKeever, Buell, care of Isham, Lincoln & Beale, 72 West Adams
Street_____________________________________________________________
Matthews, Ben. H., care of Isham, Lincoln & Beale, 72 West Adams
Street_____________________________________________________________
Mitchell, Geo. F., 122 South Michigan Avenue, Chicago______________
McEnroe, P. J., 72 West Adams Street, Chicago______________________
Mulholland, S. E., Northern Indiana Public Service Co., Fort Wayne,
Ind________________________________________________________________
Myers, L. E., Monadnock Building, Chicago_________________________
Mullaney, B. J., 1 2 2 South Michigan Avenue, Chicago_______________
Mueller, Richard, 72 West Adams Street, Chicago____________________
Mehan, W. M., 72 West Adams Street, Chicago______________________
McGuire, Catherine A., 72 West Adams Street, Chicago, room 1700_
_
Monroe, W. S., care of Sargent & Lundy, 72 West Adams Street, Chicago.
Mclnerny, W. A., South Bend, Ind__________________________________
Morgan, Marshall S., 120 South Broad Street, Philadelphia, Pa_______
Mott, Milan C., State Bank of Mundelein, Mundelein, 111____________
Miller, Benjamin H., Libertyville, 111_________________________________
Merz, C. H., New Castle-upon-Tyne, England________________________
Otis, Jos. E., 125 West Monroe Street, Chicago_______________________
Obee, T. W., 72 West Adams Street, Chicago_________________________
O’ Donnell, Florence, 72 West Adams Street, Chicago, room 1218______
Ouersker, C. B., care of Illinois Merchants Trust Co., Chicago________
Porter, Gilbert E., care of Isham, Lincoln & Beale, 72 West Adams Street.




500
25
1 , 200

300
1 , 000

350
10 0

500
60
43, 000
100
10, 000
10, 000
400
1 , 000
900
1 , 000
1 , 000
2 , 000

500
1 , 125

500
50
500
1 , 500
1 , 000

100
1 , 000

100
25
2 , 000

1, 000
2, 000
2 , 000
1 , 000
2, 000
1, 000
500
100
100
1 , 000
500
1, 000
100
150
1 , 000
1, 000
50
250
50
5, 000

1702

STOCK EXCHANGE PEACTICES
Shares

Peabody, Stuyvesant, 332 South Michigan Avenue, Chicago________ 2 , 000
Peniston, Cordova L., 1 1 2 West Adams Street, Chicago_______________
Pennington, William A., 230 South La Salle Street, Chicago__________
Public Service Trust, 72 West Adams Street, Chicago_________________
Pahlman, H. H., 137 South La Salle Street, Chicago__________________
Purcell, T. V., 122 South Michigan Avenue, Chicago_________________
Pilkington, R. R., 72 West Adams Street, Chicago____________________
Perry, W. S., care of Carter & Co., 115 Broadway, N. Y ______________
Peden, Thos. J., 9047 Commercial Avenue, Chicago__________________
Powers, Margaret E., 244 East Pearson Street, Chicago_______________
ParshalL H. F., London, England____________________________________
Quinn, E. J., 134 South La Salle Street, Chicago______________________
Quinn, Martin J., care of E. C. Benedict & Co., 71 Broadway, N. Y ____
Russell, E. P., 112 West Adams Street, Chicago______________________
Rust, H. B., care of Koppers Co., Union Trust Building, Pittsburgh, Pa_
Rudd, W. G., 72 West Adams Street, Chicago_________ _____ ___________
Rice, J. F., 72 West Adams Street, Chicago____________________________
Ray, Harold E., Auditorium Theater, Chicago_________________________
Rowe, John C., 30 Church Street, New York C ity______________________
Ryan, Gen. Jas. A., I l l Broadway, New York C ity___________________
Rider, Mrs. L. V., 655 Federal Building, Chicago_____________________
Raef, James J., 72 W. Adams Street, Chicago________________________
Ricks, Jesse J., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Rimini, Madam Rosa Raisa, care of P. J. McEnroe, 72 West Adams
Street, Chicago____________________________________________________
Sullivan, Boetius H., 310 South Michigan Avenue, Chicago___________
Scheel, Fred H., 230 South La Salle Street, Chicago__________________
Shearon, B. P., 122 South Michigan Avenue, Chicago_________________
Schuyler, Daniel J., 234 South Clark Street, Chicago_________________
Scheinman, Jesse D., 310 South Michigan Avenue, Chicago___________
Sauer, W. A., 1 2 2 South Michigan Avenue, Chicago__________________
Swope, Gerard, 120 Broadway, New York C ity_______________________
Stewart, I. M., 2920 Forty-fourth Place, Washington, D. C ___________
South Trimble, care of Wyoming Apartments, Washington, D. C.,
placed by Judge Geo. A. Cooke____________________________ *
_______
Sargent & Lundy, 72 West Adams Street, Chicago____________________
Suter, Arthur E., Libertyville Trust & Savings Bank, Libertyville, 111_
_
Swan, Chester B., 1639-72 West Adams Street, Chicago______________
Taber, David F., care of Isham, Lincoln & Beale, 72 West Adams StreetTobey, Waldo F., care of Isham, Linclon & Beale, 72 West Adams Street.
Tossell, A. L., 122 South Michigan Avenue, Chicago__________________
Thompson, F. L., 6906 Constance Avenue, Chicago___________________
Thompson, Charles, 72 West Adams Street, Chicago__________________
Trigge, Alfred B., care of Rowe & Flagg, 30 Church Street, New Y ork .
Talley, Mrs. Ester, room 901, 820 Tower Court, Chicago-------------------Timms, Albert, Hawthorn Farm, Lake County, 111____________________
Utilities Securities Syndicate, care of E. V. Graham, 72 West Adams
Street, Chicago____________________________________________________
Utilities Syndicate No. 2, care of Walter S. Brewster, 112 West Adams
Street, Chicago___________________________________ ______ __________
Van Arsdel, E., care of J. F. Wild Building, Indianapolis, Ind------------Wing, John E., care of Isham, Lincoln & Beale, 72 West Adams StreetWhite, H. A., care of Cooke, Sullivan & Ricks, 310 South Michigan
Avenue, Chicago___________________________________________________
Waite, R. W., care of Utility Securities Co., 230 South La Salle Street,
Chicago______________________________________ _____________________
Woodford, J. T., care of Utility Securities Co., 230 South La Salle
Street, Chicago____________________________________________________
Williamson, Geo., 72 West Adams Street, Chicago____________________
Wing, H. E., 72 West Adams Street, Chicago................................. ............




2, 000
500
2 , 000
200
500
100
1, 000
200
30
1, 000
2, 000
2, 000
4, 000
1, 000
500
100
100
1, 000
1, 000
50
250
1, 000
290
5, 000
8 , 500
500
1, 500
1, 000
1, 000
2, 000
300
1, 000
1, 000
200
50
2, 000
5, 000
500
500
500
1, 000
125
100
2 , 000

2,000
1, 000
2, 000
500
750
20 0

750
500

1703

STOCK EXCHANGE PEACTICES

Shares

Weinfeld, Charles, 234 South Clark Street, Chicago---------------------------Wright, Peter B., 72 West Adams Street, room 1432, Chicago------------Weber, Evelyn, 72 West Adams Street, room 1436, Chicago---------------Willson, Fanny, Mrs., care of Carter & Co., 115 Broadway, New York,
joint account of Messrs. W. S. Perry and F. S. Cutter------------------Young, Owen D., 120 Broadway, New York C ity_____________________
Total original list_____________________________________________
Total supplemental list (follows)_____________________________________

250
50
100
50
4, 000
223, 000
27, 000

Grand total___________________________________________________ 250, 000
Supplemental list
Shares

Shares

E. D. Alexander_________
A. J. Authenrieth________
L. B. Breedlove____ _____
Allen E. Burns_______
D. F. B urritt___________
W. A. Buttrick__________
J. Paul Clayton __ ______
T. R. Crumley__________
E. A. Davis_______ _____
C. J. Eaton_____________
G. W. Fry_______________
A. H. G ossard__________
E. V. Graham___________
G. W. Hamilton_________
A. Hardgrave.
______
L. B. Herrington________
C. C. Herrmann_________
A. W. Higgins___________
Fred W. Insull__________
William In s u ll._ ________
James C. Kennedy ______
Eustace J. K n ig h t ______
F. E. Kruesi....... ................
A. Lieberman___________

500
500
300
500
20 0
10 0
1 ,0 0 0

500
600
500
20 0

450
700
...

1 , 000

800

1 , 000

500
250
600
50
600
1, 000

Dempster Mac Murphy______
Oliver E. McCormick_______
John A. McPhail____________
Mississippi Valley Utilities In­
vestment Co _____________
G. C. Neff__________________
E. B. Neiswanger___________
Harry Reid_______________
Marshall E. Sampsell_______
C. B. Scott. ______ ______
W. C. Sharp________________
J. H. Shearer. _ ________ _
J. Brodie Smith. __________
George Otis S p e n ce r_______
R. D. Stevenson______ __ __
W. S. Vivian________________
G. S. Williams______________
Walter S. W yman_____ _____
C. B. Zeigler________________

600
1 , 000

500
800
400
500
2, 950
2, 500
1 ,0 0 0

150
20 0

500
600
1 , 000

300
10 0

600
500

Total supplemental list. 27, 000
Total original list___________ 223, 000

600
350

250, 000

Grand total_______

S chedule

B

Insull Utilities Investment (Inc.), common stock purchases, sales, and prices
Insull group
Date
Bought

Sold

M onthly
volume of
trades

1929
January.......................................................
February.....................................................
M arch.........................................................
A pril............................................................
M a y........ ....................................................
June.............................................................
July..............................................................
August— .................................................
September............................ - ....................
O ctob er......................................................
N ovem ber..................................................
Decem ber......... .........................................

8,036
1,970
4,820
600
1,080
4,143
6,326
28,964
6,993
51,006
16,989
6,198

2,000
3,700
200
1,545
2,190
5,435
46,192
21,072
3,164
2,284
247
4,909

91,525
122,250
54,400
26,150
22,200
101,450
942,050
794,480
432,550
435,650
273,150
297,200

Total, 1929.......................................

137,022

92,938

3,593,055




Price range during month
High

40
53
47H
43^
41M
54
127^
149 H
121^
108^
70
69H

L ow

30
35^
37
38
38
52
92
104
40
37
54

Close

35K
46
40M
41J4
38
51H
126
110%
107
70
55^
60H

1704

STOCK EXCHANGE PRACTICES

Insull Utilities Investment (Inc.), common stock purchases, sales, and prices— Con..
Insull group

M on th ly
volum e of
trades

Date
Bought

Sold

1930
January.......................................................
F e b ru a ry ..................................................
M arch.......................... ..............................
A pril............................................................
M a y ......................................................... .
June.............................................................
July..............................................................
August.........................................................
September..................................................
October................................... ........... .......
N ovem ber..................................................
December...................................................

42,091
59,106
26,565
68,500
74,100
110,800
122,700
126,653
102,875
127,970
139,002
165,800

12,830
9,236
42,250
18,620
32,414
73,466
86,583
85,811
51,144
77,095
103,836
115,898

1,166,216

709,183

July..............................................................
August.........................................................
September..................................................
October............................ ..........................
N ovem ber..................................................
December...................................................

15,230
8,028
13,639
22,844
46,398
74,084
55,867
32,158
73,501
50,851
10,976
54,000

289,200
238,200
131,050
186,750
152,300
342,500
256,200
157,900
394,550
297,700
121,400
264,450

Total, 1931.......................................

553,300

457,576

42,701
4,949
6,143
2,023

24,569
12,936
74,854
0

137,250
. 121,600
147,900
56,850

Total, 1932.......................................

55,816

112,359

Close

2,832,200

January______________________________
F e b ru a ry ..................................................
M arch.........................................................
Apr. 16.........................................................

L ow

2,994,900

56,095
40,437
15,635
17,687
29,743
61,855
45,000
30,170
88,212
48,614
28,350
91,502

High

149,050
151,850
223,650
160,350
139,600
236,800
220,650
191,200
238,150
413,900
420,000
449,700

Total, 1930.......................................

Price range during m onth

463,600

64M
70H
70V2
69M
64^
65
63%
62
59M
52M
45J4
41M

53%
63^
67^
661^
61
51^
55H
57
46
43M
36^
27

64
67%
68 H
68
65
56
61^
59
49Ji
44%
40H
29M

4 2^
49M
47^
39J-3
34M
34M
33^
28M
27M
14^
14M
11

2 8^
39%
39
30%
27y2
21
26^
26
11^
7%
9M
4

40%
46
3 9^
33%
29
31%
2734
27
12H
12M
10y2
6

6K
4M
2
V.
a

3U
IK
H

4
2
%
hi

1931
January..................................................
February......................................: ______
_
M arch...... ..................................................
A pril............................................................
M a y . ..........................................................

1932

Schedule
H

C
alsey

Stu art

&

Co.

( I n c .),

Chicago, December 31, 1929.

Mr.

Sam uel Insull,

Chairman Insull Utility Investment (Inc.),
Chicago, III.
D e a r S i r : Confirming conversation with you, we have agreed to purchase, and
you have agreed to sell, $60,000,000 Insull Utility Investments (Inc.), 10-year
6 per cent gold debentures with characteristics substantially as described in the
attached proof of circular, dated December 31. The purchase price is to be 94
and accrued interest at the date of delivery, such delivery to be made to us at our
office in Chicago on January 20 next.
We understand that you will furnish, free of expense to us, the approving legal
opinion of Messrs. Isham, Lincoln & Beale.
We also understand that you agree to maintain the market on Insull Utility
Investments (Inc.’s) common stock at the closing price on the day prior to dealers’
offerings for four business days thereafter.
If the foregoing is in accordance with your understanding, will you kindly
confirm by signing and returning the attached carbon copy of this letter to us.
Yours very truly,
H a l s e y , S t u a r t & Co.
Accepted: Subject to the legally authorized increase in common stock.




By

I n s u l l U t i l i t y I n v e s t m e n t s ( I n c .),
S a m u e l I n s u l l , Chairman.

1705

STOCK EXCHANGE PRACTICES
Schedule

D

Insull Utility Investment (Inc.) common stock purchases and sales by Insull Son &
Co. (Inc.)
Prices

Shares
Date
Purchases

Sales

1930
5,650
9,150
3,900
1.300
2.300
900
1,950
4,200
8,650
5,700
3,000
46,700

Sept. 15.............................................. - ....................... ..............

Schedule
I nsull U

E,

t il it y

s y n d ic a t e

1,150
300
3,900
850
2,050
302
300
1,400
668
11,290
4, 553
5,150
870
850
1,400

60,901

Aug. 27.......................................................................................

59%

Low

57H
58H
58}4
58%
58J4
58}4
58^

29,500

1,500
4.700
5,650
1,100
4, 750
2.700
1,100
4,200
1,930
6,121
4,350
7,400
3,600
5,800
6,000

Aug. 21 __________ ___________________________________

5,350
5,650
3,150
500
1,050
600
450
3,200
5, 750
2,850
950

High

35,033

P age

59K
59Vi

59%
58%
59

59
59^
60H
60H
59

59%
58n
m
58

57%
57%
57%
57V2
56%
56
57

57%
57Vi
55%
55

58^

59%
58%
60

58%
58
57J4
57M

57
57%
57%

56
55%
53%
55
56H
56%
55M
5\%

1

I nvestm en ts

agreem ent

This agreement, dated August 15, 1930, by and between Insull, Son & Co.
(Inc.), an Illinois corporation (hereinafter called the syndicate manager), party
of the first part, the subscribers hereto (hereinafter called severally the sub­
scribers and collectively the syndicate), parties of the second part, and Insull
Utility Investments (Inc.), an Illinois corporation (hereinafter called the Invest­
ments Co.), party of the third part, witnesseth:
Whereas the Investments Co. pursuant to a resolution of its board of directors
adopted at a meeting of said board on July 28, 1930, is offering for subscription
to the holders of its outstanding stock of all classes, 600,000 shares of the common
stock of the Investments Co. at a price of $50 per share; and
Whereas the Investments Co. has requested the syndicate manager to form a
syndicate to purchase so many of said shares of common stock, if any, as shall
not be subscribed, pursuant to the terms of said offer, by the persons entitled to
subscribe therefor and to purchase in the market shares of the common stock of
the Investments Co. and the subscription rights with respect thereto; and
Whereas the syndicate manager and the subscribers desire to form a syndicate
for said purposes and the Investments Co. and the syndicate desire to enter
into an agreement fixing the terms of such purchase and the conditions with
respect to supporting the market for such shares and such rights and the com­
pensation to be paid to the syndicate;
Now, therefore, in consideration of the premises and of the mutual under­
takings herein contained, the parties have agreed and do agree as follows:
First. The subscribers hereby form a syndicate for the purpose (1) of pur­
chasing from the Investments Co. so many of said 600,000 shares of common
stock of the Investments Co. to be offered to its stockholders pursuant to said



1706

STOCK EXCHANGE PEACTICES

resolution as shall not be subscribed by the persons entitled to subscribe therefor
and (2 ) of purchasing in the market shares of the common stock of the Invest­
ments Co. and subscription rights with respect thereto, all upon the terms and
conditions provided in the agreement between the Investments Co. and the
syndicate manager set forth in paragraph 10 hereof. Insull, Son & Co. (Inc.), is
hereby appointed the syndicate manager of the syndicate. The subscribers
hereto severally subscribe and agree to pay to the syndicate manager at its
office, 20 North Wacker Drive, Chicago, 111., the amounts set opposite their
respective names. Each subscriber shall make payment of his subscription as
follows: Five per cent of the amount of his subscription shall be paid when and as
called for by the syndicate manager after this agreement shall have been declared
by the syndicate manager to be in effect and the remainder of each subscription
shall be paid from time to time when and as called for by the syndicate manager
but only after notice to the subscribers of not less than five days as to each call.
The several subscribers shall be called upon to make payment of their sub­
scriptions only ratably according to the several amounts thereof; but to the full
extent of his undertakings each subscriber shall be responsible regardless of
performance or nonperformance by any other subscriber. In the same propor­
tion, except as otherwise herein provided, each subscriber shall be entitled to
share in the benefits and shall bear any loss resulting to the syndicate under this
agreement. Nothing herein contained shall constitute the parties hereto partners
or shall render any one of the subscribers liable to contribute more than the
amount of his several subscription.
Second. In case of the failure of any subscriber promptly to perform any of
his undertakings hereunder, the syndicate manager, in behalf of itself and the
syndicate, shall have, and at its sole and exclusive option may exercise, the
right to exclude such subscriber from all interest in or under the syndicate; and
in the discretion of the syndicate manager, without any proceedings either at
law or in equity, in such manner and on such terms as it shall deem expedient,
and without demand or notice, it may at public or private sale dispose of such
participation hereunder or of any interest or right of such subscriber hereunder,
and thereupon all interest and right of such defaulting subscriber hereunder shall
cease and determine. At any public sale under this article of any interest or
right of any subscriber or his transferee, the syndicate manager, or any party
hereto, may become purchaser for its, or for his, own benefit, without account­
ability. Notwithstanding any sale, whether public or private, the defaulting
subscriber shall be responsible to the syndicate manager for the benefit of the
syndicate for all damages resulting from any such failure on his part not exceeding
the amount unpaid on his subscription hereto with lawful interest.
Third. The subscribers nominate and appoint the syndicate manager their
agent and attorney, with full power and authority to do any and all acts and
things and to enter into and execute any and all agreements or other instruments
necessary, proper, or expedient in the premises to carry out and perform this
agreement according to its true intent and meaning. The syndicate manager is
expressly authorized and directed for the account of the syndicate to purchase,
upon all the terms and conditions stated in paragraph 1 0 hereof, and subject to
the express limitations in said paragraph contained, shares of the common stock
of the Investments Co. and subscriptions rights with respect thereto and in
general shall have full power and authority to carry out the undertakings and
agreements of the syndicate manager with the Investments Co., all as provided
in said paragraph 10 hereof. The syndicate manager shall also have full power
and authority to exercise subscription rights acquired by it and in its discretion
to sell, at one time or from time to time, the shares of common stock and rights
of the Investments Co. held for the account of the syndicate in such manner and
at such price or prices as the syndicate manager may deem expedient. All sales
shall be for the account of the syndicate and the proceeds therefrom may be
applied to any of the purposes of this agreement. The syndicate manager may
make advances or may borrow money for the account of the syndicate as from
time to time it may deem expedient for any of the purposes of this agreement
and may pledge any stock or property of the syndicate, including the obligations
of the respective subscribers hereunder, as security for money borrowed.
Fourth. All dividends payable on any stock held for the syndicate may be
collected and received by the syndicate manager for the account of the syndicate.
The syndicate manager shall have authority to vote all stock held by it for the
account of the syndicate at any and all meetings of the Investments Co. The
syndicate manager shall be the sole manager of the syndicate, and in behalf of
the syndicate may make any and all arrangements and do and perform any and



STOCK EXCHANGE PRACTICES

1707

all acts, even if not herein provided for, that in its opinion shall be or may be­
come necessary or expedient in order to consummate the purposes of this
agreement or to promote or protect what the syndicate manager shall deem to
be the best interest of the syndicate. The enumeration of specific powers in any
paragraph of this agreement shall not be construed as in any way abridging the
general powers by this or any other paragraph intended to be conferred upon or
reserved to the syndicate manager.
Fifth. As compensation for its services hereunder the syndicate manager shall
be paid a fee of one-tenth of 1 per cent of the aggregate subscription price
of the number of shares underwritten by the syndicate. The syndicate manager
shall have authority, from time to time and at any time, to incur such expenses
as it may deem proper in carrying out, or in endeavoring to carry out, this agree­
ment, or in doing any act or thing which it may deem to be in the interest of the
syndicate. All expenses incurred hereunder by the syndicate manager and the
fee of the syndicate manager hereinbefore provided for shall be paid out of moneys
of the syndicate in the hands of the syndicate manager and shall be a prior charge
in favor of the syndicate manager upon any and all moneys, stocks, and property
received or held hereunder for the syndicate.
Sixth. The syndicate manager shall, by notice to the subscribers, declare this
agreement in effect and operative when and not before subscriptions, approved
by the syndicate manager, for a total of $30,000,000 shall have been made here­
under. Unless $30,000,000 shall have been subscribed for hereunder on or before
August 25, 1930, this agreement on that date shall be and become void and of no
effect. This agreement shall continue in force and operation until December
15, 1930, but the syndicate manager may in its discretion extend the same to a
date not later than March 16, 1931, in which event this agreement shall continue
in force until such extended date, provided that the syndicate manager may in
its uncontrolled discretion terminate this agreement at any time before its termi­
nation under the foregoing provisions. Upon the termination of this agreement
and after first paying all expenses and liabilities incurred hereunder, including
the fee provided for in paragraph 5 hereof, the syndicate manager shall pay over,
assign, and distribute to the subscribers all shares of common stock then remaining
in the hands of the syndicate manager and all remaining cash and other assets
then held hereunder, such distribution and payment to be made ratably in the
proportion of the several amounts subscribed hereunder by the subscriber, except
only that in lieu of the distribution of fractional shares of stock, adjustments
shall be made in cash on the basis of the average cost to the syndicate of all shares
purchased on its account. No subscriber shall be entitled to receive any stock,
or the proceeds thereof, held for the syndicate under this agreement until the
termination of the syndicate under the provisions hereof.
Seventh. The syndicate manager shall not be liable under any provision of
this agreement, or for any matter therewith connected, except for lack of good
faith in performing the obligations by it herein expressly assumed, the implica­
tion of any obligation not herein expressly assumed by it being hereby expressly
denied and waived. It is understood that, in the same manner as other sub­
scribers, the syndicate manager and/or the Investments Co. may become sub­
scribers hereto; that as such subscribers they shall be liable for any subscriptions
by them made; and that in all respects they shall be entitled to the same rights
and benefits as any other subscribers.
Eighth. Each subscriber shall set opposite his subscription hereunder an
address to which notices, calls, or other communications may be sent, and any
notice, call or other communication addressed to any subscriber at the address
so given, and either left at such address or mailed, shall be deemed actually given
to such subscriber and shall be sufficient for all the purposes hereof. If any sub­
scriber shall fail so to furnish his address to the syndicate manager he shall not be
entitled to any notice of calls or offers or any other notice hereunder and he shall
be deemed to assent to any action of the syndicate manager.
Ninth. The syndicate manager shall issue to the several subscribers suitable
receipts in respect of moneys paid or advanced hereunder, or certificates of inter­
est of such tenor and form as it may deem suitable. Such certificates of interest
and all rights and obligations hereunder of the respective subscribers may be
made transferable in such manner and on such terms and conditions as the syn­
dicate manager may prescribe; but no transfer hereunder shall be valid unless
assented to in writing by the syndicate manager, and, unless otherwise expressly
provided in such assent, the transferor shall continue to be liable for the payment
of the unpaid part of the transferred subscription until the same shall be fully
paid.



1708

STOCK EXCHANGE PRACTICES

Tenth, (a) The Investments Co. hereby agrees to sell to the syndicate and the
syndicate manager hereby agrees to purchase from the Investments Co. for and
on behalf of the syndicate, at the price of $50 per share, such number of said
600,000 shares of common stock of the Investments Co. to be offered for sub­
scription to its stockholders pursuant to the resolution of July 28, 1930, as shall
not be subscribed for on or before September 15, 1930, pursuant to the offer of
subscription by the persons entitled to subscribe therefor. For the shares pur­
chased hereunder the syndicate manager shall pay the Investments Co. under one
or both of the two following plans, to wit: (1) In one payment of $50 per share on
September 15, 1930; or (2) In 10 equal installments of $5 per share each, one on
September 15, 1930, and one on the 15th day of each of the nine calendar months
in the period commencing with the month of October, 1930, and ending with the
month of June, 1931 (except that the February and March, 1931, installments
shall be payable on the 16th instead of the 15th of those months). Any install­
ment may be prepaid at any time. The number of shares to be paid for under
each of said plans shall be determined by the syndicate manager and within five
days after September 15, 1930, the syndicate manager shall notify the Invest­
ments Co. of the number of shares to be paid for under each of said plans. As to
all shares agreed to be purchased hereunder with respect to which such notice
shall not be given, the syndicate manager shall be conclusively deemed to have
selected the 10-payment plan. Deliveries of any of the shares purchased shall be
made from time to time as desired by the syndicate manager upon full payment
to the Investments Co. at its office for the shares delivered. In the case of all
shares paid for in installments the Investments Co. shall pay to the syndicate
manager interest to the ex-dividend date next preceding the date of issue, upon
all installments paid prior to such preceding ex-dividend date, at the rate of 4
per centum per annum. Ex-dividend dates, hereinabove referred to, are as
follows: September 30, 1930, December 15, 1930, and March 15, 1931.
(6) The syndicate manager agrees to support the market for shares of the
common stock of the Investments Co. and the subscription rights with respect
thereto, making use, to the extent required for the purpose, of all the means and
resources available to it as syndicate manager hereunder, provided that no pur­
chase need be made on the market on behalf of the syndicate at a price in excess
of $57.50 per share for shares of said common stock or in excess of $1.50 per right
for rights issued to holders of common stock or in excess of $0 .6 8 per right for
rights issued to holders of preferred stock, and provided further that the obliga­
tion to support the market, as herein expressed, shall terminate upon the termi­
nation of this agreement or whenever prior thereto a total of 12 0 ,0 0 0 shares or
the equivalent thereof in rights, shall have been purchased in the market by the
syndicate manager. For the purpose of this subparagraph (b) 5 fractional rights
issued to holders of common stock or 1 1 fractional rights issued to holders
of preferred stock shall be taken as equivalent to 1 share.
(c) The Investments Co. in consideration of the agreements of the syndicate
manager in this paragraph tenth contained, and as compensation to the syndicate
for its undertakings herein, shall pay to the syndicate manager for the account
of the syndicate the sum of $600,000, being at the rate of $ 1 for each share of
common stock underwritten by the syndicate and $1.50 for each share of stock
or the equivalent thereof in rights (but not to exceed 12 0 ,0 0 0 shares) purchased
by the syndicate manager pursuant to the provisions of subparagraph (b) of this
paragraph tenth. Such payment shall be made on or prior to the termination
of this agreement at the option of the Investments Co.
(d) This agreement between the Investments Co. and the syndicate manager
may be modified by their mutual consent in any respect except as to the purchase
price of the stock and the compensation to be paid to the syndicate manager.
Eleventh. This agreement shall bind, and is for the benefit of, the parties
hereto and their successors, executors, and administrators, severally and respec­
tively.
In witness whereof, the syndicate manager has caused this agreement to be
executed in its corporate name by its proper officers under its corporate seal, and
the Investments Co. to evidence the undertakings and agreements made by it
as expressed in paragraph tenth hereof, has caused this agreement to be executed
in its corporate name by its proper officers under its corporate seal, and the sub­
scribers at various dates have made their subscriptions hereto, it being understood
that for convenience this agreement may be subscribed in several parts and copies




STOCK EXCHANGE PRACTICES

1709

with like force and effect as though all the subscriptions were upon one part or
copy thereof.
I n s u l l , S o n & C o . (I n c .),

By E. V. G r a h a m , Vice President.
Attest:
M. E. C a r n e y , Assistant Secretary.
I n s u l l U t i l i t y I n v e s t m e n t s (I n c .),

By S a m u e l I n s u l l , Jr., President.
Attest:
Jo h n
Schedule

F. O ’ K e e f e , Secretary.

F

C o r p o r a t io n S e c u r it i e s C o . o f C h ic a g o

Five per cent gold notes maturing September 1, 1982— Record of sales by Halsey,
Stuart & Co. from October 1, 1981, to April 16, 1932, as taken from sales tickets
of Halsey, Stuart & Co.

Date

1931
Oct. 1
3

20

N ov.

28
31
3

25

Name of purchaser

Citizens Bank, Spencerville, Ohio..................................
A. A . Reeves and associates..............................................
Jos. H . Lee............ ..............................................................
D avid K . T one....................................................................
A . A . Reeves and associates..............................................
Arthur C. W right................................................................
Ralph W . C roker...............................................................
State Bank, Panaman, 111.................................................
Bonbright & C o ...................................................................
United States Underwriters..............................................
Farmers & Merchants Bank, Vandalia, 111...................
Lincoln Park National Bank, Lincoln Park, M ic h ...
Ed. J. Quinn.........................................................................
State Bank, o f Mundelein, HI..........................................
H ickey D oyle & C o............................................................
Frank & Chas. Buchman..................................................
Miss Marion Bothwell.......................................................
First National Bank, Altamont, 111...............................
J. B . G r o v e ........................................................................
Fuller Cruttenden C o.........................................................
Peoples National Bank, Chicago, 111..............................
Libertyville Trust & Savings Bank, Libertyville, 111.
Salem National Bank, Salem, 111....................................
Mrs. Rose Goodm an................. - .......................................
G. C . R eynolds....................................................................
Ottumwa Ice C o.......................... . . ...................................
Carson Goldsmith & C o . . ............- ..................................
Clayton Bank & Trust, Clayton, D e l...... .......... .........
Warren B oynton State Bank, N ew Berlin, 111.............
Bruce Securities C o ............................................................
....... do............................................... .....................................
Farmers & Merchants B an k............................................
R . L . B ow en.......................................... .............................
A . C . Rincheim er_______ . ______ ___________________
Peoples State Bank, Prairie du Chein, W i s ................
G. E . Rincheimer............................................. ................
H enry Straus....................... ................................................
M rs. M yra R eich...............................................................
W illiam S. Vinson....................... ......................................
W . T . Dofflem eyer.............................................................
Chas. A . Rincheimer........................................................
A . J. Cole............................................................................
M iss E tta Briley........... .....................................................
Fred E . H ya tt.................................................................... .
Miss Elizabeth L. F ord................... ..................... ...........
C . W . Velser.........................................................................
Fuller Cruttenden & C o ................................................. .
A . J. Cole..............................................................................
C . G. T h o m a s ................. .................................................
Geo. W . B low ......................................................................
C. B. Burpee................................... ...................................
Bank of Sellwood, Portland, Oreg............... ..................
First Trust & Savings Bank, Taylorville, 111...............
Geo. L . Davis.......................................................................
Jos. B . M ou n t......................................................................
Fred Happel.........................................................................
M rs. M yra R eich................................................................
Chas. B . P h illip s...............................................................




Par value

$3,000.00

1 , 000.00
2, 000.00
2, 000.00
2, 000.00
1 , 000.00
4.000.00

2. 000.00
5.000.00
5.000.00

Price
sold

Am ount re­
ceived on
principal

90
91.50

$2,700.00
915.00
1.840.00
1.760.00
1.830.00
800.00
3.200.00
1.600.00
3.400.00
4,000.00
1.500.00
3.900.00
730.00
2.490.00
740.00
750.00
770.00
710.00
740.00
4, 650.00
15,600. 00
1,660. 00
3, 600. 00
3,950. 00
710.00
1, 550.00
7, 250.00
1,400. 00
1, 590.00
3, 750.00
3.725.00
760.00
765.00
1,520. 00
1,800. 00
760.00
1,546. 39
795. 00
1.460.00
3, 750.00
760.00
760.00
760.00
972.00
760.00
760.00
4,156. 25
840.00
2,490. 00
4,849. 00
850.00
1, 700.00
5.130.00
835.00
920.00
840.00
795.00
1,500. 00

91.50
80
80

80
75
78
1 . 000.00 73
3.000.00 83
1 . 000.00 74
1 , 000.00 75
1 , 000.00 77
1 , 000.00 71
1 , 000.00 74
6, 000.00 77.50
20, 000.00 78
2, 000.00 83
5.000. 00 72
5.000.00 79
1 . 000.00 71
2, 000.00 77.50
10, 000. 00 72.50
2, 000.00 70
2, 000.00 79.50
5.000.00 75
5.000.00 74.50
1 . 000.00 76
1 , 000.00 76. 50
2, 000. 00 76
2, 000.00 90
1 , 000.00 76
2, 000. 00 76.50
1 , 000.00 79.50
2, 000.00 73
5.000.00 75
1 . 000.00 76
1 , 000.00 76
1 , 000.00 76
1 , 000.00 97.20
1 , 000.00 76
1 , 000.00 76
5.000.00 83.125
1 . 000.00 84
3.000.00 83
5.000. 00 96.98
1 . 000.00 85
2, 000.00 85
6, 000.00 85.50
1 , 000.00 83.50
1 , 000.00 92
1 , 000.00 84
1 , 000.00 79.50
2, 000.00 75

2. 000.00
5.000.00

1710

STOCK EXCHANGE PRACTICES

Five -per cent gold notes maturing September 1, 1982— Record of sales by Halsey,
Stuart & Co. from October 1, 1981, to April 16, 1982, as taken from sales tickets
of Halsey, Stuart & Co.— Continued

Name of purchaser

Date

1931
D ec. 1

21

29
30
31
Oct. 27
1932
Jan. 2
4

11

Feb.

28
2
3
4

5

11

16

Jar value

Price
sold

A m ount re­
ceived on
principal

State Bank, of Cherry, 111.......... .. ......... .
K inton Savings Bank, Kinton, Ohio___
James P. M cG ee..........................................
First National Bank, M ildred, P a _____
R . A . M a c Neille....... .............................. .
Chas. Frank Bachman...............................
Leland Anderson........................................ .
Chas. K link................................................. .
R obert D . M iller.........................................
M rs. M ary R . Sharat................................ .
Earl H . Thom pson.....................................
D . C. Finn...................................................
V ictor H em phill.........................................
Louis Larsen................................................
W illiam Krickheper...................................
Carl Jones.................................... ...............
Hillsborn National B ank..........................
W illiam J. W aldschm itt........................... .
Geo. A . P u ck ...............................................
R ev. Chas. L . M cC arron......................... .
W . O. Gosselin............................................
M . D . Abercrom bie...................................
James A . Cunningham .............................
M rs. L. E . F ord .........................................
First National Bank, Utica, N ebr.........
A . H . M iller................................................
Allen H . Stewart........................................
First National Bank, Tullahoma, Tenn
T . D . Matthiesson.....................................
J. S. Christopherson..................................
Earl L. Pierce................ .............................
H ickey Doyle & C o...................................
J. B. Gordon................................................
The Fairway C o .........................................
W . J. Harris__________________________
Citizens State Bank, Shawano, W is____
Walter A . Bechthold__________________
D orothy S. Tucker_________ ____ ______
E. S. Sprague..............................................
Jos. T h a i.......................................................
........ d o _ ..........................................................
J. D . Phillips...............................................
R obert S. Ashe...........................................
N . D . Bachman.................... ....................
M rs. J. C. Oliver.......................................
H ickey D oyle & Co...................................

$1,000.00
4,000.00
1,000.00
5,000.00
1,000.00
3,000.00
1,000.00
1,000.00
1,000.00
1,000.00
2,000.00
2,000.00
1,000.00
1,000.00
3,000.00
2,000.00
3,000.00
4,000.00
10,000.00
1,000.00
3,000.00
1,000.00
10,000.00
1,000.00
1,000.00
1,000.00
1,000.00
4,000.00
2,000.00
1,000.00
3,000.00
1,000.00
2,000.00
15,000.00
1,000.00
5,000.00
4,000.00
2,000.00
1,000.00
1,000.00
1,000.00
1,000.00
4,000.00
5,000.00
1,000.00
10,000.00

69
72.50
85
85
68
70
71
66
62
70
66
65
62.500
61
53
53
64
53
53
53
50
97.13
43.25
40
53
62
50
53
42
40
40.50
38.50
42.50
42.50
98.37
42
50
53
40
41
53
42.50
42.50
42.50
71
73.375

$690.00
2,900.00
850.00
4,250.00
680.00
2,100.00
710.00
660.00
620.00
700.00
1,320.00
1,300.00
625.00
610.00
1,590.00
1,060.00
1,920.00
2,120.00
5,300.00
530.00
1,500.00
971.30
4,325.00
400.00
530.00
620.00
500.00
2,120.00
840.00
400.00
1, 215.00
385.00
850.00
6,375.00
983.70
2,100.00
2,000.00
1,060.00
400.00
410.00
530.00
425.00
1,700.00
2,125.00
710.00
7,337. 50

H . J. C a lk in s .............................................
Alexander Grant........ ................................
Gerhardt Baase..........................................
Fuller Cruttenden & C o ...........................
H . J. C a lk in s .............................................
Geo. W . Ross..............................................
E . W . Lawlor............... ..............................
Edison Cherrington...................................
Gerhardt Busse........................................ .
C. W . Velser................................................
W . J. C . R alph...........................................
Donald R a lp h ............................................
W . C. Smith................................................
A . W . Boylston...........................................
Hulburd Warren & Chandler.................
H ickey D oyle & C o...................................
........d o . . ........................................................
Catholic Diocese of Green B ay...............
B . N . Paulsrud................. ........................
E dw in G a llu n ...........................................
E. S. Selby...................................................
L. F . Wentzel..............................................
Chas. Sincere & C o....... .............................
H ickey D oyle & C o...................................
Edison Cherrington...................................
Fuller Cruttenden & C o . . . .....................
........ d o ............................................................
........ d o ............................................................
Geo. Krutzikow sky..................... .............

2,000.00
2,000.00
1,000.00
3,000.00
1,000.00
1,000.00
3,000.00
1,000.00
1,000.00
1,000.00
2,000.00
1,000.00
1,000.00
3,000.00
2,000.00
1,000.00
1,000.00
5,000.00
1,000.00
5,000.00
6,000.00
3,000.00
1,000.00
1,000.00
1,000.00
1,000.00
4,000.00
2,000.00
1,000.00

42.50
53
30
29
40
97.20
32
30
30
42.50
31
31
30
42.50
39
34
34.25
47.50
39
35
30
50
28.25
29
28.75
15.50
15.875
16
30

850.00
1,060.00
300.00
870.00
400.00
972.00
960.00
300.00
300.00
425.00
620.00
310.00
300.00
1,275.00
780.00
340.00
342.50
2,375.00
390.00
1,750.00
1,800.00
1,500.00
282.50
290.00
287.50
155.00
635.00
320.00
300.00




1711

STOCK EXCHANGE PRACTICES

Five per cent gold notes maturing September 1, 1932— Record of sales by Halsey,
Stuart & Co. from October 1, 1931, to April 16, 1932, as taken from sales tickets
of Halsey, Stuart & Co.— Continued

Date

Name of purchaser

1932
Feb. 15

Par value

Mar. 12
17
24
4
31
Apr. 6
13
12

$1 , 000.00
1 , 000.00
1 , 000.00
2, 000.00
2, 000.00
1 , 000.00
1 , 000.00
1 , 000.00
1 , 000.00

Total, Oct. 1, 1931, to A pr. 20, 1932.

19
23
26
24

Jerome W . Naylor.........................................
M rs. M ary Settle...........................................
Fuller Cruttenden & C o..............................
W atts C. Valentine.......................................
Southland Investment C o............................
R . F. Parcells........................................ .........
Geo. Krutzikowsky..... .................................
Fuller Cruttenden & C o..............................
W . D . Hanson........ . .....................................
Southland Investment C o ...........................
W . M . D ickey & C o .....................................
-------d o...............................................................
Southland Investment C o ...........................
........d o ...................... .........................................
Bankers Security Co. of Philadelphia, Pa
J. M . Ellis.........................................- ............
First National C o ..........................................
H ickey D oyle & C o.......................................
-------do................................................................
W . M . Dickey & C o ...... ..............................
Southland Investment C o...........................
Frank J. Bunker............................................
Jackson Engineering C o.............. ...............

Price
sold

392,000.00

3.000.00

2. 000.00
1 , 000.00
6, 000.00
2, 000.00
1 , 000.00
1 , 000.00
3.000.00
5.000.00

1 . 000.00
1 , 000.00

5.000.00

1 . 000.00
1 , 000.00

18
97.67
14.50
13.75
17
10.50
18
8.50
16.75
9.50
7.75
7.75
6.25
6.25
8.00
69
5.25
3.75
3
3.50
5.25

Amount re­
ceived on
principal

$180.00
976.70
145.00
275.00
340.00
105.00
180.00
85.00
167.50
285.00
155.00
77.50
375.00
125.00
80.00
690.00
157.50
187.50
30.00
35.00
262.50
960.00
980.00
225,334.84

Five per cent gold notes maturing September 1, 1933.— Record of sales by Halsey,
Stuart & Co. from October 1, 1931, to May 3, 1932, as taken from sales tickets of
Halsey, Stuart & Co.

Name of purchaser

Date

1931
Oct. 1

2
2

Dr. W m . Cooke....................................................................
Mrs. Lena B u rto n .................... ........................................
Dr. L. L. Leonard........ .............. ......................................
A . E. E dgcom b......................................................... ..........
Mrs. W . T . R oos......... ............................ ...........................
Geo. W . Mundelein, trustee............................................
James J. Q u ig ley.................................................. .............
Spencer Ew ing.................... ............ ...............................
Mrs. M yra R eich.......................... .....................................
N . D . Bachm an-------------------------------------------- -----------Mrs. M . Klute................................................- .................
Jos. Thai...................... ........................................................
Miss Jay K eck................................................................
P. O. B aykin------- ----------------------------------------------------M r. Otto K retschm er.......................................................
State Bank of Delwein, 111................................................
Libertyville Trust and Savings Bank, Libertyville, 111
M rs. Rose Goodm an............................ ........... .................
Rose Goodm an.............................. ............ .........................
Frank R . M u en zen ...........................................................
Fuller Cruttenden & C o ....................................................
____ do................................................. ...................................
State Bank of Latimer........................................................
John Lane.................................................... ........................
Farmers State Bank, N ew Madison, Ohio___________
H . K . Lorentzen....................................... ..........................
Miss Nellie Edwards..........................................................
M ain Belting C o .—................................... ........................
Elkville State Bank............................................................
Fred Bennitt........................................................................
Farnum Winter & C o.........................................................
W . H . B a t t e n ....................................— ..........................
Clement A ld e r fe r...............................................................
Central R epublic Co...........................................................
Farmers State Bank, N ew Madison, Ohio....................




Par value

$1 , 000.00
1 , 000.00
2,000.00
4.000.00

1 . 000.00
10, 000.00
5.000.00
3.000.00

1 . 000.00

5.000.00
1 . 000.00
1 , 000.00
1 , 000.00
2,000.00
8, 000.00
1 , 000.00
2,000.00
15.000.00

10. 000.00
5.000.00
2.000.00
5.000.00

2. 000.00
1 , 000.00
1 , 000.00
1 , 000.00
2, 000.00
4.000.00

1 . 000.00
2,000.00
3.000.00

1 . 000.00
1 , 000.00
1 , 000.00
1 , 000.00

Price
sold

72.50
94.50
71.50
71
72.50
57.75
71
58
52
52
54
54
57
58
58.50
52.75
81
52
52
60
58.25
58
57.75
72.50
60.75
95.50
60
59
60
81
56.875
60.50
61
57
60.50

Am ount re­
ceived on
principal

$725.00
945.00
1.430.00
2.840.00
725.00
5, 775.00
3, 550.00
1, 740.00
520.00
2, 600.00
540.00
540.00
570.00
1.160.00
4.680.00
527.50
1.620.00
7.800.00
5, 200.00
3,000.00
1.165.00
2.900.00
1.155.00
725.00
607.50
955.00

1 . 200.00

2.360.00
600.00
1.620.00
1,706.25
605.00
610.00
570.00
605.00

1712

STOCK EXCHANGE PRACTICES

Five per cent gold notes maturing September 1, 1933.— Record of sales by Halsey,
Stuart & Co. from October 1, 1931, to M a y 3, 1932, as taken from sales tickets of
Halsey, Stuart & Co.— Continued.

Name of purchaser

Date

1931
Oct. 23
26
26
27
27
27
27
29
29
27
31
31
31
N ov. 4
15
16
16
19
21
24
27
Dee. 6
9
14
17
17
19
24
24
24
28
29
31
1932
Jan. 4
9
12
18
23
25
25
27
29
29
15
Feb. 2
11
13
16
15
23
24
M ar. 7

8

11
11
Apr. 8
26
26
15
M ay 3

Fuller Cruttenden & C o ....................... .
H . M . Chapin...........................................
C . B. Ozias................................................
Bank of Sellwood......................................
Edith Randall...........................................
Lenore Dunlap..........................................
John Schwarz............................................
Geo. R . Jones............................................
W . J. W ilsch..............................................
Blanch Clark.............................................
H . M . Chapin...........................................
Gretchen S choenleber..........................
E . L. Aquart.............................................
State Savings Bank, W oodville, O hio.
Rose Goodm an..........................................
Letty Blieden............................................
E. S. Selby.................................................
Geo. F. B low ..............................................
Peter N ew b u rg ........................................
Edward Hallett.........................................
State Bank, of Eastman, W is................
Walter Bechthold.....................................
Fuller Cruttenden & C o .........................
____d o ..........................................................
____d o ..... ....................................................
E . M . K e r w in .........................................
Albert J. Taylor, trustee.........................
Fuller Cruttenden & C o .........................
R . A. Strecker...........................................
Geo. E. Fetterman....................................
John R . Robertson...................................
Dr. J. O. B a k e r.......................................
Robert Ashe..............................................
Mrs. M ae R . W hitin g....................................
Hodgman Manufacturing C o........................
Peter Voelker....................................................
Athems Messenger & Herald Printing C o.
Abram J. Becker..............................................
J. L. W edgw ood...............................................
H ickey D oyle & C o.........................................
....... d o..................................................................
....... d o........................ - .......................................
Fuller Cruttenden & C o ................................
W m . H . Donner........