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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



HEARINGS 

BEFORE THE 

TEMPORAKY NATIONAL ECONOMIC COMMITTEE 
CONGRESS OF THE UNITED STATES 

SEVENTY SIXTH CONGRESS 

FIRST AND SECOND SESSIONS 
PURSUANT TO 

Public Resolution No. 113 

(Seventy-fifth Congress) 

AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO 
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



PART 13 



EIFE INSURANCE 

TRAVELERS INSURANCE COMPANY 

SHENANDOAH LIFE INSURANCE COMPANY 

EQUITABLE LIFE ASSURANCE SOCIETY 

SOUTHWESTERN LIFE INSURANCE COMPANY OF DALLAS 

REINSURANCE AND REWRITING 

ILLINOIS BANKERS LIFE ASSURANCE COMPANY 



SEPTEMBER 11, 12, 13, AND 22; OCTOBER 26 AND 27 
DECEMBER 7, 8, 14, 15, 20, 21, AND 22, 1939 



Printed for the use of the Temporary National Economic Committee 



UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1940 



[THEAST! ;VERS!TY SCHOOL of LAW OBRRire 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SDMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING, Senator from Utah 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THORMAN W. ARNOLD, Assistant Attorney General 

♦•WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

•LEON HENDERSON, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

*A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor . i 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 
Representing the Department of the Treasury 
JAMES R. BRACKETT, Executive Secretary 

OS- 
Subcommittee Pursuant to Public Resolution 113 

(Seventy-fifth Congress) ( <*> 

GARLAND S. FERGUSON, Chairman f^, 

Representative JOSEPH E. CASEY, Massachusetts, Acting Vice Chairman 
JOSEPH J. O'CONNELL 
JAMES R. BRACKETT, Executive Secretary 



♦Alternates. 
II 



REPRINTED 
BY 

WILLIAM S. HEIN & CO., INC 

BUFFALO, N. Y. 
1968 



CONTENTS 



Testimony of — Page 

Baker, Gladden W., treasurer, Travelers Insurance Company, Hart- 
fort, Connecticut r 6440-6446 

Baker, William R., attorney, Kansas City, Kansas . 6881-6889 

6939-6943, 6950 

Clark, E. W., former Iowa commissioner of insurance, Mason City, 

Iowa _ .._,_ 6750-6768 

Coburn, Arthur, vice president, Southwestern Life Insurance Com- 
pany, Dallas, Texas 6581-6598 

DeBuchanann, J. D., Miami, Florida 6661-6688 

Fisher, Frederick Francis, cashier, Connecticut River Banking Com- 
pany, Hartford, Connecticut 6384-6394,6407-6416 

Henning, Eldridge Henry, vice president and general counsel, Illinois 

Bankers Life Assurance Company, Monmouth, Illinois 6948-6949 

Herndon, William K., former examiner, Kansas Insurance Depart- 
ment, Beverly Hills, California 6707-6734 

Holt, Vernon B., former secretary and treasurer, Federal Reserve 

Life Insurance Company, Kansas City, Kansas 6601-6644 

Jenkins, George C., analyst, Securities and Exchange Commission, 

Washington, D. C 6404-6407,6417 

Jordan, Herbert W., former examiner, Kansas Department of In- 
surance, Kansas City, Missouri .:__.! 6644-6661 

Leary, Arthur J., accountant investigator, Securities and Exchange 

Commission, Washington, D. C ... 6797-6798, 

6851-6856 6935-6936^ 6946-6948 

Martin, Hugh T., president, Illinois Bankers Life Assurance Com- 
pany, Monmouth, Illinois 6788- : 6797, 

6798-6801, 6808-6809, 6818-6829, 6856-6864, 6867-6872, 
6889-6893, 6895-6903. 

Nordell, Eva Dorothy, Kansas City, Kansas.- 6701-6705 

Parkinson, Thomas I., president Equitable Life Assurance Society, 

New York, New York _•_ __-__ 6505-6579 

Saul, John Peter, Jr., executive vice president, Shenandoah Life In- 
surance Company, Roanoke, Virginia 6463-6500 

Sawyer, Arthur T., secretary and director, Illinois Bankers Life 

Assurance Company, Monmouth, Illinois 6801-6808, 

6813-6814, 6866-6867 

Sellman, H. G., actuary, Illinois Bankers Life Assurance Company, 

Monmouth, Illinois 6829-6843,6872-6881,6909-6917 

Sherwood, -Wilbur S., cashier, Travelers Insurance Company, Hart- 
ford, Connecticut 6382-6384, 6449-6457 

Shimp, Herbert G., president American Conservation Company, 

Chicago, Illinois 6843-6851, 6917-6939, 6943-6946 

Temple, Paul L., manager, Ordinary Department, Missouri Insurance 

Company, St. Louis, Missouri 6734-6747 

Watts, Donald W., investment department, Illinois Bankers Life 

Assurance Company, Monmouth, Illinois-- 6906-6909 

Wilson, Massey, Oak Hill, Alabama 6688-6701 

Woods, William H., former president Illinois Bankers Life Association 
and Illinois Bankers Life Assurance Company, Monmouth, 

Illinois r 6771-6787, 

6809-6817, 6864-6866, 6893-6895, 6903-6906 

Zacher, L. Edmund, president, Travelers Insurance Company, Hart- 
ford, Connecticut 6364-6381, 

6394-6404, 6417-6440, 6446-6449, 6457-6462 

m 

124491— 40— pt. 13 



IV CONTENTS 

Page 

Travelers Insurance Company 6364 

Interest in Connecticut River Banking Company and Travelers Bank 

and Trust Company _' 6372 

Interest in Nebraska Securities Corporation 643 1 

Shenandoah Life Insurance Company 6463 

Loans to officers and directors 6466 

Mutualization 6477 

Sales and Agency Practices 6505 

Equitable Life Assurance Society 6506 

Southwestern Life Insurance Company 6581 

Reinsurance and Rewriting 6601 

Federal Reserve Life Insurance Company 6601 

Reinsurance contracts and causes of failure 6607 

Activities of J. D. DeBuchanann 6661 

Activities of Massey Wilson 6688 

Activities of William K. Herndon . ■_ 6707' 

Activities of Paul L. Temple 1 6734 

Royal Union Life Insurance Company 6749 

Illinois Bankers Life Assurance Company 67' 7 1 

Reinsurance of Illinois Bankers Life Association by Illinois 

Bankers Life Assurance Company 6780 

The Lincoln Securities Company, loan 8812 

The American Conservation Company, contract 6827 

Attitude of State Insurance Commissioners 6872 

Trust Company of Chicago and listed Securities Company trans- 
actions. 6889 

Rewriting activities of American Conservation Company of 

Chicago 6912 

Schedule and Summary of Exhibits V 

Monday, September 11, 1939 6363 

Tuesday, September 12, 1939 6431 

Wednesday, September 13, 1939 6463 

Friday, September 22, 1939 6501 

Thursday, October 26, 1939 6505 

Friday, October 27, 1939 6581. 

Thursday, December 7, 1939 6601 

Friday, December 8, 1939 6661 

Thursday, December 14, 1939 6707 

Friday, December 15, 1939 :-_ 1 6749 

Wednesday, December 20, 1939 . 6771 

Thursday, December 21, 1939 6839 

Friday, December 22, 1939 _ 6911 

Appendix , 695 1 

Supplemental Data 7093 

Index I 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



1089. Appears in Hearings, Part XII, appendix, p. 6352 

1090. Industrial Life Insurance policy issued by Mutual Life 

Insurance Company of Baltimore, March 1873 

1091. Appears in Hearings, Part XII, appendix, p. 6353 

1092. Appears in Hearings, Part XII, appendix, p. 6356 

1093. Chart: Corporate Relationships in Travelers Group 

1094. Table: Interlocking Directorships Among Companies in 

Travelers Group 

1095. Statement of Condition, December 31, 1938, The Con- 

necticut River Banking Company, Hartford, Conn 

1096. Statement of Condition, December 31, 1938, The Trav- 

elers Bank & Trust Company, Hartford, Conn 

1097. Schedule: Dividends Received by The Travelers Insur- 

ance Company on its Ownership of stock of The 
Travelers Bank & Trust Company and of the Connec- 
ticut River Banking Company annually since the 
banks were organized 

1098. Schedule: Bank Balances of the Travelers Insurance 

Company and the Connecticut River Banking Com- 
pany, Regular Account 

1099. Schedule: Bank Balances of the Travelers Insurance 

Company in the Connecticut River Banking Com- 
pany, Special Account 

1100. Schedule: Travelers directors serving as directors of 

Connecticut River Banking Company and of Trav- 
elers Bank & Trust Company 

1101. Schedule: Directors of the Travelers Insurance Com- 

pany, January 1, 1912, to July 1, 1939 

1102. Letter, dated November 17, 1930, from Alexander 

Sobel, agent for Travelers Insurance Company, to 
E. B. Dudley, manager for the Chicago Office of 
Travelers Insurance Co., concerning loan to be secured 
by renewal commissions 

1103. Letter, dated November 18, 1930, from E. B. Dudley, 

manager for the Chicago Office of Travelers Insurance . 
Co., to Walter A. Mallory, agency secretary, Trav- 
elers Insurance Co., concerning Exhibit 1102 

1104. Memorandum, dated November 22, 1930, written by 

Dudley Gray, agency secretary, Travelers Insurance 
Co., marked "strictly personal and confidential" con- 
cerning Sobel loan and possibility of making arrange- 
ments for same with Connecticut River Banking 
Company 

1105. Memorandum from assistant agency secretary of Trav- 

elers Insurance Co., to E. B. Dudley, manager, Trav- 
elers Insurance Co., Chicago, Illinois, advising 
arrangements have been approved by Connecticut 
River Banking Company to make loan to Alexander 
Sobel against a collateral assignment of renewal com- 
missions 

1106. Memorandum, dated September 25, 1931, from G. V. 

Kuehner, superintendent of agencies, Travelers In- 
surance Co., Cleveland, Ohio, to H. H. Armstrong, 
Vice President, Travelers Insurance Co., advising of 
attempt by Leonard Agency to negotiate a loan from 
the Connecticut River Banking Co 



1 On 01e with the committee. 



Intro- 
duced 
at page 



6363 

6364 
6364 
6364 
6366 

6367 

6375 

6376 



6377 

6378 

6378 

6386 
6394 

6397 
6398 

6398 

6400 

6402 
v 



Appears 
on page 



0) 

6951 
6952 
6954 
6954 

6954 

6955 

6956 

6956 
6957 

6396 
6397 

6398 

6958 
6959 



VI 



SCHEDULE OP EXHIBITS 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1107. Memorandum, dated November 3, 1931, from Gordon 

V. Kuehner, superintendent of agencies, Travelers 
Insurance Co., Cleveland, Ohio, "to H. H. Armstrong, 
vice president, Travelers Insurance Co., concerning 
possibility of loan from Connecticut River Bank to 
Leonard Agency against assignment of life renewals 
as collateral _ _' 

1108. Memorandum, dated November 12, 1931, from Travelers 

Insurance Co. comptroller to its president, recom- 
mending loan by Connecticut River Banking Com- 
pany to Leonard Agency on the collateral of the assign- 
ment of life renewals to cover amounts owed by the 
Agency to the Travelers Insurance Co 

1109. Schedule: Travelers Bank & Trust Company, Commer- 

cial Department Mortgage Loans as of July 27, 1939- _. 

1110. Memorandum, dated September 11, 1929, from L. E. 

Zacher, President, Travelers Insurance Co. to Mr. 
Hubbard, President, Connecticut River Banking Co. 
advising of arrangement to put out money on call not 
normally required in the course of business of Travel- 
ers Insurance Company 1 

1111. Schedule: Bank Balances of the Travelers Insurance 

Company at Travelers Bank & Trust Company, 1917- 
1938 

1112. Letter, dated September 29, 1926, from I. Sibbernsen, 

Omaha, Nebraska, to L. E. Zacher, President, Travel- 
ers Insurance Co. advising Travelers Insurance Com- 
pany holds spurious mortgage papers in the amount 
of about $1,467,700 and suggesting the formation of a 
corporation to take up these mortgages 

1113. Schedule: Record Book, Nebraska Securities Corpora- 

tion, reflecting settlement with I. Sibbernsen 

1114. Balance Sheets of Nebraska Securities Corporation, and 

Omaha Land Company as of December 31, 1926 

1115. Letter, dated December 18, 1930, from L. E. Zacher, 

President, Travelers Insurance Co., to E. B. Mount, 
Minneapolis, Minnesota, and telegram of same date 
from L. E. Zacher to E. B. Mount; together with tele- 
gram dated December 19, 1930, from E. B. Mount to 
L. E. Zacher, arranging sale of Travelers stock to Mr. 
Mount 

1116. Letter, dated December 24, 1931, from A. H. Steidel, 

assistant cashier, Travelers Insurance Co., to F. B. 
Goudy, Omaha, Nebraska, listing certain stock pur- 
chases by Nebraska Securities Corporation 

1117. Letter, dated December 30, 1931, from L. E. Zacher, 

President, Travelers Insurance Company, to G. Y. 
Thompson, auditor, Nebraska Securities Corporation, 
concerning action taken in arranging for Nebraska 
Securities Corporation to purchase certain securities 
in excess of market value 

1118. Schedule showing cost and current market values of 

stock purchased by Nebraska Securities Corporation 

1119. Appears in Hearings, Part XII, appendix, p. 6356 

1120. Schedule showing Government Agencies covered by 

Group insurance written by Shenandoah Life Insur- 
ance Company 

1121. Schedule: Loans made to officers and directors of Shen- 

andoah Life Insurance Company or to members of 
their families and companies in which they are inter- 
ested 



6402 



6402 
6411 



6424 
6424 



6432 
6434 
6435 



6447 



6457 



6458 

6458 
6463 



6465 



6472 



6960 



6961 
6962 



6424 
6963 



6964 
6967 
6968 



6969 
6970 

6457 
6970 

6971 

6971 



SCHEDULE OF EXHIBITS 



VII 



Number and summary of exhibits 



1122. Schedule reflecting interest payments and collateral se- 

curing loans made to Shenandoah Life Insurance 
Company officers, directors and members of their 

1 123. Letter! 1 dated Augu'st ^1933," from A. n"! "Cuertir t De- 

partment of Banking and Insurance of the State of 
New Jersey, to R. H. Angell, President Shenandoah 
Life Insurance Company, advising that Shenandoah 
Life Insurance Company is not entitled to use conven- 
tion values in valuation of its securities and requesting 
information on collateral loans ------- 

Section 4251a, Virginia Code of 1936; conversion of a 
stock life insurance corporation into a mutual lite in- 
s urance corporation _ __ - - - - - - y.v 

Letter, dated March 26, 1934, from Shenandoah Life 
Insurance Company to its policyholders advising that 
the company is about to be converted from a stock 
company into a mutual company, giving notice of a 
meeting of policyholders for the purpose of passing 
upon plan, and also enclosing copy of plan of mutual- 

1126. SchTd^eVoLp^ 

fleeting banks in which a director of New York Life 
Insurance Company is an officer and/or director and 
banks in which no director of the New York Life In- 
surance Company is an officer or director 

1127 Schedule: Premiums received by the Federal Insurance 

1127. acnemM^ on business of the Prudential Insurance 



Intro- 
duced 
at page 



1124. 



1125. 



1128. 



AppeSn^Hearings" Part XH, appendix, p. 6359. 



1130 
1131. 
1132. 
1133. 



Appears in uranngo, ac.^ --"> -*-«' — -. > * a n Kn 
Appears in Hearings, Part XII, appendix, p. 6359 
Appears in Hearings, Part XII, appendix, p. 6360 
Appears in Hearings, Part XII, appendix, p. 6361— --- 
Schedule: Notes receivable of the Shenandoah Life 
Insurance Company resulting from deficiencies on 
collateral loans made to officers and directors mem- 
bers of their families or companies in which such 
officers and directors held a substantial ..iterest. 



1134. Letter, dated April 14, 1934 from State Corporation. 

Commission of Virginia to Honorable E. Lee Tnnkle, 
President, Shenandoah Life Insurance Company, 
stating important respects in which that company 
was not being properly managed. ------ - ---- 

1135. Letter, dated April 21 1934, from John P. Saul , Jr 

Vice President and General Counsel, Shenandoan 
Life Insurance Co., to the State Corporation Com- 
mission of Virginia answering the criticisms made by 
the Commissioners and assuring the Commission that 
such practices as are improper will be discontinued - ■ 
1329. Schedule reflecting earnings of Equitable Life Assur- 
ance Society agents in New York metropolitan area 
for the year 1937 v; ~ ~ r.~ V"il" 

Schedule reflecting 1938 agency turn-over of Equitable 
Life Assurance Society - — -r" 

Summary of commissions, salary allowance, etc , pro 
vided for under the forms of Agency Contracts used 
bv the Equitable Life Assurance Society ".-Tr" - ' 

Memorandum, dated September 15, 1937. from Arthur 
M. Spaulding, assistant to Agency Vice Pendent, 
Equitable Life Assurance Society to W. J- Graham 
relative to agency earnings in the Equitable Life 
Assurance Society 



1330. 
1331. 



1332. 



Appears 
on pape 



6472 

6486 
6488 

6491 
6501 



6501 
6502 
6502 
6502 
6502 
6503 



6503 
6503 

6503 

6531 
6522 

6535 
6535 



0) 

6973 
6974 

6975 



facing 
6978 



6979 



6979 



6980 



6984 

6986 
6987 

6988 



6030 



i On file with the Committee. 



VIII 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1333. Schedule: causes of termination (directs agents and sub- 

agents) 1938, Equitable Life Assurance Society 

1334. Letter, dated June 10, 1938, from William M. Duff, 

general agent, Equitable Life Assurance Society, 
Pittsburgh, Pa., to Thomas I. Parkinson, President, 
Equitable Life Assurance Society with regard to pro- 
ductivity and turn-over of agents in his general agency. 

1335. Posters containing notice of "draw poker" agency con- 

test held in branch office of Equitable Life Assurance 
Society i — _ 

1336. Schedule: Agency lapse rates for fourth quarter and 

year 1938 in the Equitable Life Assurance Society 

1337. Letter, dated March 21, 1935, from W. W. Klingman, 

Vice President, Equitable Life Assurance Society, 
advising of a plan for improving agency practices in 
the Equitable Life Assurance Society, together with 
Plan for Improving Agency Practices-Declaration 
of Guiding Principles and Agreement, signed by 
Thomas I. Parkinson, President, Equitable Life 
Assurance Society , 

1338. Schedule: Signatory companies to Agency Practices 

Agreement, September 22, 1938 

1339. Letter, dated October 22, 1937, from Theodore M. 

Reihle, agency manager, Equitable Life Assurance 
Society, to Thomas I. Parkinson, President, Equit- 
able Life Assurance Society, advising against the 
employment of part-time agents on the ground that 
this is likely to wreck the Agency Practices Agreement. 

1340. Letter, dated February 17, 1938, from Vance Bushnell, 

second vice-president, Equitable Life Assurance So- 
ciety, to W. J. Graham, Vice President, Equitable 
Life Assurance Society, suggesting deposits by the 
Equitable Life Assurance Society in certain Texas 

l-jOT"|lrq 

1341. Letter, dated October 1, 1937, from F. F. Florence, Presi- 

dent, Republic National Bank of Dallas, to W. J. 
Graham, Vice President, Equitable Life Assurance 
Society, thanking him for a deposit 

1342. Letters dated June 10, June 13, June 15, 1939, and tele- 

gram dated June 13, 1939 from W. W. Klingman, 
General Manager, Equitable Life Assurance Society, 
to agents in Texas urging them on to a perfect day, 
one-half million of new written business, blazing glory, 
etc., and enclosing copies of telegrams to be sent in 
from the field upon the occasion of the perfect day_- 

1343. Sales training school qualification* requirements, South- 

western Life Insurance Company 

1344. Schedule: Average annual earnings of agents, South- 

western Life Insurance Company 

1345. Schedule of directors interlocking the five largest life 

insurance companies with other important financial 
institutions 1938 

1346. Schedule of executive structures of the six largest life 

insurance companies, 1938, based on all salaries, 
compensation and emoluments, excepting bona fide 
commissions paid to or retained by agents of what- 
ever amount received in the current year by active 
officers where the same amounted to more than 
$5,000 



6537 

6538 

6550 
6556 



6990 

6991 

6992 
6994 



6562 
6562 



6563 



6576 



6578 



6579 
6589 
6589 

6598 



6598 



6995 
6997 



6998 



6999 



6999 



7000 
7003 
7005 

7006 



7011 



SCHEDULE OF EXHIBITS 



IX 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1347. 



1348. 



Schedule of remuneration of directors of the six largest 
life insurance companies, 1938, excluding those direc- 
tors who were officers of their companies. Also 
names, titles, and salaries of officers in the six largest 
life insurance companies receiving $40,000 or more in 
1938. 



Schedule: Ordinary and industrial life insurance — nine- 
teen stock companies selling ordinary and industrial 
life insurance: Amounts of insurance in force premi- 
um income, original paid-in capital dividends to stock- 
holders, surplus and capital in 1938 

1348-1. Letter, dated August 5, 1926, from W. H. Gregory, 
President, Federal Reserve Life Insurance Company, 
to Major William R. Baker, Superintendent of In- 
surance, Topeka, Kansas, reviewing the recent elec- 
tion campaign and offering congratulations 

1348-2. Memorandum, dated December 14, 1932, by Herbert W. 
Jordan, Vice-President, Federal Reserve Life Insur- 
ance Company, describing the formation of the Re- 
serve Company as a holding company for the U. S. 
Reserve Insurance Corporation, changes in personnel 
resulting from the reinsurance of the U. S. Reserve 
Insurance Corporation by the Federal Reserve Life 
Insurance Company, exchanges of assets among these 
companies and contributions by Massey Wilson to the 
Reserve Company 

1348-3. Report on activities of Federal Reserve Life Insurance 
Company, dated- December 5, 1929, prepared by 
representatives of the Kansas, Missouri, Illinois, and 
Indiana Insurance Depts 

1348-4. Letter, dated July 14, 1926, from D. H. Holt, Secretary, 
Federal Reserve Life Insurance Co., to E. W. Mer- 
ritt, St. Louis, Missouri, describing transfer work in 
the reinsurance of the Providers Life and pointing out 
that in many instances agents accomplish the transfer 
by obtaining unauthorized signatures of policyholders. 

1348-5. Letter, dated July 15, 1926, ,from E. W. Merritt, Jr., 
to D. H. Holt, secretary, Federal Reserve Life Insur- 
ance Company, agreeing that the transfer work 
should be carried on by agents along ethical lines and 
promising to discharge those agents who indulged, in 
improper practices 

1348-6. Letter, dated November 9, 1939, from Thomas I. Parkin- 
son, president, Equitable Life Assurance Society, to 
Gerhard A. Gesell, special counsel, Securities and Ex- 
change Commission, enclosing statement with respect 
to rules and practices followed by the Equitable Life 
Assurance Society in determining the amount of life 
insurance to be offered to applicants 

1348-7. Letter, dated December 10, 1928, from W. K. Herndon, 
special examiner, Kansas Insurance Department, to 
Harry B. Walker, attorney, Kansas City, Missouri, 
describing the sale of a block of Federal Reserve Life 
Insurance Company's stock to E. W. Merritt, Jr., the 
election of Massey Wilson to the Board of Directors 
and the subsequent receipt by Mr. Herndon of a com- 
mission of $115,000 

1348-8. Separate answer of W. K. Herndon and Journal Entry 
in case number 37272-A, The Federal Reserve Life In- 
surance Company v. Riddelle L. Gregory et al. Also 
separate answer of D. H. Holt and Vernon B. Holt in 
the same case 

1 On file with the Committee. 



6598 



6598 



6617 



7012 



7013 



7014 



6652 



6654 



6702 



6702 



6705 



7015 



(0 



7017 



7018 



7018 



6726 



6726 



7020 



7020 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1348-9. 



1348-10. 



1348-11. 
1348-12. 
1348-13. 

1348-14. 

1348-15. 
1348-16. 



1348-17. 
1348-18. 

1348-19. 

1348-20. 
1348-21. 

1348-22. 



Address of George S. Van Schaick, Superintendent of 
Insurance of the State of New York, at the 64th 
Annual Meeting of the National Convention of In- 
surance Commissioners, Edgewater Beach Hotel, 
Chicago, Illinois, entitled "Interstate Liquidations — 
a National Problem" 

Extract from the 76th annual report to the legislature of 
the State of New York, dated December 31, 1934, by 
George S. Van Schaick, Superintendent of Insurance 
of the State of New York, concerning proceedings in- 
volving delinquent companies doing extensive inter- 
state business 

Schedule of Directors of the Illinois Bankers Life Asso- 
ciation, 1925-1929 

Schedule of Directors of the Illinois Bankers Life Assur- 
ance Company, 1929-1938 

Schedule of admitted assets, insurance written and in- 
surance in force for Illinois Bankers Life Association, 
1925-1928 and Illinois Bankers Life Assurance Corn- 
Company, 1929-1938 

Contract of reinsurance between the Illinois Bankers 
Life Association and Illinois Bankers Life Assurance 
Co 



Collateral Record of Loans to Hugh T. Martin and S. J. 
Sawyer by National Boulevard Bank of Chicago 

Letter, dated February 3, 1932, from Hugh T. Martin, 
general counsel, Illinois Bankers .Life Assurance Co., 
for attention of Henry G. Sellman, actuary, Illinois 
Bankers Life Assurance Company, enclosing Certifi- 
cate of Deposit of the Boulevard Bridge Bank to the 
order of Illinois Bankers Life Assurance Company in 
the amount of $50,000 '. 

Minutes of Special Meeting of members of the Illinois 
Bankers Life Association held at Monmouth, Illinois, 
December 30, 1925, including proposed contract of 
reinsurance between Illinois Bankers Life Association 
and Illinois Bankers Life Assurance Company 

Minutes of a meeting of the Board of Directors of Illinois 
Bankers Life Assurance Company held January 13, 
1930, recording authorization for president to negotiate 
a loan of $250,000 to the Lincoln Securities Company 
on its demand note at 6% interest, the same to be se- 
cured by stock oi the Hotel LaSalle Company 

Letter, dated October 10, 1938, from Investment De- 
partment, Illinois Bankers Life Assurance Co., to 
Hugh T. Martin, c/o The Trust Company of Chicago, 
33 North LaSalle Street, Chicago, Illinois, giving an 
itemized statement of the status of 5 loans totaling 
$130,500 held as security in the Lincoln Securities 
Company Collateral Loans 

Check, dated January 15, 1930, from the Lincoln Securi- 
ties Company to the order of Hugh T. Martin in the 
sum of $200,000 

Agreement, dated February 28, 1930, between the Illinois 
Bankers Life Assurance Company and the American 
Conservation Company, under which the latter be- 
comes a transfer agent for the former in the rewriting 
of its business upon the legal reserve plan 

Certificate of Policy Loan made by the Illinois Bankers 
Life Assurance Company : 



6769 



6769 
6773 
6773 

6775 

6787 
6798 



6800 
6809 

6814 

6822 
6824 

6829 
6832 



7026 



7030 
7031 
7032 

7032 

7033 
7037 



7038 
703S 

7043 

7044 
7047 

7048 
7051 



SCHEDULE OF EXHIBITS 



XI 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1348-23. Tabulation, prepared by Illinois Bankers Life Assurance 
Co., of insurance transferred from the assessment to 
the legal reserve plan by the American Conservation 
Company, together with the new business written by 
them in conjunction with the transfer, showing the 
premiums collected and the commissions paid 

1348-24. Memorandum prepared by Illinois Bankers Life Assur- 
ance Co., regarding Certificate of Loan Account 

1348-25. Survivorship Fund Certificate of the Illinois Bankers 
Life Assurance Company 

1348-26. Memorandum, prepared by Illinois Bankers Life Assur- 
ance Company, showing the status of the Survivor- 
ship Fund, Certificate of Loan Principal, Certificate 
of Loan Interest and certain nonadmitted asset items 

1348-27. Schedule showing salaries of officers of Illinois Bankers 
Life Association, 1925-1929 

1348-28. Schedule showing salaries of officers of Illinois Bankers 
Life Assurance Company, 1929-1938 

1348-29. Schedule showing expense allowance, interest allowance 
and surplus allowance to Illinois Bankers Life Associa- 
tion, November 19, 1929 to December 31, 1938 and 
also insurance in force in the Association, 1929-1938. 

1348-30. Application for exchange of policy, Illinois Bankers Life 
Assurance Company 

1348-31. Agreement, dated January 2, 1930, between Herbert G. 
Shimp and John P. Nichol, to enter the business of 
re-rating and transferring policyholders of legal reserv- 
ice and assessment life insurance companies, and, in 
particular, to secure a transfer contract with the 
Illinois Bankers Life Assurance Company •__. 

1348-32. Statement by Arthur J. Leary describing the payment 
of certain sums by the American Conservation Com- 
pany to John P. Nichol and Hugh T. Martin 

1348-33. Checks from the American Conservation Company, 
proceeds of which went to John P. Nichol and Hugh T. 
Martin •_ 

1348-34. Letter, dated February 19, 1930, from Henry G. Sellman, 
actuary, Illinois Bankers Life Assucanbe Co., to 
Robert E. Daly, c/o Missouri State Insurance Depart- 
ment, Jefferson City, Missouri, offering him the 
support of the Illinois Bankers Life Assurance Com- 
pany, if he is desirous of becoming actuary of the 
Illinois Insurance Department 

1348-35. Letter, dated November 3, 1931, from William R. Bak- 
er, attorney, Kansas City, Kansas, to H. G. Sellman, 
actuary, Illinois Bankers Life Assurance Company, 
Monmouth, Illinois, suggesting the inadvisability of 
his, Mr. Baker's, writing the Illinois Department with 
reference to a proposed examination of the Illinois 
Bankers Life Assurance Company 

1348-36. Letter, dated November 8, 1929, from Clarence C. Wysong, 
Commissioner of Insurance of State of Indiana, to 
George 'Huskinson, Superintendent of Insurance, 
Springfield, Illinois, indicating disapproval of the 
proposed contract of reinsurance between Illinois 
Bankers Life Association and the Illinois Bankers 
Life Assurance Co 



6835 
6835 
6838 

6838 
6838 
6838 

6842 
6842 



6850 
6855 
6855 

6873 

6874 

6876 



7052 
7052 
7053 

7054 
7055 
7056 

7057 
7057 



7058 
7058 
0) 

7060 

7061 

6876 



1 On file with the Committee. 



XII 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



1348-37. Letter, dated December 2, 1929, from Clarence C. 
Wysong, Commissioner of Insurance of State of Indi- 
ana, to the Illinois Bankers Life Assurance Co., 
expressing disapproval of the reinsurance contract 
entered into with the Illinois Bankers Life Association, 
and advising against their seeking admission to 
Indiana 

1348-38. Letter, dated November 7, 1929, from J. E. Reault, actu- 
ary, Michigan Insurance Department, to Leo H. Lowe, 
Director of Trade and Commerce, Springfield, Illinois, 
expressing the opinion that under proposed contract of 
reinsurance the members of the Bankers Life Associa- 
tion would receive no more benefits than they then 
enjoyed, and protesting against approval of the con- 
tract 

1348-39. Letter, dated February 26, 1931, from C. D. Livingston, 
Commissioner of Insurance, Michigan, to William R. 
Baker, c/o Henning & Baker, Kansas City, Kansas, 
refusing to admit the Illinois Bankers Life Assurance 
Co. into the state without a hearing 

1348-40. Letter, dated August 4, 1930, from George P. Porter, 
State Auditor and Commissioner of Insurance, 
Montana, to William R. Baker, Attorney, Kansas 
City, Kansas, advising that he does not care to license 
a company from whom it has been necessary to use 
force to make collection of a premium tax 

1348-41. Letter, dated November 14, 1929, from V. B. Gribble, 
actuary of Bureau of Insur ice, Nebraska, to Illinois 
Bankers Life Association, *otesting against carrying 
out of the proposed reinsurance contract between the 
Illinois Bankers Life Association and the Illinois 
Bankers Life Assurance Co 

1348-42. Letter, dated November 11, 1929, from J. E. Reault, 
actuary, Michigan, Insurance Department to E. 
Forrest Mitchell, Insurance Commissioner, California, 
voicing official disapproval of the proposed reinsurance 
contract between the Illinois Bankers Life Association 
and the Illinois Bankers Life Assurance Co 

1348-43. Telegram from E. Forrest Mitchell, Insurance Com- 
missioner, California, to William R. Baker, attorney, 
Kansas City, Kansas, expressing belief that Illinois 
Bankers Life Association reinsurance agreement 
should be thoroughly examined 

1348-44. Letter, undated, from H. G. Sellman, actuary, Illinois 
Bankers Life Assurance Company, to W. H. Woods, 
president, Illinois Bankers Life Assurance Company 
regarding disapproval of Insurance commissioner of 
Oklahoma of proposed reinsurance contract between 
the Illinois Bankers Life Association and the Illinois 
Bankers Life Assurance Company 

1348-45. Letter, dated December 23, 1931, from J. O. Rummens, 
Deputy Insurance Commissioner, Washington, to 
William R. Baker, attorney, expressing disapproval 
of admitting the Illinois Bankers Life Assurance Co. 
to do business in the State of Washington 

1348-46. Letter, dated April 25, 1930, from William R. Baker, 
attorney, to Hugh T. Martin, general counsel, Illinois 
Bankers Life Assurance Company, advising of diffi- 
culties being experienced in securing Iowa's approval 
to the proposed reinsurance contract between Illinois 
Bankers Life Assurance Company and the Illinois 
Bankers Life Association — 1 



Intro- 
duced 
at page 



6877 



6877 



6877 



6876 



6878 



6879 



6880 



6880 



6880 



6880 



Appears 
on page 



6876 



6877 



7061 



7062 



6878 



7062 



6879 



7064 



6880 



7066 



SCHEDULE OF EXHIBITS 



XIII 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1348-47. Letter, dated May 9, 1934, from H. G. Sellman, actuary 
Illinois Bankers Life Assurance Co., to Hugh T. Mar- 
tin, General Counsel, Illinois Bankers Life Assurance 
Co., describing a conference held with officials of the 
Missouri Insurance Department relative to procuring 
a license to operate in Missouri . 

1348-48. Repurchase Agreement, dated November 13, 1930, be- 
tween the Illinois Bankers Life Assurance Company 
and the Chatham Phenix National Bank & Trust 

Company 

-4348^9. Letter, dated March 2, 1931, from R. P. Brewer, vice 
president, Chatham Phenix National Bank & Trust 
Company, New York, to Illinois Bankers Life Assur- 
ance Company, Monmouth, Illinois, acknowledging 
receipt of certain notes as security for a repurchase 
agreement between the bank and the insurance company . 

1348-50. Letter, dated August 8, 1930, from Hugh T. Martin, 
general counsel, Illinois Bankers Life Assurance Co., 
to Arthur T. Sawyer, secretary, Illinois Bankers Life 
Assurance Co., arranging a loan for George F. Ramer, 
auditor, Illinois Life Insurance Company 

1348-51. Letter, dated August 17, 1938, from Spafford S. Warren, 
policyholder, Sycamore, Illinois, to Illinois Bankers 
Life Assurance Company, Monmouth, Illinois, com- 
plaining of the high pressure exerted by a salesman 
in explaining the plan of reinsurance, and demanding 
surrender value of his policy ■ 

1348-52. Letter, dated August 5, 1938, from David B. Landen, 
policyholder, Moline, Illinois, to Illinois Bankers 
Life Insurance Company, Monmouth, Illinois, com- 
plaining that the company took advantage of him in 
transferring his policy 

1348-53. Letter, dated August 2, 1938, from Mary Walker, 
policyholder, Golconda, Illinois, Bankers Life Assur- 
ance Co., Monmouth, Illinois, complaining of mis- 
representation made by an agent of the company 

1348-54. Letter, dated April 4, 1938, from Christian A. Bid- 
lingmaier, policyholder, Winslow, Illinois, to Illinois 
Bankers Life Assurance Co., Morfmouth, Illinois, 
asking about the 'possibility of exchanging his policy 
for a paid-up policy, and advising that the signature 
on photostatic copies of an application for the policy's 
exchange and certificate of loan is not his 

1348-55. Letter, dated September 5, 1938, from Larkin Gorsuch, 
policyholder, Industry, Illinois, to Illinois Bankers 
Life Assurance Co., Monmouth, Illinois, complaining 
about the necessity of his taking loss as a result of 
the change made in his policy, and asking about the 
possibility of his obtaining a paid-up policy 

1348-56. Letters to the Illinois Bankers Life Assurance Com- 
pany, March 26, 1938, from W. H. Dragoo, Spring- 
field, Illinois, April 9, 1937, from Emma D. Thorpe, 
Clinton, Illinois, February 28, 1938, from Styrling 
R. Jackson, Hugo, Oklahoma, April 15, 1938, from 
Lenden Comer, Adair, Oklahoma, March 5, 1938, 
from Richard S. Jarvis, Texola, Oklahoma, August 
8, 1938, from Gerry Honomichl, Tulsa, Oklahoma, 
August 29, 1938, from Florence L. Harridge, Park 
Ridge, Illinois, August 19, 1938, from Mrs. Mary 
Kampschrader, Louisville, Illinois, the last-mentioned 
letter enclosing one vrhich had been sent her by the 
company under date of August 22, 1933, all complain- 
ing of the treatment accorded them by the company 
and its representatives in the rewriting of their policies. 



6889 



6894 



6895 



6899 



6914 



6914 



6914 



6915 



6915 



6889 



7067 



7067 



6899 



7068 



7068 



7069 



7069 



7069 



6915 7070 



XIV 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1348-61 



1348-62 



1348-57. Schedule of all companies for which the American 
Conservation Company has done rewriting. 

1348-58. Schedule, American Conservation .Company, showing 
insurance written, commissions received, commissions 
paid, operating expense, gross profit, taxes paid, net 
profit, investment account, 1930-1938 

1348-59. Schedules of commissions charged by American Con- 
servation Company for rewriting 

1348-60. Letter, dated November 15, 1932, from American Con- 
servation Company to Raymond T. Smith, vice-presi- 
dent, Alfred M. Best Co., Chicago, Illinois, offering a 
commission in return for his best efforts to obtain for 
the American Conservation Company a transfer of in- 
surance from the Security Life Insurance Company of 
America to the Central Life Insurance Company of 

Illinois 

Letter, dated June 16, 1932, from American Conserva- 
tion Company to Raymond T. Smith, vice president, 
Alfred M. Best Co., Chicago, Illinois, agreeing to pay 
5%, of the first year's premiums paid by the policy- 
holders transferred from the Chicago National Life 
Insurance Company to the Pacific States Life Insur- 
ance Company 

Letter, dated December 12, 1932, from American Con- 
servation Company to William Hordes, president 
Hordes & Kauffman, Detroit, Michigan, general 
agents, Security Life Insurance Co., agreeing to pay 
5% commission on the first-year premiums on policies 
in Wayne County transferred from the Security Life 
Insurance Company to the Central Life Insurance 
Company of Illinois 

1348-63. Letters from the American Conservation Company, 
dated July 28, 1936, to Fred P. Cory; July 2, 1936, to 
Arago F. Guck; June 8, 1936, to O. B. LaFreniere; 
June 15, 1936, to Miss Hildur Stenstrom; former 
agents of the Detroit Life Insurance Co., agreeing to 
pay in each instance certain commissions for work 
done in connection with the readjustment of the 
policies of the Detroit Life, and a release signed by 
Hildur Stenstrom, discharging the American Conser- 
vation Company from all claims made- as the result of 
a dispute between that company and Miss Stenstrom. . 

1348-64. Letter, dated March 9, 1936, from the American Con- 
servation Company to Levin, Levin & Dill, attorneys 
at law, Detroit, Michigan, enclosing a resolution 
authorizing the payment to them of a contingent fee 
in connection with the reinsurance of the business of 
the Detroit Life Insurance Company 

1348-65. Check drawn by the American Conservation Company 
with notation "Haffner, July fee" 

1348-66. Letter, dated March 1, 1937, from Ernst & Ernst, 
accountants, to American Conservation Company, 
calling attention to certain disbursements discovered 
during the course of an audit of the accounts of the 
company 

1348-67. See Exhibit 2261 

1348-68. Check of the American Conservation Co. to the order of 
the Peoples Trust & Savings Bank, dated March 12, 
1931, and cashier's check drawn to the order of W. R. 
Baker, dated March 12, 1931, and endorsed by W. R 
Baker and by Herbert G. Shimp in the sum of $10,000. 
i On file with the committee. 



6920 

6920 
6921 



7076 

7077 
7078 



6924 



6924 



7078 



7079 



6925 



7079 



6926 



6927 
6936 



6938 
6943 



6944 



7079 

7082 
7084 

7085 

(0 



SCHEDULE OP EXHIBITS 



XV 



Number and summary of exhibits 



1348-69. Letters, dated June 13, 1933, from C. S. Younger, presi- 
dent, American Insurance Union, Inc., to Herbert G. 
Shimp, president, American Conservation Company; 
June 13, 1933, from C. S. Younger to Herbert G. 
Shimp; June 14, 1933, from Herbert G. Shimp to the 
American Insurance Union, Inc., Columbus, Ohio; 
October 3, 1934, from C. S. Younger to Herbert G. 
Shimp; October 4, 1934, from Herbert G. Shimp to 
C. S. Younger, relative to efforts on the part of the 
American Insurance Union to obtain the reinsurance 
of the Federal Union and the opposition of the Ohio 
Insurance Department to this transaction. Also 
letter, dated October 23, 1934, from Herbert G. Shimp 
to William R. Baker, attorney, Kansas City, Kansas, 
suggesting that, if someone offered a job to the Ohio 
Insurance Commissioner, it might be helpful with the 
Federal Union deal 

1348-70. Schedule of commissions received by American Conser- 
vation Company 

1348-71. Schedule, American Conservation Company, agents' 
commissions from February 1930 to December 31, 
1938 

1348-72. Schedule, American Conservation Company, Special 
Commissions paid 

1348-73. Schedule of Herbert G. Shimp's loans with Illinois 
Bankers Life Assurance Company and the American 
Conservation Company's loans with Illinois Bankers 
Life Assurance Company 

2261. Memorandum of fees received from American Conservation 
' Company by Henning & Baker, attorneys, Kansas City, 

Kansas, from 1931 to April 1, 1935. Also memorandum 
of fees received from American Conservation Company 
by William R. Baker, attorney, Kansas City, Kansas, 
from April 1, 1935 to December 18, 1939. Introduced in 
substitution for Exhibit 1348-67 « 

2262. Letter, dated February 6, 1940, from E. H. Henning, vice 

president, Illinois Bankers Life Assurance Company, to 
Gerhard A. Gesell, special counsel, Securities and Ex- 
change Commission, Washington, D. C, listing the 
officers and directors of the Illinois Bankers Life Associa- 
tion who converted, or failed to convert, their assessment 
policies to legal reserve policies 

2263. Affidavit of R. R. Haffner, actuary, Illinois Insurance 

Department, denying knowledge of certain checks and 
moneys alleged to have been paid to him by the American 
Conservation Company, and stating that he has per- 
formed no services of any kind for the American Conser- 
vation Company since becoming actuary of the Illinois 
Insurance Department-^ 



Intro- 
duced 
at page 



6945 
6946 

6947 
6947 

6948 



Appears 
on page 



7085 
7089 

7090 
7091 

7092 



7093 



7095 



7096 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



MONDAY, SEPTEMBER 11, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10: 45 o'clock a. m., pursuant to adjourn- 
ment on Thursday, September 7, 1939, in the Caucus Koom, Senate 
Office Building. Subcommittee members: Garland S. Ferguson 
(chairman), Joseph J. O'Connell; and ^Representative Joseph E. 
Casey of Massachusetts, requested by the committee to sit on the 
subcommittee as acting vice chairman. Ewin L. Davis, Commis- 
sioner, Federal Trade Commission, presiding. 

Present : Commissioner Davis, acting chairman ; Messrs. O'Connell 
and Brackett. 

Present also : Gerhard A. Gesell, special counsel, H. A. Blomquist, 
Arthur J. Leary and George C. Jenkins, Securities and Exchange 
Commission. 

Acting Chairman Davis. The committee will come to order and 
Mr. Gesell, you may call your first witness, if you will. 

Mr. Gesell. There are one or two matters first which I would like . 
to mention for the record. 

At the time that we w'ere presenting testimony with respect to the 
Monumental Life Insurance Co. we agreed to submit for the record a 
schedule containing information on collateral loans made to Irene 
T. Reariey, secretary to the president of that company. 1 Such a 
schedule has been prepared and I wish to offer it for the record at 
this time. . 

Acting Chairiuan Davis. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 1089" and 
appears in Hearings, Part XII, appendix, p. 6352.) 

Mr. Gesell. On that occasion, too, some question arose as to the 
date when the Monumental Life Insurance Co., then the Mutual Life 
Insurance Co. of Baltimore, first issued an industrial insurance 
policy. 2 I have in my hand a photostatic copy of a policy issued 
in March 1873, in the amount of $1,000 on a weekly premium basis.. 
This policy was made available to me by counsel for the Monumental, 
and it is my understanding that similar policies were issued in that 
year for amounts less than $1,000. I would like to offer this to be 
filed. I don ; t think it is necessary for it to be printed. 

Acting Chairman Davis. That may be filed as part of the record, 
but is not to be printed. 



1 See Hearings, Part XII, p. 5684. 
2 Ibid., p. 5598. 

124491 — 40— pt. 13 2 ^^ 



6364 CONCENTRATION OP ECONOMIC POWER 

(The policy referred to was marked "Exhibit No. 1090" and is on 
*ile with the committee.) 

Mr. Gesell. When Mr. Call was on the stand the committee re- 
quested that he furnish us with a copy of the agents' contract pres- 
ently in use in his company for agents of the Life Insurance Co. of 
Virginia.' 1 I have a copy of the contract in use by that company, 
and a recent amendment dated November 1, 1938, made thereto, which 
I would like to offer for the record to be printed. 

Acting Chairman Davis. It is ordered printed in the record. 

(The contract referred to was marked "Exhibit No. 1091" and 
appears in Hearings, Part XII, appendix, p. 6353.) 

Mr. Gesell. In the course of the testimony of Dr. Davenport a 
question was raised by the committee as to the percentage of indus- 
trial insurance measured in terms of amounts of insurance and num- 
ber of policies in force in the three largest companies as compared 
to all of the companies writing that type of business. 2 I have such 
a schedule in my hand, prepared from the annual statements of 
some 67 companies from the Spectator Year Book, which, I believe, 
sets forth the information the Committee was interested in, and I 
wish to have this printed in the record. 

Acting Chairman Davis. It may be so ordered. 

(The schedule referred to was marked "Exhibit No. 1092" and 
appears in Hearings, Part XII, appendix, p. 6356.) 

Mr. Gesell. Last week the hearings on industrial insurance were 
completed. Today we commence presentation of testimony with re- 
spect to Travelers Insurance Co. of Hartford, Conn. Mr. L. Edmund 
Zacher, president of the Travelers Insurance Co., will be the first 
witness. 

Acting Chairman Davis. Mr. Zacher, will you hold up your right 
hand and be sworn, please? 

Do you solemnly swear the statements you will make in this inquiry 
shall be the truth, the whole truth, and nothing but the truth, so 
help you God? 

Mr. Zacher. I do. 

TESTIMONY OF LOUIS EDMUND ZACHER, PRESIDENT, TRAVELERS 
INSURANCE CO., HARTFORD, CONN. 

TRAVELERS INSURANCE COMPANY 

Mr. Gesell. Will you state your full name for the record, please, 
sir? 

Mr. Zacher. Louis Edmund Zacher. 

Mr. Gesell. You are president of the Travelers Insurance Co., are 
you not? 

Mr. Zacher. Yes. 

Mr. Gesell. Travelers Insurance Co.'s main offices are at Hartford, 
Cortn., is that correct? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Am I correct in saying that that company writes both 
life insurance and casualty insurance directly? 

Mr. Zacher. Certain lines of casualty. 



*See Hearings, Part XII, p. 6030. 
2 See Hearings, Part XII, p. 5603. 



CONCENTRATION OF ECONOMIC POWER 6365 

Mr. Gesell. Can you tell us something of the history of the 
Travelers Insurance do.? 

• Mr. Zacher. It was chartered, I believe, in 1863, commenced busi- 
ness in 1864; it wrote first accident and health insurance. One of 
its first lines of insurance was tickets that they sell on railroads for 
accident insurance. Then they went into what was called commercial 
accident insurance and health insurance, and then later, I think in 
1866, formed a life department to conduct life insurance generally. 
When liability insurance came into being they undertook that, insur- 
ance against loss of lives, insurance on injury to lives. When com- 
pensation came into being they undertook that. I think those are 
the lines that are covered by the business of the Travelers Insur- 
ance Co. 

Mr. Gesell. The company is a Connecticut corporation, is it? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Now, do I understand that all these various lines of 
insurance are written directly by Travelers Insurance Co. itself, or 
is it not rather the fact that some of them are written by subsidiaries ? 

Mr. Zacher. Tuose lines are written by the Travelers Insurance Co. 

Mr. Gesell. Those that you mentioned? 

Mr. Zacher. Those lines are written by the Travelers Insurance Co. 
Other casualty lines are written by the Travelers Indemnity Co., and 
lire insurance is written by the Travelers Fire Insurance Co. The 
main company, the Travelers Insurance Co., insures only against loss 
of life and injury to life, while the two subsidiaries were formed to 
take care of property insurance. 

Mr. Gesell. Well, now, the casualty department of the Travelers 
Insurance Co. has as its subsidiary the Travelers Indemnity Co., has 
it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That, except for directors' qualifying shares, is owned 
100 per cent? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Travelers Indemnity Co. has a subsidiary, the Travel- 
ers Fire insurance Co., which again, except for directors' qualifying 
shares, is owned 100 percent? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And the Travelers Insurance Co., in turn, has a sub- 
sidiary, the Charter Oak Fire Insurance Co., which is also owned a 
hundred percent except for directors' qualifying shares? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Is your company interested in the Travelers Broad- 
casting Service Corporation? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That is a broadcasting company in Hartford? 

Mr. Zacher. A broadcasting company in Hartford owned by the 
Travelers Indemnity Co. 

Mr. Gesell. What station is that? 

Mr. Zacher. WTIC. 

Mr. Gesell. That is owned 100 percent by the Travelers Co., is 
that correct? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Your company is also interested, is it not, in the 
Connecticut River Banking Co.? • 

Mr. Zacher: Yes. 



6366 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Is that a bank in Hartford, Conn. ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And similarly your company is interested in the 
Travelers Bank & Trust Co., another bank in Hartford? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Am I correct in saying that the Travelers own apr 
proximately 71 percent of the outstanding shares of the Connecticut 
River Banking Co.? 

Mr. Zacher. I don't recall, but it is over 50 percent. 

Mr. Gesell. And a hundred percent of Travelers Bank & Trust 
Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Your company is also interested in a company known 
as the Prospect Co., is it not ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That is a land company owned 100 percent by Travel- 
ers Insurance Co., is it not? 

Mr. Zacher. I wouldn't call it a land company, I would call it a 
corporation that is authorized to do a number of things according to 
the charter, I think you have a copy. 

Mr. Gesell. Briefly, what is the nature of its business ? 

Mr. Zacher. At the present time, it holds title to certain property 
rights and has investments in certain securities. 

Mr. Gesell. Those are held for Travelers Insurance Co.? 

Mr. Zacher. Held for the benefit of the Travelers Insurance Co. 

Mr. Gesell. I will come back to Prospect as the examination 
proceeds. 

Now, your company has in the past been interested in corporations 
known as the Nebraska Securities Corporation, the Omaha Land Co., 
and Colorado Valley Land Co., has it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. I should like to offer for the record at this time a 
chart which shows the relationships of the various corporations 
wliich we have been discussing and which was prepared in accord- 
ance with the testimony Mr. Zacher has just given. I believe it will 
make it a little clearer for the committee. 

Acting Chairman Davis. Let that be inserted in the record. 

(The chart referred to was marked "Exhibit No. 1093" and is 
included in the appendix on p. 6951.) 

Mr. Cole. 1 May we see a copy of it? 

Mr. Gesell. Yes ; he is getting a copy for you now. 

Now, I would like to have your connection with these various 
companies clarified for the record, Mr. Zacher. You are president 
and director of the Travelers Insurance Co., I believe you said. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. You are also president and director of the Travelers 
Indemnity Co. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And president and director of the Travelers Fire 
Insurance Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. President and director of the. Charter Oak Fire In- 
surance Co.? 



1 Francis W. Cole, director and general counsel, Travelers Insurance Co. 



CONCENTRATION OF ECONOMIC POWER 6367 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Vice president and director of " Travelers Bank & 
Trust Co.? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. President, treasurer, and director of the broadcasting 
company ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And you are also connected with the Prospect Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. As president, treasurer, and director? 

Mr. Zacher. I think so. I think I am president ; director, at least. 

Mr. Gesell. You are active in the affairs of all these companies; 
are you not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. How long have you been with Travelers Insurance 
Co.? 

Mr. Zacher. Since October 1904. 

Mr. Gesell. Can you give us some idea of the various positions 
you have held in the Travelers Insurance Co. since that time? 

Mr. Zacher. Clerk, assistant treasurer, treasurer, vice president 
and treasurer, director, president. 

Mr. Gesell. When did you become president? 

Mr. Zacher. In the latter part of 1929. 

Mr. Gesell. Now, am I correct in saying that in the case of all 
these various corporations which we have been discussing the boards 
of directors and officers interlock with Travelers Insurance Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you recognize this as a schedule prepared for us 
by your company showing the various connections between the sev- 
eral companies, both as to directors and officers? 

Mr. Zacher. Without examining it thoroughly, I should say, yes. 

Mr. Gesell. I should like to offer this schedule for the record. 

Acting Chairman Davis. Let it be printed in the record. 

(The schedule referred to was marked "Exhibit No. 1094" and is 
included in the appendix on p. 6952.) 

Mr. Gesell. How much life insurance has the Travelers Insurance 
Co. in force at the present time, approximately ? 

Mr. Zacher. Four billion. 

Mr. Gesell. $4,000,000,000? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Is that sold in all of the various States of the United 
States? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. What are the assets of the Travelers Insurance Co.? 

Mr. Zacher. About now? 

Mr. Gesell. Yes. 

Mr. Zacher. A little over a billion dollars. 

Mr. Gesell. Can you tell us what the combined assets of these 
various corporations shown on that chart as offered a moment ago 
would amount to ? 

Mr. Zacher. No, sir. 

Mr. Gesell. It would be somewhere in exo us of $1,000,000,000? 

Mr. Zacher. Yes; it would be somewhf :e around one billion fifty 
million, I should say. 



6368 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. The assets of the Indemnity Company are around 12 
million ; is that correct? 

Mr. Zacher. More than that ; I think the assets are around 28 million, 
aren't they ? 

Mr. Gesell. Around 28 million? Yes; I believe as of December 
31, 1938, they were $28,494,000. 

And approximately what are the assets of the Fire Insurance Co., 
26 million? 

Mr. Zacher. Yes ; about 26 million. 

Mr. Gesell. Your statement as of December 31 showed $26,283,630. 
The assets of the Charter Oak Fire Insurance Co. are a little over a 
million, are they not ? 

Mr. Zacher. That is correct. 

Acting Chairman Davis. What is the difference in the character of 
the insurance written by the Charter Oak and the Travelers Fire 
Insurance ? 

Mr. Zacher. No difference. All the business written by the Charter 
Oak Fire Insurance Co. is reinsured in the Travelers Fire Insurance Co. 

Mr. Gesell. You mean the business is originally written by the 
Charter Oak? 

Mr. Zacher. Yes. 

Mr. Gesell. And then reinsured in the Travelers Fire ? 

Mr. Zacher. Reinsured in the Travelers Fire. 

Mr. Gesell. Was there any reason for having that type of organiza- 
tion? 

Mr.. Zacher. To expand the agency representation. 

Mr. Gesell. In that way you were able to give large commissions 
to the agents writing fire insurance ? 

Mr. Zacher. We were able to get more agents ,getting the top com- 
missions. 

Mr. Gesell. In other words, you could pay top commissions to more 
agents, is that correct? 

Mr. Zacher. No ; it is the other way around. On account of these 
local agency laws, you could only pay the top commissions on the vol- 
ume of business to a limited number. In order to expand the business 
and get more agents of that character, it required another organization 
to comply with those rules. 

Mr. Gesell. So that there were a greater number of agents receiving 
this top commission as a result ? 

Mr. Zacher. Yes. 

Mr. Gesell. Now, I believe you said that the Travelers Insurance 
Co. has two departments ; the life department and the casualty depart- 
ment. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. I take it as those names indicate, one department handles 
the life business and the other the casualty business. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. It is all one corporation, however, is it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Is it correct to say that all classes of policies issued by 
the Travelers Insurance Co. are secured by the entire assets of that 
company? There is no segregation of the assets as against either, 
are there? 



CONCENTRATION OF ECONOMIC POWER 6369 

Mr. Zacher. The assets are segregated and always have been. The 
company makes two statements, one for the life 'department and the 
other for the accident and casualty department, with a separate list 
of assets. 

Mr. Gesell. That is as a matter of accounting, is it not? 

Mr. Zacher. Yes ; it is a matter of accounting, and may go further, 
I don't know. Nobody knows. 

Mr. Gesell. You mean nobody knows quite what the effect of setting 
up these departments is? 

Mr. Zacher. No; nobody knows whether the entire assets are appli- 
cable to any specific department, because that couldn't be determined 
unless you sold out the company or liquidated it. 

Mr. Gesell. I had in mind a phrase that I noticed in the report of 
the New York Superintendent of Insurance, part 2, for 1938, 
page 619, in which they state with respect to Travelers : 

The Company states that all classes of policies are secured by the entire assets 
of the Company. • • 

Mr. Zacher. Yes. 

Mr. Gesell. The same directors are responsible for the manage- 
ment of both departments, are they not ? 
Mr. Zacher. It is only one company. 

Mr. Gesell. One charter and one set of directors? 

Mr. Zacher. One charter. 

Mr. Gesell. Is that correct? 

Mr. Zacher. We haven't a separate life company and a separate 
casualty company. It is one charter, which includes both, and the 
directors represent that company. 

Mr. Gesell. There is only one class of stock outstanding for Travel- 
ers Insurance Co. ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Now, can you tell me in which States your company 
does its principal business? In other words, what are the most im- 
portant States in terms of the Travelers' operations ? 

Mr. Zacher. I should say, offhand, New York, New Jersey, Penn- 
sylvania, Connecticut, Illinois, perhaps California ; I don't know. 

Mr. Gesell. New York is by far the most important State? 

Mr. Zacher. I should think so. 

Mr. Gesell. I noticed from your yearbook for 1939 that during 1938 
the insurance company — the indemnity company and the fire com- 
pany combined — paid out $29,706,501 in the State of New York, out of 
a total of $102,830,000, and that, I believe, the next largest State 
receiving payments was the State of Pennsylvania, with some 
$7,000,000. 

Mr. Zacher. I should think that would be correct. 

Mr. Gesell. Do you think it would be correct to say that about a 
third of your business is in the State of New York ? 

Mr. Zacher. I haven't any idea. 

Mr. Gesell. Do you think that is a fair approximation, or is it 
less or mo~e ? 

Mr. Zacher. I haven't any figures in my head at all on that. 

Mr. Gesell. Now, the company has what type of stock outstanding? 

Mr. Zacher. Common stock, so-called; common capital stock. 

Mr. Gesell. How many shares are outstanding? 

Mr. Zacher. At the present time, 200,000. 



g370 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. The capital has been increased from time to time, has it? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Does the company sell any participating business? 

Mr. Zacher. Not now. 

Mr. Gesell. There is some participating life insurance on its books ? 

Mr. Zacher. I think about $1,200,000 left over from past years. 

Mr. Gesell. Do the policyholders have any voice in the management 
of the company ? 

Mr. Zacher. None. 

Mr. Gesell. It is controlled by the stockholders entirely ? 

Mr. Zacher. Yes, sir. . 

Mr. Gesell. Does the company send any report to its life-policy 
holders ? 

Mr. Zacher. Occasionally, but not regularly. 

Mr. Gesell. Not as a regular matter? 

Mr. Zacher. Not as a regular practice ; no. 

Mr. Gesell. Approximately how many stockholders has the com- 
pany ? I realize it would have to be an estimate. 

Mr. Zacher. About 7,000, 1 should say. 

Mr. Gesell. Seven to eight thousand; in that^ neighborhood ? 

Mr. Zacher. Yes; somewhere in there. 

Mr. Gesell. Have you figures which will indicate the number of 
shares which are held by officers, the number held by employees of 
the company? 

Mr. Zacher. It seems to me it is about 10,000. 

Mr. Gesell. I have here figures which indicate that the officers of 
the company hold 2,419 shares, that the branch-office employees hold 
928 shares, and the home-office employees, other than officers, hold 870 
shares, or a total of 4,750 shares. 

Mr. Zacher. I was thinking of some trusts and one thing and 
another. 

Mr. Gesell. Those are the direct holdings of officers and employees ; 
is that, to your best knowledge, correct ? 

Mr. Zacher. I should v think so. 

Mr. Gesell. There are some shares held, are there not, by the Trav- 
elers Bank & Trust Co. in a fiduciary capacity ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Is it correct that those shares total 5,515 shares ? 

Mr. Zacher. Approximately. 

Mr. Gesell. Are those shares voted by the Travelers Bank & Trust 
Co. at the annual meetings of the company ? 

Mr. Zacher. I don't know definitely, but I should think so. 

Mr. Gesell. Travelers Bank & Trust Co. has the right to vote the 
shares, has it, if it chooses to exercise it? 

Mr. Zacher. That I don't know ; but they do it. 

Mr. Gesell. In addition there are some shares held by the directors 
of the company, are there not, who are not officers ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you know what the total of those holdings is? 

Mr. Zacher. I think that is included in the figures. I haven't the 
number in mind. If you suggest the number 

Mr. Gesell (interposing). The figure that shows 2,419 shares for 
officers include; directors as well as executive officers ? 



CONCENTRATION OF ECONOMIC POWER 6371 

Mr. Cole. I thought it did, Mr. Gesell. 

Mr. Zacher. I should think so, offhand. That would be approxi- 
mately correct. . 

Mr. Gesell. It was my impression that those figures included only 
such persons as were both officers and directors, and that some 
who were simply directors held additional shares. Is there anyone 
here you could consult with to determine that fact before we go on? 

Mr. Zacher. I don't know of anybody. 

Mr. Gesell. I show you a schedule of stock holdings by officers and 
ask you whether or not it is not a fact that there are certain directors 
not officers whose names are not included on that list. 

Mr. Zacher. Yes; there are some directors whose names are not 
on this list. 

Mr. Gesell. The records furnished us would indicate that Mr. Ens- 
worth, one of your directors, holds 121 shares. His name is not on 
that list? 

Mr. Zacher. No, sir. 

Mr. Gesell. Mr. Thomas Farnam holds 40 shares. His name is not 
on that list, is it? 

Mr. Zacher. No, sir. 

Mr. Gesell. The figures we have indicate that the directors who are 
not officers hold in addition to the 2,419 figure, 3,084 shares. 

Mr. Zacher. I should think that would be approximately correct. 

Mr. Gesell. Well, now, the total of the holdings of the officers and 
directors, then, must be somewhat less than 10 percent of the outstand- 
ing stock. 

Mr. Zacher. It would be 5 percent, wouldn't it? 

Mr. Gesell. It would be about 5 percent held by the officers and 
directors ? 

Mr. Zacher. Yes. 

Mr. Gesell. And might get as high as 7 if we included those shares 
held in a fiduciary capacity at the Travelers Bank ? 

Mr. Zacher. Possibly. 

Mr. Gesell. How many stockholders vote? Approximately how 
many vote by proxy or otherwise at the meetings? I should say, 
how many shares are voted ? 

Mr. Zacher. According to my recollection we generally get some- 
where between 60 to 66 percent. 

Mr. Gesell. Most of those persons vote by proxy? 

Mr. Zacher. By proxy. 

Mr. Gesell. And: the proxies are solicited by the management of 
the company, are they not? 

Mr. Zacher. No, sir. 

Mr. Gesell. Who solicits the proxies? 

Mr. Zacher. No one. The proxies^ are sent out with a notice of the 
annual meeting, with a request that if the stockholder can't attend the 
meeting he will do us a favor by signing the enclosed proxy and 
returning it to the company. The proxies are to the members of the 
finance committee, which number, generally, four, and they are named 
in there to act as their attorneys in voting the proxies at the annual 
meeting. 



6372 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Perhaps "solicited" was the wrong word. What 1 
meant was that the Travelers Insurance Co. management sends out 
the proxies each year to the stockholders. 

Mr. Zacher. Oh, yes; surely. 

Mr. Gesell. Do you recall any time in recent years when any 
group or body of persons have sought to gather proxies sufficient to 
enable them to place their representatives on the board ? 

Mr. Zacher. Not within my recollection. 

Mr. Gesell. There has been no contest in any sense of the word? 

Mr. Zacher. No, sir. 

Mr. Gesell. Turning specifically to the Connecticut River Banking 
Co. and some of the other banks in which your company is inter- 
ested, I notice from the annual yearbook, that your company has 
owned shares in some 21 different banks. 

Mr. Zacher. That mav be so, I haven't counted them. 

Mr. Gesell. Am I correct in saying that the Travelers has a con- 
trolling interest only in two of those banks ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That would be the Connecticut River Banking Co. 
and the Travelers Bank & Trust Co. ? 

Mr. Zacher. Yes; that is right. 

Mr. Gesell. What kind of a bank is the Connecticut River Bank- 
ing Co.? 

Mr. Zacher. Commonly known as a commercial bank. 

Mr. Gesell. It has offices in Hartford? 

Mr. Zacher. In the building of the- Travelers Insurance Co. 

Mr. Gesell. The bank was organized, was it not, about 1825? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. It was not organized by Travelers, was it? 

Mr. Zacher. That was before the Travelers existed. 

Mr. Gesell. The Travelers Insurance Co., by its charter, is quali- 
fied to purchase and invest in common stocks, is it not ? 

Mr. Zacher. I don't recall, but I assume so, otherwise they 
wouldn't, but they are qualified to do so by the insurance laws of the 
State of Connecticut. 

TRAVELERS — INTEREST IN CONNECTICUT RIVER BANKING CO. AND TRAVELERS 

BANK AND TRUST CO. 

Mr. Gesell. At what time did the company start to acquire an 
interest in the Connecticut River Banking Co.? 

Mr. Zacher. I believe it was 1912. 

Mr. Gesell. Now can you tell us why the Travelers wanted an 
interest in that bank? 

Mr. Zacher. From hearsay, because I didn't create the idea 

Mr. Gesell (interposing). If I may interrupt a moment, what was 
your connection with the company at that time ? You were treasurer, 
were you? 

• Mr. Zacher. I think I was assistant treasurer, I would have to 
refer to the record. The company at that time, as I recall it, had 
about five to six hundred clerks. The banking accommodations that 
were being received from the banks with which the company did busi- 
ness were not satisfactory. The arrangement that the company had 
for taking care of petty cash, cash accounts, checks, and one thing 



CONCENTRATION OF ECONOMIC POWER 6373 

and another, was not satisfactory. We vvere told that this institu- 
tion was for sale. We figured that it would be highly beneficial if 
we had this public institution to carry on our banking business. That 
is to say, by bringing it into the building we were enabled to pay 
our clerks in checks; they could get them cashed very conveniently. 
Any cash that we needed we could get by check so that we didn't 
have to have any cash in the office. 

This bank was a member of the Hartford Clearing House Asso- 
ciation. On account of our casualty business we issued innumer- 
able drafts to adjusters all over the country and most of those were 
made payable through the Connecticut River Banking Co. The 
drafts would come through the clearing house, then over to our office, 
were immediately audited and so permitted us to get a service which 
we couldn't get from any other banking institution. 

Mr. Geseix. You are talking now about the condition prior to the 
time you acquired control? 

Mr. Zacher. At the time. 

Mr. Gesell. You didn't have any banking relations with them 
prior to the acquisition of the bank ? 

Mr. Zacher. No. And, of course, since the number of clearings 
has grown that bank has become extremely useful. I might say that 
we solicited no outside 1 accounts. It was there for the convenience of 
the company, primarily for its use, and if anybody wanted to use it 
for banking purposes we were very glad to talk to them about it. 

Mr. Gesell. You say you heard the bank was for sale. How did 
you acquire control of the; bank? 

Mr. Zacher. It was bought — most of it was bought from the pre- 
vious owner who, I think, held practically 50 percent of the stock. I 
believe you have a copy of some agreement that covers that. 

Mr. Gesell. Well, now, at the time of acquisition the capital stock 
of the company was 5,000 shares outstanding, par value $30 a share, 
is that correct ? 

Mr. Zacher. $150,000. 

Mr. Gesell. There were 5,000 shares outstanding? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. The records I have would indicate that in the period 
from May 14, 1912, to May 31, 1912, your company purchased a total 
of 1,731 shares from many different persons through Richter & Co., 
is that correct ? 

Mr. Zacher. I should say it is approximately correct. 

Mr. Gesell. Richter & Co. was a local brokerage firm, was it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. None of those shares were, acquired from the owner, 
were they? 

Mr. Zacher. No ; these were scattered stockholders. 

Mr. Gesell. The records I have also indicate that during the period 
from May 24, 1912, to May 29, 1912, you purchased of Martin Welles 
452 shares. 

Mr. Zacher. That is not strictly correct. He simply acted as a con- 
venient means of delivering the stock to us and delivering the checks 
to the owners. 

Mr. Gesell. He picked up the stock on your behalf, is that what 
you mean? 

Mr. Zacher. No; they came in and ask^d him to turn it over to 
us. 



6374 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Who was Mr. Welles? 

Mr. Zacher. Mr. Welles was either vice president or — I think he 
was vice president of the Connecticut River Banking Co. at that 
time. 

Mr. Gesell. What was^ his connection with Travelers Insurance Co. 
at that time? He was a director, was he not? 

Mr. Zacher. No; he was never a director; he may have been an 
auditor, I don't know. 

Mr. Gesell. He was connected with the bank ? 

Mr. Zacher. He was vice president, as I recall it. 

Mr. Gesell. Well, now, these shares that were purchased from him 
were shares which persons had voluntarily indicated to him they 
were desirous of selling to you ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. He received no commission or compensation in this 
connection ? 

Mr. Zacher. Not that I know of. 

Mr. Gesell. The records that I have indicate that from May 13 
to June 5, additional shares were acquired in various blocks which 
brought the total of shares acquired by June 5 to 3,107 shares. Can 
you tell us, from these records, just how many of these shares were 
purchased from this previous owner to whom you refer? 

Mr. Zacher. I can't tell, I haven't that knowledge. 

Mr. Gesell. What was his name? 

Mr. Zacher. I think it was Samuel Elmore, acting through his 
son, Samuel D. Elmore. 

Mr. Gesell. It is true, isn't it, Mr. Zacher, that a majority of these 
shares were acquired by purchases of small amounts from various 
individual stockholders and that the control was not purchased as 
a block from any one individual ? 

Mr. Zacher. It may be, I would have to look at the record for 
that. But so far as working control is concerned, it was through this 
individual Elmore. He was the president of the company at that 
time. 

Mr. Gesell. These records would indicate that out of those 3,107 
shares, only 608 came from him or his family. 

Mr. Zacher. Yes. 

Mr. Gesell. By June 5, however, you had over the majority of 
the control, did you not? 

Mr. Zacher. I think so. 

Mr. Gesell. Thirty-one hundred and seven shares out of 5,000 
brings it up around 62 percent. 

Mr. Zacher. Yes. 

Mr. Gesell. And that majority control then, as opposed to working 
control, was acquired, by and large, through market purchases, was 
it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. How much of. an investment did these purchases 
make for the Travelers Insurance Co.? Am I correct that it is an 
investment of some $388,544? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Has the Travelers Insurance Co. always owned over 
50 percent of the outstanding stock of the Connecticut River Banking 
Co. since 1912? 

Mr. Zacher. Since those purchases were made. 



CONCENTRATION OF ECONOMIC POWER 6375 

Mr. Gesell. It is now approximately 71 percent, is it not? 

Mr. Zacher. Yes; I guess so. 

Mr. Gesell. Following the acquisition of this stock, am I correct 
in saying that certain representatives of the Travelers went on to 
the finance committee of the Connecticut River Bank ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. You were among those who went on at that time? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Is it correct to say that at all times since the acquisi- 
tion of this majority stock, Travelers Insurance Co. has had the 
active control and the majority on the finance committee and the 
board of directors? 

Mr. Zacher. Yes ; I would say yes. 

Mr. Gesell. At the present time is it correct to say that the finance 
committee has the majority of persons who are also connected with 
Travelers Insurance Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And that the board of directors similarly had such 
a majority ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you recognize this statement which I show you 
now as a statement of condition of the bank as of December 31, 1938 ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. This statement indicates that the bank, as of Decem- 
ber 31, 1938, had total resources and liabilities of $9,200,047.78. I 
should like to offer the statement for the record. 

Acting Chairman Davis. This will be put into the record. 

(The statement referred to was marked "Exhibit No. 1095" and 
is included in the appendix on p. 6954.) 

Mr. Gesell. Connecticut River Banking Co. has only one class of 
stock outstanding, has it not ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Now coming for a moment to Travelers Bank & Trust 
Co., was the Travelers Bank & Trust Co. another bank which your 
company bought an interest in, or was it a bank created by your 
company ? 

Mr. Zacher. It was created by the company. 

Mr. Gesell. When was that Mr. Zacher? 

Mr. Zacher. I think it was in 1912. 

Mr. Gesell. Will you tell us why the bank was created and the 
circumstances relating to its creation ? 

Mr. Zacher. The Travelers Insurance Co. was interested in sal- 
vaging one of its old investments and it appointed one of the officers 
of the Travelers Insurance Co. as trustee for the benefit of the 
stockholders. He was not in good health and he wished to transfer 
his responsibilities to a corporate trustee. The nature of the enter- 
prise was rather complicated and rather than seiect one of the other 
trust companies in Hartford, they organized this company under the- 
name of the Union Trust Co., originally principally to handle these 
two or three trusts. The Connecticut River Banking Co., we found, 
did not. have any trust privileges. 

Mr. Gesell. The bank, then, was organized solely for the purpose 
of handling these trust accounts which involved interests of your 
company ? 



6376 CONCENTRATION OF ECONOMIC POWER 

Mr. Zacher. That was the only business we had at that time, but 
the charter was a special charter and covered banking business gen- 
erally. 

Mr. Gesell. You say it was called the Union Trust Co. when it 
was organized, is that correct ? 

Mr. Zacher. Yes, sir.' 

Mr. Gesell. Does it now bank in the same building as the Travelers 
" Insurance Co. ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. I believe you said that was organized in 1912. My 
records indicate that it was chartered April 8, 1913. 

Mr. Zacher. Then that is correct. 

Mr. Gesell. When was its name changed to Travelers Bank & 
Trust Co. as you best recall, some time in 1915? 

Mr. Zacher. I should think so. 

Mr. Gesell. This bank is wholly owned by Travelers Insurance 
Co., is it? 

Mr. Zacher. Yes. 

Mr. Gesell. Do you recognize this statement which I show you as 
a statement of condition of the Travelers Bank & Trust Co. as of 
December 31',' 1938? 

Mr. Zacher. Yes. 

Mr. Gesell. This is a statement of condition which shows that the 
resources and liabilities of the bank as of that date were $12,527,791.99. 
I submit it for the record. 

Acting Chairman Davis. It is ordered inserted in the record. 

(The schedule referred to was marked- "Exhibit No. 1096" and is 
included in the appendix on p. 6954.) 

Mr. Gesell. That statement would indicate that subsequent to the 
formation of the bank its activities were expanded from those origi- 
nally contemplated? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Will you tell us from what direction that expansion 
took place? 

Mr. Zacher. They opened up a savings department and opened 
its trust department to the public. I think those are the only two 
functions. 

Mr. Gesell. In other words, as the bank went along it became a 
public institution? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Am I correct in saying that the Travelers Insurance 
Co. has received dividends from both these banks from time to time 
since their organization ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you recognize this as a schedule prepared in your 
office showing the amount of those dividends and the dates when they 
were paid ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. This schedule indicates that the Travelers Bank & 
Trust Co. paid, from the period 1924 to 1938, dividends to Travelers 
Insurance Co. totaling $391,000, and that the Connecticut River Bank- 
ing Co., in the period from 1912 to 1938, paid dividends to Travelers 
Insurance Co. totaling $866,230.80. I should like to offer this for the 
record. 



CONCENTRATION OF ECONOMIC POWER 6377 

Acting Chairman Davis. Let it be inserted in the record. 

(The schedule referred to was marked "Exhibit No. 1097" and is 
included in the appendix on p. 6954.) 

Mr. Geseix. Who is the president of the Travelers Bank & Trust 
Co. at the present time? 

Mr. Zacher. L. M. Hubbard. 

Mr. Gesell. Is he also president of the Connecticut River Banking 
Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. What is his connection with the Travelers Insurance 
Co.? 

Mr. Zacher. Director. 

Mr. Gesell. Similarly, are there any other officials who have con- 
nections with both banks and with the insurance company ? 

Mr. Zacher. Yes. 

Mr. Gesell. Can you name some of those for us and tell us what 
their connections are? 

Mr. Zacher. The Travelers Bank and the Travelers Insurance Co. ? 
Or the Connecticut River ? 

Mr. Gesell. I had in mind men who were connected with all three 
institutions in the manner that Mr. Hubbard is connected. 

Mr. Zacher. Well, they are very common to all institutions. 

Mr. Gesell. I believe we have the details in the record. 1 The two 
banks are by and large run by the same individuals, are they not? 

Mr. Zacher. As I remember, the Connecticut River Banking Co. 
has about 9 directors, of which 5 are connected with the Travelers 
Insurance Co. The Travelers Bank & Trust Co., I believe, has 15 
directors, all but 1 or 2 are connected with the Travelers Insurance 
Co. either as directors or officers. 

Mr. Gesell. Then there are some persons who are connected with 
both banks? - , 

Mr. Zacher. The other two, I think, are* ' connected with the Con-' 
necticut River Banking Co., so that you might say it is one repre- 
sentation for all practical purposes. 

Mr. Gesell. Yes. Mr. Welles, for example, is vice president of 
both banks, is he not? 

Mr. Zacher. I believe so. 

Mr. Gesell. And Mr. Fisher is treasurer of one bank and cashier 
of the other? 

Mr. Zacher. Yes. 

Mr. Gesell. Returning to the Connecticut River Banking Co., I be- 
lieve you said that prior to the acquisition of this stock interest your 
company had no banking relations with the Connecticut River Bank- 
ing Co., that amounted to anything substantial. 

Mr. Zacher. I think we had none. 

Mr. Gesell. A schedule which I have would indicate that since 
that time your company has carried bank balances at the Connecticut 
River Banking Co. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Those bai.k balances have been carried in a regular 
account. and a special account, have they not? 

1 See "Exhibit No. 1094," appendix, p. 6952. 



6378 CONCENTRATION OF ECONOMIC POWER 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you recognize these schedules which I show you 
as schedules reflecting the year-end amounts of the balances in those 
two particular accounts? 

Mr. Zacher. I presume they are correct, to my recollection. 

Mr. Gesell. You recognize Mr. Pease's initials, of your office, do 
you not? 

Mr. Zacher. Yes. 

Mr. Gesell. These schedules indicate that in 1911, December 31, the 
Travelers Insurance Co. had no bank balance in the Connecticut 
River Banking Co. and that since that time the account has increased 
from $37,384.55 at the year end of 1912 to $3,345,293.85 at the year end 
of 1938, the maximum year-end balance shown on this schedule being 
in 1936, $4,023,482.65. That is for the regular account. 

And that in the special account a balance of some $400,000 has been 
carried steadily since 1918. 

I should like to offer those two schedules for the record. 

(The schedules referred to were marked "Exhibits Nos. 1098 and 
1099" and are included in the appendix on pp. 6955 and 6956.) 

Acting Chairman Davis. They will be entered in the record. I. 
would like to ask a question. How do the rates of interest that these 
banks paid to the Travelers Insurance Co. compare with the rate paid 
other depositors in the same status? 

Mr. Zacher. I can't tell you that, sir. It would depend upon the 
nature of the account. If the account was of the same nature — I 
don't mean so large, but I mean substantial, and involved no more 
labor, the outside account of the. public got as much interest as the 
Travelers' account, and the Travelers' account got the current rate of 
interest that was prevalent amongst all the institutions in the city= 
Is that what you wanted to know ? 

Acting Chairman Davis. Yes, sir. 

Mr. Gesell. The rates of interest are shown for both those accounts 
on the schedules, I believe. 

What is the nature of this special account of $400,000? 

Mr. Zacher. Just a deposit, originally in the form of a time de- 
posit which commanded a little larger rate of interest than that 
paid on the regular checking account. 

Mr. Gesell. At the present time it is a demand deposit, is it not ? 

Mr. Zacher. It has been merged. It overstayed its welcome and 
we should have taken care of it 2 or 3 years ago when they changed the 
interest rates all around. 

Mr. Gesell. So at the present time there is no working or basic 
distinction between the regular account and the special account? 

Mr. Zacher. No, sir. 

Mr. Gesell. Do you recall when the first deposit was made in 
the Connecticut River Banking Co.? 

Mr. Zacher. No, sir. 

Mr. Gesell. It was immediately following the acquisition of the 
stock, was it not ? 

Mr. Zacher. I should think so ; yes. t 

Mr. Gesell. Our records would indicate a $50,000 deposit on Au- 
gust 29, 1912. Would you agree that that was correct ? 

Mr. Zacher. I think so. 



CONCENTRATION OF ECONOMIC POWER 6379 

Mr. Gesell. Am I correct in saying, Mr. Zacher, that from time to 
time the Connecticut River Banking Co. has loaned money on col- 
lateral to officers and directors of Travelers Insurance Co.? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Was such a loan made to yourself? 

Mr. Zacher. Yes, sir ; two or three of them. 

Mr. Gesell. Do you recall that you borrowed on May 11, 1915, 
$1,011.89, and that you borrowed $600 on July 1, 1915; $800 on Octo- 
ber 18, 1915; $52,527.11 in 1916; $500 January 14, 1918; $10,000, July 
15 1929; and $1,100, July 22, 1931, or a total of a little over $66,000? 

Mr. Zacher. Oh, no, no. You have got that wrong. I paid it off 
in 1929 and 1931. 

Mr. Gesell. You made no loans since 1918 ? 

Mr. Zacher. Why, yes; I think I made a loan in 1923 or '24. Those 
loans I don't think aggregate entirely more than $56,000, and that 
10 and 8 that you have just read are payments. 

Mr. Gesell. Payments and not loans? Can you confirm that by 
reference to the records of the bank which I show you ? 

Mr. Zacher. There is another statement that you took showing that 
thing more concisely, just exactly what happened. I think that we 
ought to be particular to get that in right. 

Mr. Gesell. I am very anxious, Mr. Zacher, to have it right, and 
that is why I am asking you. 

Mr. Zacher. According to this record, I think it is correct, $1,011.89, 
which was paid June 2, 1915. July 1, 1915, 1 borrowed $600 and paid 
it July 29 of ihC -me year, 28 days later. On October 18, 1915, I 
borrowed $800, ana "paid it off the next day, apparently, October 19, 
1915. February 29, 1916, I borrowed $52,527.11. I paid off $320 on 
April 3, 1916, $9,368.62, May 24, 1916, $2,838.49, June 1, 1916; $10,000, 
December 31, 1929 ; $5,000, March 31, 1931, and $25,000 on June 30, 
1931, and I haven't borrowed any money there since. 

Mr. Gessell. So that by 1931 you had paid off the $52,000 loan in 
1916? 

Mr. Zacher. Correct. 

Mr. Gesell. That schedule which you have just been reading, Mr. 
Zacher, covers loans only from 1912 to 1917, does it not? I refer you 
to the heading. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Are you quite certain that you haven't borrowed any 
money subsequent to the $52,527 loan ? 

Mr. Zacher. According to my recollection, I haven't. I may be 
mistaken, because 1917 is 22 years ago. 

Mr. Gesell. In the interest of accuracy, I wish you would refresh 
your recollection by referring to the record of the bank which I handed 
to you, and which your counsel now has, so that we can determine one 
way or another. I have no objection to your having Mr. Fisher up 
here, who is familiar with these records, to point that out to you. I 
understand 

Mr. Zacher (interposing). I can't read these records. These are 
not our records, they are bank records. They want to know if I bor- 
rowed any money since 1917. That 40 is part of the 52. 

According to this record, I paid that 52 down to 40, and then on 
July 15, 1929, I borrowed $10,000 more, which I paid off August 7, 
1929. That is from July 15 to August 7, that was paid off. Then 

124491— 40— pt. 13 3 



g380 CONCENTRATION OF ECONOMIC POWER 

those other payments went on, as I read them. On July 22, 1931, I 
borrowed $1,100, and I paid it off August 4. 

Mr. Gesell. That agrees with the records I originally read. Now, 
these loans were collateralized, were they, Mr. Zacher? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. At the time these loans were made, you were a member 
of the board of directors and the finance committee of the bank as well 
as a director and officer of the insurance company, were you not ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. When these loans came before the finance committee 
for approval, is it not a fact that you were in attendance at those 
meetings and approved the loans involving advances of credit to 
yourself ? 

Mr. Zacher. I think, if the records show I was at the meeting, I 
probably said "yes." 

Mr. Gesell. Do you recall those instances, Mr. Zacher ? 

Mr. Zacher. No, sir. I think you have the record showing whether 
or not I was there at the meeting; if you had the record, I probably 
voted in favor of it. 

Mr. Gesell. Well, now, this $52,527 loan was approved at a meeting 
of the finance committee held March 7, 1916, was it not? And were 
you not present? Was that loan not brought before the committee 
at that time? 

Mr. Zacher. This record shows that I was there on that date, and 
that the loans as read from a note register February 28 to March 7 
were approved, also a renewal from March 7 to March 14. 

Mr. Gesell. That would include, would it not, the loan of fifty-two- 
odd thousand dollars to yourself ? 

Mr. Zacher. That was on the register ; yes. 

Mr. Gesell. No doubt about it being on the register, is there ? 

Mr. Zacher. I don't know. These are all pretty old records. I don't 
recall these things except in a general way. 

Mr. Gesell. Am I correct in saying it is your best judgment you did 
attend the finance committee meetings and on occasion pass on loans, 
including loans to yourself ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Can you tell us whether or not these loans were secured 
to some considerable extent by Travelers Insurance stock? 

Mr. Zacher. Yes, sir ; they were. 

Mr. Gesell. Directing your attention specifically to the $52,527 loan, 
can you tell us whether or not it is a fact that that loan was secured 
almost entirely by Travelers Insurance Co. stock? 

Mr. Zacher. I should say so; yes. 

Mr. Gesell. Was that loan made for the purpose of enabling you 
to purchase that stock? 

Mr. Zacher. I don't knoW. 

Mr. Gesell. Do you know any of the circumstances surrounding the 
borrowing of that money ? 

Mr. Zacher. No, sir. 

Mr. Gesell. You have no recollection with respect to it at all ? 

Mr. Zacher. Not a bit. 

Mr. Gesell. You don't know for what purpose you borrowed the 
money ? 



CONCENTRATION OF ECONOMIC POWER 6381 

Mr. Zacher. No, sir. What date was that? 
Mr. Gesell. February 29, 1916, $52,527.11. 

Mr. Zacher. It is 23 years ago. No, sir; I don't recall that at all. 
Mr. Gesell. That is just 2 weeks before you became a director of 
Travelers Insurance Co.; do you recall that? 
Mr. Zacher. No. 

Mr. Gesell. Would you say that this loan was made to enable you to 
purchase the stock ; is that your best recollection ? 
Mr. Zacher. I don't know. 

Mr. Gesell. Now, how long a period was it, Mr. Zacher, before there 
was any payment of principal on that loan? 

Mr. Zacher. The record shows that. I will tell you in a minute if 
you will let me borrow it. According to this memorandum which is 
made up by Mr. Fisher, taken from the bank records, this $52,000 was 
made February 29, 1916. April 3 I made a small payment of $320, and 
May 23 paid off $9,368, and on June 1 that year $2,838. Then there 
were no further payments until 1929. 

Mr. Gesell. So that from 1916 to 1929 there were no payments of 
principal on the loan. 

Mr. Zacher. That isn't exactly correct. I paid off $12,527.11 in 
1916, bringing the loan to $40,000. Then there were no payments 
until 1929. 

Mr. Gesell. Now at the time this loan was made, was any ques- 
tion raised as to the propriety of your borrowing from ,this bank ? 
Mr. Zacher. No, sir. 

Mr. Gesell. Any discussion of it at all one way or the other? 
Mr. Zacher. I don't recall. I don't see why there should be. 
Mr. Gesell. I am asking you whether there was any discussion of 
it. I think the "why" should be apparent. Did you have any dis- 
cussion of »it? 

Mr. Zacher. Well, I am sorry, but this happened 23 years ago. 
Mr. Gesell. There have been many officers who have borrowed 
money from the bank, have there not? 

Mr. Zacher. I should say there was no discussion on that ac- 
count, for that reason. 

Mr. Gesell. From time to time officers and directors of Travelers 
Insurance Co. have borrowed money from this bank, have they not? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. And you recall no discussions at any time with re- 
spect to the propriety of those loans? 
Mr. Zacher. No, sir. 

Mr. Gesell. Now at this time, if the committee please, I would 
like to ask Mr. Zacher to step down in order to call Mr. Sherwood, 
another witness. 

Acting Chairman Davis. Just stand aside for the time being, Mr. 
Zacher. 

Mr. Gesell. Mr. Sherwood. 

Acting Chairman Davis. Do you solemnly swear that the state- 
ments you are about to make in this inquiry shall be the truth, the 
whole- truth, and nothing but the truth, so help you Ood ? 
Mr. Sherwood. I do. 



(3382 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF WILBUR S. SHERWOOD, CASHIER, THE TRAVELERS 
INSURANCE CO., HARTFORD, CONN. 

Mr. Gesell. Will you state your full name, please, Mr. Sherwood ? 

Mr. Sherwood. Wilbur S. Sherwood. 

Mr. Gesell. Are you connected with Travelers Insurance Co. ? 

Mr. Sherwood. I am. 

Mr. Gesell. What is your position there? 

Mr. Sherwood. I am cashier of the Travelers Insurance Co. 

Mr. Gesell. Cashier of the Travelers Insurance Co.? 

Mr. Sherwood. Exactly. 

Mr. Gesell. Does that include the two banks ? 

Mr. Sherwood. No, sir. 

Mr. Gesell. You have no connection with the banks ? 

Mr. Sherwood. I have no connection with the banks other than the 
Travelers Bank & Trust Co., and there I am one of the two auditors 
appointed by the stockholders. 

Mr. Gesell. How long have you been with the Travelers Insurance 
Co. Mr. Sherwood? 

Mr. Sherwood. Since February 1918. 

Mr. Gesell. Am I correct in saying that from time to time you 
have borrowed money from the Connecticut River Banking Co. ? 

Mr. Sherwood. That is correct. 

Mr. Gesell. Do you recall the number of loans which you have 
made and the amount of those loans, or have you any information 
with respect to them here? 

Mr. Sherwqod. I have no information here. 

Mr. Gesell. This may help you refresh your recollection with 
respect to them. 

Your loans commenced as early as 1919, did they not? 

Mr. Sherw t ood. According to this record, they did. 

Mr. Gesell. And they have continued from time to time up to as 
late as 1931, is that correct? 

Mr. Sherwood. I think so. 

Mr. Gesell. -Are there loans outstanding at the present time? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. What is your obligation to the bank at the present 
time? 

Mr. Sherwood. Slightly in excess of $50,000. 

Mr. Gesell. Are those loans secured? 

Mr. Sherwood. I think they are; yes, sir. 

Mr. Gesell. Were those loans .loans which you negotiated in each 
instance in your own capacity for your own benefit ? 

Mr. Sherwood. My own benefit. 

Mr. Gesell. They were made for 3'ourself ? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. No one else? 

Mr. Sherwood. No one else. 

Mr. Gesell. Were some of those loans to assist you to purchase 
Travelers stock? 

Mr. Sherwood. That may be correct. I am not exactly sure. 

Mr. Gesell. Well, I would be glad to have you refresh your recol- 
lection by looking at the collateral sheets in those loans. 

Mr. Sherwood. The collateral doesn't always give that answer, Mr. 
Gesell. 



CONCENTRATION OF ECONOMIC POWER 63§3 

Mr. Gesell. But it might help you recall. 

Mr. Shehwogd. Well, I would say I could say yes, partially. I am 
not sure about it being entirely right. 

Mr. Gesell. You mean in some cases these loans were made in order 
to enable you to purchase stock in Travelers Insurance Co. ? 

Mr. Sherwood. I think that is correct; yes, sir. 

Mr. Gesell. How were these loans, the mechanics of these loans 
worked out when you went to borrow ? How would they be handled ? 

Mr. Sherwood. Perhaps it is best described as being identical with 
anybody's request for a collateral loan in any bank. I have had a 
number of years' experience in the banking business myself where 
loans were made, and I think my application was no different from 
any other application for a collateral loan. 

Mr. Gesell. Why did you happen to go to the Connecticut River 
Banking Co. to borrow money ? 

Mr. Sherwood. Well, I was well known there, carried an account 
there. The natural place for a man to go for his loans is where he 
banks and where he does business. 

Mr. Gesell. No other extenuating circumstances of any sort in 
connection with your going to that particular bank for these loans? 

Mr. Sherwood. None whatever. 

Mr. Gesell. Do you feel you paid the going rate of interest on 
those loans? 

Mr. Sherwood. I certainly do. 

Mr. Gesell. Reading from the schedules in front of us, can you 
tells us the dates of the loans and the amounts of them, please? My 
records would indicate that the first loan was on December 9, 1919, 
for $1,000. 

Mr. Sherwood. There is a record here that shows a loan was made 
of $1,000 December 9, 1919. 

Mr. Gfsell. Well now, you say there is a record there. You don't 
have any recollection as to that loan ? 

Mr. Sherwood. I haven't these dates in mind, if that is what you 
are after. 

Mr. Gesell. And you are not certain of the amounts ? 

Mr. Sherwood. I am not certain, but I have no reason to say they 
are not as indicated in the schedule. 

Mr. Gesell. Well I have no objection to putting Mr. Fisher up 
with respect to that. 

Can you tell us before concluding your testimony on this occa- 
sion — you said you owed approximately $50,000 at the present time? 

Mr. Sherwood. That is correct. 

Mr. Gesell. How is that obligation secured ? 

Mr. Sherwood. On demand notes. 

Mr. Gesell. Is there any collateral? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. The collateral is mostly Travelers Insurance securi- 
ties; is that correct? 

Mr. Sherwood. That is correct. 

Mr. Gesell. Is there also an insurance policy securing that obli- 
gation ? 

Mr. Sherwood. I believe there is more tjian .one. There are in- 
surance policies. 



6384 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. J<= it the proceeds of the policy or the cash surrender 
value of the policy which is the security ? 

Mr. Sherwood. Well, I don't know how I would best describe the 
word "security." The collateral would be the Travelers Insurance 
stock and the slowly increasing cash surrender value of the policies 

Mr. Gesell. Those are not term policies? 

Mr. Sherwood. I think they are not term policies. 

Mr. Gesell. I have no further questions of this witness at this 
time. 

Acting Chairman Davis. You are excused. 

Mr. Gesell. I want Mr. Sherwood back at some future date. 

Mr. Fisher, will you take the stand, please? 

Acting Chairman Davis. Hold up your right hand. Do you sol- 
emnly swear the testimony you are about to give in this inquiry will 
be the truth, the whole truth, and nothing but the truth, so help you 
God? 

Mr. Fisher. I do. 

TESTIMONY OF FREDERICK FRANCIS FISHER, CASHIER, 
CONNECTICUT RIVER BANKING CO., HARTFORD, CONN. 

Mr. Gesell. What is your full name, please, sir? 

Mr. Fisher. Frederick Francis Fisher. 

Mr. Gesell. Are you connected with the Connecticut River Bank- 
ing Co. ? 

Mr. Fisher. I am. 

Mr. Gesell. How long have you been with that bank ? 

Mr. Fisher. Since 1895. 

Mr. Gesell. Since it was organized? 

Mr. Fisher. No. 

Mr. Gesell. No; that was in 1825, wasn't it? You don't look that 
old. 

Referring to these loan records of Mr. Sherwood, can you tell us 
the dates of the loans made to him and the amounts thereof ? I take 
it you are familiar with these records. 

Mr. Fisher. I am. 

Mr. Gesell. And have general supervision over their maintenance ? 

Mr. Fisher. General supervision ; yes. These loans started in 1922, 
apparently. 

Mr. Gesell. Do you find no loan December 9, 1919 ? 

Mr. Fisher. Yes; 1919, a demand loan of $1,000. 

Mr. Gesell. Will you tell us the loans which were made subse- 
quently thereto? 

Mr. Fisher. Well, of course, any loans— $6,880 on September 1, 
1922; $5,000 on May 10, 1923; $4,500 on July 18, 1923; $500 on July 
19, 1923; $500 on November 30, 1923; $1,285.50 on January 4, 1924; 
$9,060 on January 30, 1924; $2,989 on February 20, 1924; $1,499.50 
February 26, 1924; $452.10 February 28, 1924; $1,060.15 on February 
29, 1924; $9,575 July 24, 1924; $6,050 September 24, 1924; $3,70*0 
September 25, 1924; $3,800 September 25, 1924; $54,000 October 1, 
1924. 

Mr. Gesell. That is a balancing figure, I believe. 

• Ci 



CONCENTRATION OF ECONOMIC POWER 6385 

Mr. Fisher. I was going to call your attention to that. You asked 
the loans made. These loans may be paid off or consolidated and 
therefore show as new loans. 

Mr. Gesell. I was going to ask you the largest amount outstanding 
at any one time. Proceed. 

Mr. Fisher. $4,312.50 November 18, 1924; $1,000 December 2, 1924; 
$17,850 February 25, 1925; $3,090 March 2, 1925; $1,500 July 25, 1925; 
$5,560 September 28, 1925; $2,000 November 25, 1925. 

Then on another sheet here is merely a consolidation of the previous 
loans, which aggregate $50,000; and then on January 16, $6,660; Sep- 
tember 16, 1929, $15,000; $12,000 on November 9, 1929; $11,500 Febru- 
ary 1, 1930; $11,000 

Mr. Gesell (interposing). I think you are reading renewals, are 
you not? 

Mr. Fisher. Undoubtedly. 

Mr. Gesell. I was trying to confine your testimony to loans which 
were new loans. 

Mr. Fisher. I can't tell that without analyzing the sheets. 

Mr. Gesell. Can you tell us what the greatest amount outstanding 
at any one time was, and what the date of that amount was? My 
records would indicate it is September 16, 1929. 

Mr. Fisher. Right; $65,000. 

Mr. Gesell. $65,000 on that date ? 

Mr. Fisher. That's right, 

Mr. Gesell. Were any of the loans that are shown on that schedule 
made without collateral ? 

Mr. Fisher. No; there were some collateral loans that were made, 
and then the loan was split into a collateral and noncollateral. It was 
merely a splitting of the loan into two parts. 

Mr. Gesell. In other words, there was part of the .loan not secured. 

Mr. Fisher. It was secured by the collateral that was on the col- 
lateral loan. 

Mr. Gesell. Explain that to me. Wouldn't you put against each 
loan collateral sufficiently to fully collateralize that? 

Mr. Fisher. Not necessarily. Loans are made without collateral. 

Mr. Gesell. Were there any loans made without collateral here? 

Mr. Fisher. Not in itself. 

Mr. Gesell. There were loans that had no collateral after them fol- 
lowing the split? 

Mr. Fisher. Collateral applied to both loans. 

Mr. Gesell. Was the collateral sufficient to fully secure both loans? 

Mr. Fisher. No. 

Mr. Gesell. There we are. How many loans were there of that 
kind? 

Mr. Fisher. One that I recall. 

Mr. Gesell. What was the amount of that loan, and when was it? 

Mr. Fisher. I should say $15,000, on October 2, 1931. 

Mr. Gesell. Any other instances of that kind? 

Mr. Fisher. Not that I know of. It was merely a split-up of the 
original collateral loan. 

Mr. Gesell. I believe you said the security was not sufficient to cover 
both loans. 

Mr. Fisher. Not with the usual margin. 



6386 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman Davis. Was that loan later paid in full? 

Mr. Fisher. No, sir ; it is still in force. 

Mr. Gesell. That is included, is it not, in the fifty-odd thousand 
dollars ? 

Mr. Fisher. That's right. 

Mr. Gesell. Has any portion of it been written off at the direction 
of the bank examiner ? 

Mr. Fisher. No, sir. 

Mr. Gesell. What did the bank examiner have to say in classifying 
that loan ? Am I correct in saying it was put under "slow and doubt- 
ful paper"? 

Mr. Fisher. Undoubtedly ; the same as some others. 

Mr. Gesell. Reading from the report on the condition of the 
bank by the banking department March 8, 1932, it states : 

Wilbur S. Sherwood, Assistant Cashier, Travelers Insurance Co. — 

referring to the $15,000 loan — 

also has collateral loan for $39,500, present value of collateral $42,800, margin 
loan. Carries small average balance. Bank holds life insurance policies for 
$30,000 to protect. It is classified under "slow and doubtful paper and 
losses." 

(The witness nodded in the affirmative.) 

Mr. Gesell. Mr. Fisher, do you recognize this schedule which I 
show you now? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Will you state what that schedule is? 

Mr. Fisher. A list of the directors of the Connecticut River Bank- 
ing Co. and of the Travelers Bank & Trust Co. 

Mr. Gesell. You are also connected with the Travelers Bank & 
Trust Co., are you not? 

Mr. Fisher. I am. 

Mr. Gesell. In what capacity? 

Mr. Fisher. Treasurer. 

Mr. Gesell. How long have you been with that bank ? 

Mr. Fisher. 1925. 

Mr. Gesell. That record shows the directors of both those 
banks- — - 

Mr. Fisher (interposing). Yes, sir. 

Mr. Gesell. Does it not, and their membership on the Finance 
Committee of those banks? 
. Mr. Fisher. Yes. 

Mr. Gesell. Am I correct in saying that on this schedule the 
first column of dates shows the date each of the men indicated be- 
came a director of the respective banks, the second column of dates 
indicates the date he resigned, died, or went off the board? 

Mr. Fisher. Right. 

Mr. Gesell. And under the heading, "Finance Committee," the 
dates of the membership of each of those gentlemen on the finance 
committee is shown? 

Mr. Fisher. That is correct. 

Mr. Gesell. I wish to offer this schedule for the record. 

Acting Chairman Davis. It may be printed in the record. 
(TJie schedule referred to was marked "Exhibit No. 1100" and is 
included in the appendix on p. 6956.) 



CONCENTRATION OF ECONOMIC POWER 6387 

Mr. Gesell. Now, Mr. Fisher, am I correct in saying that the 
Connecticut River Banking Co. loaned money to Mr. Arthur L. 
Shipman ? 

Mr. Fisher. Yes. 

Mr. Gesell. Those loans were collateralized, were they not? 

Mr. Fisher. Yes. 

Mr. Gesell. Who was Mr. Shipman? 

Mr. Fisher. An attorney — Shipman & Goodman. 

Mr. Gesell. He was a director of Travelers Insurance Co., was 
he not ? 

Mr. Fisher. Right. 

Mr. Gesell. Was he not for a while a director of the Connecticut 
River Banking Co? 

Mr. Fisher. He was. 

Mr. Gesell. This schedule, which was introduced a moment ago, 
indicated he became a director of the Connecticut River Banking 
Co. on January 1, 1907, and that he remained a director until 
October 16, 1937, when he died. 1 

Mr. Fisher. Right. 

Mr. Gesell. During that time various loans were made to him; is 
that correct? 

Mr. Fisher. Yes. 

Mr. Gesell. Do you recognize these sheets which I show you 
as containing a record of his account with the bank? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Can you tell us the date of the first loan to Mr. 
Shipman ? 

Mr. Fisher. The first loan indicated here is in 1910. 

Mr. Gesell. The first loan after the Travelers Insurance Co. became 
interested in the Connecticut River Banking Co. There was a loan 
on October 3, 1912, was there not? 

Mr. Fisher. There was a loan on which he was endorser in August 
1912. 

Mr. Gesell. Of $3,000? 

Mr. Fisher. $3,000. 

Mr. Gesell. Then on October 3, 1912, of $2,250? 

Mr. Fisher. Of $2,250. 

Mr. Gesell. When was the account cleared up, finally — all of his 
transactions? 

Mr. Fisher. Without analyzing the sheets 

Mr. Gesell (interposing). Let me ask you this, then, Mr. Fisher. 
He borrowed money in 1912, 1913, 1914, 1915, 1916, 1918, 1919, 1920, 
1922, 1923, 1926, 1927, 1928, 1929, and 1930, did he not? 

Mr. Fisher. Very likely. 

Mr. Gesell. Well, let's go back through it. Did he borrow money 
in 1912? 

Mr. Fisher. Yes. 

Mr. Gesell. Did he borrow money in 1913 ? 

Mr. Fisher. Yes. 

Mr. Gesell. Did he borrow money in 1914? 

Mr. Fisher. He did. If you notice on your schedule those loans in 
both cases were reduced to $40 before he increased the loans. 



1 See "Exhibit No. 1100," appendix, p. 6050. 



6388 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Did he borrow money in 1914 ? 

Mr. Fisher. He did. 

Mr. Gesell. Did he borrow money in 1915? 

Mr. Fisher. He did. 

Mr. Gesell. 1916? 

Mr. Fisher. He did. 

Mi. Gesell. 1918? 

Mr. Fisher. He did. 

Mr. Gesell. 1919? 

Mr. Fisher. Yes. 

Mr. Gesell. 1920? 

Mr. Fisher. Yes. 

Mr. Gesell. 1922? 

Mr. Fisher. Yes. 

Mr. Gesell. 1923? 

Mr. Fisher. Yes. 

Mr. Gesell. 1926? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. 1927? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. 1928? 

Mr. Fisher. I don't see a 1928 here. Yes ; in 1928. 

Mr. Gesell. 1929? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. And in 1930? 

Mr. Fisher. Right. 

Mr. Gesell. Now,, what was the peak amount of his loans and the 
date that peak amount was outstanding? My records indicate De- 
cember 16, 1930, $38,700. Is that correct ? 

Mr. Fisher. What date now? 

Mr. Gesell. Thirty-eight thousand seven hundred, December 16, 
1930. 

Mr. Fisher. That is correct. 

Mr. Gesell. That is the greatest amount he was obligated at any one 
time? 

Mr. Fisher. That is right. 

Mr. Gesell. Were his loans secured in many cases by Travelers 
Insurance stock? 

Mr. Fisher. In some cases. 

Mr. Gesell. Now, am I correct in saying that the Connecticut River 
Banking Co. loaned money to Louis F. Butler ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. He was a director and president of the Travelers Insur- 
ance Co., was he not? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. He was also a director and member of the finance com- 
mittee of Connecticut River Banking Co., was he not ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. The schedule introduced a moment ago indicates that 
he was a director from January 1, 1926, to October 23, 1929, when he 
died? 1 

Mr. Fisher. That is correct. 



1 Sir "ExhibH Nil iioo." appendix, p. c.9. r >0. 



CONCENTRATION OF ECONOMIC POWER 6389 

Mr. Gesell. Do you recall during what period of time he was con- 
nected with Travelers Insurance Co.? 

Mr. Fisher. No ; I don't know that. 

Mr. Gesell. He was president up until his death, was he? 

Mr. Fisher. He was president when he died. 

Mr. Gesell. The answer is "yes," then ? 

Mr. Fisher. Yes. 

Mr. Gesell. Well, now, can you tell us when he made his first loan 
from Connecticut River Banking Co. ? 

Mr. Fisher. I have no recollection of it. You have the informa- 
tion— 1914. 

Mr. Gesell. That was a loan of $23,500, April 15, 1914? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Am I correct in saying that he borrowed money every 
year thereafter, with the exception of 1921 and 1922 and 1924 and 
1927, up until his death ? 

Mr. Fisher. I couldn't tell without analyzing the sheet. 

Mr. Gesell. Then, let's go down through it, Mr. Fisher. Did he 
borrow money in 1915 ? 

Mr. Fisher. Yes. 

Mr. Gesell. Did he borrow money in 1916? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. In 1917? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. 1918? 

Mr. Fisher. If you will bear in mind, where those appear as borrow- 
ing, it might be a renewal of the previous loan. 

Mr. Gesell. Did he borrow money in 1918? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Was that a renewal ? 

Mr. Fisher. No; the first one was. 

Mr. Gesell. Did he borrow money in 1919 ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Was that new money or renewal money ? 

Mr. Fisher. That was new. 

Mr. Gesell. Did he borrow money in 1920 ? 

Mr. Fisher. Yes. 

Mr. Gesell. Was that new money or renewal money ? 

Mr. Fisher. Part new and part renewal. 

Mr. Gesell. Did he borrow new money in 1923 ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Did he 1 >orrow new money in 1925 ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. That was $54,500 there, was it not? 

Mr. Fisher. That ib right. 

Mr, Gesell. Did he borrow new money in 1926 ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Again new money in 1928? 

Mr. Fisher. Not to my knowledge. 

Mr. Gesell. You show a loan of $18,000 in 9/5/28. 

Mr. Fisher. That is continued on a new sheet; that is right. 

Mr. Gesell. He borrowed new money in 1928? 

Mr. Fisher. Yes ; that is right. 



6390 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now he borrowed again in 1929, did he not, the same 
year he died ? 

Mr. Fisher. That is right; yes, sir. 

Mr. Gesell. What was the peak amount of the loans outstanding? 
My records indicate that was August 15, 1925, $74,000; is that cor- 
rect? 

Mr. Fisher. $76,000. 

Mr. Gesell. $76,000. 

If the committee please, we can take our usual 12 : 30 recess at this 
time. I hope to be able to speed this up a little this afternoon. 

Acting Chairman Davis. The committee will stand in adjournment 
until 2 o'clock. Those of you who are summoned will be back. 

(Whereupon, at 12:30 p. m., a recess was taken until 2 o'clock of 
the same day.) 

AFTERNOON SESSION 

The hearing was resumed at 2 : 10 p. m. upon the expiration of the 
recess. . 

Acting Chairman Davis. Are you ready to resume, Mr. Gesell? 

Mr. Gesell. Yes; I am. 

Acting Chairman Davis. The committee will come to order and 
make what progress we can. Call your next witness. 

Mr. Gesell. Mr. Fisher, will you resume the stand, please? 

TESTIMONY OF FREDERICK FRANCIS FISHER, CASHIER, CON- 
NECTICUT RIVER BANKING CO., HARTFORD, CONN.— Resumed 

Mr. Gesell. I was about to discuss with you, Mr. Fisher, whether 
or not Mr. Flynn borrowed money from the Connecticut River Bank- 
ing Co. 

Mr. Fisher. Yes, sir. 

Mr. Gesell. That is Mr. Benedict D. Flynn, is it ? 

Mr. Fisher. Correct. 

Mr. Gesell. He is vice president and actuary of the Travelers In- 
surance Co.? 

Mr. Fisher. He is. 

Mr. Gesell. Have you the paper before you that contains the in- 
formation concerning Mr. Flynn 's loan? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. When did he first borrow money from the bank? 

Mr. Fisher. 1913. 

Mr. Gesell. At the present time, is he still obligated to the bank ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. In what amount? 

Mr. Fisher. $31,000. 

Mr. Gesell. How much did he borrow in the first loan, in 1913 ? 

Mr. Fisher. I don't find that on this sheet here. Apparently, 
about $14,100, but that sheet is "not here. 

Mr. Gesell. Referring you to the minutes, does that not indicate 
that the loan was made on July 8, 1913, for $17,500? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Now, did Mr. Flynn borrow new money in 1915? 

Mr. Fisher. No, sir. 



CONCENTRATION OF ECONOMIC TOWER 6391 

Mr. Gesell. You find no loans in 1915? 

Mr. Fisher. No, sir; not new money. 

Mr. Gesell. Did he borrow new money in 1916? 

Mr. Fisher. No, sir. 

Mr. Gesell. When did he next borrow new money ? 

Mr. Fisher. In 1922. 

Mr. Gesell. Then when did he next borrow? 

Mr. Fisher. 1924. 

Mr. Gesell. And then again in 1925, is that correct? 

Mr. Fisher. 1925. 

Mr. Gesell. And when was the last loan made to Mr. Flynn ? 

Mr. Fisher. 1931. 

Mr. Gesell. Are my records correct in showing that the greatest 
amount owed by Mr. Flynn at any time was on October 2, 1931, the 
amount owed being fifty-three thousand five hundred? 

Mr. Fisher. Correct. 

Mr. Gesell. How much did you say Mr. Flynn owed at the pres- 
ent time? 

Mr. Fisher. $31,000. 

Mr. Gesell. Is all of that secured ? 

Mr. Fisher. Partially on a collateral note and partially on what 
we call a "white" note. 

Mr. Gesell. A white note? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. That would be a noncollateral note? 

Mr. Fisher. A noncollateral note. 

Mr. Gesell. Twelve thousand noncollateral, nineteen thousand col- 
lateral; is that correct? 

Mr. Fisher. That is correct. 

Mr. Gesell. I notice from those schedules that on September 14, 
1926, loans amounting to $40,000 were transferred to the Travelers 
Bank & Trust Co. savings department. Is that correct? 

Mr. Fisher. I don't get it from this schedule, but I assume it 
might be. 

Mr. Gesell. You see no record of transfer of a loan to the Travel- 
ers Bank & Trust Co. ? 

Mr. Fisher. No record here that indicates it. 

Mr. Gesell. Can you tell us at what date this loan was split into 
a collateral and noncollateral obligation? 

Mr. Fisher. I say it was October 2. 

Acting Chairman Davis. Was there any personal security on the 
white note? 

Mr. Fisher. The excess collateral on the collateral note applies to 
it. Whatever collateral there is applies to all obligations. 

CMr. Gesell. That wouldn't be sufficient to cover the obligation on 
the. white note, would it? 

Mr. Fisher. Not necessarily. It might be. 

Mr. Gesell. It wasn't at the time? 

Mr. Fisher. It wasn't at the time ; that is correct. 

Mr. Gesell. Now, on October 2, 1931, when this loan was split, 
it was split into $25,000 noncollateral and $28,500 collateral, was 
it not? 

Mr. Fisher. That is right. 



6392 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And there has been at all times since October 2, 
1931, a noncollateral obligation of Mr. Flynn to the Connecticut 
River Banking Co.? 

Mr. Fisher. Yes, sir. If you will notice, it has been reduced to 
$12,000. 

Mr. Gesell. Yes ; I think we brought that out. 

Now, Mr. Fisher, have y^u made computations to show what per- 
centage of all the loans of the Connecticut River Banking Co. at 
certain dates were loans to officers, employees and directors of Travel- 
er% Insurance Co. ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Am I correct in saying that those computations have 
been made as of January 1, 1929, January 1, 1933, January 1, 1935, 
and January 1, 1939? 

Mr. Fisher. I assume so ; you .have the information. 

Mr. Gesell. Can you give us what percentage of the loans on those 
dates were outstanding to officers, directors, and employees of the 
Travelers Insurance Co. ? 

Mr. Fisher. On January 1, 1929, 22.3; on January 1, 1933, 28.85; 
on January I, 1935, 26.21 ; on January 1, 1939, 39.43. 

Mr. Gesell. Am I correct in saying that as of December 15, 1931, 
the loan to Travelers' directors, officers, and employees totaled 26.61 
percent of all of the loans then outstanding in the Connecticut River 
Bank? 

Mr. Fisher. That is correct. 

Mr. Gesell. What was the total amount of loans to officers, direc- 
tors, and employees of Travelers .at that time? 

Mr. Fisher. Nine hundred and ninety-five thousand nine hundred 
and ninety-four dollars and twenty-six cents. 

Mr. Gesell. Am I correct in saying that many of those loans were 
secured by Travelers stock? 

Mr. Fisher. Yes ; a good many of them were. 

Mr. Gesell. Showing you a schedule which was prepared by you, I 
want to ask you whether or not you can tell us how many shares of 
Travelers stock were contained in the collateral against those loans 
on December 15, 1931 ? 

Mr. Fisher. Two thousand and forty-three. 

Mr. Gesell. Two thousand and forty -three shares? 

Mr. Fisher. That is right. 

Mr. Gesell. Were in collateral ? 

Mr. Fisher. That is right. 

Mr. Gesell. That includes directors, officers, and employees' loans ? 

Mr. Fisher. That is correct. 

Mr. Gesell. Did the bank also hold at that time additional shares 
as collateral against loans for persons other than directors, officers, 
and employees? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Am I correct in saying there were 65 such loans as of 
that date, December 15, 1931, against which 1,472 shares were held ? 

Mr. Fisher. That is correct. 

Mr. Gesell. So that as of December 15, 1931, the Connecticut River 
Bank held at collateral against various loans some 3,515 shares of 
Travelers stock, did it not? 

Mr. Fishf~ THt is correct. 



CONCENTRATION OF ECONOMIC POWER 6393 

Mr. Gesell. Prior to the time that the Travelers Insurance Co. 
became interested in the Connecticut River Banking Co., am I correct 
in saying that there were very few shares of Travelers stock held as 
collateral against the loans in that bank ? 

Mr. Fisher. Yes ; that is correct. 

Mr. Gesell. £)id you make an examination of the note register 
starting January 3, 1911, to determine that fact ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Will you tell us what you found as the result of that 
examination ? 

Mr. Fisher. You say January 3, 1911. The first entry of Travelers' 
stock as collateral was in September 1911, and the next entry is June 
19, 1912. There were other loans during that period on which the col- 
lateral was not detailed, and there may have been Travelers' stock in 
there. 

Mr. Gesell. Do you believe it would be correct to state that with 
the Travelers Insurance Co.'s actual interest in the affairs of the Con- 
necticut River Banking Co., the shares of Travelers' stock pledged as 
collateral against loans at that time increased greatly ? 

Mr. Fisher. Naturally. 

Mr. Gesell. They increased greatly, did they not, whether it was 
natural or not ? 

Mr. Fisher. They increased, certainly. 

Mr. Gesell. Am I correct in saying that at about this time the 
market price of Travelers' stock declined rather precipitously? 

Mr. Fisher. What date was that ? 

Mr. Gesell. December 15, 1931. 

Mr. Fisher. I can't answer that question. 

Mr. Gesell. Calling your attention to the records of the Connecticut 
River Banking Co. showing purchases and sales of Travelers Insurance 
stock as agent from December 15, 1929, to December 31, 1932, which I 
understand you prepared, did you not, Mr. Fisher ? 

Mr. Fisher. That is right, with assistance. 

Mr. Gesell. Can you tell us what the price of the stock was in April 
1930? 

Mr. Fisher. Approximately $1,570. 

Mr. Gesell. About $1,570. Now, by April 1931, a year later, to 
what price had the stock fallen ? 

Mr. Fisher. Around $950. 

Mr. Gesell. To about $950 a share. 

Mr. Fisher. Nine hundred fifty. 

Mr. Gesell. By July 11, 1932, what was the price of the stock? 

Mr. Fisher. Around $175 was apparently the low point. 

Mr. Gesell. That was the low point, was it not, $175 a share ? 

Mr. Fisher. As far as my records indicate. 

Mr. Gesell. At that time were the loans of the officers and directors 
and employees of the Travelers Insurance Co. which had been made 
at the Connecticut River Bank "under water" in many cases ? 

Mr. Fisher. In some cases. 

Mr. Gesell. Can you tell us just what the condition of the bank was 
at that time, with particular reference to the loans to which I have 
referred ? 

Mr. Fisher. I can't, from recollection. 



6394 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. May I refer you to the minutes of the finance com- 
mittee of the Connecticut River Banking Co., held July 12, 1932, signed 
by yourself, to refresh your recollection with respect to what this 
condition was ? You recognize those minutes, do you not ? 

Mr. Fisher. Yes ; apparently a deficiency of $360,000. 

Mr. Gesell. A deficiency of approximately $360,000? 

Mr. Fisher. That is right. 

Mr. Gesell. It states $370,000. 

Mr. Fisher. Yes. 

Mr. Gesell. Would you read that minute for us, please, Mr. Fisher? 

Mr. Fisher. The full minutes ? 

Mr. Gesell. Yes ; if you would. 

Mr. Fisher. Just this paragraph ? 

Mr. Gesell. The paragraph relating to the deficiency. 

Mr. Fisher (reading) : 

In discussing the loans that were not fully secured by collateral the president 
reported that taking June 25 values, the aggregate deficiency, being the difference 
between the face of the note arid the value of the collateral pledged thereunder, 
amounted to $367,000, but wherever possible steps had been taken to cover this 
deficiency by the pledge of life insurance or mortgages or by regular payments on 
principal. This matter has had the continuous attention of the officers and the. 
finance committee for some time and the course that has been and is being taken 
is believed to be the best for the interests of the bank and depositors under the 
present circumstances. 

Mr. Gesell. I have no further questions of Mr. Fisher at this time, 
but we want to recall him later. 

Acting Chairman Davis. You are excused for the time being, Mr. 
Fisher. 

Mr. Gesell. Mr. Zacher, will you resume 1 the stand, please, sir. 

TESTIMONY OF LOUIS EDMUND ZACHER, PRESIDENT, TRAVELERS 
INSURANCE CO., HARTFORD, CONN.— Resumed ' 

Mr. Gesell. Mr. Zacher, will you identify this schedule which I 
show you as a schedule showing the list of directors of the Travelers 
Insurance Co. from January 1, 1912, to July 1, 1939, prepared by the 
assistant secretary of your company? 

Mr. Zacher. I should say that was, correct. 

Mr. Gesell. I should like to offer this schedule for the record. 

Acting Chairman Davis. It may be inserted in the record. 

(The schedule referred to was marked "Exhibit No. 1101" and is 
included in the appendix on p. 6957.) 

Mr. Gesell. Turning to a slightly o lerent subject for a moment, 
Mr. Zacher, am I correct in understanding that from time to time 
the Connecticut River Banking Co. loaned money to agents or agen- 
cies representing the Travelers Insurance Co., such loans being se- 
cured in whole or in part by assignments of renewal commissions on 
life policies? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Were you familiar with the fact that such loans were 
being made? 

Mr. Zacher. Yes, sir ; as a member of the finance committee I was 
informed. 

Mr. Gesell. Can you tell us the circumstances under which some of 
those loans were made, and the factors which prompted the company 
to make them? 



CONCENTRATION OF ECONOMIC POWER 6395 

Mr. Zacher. I think you have in your files there at least three 
communications which indicate that these agents were unable to get 
the usual accommodations from the banks in their home towns ; they 
needed the money for working capital to continue their business. 
They were very responsible agents of the company, and applied to 
us — when I say us, either the Travelers Insurance Co. or the Con- 
necticut River Banking Co. — to give them the accommodation that 
they couldn't get elsewhere. In those several cases of which you have 
correspondence, we indicated to the bank that we considered these 
men responsible and valuable agents of the company and -urged that 
they do something to give them the proper accommodation. The 
bank acted independently and with such information as we could 
give them about the value of their collateral, they undertook that 
obligation. Most of these loans were made as I recall it, in 1931 
and '32, when business conditions were very severe. 

I might add to that information that had they not been able to have 
gotten those loans anywhere they probably would have sought us to 
ouy their renewal account, which would probably have happened, and 
they would have been put out of business,, and I say that to indicate 
that we thought we were doing a very helpful thing considering the 
conditions under which everybody was laboring at the time. 

Mr. Gesell. You say the bank acted independently. These re- 
quests for loans came in many cases to officers of the Travelers, did 
they not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Andi frequently the mechanics of the transactions, so 
far as the borrower was concerned, were handled for hjm by the 
Travelers? 

Mr. Zacher. I don't recall. I shouldn't be at all surprised. 

Mr. Gesell. You say the bank acted independently. I suppose in 
, some cases it is rather difficult to divorce the bank from the insurance 
company's operations. 

Mr. Zacher. It is difficult to understand that,' but if the. collateral 
had not been satisfactory to the bank, and if the officers of thfc bank, 
acting independently, had turned it down, that would have been the 
end of the matter so far as the officers of the insurance company were 
concerned. 

Mr. Gesell. Yes. You mean by that, the bank made its own 
business judgment of the value of the collateral ? 

Mr. Zacher. It seemed so to me. 

Mr. Gesell. The men who made that judgment were in the ma- 
jority of cases also officers of the insurance company, weren't they? 

Mr. Zacher. No, sir. They were directors. 

Mr. Gesell. I thought the finance committee had that responsi- 
bility in the bank. 

Mr. Zacher. The officers of the bank made the loans and the loans 
were generally put up to the finance committee for approval, so when 
they made these loans on their own judgment and put it to the 
finance committee for approval, they naturally approved it. 

Mi\ Gesell. I understood you to say, I believe, earlier in your 
testimony, a majority of the finance committee of the bank were per- 
sons connected with the Travelers Insurance Company. 

Mr. Zacher. That is true. 

124491 — 40— pt. 13- 4 



6396 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. So these men were, to look at it one way, insurance 
men, sitting as representatives of the bank. 

Mr. Zacher. Exactly, but sometimes there are people who can act 
in both positions independently of each so far as their business 
judgment goes. 

Mr. Gesell. Now, do you believe that there was any case that the 
Connecticut River Bank made such an advance without consulting 
Travelers ? 

Mr. Zacher. I should say they consulted the Travelers in most 
cases because they wanted to know who these people were; they 
didn't know. 

Mr. Gesell. As a matter of fact, the Connecticut River Bank, as 
a general proposition, is a local bank, isn't it? 

Mr. Zacher. Yes. 

Mr. Gesell. It services the interests of that little community in 
Hartford, Conn. 

Mr. Zacher. Yes. 

Mr. . Gesell. These men who were borrowing money were people 
outside of Hartford, except in one instance, I believe. 

Mr. Zacher. Yes; I think there was one instance where this chap 
borrowed from half a dozen banks at different times. It is quite a 
customary transaction. 

Mr. Gesell. These men came, after all, did they not, from States 
away from Connecticut and the bank would have no knowledge or 
interest in their account, were it not for Travelers' connection with 
them? 

Mr. Zacher. They would have to ask us about the moral hazard 
and if the value of the collateral was sufficient in our judgment to 
warrant the loan. In other words, the,y came to us for a credit 
report. 

Mr. Gesell. It was a little more than that, wasn't it ? They were, 
after all, loaning to people outside of the ordinary course of business. 
That must have been to some extent due to the fact that these men 
have Travelers' connections and that Travelers was interested in 
them. 

Mr. Zacher. Yes*; at least that is the way the borrower looked at the 
picture, he couldn't get the money anywhere else. 

Mr. Gesell. I imagine it was also a little from the lender's point 
of view. 

Mr. Zacher. He was up against it. 

Mr. Gesell. Do you recognize this letter which I show you as a 
letter from the files of your company written by Mr. Alexander 
Sobel, one of the men who borrowed money under these circum- 
stances ? 

Mr. Zacher. Yes ; in a general way I know he did. 

Mr. Gesell. Would you feel that this letter represents the typical 
kind of situation as it came to you or represented its case? 

Mr. Zacher. I don't know what it says. 

Mr. Gesell. Let me read it to you. It is addressed to Mr. E. 
Dudley, manager in Chicago, dated November 17, 1930 Treading 
"Exhibit No. 1102"] : 8 

Dear Mb. Dudley: In the brief discussion I have had with you a few days 
ago, I have given you a general resume of the unusual situation I happen to 
find myself in owing to a condition over which I have very little control- 



CONCENTRATION OF ECONOMIC POWER 6397 

The current year has been one of my most active ones. I have done a whale 
of a business and a good deal of it, as in former years, was due to the fact that 
I have taken it upon myself to finance no sma^l portion of my running accounts. 

Because of the serious business depression which we are just going through, a 
good many of my customers have slowed down on premium payments. This has 
tapped my financial resources quite heavily. My ledger is clogged with all sorts 
of premiums, which from all past indications, I will be unable to collect by the 
end of this year. The way collections have been this last six months, I judge it 
will take me another six months at least before I have collected some of my long 
past dues. 

You are well aware of the fact that I have done a considerable business, par- 
ticularly so in the accident line. I am most anxious to pay for all written 
premiums before the year closes, as I wish to rank amongst the leading accident 
producers of the Company. All this will entail additional funds, which, owing to 
general conditions, I am not able to muster at this time. 

The general clean-up insisted upon by almost every company makes December 
a tough month for every agent and broker. In ordinarv times I have enjoyed a 
fair size personal credit with the bank I have been dealing with these last ten 
years because of the business depression the bank has been taken over by 
another institution and their policy of retrenchment curtailed my personal credit. 
My various investments, accumulated during the last fifteen years, have shrunk to 
such levels as to make them useless from the standpoint of collateral. 

Because of all this I find myself under the necessity of having to apply for an 
advance against my renewal account. This, as you well know from your 
records, runs over $5,000 annually with the Travelers Insurance Company. This 
renewal account constitutes one of my greatest assets, while it serves as the 
safest collateral for the Company. 

As explained to you during our recent conversation on the subject, the minimum 
amount I must have at this time is $2,500 to be repaid in ten or twelve monthly 
installments, commencing with January 1, 1931, both capital as well as interest 
included. 

In making this request to the Travelers Insurance Company and engaging your 
good offices in my behalf, you may rest assured I am acting after very serious 
and mature deliberation. It is a step I resort to with but the greatest reluctance. 
In all the eighteen years I have been, in business I have always been able to 
finance my business with ease and never had to call on any of the companies for 
any advance drawing account. 

We are separated but by a few weeks from the close of the year and so it 
becomes necessary to have this request of mine acted upon without much delay. 
I will need the money around the 10th of December and it is my earnest hope 
that you will put all your influence behind my request so as to have it acted 
upon promptly and favorably. 

Thanking you in advance for your good offices and with kindest personal 
regards, t am. 

Mr. Zacher. Yes; that is a typical case. Do you mind telling me 
the date of that letter? 

Mr. Gesell. That was November 17, 1930. 

Mr. Zacher. It was about that time. 

Mr. Gesell. I should like to offer this letter to be filed. 

(The letter referred to was marked "Exhibit No. 1102" and appears 
in full in the text on pp. 6396-6397.) 

Mr. Gesell. Just so we can fill out the picture on this case and see 
how it was handled, do you recognize this as a letter from the files of 
your company written by E. B. Dudley, manager, to whom the last 
letter was addressed, your agency secretary in Hartford? 

Mr. Zacher. That looks all right. , 

Mr. Gesell. You mean that looks like the letter ? 

Mr. Zacher. Yes. 

Mr. Gesell. That letter, dated November 18, 1930, states — It is 
addressed to Mr. Walter A. Mallory, agency secretary, Hartford, 
Conn., and marked private [reading "Exhibit No. 1103"] : 

Alexander Sobel is one of our real, substantial, solid agency connections in the 
city of Chicago. His integrity, honesty, and loyalty to the Travelers is unques- 



6398 CONCENTRATION OF ECONOMIC POWER 

tioned and the appeal he makes in the attached letter comes to us as a last resort. 
I say last resort because Sobel makes the plea with fear and trembling because 
. of his intense friendly feeling towards the Travelers. 

The renewal account of Mr. Sobel — particularly Life — certainly is a sufficient 
guarantee of the- $2,500. Mr. Sobel will pay for approximately $5,000 new 
Accident premiums during the current year. 

I should like very much to honor the request if at all consistent. Will appre- 
ciate the favor if you will give favorable consideration to my recommendation 
that $2,500 be loaned Mr. Sobel upon the signing of sufficient paper, carrying his 
promise to repay the amount in ten equal monthly installments in addition to a 
monthly payment of interest due. 

Thanking you for early advice, I am. 

I should like to file that with the committee. 

(The letter referred to was marked "Exhibit No. 1103" and appears 
in full in the text on pp. 6397-6398.) 

Mr. Gesell. Do you recognize this memorandum as a memorandum 
written by Mr. Dudley Gray to the agency secretary concerning the 
Sobel account? It is dated November 22, 1930. 

Mr. Zacher. Of course, I haven't seen these, but if you took it from 
the file it belongs to the agency. 

Mr. Gesell. I want to call your attention to this one specifically. It 
is dated November 22, 1930, and marked "Strictly personal and confi- 
dential" [reading "Exhibit No. 1104"] : , 

Supplementing other papers attached which are in reply to your letter of Novem- 
ber 18, the only way in which we can be of any assistance to Mr. Sobel is as 
illustrated in the attached file — through the Connecticut River Banking Company. 

We appreciate all that you have to say about Mr. Sobel and the business that 
he has placed with the Company, but Amended Section 97 of the New York Law 
under which we operate reads in part as follows : "No such corporation, nor any 
person, firm, or corporation, on its behalf or under any agreement with it, shall 
make any loan or advance to any person, firm, or corporation soliciting or under- 
taking to solicit applications for insurance without adequate collateral security, 
nor shall any such loan or advance be made upon the security of renewal com- 
missions, or of other compensation earned or to be earned by the borrower except 
advances against compensation for the first year of insurance." 

You will appreciate that this is strictly a banking proposition, and in order to 
try and assist Mr. Sobel, we took this matter up with the Connecticut River 
Banking Company. I think that you will understand that local banks have their 
local clientele to take care of and they cannot be expected to make outside loans. 

We are going to ask you to please see that this transaction is treated as strictly 
personal and confidential by all interested parties, and further not to ask for any 
other assistance of this kind. I think you will readily understand our position. 

I should like to file this for the record. 

(The letter referred to was marked "Exhibit No. 1104" and appears 
in full in. the text on this page.) 

Mr. Gesell. The net effect of this transaction, Mr. Zacher, is, is ife 
not, that the company is able to procure, for one of its agents, through 
its banks, a loan which it would not have been able lawfully to make 
directly itself ? 

Mr. Zacher. When you say that, we could have arranged it with 
some other bank just as well. 

Mr. Gesell. Yes. 

Mr. Zacher. It was more convenient to go to this bank because it 
was right in the building. 

Mf. Gesell. You could have arranged a loan with this man for, let's 
sav, the Chase National Bank. 

Mr: Zacher. v Possibly. Possibly we could have written to Chicago. 

Mr. Gesell. But this is a loan which you would have been penalized 
for if you had made it directly yourself. 



CONCENTRATION OF ECONOMIC POWER 6399 

Mr. Zacher. But we didn't make it directly ourselves. 

Mr. Gesell. Were you familiar with the fact that this kind of loan 
was being made through the Connecticut River Banking Co. ? 

Mr. Zacher. Oh, yes. 

Mr. Gesell. And was it a matter of policy of the company that it 
would permit this type of credit to be advanced through the bank? 

Mr. Zacher. No ; until this situation came along in 1930 we wouldn't 
take the chance of somebody saying that this might have been some- 
thing that was done indirectly. In 1930 or 1931, when these loans came 
up, we made them on the advice of counsel, that they were not in- 
direct within the meaning of the New York law, and knowing noth- 
ing about the law but having a great deal of faith and confidence in his 
judgment, we made the loans. We made them with the understand- 
ing that they would be paid off as rapidly as possible. 

Mr. Gesell. Whose advice did you have ? 

Mr. Zacher. William Brosmith. 

Mr. Gesell. He is dead, is he not? Did you seek the advice of any 
insurance department? 

Mr. Zacher. I wouldn't. 

Mr. Gesell. I take it then you didn't. 

Mr. Zacher. This is a banking matter. 

Mr. Gesell. Well., it did involve, to some extent • 

Mr. Zacher (interposing) . It went out of my hands. I was sim- 
ply a member of the board and left it up to the officers who were 
running the bank to say whether they would make it or not. We 
furnished the credit report and standing of these people and sug- 
gested to them it was a good loan, and the circumstances seemed 
to warrant an earnest consideration of some of these peculiar situ- 
ations ; but we were careful to ask the advice of counsel, "and he said 
he thought it was all right to do it that way ; so we did and it has 
proven to have been a very good thing to have done, and legal so 
far as we know. 

Mr. Gesell. I am just interested in the fact that here seems to be 
a transaction which in effect, you handled and controlled through 
your bank when you couldn't have done it directly through' the in- 
surance company. 

Mr. Zacher. If he had said, "I think you had better not do it," 
I would have made it my business to go to some other of my banking 
connections to get the necessary consideration ; but so long as he said 
it was proper, we went ahead and did it. 

Mr. Gesell. On the point as to how the mechanics of such a loan 
is handled, do you recognize that as a memorandum from the files 
of your company? 

Mr. Zacher. I should say so ; yes, sir. 

Mr. Gesell. This is a memorandum dated November 22, 1930, to 
E. B. Dudley, manager, in Chicago. I will read only the second para- 
graph for the record [reading from "Exhibit No. 1105"] : 

We are enclosing a form of note for this amount with the date left blank. 
We are also enclosing in triplicate a collateral assignment in favor of The Con- 
necticut River Banking Company against Mr. Sobel's Life renewals applying to 
business now to his credit and also future Life business. Under this assignment 
you will note the Company is authorized to hold such commissions and disburse 
them to the order of The Connecticut River Banking Company until satisfaction 
in full under the assignment shall have been received by the bank. 



6400 CONCENTRATION OF ECONOMIC POWER 

That would indicate that the mechanics were at least in this in- 
stance handled directly by the insurance company, so far as the bor- 
rower was concerned. 

Mr. Zachee. Yes ; you see, these people know each other very well 
and they do it the most convenient way so the other fellow will 
understand it, and have confidence in going ahead with the trans- 
action. 

Mr. Gesell. I should like to file this memorandum, to be printed. 

Acting Chairman Davis. Let it be filed and printed. 

(The memorandum referred to was marked "Exhibit No. 1105" and 
is included in the appendix on p. 6958.) 

Mr. Gesell. For a moment I would like to look at just one more 
of these transactions. 

A similar loan by the Connecticut Kiver Banking Co., secured by 
life renewals, was made to the Leonard Agency Co., of Canton, 
Ohio, was it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. You were familiar with that transaction at the time 
it took place, Were you not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Can you tell us a little about it, Mr. Zacher? 

Mr. Zacher. Well, the Leonard Agency owed about $28,000 which 
they had to pay to the companies, these insurance companies. They 
are a very substantial agency in Canton, Ohio, and as I recall the 
figures, their production showed in 1 year, 1930 or '31, about $250,000 
in premiums. We regarded them as a very valuable agency so far as 
the Travelers was concerned. They owed a good deal of this money 
to the Travelers. They owed some of it to other companies. It is 
our custom to have them pay up within a certain time. They made 
every effort to pay up. In ordinary times they went to their bank 
in Canton and borrowed such money as they needed to make the 
payments, and asked for no outside help. 

They were unable to borrow this money either in Canton or any- 
where else and, similar to Sobel, they made an application to one of 
the officers of the Travelers — I think it was the controller. The con- 
troller told me the whole story and suggested that possibly the Con- 
necticut River Banking Co. might furnish the funds, secured by the 
renewal commissions. We applied to the Connecticut River Banking 
Co., arranged the loan for them, and loaned them, I have forgotten, I 
think it was $28,000, to be paid off in monthly installments, and those 
monthly installments varied. I think the loan now amounts to about 
$4,400, and they were able to make their payments clean up and 
are still going as a good concern. 

Mr. Gesell. Do you recognize these three memoranda which I show 
you now as memoranda from the files of your company relating to 
that transaction? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. There is one portion of the memorandum addressed 
to you dated November 12, 1931, from the controller. Under the 
statement, "I recommend the loan," do I understand that you signed 
your name, saying "I concur" ? 1 

Mr. Zacher. I concurred. I signed it. 



1 Entered later as "Exhibit No. 1108." See appendix, p. 6961. 



CONCENTRATION OF ECONOMIC POWER 6401 

Mr. Gesell. I can't quite read the proceedings. 

Mr. Zacher. It is on here. 

Mr. Gesell. The Leonard agency had in effect overextended itself, 
had it not? 

Mr. Zacher. I don't know. 

Mr. Gesell. I notice this first memorandum from your vice presi- 
dent and the superintendent of agencies says, in one paragraph [read- 
ing from "Exhibit No. 1106"] : 

Assuming further that they must have collected some current items, it is 
probable that they have in their possession from $30,000 to $35,000 of premiums 
that belong to us and which they appear to be unable to remit. 

Now that would indicate 

Mr. Zacher (interposing). They probably advanced premiums for 
some of their clients and couldn't collect, and that was the trouble 
with the whole situation. On renewal business a lot of agents advance 
the money for their clients and take a chance on collecting it. If 
they can't collect it, they are in trouble. 

Mr. Gesell. That is what I meant by the word ''overextended." 

Mr. Zacher. Yes ; it is not unusual. 

Mr. Gesell. They had anticipated that they would collect more 
than they had. 

Mr. Zacher. One hundred cents on the dollar; and they were dis- 
appointed. 

Mr. Gesell. This is another paragraph in this memorandum which 
you identified which interested me. It says [reading from "Exhibit 
No. 1106"] : 

The Leonard Agency, as you well know, is an important and productive one 
and I hope that no effort will be spared to bring their situation into line. Their 
loss as a producing factor would be a serious one to The Travelers Insurance 
Company. 

Mr. Zacher. Yes. 

Mr. Gesell. Do I understand properly from that sentence one of 
the motivating factors back of these loans is to keep good producers 
contented and with the company ? 

Mr. Zacher. No ; it is to keep them in the business. 

Mr. Gesell. Your reference, if I may interrupt a moment, is to the 
fact that they are a producing factor and that their loss would be 
serious to Travelers. 

Mr. Zacher. Yes. 

Mr. Gesell. The interest seems to be that they are producing busi- 
ness for Travelers — not just to keep them in the business. 

Mr. Zacher. Well, that can be taken two ways. They were friendly 
with us and we had done business with them a good many years, and 
they brought us in 1930, in various lines of premiums, according to 
the memorandum, $450,000. If they go through bankruptcy we lose 
$450,000. We have to go out and establish a new agency and try 
to recapture that business, which we have to do through an agent. 
We can't do it directly. 

Mr. Gesell. I understand. 

Mr. Zacher. The other picture is if we hadn't advanced the money, 
some other fellow would have said, "We will lend you twenty-eight 
or thirty thousand dollars if you will turn the premiums over to us." 

Mr. Gesell. So in a way it was an attempt to keep a good agency 
in the company. 



G402 CONCENTRATION OF ECONOMIC POWER 

Mr. Zacher. To keep them in business and keep them off the town. 
-"If they had gone out of business they would have gotten a bad repu- 
tation and they are people of fine repute. 

Mr. Gesell. This is again a loan, was it not, where the arrange- 
ments were made by the superintendent of agencies dealing with the 
Connecticut River Bank for the borrower? 

Mr. Zacher. It doesn't make any difference whether he was in 
the agency department or any other department, these fellows write 
to the best friend they have in the company when, they want to 
borrow money. 

Mr. Gesell. My point is they come to Travelers rather than the 
Connecticut River Banking Co. 

Mr. Zacher. Oh, yes; surely. 

Mr. Gesell. There is just one other item that interested me. Read- 
ing from the memorandum to you from the Comptroller, the memo- 
randum dated November 12, 1931, on the second page, I find this para- 
graph [reading from "Exhibit No. 1108"] : 

I learned this week for the first time that the Leonard Agency represents 
another Casualty Company, and I dare say they represent a number of Fire 
Companies. The suggestion has been made that we take this opportunity to 
insist that the agency give us exclusive Casualty representation. I have talked 
with Mr. Tracy Smith about this angle of the situation today and he does not 
look favorably upon any such plan. Mr. Smith says that every large agency 
today finds it necessary to represent more than one Casualty Company. Fur- 
thermore, he feels, as I am inclined to feel, that the officers of the Leonard 
Agency will be grateful to thei Travelers for this assistance at this critical 
time and will probably give us voluntarily considerably more business than they 
have in the past. As a matter of fact, I understand that Mr. Leonard and 
Mr. Shafer offered such assurances when they were here last week seeking a loan. 

From that I gather that your ability to make this loan through the 
Connecticut River Banking Co. gave you, if anything, an added 
assurance of additional business in the future. 

Mr. Zacher. I am sorry, Mr. Gesell, but that is just conversation. 

Mr. Gesell. You mean on my part or in the memorandum. 

Mr. Zacher. On the part of the man who wrote this thing. He 
was simply making a little venture in his mind. Of course, things 
don't work that way. 

Mr. Gesell. You could say that is not one of the factors in making 
such a loan? 

Mr. Zacher. No, sir. 

Mr. Gesell. I should like to file these memoranda which have 
been identified by the witness. 

Acting Chairman Davis. They may be inserted in the record. 

(The memoranda referred to were marked "Exhibit Nos. 1106, 1107, 
and 1108," and are included in the appendix on pp. 6959, 6960, and 
6961.) 

Mr. Gesell. You are aware, are you not, Mr. Zacher, that the 
loaning of money, quite apart from the New York law, to agents 
secured by renewal commissions, has been a subject of some criticism 
by many different people interested in the insurance business, for the 
reason that it increases the acquisition cost if the loans do not pan 
out? 

Mr. Zacher. Yes ; I don't think so much attention is paid to it now, 
but it was, as I recall it, a verv prominent argument in the 1906 
investigation, and that is why the law was passed. 

Mr. Gesell. Yes; I notice references to it in the Armstrong report. 

Mr. Zacher. Yes; the way it was run, it was wicked. 



CONCENTRATION OF ECONOMIC POWER 6403 

Mr. Gesell. Some of these loans are still outstanding in your 
case, are they not? 

Mr. Zacher. Yes; I think so, probably ten or twelve thousand 
dollars. They have nearly all been paid off. 

Mr. Gesell. Just as a matter of conjecture, if under any of these 
cases of these loans the loan was written off at a loss to the bank, that 
would indirectly be a loss to the insurance company, would it not? 

Mr. Zacher. Well, none of them have been. We only loaned about 
$86,000 in the aggregate to these people, and I think practically all of 
them have been paid off, and I dor't think there is more than ten or 
twelve thousand outstanding, and there can't be a loss because the 
renewal commissions will pay them under any circumstances. 

Mr.: Gesell. As a matter of conjecture, however, even the renewal 
commissions are not an assured thing, because we don't know what the 
lapse experience of the policyholder is going to be. 

Mr. Zacher. These loans are down so low that they are very well 
covered. 

Mr. Gesell. But there is a danger, is there not — it may not have 
been realized in this case, but there is a danger in making this type of 
loan, in that if the loan doesn't pan out, the bank would suffer a loss, 
and indirectly the insurance company itself. 

Mr. Zacher. That is perfectly true, but there have been some re- 
quests for loans which have been denied, and you have no record of 
them so far as I know. We don't make loans to everybody, and we 
don't make them for any amount they ask. It is a pure banking 
proposition — any more than if a man comes in and wants to borrow 
a lot of money on collateral, we don t always give him what he asks. 
Even if he has good collateral, we don't always make the loan. 

Mr. O'Connell. Mr. Zacher, as a practical proposition, the effect 
of the arrangement was to defeat the purpose of the New York State 
insurance law. 

Mr. Zacher. No ; as a practical matter, it was to help people out of 
a difficult situation. You see, if they had been able to get the money 
in their home town, they wouldn't have asked us. If our counsel had 
told us we couldn't do this thing through the Connecticut River 
Banking Co., I would have been able to negotiate those loans else- 
where. 

Mr. O'Connell. I say, though, again that as a practical matter, 
the effect of the transaction, your insurance company owning the 
bank, was to defeat the purpose of the provision in the insurance law, 
whatever the purpose may have been ; isn't that so ? 

Mr. Zacher. I wouldn't say that. It was simply to help these 
people. 

Mr. O'Connell. But the effect of it was exactly the one I have indi- 
cated, was it not ? 

Mr. Zacher. That is the way the interpretation is made ; but if we 
had known that that interpretation would be put on it from any side, 
we would have gone to some other bank in which we had practically 
no interest at all and asked them to loan the money. 

Mr. O'Connell. Even at that time, I take it, you weren't entirely 
clear as to whether it was a doubtful type of transaction. 

Mr. Zacher. We thought somebody might say something, and we 
didn't want to argue. This wouldn't have increased the cost of in- 
surance, making 4hese loans. 



6404 CONCENTRATION OF ECONOMIC POWER 

Mr. O'Connell. Any losses taken by the bank on this type of loan 
would be losses to the insurance company which owned the bank. 

Mr. Zacher. That would follow through. 

Mr. O'Connell. You have two separate entities, but as a matter 
of fact the ownership is the same. 

Mr. Zacher. We were careful to see that the collateral was suffi- 
cient. 

Mr. O'Connell. You could have done it as an insurance company, 
had it not been for the insurance law. 

Mr. Zacher. You see, if they couldn't have gotten the money and 
had said, "We have to have the money," we would have bought those 
accounts, just figured them out and made an outright purchase, which 
the law permits in the insurance company. 

Mr. Gesell. I would like to ask Mr. Zacher to step down once again 
for a moment while I call another witness. 

Mr. Jenkins, please. 

Acting Chairman Davis. Do you solemnly swear you will tell the 
truth, the whole truth, and nothing but the truth, so help you God? 

Mr. Jenkins. I do. 

TESTIMONY OF GEORGE C, JENKINS, ANALYST, INSURANCE 
SECTION, SECURITIES AND EXCHANGE COMMISSION 

Mr. Gesell. What is your full name ? 

Mr. Jenkins. George C. Jenkins. 

Mr. Gesell. Are you an analyst on the staff of the insurance section 
of the Commission ? 

Mr. Jenkins. I am. 

Mr. Gesell. Did you have occasion to examine the books and records 
of the Connecticut River Banking Co. at Hartford, Conn. ? 

Mr. Jenkins. I did. 

Mr. Gesell. Were those books and records made available to you 
Oy the bank ? 

Mr. Jenkins. They were. 

Mr. Gesell. From those records did you prepare information indi- 
cating the number of loans made to agents or agencies of Travelers 
Insurance Co. by the Connecticut River Banking Co., where such 
loans were secured in whole or in part by assignments of life renewal 
commissions ? 

Mr. Jenkins. Yes, sir ; I did. 

Mr. Gesell. How many such loans did you find ? 

Mr. Jenkins. Twelve such loans. 

Mr. Gesell. How many borrowers, I meant to say? Twelve bor- 
rowers ? 

Mr. Jenkins. Twelve borrowers. 

Mr. Gesell. How many loans did those 12 borrowers make? 

Mr. Jenkins Twenty- three loans. 

. Mr. Gesell. Were those loans exclusive of renewal loans of any 
kind ? 

Mr. Jenkins. Yes, sir; the"y were. 

Mr. Gesell. What was the total amount of the loans made? 

Mr. Jenkins. $150,686.94. 

Mr. Gesell. $1o0,686.94, is that correct? 

Mr. Jenkins. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 6405 

Mr. Gesell. What was the smallest loan made ? 

Mr. Jenkins. $700. 

Mr. Gesell. What was the largest ? 

Mr. Jenkins. $60,000. 

Mr. Gesell. Will you tell us where the agent or agencies were 
located to whom these loans were made ? 

Mr. Jenkins. The Leonard Agency, Canton. Ohio; Alexander 
Sobel, Chicago, 111.; Alvin E. Wolf, Philadelphia; W. H. Webling 
(Webling, Ltd.), Brantford, Ontario; Daniel J. Frazier, Hartford, 
Conn. ; Alfred E. Carpenter, Columbus, Ohio ; John A. Fitzsimmons, 
Philadelphia, Pa. ; Harry V. German, McKeesport, Pa. ; Henry Gar- 
rett Hanby, Wilmington, Del. ; Otto A. Hendrian, New York City ; 
The Rockwood Co., Chicago, 111. ; Edward J. Sisley, New York City. 

Mr. Gesell. Are any of the loans outstanding at the present time ? 

Mr. Jenkins. Yes, sir; they are. 

Mr. Gesell. Which loans are outstanding ? 

Mr. Jenkins. The W. H. Webling loan and the Leonard Agency 
loan. 

Mr. Gesell. During what period of time were these loans made ? 

Mr. Jenkins. From 1926, the Webling loan, through to 1939, again 
on the Webling loan. 

Mr. Gesell. Was that not one loan to Frazier in 1925, Septem- 
ber 16? 

Mr. Jenkins. Yes; I beg your pardon. September 16, 1925, to 
Daniel Frazier, Hartford, Conn. 

Mr. Gesell. Mr. Jenkins, did you examine the records of the Con- 
necticut River Banking Co. to determine the amount of money which 
that bank had loaned to officers and directors of the Travelers group 
between 1912 and 1939? 

Mr. Jenkins. Yes, sir; I did. 

Mr. Gesell. Did you exclude from that amount loaned all renewal 
loans? 

Mr. Jenklns. Yes, sir; I did. 

Mr. Gesell. What was the total amount loaned from 1912 to 1939 
to officers and directors of the Travelers group by Connecticut River 
Banking Co. ? 

Mr. Jenkins. $3,047,664.92. 

Mr. Gesell. How many officers and directors have borrowed money 
from the bank? 

Mr. Jenkins. Fifty -three such officers and directors. 

Mr. Gesell. What was the total number of loans made by those 
53 officers? 

Mr. Jenkins. Five hundred and six loans. 

Mr. Gesell. What was the largest loan made ? 

Mr. Jenkins. Francis T. Maxwell, $110,000. 

Mr. Gesell! What was the smallest loan made? 

Mr. Jenkins. C.-W. VanBeynum, $150. 

Mr. Geselx. These loans were, I understand, in most instances, 
collateral loans? 

Mr. Jenkins. Yes, sir ; with few exceptions. 

Mr. Gesell. Did you also examine the record of the Connecticut 
River Banking Co. to determine the amount of money loaned to em- 
ployees of the Travelers group from 1912 to 1939 ? 

Mr. Jenkins. Yes, sir ; I did. 



6406 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What was that amount? 

Mr. Jenkins. $605,833.51. 

Mr. Gesell. How many employees borrowed ? 

Mr. Jenkins. One hundred eighty-three. 

Mr. Gesell. What were the total number of loans made to them? 

Mr. Jenkins. Four hundred thirty. 

Mr. Gesell. What was the largest loan ? 

Mr. Jenkins. Approximately $10,000. 

Mr. Gesell. What was the smallest loan ? 

Mr. Jenkins. Twenty-five dollars. 

Mr. Gesell. What was the total combined amount of loans made 
by the banks to officers, directors, and employees of the Travelers 
group for this period 1912 to 1939 ? 

Mr. Jenkins. $3,804,185.37. 

Mr. Gesell. Are any of these loans outstanding at the present 
time? 

Mr. Jenkins. Yes, sir. 

Mr. Gesell. How much is outstanding at the present time? 

Mr. Jenkins. Approximately $493,758.04. 

Mr. Gesell. That includes loans to officers, directors, and em- 
ployees^' 

Mr. Jenkins. Yes, sir ; and former employees. 

Mr. Gesell By former employees, you mean persons who" were 
employees at the time the loan was made but who may not be em- 
ployees now? 

Mr. Jenkins. Yes, sir. 

Mr. Gesell. What did you say was the total of the loans now out- 
standing ? 

Mr. Jenkins. $493,758.04. That is of employees' and officers' and 
former employees' loans. 

Mr. Gesell. As of what date is that ? 

Mr. Jenkins. That is of, I believe July 30, 1939. 

Mr. Gesell. July 20, 1939? 

Mr. Jenkins. July 20, 1939, that is right. 

Mr. Gesell. Did you examine the individual loan records of the 
various officers and directors that borrowed from the bank? 

Mr. Jenkins. Yes, sir ; I did. 

Mr. Gesell. Is it correct that in many cases you found that the 
officer or director commenced his transactions by borrowing a small 
amount of money from the bank, that over a period of time the 
amount of his loans increased? 

Mr. Jenkins. Yes, sir. 

Mr. Gesell. Can you say how prevalent that was ? 

Mr. Jenkins. From my examination, I would state that in most 
instances, loans started with a very modest beginning and gradually 
grew into larger proportions. 

Mr. Gesell. Can you give us an illustration ? 

Mr. Jenkins. For example, I think the greatest illustration is the 
John H. White loan. 

Mr. Gesell. Who was John H. White ? 

Mr. Jenkins. John H. White at the time of making the loan, I be- 
lieve, was an assistant secretary in the Travelers Insurance Co., and 
later retired sometime around 1927, in June. He started in on Decern- 



CONCENTRATION OP ECONOMIC POWER 6407 

ber 20, 1914, with a $750 loan, and he borrowed in 1914, '16, '17, .'18, 
'19, '21, '23, '24, '25, '27, '28, and 1930. 

Mr. Gesell. Are some of his loans still outstanding now? 

Mr. Jenkins. Yes ; he has approximately $65,000 outstanding today. 

Mr. Gesell. What was the peak amount of his obligations to the 
bank? 

Mr. Jenkins. $122,132.50. 

Mr. Gesell. What is the largest amount that he borrowed at any 
one time? 

Mr. Jenkins. $40,000, on January 19, 1928. 

Mr. Gesell. What is the total amount that he borrowed exclusive of 
renewals ? 

Mr. Jenkins. $638,476.61. 

Mr. Gesell. Those were collateral loans, were they ? 

Mr. Jenkins. Those were collateral loans. 

Mr. Gesell. Did you make an examination of the deposits of the 
Connecticut River Banking Co. as of December 31, 1938, to determine 
the total deposits and what percentage of those deposits were deposits 
attributable to Travelers Insurance Co. or other companies in the 
Travelers' group? 

Mr. Jenkins. Yes, sir; I did. 

Mr. Gesell. What were the total deposits of the bank as of Decem- 
ber 31, '38? 

Mr. Jenkins. The Connecticut River Banking Co., the totfl deposits 
as of December 31, 1938, were $7,605,124.69. 

Mr. Gesell. Am I correct in saying that the Travelers Insurance 
Co., the Travelers Fire Insurance Co., the Charter Oak Fire Insurance 
Co., the Travelers Broadcasting Service Corporation, the Prospect 
Co., and the Travelers Broadcasting Co. all maintained accounts at 
the bank as of December 31, 1938 ? 

Mr. Jenkins. Yes* sir; they did. 

Mr. Gesell. To what did those accounts total ? 

Mr. Jenkins. Those accounts totaled $4,298,256.19. 

Mr. Gesell. What percentage is that of the total deposits in the 
bank? 

Mr. Jenkins. That is 56.5 percent of the deposits. 

Mr. Gesell. I have no further questions of this witness at this time. 

Acting Chairman Davis. You are excused. 

Mr. Gesell. Mr. Fisher, will you resume the stand, please? 

TESTIMONY OF FREDERICK FRANCIS FISHER, CASHIER, 
CONNECTICUT RIVER BANKING CO., HARTFORD, CONN.— 
Resumed 

Mr. Gesell. Mr. Fisher, I believe you said you were also connected 
with the Travelers Bank & Trust Co. ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. You are treasurer of that bank, are you ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. The bank was organized April 9, 1913, as the Union 
Trust Co., was it not? 

Mr. Fisher. It was. 



6408 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. The first directors were appointed, according to the 
schedule we introduced some while back, on October 6, 1913, were 
they not ? x 

Mr. Fisher. The bank was chartered in April and organized in 
October. 

Mr. Gesell. Is it correct to say that on October 8, 1913, certain loans 
were transferred to the bank from the Travelers Insurance Co. ? 

Mr. Fisher. There might have been certain mortgage loans. 

Mr. Gesell. Yes ; certain mortgage loans. 

Mr. Fisher. Yes. 

Mr. Gesell. Do you recognize this schedule as a schedule showing 
those mortgage loans and their amounts? 

Mr. Fisher. No ; I haven't that information. 

Mr. Gesell. You have no information of that kind at all ? 

Mr. Fisher. No, sir. 

Mr. Gesell. Do you recognize the signature on this schedule ? 

Mr. Fisher. Yes. 

Mr. Gesell. Whose is that ? 

Mr. Fisher. Mr. Spencer, of the mortgage-loan department of the 
Travelers Insurance Co. 

Mr. Gesell. Do you know anything about those loans that were 
transferred ? 

Mr. Fisher. No; I was not connected with the bank at that time. 

Mr. Gesell. Is it correct to state that the Travelers Bank & Trust 
Co. made mortgage loans to persons who were officers or directors of 
the Travelers Insurance Co. ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Do you recall that a loan was made to Mr. Louis F. 
Butler, president of the Travelers Insurance Co. ? 

Mr. Fisher. I. know he had a loan at one time. That was before 
my time. 

Mr. Gesell. Do you recognize that record that I hand you as a 
record of the Travelers Bank & Trust Co. 

Mr. Fisher. I recognize it as a record of the bank; yes, sir. 

Mr. Gesell. It is a record of the mortgage loans, is it not? 

Mr. Fisher. It is. 

Mr. Gesell. You have responsibility for the records of mortgage 
loans of that bank, do you not? 

Mr. Fisher. Not at that time. 

Mr. Gesell. I didn't ask you that, Mr. Fisher. I asked you whether 
you had responsibility for the records of the mortgage loans of the 
bank. 

Mr. Fisher. All right ; I have. 

Mr. Gesell. Who did at that time ? 

Mr. Fisher. Mr. Welles. 

Mr. Gesell. When he left that particular job you were given respon- 
sibility over the record he had kept, were you not ? 

Mr. Fisher. Yes ; I assume that is correct. I thought you were talk- 
ing of this. 

Mr. Gesell. Very well. What does that record which you have in 
your hands show ? 

Mr. Fisher. Application for a mortgage loan. 

1 See "Exhibit No. 1100," appendix, p. 6956. 



CONCENTRATION OP ECONOMIC POWER 6409 

Mr. Gesell. To Mr. Louis F. Butler ? 

Mr. Fisher. To Mr. Louis F. Butler for $35,000. 

Mr. Gesell. Was that loan made ? 

Mr. Fisher. It was. 

Mr. Gesell. What was the date of the loan? 

Mr. Fisher. It was approved in February 1926 for $35,000. 

Mr. Gesell. Now, Mr. Butler, at that time, was also a director of the 
Travelers Bank & Trust Co., was he not? 

Mr. Fisher. I can't tell without referring to your records here. 
Yes; he was. 

Mr. Gesell. Who appraised the collateral against that mortgage 
loan? 

Mr. Fisher. In this particular instance Mr. Zacher and Mr. Slocum. 

Mr. Gesell. Who is Mr. Slocum ? 

Mr. Fisher. Mr. Slocum was the cashier of the Travelers Insurance 
Co. at that time. 

Mr. Gesell. And Mr. Zacher at that time was a director of the 
Travelers Bank & Trust Co., was he not ? 

Mr. Fisher. I presume he was. 

Mr. Gesell. I think Mr. Slocum was also, was he not ? 

Mr. Fisher. Yes; he was, too. They were both directors. 

Mr. Gesell. Do you have charge of the minutes books of the Trav- 
elers Bank & Trust Co.? 

Mr. Fisher. I do now. 

Mr. Gesell. Do you recognize 

Mr. Fisher (interposing). Partially. May I modify that? 

Mr. Gesell. Certainly. 

Mr. Fisher. Mr; Welles is the secretary, and that really belongs in 
his part of his duties. 

Mr. Gesell. You have partial charge of them, do you? 

Mr. Fisher. I have something to do with them. 

Mr. Gesell. Do you have any responsibility for the minutes of the 
finance committee ? 

Mr. Fisher. No, sir ; Mr. Welles has that. I fill in. 

Mr. Gesell. Do you recall furnishing us with these minutes of the 
finance committee of the bank held February 16, 1926? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. And those minutes record, do they not, that Mr. Butler 
was present, and at that time his mortgage loan came up for approval, 
and that he voted to approve the loan. 

Mr. Fisher. Apparently. 

Mr. Gesell. That is what they show, is it not ? 

Mr. Fisher. It shows he was present. There is no exception made 
in the minutes. 

Mr. Gesell. In fact, there is an affirmative statement, is there not : 
"The undersigned concur in the actions set forth in the foregoing 
minutes," and Mr. Butler's signature appears thereunder? 

Mr. Fisher. That's right; yes, sir. 

Mr. Gesell. Do you recall that the Travelers Bank & Trust Co. 
made a loan to Mr. Zacher of $2,500 on October 17, 1916, secured 
by five shares of Travelers stock? 

Mr. Fisher. I don't recall it. It is a matter of the minutes. 



6410 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Let's go through the formalities here. Do you recog- 
nize that as a correct and authentic copy of the minutes books? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Do you recognize Mr. Welles' signature ? 

Mr. Fisher. I do. 

Mr. Gesell. Do you recall furnishing us with this document? 

Mr. Fisher. I do. 

Mr. Gesell. This document states that a loan of $2,500 was made 
to L. Edmund Zacher on five shares of Travelers Insurance Co. stock 
and was approved by the committee at that meeting on October 17, 
1916, does it not? 

Mr. Fisher. Yes. 

Mr. Gesell. That indicates Mr. Zacher was present at that meeting, 
does it not? 

Mr. Fisher. Yes. 

Mr. Gesell. Have you any reason to believe that that record is 
untrue or incorrect? 

Mr. Fisher. That is correct as far as I know. 

Mr. Gesell. So you would say there was such a loan made to Mr. 
Zacher? 

Mr. Fisher. True. 

Mr. Gesell. Thank you. 

Do you recall that another loan was made on December 20, 1916, 
to Mr. Zacher for $7,500, secured by 10 shares of Travelers Insurance 
stock? 

Mr. Fis: ier. I should say it was correct. 

Mr. Gesell. Do your records show that loans were also made to 
Mr. Shipman, Mr. Batterson, Mr. Brosmith, and Mr. Lacy, all per- 
sons connected as officer or official of the Travelers Insurance Co.? 
Do they not? 

Mr. Fisher. I should say so. I don't recall. 

Mr. Gesell. Which one don't you recall? 

Mr. Fisher. Will you read that again, please, sir? 

Mr. Fisher. Mr. Shipman, Mr. Batterson, Mr. Brosmith, and Mr. 
Lacy. 

Mr. Fisher. I don't happen to recall Mr. Shipman. It might be 
there. That was before- my immediate connection. 

Mr. Gesell. What was the amount of that loan ? 

Mr. Fisher. $30,000. 

Mr. Gesell. Was there any collateral against the loan ? 

Mr. Fisher. That was made in 1916, before my connection, and at 
that time our records were not as complete. I should say that there 
was collateral. I never knew the bank to make a loan without col- 
lateral. 

Mr. Gesell. Do the records show any collateral ? 

Mr. Fisher. No. 

Mr. Gesell. Do you remember with respect to Mr. Xacy's what the 
amount of that loan was? 

Mr. Fisher. No; I have no recollection. 

Mr. Gesell. He was assistant secretary of the Travelers Insurance 
Co., was he not? 

Mr, Fisher. He is ; I don't know whether he was at that time. 

Mr. Gesell. Do you recall that he made a first-mortgage loan of 
$10,000 on April 27, 1920? 



CONCENTRATION OP ECONOMIC POWER 6411 

Mr. Fisher. I presume lit- did. I don't recall it. If you have the 
record, I will identify it. 

Yes; that's right. 

Mr. Gesell. Thai property was located at 241 Laurel Street, Hart- 
ford, Conn., was it not? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. What was the appraised value of the property? 

Mr. Fisher. $15,000. 

Mr. Geskll. Who were the appraisers? 

Mr. Fisher. .Mr. Slocum and Mr. Welles. 

Mr. Gesell. Do you recall that a second mortgage was made against 
the property to Mr. Lacy? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. The date of that loan was March 25, 1924, was it? 

Mr. Fisher. Twenty-four. 

Mr. Gesfxl. And the first loan was April 27, 1920? 

Mr. Fisher. That's right. 

Mr. Gesell. What was the appraised value of the property for the 
purposes of the second mortgage? 

Mr. Fisher. $20,500. 

Mr. Gesell. The first appraisal had been fifteen, had it not ? 

Mr. Fisher. That's right. 

Mr. Gesell. The same people appraising it both times ? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Do you recognize this schedule which I show you as a 
schedule of the mortgage loans outstanding at the Travelers Bank & 
Trust Co. commercial department as of July 27, 1939? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. What is the total amount of loans outstanding as of 
that date? 

Mr. Fisher. $86,164.67. 

Mr. Gesell. With the exception of a $3,000 loan to a Rocco Pallotti, 
a $5,188.49 loan to Hector O. Provost, and a loan to Bertrand A. Page 
of $7,336, all of those loans now outstanding as of that date were to 
persons connected with the Travelers Insurance Co., were they not? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Have you computed what percentage of the loans are 
outstanding to people connected with Travelers Insurance Co. ? 

Mr. Fisher. I have not. 

Mr. Gesell. It would be a very high percentage, would it not? 

Mr. Fisher. Yes; but that is in our commercial department. 

Mr. Gesell. I understand that. So the caption reads. 

I should like to offer this schedule for the record. 

Acting Chairman Davis. Let it be inserted in the record. 

(The schedule referred to was marked "Exhibit No. 1109"' and is 
included in the appendix on p. 6962.) 

Mr. Gesell. Does that schedule include some second mortgages? 

Mr. Fisher. Those are all first mortgages except two. 

Mr. Gesell. Which two are second mortgages? 

Mr. Fisher. I can't tell you. I haven't that here. 

Mr. Gesell. Lacy and Spencer are the two second-mortgage loans, 
are they not I 

124491— 40— pt. 13 5 



6 4jo CONCENTRATION OF ECONOMIC POWER 

Mr. Fisher. There are onlv two or three seconds I checked that 
before I came down. I don't recall which ones. Hie rest of them 
ure all first mortgages. , , 

Mr. (ii<M,i. Have you a recollection that a mortgage loan of 
$10,1 00 waa made to Emma G. Slocum? 

Mr. lVm 1:. May I see that I I recognize the document. 

Mr Resell. What was the amount of the loan? 

Mr. Fisher. , 

Mr. Gesell. Who appraised the collateral behind that loan* 

Mi- Fisher. Mr. Zacher and Mr. Welles appraised it at $22,000. 

Mr. Gesell. I notice that Mr. Slocum first appraised it and then 
he struck his name out. Is that correct? 

Mr. Fisher. That is on a reappraisal. 

Mr <;ksell. Have von prepared a record which will show the 
total -»f all loans of 'Travelers Bank & Trust *Co. outstanding on 
January 1. "29, "33, '35, and '39, and the percentage of those loans 
which have been made to directors, officers, and employees of Travel- 
ers Insurance Co.? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Will you tell us the amount, the percentage of those 
amounts outstanding to officers and directors on those various dates? 

Mr. Fisher. The percentage of loans to officers, directors, and em- 
ployees 01, January 1, '29, was 11.92; January 1, '33, 15.46; January 
1, ":'.;., L5.66; and January 1, '39, 17.06. 

Mr. Gesell. What were the total loans outstanding on that last 
• lav \ 

Mr. Fisher. $4,277,940.25. 

Mr. Gesell. And how many of those were to officers and directors? 
What amount? 

Mr. Fisher. $729,971.55 to officers, directors, and employees. 

Mi-. Gesell. On the appraisals of the collateral behind these vari- 
ous loans, Mr. Fisher, does Mr. Zacher go out and personally appraise 
the property when his name appears as appraiser? 

Mr. Fisher. Where his name appears, which is exceptional. It is 
not the rule. • 

Mr. Gesell. It iv a personal appraisal by him? 

Mi-. Fisher. It is a personal appraisal. 

Mr. Gesell, Would you say that in all cases there was an actual 
persona] appraisal by those whose names appear as appraiser? 

Mr. Fish 1 r. Oh. yes. 

Mr. Gesi 1.1,. 'I hose percentages which you just gave us on the loans 
by Travelers Bank <6 Trust Co. were mortgage loans, were they not? 

Mr. F18HER. Mortgage loans; yes, sir. 

Mr. Gesell. [s it correel that if you take all loans, not just mort- 
gage loans hut all loans of Travelers Bank & Trust Co., and all loans 
t.» directors, officers, ami employees of Travelers, the percentage was 
:> ll in January I. '33; 30.04 January 1, '35; and 36.17 Januarv 1, 
L9391 

Mr. Fishes. Thai is the total of other loans, other than mort<nio-e 
loai fe s 

Mr. Gesell. Thru let's see if I understand this correctly. As of 
Januarv 1. '39, officers, directors, and employees of Travelers had 
L7.06 percent of the mortgage loans? 

Mr. Fl8HEB. That's right. 



CONCENTRATION OF ECONOMIC POWER (54 13 

Mr. Gesell. And 36.17 percent of the other loans? 

Mr. Fisher. Other loans, that's right. 

At that point, in 1939, the Travelers' Bank was not making other 
loans. Such collateral loans as we had been accustomed to make 
had been transferred to the Connecticut Kiver Bank, and therefore 
the percentage was unusually high. 

Mr. Gesell. You show, in 1939, under "Other loans," $50,575 out- 
standing. 

Mr. Fisher. That is right. 

Mr. Gesell.- Fifty thousand of that is a loan to a single person, is 
it not? 

Mr. Fisher. That's right. 

Mr. Gesell. He was Mr. Walter Roberts, assistant cashier of the 
company ? 

Mr. Fisher. That's right. 

Mr. Gesell. Referring to his loan card, can you tell us how long 
that obligation has been outstanding? 

Mr. Fisher. October 17, 1930. 

Mr. Gesell. When was the last payment of principal made on 
that loan? 

Mr. Fisher. There has been no payment of principal on that. 

Mr. Gesell. When did you say the last principal payment was? 

Mr. Fisher. I said there has been no payment of principal on it. 

Mr. Gesell. Since the date of the loan? 

Mr. Fisher. That's right. 

Mr. Gesell. What is the security? In a general way — I don't 
want the specific description of each share of stock. 

Mr. Fisher. One hundred and sixty-one shares of Travelers Insur- 
ance Co. and two life-insurance policies. 

Mr. Gesell. Have you included in that figure of the amount of 
loans outstanding, the obligations of Mr. John H. White? 

Mr. Fisher. In the total; yes, sir. 

Mr. Gesell. But in the percentage attributable to officers and di- 
rectors you have not, have you? 

Mr. Fisher. We have not. He was not an officer or director or 
employee with Travelers at that time. 

Mr. Gesell. As of June 1, 1939? 

Mr. Fisher. That is correct. 

Mr. Gesell. He was, however, at the time the loan was made, was 
he not? 

Mr. Fisher. I don't think so. 

Mr. Gesell. He was not assistant secretary of the company at that 
time ? 

Mr. Fisher. No. 

Mr. Gesell. What is the amount of his obligations? 

Mr. Fisher. $70,000. 

Mr. Gesell. And when was the loan made? 

Mr. Fisher. In 1929, I should say, or, rather, in 1927. 

Mr. Gesell. You said you didn't recall whether he was connected. 
I notice that in the yearbook of 1926, Mr. John H. White appears as 
assistant secretary of the group department of the company. 

Mr. Fisher. But this loan was not made until 1927. 

Mr. Gesell. Is it your recollection that he left ? 



(3414 CONCENTRATION OF ECONOMIC POWER 

Mr. Fisher. I furnished that information to one of your investi- 
gators. 

Mr. Gesell. I was asking you not what you did, but what your 
recollection is, sir. I wish you would answer the questions specifically. 
You don't know about 1927? 

Mr. Fisher. I do not know. 

Mr. Geseix. Now, Mr. Fisher, have you prepared schedules which 
show the names of all officers and directors of Travelers Insurance. 
Co. who have borrowed either from the Connecticut Kiver Banking 
Co. or the Travelers Bank & Trust Co.. and the greatest amount of 
the combined obligations of each individual to both of those banks 
;it any time during the last 10-year period? 

Mr. Fisher. No; it has been prepared on four specific dates, as of 
January 1. 1929- , January 1, 1933; January 1, 1935; and January 1, 
193!), giving the maximum borrowed at any time in that period — 
combined maximum. 

Mr. Gesell. Yes; so that you have on those schedules before you 
the greatest amount 

Mr. Fisher (interposing). Borrowed between those periods. 

Mr. Gesell. Is that the amount borrowed or the amount owed? 

Mr. Fisher. The amount owed. 

Mr. Gesell. The greatest amount owed? 

Mr. Fisher. Yes; in that period. 

Mr. Gesell. In the 10-year period? 

Mr. Fisher. Yes. 

Mr. Gesell. Will you refer to those schedules and state whether 
or not Mr. H. H. Armst/ong, vice president of the Travelers In- 
surance Co., borrowed money? 

Mr. Fisher. Yes, sir. 

Mr. Gesell. Did he borrow it from both banks or only one bank? 

Mr. Fisher. Only one bank. 

Mr. Gesell. What was the greatest amount of obligation? 

Mr. Fisher. $36,450.62. 

Mr. Gesell. That was on February 6, 1932? 

Mr. Fisher. .That is correct. 

Mr. Gesell. Will you give us similar information on die others 
shown on those schedules? 

Mr. Fisher. William B. Bailey, from the Connecticut River Bank- 
ing Co. The largest amount was $15,000 on October 17, 1935. 

Mr. Gesell. He is an economist for the Travelers Insurance Co? 

Mr. Fisher. Do you want the titles ? 

Mr. Gesell. If you would, please. 

Mr. Fisher. Gladden W. Baker, treasurer of the Travelers Insur- 
ance Co. Largest amount borrowed was $20,100 on October 5, 1931. 

Mr. Gesell. Will you indicate in each case whether he borrowed 
from both banks? 

Mr. Fisher. From both banks. 

Percy V. Baldwin, assistant secretary, borrowed from both banks, 
largest amount was $17,421.29 on January 1, 1929. 

Walter E. Batterson, who was with the Travelers Insurance Co., 
borrowed from both banks. The largest amount was $48,526.20 on 
January 1, 1929. 

Mr. Allan E. Brosmith, attorney, borrowed from both banks, 
largest amount was $25,890, February 14, 1930. 



CONCENTRATION OF ECONOMIC POWER 6415 

William Brosmith, director, largest amount borrowed was $G,000 
On November 9, 1929, Connecticut River Bank. 

Louis F. Butler, president, both banks, largest amount $52,000, 
May 6, 1929. 

James II. Coburn, vice president, both banks, largest amount, 
$18,000, March 28, 1938. 

H. H. Ellsworth, director, from the Connecticut River Bank, 
largest amount $26,000, November 26, 1929. 

Charles E. Ferree, assistant agency secretary, both banks, largest 
amount $11,122.03, January 1, 1929. 

B. D. Flynn, vice president, both banks, largest amount $80,450, 
May 20, 1931. 

Howard A. Giddings, vice president, from the Travelers Bank, 
$7,500, January 1, 1929. 

Frank B. Goudy, director of the Nebraska Securities Corporation, 
Connecticut River Bank, largest amount $10,600, June 2, 1931. 

Frank P. Hayden, assistant secretary, both banks, largest amount 
$24,000, July 26, 1930. 

James L. Howard, director, Connecticut River Bank, largest amount 
$58,500, October 1, 1930. 

Mr. Geseix. He is also vice president, is he not? 
Mr. Fisher. Yes, sir. 

Joseph D. Leahy, assistant secretary, both banks, largest amount 
$13,700, April 30, 1929. 

Walter E. Mallory, agency secretary, both banks, largest amount 
$46,000, September 30, 1931. 

Francis T. Maxwell, director, Connecticut River Bank, $110,000, 
September 20, 1930. 

John McGinley, vice president, Connecticut River Bank, $25,000, 
January 1, 1929. 

Bertrand A. Page, vice president, both banks, largest amount 
$100,000, November 30, 1929. 

Jesse W. Randall, vice president, both banks, largest amount 
$29,276, January 1, 1929. 

C. Donald Rarey, both banks, largest amount $15,541.06, November 
5, 1929. 

Daniel A. Read, secretary, both banks, $25,315, October 15, 1929. 
Walter Roberts, assistant cashier, both banks, $70,500, October 31, 
1929. 

Robert D. Safford, vice president, both banks, $8,500, August 25, 
1933. 

Wilbur S. Sherwood, assistant cashier, both banks, $65,000, Sep- 
tember 16, 1929." 

Arthur L. Shipman, director, Connecticut River Bank, $42,658.87, 
December 16, 1930. 

Wellington R. Slocum, cashier, both banks, $17,500, January 1, 1929. 
C. Luther Spencer, Jr., director, Connecticut River Bank* $19,000, 
December 5, 1930. ' . ( 

R. J. Sullivan, vice president, Connecticut River- Bank, $17,500, 
January 1, 1929. 

C. W. VanBeynum, manager of publicity department, boih banks, 
$13,069.84, September 16, 1936. 

John L. Way, director, Connecticut River Bank, $10,000, January 1, 
1929. 



6416 CONCENTRATION OF ECONOMIC POWER 

Robert H. Williams, vice president, $41,500, January 8, 1932. 

L. E. Zacher, president, Connecticut River Bank, $50,000, July 15, 
1929. 

Bartlett T. Bent, assistant secretary, both banks, $15,357, March 14, 
1932. 

Edmund J. Buckley, agent, Travelers Bank, $10,531.20, February 6, 
1929. 

Thomas J. Butler, superintendent of agencies, Connecticut River 
Bank, $8,500, November 13, 1929. 

Joseph T. Cabaniss, medical department, both banks, $11,000, 
January 1, 1929. 

John J. Cusick, traveling auditor/ Connecticut River Bank, $10,- 
613.75, June 23, 1930. 

Charles Deckelman, manager, claim department, Connecticut River 
Bank, $7,078.24, March 4, 1929. 

Everett S. Fallow, actuary, both banks, $8,473, July 15, 1929. 

James C. .Graves, surgical director, Connecticut River Bank, $32,400, 
January 1, 1929. 

F. L. Grosvenor, medical director, $37,000, October 4, 1932. 

H. Pierson Hammond, actuary, both banks, $35,000, November 5, 
1929. 

John J. Hart, superintendent automobile division, both banks, 
$18,520, May 14, 1929. 

James E. Hoskins, assistant actuary, both banks, $14,300, September 
15, 1930. 

Joseph R. Lacy, assistant secretary, both banks, $22,220.48, January 
1, 1929. 

Charles E. Perry, medical department, $11,020.58, both banks, June 
25, 1930. 

Fred E. R. Piper, assistant manager, casualty claim, both banks, 
$8,500, September 11, 1929. 

Walter R. Rearick, superintendent, both banks, $13,699.80, October 
31, 1929. 

James E. Rhodes, attorney, both banks, $29,300, April 29, 1930. 

Lewis M. Robotham, secretary, both banks, $40,000, March 19, 1929. 

George M. Smith, assistant surgical director, Connecticut River 
Bank, $8,300, January 1, 1929. 

Howard R. Sullivan, assistant manager, casualty claim, both banks, 
$47,150, November 21, 1930. 

Rog6r W. Wight, superintendent ,of agencies, Connecticut River 
Bank, $10,150, May 31, 1932. 

This, of course, includes mortgage loans. 

Mr. Gesell. Yes; these are mortgage loans, collateral loans, and 
occasionally a noncollateral loan. 

Mr. Fisher. Yes. 

Mr. Gesell. And they are all loans made to persons who were con- 
nected as officers or directors or, in some other capacity, that you 
indicated were in the Travelers groups. 

Mr. Fisher. That is right. 

Mr. Gesell. Thank you, Mr. Fisher. There are no further ques- 
tions of this witness at this time. 

Acting Chairman Davis. You are excused Mr. Fisher. 

Mr. Gesell. Mr. Jenkins, will you take the stand again, please ? 



CONCENTRATION OF ECONOMIC POWER 6417 

TESTIMONY OF GEORGE C. JENKINS, ANALYST, INSURANCE SEC- 
TION, SECURITIES AND EXCHANGE COMMISSION— Resumed 

Mr. Gesell. Mr. Jenkins, did you have occasion to examine the 
records of the Travelers Bank & Trust Co. ? 
Mr. Jenkins. I did, sir. 

Mr. Gesell. Have you prepared figures which will show the total 
amount loaned by Travelers Bank & Trust Co., exclusive of mortgage 
loans to officers and directors of the Travelers group ? 
Mr. Jenkins. Yes, sir. 

Mr. Gesell. How many officers and directors and employees of the 
Travelers group borrowed from the Travelers Bank & Trust Co. other 
than on mortgage loans? 
Mr. Jenkins. Twenty. 

Mr. Gesell. Was that during the period of 1930 to 1939? 
Mr. Jenkins. Yes, sir. 

Mr. Gesell. What was the amount of the loans made to them ? 
Mr. Jenkins. $347,442.77. 

Mr. Gesell. Then taking that figure and adding to it the amount 
of money loaned by the Connecticut River Bank to officers and direc- 
tors of Travelers Insurance Co., what is the grand total? 

Mr. Jenkins. The grand total of combined bank loans is $4,217,- 
028.04. 

Mr. Gesell. Now, does the Travelers Insurance Co. maintain an 
account at the Travelers Bank & Trust Co. ? 
Mr. Jenkins. Yes, sir; they do. 
Mr. Gesell. That is$450,000, is it? 
Mr. Jenkins. Yes, sir. 

Mr. Gesell. What other companies within the Travelers group or 
affiliates keep accounts there ? 
Mr. Jenkins. Travelers Broadcasting Service Corporation. 
Mr. Gesell. What is the amount of that account as of December 
31, 1938? 
Mr. Jenkins. $20,715.95. 

Mr. Gesell. What percentage of the total deposits in that bank do 
the insurance company and broadcasting company deposits 
amount to? 

Mr. Jenkins. Seventy-six percent of the commercial deposits are 
from the broadcasting company or other affiliates. 
Mr. Gesell. There are savings deposits not included ? 
Mr. Jenkins. That is right, sir. 
Mr. Gesell. I have no further questions. 
Acting Chairman Davis. You are excused. 
(The witness, Mr. Jenkins, was excused.) 
Mr. Gesell. Mr. Zacher, please. 

TESTIMONY OF LOUIS EDMUND ZACHER, PRESIDENT, TRAVELERS 
INSURANCE CO., HARTFORD, CONN.— Resumed 

Mr. Gesell. Mr. Zacher, for a moment I want to ask you about 
a topic I touched upon with Mr. Fisher. At the time the Travelers 
Insurance Co. organized the Travelers Bank & Trust Co., then the 
Union Trust Co., were certain loans transferred to that bank? 

Mr. Zacher. Yes, sir. 



6418 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Can you tell us what the nature of those loans were? 

'Ttiev were innrt <r a< r e loailS, I helieve. . 

Mr Z -i n 1 F think there were about four or five mortgage loans 
,„,1 ';/ 1 ' 11 t h, circumstances three of them were to employees 
! , l.anv. It has always been the practice m Hartford for 

I'Lunlnlv Companies ... keep out of the mortgage -tog&Me* 
,,,,, upon verv Large loans and leave the held foi residence loans 

5 g Se mutual -savings hanks In a way ^ was emba^assmg 
for the company although it legally could do so to lend direct to 
te employs ...1 account of the personal relationship: regarding the 

ank as a separate enterprise, wi felt the loans would be made more 
in accordance with the general custom of the community if we 
shifted all those loans to the trusi company. That is the reason we 
did it. and that is the way it was continued from then on. 

Mr. Gesell. Is it correct that those loans at that time were m 
the principal amount of the neighborhood of $36,000? 

Mi-. Zacher. 1 should say so. 

Mr Geseix Now you are connected in one way or another with 
both the Connecticut' River Hanking Co. and the Travelers Bank 

6 Trusi Co., aren't you? 
Mr. Za< in i;. Yes, sir. 

Mr. Gesell. Did those hanks loan money to officers and directors 
of Travelers Insurance Co. at the same rate of interest as they loaned 
money to persons not so affiliated I 

Mr. Zacher. Well, T can't answer that exactly, but I know we 
made a special rate, particularly on mortgage loans, to employees, 
whether they were officers or clerks, probably a half of 1 percent 
under what we charged the general public. 

Mr. Gesell. That would be at both banks? 

Mr. Zacher. I imagine so. although I can't swear to it because 
1 don'l know, but that was the general idea. 

Mr. Gesell. "Was there any kind of special rate to officers and 
directors <>f Travelers Insurance Co.? 

Mr. Zacher. No; they were to enjoy the same advantage the 
clerks were to enjoy, so far as I know. 

Mr. Gesell. Now. 1 would like just to make clear how that runs, 
particularly since this is the subject Judge Davis mentioned early 
this morning. 1 would like you to run through some of these minutes 
with me and see if my understanding is correct. 

Now, the firs! sel of minutes is of the finance committee of Trav- 
elers Bank & Trust Co. for December 5, L922, and as I read those 
minutes, three new loans and two renewals were approved, four 
of the loans being at 6 percent and the fifth, to John H. White, being 
at :.' ._. percent. 

Mr. / \< in r. Yes, sir. 

Mr. Gesell. He was connected as a junior officer with Travelers 
1 ii-urance ( Jo., was he nut \ 

Mr. Zacher. 1 think he was in 1922. 

Mr. (ii-iii Now, on the next set of minutes, being the finance 



CONCENTRATION OF ECONOMIC POWER 6419 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Now, in the case of Mr. Rhodes, his reduction in 
interest rate was a whole point as opposed to half a point for Mr. 

Buck Icy. 

Mr. Zacher. Yes. 

Mr. Gesell. That would indicate that there was no set amount of 
interest preference in each case. 

Mr. Zacher. Well, it may be he just wanted — wait a minute. It 
may be he just wanted it for 90 days; it is a 90-day note, and that 
might have made some difference. 

Mr. Gesell. Then I noticed there were mortgage loans approved 
at that time, 12 new or continued mortgage loans, all at 6 percent 
except for 2 loans each at 5y 2 , 1 to an actuary, Mr. Morris, and 1 to 
Mr. Hammond, assistant actuary. 

Mr. Zacher. Yes ; that is correct. 

Mr. Gesell. Then at the meeting of October 18, 1927, contained in 
the next set of minutes that you have before you, I notice a loan to 
Allan Brosmith, attorney in the mortgage loan, at 5y 2 percent, when 
the interest rate on the other loan is shown at 6. 

Mr. Zacher. Yes. The first mortgage is at 5^2 an d the second at 6. 

Mr. Gesell. If you will refer to the minutes of the finance com- 
mittee of December 2, 1930 — I think that is about two down — have 
you that before you? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That is the finance committee of the Travelers Bank & 
Trust Co.; is that correct? 

Mr. Zacher. Yes, sir. 

Mi-. Gesell. Now I notice that there are 10 renewals of mortgage 
loans shown as coming before the finance committee on that date, 7 
of those loans being at 6-percent rate, a loan to Matilda Pittman at 
f>V-> percent, with a notation, "Walter Pittman is with Travelers." 

Mr. Zacher. Yes; that is right. 

Mr. Gesell. And a loan to William C. Riddle at 5y 2 percent, with 
the notation, "Mi. Riddle is with' Travelers Insurance Co." 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And a loan to Elizabeth Dow Shaw at 5y 2 percent, 
with a notation, "Dr. Shaw of Travelers is husband of Elizabeth 
Dow Shaw." 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That would indicate this preference on interest rates 
extended to the families of persons connected with Travelers, as well 
as to the officials and employees themselves. 

Mr. Zacher. Well, these men's wives — they put the house in the 
name of their wife but they were responsible for the note. 

Mr. Gesell. If you will now refer to the next set of minutes, 
September 2G, 1922, I notice that there were some 21 loans approved, 
18 of them at 6 percent; that there was a loan to Charles B. Miller 
at 5V 2 percent. He was an employee of the Connecticut River Bank- 
ing Co.; was he not? 

Mr. ZacheR. I believe so; yes. 

Mr. Gesell. A loan to Mr. Dickerman, an employee of Travelers 
Insurance Co. at 5y 2 percent. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And then a loan to yourself at 5 percent. 



6420 CONCENTRATION OF ECONOMIC POWER 

Mr. Zacher. Yes, sir. . 

Mr. Gesell. That would indicate that in the case of senior officers, 
the preference was a little stronger. 

Mr. Zacher. Oh, not entirely. If you go down below, Francis K. 
Cooley borrowed $17,000 at 5 percent, 

Mr. Gesell. Who? What is the man's name? 

Mr. Zacher. Francis R. Cooley. He was a broker ana he borrowed 
17.000 at 5 percent. 

Mr. Gesell. The great majority of loans on that date 

Mr. Zacher (interposing). It may be just loans for a temporary 
period. I think I paid that off in a month. 

Mr. Gesell. Then let's continue with this a moment. If you refer 
to the next set of minutes, June 5, 1923, I notice six new or renewed 
mortgage applications, all at 6 percent, except for one of Bertrand 
A. Page for 5 percent. Mr. Page was vice president of the Travelers 
•and connected with the bank; was he not? 

Mr. Zacher. Yes; I think he was. 

Mr. Gesell. And he received 5-percent interest as against 6 for tne 
others who borrowed on that date. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Now, continuing one step further to the next set of 
minutes, November 6, 1923, I notice that on that date, November 6, 
'23, the finance committee approved six first mortgages at 6 percent, 
and one second mortgage at 6 percent, and one second mortgage at 
5 percent, that one at 5 percent being to Mr. Daniel A. Read, whom, 
I understand was assistant secretary of Travelers,, and who is now 
connected with the company. That is correct? 

Mr. Zacher. Yes, sir. 

Mr. Gezell. There again it would appear to me that there was a 
preference of a point in interest rate. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Not to take you through all of them before you, if 
you £o to tlve next to the last sheet you have, May 17, 1927, I note 
thai the finance committee approved seven mortgage loan applica- 
tions, five of them at a rate of 6 percent, one to Harry C. Bean, whom 
I understand is a junior officer of the Travelers, at 5%, and one to 
Mabel H. Howard, wife of James L. Howard, the vice president and 
director of the Travelers Insurance Co., at 5 percent. 

Mr. Zacher. Yes. sir. 

Mr. Gesell. Just with that last one before you, Mr. Zacher, that 
indicates to me that junior officers and employees got an interest pref- 
erence of half a point by and large in the interest rate, and that some 
of the senior officers received a whole point. Does that refresh your 
recoiled i 

Mr. Zacher. Well, apparently in these three or four cases they did 
gel a halt of 1 permit better. Why they got it, I can't tell you, 
whether i1 was a general policy, or whether it was just a negotiation 
at that tune, or what it was. 

Mr. ( ;■ si ll. There are other cases he fore you that I didn't bother to 
burden the record with. 

Mr. Zai her. The number of people involved in that compared with 
the number of officers is not very large. 



CONCENTRATION OF ECONOMIC POWER 542 1 

Mr. Gesell. Well, I was just trying to understand upon what basis, 
even granting it might not be in every case, any preference would be 
granted to persons connected with Travelers Insurance Co. 

Mr. Zacher. I think that that would be correct. 

Mr. Gesell. To grant such a preference? 

Mr. Zacher. To grant a preference in rate, because we knew all 
about them, the moral hazard and everything else, and it was to our 
advantage, particularly when they wanted to buy a house, to help 
them buy that house. I would much rather have them come to 
our company and borrow the money, and watch how it was coming 
out, than to have them go somewhere else and have to bail them out 
later on. 

Mr. Gesell. You looked at it as a sort of matter of personal policy, 
in a way? 

Mr. Zacher. Yes; I thought it was a good thing, and I still 
think so. 

Mr. Gesell. That, to my mind, indicates that you didn't always 
have before you as your primary consideration the corporate distinc- 
tion between the bank and the insurance company. In many respects 
they were one and the same, weren't they ? 

Mr. Zacher. Mr. Gesell, you see we could have made these loans 
in the Travelers Insurance Co. to all these people legally. There is 
no bar to that at all. 

Mr. Gesell. No bar against your making loans to officers and 
directors ? 

Mr. Zacher. Not on mortgages. 

Mr. Gesell. Well, there are other loans besides mortgages. 

Mr. Zacher. Of course, collateral loans are a different matter, 
but the mortgage loans could have gone through the company, and 
if they had gone through the company they might have been made 
at a still lower rate. 

Mr. Gesell. My understanding is you placed the mortgage loans 
through the banks because of that situation in Hartford to which 
you referred. 

Mr. Zacher. It was a peculiar situation. 

Mr. Gesell. The collateral loans — the company could not have made 
those itself ? 

Mr. Zacher. It would have been very easy to have gotten them. 

Mr. Gesell. It would have been lawful for the company to make 
them directly? 

Mr. Zacher. Oh, yes; except in this case, on its own stock. I think 
the law permits loans to be made on collateral. That is, we can take 
any collateral that is legal and lend on it to any officer or any employee. 

Mr. Gesell. We will get into a long discussion as to what law we are 
talking about. Connecticut law might be one thing and New York law 
might be another. 

Mr. Zacher. Connecticut law is what governs on that stuff, and 
always has. 

Mr. Gesell. You don't feel you are subject to the requirements of the 
New York law in that respect at all ? 

Mr. Zacher. No, sir. 

Mr. O'Connell. When you were referring to a section of the New 
York law a little while ago, section 97 



6422 CONCENTRATION OF ECONOMIC POWER 

Mr. ( fa h ,,. (interposing). There was a reference in that memoran- 
dum to thai with respect to agents' loans. m . r i;ff Pr pnt 
Mt.Zacher. Loans on renewal commissions, which is quite a different 

in :' r ( )•( Ionnell. You mean you are subject to the New York laws in 
some respects and not in others? 

Mr. Zacher. Yes. . 

Mr. ( >'< onni i.i.. What is the line of demarcation? 

Mr. Zacher. Custom. . 

Mr. O'Connell. Just custom? Or convenience i 

Mr Zacher. Well, no; it is more or less governed, I think by recip- 
rocal laws, isn't it \ A loan on agents' renewals is involved m what 
the? call acquisition cost, and all companies doing business m JSew 
York have to conform to it on that account, but it concerns mutual 
companies more than it does concerns that are doing nonparticipatmg 
business, as Travelers is. 

Mi- ( )'( Ionnell. On the particular point we are discussing, it is your 
understanding you are not bound to follow the New York law m con- 
nect ion with making loans to your officers and directors. Is that right 5 
The New York Law on that point is not binding? 

Mr. Zacher. I don't know the New York law on that point, but they 
haw never questioned it. There is an inquiry in the annual state- 
ment, total amount of loans to officers and total amount loaned to 
stockholders, and that is always answered, so I presume that that is 
permissible under the New York law. 

Mr. O'Connell. What is the Connecticut law? 

Mr. Zacher. The Connecticut law permits you to lend on securities 
(lie companies can buy for investment. 

Mr. O'Connell. You can make a security loan to an officer or 
director, hut you can't make an unsecured loan? 

Mr. X \cii i.i:. No. sir. 

Mi. O'Connell. Can you make an unsecured loan to an employee? 

Mr. Zacher. No. sir. 

Mr. Gesell. In lots of cases these collateral loans that you made 
to officers and directors contained collateral which the company 
couldn'1 have invested in itself. 

Mr. Zacher. They change that law from time to time. I haven't 
followed it. But we are very careful to see the collateral is 
legal. A.s I say, we don't make any collateral loans now, and that is 
a matter that is not a law. it is the action of the finance committee. 

Mr. Gesell. In the annual convention form statement and general 
interrogatories where the company is asked to report loans to officers 
and director-, do you report the loans through the banks? 

Mr. ZaGHI R. No. -ir. 

Mr. Gesell. Coming back to this question of interest for a moment, 
there is one other factor involved in it, it seems to me, Mr. Zacher, 
and that i- that in some cases, at least, we have seen that the officers 
and directors whose loans were involved were present as members of 
the finance committee of the hank and voted approval on their own 
loan-. That is correct, isn't it \ 

Mr. A\< HER. That is the way the records read. 

Mr. Gesell. And such a vote of approval in a case where a loan 
' preferential interest rate seems to me to open the transac- 



CONCENTRATION OF ECONOMIC POWER 6423 

tion even to greater question, since the man, after all, is getting some 
personal benefit apart from the loan through the transaction. 

Mr. Zacher. Well, I don't know. There arc various opinions 
nitwit that, but as a practical matter these loans are not made by the 
finance committee. They are made by the officers and they are re- 
ported to the finance committee, and it' the finance committee dis- 
approves them they call the loans and have to be negotiated 
elsewhere. 

Mr. Gesell. So far as responsibility is concerned, that rests with 
the finance committee and the Board, doesn't it? 

Mr. Zacher. I suppose really if a director makes an application 
for a loan and he knows it is coming up for consideration or approval 
the next week he had better stay away from the meeting altogether. 

Mr. Gesell. Of course he didn't, did he ? 

Mr. Zacher (interposing). So as to let them act as they will, but 
t ho fact that he presents this loan and gives adequate collateral 
seem? to me to indicate he approves the loan and might well 
•'share the responsibility of the other directors, although I see lately 
it has become the custom for a man to say "I want to be recorded as 
not voting," but he is there just the same. 

Mr. Gesell. There was one case here where Mr. Baker stepped out 
of the room when his loan came before the finance committee, but as 
a matter of practice that didn't seem to be what was done in your 
case. 

Mr. Zacher. It wasn't done in my case because that wasn't the 
fashion. That hadn't come*in. 

Mr., Gesell. And the fashion in most of these loans was for the 
men to vote on the loans along with the rest of them? 

Mr. Zacher. Oh, yes; I wouldn't put up a loan unless I thought 
it was pretty good. 

Mr. Gesell. Coming to one other angle of this situation, let me 
ask you "this : Can the Travelers Insurance' Co. directly loan money 
on call? 

Mr. Zacher. That is rather difficult to answer, because I don't 
know the rules or the mechanics of the thing now. Yes, it can loan — 
we can loan — directly on demand on collateral to brokers, bankers, 
anybody, I guess, as long as the collateral is good and we are satisfied 
with it, either for 1 day or 2 or more days. Yes, I should say I think 
it can be done. 

Mr. Gesell. That would be a loan where the amount of money 
loaned was not commingled with other persons' money, would it not? 
That would be a distinct loan? 

Mr. Zacher. It would be an out-a_nd-out loan directly to some 
broker in New York. 

Mr. Gesell. My understanding is that usually when money is 
loaned on call it becomes mingled with other persons' funds who are 
also being loaned on call. Is that correct? 

Mr. Zacher. Not if the negotiations are between the two parties. 
We loan John Jones & Co., of New York $200,000 on call at 5 or 6 or 
7 percent. Our money is not mingled with anybody else's money. 

Mr. Gesell. I suppose you are familiar with the ruling of the 
attorney general of the State of New York with respect to his inter- 
pretation of a section of the law with respect to investments of cap- 
ital and surplus. My understanding is that he ruled that an insur- 



0424 CONCENTRATION OF ECONOMIC POWER 

ance company has no power to deposit certain of its funds with a 
bank to be loaned by it on call with the money or other parties, on 
the ground that that sort of transaction is not one of the investments 
described in section 1G. Is your understanding to the contrary, that 
it was perfectly legal for your company to loan money on call 2 

Mr. Zacher. Yes ; directly with the borrower. 

Mr. Gesell. Has your company made such loans directly? 

Mr. Zacher. Not in recent years. 

Mr. Gesell. You have in recent years made loans on call through 
the Travelers Bank & Trust Co., have you not? 

Mr. Zacher. Yes. 

Mr. Gesell. Why were the loans made through the Travelers Bank 
& Trust Co. if you could make them directly yourself? 

Mr. Zacher. Well, if you will examine the annual statements you 
will find there you have to put down in great detail. how much 
you lend, to whom you lend it, the rate of interest, collateral, all 
collateral changes, when it was discharged and renewed; and if you 
make 15 to 20 of them you spend most of your time setting up type 
and printing all that information. There is only one time I recall 
when it seemed desirable to put out money on call, and I think 
that was in 1929, and we put it out through the Travelers Bank & 
Trust Co. because the mechanics were very simple and because we 
received an extra rate of interest on call over what they paid us, and 
we received the benefit of it as the holder of all the stock of that 
company. 

Mr. Gesell. I think it is rather succinctly stated in a memorandum 
from you to Mr. Hubbard dated September 11, 1929, which states 
[reading "Exhibit No. 1110"] : 

I have arranged with Mr. Butler that while I am gone the money not needed 
for investment and above the amounts normally required for our business should 
go in The. Travelers Bank and Trust Company. 

If you will be kind enough to put this out on call, we will receive due benefit 
from it 

Please keep in mind that the balance v of the Travelers Insurance Company in 
The Connecticut River Banking Company v should be around $3,000,000. 

Do you recall; that 'memorandum? 

Mr. Zacher. Ye's,, sir. 

Mr. Gesell. f hat was at the time that you first decided to loan 
money on call through the Travelers Bank ? 

Mr. Zacher, Yes, sir. 

Mr. Gesell. I should like to file that memorandum. 

(The memorandum referred to was marked "Exhibit No. 1110" and 
is included in the appendix on page 6963.) 

Mr. Gesell. You recognize this as a schedule showing the balance 
of your company in the Travelers Bank & Trust Co. at the times 
indicated thereon? 

Mr. Zacher. I should say this is right. 

Mr. Gesell. I notice a rather sharp increase in the balances in 
1928-29. That is as a result of these call-money loans? 

Mr. Zacher. I am sure it was in 1929. I should say so. 

Mr. Gesell. I should like to offer this schedule for the record. 

(The schedule referred to was marked "Exhibit No. 1111" and is 
included in the appendix on p. 6963.) 

Acting Chairman Davis. It will be put into the record. 



CONCENTRATION OF ECONOMIC POWER 6425 

Mr. Gesell. Ca-n you tell 119 just how much was loaned on call and 
the various dates , ^se loans were made? 

Mr. Zacher. No, j.l\ 

Mr. Gesell. Referring to this schedule, if you would, please, does 
that indicate that the Travelers Insurance Co. deposit in the Bank & 
Trust Co. was $950,000 from May 27, 1928, until September 20, 1929? 

Mr. Zachfr. Yes, sir. 

Mr. Gesell. And on that latter date the Travelers Insurance Co. 
deposited $400,000 in the bank? 

Mr. Zacher. What date was that ? 

Mr. Gesell. That would be September 20, 1929. 

Mr. Z\cher. Yes, sir. 

Mr. Gesell. On that same date the bank loaned $400,000 on call at 
8 percent, did it not, to Toerge & Schiffer? 

Mr. Zacher. Yes, sir; apparently. 

Mr. Gesell. Next I read from those records that on September 23, 
1929. Travelers Insurance Co. increased its deposit by $500,000. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And another $300,000 on September 25, 1929. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And another $800,000 on October 3, 1929 ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And $200,000 more on October 7, 1929 ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. $200000 on October 15, 1929? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And $400,000 on October 18, 1929? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. If you would look on cards four and five of the records 
before you, am I correct in saying that coincident with the increase in 
the insurance company balance at the bank the bank increased the 
amount of money that it put out on call from $850,000 on September 
25, 1929, to a peak of $3,250,000 on October 22, ' ?9? 

Mr. Zacher. Yes; I should say so. 

Mr. Gesell. That is an increase of $2,400,000 which the bank had 
out on call ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. I notice that right at the year end, December 30, or 
between November 20 and December 30, 1929, the insurance company 
withdrew $2,650,000 from the bank and the bank correspondingly 
reduced the amount of money it had on call. That is correct, is it not ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And then after the year and, commencing on February 
20, the insurance company again deposited money in the bank amount- 
ing to $2,150,000; that was on February 20, 1930, and the bank put two 
million out on call at 4^2 percent. Can you tell me why, at the year 
end, the money was brought in and then put out again ? Was there 
some special reason for that ? 

Mr. Zacher. None that I can think of. 

Mr. Gesell. Didn't have any relation to balance-sheet items of any 
sort for the year end ? 



6426- CONCENTRATION OF ECONOMIC POWER 

Mr. Zacher. No; it simply would have shown that we had the 
mone} 7 on deposit in the Travelers Bank. I don't know of any reason 
why we should hide it in any way; it may have been that the rate 
was down ; it may have been that some choice investments came along 
at that time. 

Mr. Gesell. Of course, the money went right back out again about 
a couple of months later. 

Mr. Zacher. That may have been a large amount of money that 
came in from our agents' balances at the end of the year. You see, 
after the first of January money comes in very freely. 

Mr. Gesell. You deposited the money on February 20 ; the records 
indicate that on several additional occasions money was placed with the 
bank, the bank put that money out on call. Is that not correct? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And starting about March 1930, the amount of money 
on call and the amount of the insurance company's deposit decreased, 
did it not ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And by the end of 1930 you were back to a balance of 
$450,000 in the bank? 

Mr. Zacher. Yes, sir. I think that was due to the decrease in 
interest rate. 

Mr. Gesell. Now, this money that was loaned on call was loaned at 
what interest rate? 

Mr. Zacher. At the interest rates indicated here — 7, 7%, 8, 8y 2 , 
7y 2 , 9_V4 — it depended upon the period. Well, in that bad period there, 
at The end of 1929, and part of 1930, I think interest rates got down to 
5 percent, November 22, 1929, according to this statement here. 

Mr. Gesell. And do I understand correctly that the only reason why 
this money was loaned out through the bank, instead of being loaned 
by the insurance company directly itself, was because the insurance 
company wished to avoid the cumbersome detail which would be neces- 
sary in reporting this information on schedule C of the convention 
form ? 

Mr. Zacher. Yes ; that was the entire reason. 

Mr. Gesell. I think this might be a good time to adjourn until 
tomorrow and complete the execution of the banking transactions. 
I would like to ask 

Mr. O'Connell (interposing). I was interested in your apparent 
reaction to some of Mr. Gesell's questions relative to the propriety of 
having officers pass on loans to themselves. Do I understand it is your 
general belief that a condition of that sort is-not one that is at- least in 
danger of being misused or abused by the officers ? 

Mr. Zacher. Well, it depends on the character of your institution, 
more on the character of an institution. If it is a banking company 
organized in most States, in the East or an insurance company, you 
have the protection j)f the laws for the bank and the insurance com- 
pany. I don't know how they are in other States. 

Mr. O'Connell. In that situation, though if harm is done, it is 
done before the banking commissioner or the superintendent of insur- 
-ance is in a positon to do anything about it; isn't that so? I mean, if 
the loan is made, it is made. ' 



CONCENTRATION OF ECONOMIC POWER 6427 

Mr. Zaciier. I think the great trouble is a good many institutions 
make loans on slow collateral and no collateral, and that is where 
the trouble comes, you see; where the collateral that you offer is 
acceptable to any banking institution in the city 

Mr. O'Connell (interposing). Don't you think it is entirely pos- 
sible that in some circumstances it is rather dangerous from the point 
of view of the depositors or in the case of mutual insurance com- 
panies, let us say the policy holders, to have the position that the 
officers and directors of the bank or of the insurance company are 
empowered and in a position to make loans to themselves and be the 
persons who pass on the value of the collateral and the collateral 
loans ? Take a mortgage loan ; you and some other individual repre- 
senting a bank or insurance -company have an application from one 
of you for a $21,000 loan for mortgage on real estate. You make the 
appraisal and approve the loan to yourself. Isn't that a situation 
which is fraught with the possibility of a least bad judgment or 
a little colored judgment on the part of those in that position? 

Mr. Zacher. Well sir, you can't legislate honesty and capability. 

Mr. O'Connell. There have been attempts, I think you will admit. 
What do you think is the basis for legislation which forbids an 
officer or a member of the board of directors of an insurance com- 
pany to make a loan direct to himself? There is some such legislation 
in some States, isn't there ? * 

Mr. Zacher. I think there is, but I don't think it makes the situa- 
tion any healthier. 

Mr. O'Connell. You don't? 

Mr. Zacher. No; I think if you have regulation within the State 
and have a good bank commissioner or a good insurance commis- 
sioner, that takes care of itself. 

Mr. O'Connell. It is true, as I pointed out, that the regulation 
you are talking about is not a regulation that would prevent a bad 
loan of that type. 

Mr. Zacher. You can't make those loans any better by passing 
legislation prohibiting officers from borrowing money, because if 
they don-'t borrow it directly, they will borrow it indirectly; if they 
want it they will get it. 

Mr. O'Connell. You don't think it is possible to prevent an officer 
from taking advantage of that situation? 

Mr. Zacher. I wouldn't do it. In Connecticut, I think, I don't 
know but what it is a national law, directors can borrow from their 
own banks. 

Mr. O'Connell. They can't in the national banking system. 

Mr. Zacher. Then they go across the street. 

Mr. O'Connell. Possibly we can do something about that too. 

Mr. Cole. If you will excuse me, directors do borrow from national 
banks. 

Acting Chairman Davis. Yes ; they can do that. * 

Mr. Zacher. But officers can't. 

Mr. Cole. That is different. 

Mr. Zacher. That is just a common precaution against these small 
banks. 

124491— 40— pt. 13 6 



6428 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I think in view of your questions, Mr. O'Connell, you 
might be interested in a portion of the Armstrong Committee Record, 
reading from volume 10, pages 389 and 390, tfie language of the 
report states as follows: ^ 

Investments in stock should be prohibited. They are fundamentally objec- 
tionable, as the corporation, instead of holding a secured obligation, acquires 
a proprietary interest in another business with rights subject to all indebtedness 
which may be created in the conduct of it and often direct liabilities as stock- 
holders. This interest must be nourished and supported. Instead of being a 
creditor with adequate security, to which upon default the corporation may 
resort, it assumes the responsibilities of proprietorship and must contribute 
from the accumulations provided by the policyholders in order to sustain the 
enterprise. If the stock holdings constitute a small minority, the investment is 
at the mercy of administrators chosen by the majority stockholders. If the 
stock interest be a large one, it is frequently found advisable to increase it 
until a substantial control is effected, and the insurance corporation is not 
only engaged in a different enterprise, but directly undertakes its management. 
Such relations afford ready opportunities to conceal irregular transactions and 
to hide the malversation of funds. 

Mr. Zacher. May I comment on that? That was in 1906 and that 
was just as foolish as a lot of other things that were passed at that 
time, because when you analyze the situation, you will find the people 
that bought bonds, particularly the bonds of the railways, are in 
worse position than the people who bought stocks of certain kinds 
that had no indebtedness ahead of them. 

Mr. O'Connell. That comment doesn't go to the validity of the 
statement there, I don't believe. I understood the statement there 
was to the effect that acquisition of stock interest by the insurance 
company or bank would tend to put the bank or insurance company 
in the particular business. There is a tendency to acquire more and 
more stock. As a matter of fact, I think that is what happened to 
the Travelers Insurance Co. They acquired some stock and are now 
in the banking business. 

Mr. Zacher. Some of these companies in New York that bought 
these railroad bonds bought the bonds and couldn't buy the stock— 
they are in the stock business. Now they own the railroads in a good 
many cases. So you see it doesn't always work out that way. It is 
very hard to make an investment law * today that is good 5 years 
or 10 years from today when legislation is being passed on unusual 
circumstances. It is very difficult indeed. 

Mr. Gesell. Have any of the insurance commissioners inquired of 
you concerning your ownership of these banks? 

Mr. Zacher. It is very well known in Hartford. The insurance 
commissioner knows all about it, He is friendly with the bank com- 
missioner. The bank commissi6ner knows about the ramifications. 
1 he books are open to all of them and whenever they want to know 
anything, we tell them all we know. 

Mr. (Jksell. What about outside the State of Connecticut? Have 
you had any correspondence from the department in New York for 
exampler ' 

M.. Zachbb. No( about the banks. The bank stocks in Connecticut 
have alwaya been a favorite investment, even before railroad bonds 
were considered acceptable and put on the le*al list 

Mr. GasjLL. Now as a matter of fact, no member of the New York 
department has ever examined your company, bas it? 



CONCENTRATION OF ECONOMIC POWER 6429 

Mr. Zacher. Not that I know of. 

Mr. Gesell. Under the system of regional examinations which the 
insurance commissioners have worked out, the commissioner in Con- 
necticut would examine for Massachusetts and New York as well, 
would he not? 

Mr. Zacher. Yes; they invite each other to join in the exami- 
nation. 

Mr. Gesell. There is no one from New York who ever comes to 
look at your company, is there? 

Mr. Zacher. They haven't had a chance yet. They didn't agree 
on that until after our last examination took place. When we are 
examined they will probably have two or three representatives from 
other States, provided they still agree on this scheme. 

Mr. Gesell. But on the system to date, Connecticut has represented 
the zone which includes New York and Massachusetts, has it not? 

Mr. Zacher. Yes; and no Connecticut examiner has had a look-in 
on any New York companies. 

Mr. Gesell. Yes ; I understand it is a hot point both ways, but as 
we saw this morning, maybe a third of your business is in New York 
State. Eepresentatives of the department there have not had a 
look-in on your business. 

Mr. Zacher. When you say a third of the business that combines 
all the business. It isn't a third of the business in the life de- 
partment. 

Mr. Gesell. It is a substantial amount of the life business, though, 
isn't it? 

Mr. Zacher. Our casualty business is quite considerable in New 
York, on account of the liability and compensation' business. It is 
very considerable. 

Mr. Gesell. But you do have life business in the State of New 
York. 

Mr. Zacher. Oh, surely. 

Mr. Gesell. Now, let me discuss just one other phase of it with 
you. In reporting the operations of your life department on the 
annual convention form statement, I take it there are many phases 
of the business of Travelers Insurance Co. that aren't disclosed on 
these reports. You make no reports as to the operation of the cas- 
ualty department of your corporation, do you ? 

Mr. Zacher. Yes; we fill out the two reports simultaneously and 
we put in the assets of the life department; that is, the balancing 
item, assets, and liabilities of the casualty department, and vice versa 
in the casualty statement; and at the same time we file a statement 
of the indemnity company and we file a statement of the two fire- 
insurance companies and we show in those statements the relationship 
that one has to the other. 

Mr. Gesell. Let's take, though, some other schedules. I have in 
mind, for instance, the salary schedule. You report only the salary 
you receive from the life department, do you not* 

Mr. Zacher. Yes. 

Mr. Gesell. There is no way a man can go to a public record and 
find out what your total salary is from all of this enterprise? 



6430 CONCENTRATION OF ECONOMIC POWER 

Mr. Z \« ii i.k. I don't know, but I should think not. There are only 
one or ( wo States that require the filing of that salary schedule. We 
make it up specially. I think New York is one. 

Mr. Gesell. And there are other special schedules applicable to 
the life department of your business which you don't file to show 
.similar operations in the casualty department business. 

Mr. Zachee. We file what each State requires. 

Mr. Gesell. 1 realize that, that that is the result of the require- 
ments, isn't it? 

Mr. Zachee. That is all. 

Mr. Gesell. I have no further questions. We will continue to- 
morrow morning. , 

Acting Chairman Davis. The committee will adjourn until 10:30 
a. in. tomorrow. 

(Whereupon, at 4:40 p. m., a recess was taken until Tuesday. 
September 12, 1939, at 10:30 a, m.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



TUESDAY, SEPTEMBER 12, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 
The subcommittee met at 10 : 35 a. m., pursuant to adjournment on 
Monday September 11, 1939, in the Caucus Room, Senate Office Build- 
ing, Joseph J. O'Connell, Jr., Department of the Treasury, presiding. 
Present : Joseph J. O'Connell, acting chairman ; and Mr. Brackett. 
Present also: Messrs. Lubin, Gerhard A. Gesell, special counsel; 
H. A. Blomquist, Arthur Leary, and George C. Jenkins, investigators, 
Securities and Exchange Commission. 

Acting Chairman O'Connell. The hearing will please come to 
order. Mr. Gesell, are you ready to proceed? 

Mr. Gesell. I am. Mr. Zacher, will you resume the stand, please, 
sir? 

TESTIMONY OF LOUIS EDMUND ZACHER, PRESIDENT, TRAVELERS 
INSURANCE CO., HARTFORD, CONN.— Resumed 

TRAVELERS — INTEREST IN NEBRASKA SECURITIES CORPORATION 

Mr. Gesell. Yesterday, Mr. Zacher, we discussed some portions and 
activities of the companies shown on this chart of corporate relations 
which was introduced in the record. 1 I want to discuss with you 
today the Nebraska Securities Corporation. I understand that that 
corporation has been dissolved as of March 1936. Is that correct? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. It Was a corporation which, exclusive of directors' 
shares, was owned 100 percent by the life department of the Travelers 
Insurance Co., was it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Can you tell us when the corporation was organized? 

Mr. Zacher. Not from memory. 

Mr. Gesell. I have here a letter from your counsel in Omaha, 
dated December 18, 1926, in which it states: 

Incorporation of Nebraska Securities Corporation, filed with County Clerk of 
Douglas County. First meeting of stockholders has been held. Corporation 
may now function as such. Other formalities of completing incorporation will 
be proceeded with. 

It must have been some time in December of 1926. 
Mr. Zacher. The latter part of 1926. 



1 See "Exhibit No. 1093," appendix, p. 6951. 

6431 



6432 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. That was a corporation organized under the laws of 
what State? 

Mr. Zacher. Nebraska. . 

Mr. Gesell. Can you tell us the circumstances which led up to the 
incorporation and organization of that company? 

Mr. Zacher. We had some difficulty with our mortgage-loan ac- 
count out there and found it necessary to take over his agency and 
also a number of the foreclosed properties, and in order to work them 
out so that we would know definitely how much we were making and 
Losing there, both in principal and in operation, we threw all that into 
the Nebraska Securities Co. 

Mr. Gesell. Well now, this mortgage-loan agent's name was Sib- 
bernsen, was it? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. He had been a mortgage-loan agent of your company 
for some time? 
Mr. Zacher. Quite a few years ; yes, sir. 

Mr. Gessell. Do you recognize this letter which I show you as a 
copy of a letter which he wrote you about that time describing the 
condition of his accounts? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. I should like to offer this letter for the record. 
Acting Chairman O'Connell. It may be admitted. 
(The letter referred to was marked "Exhibit No. 1112" and is 
included in the appendix on p. 6964.) 

Mr. Gesell. I wanted to review with you, Mr. Zacher, what the 
condition of the accounts of Mr. Sibbernsen was as shown after you 
had an opportunity to analyze the same. Do you recognize this 
document which I show you as a document showing the condition 
of accounts and how the corporation, the Nebraska Securities Corpo- 
ration, was organized? * 
Mr. Zacher. Yes, sir. 

Mr. Gesell. If you will keep that before you, Mr. Zacher, that 
indicates that Mr. Sibbernsen owed the Travelers Insurance Co. 
$1,467,700, is that correct? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. $1,215,500 of that amount was on account of spurious 
mortgages? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. What do you mean by "on account of spurious mort- 
gages"? v 

Mr. Zacher. Mortgages that didn't exist. 

Mr. Gesell. Those were instances where the Travelers Insurance 
Co. had advanced money to Sibbernsen to make mortgage loans and 
he had failed to make these loans? 

Mi. Zacher. And furnished papers that were not valid. 
Mr. Gesell, Furnished papers indicating that they had been made? 
Mr. Zacher. Yes. 

Mr. Gesell. He owned $55,100 on account of partial . ^vments on 
principal collected and withheld? 
Mr. Zacher. Yes. 

Mi. Gesell. And $161,100 on account of money paid to him for 
loans which ,1k] not reach the borrowers? 

' Entered later aa "Exhibit No. 1113." See appendix, p. 6967. 



CONCENTRATION OF ECONOMIC POWER 6433 

Mr. Zacher. Yes, sir. 

Mr. Gesell. I take it the $55,100 involved money on which the 
Travelers had not received any paper of any kind? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. In settlement of that indebtedness of $1,467,700, am 
I correct in saying that Mr. Sibbernsen turned over to Travelers his 
interest in 116 farms? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. He had taken title to those farms, had he not? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. And it was figured that the equity in those farms 
in excess of the mortgages held by Travelers amounted to $583,566.76 ? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. In addition there were some 44 farms in process of 
foreclosure? Is that correct? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. And Mr. Sibbernsen turned over on those farms his 
equity in such farms amounting to $83,375.43, is that correct? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. He also turned over tax certificates on properties in 
which the Travelers had a first mortgage amounting to $7,801.10? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. And he was credited with $42,360.37 for interest which 
he had advanced on interest coupons sent him for collection? 
Mr. Zacher. Yes, sir. 

Mr. Gesell- Also credited with $65,167.27 against interest which 
he had paid to the Travelers on these fictitious loans which he had 
made. Is that correct? 
Mr. Zacher. Yes, sir." 

Mr. Gesell. That totals $782,270.93, and left his obligation to 
Travelers at $685,429.07. Is that correct? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. Is my understanding correct that he gave his note 
in the amount of $685,429.07? . 
Mr. Zacher. Yes, sir. 

Mr. Gesell. And that the note was secured by the various items 
shown on the schedule before you? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. He turned over to the company his interest in the 116 
farms and the 44 farms in process of foreclosure; did he not? 
Mr. Zacher. Yes, sir. 

Mr. Gesell. And the Travelers, then, sold those farms back to the 
Nebraska Securities Corporation? 
Mr. Zacher. Yes. 

Mr. Gesell. For what amount were they sold, Mr. Zacher? 
Mr. Zacher. The unpaid amount, plus the equity allowed. As far 
as I know they were turned over at the figures that are one item 
here, $583,000, the other $83,000. 

Mr. Gesell. And the note of Sibbernsen for $685,429.07 was also 

turned over to the Nebraska Securities Corporation ; is that correct ? 

Mr. Zacher. I think that was the next step ; yes. 

Mr. Gesell. It is my understanding that Travelers sold both the 

mortgages on these 116 and 44 farms, plus Sibbernsen 's equity in 

those properties, to the Nebraska Securities Corporation. 



6434 CONCENTRATION OF ECONOMIC POWER 

"\f r 7 A C 1 1 FT? JL S 

Mr'. Gbsell' And then Travelers put in $117,228.74 in working 
capital; did it not? 

Mr. Zacher. Yes. , __ , , a 

Mr. Gesell. And it was on the basis that the Nebraska Securi- 
ties Corp oration commenced business.- 

Mr. Zacher. Yes. 

Mr. Gesell. I should like to offer this in evidence. 

(The schedule referred to was marked "Exhibit No. 1113 and is 
included in the appendix on p. 6967.) 

Mr. Gesell. The original purpose then, of the Nebraska Securities 
Corporation, was to liquidate and work out the account of Sibbern- 
sen which had gotten into difficulties? 

ATt* Zachpr "i ps sir 

Mr. Gesell. What did Travelers Insurance Co. take in return for 
the mortgage interest and other interest in these farm properties 
and notes which it transferred to the Nebraska Securities Corpora- 
tion, what did it receive back? 

Mr. Zacheb. The note and stock of the Nebraska Securities Cor- 
poration. 

Mr. Gesell. How many shares of stock did it receive? 

Mr. Zacher. Well, as I recall it, they paid in $2,300,000 in stock 
and originally $1,100,000 in notes. 

Mr. Gesell. Those were 5-percent demand notes; were they not? 

Mr. Zacher. I believe so. 

Mr. Gesell. How were they carried in the accounts of the Trav- 
elers Insurance Co.? In the bond account? 

Mr. Zacher. In the bond account. 

Mr. Gesell. There was no particular security against these notes? 

Mr. Zacher. No. 

Mr. Gesell. Then, am I correct in saying that following tliis en- 
tire transaction, Travelers Insurance Co. held $1,100,000 of Nebraska 
Security Corporation's 5-percent notes? It held $2,299,700 of Ne- 
braska Security Corporation's capital stock? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And it had made an investment in Nebraska Security 
Corporation in cash of $117,228.74? 

Mr. Zacher. No; that was what was left over after paying the 
Travelers Insurance Co. for 116 farms, plus the equity, plus the 44 
farms in process of foreclosure, and the amount expended thereon, 
and the I. Sibbernsen note for $685,429.07. 

Mr. Gesell. So the Nebraska Securities Corporation had $117,- 
U2K.74 working capital? 

Mi . Zacher. Yes, sir. 

Mr. Gesell. And that money was money which had been made 
available to it from Travelers through the purchase of this capital 

Mr. ZACHEB. And notes; yes, sir. 

Mr. Gesell. Now, did the Travelers Insurance Co. take any action 
against Mr. Sibbernsen of any sort? 

Mr. Zacheb. No, sir. 

Mr. Gesell. Whal disclosure was made bv Travelers Insurance of 
ihc transactions which had resulted in the creation of the Nebraska 
Securities Corporation? 



CONCENTRATION OP ECONOMIC POWER 6435 

Mr. Zacher. I don't, recall exactly, except that the whole affair was 
reported to the finance committee and the directors. 

Mr. Gesell. Was there any disclosure in the reports of the com- 
pany to its stockholders? 

Mr. Zacher. No, sir. 

Mr. Gesell. Was there any disclosure of the matter to the State 
insurance departments ? 

Mr. Zacher. Yes, sir; completely. 

Mr. Gesell. In what form was that disclosure made? 

Mr. Zacher. I don't recall, but I think it was oral. 

Mr. Gesell. What departments were advised of the circumstances? 

Mr. Zacher. The insurance commissioner himself. 

Mr. Gesell. In Connecticut? 

Mr. Zacher. In Connecticut. 

Mr. Gesell. Was that at the time it occurred, in 1926? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do I understand that there was no such oral communi- 
cation to commissioners of any other States? 

Mr. Zacher. No, sir; I think there was an inquiry from New York 
State and we gave them what they asked for. 

Mr. Gesell. Several States inquired for a balance sheet of Ne- 
braska Securities Corporation, did they not? 

Mr. Zacher. I believe so. 

Mr. Gesell. Do you recognize this as the form of balance sheet 
which was submitted in response to the request? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. This was the balance sheet which you furnished the 
department of the State of Connecticut, was it not, as indicated by 
this letter which I hand you? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. This balance sheet shows that the assets of the Ne- 
braska Securities Corporation as of December 31, 1926, were $3,- 
400,000. There is no disclosure on this balance sheet of the nature 
of the properties held by the Nebraska Securities Corporation. 

Mr. Zacher. No, sir. 

Mr. Gesell. Or the fact that those properties were involved in 
questionable transactions ? 

Mr. Zacher. No, sir. 

Mr. Gesell. That disclosure, you say, was made orally ? 

Mr. Zacher. So far as I know to our own commissioner in Con- 
necticut. 

Mr. Gesell. To the Connecticut commissioner. I should like to 
offer this balance sheet for the record. 

Acting Chairman O'Connell. It may be admitted. 

(The balance sheet referred to was marked "Exhibit No. 1114" and 
is included in the appendix on p. 6968.) 

Mr. Gesell. To make that clear, that balance sheet is the balance 
sheet which was furnished to the State Department in response to 
their letter of April 20, 1927, asking for a balance sheet of the 
corporation ae of December 31, '26? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Now, so far the Nebraska Securities Corporation held 
only Nebraska farm properties, did it not? 

Mr. Zacher. And the note of I. Sibbernsen. 



6436 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I mean as far as any properties or mortgages were 
concerned, they all were on Nebraska properties? 

Mr. Zacher. Yes, sir. __ 

Mr. Gesell. Now, am I correct in saying that thereafter Iravelers 
transferred to Nebraska mortgages which were "not in any way _ in- 
volved in Mr. Sibbernsen's account, or in the transactions which 
held to the formation of the company? 

Mr. Zacher. Yes; I think later there were bona fide mortgages 
which had gone to foreclosures and in order to work out the situation 
we kept transferring them and taking Nebraska Securities Co. notes 
in exchange. 

Mr. Geseix. Those were bona fide mortgages which had been made 
by Travelers Insurance Co? 
* Mr Zacher. Through Sibbernsen, but they were bona fide. 

Mr. Gesell. Were they all Sibbernsen mortgages, or were there 
not mort gages from surrounding States as well? 

Mr. Zacher. I don't recall. There might have been a few Iowa 
mortgages in there, possibly, but I think they were all Nebraska 
mortgages. 

Mr. Gesell. I have here a record of a memorandum from the 
mortgage loan divfsion of your company, dated March 1, '32, which 
indicated that as of December 31, '31, Nebraska Securities Corpora- 
tion held 469 Nebraska farm properties, 2 Nebraska city properties, 
11 Iowa farm properties, and 1 Kansas farm property. 

Mr. Zacher. Yes. 

Mr. Gesell. That would indicate there were some mortgages other 
than Sibbernsen mortgages? 

Mr. Zacher. Evidently the Iowa mortgages were some that were 
taken over from his account, because he at one time was making 
loans for us in Iowa, and the Kansas property, I think, came out of 
his own personal holdings. And the city property in Nebraska came 
out of his own personal noldings, which he turned over to us. 

Mr. Gesell. So there were no mortgages that went into Nebraska 
Securities Corporation other than mortgages which had been made by 
Sibbernsen ? 

Mr. Zacher. Yes. 

Mr. Gesell. Some of those were good mortgages and some of them 
bad. 

Mr. Zacher. Yes. 

Mr. Gesell. You say you transferred these additional Sibbernsen 
bona fide mortgages to the Nebraska Securities Corporation when 
they were in process of foreclosure. 

Mr. Zacher. Or when we received title to them. 

Mr. Gesell. They were then mortgages that were in default. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you recall when the first exchange of mortgages 
foi- notes was made i 

Mr. Zacher. At the time the organization was completed. 

Mr. Gesell. Yes; that would be in 1926. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Then thereafter do you recall when the first was made, 
was it not in L929 that $2,500,0J0 of notes were issued in return for 
mortgages t ransferred '. 

Mr. Zacher. From time to time as we took title to those lands we 
transferred them to the Nebraska Securities Co. and took Nebraska 



CONCENTRATION OP ECONOMIC POWER $437 

Securities notes in exchange, as I recall it at the face value plus ex- 
penses minus income. 

Mr. Gesell. At the face value of the mortgage. 

Mr. Zacher. The unpaid balance. 

Mr. Gesell. Plus the expenses. 

Mr. Zacher. Plus expenses, taxes, foreclosures, less income received 
while the properties were being foreclosed. 

Mr. Gesell. Referring you to a memorandum which I hand you, 
does that not indicate that in November of 1929 two and a half million 
of demand notes were issued to Travelers in exchange for real estate ? 

Mr. Zacher. Yes, sir ; and mortgages. 

Mr. Gesell. It was authorized in November, was it not ? 

Mr. Zacher. I should say so ; yes. 

Mr. Gesell. And the transfer actually took place in December. 

Mr. Zacher. In December ; yes. 

Mr. Gesell. There was some cash involved in that transaction, is 
that correct, namely, $136,215.90? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. So there would be real estate, mortgages, and cash ? 

Mr. Zacher. That is right. 

Mr. Gesell. Then in December of 1930, $2,000,000 additional notes 
of Nebraska Securities Corporation were acquired in exchange for 
real estate, mortgages, and cash, in the amount of $271,000, is that 
correct ? 

Mr. Zacher. $271,000; yes. 

Mr. Gesell. Then on December 26, 1931, there was authorized an 
additional million dollars of notes to be issued to Travelers in return 
for mortgages and real estate, is that correct? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And pursuant to that authorization, am I correct in 
saying that on April 28, 1932,- Travelers paid $100,000 in cash to 
Nebraska in return for notes in that amount ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. 4nd on June 14, '1932, $700,000 of notes were issued 
for real estate and mortgage loans, and a balancing cash item of 
$31,933.42. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And on June 16, 1932, $200,000 of notes were issued in 
return for mortgage loans and a balancing cash item of $17,724.61. 

IVTr Zacher Y*gs sir. 

Mr! Gesell. Then on December 9, 1932, an additional $700,000 of 
Nebraska notes were issued in return for mortgage loans and a 
balancing cash item of $70,737.34. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That resulted in the Travelers Insurance Co. holding 
by the end of 1932 notes of Nebraska Securities Corporation in the 
amount of $9,600,000 stock and notes. 

Mr. Zacher. Notes and stock. 

Mr. Gesell. Of $9,600,000. Now in all cases the mortgages on 
real estate which had been taken in by Nebraska and against which 
these notes had been issued were mortgages which were in default or 
real estate which might be difficult to move, is that a correct state- 
ment? 

Mr. Zacher. Yes, sir. 



6438 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now, you carried these notes, did you not, in the 
annual statements of your company at par? 

\I p Zachfr jl gs sir. 

Mr Gesell. That resulted, did it not, in the annual statement fail- 
ing to disclose the extent of the doubtful mortgages and real estate 
held bv Traveler., Insurance Co.? 

Mr Zacher. As I recall it, the slack was taken up by revaluing 
the stock. The stock was paid in at $100 a share in order to take up 
these things and then at the end of the year it was reduced m value 
to whatever the statement says— $960,000, I think, and that offset the 
reasonable depreciation that we might have considered on that trans- 
action. 

Mr. Geseix. Yes; but as far as schedule B, part III, of your annual 
convent ion form statement was concerned, by reading that schedule, 
which is the. schedule which sets forth real estate in distress condi- 
tion, a person could not have the true picture of the amount of such 
real estate in which Travelers had an interest directly. 

Mr. Zacher. No; that was not only true of that but true of the 
whole mortgage loan schedule and real estate schedule, not only of 
this company out every company. 

Mr. I iesell. It is certainly true with respect to your company, is it 
not ?. In other words, you were carrying here notes which you did not 
show in default, and actually those notes were secured by real estate 
and mortgages in a distressed condition which were held in a sub- 
sidiary corporation. 

Mr. Zacher. They were held in a "subsidiary corporation, but I 
don't believe that you would regard that as a secured note literally. 
It was a note of the Nebraska Securities Co., whose entire assets would 
eventually be used for the liquidation of that note. The value 
would depend entirely on how those lands could be disposed of 
when the time came. In other words, there* was no intent there to 
mislead anybody. To satisfy the possible loss that we thought might 
he possible, we depreciated the value of that stock which we carried 
in the statement so that the assets would not be overstated, 

Mr. Gesell. You depreciated that stock from what amount to 
what amount \ 

Mr. Zacher. As I recall it that year, from $2,300,000 to $960,000. I 
may he in error about that; I think you have the figures. 

Mr. Gesell. At the dissolution of the Nebraska a serious loss 
resulted, did it not? 

Mr. Zacher. Yes; I think so. 

Mr. Gesell. Referring you to a memorandum of the treasurer of 
your company to the auditor, dated November 30. 1934, does that not 
show that there was charged $904,393.83 to the profit -and-loss account 
.i- :i loss for adjustment of real-estate value? 

Mr. Zacher. Yes, sir. 

Mr. Gush L. Was it about this time that the liquidation of the com- 
pany started, the dissolution of the Nebraska started? 

Mr. Zacher. Fes, sir. 

Mr. Gesell. ( >n December 28, 1934, there was a loss of an additional 
$800,000 from the sale of stock, was there not? 

Mi . Zacher. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 6439 

Mr. Gesell. And at that same time there was a loss, an additional 
loss, from the sale of stock of $35,880.43 charged to the life department, 
and $563,619.57 charged to the casualty department. Is that correct? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That brought the total losses of the company from this 
Nebraska Securities operation to $2,303,893, did it not? 

Mr. Zacher. The sum of those three amounts, I should say. 

Mr. Gesell. I was interested in that last charge to the profit-and- 
loss account; only some $35,000, was it, went to the life department — 
yes; only $35,880 went to the life department, and $563,619 went to 
the casualty department. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. This entire transaction up to this time had been a life- 
department transaction, had it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. What was the reason for charging the half-million-dol- 
lar loss to the casualty department? 

Mr. Zacher. I think in one of those years, possibly in 1932 — I am 
not sure, 1931 or 1932 — there were some stocks that were acquired by 
the Nebraska Securities Co. and the accident department bought those 
stocks from the life department and charged them off, either directly 
or through a holding company. 

Mr. Gesell. How did that justify charging the casualty depart- 
ment with this loss? 

Mr. Zacher. We didn't want to carry them in our assets. We 
charged it off as a possible loss, the same way that you charge off any 
investment at the end of the year. 

Mr. Gesell. The fact is that you didn't want the life department to 
have this loss reflected in its surplus account for that year, isn't that 
true ? 

Mr. Zacher. No ; I wouldn't say that that was so. 

Mr. Gesell. Well, why should the casualty department suffer the 
loss? 

Mr. Zacher. It hasn't. 

Mr. Gesell. It did at this time. It was charged with the loss. 

Mr. Zacher. It was charged off the same as you might charge off 
an investment that had gone sour and you didn^t want to count it in 
your assets. 

Mr. Gesell. But this was an investment of the life department, not 
the casualty department, so I don't see why it should be charged 
against the casualty department. 

Mr. Zacher. The casualty department bought it from the life 
department and then charged it off. 

Mr. Gesell. That was really just one transaction, wasn't it? 

Mr. Zacher. No ; it is two transactions, because it might have been 
put in the assets of the accident department. 

Mr. Gesell. Was the purchase of the securities and the charge-off 
made the same day? It was just one transaction, wasn't it? 

Mr. Zacher. I don't know; I dor?t think so. I think it would 
show on the statement. 

Mr. Gesell. I think that is exactly what the statement shows. 

Mr. Zacher. That may be so. 



6440. CONCENTRATION OF ECONOMIC POWER 

Dr Lubin. Why weren't those charged off to the account of the 
original owner, namely the life department? Why did you sell them 
to the casualty department and write them off then I 

Mr Zacher. The securities might have been considered illegal tor 
the life department. They were legal for the casualty department. 

Dr. Lubin. How long had you held them m the life department ? 

Mr Zvcher. Two or three years, I think. We didn't hold them m 
the life department. We held them in this corporation, the .Nebraska 
Securities Corporation. . 

Mr Gesell. And on the liquidation they came into the lite depart- 
ment did they not, because the life department held the notes i 

Mr. Zacher. I don't recall just exactly how the transaction went 

l Mr. Gesell. Would Mr. Baker have been the man who handled 

that? 

Mr. Zacher. I think perhaps he would have a clearer memory. 

Mr. Gesell. Can I ask him to come to the stand then? He may 
remember that. .• 

Acting Chairman O'Connell. Do you solemnly swear the testi- 
mony you are about to give in this proceeding will be the truth, the 
whole truth, and nothing but the truth, so help you God ? 

Mr. Baker. I do. 

TESTIMONY OF GLADDEN W. BAKER, TREASURER, TRAVELERS 
INSURANCE CO., HARTEORD, CONN. 

Mr. Gesell. What is your full name, please ? 

Mr. Baker. Gladden W. Baker. 

Mr. Gesell. You are treasurer of the Travelers Insurance Co., are 
you? 

Mr. Baker. Yes. 

Mr. Gesell. You were in December 1934? 

Mr. Baker. I think so ; yes. 

Mr. Gesell. Do you recognize this as a memorandum which was 
made at that time with respect to charging off certain losses resulting 
from the Nebraska Securities Corporation's operation to the life and 
casualty departments of the company? 

Mr. Baker. Yes. 

Mr. Gesell. Will you explain the transactions which resulted in a 
charge of $563,619.57 to the profit-and-loss account of the casualty 
department? 

Mr. Baker. The stock of the Nebraska Securities Corporation re- 
maining outstanding at that time after retirements that had been 
made amounted to 5,995 shares, $100 par. That stock was sold by 
the life department to the casualty department at a price equal to the 
book value of the assets remaining in the Nebraska Securities Corpo- 
ration. The casualty department paid that amount for the stock of 
the Nebraska Securities Corporation and then charged off that invest- 
ment to \\ hat is known as schedule X. 

Mr. Gesell. They purchased the stock from the life department 
and made the charge-off on the same day, did they not? 

Mr. B \ki.ic. Yes. sir. 

Mr. Gesell. Well, now, do you recall why the transaction was han- 
dled in that manner? 



CONCENTRATION OF ECONOMIC POWER 6441 

Mr. Baker. Well, the stocks that were held as remaining assets 
were stocks which the casualty department could perhaps more prop- 
erly hold than the life department. So far as the company as a whole 
is concerned, it didn't make any difference in which department they 
were held, so far as the accounts went. You could have charged it off 
to the life department or you could have charged it off to the casualty. 

Mr. Gesell. The surplus account of the casualty department was 
in a better position to take this loss, was it not, than the surplus ac- 
count of the life department? 

Mr. Baker. I think there was a larger surplus at that time ; yes. 

Mr. Gesell. And that was one of the factors in handling the trans- 
action that way, was it not? 

Mr. Baker. I presume it was. 

Dr. Ludin. How long were those securities held by the life depart- 
ment after they got hold of them before being transferred to the cas- 
ualty department? 

Mr. Baker. It was the same day. The securities were never held 
by the life department. The securities were held by the Nebraska Se- 
curities Corporation and the stock of that was held by the life depart- 
ment, and then was transferred to the casualty department. The life 
department itself never had title to the securities. 

Acting Chairman O'Connell. I understood you to say it was the 
stock of the Securities Corporation that was transferred to the cas- 
ualty department. How long did the life department hold that stock? 

Mr. Baker. The stock that was transferred was the remainder of 
the stock after various redemptions in partial liquidation. 

Acting Chairman O'Connell. Will you explain what you mean by 
saying that that stock could be more properly held by the casualty 
department than by the life department? 

Mr. Baker. Well, some of these stocks that were owned were stocks 
which were of industrial nature. 

Acting Chairman O'Connell. You are speaking now of stocks held 
by the Securities Corporation ? 

Mr. Baker. The Nebraska Securities Corporation; yes, sir; in the 
casualty or accident department, which is the same thing, there is no 
question at all about their authority to hold stocks of that kind, and 
the situation was not entirely clear as to the life department. 

Acting Chairman O'Connell. You mean there was some doubt as 
to the legal propriety of having the life department ultimately own 
the stocks which were behind the stock of the life department? 

Mr. Baker. On advice of counsel it seemed there was that partial 
question. 

Mr. Gesell. Some of those securities were actually Travelers Insur- 
ance Co. stock, and there was some strong feeling that the life 
department couldn't invest in the securities of itself, so to speak. 

Mr. Baker. Right. 

Acting Chairman O'Connell. Other than that legal possibility, I 
take it, the only advantage in having the transaction handled that way 
was in order to have the loss reflected in the surplus of the casualty 
company rather than in the surplus of the life department. 

Mr. Baker. That is right. 

Mr. Gesell. Mr. Baker, while you are on the stand there is one point 
T intended to cover with you a little later, but I will do it. now. 



g442 ' '« ,N ' !ENTBATION OF ECONOMIC POWER 

With respect to the accounting methods adopted in reporting the 
t ransact ions between Travelers and Nebraska, prior to dissolution am 
I correct in saving that at no time did the Nebraska Securities Cor- 
, x > i . 1 1 ion pay 1 he interest on the notes held by Travelers Insurance Co. ? 

Mr. Baker. There was some interest paid, a small amount. 1 have 
forgotten the amount now, but there was some interest paid; it wasn t 
a very large amount - 

Mr. Gesell. By and large, the interest went by default, did it not ! 

Mr. Baker. Yes, sir; the interest was not paid by and large. 

Mr. Gesell. If I may ask you to examine the statements before you, 
will you turn to the 1927 statement please? Am I correct that that 
si atement shows on line 14, page 4, an asset of $55,000 in the statement 
of condition? 

Mr. Baker. What was the exact reference? 

Mr. Gesell. Line 14, page 4. What does that record? 

Mr. Baker. Interest due, $55,000. 

Mr. Gesell. If you will refer to schedule D, part 1, on page 37 of 
the statement, that indicates, does it not, that that $55,000 interest is 
the interest on the notes of Nebraska Securities Corporation then held 
by Travelers,? 

Mr. Baker. It does. 

Mr. Gesell. Is it true that that $55,000 is also included in the com- 
pany's report of gains from interest in the gain and loss exhibit on 
line 16, page 8? 

Mr. Baker. Yes, sir. 

Mr. Gesell. So the net effect of that is that the company shows both 
in its gains from interest and in its assets an increase of $55,000 which 
was money owing to it by the Nebraska Securities Corporation but 
which was never paid. Is that correct? 

Mr. Baker. Well, that $55,000 was not paid in cash. Gaiji and loss 
exhibit was not paid in cash; it is simply an increase in the accrual of 
interest ; it did not go into income. 

Mr. Gesell. It went into the gains from interest, did it not, on the 
gain and loss exhibit? 

Mr. Baker. It does not go on the income of the company; it does 
iso into the increase in assets. 

Mr. Gesell. It goes into the surplus. 

Mr. Baser. Right ; but not in the income. 

Mr. Gesell. As a result you show an operating gain of $55,000, do 
you not? 

Mr. I'.aki k. Yes; gain in surplus; that is right. 

Mr. Gesell. And that is money which you did not receive. 

Mr. Bakeb. Right. 

Mr. Gesell. Now, turning to 1928, does not the same situation exist, 
the amount now having increased to $110,000? 

Mr. B \ui i;. I'm sorry. 

Mr. Gesell. 1 will repeal that. Turning to 1928, does not the same 
situation exist, the amount having increased to $110,000? 

Mr. B \ki k. Yes, sir. 

Ml GtasELL. vjhI by 1929 does not the same situation exist, the 

• nil. .mil having increased to $165,000? 

Mr. Baker. Yes, sir. 

Mr. Gesell. And in 1930 does not the same situation exist, the 
amount having increased to $345,000? 



CONCENTRATION OF ECONOMIC POWER 6443 

Mr. Baker. Yes, sir. 

Mr. Gesell. By 1931 it had increased to $625,000, had it not? 

Mr. Baker. That is right. 

Mr. Gesell. And hy 1932 the amount had increased to $905,000 ? 

Mr. Baker. Yes. 

Mr. Gesell. In each of those years is it not correct that the surplus 
recorded the operating gains from interest of $55,000 in 1926, $55,000 
in 1929, $180,000 in 1930, $260,000 in 1931, and $280,000 in 1932? 

Mr. Baker. Yes. A good many things can go into the gain and 
loss exhibit which are not, of course, received in cash. 

Mr. Gesell. But the result of this type of accounting, is it not, is 
to show an increase in surplus from interest which had accrued but had 
not been taken in ? 

Mr. Baker. That is true, but we offset by marking down the stock 
price to $60 a share, $800,000, which will also show in the schedules 
for the same year, schedule D 1927. 

Mr. Gesell. That mark-down offsets only ycir principal account; 
it doesn't have anything to do with your earning account. 

Mr. Baker. Well, this increased interest due did not go into the 
income account. 

Mr. Gesell. It is shown as a gain from interest. 

Mr. Baker. That is not the income page. 

Mr. Gesell. From there it goes into the surplus account, doesn't it? 

Mr. Baker. Yes; that is right. In the same way, for instance, if 
you have an increase in the market value of stocks, it doesn't go into 
the income account ; it does go into your, surplus account. 

Mr. Gesell. The result of it is to inflate your surplus by the amount 
of this interest, which was not received. 

Mr. Baker. The same as any other item of the same kind ; it is not 
a thing peculiar to itself. 

. Acting Chairman O'Connell. You mean you can inflate your sur- 
plus account in other ways, too ? 

Mr. Baker. I wouldn't say inflate it ; I would say there are various 
transactions which occur. If you have a stock that you paid a hun- 
dred for and the market value is 150, that $50 goes into your surplus 
account. It is increased by adjustment in *asset value and therefore 
the surplus account. 

Acting Chairman O'Connell. I can see quite a distinction between 
some stock that went up in price and accrued income or interest that 
you never received and in all probability never had any expectation of 
receiving. 

Mr. Baker. Well, on that side w T e didn't know whether we would 
receive it or not ; we were hopeful ; it was 1932 and we hoped for the 
best. 

Mr. Gesell. What was finally done with respect to this account to 
adjust it? 

Mr. Baker. Do you mean at the time of dissolution — at the time the 
assets were taken over? 1 

Mr. Gesell. No; I think that happened before that, did it not, in 
1933, if you will refer to the 1933 statt nent ? 

Mr. Baker. Oh, I see ; you mean wh was done in the annual state- 

mts. .. 
Ir. Gesell. Yes. 

124491— 40— pt. 13 7 



6444 CONCENTRATION OF ECONOMIC POWER 

Mr Bxker Well, the 1933 annual statement shows interest due of 
$547,313.62, which is about $400,000 less than the year before, approxi- 

m Mr y G E sELL. You show at that time only interest accrued in 1933, do 

y °Mr! Baker. I think that was what that reflected; yes. 

Mr. Gesell. And the end of 1932 it was $946,875? 

Mr. Baker. I think that was the figure. 

Mr. Gesell. So you discontinued the practice of reporting this inter- 
esl in the manner it had been reported previously ; is that correct I 

Mr. Baker. That is true. , 

Mr Gesell. Why was that practice discontinued at that time « 

Mr. Baker. By that time it was apparent that a good many mort- 
gage loans would not pay their interest as we had hoped that they 
would and the same thing was true of mortgages in the Nebraska 
Securities Corporation, and in the interest of charging off we gave a 
more conservative statement. One year's interest was accrued instead 
of all of it due. , , , 

Mr. Gesell. And you charged off, did you not, the previous accruals 

of $946,875? 

Mr. Baker. That would be the effect, 

Mr Gesell. They weren't collected, were they ? 

Mr. Baker. Oh, no. You get at that through having a smaller item 
of accrued interest in 1933 than you had in 1932, and therefore the 
accrual that you take into your gain-and-loss exhibit is smaller and 
tli.it automatically drops out then. 

Mr. Gesell. And that in effect is a charge off of that $946,000 item? 

Mr. Baker. It is a loss of surplus ; yes. 

Mr. Gesell. At the same time you charged that off you did set up 
$538,000 being the accruals of interest for the year's operations in 
1933. 

Mr. Baker. That is right, 1 year's interest, 

Mr. Gesell. You felt then, I take it, that though the company 
couldn't pay the back interest over those previous years and that item 
should be charged off, there was still reasonable expectation that it 
would be able to p^iy the interest of that year's operations? 

Mr. Baker. We hoped so ; yes. 

Mr. Gesell. These mortgages on real estate that had been going 
into this company from time to time had been doubtful right from 
the start,. had it not? That was the reason for transferring it? 

Mr. Baker. No. Of course, during the years until transfers were 
made, values were unsettled. It ; was, as much as anything, an effort 
to keep a separate account of the transactions that grew out of those 
Nebraska mortgages to see what their ultimate result was in gain or 
In a separate pot, and not simply to transfer them because they 
were possibly bad mortgages and might ultimately result in loss. " 

Mr. Gesell. They were in many cases mortgages in process of fore- 
closure? 

Mr. Baker. I es. 

Mr. Gesell. And certainly it was questionable whether you would 
be able to move the property and get a full return of the amount of 
money which had been invested, wasn't that true? 

Mr. Baser. ^ i . 

Mr. Gesell. It. seems to me there was some basis for not being quit' 
as opi must ic as your reporting indicated v. u | respect to this interest 



CONCENTRATION OF ECONOMIC POWER 6445 

during the entire period it was allowed to accrue and accumulate to 
this amount of over $900,000. 

Mr. Baker. Of course, that was entirely offset by the decrease in 
the value at which we carried the capital stock. 

Mr. Gesell. The decrease in value of the capital stock was not a 
sufficient decrease to take account of both the interest adjustment and 
the fluctuations of the value of the properties themselves, which re- 
sulted in this ultimate loss of over $2,000,000. 

Mr. Baker. It wasn't large enough to offset the accrual of interest 
to carry. 

Mr. Gesell. I believe Mr. Zacher stated, when he was on the stand, 
that the offset was also to adjust for the fact that the property was 
not up to the face amount of the mortgage. 

Mr. Baker. Well, during this time the stock was carried at about 
$20 a share, about $460,000, and par value about $2,400,000, so we had 
at that point written the value of the whole enterprise down by about 
$2,000,000, which was more than enough to take care of the accumula- 
tion of the interest being made at that time in our statement. 

Mr. Gesell. Well, now, just to pull in the loose ends, it is true, is 
it not, that in addition to this loss of $2,300,000, which we discussed 
with Mr. Zacher — it was a loss of principal — the company lost about 
$1,300,000 interest which it had set up, but which was never paid? 

Mr. Baker. They lost substantially all the accumulation of interest 
that was put into the account. 

Mr. Gesell. And that amounted to about $1,300,000, did it not? 

Mr. Baker. I should think that is right. 

Mr. Gesell. Do I understand, that the charge-off of this interest 
was done purely at the volition of the company itself, - and not because 
of any extraneous factor ? . Isn't it true that the State Department of 
Connecticut requested the write-off ? 
. Mr. Baker. I don't recall. 

Mr. Gesell. The report of the examination of the company dated 
December 31, 1932, by the Connecticut Insurance Department, on 
page 22, reads : 

The company owns the Nebraska Securities Corporation, which serves as a 
holding company for foreclosed real estate situated principally , in Nebraska. 
In its 1932 annual statement the life department carried 22,995 shares of this 
corporation at $20 per share; also its demand note to the extent of $7,300,000, 
together with due and accrued interest thereon of $946,875.01. After a careful 
examination of the balance sheets of this corporation, we have adjusted. the 
value of certain assets and eliminated costs of foreclosure and taxes which 
have been capitalized, and have also deducted from the liabilities of this corpo- 
ration and the assets of the life department the above-mentioned $946,875.01 
of interest due and accrued on the demand note. Our revised value of the stock 
of this corporation is $12 a share, which has been used in this report. 

That would indicate they had some discussion with you in regard 
to this matter. 

Mr. Baker. I don't know what discussion, if any, was had. Their 
report was not issued until after our statement for 1933 was pre- 
pared. Whether there was any discussion about the content of our 
1933 statement with the department in advance of their issuing their 
report, I don't know. 

Mr. Gesell. They had written you about this interest from time to 
time, had they not? I notice here a letter of April 22 from the 
department and it says : 

You have included as due interest in line 16, page 4, the amount of two 
years' interest on the Nebraska Securities note. 



6446 CONCENTRATION OP ECONOMIC POWER 

That is in 1929. 

We believe the interest of $55,000 due in December 1927 should not have 
been reported as a good asset. This amount of interest is obviously in default. 

To which your company replied : 

The Nebraska Securities Corporation notes are demand notes and interest 
on the same cannot very well be in default inasmuch as the interest to which 
you refer has not been demanded. 

And then in 1930 they again wrote you about this interest, which 
had increased to some extent, and the company advised them as 
follows : 

You ask in connection with the account of interest due, page 4, line 16, for 
some indication as to how long in the future this due interest is going to be 
accumulated before demand is made. That is a question that we cannot answer 
at the present time. That will depend upon conditions as they develop. 

Mr. Baker. May I see the file? 

Mr. Geseix. Certainly. 

Mr. Baker. These were papers of which I had no personal knowl- 
edge. I didn't know there was any interchange. That was before I 
was treasurer and I didn't happen to know about it. It is quite true 
what you say but I didn't happen to know about it. 

Mr. Gesell. Strictly, as a matter of good accounting practice, it 
would be better to consider that interest in default and charge it off 
and not allow it to accumulate in the assets ; is that not correct ? 

Mr. Baker. Looking back, it would be. 

Mr. Gesell. And this is what we might call to a certain extent 
poetic accounting, the way it was handled. 

Mr. Baker. I don't know what you mean by that. 

Mr. Gesell. I have no further question of this witness. 

(The witness, Mr. Baker, was excused.) 

Mr. Gesell. Mr. Zacher, will you resume the stand, please, sir. 

TESTIMONY OF LOUIS EDMUND ZACHER, PRESIDENT, TRAVELERS 
INSURANCE CO., HARTFORD, CONN.— Resumed 

Mr. Gesell. Now, Nebraska Securities Corporation, Mr. Zacher, 
acquired shares of Travelers stock from time to time during the 
period from 1930 to 1932, did it not? 

Mr. Zacher. I don't recall, but if the record states so, we did. 

Mr. Gesell. You have no recollection with respect to those acqui- 
sitions at "all? 

Mr. Zacher. No detailed recollection. 

Mr. Gesell. You have no recollection as to whether they even 
acquired stock? 

Mr. Zacher. I think they did, but I don't remember when it was 
done, or how much was acquired. 

Mr. Gesell. Was that at your direction that they acquired the 
stock? 

Mr. Zacher. It was at the direction of the board of directors. 

Mr. Gesell. What was the purpose in having the Nebraska Se- 
curities Corporation acquire stock in Travelers Insurance Co. ? 

Mr. Zacher. To make a little money. 

Mr. Gesell. Purely a matter of trading in your account shares 
for profit; that was the whole thing? 



CONCENTRATION OP ECONOMIC POWER 6447 

Mr. Zacher. Furnishing money to people who were obliged to sell, 
to pay up their loans and one thing and another, when the brokers 
were not buying it. 

Mr. Gesell. You say "when the brokers were not buying it"? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. The price of the stock was falling during this period, 
was it not? 

Mr. Zacher. I believe so. 

Mr. Gesell. I believe yesterday Mr. Fisher's testimony indicated 
that it fell rather rapidly during this period. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Were not these purchases designed to support the mar- 
ket? 

Mr. Zacher. No, sir. 

Mr. Gesell. Do you recall this correspondence which I show you ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. It is a letter you wrote, is it not ? 

Mr. Zacher. Yes,, sir. 

Mr. Gesell. On December 18, 1930, to Mr. Mount— E. B. Mount- 
in Minneapolis, Minn. Who is he, sir? 

Mr. Zacher. He was our mortgage-loan correspondent in Minne- 
apolis 

Mr. Gesell. Your letter states [reading from "Exhibit No. 1115"] : 

Last year you wanted to buy ten shares of Travelers stock. As I remember, 
I told you it would be best to buy live shares and take a chance on picking up 
the other five shares cheaper. 

Due to the liquidation of several brokerage houses and the general scare, 
certain distressed stock has been thrown on the market during the last month 
and it has declined from 1500 to as low as 830. In this process we acquired a 
few shares — more to steady the market than otherwise and there is no particular 
reason for holding it. 

If, therefore, you have some cash and want to average down you may have 
5 or 10 shares of this stock at $850. 

I would like to offer this letter and two related telegrams for the 
record. 

Acting Chairman O'Connell. It may be admitted. 

(The correspondence referred to was marked "Exhibit No. 1115" 
and is included in the appendix on p. 6969.) 

Mr. Gesell. Does that refresh your recollection as to why some of 
these purchases were made? 

Mr. Zacher. Yes; I think the language I used there was careless 
because you can't steady the market very well with the purchase of a 
moderate number of shares of stock. I think what I meant there was 
by disclosing that some of the people in the office were buying a little 
might steady the market. That is, people might hesitate to dump 
their shares on the market, individuals that were scared by the action 
of the broker. 

Mr. Gesell. You mean if your company, through some of its vari- 
ous subsidiaries, purchased stock in the market, and that became 
known, it would result in steadying the price, because it would show 
that the officers had confidence. 

Mr. Zacher. It was more through the officers rather than through 
the subsidiaries, or yes, any employee — if he were buying it, the 
public might get the idea there is nothing wrong anyway and desist 
from selling some stock which they probably wanted to throw on the 
market. 



6448 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In this case, this letter was written December 18, 1930; 
was it not? 

Mr. Zacher. Yes. 

Mr. Gesell. Through whom and when had you acquired the stock 
that you were selling on this occasion ? 

Mr. Zacher. I don't know. Probably one of the local brokers. 

Mr. Gesell. The records of the Nebraska Securities Corporation 
indicate that on the day before, Nebraska Securities Corporation had 
purchased some of the stock from one of your own officers, Mr. Flynn, 
which is quite the reverse of what you have been describing to us. 
That was not stock that one of your officers had gone out and acquired 
personally ? 

Mr. Zachek. I think that supplements it. The. stock that was 
bought from him was bought without the knowledge of the brokers. 
The stock that we purchased otherwise, was purchased from the 
brokers. One supplements the other. 

Mr. Gesell. In other words, it was your practice to go out openly, 
some of your officers to go out openly into the market and purchase 
stock so that the brokerage trade would know that the officers had 
confidence in the company? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Then, if some of the officers had to sell their stock, you 
sold that stock to your own companies in an indirect manner so that 
the brokerage trade would not know the officers were disposing of 
stock? , 

Mr. Zacher. Only in distressed circumstances. 

Mr. Gesell. Yes; but when it happened, that is the way it 
happened? 

Mr. Zacher. But it only happened a few times, to my recollection. 

Mr. Gesell. But may I have a direct answer to the question so the 
record will be clear? When officers did sell stock they were sold in 
this indirect manner in order that the fact they were disposing of 
their securities would not be known in the brokerage trade ? 

Mr. Zacher. As I recall it, sir; I think that was about the only 
case that I know of. Were there any others? 

Mr. Gesell. I should like to ask you whether there were any 
others. There were a few more. 

Mr. Zacher. This happened sometime ago and I can't keep my 
head full of these details. 

Mr. Gesell. I see here several purchases by C. D. Rarey. 

Mr. Zacher. He was another officer and it happened about the same 
time ? 

Mr. Gesell. First was in December. This was now in April and 
May of 1931, about 4 or 5 months later. 

Mr. Zacher. Yes; and the price was about the same, was it? 

Mr. Gesell. Nine hundred fifty to eight hundred and fifteen, the 
price range was. 

Mr. Zacher. It had probably gone up. 

Mr. Gesell. Then I notice also there is a purchase from John H. 
White. He had been connected with the company, had he not? 

Mr. Zacher. Yes; he had been. I don't know whether he was at 
that date or not. He was not at that time. The Rarey purchase, I 
think, was for quite a different purpose. 



CONCENTRATION OP ECONOMIC POWER 6449 

Mr. Gesell. The Colorado Valley Land Co. also purchased some 
from Mr. Piper. 

Mr. Zacher. Well, I don't recall that transaction. How many 
shares was it; does it say there? 

Mr. Gesell. You have no recollection about it? We haven't the 
records. 

Mr. Zacher. Not of Mr. Piper, no; nor of White. 

Mr. Gesell. Were there any other officers you know of who dis- 
posed of their stock in this manner during this period ? 

Mr. Zacher. Not that I know of ; no, sir. 

Acting Chairman O'Connell. Was the Travelers Insurance Co. 
legally authorized to deal in its own stock? 

Mr. Zacher. I don't know. I never did. 

Acting Chairman O'Connell. Directly. You did it through sub- 
sidiary corporations organized for other purposes? 

Mr. Zacher. Yes. 

Mr. Gesell. Who handled this trading, Mr. Sherwood, the details 
of the trading? 

Mr. Zacher. Yes. You mean the mechanical end of it? I believe 
so. 

Mr. Gesell. During this time there were purchases of securities 
through Connecticut River Banking, and for Nebraska? 

Mr. Zacher. I should think so ; if he was there he attended to the 
mechanical details of the thing. 

Mr. Gesell. Perhaps we might ask him to come to the stand to 
question him concerning this. 

Mr. Sherwood. 

TESTIMONY OF WILBUR S. SHERWOOD, CASHIER, TRAVELERS 
INSURANCE CO., HARTFORD, CONN.— Resumed 

Mr. Gesell. You have already been sworn, haven't you ? 

Mr. Sherwood. I have, sir. 

Mr. Gesell. What was your position with the company during 
this period from 1930 to '32? 

Mr. Sherwood. Assistant cashier at that time. 

Mr. Gesell. Did you have some responsibility for trading in 
Travelers stocK at that time? 

Mr. Sherwood. I had responsibility, of course. 

Mr. Gesell. Will you tell us what you did, what the nature of 
your work was in connection with trading in Travelers stock? 

Mr. Sherwood. My responsibility was administrative, and I sup- 
pose that means to you that I carried out, to the best of my ability, 
instructions that were perhaps handed to me by superiors. 

Mr. Gesell. You would receive orders to buy and sell Travelers 
stock for various accounts, and you would handle the execution of 
those orders? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. From whom did you receive the orders ? 

Mr. Sherwood. Well, there was no one source. There were many 
employees from our branches buying stocks. We had a very large 
organization at that time which reached throughout the breadth of 
the United States. Obviously many of our people, trained and 



(3450 CONCENTRATION OF ECONOMIC POWER 

broughl up at the home office, were remotely located, where they had 
*n<> access whatsoever to the market price of Travelers shares. Many 
of them desired an interest in their business, in their company— very 
naturally desired it. . . . 

Withoul local information, it was frequently their practice to write 
to the home office. Many of these people we knew intimately and it 
they instructed us in their letters to buy a few shares of Travelers 
for them at a price we took care of that matter to the best of our 
ability. Usually I executed those orders if I was there. 

Mr. Gesell. If they asked you to sell the stock for them you would 
try to place it in the most favorable market you could find? 

Mr. Sherwood. Yes; I think that the only difference between our 
interest in that market and their direct interest with a broker, was 
thai they did not know which broker to turn to and we were reluctant 
to advise any particular broker for that transaction. 

Mr. Gesell. You kept yourself acquainted with the price that all 
the various brokers were quoting on it and how thin the market was? 

Mr. Sherwood. My job at that time in the department was to know 
these things. I had to know the market price of many stocks and 
many bonds, and the trends. 

Mr. Gesell. And you did that in Travelers "stock as well? 

Mr. Sherwood. Travelers stock was just incidental to the whole 
performance. 

Mr. Gesell. But you did have such knowledge with respect to 
Travelers stock? 

Mr. Sherwood. I certainly did. 

Mr. Gesell. And do I understand that you gave the instructions 
for purchases of Travelers stock, let's say, by Connecticut River 
Hanking Co., by Nebraska Securities Corporation, by Colorado Valley 
Land Co., and the other companies in which Travelers was interested? 

Mr. Sherwood. I didn't quite understand that question. 

Mr. Gesell. Did you give the order? Let's say Connecticut River 
Ranking Co. was to pick up 10 shares on the market. Did you give 
the order? 

Mr. Sherwood. Not exclusively. They may have bought much 
Travelers stock that I knew nothing about, but some I did. 

.Mr. Gesell. You would sometimes acquire the stock through Con- 
necticut River Banking Co.? 

Mr. Siikkwood. Yes, sir. 

Mr. Gesell. Why was it done thai way instead of your acquiring 
it directly through Travelers? 

Mr. Sherwood. I don't know of any insurance company that ever 
had a department that traded in its own stock. We certainly did 
not, so far as paying for it and receiving money for it and clearance 
■if it. if you speak of the Travelers Insurance Co. 

Mr. Gesell. Thai was all handled through Connecticut River 
Banking Co.? 

Mr. Sherwood. Not all. Tt may have been handled through 
another bank, if the order that came to me requested that. 

Mr. Gesell. Hut a large amount of the purchases and saies were 
handled through Connecticut River Banking Co.. were they not« 

fjr. Sherw Yes, sir; that is a function of the hanking business. 

Mr. Gesell Ami V" 1 gave those orders to the hank to execute for 
you 1 I - thai correcl I 



CONCENTRATION OF ECONOMIC POWER 6451 

Mr. Sherwood. It isn't exactly correct, unless I misunderstand you. 

Mr. Gesfxl. Let's get at it this way. I just want to find out 
exactly how you did and how you handled it, so you go ahead and 
tell us. I won't interrupt with questions. 

Mr. Sherwood. All right. Suppose John Jones, in Seattle, Wash., 
asked to buy five shares of Travelers at 600. We didn't treat John 
Jones just as an individual. He was one of our family. He had 
a right to ask his home office for some help. If he wanted to send 
flowers to a funeral he had a right to telegraph in and ask for an 
accommodation. At least Ave thought so. It was a matter of service. 

Therefore, if the records which we had in our office showed that 
John Jones was a substantial member of our staff, and by that I 
mean there was no risk involved that we could see. we would en- 
deavor to fulfill his request to the best of our ability. We didn't 
always buy our stock at any one place. We purchased it where it 
could be bought cheapest and we had a fair knowledge of where that 
place was from day to day, we usually asked the broker to confirm 
to the Connecticut River Banking Co., and instructed our man to 
make payment there. 

Mr. Gesell. Do you recognize this letter ? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. Is that the form of letter which was used? 

Mr. Sherwood. There was no form, necessarily. 

Mr. Gesell. That was the form that was frequently used, was it? 

Mr. Sherwood. I think it was. 

Mr. Gesell. Well, now, this is a letter written by you, is it not? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. It is on the stationery of the Travelers Insurance Co., 
Treasurer's office, May 24, 1932, addressed to Stevenson Gregory & 
Co., Hartford, Conn. It says, "We confirm purchase from you of 50 
shares Travelers Insurance stock at 266 net." 

If I was Stevenson Gregory and got that letter, I would think the 
Travelers' Insurance Co. was buying some stock, wouldn't I? 

Mr. Sherwood. Of course you Would. 

Mr. Gesell. On the bottom there is this notation : "This purchase 
is for the account of the Colorado Valley Land Co." 

Those are instructions to the Connecticut Valley Banking Co. that 
you typed on the carbon, isn't it, so you instruct Stevenson Gregory 
to deliver the certificates to Connecticut River Banking Co. and Con- 
necticut River Banking Co. is instructed that the purchase is for 
Colorado Valley Land, but so far as the broker is concerned, he be- 
lieves that Travelers itself is buying the stock, does he not ? 

Mr. Sherwood. I can't say that he does believe that, because so 
many of those transactions took place, and I am sure, for one thing, 
that many times they knew it was for our people. 

Mr. Gesell. Well, then, on the sell side, too, you confirm on the 
stationery of Travelers' Insurance Co., did you not? 

Mr. Sherwood. Oh, yes. 

Mr. Gesell. So that your dealings with the brokers on behalf of 
these peoples* or subsidiary companies of the Travelers were in the 
name of Travelers Insurance Co. ? 

Mr. Sherwood. They might have been just as well confined to tele- 
phone conversations, Mr. Gesell, and not confirmed at all. 

Mr. Gesell. The fact is they weren't, were they ? 



6452 CONCENTRATION OF ECONOMIC POWER 

Mr. Sherwood. They were confirmed as a matter of courtesy. 

Mr. Gesell. Always on the stationery of the Travelers Insurance 
Co. and signed by yourself as an officer of Travelers Insurance Co. ; 
isn't thai correct? 

Mr. Sherwood. Yes, sir. We use that stationery for all of our 
correspondence. 

Mr. Gesell. When an officer of Travelers sold Travelers' stock, 
was it your practice to put that stock in the name of a nominee before 
it came out on the market, in order to conceal the fact that he was 
disposing of some shares? 

.Mi. Sherwood. Only if that transaction came through our office. 

Mr. Gesell. Yes. Now; how many of those transactions did come 
through vour office, Mr. Sherwood? 

Mr. Sherwood. 1 would say in a period of many years perhaps half 
a dozen. 

Mr. Gesell. And that was the practice adopted in those cases? 

Mr. Sherwood. I think so. 

Mr. Gesell. When you purchased securities and sold securities you 
handled most of those transactions through the Connecticut River 
Banking Co., I believe you said. 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. Was there any particular reason for handling it 
through that bank other than that the bank offered banking facilities? 

Mr. Sherwood. I think if any other bank were located where that 
bank was, located as conveniently, we might have used that other 
bank. -- 

Mr. Gesell. It is purely a matter of facility, it had nothing to 
do with your desire to keep from being revealed the source of the 
buying? 

Mr. Sherwood. Oh, no. 

Mr. Gesell. If the bank bought, however, from the various brok- 
erage concerns there would be no way that the brokers could tell 
that these purchases came from Travelers Insurance Co., or one of 
its subsidiaries. 

Mr. Sherwood. That was a common practice in all that business. 

Mr. Gesell. Apart from what was common practice, that was the 
fact in this case, was it not? 

Mr. Sherwood. We followed that practice. 

Mr. Gesell. That was one of the factors involved in handling it 
directly through the bank? 

Mr. Sherwood. Through some bank. 

Mr. Gesell. In order that the buying interest of the particular 
purchaser wouldn't be disclosed? 

Mr. Sherwood. Yes, sir. 

Dr. Lubin. Is that your general practice in purchasing securities 
for your investment account? 

.Mr. Sherwood. No, sir. 

Dr. Luiun. You buy those directly? 

Mr. Shkrwood. When you are speaking about the Travelers Insur- 
ance Co., we buy them directly. 

Dr. Li bin. You don't use the bank as the instrument, so that the 
source from which the purchase is coming is not revealed? 

Mr. Si i Kit wood. You are speaking now of Travelers Insurance Co. 
purchases! We buy direcl in our own name. 



CONCENTRATION OF ECONOMIC POWER 6453 

Dr. Lubin. But when you purchase stock of your own company 
for one of your employees or officers you don't buy it; you buy it 
through a bank so nobody will know where the source of the pur- 
chase lay. 

Mr. Sherwood. Well, if I get the meaning of your question, these 
purchases which were written on Travelers Insurance Co.'s station- 
ery might just as well have been written on any stationery. They 
were in no way Travelers Insurance Co. transactions other" than that 
one of us did it. 

Dr. Lubin. Let me put my question this way, if I may : When you 
want to buy certain securities for your own investment account, do 
you have the bank buy them for you or do you go to a broker and 
have the broker buy them directly for the company? 

Mr. Sherwood. We buy them directly. 

Dr. Lubin. Do you ever use brokerage accounts in the purchase of 
securities, investments? Do you ever use a broker for the purchase 
of securities for investment? 

Mr. Sherwood. Certainly we do. We buy from brokers or securi- 
ties dealers. 

Dr. Lubin. But when it came to purchase that of your own com- 
pany you had the bank do it for you, and then went to the broker 

Mr. Sherwood (interposing). No, we confirmed the transaction as a 
matter of courtesy for somebody. 

Dr. Lubin. I think you have just said you always used the Con- 
necticut River Banking Co. 

Mr. Sherwood. I did not say that, sir. 

Dr. Lubin. I am sorry; I beg your pardon. I thought you said 
you used the bank as a means of purchase. 

Mr. Gesell. I think the confusion rests in this: When you pur- 
chased for the Nebraska Securities Corporation, one of your sub- 
sidiaries, or for Colorado Valley Land, you purchased through the 
Connecticut River Banking Co. 

Mr. Sherwood. The stock was confirmed to a broker ; instructions 
were given to the broker to deliver to the bank, usually the Connecti- 
cut River Banking Co.; the bank paid for the stock. At that time 
that was one side of the transaction. I may not have known exactly 
to whom that stock was ultimately to belong. It may have been that 
the decision was known by others, but my instructions were to buy 
the stock. So far so good. 

Mr. Gesell. Just one question there. So far as the broker is con- 
cerned, those purchases were by Connecticut River Banking Co.; 
weren't they? 

Mr. Sherwood. I don't wish to be technical about saying the Con- 
necticut River Banking Co. to the exclusion of all banks. I don't 
want to magnify this too much. 

Mr. Gesell. In that instance? 

Mr. Sherwood. Yes ; in that instance it would be that bank. 

Mr. Gesell. You were about to continue? 

Mr. Sherwood. When it was finally determined exactly the name 
and so forth that the stock was to be registered in, sometimes it came 
from one of our employees, sometimes it came from one of our corpora- 
tions that was buying some stock, and at that time instructions would 
be given to the bank to sell to the corporation and transfer accord- 
ingly, and the bank would be reimbursed. 



6454 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Well now, let me see. Here, from the records of the 
Connecticut Eiver Bank, I read that on October 2, 1931, Connecticut 
River Banking Co. bought for the account of Nebraska Securities 
Corporation 5 shares at 540 from Andrews, 10 shares at $570 a share 
from S. G. & Co. ; 9 shares from S. G. & Co. at 575 ; 10 shares from 
Putnam at 550 ; 15 shares from Putnam at 543 ; 2 shares from Andrews 
at 510; 30 shares from Cooley at 510; 15 shares from Cooley at 490; 7 
shares from Bissel at 473, all on that day. 

Those were, considering the size of the Travelers security market, 
rather heavy purchases, on a declining market, were they not, made 
by Connecticut River Banking Co. from these various brokers? 

Mr. Sherwood. You may know that. I don't know whether it was 
a heavy day or not. 

Mr. Gesell. What is the average amount of shares traded per day 
in Travelers stock? 

Mr. Sherwood. There is no average that I can speak of. 

Mr. Gesell. It is pretty small, isn't it ? 

Mr. Sherwood. It is a matter that fluctuates. 

Mr. Gesell. You have only about 8,000 stockholders, haven't you? 

Mr. Sherwood. About that. 

Mr. Gesell. They are scattered all over the country? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. The number of shares bought and sold in Hartford, 
Conn., per day doesn't run over a couple of hundred shares ; does it — 
the average market? 

Mr. Sherwood. I don't know. 

Mr. Gesell. It is not over three to five hundred shares, at the most, 
a day. 

Mr. Sherwood. I can't say. 

Mr. Gesell. Although you testified that you were completely fa- 
miliar with this market, just what was going on? 

Mr. Sherwood. Will you confine yourself to today or yesterday? 

Mr. Gesell. Let's say during 1931. What was the average? 

Mr. Sherwood. I can't tell you the average. I don't know anybodv 
else that can without calculating the figures. 

Mr. Gesell. What is the unit of trading? 

Mr. Sherwood. There is no unit of trading — one share. 

Mr. Gesell. Then there is a unit of one share. 

Mr. Sherwood. It isn't necessarily confined to that. You can buy 
one share of stock, sir. 

Mr. Gesell. And that indicates that very few shares are traded 
a day when you can buy one share a day. Isn't that correct, in any 
over-the-counter market you handle? 

Mr. Sherwood. It may go a great many days with no shares; there 
may be some days with a thousand shares. 

Mr. Gessell. Have you had many thousand-share days? 

Mr. Sherwood. You are talking about me. 

Mr. Gesell. But you are familiar with the market and what is 
being bid and asked. 

Mr. Sherwood. I haven't had offers for a thousand shares ; no, sir. 

Mr. Gesell. Are you familiar with the transfer records of the 
company ? 

Mr. Sherwood. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 6455 

Mr. Gesell. You have some idea then from those transfer records 
what the turn-over is, haven't you ? 

Mr. Sherwood. Many thousand shares may be turned over in a 
day and only two shares of the lot sold. 

Mr. Gesell. Well, this is a rather heavy bunch of purchases for 
one day, 5, plus 10, plus 9, plus 10, plus 15, plus 30, plus 15, plus 
7. It must run over 50 shares of stock purchased in that way by 
Nebraska Securities Corporation. 

Mr. Sherwood. I can only answer you one way, and that is if a 
man wants 100 shares he has got to buy it. It may be 100 trans- 
actions of 1 share each. 

Mr. Gesell. In the case of those purchasers, would the brokers 
have known the shares were for a subsidiary of Travelers Insur- 
ance Co. ? 

Mr. Sherwood. They would not have known who the ultimate pur- 
chaser was to be. 

Mr. Gesell. And similarly, in the same year, over in December, 
I note that Connecticut River Bank Co. bought in the period from 
December 11 to December 14 for Colorado Valley Land, another 
subsidiary, 10 shares, 3 shares, 5 shares, 2 shares, 10 shares, 4 shares, 
15 shares, 20 shares, 4 shares, 7 shares, 5 shares, 5 shares, 5 shares, 
10 shares, all through various brokers. Again those brokers would 
not know where the buying interest came from. 

Mr. Sherwood. That is right. 

Mr. Gesell. Have you anything to do with maintaining the rec- 
ords of the Nebraska Securities Corporation ? 

Mr. Sherwood. I have nothing to do with them now. 

Mr. Gesell. Are you familiar with that record which I show 
you, a record of stock purchases by Nebraska Securities Co.? 

Mr. Sherwood. Those entries are not mine, sir. 

Mr. Gesell. You notice that first transaction, do you not, shown 
on that' sheet, the purchase of shares of Travelers' stock from Mr. 
B. D. Flynn? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. He was an officer of Travelers at the time, wasn't he? 

Mr. Sherwood. Yes, sir. 

Mr. Gesell. Was that purchase made through Nebraska Securities 
Corporation on your instructions? 

Mr. Sherwood. I think it was bought through the Nebraska Secu- 
rities Corporation. 

Mr. Gesell. Did you give instructions at that time that those 
shares be bought for that company ? 

Mr. Sherwood. I probably bought the shares for that company — 
is that what you mean? 

Mr. Gesell. On whose instructions did you act? 

Mr. Sherwood. I don't recall, but I would assume they were 
instructions from Mr. Zacher. 

Mr. Gesell. I have no further questions for this witness. 

Acting Chairman O'Connell. Earlier in your testimony you said 
you operated in an administrative capacity and you were responsible 
to, presumably, and took orders from a superior. Do you want us to 
understand you don't know whom you were responsible to in making 
purchases of the stock? 

Mr. Sherwood. No; I do not. 



6456 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman O'Connell. Whom were you responsible to ? 

Mr. Sherwood. I was always responsible to Mr. Zacher. 

Acting Chairman O'Connell. Was it from Mr. Zacher you received 
instructions to buy the stock in these instances which we have 
referred to? 

Mr. Sherwood. With' those exceptions of authorized orders which 
may have come from individuals, I think it perhaps would be correct 
to say that Mr. Zacher gave me my instructions. 

Acting Chairman O'Connell. You spoke rather feelingly about the 
service that you rendered for the employees of the company in the field 
who might want to buy stock in the Travelers. Do you know whether, 
in these transactions consummated through the Nebraska company, 
they were transactions which had as a basis a desire of an employee or 
other official to buy the stock, or were they bought for the account of 
the company ? 

Mr. Sherwood. As far as I know, anything bought for the Nebraska 
Securities Corporation, or any of our subsidiary corporations, was 
bought for themselves, because it was an advantageous time to buy, 
with the thought, perhaps, of selling later when others desired it more 
than we did. ., 

Acting Chairman O'Connell. So, generally speaking, they were 
bought for the account of the company and without any present 
intention of reselling to people in the organization ? 

Mr. Sherwood. Oh, I had no thought whatever of selling to people 
in the organization. 

Acting Chairman O'Connell. Do you know whether or not the 
company or you made a practice or at any time solicited your people 
to buy stock which was held by your subsidiary companies ? 

Mr. Sherwood. I know of no general plan at all. There may have 
been an instance, but I don't recall it. 

Acting Chairman O'Connell. And you referred to the fact that 
Travelers Insurance Co. never bought its own stock for its own account. 
Do you know what the basis of that policy was? Is there any legal 
impediment to having Travelers Insurance Co. deal in its own stock? 

Mr. Sherwood. There is in our State. 

Acting Chairman O'Connell. You are not permitted to deal in 
your stock ? 

Mr. Sherwood. No, sir. 

Acting Chairman O'Connell. The effect of these transactions was 
an evasion of that rule, was it not ? 

Mr. Sherwood. No, sir. 

Acting Chairman O'Connell. You owned the Nebraska Securities 
Corporation. 

Mr. Sherwood. That doesn't matter. 

Acting Chairman O'Connell. Do you now own the Nebraska 
Securities Corporation ? 

Mr. Sherwood. The Travelers Insurance Co. owns the Nebraska 
Securities Corporation. 

Acting Chairman O'Connell. And the Nebraska Securities Cor- 
poration bought stock in the Travelers Insurance Co. which the Trav- 
elers Insurance Co. could not buy itself. 

Mr. Sherwood. Correct. 



CONCENTRATION OF ECONOMIC POWER 6457 

Acting Chairman O'Connell. And you say you don't think that is 
an evasion of the rule which prohibits the Travelers Insurance Co. 
from buying its stock. 

Mr. Sherwood. That is exactly what I say, sir. 

Mr. Gesell. J have no further questions. 

Acting Chairman O'Connell. I have none. 

Mr. Gesell. I want Mr. Zacher back for about 10 minutes, and 
then I think we are through. I notice he stepped out a minute. 

TESTIMONY OF LOUIS EDMUND ZACHER, PRESIDENT, TRAVELERS 
INSURANCE CO., HARTFORD, CONN.— Resumed 

Mr. Gesell. We are almost through, Mr. Zacher. I refer you to the 
minutes of the finance committee of the Travelers Bank & Trust Co., 
held December 15, 1931. You were present at that meeting, were you 
not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. And at that meeting, as shown on the next to the last 
page of the minutes, the Travelers Bank & Trust Co. authorized the 
sale of various-described securities, including some Alabama Power 
Co. securities, American Hardware Corporation securities, Pacific 
Gas & Electric securities, Scoville Manufacturing securities, United 
States Steel Corporation stock, and other securities of that type; is 
that true ? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. To whom were those securities sold ? 

Mr, Zacher. I think the Nebraska Securities Co. 

Mr. Gesell. This letter which I now show you indicates, does it not, 
that all of those securities were purchased by the Nebraska Securities 
Corporation, with the exception of 325 shares of Hartford Electric 
Light common stock? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. That records the purchase price of those securities, does 
it not? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. This shows that securities were purchased by Nebraska 
Securities Corporation on December 24, 1931, from the Travelers Bank 
& Trust Co. for a price of $221,720.58. I wish to offer this for the 
record. 

(The letter referred to was marked "Exhibit No. 1116" and is in- 
cluded in the appendix on p. 6970.) 

Mr. Gesell. You recognize this file which I show you, Mr. Zacher, 
as correspondence which you had with Mr. G. Y. Thompson, of the 
Nebraska Securities Corporation? 

Mr. Zacher. Yes, sir. 

Mr. Gesell. He is vice president of the corporation, is he not ? 

Mr. Zacher. Thompson? No; I think he was auditor. 

Mr. Gesell. Yes, auditor. He wrote your assistant cashier, A. H. 
Steidel, on December 28, 1931, stating [reading "Exhibit No. 1117"] : 

Your letter of the 24th, addressed to Mr. Goudy, has been received, in which 
you list a number of stocks purchased for the Nebraska Securities Corporation. 

In looking over the number of shares purchased and comparing . with the 
prices, there seems to be a wide variation in some of the stocks that we are 
able to check between the present market value and the amount that has been 



6458 CONCENTRATION OF ECONOMIC POWER 

paid according to your letter. For example, you show 25 shares of Travelers 
Insurance Company stock at $38,654.94 which would figure something over 
$1,500 a share. 

No doubt there is a good reason for all of this, but at any rate I am calling 
it to your attention in case there has been some error made in listing these 
transactions. 

And you reply to him on the date of December 30, 1931 [con- 
tinuing to read "Exhibit No. 1117"] : 

The transaction referred to in your letter of December 28 at the price stated 
has been carried out for special reasons — all of which has the approval of the 
Board of Directors of botli companies. 

I am obliged to you for writing. 

I should like to offer that correspondence for the record. 

(The letters referred to were marked "Exhibit No. 1117" and ap- 
pear in full in the text on pp. 6457-6458.) 

Mr. Gesell. Is it not a fact, Mr. Zacher, that the market value of 
the securities sold by your bank, the Travelers Bank & Trust Co. to 
the Nebraska Securities Corporation, was greatly below the price 
which was paid for them?' 

Mr. Zacher. Would you mind stating that again? 

Mr. Gesell. You sold these securities from your bank to the 
Nebraska Securities Corporation at a price greatly in excess of the" 
market price. 

Mr. Zacher. Yes, sir. 

Mr. Gesell. Do you know what the precise differential is? Our 
records, prepared from the Wall Street Journal and Commercial and 
Financial Chronicle, would indicate that the market value of the 
securities as of December 24, 1931, was $80,413.50, and there was paid 
to those securities $221,720.58, or a difference of $141,307.08. 

Mr. Zacher. That is approximately correct; yes. 

Mr. Gesell. These valuations have published sources ancl I would 
like to offer them for the record. 

(The schedule referred to was marked "Exhibit No. 1118" and is 
included in the appendix on p. 6970.) 

Mr. Gesell. Can you explain this transaction to us, Mr. Zacher ? 

Mr. Zacher. This transaction, according to my recollection of what 
little information I have, took place, I think, on the 24th of Decem- 
ber, or the 25th, or 26th, I have forgotten' which, but along in there, 
in 1931. The Travelers Bank & Trust Co.'s, banking business, is 
mainly in savings deposits. On January 2, 1932, there was an official 
closing of a bank in Hartford which did a similar business. My 
recollection is that about a week or 10 days before that one of the 
directors summoned a number of insurance men to a meeting to ask 
if they could bail it out. I was one of those invited. The market 
price on securities was dropping very fast, it was necessary to make 
a statement on the 31st of December. 

There was not sufficient time for us to pay in more capital surplus 
to offset— particular surplus — a loss that might come in those securi- 
ties, if it hadn't already arrived. It was therefore decided that the 
same result could be accomplished by selling those stocks which had 
a considerable depreciation, $140,000, to the Nebraska Securities Co., 
which had the cash, at the cost price, which would result in the bank 
being relieved of that mark-down and the result to the Travelers 
Insurance Co. would be exactly the same because they owned the 
entire stock of both companies. 



CONCENTRATION OF ECONOMIC POWER 6459 

On January 2 another bank was closed — a bank in East Hartford 
was closed. The resources of the first bank were $25,000,000 deposits 
of about $20,000,000. They had 40,000 savings depositors. The clos- 
ing of this bank caused an immediate run on all banks in Hartford 
and vicinity and the 90-day withdrawal rule was put into effect by 
banks of the Clearing House Association. 

Did I make that clear all the way through? 

Mr. Gesell. I believe so. There are one or two questions I want 
to ask you about it. There was another bank in Hartford which 
was having difficulties? 

Mr. Zacher. Yes. 

Mr. Gesell. And you cite that to illustrate that there was a very 
serious banking condition at the time? 

Mr. Zacher. Yes. 

Mr. Gesell. In the case of the Travelers Bank & Trust Co., which 
your company owned, it was felt that it needed additional cash? 

Mr. Zacher. Surplus. 

Mr. Gesell. Yes ; surplus. And to provide that surplus you could 
have done it, I take it, in two ways, either by issuing additional stock, 
purchasing that stock, offering the stock to the public, or in the 
manner of transactions such as you handled, by paying more for 
securities than they were worth. 

Mr. Zacher. Yes. 

Mr. Gesell. It was determined not 10 issue stock to the insurance 

jmpany or to make any public offering of securities, I presume, 

uecause of the serious banking condition at the time and that would 

indicate the bank needed credit arid you didn't want that publicly 

known. 

Mr. Zacher. And the difficulty in accomplishing it in such a short 
time between the 24th of December and the 2nd of January, because 
public notice of any additional issues would have had to be made. 

Mr. Gesell. There was the element, however, of the desirability 
of keeping the necessity of financial support of" this bank from be- 
coming a matter of public knowledge. 

Mr. Zacher. I should say that that was quite a factor. 

Mr.. Gesell. And since you owned both the Nebraska Securities 
Corporation and the bank 100 percent, you in effect simply gave the 
bank cash from Nebraska Securities and gave Nebraska Securities 
the securities which had depreciated so much in market value. 

Mr. Zacher. Yes. To refer back to the reduction in the Nebraska 
Securities stock after we got it down to $500,000, we were talking 
about it in that connection, I have just been reminded that another 
reason, and a very substantial reason for the transfer to the casualty 
department, was so that the casualty department could take either 
the profits or loss on what was left on the securities bought from the 
bank, the bank stock being held in the casualty department as an asset. 

Mr. Gesell. So that since the Nebraska Securities Co. had to, in 
effect, assume a loss of the bank, since the bank was owned by the 
casualty department, in the final wind-up of the Nebraska Securities 
you felt it proper to charge some of that loss to the casualty depart- 
ment, which was the owner of the bank. 

Mr. Zacher. They deserved the profit or loss, whichever way it 
might turn out in the end. I didn't think of that at the time you 
made the inquiry. 

124491 — 40 — pt. 13 8 



p ^. 


Zacher. 


Mr. 


Gesell. 


ties? 




Mr. 


Zacher. 


Mr. 


Gesell. 


for it. 




Mr. 


Zacher. 


Mr. 


Gesell. 



6460- CONCENTRATION OF ECONOMIC POWER 

Mr Gesell. Now, the Nebraska Securities has transferred some of 
these securities which it acquired from the bank, to Prospect Corn- 
Yes 
And Prospect Company is still holding those securi- 

Yes sir. 

And' the market price is still below what was paid 

I think so. 
,. I have no further questions. 

Acting Chairman O'Connell. Mr. Zacher, while you were out of 
the room Mr. Sherwood testified to the effect that in making purchases 
of Travelers Insurance Co. stock in behalf of one or the other of your 
subsidiary companies during this period of 1932-33, he was acting 
under your instructions. I was curious to know whether, in making 
purchases of that type of stock or that stock for your subsidiary 
companies, you purchased them anticipating a sale to persons con- 
nected with your company or otherwise? 

Mr. Zacher. Or back to brokers. 

Acting Chairman O'Connell. You purchased them, I take it, to 
hold up the market on the stock. 

Mr. Zacher. I wanted to get the stock off the market, but I didn't 
want to climb to get that stock and I didn't want to keep it, I just 
wanted to buy it until the brokers could steady the market by using 
their funds. You see, those brokers used to buy for their own 
accounts and sometimes they would get a little bit overloaded and 
then they would want to liquidate their loans among the banks, and 
they would say, don't you want to buy 5 shares here, 10 shares there, 
I knew a great many of them, and careful not to pay an excessive 
price, we occasionally bought 5, 10, 15, or 20 shares. Sometimes we 
would go along for months and not deal in a share, but always with 
the idea that sometime or other we would get rid of that stock and, 
if possible, also trj f to make a little money to pay for the trouble 
that we took. . There was never any intention at any time to accumu- 
late any stock. If there was any accumulation it was our misfortune 
and being caught in a dropping market, we kept the stock as an 
investment. 

Acting Chairman O'Connell. Would it be fair to say that you were 
purchasing stock during this distress period to help out the brokers 
mid other persons who either held or ordinarily purchased the stock, 
and at the same time you hoped you would ultimately be able to liqui- 
date the stork without taking the loss? 

Mr. Zacher. Or stockholders that had a pledge with the banks 
and the hanks which had to liquidate part of those holdings. 

Acting Chairman O'Connell. That is just exactly the point I am 
interested in. Wouldn't it be a fact that a number of your stock- 
holders who had substantia] blocks of stock would be in danger of 
losing their stock if it were pledged as collateral with the price of 
ilif stock not maintained? 

Mr. Zacher. Yes. 

Acting Chairman O'Connell. Wasn't that one of the motives in 
buying the stock, to maintain the price? 

Mr. Zachbl Fes.. It would have hurt the stockholders and indi- 
rectly the hank would have lost money and the insurance companies 



CONCENTRATION OP ECONOMIC POWER Q4QI 

would have lost money, because they are all considerably interested in 
those bank stocks up there. 

Mr. Gesell. And particularly your two banks, the Connecticut 
River Bank especially, would have lost a great deal of money since, 
as we saw at this period, there were over 2,000 shares of Travelers 
stock pledged as collateral against loans, many of those loans being 
made to officers and directors of your company. 

Mr. Zacher. Yes; but that didn't bother us so much because we 
knew the character of the borrowers, we knew what kind of job they 
had, we knew eventually without collateral they would make every 
effort to pay out. 

Acting Chairman O'Connell. As a matter of fact, I think it was 
developed that many of the- loans were under water and it didn't 
apparently bother you very much. 

Mr. Zacher. There was a short period, sir, where the market value 
went to nothing. There wasn't any market value in that, particular 
time, but after the market steadied and we were able to get to these 
borrowers and call their attention to it, we finally got margins or had 
the loans paid off, so there were only a very few loans that were 
what you might call under water so far as their collateral was 
concerned, and in each case we got insurance ; so if they died before 
their loan was paid we would be protected. 

Acting Chairman O'Connell. At any event, it seems pretty clear, 
doesn't it, that one of the primary purposes of the purchase of this 
stock during the period was to maintain the market price of the stock 
so as not to have the depreciated price of the stock result in the sacri- 
fice of the stock by officers or other persons who had substantial stock 
interests. 

Mr. Zacher. It wasn't so much the price as to keep the stuff mov- 
ing, not to have it get stagnant. 

. Acting Chairman O'Connell. Why is it important to the company 
that it be kept moving? 

Mr. Zacher. So that it won't sink out of sight overnight. 

Acting Chairman O'Connell. When you say "keep moving" you 
mean keep moving upward? 

Mr. Zacher. No ; keep moving back and forth to steady. 

Mr. Gesell. In other words, when too much supply and too little 
demand existed you wanted to dry up some of the supply. 

Mr. Zacher. That's it. 

Acting Chairman O'Connell. When you were on the stand you 
weren't quite clear as to whether the Travelers Insurance Co. could 
deal in its own stock, Mr. Sherwood testified to the fact that the 
Travelers Insurance Co. could not legally under the laws of the State 
of Connecticut deal in its own stock. What do you apprehend to be 
the difference between dealing in your own stock and having a wholly 
owned subsidiary deal in your own stock ? 

Mr. Zacher. I don't know. 

Acting Chairman O'Connell. Do you think 'there is any differ- 
ence ? 

Mr. Zacher. It is just a matter of the way the law reads, whatever 
the law is. If the law says you can't do it, you can't do it, but if the 
law says you can buy a stock in another institution, you buy the stock 
in the other institution. If the other institution by law can buy any 
stock there is, they can buy it. 



6462 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman O'Connell. Would it be fair to say what you 
did was, let us say, a legal way of evading the purpose of the law 
which prevents the Travelers Insurance Co. from dealing in its own 
stock ? 

Mr. Zacher. No; I don't think that is so, sir. We didn't intend 
to evade the law. We simply intended to carry on business in our 
security, with which we were familiar. 

Acting Chairman O'Connell. Then let's forget the purpose and 
say the effect of the transaction was 

Mr. Zacher (interposing). It might be so. 

Acting Chairman O'Connell. Legally evading the purpose in the 
Massachusetts law. 

Mr. Zacher. Connecticut law. 

Acting Chairman O'Connell. Connecticut law, I mean. 

Mr. Zacher. I am not sufficiently familiar with the Connecticut 
law. . . 

Acting Chairman O'Connell. It isn't a very difficult proposition. 
As I understand it, the law forbids the Travelers Insurance Co. from 
dealing in its own stock, and as a practical matter, it seems to me 
(and I should think you would agree), to have a wholly-owned 
subsidiary deal in the stock, the wholly owned subsidiary being under 
the control of the people who run the Travelers Insurance Co., is an 
evasion, legally — probably legally, of the prohibition of the Connecti- 
cut law. 

Mr. Zacher. Well, sir, I am not a lawyer and I didn't know about 
that, so I sought the adv>e of counsel, who is on the board and 
saw all these transactions, and if he was satisfied then I was. 

Acting Chairman O'Connell. You recall I said I was going to 
concede it probably was legal. I was merely indicating, in my judg- 
ment — and I should think you would agree — the effect of the trans- 
action was, let us say, a legal evasion of that provision. 

Mr. Zacher. Of course, you see, that is an over-the-counter market 
that is almost, you might say, between individuals. There isn't a 
great amount sold, from time to time, except when somebody dies 
and they have to settle up the estate. 

Acting Chairman O'Connell. My position would be just as clear 
if only one share of stock were handled that way. I say the extent 
to which it is done doesn't seem to me to make any difference in the 
question I have raised. It would be just as much an evasion if one 
snare were handled that way as if a thousand were. It is a matter 
of degree. 

Mr. Zacher. It is rather hard to answer. 

Acting Chairman O'Connell. Apparently. 

Mr. Cole. I don't want to interrupt the conversation, but I think 
the question you have asked is a good deal more complicated than the 
simple way you have stated it. 

A»cting Chairman O'Connell. All right; we will let it go at that. 

Mr. Cole. I don't want to get drawn into a long discussion. 

Mi. Gesell. Thai concludes the presentation of testimony today. 

We will have al t an hour and a half tomorrow morning and that 

will complete this set of hearings. 

Acting Chairman O'Connell. The committee will stand in recess 
until 10:30 tomorrow morning. 

(Whereupon, at 12:3"). p. m., a recess was taken until 10:30 a. m. 
Wednesday. September 13, 1939.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER 



wednesday, september 13, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10 : 35 a. m., pursuant to adjournment on 
Tuesday, September 12, 1939, in the Caucus Room, Senate Office 
Building, Mr. Joseph J. O'Connell, Jr., Department of the Treasury, 
presiding. 

Present: Mr. O'Connell, acting chairman, and Representative 
Casey. 

Present also : Gerhard A. Gesell, special counsel, Paul MacDonald, 
attorney, Securities and Exchange Commission. 

Acting Chairman O'Connell. The hearing will please come to 
order. 

Mr. Gesell. Before calling the first witness this morning I would 
like to offer for the record a letter I received from Mr. C. M. Corey, 
manager of the agency department of the John Hancock Life Insur- 
ance Co. The committee will recall that when Mr. Corey was on the 
stand he agreed to furnish us with certain information which was 
not readily available at that time. 1 That information is contained 
in this letter. 

Acting Chairman O'Connell. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1119" and ap- 
pears in Hearings, Part XII, appendix, p. 6356.) 

Mr. Gesell. The first witness this morning will be Mr. Saul. 

Acting Chairman O'Connell. Do you solemnly swear the testi- 
mony you are about to give in this proceeding will be the truth, the 
whole truth, and nothing but the truth, so help you God ? 

Mr. Saul. I do. 

TESTIMONY OF JOHN PETER SAUL, JR., EXECUTIVE VICE PRESI- 
DENT, SHENANDOAH LIFE INSURANCE CO., ROANOKE, VA. 

SHENANDOAH LITE INSURANCE COMPANY 

Mr. Gesell. Will you state your full name for the record, please, 
sir? 
Mr. Saul. John Peter Saul, Jr. 
Mr. Gesell. You are from Roanoke, Va. ? 
Mr. Saul. Yes, sir. 



1 See Hen rings, Part XII, pp. 6122 and 6131. 

6463 



6464 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Are you connected with the Shenandoah Life Insur- 
ance Co.? 

Mr. Saul. I am. I am executive vice president. 

Mr. Gesell. The company's home offices are at Roanoke, are they ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Will you tell us a little about the company, when it 
was organized? In 1914 — is that correct? 

Mr. Saul. It was organized in 1914 and '15, during the period in 
which the stock was placed, and began business in 1916. 

Mr. Gesell. It is a Virginia corporation? 

Mr. Saul. Yes, sir. . 

Mr. Gesell. At the time it was organized it had authorized capi- 
tal of $500,000, did it not? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Value of shares, par value being $10 a share? 

Mr. Saul. Yes, sir. 

Mr. Gese.ll. What was the original paid-in capital? 

Mr. Saul. $500,000. 

Mr. Gesell. Was that all paid in by 1916 ? 

Mr. Saul. No ; that was completed about 192J. 

Mr. Gesell. The company began business with the paid-in capital 
of around $121,000; did it not? 

Mr. Saul. Something like that, when it first began operation; yes 
sir. 

Mr. Gesell. Who organized the company, Mr. Saul? 

Mr. Saul. You mean the names of the original officers ? 

Mr. Gesell. Yes. 

Mr. Saul. R. H. Angell of Roanoke was the founder and president 
of the company until his death in 1933. Senator W. Andrews was 
the secretary-treasurer of the company from its organization until 
1932. Those two were the guiding spirits of the corporation from its 
inception. 

Mr. Gesell. When did you come with the company ? 

Mr. Saul. I was elected vice president and general counsel in 
March 1930. 

Mr. Gesell. Were you associated with the company before that 
time? 

Mr. Saul. I was a director of the company for several years prior 
to that time. 

Mr. Gesell. Is my understanding correct that the company writes 
only ordinary insurance ? 

Mr. Saul. It writes only ordinary insurance including in that des- 
ignation group insurance. We do not have any industrial insurance. 

Mr. Gesell. What was the premium income of the company last 
year. Do you have that in mind? 

Mr. Saul. I do not, Mr. Gesell. 

Mr. Gesell. Was it about $2,797,000? 

Mr. Saul. Yes ; that is approximately the figure I recall. 

Mr. Gesell. How much ordinary life insurance, exclusive of group, 
has the company in force at the present time ? 

Mr. Saul. Approximately 60 millions of dollars. 

Mr. Gesell. And about 17 of that is life and about 29 endowment ; 
i that correct? 

. L. Saul. Yes sir; I think that is correct. 



CONCENTRATION OF ECONOMIC POWER 6465 

Mr. Gesell. How much group insurance has the company in force 
at the present time ? 
Mr. Saul. Approximately 115 to 120 millions. 

Mr. Gesell. The group insurance of the company is its biggest 
single line of business ; is that correct ? 
Mr. Saul. Yes, sir. 

Mr. Gesell. In how many States does the company do business ? 
Mr. Saul. Fourteen. 

Mr. Gesell. Can you name the principal States in which it is 
active ? 

Mr. Saul. Yes. Beginning in the east, Massachusetts, Maryland, 
the District of Columbia, Virginia, North and South Carolina, Geor- 
gia, Alabama, Tennessee, West Virginia, and Florida. 

Mr. Gesell. Is it correct to say that your activities are greatest in 
the District of Columbia? 

Mr. Saul. No ; except that the District is considered the headquar- 
ters of the group association welfare organization where we carry 
the master policy. Ordinary business is gathered from Virginia, 
West Virginia, Tennessee, and North Carolina. 

Mr. Gesell. And your group business is written mostly on the lives 
of employees of the Federal Government ; is that correct ? 
Mr. Saul. Yes, sir ; that is right. 

Mr. Gesell. Am I right in saying that your company now insures 
approximately 16 associations of Federal employees covering about 
84,000 lives? 
Mr. Saul. That is right. 

Mr. Gesell. Can you tell us a little of what kind of group policy it 
is that your company writes on these associations of Federal em- 
ployees? 

Mr7 Saul. It is an association of voluntary organizations of Federal 
employees in the different governmental departments. They elect 
their own officers and board of directors and membership in the asso- 
ciations is paid monthly in dues. The association applied to the 
Shenandoah Life for a master group policy, which was issued, and 
individual certificates issued to the members of the association — that 
is, such members as are insurable according to the generally estab- 
lished practice of group insurance. We now obtain evidence of insur- 
ability on all members coming into the association which are included 
in the group policy. 

Mr. Gesell. Do you recognize this statement, which I hand you, as 
statement of the various Federal associations insured with your com- 
pany as of the date indicated on that schedule ? 

Mr. Saul. Yes, sir; this was prepared by Mr. Henry E. Thomas, 
vice president, in charge of group insurance. 
Mr. Gesell. I should like to offer this for the record. 
Acting Chairman O'Connell. To be inserted for the record. 
(The statement referred to was marked "Exhibit No. 1120" and is 
included in the appendix on p. 6971.) 

Mr. Gesell. My understanding is that the Shenandoah Life Insur- 
ance Co. was a stock company up until what date ? 
Mr. Saul. May 1934. 

Mr. Gesell. And in May 1934 the company undertook steps to 
mutualize? 
Mr. Saul. That is right. 



6466 CONCENTRATION OF ECONOMIC POWER 

Mr Gesell. Prior to May 1934, in the years immediately prior 
thereto, can you tell us who the principal executive officers ot the 

C °Mr an SA^ r They were K. H. Angell, president, until his death in 
November 1933, succeeding him former Gov. E. Lee Trinkle was 
elected president. I was elected executive vice president and general 
counsel. Mr. A. G. Decker was treasurer, succeeding Senator W. U. 
Andrews, who was secretary-treasurer from the inception of the com- 
pany until 1932. The medical director was, and has always been the 
same individual, Dr. J. H. Dunkley; agency manager and vice presi- 
dent in charge of agency is Charles Edward, who has been such 
since 1928. 

SHENANDOAH — LOANS TO OFFICERS AND DIRECTORS 

Mr. Gesell. Am I correct in saying that from time to time during 
the history of the company the company loaned money on collateral 
to some of its officers and directors or to companies in which the 
officers and directors were interested ? 
Mr. Saul. It did. 

Mr. Gesell. My understanding is that the Virginia law did not 
prohibit such loans until what date? 

Mr. Saul. Until March 1934; since which date, of course, no loans 
have been made to officers or directors. 

Mr. Gesell. Do you recognize this schedule, which I show you, as a 
schedule of collateral loans made to officers, directors, or corporations 
in which officers and directors were interested commencing January 
1929? x 

Mr. Saul. That is right; it was gotten up by our accounting de- 
partment. 

Mr. Gesell. I would like to run down with you now, if I may, the 
connection of the various individuals shown on this schedule with 
the Shenandoah Life Insurance Co. I notice your own name there. 
You borrowed money on several occasions, did you not ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Angell, whose name appears there, was president and 
director; is that correct? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Mr. Andrews, whose name appears on that list as 
borrowing on occasion, was secretary, treasurer, and director? 

Mr. Saul. That is right. 

Mr. Gesell. Mr. Dunkley, whose name appear^ on the list, was 
medical director and director; is that correct? 

Mr. Saul. That is right. 

Mr. Gesell. Mr. Henson? 

Mr. Saul. He was director and general counsel. 

Mr. Gesell. I notice Mr. Hughes T. Angell. Is he the son of 
Mr. R. H. Angell, the president? 

Mr. Saul. Yes, sir. 

Mr. Gesell. I notice that there is shown on that schedule a loan 
to the Oakland Corporation. Am I correct in saying that Mr. Dunk- 
ley was interested in that corporation as an officer and director? 

'Entered lata Ms "Exhibit No. 1121." See appendix, p. 6971. 



CONCENTRATION OF ECONOMIC POWER 6467 

Mr. Saul. I don't know that he was an officer. He was interested 
in it. It was a real-estate company in Roanoke owned principally by 
a man named Collier and some others, but Dr. Dunkley had some 
interest in it and that is the reason it is set out here. 

Mr. Gesell. Were any other officers or directors of the Shenandoah 
Co. interested in that? 

Mr. Saul. Yes, sir ; T. J. Hughes. 

Mr. Gesell. Now, I notice also several loans here to Dunkley and 
Saul. Those names are the names of yourself and Dr. Dunkley 1 ; is 
that correct? , 

Mr. Saul. That is right. 

Mr. Gesell. Was that a partnership ? 

Mr. Saul. No; just some trade we were making at the time. 

Mr. Gesell. Making it together? 

Mr. Saul. Yes, sir. 

Mr. Gesell. And those loans were made jointly to you two gentle- 
men in those cases? 

Mr. Saul. That is right ; all of which were fully paid. 

Mr. Gesell. Now, I notice a loan to Mr. Rieves S. Brown. He was 
a director, was he? 

Mr. Saul. Yes, sir. 

Mr. Gesell. I notice a loan to the Central Manufacturing Co. Am 
I correct in saying that Mr. Angell was connected with that company ? 

Mr. Saul. That is right ; he owned the whole company. 

Mr. Gesell. What kind of a company was that ? 

Mr. Saul. Lumber, mill work. 

Mr. Gesell. And that was his company ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. I notice a loan to Mr. L. S. Davis. Was he a director ? 

Mr. Saul. He was a director; yes, sir; and treasurer of Roanoke 
City at the time. 

Mr. Gesell. I notice a loan to Mrs. Mary J. Andrews. Am I cor- 
rect that she was the wife of Mr.-W. L. Andrews, the director of the 
company ? 

Mr. Saul. That is correct. 

Mr. Gesell. Mr. T. J. Hughes you have already mentioned, have 
you not, as being a director? 

Mr. Saul. Yes, sir. 

Mr. Gesell. I notice a loan to the Foundation Finance Corpora- 
tion. 

Mr. Saul. Yes, sir. 

Mr. Gesell. Can you tell us who are the officers? 

Mr. Saul. Mr. Angell, Governor Trinkle, and Dr. Dunkley. 

Mr. Gesell. What kind of company was that ? 

Mr. Saul. It was a little holding company that bought and sold 
stock and some real estate and things of that sort. 

Mr. Gesell. It was interested in real-estate ventures in Roanoke; 
is that correct? 

Mr. Saul. It is hardly correct to say it was interested in real-estate 
ventures. It- really acquired only one piece of property, which it still 
owns. 

Mr. Gesell. This loan was made to the corporation to help it fi- 
nance that piece of property ; is that correct ? 

Mr. Saul. No; it was in connection with some other matters, not 
the real-estate item. 



6468 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What other business was the finance company in? 
Mr. Saul. It bought some stock of the Shenandoah Life Insurance 
Co. I think that is the principal stock that it ever owned. 

Mr. Gesell. Was the loan to the corporation to assist it in pur- 
chasing that stock? 
Mr. Saul. That is my recollection; yes, sir. 
Mr. Gesell. Do you remember how much stock was involved? 
Mr. Saul. No, I don't, Mr. Gesell. 

Mr. Gesell. Mr. Charles E. Ward — was he an officer and director 
of the company ? 
Mr. Saul. Yes, sir. 

Mr. Gesell. I notice the name Elizabeth H. Saul. Is that your 
wife, Mr. Saul? 
Mr. Saul. That is correct. 

Mr. Gesell. I notice a loan to M. F. Weaver et al. Is that a com- 
pany ? 

Mr. Saul. No, sir; that is an individual in Roanoke. Mr. Weaver 
worked for Mr. Angell. 
Mr. Gesell. Was the loan made to Mr. Weaver or to Mr. Angell ? 
Mr. Saul. The loan was originally made entirely for the bene- 
fit of Mr. Angell, whose collateral was pledged in payment of the 
debt. 

Mr. Gesell. Did Mr. Weaver's name appear as being the actual 
borrower of that money ? 

Mr. Saul. His name originally did not appear as the original 
maker. 

Mr. Gesell. You mean Mr. Angell's name did not appear? 
Mr. Saul. Mr. Angell's name never appeared except on the stock 
certificates which were placed as collateral. 

Mr. Gesell. Why was this loan to Mr. Angell carried in the name 
of Mr. Weaver? 

Mr. Saul. To prevent it being in Mr. Angell's name. 
Representative Casey. Prevent it from what? 
Mr. Saul. From being in Mr. Angell's name. 

Mr. Gesell. You mean Mr. Angell didn't want it known that he 
was borrowing from the company on this particular occasion, when 
the $5,000 loan was made? 

Mr. Saul. I think that is true. 

Mr. Gesell. And for that reason it was made in Mr. Weaver's 
name ? 

Mr. Saul. It was made in another name ; yes, sir. 
Mr. Gesell. I notice a loan here to Mr. Rieves S. Brown. He is 
a director? 
Mr. Saul. Yes, sir. 

Mr. Gesell. Mr. L. S. Davis — I think we have covered him. He 
is a director ? 
Mr. Saul. Yes. 

Mr. Gesell. A loan to Helen S. Trinkle. Is she the wife of Mr. 
Ely Trinkle, president and director of the company ? 
Mr. Saul. Yes, sir. 

Mr. Gesell. Now, I notice a loan to the Virginia Lumber Manu- 
facturing Co. Was any officer or director interested in the Virginia 
Lumber Manufacturing Co.? 

Mr. Saul. Mr. Angell owned the entire .company. • 



CONCENTRATION OF ECONOMIC POWER 6469 

Mr. Gesell. I notice a loan to R. S. Brown, Jr., Inc. Is that the 
company owned by Mr. Brown, the director ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Now, I notice another loan here of $5,000 in 1932 to 
Mr. M. F. Weaver. Was that again a loan which was made in Mr. 
Weaver's name for the sole benefit of Mr. Angell ? 

Mr. Saul. I will have to look at the exhibit I gave you this morn- 
ing to see what the collateral is. 

Yes, sir; that loan was made to Mr. Weaver, with mortgage notes 
as collateral, but for the benefit of Mr. Angell. 

Mr. Gesell. Was that loan made, as the other loan was made, to 
conceal the fact that Mr. Angell was borrowing from the company ? 

Mr. Saul. I think it was; yes, sir. 

Mr. Gesell. 1 believe you said the Central Manufacturing Co. was 
a company in which Mr. Angell was interested'? 

Mr. Saul. He owned the entire company. 

Mr. Gesell. Coming down a little lower on the schedule, I notice 
three additional loans to Mr. M. F. Weaver, one for $1,500, one for 
$1,871.21, and one for $1,000, made during 1933, Nos. 318, 319, and 
320 on the schedule before you, were those again loans which were 
carried in Mr. Weaver's name, but made for the benefit, solely, of 
Mr. Angell? 

Mr. Saul. Yes, sir; for Mr. Angell or his company, the Central 
Manufacturing Co. 

Mr. Gesell. Again I notice a loan, No. 322, of $2,000, to Mr. 
Weaver. Is that again a loan which was in reality made for Mr. 
Angell and for his benefit? 

Mr. Saul. Yes, sir. 

Mr. Gesell. And the one of $1,000 which appears right below 
that was also made in the same manner ; is that correct ? 

Mr. Saul. That is right. 

Mr. Gesell. Now, if you will refer to the schedule which I hand 
you, I would like to discuss some of the collateral against these 
loans. I notice in the case of loan No. 193, which was made to your- 
self, what was the amount of that loan? 

Mr. Saul. $4,750. 

Mr. Gesell. I notice that the security for that was a life-insurance 
policy. That was the only collateral; was it? 

Mr. Saul. The record shows life-insurance policies. 

Mr. Gesell. Policies were the only collateral? 

Mr. Saul. Yes. I don't recall now — it was made 10 years ago — 
why it was not made as a policy loan on the policies, but if you will 
observe it ran just a few months. It was got on January 4 and paid 
off on August 24 of the same year. 

Mr. Gesell. Were those term policies taken out to cover the 
loan? 

Mr. Saul. Oh, no; they were policies that I held on which the 
cash-surrender value exceeded the amount of the loan. 

Mr. Gesell. Were they policies in the Shenandoah? 

Mr. Saul. -I don't recall, Mr. Gesell, whether they were or not, 
but I can say to you that the cash-surrender value of the policies 
exceeded the amount of the loan at the time it was made. As I say, 
I don't recall why policy loans weren't made on the policies, instead 
of making collateral loans. In any event, it was discharged. 



6470 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I notice another loan, No. 195, to yourself. What is 
the amount of that loan? 
Mr. Saul. $3,500. 

Mr. Gesell. The security shown is negotiable notes? 
Mr. Saul. They were mortgage notes amounting to $4,722.64 
against a loan of $3,500. 

Mr. Gesell. And the loan to Mr. Andrews, shown as No. 214i/ 2 
on the schedule, where the collateral is shown as -negotiable notes; 
was again mortgage notes; was it? 

Mr. Saul. They were mortgage notes, because we could take noth- 
ing but mortgage notes and never did. Which loan was that, Mr. 
Gesell? 

Mr. Gesell. No. 214i/ 2 . 

Mr. Saul. Yes; they were mortgage notes; I am sure. 
Mr. Gesell. I notice in several cases that the securities of three 
local banks in Roanoke appear to have been pledged as collateral 
against these various loans of the officers and directors. Were the 
officers and directors interested in those banks in any way other 
than as stockholders? 

Mr. Saul. Yes, sir. Mr. Angell was the president of the Colonial 
American Bank, in which he owned a very large interest. He was 
also president of the Liberty Trust Co., in which he owned a very 
large interest, and the Shenandoah Life Insurance Co. itself owned 
a large interest in the Liberty Trust Co. and did own a substantial 
block of the stock in the Colonial American. Bank. 

Mr. Gesell. Do you believe it is correct that, by and large, on these 
collateral loans the collateral was either stocks on local companies in 
and around Roanoke, Va., or notes or bonds covering real estate in ' 
that area? 
Mr. Saul. That is correct. 

Mr. Gesell. But very rarely did you find any collateral which could 
be classified as New York Stock Exchange collateral or anything of 
that sort? 
Mr. Saul. No, sir ; very little of that floats around in the small cities. 
Mr. Gesell. In several cases the collateral against the loans was 
securities of companies in which the officers and directors were inter- 
ested ; is that not true ? 
Mr. Saul. Yes, sir. 

Mr. Gesell. I notice one loan there of yours, No. 268, was partially 
secured by some stock in a cemetery. Do you notice that loan? 
- Mr. Saul. Yes, sir. 

Mr. Gesell. Were those cemetery lots or was that cemetery stock? 
Mr. Saul. That was stock in a cemetery at Martinsville, Va. 
Mr. Gesell. At the time these loans were made, Mr. Saul, who valued 
the collateral? 
Mr. Saul. The managing committee. 

Mr. Gesell.. Who were the members of the managing committee 
during this period we are discussing? 

Mr. Saul. The managing committee was composed of Mr. Angell, 
the president ; Mr. Andrews, the secretary-treasurer ; Dr. Dunkley the 
medical director; Governor Trinkle, vice president; Judge W. J. Hen- 
son, general counsel. 

Mr. Gesell. Were you on the committee ? 



CONCENTRATION OF ECONOMIC POWER (547 \ 

Mr. Saul. I will get to that in a moment ; and one member of the 
board of directors designated to sit with the managing committee, who, 
until 1930 or 1931, was a director named J. T. Bannady — a local direc- 
tor. After I was elected an officer and vice president and general 
counsel, I became a member of the managing committee. 

Mr. Gesell. So that the managing committee was made up, in all 
but one case at least, of persons who themselves were borrowing money 
from the company ? 

Mr. Saul. Among others ; yes, sir. 

Mr. Gesell. And you say these loans were approved by the manag- 
ing committee and the collateral valued by them ? 

Mr. Saul. Well, yes. 

Mr. Gesell. What was the procedure in a case where a loan was to 
be made to a member of the managing committee ? Did he participate 
in the discussions leading up to the loan ? 

Mr. Saul. No. The stock were pretty well known, bank stocks 
and things of that sort. There was a local market for them and 
those values were used. 

Mr. Gesell. Did the directors — let's say in the case of Mr. Angell, 
when he was sitting on the managing committee and a loan was made 
to him would he participate in the discussions of the managing com- 
mittee leading up to that loan ? 

Mr. Saul. He never participated in any vote or question of passing 
upon them, and all of the loans made by the managing committee 
between sessions of the board were read and approved by the board of 
directors at the next ensuing meeting of the board. 

Mr. Gesell. Were there also mortgage loans made to some of the 
officers and directors? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Can you tell us from this sheet to whom the mortgage 
loans were made and the amounts of such loans ? 

Mr. Saul. I will be glad to. Shall I read them seriatim ? 

Mr. Gesell. If you would ; please, sir. 

Mr. Saul. Covington Home Building Corporation, made in July 
1929, $150,000. It was paid in May 1936 in full. The relationship 
of that loan to an officer or director was that it was owned by R. H. 
Angell. 

An apartment house in Martinsville, Va., amount of loan $5,000, 
made in 1929, paid in full in 1936, which was owned principally by 
R. S. Brown, a director. 

Central Manufacturing Co., $2,500, made in 1930, discharged in 1939, 
in which R. H. Angell' was interested. 

Mr. T. J. Hughes, mortgage loan on his residence, amount $7,000, 
still in force, with a reduction of principal. Dr. Hughes is a director. 

R. S. Brown, $25,000, made in 1930, paid in 1933 in full. Mr. 
Brown is a director. 

R. S. Brown, Jr., Inc., a mortgage on property in Martinsville, Va., 
amount $20,000, made in 1930, discharged in 1933 in part, and a por- 
tion thereof is still outstanding. 

Mr. Gesell. How much is still outstanding ? 

Mr. Saul. The loan was originally $20,000. The balance is now 
$15,918. The security is three times the amount of the loan. Mr. 
Brown is a director. 



6472 CONCENTRATION OF ECONOMIC POWER 

W. J. Henson, on a dwelling in Koanoke, made in 1930, discharged 
in 1934 except as to $1,300. Judge Henson was general counsel and 
director. 

Mrs. E. H. Saul, dwelling, $3,500, made in 1931, discharged in 
1934 in full. She is the wife of the speaker. 

J. H. Dunkley, $2,250, made in 1931, still in force. Dr. Dunkley 

Ethel K. Spence, mortgage loan of $17,500, made in 1932, still 
in force as to a portion of the principal. She is a sister-in-law of 
Governor Trinkle who is the president of the company. 

Central Manufacturing Co., $1,500, made in 1933, discharged in 
1939 except as to $90. Central Manufacturing Co. is owned by 
R. H. Angell. Another one to the Central Manufacturing Co., $1,800, 
made in 1933, discharged in 1939 in full; the relationship is that 
R. H. Angell owned that company. 

George C. Moomaw, owner of dwelling at Dublin, Va., $1,000, 
made in 1933, discharged in full in 1936. Mr. Moomaw is a di- 
rector. 

L. S. Davis, $2,000 on dwelling made in 1933, discharged 3 months 
thereafter in, 1934, in full. Mr. Davis was a director. 

R. S. Brown, $6,000, made in 1933, discharged in full in 1936. 
Mr. Brown is a director. 

J. P. Saul, Jr., mortgage, $3,000, made in 1934, discharged in full 
in 1937. I am an officer and director. I would like in respect to 
that loan to mention that that was not a new loan, but I gave a 
mortgage on my residence, my home, to secure an unsecured indebted- 
ness held by the company, and ,1 secured it by a mortgage on my 
home and discharged that mortgage in 1937. 

D. A. Dunkley, $3,750, made in 1935, discharged in full in 1938. 
D. A. Dunkley is not an officer or a director, but is a brother of Dr. 
Dunkley, the medical director. 

Mr. Gesell. May I have the schedule of the collateral loans? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Both of the schedules which we were discussing. 

Mr. Saul. This is the carbon that you had. This is the original 
from which the photostat was made. 

Mr. Gesell. I would like to offer at this time for the record the 
schedule setting forth various collateral loans which have been 
discussed with the witness.- This schedule contains a total of 95 
loans and shows, With respect to each, the date made, the date paid, 
and the amount thereof. 

Acting Chairman O'Connell. It will be inserted in the record. 

(The schedule referred to was marked "Exhibit No. 1121" and is 
included in the appendix on p. 6971.) 

Mr. Gesell. I should also like to file with the committee, but not 
fur printing, a more detailed schedule with respect to those loans, 
indicating some information with respect to interest payments and 
the nature of the collateral behind such loans. That schedule was 
prepared from your records, was it not? 

Mr. Saul. Yes, sir. 

Mr. Gbsell. This is not for printing but will be filed with the 
committee. 

Acting CI. airman O'Connell. It will be filed with the committee. 



CONCENTRATION OF ECONOMIC POWER 6473 

(The schedule referred to was marked "Exhibit 1122" and is on file 
with the committee.) 

The Vice Chairman. How much were the loans? 

Mr. Gesell. I believe they totaled in excess of $114,000. I was 
about to question the witness with respect to the greatest amount out- 
standing at any time. That, of course, would not be the greatest 
amount. Mr. Saul, can you tell us what approximately the greatest 
amount of collateral obligations to Shenandoah by its officers and 
directors and corporations, in which officers and directors were in- 
terested, amounted to? 

Mr. Saul. At any one time? 

Mr. Gesell. What the peak was. 

Mr. Saul. I cannot. May I ask the treasurer? 

Mr. Decker. Mr. Saul, I don't believe so. The statement does 
not show those loans where they were made to companies in which 
they were interested. It would have to have considerable bearing 
on that. One other thing, Mr. Gesell, in that schedule, those loans 
were made for a 23-month period, and we knew they were new loans, 
so those loans reappeared time after time. They might have been 
increased slightly, but those loans, while you said they totaled several 
hundred thousand dollars, the total outstanding at any one time was 
never that much. 

The Vice Chairman. What was the title, please? 

Mr. Decker. Treasurer. 

Mr. Gesell. Our computations from the schedule which was intro- 
duced, Mr. Saul, would indicate that the greatest amount of loans 
outstanding as shown on that schedule was some time during March 
of 19'33, when those loans totaled as high as $330,000. Would you 
say that was approximately correct? 

Mr. Saul. Yes, sir ; I would say that March 1933 was the peak time 
of the collateral loans in force. 

Mr. Gesell. And, at that time there were about $330,000 of loans 
outstanding ? 

Mr. Saul. On December 31, 1933, the abbreviated financial state- 
ment of the company shows a collateral loan account total of 
$399,516.68. Probably that may have been increased a little by 
March, as you suggest. No; I believe you said March 1933. This 
December 1933. Undoubtedly, 1933 was the peak time. 

Mr. Gesell. Most of the loans at all times have been loans to 
persons interested in the company as directors or officers ? 

Mr. Saul. Most of the loans have, though not exclusively, of 'course. 

The Vice Chairman. Were there some loans direct to these vari- 
ous companies in which directors and officers were interested? 

Mr. Saul. Yes, sir. 

The Vice Chairman. Would your figure of three-hundred-odd 
thousand dollars include loans to companies direct in which officers 
and directors are interested? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Those loans are shown on the schedule which was 
introduced and the figures you are reading, those are all loans? 

Mr. Saul. Yes; which, of course, is in excess to loans of directors 
and companies in which they were interested. 



6474 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. You would agree, would you not, Mr. Saul, that in 
1933 the collateral loans to officers and directors and their companies 
exceeded $300,000? 

Mr. Saul. I suspect it did, sir. 

Mr. Gesell. That is a computation easily made from the schedules. 

Mr. Saul. Yes. 

Mr. Gesell. Those schedules indicate' that as of November 15, 1933, 
the outstanding loans totaled $330,946.58. 

Mr. Saul. A large majority, whatever the computation shows as to 
percentages. 

Mr. Gesell. Now, am I correct in saying that since that time the 
company has reduced the amount of such loans substantially ? 

Mr. Saul. Oh, very materially. 

Mr. Gesell. What is the total amount of loans now outstanding to 
officers and directors or their companies? 

Mr. Saul. May I speak to the treasurer a minute for that ? 

Mr. Gesell. Here is a schedule which may help you. 

Mr. Saul. As of December 31, 1938, the collateral loan account to 
officers and directors amounted to the following: Direct, $6,679.53; 
indirect, which, of course, covers the corporations and brothers- and 
sisters-in-law and so on, $36,668.67, making a total direct and indirect,* 
of only $43,348.20. 

Mr. Gesell. Now, in the liquidation of these various loans, how 
many loans, or rather what amount of loans was written off ? 

Mr. Saul. None of the direct loans have been charged off, and only 
$2,656.71 ( f the indirect loans have been charged to profit and loss. In 
all cases where the collateral has been exhausted, and a deficiency 
remains, notes of the officers and directors have been taken on which 
monthly payments are received, except in one case which is a corpora- 
tion, that amount involves only $1,700. 

Mr. Gesell. Then there were, as of December 31, 1938, in addition 
to these direct and indirect loans outstanding, certain notes receivable 
held by the company against the obligations of its officers and 
directors? 

Mr. Saul. That is right, which, however, have been of course de- 
ducted from the admitted assets of the company. 

Mr. Gesell. Those notes are carried in the nonadmitted' assets? 

Mr. Saul. That is right. 

Mr. Gesell. Unsecured ? 

Mr. Saul. That is right. 

Mr. Gesell. What did they total as of December 31, 1938 ? 
r ^ Mr. Saul. I am sorry, Mr. Gesell, I can't answer that at present. 
The annual statement shows bills received, deducted from the admitted 
assets in the sum of $79,069.16, which includes all of the notes in ques- 
tion, officers and directors, and deficiencies, but it also includes agents' 
balances evidenced by notes, so I don't know what percent. 1 

Mr. Geseix. You don't know what percentage of that $78,000 repre- 
sents notes from officers and directors of the companies? 

Mr. Saul. I do not, but I would make a guess that probably $15,- 

Mr. Decker. No; I don't think that is right. 

peifi^'oBT? Submlttod Bnd eate ™ d ln th e record as "Exhibit No. 1133." See ap- 



CONCENTRATION OF ECONOMIC POWER 6475 

Mr. Gesell. Can you furnish us with a statement which will show 
exactly how many notes receivable and the amounts thereof are now 
held in the nonadmitted assets, which were held as of the dates we 
have been talking about? x 

Mr. Saul. I will be glad to. 

Mr. Gesell. Now, during the time that these loans were being 
made to the officers and directors, were there any discussions as to 
the propriety of the company loaning its funds to its officers and 
directors? 

Mr. Saul. No; for the reason that Virginia had no statute regu- 
lating the investment of life-insurance company funds, the loans 
were amply secured when made, and, as I say, legal investments and 
with the collateral being good, the loans were considered first-class 
investments. Of course, the stocks went down; you know the story 
about those years, but every loan made by the company io its officers 
and directors was amply secured when made. ^'. 

Mr. Gesell. And there was no discussion as to the propriety of the 
company loaning to its officers and directors? 

Mr. Saul. No; never. 

Mr. Gesell. By and large, can you tell us what the purpose of 
these loans was? Was it to further other ventures in which the 
officers and directors were interested? 

Mr. Saul. I don't think so, except as each individual may have 
been carrying on his own business or activities. There was no con- 
certed design or purpose in them, they were made through the years. 

Mr. Gesell. At the time the loans were made did the managing 
committee inquire of the officer or director who was borrowing as to 
why he wanted to borrow the money and for what purpose? 

Mr. Saul. I think not. Ample security was placed with the note 
for the loan, and I don't beiieve that any particular inquiry was made. 
It is like you go down to the bank and put up sufficient collateral and 
the bank will loan you the money. 

Mr. Gesell. There were cases, of course, where you are quite clear, 
are you not, that the loans were made to further some venture in 
which the particular officer or director was interested outside such 
as the Central Manufacturing Co. in which Angell was interested ? 

Mr. Saul. Oh, yes ; we knew it was for the general purposes of his 
business; that was a very large, and at that time, building supply 
house, and it manufactured lumber. It was a very rich corporation 
during those years. 

Mr. Gesell. In your own case, what was the purpose of borrow- 
ing money from the company? I notice from the schedule that has 
been introduced, some 18 loans which were made from the company 
during this period of 1929 in) varying amounts. 

Mr. Saul. I couldn't tell you, to save my life, the purpose of them 
now. Just in the regular order of things I had occasion to want 
some money. I had the collateral to put up, and I put it up. 

Mr. Gesell. Those loans were for personal purposes, men; they- 
didn't have anything to do with business ventures you were in out- 
side of the company? 

Mr. Saul. No ; I used to be interested in a' great many corporations 
there and directed quite a few banks, and I was quite active and had 
occasion to need money ; and frequently I borrowed from banks and 

1 Subsequently submitted and entered in the record as "Exhibit No. 1133." See ap- 
pendix, p. 6979. 

124491—40 — pt. 13 9 



6476 CONCENTRATION OF ECONOMIC POWER 

sometimes from insurance companies, but I placed collateral that was 
sufficient at the time the loan was made. 

Mr. Gesell. Have you any notes receivable from the company now i 

Mr. Saul. Yes, sir. 

Mr. Gesell. In what amount? . 

Mr. Saul. Approximately ten or eleven thousand dollars, which 
represents the deficiency of the collateral when it was sold in recent 
years, bank stock, and things of that sort. -■,,'. 

Mr. Gesell. Those are notes receivable now held in the nonad- 
mitted assets of the company ? 

Mr. Saul, tfhat is right, on which I pay the interest ea^n month and 
make small payments on the principal. 

Mr. Gesell. You say that these loans were personal, lawful in the 
State of Virginia, and we have already covered the fact that there was 
no law prohibiting them. The State of Virginia did, however, criti- 
cize these loans, did they not, from time to time, at the time the con- 
ventional form reports were made to the company? 1 

Mr. Saul. Yes,^0 ; they criticized the collateral on them after 1932. 
I think that was the first criticism. 

Mr. Gesell. There was also criticism of the mortgage loans, was 
there not? I notice from the report in 1932 on the company, with 
respect to mortgage loans, the report states : 

There are a number of loans included in this amount to officers, directors, 
members of their families, or business enterprises in which they are interested. 
While loans appear to be well secured, the practice of making such loans is open 
to criticism. There are too many examples of the hazard of this practice when 
carried to extremes for our examiners to fail to recommend that such loans now 
held to be substantially curtailed from time to time and that the granting of 
further loans of this type be materially restricted. 

And with respect to collateral loans they again state : 

Loans or obligations of officers or directors or of companies in which officers 
and directors are interested, and notwithstanding the fact the loans are secured 
by sufficient collateral, we feel such investments are not for the best interest of 
the company. Therefore, we suggest the company make every effort to correct 
the condition set forth above and in the future care T)e taken to conform to more 
conservative principles in this class of investment 

Was it in 1932 the State Department first criticized the making of 
such loans? 

Mr. Saul. That is my recollection. Wasn't that the 1932 report? 

Mr. Gesell. Yes. XJur schedule covered loans only since 1929. 
There were loans made from time to time to officers and directors 
prior to 1929 v were there not? 

Mr. Saul. Yes, sir. . 

Mr. Gesell. The company had been making collateral loans to offi- 
cers and directors of its company from the time of its- organization, 
almost, had it 'not? 

Mr. Saul. That is right. 

Mr. Gesell. What action was taken as the result of the criticism of 
the departments in 1932? 

Mr. Saul. There was a more careful examination of the loans that 
were subsequently made, I think, as to the value of the securities, if it 
was a collateral loan or mortgage lo- There have been very few, 
with the exception of those matters which Mr. Angell was inter- 
ested, made since that time, in 1933. 

1 In this connection see also correspondence between the State Corporation Commission 
np i yoX: ,, ;p nd 69S re a r nd 6984. Sbenand0tth - ""^ later BS "^IbitX'llM a^W" 



CONCENTRATION OF ECONOMIC POWER 5477 

Mr. Gesell. I gather there was not a vigorous effort to liquidate the 
loans made immediately. 

Mr. Saul. Well, Mr. Gesell, if you recall, in 1932 and 1933 it was 
pretty hard to get much action on anything. 

Mr. Gesell. I am reading from the report of 1935. I notice the 
report states: 

Included in the collateral loans account are seventeen loans totalling $289,405.09, 
in which officers or directors were interested either directly or indirectly. This 
amount represents approximately 83 percent of the total collateral loans. 

It wasn't until later than 1935 that any liquidation of the loans was 
possible ; is that correct ? 

Mr. Saul. That is right. 

Mr. Gesell. That was because the directors and officers of the Com- 
pany, like many other people at that time, found themselves pressed 
financially. 

Mr. Saul. That is right ; and the stocks ? being local stocks, haci gone 
down to such a point that there was practically no market for them. 

Mr. Gesell. Most of those stocks weren't listed on any exchange, 
were they ? 

Mr. Saul. No, sir. 

Mr. Gesell. They were traded locally there in the over-the-counter 
market. 

Mr. Saul. Most of them were bank stocks of local banks. 

SHENANDOAH — MUTUALIZATION 

Mr. Gesell. I would like to discuss with you, Mr. Saul, the activi- 
ties of the company leading up to and following the mutualization 
which I believe'you said was completed in May of 1934. 

Mr. Saul. Yes, sir. 

Mr. Gesell. During the time prior to '34, did the management in 
control of the company rest with Mr. Angell, Mr. Trinkle, yourself, 
and Dr. Dunkley ? 

Mr. Saul. Very largely ; yes, sir. 

Mr. Gesell. What stock interest do you have, what percentage stock 
interest of the total do you have, approximately, you four gentlemen ? 

Mr. Saul. I imagine we had in the aggregate 15,000 of the 50,000 
shares. 

Mr. Gesell. About 15,000 of the 50,000 shares. 

Mr. Saul. I would say approximately 12,500 to 15,000. 

Mr. Gesell. Are you including Mr. Andrews' holdings in that ? 

Mr. Saul. Yes. sir. 

Mr. Gesell. There were really five officers, then, who had that block 
that you have mentioned, were there not? 

Mr. Saul. Yes, sii. 

Mr. Gesell. Mr. Andrews, Mr. Trinkle, Mr. Angell, Mr. Dunkley, 
and yourself. 

Mr. Saul. That is right. 

Mr. Gesell. With respect to the other shares outstanding, there were 
50,000 shares outstanding in all, were there not ? 

Mr. Saul. That is right. 

Mr. Gesell. How were the other 35,000 shares held, widely ? 

Mr. Saul. Widely, among about eight to nine hundred stockholders. 

Mr. Gesell. About eight to nine hundred stockholders. Now, there 



5478 CONCENTRATION OF ECONOMIC POWER 

was a block of 20,000 shares, was there not, which had for some time 
prior to the mutualization of the company been held m a single place? 

Mr. Saul. That is right. , ^ 

Mr Gesell. Will you tell us a little about that block of 20,000 
shares? Am I correct that Associated Life Companies Inc., a com- 
pany organized by Rogers Caldwell and associates of Tennessee, as 
a life-insurance holding company,- had acquired 20,000 shares? 

Mr. Saul. That is correct. . 

Mr. Gesell. As of what date did they acquire those shares' 

Mr. Saul. As of January 1, 1930. 

Mr. Gesell. And am I correct that none of the officers or directors 
of Shenandoah Life Insurance Co. had any interest in Associated Lite 
Cos., Inc. ? 

Mr. Saul. That is right; none whatever. 

Mr. Gesell. So that in 1930, about, Associated Life Cos., Inc., held 
20,000 shares, and you five officers held in the neighborhood ot 15,000 

Mr. Saul. No, sir; I misunderstood your question, or else I didn't 
make myself clear. The shares owned by the five individuals you 
mentioned awhile ago were included with various other shares which 
were acquired in 1929, in part, and the balance January 1, 1930, which 
constituted the block of 20,000 shares which Rogers Caldwell and his 
associates in the Associated Life Cos., Inc., owned. 

Mr. Gesell. Well, then, the five officers that we have been discussing 
had no stock interest in the company in 1930 except for a few scattered 
shares. 

Mr. Saul. That is right. 

Mr. Gesell. The shares were held by Associated Life Cos., Inc. 

Mr. Saul. That is right. 

The Vice Chairman. You mean the 15,000 shares that you testified 
previously were owned by the five officers of the company were in- 
cluded in the 20,000 shares acquired by the Associated Life Cos.? 

Mr. Saul. That is right. 

Mr. Gesell. So that this control we were talking about rested not 
with the five officers but with Associated Life Cos., Inc., did it not? 

Mr. Saul. No, sir. The 20,000 shares were 40 percent of the capital, 
but when the stock was acquired by Associated Life Cos. it was with 
the understanding that the management would continue the same, 
because it had been successful, and Rogers Caldwell acquired an in- 
terest in several othei insurance companies — Southern, the Missouri 
Life, and several other life-insurance companies — and put all of those 
stock holdings into Associated Life Cos., Inc., with the general idea 
of each company feeding to the other company its reinsurance, and for 
other purposes. 

Mr. Gesell. So that Rogers Caldwell and his associates, through the 
Associated Life Cos., Inc., made it clear that you five gentlemen would 
remain in active charge of the management of the company, though 
the stock interest was held apart from yourselves. 

Mr. Saul. Yes, sir; but that stock interest was not a majority. 

Mr. Gesell. It was about 40 percent. 

Mr. Saul. It was 20 out of 50,000 shares ; yes, sir. 

Mr. Gesell. And you five gentlemen still had at your disposal the 
lis! of stockholders and were in the position to solicit proxies at the 
regular stockholders 9 meetings. 



CONCENTRATION OP ECONOMIC POWER 6479 

Mr. Saul. That is right. 

Mr. Gesell. Am I correct in saying that these 20,000 shares held 
by Associated Life Cos., Inc., for Rogers Caldwell and associates 
was pledged by them with Lehman Brothers in New York? 
Mr. Saul. That is right. 

Mr. Gesell. As collateral against loans from Lehman Bros, to 
Associated Life Cos., Inc.? 
Mr. Saul. That is right. 
Mr. Gesell. Did that loan go into default? 

Mr. Saul. Yes, sir. 

Mr. Gesell. When? 

Mr. Saul. About February 1930 or thereabouts, the crash began in 
October 1929, and Caldwell's far-flung financial interest collapsed 
shortly . thereafter, right after the beginning of 1930. 

Mr. Gesell. So that in the early part of 1930 these 20,000 shares 
rested with Lehman Bros, in New York. 

Mr. Saul. That is right. 

Mr. Gesell. At that time did you and your four associated officers 
undertake to purchase these 20,000 shares from Lehman Bros.? 

Mr. Saul. Yes; after Lehman Bros, had foreclosed under their 
collateral note and acquired the shares themselves. 

Mr. Gesell. And what was your interest in desiring to purchase 
these 20,000 shares? 

Mr. Saul. It was to insure the maintenance and continuance of 
the company in Roanoke and all of the people there involved in posi- 
tions, hundreds of them, and so on. We didn't want that block of 
stock to get into the hands of some interest which might not be 
friendly. 

Mr. Gesell. You wanted to keep the control of the company in 
the Shenandoah Valley, so to speak ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Were you interested in that connection with making 
sure that your position as officers in this company continued? 

Mr. Saul. That would be a very natural interest, I think, and, of 
course, it was present in our case. 

Mr. Gesell. Had Lehman Bros, threatened to put a different man- 
agement into the company ? 

Mr. Saul. No ; they made no suggestion of that sort. 

Mr. Gesell. It was just your feeling that you wanted to prevent 
that occurring in the future ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Did you enter into an agreement — I mean yourself 
and these four others — to purchase the shares from Lehman Bros.? 

Mr. Saul. Yes, sir; on February 25, 1931, that was the Wisconsin 
meeting. 

Mr. Gesell. Am I correct in understanding that the purchase 
price of the stock was $40 a share ? 

Mr. Saul. That is correct. 

Mr. Gesell. That made a total purchase price of $800,000, is that 
correct ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Do I understand that $200,000 was payable down and 
$125,000 payable on or before February 25 of each year, 1932, 1933, 
1934, and 1935? 



6480 CONCENTRATION OF ECONOMIC PUWER 

Mr. Saul. That is right. _ . 

Mr. Gesell. And an additional $100,000 on or before February 

25, 1936? 

Mr. Saul. That is right. 

Mr. Gesell. You and your associates were obligated to pay 2y 2 
percent interest on the unpaid balance,- is that correct? 
Mr. Saul. Yes; semiannually. 

Mr Gesell Did you execute your joint and several notes to Lien- 
man Brothers for this $600,000 after the original $200,000 amount 
had been paid? 
Mr. Saul. Yes, sir. 

Mr Gesell. So that each of you five gentlemen became obligated 
individually and jointly for $600,000? 
Mr. Saul. That is right. 
Mr.- Gesell. That was set out in the terms of the agreement with 

Lehman Brothers to read as follows, was it not , 

Mr. Saul (interposing). We executed our own individual joint 
and several obligations for the balance of the purchase price and 
secured the payment thereof by the deposit of the stock under a 
collateral deposit agreement with Lehman Brothers. Is that what 
you mean, Mr. Gesell? 

Mr. Gesell. You left the stock with them? 
Mr. Saul. Yes, sir. 

Mr. Gesell. Who had the right to vote the stock? 
Mr. Saul. They had the right to vote it if they so desired. They 
never exercised the right during the 1 year that it was outstanding. 
That is, the year from March 1931 — our annual stockholders' meet- 
ing is in March — and 1932. A lot of things happened before 1933. 
Mr. Gesell. We will come to that. 
Mr. Saul. Yes, sir. 

Mr. Gesell. You say Lehman Brothers had a right to vote the 
stock even when your obligation was not in default ? 

Mr. Saul. My recollection is that under the terms of the deposit 
agreement they had the right to do it, but my recollection is they 
never exercised it. 

Mr. Gesell. Am I correct in understanding that if the obligation 
went into default and Lehman Brothers sold the collateral, namely, 
the 20,000 shares, that you and your four associates still remained 
jointly and severally liable for any deficiencies? 
Mr. Saul. Yes, sir. 

The Vice Chairman. Were the notes similar to mortgage notes? 
After the collateral had been liquidated you would still remain liable 
for the balance of the note? 
Mr. Saul. Yes, sir. 

Mr. Gesell. Now, after the discussion of this contract, which you 
said was, when? 

Mr. Saul. February 25, 1932. 

Mr. Gesell. Did you and your fellow officers create the Shenandoah 
Holding Corporation? 

Mr. Saul. Yes. We formed that corporation for the sole and 
express purpose of acquiring this block of 20,000 shares. 

Mr. Gesell. You assigned to that corporation your rights in the 
contract of purchase with Lehman Bros.? 
Mr. Saul. That is right. 



CONCENTRATION OP ECONOMIC POWER 6481 

Mr. Gesell. Was there any public interest in the Shenandoah Hold- 
ing Corporation or was it owned entirely by you five gentlemen ? 

Mr. Saul. It was organized and owned entirely by six of us, Mr. 
W. W. Boxley, of Roanoke city, took some small interest in it, but 
practically speaking, it was owned entirely by the five of us until after 
probably 1 year it had been formed and we offered to let any other 
stockholders of the Shenandoah Life Insurance Co. turn their Shen- 
andoah Life stock into the holding company and receive stock of the 
holding company therefor on a certain basis, which I think was 2y 2 
shares of Shenandoah Life, based on $40 a share, for $100 par value 
of the Shenandoah holding stock. 

Mr. Gesell. During the first days of its existence 

Mr. Saul (interposing). For practical purposes it was owned ex- 
clusively by the five of us. 

Mr. Gesell. In the contract to the Shenandoah Holding Corpora- 
tion you and your fellow officers were not relieved in any way from 
your personal obligations on the notes to Lehman Bros. ? 
Mr. Saul. Not at all ; we were not released or relieved. 
Mr. Gesell. So that even after this assignment, if there had been 
a default on the obligation to Lehman Bros, and a deficiency following 
the sale of the collateral, you gentlemen would still have been per- 
sonally liable? 
Mr. Saul. Yes, sir. 

Mr. Gesell. Can you tell us what interest each of you had in the 
Shenandoah ? 

Mr. Saul. Yes, sir. I subscribed to one-fifth, and Andrews, Trinkle, 
and Dunkley likewise to one-fifth, and Mr. Angell to one-fifth. But 
before the matter went along very far, Senator Andrews asked Mr. 
Angell to take over his fifth, which gave Mr. Angell two-fifths, which 
Angell did. 

Mr. Gesell. In the payment of this original cash payment of 
$200,000, did any of you, in making your percentage contribution to 
that amount, borrow money from the company? 

Mr. Saul. I don't think there was a dime borrowed from the com- 
pany in making up the $200,000 cash payment. 

Mr. Gesell. I notice from the schedule which we introduced pre- 
viously that as of February 25, 1931, there were over $132,000 in col- 
lateral loans outstanding to the officers and directors, including loans 
by some of you gentlemen interested in this particular enterprise. 
None of those loans were for the purpose of helping finance the pur- 
chase of this 20,000 shares of stock? 

Mr. Saul. Not as I recall; I think they were loans previously out- 
standing, Mr. Gesell. 

Mr. Gesell. Then do I understand that the holding company was 
in a position and did meet the $125,000 payment required of it under 
the terms of the agreement on February 25, 1932 ? 
Mr. Saul. That is right. 

Mr. Gesell. So that as of that time you paid for this block of 
20,000 shares $325,000? 
Mr. Saul. That is right, plus interest. 

Mr. Gesell. In making that payment of $125,000 on February 25, 
1932, did you or any of your associates borrow money from the Shen- 
andoah Life Insurance Co. ? 



6482 CONCENTRATION OF ECONOMIC POWER 

Mr. Saul. I couldn't say; we probably did; I will have to refer to 
"the analysis of the collateral loan account. 

Mr. Gesell. You have one before you, have you not ? 

Mr. Saul. Yes. 

Mr. Gesell. From examination of that can you tell us whether you 
borrowed some money at that time to meet that payment? 

Mr. Saul. There were only two loans made at about that time. 

Mr. Gesell. We are talking about the payment 

Mr. Saul (interposing). Yes; I beg your pardon. 

Mr. Gesell. 1 We are talking about $125,000 on February 25, 1932. 

Mr. Saul. Yes. There were some loans made at that time in Jan- 
uary and February of 1932 which were doubtlessly in part in connec- 
tion with that. There were three of them according to this schedule. 

Mr. Gesell. To whom were the loans made and what were the 
amounts. 

Mr. Saul. The one to Dr. Dunkley was made— no; that wouldn't 
be it, that was discharged the next 2 months after it was made. There 
was one to me, $10,000, made January 8, 1932, which I repaid March 
12, 2 months thereafter. That couldn't have been it. I don't know 
what that was; that wasn't used in connection with this payment. 
There is a Shenandoah Holding Corporation' collateral loan No. 
274 for $2,500 paid 2 days before the maturity of that note, made on 
February 23, 1932, repaid in September of that year. That may have 
been used for that purpose ; I don't recall, Mr. Gesell. 

Mr. Gesell. I notice from the schedule of the computations we have 
made that there were about $163,000 of collateral loans outstanding 
to officers and directors, including you five gentlemen, at that time. 
Is it your recollection that any of those loans were made to assist the 
purchase, the meeting of this payment of $125,000? 

Mr. Saul. As I stated, .1 don't think so. 

Mr. Gesell. After that payment had beei\ made, Mr. Saul, am I 
correct in saying that the Shenandoah Holding Corporation sold its 
interest in the contract to Insurance Equities Corporation ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Was Insurance Equities, Inc., another insurance hold- 
ing company which was organized and operated by two men from New 
York, a Mr. Barnes and a Mr. Cohen ? 

Mr. Saul. That is correct; they acquired interest in several different 
'•ompanies. 

Mr. Gesell. You sold your interest to them for $365,000? Is that 
correct ? 

Mr. Saul. In notes, plus the assumption of the balance due Lehman 
Bros. 

Mr. Gesell. They assumed the obligation on the balance due? 

Mr. Saul. That is right. 

Mr. Gesell. Namely, $800,000, less $325,000? 

Mr. Saul. That is right. 

Mr. Gesell. And gave in addition notes for $365,000? 

Mr. Saul. That is right. 

Mr. Gesell. Am I correct in saying that none of the officers or 
directors <>l Shenandoah were interested in this venture of Mr. Barnes 
mid Mr. ( lohen? 

Mr. Saul. None whatever. 



CONCENTRATION OF ECONOMIC POWER 6483 

Mr. Gesell. None of the notes were paid, were they? 

Mr. Saul. Not a dime. 

Mr. Gesell. At what point, then, did Shenandoah foreclose on the 
notes and take back — that is, Shenandoah Holding Corporation — its 
interest in this contract with Lehman Bros. ? 

Mr. Saul. After Insurance Equities defaulted in February '33, 
the Shenandoah Holding Corporation foreclosed under its collateral 
agreement with them by sale of the equity in the contract of sale at 
public auction in New York, and my recollection is that after the 
proper advertising, and so on, had been made, the date was in April 
1933. 

Mr. Gesell. So that by the spring of 1933 Shenandoah Holding 
Corporation again held the contract with Lehman Bros. ? 

Mr. Saul. I didn't understand. 

Mr. Gesell. By spring of 1933 Shenandoah Holding Corporation 
again held the contract with Lehman Bros, to purchase this 20,000 
shares ? 

Mr. Saul. That is right. 

Mr. Gesell. There was a payment due, was there not, on February 
25, 1933? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Of $125,000? 

Mr. Saul. That is right. 

Mr. Gesell. How was that payment financed? 

Mr. Saul. It was financed in part by loan from the Shenandoah 
Life Insurance Co. 

Mr. Gesell. You mean to say that the Shenandoah Holding Corpo- 
ration borrowed money from the Shenandoah Life Insurance Co. in 
order to meet its obligation to Lehman Bros. ? 

Mr. Saul. That is right. 

Mr. Gesell. How much money did it borrow from the life-insur- 
ance company? 

Mr. Saul. $116,000. 

Mr. Gesell. What security did it give for that money? 

Mr. Saul. It gave the $365,000 of notes of the Insurance Equities 
Corporation, plus the personal endorsement of the four of us. 

Mr. Gesell. You gentlemen gave your personal endorsement, plus 
this $365,000 note? 

Mr. Saul. Yes, sir. 

Mr. Gesell. That note was worthless, wasn't it? 

Mr. Saul. It was afterward proved so, but we didn't know it at 
the time. 

Mr. Gesell. They had defaulted to you, had they not ? 

Mr. Saul. No, sir; we were afraid they were going to default 
when we got the loan because we couldn't take any chance on our 
default to Lehman Bros., but Insurance Equities had repeatedly 
assured us up until February 25 that they were going to be in a 
position to make the payment. 

The Vice Chairman. They never paid a dime on it ? 

Mr. Saul. No, sir. 

Acting Chairman O'Connell. Had there ever been any interest 
on the note? 

Mr. Saul. No; there had not been any interest due. 



(5484 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman O'Connell. What kind of note was it? 

Mr. Saul. It was a perfectly good note. Interest was payable 
semiannually. The sale to Insurance Equities was dated August 
31, 1932, so that the first semiannual interest had not matured on 
February 25. s . 

Acting Chairman O'Connell. It didn't mature until February 25? 

Mr. Saul. That is right; but we had heard rumors of the predica- 
ment Insurance Equities was getting in, and notwithstanding their 
statement they would be in a position to meet the payment, we were 
afraid they wouldn't, so we made arrangements to have the cash, and 
we waited until about 2 o'clock in the afternoon and Insurance 
Equities didn't pay and we went down and made the payment. 

Mr. Gesell. So that you had pretty great suspicions right from 
the start, didn't you, that this $365,000 obligation was a worthless 
obligation, as far Insurance Equities was concerned? 

Mr. Saul. From the start? No. 

Mr. Gesell. From the time that you again took back your interest 
in the contract, I mean? 

Mr. Saul. When we actually took back our interest in the con- 
tract, Insurance Equities had collapsed, but at the time we sold to 
them and took their notes they were in very good circumstances. 

Mr. Gesell. How soon after that did you find out the $365,000 
note was worthless? 

Mr. Saul. I would say about the 1st of January; not worthless, 
but that they were getting in a rather precarious financial condition. 

Acting Chairman O'Connell. Mr. Saul, at the time you placed the 
note with the insurance company, the maker, of this note, this corpora- 
tion in New York, was actually in default of its obligation to you 
people; was it not? 

Mr. Saul. I am sorry, I didn't quite get your question. 

Acting Chairman O'Connell. At the time you pledged the $36o,030 
note as your security for a loan from the life-insurance company, the 
maker of the note was actually in default of its obligation to you 
people. 

Mr. Saul. No, sir ; that is what I undertook to make clear just now. 
We felt they were going to be in default. 

Acting Chairman O'Connell. But was it not one of the obligations 
of the maker of the note to make the $125,000 payment on the 25th 
of February that you actually made with the funds of the insurance 
company ? I understood you to say they assumed the obligation 

Mr. Saul. They did. 

Acting Chairman O'Connell. They were in default of that obliga- 
tion, were they not? 

Mr. Saul. Not at the time it was made. 

Acting Chairman O'Connell. But the loan was made for the pur- 
pose of making that payment. 

Mr. Saul. If they did not make it; yes, sir. 

Mr. Gesell. What was the date of the loan? 

Mr. Saul. It was February 22 or 23. 

Mr. Gesell. Just a couple of days before the payment was due? 

Mr. Saul. Yes, sir. 

Mr. Gesell. How did you get back your interest in this contract 
which you had assigned to Insurance Equities if Insurance Equities 
hadn't m Borne way defaulted on the obligation to you? 



CONCENTRATION OF ECONOMIC POWER 6485 

Mr. Saul. After February 25, when they actually did default, 
we then took steps to foreclose under our deposit agreement. 

Mr. Gesell. When did they default? 

Mr. Saul. February 25. 

Mr. Gesell. So you actually worked out this arrangement to meet 
the payment to Lehman Bros, before there had been any default, 
knowing there was to be one on February 25, 1933. 

Mr. Saul. Not knowing, but suspecting very greatly. 

Mr. Gesell. So you also suspected very greatly that the $365,000 
note which you had pledged with the life-insurance company as col- 
lateral for a loan of $116,000 was also going to be in default? 

Mr. Saul. But we considered the stock well worth what was behind 
it at that time. 

Mr. Gesell. Who considered the stock worth what? 

Mr. Saul. We did ; we considered the stock worth what we were 
obligated to pay thereagainst. 

Mr. Gesell. Oh, I can see the advantage of the obligation from 
the point of view of the holding corporation. I was thinking of the 
point of view of the policyholders in the insurance company. What 
did they get when they advanced $116,000 to you gentlemen to enable 
you to acquire in your personal capacities stock interest in the com- 
pany ? They got a worthless note. 

Mr. Saul. As of December 31, 1938, they have gotten all of it, 
except $1,700. 

Mr. Gesell. But we are going to show how that took place, but at 
this time they made a loan of $116,000 to enable you gentlemen to 
buy a stock interest in the company and got in return a $365,000 note 
of doubtful value, plus the signatures of the officers. 

Mr. Saul. Plus the stock of the Shenandoah Life Insurance Co. as 
the security above the balance due. 

Mr. Gesell. You mean you made an assignment of the 20,000 shares 
of stock to the insurance company at this time ? 

Mr. Saul. No, sir; but I think upon the payment of the balance 
due by the holding company agreement on the stock in payment of 
the stock, that was the asset of the maker of the note, the Shenandoah 
Holding Corporation. 

Mr. Gesell. But you had still other payments to make before you 
acquired the stock. 

Mr. Saul. Yes, sir. 

Mr. Gesell. So you didn't have it at the time the loan was made. 

Mr. Saul. No, sir. 

Mr. Gesell. And no prospect that you would be able to acquire it 
through the making of a payment. 

Mr. Saul. We had only the equity in it. 

Mr. Gesell. What was the condition of the company at the time 
this $116,000 loan was made? Was it not a fact that the disburse- 
ments were greater than the income at this time ? 

Mr. Saul. I don't think so. 

Mr. Gesell. May I call your attention to a letter from Mr. Guertin, 
» ctuary of the New Jersey State Department, to Mr. Angell, presi- 
dent of the company, under date of August 3, 1933. He said [read- 
ing from "Exhibit No. 1123"] : 

We are in receipt of the semi-annual statement of your company for the six 
months' ending June 30<h, 1933. It is noted from this statement that during a 



g486 CONCENTRATION OF ECONOMIC POWER 

period when disbursements continued to exceed income and your company was 
operating under restrictions for the benefit of conserving its liquid position, your 
company increased its outstanding collateral loans by approximately $100,000 
which increase was caused by a loan of $116,675.58 to the Shenandoah Holding 
Corporation on the security of certain notes of Insurance Equities Corporation. 

Does that refresh your recollection as to the condition of the com- 
pany at that time? 

Mr. Saul. Mr. Guertin says the statement for the first 6 months, of 
1933 shows disbursements exceeded income and he doubtless is correct 
because he got the information from the treasurer of the company, 
but I wasn't under the impression that for any year the disbursements 
exceeded the income. Now when that loan was charged off, that is, 
taken out of the admitted' assets of the company, I just don't recall 
whether in any year, for the year, there has ever been an excess of 
disbursements over income. 

Mr. Gesell. He points out rather sharply here that at the time 
you made this loan your company required a very liquid condi- 
tion because its disbursements were greater than income; did he not? 

Mr. Saul. For the first 6 months. 

Mr. Gesell. His letter goes on to say [reading further from "Ex- 
hibit No. 1123"] : t , 

It is noted that other collateral loans have been made and that certain others, 
although overdue, have not been paid. Please furnish us with a complete list 
of borrowers who have any connection with your company whatsoever by way 
of stockholdings, directorships, or executive office holding. In view of the 
fact that the income of your company continues to be less than its disburse- 
ments it does not appear entitled to use • Convention values in the valuation 
of securities. 

I gather from that letter that the company was in rather serious 
financial condition at the time this $116,000 loan was made. j •>*' 

Mr. Saul. It was not so considered by either us or the Virginia 
Insurance Department. There has never been any question about 
the solvency of the company. 

Mr. Gesell. You recognize that as a letter which was received ; do 
you not ? 

Mr. Saul. Yes. 

Mr. Gesell. I should like to offer it for the record. 

Acting Chairman O'Connell. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1123" and is 
included in the appendix on p. 6973.) 

Mr. Gesell. What happened in New Jersey, did you withdraw 
from New Jersey? 

Mr. Saul. Yes, sir. 

Mr. Gesell. When ? 

Mr. Saul. At the end of '33. 

Mr. Gesell. At the end of that year you withdrew from doing 
business in New Jersey? 

Mr. Saul. Yes, sir. 

Mr. Gesell. What was the surplus of the company at or about the 
time this loan of $116,000 was made? 

Mr. Saul. As at December 31, 1932, which is 2 months prior to 
lue time the loan was made, the capital of the company was $500,000, 
the surplus was $500,000, and a special reserve for all other liabilities 
of $86,000. 



CONCENTRATION OF ECONOMIC POWER 6487 

Mr. Gesell. The next payment came due in February of 1934; 
did it not? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Was the Shenandoah Holding Corporation in a posi- 
tion to meet that payment? 

Mr. Saul. No, sir. 

Mr. Gesell. If the payment had not been made you and your five 
fellow officers would have been obligated ; would you not, personally ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. In what amount? 

Mr. Saul. In the unpaid balance of $350,000. 

Mr. Gesell. Each of you would have had that as a personal 
obligation ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Was it at this time that it was decided to change the 
company from a stock company to a mutual company ? 

Mr. Saul. That suggestion was made to us in January '34. The 
Virginia legislature was in session and with the aid and sponsorship 
of the Virginia Insurance Department and the State Corporation 
Commissioner, it was decided to enact in Virginia a statute for con- 
version of a stock insurance company into a mutual life insurance 
company, based on the similar statutes in the State of New York and 
New Jersey. 

Mr. Gesell. That was section 4251a of the Virginia Code, entitled 
"Conversion of a Stock Life Insurance Corporation into a Mutual 
Life Insurance Corporation," was it not? 1 

Mr. Saul. Yes, sir. 

Mr. Gesell. What was the date that this section was enacted ? 

Mr. Saul. It wasi enacted at the '34 session and became effective, I 
think, about March of that year. 

Mr. Gesell. About March of 1934? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Did you have anything to do with the drafting of this 
section ? 

Mr. Saul. I had something to do with it ; yes, sir. 

Mr. Gesell. Will you tell us what you did have to do with the 
drafting of this section? 

Mr. Saul. I conferred with the insurance department in Richmond 
several times in reference to it. The act was drawn really by the 
regular draftsmen of the legislature who prepare bills. I conferred 
several times with the examiner of the insurance department and the 
superintendent of the department in connection with it. 

Mr. Gesell. Was this an act which was passed primarily to meet 
the situation of your company? 

Mr. Saul. It was a very helpful act to our company and we re- 
ceived from the legislature the entire cooperation in the passage 
of it. 

Mr. Gesell. So that it was passed for the benefit of your company 
primarily ? 

Mr. Saul. I think it was passed with that view in mind, though it 
was not a special act for our benefit in any sense. 

Mr. Gesell. Who initiated- the passage of any such act as this? 
Was it your company? 



1 Entered laier as "Exhibit No. 1124." See appendix, p. 6974, 



6488 CONCENTRATION OF ECONOMIC POWER 

Mr. Saul. As I stated, I didn't hear of the consideration by the 
insurance department of such a statute in Virginia until it was called 
to my attention by the superintendent of insurance, and it imme- 
diately seemed to be a statute that would be helpful to us, and imme- 
diately we began to do all we could to have it enacted as promptly as 
possible. . . 

Mr. Gesell. You mean that the insurance commissioner was con- 
sidering, in a more or less general way, the possible advisability of 
having some such section that would enable stock companies to 
mutualize? 

Mr. Saul. Yes, sir. . 

Mr. Gesell. And when you heard he had that idea in mind you 
told him how desirable it would be from the point of view of your 
company ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. And thereafter you did what you could to encourage 
the immediate passage of the act? , , . 

Mr. Saul. That is right. He knew that also before I told him, 
and he was very helpful and cooperative in the matter. 

Mr. Gesell. You recognize this as a copy of the statute which was 
enacted at that time ? 

• Mr. Saul. I do. I have a carbon here, Mr. Gesell, I haven't read 
it all, but glancing at it, I imagine it is a correct copy. 

Mr. Gesell. I would like to offer it for the record. 

Acting Chairman O'Connell. It may be printed. 

(The stitute referred to was marked "Exhibit No. 1124" and is 
included in the appendix on p. 6974.) 

Mr. Gesell. Now, the statute provides, does it not, that first of all 
the directors of a company, the majority of the directors, must ap- 
prove the plan to change from stock to mutual company ? 

Mr. £>aul. Yes, sir. 

Mr. Gesell. And then the stockholders must meet and a majority 
of the stockholders must so approve? 

Mr. Saul. Yes, sir. 

Mr. Gesell. Following that, the policyholders have a meeting? 

Mr. Saul. That is right. 

>Mr. Gesell. And the majority of those present — not the majority 
of the policyholders but the majority of those present and voting 
must approve; is that correct? 

Mr. Saul. I have forgotten whether it says a majority or a ma- 
jority of those present. 

Mr. Gesell. I believe you will find it on the first page. 

Mr. Saul. In any event, there was no oppositipn anywhere to it. 
It was practically 99.44 unanimous, both the stockholders and policy- 
holders. 

Mr. Gesell. The statute reads, does it not, "the majority of those 
policyholders who are present and voting must approve?" 

Mr. Saul. I am just looking for it. If you say it does, I am quite 
rare it does. Where is it? 

Acting Chairman O'Connell. It reads [reading from "Exhibit No. 
1124"]: & 

Approved by n majority vote of the policyholders voting at a meeting called 
ror that purpose at which meeting only such policyholders whose insurance 
mi:i 1 1 then he in force. 



CONCENTRATION OF ECONOMIC POWER 6489 

Mr. Saul. Yes. . 

Mr. Gesell. I notice in the statute a special reference to group 
insurance. Is that a special situation that you were anxious to have 
written into the section? , 

Mr. Saul. Yes, sir. It would have been rather impractical to send 
ballots to all certificate holders under master policies, and so we pro- 
vided that the vote of the association holding the master policy should 
cast that ballot. 

Mr. Gesell. Well, now, let me see if I can reconstruct what hap- 
pened in some kind of sequence. Prior to undertaking the mutualiza- 
tion you and your associates owed $350,000 to Lehman Bros. Your 
corporation, the holding company, was also obligated in the amount 
of $116,000, was it not, to the insurance company ? 

Mr. Saul. That's right. 

Mr. Gesell. You were unable to meet the payment of $125,000 which 
fell due in February of 1934 ? 

Mr. Saul. That's right. 

Mr. Gesell. Did you then, therefore, obtain an extension from 
Lehman Bros. ? 

Mr. Saul. We did — an extension until May 15, 1934. 

Mr. Gesell. Then, prior to the time that that extension ran out, 
the act was enacted and became law? 

Mr. Saul. That's right. 

Mr. Gesell. And steps were undertaken pursuant thereto to 
mutualize the company? 

Mr. Saul. Thatfs right. 

Mr. Gesell. Am I correct in saying that the directors of the in- 
surance company met specially on March 8, 1934, and approved the 
plan of mutualization which was then referred to the stockholders? 

Mr. Saul. That is correct. 

Mr. Gesell. And that following that the stockholders held a 
meeting;? 

Mr. Saul. And approved it. 

Mr. Gesell. And approved it, and thereafter there was a meeting 
of policyholders ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. And policyholder approval obtained? 

Mr. Saul. Yes, sir. 

The Vice Chairman. How many policyholders were at that meet- 
ing? _.\ 

Mr. Gesell. There were 777 policyholders present, were there not? 

Mr. Saul. I don't recall. There was aTiotice and proxy sent to 
every policyholder. I don't recall how many proxies were returned 
and how many voted. 

Mr. Gesell. In favor of the resolution for approval, 770; against 
the resolution for approval, 7; total votes cast, 777. 

We will come back to that meeting in a moment. 

Now the plan of mutualization was set out in detail, was it not, 
in the notice sent to both the policyholders and the stockholders? 

Mr. Saul. Yes, sir ; it was. 

Mr. Gesell. Do you recognize this document which I show you 
as the notice of plan sent to the policyholders and the stockholders? 
Mr. Saul. Yes, sir ; it was. 



6490 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Do you recognize this document which I show you as 
the notice of plan sent to the policyholders? 

Mr. Saul. Yes, sir. 

Mr. Gesell. A similar notice was sent to the stockholders, was it not ? 

Mr. Saul. Yes, sir; except that in the notice to the stockholders 
there was special attention called to the fact that the Shenandoah 
Holding Corporation owed this $116,000 to the life-insurance company 
and that the Shenandoah Holding Corporation was largely owned and 
controlled by officers of the Shenandoah Life. We put that in the 
notice, right out in the open, as it went to every stockholder. 

Mr. Gesell. Did you not also advise the policyholders of that fact? 

Mr. Saul. I don't recall. 

Mr. Gesell. It is set forth in the plan of mutualization, I believe. 

Mr. Saul. Yes; with reference to the plan of mutualization, it is. 

Mr. Gesell. In the notice itself ? 

Mr. Saul. In the notice to the stockholders we went into more detail 
about it. 

Mr. Gesell. Will you tell us what the plan of mutualization pro- 
vided for in a general way ? I will insert the entire plan in the record 
and you just give us a general idea of how it was to work. 

Mr. Saul. The general plan of mutualization was that the capital* 
of the company being $500,000 and the surplus $500,000, a total of a 
million dollars — I am just using round figures — and the par value of 
the stock being $10 a share, therefore the book value was $20 per share. 
It was proposed to acquire shares of the company from its stockholders 
at the price of $20 a share payable $15 in cash and a contingent $5 at 
such time as the board of directors, with the approval of the State 
Corporation Commission, which in Virginia has charge of insurance 
matters and banking and so on — and the dividends thereafter declared 
by the board of directors for a period of 15 years. 

Mr. Gesell. Let me see if I understand that before we go on. The 
stockholders were to receive $20 a share, $15 immediately, and $5 at 
a subsequent time ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. And they were to receive in addition dividends declared 
by the insurance company for a period of 15 years ? 

Mr. Saul. Yes, sir. 

Mr. Gesell. The mutualization, then, would not really be completed 
until 15 years from 1934? 

Mr. Saul. It would not if all of the stock had been acquired simul- 
taneously. 

Mr. Gesell. Do I understand that there was a provision that the 
block of 20,000 shares which would be held by Shenandoah Holding 
Co. would be the first block of shares purchased pursuant to the plan 
of mutualization? 

Mr. Saul. That's right; and provided that the purchase .should be 
consummated before May 15, otherwise the plan would not become 
operative. That date of May 15, 1 explained a while ago, is the exten- 
sion date which we received from Lehman Bros. 

Mr. Gesell. In other words, you provided that the plan would go 
by the board entirely unless these 20,000 shares were purchased from 
the holding corporation at the time the holding corporation became 
obligated (o Lehman Bros. 

Mr. Saul. That is correct. 



CONCENTRATION OF ECONOMIC POWER 6491 

Shall I go on? 

Mr. Gesell. Certainly. 

Mr. Saul. Then it further provided that the company could pur- 
chase stock outright, on the open market, at the prevailing market 
price. It provided further that if a stockholder wanted to sell his 
stock to the company, the company could buy it and commute the 
estimated 15-year dividends to accrue to the stockholder ; and it pro- 
vided that after the acquisition of the initial block of 20,000 shares 
from the Shenandoah Holding Corporation that thereafter, except 
as stock might be acquired on the open market under section E of 
article I, the stock would be drawn by lot by the trustees, and, of 
course, the same price paid to each stockholder. 

Mr. Gesell. I would like to offer for the record at this time the 
notice to the policyholders and a complete statement of the plan con- 
tained therein. 

Acting Chairman O'Connell. It may be inserted in the record. 

(The document referred to was marked "Exhibit No. 1125" and is 
included in the appendix on p. 6975.) 

Mr. Gesell. In that notice to policyholders, Mr. Saul, you did not 
advise them, did you, that the execution and carrying out of this 
mutualization plan would result in relieving the officers of this personal 
obligation which they had of some $300,000? 

Mr. Saul. No; I think there is no mention of that made. 

Mr. Gesell. Do I understand that Lehman Bros, agreed to settle for 
$300,000? 

Mr. Saul. They agreed to and did. 

Mr. Gesell. And $300,000 was exactly the purchase price of the 
20,000 shares arranged between the holding corporation and the insur- 
ance company? 

Mr. Saul. That is correct. 

Mr. Gesell. What was the market price of the stock at the time it 
was agreed to purchase the stock at $20 a share ? 

Mr. Saul. The market price was approximately $6 a share, but there 
were very few shares trading hands. The $20 value was fixed, as I 
explained before, because that was the book value of the capital and 
surplus divided into the 50,000 shares. 

Mr. Gesell. Now, in order to get the majority of the stockholders 
necessary to approve this plan, am I correct in saying that you needed 
only approximately 2,001 shares to be obtained by proxy, the manage- 
ment owning or controlling approximately 23,239 snares ? 

Mr. Saul. That is about correct ; yes, sir. 

Mr. Gesell. Were the proxies obtained at this meeting of stock- 
holders solicited by the agents ? 

Mr. Saul. No, sir. 

Mr. Gesell.' They were mailed out to the stockholders? 

Mr. Saul. Mailed out to the stockholders. 

Mr. Gesell. Did you gentleman vote the shares of this company at 
this meeting? 

Mr. Saul. No, sir. 

Mr. Gesell. Who voted the 20,000 shares? 

Mr. Saul. Lehman Bros., gave their proxy to the ohief examiner of 
the State insurance department of the State of Virginia, for 20,000 
shares. 

Mr. Gesell. And he voted the 20,000 shares ? 

124491— 40— pt. 13 10 



0492 CONCENTRATION OP ECONOMIC POWER 

Mr. Saul. Yes, sir. T^hman Bros, had the 

Mr. Gesell. You were quite certain that l^enman r> 

right to vote this stock? 

Mr. Gil thought you had obtained an **™«hl 

Mr Saul We had; nevertheless we were in default, and they said 

they wouldn't sell us out prior to May 15. ™i; PV VmldM-s' meet- 

Mr. Gesell. In the soliciting of proxies for the policyholders meet 

ing were they solicited by the agents? 
Mr. Saul. No, sir. • 

Mr. Gesell. How were they distributed? ,, 

Mr. Saul. They were mailed to each stockholder, to his address 

as shown by our books. 

Mr. Gesell. I said "policyholders. 

Mr. Saul. I meant policyholders. 

Mr. Gesell. They were mailed to each policyholder ! 

Mr. Saul. Yes, sir. , . , ,, v . ,• 9 

Mr Gesell. The agent had nothing to do with the solicitation* 

Mr Saul Not a tlung. There was no solicitation made. 

Mr. Gesell. You simply mailed out the proxies to them* 

Mr. Saul. We mailed out the notice and the plan of mutualization, 

with a proxy. ' ' , . , 

Mr. Gesell. Were you present at the policyholders' meeting ( 

Mr. Saul. Yes, sir. . 

Mr. Gesell. What type of objection was raised by these seven 
policyholders who were against the resolution approving the plan of 
mutualization? Who were they and what were their objections? ■ 

Mr. Saul. As I recall, none of them was in person. They had just 
marked on their proxies, "Vote against the plan !" 

Mr. Gesell. Did you tell the policyholders generally in this notice 
to them that they had a right to disapprove the plan ? 

Mr. Saul. Certainly ; I think so. That was the purpose of it. 

Mr. Gesell. Will you show us where you told them that? 

Mr. Saul. The notice is dated March 26, 1934, addressed to the 
policyholders [reading from "Exhibit No. 1125"] : 

After mature consideration, the Officers and Board of Directors of Shenandoah 
Life Insurance Company decided to convert this stock company into a mutual 
life-insurance company under the Virginia laws in accordance with the Plan 
set out below. This Plan has been submitted to and approved by the Bureau 
of Insurance and Banking of the State Corporation Commission of Virginia, 
nnd has been approved by more than two-thirds of the Stockholders of this 
< lompany. It is herewith submitted to our Policyholders for their approval, as 
required by law. . 

This Plan will not change the terms and conditions of your policy. 

This movement is in keeping with the modern trend in the insurance world 
nnd is similar to the action taken by other progressive stock companies in recent 
years whereby the stock companies became mutual life companies and are now 
owned by their policyholders. In excess of 75 percent of all life insurance 
today is In mutual companies. 

A meeting of the Policyholders of this Company is hereby called for Monday, 
April 30, 1934, at 10 : 30 A. M. o'clock, at the Home Office of the Shenandoah 
Life Insurance Company in Roanoke, Virginia, for the purpose of passing upon 
this Plan to mutualize the Company. 



CONCENTRATION OF ECONOMIC POWER 6493 

Mr. Gesell. You didn't tell them there that they had any right to 
vote in disapproval of the plan. 

Mr. Saul. And the concluding paragraph is [reading further from 
"Exhibit No. 1125"] : 

You, as a Policyholder, are entitled to vote in person, by proxy, or by mail. 
If inconvenient for you to attend the meeting in person and you do not desire 
to vote by mail, you may sign and return the attached proxy. 

Mr. Gesell. The proxy is a proxy in favor of the plan, is it not? 
Mr. Saul. The proxy is attached. 

Mr. Geseld. The proxy is a proxy in favor of the plan ? 
Mr. Saul. I will read the proxy. [Reading further from "Exhi- 
bit No. 1125" :] 

KNOW ALL MEN BY THESE PRESENTS: That the undersigned holder 

of Policy No. issued by the Shenandoah Life Insurance Company 

of Roanoke, Virginia, does hereby constitute and appoint E, Lee Trinkle, J. P. 

Saul, Jr., and Charles E. Ward, or either of them, or . 

my true and lawful proxy to vote upon the Plan to Mutualize said Shenandoah 
Life Insurance Company at the meeting of the Policyholders to be held for 
that purpose at the Home Office of said Shenandoah Life Insurance Company 
in Roanoke, Virginia, at 10 : 30 A. M. o'clock, on Monday, April 30, 1934, or 
at any adjourned meeting thereof, hereby ratifying and confirming all lawful 
acts my said proxy may do by reason of this appointment. 

The point you raise I have never considered. Every notice of a 
stockholders' meeting of any kind, or a policyholders' meeting, stat- 
ing the purpose of it and inviting them to attend and vote to pass 
upon the matter to be passed upon, is all I have ever heard of being 
put in a notice. 

Mr. Gesell. You didn't send. them two proxies, one to vote for 
and one to vote against the plan of mutualization ? 

Mr. Saul. No ; just the regular proxy. 

The Vice Chairman. In the notice to the policyholders you first set 
forth that after due deliberation you had come to the conclusion that 
that was the thing to be done and was in keeping with modern trends 
of insurance companies? 

Mr. Saul. That is right, and that it had to be approved by the 
policyholders to become effective. 

The Vice Chairman. And you didn't say to vote for or against, 
or to approve or disapprove, but just to pass upon this plan. 

Mr. Saul. That's right. 

The Vice Chairman. This mutualization bailed you and your asso- 
ciates out of some $300,000 obligations? 

Mr. Saul. That's right. 

Mr. Gesell. I take it that after the approval of the policyholders 
and stockholders and directors and the State commission had been 
obtained it was then necessary for the company to make arrange- 
ments to pay the $300,000 to the Shenandoah Holding Corporation. 

Mr. Saul. How did the question start? I didn't hear you, Mr. 
Gesell. 

Mr. Gesell. After the approval had been obtained from policy- 
holders, stockholders, directors, and the insurance commission, the 
insurance company then had to make arrangements to pay $300,000 
to the holding corporation. 

Mr. Saul. It did. It paid it to the holding company and the 
holding company then transmitted it to Lehman Bros. 



6494 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Was it necessary for the holding company to borrow 
money in order to pay this $300,000 obligation? 

Mr. Saul. The holding company or the insurance company i 

Mr. Gesell. The insurance company. 

Mr. Saul. I think they borrowed probably a small part of it, rather 
than take it all out of cash. 

Mr. Gesell. They borrowed $150,000, did they not, from three 
banks in Roanoke ? . 

Mr. Saul. I think that was the amount, a temporary loan repaid 
a month or two afterwards. 

Might I say this to the committeeman : You said, and I agree, they 
did bail us out of payment of $350,000 in one sense, but in another 
sense it would have been no trouble on earth for Lehman Bros, to 
have sold that block of 20,000 shares for more than the amount against 
it. We had reduced the price from $800,000 to $350,000 and there was 
only $350,000 against it, and they could readily have sold, as they knew 
and we knew, the block of 20,000 shares for more than that against it. 

Acting Chairman O'Connell. I understood you to say the market 
price on that stock was $6 a share. 

Mr. Saul. That is true, but a financial statement' of an insurance 
company doesn't reflect the value of the millions of dollars it has in 
force on its books, which is a large factor.. 

The Vice Chairman. You would have lost control had Lehman 
Bros, done that ? 

Mr. Saul. We would have lost the 40 percent of the control. 

Mr. Gesell. At the time the insurance company paid this $300,000 
to the holding company the holding company was obligated to the 
insurance company in the amount of $116,000, was it not? 

Mr. Saul. Yes, sir. 

Mr. Gesell. In spite of that fact the payment of $300,000 was 
taken by the holding company and paid to Lehman Bros. for. the 
stock, instead of being used in part to liquidate the indebtedness of 
$116,000. Is that not correct? 

Mr. Saul. It is correct in one sense, but it is not right. 

Mr. Gesell. -What is wrong about it ? 

Mr. Saul. The purpose of the clean-up by the insurance company 
of $300,000 at $20 per share was, as stated in the plan of mutualiza- 
tion, to go to the discharge of the balance due against the stock. It 
couldn't have been used for any other purpose. 

Mr. Gesell. Did the plan specifically provide that the money 
would have to be used for that purpose? 

Mr. Saul. I think so. It was with no other thought. I don't 
recall — I might ask the treasurer whether a check was ever drawn to 
the Shenandoah Holding Corporation and by it endorsed to Lehman 
Brothers, or whether the Shenandoah Life's check was payable di- 
rectly to Lehman Brothers. 

This line, Mr. Gesell, in paragraph (d) of Article I Freadinp; from 
"Exhibit No. 1125"] : 

After the cash payment for said 20,000 shares- shall have been made and used 
In the discharge of the amount due against said shares, all future payments — 

and so on. It is right in the plan. 

Mr. Gesell. So that the plan was drawn in such a manner that 
there would at no time have attached any right to the insurance.com- 



CONCENTRATION OF ECONOMIC POWER 5495 

pany to attempt to collect the obligation of the holding company out 
of the money it paid to the holding company ? 

Mr. Saul. No; it paid exactly the amount necessary to discharge 
the balance due Lehman Brothers. 

Mr. Gesell. There had been some pressure put upon you by the 
Insurance Department to liquidate that $116,000 indebtedness, had 
there not? 
Mr. Saul. Yes, sir ; they asked us to pay it. 

Mr. Gesell. I notice in their '35 report the statement that under 
date of March 17, 1933, the Virginia Insurance Department requested 
the payment of this loan be demanded, and in a letter of the same 
date assurance was given that the loan would be promptly repaid. 
When was this $116,000 loan finally repaid? 

Mr. Saul. $100,000 of it, which represents the contingent $5 per 
share on the 20,000 shares, was paid by the insurance company to the 
holding company by a credit, a ledger, a bookkeeping entry, on or 
about December 30, 1936. 

Mr. Gesell. In other words, the extra $5 on the purchase price 
was credited against the note. 
Mr. Saul. The note; that's it. 
Mr. Gesell. What happened to the $16,000? 

Mr. Saul. The $16,000 has been reduced by the application of divi- 
dends on the stock. The plan provides that all dividends on the 
20,000 shares for the period of 15 years, or rather, within the period 
of 15 years, shall be applied by the insurance company to the liquida- 
tion of that note or any other indebtedness due by the Shenandoah 
Holding to the Shenandoah Life. 

Mr. Gesell. So that the sixteen thousand is being reduced by divi- 
dends which the insurance company is paying. These are being cred- 
ited in the case of the stock owned by the holding company against 
the sixteen thousand obligation? 

Mr. Saul. The owners of the Shenandoah Holding Corporation 
have never received one cent from the total investment put in there 
and will not, of course, until- the full balance of that $16,000, the 
residue of the $116,000 note, shall have been paid in full. 

Mr. Gesell. Do the policyholders yet have any vote, in this com- 
pany? 
Mr. Saul. No, sir. 

Mr. Gesell. The stock is held by trustees; is that correct? 
Mr. Saul. That is correct. As provided in the plan, the stock is 
held by five trustees ; two of them are elected by the stockholders, two 
of whom are elected by the policyholders, and one of whom is ap- 
pointed by the State corporation commission. 

Mr. Gesell. Do the policyholders elect their representative or is 
it not rather that they are appointed representatives of the policy- 
holders ? 

Mr. Saul. That is true. I meant that there are two trustees repre- 
senting policyholders. 
Mr. Gesell. They are not appointed by the policyholders ? 
Mr. Saul. No; they are elected to represent them and are policy- 
holders and are not stockholders. 
Mr. Gesell. Who appoints them? 

Mr. Saul. They were elected at the meeting of the stockholders 
held in 1934, except the representative appointed by the State Cor- 
poration commission. 



6496 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In other words, there are five trustees, one appointed 
by the State commission, four appointed by the stockholders, two to 
represent the stockholders, and two to represent policyholders. 

Mr. Saul. The two policyholders are not stockholders. They are 
large policyholders. 

The Vice Chairman. How many policyholders are there m your 
company, approximately? 

Mr. Saul. Including certificate holders under master policies, there 
is in excess of 100,000. 

Mr. Decker. 1 Twenty-one thousand, I believe, ordinary policy- 
holders. . TIT 

The Vice Chairman. Twenty-one thousand ordinary policyholders? 

Mr. Decker. That is, exclusive of group. 

Mr. Saul. There are approximately 90,000 group -certificate holders 
under master policies. 

The Vice Chairman. That would be a master policy covering a 
group ? 

Mr. Saul. Yes, sir. That is divided, however, into about 16 master 
policies. I think you have a list of them. But the aggregate under 
the 16 master policies, I would say, is about .ninety to a hundred 
thousand. 

Mr. Gesell. Then the trustees appointed by the stockholders to 
represent the policyholders were whom — Mr. Malcolm Kerlin ? 

Mr. Saul. Mr. Malcolm Kerlin is one, and Mr. Robert Lee Lynn, 
of Roanoke, is the other. 

Mr. Gesell. Who are those two individuals? 

Mr. Saul. Mr. Malcolm Kerlin is executive assistant to the Sec- 
retary of Commerce here in Washington. He is a very fine, able man. 
He is on the board of directors of the master group policy issued 
to the Employees' Beneficial Association in the Department of Com- 
merce. 

Mr. Gesell. Has he had any connection with the company in a 
monetary sense at all? 

Mr. Saul. None whatever, not in any way, shape, or form. 

Mr. Gesell. He received no commissions of any kind ? 

Mr. Saul. Not a dime of any kind or character. 

Mr. Gesell. Who is Mr. Lynn? 

Mr. Saul. Mr. Lynn is a businessman in Roanoke, president of 
S. F. Heirsimons Co., the largest department store, probably, between 
Richmond and Knoxville, Tenn., and a very fine, outstanding man in 
our section of the country. 

Mr. Gesell. Has he had any connection with the company in any 
way other than as a policyholder? 

Mr. Saul. Not in any way, shape, or form. 

Mr. Gesell. The trustees vote, do they, in accordance with direc- 
tions given them by the stockholders, or how does that work? 

Mr. Saul. No; they vote just as any stockholder would vote for 
the election of directors. 

Mr. Gesell. They solicit proxies, do they? 

Mr. Saul. No, sir ; they do not. 

Mr. Gesell. How does that work? 

Mr. Saul. The first initial block of 20,000 shares, when it was 
paid for by the company, was transferred from the name in which it 

1 A. G. Decker, treasurer, Shenandoah Life Insurance Company. 



CONCENTRATION OP ECONOMIC POWER 6497 

then stood, Shenandoah Holding Corporation, to these names — not 
itemizing, particularizing, but trustees under the plan of mutualiza- 
tion. Then, as stock has been acquired on the open market — and we 
now have acquired approximately a little over 15,000 shares in addi- 
tion to the original 20,000, making the total already purchased and 
brought in by the company under the plan of mutualization slightly 
over 35,000 of the total of 50,000 — as those shares are acquired they 
are canceled and reissued in the name of the trustees under the plan 
of mutualization, and the trustees now vote, as I say, some 35,000 of 
the shares. 
Mr. Gesell. I have no further questions of this witness. 
Acting Chairman O'Connell. You say the company has acquired 
about 35,000 of the original 50,000 shares ? 
Mr. Saul. Yes, sir. 

Acting Chairman O'Connell. Are you proceeding as rapidly as 
you can, in view of your available cash, to acquire stock? Is that 
the thing that keeps you from acquiring it all ? 

Mr. Saul. Yes, sir. We are prosecuting the plan with all of the 
energy we can. The stock is widely scattered in small blocks, and 
it has been difficult — the stockholders haven't cared especially to sell. 
It has been coming in slowly. We would like to have completed it 
by now, but there is no way to compel a stockholder to sell his stock, 
and we have made every reasonable legitimate effort to induce them 
to sell it to the company under the plan of mutualization. 

Acting Chairman O'Connell. And under the plan each stock- 
holder gets $20 for each share of his stock, and dividends for 15 
years. Is that applicable to all of the stock? 

Mr. Saul. All of the provisions are applicable to all of the stock. 
That is, when we begin drawing by lot, when we have exhausted 
every reasonable means of acquiring it on the open market, we will 
begin drawing it by lot. 

Mr. Gesell. What are you paying for the stock you are acquir- 
ing on the open market? 
Mr. Saul. Now? 
Mr. Gesell. Yes. 

Mr. Saul. We are paying about $17.50 at the moment. The aver- 
age, however, on all the stock that we have acquired, because when 
we first began acquiring it — as soon as this plan of mutualization 
was adopted, within 30 days the price jumped from about $6 to par, 
which was $10. The original order of the State Corporation Com- 
mission authorizing us to purchase it provided for purchase at par, 
but with the company growing as it has, the stockholders wouldn't 
sell because they thought the stock would come back, like other 
insurance companies and bank stocks have to a certain extent. On 
the 35,000 shares acquired, eliminating the original block of 20,000, 
our average cost, I figured up the other day, was $14.49, including 
commissions to the brokers. A large part of that, I may add, was 
purchased several years ago at figures ranging from ten to twelve 
and thirteen dollars, along in there. 

Mr. Gesell. The rise in the price of the stock, I imagine, is not 
attributable to the fact that the company has changed from a stock 
to a mutual plan so much as it has from the fact that the plan 
provides that any stockholder who holds out stands a chance of 
getting $20 a share. 



6498 CONCENTRATION OF ECONOMIC POWER 

Mr. Saul. Both of those things combine, I think, to raise the price. 
•The company has had remarkable success; it is in fine circumstances 
now, and the stockholders know if they hold on to the stock they 
will get a minimum under the plan of mutualization of $20. 

Acting Chairman O'Connell. You say you recently bought stock 
at $17.50. Is there still a liability of $5 a share? 

Mr. Saul. No, sir; that was bought under section (f) of the plan, 
article I, where the stockholder voluntarily sells it through a broker 
to the company and it is extinguished, there are no further rights 
that the stockholder has. The stockholder would rather have $17.50 
now than wait an indefinite time in the hope his name among 800 
will be drawn and he will get $20 a share. 

Acting Chairman O'Connell. Of the stock so far acquired, the 
only stock that has been acquired at the original cost of $15 a share, 
plus the contingent item of five, are the 20,000 shares acquired from 
the holding company. 

Mr. Saul. That is right. This year we have, I would say, 5,000 
shares and as soon as we buy stock at say $17 a share, or $17.50, we 
immediately charge out of our surplus the difference between the 
$17.50 and the par value of 10. In other words, the $17.50 comes 
out of our surplus account and, of course, we don't want to buy too 
fast but we have been buying as fast as we could. 

The Vice Chairman. The change from the stock company to a 
mutual company hasn't altered the fact that you and your associates 
are still the guiding 'and controlling figures. ■ * 

Mr. Saul. That is right. We are still there. 

The Vice Chairman. Have you available a list of policyholders? 

Mr. Saul. No, sir; I haven't it with me. I can, of course, provide 
it. 

The Vice Chairman. Have you at your office an available list of 
policyholders ? 

Mr. Decker. It could be run from our premium plates. 

The Vice Chairman. It hasn't been done as yet? 

Mr. Saul. No, sir. 

Mr. Gesell. Have you and the other officers sold all of your per- 
sonal holdings in this stock pursuant to the plan to change to a 
mutual company? 

Mr. Saul. Most of our personal holdings were sold in 1929, that 
is in this company, and since that time we have practically sold the 
rest of our personal holdings to meet those payments we were speak- 
ing of. 

Mr. Gesell. Did you sell any of your personal holdings pursuant 
to mutualization? 

Mr. Saul. No; we have a distinct agreement among the officers 
that we would not buy any stock, and not a share has been bought 
by any officer. - 

Mr. Gesell. From yourselves? 

Mr. Saul. From ourselves or anybody else since the plan was 
adopted because we didn't think it was the proper thing for the 
officers to be buying it and bidding for it against the company. 
We are trying to get it in for the company and we think we could 
have bought it for $10 or seven or eight dollars after the plan was 
adopted but not one share has been bought by any officer, and will 
not be. 



CONCENTRATION OF ECONOMIC POWER 6499 

Acting Chairman O'Connell. Do any of you own any stock? 

Mr. Saul. Yes; we own some; we don't own a great deal. We 
are hopeful our equity in this 20,000 shares will come in one of 
these days. 

Acting Chairman O'Connell. You don't own the 20,000 shares, 
do you? 

Mr. Saul. No, sir; we don't; but after the indebtedness to the 
Shenandoah Holding Corporation is fully paid with interest to the 
Shenandoah Life Insurance Co., then the dividends for the re- 
mainder of the 15-year period will come to the Shenandoah Holding 
Corporation and, therefore, to us as stockholders. 

Acting Chairman O'Connell. In addition, other than the 20,000 
shares, you officers do own some shares? 

Mir. Saul. Oh, yes ; we have some shares. 

Acting. Chairman O'Connell. Did any of the officers sell any 
shares pursuant to the plan of mutualization ? 

Mr. Saul. No, sir. 

Acting Chairman O'Connell. So all the shares you owned at 
the time of mutualization, you still own? 

Mr. Saul. Yes, sir. None have been acquired since the plan of 
mutualization by any officer. As far as I know none of the officers 
have sold their individual holdings. 

Acting Chairman O'Connell. Stock that you acquire on the open 
market at a price of $17.50, the owner of that stock is entitled to 
dividends for the 15 years. 

Mr. Saul. No, sir. 

Acting Chairman O'Connell. Of the stock you have so far ac- 
quired, as I understand it, only the holding company is entitled to 
dividends for the next 15 years. Is that correct ? 

Mr. Saul. That is right. 

Acting Chairman O'Connell. And when you complete your ac- 
quisition of stock, assuming you continue to acquire it in the way 
you have been acquiring it heretofore, the holders, that is, the owners 
of the holding company, you five gentlemen, will be entitled to all 
the dividends declared by the insurance company for the next 15 
years ? 

Mr. Saul. That is right, but it hasn't been brought out — and I 
would like for it to be brought out — that the holding company pays, 
or is charged with, with the life-insurance company, interest at the 
rate of 4 percent on that $300,000, their initial payment, and now 
since that other $100,000 was credited with interest on $400,000, that 
has to be paid by the dividends before anything can ever go to the 
stockholders. In other words, it wouldn't have been fair for the 
insurance company to have purchased that block of stock from the 
holding company and paid out $300,000 of money in 1934 when other 
stockholders having the same stock did not sell, and then for the 
holding company to get the dividends as well as the other stock- 
holders. So the plan provided that whenever any stock is acquired 
by the company under the first section, as was the first block acquired, 
that the seller shall be charged with 4-percent interest on the pur- 
chase price before any dividends go to him. 

Do I make myself clear ? 

Acting Chairman O'Connell. Yes. 



6500 CONCENTRATION OF ECONOMIC POWER 

Mr. Saul. Because the seller, in such case, has gotten his money and 
used it, whereas the stockholder who hasn't sold, hasn't gotten his 
money, and it wouldn't be fair not to make any distinction between 
them. 

Acting Chairman O'Connell. The only stock ever acquired under 
section 1, was that it? 

Mr. Saul. That was all acquired so. 

Acting Chairman O'Connell. Out of 35,000 shares so far ? 

Mr. Saul. Yes, sir. 

Acting Chairman O'Connell. And those are the only shares upon 
which dividends would be paid, if any, within the next 15 years? 

Mr. Saul. I didn't catch the last. 

Acting Chairman O'Connell. Of the stock so far acquired, the 
stock acquired from the holding company is the only stock that can 
get dividends during the next 15 years? 

Mr. Saul. That is right. 

Acting Chairman O Connell. And the amount of dividends it 
Avill get may be to some extent diminished by the fact that there are 
4 percent interest charges? 

Mr. Saul. It will be diminished by that and the amount of divi- 
dends will depend on what the future brings. 

Mr. Gesell. I have no further questions. 

(The witness, Mr. Saul, was excused.) 

Mr. Gesell. That completes the presentation of any testimony 
during this set of hearings. 

Acting Chairman O'Connell. Thank you, Mr. Gesell, it has been 
\ civ good, and the subcommittee will stand in recess subject to call. 

(Whereupon, at 12 : 45 p. m., an adjournment was taken subject to 
call of the chairman.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



FRIDAY, SEPTEMBER 22, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. G. 

The subcommittee met at 10 : 35 a. m., pursuant to call of the chair- 
man of the subcommittee, in the Caucus Room, Senate Office Build- 
ing, Garland S. Ferguson presiding. 

Present: Garland S. Ferguson, chairman, and Joseph J. O'Con- 
nell, Jr. 

Present also: Gerhard A. Gesell, special counsel, Securities and 
Exchange Commission. 

The Chairman. The committee will come to order. 

Mr. Gesell. I requested the committee to convene this morning 
in order that we could complete the record of the hearings held to 
date. I wish today to submit various schedules and exhibits for the 
record which have been submitted to us by persons who previously 
testified on the stand in accordance with the requests made of them 
while they were testifying. 

First, I have a schedule submitted to us by the New York Life 
Insurance Co. in accordance with a request made to Mr. Buckner, 
chairman of the Board. 1 This schedule reflects the various bank 
deposits of the New York Life Insurance Co. in its principal bank 
accounts and distinguishes between those accounts in banks where di- 
rectors have some interlocking affiliation and those accounts where 
no such affiliation exists. 

The Chairman. It may be received in evidence and inserted in 
the record. 

(The schedule referred to was marked "Exhibit No. 1126" and is 
included ir the appendix facing p. 6978.) 

Mr. Gl^jSLL. When Mr. Chubb was on the stand, a question arose 
as to the amount of premiums received by the Federal Insurance Co. 
on business of the Prudential Insurance Co., and in accordance with 
a request made by the committee, 2 Mr. Chubb has submitted to us a 
schedule showing the amount of thosft premiums and the distribution 
of those premiums as between direct insurance and reinsurance. 

The Chairman. It may be received in evidence and inserted in the 
record. 

(The schedule referred to was marked "Exhibit No. 1127" and is 
included in the appendix on p. 6979.) 



1 See Hearings, Part IV, p. 1431. 
a Ibid., pp. 1481-1483. 



6501 



6502 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In the course of the testimony of Mr. Roberts, of the 
Monumental Life Insurance Co., 1 a question arose as to the amount 
of money which the Monumental Life Insurance Co. had loaned to 
the Real Estate Trust Co. Mr. Roberts stated that he would provide 
the committee with an explanation of those loans, and the circum- 
stances which prompted them. I have to offer for the record two 
letters from Mr. Roberts with respect to this matter, together with a 
letter from myself to Mr. Roberts requesting the additional informa- 
tion contained in the letter. 

The Chairman. It may be receievd in evidence and inserted in the 
record. 

(The letters referred to were marked "Exhibit No. 1128" and ap- 
pear in Hearings, Part XII, appendix, p. 6357.) 

Mr. Gesell. In the course of Mr. Leroy A. Lincoln's testimony 
on August 29, 2 he stated that he would provide the committee with 
information as to the number of agents in his company who were 
chartered life underwriters, and I have here a statement which I have 
received from Mr. Madden, of the Metropolitan, showing the number 
of agents who are enrolled for the chartered life underwriters' course 
and the number of agents who have passed that course to date. 

The Chairman. It may be received in evidence and inserted in the 
record. 

(The statement referred to was marked "Exhibit No. 1129" and 
appears in Hearings, Part XII, appendix, p. 6359.) 

Mr. Gesell. On the same day and on the following date, Mr. 
Lincoln was asked questions with respect to the agency turn-over ir> 
his company. 3 In accordance with his statements made at that timt 
and an arrangement which I made with the Metropolitan subse- 
quently, figures and information have been submitted to us by the 
Metropolitan showing the agency turn-over of that company and 
further explaining the testimony of Mr. Lincoln. 

The Chairman. It may be received in evidence and inserted in the 
record. 

(The document referred to was marked ''Exhibit No. 1130" and 
appears in Hearings, Part XII, appendix, p. 6359.) 

Mr. Gesell. In the course of the testimony of Mr. George L. Ward, 
of the Home Friendly Insurance Co., taken on September .6, 1939, 4 
Mr. Ward called the committee's attention to the fact that a schedule 
of agency turn-over previously submitted by him had been found to 
contain some inaccuracies, and at the request of the committee he 
agreed to submit a corrected schedule showing the agency turn-over 
of his company. I have received such a schedule from him and wish 
to offer it. 

The Chairman. It may be received in evidence and inserted in 
the record. 

(The schedule referred to was marked "Exhibit No. 1131" and 
appears in Hearings, Part XII, appendix, p. 6360.) 

Mr. Gesell. On September 7-, 1939, in the course of the testimony 
of Mr. F. F. Leith, vice president of the People's Life Insurance 
Co., 5 he agreed to submit for the record a schedule showing the 



1 See Hearings, Part XII, p. 5708. 

2 Ibid., p. 5848. 

« Ibid., pp. 5849 and 5856. 
4 Ibid., p. 6095. 
°Ibid.. p. 6149. 



CONCENTRATION OF ECONOMIC POWER 650Z 

agency turn-over of his company. Such a schedule has been pre- 
pared by Mr. Leith and submitted, and I would like to offer it for the 
record. 

The Chairman. It may be received in evidence and inserted in the 
record. 

(The schedule referred to was marked "Exhibit No. 1132" and 
appears in Hearings, Part XII, appendix, p. 6361. ) 

Mr. Gesell. On the last day of the hearing, September 13, 1939, in 
connection with testimony relating to the activities of the Shenan- 
doah Life Insurance Co., Mr. J. P. Saul, the witness, testified that 
$79,069.16 of bills receivable were contained in the nonadmitted assets 
of his company's statement as of December 31, 1938. 1 Mr. Saul was 
unable to tell us at that time what amount of that $79,000 figure was 
attributable to loans of officers and directors which have been placed 
in the nonadmitted assets by reason of deficiencies in collateral. He 
has, in accordance with his agreement, submitted a schedule which 
reflects that $38,142.10 of the $79,000 figure are attributable to such 
loans. I would like to offer that schedule for the record. 

The Chairman. It may be received in evidence and inserted in 
the record. 

(The schedule referred to was marked "Exhibit No. 1133" and is 
included in the appendix on p. 6979.) 

Mr. Gesell. (After Mr. Saul's testimony was concluded, the Com- 
mission learned of the existence of correspondence between Mr. 
Trinkle, of the Shenandoah, and the State Corporation Commission 
of the Commonwealth of Virginia. This correspondence was re- 
quested from the Shenandoah and has been submitted to the Com- 
mission by Mr. Saul. It relates to certain activities of officers and 
directors in the period immediately prior to the conversion of the 
company from a stock to mutual form, and particularly relates to 
some collateral loan transactions which were considered in the course 
of Mr. Saul's testimony. 2 

I should like to offer this correspondence for the record in further 
explanation and amplification of the testimony : First, a letter dated 
April 14, 1934, addressed to Hon. E. A. Trinkle, president of the 
Shenandoah Life Insurance Co., signed by the chairman and two 
commissioners of the State Corporation Commission of Virginia. 

The Chairman. It may be received in evidence and inserted in 
the record. 

(The letter referred to was marked "Exhibit No. 1134" and is in- 
cluded in the appendix on p. 6980.) 

Mr. Gesell. And, second, a letter in reply thereto addressed to 
the State corporation commission by J. P. Saul, Jr., general counsel 
of the company. 

The Chairman. It may be received in evidence and inserted in the 
record. 

(The letter referred to was marked "Exhibit No. 1135" and is in- 
cluded in the appendix on p. 6984.) 

Mr. Gesell. That completes the material which I wish to insert in 
the record. 

The Chairman. The subcommittee may be adjourned. 

(Whereupon, at 11:45 a. m., the subcommittee adjourned.) 3 

1 See supra, p. 6474. 

2 See supra, p. 6466. 

* Hearings on the Petroleum Industry were held September 25 through October 25 and 
appear in Parts 14, 15, 16, and 17. 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75tn Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING, Senator from Utah 

.1 B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THDRMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. PRANK, Chairman 

•LEON HENDERSON, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

•EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

Representing the Department of the Treasury 

CLARENCE AVILDSEN, Special Adviser to the Secretary of Commerce 

Representing the Department of Commerce 

JAMES R. BRACKETT, Executive Secretary 

•Alternates. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



THURSDAY, OCTOBER 26, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Wednesday, October 24, 1939, in the Caucus Room, Senate Office Build- 
ing, Representative B. Carroll Reece presiding. 

Present : Representative Reece, acting chairman ; Senators O'Maho- 
ney and King; Messrs. Frank, Lubin, Henderson, O'Connell, and 
Brackett. 

Present also : Representative Wesley E. Disney, of Oklahoma ; Ger- 
hard A. Gesell, special counsel and Douglas Orr, attorney, Securities 
and Exchange Commission. 

Acting Chairman Reece. The committee will come to order, please. 

The committee is to continue with another phase of the insurance 
companies study. Are you ready to proceed, Mr. Gesell? 

Mr. Gesell. Mr. Thomas I. Parkinson is the first witness this 
morning. Mr. Parkinson. 

Acting Chairman Reece. Do you solemnly swear that the testi- 
mony you shall give in this procedure shall be the truth, the whole 
truth, and nothing but the truth, so help you God ? 

Mr. Parkinson. I do. 

TESTIMONY OF THOMAS I. PARKINSON, PRESIDENT, EQUITABLE 
LIFE ASSURANCE SOCIETY, NEW YORK, N. Y. 

SALES AND AGENCY PRACTICES — EQUITABLE LIFE ASSURANCE SOCIETY 

Acting Chairman Reece. What shall be the manner of procedure? 
Does Mr. Parkinson have a statement that you have in mind that 
he shall make first? 

Mr. Gesell. No. He is to be interrogated, Mr. Chairman. We 
are considering this morning agency and sales practices in the 
distribution of ordinary insurance. I want to review with Mr. Park- 
inson some of the activities of the company in respect to the opera- 
tion of its agency department. 

Acting Chairman Reece. You may proceed. 

Senator King. Have you submitted interrogatories, as has been 
the case in many of these investigations or studies, to Mr. Parkinson's 
company, or to the others with respect to the matters to be asked 
about? 

Mr. Gesell. The matters to be covered this morning have been re- 
viewed in great detail with representatives of Mr. Parkinson's com- 

6505 



6506 CONCENTRATION OF ECONOMIC POWER 

pany, and I believe Mr. Parkinson is fully acquainted: with the nature 
of the inquiry. We have also here this morning Mr. Graham, the vice 
president of the Equitable, who is in direct charge of agency prac- 
tices, and it is our purpose to call upon him if the inquiry gets into 
areas where Mr. Parkinson is not in a position to give us the infor- 
mation requested. 

Your full name is Mr. Thomas I. Parkinson, is it not? 

Mr. Parkinson. Yes. 

Mr. Gesell. You are president of the Equitable Life Assurance 
Society of New York. 

Mr. Parkinson. Yes. 

Mr. Gesell. How long have you been president, Mr. Parkinson ? 

Mr. Parkinson. Since October 1927. 

Mr. Gesell. How long have you been with the company? 

Mr. Parkinson. Since June of 1920. 

Mr. Gesell. You came first in the capacity of vice president; is 
that correct? 

Mr. Parkinson. As second vice president. 

Mr. Gesell. Before you became the senior officer of the company, 
what were your particular duties ?• 

Mr. Parkinson. Before I became vice president I was a sort of 
advisor on various questions, with particular responsibility for the 
liquidation of the European business and some other offices. 

Mr. Gesell. When you became vice president? 

Mr. Parkinson. I then expanded a bit into the investment field; 
finally, in 1 926, 1 became executive vice president. 

Mr. Ges :ll. You are the senio,r executive officer of the Equitable, 
are you not? 

Mr. Parkinson. I am. 

Mr. Gesell. Can you tell us a little about the Equitable, Mr. Par- 
kinson? When was it organized? 

Mr. Parkinson. 1859. 

Mr. Gesell. It is a mutual company ; is it ? 

Mr. Parkinson. Yes. 

Mr. Gesell. What are its assets at the present time? 

Mr. Parkinson. A little over 2,300 millions. 

Mr. Gesell. Does it operate in every State of the Union? 

Mr. Parkinson. It does. 

Mr. Gesell. How much insurance has it in force ? - 

Mr. Parkinson. About 6% billions. 

Mr. Gesell. Your company does not sell industrial insurance ? 

Mr. Parkinson. No. 

Mr. Gesell. Am I correct in saying your principal lines are ordi- 
nary insurance, group insurance, and annuities? 

Mr. Parkinson. That is right. 

Mr. Gesell. Of those three lines which is foremost? 

Mr. Parkinson. The ordinary. 

Mr. Gesell. And second? 

Mr. Parkinson. It is difficult to estimate exactly the relationship 
!»«•( w.rn group and annuities. I should think that group was second. 

Mr. Gesell. Have you any idea of what your annual premium 
ih'oiih- is? It is in the neighborhood of $279,000,000 is it not* 

Mr. Parkinson. I should be surprised if it wasn't somewhere near 
300 millions. 



CONCENTRATION OF ECONOMIC POWER 6507 

Mr. Gesell. That was the 1938 figure, and your total income was 
in the neighborhood of half a million, was it not? 

Mr. Parkinson. Yes. 

Mr. O'Connell. Half a billion. 

Mr. Gesell. Yes. Can you tell us something of the growth of your 
company in recent years? 

Mr. Parkinson. I find myself a bit in doubt as to what you mean 
by that question. I would like very much to answer it as you would 
like to have it answered. 

Mr. Gesell. Let me tell you this : Your assets have increased con- 
tinuously since 1906, have they not? 

Mr. Parkinson. Our assets have increased since the time that I 
became president, let us say, at the end of 1927 from a little over 
800 million to the present figure of over 2,300 million. 

(Conference off the record between Senator King and Mr. Gesell.) 

Mr. Gesell. Insurance in force has also grown rapidly, has it not? 

Mr. Parkinson. Yes ; and then receded. 

Mr. Gesell. When did it reach the peak ? 

Mr. Parkinson. I think about 1931 or '32, when it was in the 
neighborhood of 7 billions. 

Mr. Gesell. And to what degree has it receded ? 

Mr. Parkinson. The present total is about 6% billions. It was a 
little lower than that when group insurance went off during the 
period of the depression. 

Mr. Gesell. And in the days of the Armstrong committee in 1906 
your company had just a little over $1,000,000,000 of insurance in 
force, did it not? 

Mr. Parkinson. I don't know. 

Mr. Gesell. Our figures would indicate $1,376,000,000. 

Mr. Parkinson. Your figure is unquestionably right. 

Mr. Gesell. You have had a considerable growth in your annuity 
business, have you not, m recent years ? 

Mr. Parkinson. Yes. 

Mr. Gesell. Can you tell us a little about that line of business, 
when you first started writing it, what your experience has been 
with respect to growth? 

Mr. Parkinson. Its beginnings, of course, were before my time. 
That would be history with me, and I don't think I could give you 
any accurate story of its beginnings. We did develop what was 
called the retirement annuity, which was intended to serve the needs 
of those who wanted not to provide alone for their dependents upon 
their death but for their own retirement at a fixed age, and it pro- 
vided for annual payments accumulating the purchase price of an 
annuity for retirement at a fixed year. That was very popular for 
a long time, and developed a large volume. 

Mr. Gesell. Has it, as a matter of management policy in each of 
these departments of your business which we have been discussing, 
been your policy to grow and to encourage the writing of new business ? 

Mr. Parkinson. It has been the policy to encourage the writing 
of new business. 

Mr. Gesell. In an amount sufficient to brin^ about growth ? 

Mr. Parkinson. Yes; growth in membership anbl also growth, 
almost necessarily, in the assets held for the members. 

124491 — 40 — pt. 13 11 



g508 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Has some of the growth in assets in recent years been 
the result of policyholders leaving dividends on deposit with your 
company rather than drawing them down? 

Mr. Parkinson. Some. I wouldn't undertake to say just how much. 

Mr. Gesell. Has the development of various forms of settlement- 
option provisions 

Mr. Parkinson (interposing). Yes; it is the same thing. 

Mr. Resell. Had the same effect? 

Mr. Parkinson. It is the same thing. Policyholders have seen the 
possibilities of getting a little better return on their money at times 
by leaving it with the company than by putting it somewhere at 
interest. 

Mr. Gesell. And with that situation it would be possible, even, if 
you didn't, write any new business sufficient to increase your insurance 
in force — there would be some growth through the accretion of these 
other factors? 

Mr. Parkinson. In assets; yes. 

Mr. Gesell. I want to consider with you this morning particularly, 
Mr. Parkinson, the operation and activities of your agency department 
and the methods pursued by your company in obtaining insurance, 
training agents, and so. forth. I think as a starting point we might 
consider the organization of your company agencywise. In the home 
office you have a vice president, do you not, who is in charge of an 
agency department? 

Mr. Parkinson. That is right. 

Mr. Gesell. What is his name? 

Mr. Parkinson. William J. Graham. 

Mr. Gesell. And he has immediately under him four second vice 
presidents, has he not? 

Mr. Parkinson. Yes. 

Mr. Gesell. They are, respectively, in charge of production, field 
organization, agents' training, and sales promotion? 

Mr. Parkinson. Yes. 

Mr. Gesell. Have you any idea what the total home-office staff of 
your agency department is ? 

Mr. Parkinson. T should think about 150. 

Mr. Gesell. Our figures would indicate that the agency depart- 
ment has about 150 employees, and the group department has an addi- 
tional 173. 

Mr. Parkinson. I was thinking only of the agency department. 
The group department would account for the other employees. 

Mr. Gesell. And those employees in the group department are also 
responsible to Mr. Graham? 

Mr. Parkinson. Yes ; they are. 

Mr. Gesell. Now, you have an agency committee of the board of 
directors, do you not ? 

Mr. Parkinson. Yes. 

Mr. Gesell. Will you tell us a little about that committee — how 
often it meets, who are its members, what its particular functions are ? 

Mr. Parkinson. It meets once a month, with occasional special 
meetings. It consists of five members of the board. The chairman is 
Henry Alexander. The other four members are Reuben Clark, of 
Salt Lake City ; Frederick Keppel, of New York ; J. J. Pelley, who is 
now in the District of Columbia; and Robert C. Hill, of New York. 



CONCENTRATION OF ECONOMIC POWER 6509 

Mr. Gesell. Those men, I notice, are either lawyers or coal officials 
or steel officials or railroad officials. Have you anyone on the com- 
mittee that has had agency experience, who has had any experience 
directly with the sale of insurance ? 

Mr. Parkinson. None of these men has had direct experience in 
the sale of life insurance. 

Mr. Gesell. Do you have any such man on your board of directors? 

Mr. Parkinson. We had on the board until a few months ago a 
partially retired general agent, William J. Roddey, of South Caro- 
lina, but he retired from the board a short time ago. Mr. Graham, 
of course, is on the board, and he has had experience; and Seward 
Prosser, who is chairman of the Bankers Trust Co. in New York, is 
on our board, not because he is chairman of the Bankers Trust Co. 
but because he was in years gone by a general agent of the Equitable, 
and he is still the Prosser who lends his name to our principal gen- 
eral agency in New York, Prosser & Homans. 

Mr. Gesell. I was interested in the fact that none of these men 
were members of the agency committee. Is there any particular 
reason for that? 

Mr. Parkinson. Yes; in the case of Mr. Roddey, who had had the 
experience as a general agent,, we thought it best that he should not 
be on the agency committee since it was dealing all the time with 
agency problems, many of which affected the personal interests of the 
agents and their managers. Mr. Prosser we haven't asked to give 
the time that would be involved, and I think, though I have never up 
to this moment expressed an idea on the subject, that we would prefer 
to have men who did not have any relationships with the agents and 
their managers. 

Mr. Gesell. And you prefer men who had no knowledge of the 
agency problems of the company in an intimate, practical way ? 

Mr. Parkinson. No; I wouldn't say that. I would prefer to have 
men who had knowledge of the agency problems if they didn't have 
connection with the agency forces. Mr. Graham," of course, is always 
present at the meetings of the agency committee ; he' is a member of 
our board, and I think provides all the detailed information with 
respect to agency operations that the committee needs. 

Mr. Gesell. Will you tell us a little what the functions of the 
committee are, what purpose they are supposed to fulfill? 

Senator King. You are speaking of the agency committee ? 

Mr. Gesell. Yes. 

Mr. Parkinson. It determines the kind of contract we make with 
our general agents and agency managers; it determines the method 
of compensation; it determines the contracts with the soliciting 
agents, and their compensation. It fixes the arrangements, the com- 
pensation, the rules and regulations under which the agency force is 
employed and operates. 

Mr. Gesell. Those are pretty technical matters, it strikes me, Mr. 
Parkinson. 

Mr. Parkinson. Yes. 

Mr. Gesell. The committee must in large part depend upon the 
recommendations of your agency officers. 

Mr. Parkinson. I think that is true. 



6510 CONCENTRATION OF ECONOMIC POWER 

Mr Gesell. Then if the committee has any important function, it 
must 'be in the realm of policy more than anywhere else, must it 

11 Mr. Parkinson. Policy and supervision of the recommendations of 
the officers with respect to these details. . 

Mr. Gesell. Certainly, a check on those matters. flow in the 
realm of policy, what type of authority and discretion do they have J 

Mr Parkinson. They have power under the bylaws— 1 do not 
.have the provision on the end of my tongue— to control the organiza- 
tion, compensation, and functions of the agency force. 

Mr. Gesell. To whom are they responsible ? 

Mr. Parkinson. To the board. 

Mr. Gesell. Is there any intervening group to which they are re- 
sponsible, an executive committee or anything of that sort? 

Mr. Parkinson. Their report goes through the executive com- 
mittee. 

Mr. Gesell. Are you a member of the agency committee? 

Mr. Parkinson. Ex officio I am. 

Mr. Gesell. Do you attend the meetings ? 

Mr. Parkinson. Seldom. 

Mr. Gesell. Would it be fair to say that the determination of 
the broad questions of agency policy are considered by the whole 
board and determined upon by them ? 

Mr. Parkinson. Yes ; ultimately a broad question of agency policy 
would be determined by the board. 

Mr. Gesell. And this smaller working committee, I suppose, then, 
has as its principal functions the checking on the technical informa- 
tion. 

Mr. Parkinson. The supervision of administration. 

Mr. Gesell. From the point of view of the field, how does the 
home office keep in contact with the salesmen in the field? Do you 
have special traveling supervisors or anything of that sort? 

Mr. Parkinson. We do not now have superintendents who travel 
about the field ; but these second vice presidents — to whom you have 
referred — do keep in contact with the agencies by visitation and, of 
course, there are many contacts through managers and agents coming 
to the home office for conference. 

Mr. Gesell. How do you keep up with the problems of the field 
yourself, Mr. Parkinson ? 

Mr. Parkinson. It is a difficult thing to do. I manage to visit 
various agencies each year. I see a good deal of the managers, the 
general agents, and even the soliciting agents when they come to the 
home office. It is a matter of great interest to me - 

Mr. Gesell (interposing). But rather difficult to keep up with it. 

Mr. Parkinson. Yes ; it is difficult. 

Mr. Gesell. Is it fair to say that in an organization such as yours, 
operating as it does in all of the States, that it is rather difficult to 
keep any detailed supervision over the agents and the managers in the 
held from the point of view of the home office? You must depend 
to a large extent upon their discretion and good judgment, must 

Mr. Parkinson. It is difficult for me, but it is not difficult for the 
agency department. 



CONCENTRATION OF ECONOMIC POWER QQH 

Mr. Gesell. These agency vice presidents, you believe, can keep a 
very close supervision oKthe details of your agencies' operations in 
all these various States? 

Mr. Parkinson. They know very well that I think they ought to. 

Mr. Gesell. I am sure you believe that, Mr. Parkinson, but I 
wondered how successful you thought they were. It seems to me 
like a tremendous undertaking. 

Mr. Parkinson. Well, anything that is country- wide is a tre- 
mendous undertaking in this big country today, but it is of course a 
matter of organization, a matter of enthusiastic interest, a matter of 
visitation, a matter of intelligent examination of available informa- 
tion rather than merely compiling statistics. I should think my 
criticism of them, whenever I do express it, is that they give more 
consideration to what the facts mean than merely to accumulating 
the facts. 

Mr. Gesell. Now, we had Mr. Lincoln here some while ago on the 
stand. He indicated that for him to cover his organization, which I 
imagine is about as large as yours from the point of view of territory, 
that it took him something like 18 months. 1 You have how many 
different branch offices in the field? 

Mr. Parkinson. About 110, I think. 

Mr. Gesell. You have over 6,000 agents; do you not? 

Mr. Parkinson. Yes. 

Mr. Gesell. So it is a rather difficult problem of supervision to 
keep in intimate touch with them. 

Mr. Parkinson. Yes ; it is. 

Mr. Gesell. Especially when you have only four second vice presi- 
dents to undertake that job, in addition to carrying on their functions 
at the home office. 

Mr. Parkinson. Of course, I should add to that the fact that we 
have in Mr. Gottschall, in Chicago, a subordinate officer whose imme- 
diate function is to supervise the Chicago and Central West agencies ; 
and then we have another manager in Kansas City, who has similar 
supervisory duties with respect to other agencies in that territory; 
and we have an officer in New York who has similar duties for the 
Metropolitan New York area. 

Mr. Gesell. Do you use the general-agency system, or do you use 
the agency-manager system? 

Mr. Parkinson. Both. 

Mr. Gesell. You have the dual system ? 

Mr. Parkinson. We have the dual system. 

Mr. Gesell. Will you tell us a little about what the differences be- 
tween the agency-manager and general-agency system are, and give us 
your ideas as to some of the advantages and disadvantages of those 
two types of systems ? 

Mr. Parkinson. Of course, they are both managers of a local office. 
They both select, hire, train, supervise agents who are solicitors. The 
one whom we call the general agent operates as an independent con- 
tractor. The other operates as an employee. The agency manager is 
employed to perform these services of organizing and supervising an 
agency force in a given territory. The general agent makes a contract 
under which he engages to hire, supervise, an agency force for the 
same purpose. The principal difference is that the one is an inde- 



1 See Hearings, Part XII, p. 5876. 



6512 CONCENTRATION OF ECONOMIC POWER 

pendent contractor to do a job, and the other is an employee to do a 
similar job. 

Mr. Gesell. Your agency manager receives, does he not, a guar- 
anteed salary, I think it is $4,200? 

Mr. Parkinson. The agency manager receives a minimum salary 
as an employee. 

Mr. Gesell. And then he receives commissions based on his own 
production and that of his men. 

Mr. Parkinson. That is true. 

Mr. Gesell. Your general agent, on the other' hand, receives no 
salary, does he? 

Mr. Parkinson. No salary. 

Mr. Gesell. And he has complete charge over the administration 
of the funds of his agency, does he not ? 

Mr. Parkinson. Of the funds? 

Mr. Gesell. Yes. How is he financed ? 

Mr. Parkinson. I am afraid I don't know just what' you mean. 

Mr. Gesell. How is he financed ? 

Mr. Parkinson. He finances himself. 

Mr. Gesell. And the avenues in which he directs that financing are 
not subject to the control of your company, are tney ? 

Mr. Parkinson. No ; except as we have a very wide power of termi- 
nation of his contract. 

Senator King. Does he make reports to you from time to time ? 

Mr. Parkinson. Oh, yes. 

Senator King. And your vice presidents visit him? 

Mr. Parkinson. Yes, indeed; almost the same as we supervise the 
agency manager. 

Senator King. Are his books and accounts available to scrutiny by 
your vice presidents? 

Mr. Parkinson. Yes, sir. 

Senator King. And are they so scrutinized? 

Mr. Parkinson. They are, sir. 

Mr. Gesell. Your general agent has greater rights and renewal 
commissions, does he not, than your agency manager? 

Mr. Parkinson. Yes. 

Mr. Gesell. What is the distinction there ? 

Mr. Parkinson. The general agent, speaking generally, derives very 
little of profit for himself from the first year's commission ; he makes 
his compensation principally from the renewal commissions, and t his 
renewal commissions run always for 5 years, and under our contracts 
usually for 5 succeeding years; and the agency manager, on the con- 
trary, has only a limited interest in renewal commissions, deriving his 
compensation largely from his guaranty and from his performance of 
the various functions assigned to him; but we have in recent years 
varied our agency-manager contract to increase his interest in the 
renewal commissions and thereby have tended to remove the distinc- 
tions between the agency-manager contract and the general-agent 
contract. 

Mr. Henderson. May I interrupt there? The members over here 
are a little bit puzzled about the renewal commission. Does it actually 
mean a stated renewal eaclxtime on which a commission is paid ? 

Mr. Gesell. My understanding is — you will check me, Mr. Park- 
inson — that it is a commission lower than the first-year commission, 



CONCENTRATION OF ECONOMIC POWER 6513 

based upon the premiums received from a policyholder each year that 
he continues with the company. 

Mr. Parkinson. Yes. 

Mr. Henderson. Does that involve a renewal of the original con- 
tract or is it merely its continuance in force ? 

Mr. Gesell. It is continuance in force of the same contract, is it 
not? 

Mr. Parkinson. It is a commission on the premium paid, if I un- 
derstand the question. 

Mr. Gesell. There is no new contract? 

Mr. Pa tnson. There is no commission paid, if there is no pre- 
mium paiu. 

Mr. Henderson. But is there each year a renewal of each of the 
contracts in force? 

Mr. Parkinson. Oh, no; except the payment of the premium for 
the recurring years continues the contract in force. It is the same 
piece of paper. The renewal commission is paid if and when the 
policyholder pays a premium for the continuance of the contract for 
future years, but there is no commission paid if the premium isn't 
paid. 

Mr. O'Connell. The word "renewal" is probably something of a 
misnomer ? 

Mr. Parkinson. It is the renewal of the premium. 

Mr. O'Connell. It isn't renewal of either insurance policies or of 
the contract or the agency contract? 

Mr. Parkinson. Well, I think the lawyers say that the continuance 
of the contractual rights of the policyholder is dependent upon his 
paying the premium. So in a sense it is a renewal of the contract. 

Mr. Gesell. The general agent receives in your company, doesn't 
he, 55 percent of the first-year premium and 5 percent of the so- 
called renewal premium? 

Mr. Parkinson. The general agent? 

Mr. Gesell. Yes. 

Mr. Parkinson. Receives 55 percent of the first-year premium and 
7y 2 percent. 1 

Mr. Gesell. Seven and a half percent of the renewal? 

Mr. Parkinson. For 9 years, and then 5 percent of the renewals 
for 5 years. 

Mr. Gesell. How many general agents do you have? 

Mr. Parkinson. We have about 30; 20, or thereabouts, of whom are 
really active. 

Mr. Gesell. How many agency managers do you have? 

Mr. Parkinson. About 75, 78. 

Mr. Gesell. Am I correct in saying that the development in your 
company has in recent years been toward the development of the 
agency-manager system ? 

Mr. Parkinson. If by recent years you are willing to go back 30 
years, yes; but I should say that in the immediately recent years we 
have been more interested in the possibilities of developing the 
general agency. 

Mr. Gesell. You are, then, still struggling with this dual prob- 
lem? 



J In this connection see also later testimony by Mr. Tarkinson concerning commission 
paid to the general agent, infra, p. 6534. 



6514 CONCENTRATION OF ECONOMIC POWER 

Mr. Parkinson. Still struggling with the problem of which is the 
better way to get the best results on the whole. 

Mr. Gesell. Has there been any time in the last 30 years when 
your company has operated entirely on the agency system or entirely 
on the agency-manager system? 

Mr. Parkinson. Not since 1915. 

Mr. Gesell. How many agents do you have, Mr. Parkinson? 

Mr. Parkinson. How many agents? 

Mr. Gesell. My figures would indicate that as of December 31, 
1938, you had 6,908. 

Mr. Parkinson. Yes ; . and the surety bond contract that went 
through our finance committee a few days ago reminds me that we now 
have 6,000 agents under bond. 

Mr. Gesell. And am I correct in saying that about 2,000 of those 
agents are part-time agents ? 

Mr. Parkinson. I should think that would be reasonably accurate. 

Mr. Gesell. As of December 31, 1938, the figures we were given 
indicate that you had 2,081 part-time agents. That ratio is still about 
the same in your company ? 

Mr. Parkinson. I should think so ; yes. 

Mr. O'Connell. Are you going to draw out what a part-time agent 
is? Is a part-time agent an agent who has other means of earning a 
livelihood, too ? 

Mr. Parkinson. Yes ; like a real-estate man who writes some insur- 
ance, or a lawyer who isn't making a living out of the practice of the 
law. In other words, it is a man who has a side line which includes 
life insurance. 

Mr. O'Connell. From your standpoint, might he not be a part-time 
agent merely because he is working part time for you, though he might 
have no other means of livelihood ? 

Mr. Parkinson. I think that we would call that fellow a full-time 
agent, who ought to be terminated as soon as possible. 

Mr. Gesell. Your part-time agents are all men who have some other 
occupation ? 

Mr. Parkinson. I think so. 

Mr. Gesell. By and large, is it correct to say that they are men in 
the small towns and communities, or do you have them in the large 
metropolitan areas? 

Mr. Parkinson. By and large, they are in the sparsely sejttled 
communities. We have some in the larger cities. 

Mr. Gesell. Those would be communities where you wouldn't feel 
that it was justifiable for you to maintain a full-time agency force, 
towns of less than 5,000 people, we will say? 

Mr. Parkinson. I wouldn't fix the population, but it would be a 
sparsely settled community where we would not expect to get a really 
good representative who could make a living out of his life-insurance 
work alone. 

Mr. Gesell. Well, now, I can understand why you might feel the 
need of part-time agents in that part of your territory, but you say 
you also have them in metropolitan areas. I wonder why you need 
them there. 

Mr. Parkinson. There are some. Generally speaking, our policy 
calls for full-time agents, but we realize that especially during a pro- 
bationary period it is hard to ask a man to commit himself entirely and 



CONCENTRATION OF ECONOMIC POWER 6515 

full time to life insurance, and therefore we have in recent years 
changed our policy to permit some part-time agents during a proba- 
tionary period. That may be extended for longer than 6 months some- 
times, but the general idea is that for a period of trial, both for us and 
the agent, we permit of a part-time man even in the metropolitan area. 

Mr. Gesell. I notice your ratio of part-time to full-time agents, 
even in the eastern and Greater New York divisions, still runs about 
one-third of your total agency forces. 

Mr. Parkinson. Yes. 

Mr. Gesell. In the sparsely settled areas, Mr. Parkinson, have you 
ever thought of taking advantage of the provision of the Federal 
Reserve Act which permits life insurance companies to sell insurance 
through national banks in towns of less than 5,000 population? 

Mr. Parkinson. Well, as I mentioned a good many of our part-time 
agents are officers and employees of these very banks in these sparsely 
settled communities, but institutionally I do not think the member 
banks represent us. 

Mr. Gesell. You find that in a sparsely settled community if you 
have a cashier or a teller or some man who meets the public, he makes 
a good part-time agent? 

Mr. Parkinson. Yes. 

Mr. Gesell. Well, now, this provision of the Federal Reserve Act, 
which has been in effect since 1916, goes beyond that. It provides, as 
I read it, that the national banks may act as the selling and soliciting 
agents for any insurance company which is licensed to do business in 
that State and qualified in other ways. You are familiar with that 
provision, are you not? 

Mr. Parkinson. I have heard of that provision. I won't say that I 
am very familiar with it. I would not be inclined to make use of 
such agencies for modern life-insurance service. 

Mr. Gesell. Have you ever explored the possibility of using that 
provision as a means of selling insurance in these sparsely settled 
areas? 

Mr. Parkinson. Some years ago the suggestion came before me at 
about the same time that it was suggested that we use Montgomery 
Ward, Sears, Roebuck, and various other agencies to distribute our 
protection, and we decided then that it would be a very rare instance 
in which such a corporation could do, under our control and supervi- 
sion, what we more and more expect of our agents and try to get from 
them. 

Mr. Henderson. May I be permitted a question there, Mr. Gesell? 
Does the law to which you refer contain any limitation on the type 
of insurance which might be sold by a national bank authorized by 
the company ? 

Mr. Gesell. As to form of insurance, it refers, to both fire and life 
insurance; as to industrial or group type of insurance, there is no 
limitation whatsoever in the statute. 

Mr. Lubin. Mr. Parkinson, I would be interested in your elaborat- 
ing why you think that these national banks in these smaller communi- 
ties couldn't fender the service that you think should be rendered by 
modern, aggressive life-insurancec ompanies. 

Mr. Parkinson. We are not selling a commodity. We are not merely 
taking a policyholder's funds and investing and accumulating them 
against an eventuality. We are rather attempting to place our se- 



6516 CONCENTRATION OP ECONOMIC POWER 

curity protective power at the disposal of those people who-haye the 
need for it. We are trying to adjust it to the need of tha particular 
individual. We are trying to keep it adjusted to his need as his need 
changes, and all of those services are personal, and they require a high 
order of sympathetic interest in the individuals who have the need, 
and they require continuing personal contact, and therefore I should 
not want to farm out the service that we have in mind. to perform to 
such corporate agencies as those either of the Reserve banks or the 
great retail mail-order houses. 

Mr. Lubin. Well, Mr. Parkinson, if I were a teller in a bank and 1 
was one of your agents as a part-time agent, why would you expect 
that I would give better service that way than I would if I were repre- 
senting the bank for which I worked? It is the same individual who 
might be doing the job. 

Mr. Parkinson. The same individual, but his relationship to us is 
individual in one instance and in the other instances he is a subordinate 
of a corporation which has the relation to us. 

Mr. Lubin. But in terms of service, why would you expect less 
service in one instance than in the other f 

Mr. Parkinson. It would be personal service over which we had 
control, and if it wasn't rendered it would be a simple matter for us 
to terminate the authority of the individual who represented us. If 
we got tied up with the banks to perform similar services, I would not 
feel that we were without embarrassment so free to mold our organi- 
zation and compel the personal service by exercise of the power of 
termination. 

Mr. Lubin. You can always terminate your contract with a national 
bank as easily as you can with the teller who works there ? 

Mr. Parkinson. You can sitting here in this room, but there are 
times when you cannot in the actual affairs of daily business life. 

Senator King. Moreover, before you designated some teller in a 
bank, you would want to know whether it was agreeable to the direc- 
tors; and secondly, whether the charter of that bank permitted it to 
function as a representative of the life-insurance company ? 

Mr. Parkinson. Yes ; of course. 

Senator King. Perhaps while the Federal Reserve Act might author- 
ize it, that wouldn't determine the authority of a bank under a charter 
given by the State or under a national charter. 

Mr. Parkinson. I should regard it as decidedly a step backward in 
the development of the agencies of a life insurance company if it turned 
to such corporations to intervene between the life insurance company 
and its policyholders or its prospects. 

Mr. Gesell. And I take it, then, that because of these big, broad, 
general considerations which you have just voiced, you have made no 
study of the problem on a strictly operating basis to determine the 
practicability of it, and whether or not it would work? 

Mr. Parkinson. Now, by study, I understand you to mean a research 
into the facts and statistics. And if that is what the question means, 
the answer is "No." But if by study you mean giving consideration 
to the desirability or the undesirability from a practical point of view 
of i he use of these banks, I should say "Yes," we have given it study 
and rejected the idea. 

Mr. Gesell. You never tried it, did you? 



CONCENTRATION OF ECONOMIC POWER Q517 

Mr. Parkinson. We never have tried it, but you agree, I think, that 
there are some things that we are supposed, in the practical affairs of 
the world, to diagnose without trying and not submit everything to 
trial and error. This is one of the things I should be content to decide 
without actual trial. 

Mr. Gesell. And yet, Mr. Parkinson, just think how unfortunate 
that would have been In the State of Massachusetts 1 if those who had 
an opinion such as yours had won out and savings-bank life insurance 
hadn't come into effect. There, because some were willing to try it, 
we have a cheap form of insurance which is fulfilling a service and 
which some people, at least, find fairly satisfactory, because they take 
policies in it. Even insurance people take policies in it. 

Mr. Parkinson. It is fulfilling a service, but it is not fulfilling the 
service of a modern life insurance company such as our Equitable 
Society. If I may add to that a word, it began, as I remember, in 
1908, and there are now $150,000,000 of it in force in Massachusetts. 
It covers varied types of people, some wage earners and many who are 
just shrewd New Englanders who sharpen their pencils and get that 
kind of insurance protection at a little less than is charged by the 
regular line companies. 

Mr. Gesell. Yes ; the difference, I think, between $2.70 of premium 
and $8.35 premium, a pretty good difference. 

Mr. Parkinson. Is that the difference ? 

Mr. Gesell. In some instances; yes. 

Mr. Parkinson. Isn't that the difference of getting out, not the 
difference of staying in? . 

Mr. Gesell. I think not. 

Mr. Parkinson. What I wanted to add by way of contrast to em- 
phasize what I mean by service, at about the same time that Massa- 
chusetts savings bank insurance was developed, the Equitable devel- 
oped group insurance, and there are now in force 13 billions of group 
insurance covering the wage earners of the country and providing for 
their families. Now we are interested in the social service of life 
insurance, and I submit that that indicates the difference between 
active, energetic solicitation of an opportunity to serve the insurance 
needs of the country and just sitting back waiting for those who have 
the initiative and other means of coming and paying the cash and 
getting it and carrying it away. 

Mr. Gesell. We are in agreement, I think, as to what your position 
is. You would feel that to connect your company with a national bank 
in this fashion provided for in the act would make it impossible for 
you to drive for new business, to keep up your production standards, 
and to carry insurance to a greater number of the people. 

Mr. Parkinson. I should say that, it would prevent our reaching the 
folks in the community who have need of our services, interpreting it 
to them, adjusting it to their needs, and persuading them to take it. 
I think you must realize that we would hardly be able to have all of 
the reserve banks in any community act as our agent, and I think you 
must realize that if we selected any one such bank to act for us, we 
would be narrowing the field of our service decidedly as to those with 
whom the other reserve banks did business. 



1 See Hearings, Part X, for discussion of savings bank life insurance in the State of 
Massachusetts. 



6518 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Of course, you understand we were discussing this 
matter from the point of view of the small community and the part- 
time agent. We weren't talking about the Equitable, country-wide. 

Mr. Parkinson. Yes. „ TU ,.. 

Mr Gesell. Let me ask you this in that connection: Can 1 buy lite 
insurance in the Equitable without paying commission to one of your 
agents ? 

Mr. Parkinson. Yes. 

Mr. Gesell. How do I do it. 

Mr Parkinson. Just come into the company and you will be 
directed to an office where you will learn the essentials of the policy 
in which you are interestea, but you will be told that if you want 
real protection and service you ought to have an agent interested m 
you and in your case and continue his interest in you that you may 
continue your protection. . 

Mr. Gesell. And I can buy in that fashion insurance cheaper than 
if you sold it to me? 

Mr. Parkinson. No, no. There simply is no commission paid on 
the policy. 

Mr. Gesell. But the commission is charged to the policyholder, is 

it not? 

Mr. Parkinson. The premium is charged to the policyholder. 

Mr. Gesell. The premium is the same as if the commission was 
included? 

Mr. Frank. Mr. Parkinson, I would like to inquire about that. I 
assumed that part of the premium that I paid was to pay the agent's 
commission. Now if in a particular agency no commission is paid 
to the agent, why should that sum be collected ? 

Mr. Parkinson. There are very specific laws in most of the States 
under which we operate which prohibit rebating and prohibit dis- 
crimination. 

Mr. Frank. Well, would that be rebating if I went to you directly, 
as you say I may, and the company was not required to pay any com- 
rission for the procuring of the insurance, would that be discrimina- 
tion, leaving out the question of statutory obligation for a moment? 
Do you think, to put it differently, that the statute that prohibits 
that is a wise statute? 

Mr. Parkinson. Well, if I answered the first part of your question, 
Commissioner, I must say that as long as a criminal penalty attaches 
to either discrimination between those who buy our policies or to 
rebating any portion of the premium, I should certainly not see 
anyone who comes to get his policy have a lower premium than if 
lie were coming through an agent. 

Mr. Gesell. May I interject a moment, Mr. Parkinson? 

Mr. Parkinson. That was only a part of the Commissioner's ques- 
tion. 

Mr. Frank. I want to say most emphatically that I would urge you 
to adhere i<> any statutes that exist. 

Mr. Gesell. I would like to interject, if I might, however, here to 
point to the Metropolitan which is right in the same city as you, 
which s.lls i his insurance at 10 percent cheaper for those who come to 
its offices and have been doing that for years, so the statutory prohibi 
lion can*l he such a serious thing. 



CONCENTRATION OF ECONOMIC POWER 6519 

Mr. Parkinson. Who does that ? 

Mr. Gesell. The Metropolitan Life Insurance Co. of New York. 

Mr. Parkinson. I did not know it. 

Mr. Gesell. So I don't believe the statutory question is one of any 
importance, Mr. Parkinson, at all. 

Mr. Parkinson. Oh, it is of great importance to me. I must insist 
I have no desire, however, to violate the statute of New York pro- 
viding for a criminal penalty. 

Mr. Frank. Mr. Parkinson, I quite agree with you that if there is 
such a statute and you as an able lawyer or your lawyer interpret 
the statute to prevent you from engaging in any such contribution, 
that you do not violate the statute. I now ask you whether you think 
a statute which would prevent such conduct is a wise statute? In 
other words, I understand you say there is a criminal statute which 
would forbid you selling me insurance cheaper where I came direct 
and no agent was employed than where an agent was employed, 
although presumably the large amount of commission that I pay out 
of my premium where an agent is employed is being collected by 
way of payment to an agent as commission. 

Mr. Parkinson. You, of course, appreciate that my whole point of 
view is that what you pay when you come through an agent includes 
a service by that agent that is well worth what he gets in the way of 
commission, and in many instances worth much more than he gets. 

Mr. Frank. I understand that, but supposing I don't want that 
service and therefore am not paying for it, should that sum be col- 
lected from me? That is, should there be a statute which would 
compel your company to exact that payment from me for which I got 
nothing, on your statement? 

Mr. Parkinson. The question goes to the fundamentals of our whole 
policy and our whole purpose in the life-insurance business. I should 
say that if we are to maintain the kind of agency force that we are 
trying to develop, competent, able men of integrity, as well as indus- 
try, and making a living out of the business, we should not encourage 
and I would not encourage a kind of business which I do not believe 
would give the service to the person who came that he ought to have, 
and which would' in a measure take the cream off the business and 
make it more and more difficult for us to develop and keep the con- 
tinuous service of competent income-earning agents, so I would not 
be in favor of changing the statute nor to make it possible to sell 
life insurance over the counter for less than we sell it through the 
agent who is giving the agent's service to those who buy it. 

Mr. Henderson. Mr. Parkinson, may I ask a question? That is a 
very fine statement of your attitude, but I have been insured for 43 
years and have several policies outstanding now, on which I am pay- 
ing for service. I think I can say very frankly that I can't recall, 
since my memory runneth not to the contrary, any service I ever got 
from an agent. Now, suppose that I -want to go to your company for 
a policy and go along as I have these 43 years without that service, 
is it good policy that I should not be allowed to do that ? 

Mr. Parkinson. Well, of course, I don't know. 
Mr. Henderson. Aren't there many such as I who have not had 
that service ? 

Mr. Parkinson. I don't know what companies you are in, Com- 
missioner. Maybe you have a wrong company. 



6520 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. That was a subject of speculation before, Mr. 
Parkinson, and I got a little behind the eight-ball on it and I am not 
going to let it out now. 

Mr. Parkinson. Every good life-insurance man tries to find out 
such tilings, if he can. I would like to answer Mr. Henderson's ques- 
tion. I think it may be due to the facfr, which is certainly current in 
our operations, that there are certain men, Commissioner, like your- 
self of whom the agents are just a little bit afraid. That is true of 
all the lawyers. They approach them with hesitation to sell them 
in the first instance, and they approach with even more fear and 
hesitation to render them the service that they do so well render to so 
many people. 

Mr. Henderson. For which they charge me ? 

Mr. Gesell. I had three agents descend on me at once the other 
day to sell me a juvenile policy on my son, so I don't know that they 
are entirely afraid of lawyers. 

Mr. Frank. Perhaps they didn't know you were a lawyer. Mr. 
Parkinson, I happen to be a lawyer, so I am interested. Would you 
suggest, then, that since out of this fear of their stupidity or acumen 
the agents do not render lawyers any services that the lawyers should^ 
be permitted to get their policies without paying an agent's commis- 
sion ? I think it would be a very interesting suggestion. 

Mr. Parkinson. No, Commissioner, the difficulty with the lawyer — 
and I am very serious about it because I used to be a kind of lawyer 
myself — is that they love nothing better, and especially those of them 
who need the protection most, than to argue hour after hour to try to 
demonstrate to the poor life insurance agent that he doesn't know 
what he is talking about. 

Mr. Frank. My arguments have proved so futile and I have been 
so supine that I think I have substantial policies in your, company, 
Mr. Parkinson 

Mr. Parkinson (interposing). I know that. 

Mr. Frank. I think my experience has been — perhaps I am in the 
sucker list of lawyers and they don't do much arguing with me. But, 
to" be serious, I think that I represent a very substantial part of the 
community who feel that insurance is imperative, who need very 
little education as to the necessity or desirability, of procuring insur- 
ance. I think that I am not a bit above the average of intelligence 
in analyzing my needs, or in being able to study the different types of 
insurance that are presented to me. Now I have never endeavored 
to procure insurance directly. I was too stupid to have it occur to 
me until the questions were asked this morning, but if I had — assum- 
ing that I were moderately intelligent — figured out what my needs 
were; and had come to your company and asked for insurance, why 
should T have to pay for services which were not being rendered to 
me? It is difficult for me to understand. 

Mr. Parkinson. Commissioner, as long as I have any influence over 
the policy of my company it will not encourage that kind of life 
insurance. I do not want to run a company which simply sells you 
a policy and lets you do with it what you please from that point on. 

Mr. Frank. Well, let us assume that I came in and asked for a 
certain type of insurance which you thought unwise. That is, I 
went to yen or someone — and you reviewed it briefly and said, "That 
man ought not t<> have that," and then you discouraged me and en- 



CONCENTRATION OF ECONOMIC POWER Q52\ 

couraged me to take some other type of insurance, I could see why a 
charge should be made to me for negativing my idiocy in selecting 
some other kind of insurance, the wrong kind. But assuming that 
what I select is correct, and is just what I need, why should I have to 
pay — what is the premium on the first? Mr. Lubin has figured out 
what I would pay. 

Mr. Lubin. Well, 55 percent the first year. 

Senator King. Of the premium ? 

Mr. Lubin. Seven and a half for the next 9, and 5 percent for the 
next 5; totals 147^2 percent of 1 year's premium, which on a 10-year 
policy would be about 25 percent. 

Mr. Frank. Now the question is, Why should I have to pay some- 
body for performing that service, if without such service, if I made 
the correct choice? 

Mr. Parkinson. My answer is, Commissioner, that it is so desir- 
able to have people who are competent to render those services and so 
necessary to have them make a living in the business as full-time 
agents and permanent agents, if they are to be competent, that I 
should prefer as a matter of policy not to encourage anybody to take 
our policies the way you suggest, so that they could save that portion 
of a premium. 

Mr. Frank. That is to say if I save that cost then there wouldn't 
be a large enough fund to pay agents who were performing the serv- 
ices for people who wanted the servicjes ? 

Mr. Parkinson. No. Rather, I should say, that if the number of 
you developed to a large number we would be rendering less service 
to you and we would be discouraging the development of that 
permanency and competency of agency force that we have been put- 
ting so much of effort into for several years, and while you are On the 
subject may I not say that it occurs to me as the Commissioner 
speaks that our service is very much like the service performed by 
doctors," very much like the service performed by lawyers, and you 
know how inadequate both of those services are, and you know now 
often the lawyer and the doctor work hard and get no return— ^gets 
his general compensation out of the' one case where the particular 
client may feel that under all the circumstances he paid too much 
for the service rendered. Since I have ceased to be a lawyer and 
rather an employer' of lawyers, that is my point of view. 

Mr. Frank. I have never been paid as a lawyer for serving a 
client for whom I did absolutely nothing. I mean I would very 
much enjoy being in the position of being able to exact tolls as fees 
from clients whom I never saw. 

Mr. Parkinson. Commissioner, you are an exceptional man in 
many ways, and I have no doubt you are an exceptional lawyer. 

Mr. Frank. That is why I am not able to collect fees from people 
I don't serve. 

Senator King. I don't think that is a fair assumption, that the 
life-insurance company doesn't serve. There are two reasons or 
two suggestions that come to my mind in justifying your position — 
I will not say that I approve of it or disapprove. One is that if 
you abandon the idea of serving the people by having your agents 
contact them, you would have to convert your office there in New 
York into a selling office, rather than an administrative office, and you 



6522 CONCENTRATION OF ECONOMIC POWER 

would have to have thousands — if you expected any large number of 
your clients to come there — of your agents there in New York, which 
would be increasing the expense. 

Mr. Parkinson. Unfortunately, Senator, we wouldn't; only a 
few days ago the manager of our Pittsburgh office, which is cer- 
tainly the biggest life-insurance agency in the world, had the long- 
est experience of service — its managers have been better known in 
the community for all kinds of civic work, as well as life-insurance 
work, for a long period of years ; and yet when I asked the question 
of the manager the other day, How many people come into the of- 
fice and ask for insurance?, he said "Almost none. Never." We 
would not render the service that we are rendering today and it is 
the service expanded, not restricted, that I am interested in. 

Senator King. Would there not be the charge — I am merely sug- 
gesting this, I don't mean that it is a fact — Would there not be a 
feeling that there is discrimination if I went to your office and got 
a policy without paying that 45 percent and B got it from your agent 
and had to pay 45 percent more? Would there not be some complaint 
that there was discrimination ? 

Mr. Parkinson. Senator, I have suggested — and I think it is true- 
that it would be discrimination, contrary to the laws of every State 
in the Union, but Commissioner Frank asked me to forget those 
statutes for a moment and discuss the policy. 

Mr. Gesell. Now, Mr. Parkinson, in this connection— ■*- 

Mr. Pai kinson (interposing). May' I add to the explanation? 
Our coumal suggests to me that the exceptional operation of the 
Metropolitan in New York is in virtue of a special provision of the 
New York statute. 

Mr. Gesell. I don't have any doubt that other special provisions 
could be obtained if you saw fit to desire them in your case. 

Mr. Parkinson. I am not so sure about that. If we tried to get 
any such thing through the New York Legislature I should expect an 
avalanche of insurance agents down on Albany in a way that would 
make it exceedingly difficult to pass such legislation. 

Mr. Gesell. We agree on that. 

Mr. Henderson. Similar to the one that went down when they 
were trying to install the savings-bank plan ? a 

Mr. Parkinson. Very similar, I should say; yes. 

Mr. Gesell. Mr. Parkinson, you have a great desire, do you not, 
that your agents service the policyholder in selling him insurance 
and direct their activities toward meeting his needs ? I believe that 
is true. 

Mr. Parkinson. Very decidedly. 

Mr. Gesell. You have a training course for your agents which is 
intended to show them the type of practices they should pursue in 
the sale of insurance, do you not ? 

Mr. Parkinson. Yes. 

Mr. Gesell. Do you recognize this vol. V, "Simplified selling," as 
one of the. aids in that course? 

Mr. Parkinson. Yes; but I have never taken the course. 

1 See Hearings, Part X, for discussion of savings bank life insurance in the State of 
New York and opposition of insurance agents. 



CONCENTRATION OF ECONOMIC POWER 6523 

Mr. Gesell. I was interested in some sections of it. Let me read 
you this one under "Signals" on page 21 : 

If a prospect says, "I will take $5,000" and you are trying to sell him $25,000, 
stop right there and write the application for $5,000. The reason you didn't sell 
him $25,000 was due probably to your proposal. Close him for five thousand, 
order out twenty thousand, and try to deliver it when you deliver the five 
thousand. 

That would indicate to me that you are very vigorously encourag- 
ing a loading up of insurance on an individual in excess of his needs. 

Mr. Parkinson. No, Mr. Gesell, that would indicate simply in a 
practical way, rather get the man convinced to have some insurance 
protection when he is agreeable to taking $5,000 than to waste an 
effort and perhaps lose the opportunity to cover him by pressing 
for an amount that he isn't willing at that moment to take, and then 
after you have got his application for the smaller amount that he is 
persuaded to take, ask for a policy for the greater amount indicating 
that the society is willing to cover him for the larger amount, and 
try to persuade him that he has a need for the larger amount. I see 
nothing inconsistent at all in that practical suggestion. 

Mr. Gesell. That is, provided that his preliminary signing of the 
$5,000 policy is with full consciousness of what he is undertaking. 

Mr. Parkinson. With full consciousness. I have so many cases 
coming to my desk of folks who have been persuaded, sometimes 
when they were reluctant, to take life-insurance coverage, sometimes 
as the result of annoyance which, they have written to me complain- 
ing about, only to have their policy mature Vithin a few weeks or a 
few months to provide for a widow and children who otherwise would 
be Unprovided for, that I always hesitate to be very critical of the 
agent who presses in his persuasion on the man who seems to have 
the need. That is my evefy-day experience. 

Mr. Gesell. You, in fact, encourage your agents to press in your 
training. 

Mr. Parkinson. I encourage every agent to press, to cover every 
individual who has the need, for the amount of the need, but I press, 
not because I have any interest in the volume of the results, for I 
haven't. ' 

Mr. Gesell. Let me read your recommendations here as to how the 
agent shall, get a man to sign a policy. It is entitled, "Getting Ac- 
tion From tjie Prospect." 

The weighing part of the brain, the brain cells that perform the act of 
deciding, are not the cells that need to be actuated now. The motor part of 
the brain must be set to work and these cells will perform the act of signing 
on the dotted line much more quickly if some sort of action is previously 
requested of the prospect in order to rouse them into activity. It is for this 
reason that many salesmen hand the prospect a pen and ask ( him to do some 
figuring or write some data before asking him to sign his name. When you 
ask for the signature, a good way to make the request is to say, "Write your 
name here as I have written jt above." You note in this statement we have 
put two ideas forward, writing a name and writing it as written above. Since 
you give the prospect two ideas to think about, he doesn't give all his attention 
to the question of signing his name. 

Mr.- Parkinson. Mr. Gesell, no matter what our ideals, when we 
get down to the practical affairs of men and try to persuade a man 
to come in and take some insurance to cover his wife and children, 
we are pretty apt, pretty apt, to deal with phraseology that is under- 
stood by the common, average man, and those words are no doubt 

124491 — 40 — pt. 13 12 



6524 CONCENTRATION OF ECONOMIC POWER 

the practical psychologist's condensation of the right approach, even 
to render service. . . 

Mr. Gesell. You do want, though, do you not, in servicing your 
policyholders, to discuss with them the problems they raise with the 
agent concerning their needs? 

Mr. Parkinson. Yes; if the amount is large enough and the need 
is complicated enough. Many men have no complicated situation 
that needs great analysis, and they have a certain need for some life- 
insurance protection. We talk of this analysis of needs and adapta- 
tion of our service to the needs, but in actual practice, we realize 
that we must be reasonable, we can't discuss all of these details with 
the man who can only afford to pay for two thousand or twenty-five 
hundred dollars. x . 

Mr. Gesell. You do, however, if he raises some objection or some 
query with respect to his insurance problem, you want to answer it 
and discuss it with him. 

Mr. Parkinson. Yes, indeed. 

Mr. Gesell. That is part of the service the agent renders. 

Mr. Parkinson. Yes, indeed. 

Mr. Gesell. Then why in your sales training course do you go to 
some length to explain to the salesman the four methods of meeting 
an objection : the "boomerang method" ; the "admission, but," method ; 
the "head-on method" ; and the "passing-up method" ? It doesn't seem 
to me that is directed toward discussing with the prospective policy- 
holder the objections which he raises and considers sincere, but which 
your agent may not. 

Mr. Parkinson. But I suppose, Mr. Gesell, that in the Chautau- 
qua, in various kinds of religious work, as I know in various kinds 
of educational work, when a leader who thinks he has analyzed the 
situation and the problem sits down to write out suggestions for 
some beginner or some practical operator, he would in the field of 
education, in the field of religion, in the field of lecturing, persuasion, 
do just about that sort of thing, and it wouldn't mean his ideals were 
any less than those I have just expressed. 

Mr. Gesell.. Of course, it has a much more direct bearing on the 
public's pocketbook and the whole question of the standard of living. 

Mr. Parkinson. The only boast we make in the life-insurance busi- 
ness is that we don't give the policyholder anything that he doesn't 
give to us but we do give him what he gives to us. 

Mr. Henderson. I would like to pursue, Mr. Gesell, the reply which 
Mr. Parkinson gave concerning overselling, referring to the letters 
that came to liis desk indicating that people were grateful for being 
persuaded to take larger policies. That group represents those who 
have won, you might say, in the actuarial experience. That is just a 
small number who have won because of the law of large numbers. If 
everybody, however, were oversold, or if any large group were over- 
sold and cashed in on their policies quickly, the whole actuarial 
experience "would be changed, wouldn't it ? 

Mr. Parkinson. No. 

Mr. Henderson. Why not? Suppose everybody were oversold and 
then there was a large death rate. There would be a severe loss be- 
cause the insurance company would not have collected a sufficient 
amount of premiums. 



CONCENTRATION OF ECONOMIC POWER 6525 

Mr. Parkinson. The overselling is important only insofar as it may 
involve self-selection against' the company and therefore involve a 
greater mortality. The overselling simply produces a larger pre- 
mium. We are concerned about overselling because it means a dis- 
satisfied policyholder or it means that he h?* a reason for buying 
more than he ought to have, and, therefo , there will be a bad 
mortality resulting from having him for that amount in our fund. 
But the amount that he takes is met by the premiums that he pays 
per thousand. 

Mr. Henderson. That is right, and this group who writes to you 
represents those who have paid a small number of premiums and have 
collected the full amount of their policies. 

Mr. Parkinson. May I say, Commissioner, that we know through 
our actuarial tables pretty accurately how many of any group of 
people will die in a particular year. We charge all who share in 
the fund the cost of paying those who die. We don't know who will 
die. Therefore, it is important that everybody pay for the protec- 
tion, but those who do die draw out of the funds the amount that is 
theirs. I don't like the word "won." The whole group have pro- 
vided a fund to pay the amount we know will be necessary to pay 
those who do die, and those who die take the payment from the fund. 
Everybody in the fund has had the benefit of the protection which 
cornea to nim, and if he were one of the ones we know will die he 
would take his share from the funds, but as long as our actuarial 
tables are right, there won't be so many die that the funds will be 
overdrawn. 

Mr. Henderson. Turning that around means what I said in the 
first place, that there is a small number whom you know through your 
correspondence who are very grateful they were persuaded to take the 
larger amount, because they cash in early on their policy. But taking 
it on the actuarial table, that must mean, then, that many, many 
times that number have been sold and persuaded to take a larger 
amount than they thought necessary. 

Mr. Parkinson. I don't see that that follows at all. 

Mr. Henderson. Why not? The actuarial table itself proves that; 
the very argument you gave that only a few of those oversold in any 
one year are going to collect the full amount of their premium. 

Mr. Parkinson. They have paid for what you call the overselling 
per thousand. They haven't paid per individual ; their premium has 
been paid per thousand. 

Mr. Henderson. I pay a premium of $100 on a policy for $5,000, 
and in the second year I collect that $5,000. By actuarial experience, 
I must have been one of many who took out a $5,000 policy. So that 
the group who comes to you is only a small number of those who have 
"been persuaded to take higher amounts than they had originally 
determined upon. 

Mr. Parkinson. I would never pose as an expert on the actuarial 
table, but I must say it is the first time I have ever heard it described 
in any such terms as that. A few people come to me to express their 
satisfaction that a deceased father or husband did finally take insur- 
ance after much persuasion, after much overcoming of his reluctance, 
and a very large number of people — not a few — have come to me since 
1929 expressing their gratification that an agency system cornered 
them, pressed them up against the wall, almost put a gun to their ribs 



6526 CONCENTRATION OF ECONOMIC POWER 

to take life insurance instead of investing their money elsewhere— not 
a few. 

Mr. Henderson. But up to this time only a few could have realized 
on policies sold in those years, and therefore could have written you 
as you said. 

Mr. Parkinson. I don't know what you mean, Commissioner ? 

Mr. Gesell. Perhaps I can help. What about all the policyholders 
who were high-pressured into buying more insurance than they wanted 
and were unable to keep up the premiums and it lapsed? They don't 
come into your office thanking you for the activities of your agents, 
and there are a very great number of them. 

Mr. Parkinson. Yes ; unfortunately, there are a very large number 
who are persuaded to take their policies, pay for them for a time, and 
then let them drop. 

Mr. Gesell. It is pretty hard to tell what the social advantage of 
this situation is, whether the people who come 'in and were able to 
keep up their payments until they died, whether they and their families 
have reaped more or less benefit than those who were required to pay 
for something they never got. 

Mr. Parkinson. Mr. Gesell, I know from my own experience, if I 
may use the words of Mr. Shakespeare, that I have plenty of evidence 
to show it is better to have been insured for a while than never to 
have been insured at all. 

Mr. Frank. Mr. Parkinson., I think the difference between you and 
Commissioner Henderson is due to the fact you were talking about 
two different subjects. You were discussing the general operations of 
insurance and, of course, we all know that out of any given group 
that are insured, some die at an early age and some at an advanced 
age, and those who die at an advanced age have paid in more than 
those who have died at an early age. That is a platitude and so 
obvious a truism we can take it for granted. What Commissioner 
Henderson was asking about was this : As to those persons who have 
been sold more insurance than they can afford as indicated by the 
fact that they lapse, a large number of them lapse, as to that group, 
of those who die early, before a time has elapsed when they failed to 
pay their premiums, you will, of course, have a great number of 
families who will write laudatory letters to your company. 

The question Mr. Henderson was asking you and Mr. Gessell was 
pointing up, was this : Is it fair to point to those few laudatory letters 
and not to point to the letters never sent to you, that is, to the dis- 
gruntled feelings of those persons who have, assuming that there are 
such persons, and I think there ; are, have been high-pressured into 
buying more insurance than they could afford ? Is it fair to say that 
because you don't hear from that great multitude, and their name is 
legion, that you should think it is a gratifying situation because you 
heard from the few who, to use Mr. Henderson's phraseology, have 
won in that gamble? 

Mr. Parkinson.. But I know, as a matter of experience, that those 
who have been members of the fund have enjoyed its protection 
during that time, and any one of them might have been the one who 
died. 

Mr. Frank. Exactly. 

Mr. Parkinson. That is the whole business. We maintain a fund. 
We know how much we have to have to pay for those who will suffer 



CONCENTRATION OF ECONOMIC POWER 6527 

death and a loss but we don't know who they are, and all we say, if 
I may finish, is that our fund is and always has been protected by 
underwriting so that it doesn't get in the position where too many 
die too young. If they did, we wouldn't be solvent. We have a 
whole underwriting department to prevent too many people being 
insured for too much. 

Mr. Frank. Of course, there is no need to discuss that obvious 
proposition, namely, that your actuarial tables must be so constructed 
that, as you put it, too many persons insured by you do not die too 
young, because, otherwise, obviously you would not be in business. 
There is no need to repeat that proposition since obviously your 
actuarial tables would be wrong, if that were the result. 

But the problem now being discussed is. a different one. You 
seemed to be saying the following: It would be desirable that all 
persons should always insure for more than they can afford to pay — in 
which event most of them would be forced, for lack of ability to 
pay, to allow their policies to lapse — merely because the families of 
those few of the overinsured who died before their policies lapsed 
would be lucky — all of which I am sure you don't mean. 

Mr. Parkinson. Which I am sure we wouldn't permit. Our under- 
writing department prevents that. 

Mr. Frank. No ; it has nothing to do with actuarial problems. 

Suppose that everybody in the United States took out twice as 
much insurance as he could afford to pay for over a period of years. 
You wouldn't think that was desirable, would you? 

Mr. Parkinson. No; certainly not. 

Mr. Frank. That is what Mr. Henderson is talking about. 

Mr. Parkinson. Our underwriting department would try to pre- 
vent that. 

Mr. Frank. Have you prevented it? Doesn't it appear to be so 
that there are a very large number of persons who have taken out 
more insurance than they can afford or should? 

Mr. Parkinson. The fact that they have let it lapse by not paying 
the subsequent premiums does not prove that point at all. 

Mr. Frank. I agree with you. 

Mr. Parkinson. This is a situation in Avhich men are being urged 
to provide by self-sacrifice and thrift for their families. You can 
persuade them that they ought to do it today. You may be able to 
persuade them next year that they ought to continue to do it, but it 
is an exceedingly difficult job to persuade them that they ought to 
continue to do it. That is our problem. 

Mr. Frank. Obviously some of the people who allow their policies 
to lapse do that foolishly and unwisely. We know that. But the 
question is, if you find 'a very large volume of lapses, isn't that some 
indication, particularly when you inquire into the low incomes of the 
persons who are lapsing, and doesn't it raise a question whether there 
has been overselling ? 

Mr. Parkinson. It does raise the question and we are confronted' 
with such questions all the time. 

Senator King. I don't understand your position, Mr. Commis- 
sioner, to be that we are attacking life insurance. 

Mr. Frank. Oh, indeed not. I think if I were to reveal off the, 
record the amount of insurance that I carry it would be obvious that 
believe in it. 



6528 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. A further indication of the importance of life 
insurance is the fact that the most potent agency in the world within 
my time compelled me to take some insurance during the war period, 
and I still have it. 

Senator King, It would seem to me it would be a little difficult to 
determine just where to draw the line, and, of course, if you have 
reputable insurance companies and reputable agents, and they have 
met the requirements of the State under which they are organized, 
there is a presumption that they are not brigands, that they are not 
pirates, but they are doing a legitimate business. 

Mr. Gesell. Senator, may I say that I think the next sections of 
the testimony will assist the committee in considering where the line 
should be drawn. That is the broad purpose we are addressing our- 
selves to today. 

Senator King. I, as a lawyer, a person who has made a little 
money in mines and lost a great deal, know there is a great deal of 
difficulty in drawing the line of where you should make a proper 
investment. I suppose it is common knowledge that in the mining 
game, a legitimate one, where there is one mine discovered there 
are hundreds and hundreds of prospects that fail and millions and 
millions of dollars are lost by the investors. 

Mr. Gesell. Now, Mr. Parkinson, I have mentioned only one part 
of your training course. I don't want to leave it rest with the infer- 
ence that those portions I read are the only portions of the training 
course. You do have material which you distribute to your agents 
which acquaints them with the forms of policies, the theory of in- 
surance, the history of the society, and all those other factors you 
believe he should be equipped with when he goes out to meet a policy- 
holder, do you not? 

Mr. Parkinson. We do. We have a sort of preliminary training, 
then we have correspondence courses which go into great detail in 
trying to give to the agent practical instruction that will enable him 
to deal with the estate ousiness, domestic taxation, and like situations 
of individuals or his prospects. It is a very long, systematic, and 
detailed process of education provided we can hold onto them long 
enough to give it to them. 

Mr. Gesell. The first training a man gets, this basic training — 
when he comes with you, how long does it take? 

Mr. Parkinson. I think about 2 weeks or a month is the basic 
training. ' 

Mr. Gesell. How much does it cost? 

Mr. Parkinson. I do not know. 

Mr. Gesell. We have received figures from your company and per- 
haps you didn't have an opportunity to acquaint yourself with them. 

Mr. Parkinson. I heard of a figure which I was told was given 
in desperation because some figure was wanted so badly, but I wasn't 
persuaded that it was very accurate, and neither were those, I think, 
who gave it. 

Mr. Gesell. You mean to say that you haven't available in your 
office any figures which you feel you could rely upon as a reasonable 
estimate of what it costs you to train or maintain a new agent? 

Mr. Parkinson. I have many figures which deal with many of the 
factors involved, but I should hesitate to say what was any reasonable 
estimate of the cost of giving what we call training: to an ap-ent. 



CONCENTRATION OF ECONOMIC POWER 6529 

because some of it is practical, some of it is through taking him by 
the hand and having him participate in actual solicitation and writ- 
ing, some of it is by lecture, some of it is by study and correction 
of his correspondence reports, and so forth. 

Mr. Gesell. All you have focused there is the problem of cost 
accounting. I take it the answer to my question is "No." 

Mr. Parkinson. The answer is not "No"; the answer is that we 
have figures that relate to some of the factors, but I should not have 
much confidence in figures which undertook definitely to portray the 
cost of training an agent, because the process goes on. 

Mr. Gesell. I am talking, if I may interrupt, about the basic 
training. An agent comes in, and I am talking about the amount" 
that is necessary to maintain him in the business during the first 
year that he is with you. I am not talking about all of the fancy 
courses that come along. Your big, basic-training jot> 

Mr. Parkinson (interposing). Oh, I think we could give you a 
figure on that. I do not know the figure, but I think we could give 
you some figure on that. 

Mr. Gesell. Your office submitted this, and I take it you are in 
accord with it. The statement reads: 

On the basis of (he estimates we have reached, we have reached the conclu- 
sion that an average of about $300 for instruction and training and about $25 
a month thereafter for maintenance might reasonably be used. 

That gives us a $600 figure for the first year. 

In giving these figures, however, we do not mean to infer that we save $300 
per agent if no new agents were employed, nor would we double the maintenance 
cost if the number of agents were double. 

It costs you then, on your best estimates, allowing for the factors 
indicated in the statement, about $600 a year to train him and keep 
him with you ; does it not ? 

Mr. Parkinson. According to that statement. I accept that esti- 
mate if you got it from our organization. I don't know who made 
it; I couldn't make one myself so I accept that. 

Senator King. For my own information, would that mean $600 a 
year supposing he was an agent for 20 or 30 or 40 years ? 

Mr. Gesell. This is the first year only. I meant to say the first 
year. 

Now, approaching this problem from a slightly different point of 
view, can you tell us what the average earnings of your agents 
are? 

Mr. Parkinson. The average earnings of all of our agents? 

Mr. Gesell. Yes; how much do they make a year? 

Mr. Parkinson. I think it is a figure of about $1,500 for all 
agents. 

Mr. Gesell. Well now, I have a memorandum here dated Septem- 
ber 15, 1937, written to your Mr, Graham by Mr. Arthur M. Spald- 
ing, assistant to the agency vice president. 1 The memorandum states 
as follows [reading from "Exhibit No. 1332"] : 

Based on a life-insurance-sales-research study of a large number of agents, 
they report that out of 100 new full-time agents in the United States without 
previous experience, 27 are left at the end of 2 years. Only two pay for as 
much as $100,000 in their first and second years. The average annual produc- 

1 Entered later as "Exhibit No. 1332." See appendix, p. 6990. 



6530 CONCENTRATION OF ECONOMIC POWER 

tion of the 27 agents who stay at least 2 years is $56,000 which, translated into 
•earnings at the rate of $12 per thousand means about $672 a year, or $56 a 
month. 

Comparing this with the studies made of new full-time Equitable agents, they 
find that only 20.2 percent of the agents were left at the end of 2 years. The 
average annual production of those who stay — 

that is, the successful ones — 

is $67,000, and translating that into actual earnings on the same basis as above 
means that these Equitable agents earn about $804 a year, or $67 a month. 

That memorandum would indicate to me that your previous state- 
ment was very high. 

Mr. Frank. Who prepared this memorandum? 

Mr. Gesell. Mr,' Spalding, assistant to the agency vice president. 

Mr. Parkinson. Well, it is an exceedingly difficult thing to fix the 
average earnings of life-insurance agents or, Commissioner, if I may 
come back again to the legal profession, lawyers. 

Mr. Gesell. If I may interrupt, Mr. Parkinson, in « order that we 
may be very clear on this, we received a special study made of the 
earnings of the agents of your company in the metropolitan area for 
the year 1937, and that study would indicate specifically that 49.1 
percent of your agents earn $1,250 or less ; that 40 percent earn $1,000 
or less; that 31.4 percent, or almost one-third of your agents, earn 
$750 or less, so there- 

Mr. Parkinson (interposing). Mr. Gesell, they certainly don't 
earn enough, and the one great thing I am interested in in the agency 
force is that we should train them to the point and give them the 
opportunities which will justify and enable them to earn more; but 
that, after all, is again the position of the bar in, the administration 
of justice as well as it is in life insurance in the administration of our 
security production. 

Mr. Gesell. We are considering the specific problem. 

Mr. Parkinson. May I put it this way : It is perfectly futile for 
me to assemble a mass of hearsay from those who know and come 
here and try to give you an answer to a question like that, but I will 
be delighted, if the committee wants to know the answer to that 
question for our institution, not for the business generally, to get for 
you an estimate. 

Mr. Gesell. You misunderstood me. This is your own estimate. 

Mr. Parkinson. And when I ask for that estimate, I shall not ask 
the agency department, which is engaged in agency practice, but I 
shall ask the actuarial department, and Mr. Spalding is 5 an assistant 
in the agency department. I wouldn't ask Mr. Spalding for those 
figures if the committee really wants them. 

Mr. Frank. Are you suggesting that Mr. Spalding is in error? 

Mr. Parkinson. I am suggesting that Mr. Spalding is not the man 
to whom I would go for that figure. 

Mr. Lubin. Are you suggesting we shouldn't accept Mr. Spalding's 
estimate? 

Mr. Parkinson. I am saying to you, if you regard the figure as 
important let me get it for you from our technical officials who cer- 
tainly can make it accurate, and I don't know whether it is accurate 
or not. 

Mr. Gesell. Let us have very clear on the record what has hap- 
pened. I have read you this letter from Mr. Spalding. We asked 



CONCENTRATION OF ECONOMIC POWER (J53 \ 

your company for this information. They supplied us with this 
study. It is not Mr. Spalding's, it is a special study of your own 
compan}' prepared at our specific request. It is just the kind of study 
you are talking about in your testimony, and it shows the figures 
which I previously related to you. 

Mr. Parkinson. You mean the figures you just read, not the Spald- 
ing figures of a moment ago ? 

Mr. Gesell. The figures showing that almost a third of your 
agents in the metropolitan area earn $750 or less. 

Mr. Parkinson. That schedule is prepared by our technical officers 
and is, I think, as good as anything I could give you. 

Mr. Gesell. I wish to offer this for the record, if I may. 

Mr. Parkinson- Unsatisfactory, if I may say so, but it is something 
we are working with and making slow progress on. 

Acting Chairman Reece. It may be admitted. 

(The statement referred to was marked "Exhibit No. 1329" and is 
included in the appendix on p. 6986.) 

Mr. Gesell. Our purpose here is to consider with you this very 
problem which is posed by this very low average earning for your 
agents. It is one of the problems that we are considering here. In 
that connection, may I ask you whether you give any guaranteed 
earning or wage to your agents when they come with you? 

Mr. .Parkinson. No; except for a few who come into a special 
training class. 

Mr. Gesell. But for the bulk of your agents you give no guar- 
anty ? 

Mr. Parkinson. They work fully on commission. 

Mr. Gesell. Even for the first year? 

Mr. Parkinson. Even for the first year. 

Mr. Gesell. How large is thisi proportion which doesn't fall into 
that general group ? 

Mr. Parkinson. We select annually about 100 college graduates 
who are put in what we call the cashier's training class. They are 
paid, I think, $100 a month in all instances. They are trained in 
the practical daily operations of the cashier's office with the idea 
that, having learned about the details of the business, they will have 
the best foundation upon which to build a successful selling career. 
Many of them do not develop into salesmen. We take them into the 
administrative end of our work. Those who do show sales interest 
go into sales work. 

Mr. Gesell. You say that is about 100 men? 

Mr. Parkinson. One hundred a year. 

Mr. Gesell. How many new agents do you employ each year? 

Mr. Parkinson. That, of course, depends on the year. We have 
been for years trying to reduce the number and to increase the 
number of permanent agents. 

Mr. Gesell. I have figures here which indicate that for the year 
1938 you had at the beginning of the year 5,894 direct agents under 
contract; that during that year you appointed 2,045 new agents; 
that during the year 1,721 agents were terminated. Do you believe 
that is close to your experience year in and year out ? 

Mr. Parkinson. Yes. 

Mr. Gesell. So that you have about 2,000 new agents a year? 

Mr. Parkinson. Yes. 



6532 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In some years more? 

Mr. Gesell. And you sly that of those 2,000 there are 100 which 
receive this special training salary guarantee and detailed ex- 
perience ? 

Mr. Parkinson. That is right. 

Mr. Gesell. I would like to offer for the record this memoran- 
dum showing ; i greater detail the agency turn-over experience of 
the company for 1938. 

Acting Chairman Reece. That may be admitted. 

(The memorandum referred to was marked "Exhibit No. 1330" 
and is included in the appendix on p. 6987.) 

Mr. Gesell. The turn-over problem is a very serious one, is it not, 
in business. 

Mr. Parkinson. It is serious from our point of view insofar as 
we are trying earnestly to interpret our services accurately and 
broadly throughout the country, and with specific reference to their 
application to the individual's needs. We know that we cannot have 
the kind of service that we want on the part of our institution or 
of our agents unless we have agents who are not only well trained, 
but happy, continuous in their service, rendering a continuing serv- 
ice to continuing policyholders — oh, I am not making a speech. That 
is all right. 

Mr. Gesell. Well, the thing that concerns me, Mr. Parkinson, 
being familiar, as I am, with the principles which you have just 
stated, is how it is possible to have the kind of experience your com- 
pany is having. Here I have before "me an analysis of the agents 
appointed during 1936. In that year you appointed 3,165 agents. 
At the end of 1937 there were only 1,094 left and at the end of 1938 
there were only 682 agents with you of the 3,165 appointed in 1936. 
Now that is a very, very bad experience. 

Mr. Parkinson. The experience is unsatisfactory, but there are 
factors in it which the mere figures do not at all suggest. 

Mr. Gesell. That is what I want to ask you. Will you give us those 
factors ? 

Mr. Parkinson. Everyone who comes to us and seeks the oppor- 
tunity to act as a life-insurance agent, and who enters our preliminary 
classes, must be licensed before he can even have the training, because 
part of the training is participation in solicitation, and he must have 
a license for that. Therefore everyone who comes and offers to act 
as an agent, who seeks an opportunity in a field where men are not 
peculiarly trained for the job, in a field which is open to those who 
haven't professional training for other particular work, or experience, 
which fits them for other particular work, everyone who comes must 
first be licensed before he can be trained, be tried out or appraised. 

Mr. Gesell. May I ask what the point is? Assuming they have to 
be licensed. 

Mr. Parkinson. The point is they are all included in those termina- 
tions. If they don't like the work or if we don't like them as the train- 
ing progresses. May I use another legal illustration? 

Mr. Gesell. Well- 

Mr. Parkinson (interposing). May I finish? Suppose that every 
entrant in the Harvard law school in the first-year class had to have 
a license in the Massachusetts bar before he could be trained in Har- 
vard, the turn-over in the Massachusetts bar would be terrific, as I 



CONCENTRATION OF ECONOMIC POWER 6533 

understand the figures of the Harvard law school's experience in the 
dropping out of the thousands of freshmen before you come to the 
third-year graduation. It is the same situation exactly. 

Senator King. You may answer the question of Mr. Gesell's and 
then make your explanation. 

Mr. Gesell. I think we would go faster. Thank you, Senator. Do 
I understand that included in these agents who were terminated were 
agents who had their licenses taken away? Is that the point? 

Mr. Parkinson. That is what termination means. The point I am 
trying to make is that you have the figures for agents whose licenses 
were terminated. 

Senator King. What is the license ? 

Mr. Parkinson. Everybody has to have the license. 

Senator King. From whom? 

Mr. Parkinson. From the State insurance department. Everybody 
has to have a license before he can participate in the training. 

Mr. Gesell.. Those licenses were terminated by yourselves, Mr. 
Parkinson, so it isn't the result of the operations of any licensing 
system. 

Mr. Parkinson. No, no. I am only trying to point out that the 
very beginner whom we have had no opportunity to appraise, who 
comes in to try this business, seeking employment in these days when 
employment isn't easy to get, we do not shut the doors; we let them 
come in and try, but we have to give them a license before they can 
have training or try, and the figures that you have there are the termi- 
nations of those licenses. I am only trying to point out that they 
include everybody who has sought to try out the opportunity to make 
a living in the life-insurance business. 

Mr. Gesell. They include everyone whom you and your associates 
selected as a man who would be suitable to represent the Equitable as 
an agent? 

Mr. Parkinson. That is right, temporarily subject to training and 
decision ; you understand what I have said. 

Acting Chairman Reece. It is now almost 12 : 30. Do you hope to 
finish with this witness this morning ? 

Mr. Gesell. No; we will have to run this afternoon. I indicated to 
Mr. Parkinson that I would try to finish with him today and would 
appreciate our reconvening at 2 o'clock in order that we have time to 
do it, if that is satisfactory with the committee. 

Mr. Lubin. Mr. Chairman, just before you adjourn for lunch, may 
I ask a question of Mr. Parkinson ? Does every State in the United 
States require every insurance solicitor to have a license? 

Mr. Parkinson. I couldn't answer that question. I think it is so, 
but I could get you the answer to that question read^y. 

Mr. Lubin. I infer from what you say that everybody who wants a 
job of you must have a license first before he gets his training, and 
that these requirements are made by the various States, and I was just 
wondering whether all the States require licenses. 

Mr. Parkinson. I think they do. 

Senator King. Let me ask one question. In this period of depres- 
sion have there been more applicants for positions with your company ? 

Mr. Parkinson. Yes, Senator. 

Senator King. Many of them vouna; men ? 



6534 CONCENTRATION OF ECONOMIC POWER 

Senator King. Some of them going to school who try to earn a 
little by selling life insurance? 

Mr. Parkinson. A few, but most of the men who had lost their 
jobs in some phase of the financial world, which is somewhat related 
to our activities. 

Mr. Frank. That gave you a larger range for selection, then, 
didn't it? 

Mr. Parkinson. Gave us a larger range for selection, but also gave 
us the necessity over a long period of years of deciding whether we 
were going to close our doors and say, "No; we won't give you a 
chance even to try." 

Senator King. What proportion of those whom you have employed 
during the past 3 or 4 years during the depression were men or women, 
or both, out of employment, who had lost their jobs? 

Mr. Parkinson. Most of them, Senator; I couldn't give you the 
figures. 

Acting Chairman Reece. The committee will stand in recess until 
2 o'clock. 

(Whereupon at 12:30 o'clock, the committee recessed to reconvene 
at 2 p. m. of the same day. ) 

AFTERNOON SESSION 

The hearing was resumed at 2 : 20 p. m., upon the expiration of the 
recess, Representative B. Carroll Reece presiding. 

Acting Chairman Reece. The committee will please come to order. 
Are you ready to proceed, Mr. Gesell ? 

Mr. Parkinson. Mr. Chairman, before you resume, may I say 
that in my testimony this morning, in answer to one of Mr. Gesell's 
questions, I said yes, that the commission, the first-year commission 
paid to a general agent is 55 percent. 1 That is true. However, I 
made the answer with the expectation - that other questions would 
develop an opportunity to state what is also true, and that is that 50 
percent of the total of 55 percent is paid by the general agent to his 
subagent, the solicitor. Fifty-five percent is payable under the gen- 
eral agent's contract for business, but 50 percent, not of the 55, but of 
the premium, goes to the subagent who solicits the business, and only 5 
percent of the premium goes to the general agent, and then also it is 
true that those percentages apply only to ordinary life insurance; 
varying percentages, most of them lower, are paid for various kinds of 
insurance. In other words, there is a schedule of commissions which 
we can readily file with the committee. I merely wanted to correct an 
impression that might have misled anyone. 

Mr. Gesell. I think we might offer for the record a statement of 
the basic commission which is paid to the general agents, managers, 
and subagents, and other employees. That is set forth on this ma- 
terial, is it not, Mr. Parkinson ? 
. Mr. Parkinson. I recognize this as a digest of our rules and regu- 
lations and contracts that we place before the members of our 
agency committee and our board every month. 

Mr. Gesell. This would be a complete statement of the matter 
that you refer to? 

1 Supra, p. 6M3. 



CONCENTRATION OF ECONOMIC POWER 6535 

Mr. Parkinson. It is an accurate digest. It is not the exact 
provisions. 

Mr. Gesell. I should like to offer it for the record. 

Acting Chairman Reece. It may be admitted. 

(The document referred to was marked "Exhibit No. 1331" and is 
included in the appendix on p. 6988.) 

Mr. Parkinson. We would, of course, if the committee desire, 
give you the actual contract which contains the exact provisions. 

Acting Chairman Reece. For one, I didn't get the impression 
that the general agent got 55 percent of the first year's premiums 
unless it was on business which he himself had written. 

Mr. Parkinson. That is exactly right. 

Mr. Gesell. I neglected to offer for the record the memorandum of 
Mr. Spalding to Mr. Graham, under date of September 15, 1937, with 
respect to the average annual production and compensation of agents 
for the first 2 years with the companies who stay that long, 1 and I 
would like to offer it now. 

Acting Chairman Reece. It may be admitted. 

(The memorandum referred to was marked "Exhibit No. 1322" and 
is included in the appendix on p. 6990.) 

Mr. Gesell. Prior to recess, Mr. Parkinson, we were discussing 
reasons for agency turn-over, and you called our attention to the fact 
that these figures which were introduced take account of every agent 
whom you hired and who succeeded in being licensed, indicating to 
us that, of course, some of them stayed a very negligible period of 
time with the company. 2 Now are there any other factors bearing 
on the causes for agency turn-over that you would like to bring 
to the committee's attention at this time? 

Mr. Parkinson. Well, it is a very difficult business, a very dis- 
couraging business, and we all recognize that the actual solicitation 
of life insurance, especially of substantial amounts of life insurance, 
which means contact with substantial people, is and is growing more 
and more difficult, and not all men can do the job well, or maintain 
the necessary enthusiasm for it, because it is not alone a matter of 
training in these details to which our training refers that makes a 
successful and permanent agent. A very great deal depends upon 
the personality of the man, whether he has the missionary spirit, 
whether he has those things that make a good educator, for example. 
All of that is involved in his maintaining the courage, the inspira- 
tion that is essential to maintain these contacts and against great 
discouragement go on trying to sell. 

Mr. Gesell. And your present methods of selection and recruiting 
are not of such a character "as to enable you to differentiate that type 
of individual whom you desire to have from the person who is not 
a successful agent? 

Mr. Parkinson. We try; we use sometimes the psychologist's 
methods of determining the possession of the requisite quality, but 
notwithstanding our effort, we don't do as good a job as we would 
like to in determining at the outset who is going to be successful. 

Mr. Gesell. Now have you given consideration to paying your 
agents a guaranteed minimum salary, let us say for the first year 



1 See supra, p. 6529. 

2 Supra, p. 6532, et seq. 



6536 CONCENTRATION OF ECONOMIC POWER 

they are with the company, and putting greater emphasis upon train- 
ing and education of the man? In other words, you have a man 
who has an assured income of this minimum guaranteed amount and 
he is spending his first year not seeking commissions to maintain 
his livelihood but is to some extent more interested in learning the 
business. 

Mr. Parkinson. I couldn't very well combine those two matters 
of training and compensation for purposes of answering accurately 
your question. As to training, we are giving constant consideration 
to improving the service of the agent and helping him not only to do 
a good job for his prospect and policyholder, but to be successful and 
make a living out of the business, because we kno^we won't have 
permanent and satisfactory agents unless they are making a living. 

But when you come to the matter of compensation, I can only say, 
as I did this morning, that we do take a limited group annually into 
what we call the cashier's training course. 

Mr. Gesell. We saw that was only 100 out of 2,000 agents. 

Mr. Parkinson. Yes ; and most of them, I should add, or about half 
of them, go into the administrative work rather than the agency. 

Mr. Gesell. What about the other 1,900 ? 

Mr. Parkinson. We have in the past tried in a limited field the" 
payment of salaries, wages. It was not satisfactory, and we have, I 
think, pretty definitely determined that the desirable way of com- 
pensating the man who performs this service of modern life insur- 
ance is in accordance with what he does.' 

Mr. Gesell. You understand, I am talking only about the first year. 
I am not ta'king about any longer period- than that. You think even 
for the firs . year you should keep this commission on new business 
incentive in front of him ? 

Mr. Parkinson. Yes ; because it is the best way to determine whether 
he does have the qualities which will ultimately succeed. 

Mr. Gesell. What are the principal reasons for dismissing these 
agents who are let go each year in such large quantities from your 
company ? 

Mr. Parkinson. That I could not say. 

Mr. Gesell. I have here a schedule entitled "Causes of Termination 
(Direct Agents and Subagents) for the year 1938." This schedule 
indicates that of the agents terminated, 1,088 were terminated for 
insufficient production ; 409 for nonproduction ; 227 for failure to meet 
your 10-case rule, making approximately 1,724 agents who were fired 
or terminated because of not meeting your production standards, and 
that is by all odds the greatest percentage of the dismissals. 

Mr. Parkinson. I am not familiar with that statement, but if you 
got it from our office, I am quite sure 

Mr. Gesell (interposing). It was prepared for us by your staff. 

Mr. Parkinson. I have no doubt it is an accurate statement of 
causes of termination. 

Mr. Gesell. Your principal causes, then, are the failure of a man 
to produce business ? 

Mr. Parkinson. Yes; but you must realize that it isn't because he 
hasn't added to our volume; it is because, by his failure to produce, 
he has indicated a lack of the quality that will ultimately make him 
a successful, income-earning representative. At least, I think that 
is so. 



CONCENTRATION OF ECONOMIC POWER 6537 

Mr. Gesell. That is because of the method of compensation you 
use, isn't it? If you had a different compensation method a man 
could have different qualities and still remain on. 

Mr. Parkinson. We certainly wouldn't continue to pay a salary to 
a man whose production indicated he was not successfully contacting 
a large number' of people and placing either additional insurance on 
our existing members or bringing new members into our society. 

Mr. Gesell. When you talk, then, about service, as you did with 
Commissioner Frank this morning at some length, you have princi- 
pally in mind the selling of insurance to new people or to old policy- 
holders in greater amounts. 

Mr. Parkinson. No, indeed. I have in mind the placing of in- 
surance protection, practical security to the amounts indicated, but 
when I speak of the service that Commissioner Frank was discussing, 
I mean the adaptation of our general service to the peculiar needs 
of the particular individual, both at the time of service and continu- 
ously thereafter. I think you would get a very much better picture 
of the whole thing if you would let us give you the kind of work that 
a really successful Equitable agent performs both before and after 
the policy is put in force, and perhaps I should add on this very point 
that you have in your papers, I think, the statement that 54 percent 
of all our agents have been with us for more than 5 years. You are 
speaking about the difficulty of selecting new permanent agents. 
Fifty-four percent of our agents have been with us for more than 5 
years. 

Mr. Gesell. Your average period of service for the agents who 
are with the business is about exactly 5 years, is it not ? 

Mr. Parkinson. I don't know what the average is. 

Mr. Gesell. A statement here, dated October 22, 1937, from Sec- 
ond Vice President Borden states : 

I think I made a statement to you the other # day that the average 'length 
of service of our agents was something under five years. I find, however, that 
I should have said it was somewhat over five years. The actual figures show 
that 4,062 agents, or 51 percent of the total, have five or more years of 
service — 

So your average is about 5 years. 

Mr. Parkinson. If that is stated in the memorandum, I accept 
that, except that I do not know. 

Mr. Gesell. I would like to offer at this time the schedule of termi- 
nations that we have been discussing. 

Acting Chairman Reece. It may be admitted to the record. 

(The schedule referred to was marked "Exhibit No. 1333" and is 
included in the appendix on p. 6990.) 

Acting Chairman Reece. Do you have an idea as to how your 
agency mortality, and also your production, in the metropolitan area 
compares with those in the more sparsely settled areas? 

Mr. Parkinson. I could give you some figures on that, Mr. Chair- 
man, but I don't have them. 

Acting Chairman Reece. Is the agency mortality higher in the 
metropolitan areas? 

Mr. Parkinson. I should expect it to be. 

Mr. Gesell. You mean, by mortality, turn-over, terminations of 
agents, not deaths. 

Acting Chairman RaECE. Yes. 



6538 CONCENTRATION OF ECONOMIC POWER 

Mr. Parkinson. I mean terminations within a year. 

Mr. Gesell. You referred, I believe, Mr. Parkinson, to the Woods 
Agency in Pittsburgh this morning as being the largest and the out- 
standing agency of your company, did you not ? 

Mr. Parkinson. Yes. 

Mr. Gesell. Do you recognize this as a letter from Mr. Duff, the 
general agent in charge of that agency? 

Mr. Parkinson. Yes. 

Mr. Gesell. Would you say that he had an outstandingly suc- 
cessful agencj'? 

Mr. Parkinson. Yes ; I would* say that the Woods Agency beyond 
any doubt is the outstanding life-insurance agency in the country, 
not merely in the Equitable. 

Mr. Gesell. Well, now, I wanted to read a portion of this letter, 
dated June 10, 1938, as the basis for subsequent questioning. He 
says, in part, as follows [reading from "Exhibit No. 1334"] : 

Compliments to the Woods Company are at times embarrassing to the Man- 
ager when such a situation as the following is true : 

On May thirty -first we had under contract 296 whole-time agents and 119 
part-time agents, a total of 415. 

By December next I hope that we will have not over 300 agents and with 
this number most of them substantial. 

Making a study of our records divulges the fact that 116 agents last year 
produced less than $50,000 apiece; therefore, earned not even a fair living. 
This 116 — 25% of our force then — produced 10% of our business and con- 
sumed, I would say, at least 50% of our time. 

If the Lord lets me live, I expect to see to it that a very large percentage of 
those who remain under contract are substantial agents, selling substantial 
amounts of insurance to substantial people. What is the use of talking about 
Life Insurance as a career when one-fourth of our people are not making a 
decent living, and when year in and year out we hire and fire about ten people 
a month ! 

I can see he, too, is concerned with the problem we have been dis- 
cussinghere today. 

Mr. Parkinson. We are all concerned with it. 

Mr. Gesell. May I offer this letter for the record ? 

Acting Chairman Reece. It may be received. 

(The letter referred to was marked "Exhibit No. 1334" and is 
included in the appendix on p. 6991.) 

Mr. Gesell. Isn't it true, Mr. Parkinson, that the great bulk of 
your business is written by a very small number of your agents? 

Mr. Parkinson. It is written by the small percentage I should 
say, but not the very smallest. 

Mr. Gesell. Now here in 1937 your records would indicate - that 
about 36 percent of your agents were club members and yet those 
who qualified for the clubs produced 64 percent of the volume written. 
In other words, 36 percent of your men are writing about 64 percent 
of the volume. That would indicate to me that you could maintain 
a successful company by relying only on these outstanding men, and 
to some extent obviate the necessity for bringing in so many new 
recruits who are unsuccessful and who, of course, cost the existing 
policyholders a great deal of money. 

Mr. Parkinson. The club members are those who write $100,000 
of business a year. That we regard as about a minimum of business 
that will produce earnings sufficient for a man to be a full-time agent. 
Therefore, all of the part-time agents, or mostly all of them, are in 
this other 1 percentage who produce the balance of the business. 



CONCENTRATION OF ECONOMIC POWER 6539 

Mr. Gesell. I misread this; it is 25 percent of your agents who 
produce 64 percent of the business. 

Mr. Parkinson. Yes; I think that would be more nearly accurate. 

Mr. Gesell. Well, now shouldn't it be good management 

Mr. Parkinson (interposing). Pardon me, Mr. Gesell, a lot of 
your question remains unanswered and I would like to answer it. 
May I have it read? 

The Eeporter (reading) : (Question beginning, "Now here in 1937 
your records would indicate," etc.) 

Mr. Parkinson. Now in the first place everything depends on what 
you mean by a successful company. A company that would be sound 
financially; yes. A company that it would be very much easier for 
the chief executive to administer, yes ; but a company that would be 
extending its service deliberately and earnestly to those people 
throughout the country who we think need it, no ; we couldn't run a 
successful company, because we would be missing a very Jarge num- 
ber of people with whom these agents unfortunately who stay with 
us only a short time, or these part-time agents, bring us in contact, and 
I must remind you in answer to the final part of your question that 
the whole theory of our business is that the newcomers into the busi- 
ness pay their way in. They do not come in at the cost of the existing 
policyholders, except where through the misfortune of early loss 
some part of the cost of bringing them in is left to be borne by our 
surplus, but the theory is, and it almost works out in practice, that 
the newcomers pay their way in. 

Mr. Gesell. Of course it is true the cost of your insurance goes up 
as you have increasing expenses in recruiting agents— may I have 
an answer to that question, please, first ? It is true,- is it not ? 

Mr. Parkinson. Yes ; it is, but as I said this morning, we are not 
running a company for the purpose of making money for stock- 
holders, or to keep our net costs down to the lowest possible. We are 
rather trying to expand than to restrict our service. I could immedi- 
ately, even with my little knowledge of the life-insurance business, so 
restrict our activities territorially, occupationally, and otherwise that 
we could easily score a very much lower net cost. What we are trying 
to do is to give the widest possible and the fullest possible coverage to 
the greatest number of people at a cost which they will stand. 

Mr. Gesell. So that though your company now is over the two- 
billion-dollar mark in the point of view of size, and could maintain 
that position through the efforts of this 25 percent of the agency 
force who write 64 percent of the business, you feel that you have a 
mission to carry the service of your company to persons who are not 
yet policyholders? 

Mr. Parkinson. That is a question that I can answer happily and 
enthusiastically, yes. 

Mr. Gesell. So that if you are entirely successful from the point 
of view of your present management policies, you will still continue 
to increase at the same rate you have been goings both from the point 
of view of assets and insurance in force ? 

Mr. Parkinson. I think that is true. 

Mr. Gesell. It would look as though if you succeed in your pres- 
ent program that your company may reach the five, six, seven, eight, 
ten billion dollar mark in time? 

Mr. Parkinson. That is possible. 

124491 — 40 — pt. 13 13 



6540 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now there is a point here somewhere, is there not, 
where the Society must consider whether the advantages to the new 
policyholders who are brought into the business are equal to the 
disadvantages which may accrue to the existing policyholders be- 
cause of the increase in size and the other complexities which arise? 

Mr. Parkinson. Yes. 

Mr. Gesell. You feel you have not yet reached that point? 

Mr. Parkinson. By no means. May I add 

Mr. Gesell. Have you any idea as to what the ceiling will be? 

Mr. Parkinson. We have about a million and a half, a little less, 
members. 

Mr. Gesell. You mean policyholders? 

Mr. Parkinson. Policyholders but I don't like to forget that they 
are members. I spend a lot of my time impressing on them, the 
entire administrative organization of the institution, that the policy- 
holders are in our case in law and in fact members of an institution 
and we must always remember we have only one million and a half. 
You know the population of the country. In assets we have, it is 
true, $2,300,000,000, but when you think of that in terms of each 
policyholder or member it is $1,500. 

Mr. Gesell. You see you have likened your activities, and I am 
sure of your sincerity, to an educational or religious program. 

Mr; Parkinson. Yes. 

Mr. Gesell. You take even, though, a minister or a preacher or 
anyone else who is interested in putting forward an idea, there must 
be at some stage where he stops and works with the group who are 
subject to his influence. Your continual desire to bring more and 
more people into your Society would indicate that to some extent 
you have no confidence in the fact that those people will be taken 
care of by other companies writing insurance, preaching the same 
gospel, and working in other areas? 

Mr. Parkinson. No; that is not so. I should dislike nothing more 
than that all of the life insurance should be in my company. 

Mr. Gesell. Where are you going to stop ? 

Mr. Parkinson. That is an exceedingly difficult question. As you 
have indicated, if we did not take another member into our organiza- 
tion; that is, did not sell another policy to a nonmember, if we did not 
allow an existing member to take any additional interest ; that is, did 
not sell any additional policy to an existing member, the develop- 
ment, assuming that the existing policyholders remained in the insti- 
tution, would necessarily add to our assets, add to them even faster, 
I am told by the actuaries, for the next few years than if we do go on 
doing business. 

Mr. Gesell. And we have then, don't we, both in the very nature 
of your business and from the point of view of the management 
policy which you have just expressed, the very present possibility of 
your company continuing to grow larger and larger and larger, 
accumulating more and more of the assets and investments of the 
country. 

Mr. Parkinson. And it gives us a continuing problem which varies 
as other things about us, population and other factors grow in this 
great country. 

Mr. Gesell. Have you set any ceiling as to your size from the 
point of view of assets or insurance in force? 



CONCENTRATION OF ECONOMIC POWER g541 

Mr. Parkinson. No ; because it is so difficult to do it without using 
a dollar value, and who can say what dollar value used today would be 
a reasonable estimate in the future ? 

Mr< Gesell. Let's take number of policyholders. They stay a 
pretty stable commodity. How many policyholders do you want ? 

Mr. Parkinson. I have never thought of it. 

Senator King. I would like, without desiring to inquire into the 
purpose of the examination, to ask, is the thesis of the organization 
represented by you, Mr. Gesell — and I am not complaining, if that is 
the thesis — to reach a conclusion or to announce as a policy that the 
life-insurance companies shall not increase in size or in the number of 
policyholders? Is the examination for the purpose of tearing them 
down or restricting their activities or restricting their capital or re- 
stricting the number of policyholders which they shall have within 
their organization ? Or is it merely a factual presentation to show the 
size and what they are doing ? 

Mr. Gesell. Senator, it is the latter. I have never attempted to put 
my personal opinions into the problems that we have here. It seems to 
me that if the committee is interested in- concentration of economic 
power, it is interested in knowing what the possibilities of growth of 
the insurance business are. Those are simply the questions I am con- 
sidering. Since they involve to some extent not just the operation of 
the business but matters of management policy as well, I have been 
considering those as part of the study. 

Senator King. I think that is within the legitimate scope of the 
activities and authority of this committee v but I aid not know whether 
it was the purpose of your organization to contend that when they 
reached a ceiling, to use your expression, they must go no further, or if 
they have 1,000,000 policyholders, they should have no more, or 
whether your purpose was to get facts. 

Mr. Gesell. Just get at the facts ; that is all. 

Senator King. So if legislation is necessary by the State of New 
York or other States in which they are operating, or if there is au- 
thority, legislation by the Federal Government, it may take these facts 
into consideration. 

Mr. Gesell. Having all these facts in mind. 

Mr. Parkinson. May I contribute at this moment, in view of the 
Senator's suggestion, that we have in New York a statute which is 
applicable to all of our business throughout the country, a limitation 
on the amount of new business that we can do in any 1 year. 

Senator King. What is that limitation* 

Mr. Parkinson. That is 10 percent of the amount done in the pre- 
ceding year. 

Mr. O'Connell. You mean 10 percent in excess of the amount done. 

Mr. Parkinson. Yes. 

Mr. O'Connell. You can't do more than 10 percent more this year 
than you did last year? 

Mr. Parkinson. Yes ; and I am sorry to say, from the point of view 
of our poor agents, we have had no trouble with that limitation in the 
past years. 

Mr. O'Connell. It hasn't operated as a restriction. 

Senator King. I suppose you submit annual reports to the proper 
officials of the State of New York? 

Mr. Parkinson. Not only annual but thoroughly complete, Senator. 



6542 ' ' CONCENTRATION OF ECONOMIC POWER 

Senator King. They have an insurance commissioner who scruti- 
nizes your accounts, your reports, and you have to conform to the law 
and conform to such regulations as he under the law may formulate? 

Mr. Parkinson. We do, sir. 

Mr. O'Connell. Have you in mind in general what the public 
policy behind that restriction in /New York is? 

Mr. Parkinson. It was the outgrowth of the Hughes investigation, 
which determined that there was at that time too much emphasis on 
a desire to grow quickly, and it was the best that they could work out 
and the best that we have been able to work out, and the best that 
experts representing the New York Legislative Commission, which 
recently recodified the New York insurance law under the guidance 
of Professor Patterson, of Columbia Law School, could work out. to 
put a practical limit on annual growth. 

Mr. Gesell. Of course, there are many officials, are there not, insur- 
ance officials, who put their own limitation upon how large they should 
grow? We have had some of them before this committee. 

Mr. Parkinson. Yes; I think that when they do, they do it with 
a view to earning dividends for stock rather than extending under 
the best possible conditions the service they have to offer to an expand- 
ing number of people. That is the difference between our mutual 
companies and those who, while operating a business which is essen- 
tially mutual, nevertheless have the problem of earning dividends for 
stocks. 

Mr. Gesell. You see what occurs to me immediately, I am sure. 
Here are these stock companies, competing on an equal basis with 
the mutual companies from the point of view of cost, and still taking 
these tremendous profits. Just think what a mutual company could 
do if it had the same operating efficiency and plowed those profits 
back to policyholders. You would have cheaper insurance ; you would 
have many advantages. 

Mr. Parkinson. But, Mr. Gesell, it wouldn't be doing what we are 
doing every day in our medical bureau and elsewhere, trying to see 
if it would be possible for us to include in the number whom we accept 
as eligible risks those who have heretofore been absolutely precluded 
from coming in. 

Mr. Gesell. Oh, yes; but there is still that flexibility, and you still 
put your territorial restrictions, your other types of restrictions, on 
the scope of your operations. 

Mr. Parkinson. Yes ; we could ; but we are trying to do the oppo- 
site; that is, to extend our service to cover the entire country as a 
national institution should, and to cover the great number of risks. 

Mr. Gesell. You say as a national institution should. It has been 
your management policy that has made you a national institution. 
You have no other cause for saying you are one, have you? 

Mr. Parkinson. No. 

Senator King. You used the word "national" in the sense of ter- 
ritorial rather than an organization of the Federal Government? 

Mr. Parkinson. Yes. 

Senator King. I want to discriminate between what is national and 
what is territorial. 

Mr. Gesell. One way which your company has adopted of carrying 
this service and this message that you have to policyholders is the use 
of sale campaigns, is it not? 



CONCENTRATION OF ECONOMIC POWER 6543 

Mr. Parkinson. Yes. 

Mr. Gesell. Will you tell us what the policy of your company is 
with r.espect to sales campaigns? You do encourage them, do you 
not? 

Mr. Parkinson. Yes ; we encourage them. That is a big question 
and pretty hard to make a little answer to it. 

Mr. Gesell. Let me whittle away at it a little and if you have any 
further explanation we can put it in. There are three types of cam- 
paigns in your company, am I not right, those sponsored by the 
company itself on a Nation-wide basis, those conducted by one de- 
partment of your company for a certain area, either the New York 
area or the central area, whatever area it is, and third, contests con- 
ducted by your local managers or general agents for the purpose of 
stimulating the agents immediately under their supervision. You 
have three different types of contests. 

Mr. Parkinson. I am always suspicious of any classification which 
results in three divisions. I am sure there are those three, but I 
suspect there might be some others but they wouldn't be as im- 
portant as those three. 
Mr. Gesell. Could we say those are three principal kinds? 
Mr. Parkinson. They are the three principal ones, I am sure. 
Mr. Gesell. Could you tell us about the company-sponsored cam- 
paigns that you have, that is, the Nation-wide campaign ? You have 
every year, do you not, some kind of a convention anniversary cele- 
bration at which you give recognition to your substantial producers. 
Mr. Parkinson. Not necessarily every year. We have in the last 
15 or 20 years had a Nation-wide convention on the occasion of the 
anniversary of our organization, that is the fifth year, 1929 the first, 
and recently in 1939, and then we do have from time to time addi- 
tional, but not necessarily annual, gatherings of selected agents, 
which are organized and supervised by the home office. 

Mr. Gesell. Now in 1939, in July, you had your Eightieth Anni- 
versary Educational Conference, as it was called, did you not? 
Mr. Parkinson. Yes. 

Mr. Gesell. And to that you brought your top 800 producers. 
Mr. Parkinson. Yes. 

Mr. Gesell. The year before you had a Miami Educational Confer- 
ence, held in January, did you not, in Florida ? 
Mr. Parkinson. Yes. 

Mr. Gesell. And to that conference you brought all agents who 
had written $200,000 in volume, $6,400 in paid-in premiums, and 12 
lives for the year 1937. 
Mr. Parkinson. Yes. 

Mr. Gesell. Those are typical of the type of Nation-wide confer- 
ences you have? 
Mr. Parkinson. Yes. 

Mr. Gesell. Now, are you familiar with the departmental cam- 
paigns that I have talked about, those that are limited to some par- 
ticular region of the country? 

Mr. Parkinson. Yes ; in a general way. I am not sure I am famil- 
iar with all of them. 

Mr. Gesell. Can you tell us about some of them that have come 
to your attention? 



6544 CONCENTRATION OF ECONOMIC POWER 

Mr. Parkinson. Well, there is an annual campaign in the Middle 
West, in what we call the central department, which is organized 
by the managers and general agents of that territory. 

Mr. Gesell. Is that the Par for Parkinson campaign ? 

Mr. Parkinson. That is the Par for Parkinson campaign. 

Mr. Gesell. They are the standards of production, are they not? 

Mr. Parkinson. Yes; production and certain activity which is sup- 
posed to differentiate the successful and worth-while agent from the 
others. 

Mr. Gesell. Generally these departmental campaigns, then, are 
much on the order of the company-wide campaign, only restricted to 
an area ; is that correct, do you think ? 

Mr. Parkinson. They are different in that the home office has 
nothing to do with them and doesn't pay the expense of them. 

Mr. Gesell. The home office does pay some little expense. 

Mr. Parkinson. Very little. _ 

Mr. Gesell. Covers the printing expense. 

Mr. Parkinson. It is a very infinitesimal proportion. 

Mr. Gesell. I am sure it is. But it does pay it, does it not? 

Mr. Parkinson. It does pay it. 

Mr. Gesell. Does the home office supervise those contests in any 
way? 

Mr. Parkinson. No ; I think not, except that I suppose there is an 
occasional suggestion as to what might make the effort more success- 
ful than less ; but generally speaking, that particular campaign, which 
is illustrative of our field campaigns, is in the hands of the manage- 
ment. 

It is a little difficult for me to portray, if I may suggest, in general 
language here just what such a campaign is and what it does. We, 
and I am among them, who know only a littltf about what actually goes 
on in the work of the office and in the work of the agent in the field, 
must use very general language as I sit here and try to describe what 
that campaign is like and what happens. But that campaign at its 
conclusion results in a meeting in Chicago which is attended by the 
two leading agents of each of the agencies from Oklahoma to Detroit, 
and from St. Paul to Columbus, Ohio, and all the territory in between. 
There the agents who have participated and been successful enough to 
win the right to attend that Chicago meeting have a chance not merely 
to enjoy and get the encouragement that comes from the fact that they 
have done a good job as measured ^y vilume — yes; that is our best 
measurement — but they also have a chance to see others who have suc- 
ceeded even better than they, and he encouragement and the example 
is the benefit that we derive from those campaigns. 

And may I just add that the man who usually leads that campaign 
sells life insurance for us in northeastern Iowa, and he usually comes 
to meetings because he has sold within the period of the campaign 
anywhere from $175,000 to 200,000 of life insurance, and the average 

Eolicy is somewhere around $1,500 to $2,000. And he almost always 
as the first premium tacked on the application. There is no doubt 
about its being good business, and the example of that man in what he 
has done, and the way he has done it, is of so much value to us in this 
very process of training, encouraging to success, these agents who do 
not make such a good showing. 



CONCENTRATION OF ECONOMIC POWER 6545 

Mr. Gesell. I suppose in a modified way the campaigns in the local 
officer of the individual agency managers and general agents have the 
same purpose. 

Mr. Parkinson. They have the same purpose; not always so suc- 
cessfully conducted. 

Mr. Gesell. And I take it in those cases the home office has even 
less supervision over what goes on. 

Mr. Parkinson. Yes. 

Mr. Gesell. It is true, is it not, that sometimes there may be as 
many as 10 or 15 campaigns in a local office within a single year? 

Mr. Parkinson. I do not know. You see, you are carrying a little 
bit into a field that is beyond my daily contact and responsibility. 

Mr. Gesell. We dropped in at the Ott agency and asked for a list of 
their campaigns. I noticed that in the period from June 1, 1937, to 
June 1, 1939, a period of a couple of years, they had a national educa- 
tional conference — that is the big company campaign — a turkey cam- 
paign, a scrimmage campaign, a loyalty day campaign, an eightieth 
anniversary campaign, an Ott eighth anniversary campaign, traffic 
court, life-insurance week, another turkey, world series, a scrimmage, 
another loyalty day, a 5-and-10 club, and a ninth anniversary of the 
Ott agency campaign. You must have the agents stirred up into a 
continuous state of emotion. 

Mr. Parkinson. You know the extraordinary thing about it is that 
they like it and they expect it. They like us to indicate, the agents 
and the managers, what we expect of them. They like us to put a 
little bit of a goal beyond what they might otherwise obtain. And 
they will stand more talking than any group of human beings that I 
have ever come across, and that is because the work they do is mis- 
sionary and it is a drain not only on the nervous system but on the 
emotions. They need to be constantly made to feel that somebody 
thinks well of their work, that somebody thinks they are doing very 
important work. They need it. 

Senator King. Do they regard these meetings as holidays? 

Mr. Parkinson. No, indeed ; they do not, Senator. 

Senator King. They are working meetings? 

Mr. Parkinson. They are decidedly working meetings. They don't 
know any holidays. 

Mr. Gesell. We had Mr. Lincoln on the stand, president of the 
Metropolitan. My questions to you are prompted somewhat by what 
he* said at that time. May I read a short portion of that transcript 
of August 30, 1939 ? I said : 1 

I gather from what you said that your company is as a matter of policy opposed 
to sales campaigns. 

Decidedly. I want to make that clear. But I did want to have these descrip- 
tions so I wouldn't be misunderstood. 

And I asked him why they were opposed, and he stated : 2 

Because there would be a human tendency toward an effort to produce a 
class of business which we wouldn't want on the books. We don't want 
business that will not persist. We don't want business which is written with- 
out regard to the family requirements and the family ability to pay, and we 
believe that those contests may have that effect. Insofar as it is possible 
to discourage them, we are doing it. 

You feel it is bad business from the standpoint of profit and loss? 

Yes, sir. 

1 See Hearings, Part XII, p. 5872. 

2 Ibid. 



6546 CONCENTRATION OF ECONOMIC POWER 

Now I take it you are sharp disagreement with Mr. Lincoln. 

Mr. Parkinson. I have no interest in profit and loss, except in 
the broadest sense. 

Mr. Gesell. That is the sense he was speaking of since he also is 
a mutual company. 

Senator King. Do you approve of the position taken by this wit- 
ness who testified as I have just read? 

Mr. Parkinson. I approve of practically all of it as I recall the 
reading of it, except the conclusion that we don't want campaigns. 
I believe that there are all of the difficulties and dangers that are sug- 
gested by Mr. Lincoln, -but I believe we are in a way to control 
that in our company. I believe they can be controlled and I be- 
lieve on the whole the advantages of campaigns, if they are properly 
handled, are greater than the disadvantages. That is my positon. 

Mr. Gesell. Do you know Mr. A. M. Embry, your general man- 
ager in Kansas City? 

Mr. Parkinson. Everybody knows Mr. Embry. 

Mr. Gesell. He is one of your outstanding men, is he not? 

Mr. Parkinson. He is, indeed. 

Mr. Gesell. Here I have a letter that he Wrote to Mr. Welch, 
your second vice president, in March of this year, quite current, and 
he says in one paragraph : 

Before I left for Hot Springs, I wrote the assistant manager in charge of 
this past campaign a letter which he, in turn, mimeographed or rather 
placed in the announcement of the campaign, expressing my views relative to 
this "hooey" business subject. 

Previously he said : 

I am convinced we are getting quite a percentage of this lapse business 
in what I term in slang language as "hooey" business. That "hooey" business 
was developed largely through pressure from unit district managers during 
campaigns. 

Now that would indicate to me that at least Mr. Embry, an ex- 
perienced man, felt your campaigns had just the wrong tendency 
rather than the right tendency. 

Mr. Parkinson. I am amazed that letter didn't contain some 
language which would hive prevented your reading it in this 
presence. 

Mr. Gesell. It may be in there. I will offer the whole letter if 
you like, for the record. , 

Mr. Parkinson. "Pick" Embry has about the choicest vocabulary 
of anybody this side of the Rocky Mountains. 

Mr. Gesell. That doesn't answer my question. 

Mr. Parkinson. I beg your pardon. I merely wanted to say 
that the particular word, which doesn't sound well just at this mo- 
ment, is the word of a man of vivid language. 

Senator King. You object to the word "hooey." 

Mr. Parkinson. I don't object to it, I just want to be sure that it 
is understood 

Senator King (interposing). It is expressive, isn't it? 

Mr. Parkinson. To be the word of a man who uses expressive 
language. 

Senator King. Do you not interpret it as meaning 

Mr. Parkinson (interposing). Undesirable business. 



CONCENTRATION OF ECONOMIC POWER 6547 

Senator King. He was not quite in accord with some of the 
practices. 

Mr. Parkinson. Undesirable business that we don't want, that is 
it. We know there are, have been, some agents in these campaigns 
who, in order to qualify, who in order to be outstanding in the 
organization, go to their relatives, go to their friends, go to some- 
body and put ousiness on the books for a few months, for no pur- 
pose except to qualify, to distinguish themselves. 

Mr. Gesell. Then why do you want sales campaigns if that is the 
fact? 

Mr. Parkinson. Because we can eliminate those defects in the cam- 
paigns' and the campaigns have advantages that we don't want to 
eliminate. 

Mr. Gesell. You mean they increase your volume. 

Mr. Parkinson. No ; we think we have moved to eliminate the very 
situation that Mr. "Pick" Embry refers to. 

Mr. Gesell. Well, now, you made an analysis 

Mr. Parkinson (interposing). That letter, by the way, was that 
19 ? 

Senator King. March, of this year. 

Mr. Gesell. March 9, 1939. 

You made an analysis of your Miami business, did you not? 

Mr. Parkinson. I didn't. 

Mr. Gesell. There was such an analysis made at your request, was 
there not ? 

Mr. Parkinson. Not at my request. 

Mr. Gesell. Did you see the analysis ? 

Mr. Parkinson. No; I did not see the analysis. I am familiar 
with some figures that indicated the sort of thing we have been 
talking about. 

Mr. Gesell. Well, now, that campaign came to a close December 
31, 1938, did it not? 

Mr. Parkinson. 1937. 

Mr. Gesell. 1937, and your production requirement was $200,000 
of business. 

Mr. Parkinson. Yes.. 

Mr. Gesell. Now, this analysis 

Senator King (interposing). Per man? 

Mr. Gesell. Per man. This analysis which I have contains this 
tab: 

The total, $1,790,000, probably represents the total amount of phoney business 
written in November or December '37, and lapsing in December 1937 or January 
'38. 

There is business that lapsed within 2 months of the time it was 
written, and you had $1,790,000 worth of it, did you not? 

Mr. Parkinson. Yes. 

Mr. Gesell. Well, now on the work tables, Mr. Parkinson, that 
were prepared in the compilation of that figure you can run down 
and find case after case after case where a policy in the amount of 
$10,000, $20,000, $15,000, or more was written and lapsed within 2 
or 3 months. 

Mr. Parkinson. Yes. 



6548 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. That is not in the interests of the Society? 

Mr. Parkinson. It certainly is not, and we are doing everything 
we can to stop it. As I said a moment ago, that is business which 
is not written for the benefit of the policyholder; it is not written 
for the benefit of the institution; it is written for the purpose of 
enabling the agent to qualify for a class or to get some other distinc- 
tion out of his effort. 

Mr. Gesell. Why don't you cut out the campaign? It seems to 
me that is the way to solve this problem. 

Mr. Parkinson. I think I ought to explain to you 

Senator King (interposing). Let me ask one question, please. 
Would the full amount of the policy be paid on those policies that 
were lapsed within 2 or 3 months? 

Mr. Parkinson. Ah, Senator, it would, and I could give you case 
after case, but of course it would only be a few cases of just such 
policies written for a purpose and in circumstances which we could 
never approve of, and which have matured and the beneficiaries have 
had the benefit. 

Mr. Gesell. That wasn't your question, was it, Senator? 

Senator King. My question was whether on policies which lapsed 
within 2 to 5 months the full premium was paid ? 

Mr. Parkinson. Only for that period. The premium was paid. 

Senator King. But if a man took a $20,000 policy the full pre- 
mium was paid for the first year? 

Mr. Parkinson. Oh, no. 

Mr. Gesell. Monthly or quarterly. 

Mr. Parkinson. What Embry means by "phoney business" 

Senator King (interposing). I was asking about these particular 
policies to which Mr. Gesell referred where there were such a large 
number of them lapsed within a short time. I was wondering if the 
full premium was paid upon those policies. 

Mr. Parkinson. The full premium to the date of lapse. 

Mr. Gesell. I might call attention to several of those cases to illus- 
trate, Senator. Here is a man who wrote a $20,000 policy on a 
monthly premium basis; the first premium was paid on the 29th of 
December '37, and lapsed when the second premium became due. 
There are many of that type of case in here. 

Mr. Parkinson. Of course, there is no suggestion of any harm 
except that those who would not otherwise have qualified do qualify 
by having added that particular business to their other written 
business. 

Senator King. It is a reasonable assumption that some of those 
policies were written under the pressure of agents and they did that 
because they were trying to establish themselves as important factors 
in your organization, and they did not understand that the policy 
was to be continued for an indefinite period ? 

Mr. Parkinson. And we say very frankly, Senator, that we do not 
want that kind of business. We do not want that kind of effort, but 
human beings are human beings and despite our efforts to control it 
we cannot promise entirely to eliminate it. 

Mr. Gesell. Many forward-looking managements have eliminated 
sales contests, Mr. Parkinson. That seems to me one way to elimi- 
nate it, not to play on human nature the way you do by such contests. 

Mr. Parkinson. I think I have made clear that the vork of these 



CONCENTRATION OF ECONOMIC POWER (J549 

agents to require the encouragement and the example which the con- 
vention, the group, the campaign provides 

Mr. O'Connell (interposing). Mr. Parkinson, it is also clear, is it 
not, from your testimony that this particular undesirable business to 
which reference has been made was brought about or put on your 
books by reason of or because of the sales contest we are talking 
about? 

Mr. Parkinson. Yes. 

Mr. O'Connell. I understood you to say that. 

Mr. Parkinson. That is true. 

Mr. O'Connell. So there is definitely one undesirable result of 
sales contests and that is the writing of an undesirable class of busi- 
ness which the agents write because of the pressure of the sales con- 
test? 

Mr. Parkinson. Yes ; undesirable from our point of view but again 
I must say not undesirable from the point of view of those bene- 
ficiaries whose policyholder happens to die within the period for 
which the premium is paid. 

Mr. O'Connell. As you said this morning, that obviously is a 
very small percentage and it is undesirable, I take it, from the point 
of view of the company, from the point of view of the insured whose 
policy lapses, and desirable only from the point of view of the agent ? 

Mr. Parkinson. One of the reasons that it is undesirable from the 
company's point of view 

Mr. O'Connell (interposing). Would you mind telling me whether 
I have stated it correctly what the situation is? 

Mr. Parkinson. I will have to ask to have it read. 

Mr. O'Connell. I can restate it. As I understand that type of 
business is undesirable from the point of view of the company and 
from the point of view of the insured whose policy lapsed after 2 or 
3 or 4 months, and only desirable from the point of view of the 
monetary interest of the agent ? 

Mr. Parkinson. Yes ; we think that is so. 

Mr. Gesell. Now some of these contests have the element of a 
lottery in them, do they not, Mr. Parkinson? The agents and the 
managers contribute to a pool and the winning agent draws down the 
kitty? 

Mr. Parkinson. I couldn't say that is true, though I wouldn't be 
surprised at something of that kind. 

Mr. Gesell. It seems to me when you put up a monetary incen- 
tive of that sort it is particularly conducive to high-pressure selling, 
wouldn't you agree ? 

Mr. Parkinson. Well, I have the difficulty — I don't know exactly 
what is high-pressure selling. All life insurance selling is overcom- 
ing of resistance, and a good deal of reluctance, and then again I 
don't know whether these little self-constituted pots that are divided 
in accordance with effort are conducive to detriment or not. 

Mr. O'Connell. Well, Mr. Parkinson 

Mr. Parkinson (interposing). We do not provide the pot. 

Mr. O'Connell. Obviously the type of contest to which we re- 
ferred before to your mind produced undesirable business. It seems 
to me the answer to Mr. Gesell's question as to the effect of a different 
type of reward, definite monetary reward, the result of that type 
would be the same, would it not, at least ? 



6550 CONCENTRATION OF ECONOMIC POWER 

Mr. Parkinson. No; Commissioner, because- 



Mr. O'Connell (interposing). I am not a commissioner. 

Mr. Parkinson. I beg your pardon; that is my New York train- 
ing. The case that you now suggest, the prospect may have been 
urged, but he does finally buy. In the other case I wanted to make 
it perfectly clear that the policyholder and the agent have more or 
less conspired to put on our books a policy that is not intended to en- 
dure. It is put on merely for the purpose of carrying over the period 
at which some decision can be made as to who qualifies. Now there 
is a real distinction between the two. 

Mr. O'Connell. In the contest the winner of which gets the mone- 
tary reward, wouldn't that- same situation exactly exist? 

Mr. Parkinson. If it does, then I agree that the business is un- 
desirable ; that is, the business that is intended not to endure. 

Mr. O'Connell. And the tendency to write that type of business 
is at least present where the reward is a monetary reward as in the 
other type of sales contest? 

Mr. Parkinson. The tendency is there, but if you will look at the 
figures I think you will find that the amount is not large compared 
with the amounts of real business. 

Senator King. Haven't you attempted — I don't mean to imply that 
you have — but haven't you attempted to follow the policies of some 
of the commercial companies in pushing their commodities in various 
sections ? They will have their active agents who will sell silk cover- 
lets and sell quilts and sell all sorts of gadgets for your automobile, 
and for your kitchen utensils, and so -on, and they will carry on a 
very active campaign and offer inducements to the housewife and 
automobile owner to buy, and they get rewards according to the 
amount of sales which they make. Haven't you sort of adopted some 
of the commercial policies that are adopted in businesses, some of 
which are very worthy and some of which are not so worthy ? 

Mr. Parkinson. I don't know whether we have adopted them, 
Senator, or not ; but it is a fact that we do have some of these little 
encouragements, some of these little human methods of inspiring a 
little better effort. 

Mr. Gesell. How much did your Miami contest cost ? It was 
$142,000, was it not? 

Mr. Parkinson. I do not remember the figures exactly. 

Mr. Gesell. Can you consult with your associates ? 

Mr. Parkinson. Yes; $142,000. 

Mr. Gesell. That was cost to the company ? 

Mr. Parkinson. Yes. 

Mr. Gesell. I might just for the purpose of the record offer the 
literature on one of these local campaigns, of one agency of the Equit- 
able Life Assurance Society. 

Acting Chairman Reece. It may be admitted. 

(The document referred to was marked "Exhibit No. 1335" and is 
included in the appendix on p.- 6992.) 

Mr. Parkinson. May I add just one little fact, that that so-called 
undesirable business in the Miami Convention was less than 1 percent 
of the total business written by the agents who qualified to attend 
that conference ? 

Mr. Gesell. Yes ; a million seven hundred-odd thousand dollars of 
business. 



CONCENTRATION OF ECONOMIC POWER 6551 

Mr. Parkinson, have you made studies as to the persistency of this 
campaign business other than in the case of the Miami campaign ? 

Mr. Parkinson. There have been some studies, more or less sys- 
tematic. 

Mr. Gesell. You keep no careful check on the persistency of that 
kind of business ? 

Mr. Parkinson. No, I think not; no. 

Mr. Gesell. I have here a document from your files which starts 
off with this idea : "Sales Ideas from the Field." 

We wrote to a number of agents in various sections of our territory asking 
them to give us sales ideas they were using which had proved successful. Here 
are a few we have received which we think all agents in the Woods Company 
can use to advantage. 

That is the Woods agency again. I want to call your attention just 
to one and see if you approve of this type of tactics. 

Jack James — 

Evidently he is one of the agents there — 

says that when a policyholder borrows he covers the loan with a term insurance 
policy on the annual premium plan and then he presents his client a policy with a 
monthly premium equal to the annual, and has frequently got away with this 
larger sale. 

Do you approve of that type of selling tactics ? 

Mr. Parkinson. No; I should say that there was in that phrase- 
ology a total lack of concern about that which is of most importance 
to me ; that is, placing the coverage that the individual needs. ^ 

Mr. Gesell. Yet that is the leading argument of this evidently 
prominent salesman in your company, that he will sell a man a policy 
on a low annual premium and then order down a policy which has a 
monthly premium equal to the annual premium. It seems to me that 
that is strictly not in the interests of good selling practice. 

Mr. Parkinson. Well, I wouldn't want, to say "yes" to that, but 
it isn't in its tone and its phraseology consistent with what I should 
like to see and am trying to bring about as the ideals of our institu- 
tion. 

Senator King. The phraseology isn't so important as the spirit and 
the thought behind it, is it? You don't approve of the phraseology. 
What about the policy? 

Mr. Parkinson. Well, if what was meant there was that you sell 
the man a policy and then teach him that if he borrows on the policy 
he should cover his loan with a term policy to pay it off, that* might 
not be reprehensible or undesirable, Senator. 

Mr. Gesell. There is also other literature from your files which I 
would like to call to your attention. Do you recognize this docu- 
ment ? 

Mr. Parkinson. No ; I do not. 

Mr. Gesell. It came from the files of your company and it would 
indicate it was the type of literature which was used in one of the 
campaigns, would it not? 

Mr. Parkinson. I don't know. The fact that it was in our files, 
the fact that it was in my files, would not indicate any use had ever 
been made of it, and wouldn't even indicate — I haven't read it; I 
just don't recognize it. 



6552 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. On the second page it says, ~Hng what to sell under 
item 19: "If money is not available, borro o.i old policies to pay 
for new insurance." 

Do you approve of that type of selling methods ? 

Mr. Parkinson. No. 

Mr. Gesell. Can you tell us what standards you set for the amount 
of insurance a person shall carry ? Do you have any set standards ? 

Mr. Parkinson. We have rules in the underwriting department 
which are intended to hold the amount of insurance to what the 
underwriters think is a fair percentage of income. 

Mr. Gesell. How does that run? What percentage of the income 
do you permit? 

Mr. Parkinson. I would rather not attempt to give you those per- 
centages, but to file them with you. 

Mr. Gesell. Is Mr. Graham here? We can ask him that. 

Mr. Parkinson. That is actuarial ; that is the underwriting depart- 
ment. I should think he wouldn't know that. That is a very im- 
portant element of underwriting on the economic as distinguished 
from the medical side. 

Mr. Gesell. How about it, Mr. Graham? Do you know those 
figures ? 

Mr. Graham. 1 My answer would be that of the president. That 
is an underwriting question which receives very careful attention. 
The amount of insurance is sold or granted to an individual only 
with refer nee as being reasonable with regard to individuals. There 
are rules hat the underwriters have to govern them, but in passing 
on that question 

Mr. Gesell (interposing). May we ask, Mr. Parkinson, that you 
submit for the record, if it is the pleasure of the committee, a specific 
statement of what your underwriting rules are as to amounts of in- 
surance which can be sold to families with specified incomes? 2 

Acting Chairman Reece. Will you do that? 

Mr. Parkinson. Yes. 

Mr. O'Connell. Do I understand that the amount of insurance they 
carry is not a matter of concern alone to your agency force or the 
people selling insurance for you ? 

Mr. Parkinson. Oh, yes; it is very difficult for all phases of this 
matter to be reduced to the space of time allowable here. We put upon 
our agents in the field a real responsibility for assisting us in selecting 
the right risks and also in keeping the insurance on them at the 
right levels. 

Mr. O'Connell. Do you tell your agency force and your agents how 
much insurance, or do you give them any standards of the amount of 
insurance as related to income that a particular prospect should carry ? 

Mr. Parkinson. Except as they learn it through the operation of the 
underwriting department on the risks submitted. 

Mr. O'Connell. The agency force knows nothing about the amount 
of insurance a man should carry, but if they write too much on a par- 
ticular life, the underwriting department will turn the application 
down. Is that what you mean ? 

Mr. Parkinson. Yes. 



1 William J. Graham, vice president. Equitable Life Assurance Society. 

3 Submitted subsequently and entered in the record on December 8, 1939, as "Exhibit No 

14S- R " Sap nnnonrHx n 701 S 



1348-6." See appendix, p. 7018. 



CONCENTRATION OF ECONOMIC POWER 6553 

Mr. O'Connell. So the agency force doesn't render that particular 
service. You were discussing this morning the services rendered by a 
good agent. However good the agent was, he couldn't advise me how 
much insurance I should have as related to my income. Is that correct? 

Mr. Parkinson. Oh, yes; he does. 

Mr. Gesell. On what basis does he do it ? I understood you to say 
that was an underwriting proposition. Do you tell him how he can 
advise me how much insurance I can carry or should carry ? 

Mr. Parkinson. We do not tell him. 

Mr. O'Connell. How will he know ? 

Mr. Parkinson. In working out his service to you he must analyze 
your situation and recommend an amount of insurance that is suited 
to your situation. 

Mr. O'Connell. But, as I understand it, his training and the infor- 
mation you make available to him when he starts selling insurance does 
not include information that would enable him to advise me on that 
subject? 

Mr. Parkinson. I would not say it would not include any informa- 
tion, but the limit on the amount would be applied by the underwriters 
when the case reaches them. 

Mr. Gesell. Believing as you do in insurance, you set pretty high 
standards as to the amount of insurance you are willing to place on a 
single family or single individual, do you? I have here before me a 
special study mkde of a number of cases : / 

Here ii a case of a man 22 years old, a factory worker who receives 
hi from $75 to $100 a month. He has $1,000 of insurance; fye is a young 
married man. Your analysis says, "Circumstances would warrant 
I total "of at least $5,000 of insurance." / 

Here is another, a wood-mill worker, age 29, who makes $70 a 
month. He is single. "Finances would warrant from 3 to 5 thousand 
dollars of insurance." 

Here -is another, of a shipping clerk, 21 'years old, who makes $70 
a month, single ? lives at home. "Would qualify up to $5,000." 

Here is a filling-station operator, age 23, makes $80 a month, lives 
at home, is single: "No apparent objection to $3,000 to $5,000 of 
insurance." 

Here is a man who is married, age 23, makes $85 a month. You 
say, "He would easily qualify for $5,000." 

Here is a stock clerk who makes $100 a month, $25 a week, married : 
"Would qualify for $5,000 to $10,000 of insurance." 

Would you say that those were a fair statement of the standards 
which you set for placing insurance in families of that particular 
condition and class? 

Mr. Parkinson. I should say that the amounts of insurance which 
you have named are not too high for the folks whose domestic rela- 
tionships you have described. Now, whether they can afford to pay 
the amount of premium that is involved is, of course, first, their 
business; and second, it depends on their age and other social and 
economic situations. 

Mr. Gesell. But this was an analysis of your underwriting depart- 
ment as to the amount that these families could handle, and it seems 
to me you must admit that it is representative of the type of under- 
writing standards which have been set by that department. 



6554 CONCENTRATION OF ECONOMIC POWER 

Mr. Parkinson. In the matter of amounts of insurance? 

Mr. Gesell. As relating to income and age and occupation. 

Mr. Parkinson. I must say that, very frankly, I have myself taken 
the position with our whole agency force that it is desirable that 
where the individual can afford it, he ought to be persuaded to take 
a substantial amount of 'insurance in these days, rather than a nominal 
amount. If this study, which I have not before seen, means that our 
underwriters were taking some cases that would indicate that our 
agents might have placed, in the interest of the beneficiaries of the 
prospect or the policyholder, a larger amount of insurance, then I 
should think it was a very desirable thing. 

Now, as to what amount of insurance a young man of 24 with $100 
a month salary should take, I must say I have no fixed ideas, and 
with most of the people whom we serve throughout the country, it is 
a matter for them to decide, and they are people who are accustomed 
to making their decisions for themselves. We do not really have too 
much to say about it, except as we persuade them to take a little more. 

Mr. O'Connell. Apparently even your underwriting department 
in view of what you have just said, has no function to determine 
the amount qi insurance as related to income. 

Mr. Parkinson. Ah, no; the underwriting department in all of 
these instances — because we have learned in the business that over- 
insurance means self-selection and a higher mortality, and the 
actuaries will have to explain that in detail 

Mr. Gesell (interposing). Yet you say, in your training course, 
"If the prospect says, 'I will take $5,000,' and you are trying to sell 
him $25,000, stop right there and write him for $5,000. Close him 
for $5,000 and order out $25,000. * _ 

You are not abiding by the individual wishes of the purchaser. I 
think we ought to frankly admit that. 

Mr. Parkinson. I admit that the phraseology of much of our litera- 
ture and our letters produced in a great institution like ours is not 
always consistent with the ideals, and will you pardon me for saying 
that even the phraseology that I hear here is not always consistent 
with Mr. Chase's very carefully prepared indication of what your 
phraseology should be. 

Mr. Gesell. Who is Mr. Chase? ' 

Mr. Parkinson. Oh, you don't know? 

Mr. Gesell. What is the lapse rate of your company ? 

Mr. Henderson. Just a minute, Mr. Gesell. I would like to have 
that again. 

Mr. Parkinson. I understood that Mr. Stuart Chase had prepared 
for the use of this group 

Mr. Henderson (interposing). I get what you mean. I think you 
have been badly misinformed. If you are referring to a memorandum 
which Mr. Chase prepared, no member of this committee saw that 
memorandum in advance of its publication in the press. 

Mr. Gesell. I am sure I don't know what memorandum you refer to. 

Mr. O'Connell. I know now. I recall reading it, as you probably 
read it, in one of the columns of one of the New York papers. 

Mr. Henderson. Mr. Chase wrote a book and has long been inter- 
ested in what he calls semantics. 

Mr. Parkinson. Yes ; I couldn't think of the word. 



CONCENTRATION OF ECONOMIC POWER 6555 

Mr. Henderson. And he undertook, in connection with some work 
he was doing, to write a suggestion on semantics, but it has nothing 
at all to do with questioning by this committee, or any terminology 
which we use. 

Mr. Parkinson. But it seems to me that I read it in the record of 
these proceedings. 

Mr. Henderson. I think again you are entirely incorrect. That 
was never a matter of record in these proceedings 

Mr. Parkinson (interposing). Well, I had only in mind to suggest 
pleasantly, not contentiously, that this matter of suggesting the ap- 
proach and the phraseology, in order to be diplomatic and successful 
and persuasive and get by, is not limited to the instructions that we 
pass out to our men. 

Mr. Henderson. That is certainly correct, but you need never apolo- 
gize for contentiousness so long as you are on good and "factual ground. 
You will never have any difficulty, as I see it, with members of this 
committee. 

Mr. Gesell. What is the lapse rate of your company as compared to 
comparable companies? 

Mr, Parkinson. By lapse rate, now, I assume you mean lapse within 
the first year ? 

Mr. Gesell. Lapse within the first two policy years, based on the 
computations of the Sales Research Bureau, which this committee 
has considered before and which are, I understand, customarily used 
in the business. How does your lapse rate compare? 

Mr. Parkinson. In the business I have lapse in mind frequently, 
and first it is the general lapse rate, which is irrespective of the 
period of life of the policy. The other way in which I constantly 
have lapse in mind is lapse of policies which have endured the first 
year but not the second year. 

Mr. Gesell. You are familiar with the Sales Research Bureau's 
figures ? 

Mr- Parkinson. Generally. 

Mr. Gesell. They relate to 20 A companies, of which you are one? 

Mr. Parkinson. Yes. 

Mr. Gesell. Now, I want to know how your lapse rate compares 
ivith the average lapse rate of those 20 companies. You may refresh 
your' recollection from this memorandum, if you wish. 

Mr. Parkinson. I think the memorandum relates only to the lapse 
in the first and second years. 

Mr. Gesell. You are right. 

Mr. Parkinson. Including general lapse. 

Mr. Gesell. You are right. 

Mr. Parkinson. My recollection is that the Equitable's lapse rate 
for the first year is worse than the lapse rate for these companies 
during the first year. My recollection is that the rate of the Equi- 
table is about the same for the second year, though I am not sure. 

Mr. Gesell. This memorandum from your files — you recognize it, 
do you not? 

Mr. Parkinson. I don't recognize it, but I am sure it is from our 
files. 

Mr. Gesell. Shews that the average for your agency department 
in the year 1938, the fourth quarter of that year, was 157 percent of 
the average for the 20 A companies, that only 3 of your agencies 

124491 — 40 — pt. 13 14 



6556 CONCENTRATION OF ECONOMIC POWER 

had a lapse rate lower than the average, and that all of the other 
agencies, of which there are a great number, wer« in excess to a con- 
siderable amount of the average, running as high as 203 percent in 
the case of one agency. That would seem to indicate to me that 
your company is in a far inferior position from the point of view 
of lapse. 

Mr. Parkinson. For that period it was, and there are several 
reasons for it. In the first place, we are territorially a national insti- 
tution. We are covering not only all parts of the country and all 
types of people, but we are trying constantly to expand the groups 
that we do cover. Many of these A companies whose records made 
this average of the Bureau to which you refer are not national com- 
panies. They are doing business in restricted areas, they are doing 
restricted business as to occupations and risks, they are carefully 
selecting theif risks with a view to the greatest possible advantage 
for the group of whatever form that may be, and all those things 
affect the lapse rate. 

I am reminded here that you have in your records a statement from 
the Bureau, I think, which shows that the lapse rate in different parts 
of the country varies as much as 50 percent, indicating that if you 
do business in one part of the country with a narrow and restricted 
risk, you have a lapse rate that may be 50 percent better. 

Mr. Gesell. But with your knowledge, your intimate knowledge, 
of the record of these proceedings, I am certain you recognize that 
the majority of the 20 companies whose records are compared with 
yours are, likewise, national institutions operating in all of these areas. 

Mr. Parkinson. They are not like us in every respect, I am quite 
sure. I don't remember what they are. 

Mr. Gesell. Here is a memorandum to Mr. Graham from Mr. 
Spalding, dated December 1, 1938, in which he said that he had been 
talking with a representative of the Sales Research Bureau, and he 
says: 

During our discussion he brought up the question of the business going off the 
books in the cases of the big companies comparable to ours. 

Comparable' to yours — you notice that. 

Although I don't know the exact figures for the New York Life and the Mutual 
Life and that group of companies comparable to us, he did indicate that ours 
was about the worst, and was on the average about "l%i greater than the com- 
panies with which we are usually compared. This means that each year forty 
or fifty million more of our business goes off the books than in the case of these 
other companies. 

So there must be some basis for this comparison. 

Mr. Parkinson. I am quite prepared to admit that we have had a 
bad lapse, which we are very much improving, as the figures for the 
current year show, but I do want to make clear that the standard you 
have referred to, and which we make use of for testing our results, 
the standard of the Research Bureau's A companies, is made up from 
the experience of a number of companies, more than half of which 
do not operate in the territories in which the lapse rate is highest, by 
the institution's own tables. 

Mr. Gesell. May I offer this memorandum, comparing lapse rates, 
which we have been discussing for the record ? 

Acting Chairman Reece. It may be admitted. 



CONCENTRATION OF ECONOMIC POWER 6557 

(The memorandum referred to was marked "Exhibit No. 1336" and 
is included in the appendix on p. 6994.) 

Mr. O'Connell. I take it from what Mr. Gesell said, reading from 
the figures, it is also true that in only three of your agencies — and I 
take it your agencies represent the subdivisions of your national busi- 
ness — was your lapse rate below the average, so that the difference in 
lapse rates in different sections of the country would not in and of 
itself go very far to explain the difference in lapse rate? 

Mr. Parkinson. It would not be eliminated. The admission that I 
am quite ready to make here and the assertion that I make within our 
organization is that our lapse rate is too high, and the only way we can 
improve it is to get more and more of the agents who are giving their 
full time to real service, to keep the policies in force after they put 
them in force. Now we are doing that. 

Mr. Gesell. You say that adherence to a principle which eliminates 
the part-time agent is one of the bases upon which this problem can 
be approached? 

Mr. Parkinson. Part-time agent in the populated territory. 

Mr. Gesell. Now, what do you think of the causes for this lapse? 
Would you say that agency turn-over is responsible for it to some 
extent? 

Mr. Parkinson. Some of it ; yes. 

Mr. Gesell. Would you say that campaign selling is responsible 
for it to some extent ? 

Mr. Parkinson. Some of it; yes. 

Mr. Gesell. Are there any other factors which you think are re- 
sponsible, other than thosa human factors which we are all conscious 
of! 

Mr. Parkinson. Oh, yes. The personal situation of the folks who 
once persuaded decide not to go on ; concern on the part of many peo- 
ple as to whether, on the whole, life insurance is desirable at this 
particular period of the country's history. 

Mr. Gesell. I am talking about factors which your company, dif- 
ferently than any other company, is subject to. All companies must 
meet those problems, of the fact of our economic conditions, of war, 
whatever else we are talking about. I am talking about management 
problems, executive management problems with which you are con- 
cerned ; your contests, your agencies' turnover ; what else ? 

Mr. Parksnson. I think that some of the lapse that our company 
has suffered has been due to the provisions of our agency managers' 
contracts which up to a few years ago put too much emphasis on 
first-year premiums in determining the compensation of the manager. 

Mr. Gesell. You think you are placing too much emphasis on new 
production? 

Mr. Parkinson. I do. Now we have changed all that and have 
made the managers' compensation dependent not on the volume but 
on the commissions paid in their agencies, and that, if you will follow 
it, you will see will take out all of the incentive) to undesirable busi- 
ness, to add to volume. 

Mr. Gesell. Well, your manager still benefits by the production 
in his agency, does he not? 

Mr. Parkinson. Not financially. 

Mr. Gesell. No; none whatsoever? 

Mr. Parkinson. In a, minute way, if any. 



6558 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. But there still is that factor there? 

Mr. Parkinson. I think there is one factor which is minutely 
effective, but it is only minutely. We think we have eliminated that 
from the conditions which made for lapsation and we have also in 
fixing the compensation and the credit and the qualifications and the 
eligibilities of our agents so changed the tests that hereafter it won't 
be volume of business written, but it will be earnings, which means 
commissions. 

Mr. Gesell. Now your company has a very low average-sized 
policy, does it not, compared to other companies? 

Mr. Parkinson. Well, that surprises me. I had thought we had 
a large average-size policy. I realize that it has been going lower 
in the last 10 years, but I had thought that our average policy was 
still large. 

Mr. Gesell. How does your company rank in size ? 

Mr. Parkinson. In size of assets, I presume you mean; fourth. 

Mr. Gesell. This memorandum here from your files would indi- 
cate that it ranks somewhere around in the middle 30's in terms of 
average size of policies. 

Mr. Parkinson. Well, I do not know what type of policyholder 
the other companies have, but while I would like to see a .higher 
average policy from the point of view of costs of operation, espe- 
cially costs of overhead, I must say that 1 like also to see both for 
purposes of mortality and for purposes of service, a large sprinkling 
of the smaller policies. For example, we do business in the agri- 
cultural area of the Middle West. We do large business in Iowa, 
Kansas, Wisconsin, Minnesota, and much of that business is neces- 
sarily in the smaller size policies. 

Mr. Gesell. The small size of the policy does have an effect upon 
persistency, does it not? 
Mr. Parkinson. No ; I shouldn't say necessarily that it would have 

any effect on persistency, except in the sense 

Mr. Gesell (interposing). Mr. Carroll wrote a memorandum to 
you under date of September 16, 1938, in which he says : 

More indirectly the subject of average size of our policies deserves attention 
because many studied have proved conclusively that the persistency of life 
insurance increases as the amount of the policy increases within normal limits. 

That would indicate that at least Mr. Carroll thought there was 
some relation? 

Mr. Parkinson. Yes ; it would ; and even with knowledge that Mr. 
Carroll is in the room, I have to say that Mr. Carroll is one of those 
young men in our organization whose business it is to put his finger 
on anything which hetiiinks can be improved. We don't necessarily 
accept everything that Mr. Carroll suggests. We don't do everything 
he suggests; but he is an exceedingly helpful young man who puts 
his fingers on the possibilities. You have some idea. 

Mr. Gesell. Do I gather, then, that you disagree that there is any 
relation between persistency and size of policy ? 

Mr. Parkinson. I am not necessarily persuaded by the fact that 
Mr. Carroll sent me that memorandum. 

Mr. Gesell. Do you have any convictions of vour own ? 

Mr. Parkinson. I have. 

Mr. Gesell. Has it been your effort to increase the size of your 
average policy? 



CONCENTRATION OF ECONOMIC POWER 6559 

Mr. Parkinson. Yes. 

Mr. Geseix. For what reason, to lower your acquisition cost ? 

Mr. Parkinson. No ; rather to be sure that an institution that is 
capable of rendering a full life-insurance service to people who need 
it is not being used, quoting my own language at the Miami confer- 
ence, for picayune purposes. I am not popular with all sections of 
my agencies for having made that statement at the Miami conference, 
but that represents my position. 

Mr. Henderson. I have a question. Mr. Parkinson, I want it 
understood that in asking this question I am notjnaking a suggestion 
as to how you should run your business. I have asked this question 
in different forms of other presidents here. If you had in mind 
merely the question of making a record, shall we say, on lapsation, 
size of policy, and on the highest rate of payment to your personnel, 
would it be possible for your company to achieve these by what you 
might call a selection of risks ? Th,at is, suppose life insurance were 
not sold on an aggressive basis but on an admittedly more infsnsive 
basis, and that you made <a v< :y rigid selection of risks. That would 
amount to a change in policy which would probably mean a reduction 
in the annual volume of business written, but would it not be possible 
to make that kind of a record without the aggressive selling of 
policies? 

Mr. Parkinson. Yes, Commissioner; it would, as I indicated this 
morning; that if that should happen in my institution I would return 
to the Government service ; I would have no interest in administering 
that kind of a so-called life-insurance company. 

Mr. Henderson. Well, that leads up to what I am interested in. 
Let me say that, as you probably know, some of the other presidents 
testified approximately as you have, feeling that there must be a 
dynamics in the growth of an institution such as yours, that it must 
be growing all the time in order for it to meet the test that you apply 
to it. 

Mr. Parkinson. But I have also in mind, Commissioner, that ours 
is an institution grown up now over a long period of years, the results 
of efforts and contributions of various people, not a few, which at 
this moment has the power to render a service to a very large number 
of people in this country in practical security provided for them- 
selves by themselves, and I think that instead of closing our doors to 
them so that that power to render service of security is available only 
to those who have the occasion and the opportunity to come and get it, 
we should widen the service we have to render and the only way we can 
do it is with a good agency force. 

Mr. Henderson. My question did not suggest closing the doors, 
nor was there a suggestion of not going after business. What I had 
in mind is that if you said at the end of this year, for example, you 
would inaugurate a more selective basis of risk, there is no doubt that 
the business would carry itself. Undoubtedly there would be a higher 
rate of return; there would be less lapsation, less cost, and the like; 
also the premiums on business already written would carry for your 
company and any solvent company what has already been written. 
But it would mean that over a period of time you would either stay 
static, or you would go down hill in the volume of assets. I would 
like to have your opinion whether, in terms of your financial strength 



(3560 CONCENTRATION OP ECONOMIC POWER 

and your ability to meet the obligations to your policyholders, you 
'would be in any worse position. 

Mr. Parkinson. We would not for a few years until the period 
arrived when the failure to grow set in a decay, and then we would 
have a pretty serious problem, which might work out all right, 
but which nevertheless would be a problem due to the fact that our 
mortality was not being sweetened by the addition of new members. 

Mr. Henderson. Well, each group carries itself, does it not? 
What would be the decay you have in mind ? The lack of dynamics 
in the personnel or the like? 

Mr. Parkinson. Yes ; .that is part of it. 

Mr. Henderson. And you think that you might get to a place 
where 

Mr. Parkinson. I would hate to name names, but it would be pos- 
sible to indicate that that has already happened in some institutions., 

Mr. Henderson. In other words, what is called a bureaucracy in 
complaisance takes place and the companies fail to make enough 
to meet their obligations? 

Mr. Parkinson. The decay that affects the investment, affects the 
performance in every way. 

Mr. Henderson. And you think that the companies would be less 
efficient? That their personnel would be less efficient? 

Mr. Parkinson. I feel quite sure the whole institution would be 
less efficient. 

Mr. Henderson. Then, so far as the individual units of the in- 
dustry are concerned, you feel that the maintenance of a sound life- 
insurance system is bound up with an ever-increasing amount of 
assets in the existing institutions? 

Mk\ Parkinson. I should say rather it is bound up with a contin- 
uing^alert, alive management fund because I must give you this to 
supplement what you yourself have said, Commissioner. Many 
small companies which are in trouble can be taken over and rein- 
sured by a strong company and administered without any loss to 
the policyholders who are already in the company reinsured. 

Mr. Henderson. Yes', but in your case you have enough business 
so that you would not get down to a place where your overhead was 
a serious problem? 

Mr. Parkinson. That is. true. It would be a long time before the 
condition that I suggest would set in, but it would set in. 

Mr. Henderson. Then the intimatipn which I gave — I want to be 
quite clear about this — is that in your informed opinion, there must 
be growth for the individual large institutions that now exist in order 
to have the most vigorous and sound policy ? 

Mr. Parkinson. That is true. 

Mr. Henderson. And independent of that you have also a feeling 
that the aggressiveness which has been mentioned here at several 
times in these hearings is necessary in order to give this width of 
service which you have emphasized? 

Mr. Parkinson. I .think without what you call aggressiveness the 
management and the board of directors of our institution couldn't 
hope to give the service that they are, that we are, trying to give to 
people generally. 

Mr O'Connell. I am not entirely clear that I understand what 
was meant by the use of the term "growth." To be specific, would 



CONCENTRATION OF ECONOMIC POWER 6561 

it be your opinion that if your company were to adopt a policy which 
would be calculated to keep a constant level of a million and a half 
policyholders that that would be a policy which would ultimately 
result in a species of decay for the management? 

Mr. Parkinson. Well, not if to keep that number static we still had 
to work hard. In other words, if we still had to run to stay where 
we were. Of course, if Mr. Gesell's suggestions as to our lapse rate 
were to continue indefinitely we would be perhaps in just that position, 
but they are not going to continue, Mr. Gesell. 

Mr. Gesell. You could, I suppose, in time develop new energies and 
interests; instead of everyone beating the tub for new insurance you 
would start beating the tub for investment return or start emphasizing 
some other area of your business and perhaps by that redirection 
accomplish the same result you now have of having an alert 
personnel ? 

Mr. Parkinson. But I don't want to leave this group, if you will 
pardon me, without emphasizing again and again that I have no in- 
terest and I think the Equitable management has no interest in mere 
hunting for business or in mere volume. We honestly and earnestly 
have nothing else in mind, except to make the protective power of our 
institution available to thjose who need it and to do that on as low 
cost as possible with as high an order of service as possible. I hope 
you will believe me. 

Mr. Gesell. Well, now, on this question of cost, your company is 
far from being the cheapest company on a net-cost basis, is it not? 
Mr. Parkinson. Decidedly. 

Mr. Gesell. And you have a rather high acquisition cost, do you 
not? Your lapse rate, agency turn-over, and other factors have given 
you a high acquisition cost ? 
Mr. Parkinson. Yes. 

Mr. Gesell. Then, possibly if you were willing to leave a little of 
this service to someone else to perform, some other person equally 
interested as you are in the broad objectives, and concentrated more 
on quality and type of business, you would, to your present policy- 
holders, over a million of our population, be rendering a better service, 
in that you would have a cheaper and more efficient management. 

Mr. Parkinson. I think, Mr. Gesell, you have just about stated what 
we are trying to do, except that I want to add that in actually doing 
this we have to have regard for a great agency organization all over 
the country with a very large number of men and women who have 
made this business their career. We cannot destroy their jobs. 

Mr. Gesell. Oh, I know, Mr. Parkinson, but out of 3,000 agents 
hired in 1936, at the end of 1938 you had 600. You wouldn't have to 
harm your agency force to reduce your sales emphasis. 

Mr. Parkinson. That is true. We can do it gradually and we are 
doing it. For example, we reduced our agency force during the early 
months of this year by 800 terminations. 

Mr. Gesell. There was an effort in this direction, was there not, by 
several companies which got together in an agreement called the 
"Agency practices agreement," or "Guiding principles agreement," as 
I believe its technical term is. Some 68 of the principal companies 
joined that agreement, did they not? 
Mr. Parkinson. I should think so. 



6562 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Your company was a member of that agreement? 
Mr. Parkinson. Yes. 

Mr. Gesell. Do you recognize these documents which I now show 
you as the announcement made by your company of the plan to its 
agency force, the agreement signed by yourself at the time your com- 
pany entered, and a list of the membership as of 1938 ? 
Mr. Parkinson. Yes. 

Mr. Gesell. I wish to offer this material for the record. 
Acting Chairman Reece. It may be admitted. 
(The documents referred to were marked "Exhibits Nos. 1337 and 
1338" and are included in the appendix on pp. 6995 and 6997.) 

Mr. Gesell. This plan for improving agency practices had as one 
of its guiding principles the elimination of part-time agents in cities 
of 50,000 persons or more, did it not? 
Mr. Parkinson. Yes. 

Mr. Gesell. It also was intended to eliminate contracts for the so- 
called one-case man, and set up, did it not, agreements with respect to 
transfers of agency personnel as between companies. 
Mr. Parkinson. Yes, sir. 

Mr. Gesell. Those appear to me to be ratherdaudable objectives; 
forgetting the method by which they are to be obtained, the objec- 
tives of the agreement appear desirable, do they not, in the interests 
of the agency management? 
Mr. Parkinson. Yes. 

Mr. Gesell. Why did your company withdraw from the agree- 
ment? 

Mr. Parkinson. Because some of the companies that were in our 
same class never did join up with the agreement, and because we felt 
that what I said this morning with respect to a probationary period 
of 6 months or thereabouts was desirable. What we did was to an- 
nounce to our managers that notwithstanding the agreement, they 
might, for probationary periods, take on part-time agents even in 
the larger centers of population, but with the understanding that if 
they didn't turn into full-time agents, they would not be kept perma- 
nently as part-time agents. 

Mr. Gesell. And that position, which you announced in October 
of 1937, was not agreeable to the persons responsible for the admin- 
istration of the agreement. 

Mr. Parkinson. Was not agreeable to the committee of the Ra- 
tional Underwriters. 

Mr. Gesell. And you then withdrew, did you not, entirely from 
the agreement? 

Mr. Parkinson. We then gave notice that under all the circum- 
stances, to work out what we believed to be this reasonable variation 
of the effort that we were all making to get more full-time agents, it 
would be better for us to withdraw from the agreement entirely. 

Mr. Gesell. And that was in December of 1937 that you withdrew, 
was it not? 

Mr. Parkinson. I think so ; yes. That I may say I agreed to, as I 
agreed to the entering and signing of the arrangement, upon the 
recommendation of the rest of our agency department. 

Mr. Gesell. Many of your well-known agents and representatives 
were very much opposed to the move you took, were they not ? 



CONCENTRATION OF ECONOMIC POWER $563 

Mr. Parkinson. Yes ; they were, partly because, I suppose, of pro- 
fessional interests in their own group and in the cpnfining of the 
solicitation to their own group. Nevertheless, I do not mean to sug-\ 
gest that it was not the right general trend. 

Mr. Gesell. One of your very well-known agents -was Mr. Theo- 
dore Riehle, was it not? 

Mr. Parkinson. Very well known. 

Mr. Gesell. I have here a letter which he wrote you under date of 
October 22, in which he said [reading from "Exhibit No. 1339"] : 

Vice President Graham just paid me the courtesy of a telephone call, wherein 
he stated that the Equit .Die was about to file a notice with the Agency Practices 
Committee of the Life Agency Offlceis' Association that hereafter they would 
employ part-time agents on a six months' probationary basis, etc., in cities of 
50,000 or over. 

Our conversation was a very lengthy one, and I do not wish to burden you with 
all the details thereof. I / asked him for permission, in effect, to address these 
few lines to you so that my conscience will be clear. I have always told you 
my primary loyalty is to the Equitable and to you. 

It is my considered conclusion that this act is extremely unwise. It will wreck 
the Agency Practices Agreement, because the exclusion of probationary part-time 
agents is the main point upon which the Agreement rests. In spite of violations 
by signatory companies, including the Equitable, much good has been done by the 
Agreement, and much more than meets the eye. I am positive it will not in- 
crease production. It will have, in my judgment, a very bad effect on the morale 
or the whole-time agents of the Equitable, who produce the vast bulk of its 
business. I believe the repercussions of this act will be far-reaching. It seems 
contrary to every one of your public utterances about field problems. 

I do not wish to leave the impression that I know it all, but, thinking institu- 
tionally, I am sorry that I was not called into the meeting of the Executive 
Committee at the time this matter was discussed. 

You remember that, do you not ? 

Mr. Parkinson. Very well. 

Mr. Gesell. May I enter it as an exhibit ? 

Acting Chairman Reece. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1339" and is in- 
cluded in the appendix on p. 6998.) 

Mr. Gesell. I have here also similar expressions of several other 
of your well-known agents. 

Is it not a fact, Mr. Parkinson, that your withdrawal from the 
agreement was directly related to your entrance into the State of 
Texas and the desirability of your employing part-time agents to 
develop that territory? 

Mr. Parkinson. No. The Equitable is known to the life-insurance 
business as the agents' company. That means that we welcome sug- 
gestions from our agents in the field and managers and give a high de- 
gree of attention to their suggestions and recommendations. But, of 
course, we are not guided by them. We had at that time the recom- 
mendation that we withdraw from that particular agreement from 
some of our chief managers and general agents in the country; and 
the executive committee to which TpH Riehle referred in that letter is 
not the executive committee of "the society; it is the executive com- 
mittee of what is known as the "Old Guard" in the Equitable agency 
organization,.and it was this executive committee of the field managers 
and general agents of the Equitable which had recommended that we 
withdraw. Ted was in a decided minority. As far as I recall, it 
had nothing whatever to do with Texas. 



6564 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. Mr. Parkinson, you might want to consider 
whether you said exactly what you meant as to recommendations 
from the agents. You said you were not guided by them. You might 
want to amplify that. 

Mr. Parkinson. I would like to substitute "control." 

Mr. Henderson. "Control" — that is what I thought you meant. 

Mr. Parkinson. Thanks; that is exactly what I meant. 

Mr. Henderson. Some of the agents may be reading this record. 
[Laughter.] 

Mr. Parkinson. That is a real help. 

Mr. Gesell. These probationary, part-time agents are the kind of 
fellows who come in and write their centers of influence, as you call 
them, their friends and relatives and people who are friendly to 
them, and then drop out, aren't they ? 

Mr. Parkinson. No; they are not, not the ones we mean. 

Mr. Gesell. Isn't that the basis upon which the agreement was 
framed ? 

Mr. Parkinson. The agreement was framed to exclude that kind 
of person. 

Mr. Gesell. That was one of the reasons. 

Mr. Parkinson. That was one of the reasons but I assure you our 
variation will still exclude that kind of person. We couldn't live 
with our agents if we didn't. 

Mr. Gesell. It must be pretty difficult, however, to prevent that 
from happening. 

Mr. Parkinson. Well, of course, if it "does happen, it will be through 
somebody in the agency organization permitting it to happen. It 
won't happen otherwise. 

Mr. Gesell. Exactly, but it is pretty difficult for them not to permit 
it to happen. An agent comes in on a probationary basis, he naturally 
goes to his friends and relatives and if he is not successful, he is 
through, and in that way the permanent agents are injured over a 
long period of time, are they not? 

Mr. Parkinson. If our managers use the variation we have given 
them for any such purpose as that, you may be very sure we have the 
means of correcting the practice that will develop. We have the 
power to terminate their contracts quickly. 

Mr. Gesell. Will you tell me if there are any agreements which 
you have on this agency level with the other principal companies? 
Do you have agreements with respect to employing their agents ? 

Mr. Parkinson. Yes; we do. 

Mr. Gesell. Will you tell us the nature of those agreements ? 

Mr. Parkinson. I am sorry, I couldn't give you even a reasonably 
accurate statement of that. In general I have in mind that we had a 
sort of gentlemen's agreement that we wouldn't take an agent from an- 
other company without notifying the other company, and various 
other procedures to prevent the raiding of another agency force. 

. Mr. Gesell. Those are agreements which you have particularly 
with some of the larger companies, like Metropolitan, the Mutual, 
and the Prudential, are they not? 

Mr. Parkinson. Well, we have the agreement, I don't know with 
what companies, but pretty generally, and even if we haven't an 
agreement under which they reciprocate, it is our practice not to 
do it. 



CONCENTRATION OF ECONOMIC POWER Q565 

Mr. Gesell. But there is a gentlemen's understanding among the 
principal companies with respect to raiding the other agencies. 

Mr. Parkinson. Yes. 

Mr. Gesell. Is there also such an agreement with some of the 
large companies that you will not take business from their agents 
until you have consulted the company ? 

Mr. Parkinson. Take business away from them? 

Mr. Gesell. No; take business from their agents. For example, 
if I am an agent of the Mutual and I have a policyholder who wants 
a form of policy my company doesn't have and I turn to the Equi- 
table in order to satisfy that person, you will not take that policy 
until you consult with the Mutual, will you ? 

Mr. Parkinson. I am not sure about that. 

Mr. Gesell. I have here a memorandum to you dated March 19, 
1936, from Mr. Borden, in which he says : 

Supplementing my memorandum of this afternoon, we have a cooperative 
understanding in effect with the Mutual Life, New York Life, and the Pru- 
dential by which business from the others' agents is not taken without con- 
sultation with the home office of the other company in each case. 

Mr. Parkinson. That was probably in answer to my inquiry as 
to whether it is true that Equitable agents were placing business with 
other companies, my point being to discover whether we were paying 
the expenses of equipping agents and training them, and they were 
then exercising a discretion to place business in other companies 
contrary to the provisions of their contract. 

Mr. Gesell. And there, is some agreement to prevent that, is there 
not? 

Mr. Parkinson. There evidently is. 

Mr. Gesell. Now we are down to the last folder, Mr. Parkinson. 
I want to discuss with you your reentry into the State of Texas, 
and perhaps as a starting point it would be best if you explained 
to us in a general way when you first went into Texas, why you 
withdrew, and the factors which prompted you to go back in. 

Mr. Parkinson. As to the history so far as when we went in, I 
have no idea when or under what circumstances. I do know the his- 
tory of our going out. It was a part of the protest of the eastern 
companies against what is known as the Robertson law which was 
passed in Texas about 1906, I think, which required all companies 
doing business in Texas to invest in Texas mortgages or other re- 
stricted investments, the full amount of the reserve on all Texas 
business. 

Mr. Gesell. Seventy-five percent. 

Mr. Parkinson. Seventy-five percent ; I beg your pardon, that is 
right. That was regarded as an unwise restriction on life-insurance 
investments and most of the eastern companies, including the Equi- 
table, withdrew. 

Mr. Gesell. That was about in 1906? 

Mr. Parkinson. Yes. 

Mr. Gesell. When did you reenter, Mr. Parkinson? 

Mr. Parkinson. We reentered in 1937. 

Mr. Gesell. What prompted you to reenter Texas ? 

Mr. Parkinson. Well, that is another big question. The laws of 
Texas had been changed to some extent. In or about — well, I don't 
know the date, at some time before 1920, the list of permitted invest- 



6566 CONCENTRATION OF ECONOMIC POWER 

ments had been widened ; along about 1935 a statute was passed more 
or less inviting the companies that had withdrawn to return by pro- 
viding that taxes for the intervening years would not include interest 
or penalties, but might be satisfied by the payment of the actual 
amount of the taxes set for each of those years. 

In addition to that, and much more specifically, the Texas from 
which we withdrew was not the Texas to which we returned. 

Mr. Gesell. That isn't very specific. What do you mean by that ? 

Mr. Parkinson. I mean that Texas had grown to be a very im- 
portant part of this Country in an economic way, in a population 
way, and in many other ways. There was growing wealth there. 
There was growing population. It was a population and an economic 
situation that offered us opportunities for investment and that offered 
us opportunities to add very desirable risks to our insurance schemes. 

And then may I be more specific, because it is more specific. We 
had during all of these years a number of Texas policyholders who 
continued to pay their premiums but to whom we could render no 
service at all. 

Mr. Gesell. They were people to whom you had sold in other States 
and who had moved to Texas and had been on the books prior to 
their going there? 

Mr. Parkinson. You are adding to the list. First, there was the 
group that were in Texas when we removed, and still remained there. 
Then there were the folks that we sold in other States who moved to 
Texas. And then there were the folks, increasing in number, who 
came across the Texas border to our agencies in other States and took 
new insurance. And then there were the still more important situa- 
tion in the development of group insurance. We had placed group 
insurance on large industrial organizations which had subsidiaries or 
part of their organizations working and resident in Texas, and on 
the whole, we had a situation which had developed an actual asser- 
tion on the part of the lawyers in Texas, sometimes representing a 
group claimant and sometimes representing the State, that notwith- 
standing our withdrawal we were still in Texas. We had actually 
reached the point of litigation against one of our group patrons 
which was very embarrassing to him and threatened to bring us in 
to help explain away the charge that we were actually doing -business 
there and were subject to supervision. 

Mr. Gesell. And then about the same time you were attempting to 
write a policy on a Texas corporation whose officials had told you that 
you would not be eligible for participation in the group unless you 
did business in Texas. 

Mr. Parkinson. That is true; the Texas Corporation was during 
the latter part of 1936 negotiating with us for a group pension, and we 
had been advised by our lawyers prior to that time that it was all right 
for us to do group insurance which covered employees living and 
working in Texas, but that it was a little different for us to write any 
kind of annuity business in Texas, group or individual. Just why 
that distinction, I do not have in mind, but we were hesitant under all 
the circumstances to go on with the negotiation of a group pension 
case which the Texas Corporation was negotiating for at that time. 

Mr. Gesell. And in fact the company said they wouldn't unless you 
came in, did they not ? 



CONCENTRATION OF ECONOMIC POWER Qfrffl 

Mr. Parkinson. I don't recall that, but we had been getting ready 
to go back to Texas for several years. 

Mr. Gesell. Oh, I am not trying to indicate that was the sole factor. 

Mr. Parkinson. No ; indeed, it wasn't. 

Mr. Gesell. But I believe it is correct that they did indicate to you 
that they would not accept you on the risk unless you did business 
there. Mr. Keith Morgan handled that transaction for you in part, 
did he not? 

Mr. Parkinson. My good friend and our agent, Keith Morgan, was 
on my back with respect to that particular case, and we decided under 
all the circumstances, since we had so long considered going back into 
Texas, that now the time had arrived. 

Mr. Gesell. He wrote to your agency department in '37 and said, 
referring to the Texas Corporation : 

They deemed it most unwise to ask the Equitable to be administrator on their 
Group Policy and Group Pension proposal, especially with several other well-estab- 
lished companies recognized in Texas and paying taxes in the State of Texas 
and complying with the insurance requirements of that state. He was very 
determined on this point and emphatically stated he doubted whether any con- 
sideration would be obtained by us to reverse this decision. 

Subsequently he makes specific reference to the necessity of your 
company going back in to have any participation in that contract. 

Before you went back, did you make a survey of the territory ? 

Mr. Parkinson. A survey ? I do not know, but our agency officers 
had been down .there, both the agency department officers and Mr. 
Graham, who was then in charge of the group department. We had 
an increasing respect for the desirability of Texas as a territory in 
which to do a moderate life-insurance and group business. 

Mr. Gesell. Our records indicate there were some, at that time, 
approximately 42 companies in Texas with their home office there, and 
around 141 or 142 companies doing business in the State of Texas. 
You were familiar with those facts, I have no doubt. 

Mr. Parkinson. Yes. 

Mr. Gesell. That would mean about one company to every 43,000 
people. I am advised that at the present time there are some 8,000 
life-insurance agents in the State of Texas. Under all those circum- 
stances, it is difficult for me to see why it would be necessary for 
another company to bring its services into the territory. 

Mr. Parkinson. We considered all of that ; you are quite right, it 
should have been considered, but we thought that in view of the 
demand which we had encountered for both group insurance and 
for individual annuity and life-insurance service from a larger mu- 
tual company, there was in Texas, notwithstanding the excellent 
services that were being rendered by the Texas companies, an oppor- 
tunity for the Equitable to render a supplementary service. 

Mr. Gesell. There was no question in your mind that you were 
going into a pretty stiff market, with one hundred and thirty-odd 
companies there. 

Mr. Parkinson. Well, we knew that it was a life-insurance-minded 
State, and we thought that there was a large population there who 
would be glad to make use of the services of our institution, not- 
withstanding all the use they were making of the smaller Texas 
companies. 



6568 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now, in response to my question, I take it you did 
anticipate competition of a very serious nature in setting up the 
business. 

Mr. Parkinson. Yes. 

Mr. Gesell. And, therefore, you must have anticipated that it 
would be necessary to "spend perhaps a greater amount of money 
than would otherwise be necessary in opening up virgin territory, 
let us say. 

Mr. Parkinson. Yes; unless we opened up very slowly, and we 
decided not to open too slowly. 

Mr. Gesell. What were your estimates as to the cost of setting up 
operation in the State of Texas? 

Mr. Parkinson. I don't remember the exact figures. 

Mr. Gesell. You must have a general idea, Mr. Parkinson. 

Mr. Parkinson. I think that the actuaries' estimate over the period 
of the first, 2 or 3 years was 38 percent. I am not sure of it. 1 see 
it is not in percentage. The actuaries' estimate for the first 4 years 
was $432,000. That, I am told, was on a general- agency basis. 

Mr. Gesell. And you adopted the general-agency basis? 

Mr. Parkinson. No ; we adopted the agency management basis. 

Mr. Gesell. What was the estimate there? 

Mr. Parkinson. $406,000. 

Mr. Gesell. For 4 years or per year for 4 years ? 

Mr. Parkinson. That is for 4 years. 

Mr. Gesell. You had to pay immediately, did -you not, rather 
sizeable taxes? 

Mr. Parkinson. Yes; we did; $417,000 as I remember were the 
back taxes for the period from our withdrawal up to the year of 
reentry. Those were taxes on premiums that we had collected during 
that tune from Texas policyholders and on which we hajl paid no 
premium tax either in Texas or anywhere else. 

Mr. Gesell. Our figures which you furnished us would indicate that, 
including this tax, it cost you for the first 3 months of 1937, $486,055 ; 
and for the first 9 months of 1938 an additional $182,969 ; or a total of 
$669,024 for the first year of operations in the State. 

Mr. Parkinson. That is including the tax. 

Mr. Gesell. Including the tax ; yes. 

Mr. Parkinson. These other figures did not include the tax. And 
may I say, with respect to the tax, that a computation made by our 
actuaries showed that if we had taken the rate of interest earned on 
our assets for each of the years during the time we were out of Texas 
and applied it as earnings on the taxes we didn't pay to Texas, the 
taxes plus the earnings would have amounted at the time we reentered 
Texas to $925,000. Now, I hope Texas doesn't get onto that, but the 
truth is that the earnings on the taxes which we held in our hand and 
invested during the period that we were out of Texas more than paid 
the entire tax bill for the period. 

Mr. Gesell. It did, of course, involve an outlay of money to go in. 

Mr. Parkinson. It did involve an outlay of money. 

Mr. Gesell. For what period of time did you anticipate it would be 
necessary for you to subsidize this new manager office there until it 
was on a paying basis of its own ? 

Mr. Parkinson. Three or four years. I should say we contemplated 
we would have to pay a greater portion of the annual premiums than 



CONCENTRATION OF ECONOMIC POWER 6569 

we pay on the average for such business in other States. I don't like 
the word "subsidize." 

Mr. Gesell. Your bogey is now $24,000 for every $100,000 of first- 
year premiums collected. 

Mr. Parkinson. That is about right, sir. 

Mr. Gesell. And you anticipated that that bogey ? which is about the 
average for your society generally, would amount in Texas to around 
35 to 38 thousand dollars per $100,000 of first-year premiums. 

Mr. Parkinson. I think that is about right. 

Mr. Gesell. And that would be for a period of 3 or 4 years. 

Mr. Parkinson. That is what I had in mind. 

Mr. Gesell. Who was put in charge of Texas ? 

Mr. Parkinson. W. W. Klingman was made manager. 

Mr. Gesell. Mr. Klingman had been a vice president in charge of 
agencies in your company, had he not? 

Mr. Parkinson. Yes ; he was at that time. No ; I beg your pardon, 
he had ceased a few months before he went to Texas. 

Mr. Gesell. He went to Texas, am I correct, at a salary of $25,000 ? 

Mr. Parkinson. Yes ; as manager. 

Mr. Gesell. Your customary manager's salary is $4,200, is it not? 

Mr. Parkinson. Yes; but Klingman did not go under the usual 
agency -manager contract. 

Mr. Gesell. That is just what I am trying to point out. Now, he set 
up three branches, did he not ? 

Mr. Parkinson. Yes. 

Mr. Gesell. One in which he was in charge. 

Mr. Parkinson. No. 

Mr. Gesell. Three in addition to the main branch ? 

Mr. Parkinson. No; he was not in charge of any branch. There 
were three branch offices of which he was the general manager. 

Mr. Gesell. I understand. Who was placed in charge of each of 
the three branch offices ? 

Mr. Parkinson. Lloyd Klingman was placed in charge of the Dallas 
office. 

Mr. Gesell. What relation is he of W. W. Klingman ? 

Mr. Parkinson. A son. 

Mr. Gesell. Had he been with the company prior to that ? 

Mr. Parkinson. Yes. 

Mr. Gesell. In what capacity ? 

Mr. Parkinson. He was at that time head of our salary savings 
division in the home office. 

Mr. Gesell. Had he had any experience as a manager ? 

Mr. Parkinson. He had been an agent in the field, and he had been 
associated with his father's managerial work, but he had had no actual 
responsibility as a manager. 

Mr. Gesell. Who was placed in charge of the other branches? 

Mr. Parkinson. Harold Rossman was placed in charge of Houston 
and Chester Klingman in charge of San Antonio. 

Mr. Gesell. What relation is he to W. W. Klingman ? 

Mr. Parkinson. He is a younger son. 

Mr. Gesell. Had he been in the company prior to that ? 

Mr. Parkinson. Yes ; from the days of his graduation from college. 

Mr. Gesell. In what capacity ? 



6570 CONCENTRATION OF ECONOMIC POWER 

Mr. Parkinson. He had been for some years in the group depart- 
ment, doing supervisory and service work in group, and then had 
been a soliciting agent with the Miner Agency in New York City. 

Mr. Gesell. He likewise had had no managerial experience? 

Mr. Parkinson. I would rather use the word managerial "respon- 
sibility." He had had none. 

Mr. Gesell. What were the salaries allotted to the Klingman sons ? 

Mr. Parkinson. Lloyd Klingman, $10,000 ; Kossman, $10,000 ; and 
Chester Klingman, first at $5,000 and then $6,000. These were the 
guaranteed. 

Mr. Gesell. They had commissions ? 

Mr. Parkinson. In place of the $4,200 which is the usual guaranty. 

Mr. Gesell. They each received a more generous guaranty? 

Mr. Parkinson. They did ; yes. 

Mr. Gesell. Did those guaranties amount to more than the salaries 
that the two men had been receiving with your organization before 
they were placed in those positions? ' 

Mr. Parkinson. I don't recall that. I think Harold Kossman had 
been receiving up to 12,000. 

Mr. Gesell. I am talking about the two Klingmans. 

Mr. Parkinson. Lloyd Klingman's salary I do not exactly re- 
member. It was somewhere near $10,000, and the younger Klingman 
was then a soliciting agent. 

Mr. Gesell. What accounted for the selection of Mr. Klingman's 
sons to accompany him on this venture ? 

Mr. Parkinson. Well, it was a difficult job we had, after deciding 
to reenter Texas, to determine who should go there. At the time 
of our decision and reentry in January, and finally in March of 1937, 
Klingman, the elder Klingman, was vice president in charge of the 
agency department. He had had a very remarkable history in our 
institution and in the life-insurance world. 

Mr. GeIsell. Then you left the selection to him as to who should 
accompany him on this venture? 

Mr. Parkinson. You are a little ahead of me. I was about to say 
that he had been manager at St. Paul and built up a great agency in 
the Northwest. He had come to the home office to do a particular 
job in the days of great difficulty for me, having just been made the 
president of the institution, in dealing with an emergency in our 
agency organization. He came to do that job; he did it and he 
"wasn't wholly happy in New York or in the home office. But the 
administration of his return to the field was not an easy matter, 
either for him or for me. But he wanted to return to the- field. 

Mr. Gesell. I suppose there was the fear that it would have the 
appearance of a demotion when in fact you didn't consider it as such. 

Mr. Parkinson. I certainly did not consider it as such. 

Mr. Gesell. That was the concern, was it, with respect to the 
problem ? 

Mr. Parkinson. That was my concern. He made some recom- 
mendations to me in response to my suggestion that the time had 
come for us to organize in Texas along about May of 1937. There 
was a certain amount of demand at our offices. People were coming 
in indicating they wanted to buy Equitable insurance. We hadn't 
been organized. We felt we might be under criticism from the in- 
surance authorities, having taken out our license, and not having 



CONCENTRATION OF ECONOMIC POWER 6571 

provided anybody to sell insurance there. So I urged him to proceed 
with an organization there. He gave, me recommendations for the, 
appointment of three managers. One of them was Lloyd Klingman. 
The other two, one was Taylor, our manager in Louisville, and the 
other was Kirby, our assistant manager in New Mexico. I did not 
approve of the suggestions at that time, and one of my reasons was 
that I was afraid that these younger men, especially, would not fit 
into a very difficult situation, because in going back into Texas, I- 
had in mind, and all of us at the home office had in mind, that we 
didn't want.to disturb business of the existing companies there. We 
wanted to be as friendly in our supplementary services as possible. 
But on the other hand 

Mr. Gesell (interposing). What do you mean by supplementary 
service? 

Mr. Parkinson. The offering of our service in addition to their 
own. 

On the other hand, we didn't want to go down there and be so 
darned polite that we wouldn't do> any business at all and I was 
anxious to get managers who would combine a realization of the 
desirability of the highest ethics in handling our business there and 
at the same time be practical in offering our services. 

Now, nothing came of that suggestion until after the 1st of July, 
and meanwhile we had decided, both for the institution's good and 
for Klingman's good, the agency department and the group depart- 
ment should be combined and Mr. Graham, who was in charge of the 
group department, should be in charge of both the combined depart- 
ments. 

Thereupon Klingman had definitely severed his connection with 
the home office from the point of view of permanently remaining 
there and he, himself, proposed that he be sent to Texas. But that 
was long after we reentered Texas. And then very quickly his recom- 
mendations of these two boys, whom he had brought into the busi- 
ness and Rossman, who had long been associated with him, were made 
to Graham, negotiated with Graham, approved by Graham, recom- 
mended lo me and approved by me as a solution of our entire problem 
in reentering Texas. 

Mr. Gesell. I have Mr. Graham's memorandum to you approving 
the plan but it seems to me that the subject has some rather important 
qualificatione. It is dated September 16 and I will read a portion 
to you. 

The attached memorandum headed "Texas Organization" outlines the discus- 
sions with Mr. W. W. Klingman and was, in fact, dictated in his presence in 
an endeavor to reach a conclusion after a number of pleasant discussions. On 
reflection, however, I feel I should say to you that while willing to support the 
recommendations in this memorandum I think better conclusions could be reached 
on behalf of the Society as also on behalf of Mr. Klingman. As the recom- 
mendations stand I think they leave Mr. Klingman and in fact the entire 
set-up open to the suspicion of nepotism not untainted by selfishness, which is 
exactly the reverse of what I think Mr. Klingman would want to have appear 
or would want the Society to seem open to. 

To criticize my own recommendations, I would point out the weakness of 
having three men appointed to the three agency managerships, two of whom are 
sons of the man selected to be the "supermanager" under some title to be fixed 
upon, and the third manager a man who has always been extremely close to Mr. 
W. W. Klingman and who has been recommended previously by Mr. Klingman 
for advancement. 

124491 — 40— pt. 13 15 



6572 CONCENTRATION OF ECONOMIC POWER 

In the recommendations of the attached memorandum I had in mind the 
designation of Mr. W. W. Klingman as General Manager which appointment 
would leave him free to receive commissions and renewals on personal business, 
inclusive of such business as would come to him thru brokers. 

I am not here questioning the soundness of the procedure of putting Mr. W. W. 
Klingman in charge of Texas and under him appointing these three fine young 
men who, while lacking in any experience as managers or unit managers, are yet 
well equipped, insurance wise, and leaning on the superior experience of Mr. 
W. W. Klingman in the managerial field might be confidently expected to meet all 
requirements as managers. I merely question the advisability of the set-up. 1 
have questioned this to Mr. W. W. Klingman recently, but he did not agree with 
me, and his opinion, of course, I respect. 

There is in Mr. Graham's memorandum the impression at least that 
these selections were not based entirely on merit. I take it you were 
aware of that in selecting these particular people, or were anxious to 
work out an arrangement which would be most satisfactory to Mr. 
W. W. Klingman, who would have the responsibility in the territory? 

Mr. Parkinson. No; my concern was to work out an arrangement 
which would be most satisfactory for the society, and this is one of 
those occasions when the president has to take the responsibility of not 
following the recommendation of the head of the department involved, 
or, I should say, following the recommendation, but not paying too 
much attention to the accompanying memorandum which went into 
the agency department records and into my records to increase my 
responsibility. I am sure Billie Graham didn't mean to do that, but 
that is what happened. However, I don't object to taking the full 
responsibility for deciding that W. W. Klingman and all that he had 
done for the Equitable and all the power and ability that he had shown 
in bringing himself up from absolutely nowhere in the world to a 
position of great influence and power in our business was the best 
possible man to represent the Equitable in dealing with the difficult 
business situation in Texas, and I have no doubt at all that I was abso- 
lutely right in saying that. These men are young ; they are men who 
have been in our business ; they are men we can lean on ; they are men 
we can get the best results out of ; and I think the events have shown 
that we were right, notwithstanding the implications of nepotism. 
What is it? I see no nepotism in a situation where young boys just 
out of college have followed an employment like life insurance and 
in an institution like the Equitable, and when they do I will see that 
they get the chance to go on, but that is all. 

Mr. Gesell. Now, on this whole problem of recruiting, how many 
agents did you employ in Texas? Ran into around 90 or 100 agents, 
did it? ' e 

Mr. Parkinson. I don't know, 

Mr. Gesell. Have you some general idea ? 

Mr. Parkinson. I should think it probably was more than that; 
I was down in Texas last March and went over the ground and saw 
these agencies and I should say there must be 150 Equitable agents 
in these three agencies. 

Mr. Gesell. When you set up a big organization like that, where do 
you get your agents ? 

Mr. Parkinson. Well, it wasn't so difficult to get agents as it was to 
avoid employing too many. I am told by our managers in Texas that 
they were flooded with applications of folks who wanted to be agents. 

Mr. Gesell. I take it you would need experienced men. You 
can't recruit an entirely inexperienced force to develop a territory? 



CONCENTRATION OF ECONOMIC POWER 6573 

Mr. Parkinson. Oh, that is not the truth. May I say right here 
that, with respect to these young and inexperienced men, some of the 
best managers we have today were appointed managers or general 
agents when they were under 25, and, indeed, one of them, one of the 
best general agents we have, got his contract before he was 21. So I 
don't admit at all that the fact that a man is young and has had no 
previous responsibility means that he can't make good as an effective 
life-insurance manager, and I won't admit at all that a young man 
who has the right qualities will not make a successful and good life- 
insurance agent, though he has had no previous experience as a solici- 
tor. We have two or three of them. 

Mr. Gesell. I would be the last fellow to question you about youth, 
Mr. Parkinson. What I was asking you was can you put all inex- 
perienced men into a new agency set-up like that ? 

Mr. Parkinson. Well, we had to. We had to take what men were 
available and build under these men who had the experience. 

Mr. Gesell. Your records furnished to us indicate that there were 
at least 30 of these agents who came from other life-insurance 
companies. 

Mr. Parkinson. Came from other life-insurance companies? 

Mr. Gesell. Exactly. 

Mr. Parkinson. What does that mean ? 

Mr. Gesell. Who left positions with other life-insurance com- 
panies to join yours at this time. 

Mr. Parkinson. I should be surprised if at the time they were en- 
gaged by us they were licensed to act for or were employed by any 
other agent, because that is the one thing that Wash Klingman has 
made an earnest effort to avoid. 

Mr. Gesell. You think, there was no — to use the phrase of the 
business — proselyting basis ? 

Mr. Parkinson. I am almost certain; we have endured that sort 
of thing so much in our own agency organization that we try our best 
to eliminate it entirely from the business. 

Mr. Gesell. Do you remember this correspondence which I hand 
you now? 

Mr. Parkinson. Yes; a letter from the Life Insurance Co. of 
Virginia. 

Mr. Gesell. The chief officer of that company called your attention 
to one effort made by Mr. Klingman to employ an agent of his 
company ? 

Mr. Parkinson. Yes ; that case, I think, is still under consideration, 
and there are factors in it which explain the cases consistently with 
what I have stated to be our rule and Klingman's practice. 

Mr. Gesell. Were there any other cases of that character which 
came to your attention ? 

Mr. Parkinson. I think there was another one of a general Agent 
for some company who moved to California, but still had technically 
his contract in force, but his agent remained behind him in Texas 
and he wanted a job with a live and, running company, but othet* than 
that I do not know of any instance in which — I would be glad to get 
a definite statement from Klingman with respect to the matter, but 
I think he has observed strictly the rule that we want our own agents 
and we do not want to take any agents from any other company. 



6574 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Certainly; I gather from your firmness that that has 
been a matter of your policy and your desire ? 

Mr. Parkinson. Yes; and it is the policy that I shall impose on 
him. 

Mr. Gesell. To the extent that you are familiar with his practice, 
you think he will pursue it ? 

Mr. Parkinson. I do. 

Mr. Gesell. Now may I/ask whether in building up the territory 
you made certain concessions to your agents which you wouldn t 
ordinarily make, such as the waiver of the ten case rule ? 

Mr. Parkinson. Yes ; we do. 

Mr. Gesell. You also liberalize your rules with respect to the 
employment of part-time agents, do you not ? 

Mr. Parkinson. I think we did. 

Mr. Gesell. You also relax rules with respect to writing of non- 
medical applications? 

Mr. Parkinson. That I do not know. 

Mr. Gesell. You remember that you approved some extraordinary 
advertising expenditures ? 

Mr. Parkinson. Yes ; I did. 

Mr. Gesell. I take it 

Mr. Parkinson. They were small items. 

Mr. Gesell. I take it that the special salary arrangements to the 
managers down there was again a concession determined upon be- 
cause of the unusual situation of building up new business % 

Mr. Parkinson. That is true. 

Mr. Gesell. Did you also not agree to take brokerage business in 
the State of Texas, when as a general proposition you don't like to 
take that type of business ? 

Mr. Parkinson. I don't remember that. 

Mr. Gesell. Now may I ask in that connection what your policy is 
with respect to establishing bank connections in a new territory, when 
you open up one ? 

Mr. Parkinson. Well, our first consideration is whether we have 
a lot of cash that has to be banked. The second is whether the bank 
is a good and safe institution in which to put some of it and that 
involves the territory, and — oh, there are many other factors. 

Mr. Gesell. Well, I assume that you opened up — in fact, your 
records indicate that you opened up in several banks home-office 
accounts f 

Mr. Parkinson. Yes ; we did. 

Mr. Gesell. Was that done for the purpose of winning the good 
will of those banks ? 

Mr. Parkinson. Well, we had a very great deal of cash laying up 
in the New York banks that we couldn't invest on a satisfactory 
basis. We were putting it around the country in various places, not 
merely in Texas, and we were going into new territory, we were ask- 
ing a good deal of Klingman in the building up of our business, and 
of goodwill, and I think it is true that when I came to recommend- 
ing to our finance committee that they authorize a bank account in 
Texas I did give some consideration to the desirability of maintain- 
ing friendly relations with folks of influence in the State to a degree 
that I would not have done in other States where our organizations 
were built and our institution well known. 



CONCENTRATION OF ECONOMIC POWER 5575 

Mr. Gesell. You opened bank accounts, did you not, in the Amer- 
ican National Bank in Beaumont, First National 'Bank of Dallas, the 
Republic National Bank of Dallas, the First National Bank of Hous- 
ton, the Second National Bank of Houston, the First National Bank 
of San Antonio, and the National Bank of Commerce, San Antonio? 
Those accounts ranging from $25,000 to $45,000; in that neighbor- 
hood. 

Mr. Parkinson. But our general policy in these years in which we 
have had so much cash which has not been invested has been to have 
two bank accounts in any city where we are doing business, which is 
about the population of that. 
Mr. Gesell. You did open accounts in those banks ? 
Mr. Parkinson. We did ; yes. 

Mr. Gesell. Now do I understand that one of the factors which 
motivated the opening of those accounts was the desire to win 
friendly support from bank interests in helping you to develop the 
insurance business in the State? 

Mr. Parkinson. Well, I hesitate to say "Yes" to that and yet I 
have already said that we did take into consideration in recommend- 
ing one or two of those bank accounts the fact that it was new terri- 
tory in which we were trying to move quickly to get our organization 
established, and to exercise the franchise the State had given us. 

Mr. Gesell. You said it was to be friendly with banking interests. 
I take it one of the reasons you wanted the friendship was because 
you wanted this assistance in obtaining new business ? 

Mr. Parkinson. Oh, I wouldn't say assistance, because I think the 
Equitable is absolutely clear over a long period of years from any 
attempt to make use of its bank accounts anywhere for the purpose 
of getting life-insurance business. That is true in Texas as well as 
every other part of the country. 

Mr. O'Connell. May I ask a question? It didn't have anything 
to do with the investment policy of your company, did it? 
Mr. Parkinson. Not the slightest. 

Mr. O'Connell. I mean you had money which was in the New 
York banks and not enjoying much of any return and you gained 
nothing at all in the way of return by putting it in these. places? 

Mr. Parkinson. No different from what we did in Portland, Oreg., 
and Seattle, and other cities where we established two bank accounts 
where previously one would have been enough. 

Mr. O'Connell. What I wanted to make clear was that whatever 
the reason, it was not a reason having to do with the investment of 
your funds? 
Mr. Parkinson. Not the slightest. 

Mr. Gesell. May I call your attention to a memorandum from the 
files written by Mr. Vance L. Bushnell, second vice president, to Mr. 
Graham under date of February 17, 1938? [Reading from "Exhibit 
No. 1340"] : 

I would recommend that careful consideration be given to Mr. Klingman's 
letter of recent date regarding the placing of bank deposits in certain key cities 
throughout Texas. 

While I appreciate the soundness of the policy of the Society in conducting 
our business on an impersonal basis and avoiding at" all times the appearance 
of buying business, Texas would seem to be one State that should prove an 
exception to this rule. Reviewing the chaotic condition of the commercial 
banking field in 1932 which occasioned the bank holiday, you will observe that 



6576 CONCENTRATION OF ECONOMIC POWER 

Texas was the outstanding State in banking strength. As a result, Texas 
bankers are still the leaders of their community and their recommendations 
carry considerable weight with the business men and people of substantial in- 
come brackets in the community. 

The majority of the forty-two Life Insurance Companies in Texas have bank- 
ing affiliations. Since we have considerable idle funds for which we cannot 
find investment at the present time, I am sure that if a certain amount were 
deposited in certain key banks in Texas, it would aid Mr. Klingman in his 
sales program. It would not call for any violation of our present pjolicy by 
any of Mr. Klingman's men using the bank directly in the sale of Equitable 
services. But the mere fact that we have deposits in certain of the key banks 
will automatically give us intangible support through officers of these banks. 

In other words, at the present time, the citizens of the State are inclined to 
go to banks for endorsement-of anything they buy and I fear that we are being 
damned by faint praise on the part of bank's throughout the State of Texas. 

Did that memorandum ever come to your attention ? 
Mr. Parkinson. I don't remember. 

Mr. Gesell. You think it is a fairly accurate statement of the 
condition which prompted those Texas deposits? ' 

Mr. Parkinson. I think it is what we know in the business world 
as "literature." 

Mr. Gesell. Well, we seem to be getting an unusual amount of 
literature from your files, Mr. Parkinson. 

Mr. Parkinson. I am sorry to say that the business world is full 
of too much of that kind of literature. Now let me say one word 
more about that letter. Vance Bushnell is one of our very vigorous, 
able, and much respected second vice presidents whom we took in di- 
rectly from the Continental Bank & Trust Co. in New York where 
he was a vice president up to about 3 or 4 years ago. Now if you 
think that life insurance agents are pests in hunting down oppor- 
tunities to sell new life insurance, just let me tell you that the worst 
pest is a bank official looking for banking; and ever since Vance 
Bushnell came into our organization he has been necessarily and prop- 
erly the entering wedge for every banker in the country who wants 
an Equitable bank account, and what could Vance do for his banking 
friends except write just that kind of a letter? I assure you I paid 
no attention whatever to the letter. H 

Mr. Gesell. May I offer the letter ? 

Acting Chairman Reece. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1340" and is 
included in the appendix on p. 6999.) 

Mr. O'Connell. Mr. Gesell has given up hope of getting a direct 
answer to his question ; possibly I won't be more successful, but I* ask 
you, Mr. Parkinson, whether in your opinion that letter portrayed 
any consideration to placing bank accounts in Texas ? 

Mr. Parkinson. That letter ? 

Mr. O'Connell. Could you tell me whether that letter accurately 
states 

Mr. Parkinson (interposing). I just said "No." 

Mr. O'Connell. I didn't understand you said "No." 

Mr. Parkinson. It is exceedingly difficult, sir, under oath to reply 
directly to general questions. 

Mr. O'Connell. Well, your answer is "No." Is that correct? 

Mr. Parkinson. To that question; yes. 



CONCENTRATION OP ECONOMIC POWER 6577 

Mr. Henderson. But in the preface which you made you again indi- 
cated — and I think for the fifth time and for the fifth person since I 
have been here — a general overriding of assistants and subordinates, 
isn't that about true? 

Mr. Parkinson. That happens from time to time. That is one of 
my most serious responsibilities. 

Mr. Henderson. I am not making anything invidious out of this 
but certainly I think you have established an all-time record before 
this committee. I am merely indicating that this is the fifth time to 
my knowledge when something having to do with policy making has 
come up in a fairly discrete and concrete form, you have indicated 
that you didn't entertain the same thoughts as your subordinate. 

Mr. Parkinson. Well, sir, may I say that this was a second vice 
president in charge of agency promotion who had nothing whatever 
to do with investments or bank accounts? 

Mr. Henderson. You think it is due to the tendency of businessmen 
to write "literature"; is that it? Is that the way you explain it? 

Mr. Parkinson. Well, it is also due partially to the tendency of all 
of us to respond in some way to a friendly approach of folks who had 
previously had some friendly association with us. This was not 

Mr. Henderson. As you probably know, that happens in government 
once in a while. 

Mr. Parkinson. I suspect that is so, but the point I want to make 
is that this particular letter was written by a subordinate officer in the 
agency department. We very seldom pay very much attention to sug- 
gestions from agency quarters as to bank accounts. They go generally 
to the treasurer's office and the recommendation comes from there, but 
we are polite. 

Mr. O'Connell. If I understood — I may miss a point here — Mr. 
Henderson correctly, he was merely pointing out the fact that on five 
occasions this afternoon we were presented with a statement which 
borders on policy from one or another of the officials of your company ; 
you have felt it necessary to repudiate the statement in the particular 
memorandum. That is probably a correct statement of what you have 
found it necessary to do; is it not? I take it you repudiate that as 
being an authoritative statement of the considerations that led to the 
placing of the bank accounts in Texas? 

Mr. Parkinson. Entirely. 

Mr. Gesell. Who made the decision with respect to placing those 
bank accounts? 

Mr. Parkinson. The decision as to making a recommendation to the 
Finance Committee, which has control, had to be made by me. 

Mr. Gesell. You made the recommendation? 

Mr. Parkinson. I made the recommendation to the Finance Com- 
mittee but the Finance Committee made the decision. 

Mr. Gesell. Will you tell us what factor prompted your recom- 
mendation? 

Mr. Parkinson. The fact that we had a large amount of cash, that 
in practically all cities in which we have branch offices and cashiers 
we have bank accounts because all the folks who pay their premiums 
and receive their death-payment checks like to have checks on their 



6578 CONCENTRATION OF ECONOMIC POWER 

local banks; because our local agency likes to deal in checks on their 
local banks; and because this, during the days of our large volumes 
of cash, became normal with us to have two bank accounts in cities 
of the size of Dallas. 

Mr. Gesell. Of course, you do understand we are talking about 
home-office accounts, not the accounts that are obviously necessary 
for the conduct of business. 

Mr. Parkinson. So am I. We have home-office accounts in all of 
these cities for the purpose of paying death claims and then we have 
a very small cashier's account for dealing with minute items. 

Mr. Gesell. I have here a letter which was written by the president 
of the Republic National Bank of Dallas to Mr. Graham under date 
of October 1, 1937, and I think the letter pretty well demonstrates 
what at least this banker thought was one of the factors in connection 
with the deposit. He says [reading from "Exhibit No. 1341"] : 

We are delighted today to receive a letter from Mr. Greaves, Treasurer of your 
Company, enclosing a check in the amount of $25,000.00 as the initial deposit to 
the credit of your Home Office Account with our bank, and I wish to take this 
opportunity to express to you my personal appreciation of your cooperation in 
connection. 

I want you to know that we are especially pleased to have this connection with 
your splendid Company, and are going to do everything possible to make it most 
pleasant and satisfactory to you and your associates. You will find that we are 
in a position to be most helpful in the development of your business in ilallas and 
throughout Texas, and as we are exceedingly anxious to further develop and 
cement the relationship, we are going to be watchful of any opportunity we may 
have to promote your interests. 

I won't read the rest of the letter not related to this point. I would 
like to offer it for the record. 

Acting Chairman Reece. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1341" and is in- 
cluded in the appendix on p. 6999.) 

Mr. Gesell. I gather that in that instance, at least, the deposit did 
have the result of getting banking assistance in the right direction. 

Mr. Parkinson. It had the result of drawing a typically banking 
letter. 

Mr. Henderson. More "literature"? There is nothing essentially 
wrong, Mr. Parkinson, in going out and trying to create a friendly 
interest in your company when you go into a new territory. 

Mr. Parkinson. I had not thought so, sir. 

Mr. Henderson. I mean, if we want to get on technical ground, at is 
part of a general aggressive policy which manifests itself every now 
and then, does it not ? 

You don't care to comment on that, I take it? 

Mr. Parkinson. No. 

Mr. Henderson. Just so the record is complete. 

Mr. Gesell. Do you recognize this material as material which was 
used in connection with a sales campaign in the State of Texas? 

Mr. Parkinson. No ; I never saw it. 

Mr. Gesell. Is there anyone here who can tell us whether they will 
vouch for the accuracy of this information ? 

Have you been advised that this is material which was used in 
connection with the campaign in Texas? 

Mr. Parkinson> Yes. 



CONCENTRATION OP ECONOMIC POWER 6579 

Mr. Gesell. I wish to offer the material for the record. 

Acting Chairman Reece. It may be admitted. 

(The literature referred to was marked "Exhibit No. 1342" and is 
included in the appendix on p. 7000.) 

Mr. Gesell. I have no further questions of this witness. 

Mr. Henderson. The accuracy of the document admitted, however, 
was vouched for? 

Mr. Gesell. Mr. Parkinson conferred with his associates. 

Acting Chairman Reece. Are there any questions? 

We appreciate your appearance and thank you very kindly for the 
lime you have given us. 

(The witness, Mr. Parkinson, was excused.) 

Acting Chairman Reece. If there are no further questions, the com- 
mittee will stand in recess until 10 : 30 tomorrow morning, at which 
time the vice president of the Southwestern Insurance Co. will be 
called. 

(Whereupon, at 5 p. m., a recess was taken until 10 : 30 a. m. of 
the following day, Friday, October 27, 1939.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



FRIDAY, OCTOBER 27, 1939 

United States Senate, 
Temporary National. Economic Committee, 

Washington, D. C. 

The committee met at 10 : 50 a. m., pursuant to adjournment on 
Thursday, October 26, 1939, in the Caucus "Room, Senate Office Build- 
ing, Representative Hatton W. Sumners presiding. 

Present: Representative Sumners, vice chairman; Senator King 
and Representative Reece ; Messrs. O'Connell and Brackett. 

Present also : Gerhard A. Gesell, special counsel, and Douglas Orr, 
attorney, Securities and Exchange Commission. 

The Vice Chairman. The committee will please come to order. 
Mr. Coburn is testifying this morning. 

Mr. Gesell. That is correct. 

The Vice Chairman. Do you solemnly swear the statement you 
are about to make will be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Coburn. I do, sir. 

TESTIMONY OF ARTHUR COBURN, VICE PRESIDENT, SOUTHWEST- 
ERN LIFE INSURANCE CO., DALLAS, TEX. 

SALES AND AGENCY PRACTICES SOUTHWESTERN LIFE INSURANCE CO. 

Mr. Gesell. Mr. Coburn, will you state your full name and resi- 
dence for the record? 

Mr. Coburn. Arthur Coburn, 3910 Gillon, Dallas, Tex. 

Mr. Gesell,. You are an officer of the Southwestern Life Insurance 
Co. of Dallas, Tex., are you not? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. You are vice president of that company ? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. What department of the company are you particu- 
larlv responsible for? 

Mr. Coburn. I am more particularly connected with the distribu- 
tion end of the business. 

Mr. Gesell. The agency and sales end of the business. 

Mr. Coburn. That is right. 

Mr. Gesell. When did you come with the company, Mr. Coburn ? 

Mr. Coburn. The 13th of March 1934. 

Mr. Gesell. Did you come as an officer at that time? 

Mr. Coburn. Yes, sir. 

6581 



6582 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What had been your previous insurance experience ? 

Mr. Coburn. I went to work for the life-insurance business in 
Scotland when I was 16 at $1 a week. I qualified as an actuary when 
I was 20. I was hired by the New York Life to work in their home 
office when I was 23 ; I became an officer of the Northwestern Mutual 
Life Insurance Co. when I was 29; I was elected president of the 
American Institute of Actuaries when I was 39 ; I was vice president 
of the North American Reassurance Co. of New York City up until 
the time I resigned to accept the position with the company I now 
represent. 

Mr. Gesell. Am I correct in saying that in addition you have 
from time to time been an insurance consultant for the R. F. C. ? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. The Southwestern Life Insurance Co., Mr. Coburn, 
confines its activities entirely to the State of Texas, does it not? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. It is incorporated in Texas and has its home office 
in Dallas, Tex.; is that correct? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. What kind of insurance does it sell ? 

Mr. Coburn. It sells regular life insurance and group life in- 
surance. 

Mr. Gesell. You sell no industrial insurance? 

Mr. Coburn. No, sir. 

Mr. Gesell. What is the amount of insurance now in force in 
the company? 

Mr. Coburn. $358,000,000 

Mr. Gesell. And what are the assets of the company at the present 
time? 

Mr. Coburn. $65,000,000. 

Mr. Gesell. How long has the company been in existence? 

Mr. Coburn. Thirty-six years. 

Mr. Gesell. Is it the largest life-insurance company incorporated 
in the State of Texas ? 

Mr. Coburn. No, sir. 

Mr. Gesell. What is the largest company there? 

Mr. Coburn. American National of Galveston. 

Mr. Gesell. How does the Southwestern rank in point of size? 

Mr. Coburn. Well, it is among the first 35 companies in this 
country doing a regular life business. 

Mr. Gesell. And of the Texas companies? 

Mr. Coburn. Second. 

Mr. Gesell. Has the company had in recent years a consistent 
and steady growth? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Can you give us some idea of the rate of that growth ? 

Mr. Coburn. On the 1st of January 1934 the company had in 
force $258,000,000 of life insurance and had at that time $39,000,000 
of assets. The life insurance in force in the company is now larger 
by $100,000,000 and the assets are larger by $26,000,000. 

Mr. Gesell. The company is a stock company, is it not? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. It sells entirely nonparticipating insurance? 

Mr. Coburn. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 6583 

Mr. Gesell. What is the capital of the company? 

Mr. Coburn. $4,000,000. 

Mr. Gesell. Is that stock distributed amongst residents of the State 
of Texas, principally? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Now, when you came to the company in 1934, can you 
tell us something about the conditions which you found existing at 
that time in the agency department and distribution facilities of the 
company ? 

Mr. Coburn. The company at that time had 759 salesmen, and in 
the year 1933 had hired 265 salesmen, indicating an excessive turn- 
over of salesmen. 

Mr. Gesell. Were there any other conditions that you wish to 
bring to our attention at that time? 

Mr. Coburn. Rather low compensation of salesmen. 

Mr. Gesell. Was the lapse rate of the company fairly high at that 
time? 

Mr. Coburn. It was excessive. 

Mr. Gesell. Now, will you tell us what have been the objectives of 
your company since 1934 when you came there, agency -wise? What 
have you tried to do? What are your goals? 

Mr. Coburn. We endeavor to increase the life insurance in force 
of the company by between 15 and 20 million dollars a year by writ- 
ing the smallest amount of life insurance that will accomplish that 
purpose. 

The Vice Chairman. That is an interesting statement. Will he 
explain that? 

Mr. Gesell. You mean by that, that first of all you have no unlim- 
ited desire to write any amount of business that you can get on your 
books? 

Mr. Coburn. In the first place, we want to maintain friendly rela- 
tionships with other local reserve life-insurance companies. We 
don't want to grow too fast, and we think we are growing fast 
enough. 

Mr. Gesell. You are particularly interested, I take it, in the char- 
acter of the business you write. 

Mr. Coburn. We are, sir. 

Mr. Gesell. And you would rather write a smaller volume of per- 
sistent business than a greater volume of what is sometimes referred 
to as hit-and-run business. 

Mr. Coburn. That is correct. 

Mr. Gesell. Now, how much do ,you say you wished to write a 
year? 

Mr. Coburn. The smallest amount of new business each year that 
will enable us to accomplish our objective. 

Mr. Gesell. And that is what? 

Mr. Coburn. To increase the life insurance in force of the com- 
pany between 15 and 20 million dollars a year. 

The Vice Chairman. I don't understand what is meant by the 
statement they "want to write the smallest amount of insurance they 
can write" in order to give 15 million increase. 

Mr. Gesell. You are taking into account the fact that inevitably 
some business must lapse ; is that not correct, Mr. Coburn ? 

Mr. Coburn, Yes, sir. 



6584 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. So you must write somewhat more than 15 million in 
order to make that much increase, because there would be some busi- 
ness that would go off the books, of the business you write. 

Mr. Coburn. Judge, we desire as far as possible to avoid the writ- 
ing of high-pressure business. We view with considerable measure 
of regret the fact that some Texas citizens buy life insurance from 
us and are unable to keep it in force. It is the policy of the manage- 
ment of the Southwestern Life to have that type of business restricted 
to a minimum, as far as the matter is within our control. 

The Vice Chairman. You want the policy written to be a policy 
which the person who is insured can continue. 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Now, do you think, Mr. Coburn, that it would be 
possible for your company to double the size of the amount of busi- 
ness which it writes ? 

Mr. Coburn. No, sir. 

Mr. Gesell. You think, then, that this objective which you set is 
ab,out the maximum which you could under any possible circum- 
stances write? 

Mr. Coburn. We could write substantially more than we are now 
writing. At the present time the people of the State of Texas buy* 
12 percent of their life insurance from us. I think it is entirely prob- 
able that we could increase that figure from 12 percent to 15 percent. 
However, I would not consider that desirable. 

Mr. Gesell. And that I take it would be because in making that 
increase you would bring onto the books of your company a less 
desirable type of business, with a shorter persistency and greater lapse 
rate. 

Mr. Coburn. I think that is unquestionably correct. 

Representative Reece. Why would that be the case ? 

Mr. Coburn. I believe, sir, that there is a natural amount of life 
insurance for every company to sell. For many years the people of 
the State of Texas have been in the habit of buying about 12 percent 
of their life insurance from the Southwestern Life. That has been 
their custom. We could, by the adoption of aggressive sales methods 
and by pressure selling, probably increase that percentage from 12 to 
15 percent, but I believe that the additional $1.0,000,000 of life in- 
surance that we would sell would be subject to an excessive lapse rate. 

Senator King. Do you object to competition in the life-insurance 
field in Texas and the Southern States ? 

Mr. Coburn. No, sir. 

Senator King. You wouldn't object to your company — by the Way, 
where is your company incorporated ? 

Mr. Coburn. In Texas. 

Senator King. You don't feel that you should be limited to writing 
policies in Texas, do you ? 

Mr. Coburn. That is a matter of policy of the directors of the 
company I represent, sir. 

Senator King. So you sell in Texas alone? 

Mr. Coburn. We elect to operate in Texas alone. 

Senator King. Undoubtedly you have that right. I am not saying 
it is not a proper policy for your company, but the point I am trying 
to get at is whether or not you want Texas to be insulated and im- 



CONCENTRATION OF ECONOMIC POWER Q5S5 

mune from invasion by insurance companies from other parts of the 
United States. 

Mr. Coburn. I have no such feeling, sir. 

Mr. Gesell. As a matter of fact, Mr. Coburn, there is no reason, is 
there, that you can think of why a company from outside the State 
of Texas shouldn't come in to the State of Texas, provided its agency 
practices and its general method of doing business are in the best 
interest of the citizens of that State ? 

Mr. Coburn. That is my private view, sir. 

Senator King. I presume the Texas insurance laws have restrictions 
and provisions which must be observed by your company as well as 
by any other company. 

Mr. Coburn. That is correct, sir. 

Senator King. And reports have to be made of their policies and 
their general business. 

Mr. Coburn. That is also true, sir. That is correct, sir. 

Mr. Gesell. Now, I want to discuss with you, Mr. Coburn, some 
of the methods which you have adopted in your company in an effort 
to reach this objective which you have just called to the committee's 
attention. First of all, however, may I have some idea of your sales 
organization? You operate on the general -agency basis or on the 
agency-manager basis? 

Mr. Coburn. Agency manager. 

Mr. Gesell. How many agency managers do you have? 

Mr. Coburn. Ten. 

Mr. Gesell. "How many agents do you have ? 

Mr. Coburn. Three hundred ninety-six. 

Mr. Gesell. Do you have in the home office an agency committee 
of the board of directors ? 

Mr. Coburn. No, sir. 

Mr. Gesell. You yourself, as the officer in charge of agency activi- 
ties, are "dipectly responsible to the board itself? 

Mr. Coburn. No ; I am responsible to the president of the company, 
Judge O'Donnell. 

Mr. Gesell. And he in turn is responsible to the board? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Are you in close contact with the problems of the 
field? 

Mr. Coburn. I think so, sir. 

Mr. Gesell. Will you tell us in what manner you do supervise the 
field, how you keep this close contact ? 

Mr. Coburn. I visit the different offices of the company, and I visit 
the different agencies. 

Mr. Gesell. Do 5'ou know most of the agents yourself, personally? 

Mr. Coburn. I think I know 70 percent of them personally. 

Mr. Gesell. And how frequently do you go to the district offices ? 

Mr. Coburn. I try to cover each territory of the company once a 
year. 

Mr. Gesell. I imagine that is quite a trip in a State as large as 
Texas. 

Mr. Coburn. It means driving an automobile a little over 12,000 
miles. 



6586 CONCENTRATION OP ECONOMIC POWER 

Mr. Gesell. Starting off at the beginning of this problem, Mr. 
Coburn, what do you do to recruit your agents? How do you recruit 
them ; where do you get them from ; what standards do you set? 

Mr. Cobubn. We endeavor to limit our appointment of agents to 
people more than 21 years of age and less than 35, with at least a 
high-school education, "capable of passing medical examination to 
determine their physical condition. The type of man that rates su- 
perior or very superior on the Dr. Verne Steward's selection system. 

Mr. Gesell. That, I take it, is a system of appraising the possibili- 
ties of the men for this type of work. 

Mr. Cobubn. It is a system of appraising vocational ability. 

Mr. Gesell. Aptitude test, you might call it. 

Mr. Cobubn. Yes, sir. 

Mr. Gesell. Do you discourage the employment of men who have 
been unsuccessful in other lines 1 

Mr. Cobubn. As far as possible we try to discourage men that 
haven't shown an aptitude in some other line of endeavor, and as far 
as possible we try to restrict our selection of recruits to men that have 
been known well and favorably to us for a period of 1 year. 

Mr. Gesell. Then, unlike the instance of the company we were con- 
sidering yesterday, you don't consider your recruiting as sort of in 
the nature of an unemployment-relief center, or anything of that 
sort? 

Mr. Cobubn. We do our recruiting purely on the basis that we 
think would be profitable to ourselves.' 

Mr. Gesell. And you are keenly interested in this whole problem 
of service to your policyholders,, are you -not? 

Mr. Cobubn. We think we are doing a reasonably good job. 

Mr. Gesell. You feel, do you not, that this recruiting is one of the 
important elements in bringing about the highest type of .service to 
the policyholder, in that careful selection of the type of agent will 
have some influence on the type of service rendered? 

Mr. Cobubn. We think it is fundamental. 

Mr. Gesell. Well, now, once you have selected your recruit, I take 
it that he is subject to some type of training course? 

Mr. Cobubn. We have three training courses. 

Mr. Gesell. How many recruits do you take in a year on the 
average now ? 

Mr. Cobubn. We have at present time 45 first-year recruits. 

Mr. Gesell. When they come on with the company, do they im- 
mediately take a training course? 

Mr. Cobubn. They are permitted to sell after 2 weeks' training. 

Mr. Gesell. Must they take any training after that 2 weeks? 

Mr. Cobubn. It is mandatory. 

Mr. Gesell. For what period of time ? 

Mr. Cobubn. One year is mandatory. 

Mr. Gesell. There is a 1-year mandatory training course. 

Mr. Cobubn. One-year mandatory training course. 

Mr. Gesell. When you bring this man into your company do you 
make him dependent upon his commissions for his livelihood? 

Mr. Cobubn. We started in June 1935 to experiment with a salary 
basis for recruits during the first year of their employment. 

Mr. Gesell. That was, if I may interject, quite a departure from 
the customary agency practices. 



CONCENTRATION OF ECONOMIC POWER 6587 

Mr. Coburn. Yes, sir. We met with some measure of success, and 
beginning in 1941 all of our recruiting will be done on a salary basis. 

Mr. Gesell. Do I understand that now some recruits are on a 
salary basis, and some are on a commission basis ? 

Mr. Coburn. That is right, sir. 

Mr. Gesell. What proportion are on a salary basis at the present 
time, roughly speaking? 

Mr. Coburn. A little over 40 percent are on a salary basis. 

Mr. Gesell. When you say a salary basis, do I understand that 
you have a« minimum guaranteed salary which you give the recruit 
for the first year that he is with your company ? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. What is that minimum guarantee? 

Mr. Coburn. Depending upon the recruit, and not less in any event 
than $100 a month. 

Mr. Gesell. He gets at a minimum $1,200 a year? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. And does he get that regardless of whether or not he 
sells any insurance? 

Mr, Coburn. Regardless. 

Mr. Gesell. If he sells insurance sufficient to warrant his receiv- 
ing commissions on a commission basis in excess of his guaranteed 
salary, does he receive that benefit? 

Mr. Coburn. We pay him the excess. The salary is merely a floor 
below which his earnings cannot fall. 

Mr. Gesell. Will you tell us, if you are able, what comparison can 
be made between recruits taken in on the commission basis and re- 
cruits taken in on this guaranteed-salary basis ? 

The Vice Chairman. Will you develop in that connection the rea- 
son for the difference in the classifications and different methods 
.of employment? 

Mr. Gesell. I gather the witness has said that this was in the 
process of experimentation and in 1941 'all of his agents are going 
to be ol a salary basis. 

Mr. Coburn. Judge, the reason we adopted the salary basis was 
the belief of Judge O'Donnell and the belief on my part that that 
would lead to a more careful selection of recruits by our managers. 
We felt that our managers had a feeling of responsibility to the 
corporation,- and if they knew that they were investing the corpora- 
tion's funds in each case they hired a recruit, they would hire the 
recruits more carefully. 

Mr. Gesell. I also take it another factor would be the factor that 
a man who had some guaranteed salary would be, while he was un- 
trained and new to the business, less apt to engage in unsatisfactory 
or objectionable sales metnods in an attempt to make a living. 

Mr. Coburn. If we think he is going to be objectionable at all, 
we don't guarantee him a salary. 

The previous question: In the calendar year 1937 we- hired 74 
recruits that we did not guarantee a salary to. Out of these 74 
recruits, 16 of these men are now salesmen for the company ; a little 
better than 20 percent have survived. 

In 1937 we hired 19 recruits on a salary. Thirteen of them are now 
successful life-insurance salesmen, a little better than 60 percent sur- 

124491 — 40 — pt. 18 16 



6588 CONCENTRATION OF ECONOMIC POWER 

vival. Our experience to date has been that we have done 3 times 
better with recruits that hired on salary. 

The Vice Chairman. And probably you had a superior type of man, 
as you have indicated, to begin with when you took men to whom you 
advanced a salary. 

Mr. Coburn. Definitely so, sir. 

Mr. Gesell. So that your solution of this problem of turn-over, 
which is so troubling the insurance industry, is to give some kind of 
a guaranteed salary in the first year, carefully recruit your agents, 
and train them well. 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Now, what effect from a strictly operating point of 
view has this new program of recruiting, training, and salary, had 
upon your business? 

Mr. Coburn. We have increased by $75,000 a year our expenditure 
in the selection and training of agents. We believe by virtue of that 
investment of $75,000 a year we have increased our cash earnings 
$300,000 a year. 

Mr. Gesell. In other words, by expending more money on this 
selection and training program you have had a very beneficial return 
profitwise ? 

Mr. Coburn. It has been very gratifying to our board of directors. 

Mr. Gesell. Now, let's take it from another basis, Mr. Coburn. 
Before you started this system we have been talking about, how much 
did it cost you to train an agent ? 

Mr. Coburn. I think in 1933 we were spending, the first year, about 
$500 training a recruit. 

Mr. Gesell. For each recruit? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. And out of 10 recruits how many stayed? 

Mr. Coburn. One. 

Mr. Gesell. So that it really cost you $5,000 to train a man ? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Under this new program how much does it cost you 
to train a man and recruit him ? 

Mr. Coburn. $1,597. 

Mr. Gesell. How many men out of 10 stay, did you say? 

Mr. Coburn. Six out of ten. 

Mr. Gesell. So that your over-all costs for training per man who 
stays are much less, are they not? 

Mr. Coburn. You have omitted one factor. We are expending 
$1,597 to train a first-year recruit. We also incur a loss in the salary 
of about $300, so that the total investment in the recruit is about 
$1,900, and we get 6 salesmen out of each 10 recruits. 

Mr. Gesell. And on a man-who-stays basis, does it cost you more 
or less to train a man? 

Mr. Coburn. Less. 

The Vice Chairman. I don't know exactly your objective, but 
wouldn't it be well to indicate how this money expended in training 
recruits is expended ? What do they do ? How do they expend it? 

Mr. Gesell. That is the next question, Judge. _^ 

Will you tell us the nature of your training course ? 

Mr. Coburn. I believe I can answer your question more conven- 
iently for the committee by submitting an outline of our training 
program, sir. 



CONCENTRATION OF ECONOMIC POWER $589 

The Vice Chairman. It seems to be brief. I don't see why it 
shouldn't be incorporated. 

Mr. Gesell. I think it should be incorporated in the record, by all 
means. 

(The document referred to was marked "Exhibit No. 1343" and is 
included in the appendix on p. 7003.) 

Mr. Gesell. Mr. Coburn, from the point of view of agents' com- 
pensation, has it been your endeavor to raise the average earnings of 
'your salesmen? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. May I ask what success you have had in that connec- 
tion ? 

Mr. Coburn. Our average salesman in the year 1933 was paid 
$1,002. In 1938 we paid our average salesman $2,643. 

Mr. Gesell. You mean to say that in this period of 6 years you 
were able to increase the average earnings of your agents by over 
$1,600? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. How was that done? Was it done primarily by having 
fewer agents ? 

Mr. Coburn. We increased, during the period referred to, the num- 
ber of dollars of commission paid to salesmen from about $700,000 to 
$1,100,000. 

Mr. Gesell. Did you change your commission basis to do that? 

Mr. Coburn. No, sir. 

Mr. Gesell. How did you do it ? 

Mr. Coburn. They sold more business. 

Mr. Gesell. Sold more business, or sold more business which stayed 
on the books ? 

Mr. Coburn. Both, sir. 

Mr. Gesell. Is one of the factors which contributed to this in- " 
crease in average earnings of the agents the fact that there has been, 
since you came with the company, a very definite emphasis upon elim- 
inating lapse? 

Mr. Coburn. I believe so. 

Mr. Gesell. You feel that the more persistent business an agent 
writes, the better his compensation? 

Mr. Coburn. That has been my experience. 

Mr. Gesell. And then in your effort to raise the agents' average 
earnings you have emphasized the desirability of eliminating lapse? 

Mr. Coburn. We have insisted on it. 

Mr. Gesell. Well, now, first may I offer this schedule of the aver- 
age annual earnings of the agents of the Southwestern for the record ? 

The Vice Chairman. Yes. 

(The schedule referred to was marked "Exhibit No. 1344" and is 
included in the appendix on p. 7005.) 

Mr. Gesell. You say you have insisted on eliminating lapse. Will 
you tell us how you have insisted, what you have done to bring about 
these results? 

Mr. Coburn. We keep a record of every salesman showing his lapse 
for each year. I would like to submit the record of a good agent, 
Mr. Pittard, of Cisco, and the record of a bad agent, Mr. Cannon, of 
Mission, and direct your attention to the respective lapse rates on 
these two cards. 



6590 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now let me see. Mr. Pittard, of Cisco, Tex., seems to 
have a very good lapse ratio record. 

Mr. Coburn. Excellent. 

Mr. Gesell. What kind of town is Cisco, Tex., insurancewise ? 

Mr. Coburn. Unfavorable. 

Mr. Gesell. Mr. Cannon, of Mission, Tex., seems to have had a very 
high lapse ratio. What kind of town is Mission, Tex., insurancewise? 

Mr. Coburn. More prosperous than Cisco. 

Mr. Gesell. Are both of these towns or cities of the same popula- 
tion ? 

Mr. Coburn. Cisco has a population of 6,000; Mission has a popu- 
lation of 5,100. 

Mr. Gesell. Are you familiar with the cases of these two agents^ 

Mr. Coburn. I know them both personally. 

Mr. Gesell. Can you tell us what factors you believe are respon- 
sible for the more favorable record of Mr. Pittard ? 

Mr. Coburn. Mr. Pittard is a very respected citizen, I might say 
a leading citizen of Cisco. He never approaches anyone for life 
insurance without first of all obtaining a report from the local Ke- 
tail Merchants Association. He endeavors to write no business that 
will ever lapse. Mr. Cannon has a contrary point of view. 

Mr. Gesell. I notice that Mr. Pittard's record in 1937 and 1938 
shows a lapse ratio of 4 to 5 percent. 

Mr. Coburn. That is right. 

Mr. Gesell. And in contrast, Mr. Cannon's record shows a' lapse 
ratio from 23 to 32 percent. 

Mr. Coburn. That is right. 

Mr. Gesell. Now what is the purpose of keeping these detailed 
records on the agent's individual lapse record? 

Mr. Coburn. We require every agent of the company to bring 
his lapses below 30 percent. 

Mr. Gesell. In the case of Mr. Cannon, who I notice has been 
over 30 percent almost without fail since 1927, what action is taken 
in a case of that character ? 

Mr. Coburn. At the beginning of 1939 we gave Mr. Cannon 1 
year's notice. We* gave him an opportunity for 12 months to im- 
prove the class of business written by him. If he fails to do so, we 
will terminate our relationship with Mr. Cannon. 

Mr. Gesell. And you keep a very definite check in this manner 
on all of the agents employed in your company, do you not? 

Mr. Coburn. We furnish them with information in regard to their 
own lapses. ; 

Mr. Gesell. You distribute to the agency force the list of agents 
by tereritory showing the good persistency records and the bad per- 
sistency records of all of them? 

Mr. Coburn. We let the facts speak for themselves. 

Mr. Gesell. Is this that you just handed me such a pamphlet 
as you distribute? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. I notice one or two cases where agents have shown a 
persistency record of 100 percent. 

Mr. Coburn. That is so, sir. 

Mr. Gesell. And a great number of cases where agents have shown 
persistency records of 90 percent or better. 



CONCENTRATION OF ECONOMIC POWER Q591 

Mr. Coburn. A great number, sir. 

Mr. Gesell. Do you find that this problem of lapse can be met by 
a conscientious effort of the management to watch closely the indi- 
vidual activities of each agent? 

Mr. Coburn. We believe that is essential. 

Mr. Gesell. Will you tell us from the point of view of training, 
or from any other point of view, what particular things you have 
done in addition to these we have considered, to impress upon the 
agent the desirability of writing persistent business? 

Mr. Coburn. We offer no recognition to an agent unless his lapses 
are below 25 percent. We run a contest in July and August — a cash 
contest. That is only open to agents who have a lapse rate of less 
than 25 percent. 

Mr. Gesell. That is very interesting, Mr. Coburn. You don't have 
but one contest a year, is that corerct? 

Mr. Coburn. One contest. 

Mr. Gesell. And you open that contest only to those agents who 
have shown a good persistency record. 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Do you believe in the usual type of high-pressure 
contests such as we considered yesterday? 

Mr. Coburn. I am absolutely unalterably opposed to high-pressure 
selling. 

Mr. Gesell. Do you believe that sales contests generally promote 
that kind of selling? 

Mr. Coburn. Highly detrimental. 

Mr. Gesell. Will you tell us why? 

Mr. Coburn. Well, if you will refer to the record of Mr. Cannon, 
he won a contest in 1931. He had a lapse rate of 90 percent. 

Mr. Gesell. That is the highest lapse rate he has had since 1927, 
isn't it? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. It is your experience, I take it, that any efforts to emo- 
tionalize the salesmen or artificially stimulate them into production 
results in writing a poor form of business. 

Mr. Coburn. I am definitely opposed to them. 

Mr. Gesell. And it is your experience that it results in this bad 
type of business. 

Mr. Coburn. It does. 

Mr. Gesell. By the way, why do you have this one contest at all? 
Was that something you inherited when you came there? 

Mr. Coburn. That was a compromise between Judge O'Donnell and 
myself. The Judge wanted to keep it and I wanted to do away with 
it, and we compromised on keeping it with a 75 percent persistency 
requirement. I may say Judge O'Donnell wanted to keep it for senti- 
mental reasons. 

Mr. Gesell. What has been the over- all record of your company 
from the point of view of its lapse 1 record in recent years? Has it 
steadily declined? 

Mr. Coburn. It has been reduced 50 percent in the last 10'years. 

Mr. Gesell. Are you able to say whether a great deal of that reduc- 
tion has occurred in the years since you put this new program into 
effect? 



g592 CONCENTRATION OF ECONOMIC POWER 

Mr. Coburn. Since the 1st of January 1934, our life-insurance ac- 
count has gained $100,000,000. Of that figure, $64,000,000 was brought 
about by a reduction in lapses. 

Mr. Gesell. You mean to say that if you had looked at your present 
insurance account and applied thereto the lapse rate which was preva- 
lent before this program went into effect, you would find that, instead 
of increasing $100,000,000, you had increased only $36,000,000? 
Mr. Coburn. Yes, sir. 

Mr. Gesell. Then you don't feel, I take it, Mr. Coburn, that this 
problem of lapse is inherent in the business as something that we 
could pass off with a shrug of our shoulders by referring to human 
nature. 

Mr. Coburn. I think the problem of lapse must be considered in 
connection with various other problems, because I believe they are 
intimately associated. The problem of compensation: Better-paid 
salesmen do a better job. The problem of turn-over ( : Reduce your 
turn-over and you inevitably reduce your lapses. Select a better class 
of citizen and they do a better job. Train them more thoroughly and 
they render a better public service, and in turn the public appreciates 
that service. All are intimately associated with one another. 

Mr. Gesell. I suppose you anticipate there is a certain amount of 
lapse which will inevitably come in your company or any other com- 
pany. Am I correct in saying that you try to encourage that lapse 
to take place at the earliest possible time ? 
Mr. Coburn. We do. 

Mr. Gesell. Will you tell us how you do that ? 
Mr. Coburn. Our point of view about that is this : Suppose Judge 
Sumners was working in the First National Bank in the city of Dallas 
and he was 37 years of age; he was a prospect for 20-payment life 
insurance in the amount of $1,500, and I was a salesman. I might take 
Judge Sumners' application with an annual premium of $48. Now, 
I am not suggesting that Judge Sumners would lapse the policy. This 
is a merely hypothetical case; but if Judge Sumners did lapse that 
policy, I would have done Judge Sumners an ill service, because the 
judge would have had coverage for one policy year worth $15, but I 
would have charged him $48 for it, and Judge Sumners through my 
efforts would have incurred a loss of $33. I would have done Judge 
Sumners a $33 injustice. 

But if I wrote Judge Sumners' application on a monthly basis, $4, 
and Judge Sumners lapsed that policy at the end of 1 month, he would 
have had life-insurance protection worth $1.25, and Judge Sumners' 
association with me would have cost Judge Sumners only $2.75. 

Mr. Gesell. In other words, by writing the business on a monthly 
basis those policyholders who are lapsing, or apt to lapse, get out 
much easier. 

Mr. Coburn. Yes, sir. 

Mr. Gesell. How much of your business is on a monthly basis ? 
Mr. Coburn. Forty-seven percent. 

Mr. Gesell. Now, let's suppose that Judge Sumners took a monthly 
policy from you and did lapse, and then got a raise next year, as I 
am sure he would. Would you be able to reinstate his policy and take 
into account in any way the fact that he had been with your com- 
pany before and paid some money to you? 



CONCENTRATION OF ECONOMIC POWER 5593 

Mr. Coburn. I would collect 10 cents from Judge Sumners and 
give him a credit on the new policy of $4.10. 

Mr. Gesell. In other words, you would first of all date the policy 
back to take into account the amount of time the previous policy had 
been in force. 

Mr. Coburn. That is what I would do. 

Mr. Gesell. Thus giving him immediately a greater reserve. 

Mr. Cobubn. Yes, sir. 

Mr. Gesell. And similarly giving him some advantages from the 
point of view of age, so he might get his policy at a lower age rate. 

Mr. Coburn. That is possible. 

Mr. Gesell. From the point of view of public relations, and this 
whole question of service which we heard so much discussion about 
yesterday, do you feel that adopting this type of approach is more 
in the public interest? 

Mr. Coburn. I believe it would be utterly impossible for me to take 
$4 away from Judge Sumners and then go back to Judge Sumners a 
year from now without offering Judge Sumners some credit for the 
$4 he had paid me, because I think Judge Sumners would decline to 
do business with me unless I gave him some kind of credit. 

Mr. Gesell. Then you think that the writing of policies on a high- 
pressure basis, and the consequent lapse and continual turn-over 
of policies, creates ill will among the people? 

Mr. Coburn. Oh, definitely so. 

Mr. .Gesell. And from a strictly operating, realistic approach to 
the conduct of the business on a profit-and-loss basis, it is desirable 
to keep policyholders contented and not to trick them out of too much 
money. 

Mr. Coburn. I think that is correct. 

Mr. Gesell. Now, you think your procedure in this connection 
is entirely actuarially sound? There is no joker in it of any kind? 

Mr. Coburn. I know it is profitable. 

Mr. Gesell. It doesn't involve your company undertaking any 
great risks or subject - your company to any more serious hazards? 

Mr. Coburn. I do not think so, sir. 

Mr. Gesell. Have you ever given any consideration to going out- 
side of the State of Texas and doing business in the surrounding 
states ? 

Mr. Coburn. We have. 

Mr. Gesell. Why have you decided not to do so? 

Mr. Coburn. Because we were writing so much business in Texas. 

Mr. Gesell. Well, I take it you could write more if you went 
outside. 

Mr. Coburn. We think it would be unwise to write more business 
than we are now writing. 

Mr. Gesell. I take it, then, that you do feel that there is some 
advantage to a company which keeps its operations from growing 
too extensive. 

Mr. Coburn. It is more profitable not to grow too fast. You make 
more money. 

Mr. Gesell. What about it from the point of view of the policy- 
holder? _ 

Mr. Coburn. I don't feel that we are under any obligation to 
the citizens of Oklahoma. We have never undertaken to. render 



6594 CONCENTRATION OF ECONOMIC POWER 

them any service. I don't think that Oklahoma is in any way 
•'jeopardized by the fact that we have not entered Oklahoma. 

Mr. Gesell. We heard considerable yesterday about the mission- 
ary spirit in life insurance and the desirability of carrying its mes- 
sage throughout the land as a public service. I take it you are not 
in accord with that. 

Mr. Coburn. Our Board of Directors does not have a missionary 
spirit. 

Mr. Gesell. Do you feel that you can better service a smaller 
group of policyholders than you can a large group of policyholders? 

Mr. Coburn. I believe, you secure maximum efficiency in the life- 
insurance business with a regular company that has $500,000,000 of 
life insurance in force. I believe any growth, any substantial 
growth, orderly growth up to $500,000,000, is definitely advantageous 
from an operating point of view. 

Mr. Gesell. Beyond that, you have serious doubts? 

Mr. Coburn. Beyond a biilion dollars of life insurance in force, 
to maintain the same efficiency becomes a problem. It has been done, 
but nevertheless it is a problem to be solved. You have in this 
country one notable example of a company that has solved it. 

Mr. Gesell. Only one, however? 

Mr. Coburn. I know of one that has solved it. 

Mr. Gesell. By and large companies have had great difficulty in 
solving that problem ? 

Mr. Coburn. They have. 

Mr. Gesell. Now, approaching this agency problem from a little 
more general point of view, not simply from the point of view of 
your own company let's say looking at the State of Texas as a whole, 
how many companies are operating there now? 

Mr. Coburn. One hundred thirty-nine. 

Mr. Gesell. One hundred thirty-nine companies? How many 
agents do they have, Mr. Coburn ? 

Mr. Coburn. Eight thousand. 

Mr. Gesell. Eight thousand agents selling ordinary insurance? 

Mr. Coburn. Yes, sir; that excludes agents selling burial and 
industrial insurance. We have a number of burial associations in 
the State. 

Mr. Gesell. Now, do you believe that these 8,000 agents are a 
large enough group to service the interests of the policyholder? 

Mr. Coburn. Oh, they are far too large. 

Mr. Gesell. They are far too large. Why do you say that? 

Mr. Coburn. Because 7,000 of them are utterly incompetent. 

Mr. Gesell. You mean untrained? 

Mr. Coburn. Unqualified and untrained, incapable of rendering a 
satisfactory public service. 

Mr. Gesell. Then, I take it, your feeling would be that it would 
be desirable in the interests of life insurance and the public for 
there to be fewer and better trained agents. 

Mr. Coburn. I believe the best interests of Texas would be served 
if Texas had 3,000 carefully selected, thoroughly trained salesmen. 
They could get the job done, too. 

Mr. Gesell. Well, I suppose Texas is not any different in that 
respect from the country at large. 



CONCENTRATION OF ECONOMIC POWER 5595 

Mr. Coburn. I am more familiar with the conditions in Texas 
but I assume the conditions in other States are somewhat com- 
parable. 

Mr. Gesell. By the way, what function does the State play in 
this question of selection and training and recruiting of a desirable 
form of agent? 

Mr. Coburn. In the State of Texas there are certain exemptions 
that disqualify you to be a life-insurance agent. I am not suf- 
ficiently familiar with the law to tell you what all these exemptions 
are. 

Mr. Gesell. Do you believe they are sufficient to meet the problem ? 

Mr. Coburn. Oh, definitely no ! 

Mr. Gesell. It is, then, a management problem? 

Mr. Coburn. Definitely yes. 

Mr. Gesell. Not a licensing problem? 

Mr. Coburn. I believe you cannot look to the State to run your 
business for you. I think that would be unduly burdensome on the 
State officials. I think the State officials have a perfect right to look 
to us for reasonable and efficient cooperation, cooperation with the 
objectives of the State. 

Mr. Gesell. And the fact, then, that there are these 7,000 agents 
in Texas whom you believe not adequately qualified is to some extent 
a criticism of agency management? 

Mr. Coburn. Definitely yes. 

Mr. O'Connell. May I ask a question? Is it necessary to obtain 
a license from the State .of Texas in order to sell insurance in the 
State — for an individual, I mean? 

Mr. Coburn. For an individual other than a director or an officer 
of a legal reserve life-insurance company. I am not licensed. I can 
sell, but I may not accept a commission. All others must secure a 
license. 

Mr. O'Connell. Do you happen to know, in a general way, whether 
the purpose of that legislation is to provide a set of standards, or is 
the purpose of the legislation a tax purpose, to yield revenue to the 
States ? 

Mr. Coburn. It is not for the purpose of securing revenue tor the 
State of Texas. All of the funds secured by the State are employed 
by the State for the purpose of having salaried representatives of the 
insurance department investigate complaints. The law has been 
beneficial. 

Mr. O'Connell. You don't know whether the law has standards or 
whether it is necessary to take an examination to get a license? 

Mr. Coburn. No examination. 

Mr. O'Connell. If I wanted to get a license to sell insurance in 
Texas, what would I have to do, merely apply for a license and it 
would be granted me? 

Mr. Coburn. I believe you would qualify, sir. 

Mr. O'Connell. Well, then, there are standards? 

Mr. Coburn. I am not sufficiently familiar with the law to say. 
One disqualification is that you leave a company owing it money. 
There are certain infractions of, the Penal Code that would also be 
a disqualification, but I am not sufficiently familiar to tell you which 
infractions of the Penal Code would disqualify. 



6596 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. There is no examination? 

Mr. Coburn. No examination. 

Mr. Gesell. On this question, looking over my notes I notice I 
failed to mention one thing. In better recruiting, developing a better 
recruiting system and training of agents, have vou found in terms of 
internal operation it has had a beneficial effect s 

Mr. Coburn. Before I came to Washington I had a count made of 
letters dictated by the agency department, for various years. In the 
year 1933 the agency department dictated 11,554 letters. In the year 
1938 the agency department dictated 2,392 letters, an 80-percent (re- 
duction in the number of letters. 

Mr. Gesell. During that time your insurance in force increased, 
did it not? 

Mr. Coburn. About 100,000,000. 

Mr. Gesell. Did you find also that you were able to reduce the 
number of employees per million of insurance in force? 

Mr. Coburn. Very much. 

Mr. Gesell. From 1.07 to 0.85 persons per million ? 

Mr. Coburn. Yes, sir. 

Mr. Gesell. Now, just one further question. Looking to the fu- 
ture, Mr. Coburn, what are your agency objectives? Have you any 
additional plans with respect to the operations of the agency depart- 
ment of your company ? 

Mr. Coburn. We are going to increase the amount of money spent 
on the training of agents. Our board of directors has authorized us 
to increase by $20,000 a year the amount of money spent in training 
agents how to sell. 

Mr. Gesell. Your work so far has been pretty much pioneer work ; 
has it not? 

Mr. Coburn. We think so. 

Mr. Gesell. What reference material have you had to guide you in 
assessing the operations of your company and weighing them against 
the operations of other companies? There is very little; is there not? 

Mr. Coburn. We have had this basis of comparison : For the pur- 
pose of more efficient operation we divide the State of Texas, sir, into 
10 territories. We watch these 10 territories closely. We have come 
to certain conclusions. One territory has a low compensation of 
salesmen, a heavy turn-over of salesmen. That territory has a high 
lapse rate. Another territory has a high compensation of salesmen 
and a very low turn-over of agents. That territory has a very low 
lapse rate. 

The picture seems to be an entirely consistent picture. 

Mr. Gesell. That is within your own company. 

Mr. Coburn. Yes, sir. 

Mr. Gesell. It is rather difficult to compare your company's oper- 
ations agency-wise with other experiments and efforts made in other 
companies; is it not? 

Mr. Coburn. I believe so. 

Mr. Gesell. There is very little exchange of information of that 
character as between the companies, available in public sources. 

Mr. Coburn. There is a great deal of exchange of information be- 
tween companies. I personally in the last 6 months must have re- 
ceived letters from six other companies asking me to give them our 



CONCENTRATION OF ECONOMIC POWER (3597 

agency results to date. We gladly furnish any information we have 
to another company. 

Mr. Gesell. I am just somewhat surprised that this apparent sort 
of horse-sense approach to the thing hasn't been adopted by other 
companies, particularly in view of the results. . 

Mr. Coburn. The experiment is still young. It is only 4 years old. 

Mr. Gesell. I have no further questions of this witness. 

The Vice Chairman. Have the members of the committee any 
questions ? 

Mr. O'Connell. Mr. Coburn, at the risk of duplicating something 
that may be very apparent from your testimony, as I understand it, 
the moves that you have made in improving your various techniques 
for recruiting selection and training of agents, and so forth — as I 
understand you, that is primarily because you feel that those improve- 
ments will be profitable to your company. 

Mr. Coburn. Definitely. 

Mr. O'Connell. Your primary interest as I would understand you 
is to your board of directors and your stockholders. 

Mr. Coburn. It must be so. 

Mr. O'Connell. And you believe that the best interests of your 
stockholders and of your board of directors in this case, at least, coin- 
cides with the best interests of the general public in that, in the 
supplying of the service which you perform. 

Mr. Coburn. I wouldn't want to suggest to this committee that our 
board of directors are wholly lacking in a public interest. 

Mr. O'Connell. Nor did I. 

Mr. Coburn. I think they are very worthy citizens. Judge Sumners 
knows them all. But they are hard-headed businessmen. 

Mr. O'Connell. Exactly. 

Mr. Gesell. What Mr. O'Connell perhaps means to say, Mr. Coburn, 
is that you can meet the demands of hard-headed businessmen and 
still conduct your business in the public interest. 

Mr. Coburn. That is my belief. ' 

Mr. Gesell. The net cost of your insurance has not increased as the 
result of these efforts, has it? 

Mr. Coburn. No, sir. As the result of these efforts we are selling 
life insurance at a lower cost than we would otherwise charge. 

Mr. Gesell. Substantially lower, is it not ? 

Mr. Coburn. One dollar a thousand. 

Mr. Gesell. And, in addition to that, you have fewer disappointed 
policyholders in the State with lapsed policies in their drawers. 

Mr. Coburn. Definitely so. 

Mr. O'Connell. And I understand you to say that the compensation 
of your agents has increased in the past 5 or 6 years from $1,000 to 
$2,600 an agent, or something of that sort. 

Mr. Coburn. We will this year pay our salesmen a little over 
$1,100,000, and we have 396 salesmen, so our average compensation 
this year will be a little in excess of $2,750. 

Mr. O'Connell. And, in spite of that increase in compensation 
per agent by virtue of better selection of agents, a lower turn-over in 
agents, and a higher persistency record of the policies put on your 
books, the net cost to you of selling insurance is getting less and less, 
or at least it is less than it was 5 or 6 years ago ? 



Q598 CONCENTRATION OF ECONOMIC POWER 

Mr. Coburn. Yes, sir. 

Mr. O'Connell. Your direct compensation was substantially lower ? 

Mr. Coburn. Yes. sir. 

Mr. O'Connell. So it is just good business? 

Mr. Coburn. It is good business, sir. 

The Vice Chairman. Are there any further questions? 

We are very much obliged to you, Mr. Coburn. You have given us 
a great deal of interesting and valuable testimony. 

Mr. Gesell. May I, before we close today, Judge Sumner's, offer 
one or two documents which have been prepared by the staff of the 
Commission ? First, I should like to offer some material with respect 
to interlocking directorships as between the five largest insurance 
companies and commercial banks, savings banks, industrial corpora- 
tions, other insurance companies, and ask that this information be 
printed in the record. 

The Vice Chairman. There is no objection. 

(The document referred to was marked "Exhibit No. 1345" and is 
included in the appendix on p. 7006.) 

Mr. Gesell. It is based upon material supplied to us by the com- 
panies and upon material obtained from recognized public sources. 

We have also prepared two schedules showing the salary structures 
of the five largest companies, in addition to presenting the salaries 
of the chief executives of these five companies and the average earn- 
ings of the members of their board of directors. We have also pre- 
pared from the annual statements of the companies an analysis of 
salaries in various groupings and amounts for the employees of those 
companies. I believe this information will be of value to the committee. 

(The documents referred to were marked "Exhibits Nos. 1346 and 
1347" and are included in the appendix on pp. 7011 and 7012.) 

Mr. Gesell. I have one other schedule, Judge Sumners. We intro- 
duced this summer before the committee a study of profits of com- 
panies which were primarily industrial companies. At that time the 
committee indicated an interest in receiving similar information with 
respect to the profitability of companies selling ordinary insurance 
primarily, and we have such a study of 19 companies which I would 
like to offer for the record. The sources of the information are 
indicated. 

(The tabulation referred to was marked "Exhibit No. 1348" and is 
included in the appendix on p. 7013.) 

Mr. Gesell. This completes the insurance testimony. 

The Vice Chairman. The committee stands in adjournment until 
10 : 30 Wednesday morning. 

(Whereupon, at 12 noon, the hearing was adjourned, to reconvene 
at 10:30 a. m. Wednesday, November 1, 1939.) 1 

1 Hearings on the steel industry were held in November and appear in Hearings, Parts 
18, 19, and 20. A hearing on prices, held in December, appears in Part 21. Simul- 
taneously with the December subcommittee hearings on insurance, investment banking 
hearings were held before the full Committee, and appear in Parts 22, 23, and 24. 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING, Senator from Utah 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THURMAN W. ARNOLD, Assistant Attorney General 

♦WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

♦LEON HENDERSON, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

♦EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

♦A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

Representing the Department of the Treasury 

CLARENCE AVILDSEN, Special Adviser to the Secretary 

Representing the Department of Commerce 

JAMES R. BRACKETT, Executive Secretary 



Subcommittee Pursuant to Public Resolution 113 

(Seventy -fifth Congress) 

Representative B. CARROLL REECE, Chairman 
JOSEPH J. O'CONNELL, Jr., Vice Chairman • 
JAMES R. BRACKETT, Executive Secretary 



♦Alternates. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



THURSDAY, DECEMBER 7, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10:40 a. m., pursuant to call of the 
chair, in room 357, Senate Office Building. Subcommittee members : 
Representative B. Carroll Reece, chairman, and Joseph J. O'Connell, 
Jr., vice chairman. Representative Reece, presiding. 

-Present: Representative Reece (chairman), Messrs. O'Connell (vice 
chairman), and Brackett. 

Present also: Harry J. Daniels, representing the Department of 
Commerce; Gerhard A. Gesell, special counsel, Helmer Johnson and 
Erik G. Peterson, attorneys, Securities and Exchange Commission. 

The Chairman. The committee will come to order, please. 

The subcommittee of the Temporary National Economic Committee 
has met this morning for the purpose of taking additional evidence 
in connection with the insurance study. 

Are you ready to proceed, Mr. Gesell ? 

Mr. Gesell. Yes, I am, Congressman Reece. 

During this series of hearings the Commission will present testi- 
mony with respect to methods pursued in the promotion and con- 
solidation of life-insurance companies. Reinsurance and rewriting ac- 
tivities will be given particular attention. This is a field which would 
require months of hearings to cover in all its ramifications and as- 
pects. At this time we present special illustrations of the practices 
involved. The testimony today will be concerned with a study of 
the Federal Reserve Life Insurance Co., formerly of Kansas City, 
Kans. 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Holt. I do. 

TESTIMONY OF VERNON B. HOLT, FORMER SECRETARY AND 
TREASURER, FEDERAL RESERVE LIFE INSURANCE CO., KANSAS 
CITY, KANS. 

REINSURANCE AND REWRITING — FEDERAL RESERVE LIFE INSURANCE 

COMPANY 

Mr. Gesell. State your full name. 
Mr. Holt. Vernon Boyd Holt. 
Mr. Gesell. That is H-o-l-t? 
Mr. Holt. Yes. 

6601 



6602 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And you live in Kansas City, Kans. ? 

Mr. Holt. Yes. 

Mr. Gesell. What is your present occupation ? 

Mr. Holt. I am an auditor. 

Mr. Gesell. Were you formerly an officer of the Federal Reserve 
Life Insurance Co.? 

Mr. Holt. Yes. 

Mr. Gesell. Will you tell us when you first became connected with 
that company? 

Mr. Holt. In the year 1923. 

Mr. Gesell. Was that a company operating on the legal reserve 
basis with principal offices in Kansas City, Kans. ? 

Mr. Holt. That is right. 

Mr. Gesell. And at that time did the company operate entirely in 
the State of Kansas? 

Mr. Holt. Yes, sir. 

Mr. Gesell. How long had' it been in operation? 

Mr. Holt. It began business on February 12, 1920. 

Mr. Gesell. Was the company organized by your father, Mr. 
D. H. Holt, and a gentleman by the name of Gregory? 

Mr. Holt. That is right. Wesley Hall Gregory. 

Mr. Gesell. Are both your father and Mr. Gregory dead? 

Mr. Holt. No, sir. 

Mr. Gesell. Is Mr. Gregory dead? 

Mr. Holt. Mr. Gregory is dead. 

Mr. Gesell. Your father is still alive ? 

Mr. Holt. Yes. 

Mr. Gesell. Mr. Holt, can you tell us what office you had in the 
Federal Reserve when you first went there ? 

Mr. Holt. I was bookkeeper — no ; I withdraw that, I was a sales- 
man. My first office was assistant secretary. 

Mr. Gesell. When did you become assistant secretary ? 

Mr. Holt. In 1923, 1 believe. 

Mr. Gesell. Subsequently did you become secretary and treasurer 
of the company? 

Mr. Holt. Yes. 

Mr. Gesell. When was that 2 

Mr. Holt. In 1927. 

Mr. Gesell. And when did you withdraw from the company ? 

Mr. Holt. December 31, 1929. 

Mr. Gesell. Were you a director of the company ? 

Mr. Holt. I was a director from 1923 until my withdrawal. 

Mr. Gesell. Were you a stockholder in the company during that 
period ? 

Mr. Holt. Oh, yes; I was a stockholder. 

Mr. Gesell. How many shares did you hold ? 

Mr. Holt. I think I had five. 

Mr. Gesell. These were shares that qualified you as a director ? 

Mi. Holt. That is right. 

Mr. Gesell. Did you buy those shares ? 

Mr. Holt. No. 

Mr. Gesell. Did you actually hold them or were they just issued in 
your name? 

Mr. Holt. Just issued in my name. 



CONCENTRATION OF ECONOMIC POWER 6603 

Mr. Gesell. Whose shares were they ? 

Mr. Holt. They were issued originally in the name of D. H. Holt, 
trustee, and he used certain of his trustee shares for qualifying shares. 

Mr. Gesell. What was your salary when you were secretary and 
treasurer? 

Mr. Holt. While I was secretary and treasurer my salary was $6,000 
a year. I don't know whether it was that all of the year and a half I 
was in that office, but that was the salary when I retired. 

Mr. Gesell. Are you familiar with the facts and circumstances 
surrounding the organization of the company ? 

Mr. Holt. Yes. 

Mr. Gesell. I presume while you were an officer you had access to 
its books and records. 

Mr. Holt. That is right. 

Mr. Gesell. Will you tell us in what manner the company was 
organized ? 

Mr. Holt. The company was organized on what is known as stock- 
with-policy plan. The original capitalization was to trustees, for the 
purpose of being redistributed in connection with the sale of policies. 

Mr, Gesell. Now, let's see if I understand that. The original capi- 
tal of the company, as I recall, was $100,000, was it not? 

Mr. Holt. That is right. 

Mr. Gesell. And the original paid-in surplus was $50,000. 

Mr. Holt. That is right. 

Mr. Gesell. The company issued 100,000 shares when it was 
organized. 

Mr. Holt. Ten thousand shares. 

Mr. Gesell. Those shares were purchased primarily by D. H. Holt 
and Mr. Gregory ; is that correct ? 

Mr. Holt. No; that is not correct. They were purchased by Mr. 
.Gregory and Mr. Holt, and a group of southeastern Kansas farmers 
and businessmen. 

Mr. Gesell. Did Mr. Gregory and Mr. Holt own the largest single 
block of shares? 

Mr. Holt. I don't recall that ; I don't know. 

Mr. Gesell. They were substantial stockholders, were they not, in 
the original company? 

Mr. Holt. That is right. 

Mr. Gesell. Those shares were then placed with a trustee? 

Mr. Holt. That is right. 

Mr. Gesell. With Mr. D. H. Holt? 

Mr. Holt. Yes ; that is right. 

Mr. Gesell. And they were to be sold to policyholders of the Fed- 
eral Reserve and paid for by policyholders from their dividends? 

Mr. Holt. That is right. 

Mr. Gesell. Now, as they were sold, I take it, the subscribers got 
back the money they had paid in ? 

Mr. Holt. That is right. 

Mr. Gesell. Plus 6 percent interest? 

Mr. Holt. They were supposed to get 6 percent interest. 

Mr. Gesell. At what price were the shares sold to the policy- 
holders? 

Mr. Holt. Of that first $100,000 issue the shares were sold to the 
policyholders for $25 a share. 

124491 — 10— pt. 13 17 



6604 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Well, now, they had originally cost $15, had they not i 

Mr. Holt. That is right. 

Mr. Gesell. Did that pay something to the surplus of the company 1 

Mr. Holt. Yes. 

Mr. Gesell. That was under the plan, was it not ? 

Mr. Holt. Yes. 

Mr. Gesell. Now, Mr. D. H. Holt was a banker, was he not, at this 
time ? 

Mr. Holt. Yes. 

Mr. Gesell. And Mr. W. H. Gregory was a salesman, wasn't he* 
An insurance salesman? 

Mr. Holt. Yes. 

Mr. Gesell. Did Mr. Gregory have a contract with the company with 
respect to the agency work of the company ? 

Mr. Holt. Yes. 

Mr. Gesell. Tell us what that contract was. 

Mr. Holt. The contract provided for certain first-year commissions 
and certain renewal commissions. The first-year commissions were 
graded from 90 percent of the first-year premiums downward. The 
bulk of the business written was on the 25-pay life, and the ordinary- 
life plan, and that commission was 90 percent. The renewal commis- 
sion was 10 percent, or perhaps it was 15 percent for the first, year and 
10 percent over the next 9. I don't remember that. The contract 
from the minutes would have to show that. 

Mr. Gesell. Did he have an exclusive-agency contract with the 
company ? 

Mr. Holt. Yes. 

Mr. Gesell. In other words, he had the right to sell and be the only 
person who sold insurance for the company ? 

Mr. Holt. In the State of Kansas. 

Mr. Gesell. Was this contract subsequently expanded to include 
other States in which the company operated? 

Mr. Holt. Yes. 

Mr. Gesell. And he received on this 25-pay-life business, and whole- 
life business, 90 percent of the first-year commissions under that 
contract of the first-year premiums? 

Mr. Holt. That is right. 

Mr. Gesell. And he received 15 or 10 percent of the renewal 
premiums for how many years? 

Mr. Holt. For 9 or 10 years. 

Mr. Gesell. Did he place this contract in an agency company of 
his own? 

Mr. Holt. Yes ; he organized a corporation. 

Mr. Gesell. And then he would employ salesmen to that corporation ? 

Mr. Holt. Yes; that is right. 

Mr. Gesell. Working for him under this agency contract ? 

Mr. Holt. That is right. 

Mr. Gesell. That was a very lucrative contract, was it not? 

Mr. Holt. Yes. 

Mr. Gesell. How long did it remain in effect ? 

Mr. Holt. It remained in effect with the changes, such as the increase 
in the territory, until 1928, when Mr. W. H. Gregory retired from any 
connection with the company. 



CONCENTRATION OF ECONOMIC POWER 6605 

Mr. Gesell. And this corporation which he created and assigned the 
contract to was known as the Federal Agency Investment Corporation, 
was it not? 

Mr. Holt. The Federal Agency Investment Co., I believe. 

Mr. Gesell. Do I understand that during this entire period, from 
the formation of the company until Mr. Gregory left, he had this 
exclusive agency contract? 

Mr. Holt. That is right. 

Mr. Gesell. Now, you say that the company originally started in 
Kansas? 

Mr. Holt. Yes. 

Mr. Gesell. Into what other States did it expand ? 

Mr. Holt. At one time it entered Oklahoma, I believe it was in 1924. 
However, it only remained in Oklahoma for a short period. At a later 
time the contract was amended to include many States. I have no idea 
how many States. But in 1928 the company entered, I believe, five 
other States, including Missouri, Illinois, Indiana, Ohio, and Florida. 
That is to the best of my recollection. I am sorry I can't be more 
definite. 

Mr, Gesell. And Mr. Gregory had the exclusive agency rights in 
those States as the company expanded into them ? 

Mr. Holt. No. That expansion came after Mr. Gregory's withdrawal 
from the company. 

Mr. Gesell. Well, now, may I refresh your recollection by calling 
your attention to the minutes of the company under date of October 
17, 1922, wherein a contract with Mr. Gregory is set forth, and call- 
ing your attention to page 177,. is it not correct that Mr. Gregory 
was given the general agency in Washington, Oregon, California, 
Arizona, Colorado, Texas, Nebraska, Missouri, Georgia, Florida, 
Illinois, and Arkansas? 

Mr. Holt. That is right. 

Mr. Gesell. So your recollection was wrong, was it not? 

Mr. Holt. Yes; I ■ 

Mr. Gesell. Now, the Federal Reserve from time to time grew 
through. the reinsurance of other companies, did it not? 

Mr. Holt. That is right. 

Mr. Gesell. And when those companies were reinsured in the 
Federal Reserve, am I correct in saying that Mr. Gregory's agency 
contract then applied as against the premiums paid to the Federal 
Reserve by policyholders of the companies which were reinsured? 

Mr. Holt. I can't answer that question. If they rewrote the poli- 
cies and issued policies under the name of the Federal Reserve, his 
agency contract applied. If they did not rewrite the policies, if 
the policies remained under the name of the company that was rein- 
sured, his contract did not apply. However, I believe that during 
the time that he was in control of the company, that they rewrote 
the policies of all the companies that were reinsured, and in that 
event his agency contract would have applied and he would have re- 
ceived the renewal commissions. 

The Vice Chaikman. If the policies were rewritten, would he re- 
ceive merely a renewal commission, or the 90 percent ? 

Mr. Holt. He received the 90 percent if the policy was rewritten 
on the basis which provided for a new first-year premium. 



6606 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. You mean, a different first-year premium? 

Mr. Holt. Yes; a new first-year premium. The basis that was 
asked assumed that a man had a policy in the company which was 
reinsured with a cash value of $100. We would rewrite that policy 
under a separate, under a different plan, and use that $100 cash value 
to pay one first-year premium plus, perhaps, a number of renewal 
premiums for him. In that event, the first-year premium, the com- 
mission on the first-year premium, would go to" this agency contract. 

The Chairman. Was the State insurance department advised of 
this sales contract? 

Mr. Holt. Yes. 

Mr. Gesell. Now, so that we will understand, Mr. Holt, will you 
tell us what is meant by "reinsurance"? What happens when one 
company reinsures another? 

Mr. Holt. The reinsuring company assumes the policy liabilities of 
the company that is reinsured. 

Mr. Gesell. A contract is^entered into, is it not ? 

Mr. Holt. That is right. 

Mr. Gesell. In this case, it would be between Federal Reserve and 
whatever company was being reinsured? 

Mr. Holt. That is right. 

Mr. Gesell. And under that contract, the Federal Reserve would 
assume the policy liabilities of the company being reinsured? 

Mr. Holt. That is right. 

Mr. Gesell. Now, when you talk about rewriting, will you tell us 
what you mean ? 

Mr. Holt. A~ new policy is issued to the old policyholder of the 
reinsured company. 

Mr. Gesell. In other words, after the reinsurance agreement is 
signed, persons representing the Federal Reserve would approach 
the policyholders of the company reinsured, and switch them from 
the policies they held in the company which'was being reinsured, 
into policies in the Federal Reserve. 

Mr. Holt. That is right. 

Mr. Gesell.. And that operation of switching the policyholders is 
termed "rewriting,*" or "transfer work," is it not? 

Mr. Holt. Transfer work. 

The Vice Chairman. At the time that the contract is entered into 
for reinsurance between your company and the company originally 
writing the insurance, that contract does not in itself- change its 
obligation of the original insuring company to the insurance, does it? 

Mr. Holt. Not at all. In every case, we furnish them with riders; 
to attach to their old policies in which we assume the liabilities of 
that policy. We assume the promises, we assume the contract. 

Mr. Gesell. That is on the reinsurance? 

Mr. Holt. At the time of reinsurance. 

The Vice Chairman- But that does not change the obligation of 
the original insuring company to the reinsured, does it ? 

Mr. Holt. The original insuring company is out of business after 
it is reinsured. 

The Vice Chairman. It is out of business ? 

Mr. Holt. Yes. The original company that wrote the insurance. 
That is a little different type of reinsurance, perhaps, than what 
you are thinking of. You are thinking of where a portion of the 



CONCENTRATION OF ECONOMIC POWER 6607 

risks are reinsured. This insurance or reinsurance that we are talk- 
ing about is where all" of the risks are reinsured, and the original 
insuring company, the one who may have been in business for 10 
or 15 years, in every case that I know of is liquidated. 

Mr. Gesell. It is really a way of merging two companies, is it 
not, for all intents and purposes? 

Mr. Holt. It merges the insurance. 

The Vice Chairman. Do you merge the assets ? 

Mr. Holt. It merges the assets to the extent that the assets cover 
the legally required reserve of those policies that are merged. 

Mr. Gesell. In other words, the reserves against the policies which 
are reinsured are transferred to the reinsuring company? 

Mr. Holt. That is right. If there are any assets for the capital 
stock. In that case it would have to be a. merger if the assets were 
all merged. Otherwise it would be a liquidation. 

Mr. Gesell. In other words, the stockholders of the company wliich 
was reinsured may still have some capital which they distribute in 
the liquidation of that company? 

Mr. Holt. That is right. 

Mr. Gesell. Now, on the rewrite, Mr. Holt, it is true that usually 
the policyholders' rights are changed through the switch from the 
reinsured company to the reinsuring company? 

Mr. Holt. That is right, they are changed, otherwise there would 
be no purpose in making the rewrite. 

The Vice Chairman. It is a fact that the whole purpose of the re- 
write, is it not, is to relieve the company which is reinsured from 
the liabilities assumed under the reinsurance contract? 

Mr. Holt. That is right. The policies are changed. 

Mr. Gesell. And to put the policies on the basis which the reinsur- 
ing company feels it can carry? 

Mr. Holt. That is right. 

FEDERAL RESERVE REINSURANCE CONTRACTS AND CAUSES OF FAILURE 

Mr. Gesell. Now, we will come to the details of some of these 
contracts in a minute. I want to first run over briefly with you the 
various companies which were reinsured by Federal Reserve. The 
first one that you reinsured was the Providers Life Insurance Co. of 
Chicago, 111., was it not? The first life-insurance company? 

Mr. Holt. Was that before the Union National? Yes; that's right. 
That was. 

Mr. Gesell. Our records would indicate that it was on April 30, 
1926, and that the Union National was not until November 9, 1926. 

Mr. Holt. That is right. 

Mr. Gesell. Do you recall that it was sometime in April 1926 ? 

Mr. Holt. Yes. I recall that now. 

Mr. Gesell. That was a company that had about 89y 2 million 
dollars of insurance in force and assets of around a million dollars? 

Mr. Holt. That is right. 

Mr. Gesell. It did business out of Chicago, 111., did it not ? 

Mr. Holt. The bulk of its business was in Chicago. However, its 
home office was in East St. Louis, 111. 

Mr. Gesell. And did it sell policies to persons other than in the 
State of Illinois? 



6608 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. The Providers Life sold policies in Michigan, I believe. 
Mr. Gesell. In surrounding States? 
Mr. Holt. Yes. 

Mr. Gesell. Now, the Union National Life Insurance Co., according 
to our records, was reinsured on November 9, 1926; is that your recol- 
lection ? 

Mr. Holt. That is right. 

Mr. Gesell. Where was that company doing business ? 
Mr. Holt. In Kansas. 

Mr. Gesell. It was a small company with assets of $100,000, was 
it not? 
Mr. Holt. Yes. 

Mr. Gesell. Now, in April, on April 30 of 1928, our records indicate 
that the Federal Reserve reinsured the United States Reserve Life 
Insurance Corporation; is that correct? 
Mr. Holt. Yes. 

Mr. Gesell. Do you recall that that company had about five million 
insurance in force and assets of around $333,000? 
Mr. Holt. That is quite right. 
Mr. Gesell. Where did that company operate.? 
Mr. Holt. In Missouri. 

Mr. Gesell. Did it operate in any other State? 
Mr. Holt. I don't believe it did. 
Mr. Gesell. Where were its offices? 
Mr. Holt. In Kansas City, Mo. 

Mr. Gesell. Now, on that same date, our records indicate that the 
Federal Reserve reinsured the Reserve Life & Accident Co. of Kansas 
City, Kans. 

Mr. Holt. That is Arkansas City. 
Mr. Gesell. Oh, Arkansas City. 
Mr. Holt. That is right ; Arkansas City, Kans. 
Mr. Gesell. That is a little town outside of Kansas City ? 
Mr. Holt. That is a little town outside of Wichita. It is in south- 
ern Kansas some place. 

Mr. Gesell. That was the Reserve Life & Accident Co. of Arkansas 
City, Kans.? 

Mr. Holt. That is right. 

Mr. Gesell. Did it have policies of about 136,000 in force ? 
Mr. Holt. Yes ; it did. , 

Mr. Gesell. Now, do your records .also indicate that on November 
30, 1928, the Federal Reserve reinsured the Farmers National Life 
Insurance Co.? 

Mr. Holt. I didn't recall the date. I know it was in 1928. 
Mr. Gesell. It was in 1928. Have we something to refresh Mr. 
Holt's recollection on that? We'll check that date with you in a 
moment, Mr. Holt. Where did that company operate? 

Mr. Holt. That company operated in five States. Its home office 
was in Huntington, Ind. Its main office was in Chicago, 111. 
Mr. Gesell. It operated, you say, in five States? 
Mr. Holt. Five or seven. 

Mr. Gesell. Can you name us the States that you recollect it 
operated in? 

Mr. Holt. Illinois, Ohio, Indiana, Michigan, and Florida. 



CONCENTRATION OF ECONOMIC POWER 6609 

Mr. Gesell. It was the largest company that the Federal Reserve 
ever reinsured, was it not? 

Mr. Holt. That is right. 

Mr. Gesell. Do you recall that it had about 42 million of insurance 
in force, and assets in the neighborhood of 3 million ? 

Mr. Holt. That is right. That is my recollection. 

Mr. Gesell. Turning to the minutes of October 30, 1928, of the 
Federal Reserve, which appear to have been signed by yourself, do 
you now recall that the contract of reinsurance of the Farmers Na- 
tional was approved on October 30, 1928 ? 

Mr. Holt. Yes. 

Mr. Gesell. That was the Farmers National Life Insurance Co., 
was it not? 

Mr. Holt. Yes. 

Mr. Gesell. So that makes in all five companies which were re- 
insured, the Providers Life Assurance Co. of Chicago, the Union 
National Life Insurance Co., the United States Reserve Life In- 
surance Co., the Reserve Life and Accident Co., and the Farmers 
National Life Insurance Co. ? 

Mr. Holt. That is right. 

Mr. Gesell. By the time the reinsurance had been completed, how 
big a company was Federal Reserve? 

Mr. Holt. To the best of my recollection it had about $28,000,000 of 
insurance in force. I may be way off. 

Mr. Gesell. And had assets of around $7,000,000, did it not? 

Mr. Holt. After the reinsurance; yes. I thought you asked me 
about before the reinsurance. 

Mr. Gesell. No; after the last reinsurance how large was it? 

Mr. Holt. About $70,000,000 as I recollect. 

Mr. Gesell. Of insurance in force? 

Mr. Holt. Yes. 

Mr. Gesell. And assets? 

Mr. Holt. Of seven or eight million dollars. 

Mr. Gesell. It operated in how many States? 

Mr. Holt. Seven. 

Mr. Gesell. Can you name those States? 

Mr. Holt. Kansas, Missouri, Illinois, Indiana, Ohio; I dor" know 
whether they ever entered Florida or not. 

Mr. Gesell. Six or seven States? 

Mr. Holt. They entered several States. 

j(Mr. O'Connell assumed the chair.) 

Mr. Gesell. Calling your attention to a report by the Kansas de- 
partment on the affairs of the company dated January 7, 1929, which 
was right after that last reinsurance, is it not correct that the com- 
pany did operate in Florida? 

Mr. Holt. That is right.^ 

Mr. Gesell. Kansas, Missouri, Illinois, Michigan, Florida, and 
Indiana. 

Mr. Holt. That is right. 

Mr. Gesell. Now, -during this period which we have been consider- 
ing<that would be from around 1919 until 1928, your com any was- 
under the immediate supervision of the K lu ' Departs 

ment, I take it. 

Mr. Holt. Yes. 



6610 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. How frequently was it examined, Mr. Holt? 
Mr. Holt. Very frequently, I couldn't answer that. 
Mr. Gesell. Calling your attention to some examination reports on 
your company issued by the Kansas department, can you tell us the 
dates that the company was examined? The first one was January 
17, 1921, was it not? 
Mr. Holt. That is right. 
Mr. Gesell. And who signed that report? 
Mr. Holt. Charles F. Hobbs, special examiner. 
Mr. Gesell. He is now insurance commissioner? 
Mr. Holt. That is right. 

Mr. Gesell. And then it was next 'examined April 7, 1922, was it 
not? 

Mr. Holt. Yes, sir. 
Mr. Gesell. Who signed that report? 

Mr. Holt. W. K. Herndon, special examiner, and Edwin H. Fritz, 
special examiner. 

Mr. Gesell. Who was Mr. W. K. Herndon ? 1 

Mr. Holt. He was chief examiner for the insurance department of 
the State of Kansas during the terms of Frank L. Travis, superin- 
tendent of insurance and William K. Baker, superintendent of insur- 
ance. 

Mr. Gesell. That is H-e-r-n-d-o-n, is it? 
Mr. Holt. That is right. 

Mr. Gesell. And am I correct in saying that from this date, April 
7, 1922, Mr. Herndon always participated and was in charge of the 
examinations of your company up until the time you left? 

Mr. Holt. No; you are not quite correct; he didn't participate in 
the last examination in April of 1929, and I didn't leave until De 
cember of 1929. 

Mr. Gesell. He participated in all examinations made up until 
April 1929? 
Mr. Holt. That is right. 

Mr. Gesell. Now will you give us the dates of the other examina- 
tions made? We have had now two; one in January of '21 and 
one in April of '22. 

Mr. Holt. July 21, 1923, January 24, 1925, February 24, 1926, 
February 28, 1927, February 24, 1928. 

Mr. Gesell. Do you recall that there was also an examination 
made in 1924? We haven't any copy, of it there. 

Mr. Holt. Was that at the time Mr. Gregory was elected president 
of the company? 

Mr. Gesell. It was at about that time, Mr. Holt yes. 
Mr. Holt. Yes there was an examination made at that time. 
Mr. Gesell. How long did these examinations generally take, about 
3 weeks? 

Mr. Holt. Quite often they took 3 weeks. 

Mr. Gesell. Would you say it would be fair to say from 2 to 3 
weeks# 

Mr. Holt. Two to three to four weeks. 

Mr. Gesell. Now^have you any information as to what the cost of 
the examination was to your company? 
Mr. Holt. No. 



, x Mr. Herndon subsequently testified before the Committee. See infra, pp. 6707-6734. 



CONCENTRATION OF ECONOMIC POWER 6611 

Mr. Gesell. Did it run into the thousands of dollars ? 

Mr. Holt. Yes. 

Mr. Gesell. Have you any idea of how much ? 

Mr. Holt. No. 

Mr. Gesell. I take it it was the practice as in other States to pay 
the per-diem expenses of the examiner. 

Mr, Holt. That is right. It is set by statute in Kansas. 

Mr. Gesell. Now, did this Mr. Herndon have any interest in the 
company ? 

Mr. Holt. None. 

Mr. Gesell. Was he a stockholder? 

Mr. Holt. No not in his own name. 

Mr. Gesell. Stock was issued to him at one time, was it not? 

Mr. Holt. In his name; no. 

Mr. Gesell. Was he interested in any way in the Gregory agency 
contract ? 

Mr. Holt. Yes. 

Mr. Gesell. What was his interest in that contract? 

Mr. Holt. For some period of time he received part of the first 
year's commission that Gregory received. 

Mr. Gesell. It was 2y 2 percent of the commission Gregory ro- 
ceived, was it not? 

Mr. Holt. At one time it was 2y 2 percent, and I believe at another 
time v/as 5 percent. 

The Vice Chairman. I would like to ask a question about this 
connection between Mr. Herndon and the agency contract. Did Mr. 
Herndon sell insurance? 

Mr. Holt. No. 

Mr. Gesell. What was the quid pro quo? What was the value 
to the agency ? 1 

Mr. Holt. I don't know. 

Mr. Gesell. We will come to a discussion of that in a moment. 

During what period of time did he have this 2y 2 percent interest 
in the Gregory agency commissions? 

Mr. Holt. I don't know, I don't remember what period of time. 
I remember some of the circumstances leading to it, but as to the 
time I wouldn't recall. 

Mr. Gesell. We will come to those circumstances in a moment. 

Now, may I ask who was the first president of the company? 

Mr. Holt. Walter Payne. 

Mr. Gesell. Who was Mr. Payne? 

Mr. Holt. He at one time was State Treasurer of the State of 
Kansas. 

Mr. Gesell. How long was he president? 

Mr. Holt. He was president of the company from its inception 
until sometime in 1924. 

Mr. Gesell. That would be for a period of about four years. 

Mr. Holt. Less, perhaps, than 4 years, between 3 and 4 years. 

Mr. Gesell. Calling your attention to the minutes of the directors' 
meeting of the Federal Reserve, page 225, I should like to ask you 
if you can tell us the circumstances under which Mr. Payne ceased 
being president of the company. Can you tell us the circumstances 
under which he resigned ? 



1 In this connection see also Mr. Holt's later testimony, infra, p. 6632. 



QQ\2 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. He resigned as a result of criticism on the part of W. K. 
Herndon who was completing an examination of the insurance 
company. 

Mr. Gesell. What was the nature of Mr. Herndon's criticism ? 

Mr. Holt. Mr. Herndon's criticism was that the insurance company 
had $1,000 deficit in its reserve deposit, that the president of the com- 
pany was receiving too great a salary, that the company paid his 
secretary $43.43*4 per month, whereas she lived in Topeka, and was 
an employee in the statehouse at a sajary of $100 a month. 

Mr. Gesell. What was Mr. Payne doing for his services ? 

Mr. Holt. The criticism of Mr. Herndon was, if I may read from 
the minutes. 

Mr. Gesell. Certainly. 

Mr. Holt. The stenographic notes taken on the board of directors' 
meeting in January 1924 indicates that he is employed and paid 
$5,000 per annum because of his influence with the insurance depart- 
ment. 

Mr. Gesell. What is that again ? Mr. Payne was receiving $5,000 
a year as president of the cox. pany because of his influence with the 
insurance company ? 

Mr. Holt. From these minutes, that is what Mr. Herndon's report 
contained. 

Mr. Gesell. And after that report was made Mr. Payne resigned, 
did he not? 

Mr. Holt. That is right. 

Mr. Gesell. And his salary was $5,000 a year, was it not? 

Mr. Holt. I presume so ; to the best of my recollection it was. 

Mr. Gesell. Was he active there in the affairs of the company? 
You were there then. Was he around the office and busy with the 
affairs of the company ? 

Mr. Holt. No. 

Mr. Gesell. What was he doing? 

Mr. Holt. He was president of a bank at Topeka, Kans. 

Mr. Gesell. And he didn't really have hardly anything to do with 
the Federal Reserve, did he ? 

Mr. Holt. No. 

Mr. Gesell. You said "No"? 

Mr. Holt. No ; he didn't have hardly anything to do. 

Mr. Gesell. And this secretary of his who was receiving some pay 
from the Federal Reserve and working at the statehouse, she wasn't 
doing anything for the Federal Reserve either, was she ? 

Mr. Holt. Nothing that I know of. 

Mr. Gesell. You were there then. 

Mr. Holt. I never saw her. She never was in Kansas City, Kans. 

Mr. Gesell. I think that explains it. 

Who became president after Mr. Payne ? 

Mr. Holt. W. H. Gregory. 

Mr. Gesell. What had been Mr. Gregory's office before that? 

Mr. Holt. He had had no office. 

Mr. Gesell. How long did Mr. Gregory remain president, do you 
recall ? 

Mr. Holt. He remained president until January or February of 
1928. 



CONCENTRATION OF ECONOMIC POWER 6613 

The Vice Chairman. May I ask a question ? During what period 
or during what years was Mr. Herndon the chief examiner for the 
insurance department of the State ? 

Mr. Holt. I might be wrong in calling him chief examiner. I was 
always under that assumption. He signed all of these reports as 
special examiner. 

Mr. Gesell. How long was he special examiner, Mr. Holt ? 

Mr. Holt. He was special examiner for the insurance department 
from the inception of the company until the first Monday after the 
first Tuesday in January 1929, when there was a change in insurance 
commissioners. ^ 

Mr.GESELL. Well, now, also on this question of Mr. Payne, do you 
recall anything that Mr. Payne did to earn this $5,000 a year he was 
getting ; what type of influence did he exert on the insurance depart- 
ment for his salary ? 

Mr. Holt. I don't recall any. I am not certain about any influence. 

Mr. Gesell. You have no information about that 3 

Mr. Holt. No information about that at all. 

Mr. Gesell. Now, when Mr. Gregory ceased being president of the 
company who became president? 

Mr. Holt. Massey Wilson, I believe. 

Mr. Gesell. That is M-a-s-s-e-y Wilson ? x 

Mr. Holt. Yes. 

Mr. Gesell. And who else came into -the management at that time? 

Mr. Holt. E. W, Merritt, Jr. 

Mr. Gesell. Will you tell us who Mr. Massey Wilson and Mr. E. 
W. Merritt were? 

Mr. Holt. Mr. Massey Wilson is an insurance capitalist from St. 
Louis, Mo. 

Mr. Gesell. He had bought into the company, had he not? 

Mr. Holt. Yes. 

Mr. Gesell. Who was Mr. Merritt? 

Mr. Holt. Mr. E. W. Merritt, Jr., was a transfer man who had 
transferred our Provider's policies and was an associate of Mr. 
Wilson. 

Mr. Gesell. He was a rewrite man? 

Mr. Holt. Yes. 

Mr. Gesell. How many years had he been in the rewrite business, 
do you recall ? 

Mr. Holt. I don't know. 

Mr. Gesell. Some 20 years, wasn't it? 

Mr. Holt. I expect. 

The Chairman. During the period that Mr. Gregory was presi- 
dent of the company, did he continue to hold his sales contract with 
the company? 

Mr. Holt. Yes. 

The Vice Chairman. And that contract continued after he ceased 
as president of the company ? 

Mr. Holt. The renewals continued for some time after that. The 
renewals continued until some time after I had severed my connec- 
tions with the company. However, the first-year commissions ceased 
upon his retirement from the company. 



1 Mr. Wilson subsequently testified before the committee. Sec, infra, pp. 668S-6T01. 



6614 CONCENTRATION OF EGONOMIC POWER 

Mr. Gesell. Now, Mr. Holt, who were the directors during this 
period ? 

Mr. Holt. They were a bunch of the original subscribers to the 
capital stock. 

Mr. Gesell. Were they active in the affairs of the company? 

Mr. Holt. No. 

Mr. Gesell. They were simply figureheads. 

Mr. Holt. That is right. 

Mr. Gesell. I believe your father once said they were like parsley 
to the steak ; is that right ? 

Mr. Holt. I don't recall his saying that. 

Mr. Gesell. Did they meet regularly? 

Mr. Holt. Yes. 

Mr. Gesell. Simply pass upon minutes that had been arranged 
for before they got there ; is that correct ? 

Mr. Holt. No; their meetings were quite lengthy. They passed 
upon questions that were presented to them. 

Mr. Gesell. What did you mean when you said they were dummy 
directors ? 

Mr. Holt. Well, they always passed on them the way the manage- 
ment wanted them to pass on them. 

Mr. Gesell. Did they own any shares in their own right? 

Mr. Holt. As I said, they were original subscribers. However, the 
original stock that had been issued in connection with their subscrip- 
tions to the original stock had all been assigned to the trustee. The 
shares that they owned in their own Tight might have been a few 
shares that they had purchased as a result of the redistribution. 

Mr. Gesell. As policyholders? 

Mr. Holt. Yes. If they didn't own any of that type of stock, then 
their shares were purely qualifying. 

Mr. Gesell. Now, how many directors were there? 

Mr. Holt. The figure ranged from 10 to 25. 

Mr. Gesell. It is true that the charter or bylaws of the company 
provided there should be only five directors. 

Mr. Holt. The original; yes. 

Mr. Gesell. That was never amended, was it? 

Mr. Holt. I thought it was. 

Mr. Gesell. When? 

Mr. Holt. I don't know. I am pretty sure it was. 

Mr. Gesell. Well, we will come back to that. 

Mr. Holt. There were a number of amendments to that. 

Mr. Gesell. Now, during this period there were three different per- 
sons as superintendents of insurance, were there not ? 

Mr. Holt. That is right. 

Mr. Gesell. First you said Mr. Travis, I believe. 

Mr. Holt. Yes. 

Mr. Gesell. What was his full name? 

Mr. Holt. Frank L. Travis. 

Mr. Gesell. That is T-r-a-v-i-s ? 

Mr. Holt. That is right. 

Mr. Gesell. And who succeeded him? 

Mr. Holt. William K. Baker. 

Mr. Gesell. And who succeeded him ? 

Mr. Holt. Charles F. Hobbs. 



CONCENTRATION OF ECONOMIC POWER 6615 

Mr. Gesell. Now Mr. Travis, after he had ceased being commis- 
sioner, became an officer of your company, did he not ? 

Mr. Holt. Long after. 

Mr. Gesell. What were the circumstances of his becoming an 
officer? 

Mr. Holt. Upon Mr. Travis' retirement from the insurance depart- 
ment, he promoted, organized, and sold stock in a fire-insurance com- 
pany, the name of which escapes me at the moment ; Commonwealth, 
I believe, was the name of it. 

I think they sold about a million dollars worth of stock; however, 
I don't know. 

In 1928, control of the Commonwealth was purchased by Massey 
Wilson and E. W. Merritt, Jr., and as the result of that trade or plan, 
or whatever, I don't know anything about it, Travis then in 1928 came 
with the Federal Reserve Life. That was 8 years after he was insur- 
ance commissioner. 

Mr. Gesell. He was made an officer at the suggestion of Mr. Wilson 
and Mr. Merritt? 

Mr. Holt. That is right. 

Mr. Gesell. He had a 10-year contract, providing that he would 
receive an increased amount, beginning at $5,000 and running to 
$10,000. 

Mr. Holt. That is right. 

Mr. Gesell. Did he do any work? 

Mr. Holt. Yes. 

Mr. Gesell. He was active in the affairs of the company ? 

Mr. Holt. Yes ; he was active. 

Mr. Gesell. Let me ask you this just in passing: Was it the practice 
of the Federal Reserve to campaign for insurance commissioners, and 
to assist them in their political activities? 

Mr. Holt. It was not" the practice of the Federal Reserve Life Insur- 
ance Co: to campaign. However, I am of the opinion that the Federal 
Agency Investment Co. took active part in campaigns. 

Mr. Gesell. You know that, do you not? 

Mr. Holt. Yes. 

Mr. Gesell. Well, now, will you tell us what you know about it? 
How did they do it? Whom did they campaign for? 

Mr. Holt. According to the best of my recollections, they first cam- 
paigned for William R. Baker, who ran for office in 1922, was elected, 
and took office as insurance commissioner in January of 1923. There- 
after, as long as William R. Baker was a candidate for office, 'if any 
campaigning was done, it was for him. Occasionally there would be 
someone else at the primary-contesting Mr. Baker's ambition to return 
as insurance commissioner. 

In 1928 William R. Baker announced that he would not run for 
office, and his assistant, the first assistant or the first deputy, whatever 
his title may be, John B. Smith, was. a candidate for the Republican 
nomination, and William R. Baker's actuary, Charles Hobbs, was a 
candidate. In that campaign, according to the best of my recollec- 
tion, the new regime — that is, the Wilson -Merritt regime— supported 
the candidacy of John B. Smith, who was not successful. 

Mr. Gesell. Now, when you say they campaigned, I take it that you 
mean they used the agents of the agency company to drive automobiles, 



6616 CONCENTRATION OF ECONOMIC POWER 

and send out stickers and things like that ? 

Mr. Holt. Oh, I don't know. 

Mr. Gesell. You don't know the details ? 

Mr. Holt. No ; I don't. 

Mr. Gesell. I want to call your attention to the letter addressed to 
Maj. W. E. Baker, dated August 5, 1926, signed by W. H. Gregory, 
and ask you if you have ever seen that letter and know its contents ? 
You may read it, if you wish. 

Mr. Holt. You mean aloud? 

Mr. Gesell. Oh, no ; read it to yourself and see if you have ever seen 
that letter before. 

Mr. Holt. Yes ; I have. 

Mr. Gesell. You know that is a letter Gregory wrote to Mr. Baker ? 

Mr. Holt. Yes. 

Mr. Gesell. Does that in your best recollection state the facts ? 

Mr. Holt. Well, I didn't read it. I just looked at it. 

Mr. Gesell. Suppose you read it<out loud, if you recognize it as a 
letter Mr. Gregory wrote to Mr. Baker. You do recognize it? 

Mr. Holt. That is right. 

Mr. Gesell. Then you read the letter. 

Mr. Holt (reading from "Exhibit No. 1348-1") : 

It is my pleasure to make these suggestions ; you may or may not think well 
of them : 

1st — During the campaign some bad news was collected ; it will be sent to yon 
in due course. Don't worry about it because people who do things surely will 
be criticized. 

No bad news was sent you during the campaign as you seemed to be somewhat 
worried and it was my wish to relieve, you as much as possible, and it will only 
be sent now in order to keep you posted. 

2nd — It seems to me that one of the most important things now is for you to 
write the people here in Wyandotte County a letter of appreciation — thank them 
for their good work. 

For instance : When a judge on the bench lays aside judicial matters and goes 
out to work for you, that should be acknowledged in a letter that shows feeling. 

If you are too busy to do this, send us your stationery, and we will have the 
proper letters written for each and every one; send them back, and you can 
sign them, or you can make such changes as you like. Rest assured that they 
will be written in the proper spirit, and they will be written to fit the case. 

3rd — We do not know what your ambition is — no one has told us — but a great 
.secret has been discovered by me. If you should like to continue as superin- 
tendent of insurance for the fourth, fifth, sixth, or seventh term, and so on, 
this secret will enable you to do it. It is not necessary to talk about it now, 
but in a short time plans should be laid. 

However, the work would be done so unobtrusively that no one would realize 
your ambition or the point at which you were driving, until the proper time. 

Think the matter over, and if at any time in the future you are in a receptive 
mood we could discuss my plan. 

In this campaign something was learned by me about politics; it seems that 
there are four essentials: (a) some money; (6) some brains; (c) hard work, 
and (d) friends. 

It requires some money to acquire ammunition and guns and then to plant 
them in the right spot ; it requires brains to know what to do, how to do it, and 
to know what your opponent is doing, and then to out-general him ; it requires 
hard work, because nothing worth while can be accomplished without hard 
work ; it requires friends — friends with whom one can trade and with whom 
one may work — friends who can turn the trick for one. 

Perhaps w«> did not do everything exactly and precisely as you ordered, be- 
cause we were enthusiastic and determined to win ; we used our judgment, but, 
in looking back over the ground over which we traveled, no errors can be seen 
by us. 



CONCENTRATION OF ECONOMIC POWER gg]7 

We spent money— it was necessary to do it— but you will never know what we 
spent ; in fact, we do not know ourselves, and that is the way it wil7 rest if 
anything comes up in the future. But, in my opinion, nothing will come up in 
the future, because there would be too much to investigate 

It is our impression that more money was spent in this campaign than prob- 
stream ny cam P ai ^ in Kansas; it rolled as freely as water rWning down 

thlT^T' if /-° U ^ is \ m £. to , do «>• » wiU be a Pleasure to write you some- 

weXed ^etmeTwfn. 11118 laSt ^^ "* *°» W ° Uld -knowledge that 

My ambition in life is to win every time— the goal always is in sight with a 

SS&SEg&X&SS"" aIlowlDS myMf » ■» "^ '™ • StS 

at the next session of the legislature; but we can find out in advance what thev 
tTe S "lo°w d dVw n n" on D r r ^^ * ^ ** Pard ° n * SlaDg -prLTon "w'n ^% 

You must take off your hat to him when it comes to politics He know* n 
great deal about the game. And he will place the cards on the able fn a manner 
!nfro e S y edge S s Wl11 m0Ve ^ Sati ? factori * to ■* cowan**! he wiS ZZl 

Senator Vincent has been in politics for a quarter of a centurv and six ve«r« 
^^SSSSSSS^^- He has an attractive Ule^natS 

Mr. Gesell. I would like to offer this for the record. 

(I he letter referred to was marked "Exhibit No. 1348-1" and is 
included m the appendix on p. 7014.) 

Mr. Gesell Now by the way, what was Senator Vincent's con- 
nection with the Federal Reserve at this time* 

pre^ideS— ^ *" ^ ° f the yioe P residents > ^ active vice 
Mr. Gesell. An active vice president 2 
Mr. Holt. And a member of the board of directors. 

w^;. f n L ' T' gettl ?Z d ^ Vn to the p ~viders deal, Mr. Holt 

:ilriuftkzii7c1f m Federal Re ^ rve purchWi ** p - 

Mr. Holt. From J. D. De Buchananne. 

Mr. Gesell. That is D-e B-u-c-h-a-n-a-n-n-e* 

Mr. Holt. That is right. 

Mr. Gesell Now, who is Mr. J. D. De Buchananne? « 

iffi?c^r that had the controlling interest in the 

Mr! HoriTon^Lr^ ° f that ~*"* f 
Mr. Gesell Now, about when did they purchase it? 
Mr. Holt. In 1926, April the 5th. ' 

Mr. Gesell. April of 1926. Will you tell us— first are von fn 
mihar with how that transaction was handled? ' y **" 

Mr. Holt. Yes. 

of ttfe Pr^iders? " - the a ^ reement ™ ■»»*> as to the purchase 

Mr. Gesell. Beg pardon ? 
made r *? H0LT - Y ° U mean at the time the ^eemen^ for purchase was 

J For subsequent testimony of Mr. De Buchananne, see, infra, pp r,fi01-C0 S 8. 



ggl8 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. At or about that time. 

Mr. Holt. Yes ; I was very familiar with it. 

Mr. Gesell. You were? 

Mr. Holt. Yes. 

Mr. Gesell. Will you tell us just how the deal was handled? 

Mr. Holt. W. K. Herndon came to our office. 

Mr. Gesell. Now, that is the Mr. Herndon who was the special 
examiner of the Kansas department? 

Mr. Holt. That is right. 

Mr. Gesell. Was he then examiner? 

Mr. Holt. As far as I know he was. 

Mr. Gesell. He signed reports on your company at that time, did 
he not ? Those reports are before you. 

Mr. Holt. He signed a report February 24, 1926. 

Mr. Gesell. He signed the '26 report ? 

Mr. Holt. February 24, 1926. 

Mr. Gesell. Now, you say he came to you ? 

Mr. Holt. Yes ; he came- to our office. 

Mr. Gesell. What did he say? 

Mr. Holt. He told us he had an insurance comnany we could buy. 

Mr. Gesell. He had an insurance company you could buy ? 

Mr. Holt. Yes. 

Mr. Gesell. Was he in the insurance business? 

Mr. Holt. I don't know. He must have been. 

Mr. Gesell. Weren't you people a- little surprised to have the 
special examiner of the Kansas department say he had an insurance 
company for you to buy ? 

Mr. Holt. No. 

Mr. Gesell. You weren't? Why is that? 

Mr. Holt. Because he had often told us about engineering deals 
for the Roj'al Union Life of De Moines, Iowa. 

Mr. Gesell. He was then brokering insurance companies, as the 
expression goes? 

Mr. Holt. (Nodding his head.) 

Mr. Gesell. I beg your pardon. Did you answer that? 

Mr. Holt. I suppose so, because he certainly brokered this one to 
us. 

Mr. Gesell. Well, now, Mr. Holt, will you tell us what happened 
after he came to you? 

Mr. Holt. To the best of my recollection, there were a number of 
conferences. Mr. Gregory was home ill. A number of trips were 
made between Kansas City and St. Louis on the part of my father. 
The deal was eventually made, and I went to St. Louis to assist in 
bundling up of the records and in the taking over of the assets of 
(he Provider's Life. 

Mr. Gesell. Now, who else was in on these conferences? 

Mr. Holt. Mr. E. W. Merritt. My first connection with Mr. Mer- 
ritt, as I recall it, was in St. Louis, when I went down there, but I 
am not clear. 

Mr. Gesell. On whether he was there or not? 

Mr. Holt. In Kansas City with reference to the original dealings 
with each other. The original effort to make a trade. 

Mr. Gesell. Well, now, Mr. Herndon said he could get you the 



CONCENTRATION OF ECONOMIC POWER 6G19 

stock of that company ; is that correct ? 

Mr. Holt. No. 

Mr. Gesell. What did he say he would do? 

Mr. Holt. He said he could get us that company's insurance under 
a reinsurance contract; that the stockholders of that company would 
sell us their insurance. 

Mr. Gesell. How much were you going to have to pay for it? 

Mr. Holt. $20 a thousand. Was that right? I don't know. 

Mr. Gesell. Let us get his deposition on that, Do you recall how 
much it cost — how much the company cost? 

Mr. Holt. Do you mean with reference to the reinsurance contract ? 

Mr. Gesell. Yes. 

Mr. Holt. No, I don't recall. However, it should be in one of these 
books. 

Mr. Gesell. Well, while we are looking for that exact price — Mr. 
Holt, can you tell us what Mr. Herndon got for brokering this deal, 
if anything? 

Mr. Holt. He got a dollar a thousand from us. 

Mr. Gesell. He got a dollar a thousand from you ? 

Mr. Holt. A dollar a thousand from us. 

Mr. Gesell. That is, a dollar per thousand insurance in force? 

Mr. Holt. Yes. 

Mr. Gesell. How much was in force? 

Mr. Holt. Nine and a half million of insurance in force. A dollar 
a thousand would be approximately $9,500. 

Mr. Gesell. He got about $9,500? 

Mr. Holt. Something like that. 

Mr. Gesell. How was that paid to him ? 

Mr. Holt. It was paid to him by check. 

Mr. Gesell. Was that check drawn to his order ? 

Mr. Holt. No. 

Mr. Gesell. Was that check drawn on the Federal Reserve Life In- 
surance Co. funds ? 

Mr. Holt. Yes. 

Mr. Gesell. To whose order was it drawn ? 

Mr. Holt. Carl Willbrand. 

Mr. Gesell. W-i-1-l-b-r-a-n-d ? 

Mr. Holt. That is right. 

Mr. Gesell. Who is Mr. Carl Willbrand? 

Mr. Holt. An attorney in Kansas City, Mo. 

Mr. Gesell. Now, why was the check drawn to Mr. Willbrand's 
order ? 

Mr. Holt. Mr. Herndon didn't want the records of the company to 
show that he received a commission in this reinsurance matter. 

Mr. Gesell. Did he so state that to you ? 

Mr. Holt. He stated that in a directors' meeting. 

Mr. Gesell. And accordingly the check was made payable to this 
attorney ? 

Mr. Holt. That is right. 

Mr. Gesell. Did the directors approve of that procedure? 

Mr. Holt. ■ Yes. 

Mr. Gesell. How did that transaction appear on the books of the 
company ? 

124491— 40— pt. 13 18 



6620 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. I don't recall. I imagine it was charged to the legal 
expense. 

Mr. Gesell. Well, now, look at Mr. Herndon's examination and see 
how he reported when he examined the company. Perhaps I can help 
you. Page 11, 1 believe it is. "Legal expense," right? 

Mr. Holt (examining report). That is right. 

Mr. Gesell. Now, he says "$9,573 of this amount covers attorney fees 
and expenses in connection with the reinsurance of the Providers Life 
Assurance Co.," is that right ? 

Mr. Holt. That is right. 

Mr. Gesell. And that was the amount of the check made to the 
order of this attorney, Mr. Willbrand? Is that right? 

Mr. Holt. That is right. 

Mr. Gesell. And that is the way Mr. Herndon reported to the 
Kansas department? 

Acting Chairman O'Connell. Was that also carried in the insur- 
ance company as legal expense? 

Mr. Holt. Legal expense. 

Mr. Gesell. Legal expense? 

Mr. Holt. That is right. 

Mr. Gesell. Now, who also got commissions on this transaction % 

Mr. Holt. The Federal Agency Investment Co. got commissions 
on the rewrite. 

Mr. Gesell. Well, before we come to the rewrite, Mr. Holt, do you 
recall anyone else receiving commissions on the reinsurance contract? 

Mr. Holt. No. 

Mr. Gesell. You, of course, are not familiar with what commis- 
sions were paid by the people who were selling the company to you ? 

Mr. Holt. No. 

Mr. Gesell. Now, you say you went up and got the assets of this 
company ? 

Mr. Holt. That is right. That is, the papers representing the 
assets of the company such as mortgages 

Mr. Gesell. Mortgages and securities and such like that? 

Mr. Holt. Yes. 

Mr. Gesell. Where did you go ? 

Mr. Holt. East St. Louis, 111. 

Mr. Gesell. That was from Kansas City? 

Mr. Holt. Yes. 

Mr. Gesell. Tell us what procedure you followed. 

Mr. Holt. We had a young lady there from our office who was 
assisting in the valuing of the policies as of the date of reinsurance 
and after the policies were valued, after the stockholders meeting of 
the Providers had approved the sale, the assets of the Providers to 
cover the value of the policies, that is, the reserve value, were turned 
over to me and I took them back to Kansas City. 

Mr. Gesell. You gave a receipt for them? counted them up? 

Mr. Holt. Yes. 

Mr. Gesell. You turned back, did you, the same amount you got 
back from the company? 

Mr. Holt. That is right. 

Mr. Gesell. It was subsequently found, was it not, that there were 
$124,000 shy? 



CONCENTRATION OF ECONOMIC POWER 6621 

Mr. Holt. That is what I was informed, at one time, that the 
reserves had not been calculated properly. 

Mr. Gesell. Was anyone ever able to determine what happened to 
that $124,000 of reserves? 

Mr. Holt. I don't know. That was in 1931 or 1932. 

Mr. Gesell. Now, after the business of the Providers was rein- 
sured in Federal Reserve, was it rewritten? 

Mr. Holt. Yes; many of the policies were rewritten, not 100 per- 
cent, but a large majority of them were rewritten. 

Mr. Gesell. Now, who did the rewriting? 

Mr. Holt. The contract was with the Federal Agency Investment 
Co., which in turn had a contract with E. W. Merritt, Jr., whose 
organization of rewrite men- did the actual field work in connection 
with the rewriting. The work in the office was, of course, done by 
office employees. 

Mr. Gesell. Of the Federal Reserve? 

Mr. Holt. Of the Federal Reserve. 

Mr. Gesell. The rewrite contract was between Gregory's agency 
company and Mr. Merritt? 

Mr. Holt. That is right. 

Mr. Gesell. Do you know whether or not Mr. De Buchananne had 
any participation in Mr. Merritt's commissions on that deal? 

Mr. Holt. I don't know anything about the way they arrange that 
at all. 

Mr. Gesell. Do you know what Mr. Merritt's contract with Mr. 
Gregory was? 

Mr. Holt. Yes. 

Mr. Gesell. What did that provide? 

Mr. Holt. Eighty-five percent of the first-year premium. 

Mr. Gesell. On all the business ? 
. Mr. Holt. That was rewritten. 

Mr. Gesell. Rewritten? 

Mr. Holt. That is right. 

Mr. Gesell. Now, were you at that time familiar with all the 
details of the rewriting operation? 

Mr. Holt. Yes; to quite an extent. 

Mr. Gesell. Tell me this, Mr. Holt. How do you go albout rewrit- 
ing a company? 

Mr. Holt.- Your men go to the policyholders and submit to them 
new policies, a policy with the name of the company which has the 
risk, and encourages them to exchange the cash values of the old 
policy for the new policy, whatever it may provide. 

Mr. Qesell. And did Mr. Merritt come into this operation with a 
staff and personnel of his own to handle this ? 

Mr. Holt. Yes. 

Mr. Gesell. Is that a special type of profession in itself, this busi- 
ness of rewriting or transferring of policies ? 

Mr. Holt. Well, in years past, it has taken special staffs to do that. 

Mr. Gesell. There are men who have had special experience in 
that field? 

Mr. Holt. That is right. 

Mr. Gesell. Did you have any difficulty transferring these policy- 
holders? 

*Mr. Holt. You always have some difficulty. 



6622 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What do you mean, "you have some difficulty" ? 

Mr. Holt. In that they all won't; they all don't transfer their 
policies, of course, and, as in any line of selling, you have high- 
pressure men who go out, mislead them, don't tell them the entire 
facts of it, and there are what we call kick-backs. 

Mr. Gesell. You mean squawks or complaints ?^ 

Mr. Holt. Yes. People who want their old policies back. 
" Mr. Gesell. Oh, I see. But is this rewriting operation the kind 
of operation that always brings forward these kick-backs? 

Mr. Holt. Oh, I'm not familiar enough with it; I couldn't say. 
We had some kick-backs in all of ours. I don't know about any other 
rewriting contracts. 

Mr. Gesell. But you always had difficulty? 

Mr. Holt. Some difficulty; yes. 

The Vice Chairman. A little earlier, I understood you to say that, 
in connection with the reinsurance trade such as you have just dis- 
cussed, in order to have it worth while it was always necessary to 
have it accompanied by a rewriting of the insurance. Is that sub- 
stantially correct? 

Mr. Holt. Yes ; that is right. 

The Vice Chairman. It had to be reinsured? You contemplate 
reinsurance ? In order to have the whole deal successful, it would be- 
come necessary to rewrite? 

Mr. Holt. We contemplated it in our reinsurance deals, that is, 
the management of our company contemplated that it would be. 

The Vice Chairman. You wouldn't reinsure except when having 
tl^e proposition of rewriting in contemplation ? 

Mr. Holt. That is right. 

"The Vice Chairman. Well, does it follow from that that generally 
speaking, rewriting involves a writing of insurance or substitution 
of insurance policies more favorable to the company than those 
purchased ? 

Mr. Holt. Yes; in my opinion any rewritten policy is more fav- 
orable or the company wouldn't rewrite it. 

The Vice Chairman. I should think so. 

Mr. Gesell. I believe you said that it was the whole purpose of 
rewriting to get a contract more favorable to the company; is that 
right? 

Mr. Holt. Yes. 

Mr. Gesell. By the way, I forgot to ask you, what participation 
did Mr. Herndon have in this rewriting operation ? 

Mr. Holt. I am of the opinion that he received 5 percent of the 
first year premiums. 

Mr. Gesell. Now, you remember at one time being examined and 
giving a deposition with respect to this matter, do you not? 

Mr. Holt. Yes. 

Mr. Gesell. May I call your attention to refresh your recollection, 
to the testimony appearing before you over on the next page, and 
see whether you don't have a definite recollection with respect to 
what Mr. Herndon got in this transaction ? 

Mr. Holt (examining testimony). Mr. Herndon received 5 per- 
cent of the first-year premium and according to my best recollection, 
it amounted to approximately $5,000. 



CONCENTRATION OF ECONOMIC POWER 6623 

Mr. Gesell. That $5,000 was in addition to the nine-thousand- 
five-hundred-odd dollars he got through the Wilbrand transaction, 
was it not ? 
Mr. Holt. Yes. 

Mr. Gesell. Now, what did Mr. Herndon do to earn this $5,000? 
Mr. Holt. He got the insurance department of Kansas to approve 
the rewrite contract. 

Mr. Gesell. That was the quid pro quo ? 

Mr. Holt. Yes, sir. 

Mr. Gesell. How do you know that, Mr. Holt ? 

Mr. Holt. Well, I was active, with Mr. Gregory, in the manage- 
ment of the company and I had a thorough knowledge of that 5 
percent. 

Mr. Gesell. Were you present when the bargain was made? Did 
you hear Mr. Herndon say that that was what he would do for this 
quid pro quo ? 

Mr. Holt. No; I don't recollect being present. It was just com- 
mon knowledge between Mr. Gregory and myself. 

Mr. Gesell. Did Mr. Gregory tell you that? 

Mr. Holt. Yes. 

Mr. Gesell. Did you talk to Mr. Herndon about it ? 

Mr. Holt. I even gave him some checks from the agency on part 
of that commission. 

Mr. Gesell. You remember giving him the checks ? 

Mr. Holt. Yes. 

Mr. Gesell. But did you talk to him about why he was getting it ? 

Mr. Holt. Yes. 

Mr. Gesell. What did he say? 

Mr. Holt. I don't remember. I know I talked to him, of course, 
but I can't remember any conversation like that. 

Mr. Gesell. And you know from your acquaintance and transac- 
tions with Mr. Gregory and Mr. Herndon at that time that was the 
reason why he received this 5-percent participation. 

Mr. Holt. That is right. 

Mr. Gesell. Do you recall that the total commissions paid to the 
transfer of these Provider's policies was $108,420? 

Mr. Holt. No; I don't recall that. 

Mr. Gesell. Are you familiar with the books of the company and 
would you recognize it if I showed you a ledger? Calling your at- 
tention to this general ledger, the account entitled "Commissions on 
the tsf. of Provider's Policies," that is the figure, is it not? 

Mr. Holt. That is right. 

Mr. Gesell. Those were paid to Gregory? 

Mr. Holt. To the Federal Agency Investment Co. 

The Vice Chairman. Will you repeat the figure? 

Mr. Holt. $108,420. 

The Vice Chairman. That amount was paid to the agency? 

Mr. Holt. Yes, sir. 

The Vice Chairman. Where did it come from ? 

Mr. Holt. It came from the policyholders of the Pi ovider's Life. 

Mr. Gesell. Exactly, and how was it split up ? lust so we will 
have it clear, 85 percent of that I believe you said went to Mr. Merritt. 



6624 CONCENTRATION OP ECONOMIC POWER 

Mr. Holt. Eighty-five percent of the 100 percent of which this is 
90 percent, if you follow me. 

Mr. Gesell/ That states it exactly. And Mr. Herndon got in effect 
$5 000 of this. 

Mr. Holt. Yes. 

The Vice Chairman. As I understand then Mr. Merritt's outfit got 
substantially all other than the $5,000 which Mr. Herndon got, plus a 
very small percentage received by the agency. 

Mr. Holt. That was not received by the agency as the first year 
commission, it was all distributed by the agency. 

Mr. Gesell. The agency, in other words, stood to get its profit on 
the renewal commissions on this business after it was transferred. 

Mr. Holt. That is right. 

Mr. Gessell. In other words, 10 or 15 percent of the renewal com- 
missions for 9 years. 

Mr. Holt. That is right. 

Mr. Gesell. Now I wish to show you, Mr. Holt, two letters dated 
July 14 and July 15, 1926, and ask you if you recognize these as copies 
of the letters from the files of the Federal Reserve Co. of correspond- 
ence between Mr. D. H. Holt and Mr. Merritt with respect to certain 
conditions arising in connection with the transfer of the Provider's 
business — the rewriting, I should say. 

Mr. Holt. Yes ; I recognize those. 

Mr. Gesell. There is no question in your mind about it, is there, 
Mr. Holt? 

Mr. Holt. Well, I would like to say this : These letters were written 
from Chicago, and I can't identify them definitely. I recognize some 
of my father's expressions in there and the way he underlines some 
words. 

Mr. Gesell. We have another witness who can identify them, Mr. 
Holt, and I won't offer them at this time. 1 

Now, the next transaction which we have to examine is the rein- 
surance of the Union National deal. That was the second reinsurance, 
was it not ? 

Mr. Holt. Yes. sir. 

Mr. Gesell. Will you just in your own words, Mr. Holt, tell us 
what you remember with respect to that reinsurance ? 

Mr. Holt. Do you want me to go into detail, or do you want me to 
make it very brief ? 

Mr. Gesell. You give us as much information as you think neces- 
sary in order for us to understand the circumstances. 

Mr. Holt. The Union National Life Insurance Co. of Kansas City, 
Kans., was organized by W. H. Gregory. 

Mr. Gesell. I will have to interrupt once in a while. Is Mr. W. H. 
Gregory the man who had the agency contract with Federal Reserve? 

Mr. Holt. That is right. 

Mr. Gesell. It was his company ? 

Mr. Holt. It was his company. It too was a stock-with-policy com- 
pany. In 1925 an effort was made to merge the assets, the capital 
stock, the surplus, and the insurance of the two companies, the Fed- 
eral Reserve Life and the Union National Life. 



.. J Subsequently identified by Miss Eva Dorothy Nordell and entered in the record as 
'Exhibits Nos. 1348-1 and 1348-5," see infra, p. 6702, 



CONCENTRATION OF ECONOMIC POWER 6Q25 

Mr. Gesell. If I may interrupt there, it was at that time that the 
company authorized another issue of $100,000 of capital stock. 

Mr. Holt. Yes. 

Mr. Gesell. Or 10,000 shares. 

Mr. Holt. Yes. 

The Vice Chairman. You mean the Federal Reserve Co. ? 

Mr. Holt. Yes; it increased its authorized capitalization. 

Mr. Gesell. This was the third issue of stock, was it not? 

Mr. Holt. That is right. 

Mr. Gesell. There had been another issue which was handled the 
way the first issue was handled? 

Mr. Holt. That is right. 

Mr. Gesell. That was also for $100,000? 

Mr. Holt. Yes. 

Mr. Gesell. And when was that? 

Mr. Holt. 1921 or '22. 

The Vice Chairman. The original issue was $150,000? 

Mr. Holt. No ; the original issue was $100,000 which was sold for 
$150,000, $50,000 going in for contributed surplus. The first addition 
was $100,000, making $200,000 in all, with another $50,000 going into 
contributed surplus. 

The Vice Chairman. You mean $200,000 in par value? 

Mr. Holt. That is right. 

The Vice Chairman. The original issue of $100,000 was sold at 
50 percent in excess of par ? 

Mr. Holt. Yes. 

The Vice Chairman. The original contribution of capital was 
$150,000? 

Mr. Holt. One hundred was capital and fifty was contributed 
surplus. It sold for $150,000. 

Mr. Gesell. Now the second issue contributed another hundred 
thousand to capital, and how much to surplus? 

Mr. Holt. $50,000 to contributed surplus. 

Mr. Gesell. This third issue which we have just come to was the 
one authorized in connection with the Union National merger, was 
it not? 

Mr. Holt. That is right. 

Mr. Gesell. How many shares were issued ? 

Mr. Holt. Ten thousand shares. 

Mr. Gesell. Those were issued to whom? 

Mr. Holt. Eight thousand shares were issued to the Union Na- 
tional stockholders on the basis of $15 a share. Two thousand 
shares were issued to W. H. Gregory and others, three or four us I 
recollect were small amounts, on the basis of $15 a share. 

Mr. Gesell. Now, it was proposed, I take it, to trade the 8,000 
shares which went to the trustee, D. H. Holt, for the shares of the 
Union National. 

Mr. Holt. That is right. They were just going to trustee that 
stock the same as they had the other, only they were going to issue 
it in the names of the Union National stockholders, then assign it to 
the trustee, just the same as if they were the original subscribers of 
the original $100,000. 

Mr. Gesell. The Insurance Department stepped in December 21. 
1925, and prevented tMt, did it not? 



6626 CONCENTRATION OF ECONOMIC- POWER 

Mr. Holt. That is right. 

Mr. Gesell. Then what happened ? 

Mr. Holt. Then we unscrambled the merger, reallocated the in- 
surance and the assets, and the Union National started out in busi- 
ness all over again, with its original stockholders, its original capital 
set-up, and its original assets, unless there had been some changes. 

Mr. Gesell. What happened to the shares that had been authorized 
and issued for the purpose of effecting this merger ? 

Mr. Holt. They were sold to W. H. Gregory ; the 8,000 shares were 
sold to W. H. Gregory for $10 a share. 

Mr. Gesell. For $10 a. share? 

Mr. Holt. Yes. 

Mr. Gesell. How did he pay for them ? 

Mr. Holt. He and my father borrowed $40,000 at the Home Trust 
Co. and paid for half of them. He gave us four $10,000 checks for 
the other half which we carried as cash in office. 

Mr. Gesell. You carried as cash in office. You never tried to cash 
the checks? 

Mr. Holt. Not until we knew they were good. 

Mr. Gesell. And I take it that they were made good by the ac- 
cumulation of commissions on the agency contract. 

Mr. Holt. Yes; I think so. I don't remember that. 

Mr. Gesell. How long was it you carried them before you felt it 
was advisable to cash them? 

Mr. Holt. I don't recollect that ; I think it was several months. 

Mr. Gesell. You say you, Mr. Gregory, and Mr. D. H. Holt, your 
father, borrowed this money ? 

Mr. Holt. Yes. 

Mr. Gesell. What was your father's interest in this transaction if 
the shares were sold to Mr. Gregory ? 

Mr. Holt. He was presumed to have an interest in this. 

Mr. Gesell. I don't understand what you mean by that. Did he 
have an interest or didn't he have ? 

Mr. Holt. I have heard he had a partnership contract with Mr. 
Gregory, but I have never seen it. 

Mr. Gesell. He went on the note when this $40,000 was borrowed ? 

Mr. Holt. Yes. 

Mr. Gesell. And you understood he had some kind of an arrange- 
ment with Gregory? 

Mr. Holt. To the best of my — I just don't remember why he did it, 
except that as I recall it now, they had to do something with that 
stock which had been authorized and was unissued because we were 
told by Mr. Gregory that under the laws of Kansas, insurance laws 
of Kansas, you -couldn't have authorized stock and unissued. 

Mr. Gesell. Did Mr. Gregory tell you that or Mr. Herndon tell 
you that? 
, Mr. Holt. Mr. Gregory told us that. 

Mr. Gesell. So you had to issue them to somebody. 

Mr. Holt. And we 1 ad to get the money for them We had to get 
the par value for them. That was the way it was n up to me. 
Mr. Gesell. In effect the shares went to Mr. Gregory * 

Mr. Holt. In effect, they went to Mr. Gregory. 
Mr. Gesell. Now we have the companies unscrambled, and Mr. 
Gregory. holding these 10,000 shares, 8,000 which came to him through 



CONCENTRATION OF ECONOMIC POWER 6627 

this Union National and 2,000 which came to him originally; is that 
correct ? 

Mr. Holt. Yes. 

Mr. Gesell. Now what did Mr. Gregory do with these 10,000 

shares ? 

Mr. Holt. After a short time Mr. Gregory decided that the Fed 
eral Reserve would reinsure the Union National and would liquidate 
it, and then the Union National would liquidate, and that took place. 

Mr. Gesell. That was just another way of accomplishing the same 
purpose which the Kansas department had said you couldn't do, 
wasn't it? 

Mr. Holt. Yes. 

Mr. Gesell. How did he have to use hi shares, if he did, in con- 
nection with the reinsurance of the Union National? 

Mr. Holt. There was quite a demand in Kansas City, Kans., at 
that time for shares of stock in the Federal Reserve Life Insurance 
Co. Practically all of these Union National stockholders resided in 
Kansas City, Kans. After the reinsurance and before the liquidation, 
a group of Mr. Gregory's agency men submitted the proposition to 
these Union National stockholders that if they did not want their 
$120,000 back, that they could get stock in the Federal Reserve in 
lieu of their money at $50 a share. 

Mr. Gesell. At how much? 

Mr. Holt. $50 a share. 

Mr. Gesell. Mr. Gregory bought this for 10, didn't he? 

Mr. Holt. That is right ; and it was the Gregory stock which was 
traded to the Union National stockholders so that eventually Gregory 
was the sole stockholder of the Union National and received $120,000 
assets that the Union National had, and the Union National stock- 
holders had stock in the Federal Reserve Life Insurance Co. I hope 
I have made that clear. 

Mr. Gesell. At $50 a share ? 

Mr. Holt. At $50 a share. 

Mr. Gesell. Now 7 this transaction was one which Mr. Gregory was 
in a position to control from the start, because I understood you to 
say the Union National was his company. 

Mr. Holt. Yes, he organized it ; he was a promoter of it. 

Mr. Gesell. That was rather a vague question. When this rein- 
surance arrangement that started this was initiated, Mr. Gregory was 
really agreeing with himself to reinsure the Union National, wasn't 
he? 

Mr. Holt. He didn't own the Union National by any means. 

Mr. Gesell. Did he have a controlling interest? 

Mr. Holt. He didn't have a controlling interest ; no. 

Mr. Gesell. How was the reinsurance agreement engineered? 

Mr. Holt. The stockholders and directors of Union National fol- 
lowed through on Mr. Gregory's suggestions. 

Mr. Gesell. Did he get the proxies ? 

Mr. Holt. I believe D. H. Holt got the proxies, if there were any 
in the Union National. 

Mr. Gesell. Was Mr. Gregory an officer of Union National at that 
time, or was his brother-in-law? 

Mr. Holt. I don't know whether he was ever an officer of it or not. 



6628 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Was this transaction taken up with the Kansas de- 
partment ? 

Mr. Holt. Yes. 

Mr. Gesell. Was the approval of the Kansas department obtained 
to this transaction ? 

Mr. Holt. Yes. 

Mr. Gesell. How was it that the Kansas department approved 
this transaction and not the merger which it had unscrambled? 

Mr. Holt. The argument advanced to me at the time was that the 
Kansas law did not provide for any merger of insurance companies, 
and that therefore the merger was illegal, or without the bounds of 
the statute book. 

Mr. Gesell. But that this other transaction was not technically n 
merger and therefore it was all right? 

Mr. Holt. Reinsurance was provided under the statute. 

Mr. Gesell. Who obtained the Kansas department approval for 
you in this transaction? 

Mr. Holt. Mr. Herndon. 

Mr. Gesell. Mr. W. K. Herndon? 

Mr. Holt. Yes. 

Mr. Gesell. The examiner for the department ? 

Mr. Holt. Yes. 

Mr. Gesell. Was there any quid pro quo in this case ? 

Mr. Holt. I am not up on my Latin, but if you mean what I think 
you mean, there was. 

Mr. Gesell. I mean consideration, benefit, what did Mr. Herndon 
get, if anything, for getting the approval of the Kansas department ? 

Mr. Holt. There are so many of these quid pro quos that I am hav- 
ing a little trouble getting them straight. 

Mr. Gesell. Will you look at page 28 of your previous sworn state- 
ment and see if that testimony there refreshes your recollection as to 
what it was. 

Mr. Holt. . It does. 

Mr. Gessell. Now will you tell us what it was from your present 
recollection ? 

Mr. Holt. Mr. Gregory agreed to pay Colonel Herndon $25,000 as 
soon as he could liquidate the $120,000 of assets of the Union Na- 
tional. 

Mr. Gesell. Were you present when that agreement was made? 

Mr. Holt. I was there. 

Mr. Gesell. Did he give his note or enter into some contract with 
Mr. Herndon at this time ? 

Mr. Holt. He wrote him a letter. He didn't write it; I wrote the 
letter. 

Mr. Gesell. What did that letter say, Mr. Holt, in effect ? We are 
getting a copy of it. 

Mr. Holt. In effect, if this is the letter I am thinking of, it said 
that he was turning over to him 10 certificates of Federal Reserve 
stock of 100 shares each, and that he agreed to rebuy these certificates 
from Colonel Herndon for $25 a share at some date in the future, 
the probable date is probably given in the letter. 

Mr. Gesell. Is that a copy of the letter? 

Mr. Holt. That is right. 

Mr. Gesell. You say you dictated this ? 



CONCENTRATION OF ECONOMIC POWER 6629 

Mr. Holt. No; I wrote it on the typewriter. 

Mr. Gesell. You wrote it on the typewriter, dated November 23, 
1926, Kansas City, Kans. 

Colonel W. K. Hebndon, 

City. 

Dear Colonel Hebndon : I hand you herewith ten certificates of capital stock 
of The Federal Reserve Life Insurance Company numbered as follows, to wit: 
1110, 1111, 1112, 1113, 1114, 1115, 1116, 1117, 1118, 1119, each for one hundred 
shares — total one thousand shares. 

Said certificates stand on the books of tbe Federal Reserve Life Insurance 
Company in my name, but said certificates have been signed in blank by me. 

Said certificates shall be returned to me by you and shall remain in my pos- 
session until July 1st, 1927, and then they shall be delivered to you. However, 
I am to have an option on these shares from you at the said date — July 1st, 
1927 — at the price of Twenty-Five dollars a share. 

If for any reason I cannot raise the money at that time to take up all the said 
shares, you are to deliver to, me, at the said price of twenty-five dollars a share, 
all the said shares for which I can pay you, and then I am to have an option 
on any remaining shares, at the price of twenty-five dollars a share, if I can 
arrange satisfactorily to you the payment for my remaining shares. 
Sincerely yours, 

W. H. Gregory. 

Now, he gave Herndon 1,000 shares and said he would pay him back 
$25,000? 

Mr. Holt. That is right. 

Mr. Gesell. And that was done in that way to give him time to 
liquidate the assets of the Union National which had come into his 
possession in the manner in which you described ? 

Mr. Holt. That is right. 

Mr. Gesell. Do you know whether any of those shares were repur- 
chased at any subsequent date under the terms of that agreement ? 

Mr. Holt. Yes; half of them were repurchased under the terms of 
the agreement. 

Mr. Gesell. So Mr. Herndon sold 500 shares back to Mr. Gregory 
for $12,500? 

Mr. Holt. That is right. 

Mr. Gesell. What happened to' the other 500 shares, if you know ? 

Mr. Holt. I do not know. 

Mr. Gesell. Is this the transaction which had you in some doubt 
as to whether or not Mr. Herndon was ever a shareholder of Federal 
Reserve ? 

Mr. Holt. Yes. 

Mr. Gesell. To the extent of at least 1,000 shares he was a share- 
holder, if they were his ? 

Mr. Holt. Yes. 

Mr. Gesell. Do you know why this transaction was handled in 
this way? 

Mr. Holt. Yes. 

Mr. Gesell. Why? 

Mr. Holt. This transaction was handled in thi£ way so that the 
Insurance Department of Kansas would approve the trade of the 
stock of the Federal Reserve for the stock of the Union National Life 
Insurance Co"., which resulted in an ultimate profit to Mr. Gregory 
of around, we will say, $80,000. 

Mr. Gesell. Now, can I get from you, was Mr. Herndon at this 
time examining the Federal Reserve Life Insurance Co. on behalf 
of the State of Kansas ? 



6530 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. To the best of my recollection, he examined us right at 
this time on account of the reinsurance of the reinsured risks of the 
Union National. 

Mr. Gesell. You mean to say that at the very time Mr. Herndon 
was in your company examining this very transaction, he entered into 
this quid pro quo arrangement? 

Mr. Holt. That is to the best of my recollection. 

Mr. Gesell: Well, now, will you look at the examination reports you 
have before you and see if you can fix the dates that Mr. Herndon 
was there in relation to the dates of this letter? I believe the letter 
was dated November 23, 1926. 

Mr. Holt. The examination report is dated February 24. It may 
be that he wasn't there right at this particular time. I don't know ; I 
couldn't say. The records, the disbursing records of the company, 
showing where they pay the insurance department for examiners, 
would show whether Mr. Herndon was there. 

Mr. Gesell. Have we those disbursing records here, so that we can 
look at them? We will get those records out, Mr. Holt, and come, 
back to that in a moment. By the way, was Mr. Herndon in and out 
of the offices all during this period or not ? 

Mr. Holt. Yes ; he was quite a frequent visitor. 

Mr. Gesell. Was he there even when he was not officially there to 
examine the company? 

Mr. Holt. Yes. 

Mr. Gesell. Did he have an office space ? 

Mr. Holt. No. 

Mr. Gesell. Then, to make the matter clear, Mr. Gregory made 
out of this deal the difference between what he had to pay for the stock 
which he transferred to the Union National shareholders and the 
assets of the Union National, which became, as a result of the trans- 
action, his ? 

Mr. Holt. Yes; with a few qualifications. Two or three or four 
people may have demanded their money back, and gotten it. But it 
didn't amount to anything. 

Mr. Gesell. How many shares did it take to bring this about? 
About 2,000, wasn't it? 

Mr. Holt. Two thousand shares. It took a little more, I believe, 
than 2,000, to get the entire— 2,000 shares would be $100,000, at $50 a 
share. I would say about 2,000, 1 guess. 

Mr. Gesell. And those shares would have cost Mr. Gregory $20,000 < 

Mr. Holt. That is right. 

Mr. Gesell. And the assets that he got as a result of the transaction 
were how much ? 

Mr. Holt. About one hundred and twenty thousand, as I recollect. 

Mr. Gesell. So that Mr. Herndon made in the neighborhood of 
eighty or ninety or one hundred thousand dollars 

Mr. Holt. Mr. Gregory made. 

Mr. Gesell. Yes. 

"Acting Chairman O'Connell. You will have to deduct from that 
the amount that Mr. Herndon got. It cost Mr. Gregory not only 
$10 a share for 2,000 shares of stock, but 12y 2 or $25,000 to Mr. Hern- 
don. 

Mr. Holt. That is right. 



CONCENTRATION OF ECONOMIC POWER QQ%\ 

Mr. Gesell. Now, did you rewrite the business of the Union Na- 
tional after this reinsurance contract? 

Mr. Holt. I don't believe we did. I don't remember. I don't think 
we did. They didn't have enough business to justify it, as I recol- 
lect it. 

Acting Chairman O'Connell. How much insurance in force did 
the Union National have at this time, do you recall? 

Mr. Holt. I don't recall, but it was a very small amount. 

Mr. Gesell. It had assets of around $100,000, did it not? 

Mr. Holt. Yes. 

Mr. Gesell. So the insurance in force would be approximately 
what? 

Mr. Holt. That has no connection. You can't 

Mr. Gesell. Do you know what the reserves were at that time ? 

Mr. Holt. No; I don't. I think it had about a million and a half 
insurance in force. I don't remember. 

Mr. Gesell. If the committee please, the next transaction is a 
rather complicated one, and I doubt if I could finish it by 12 : 30. 
If we could adjourn now and convene at 2 o'clock 

The Vice Chairman. The committee will stand recessed until 2 
o'clock. 

(Whereupon, at 12 : 15 p. m., a recess was taken until 2 p. hi. of 
the same day.) 

afternoon session 

(The committee resumed at 2: 10 at the expiration of the recess.) 

The Vice Chairman. Are you ready to proceed, Mr. Gesell? 
< Mr". Gesell. Yes. I might say that the question has been raised 
during the recess as to whether or not a Mr. W. K. Herndon will 
appear, before the committee at this time. I might say that Mr. 
Herndon was subpenaed to appear. He is in the Reserve Army 
Corps in some capacity which I am not certain of, and was engaged 
in some training activities at. this time, so he is unable to appear this 
week, and he will be a witness before this committee at another time. 

The Vice Chairman. But you will hear from him ? 

Mr. Gesell. Yes. 

Mr. Holt, there are one or two things that came up in the course 
of the morning testimony which I wanted to clarify. You stated 
that we would be able to determine from the ledgers of the company 
whether or not the exact dates would appear when Mr. Herndon 
was engaged in examining the company. Have you had an oppor- 
tunity to check on that statement? 

Mr. Holt. Yes. And we are not able to determine the exact dates 
that Mr. Herndon was examining the insurance company. 

Mr. Gasell. NoWj the question also came up as to the price paid 
for the Providers reinsurance contract. 

Mr. Holt. Yes. 

Mr. Gesell. Do you know that figure ? 

Mr. Holt. Yes. The Federal Reserve agreed to pay the Providers 
on the basis of $15 a thousand, which was approximately $143,000. 

Mr. Gesell. Now, I also asked you whether you could tell me the 
total amount of commissions paid to Gregory under his contact with 
the Federal Reserve? 

Mr. Holt. Yes. 



(3632 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Have you had an opportunity over the recess to examine 
certain books and records of the Federal Reserve which are here in 
court? 

Mr. Holt. Yes. 

Mr. Gesell. Can you tell for any period of time the amount of com- 
missions on first-year business and renewal business paid to Gregory ? 

Mr. Holt. Yes. 

Mr. Gesell. For what years is the information available from the 
records that are here ? 

Mr. Holt. For the years 1925, 1926, and 1927. 

Mr. Gesell. Will you tell us for those years the amount of commis- 
sions paid by the Federal Eeserve to the agency company which Mr. 
Gregory formed? 

Mr. Holt. In 1925 the insurance company paid to the agency com- 
pany $97,580.73 in first-year commissions, and $59,629.51 in renewal 
commissions. In 1926 the insurance company paid the agency company 
$194,195.99 in first-year commissions and $63,342.57 in renewal com- 
missions. In 1927 the insurance company paid the agency company 
$164,180.75 in first-year commissions, and $87,860.96 in renewal 
commissions* 

Mr. Gesell. Would you be able to total those, give us the combined 
total on those commissions for those 3 years? 

Mr. Holt. The summary of those figures shows that $455,957.47 in 
first-year commissions were paid to the agency company, and 
$210,833.04 in renewal commissions were paid to the agency company, 
or a total of $666,790.51 for the 3-year period. 

Mr. Gesell. Now, in the morping we made some reference to the 
fact that at one time Herndon had a 21/^-percent interest in certain 
commissions coming to Gregory under the contract. 1 

Mr. Holt. That is right. 

Mr. Gesell. Have you had an opportunity to refresh your recollec- 
tion during the recess from your previous sworn statements, and can 
you tell us what the circumstances surrounding that arrangement are ? 

Mr. Holt. Yes ; the insurance company issued a certain type of 
policy which it called a participation policy, which was in effect the 
old-fashioned tontine policy. The Insurapce Department of Kansas 
must approve, must pass upon, every policy issued by an insurance 
company domiciled in Kansas for the reason that the certificate of the 
insurance department appears on the face of that policy. 

The Insurance Department of Kansas approved this participation 
policy, or tontine policy, and a large amount of that type of insurance 
was sold by the agency, but a great deal of trouble developed because 
salesmen oversold their prospects and there were large amounts of 
money demanded as a return of the first-year premiums paid by the 
applicants for that type of policy, so that the insurance department 
canceled its approval of that department. 

Mr. Gesell. Of that policy, you mean. 

Mr. Holt. Of that policy. The 2y 2 percent was not 2y 2 percent of 
the first-year premiums on all the policies. It was 2y 2 percent of th° 
first-year premiums on a participation policy which was subsequently 
approved by the insurance department after they had withdrawn their 
approval of the original policy. 

Mr. Gesell. Let me see if I get this. They had a tontine policy. 



1 Supra, p. 6611. 



CONCENTRATION OF ECONOMIC POWER 6633 

The Vice Chairman. What kind ? 

Mr. Holt. A tontine, t-o-n-t-i-n-e. 

Mr. O'Connell. Will you explain what a tontine policy is? 

Mr. Holt. A tontine policy in a few words provides that the divi- 
dends shall accrue and be paid to the surviving persistent, premium- 
paying policyholders at certain definite periods. For instance, the 
ordinary participating life insurance policy provides for dividends at 
the end of each year. The tontine policy as we knew it provided that 
those dividends would accrue and would be distributed, say at the end 
of 5 or at the end of 10 years among the survivors. 

The Vice Chairman. You mean among the survivors? 

Mr. Holt. Among those who still retained their insurance policy. 

Mr. Gesell. That was the type of policy so condemned by the Arm- 
strong committee in 1906? 

Mr. Holt. That is right, 

Mr. Gesell. You say the insurance department withdrew its ap- 
proval of that policy? 

Mr. Holt. That is right. . - 

Mr. Gesell. And subsequently the form of the policy was modified 
to some extent and approval obtained? 

Mr. Holt. That is right. 

Mr. Gesell. When was the approval obtained for the second time? 

Mr. Holt. I am unable to refresh my memory as to those dates. 

Mr. Gesell. Was that around 1926 as you recall ? 

Mr. Holt (examining the record). The 2%-percent arrangement 
was made in 1926. 

Mr. Gesell. Now, you haven't yet explained why it was that Mr. 
Herndon, the examiner of the department, insurance department, got 
this 214-percent participation. 

Mr. Holt. Because he persuaded the Insurance Commission to ap- 
prove the modified policy. 

Mr. Gesell. And it was given to him for his services in that con- 
nection? 

Mr. Holt. Yes. 

Mr. Gesell. Well, now, was that 2y 2 percent on all policies sold by 
Gregory's company, or 2% percent on this special tontine policy only ? 

Mr. Holt. On this special policy only. 

Mr. Gesell. Now, can you tell us for what period of time that 
arrangement continued ? 

Mr. Holt. No. 

Mr. Gesell. Was it for several years ? 

Mr. Holt. No. You see, those payments were made through the 
agency, and I had nothing t© do with the agency's books. 

Mr. Gesell. Now, we come to the transactions which resulted in 
Mr. Massey Wilson 1 and Mr. E. W. Merritt, Jr., entering into the 
management of the Federal Reserve. When was it that they became 
chairman of the board and president, respectively ? 

Mr. Holt. Early in the year 1928. 

Mr. Gesell. Now, will you tell x>& in your own words what took 
place immediately prior to their entering into the management of the 
company at that time? 



1 Mr. Wilson subsequently testified before the Committee. See, infra, pp 6688-6701. 



6634 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. In the summer of 1927 Mr. Massey Wilson appeared 
in my office in Kansas City, introduced himself, and told me that he 
understood that on account of Mr. Gregory's illness that there would 
be an opportunity to buy in the company and wanted me to keep in 
mind that, if ever the opportunity presented itself, he would like to 
know about it. Late in the fall or in the early winter of the same 
year Mr. Gregory's continued absence -from the company had caused 
the new business to fall to nothing, practically nothing, and Mr. 
Herndon came to the office in November or December of that year 
and submitted a proposition to my father and myself that we approve 
a sale of the company to the Royal Union Life Insurance Co., of 
Des Moines. 

Mr. Gesell. Now, if I may interrupt, at that time was Mr. Hern- 
don the examiner for the Kansas department? 

Mr. Holt. Yes. 

Mr. Gesell. Was he also an officer of the Royal Union Life Insur- 
ance Co.? 

Mr. Holt. Oh, I don't know whether he was. I don't think he was 
ever an officer. 

Mr. Gesell. You don't think he was an officer ? 

Mr. Holt. I don't know anything about that. 

Mr. Gesell. He was acting for them in attempting to get this 
stock? 

Mr. Holt. Yes. 

Mr. Gesell. Now, what stock did he' wish to buy, the shares that 
Gregory held ? 

Mr. Holt. Yes ; he wished to buy the Gregory stock. 

Mr. Gesell. Those shares represented what proportion of the total 
share outstanding ? 

Mr. Holt. It was 8,000 shares out of the 30,000. 

Mr. Gesell. Now, were those the 8,000 shares that were originally 
issued for the purpose of effecting the merger of the Union National ? 

Mr. Holt. I don't believe there were quite 8,000 shares. I don't 
know how many shares. 

Mr. Gesell. Were they trusteed shares? 

Mr. Holt. There is quite a confusion in my own mind as to whether 
or not — whether they were trusteed or whether. they were not. At 
the time the shares were issued it was my understanding that they 
were trusteed shares. But I changed my understanding of that 
matter at the time of the trade for the Union National stock. Then 
I was given to understand that they were not trusteed shares; that 
they belonged outright to Mr. Gregory. 

Mr. Gesell. Now, will you continue? Mr. Herndon said to you 
that he wanted to buy them for the Royal Union? 

Mr. Holt. That is right. And there were some gentlemen there 
from Des Moines in Kansas City, Mo., at the time. 

Mr. Gesell. Who were they? 

Mr. Holt. I can't remember their names. But his proposition was 
that the stock be bought from Gregory for the money that he had 
invested in them, and by that I mean he had paid the $40,000 that 
he owed originally on them, and the proposition was that my father 
and I were to receive contracts for jobs with the Royal Union. 

Mr. Gesell. What kind of jobs were they going to be? 

Mr. Holt. They were to be $10,000 jobs. 



CONCENTRATION OF ECONOMIC POWER QQ%ty 

Mr. Gesell. For how long? 

Mr. Holt. As I recollect it, it was 5 or 10 years. I don't re- 
member. 

Mr. Gesell. That was going to be in return for your services in 
buying up these shares from Gregory ? 

Mr. Holt. That is right. 

Mr. Gesell. What other promises or statements did Mr. Herndon 
make to you? 

Mr. Holt. I don't remember any others right at that time. How- 
ever 

Mr. Gesehl. Well, what was the upshot of the conversation. Did 
you agree to sell to Royal Union ? 

Mr. Holt. No; we did not. We did not contract. I wouldn't 
consider it and at the same time I told him that i ecalling the time 
that Massey Wilson had been in the office, that Massey Wilson would 
pay $50 a share for the stock. The next thing I knew, Massey Wilson 
was in Kansas City trying to buy, making the arrangement to pur- 
chase the 5,000 shares of stock. 

Mr. Gesell. Did he come to you ? 

Mr. Holt. No ; not that time. 

Mr. Gesell. Who handled that transaction? 

Mr. Holt. Herndon. 

Mr. Gesell. Mr. Herndon again, this time acting on behalf of Mr. 
Massey Wilson. 

Mr. Holt! Well, he might have been acting on behalf of all of us. 

Mr. Gesell. Will you tell us just how it took place? 

Mr. Holt. I am of the opinion that he called Massey Wilson and 
told him, "We can get the Gregory stock now." 

Mr. Gesell. I don't want your opinion, Mr. Holt, I want to know 
what you know about it. 

Mr. Holt. I don't know. 

Mr. Gesell. Did Mr. "Herndon have any dealings with you at the 
time? 

Mr. Holt. Yes. 

Mr. Gesell. Will you tell us what those dealings were, what he 
said to you and what you said to him? 

Mr. Holt. We agreed that we would get the Gregory stock, Mr. 
Gregory being a sick man, unable to attend the business, and sell it to 
Massey Wilson for whatever we could get out of it. As eventually 
we arrived at the deal, it was for 5,000 shares of the Gregory stock. 
I was to get $40 a share. Herndon was to get all over $40 a share 
that he could get out of Massey Wilson for thfe-stock. My father and 
I together were to persuade Mr. Gregory to give up his stock interest 
to the extent of 5,000 shares. 

Mr. Gesell. Were you also going to sell other shares to Mr. 
Herndon? 

Mr. Holt. The original agreement was for 5,000 shares, but even- 
tually in order to put the deal through, we agreed to sell 3,000 shares 
of the trustee stock/ The trustee was empowered by his contract 
that if he didn't have enough of those shares sold, that he at any 
time could sell them at public or private sale. 

Mr. Gesell. So that your father, the trustee, Mr. D. H. Holt, 
agreed to sell 3,000 shares. 

Mr. Holt. That is right. 

124491 — 10— pt 13 19 



6636 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And in addition you and your father agreed to get 
Gregory's shares if you could. 

Mr. Holt. That is right. 

Mr. Gesell. And Mr. Herndon was then going to brokerage the 
shares to Mr. Massey Wilson. 

Mr. Holt. That is right. 

Mr. Gesell. Did he say he represented Massey Wilson? 

Mr. Holt. No. 

Mr. Gesell. He said he was in contact with him, did he? 

Mr. Holt. Yes; he was in contact with him. 

Mr. Gesell. Did he say anyone else was associated with Mr. 
Massey Wilson in this? 

Mr. Holt. Yes. 

Mr. Gesell. Who? 

Mir. Holt. Mr. E. W. Merritt, Jr. 

Mr. Gesell. That is the same E. W. Merritt that rewrote the 
contracts of the Provider's Life that we talked about this morning, 
isn't it? 

Mr. Holt. That is right. 

Mr. Gesell. And I suppose the proposition was to get Mr. Gregory 
to let go of his shares. 

Mr. Holt. That was it. 

Mr. Gesell. Will you tell us what took place in that connection ? 

Mr. Holt. I went to Mr. Gregory's every day for months while 
he was ill. Finally we determined, Mr. Herndon and I determined, 
that I would tell him that the insurance department demanded his 
resignation, demanded that he give up his general agency contract, 
and that he sell 5,000 shares of his stock. 

Mr. Gesell. You mean to say that Mr. Herndon told you to tell 
that to Mr. Gregory ? 

Mr. Holt. That is right. 

Mr. Gesell. Did you tell that to Mr. Gregory ? 

Mr. Holt. Yes. 

Mr. Gesell. Who was with you at the time ? 

Mr. Holt. Nobody. 

Mr. Gesell. You went and saw Mr. Gregory alone ? 

Mr. Holt. That is right. 

Mr. Gesell. Did you tell him Mr. Herndon had told you the in- 
surance department wanted him out of the picture ? 

Mr. Holt. Yes. 

Mr. Gesell. Mr. Herndon was at that time interested in this deal ? 

Mr. Holt. That is right. 

Mr. Gesell. What did Mr. Gregory say ? 

Mr. Holt. Mr. Gregory said — he wanted to know what I was going 
to get out of it. 

Mr. Gesell. Did you tell him ? 

Mr. Holt. No. And he finally agreed if we would continue to pay 
his renewal commissions and would turn over the money that he 
had invested in this stock, that he would turn it over to me and I 
could make whatever profit that I was able to make out of it. 

Mr. Gesell. And you agreed to that ? 

Mr. Holt. Yes. 



CONCENTRATION OF ECONOMIC POWER QQffl 

Mr. Gesell. So, then, you had in your hands Mr. Gregory's shares 
under an agreement to pay him what he put into the company, and 
to continue his renewal commissions? 

Mr. Holt. Yes. 

Mr. Gesell. And you had 3,000 shares from the trusteed shares? 

Mr. Holt. No ; I didn't have that. 

Mr. Gesell. Your father had those? 

Mr. Holt. Yes. 

Mr. Gesell. That made 8,000 shares in all ? 

Mr. Holt. Yes. 

Mr. Gesell. Did you advise Mr. Herndon that you had the 8,000 
shares ready? 

Mr. Holt. That is right. . 

Mr. Gesell. What price did he sell those 8,000 shares to Mr. Wil- 
son and Mr. Merritt for, if he did? 

Mr. Holt. Could I look at this? [Indicating the record.] 

Mr. Gesell. Yes. 

Mr. Holt (examining record.) I think around 

Mr. Gesell. On pages 39 or 40, Mr. Holt, you will find your pre- 
vious statements on that. 

Mr. Holt. $375,000. 

Mr. Gesell. How much, $375,000? 

Mr. Holt. $375,000. 

Mr. Gesell. Now, who paid $375,000? 

Mr. Holt. The Reserve Co. 

Mr. Gesell. The Reserve Co. ? 

Mr. Holt. Yes. 

Mr. Gesell. That was a life-insurance company ? • 

Mr. Holt. That was a holding company at Kansas City, which 
owned the stock in the United States Reserve Insurance Corporation 
at Kansas City, Mo. 

Mr. Gesell. Which was the legal reserve! company? 

Mr. Holt. Yes. 

Mr. Gesell. Now, who owned the Reserve Co. ? 

Mr. Holt. I don't know who owned it, but I know who controlled 
it. 

Mr. Gesell. Well, that is what I want to know. 

Mr. Holt. E. W. Merritt, Jr. 

Mr. Gesell. Now, was Mr. Massey Wilson connected with that 
company, or was he acting in his individual capacity ? 

Mr. Holt. He was acting in his individual capacity at that time. 

Mr. Gesell. And Mr. Herndon got a check for $375,000 from the 
Reserve Co. ? 

Mr. Holt. That is right. 

Mr. Gesell. Tell us how that was split up. 

Mr. Holt. He gave $60,000 of it back to the Reserve Co., and took 
a note payable to D. H. Holt, trustee, for $60,000 for the 3,000 shares 
which D. H. Holt, trustee, had agreed to sell for $60,000, and D. H. 
Holt, trustee, accepted the note in payment for the 3,000 shares of 
stock. That left $315,000. 

Mr. Gesell. Which had as the consideration the 5,000 shares of 
stock you got from Mr. Gregory ? 



6638 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. That is right. Then he gave back to them $30,000 be- 
cause evidently they did not have quite $375,000 in the bank, and 
took back two notes for $15,000 each. 

Mr. Gesell. Yes. 

Mr. Holt. One of which I took as part of my profit in the sale 
of the stock, and one of which Colonel Herndon took. 

Mr. Gesell. Now, this is the first time we have heard the mention 
of Colonel Herndon. Is that the same W. K. Herndon ? 

Mr. Holt. Yes. 

Mr. Gesell. So he got a $15,000 note, and you got a $15,000 note ; 
is that correct? 

Mr. Holt. That is right. 

Mr. Gesell. Now, how was the cash divided ? 

Mr. Holt. Well, how much does that leave ? 

Mr. Gesell. $285,000. 

Mr. Holt. He then issued checks, and I don't know whether he 
issued them direct to Gregory or to some of us, for $60,000, which 
went to Gregory for his 5,000 shares of stock. 

Mr. Gesell. Yes; and that left $225,000, didn't it? 

Mr. Holt. And he then gave them $125,000. 

Mr. Gesell. How much did he give Herndon ? 

Mr. Holt. $100,000. 

Mr. Gesell. Herndon was at that time examiner for the Kansas 
department ? 

Mr. Holt. Yes. 

Mr. Gesell. Now, just to make sure we understand that, out of this 
money which was used for the purchase of those 8,000 shares, Hern- 
don got $100,000 and a $15,000 note? 

Mr. Holt. That is right. 

Mr. Gesell. You got $125,000 cash and a $15,000 note? 

Mr. Holt. That is right. 

Mr. Gesell. Gregory got $60,000 for his shares? 

Mr. Holt. That is right. 

Mr. Gesell. D. H. Holt, trustee, got a $60,000 note for his 3,000 
shares ? 

Mr. Holt. That is right. 

Mr. Gesell. Now, were these notes ever paid off? 

Mr. Holt. I received $7,500 of mine. 

Mr. Gesell. And Mr. Herndon ? 

Mr. Holt. I don't know. 

Mr. Gesell. Did Mr. D. H. Holt receive anything? 

Mr. Holt- I don't know anything about that. 

Mr. Gesell. Did you divide your $125,000 with anybody? 

Mr. Holt. Yes. 

Mr. Gesell. Who with? 

Mr. Holt. I divided it with my father. 

Mr. Gesell. Mr. D. H. Holt? ' 

Mr. Holt. Yes. 

Mr. Gesell. Anyone else? 

Mr. Holt. I gave $1,000 of it to a man by the name of Harden. 

Mr. Gesell. What did he do? 

Mr. Holt- He was assistant secretary of the company. 

Mr. Gesell. What did he get it for? 



CONCENTRATION OF ECONOMIC POWER (Jg39 

Mr. Holt. He conceived an idea that he would like to be able to 
broker this insurance company, and I told hini that if he would 
just leave it alone, I would see that he got a little extra compensa- 
tion. That was the extra compensation. 

Mr. Gesell. I understand. Now, what do you understand to 
have been the services performed by Mr. W. K. Herndon of the 
Kansas Insurance Department for the $100,000? 

Mr. Holt. I don't know of any services. 

Mr. Gesell. Simply as the go-between, is that your understand- 
ing, as the reason for that much money ? 

Mr. Holt. Yes. He is the man who got Wilson and Merritt 
pepped up about the proposition up to the tune of $375,000. 

Mr. Gesell. And is your understanding that this was paid for 
the brokeraging of the transaction? 

Mr. Holt. Yes. 

Mr. Gesell. Now, right after that happened, did Mr. Merritt be- 
come an officer of the Federal Reserve ? 

Mr. Holt. Yes. 

Mr. Gesell. And at what salary? $18,000, wasn't it? 

Mr. Holt. $18,000 a year; yes. 

Mr. Gesell. And did Mr. Wilson become an officer of the Federal 
Reserve ? 

Mr. Holt. Yes. 

Mr. Gesell. And at what salary? $7,500, wasn't it? 

Mr. Holt. Yes. 

Mr. Gesell. Now, immediately prior to this transaction, do you 
recall that the United States Reserve Life Insurance Co., which I 
believe you said was owned by the Reserve Life Insurance Co. who 
paid this $375,000 check, had a transaction with the Federal Reserve ? 

Mr. Holt. I don't know just what you are referring to. Was it 
in connection with some mortgages? 

Mr. Gesell. That is right. 

Mr. Holt. Yes; I recall that. 

Mr. Gesell. The United States Reserve, the subsidiary of the 
company which purchased Federal Reserve, had a mortgage transac- 
tion with Federal Reserve? 

Mr. Holt. That is right. 

Mr. Gesell. What was that transaction? 

Mr. Holt. I don't remember at all. I would have to refresh 
my memory. I have not thought about it for 10 years. 

Mr. Gesell. Do you recall that on March 21, the U. S. Reserve 
Corporation — that is the same date of this transaction — sold mort- 
gages to Federal Reserve for $105,850 ? I direct your attention to 
a ledger sheet entitled "Mortgage loans" in the books and records of 
the Federal Reserve. 

Mr. Holt (examining the ledger sheet). Yes; I recall that. 

Mr. Gesell. Now, does that refresh your recollection? 

Mr. Holt. Yes. 

Mr. Gesell. So that just prior, or at the same time of this pur- r 
chase, Federal Reserve gave U. S, Reserve for these mortgages 
$105,000 in cash? 

Mr. Holt. That is right. 

Mr. Gesell. Now, did you subsequently reinsure the U. S. Reserve 
Life Insurance Co. i 



6640 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. Yes. 

Mr. Gesell. Did you then rewrite the business of U. S. Reserve 
Life Insurance Co.? 

Mr. Holt. I don't remember that. I am pretty sure we did, but — 
it is probably here some place. 

Mr. Gesell. Do you not recall that that was rewritten by a contract 
with E. W. Merritt? 

Mr. Holt. That is right. 

Mr. Gesell. How much was paid on the reinsurance contract? 
Was it not $56,000? I show you a ledger account, payments made 
on reinsurance contract, .that was on June 30, 1928, was it not? 

Mr. Holt. Yes, sir. 

Mr. Gesell. Now, I want to show you the ledger sheet with respect 
to the rewrite contract so we will be certain on that. What is your 
recollection about that, while we are looking for the sheet ? 

Mr. Holt. It is very dim. They didnt have much business in 
force, as I recollect it. 

Mr. Gesell. Do you remember who did do the rewriting? 

Mr. Holt. No ; I don't. They had so many companies around there 
that I couldn't keep them straight myself. 

Mr. Gesell. Now, Mr. Holt, I want to come down to the next 
reinsurance contract. 

We have this ledger sheet now. I show you first of all a ledger 
sheet entitled "Commissions on transfer of United States Reserve pol- 
icies." That shows, does it not, $43,633.67 paid on commissions for 
the transfer of those policies? 

Mr. Holt. That is right. 

Mr. Gesell. So there is no question in your mind with respect to 
the rewriting? 

Mr. Holt. None whatever. 

Mr. Gesell. Do you recall who did the rewriting job ? 

Mr. Holt. E. W. Merritt, Jr. However, it seems to me he had 
some kind of a corporation that the contract was with. 

Mr. Gesell. But he was the man who actually did the job? 

Mr. Holt. That is right. 

Mr. Gesell. And he is the same fellow who rewrote the Provider's 
Contracts we heard about this morning? 

Mr. Holt. That is right. 

Mr. Gesell. And he controlled the Reserve Company which pur- 
chased Federal Reserve? > 

Mr. Holt. That was my understanding, that he controlled it. 

Mr. Gesell. Now, with respect to the rewrite contracts, may I di- 
rect your attention to minutes signed by yourself, of the executive 
committee of the Federal Reserve, dated May 17, 1928. That shows 
yourself, Mr. Wilson, and Mr. Merritt present, and at that time the 
reinsurance contract with Mr. Merritt was approved, was it not? 

Mr. Holt. That is right; the rewrite contract. 

Mr. Gesell. And what were the commission terms of that contract ? 

Mr. Holt. Eighty-five percent of one annual premium, nine re- 
newal commissions of 7% percent on all policies rewritten by the 
Reserve Company. 

Mr. Gesell. Now, the contract is set forth on the following page, is it 
not? 

Mr. Holt. Yes. 



CONCENTRATION OF ECONOMIC POWER 6641 

Mr. Gesell. And am I correct in saying that for the Federal Re- 
serve Co., Mr. Massey Wilson signed the contract' and for the reserve 
company, Mr. Merritt signed the contract ? 

Mr. Holt. That is right. 

Mr. Gesell. And these were the very two gentlemen who had just a 
few days before purchased into Federal Reserve and gotten ownership 
through this $375,000 transaction. 

Mr. Holt. That is right. 

Mr. Gesell. Now, coming to the Farmers' National reinsurance con- 
tract, do you recall that reinsurance transaction ? 

Mr. Holt. Not at the moment. I recall, I was active in the company 
at the time and I recall some of the things about it. 

Mr. Gesell. What is your recollection concerning it? 

Mr. Holt. Through some source, I don't know what source, Mr. 
Merritt and Mr. Wilson were advised that they could secure the control 
of the Farmers' National Life Insurance Co. of Indiana. The rami- 
fications preceding the actual contract I don't know anything about 
what went on at that time. However, it was necessary for them to 
advance a large amount of money to the stockholders of the Farmers' 
National in order to secure control of it. 

Mr. Gesell. Yes. 

Mr. Holt. This they did by borrowing it from a Detroit capitalist 
by the name of Frank Bushman. 

Mr. Gesell. He was a real-estate operator there, was he not?. 

Mr. Holt. Yes; or his father was a real-estate operator. Together 
they were real-estate operators. 

In connection with that loan, which they received from Bushman, 
they in turn, or we in turn, the insurance company, lent the Bushman 
interests a large amount of money. 

Mr. Gesell. Now, let me see. Mr. Merritt and Mr. Wilson wanted 
some money to buy Farmers' National. 

Mr. Holt. Right. 

Mr. Gesell. So they loaned money to Bushman and Bushman loaned 
money back to them. 

Mr. Holt. I don't know whether that was the sequence of it or not. 

Mr. Gesell. How much was the loan to Bushman that the Federal 
Reserve made ; $400,000, was it not ? 

Mr. Holt. $400,000 ; yes. 

Mr. Gesell. And was that the same amount of money that Bush- 
man loaned to Mr. Wilson and Mr. Merritt? 

Mr. Holt. I wouldn't have any way of knowing that. 

Mr. Gesell. But the Federal Reserve loaned $400,000 to Mr. Bush- 
man. Was that transaction explained to the board of directors of 
the Federal Reserve? 

Mr. Holt. I don't recollect that. 

Mr. Gesell. How did you acquire your knowledge with respect 
to it? 

Mr. Holt. It was explained to me. 

Mr. Gesell. By whom ? 

Mr. Holt. Mr. Wilson and Mr. Merritt. 

Mr. Gesell. Was Mr. Herndon m on this deal in any way ? 

Mr. Holt. I don't recollect that at the moment. 

Mr. Gesell. Who became president of Farmers' National, do you 
recall that? 



6642 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. I believe Merritt, didn't he ? 

Mr. Gesell. That is my information. That is your recollection? 

Mr. Holt. Yes ; that is my recollection, Merritt. 

The Vice Chairman. Do I understand that with the proceeds of 
the loan from Bushman, Merritt and Wilson acquired controlling 
interest in this other company? 

Mr. Holt. They borrowed the money from Bushman at the same 
time the insurance company made the loan to Wilson. 

The Vice Chairman. But Merritt and Wilson used the proceeds to 
acquire stock 

Mr. Holt. In the Farmers' National Insurance Co., that is right. 

Mr. Gesell. Did Merritt and Wilson subsequently gain control of 
Farmers' National? 

Mr. Holt. Yes. 

Mr. Gesell. Was it then reinsured with Federal Reserve ? 

Mr. Holt. Yes. , 

Mr. Gesell. What price did Federal Reserve pay for the reinsur- 
ance of that business? 

Mr. Holt. I don't recall. 

Mr. Gessell. Calling your attention to the minutes signed by your- 
self as of January 19, 1929, is it not a fact that the Federal Reserve 
issued a participating certificate to Farmers' National of 
$1,050,831.10? 

Mr. Holt. That is right. 

Mr. Gesell. So that was what the price was on this reinsurance 
of the Fanners' National policy. 

Mr. Holt. Yes. 

Mr. Gesell. Do you know whether Mr. Merritt and Mr. Wilson 
required additional money other than the money they got from Mr. 
Bushman for the purchase of Farmers' National, or have you any 
information in that respect? 

Mr. Holt. Yes; they required some additional money at that time. 
Mv father and I lent them some money. 

Mr. Gesell. How much did you loan them, do you recall ? 

Mr. Holt. Mv best recollection is between us we lent them $15,000. 

Mr. Gesell. How long was it after this before you left the company ? 

Mr. Holt. I left the company in December 1929. 

The Vice Chairman. I am not clear on the significance of that 
million-dollar entry you referred to. Does that represent a payment 
from the Federal Reserve to the Farmers' National ? 

Mr. Holt. May I answer? That is what we called a participating 
certificate. We agreed to pay to the Farmers' National that amount 
of money and we were to pay it out of funds that we accumulated as 
a result of certain savings in mortality, if any, and when. 
Mr. Gesell. Also excess interest. 
Mr. Holt. Excess interest. 

Mr. Gesell. How much did you actually pay out under the par- 
ticipating contract? 
Mr. Holt. I don't know ; that was after my time. 
The Vice Chairman. Might there not also have been savings 
through rewriting? 

Mr. Holt. There was no rewriting in this contract. We did not 
rewrite the business in the Farmers' National. 



CONCENTRATION OF ECONOMIC POWER 6643 

Mr. Gesell. That was a simple reinsurance contract ? 

Mr. Holt. Yes; and there was no rewriting in it. 

Mr. Gesell. Farmers' National subsequently failed, did it not ? 

Mr. Holt. I think that at the time of the Federal Reserve trouble 
there might have been a receiver appointed in the Illinois courts. I am 
not familiar with the history of the Farmers' National. 

Mr. Gesell. And you said you left the company when ? 

Mr. Holt. In December of 1929. 

Mr. Gesell. Do you remember that on January of that year an 
examination was made by Mr. Herndon and others of the affairs of 
the Federal Reserve, and that on that occasion Mr. Herndon repre- 
sented the Indiana department? 

Mr. Holt. Yes ; I remember he did one year. 

The Vice Chairman. Do I understand after Mr. Herndon left the 
insurance department of the State of Kansas that he represented the 
insurance department of the State of Indiana; is that what you mean? 

Mr. Holt. I don't recall whether this was before or after. It seems 
to me that an examination was made of the Federal Reserve and we 
wanted to go into Indiana conference examination and that Herndon 
represented both Kansas and Indiana. That is to the best of my recol- 
lection. 

Mr. Gesell. Will you look in what capacity he signed the 1929 report 
that you have in front of you there? In what capacity did he sign 
that 1929 examination? 

Mr. Holt. Special examiner, representing insurance department, 
State of Indiana. 

Mr. Gesell. And there was someone else in for Kansas, was there 
not? 

Mr. Holt. That is right 

Mr. Gesell. One more point and then I have finished. At the time 
of this $375,000 transaction, is it not a fact that Mr. Herndon was then 
at that time engaged in examining the Federal Reserve on behalf of 
the Kansas department ? I call your attention to a ledger sheet enti- 
tled "Insurance department licensing fees," to the particular fees and 
amounts checked on that schedule. 

Mr. Holt. A study of this account shows that check issued on March 
19, 1928, to W. K. Herndon. special examiner, $155. 

Mr. Gesell. That was tor his per diem expenses, was it not, in 
accordance with the regular procedure of the Department? 

Mr. Holt. I Can't answer that question. I don't know what it 
was for. 

Mr. Gesell. Do you recall, independently of this sheet, whether or 
not Herndon was examining the Federal Reserve at the time of this 
$375,000 transaction? 

Mr. Holt. No- 1 don't recall that. 

Mr. Gesell. This transaction took place in March, did it not, 
of 1928? ' 

Mr. Holt. The first part of the year. 
^ Mr. Gesell. And negotiations were going on all of January and 
February, weren't they f 

Mr. Holt. That is right. 

Mr. Gesell. Will you look and see if there is not a report signed by 
Mr. Herndon, dated February 24, 1928, on the affairs of the Federal 
Reserve ? 



6644 CONCENTRATION OF ECONOMIC POWER 

Mr. Holt. There is. 

Mr. Gesell. So he was examining at that time, was he not? 

Mr. Holt. That is right ; he was. 

Mr. Gesell. And that was a so-called convention examination, was 
it not? 

Mr. Holt. Yes. 

Mr. Gesell. What other States were represented in that examina- 
tion? 

Mr. Holt. Illinois only, besides Kansas. 

Mr. Gesell. I have no further questions for this witness. 

The Vice Chairman. I don't believe I have any questions. 

(The witness, Mr. Holt, was excused.) 

Mr. Gesell. Mr. Jordan. 

The Vice Chairman. Do you solemnly swear the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Jordan. I do. 

TESTIMONY OF HERBERT W. JORDAN, FORMER EXAMINER, KAN- 
SAS DEPARTMENT OF INSURANCE, KANSAS CITY, MO. 

Mr. Gesell. Mr. Jordan, will you state your full name? 

Mr. Jordan. My name is Herbert W. Jordan — J-o-r-d-a-n. 

Mr. Gesell. Where do you reside? 

Mr. Jordan. Kansas City, Mo. 

Mr. Gesell. What is your profession ? 

Mr. Jordan. I am in the oil business. 

Mr. Gesell. In the oil business ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Were you at one time an examiner for the Kansas 
Department of Insurance? 

Mr. Jordan. I was. 

Mr. Gesell. When were you an examiner ? 

Mr. Jordan. In 1928 and 1929. 

Mr. Gesell. Were you an examiner under Insurance Commissioner 
Baker or Insurance Commissioner Hobbs? 

Mr. Jordan. Both; of them. 

Mr. Gesell. Did you have occasion to examine the Federal Re- 
serve Co. in 1929? 

Mr. Jordan. I did. 

Mr. Gesell. Mr. Hobbs was then insurance commissioner, was 
he not ? 

Mr. Jordan. That is right. 

Mr. Gesell. Will you describe to us the nature of the examination 
made, the instructions you were under when you made the examina- 
tion, and the scope of the examination ? 

Mr. Jordan. The examination started in 1929, I think it was on 
the first day of April, it was a Convention examination, it was partic- 
ipated in by Kansas, Missouri, Illinois, and Indiana. 

The Vice Chairman. What is a convention examination, one in 
which more than one State participates ? 

Mr. Jordan. A convention examination is one that is made by 
the direction of the convention committee of the Association of Life 
Insurance Commissioners. At that time I believe that Colonel 



CONCENTRATION OF ECONOMIC POWER 6645 

Button of Virginia was chairman of the convention examination. 
The report is addressed to him, as well as to the commissioners of the 
several States which are represented. 

Mr. Hobbs had been elected commissioner of Kansas at the gen- 
eral election in the fall of 1928. Prior to that time, for, oh, 8 or 
10 years, he had been in the Kansas department where he served as 
actuary under his predecessor, W. R. Baker, and Mr. Baker's pred- 
ecessor, Colonel Travis. 

Due to the fact that Mr. Hobbs had been in the department for 
a long time and had to a more or less degree been conversant with the 
transactions regarding the Federal Reserve Life Insurance Co., our 
instructions for this examination were rather broad, as well as 
specific. 

Mr. Gesell. What do you mean? Do you mean that Mr. Hobbs 
was acquainted with the transactions we have been discussing here 
today ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. He was familiar with the fact that Mr. Herndon had 
participated in some of these transactions? 

Mr. Jordan. He told me to look it up. 

Mr. Gesell. Go ahead, please. 

Mr. Jordan. I might say he was actuary of the department, he 
didn't run the department. However, when he became commissioner, 
he did send us down there with these specific instructions to inves- 
tigate the Union National deal, the Provider's reinsurance deal, the 
sale of the stock, that block of 8,500 shares instead of 8,000 shares, 
the payment of the reinsurance contract to the United States Reserve 
before it was due and contrary to its terms, the mortgage contract 
with Franklin Bushman of Detroit. 

Mr. Gesell. I take it there were other less important matters. 

Mr. Jordan. A good many other items. 

Mr. Gesell. Did you make a thorough investigation of these 
transactions ? 

Mr. Jordan. As far as we were able ; yes, sir. 

Mr. Gesell. Did that involve communicating with appraisers and 
other people in other States and corresponding and tracing down 
proceeds and checking at banks, and all of that? 

Mr. Jordan. Yes, sir. 

' Mr. Gesell. A thorough investigation of the books and records 
of the company, is that correct ? 

Mr. Jordan. That is right. 

Mr. Gesell. Did you render a report to the various insurance de- 
partments which participated in this examination? 

Mr. Jordan. No, sir; the report was filed by the State of Kansas 
but was never released to the public or to the other departments. 

Mr. Gesell. Is this the report which I show you ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. How many pages in that report? 

Mr. Jordan. Two hundred thirty-seven. 

Mr. Gesell: I notice it is directed to the other departments. You 
say it was never released to them ? 

Mr. Jordan. No, sir. 

Mr. Gesell. And you say it was never released to the public? 

Mr. Jordan. No, sir. 



6646 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Will you explain how all that came about? 

Mr. Jordan. That was held as a confidential report because after 
the making of that report with the conference of the officers of the 
company, certain practices which had been complained of were 
changed, certain officers were changed, the management of the com- 
pany passed into different hands, and the contribution to surplus in 
the amount of $375,000 was made. 

Mr. Gesell. Who made that contribution ? 

Mr. Jordan. It was made by the Chicago Fire Insurance Co. 

Mr. Gesell. That was the company with which Massey Wilson had 
a connection? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Was it 300 or 375? 

Mr. Jordan. I don't know. 

Mr. Gesell. This report was dated September 5. 1929, was it not? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Did it set forth the full facts and circumstances with 
respect to many of the transactions which we have been considering 
here today? 

Mr. Jordan. Yes, sir. 

Mr. Gesfll. How long did the company continue after this report 
was filed ? 

Mr. Jordan. Until May 1936. 

Mr. Gesell. Did it go into receivership at that time? 

Mr. Jordan. In May ? 

Mr. Gesell. Yes. 

Mr. Jordan. Of 1936? Yes, sir. 

Mr. Gesell. Was it reinsured by any company ? 

Mr. Jordan. The Occidental Life Insurance Co. of Los Angeles. 

Mr. Gesell. Was there a lien placed against the policies? 

Mr. Jordan. Yes, sir ; the lien of 50 percent. 

Mr. Gesell. So that, on that basis, the policyholders lost 50 percent 
of what they .had in the company ; is that right ? 

Mr. Jordan. That is correct. Wait, now; with certain reservations. 
There has already been a reduction in the liens on the policies. I 
don't know how much, and from earnings in the future there will 
continue to be reductions. 

Mr. Gesell. The liltimate loss hasn't been determined as yet? 

Mr. Jordan. No, sir. 

Mr. Gesell. Now, you say a new management was put into the 
company ? 

Mr. Jordan. Yes, sir. 

Mr. Gesei l. Who was the new management ? 

Mr. Jordan. Frank Bushman, of Detroit, who was indirectly inter- 
ested on account of the money he and his father had advanced to 
assist in the purchase of the Farmers National. He was named presi- 
dent of the company. His associate, Alex Green, a former examiner 
for the Insurance Department of Michigan, was named assistant to 
the president. E. R. Sloan, an attorney of Topeka, and myself were 
placed on the board at the suggestion of the Kansas insurance depart- 
ment. 

Mr. Gesell. Did you resign from the Kansas department? 

Mr. Jordan. I don't know whether I resigned or not. The manner 
jn which you serve on these State examinations is by warrant, and the- 



CONCENTRATION OF ECONOMIC POWER 6647 

warrant specifically sets forth that you are to examine a certain com- 
pany, ana when that examination is completed your connection with 
the company is severed. 

, Mr. Gesell. You mean your connection with the department is 
that you are hired on a job basis ? 

Mr. Jordan. On a per diem basis. 

Mr. Gesell. Per aiem is paid by the company that you are ex- 
amining? 

Mr. Jordan. That per diem is paid by the company that you are 
examining. That per diem is paid by the company to the State, 
and the State in turn pays the examiners. 

Mr. Gesell. Now, in connection with your investigation, did you 
determine that a $400,000 loan was made by the Federal Reserve to 
the Bushman interests in Detroit? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. What was the security for that $400,000 loan? 

Mr. Jordan. The security for that $400,000 loan was a 2,000-acre 
tract of land, about 30 miles from downtown Detroit, which was 
unimproved and for that reason was of a speculative value. 

Mr. Gesell. Who owned the land? 

Mr. Jordan. F. E. Bushman. 

Mr. Gesell. Was he the man who got the loan ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. And this property was valued at what ? 

Mr. Jordan. Now, there are so many valuations of that property. 
Will you tell me what valuation you want? 

Mr. Gesell. You mentioned a money figure. 

Mr. Jordan. No ; I said it was of a speculative value on a $400,000 
mortgage. 

Mr. Gesell. Now — I beg your pardon. Now, did you and your 
fellow examiners appraise that property ? 

Mr. Jordan. We had the property appraised. We did not appraise 

it- 
Mr. Gesell. At what value? 

Mr. Jordan. I think it was appraised at $160,000. 

Mr. Gesell. There was also a first lien, against some of that prop- 
erty, was there not? 

Mr. Jordan. If there was, it was removed right away. 

Mr. Gesell. What do you mean, "it wjis removed right away"? 

Mr. Jordan. Oh, there may have been a tax lien or something like 
that, but the title was put in good shape. 

Mr. Gesell. I think that is on page 79 of your report. 

Mr. Jordan. I thank you [examining report]. 

Mr. Gesell. Have you found it? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Was there any lien against it ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. What was the lien ? 

Mr. Jordan. $90,000. 

Mr. Gesell. And what value did you put on the property? 

Mr. Jordan (examining record). I think it was. one hundred seventy 
or eighty thousand dollars. 



6648 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Did you also find that Bushman had loaned $400,000 to 
Wilson and Merritt, the same amount of the loan that had been made 
to them by the Federal Reserve? 

Mr. Jordan. Not at that time ; no. 

Mr. Gesell. You did determine that fact, didn't you ? 

Mr. Jordan. Later, but not at this immediate time. 

Mr. Gesell. Now, do I understand that Mr. Merritt and Mr. Wilson 
left the management of this company at the demand of the Kansas 
department ? 

Mr. Jordan. That is right. 

Mr. Gesell. Was that after the report was submitted ? 

Mr. Jordan. That was sometime during — it had all been agreed 
upon as of the date of this report. 

Mr. Gesell. That is 

Mr. Jordan. As of December 5, 1929. 

Mr. Gesell. Now, from your examination of the company, can you 
tell us the principal facts which youcalled attention to in your report, 
referring to the conclusions at the back of that report ? 

Mr. Jordan. The general management; the fact that the salaries 
were too high and too numerous ; the high expenses ; the fact that sev- 
eral transfers of policies had been made in the past and were being at- 
tempted at the present time; the old Union National deal wherein 
Mr. Gregory took $100,000 away from His 'policyholders in that com- 
pany for his own benefit ; and the deal whereby he got 8,000 shares of 
stock that was in trusteeship for the benefit of the policyholders of 
this comp:,ny; the fact that the Provider's Life Insurance Co. had 
been reinsured and that as a result of that reinsurance the Federal Re- 
serve Life Insurance Co. had lost about $400,000 before they ever got 
started with it ; that payment of a brokerage commission to W. K. 
Herndon for putting that deal over. 

Mr. Gesell. Now 2 right away on that, did the Kansas department 
take any action against Mr. Herndon because of his participation in 
these transactions ? 

Mr. Jordan. The Kansas department did not. 

The disappearance of $50,000 worth of Liberty bonds 

Mr. Gesell. Now, tell us about that. 

Mr. Jordan. Now, we are going a long way back, based on work I 
did 10 years ago. My memory may not be the best. At the time of 
the Provider's reinsurance which was in 1926, some earnest money 
was put up to guarantee the completion of the deal, and that con- 
sisted of $50,000 in Liberty bonds, or a portion of it was $50,000 in 
Liberty bonds. Those bonds were never returned to the Federal Re- 
serve Life Insurance Co. I traced some of them into New York and 
Chicago and St. Louis banks where they were cashed, but I could 
never find out what happened to them. 

Mr. Gesell. The $50,000 worth of Liberty bonds just disappeared ; 
is that correct? 

Mr. Jordan. That is right. 

Mr^ Gesell. Who took them out of the bank ? Did your investiga- 
te on disclose that? 

Mr. Jordan. I don't believe it does [examining record]. 

Mr. Gesell. All your investigation was able to disclose was that 
there were $50,000 worth of Liberty bonds which disappeared from 
the portfolio of the company ? 



CONCENTRATION OF ECONOMIC POWER 6649 

Mr. Jordan. That is right. 

Mr. Gesell. Some time in 1926? 

Mr. Jordan. Uh, huh. 

The Vice Chairman. Mr. Jordan, you referred earlier to the fact 
that this $50,000 worth of bonds was either all or part of some "earn- 
est" money put up in connection with the first insurance. 

Mr. Jordan. Yes, sir. 

The Vice Chairman. It must have been put up by someone with 
someone. If you could ascertain that it was put up in connection 
with that deal, I should think there must have been some way to 
ascertain that. 

Mr. Jordan. You are just going so far back that I don't remember 
the details of it now. 

Mr. Gesell. Can't you look at your report and refresh your recol- 
lection witlr respect to that ? 

Mr. Jordan. It isn't in here. 

Mr. Gesell. You didn't report the $50,000 deal in your report? 

Mr. Jordan. Not here; I don't think so. The dates are 1932 and 
1933 on this. 

Mr. Gesell. You didn't find out about that until after your 
report ? 

Mr. Jordan. That is right. 

Mr. Gesell. Then you were mistaken when you said that that was 
one of the things involved in your investigation of the report? 

Mr. Jordan. Yes, sir; I was. 

Mr. Gesell. Well, now, I want to ask you a little bit about the 
arrangement that the company had with the Bushman interests. 
Did they have an arrangement with respect to placing more loans 
with the Bushmans subsequent to this change in the management 
when you came in? 

Mr. Jordan. No, sir. The arrangement with the Bushmans was 
by means of a contract dated July 7, 1928; under which the Federal 
Reserve Life Insurance Co. agreed to buy 2% million dollars' worth 
of securities from Mr. Bushman. 

Mr. Gesell. Well, that contract was still in effect when \ou come 
in? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Was it canceled? 

Mr. Jordan. No, sir. 

Mr. Gesell. Did it continue in effect after the Bushmans became 
directly interested in the management of the Federal Reserve*? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. How much was loaned on that contract in all? 

Mr. Jordan. Oh, perhaps a million and a half dollars. I can't say 
for sure. 

Mr. Gesell. Now, when was this receivership petition filed that 
put the company into receivership finally in 1936? 

Mr. Jordan. I believe it was filed in 1935. 

Mr. Gesell. In 1935? 

Mr. Jordan. Yes. 

Mr. Gesell. Had there been previous efforts to put the company 
into receivership on behalf on the policyholders? 



6650 CONCENTRATION OP ECONOMIC POWER 

Mr. Jordan. There had been two previous attempts to do that. The 
first was filed the day the new officers went into the company in De- 
cember 1929. 

Mr. Gesell. That was filed by a policyholder, was it? 

Mr. Jordan. I think policyholders and stockholders. 

Mr. Gesell. What happened to that action ? 

Mr. Jordan. 'That action was finally; dismissed. It was brought in 
the Wyandotte County court at Kansas City, Kans. After it pended 
for a year, year and a half, 2 years, it was finally dismissed. Thei 
next attempt was a suit by a stockholder filed at Topeka, Kans., and 
it continued for a year or two, and we finally won that in the United 
States Supreme Court. Then this third attempt in the Federal court 
in the district of Kansas. 

Mr. Gesell. Now, what would you say were the reasons for the 
failure of the company ? . 

Mr. Jordan. Bad assets and mismanagement. 

Mr. Gesell. You would attribute the failure, then, primarily to the 
events which took place prior to your coming into connection with 
the management? 

Mr. Jordan. I would ; yes. 

Mr. Gesell. How many new policyholders would you say entered 
the company between the time you rendered this report in 1929 and 
the time the company failed in 1936 ? 

Mr. Jordan. The company didn't write very much new business. 
Its in-force fell off from 70 millions to approximately 40 millions. 
The new policyholders were very limited. 

Mr. Gesell. Have you any idea as to how many did come in during 
that period? 

Mr. Jordan. No; I couldn't hazard a guess. We were losing busi- 
ness much faster than we were writing it. 

Mr. Gesell. And yet, during that period you kept the company 
alive? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Now, among the mismanagement features of the fail- 
ure, I imagine you refer to bad investments by the company ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. What would you consider were some of the outstand- 
ingly poor investments that the company had made? 

Mr. Jordan. Well, I wouldn't limit mismanagement to bad invest- 
ments. 

Mr. Gesell. I beg your pardon? 

Mr. Jordan. I say, I wouldn't limit mismanagement to bad invest- 
ments. 

Mr. Gesell. I understand that, but that is one feature of the mis- 
management, as you know. What were some of the least advisable 
investments that nad been made bv the company ? 

Mr. Jordan. The investment in purchasing the Providers Life 
Insurance Co., taking over one mortgage among the Providers as- 
sets in the amounts or $246,000. 

Mr. Gesell. Now, will you please tell us about that mortgage? 
Did you trace the history of it? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. And certain other southeast Missouri mortgages? 



CONCENTRATION OP ECONOMIC POWER 6651 

Mr. Jordan. That is a mortgage on some 3,000 acres of land lo- 
cated in Mississippi County, Mo. 

Mr. Gesell. What did you determine with respect to that? 

Mr. Jordan. That had previously been mortgaged to the Missouri 
State Life Insurance Co., and in 1923 was appraised by them at 
$60,000 for a $30,000 mortgage. It came to the Federal in the 
amount of $246,000. 

Mr. Gesell. Well, in what way had it been written up in the 
interim ? Who owned the land ? 

Mr. Jordan. The land was owned by the Hunter Land & Invest- 
ment Co., at the time the Missouri State Life Insurance had a 
mortgage on it. Subsequent to that the title passed to E. W. Rol- 
wig, I think, of St. Louis, and when these mortgages came to the 
Federal Reserve Life on the Providers deal, they were in the name 
of straw men, as far as we could determine. 

Mr. Gesell. Who did you determine these straw men .to be? 

Mr. Jordan. Oh, I think a bunch of Negroes and some white men 
living around the country who didn't have anything. 

Mr. Gesell. One of them was a fugitive from justice, one was a 
bootblack, and one was in jail, and one was dead. 

Mr. Jordan. I wouldn't be surprised if that is about the history 
of them. 

Mr. Gesell. Who really owned the land ? 

Mr. Jordan. The interest on the mortgages had been paid by J. 
De Buchananne. I don't know who owned the land. 

Mr. Gesell. And Mr. De Buchananne was the president of the 
Providers at the time of the reinsurance deal with Federal Reserve? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. And how much had Providers loaned to this De 
Buchananne land prior to the reinsurance deal ? 

Mr. Jordan. The original face of the mortgage was for $310,000. 

Mr. Gesell. And had that been immediately prior to the re- 
insurance deal that that loan on the mortgage was made? 

Mr. Jordan. I think it was in the summer before the reinsurance 
was made. 

Mr. Gesell. And when you finally appraised the value of that 
land, you found it to be how much ? 

Mr. Jordan. Oh, about $30,000. Most of it had grown up into 
cottonwoods.- 

Mr. Gesell. Is it true that losses were also suffered by the com- 
pany as a result of the loans made through this Bushman contract? 

Mr. Jordan. Yes, sir. 

The Vice Chairman. How did those losses come about in that 
Bushman deal? Did you explain it? 

Mr. Jordan. When I say that, I sky it with this regard, that at 
the time of the demise of this company, that property in Detroit 
was appraised, and a certain value set upon it. Upon that basis it 
was reinsured, and upon that value and that basis there was a loss. 

The Vice Chairman. As compared with the $400,000? 

Mr. Jordan. As compared with the fact of the mortgage, the 
original amount. 

The Vice Chairman. The property was Mr. Bushman's after this 
report, and during this rejuvenation, so to speak, he was made 
president of the company ? 

124491— 40— pt. 13 20 



6652 CONCENTRATION OF ECONOMIC POWER 

Mr. Jordan. The mortgages were executed by his father. 

Mr. Gesell. They were in the business together? I believe you 
said that. 

Mr. Jordan. They were partners, but I believe they did business 
under the name of F. E. Bushman. 

Mr. Gesell. I want to show you a memorandum dated December 
14, . 1932, and ask if that is a memorandum prepared by you as a 
result of your investigation of the $375,000 purchase of the Federal 
Reserve by Mr. Wilson and Mr. Merritt? 

Mr. Jordan (examining memorandum). Yes, sir. 

Mr. Gesell. You ascertained the facts contained therein as a re- 
sult of your investigation? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. I wish to offer this memorandum for the record. It 
simply gives additional information as to how Mr. Wilson and Mr 
Merritt raised some of the funds, and will be considered with a sub- 
sequent witness. 

(The memorandum referred to was marked "Exhibit No. 1348-2" 
and is included in the appendix on p. 7015.) 

Mr. Gesell. Now, there is just one part of your testimony that 
isn't clear: that relates to these $50,000 of bonds. If you will read 
this information a moment, I would like to clarify that. 

(The witness read the document.) 

Mr. Gesell. Does that refresh your recollection with respect to 
that $50,000 of Liberty bonds? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. What is your statement with respect to that now ? 

Mr. Jordan. I became interested in the whereabouts of these $50,000 
of bonds at the time the Federal Reserve Life Insurance Co. was suing 
Providers Life for a cancelation of the Providers' contract, and to re- 
cover all other moneys that the receivers of the Providers might have. 

In May of 1926 the Federal Reserve had paid the Providers $50,000 
for the purchase of certain mortgages, and when we attempted to locate 
these bonds in the assets of the Providers Life Insurance Co., we were 
unable to do so. 

Mr. Gesell. Ycfu subsequently traced the bonds, did you not, and 
found that they had been cashed at various banks? 

Mr. Jordan. The bonds had been subsequently cashed at various 
banks. 

Mr. Gesell. You never knew who it was that took this $50,000 out of 
the portfolio ? • 

Mr. Jordan. No, sir. 

Mr. Gesell. Was there a suit brought at one time against the various 
principals in this matter ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Was that suit settled ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. For what amount? 

Mr. Jordan. It was settled as regards the Gregory interests for, I 
believe, $20,000; as regards D. H. Holt and Vernon Holt, I don't remem- 
ber the exact amount. 

Mr. Gesell. $5,000, wasn't it? 

Mr. Jordan. No. 



CONCENTRATION OF ECONOMIC POWER 6653 

Mr. Gesell. Did Herndon pay anything on that settlement? 

Mr. Jordan. It was settled as regards W. K. Herndon for $5,000. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. I should like to ask this witness one or two 
questions about that report. As I understand it, that report was the 
result of an examination by you and examiners representing insurance 
commissioners of other States. 

Mr. Jcrdan. Several States; yes, sir. 

The Vice Chairman. And having been prepared, it was submitted 
to the Insurance Commissioner of the State of Kansas only. 

Mr. Jordan. Of the State of Kansas. 

The Vice Chairman. Would that be the standard procedure in such 
a convention examination? 

Mr. Jordan. There were hearings before the Kansas Commissioner 
on this examination report in which the other commissioners partici- 
pated. 

The Vice Chairman. You mean a public hearing? 

Mr. Jordan. No ; a hearing with officers of the company. 

The Vice Chairman. Do you know why it was determined not to 
publish the report or to give it any publicity ? 

Mr. Jordan. Because certain conditions complained of had been 
remedied and a substantial contribution had been made to the sur- 
plus of the company. 

The Vice Chairman. But the situation creating such conditions 
as the lending of large sums of money secured by real estate not of 
sufficient value to protect the loan — that sort of situation was not 
remedied, was it, except to the extent that an addition to capital may 
have made the financial condition of the company a little more sound. 

Mr. Jordan. You mean as a furtherance of the loans to the Bush- 
man interests. 

The Vice Chairman. Nothing was done about the loans to the 
Bushman interests. 

Mr. Jordan. There were certain other loans made to the Bushman 
interests. 

The Vice Chairman. You mean subsequent to that report? 

Mr. Jordan. Yes, sir. 

The Vice Chairman. Do I understand that it was the consensus 
of opinion of the commissioners of the States which participated in 
the convention examination that no good purpose would be served by 
making available to the public the nature of the conditions found to 
exist in that company ? 

Mr. Jordan. That is right. 

The Vice Chairman. It was not the determination of the Kansas 
commissioner alone? 

Mr. Jordan. Not alone. All departments were represented at the 
hearings on it. 

Mr. Gesell. When you said this was never transmitted to the other 
insurance departments, you mean it was never transmitted officially? 

Mr. Jordan. That is correct. 

Mr. Gesell. They were familiar with its contents. 

Mr. Jordan. I think so. 

Mr. Gesell. I don't want what you think, I want to know what is 
true. 



6654 CONCENTRATION OP ECONOMIC POWER 

Mr. Jordan. It wasn't my job ito send reports around to various 
insurance departments and I don't know whether it was sent to the 
other departments or not, but each department who was represented 
there had an examiner and naturally when he had been away from 
home 6 months he would go home and tell his boss about what he had 
been doing. 

Mr. Gesell. Representatives of Kansas, Missouri, Illinois, and 
Indiana all signed this report. 

Mr. Jordan. That is right. 

The Vice Chairman. And subsequent to preparation of the report 
a hearing was held before the commissioner of Kansas at which the 
other commissioners were represented? 

Mr. Jordan. At which representatives of the other insurance de- 
partments were present. I may have been the examiner on the job, 
or it may have been the commissioner. 

The Vice Chairman. Was the purpose of the hearing to deter- 
mine whether or not to publish the report? 

Mr. Jordan. No; to determine what to do about the company. 

The Vice Chairman. But at that time it was decided it would not 
be published ? 

Mr. Jordan. At that time it was decided to withhold the report. 

Mr. Gesell. I should like, if the committee please — this volume 
contains 237 pages — to read the conclusions for the record. 

The Vice Chairman. Is that report a report that we may keep? 

Mr. Gesell. This is the report which has been identified by Mr. 
Jordan. I would like to file the entire report, not for printing but 
in the record, with the understanding that I can substitute a photo- 
static copy thereof with a few days. 

Can we have an exhibit number for the report dated Kansas City, 
Kans., December 5, 1929. 

(The report referred to was marked "Exhibit 1348-3" and is on 
file with the Committee.) 

Mr. Gesel. The conclusion states as follows [reading from "Exhibit 
No. 1348-3"] : 

The acts of the management, as reflected in the general conduct of the 
company's affairs ana" discussed throughout this report, are - suhmitted in brief 
form. Your examiners feel that the subjoined matter will focus attention and 
result in appropriate action by state officials : 

Frequently changing the bylaws of the company prior to May 1927, when the 
present Insurance Code went into effect, without complying with the law gov- 
erning such changes. 

Irregular payments of policy dividends. 

Payment of survivor dividends without the authority of the board of directors. 

Taking the money of one who had applied for stock in the Union National 
Life ($4,800.00 from the Rushtons) and entering the same on the cash journal 
of the Federal Reserve Life simply as a contribution to surplus. 

Permitting W. H. Gregory to use the name of the company and the office 
machinery to assist himself in disposing of certain stock for his own benefits. 

Transferring $20,000.00 from the surplus of the company on December 31, 1926, 
to the capital stock account without the authority of the board of directors. 

Accepting from the Providers Life Assurance Company as a credit on policy 
reserves under the reinsurance contract of April 30, 1926, certain securities 
which would have been found to be practically worthless if they had been 
inspected in good faith. 

Buying mortgages with a face value of $50,000.00 from the Providers Life, in 
addition to the securities turned over as reserves, and then charging the loss 
sustained on these mortgages back against the reinsurance contract. 



CONCENTRATION OF ECONOMIC POWER 6655 

Paying W. K. Herndon, special examiner for the Kansas Insurance Depart- 
ment, a fee on account of his services in connection with the Providers Life 
reinsurance. 

Paying W. H. Gregory first-year commissions for "twisting" the Providers 
Life policies such as commissions being greatly in excess of the •commis.s'.ons 
Gregory was entitled to receive under his contract. 

Paying W. H. Gregory renewal commissions for "twisting" Provider's Life 
policies such commissions being greatly in excess of the commissions Gregory 
was entitled to receive under his contract. 

Attempting to reimburse W. H. Gregory for losses of $23,470.00 insured in 
the cancellation of certain policies. 

Permitting stock held in the name of W. H. Gregory to be transferred on the 
records of the company when Gregory was heavily indebted to the company. 

Issuing 8,000 shares of stock on December 21, 1925, to W. H. Gregory for 
$10.00 a share without any action on the part of the board of directors and at a 
price that was $16.00 a share lower than the then actual book value of the stock. 

Advancing the Federal Agency Investment Company (W. H. Gregory) 
$99,000.00 in the first three months of 1926 so that Gregory might pay for the 
8,000 shares of stock he had acquired from the company. 

Careless and inaccurate methods of writing up or of the issuing of stock 
certifjf a tes. 

Payment oi extortionate commissions on the business of the "Accident De- 
partment" to R. L. Gregory, to R. E. Gregory, and W. H. Gregory, said commis- 
sions being $140,490.85 in excess of the commissions authorized. Even the author- 
ized commissions can be said to be entirely too high. 

Entering into a contract with the Postal Life and Casualty Company, Kansas 
City, Mo., on the reinsurance of the "Accident Department" thus attempting to 
absolve R. L. Gregory, R. E. Gregory, and W. H. Gregory from all responsi- 
bility for losses suffered by the Federal Reserve. Life during the operation of 
the "Accident Department." 

Frequent changes in the number of directors without amending the charter. 

Failure of the finance committee to function in the discharge of its duties as 
provided in the bylaws of the company in the purchase and sale of securities, or 
to keep a suitable record of its transactions. 

Failure on the part of the company to keep a record of dividends declared and 
dividends paid on policies. 

Payment of dividends to D. H. Holt, trustee, withoiit insisting that the trustee 
comply with the conditions of the trust agreement relating to the return to be 
made to the company and to the investment of funds to be held for certain 
original and subsequent subscribers. 

Failure of the company to make up a schedule of dividends paid the trustee 
in accordance with the terms of the trust agreement. 

Failure of the company to pay the trustee dividends quarterly as provided for 
in the trust agreement. 

Practice of fraud and deceit against policyholders and stockholders. 

Payment of survivorship dividends to D. H. Holt, trustee, when the stock 
involved was fully paid for and when the dividend should have gone to the policy- 
holder direct. 

Releasing mortgages without collecting interest in full. 

Using the Federal Reserve Life Insurance Company, the Federal Agency In- 
vestment Company, the Insurance Investment Corporation, The Reserve Com- 
pany, and D. H. Holt, trustee, to advance the case and make gain for individual 
officers of the company. 

Granting certain officers of the Federal Reserve 1 Life authority to borrow 
unlimited funds at any time in the name of the company. 

Borrowing $50,000,000 from the Commerce Trust Company, Kansas City, Mo., 
when there was no deposit in banks, funds far in excess of the amount borrowed. 

Failing to enter on the records of the Federal Reserve Life either the 
$50,000.00 borrowed money or its repayment. 

Making false entries on the records of the Federal Reserve Life concerning 
the payment of $41.67, interest paid for borrowed money. 

Carrying large company balances in certain banks where the officers of the 
company were heavily indebted personally. 

Failing to act promptly in the best interests of the company in foreclosing 
the Providers (Mississippi County) mortgages and in bringing to justice the 
perpetrators of this fraud on the company. 

Creating numerous offices and paying salaries to the officers filling same far 
in excess of the value of the services rendered by such officers. 



Q556 CONCENTRATION OF ECONOMIC POWER 

Paying large expense accounts of officers when no vouchers, as required by 
law, had been filed. 

Paying traveling expenses of E. W. Merritt, Jr., to his home in New Jersey, 
the officer not traveling in the interests and on the business of the company 

For placing certain persons on the pay roll of the Federal Reserve Life who 
performed no services, but to whom certain officers of the Federal Reserve Life 
were indebted. 

Payment of $15,000.00 attorney fee during 1926 to J. M. Meek on the recom- 
mendation of E. H. Henning, counsel, when Meek rendered no services to the 
company. 

Paying the clerk hire and office rent of Massey Wilson, St. Louis, Mo., when 
there was no need of a clerk or an office, and such were used for other than the 
business of the Federal Reserve Life. 

Accepting from the United States Reserve Insurance Corporation in satisfac- 
tion of the reinsurance contract securities ' that fell far short of meeting the 
statutory requirements. 

Failing to collect from the United States Reserve Insurance Corporation suffi- 
cient securities to offset the liabilities assumed on the business reinsured. 

Adjusting part of the shortage in U. S. Reserve assets in the payment of the 
participating certificates issued to the U. S. Reserve by the Federal Reserve Life. 

Paying the. certificates issued to the United States Reserve Insurance Corpo- 
ration contrary to the provisions of the reinsurance contract and against the 
orders of the Kansas Insurance Department. 

Advancing the Reserve Company (E. W. Merritt, Jr.) considerable sums of 
money during 1928 and failing 1 to collect interest on same. 

Accepting from the Farmers National Life Insurance Company in satisfaction 
of the reinsurance contract securities that were improper and securities that 
fell far short of meeting the Kansas statutory requirements. 

Paying to the Farmers National Life $88,027.37 over the objection of the 
Kansas Insurance Department due to the fact that the Farmers National Life 
had not fulfilled its part of the reinsurance contract. 

Taking liquid assets from the Federal Reserve Life in exchange for the 
Farmers National Life office building in Chicago in violation of Section 40-228, 
Kansas Insurance Code. 

Using the machinery of the company to "twist" U. S. Reserve policyholders, 
just after the Federal Reserve Life had paid for and had taken over the busi- 
ness, and paying a heavy commission on the "twisted" business, all for the 
benefit of an officer of the Federal Reserve Life (E. W. Merritt, Jr.), who con- 
trolled the Reserve Company which held the contract for "twisting" the U. S. 
Reserve policyholders. Merritt even received a certain percent of the Reserve 
Company contract for putting the deal through. 

Purchasing and accepting improper assets from the Huron Investment Com- 
pany — the Commonwealth Fire and Marine. 

Selling the home-office building of the Providers Life without showing on the 
records of the Federal Reserve Life the actual sale price, or accounting for the 
money paid by the purchased of the building. 

Paying D. H. Holt, treasurer, a salary of $4,000.00 for the year 1928 while 
Holt was in Chicago engaged in Operating his own general agency, Holt render- 
ing no adequate services in the capacity of treasurer. 

Using the machinery of the Federal Reserve Life and its employes to trade 
Federal Reserve Life stockholders out of their stock — all for the benefit of cer- 
tain officers of the Federal Reserve Life. 

Transferring trusteed stock that was improperly paid for (stock lien notes) 
to persons other than those designated in the stock contracts — all for the benefit 
of certain officers of the Federal Reserve Life. 

Failure to maintain a sufficient reserve deposit with the treasurer of the State 
of Kansas as is required by the Kansas statutes. 

Withdrawing from the reserve deposit maintained with the treasurer of the 
State of Kansas $400,000.00 in U. S. bonds and not putting in any sort of a de- 
posit to take the place of the bonds for more,, than two months. , 

Converting said bonds to cash and with the cash paying $400,000.00 for a cer- 
tain Michigan mortgage — all done in order that the mortgagor might loan the 
proceeds of the mortgage to Massey Wilson and E. W. Merritt, Jr., officers of the 
Federal Reserve Life. 

Accepting a mortgage on three pieces of land, all situated in Michigan, for 
$400,000.00, two parcels of which had prior liens on them, and the third tract 
with an appraised value of only $160,000.00. 



CONCENTRATION OP ECONOMIC POWER QQtfl 

Entering into an agreement with the mortgagor that the mortgage would be 
filed against only one piece of property in order that public officials might be 
deceived as to the real value of the security back of the loan. 

Recording the $400,000.00 mortgage against only one parcel of land with an 
assessed value of $85,700.00. 

Employing a large force of clerks and incurring other expenses in writing up 
policies to be exchanged for policies already in the hands of Federal Reserve 
policyholders when the officers knew that the Actuary of the Kansas Insurance 
Department, Charles F. Hobbs, now Commissioner of Insurance, had positively 
refused to approve the exchange (twisting) of the Federal Reserve business. 

Keeping funds of the Company outside of the State of Kansas, contrary to 
the provisions of Section 17-616 of the 1923 General Statutes of Kansas. 

I submit, Mr. Jordan, that is quite a lot for the Commissioner not 
to release, is it not? 

The Vice Chairman. As I listened to the conclusions it occurred to 
me a substantial number of them were by their terms indicating sub- 
stantial violations of provisions of the insurance code in Kansas. I 
wonder if you are sufficiently familiar with the statutes in that State 
to know whether those statutes were penal, that is criminal, or with- 
out any punitive provisions. 

Mr. Jordan. 1 am not familiar enough to know. I think most of 
those violations were with regard to corporation laws rather than 
insurance statutes ; that is, the deposits of money without the State, 1 
believe, is an old, old statute that relates to corporations. _Now, the 
others I am not certain about. 

The Vice Chairman. As a practical matter, what would you say 
would ha' r e been the effect of the publication of that report at the 
time iVwas made? 

Mr. Jordan. I think the report should have been rewritten and 
then published. I don't think that report should have been published. 

The Vice Chairman. Explain what you mean. Rewritten in what 
way? 

Mr. Jordan. That report was made as of — what is the date on that 
report ? 

Mr. Gesell. It is dated December 5, 1929. 

Mr. Jordan. The examination is made as of what date ? 

Mr. Gesell. This page covers the affairs of the company from that 
date— that is, December 31, 1928, to March 31, 1929. 

Mr. Jordan. You see, that report was 8 months old when it was 
released. 

Mr. Gesell. When it was released? 

Mr. Jordan. When it w r as filed with the department, completed 
there. 

Mr. Gesell. The report was never released, was it? 

Mr. Jordan. No. It is dated in December and had to do with con- 
ditions that existed in March. The report should have been brought 
down to date. 

The Vice Chairman. You mean, in bringing it down to date, it 
might have been indicated that some of the things found to exist had 
been corrected? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. But a substantial number of them were tilings which 
had actually been done and apparently were not subject to correction ? 

Mr. Jordan. There were many things that had been completed 
that were not subject to correction. 



6658 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now, although this report only covered the period 
indicated as far as the details of the accounts were concerned, you 
went way back into the history of the company for some 6 years, 
didn't you? 

Mr. Jordan. Yes. 

Mr. Gesell. Might we take a 5-minute recess? 

(Five-minute recess.) 

The Vice Chairman. The committee will come to order. Are you 
through with Mr. Jordan, Mr. Gesell? 

Mr. Gesell. I have one or two questions. 

Mr. Jordan. Before you start, may I make one observation? 

The Vice Chairman. Of what nature? 

Mr. Jordan. I wanted, if I might, to say something about that report 
which we were discussing. 

The Vice Chairman. I think it would be all right. 

Mr. Jordan. As my memory serves me, a hearing was_ set for the 6th 
day of January 1930, in Topeka, at which the various commissioners 
or their representatives were present. As the result of that hearing, a 
considerable number of liabilities in the report were eliminated. One 
item in particular, $400,000 on account of survivorship dividends, 
which was an actuarial problem, a bond guaranteeing that big Bush- 
man mortgage was issued by a casualty company — I don't remember 
the name of it just now — and the contribution of $300,000 to surplus 
had been made. In the light of those, these commissioners signed a 
stipulation that the company would be permitted to operate as the 
result of that hearing. 

The Vice Chairman. Incidentally, it seems to me you indicated a 
few moments ago that that Bushman transaction represented at the 
time the company failed a substantial loss. 

Mr. Jordan. I might say that this particular casualty company, and 
I don't remember the name of it now, failed at a subsequent date. 

The Vice Chadrman. So tha+ didn't work out very well, either. 

Mr. Jordan. No; but I wanted you to get the basis upon which the 
company was permitted to operate. 

The Vice Chairman. I understood you to say when Mr. Hobbs 
was it 

Mr. Jordan. Yes, sir. 

The Vice Chairman (continuing). When Mr. Hobbs became insur- 
ance commissioner in 1929? 

Mr. Jordan. In 1929. 

The Vice Chairman. He was sufficiently conversant with the situa- 
tion as it existed in the company so that he was able to tell you just 
about what to look for. 

Mr. Jordan. Yes, sir. 

The Vice Chairman. And what to do. Does that mean that that 
condition which prevailed during these previous years that we have 
been listening to was generally known in the insurance department in 
the State of Kansas during those 5 years ? 

. Mr. Jordan. I don't think so. He was not the commissioner, and the 
information he had was not definite. It had come to him through stool 
pigeons who were in the company. 

The Vice Chairman. What was his office ? 
Mr. Jordan. He was actuary. 



CONCENTRATION OF ECONOMIC POWER 6659 

The Vice Chairman. Were you with the department prior to 1929? 

Mr. Jordan. I was with the department about 6 months prior to 1929. 
I had never heard of this condition myself. 

Mr. Gesell. What do you mean that information had come to Mr. 
Hobbs from stool pigeons in the company? Is that the way you get 
the information? 

Mr. Jordan. He had a couple of fellows in the company who used 
to come up and see him and tell him about things that were going on. 

Mr. Gesell. Now, there was an examination of the company made 
as of June 1933, was there not? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. Do you recognize this as a copy of the report from 
the files of the Federal Keserve Co.? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. How many pages is that report? 

Mr. Jordan. 205. 

Mr. Gesell. That reiterates some of the questions we have been 
considering here,- does it not ? 

Mr. Jordan. Yes, sir. 

Mr. Gesell. That report was not released either, was it? 

Mr. Jordan. No, sir. 

Mr. Gesell. That is all the questions I have. 

The Vice Chairman. Is that a convention report? 

Mr. Jordan. It is a convention examination ; yes. 

The Vice Chairman. What departments were there? 

Mr. Jordan. Kansas, Illinois, Indiana, Missouri, and Ohio. 

Mr. Gesell. That report was never released either, was it? 

Mr. Jordan. No, sir. 

The Vice Chairman. What happened to it? Was it just received 
and filed? 

Mr. Jordan. I was not in the department then. 

The Vice Chairman. Were you with the company then? 

Mr. Jordan. I was with the company then. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. I think that is all ; thank you very much. 

Mr. Gesell. If we might, I would like to adjourn today until to- 
morrow morning. 

The Vice Chairman. There is no objection. 

Mr. Gesell. I believe we will be able to conclude by noon to- 
morrow. 

(Whereupon, at 4 p. m., the subcommittee adjourned until 10:30 
a. in. the following day, Friday, December 8, 1939.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



FRIDAY, DECEMBER 8, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10 : 50 a. m., pursuant to adjournment 
on Thursday, December 7, 1939, in room 357, Senate Office Building, 
Joseph J. O'Connell presiding. 

Present: Mr. O'Connell (vice chairman), Representative Reece, 
and Mr. Brackett. 

Present also : Harry J. Daniels, representing Department of Com- 
merce ; Gerhard A. Gesell, special counsel ; Helmer Johnson, and Erik 
G. Peterson, attorneys, and H. A. Blomquist, investigator, Securities 
and Exchange Commission. 

The Vice Chairman. The hearing will please come to order. Are 
you ready to proceed, Mr. Gesell? 

Mr. Gesell. Yes, I am. Mr. De Buchananne. 

The Vice Chairman. Will you raise your right hand? Do you 
solemnly swear that the testimony that you are about to give in this 
proceeding will be the truth, the whole truth, and nothing but the 
truth, so help you God ? 

Mr. De Buchananne. I do. 

TESTIMONY OF J. D. DE BUCHANANNE, MIAMI, FLA. 

FEDERAL RESERVE ACTIVITIES OF J. D. DE BUCHANANNE 

Mr. Gesell. Will you state and spell your name? 

Mr. De Buchananne. J. D. De Buchananne, D-e B-u-c-h-a-n- 
a-n-n-e. 

Mr. Geseix. Where do you live? 

Mr. De Buchananne. I live in Miami, Fla., now. 

Mr. Gesell. What is your present occupation ? 

Mr. De Buchananne. Manager of an apartment building. 

Mr. Gesell. Did you at one time engage in the insurance business ? 

Mr. De Buchananne. Yes, sir. 

Mr. Gesell. During what period of time were yotyin that business? 

Mr. De Buchananne. Well, do you mean in connection with my 
insurance company or when I was, so tOjSpeak, in business for myself? 

Mr. Gesell, You were in business for yourself, and you were con- 
nected with companies in an official capacity ? 

Mr. De Buchananne. I worked for companies before.. 

6*661 



6662 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. When did you first go in ? 

Mr. De Buchanne. I think I started in 1918. I went to work 
in the International Life in St. Louis. 

Mr. Gesell. The International Life in St. Louis ? 

Mr. De Bdchananne. Yes. 

Mr. Gesell. When did you leave the insurance business? 

Mr. De Buchananne. Let me think. About 1928, 1 believe it was ; 
1928 or '29. 

Mr. Gesell. And you have not been connected with it since? 

Mr. De Buchananne. I have not been connected since. 

Mr. Gesell. You have not had in any way, any connection since 
that time? 

Mr. De Buchananne. No; not since that time. 

Mr. Gesell. Well, now, in what capacity did you start to work 
with the International Life Insurance Co. of St. Louis ? 

Mr. De Buchananne. I think I went as agent first, writing busi 
ness in the city of St. Louis, and outlying counties. 

Mr. Gesell. Who operated that company? 

Mr. De Buchananne. The principal officers at that time, Mr. 
Massey Wilson, J. L. Babler, and Mr. F. E. Granges. 

Mr. Gesell. Was that a legal reserve life-insurance company? 

Mr. De Buchananne. Yes, sir. 

Mr. Gesell. How long were you with the International Life? 

Mr. De Buchananne. I think 4 or 5 years; I can't recall the exact 
dates. 

Mr. Gesell. Then where did you got 

Mr. De Buchananne. That was the time when Mr. Babler and 
Mr. Wilson sold their interest in the International Life to the Stand- 
ard Life Insurance Co. of Decatur, and for a couple or 3 months I 
didn't do anything, and then Mr. J. L. Babler, and E. W. Merritt, 
and I organized the North American Holding Co. 

Mr. Gesell. The North American Holding Co. ? 

Mr. De Buchananne. The North American Co. 

Mr. Gesell. What year was that? 

Mr. De Buchananne. I couldn't give you the exact year on that. 

Mr. Gesell. Around 1923, was it? 

Mr. De Buchananne. '23 or '24 ; yes. 

Mr. Gesell. And Mr. Merritt is the same Mr. Merritt who was 
mentioned in the testimony yesterday ? 

Mr. De Buchananne. That is right; yes. 

Mr. Gesell. He was with you in that venture and also Mr. Babler? 

Mr. De Buchananne. Yes, Mr. Babler; he and I organized the 
company. 

Mr. Gesell. The North American Co. had its offices where? 

Mr. De Buchananne. In the Railway Exchange Building in St. 
Louis. 

Mr. Gesell. And it was a holding company ? 

.Mr. De Buchananne. It was on the order of a holding company, 
but its main purpose was to broker insurance, transfer and rewrite, 
that was Mr. Merritt's line of work, that was what it was organized 
for. 

Mr. Gesell. You mean it held insurance stocks ? 

Mr. De Buchananne. Yes. That was its purpose; that was what 
it was organized for; to hold insurance stock, to act. as broker to buy 



CONCENTRATION OF ECONOMIC POWER 6663 

one company and sell to another, and transfer business, and rewrite 
business, as has been discussed along that line. 

Mr. Gesell. How long were you with that company ? 

Mr. De Buchananne. I guess it was about 5 years; it was 1928 
when I sold my interest in that company. 

Mr. Gesell. Whom did you sell your interest to ? 

Mr. De Buchananne. To Mr. J. N. Mitchell and John B. Smith, 
I believe, from Kansas. 

Mr. Gesell. Mr. Smith is the man who had been in the insurance 
department, whose name was mentioned yesterday? 

Mr. De Buchananne. That is correct. 

Mr. Gesell. Was Mr. Herndon connected with that transaction? 

Mr. De Buchananne. Mr. Herndon brought about the deal; he 
was the broker in the deal. 

Mr. Gesell. He brokered the sale of the North American Co. ? 

Mr. De Buchananne. To Mr. Mitchell and Mr. Smith ; yes. 

Mr. Gesell. And that was about 

Mr. De Buchananne. 1928, 1 believe, in December. 

Mr. Gesell. During the time you were with North American, I 
take it, it acquired various companies. 

Mr. De Buchananne. Yes; we loaned money to several different 
insurance officers. I can't recall just all those transactions. 

Mr. Gesell. How many companies did you acquire? 

Mr. De Buchananne. Along in '26 or '27, Mr. Merritt and I bought 
the holdings of Mr. Babler in North American^ 

Mr. Gesell. You became the sole owner? 

Mr. De Buchananne. We became the sole owner with some other 
gentlemen in Illinois. Then we bought the Kaskaskia Life Insur- 
ance Co. 

Mr. Gesell. That is the K-a-s-k-a-s-k-i-a Insurance Co.? 

Mr. De Buchananne. That is right; Kaskaskia, 111. 

Mr. Gesell. Is that a legal-reserve comp'any? 

Mr. De Buchananne. Yes; a legal-reserve company. 

Mr. Gesell. You said you bought it? How did you buy it? 

Mr. De Buchananne. We bought the stock from the officers of the 
company. 

Mr. Gesell. Did anybody brokerage this transaction? 

Mr. De Buchananne. No ; there was no brokerage at all. 

Mr. Gesell. Who received the commissions for it ? 

Mr. De Buchananne. There was no commission paid. 

Mr. Gesell. Just a straight purchase? 

Mr. De Buchananne. Yes. 

Mr. Gesell. The Kaskaskia 

Mr. De Buchananne (interrupting). We did that work ourselves 
and saved the commission for the company. 

Mr. Gesell. Yes. The Kaskaskia became then a subsidiary of 
North American ? 

Mr. De Buchananne. Yes ; that is true. 

Mr. Gesell. Now, how did you purchase it, by cash, or did you 
exchange stock with the stockholders? 

Mr. De Buchananne. No; we purchased the controlling interest 
by cash and then we exchanged the preferred stock of the North 
American Co. to the outstanding stockholders for their stock in the 
Kaskaskia Life. 



6664 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In other words, you bought control ? 

Mr. De Buchananne. That is right. 

Mr. Gesell. And then, as far as the other stockholders were con- 
cerned 

Mr. De Buchananne. Then we exchanged them with the North 
American preferred stock which was a dividend-paying stock and 
their insurance stock was not. We exphanged our stock for theirs. 

Mr. Gesell. You got the common and they got preferred of North 
American ? 

Mr. De Buchananne. That is right. 

Mr. Gesell. Now, how do you work such an exchange, Mr. De 
Buchananne ? 

Mr. De Buchananne. Well, its usually, you take the capital and 
surplus to determine the value of the stock, and then you take the vol- 
ume of business they have in force on their books, that is, like if they 
had two or three million — I think this little company had a million 
five hundred- thousand, maybe a little more than that, I don't remember 
the figures, and insurance is based on the actuarial figures. It runs 
from $10 to $20 a thousand. 

Mr. Gesell. What I was trying to get at is how do you handle 
the actual mechanics of the exchange. I suppose after you have 
control of the company you are able to get hold of the stockholders' 
list. 

Mr. De Buchananne. That is the first thing, naturally. 

Mr. Gesell. That is a pretty important beginning. 

Mr. De Buchananne. That is pretty important, that is true. 

Mr. Gesell. What do you do after that? 

Mr. De Buchananne. We go to the stockholders and we go 
over with them this preferred stock in exchange for their stock and 
in most cases these insurance companies never paid any, dividends 
and the holding company had other means of making money and 
could pay dividends and were paying on our stock then, making 
loans and commissions, and so on, and it was not a very hard mat- 
ter to exchange a dividend-paying stock for a nonpaying. 

Mr. Gesell. Why did you ever want to exchange? 

Mr. De Buchananne. I don't know as I can tell why, except that 
gave the holding company the absolute control of the insurance com- 
pany. 

Mr. Gesell. You mean you wouldn't purchase 51 percent, say, 
from the officer's, you would only purchase enough to have working 
control. 

Mr. De Buchananne. Yes, sometimes; we nearly always in those 
days would try to get two-thirds because that was what it took to 
control the company for reinsurance or remain in control. 

Mr. Gesell. Why did you want to switch the other one-third into 
preferred stock? 

Mr. De Buchananne. I can't tell you other than it gave us the 
control of the company, the holding company. Naturally, that was 
what the holding company was for, if any merger came about, you 
didn't have to depend on a lot of outside voting, naturally the offi- 
cers would vote the way the holding company directed. 

Mr. Gesell. If you had 100 percent of the common stock and 
switched it to common , 



CONCENTRATION OF ECONOMIC POWER 6665 

Mr. De Buchananne (interposing). The preferred stock holders 
couldn't vote until the dividend has been in default 2 years, and 
then they could vote and have the same vote that a common stock- 
holder had. . 

Mr. Gesell. So if you wanted to brokerage the Kaskaskia and 
there were no common stockholders except yourself, you didn't have 
to face the possibility of having some dissenting group, you wouldn't 
even have to call a stockholders' meeting. 

Mr. De Buchananne. No, sir ; that is right. 

Mr. Gesell. And that way you could decide the fate of the 
policyholders of that company without any possible opposition from 
any shareholders. 

Mr. De Buchananne. Yes ; that is true. 

Mr. Gesell. Was that your purpose in switching all of the com- 
mon stockholders into preferred of North America ? 

Mr. De Buchananne. Well, I don't know, I can't say exactly that 
it was, I don't know as we had that in mind. We knew that operat- 
ing insurance companies, at least small companies, couldn't pay divi - 
dends until they got a certain volume of business. We considered 
they had to have 30 or 40 million of business before the insurance 
company would pay dividends, and the idea was to take the com- 
panies and build them up by buying other smaller companies, and it 
made the mechanics easier, and the greatest help was that it re- 
quired less cash. It you went out to buy a company, take an ex- 
ample, say $100,000 capital and you get 66% percent of the stock of 
that company, it might require seventy-five or eighty thousand. If 
you bought it all it might require around one hundred thirty, forty. 
Instead of putting out the cash for other stock, we would trade our 
preferred stock in the holding company, and that would leave that 
other company to come into the holding company to give it liquid 
assets. 

Mr. Gesell. Would you say it was one 'of the considerations that 
you wished to have no stockholders who might in any way object 
to such transactions as you wished to carry forward? 

Mr. De Buchananne. I don't really believe that was as much an 
objective as to sell his preferred stock and acquire the cash and have 
money to go out and buy another company, to keep on building up 
the company, buying up smaller companies. 

Mr. Gesell. After this transaction, did you purchase any other- 
companies? 

Mr. De Buchananne. We purchased the Two Republics of El 
Paso, Tex. 

Mr. Gesell. Before that,- do you recall any other purchases ? 

Mr. De Buchananne. We didn't purchase another one, but we re- 
insured the Western Life Insurance Co., which was an assessment 
company in Chicago. 

Mr. Gesell. That company had about three million in force ? 

Mr. De Buchananne. Two million eight hundred thousand, some- 
thing like that; yes. 

Mr. Gesell. You didn't purchase the stock of that company? 

Mr. De Buchananne. There was no stock; that was what is called 
an assessment company. 

Mr. Gesell. You just reinsured it. 



(3(3(36 CONCENTRATION OF ECONOMIC POWER 

Mr. De Buchananne. We did that at the instance of the Illinois 
Insurance Department. 

Mr. Gesell. What do you mean by that? 

Mr. De Buchananne. The company was going behind, the policy- 
holders were getting to be quite old and apparently some misman- 
agement, and they didn't want the company to close up, they wanted 
to protect the policyholders, and it was harder to get any of the 
larger companies to take it over so we were approached in the matter. 

Mr. Gesell. You were approached in the matter? 

Mr. De Buchananne. Yes, sir. 

Mr. Gesell. You, personally? 

Mr. De Buchananne. Yes, sir. 

Mr. Gesell. Who approached you ? 

Mr. De Buchananne. I believe it was Mr. Huskinson, of the Il- 
linois Insurance Department. 

Mr. Gesell. Was he commissioner then ? 

Mr. De Buchananne. He was insurance commissioner then. 

Mr. Gesell. What did he say to you? 

Mr. De Buchananne. He told us this little company was having 
some difficulties. It had mismanagement and they weren't goings 
to continue to let it run and weren't getting any new business, 
which is the life of a company, getting new business, and he thought 
we could go see them and make arrangements to reinsure the com- 
pany. I did with some other officers and, after considerable negotia- 
tions back and forth, we arrived at a plan to reinsure it. 

Mr. Gesell. There had been mismanagement in the company? 

Mr. De Buchananne. There had been; yes; expenses entirely too 
high, and things of that sort. 

Mr. Gesell. Officers using the company for their own advantage? 

Mr. De Buchananne. The only thing I found was salaries, pay- 
ing agents too great a commission trying to get new business and 
not getting it; too many on salary accounts instead of on commis.- 
sion accounts. We reinsured that business. 

Mr. Gesell. You reinsured it into 

Mr. De Buchananne (interposing). The Mississippi Valley 
which was the Kaskaskia Life; we had changed the name, the In- 
dian name, to Mississippi Valley. 

Mr. Gesell. You changed Kaskaskia to Mississippi Valley? 

Mr. De Buchananne. That is right. 

Mr. Gesell. And then you reinsured this Western- 

Mr. De Buchananne (interposing). Western Life business and 
issued then! policies in the Mississippi Valley Life. 

Mr. Gesell: You issued them policies in that, I see. Then you 
were going to tell us about the Two Republics. 

The Vice Chairman. Did that transaction involve rewriting the 
insurance, too? 

Mr. De Buchananne. No; it did not. In that case we arrived at 
a rate we were willing to take these risks on at and gave them what 
we called a 5-year renewal term policy and at the end of 5 years the 
rate would increase. That is the only way we would take them over 
and we received from the assets of the Western, I think, just the 
first one monthly premium on the business. That is all the money 
they had and the policyholder paid us each month thereafter. 



CONCENTRATION OF ECONOMIC POWER 6667 

The Vice Chairman. Didn't policyholders have a different form 
of contract? 

Mr. De Buchananne. They did, much different. 

The Vice. Chairman. Wasn't it a matter of rewriting the in- 
surance? 

Mr. De Buchananne. We wouldn't go to the expense of rewrit- 
ing, it wasn't enough of it and we didn't think it could be done 
profitably and we wouldn't take the risk unless we got a higher rate. 

Mr. Gesell. Who forced the policyholders to change? 

Mr. De .Buchananne. The reinsurance contract was so worded 
that they could accept it if they wanted to. Those who didn't could 
give their policy to the insurance commissioner and go through the 
liquidation and receive whatever might be coming to them from 
that and a few did file claims with the commissioner. 

The Vice Chairman. The net result was as if you had rewriting, 
wasn't it? 

Mr. De Buchananne. That is right, because the rates were in- 
adequate. 

The Vice Chairman. And the new contract was more favorable 
to the company than had been the original ? 

Mr. De Buchananne. That is true. 

Mr. Gesell. You were going to tell us about purchasing Two Re- 
publics Life of El Paso, Tex. 

Mr. De Buchananne. I think that was in 1927, I believe. I am 
not quite sure. ., 

Mr. Gesell. How did you purchase that? 

Mr. De Buchananne. We bought the controlling interest of the 
stock from a Mrs. Rhodes, who was the wife of the former owner 
and president of the Two Republics. 

Mr. Gesell. Where did you get the money to make that purchase ? 

Mr. De Buchananne. We had some of it in our holding company 
and some of it I borrowed personally at the bank. The bank loaned 
the holding company and we borrowed some from Central States 
Life Insurance Co. 

Mr. Gesell. You borrowed some from Central States ? 

Mr. De Buchananne. Yes; the fact of the matter is the Central 
States Life Insurance Co., as I recall, had a loan on this stook. 
They had loaned Mr. Rhodes considerable money on the stock. And 
of course the company was not paying dividends and the widow 
couldn't keep up the interest. 

Mr. Gesell. What connection did you have with Central States? 

Mr. De Buchananne. I had none ; it was a company in St. Louis, 
and Mr. McVoy told me of the company he thought we could buy ; he 
knew we were trying to build up this company and we had this hold- 
ing company for that purpose and I negotiated for that purchase 
and we finally purchased the company from them. 

Mr. Gesell. Did you get some of the money from the sale of the 
Republic Casualty Underwriting Co. ? 

Mr. De Buchananne. No ; I wasn't in that. 

Mr. Gesell. Did you exchange preferred stock of North American 
fpr the common of the other stockholders of. Two Republics? 

Mr. De Buchananne. Some of it ; not all of it. 

Mr. Gesell. The same method was used? 

124491— 40— pt. 13 21 



6668 CONCENTRATION OF ECONOMIC POWER 

Mr. De Buchananne. The same mechanics were used in that as 
in the other. That was the whole set-up. 

Mr. Gesell. Did you then rewrite the business ? 

Mr. De Buchananne. We reinsured the business and took over 
the policies and wrote a little in Arizona. 

Mr. Gesell. You reinsured it with the Mississippi Valley? 

Mr. De Buchananne. That is right. 

Mr. Gesell. And then rewrote it? 

Mr. De Buchananne. We wrote a little in Arizona. 

Mr. Gesell. Who did the rewrite business? 

Mr. De Buchananne. The North American Co. 

Mr. Gesell. Mr. Merritt and yourself? 

Mr. De Buchananne. That would be our holding company, yes; 
but we only paid 30-percent commissions for our rewrite. 

Mr. Gesell. As opposed to 85 or 90. 

Mr. De Buchananne. I never paid over 30 percent for a rewrite 
or exchange or conversion. 

Mr. Gesell. You and Mr. Merritt made some commissions on the 
rewriting of this business, did you not? 

Mr. De Buchananne. The North American Holding Co. made it, 
yes; and we were some of the officers of it. 

Mr. Gesell. You were also stockholders? 

Mr. De Buchananne. Yes; there were six or seven of them. 

Mr. Gesell. You said that in 1928 you sold out to Mr. Smith 
and who else ? 

Mr. De Buchananne. Mr. Mitchell. 

Mr. Gesell. And Mr. Herndon brokeraged the transaction? 

Mr. De Buchananne. That is right. 

Mr. Gesell. He was then examiner for the Kansas department, 
was he not? 

Mr. De Buchananne. I don't know just what his position was. 
I know that he examined for several States and did more work for 
Kansas than any other State. He was not examining us in any 
way. We were not licensed even in Kansas. Some States have a 
set of examiners employed by the year and other States I think 
just call in certain examiners when they have an examination to be 
made. 

Mr. Gesell. Tell me, how much did Mr. Herndon make for broker- 
aging this transaction? 

Mr. De Buchananne. I think we paid him the usual fee at that 
time, $2 a thousand on the business in force. 

Mr. Gesell. And how much would that make? 

Mr. De Buchananne. About 22 or 23 thousand dollars. 

Mr. Gesell. $22,000 or $23,000? 

Mr. De Buchananne. Yes. We had 11 millions of business in 
force at that time. . ' 

Mr G&3ELL. That was in 1928? 

Mr. De Buchananne. 1928 ; yes. 

Mr. Gesell. Am I correct in saying the whole shebang went into 
receivership in 1932? 

Mr. De Buchananne. I don't know the d^te, Mr. Gesell, but it 
had quite a hectic career after that. It was sold two or three times, 
mortgaged to another company and some gentleman, I believe Mr. 



CONCENTRATION OF ECONOMIC POWER 6669 

Rowling, R-o-w-l-i-n-g, got it and it went into receivership after 
that. 

Mr. Gesell. That was when — about 1932 — do you think? 

Mr. De Buchananne. It was 4 or 5 years after I sold out. 

Mr. Gesell. You sold out in 1928, it would be 1932 or 1933. 

Mr. De Buchananne. That is right, something like that. 

Mr. Gesell. Do you remember having anything to do with the 
Peoples Life Insurance Co.? 

Mr. De Buchananne. Only I tried to brokerage the Peoples Life 
Insurance £o. 

Mr. Gesell. Did you brokerage it? 

Mr. De Buchananne. I never got any brokerage out of it. My 
deal fell down and it went. through other hands after that. 

Mr. Gesell. After you had sold North American you tried to "sell 
Peoples to the Mississippi Valley ? 

Mr. De Buchananne. I think that must have been 2 years — wasn't 
it 2 years after that? 

Mr. Gesell. Some time in there, I think. 

Mr. De Buchananne. About 2 years after I sold out, I understood 
the Peoples Life was for sale and I think myself and Mr. Sees and 
Mr. Temple, three of us, were working on it with them and we made 
arrangements where we would receive $1 a thousand commissions. 

Mr. Gesell. You are sure in this sale of North American, Hern- 
don acted not as principal but as broker? 

Mr. De Buchananne. Well, that was the understanding I had, 
he was acting as a broker and we paid him, because if he had been 
the principal we wouldn't have paid him a commission. 

Mr. Gesell. Tell me a little about the general method of operation 
which you and your associates followed. Am I correct in saying 
the first step when you want to consolidate a bunch of insurance 
companies is to form a holding company ? 

Mr. De Buchananne* That is the most practical way that we 
found to do it ; yes, sir. 

Mr. Gesell. And then in one way or another you would try to get 
hold of a working-control interest in some other insurance company. 

Mr. De Buchananne. That is right. 

Mr. Gesell. It doesn't make any difference whether that company 
is in the same State as the holding company or anywhere else in the 
country? 

Mr. De Buchananne. It doesn't make any difference. We usually 
tried to get them in States wherein our company was licensed to do 
business and if it wasn't we would attempt to get a license in that 
State if we were sure we could consummate a deal. We were not 
licensed in Texas so before we closed with this woman on the sale 
of her stock we went to the Texas department and made arrange- 
ments to be licensed in Texas. 

The Vice Chairman. As a practical matter, is it a difficult matter 
to do business in the States? 
Mr. De Buchananne. No ; not in those States. 
The Vice Chairman. The fact you were not licensed would not be 
serious when considering acquiring another company? 

Mr. De Buchananne. If we were not licensed we couldn't acquire 
the company. 



6670 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. But you could very easily acquire a license? 

Mr. De Buchananne. Yes, sir; all you needed was to get a report 
from the department where you were licensed, and forward it on, and 
there would be some correspondence, and if there was nothing detri- 
mental to us at the home department, the other department would 
give us our license. 

Mr. Gesell. After you had acquired 100 percent of the capital 
stock, the outstanding stock, I take it that then your next step would 
be to reinsure the company. 

Mr. De Buchananne. That is right. It was usually done the other 
way. We would take and buy the controlling interests first and then 
call a stockholders' meeting, have the control of the stock of the new 
company and owned control of the stock of the new company, so . we 
would call stockholders' meetings of both companies and submit this 
reinsurance contract which would have previously been okayed by 
the insurance departments of both States. We would have to sub- 
mit a tentative reinsurance agreement to them. 

Mr. Gesell. And by that time you would have switched most of 
the other stockholders into the preferred of the holding company. 

Mr. De Buchananne. We didn't go after them until the reinsur- 
ance contract was a matter of fact and closed and then we could go 
to them and show them we had taken the company over, and here is 
what they could have or they could wait for liquidation of their 
stock, and 80 or 90 percent of them always exchanged. 

Mr. Gesell. So you were doing two types of rewriting operation ; 
one, rewriting the holdings of the stockholders, the other the rewrit- 
ing of the business of the policyholders of the company which was 
being reinsured. 

Mr. De Buchananne. That is right. 

Mi*. Gesell. And that was a definite method of operation which 
you pursued? 

Mr. De Buchananne. Yes, sir. There were some reasons for 
that; on the rewriting as soon as a company changed hands with 
other companies, oftentimes some of the larger companies, their 
agents would -go around the town soliciting new insurance and the 
man would say, "I have a certain amount of insurance." 

"What companies are they with?" and you would enumerate and 
say certain companies, for instance you would mention the Two Re- 
publics, and they would say, "That company has quit and gone out 
of business, it is no good," and they would raid our business that 
way. But if we would get it on our own policy of the new com- 
panies, they wouldn't say that, and that way we could offset our com- 
petition. 

There was a profit in it, that was the greatest reason in rewriting ; 
there is a profit in it. 

Mr. Gesell. I thought we were in agreement on that. Was an- 
other reason for rewriting the business the possibility that by so 
doing you could lapse off bad claims ? 

Mr. De Buchananne. We never tried to lapse off any that way, 
but it gave you an absolutely current report on all your policy- 
holders which you could watch very closely. If you had an oppor- 
tunity to drop the policy, I don't think we ever missed it. It was 
considered pretty good~ business. If a man lapsed his policy, we 
wouldn't take him back. 



CONCENTRATION OF ECONOMIC POWER 6671 

Mr. Gesell. By approving policyholders on this rewriting opera- 
tion, you would find out the undesirable risks ? 

Mr. De Buchananne. That is true. 

Mr. Gesell. And then watch their premium payments carefully 
and lapse off the first chance you had ? 

Mr. De Buchananne. And lots of them would be late in premi- 
ums and we would take lots of them back with a self : help certifi- 
cate. People like that we would require an examination of. 

Mr. Gesell. Sometime you would overlook sending them a pre- 
mium notice? 

Mr. De Buchananne. No ; we never did that. 

Mr. Gesell. Let me ask you this. How did you find out about 
these companies that were for sale? 

Mr. De Buchananne. Well, that is kind of like politics, I gue^s, 
just mixing around in insurance meetings and commissioners' meet- 
ings and things of that sort. Through examination and so on, you 
could get information the company was slipping. Sometimes we 
would take the reports and look over the Best's reports and we 
could tell pretty well, we used to say, "Ready for the doctor." 

■The Vice Chairman. Then, I take it, to build up your company 
you were looking for bad companies ? 

Mr. De Buchananne. Well, no; not in that way. When these 
companies which we say are ready for the doctor, these companies 
had too high expenses, paying too high a commission and sometimes 
their rates were inadequate and they had poor risks and they had 
office buildings and things of that kind that would reduce their in- 
come. When their surplus would be impaired we knew something 
had to be done, the old stockholders had to put in new money or 
had to sell the company and reinsure. We would eliminate that 
expense. Probably you can run 40 million of business with the same 
office force that you run 20, except maybe a few extra clerks. Your 
attorneys, your officers, go under the same salaries. 

The Vice Chairman. If the companies that made up these com- 
panies involved poor risks plus inadequate premiums 

Mr. De Buchananne (interposing). And poor management in 
the way of big salaries and bad investment and buying home-office 
buildings which are usually the first things they did. 

The Vice Chairman. Let's assume they were poor risks and high 
premiums. The reinsurance doesn't change those factors at all. 

Mr. De Buchananne. Yes; we would change them and not write 
any more and then we would change the rate. 

The Vice Chairman. Well, but reinsurance doesn't change that, 
does it? 

Mr. De Buchananne. In some cases it does. 

The Vice Chairman. Have you changed it ? 

Mr. De Buch4nanne. In some cases in our reinsurance contracts 
we only reinsured on a certain basis. They had to take tl: it basis 
or file and collect whatever was coming to them out of the receiver- 
ship. 

The Vice Chairman. But the reinsurance contract is between two 
insurance companies, isn't it? 

Mr. De Buchananne. Yes ; that is true. 

The Vice Chairman. It is not between the insurance company 
and the insured. 



6672 CONCENTRATION OF ECONOMIC POWER 

Mr. De Buchananne. No. The insured has nothing to do with 
'that, but they abide by whatever they do. That is according to the 
insurance laws. That is right. 

Mr. Gesell. The company which is being reinsured can put it up 
to the policyholders, they can put up to the policyholders the option 
of going along under the reinsurance contract or standing by the 
original contract and getting what he can out of the liquidation of 
the company. 

Mr. De Buchananne. Yes; and of course the salesmen usually 
changed them over to the other plan. 

Mr. Gesell. On the proposition that they at least have some hope 
of getting something out of it if they went along with the doctor ? 

Mr. De Buchananne. Yes. That's right. 

Mr. Gesell. Well, now, could you find out about these companies 
simply from looking at the publications like Bests', or did you have 
to depend on information you had to receive from other sources ? 

Mr. De Buchananne. Both cases, Mr. Gesell. We got it from 
other sources sometimes, and from Bests. 

Mr. Gesell. What other sources? 

Mr. De Buchananne. Well, we would go to the insurance com- 
mission's meeting and up to. the state department, and different ex- 
aminers and different people around, the usual grapevine route for 
things of that kind. 

Mr. Gesell. I want to understand that. You would find out 
about the companies from officials of the insurance department? 

Mr. De Buchananne. Sometimes we would. 

Mr. Gesell. You would find out, you would attend a meeting such 
as at Biloxi now, and find out how the companies were 

Mr. De Buchananne (interposing). Now. We would go to the 
Commissioners and talk with them, and hear that some company might 
be in a little bad circumstances and ought to be reinsured. 

Mr. Gesell. Would insurance-commission officials sometimes sug- 
gest to you that you attempt to purchase one company or another 
which was in bad shape? 

Mr. De Buchananne. Well, I have had that occur in one or two 
cases. We did not succeed in doing that, but I have had them suggest 
it to me and work on it ; yes. 

Mr. Gesell. Will you give us one or two instances specifically? 

Mr. De Buchananne. Weil, the case of the Western was one, and 
the case of the Old Colony. 

Mr. Gesell. Tell me about the Old Colony. 

Mr. De Buchananne. That was a Chicago company, and they were 
having considerable difficulty on account of some adverse manage- 
ment, apparently, and I received that information from the insurance 
department. 

Mr. Gesell. What insurance department? 

Mr. De Buchananne. The Illinois Insurance Department. 

Mr. Gesell. From whom in that department? 

Mr. De Buchananne. From Mr. Huskinson. 
Mr. Gesell. He tipped you off on that one, did he? 
Mr. De Buchananne. Yes. 

Mr. Gesell. Well, did you have to do anything to curry favor with 
the insurance departments to get this information, or was it given 
to you voluntarily ? 



CONCENTRATION OF ECONOMIC POWER 6673 

Mr. De Buchananne. Well, that was voluntary. We always — I 
don't know how to answer you on that question. We always try to 
work with the people who are in office, politics, and so on, down the 
line. 

Mr. Gesell. Oh, you politic with these insurance departments? 

Mr. De Buchananne. Yes; you have to do a little of it occasion- 
ally. There are always fellows running for office and if we can help 
out a little bit when the time comes, we do, you know. 

Mr. Gesell. I don't know that, no ; and I am interested in it. Tell 
me a little more about it. How would you politic for the insurance- 
department officials? 

Mr. De Buchananne. Well, we know "who the different organiza- 
tions hope to reelect in different parts of the State, and we assist 
them in whatever way we can with our agency, with the agency 
force. 

Mr. Gesell. You mean, you turn your agents into ward heelers 
for the. time being, is that it? 

Mr. De Buchananne. We get them busy. We would usually 
favor some officers, but we would get them to work. 

Mr. Gesell. What would you get them to do, drive cars, and 
that 

Mr. De Buchananne (interposing). Well, talk to people in the 
town, and electioneer in a general way. 

Mr. Gesell. Would you sometimes send out notices with your 
premium receipts in favor of particular candidates? 

Mr. De Buchananne. Well } we did have circulars once or twice, 
but we did not make a practice of that. It was usually done the 
other way. I think I have done that twice. I couldn't recai} who 
it was, but twice, something in southern Illinois at one time. There 
was quite a heated election there between the different factions, and 
the factions that were in power wanted to see the other man elected, 
and we helped out. 

Mr. Gesell. What company did you help out ? 

Mr. De Buchananne. I was with the Mississippi Valley, then 
and 

Mr. Gesell. And you used the Mississippi Valley for that purpose ? 

Mr. De Buchananne. That is right ; yes, sir. 

Mr. Gesell. Well, now, after you had received this information 
from whatever source you obtained it, what would be your next step ? 

Mr. De Buchananne. Well, we contacted the officers of the com- 
pany then and approached them on the idea of a merger with our 
company or an outright sale to us. 

Mr. Gesell. What officers would you see ? 

Mr. De Buchananne. Well, in most cases the president; usually 
the president and the secretary ; once in a while an extra vice presi- 
dent. 

Mr. Gesell. Well, I should imagine on some of these occasions 
when you walked into the president of an insurance company, he 
would be apt to throw you out on your ear, so to state. 

Mr. De Buchananne. We have had that happen too, so to speak, 
but we just keep hammering away at him. We knew sooner or later 
he would have to sell or they would have to replace the surplus. 

Mr. Gesell. You mean that because of this confidential information 
that you had received from the insurance departments or elsewhere, 



6674 CONCENTRATION OF ECONOMIC POWER 

you knew he was ailing and needed a doctor, although he wouldn't 
•admit it publicly ? 

Mr. De Buchananne. We would give him the medicine. 

Mr. Gesell. So you would keep at him until you gave him the 
medicine ? 

Mr. De Buchananne. That is the way we termed it. 

Mr. Gesell. How persistent did you have to be ? I would like to 
have some specific information. 

Mr. De Buchananne. Well, I don't know whether we did any- 
thing particular on that. We would finally tell them the shape they 
were in and what we knew. And when they would find that we knew 
ail the facts, they would admit it and ive would go ahead and replace 
their impaired capital. Most of them were all looking for a job then, 
and we would sometimes take them over into our company. We 
would help them. 

Mr. Gesell. Now, were there regular commissions on this type of 
transaction ? I mean, a going price for the doctor ? 

Mri De Buchananne. Back in those days, it seemed to me the pre- 
vailing price that you could sell a company or acquire one, or could 
become a doctor, was $2, a thousand on the amount of business in 
force. If a company had $20,000,000 in business, there, would be 
$40,000 in commission because that is cheaper than you could write new 
business. 

Mr. Gesell. It would cost how much ? 

Mr. De Buchananne. Eighty or one hundred percent of the pre- 
mium and this business was older and had been renewed. Because 
when you write new business, when you renew, 60 percent of it the 
second year, you are doing pretty good. 

Mr. Gesell. You mean that even though that seems to be a pretty 
high commission, it would be much cheaper ? 

Mr. De Buchananne. Yes. 

Mr. Gesell. Cheaper to acquire another than to write the business 
itself? 

Mr. De Buchananne. That is right. Then you've got the advan- 
tage of the excess interest earnings and of the investments and the 
savings in mortality that the company made, and by eliminating the 
expense of the other company, it helps to build the company up much 
faster. 

Mr. Gesell. Well, now, did you have to haggle much about price 
of commission or was that pretty well understood ? 

Mr. De Buchananne. The $2 was pretty well understood. 

Mr. Gesell. Can you give us any specific information as to the 
type of bargaining you had to do to get any particular deal that 
you were in? You said you sometimes had to go back quite often. 

Mr. De Buchananne. Well, you just keep going back and dis- 
cussing it. 

Mr. Gesell. Well, some one person you saw, some company. I 
would like to get some idea of a specific case. 

Mr. De Buchananne. Well, in the case of the Two Republics, I 
made four or five trips down to Texas to see this Mrs. Rhodes and 
her attorney, and they wanted more money than we thought the com- 
pany was worth. I had found out in the meantime through my 
friend, Mr. McVoy, who was in close touch with it that capital was 
down pretty low and surplus as well, and they weren't getting any 



CONCENTRATION OF ECONOMIC POWER 6675 

new business to amount to anything, and something had to be done. 
So, having that in mind, we figured what we could afford to pay for 
it and we sat tight. We broke down the morale and they had to 
sell or keep it to themselves. 

Mr. Gesell. Did you sometimes, when you found you couldn't deal 
with the principal officers of the company, obtain information about 
scattered stockholdings from some person in the company and gather 
up control in that way? 

Mr. De Buchananne. I never attempted that. I saw it tried and 
it failed. It didn't work out so good. 

Mr. Gesell. It wasn't as easy? 

Mr. De Buchananne. To get to the fellow sitting — the officers of 
the company. 

Mr. Gesell. You had to get the officers ? 

Mr. De Buchananne. You had to get the officers with you first. 

Mr. Gesell. What about the policyholders in this situation? 

Mr. De Buchananne. Well, their status was not changed. We 
always thought that we were bettering them. They had the same 
reserves, and in most cases they got practically the same kind of a 
policy they had before. 

Mr. Gesell. They weren't consulted in cases like this ? 

Mr. De Buchananne. They don't have to be consulted in a stock 
company in Illinois or Missouri. There are some States in the Union 
which require, I think, consent of policyholders, and I don't think 
you will find many mergers in those States. 

Mr. Gesell. And these commissions that were paid, however, were 
paid out of the policyholders' funds, weren't they ? 

Mr. De Buchananne. Well, no; I wouldn't say that. Now, you 
see, that was paid out of the capital and surplus of the company 
which was taken over or out of the surplus of the holding company. 
You see you couldn't touch their reserve. The reserve had to stay 
with the department. 

Mr. Gesell. So these commissions were paid out of the fund of 
(he holding company? 

Mr. De Buchananne. Now, if you're speaking about the trans- 
ferred commissioners, of course, they were paid out of the reserves 
because there is a surrender charge. I don't understand all the 
actuarial figures on that, but it didn't cost the company the entire 
amount of 30 percent because some of that 30 percent was gotten 
back through the conversion — that is, the difference of the values 
of the reserves at the different times and the loading there. And 
there is always a surrender charge in the policy. 

Mr. Gesell. Of course, it is true that when you rewrite a com- 
pany and pay commissions on the rewrite, you are paying commis- 
sions on the policyholders' reserves? 

Mr. De Buchananne. That is true. 

Mr. Gesell. Now I want 

The Vice Chairman. If I may interrupt, there is one other thing. 
You suggested, after indicating that the policyholders had nothing 
to say about* it, you thought their position was not substantially 
changed. A little earlier I understood you to say that as a practical 
matter you would rewrite their policies or exchange them for policies 
more favorable to the company. 



6676 CONCENTRATION OF ECONOMIC POWER 

Mr. De Buchananne. Well, we only had one case where we had 
to do that, and that was in the Western. The other policies we 
gave them the same form of policy they had before. 

The Vice Chairman. At a higher premium ? 

Mr. De Buchananne. In some cases our premium was the same. 
In' the case of the Two Republics, they had a better premium rate 
than ours. Theirs was higher than ours. And those are the only 
two cases we reinsured. But I have known cases in other companies 
where it was the other way. If they had to pay a higher premium, 
either they had to take less insurance and pay the same premium 
or pay a higher premium and take the same insurance. 

The Vice Chairman. And the protection would be just the same? 

Mr. De Buchananne. The same. 

The Vice Chairman. Of course, from the policyholders' view- 
point, their position was very much different after they got through 
with that operation than before, wasn't it? 

Mr. De Buchananne. Well, I don't recall what kind of policy the 
Federal Reserve gave them. I know we had to take it to the insur- 
ance department to get it approved. 

Mr. Gesell. We will come to that transaction. 

Mr. De Buchananne. I would have to see some figures about it. 
I don't recall it. 

Mr. Gesell. One thing else before we come to these specific 
transactions. With respect to political activities, can you tell us 
how many times you have engaged in political activities on behalf 
of state officials? 

Mr. De Buchananne. Oh, I would say maybe a dozen times 
during that time I was in business. 

Mr. Gesell. Did you sometimes make campaign contributions? 

Mr. De Buchananne. Indirectly. 

Mr. Gesell. What do you mean, indirectly? 

Mr. De Buchananne. Well, we would make it through sources, 
pay some attorney or to some agent for his services out of the com- 
pany for looking after stuff. 

Mr. Gesell. You mean these men wouldn't do any work for their 
money ? 

Mr. De Buchananne. Well, they had to electioneer for the man, 
some of them would. Some of them wouldn't do a whole lot. It 
would go into the fund, of course. 

Mr. Gesell. I don't understand this, Mr. De Buchananne. You 
say you paid it indirectly ? 

Mr. De Buchananne. Yes. We couldn't contribute directly to the 
campaign very well. That wouldn't look very good for us, I guess. 

The Vice Chairman. When you say "you," you mean the in- 
surance company? 

Mr. De Buchananne. We would get word that a certain person 
would be around to see us. We knew what it meant and there wasn't 
anything else to say. We'd make up some contributions for them 
for different things. 

Mr. Gesell. You would hire one of these fellows as an attorney ? 

Mr. De Buchananne. Sometimes we would hire an extra attorney. 

Mr. Gesell. Put him on a retainer? 

Mr. De Buchananne. Or some fellow as an appraiser, or things of 
that kind. 



CONCENTRATION OF ECONOMIC POWER 6677 

Mr. Gesell. And the money paid to those gentlemen would not be 
for services rendered, but for political contributions? 

Mr. De Buchananne. Yes. 

Mr. Gesell. Let us have a specific case or two, Mr. De Buchananne. 

Mr. De Buchananne. Well, I've one case in mind where Mr. 
Garche, one of our directors 

Mr. Gesell. Will you tell us what company he was director of? 

Mr. De Buchananne. He was director of the Mississippi Valley. 
I didn't have the Providers' loan. He came down — in fact, I had a 
call, I think, from Mr. Huskinson up in Springfield, telling me that 
Mr. Garche had been up and had a little private matter to be taken 
up and he would be in, and then Mr. Garche came up and told me 
what the situation was, what they were trying to do, raise cam- 
paign funds. I think in that instance we employed some attorney in 
Springfield at a $500 fee, put him on a retainer for that year. We 
never called on him for services. 

Mr. Gesell. You paid him the money? 

Mr. De Buchananne. Yes. And Mr. Huskinson was from the in- 
surance commission. 

Mr. Gesell. And Mr. Garche was the go-between between the in- 
surance commission and yourself? 

Mr. De Buchananne. At that time; yes. 

Mr. Gesell. And he was a director of your company? 

Mr. De Buchananne. Yes. 

Mr. Gesell. What is first name? 

Mr. De Buchananne. F. A. He's dead. 

Mr. Gesell. Will you tell us what he said to you when he came 
down to speak to you, from Mr. Huskinson ? 

Mr. De Buchananne. He just told me the organization up in 
Springfield had to raise considerable money. There w*as going to 
be sort of a warm fight and they wanted to put their men over, and 
they had to get out and raise funds over the State to do the work. 

Mr. Gesell. And Mr. Huskinson was at that time the regulatory 
official in charge of your company"? 

Mr. De Buchananne. Yes. 

Mr. Gesell. He is not an insurance commissioner any longer? 

Mr. De Buchananne. I think Mr. Huskinson died 4 or 5 years 
ago. 

Mr. Gesell. Do you know his full name? 

Mr. De Buchananne. George. 

Mr. Gesell. Do you know of any other cases? 

Mr. De Buchananne. Well, I can't recall any specific cases, Mr. 
Gesell. We've done it, if I recall, I'd say a dozen different times, 
thatf my company contributed in one way or another in the political 
situation by handling it that way. We wouldn't pay the money out 
direct to them, but we would send someone for appraisal of property 
or employ some lawyer at a retainer fee, and after that we didn't 
know what happened to the funds. We weren't interested. 

The Vice Chairman. Is that a new or old situation that you 
referred to. 

Mr. De Buchananne. The old political fight. 

The Vice Chairman. Was that a fight in which the issue was the 
election of an insurance commissioner? 



6678 CONCENTRATION OF ECONOMIC POWER 

Mr. De Buchananne. No ; it wasn't. The insurance commissioner 
over there is appointed. I believe it was for some State senators, 
I think, in the southern part of the State. 

The Vice Chairman. But the election was of some particular 
State senators? 

Mr. De Buchananne. Yes. I believe they usually pass the word 
down the line what they want. They're all of the same political 
family, I suppose. It's passed along the organization. 

The Vice Chairman. All you know is it came from the insurance 
commission to you, from one of your directors, and it was to help 
elect some State senator, and it might be that sort of thing in the 
other instances that you can't remember exactly. In some States the 
insurance commissioner is elected, is he not ? 

Mr. De Buchananne. No; it is the director of trade and com- 
merce in Illinois. I think the commissioner is appointed by the 
Governor. 

The Vice Chairman. I say in some States ? 

Mr. De Buchananne. Yes. 

The Vice Chairman. Do you recall any instances in which the 
political campaign involved the election of an insurance commis- 
sioner ? 

Mr. De Buchananne. No, I don't; not in any of those cases of 
mine, because we only operated in Illinois and Missouri, and they 
were all appointive. 

The Vice Chairman. I see. 

Mr. Gesell. Now, you mentioned the director of trade and com- 
merce in Illinois. Did you have some political dealings with him? 

Mr. De Buchananne. I believe there was just one case that I 
spoke of a while ago that we sent out an appraiser for some of the 
properties, someone was sent out for the case. 

Mr. Gesell. I didn't understand that. I must have been talking 
here. What was the case of the appraiser ? 

Mr. De Buchananne. I don't recall the man's name, but we had 
some loans in southern 

Mr. Gesell. Keep your voice up. 

Mr. De Buchananne (continuing). In southern Illinois and Mis- 
souri and in Chicago, and it was suggested to me that it might be 
well to have them looked over, so we had them looked over. 

Mr. Gesell. Did you have your own appraisers at the time ? 

Mr. De Buchananne. We had them before. We didn't need them. 

Mr. Gesell. Didn't need any appraisals ? 

Mr. De Buchananne. Didn't need any appraisals. 

Mr. Gesell. Who made this suggestion to you ? 

Mr. De Buchananne. I believe that Mr. Bailey did. I believt* 
that is the only time 

Mr. Gesell. Is that Mr. H. U. Bailey? 

Mr. De Buchananne. That is right. 

Mr. Gesell. And how much did this appraiser get for his services? 

Mr. De Buchananne. I can't recall- offhand, Mr. Gesell. I think 
it was in the neighborhood of $350, something like that. 

Mr. Gesell. Now, coming to the case of the Providers -Life Insur- 
ance Co., that, as the committee will recall, was one of the 'com- 
panies mentioned yesterday which was reinsured in the Federal Ke- 



CONCENTRATION OP ECONOMIC POWER 6679 

serve Life Insurance Co. What was your connection with the Pro- 
viders Life Insurance Co., Mr. De Buchananne? 

Mr. De Buchananne. I was president of it. 

Mr. Gesell. When did you become president? 

Mr. De Buchananne. I believe — oh, 1 think in November, in '25 
or '26, something like that. 

Mr. Gesell. Along in there ? 

Mr. De Buchananne. Yes. 

Mr. Gesell. When was it that the company went to the Federal 
Reserve ? 

Mr. De Buchananne. It seems to me it was about a year or so 
after that. 

Mr. Gesell. In April '26 ? 

Mr. De Buchananne. Yes ; I believe that's right. 

Mr. Gesell. You were in about a year, weren't you? 

Mr. De Buchananne. Just about ; yes. 

Mr. Gesell. How did you get into the company ? 

Mr. De Buchananne. Why, I bought into it, myself and some 
others bought into it ; we bought the stock of the former officers. 

Mr. Gesell. You bought the stock of the former officers? 

Mr. De Buchananne. That's right. 

Mr. Gesell. That was about '24 or '25 ? 

Mr. De Buchananne. ^5, it was. 

Mr. Gesell. Where did you get the money to buy it? 

Mr. De Buchananne. I had some money, and I borrowed some at 
the banks and borrowed some from some of my friends. I had other 
connections. 

Mr. Gesell. Who was associated with you in the deal ? 

Mr. De Buchananne. There was nobody associated with me, ex- 
cept my brother had some stock and Mr. Garrison had a small inter- 
est, and another attorney, a Mr. Hoolan. There were six or- seven 
others who acquired some. 

Mr. Gesell. Did you borrow money from Jacob Babler in con- 
nection with the purchase of this stock ? 

Mr. De Buchananne. Yes. 

Mr. Gesell. How much ; do you recall ? 

Mr. De Buchananne. No; I don't, but it must have been ten or 
fifteen thousand. 

Mr. Gesell. Now, was this a case that you handled independent 
of any holding company? 

Mr. De Buchananne. Yes. We didn't have any holding company 
in it at all. 

Mr. Gesell. This was the company which you did not want to 
broker, but which you wanted to build 

Mr. De Buchananne. Well, I bought it and I hoped to build it 
up and make it into a real nice company. I had no holding com- 
pany then; I didn't know anything about a holding company. 

Mr. Gesell. There was no rewriting or reinsurance involved, was 
there? 

Mr. De Buchananne. No, sir. 

Mr. Gesell. Now, do you recall that you had some dealings with 
the Abraham Lincoln Lii'e Insurance Co. with respect to selling? 

Mr. De Buchananne. Yes, I do ; very vividly. 



668Q CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. The Providers? 

Mr. De Buchananne. Yes. 

Mr. Gesell. Will you tell us that story in as much detail as you 
can recall at this time? 

Mr. De Buchananne. Well, Mr. Hill came down to see me. I 
was there. He was the' president of it, the — I forget what was the 
name of the company, but it was later called the Abraham Lincoln 
Life. I don't believe that was the name of the company at that time. 
He came to see me in Chicago, where I had my principal office, and 
I told him the company was not for sale. But I told him I had 
bought the company with the expectation of building it up and 
making it my means of livelihood. Well, he came to see me two 
or three different times, and finally he told me he was out to get 
some additional business. He had to have it, he said, and he said 
he wanted that little business and he felt right sure that the insur- 
ance department would be favorable to the deal. So 

Mr. Gesell. He felt sure? 

Mr. De Buchananne. Yes. He told me he felt that the insur- 
ance department would be favorable to the deal. 

Mr. Gesell. This looks like a case where the insurance department, 
must have tipped off someone on the other side of the transaction, 
too. 

Mr. De Buchananne. I felt so at the time. Anyway, I told him 
I hadn't wanted to sell, but I would think it over some more, and 
then I discussed it with some of my friends, and it looked like — well, 
it looked like we might be in for a little fight, and maybe we had 
just as well sell. I made them a proposition to sell to them. I 
insisted upon him — I didn't have any faith in him — I insisted upon 
him paying me, I think* it was $80,000, for some part payment of the 
stlock, because I owed considerable money on the stock. He did that. 
We took the reinsurance contract to the insurance department of 
Illinois, and it was approved. My company sent out the notices to 
its stockholders; he sent out to his. He called a meeting. About 
4 days before the meeting was to be called, Mr. Hill came to me 
and he told me he was not going through with the deal — I was asking 
too much. He said I was not. entitled to any more than the $80,000, 
and that was just about what I owed. I said, "What are you going 
to do?" He said, "I'm going to take your company." "Well," I 
said, "of course, I'm a pretty good fighter, and I'll be in at the fight, 
so go ahead." He explained some of the ramifications he was going 
to use to take the company. He said he would call the examiners, 

Mr. Gesell. He would what? 

Mr. De Buchananne. He said he would have the examiners called 
in. He was very powerful in Springfield, he said, and he was. And 
he said he would have our home office revalued and cut down, and 
other loans, and so on, and we would just have to make a deal. So I 
told him we would not change it anyway, that we were going to hold 
him to his part of the deal, and that we were going through with our 
meeting. Well, then he served notice on me by registered mail that 
I would have to repay that $80,000 within 36 hours, or when the date 
of the meeting came he would tell his stockholders that he had turned 
down the deal. Of course, that would be very disastrous for my 
company, naturally. I couldn't explain to my people, so I went and 
got the money and gave it to him. 



CONCENTRATION OF ECONOMIC POWER gggj 

Mr. Gesell. Where did you get the money from? 

Mr. De Buchananne. I borrowed it from different banks in Chi- 
cago and Missouri, and some from Mr. Babler and some from my 
brother. 

Mr. Gesell. Did Mr. Merritt go in 

Mr. De Buchananne. That is when I took Mr. Merritt in with me. 

Mr. Gesell. That is this same E. W. Merritt? 

Mr. De Buchananne. Yes. 

Mr. Gesell. I see. 

Mr. De Buchananne. I had a little difficulty in raising all the 
money, so Merritt came in with me as a half owner. 

Mr. Gesell. Half owner of Providers ? 

Mr. De Buchananne. Of the Providers, yes; that is correct. 

Mr. Gesell. In other words, he gave you money in. return for 
stock? 

Mr. De Buchananne. That is right, in return for stock. I imme- 
diately got hold of Mr. Garrison, that I spoke of, and he came to see 
me. He was on the board and had stock. We were talking about 
the meeting, because I was considerably disturbed. I told him what 
the trouble was. He said, "They can't do anything like that. I 
know the Governor. I'll go right to the Governor," and I never 
heard anything more of Mr. Hill. I gave Mr. Hill his money back, 
and we called off our meeting. 

Mr. Gesell. Did Mr. Hill discuss with you any investments which 
you had made between the time of thp original contract and the time 
it was to be consummated ? 

Mr. De Buchananne. Yes; I did and he did, and he went ahead 
and examined, and it was perfectly satisfactory, which it couldn't 
help but be. He was satisfied. 

Mr. Gesell. Was he concerned with the mortgages that were dis- 
cussed yesterday with Mr. Jordan? 

Mr. De Buchananne. Yes ; that was one* of the things in the Home 
Office Building in Chicago that he was interested in, but he did not 
say anything about that. He examined those before he paid me the 
$80,000. He sent three men out there, and not only to those but to 
all of our other properties, and he evidently thought pretty well of 
them when he looked at them, or he wouldn't have put up the $80,000. 

Mr. Gesell. Now, while we are on it, tell me a little about the 
mortgages. 

Mr. De Buchananne. Well, all I know about them is that they are 
on splendid farm lands in Missouri, and I don't think there is ever 
a year when that land doesn't yield 40,000 to 50,000 bushels of corn. 

Mr. Gesell. Who owned -it? 

Mr. De Buchananne. The Cotton Kings Land Co. owned the land. 

Mr. Roily and Mr. Stewart, of southeast Missouri, and I gues& 

Mr. Gesell. Were you interested in the company? 

Mr. De Buchananne. No ; I had no interest in the company. 

Mr. Gesell. Were the mortgages made in the name of that land 
company ? 

Mr. De Buchananne. Well, those mortgages were in the Providers 
when I went in. No; they were not 

Mr. Gesell. They were ill the Providers when you went there ? 

Mr. De Buchananne. Yes; when I went in as president. Those 
mortgages were straw mortgages — what we call them in Missouri. I 



6682 CONCENTRATION OF ECONOMIC POWER 

would say, oh, about 90 percent of the real-estate business in Missouri, 
back in those days, and considerable of it does that today ; they use 
what is called a straw man to make a mortgage. If a man makes a 
mortgage for contractors or building for eight or ten thousand, he 
would get a man to make the mortgage whether he had any financial 
responsibility or not. Then he would sell the equity to somebody, and 
you would buy it subject to that mortgage. In Missouri, back in the 
days when I lived there, in real estate, I suppose 9 pieces out of 10 
were done that way. That was the practice in Missouri. 

Mr. Gesell. That explains why the mortgages were in the names of 
the Negroes, bootblacks, and fugitives from justice which we heard 
about yesterday, doesn't it? 

Mr. De Bdchananne. Well, I never heard that before, and I have 
my doubts about it. I have no right to question anyone, but I don't 
think it was quite that. They were colonizing that land in southeast- 
ern Missouri, and operating some fifteen or twenty thousand acres. 

Mr. Gesell. Now, after the Abraham Lincoln deal fell through, 
were you approached with respect to reinsuring the company with 
Federal Reserve? 

Mr. De Buchananne. Yes. I. omitted one little thing. When I 
took Mr. Merritt with me on the deal, he told me he was willing to go 
in, but that he thought that the thing to do, because it took a long time 
to build a small company — the thing to do would be to merge it with 
some other company, or to go out and buy other companies and build 
it. I agreed and said I would carry my end of the load if he would 
carry his, and we did. In the meantime, we commenced to look around 
for small companies but didn't locate any, and one day Mr. Herndon 
came over from Kansas City. I had never met him but once before, 
and I believe that was years ago in some examination at the Interna- 
tional. He told me he had people in Kansas. - One of them was at the 
time, or had been for previous years, connected with the insurance 
department, and that Mr. J. N. Mitchell, who is an insurance man, was 
one. We got into negotiations and brought Mr. Mitchell over, and we 
finally sold the company to him in '28, in December. 

Mr. Gesell. You say you sold it to Mr. Mitchell ? 

Mr. De Buchananne. Mr. Mitchell and Mr. Smith, and Mr. Hern- 
don was the broker. 

Mr. Gesell. He was the broker? 

Mr. De Buchananne. That is right. 

Mr. Gesell. Acting for you ? 

Mr. De Buchananne. Well, yes; I guess he would. He would be 
acting for us and Mitchell, too, but, of course, the selling company 
always paid the broker. 

Mr. Gesell. You are sure Mitchell and Smith were in on this trans- 
action ? 

Mr. De Buchananne. Yes ; because I had a note from Mr. Mitchell 
for some common stock of the holding company's collateral for eight 
or ten thousand dollars. Mr. J. N. Mitchell and Mr. John B. Smith, 
I believe. 

Mr. Gesell. Are you talking about Mississippi, or about Provid- 
ers? 

Mr. De Buchananne. Oh, I am talking about Mississippi. 

Mr. Gesell. Well, I am talking about Providers. 



CONCENTRATION OF ECONOMIC POWER gg§3 

Mr. De Buchananne. Excuse me. Oh, the Providers. Herndon 
was the broker there, and Merritt and I were the big stockholders. 

Mr. Gesell. That was how you finally disposed of Providers? 

Mr. De Buchananne. Yes; that is right, to the Federal Reserve. 

Mr. Gesell. Now, when did you first hear that you could sell 
this to the Federal Reserve? Who first approached you?. 

Mr. De Buchananne. Mr. Herndon. I think I — I think he called 
me from Kansas City and asked if he could see me. He came on 
over the following day, if I recall rightly, and it was as a result 
of that conference and other negotiations that we made the deal. 

Mr. Gesell. Now, we heard yesterday that he received commis- 
sions for representing the Federal Reserve. He also received com- 
missions for representing you? 

Mr. De Buchananne. Yes. I think our commissions to him were 
on the basis of $2 a thousand. I think it was around $18,000 that 
we paid him for that. 

Mr. Gesell. $18,000? 

Mr. De Buchananne. Yes. I am not sure. Now, my mind is not 
clear on that. 

Mr. Gesell. How much insurance was in force? 

Mr. De Buchananne. About $9,500,000. 

Mr. Gesell. That would be about $28,000, wouldn't it? 

Mr. De Buchananne. No; it would be about $18,000. I think 
that is about right. 

Mr. Gesell. Well, now, did you pay that money to Mr. Herndon 
yourself ? 

Mr. De Buchananne. Nq; the company paid it. That w T as all 
authorized by the officers of the company. 

Mr. Gesell. The company paid it? 

Mr. De Buchananne. Yes; they did. 
. Mr. Gesell. Then, after the reinsurance contract went through, 
did you and Mr. Merritt participate in the rewriting of the contracts ? 

Mr. De Buchananne. Mr. Merritt got a contract for rewriting 
that business, and at 30 percent of the first annual premium, and Mr. 
Merritt came to me and asked if I wouldn't supervise the writing 
of it. He was busy with other matters. 

Mr. Gesell. You participated in that rewriting transaction? 

Mr. De Buchananne. Merritt got 30 percent, and I think the men 
in the field were paid 20, and it took 2^2 percent expenses to handle 
it one way or another, and I think Merritt and I divided the other 
commission between us, and I think I got about 3.75 or 4 percent 
of the commission. 

Mr. Gesell. We heard yesterday that Mr. Merritt got 85 percent. 

Mr. De Buchananne. I heard that, too; I did not get all of mine, 
then. 

Mr. Gesell. The contract was very definite in respect to it. 

Mr. De Buchananne. I never saw the contract. Mr. Merritt told 
me it was 30 percent, and the checks I got were all made in Mr. 
Merritt's name, and it was 30 percent. I had authority to endorse 
the checks for him, and I would pay the boys. 

Mr. Gesell. Looks like you have something coming to you, doesn't 

Mr. De Buchananne. Expense money, anyway. 

124491—40 — pt 13 22 



6684 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Well, now, in that connection I take it you came to be 
pretty familiar with the details of the way the rewrite contract of 
Providers was being handled. 

Mr. De Buchananne. That is right; yes. 

Mr. Gesell. The policies were all written in the Federal Reserve 
office ? 

Mr. De Buchananne. I never went to Kansas City. They were 
mailed to me at St. Louis to my office, and I worked about 15 boys out 
of that office up into Chicago and around there. I would go up to 
Chicago once a week. I didn't know anything about the ramifications 
in that office, but I, of course, do know that the policy that they 
wrote and made the transfer on was approved by the insurance 
department, because that had to be done, always. We had to get the 
approval of the insurance department, and it was a standard form 
of policy in practice at that day and time for the rewriting of busi- 
ness of that character. 

Mr. Gesell. Well, now, you say you worked about 15 boys? 

Mr. De Buchananne. Fifteen men ; I call them boys because they 
were younger than I was. Of course, they were agents, some of them 
agents with Providers Co., and 

Mr. Gesell., Were some of them specialists in rewriting? 

Mr. De Buchananne. Yes. 

Mr. Gesell. Where did you get hold of these rewriting specialists ? 

Mr. De Buchananne. Well, Merritt had three or four of those 
boys that he trained. He had been doing that work for years. 

Mr. Gesell. When an agent goes out to rewrite, is he licensed as 
an insurance agent? 

Mr. De Buchananne. Yes ; he has to have a license the same as an 
insurance agent. 

Mr. Gesell. Well, in this case, who would the rewriting men be 
licensed with, with Providers or with Mr. Gregory's agency com- 
pany, or with Mr. Merritt, or with the Federal Reserve? 

Mr. De Buchananne. Well, I think they would be licensed for 
both of the insurance companies. 

Mr. Gesell. .For both? 

Mr. De Buchananne. Either one or the other. You would either 
have to have a license with the Federal Reserve, or you would have 
to have it with Providers. 

Mr. Gesell. It would be permissible to engage in rewriting 
whether you represented Providers or Federal Reserve? 

Mr. De Buchananne. That is right. 

Mr. Gesell. Did you have any difficulty with this rewriting opera- 
tion? 

Mr. De Buchananne. There was some little kick-back, as we call 
them in Chicago, but I don't think a great deal of it. 

Mr. Gesell. Do you remember 

Mr. De Buchananne. I always got the impression as far as I was 
concerned in the deal, I don't think the rewriting was ever completed, 
and I always got the impression they just didn't want to pay out this 
extra 30 percent they were paying to Merritt, and wanted to do it 
themselves. So I don't think we transferred more than — not that I 
participated in it — more than half of it, if that. They continued after 
that on some other plan of their own, or maybe with Mr. Merritt. I'm 
not sure. 



CONCENTRATION OF ECONOMIC POWER 6685 

Mr. Gesell. Do you remember that you wrote to Vernon B. Holt 
under the date of September 24 with respect to difficulties you were 
having with the Indiana department on this rewrite ? 

Mr. De Buchananne (examining letter). Yes; I do; but I didn't 
before. There were a few policies at Gary, Ind. 

Mr. Gesell. And the Indiana commissioner wanted you to set aside 
the transfers ? 

Mr. De Buchananne. Put them back ; yes. 

Mr. Gesell. Reverse the transaction? Do you recall that? 

Mr. De Buchananne. I recall that. 

Mr. Gesell. The letter reads : 

I am just in receipt of your letter of September 23, stating that the Insurance 
Commissioner of the State of Indiana has ordered you to reverse all the trans- 
actions in Indiana. 

I trust that you will let this matter stand until we can have time to see the 
department of Indiana, and as you will note by the attached copy, I have taken 
the matter up with my friend, Mr. Werwinski. who is very influential and very 
close to the officials at Indianapolis. Also, Mr. Merritt will return on October 3 
and he is personally acquainted with the commissioner in Indiana and no doubt 
can handle this matter when it is properly explained to the commissioner. 

I am also advising Mr. Merritt and sending him a copy of the letters I have 
written you as well as Mr. Werwinski. 

Who was Mr. Werwinski ? 

Mr. De Buchananne. Mr. Werwinski was an agent of the Providers 
Life that wrote most of that business over in that territory, and 

Mr. Gesell. You say he is "very influential" and very close to the 
commissioner of Indiana. 

Mr. De Buchananne. He was a Polish gentleman and was quite 
influential in his district there. 

Mr. Gesell. Well, did you get this matter straightened out t 

Mr. De Buchananne. To the best of my recollection, that was 
straightened out ; yes. 

Mr. Gesell. How was, it straightened out? 

Mr. De Buchananne. Well, I think Mr. Merritt went to the Indi- 
ana department and explained to the Indiana department the whole 
thing, showed them the change and what it meant, and all, and that 
the Illinois and the Kansas departments had approved of it, and 
I don't know whether the Indiana department then consulted the 
other departments or not. Anyway, I am satisfied it was cleared 
up, and it was finished up. 

Mr. Gesell. Is it your impression that the Indiana department 
approval was based primarily on the action of the Kansas 
department ? 

Mr. De Buchananne. I would think those cases mostly are; yes. 
They usually are. 

Mr. Gesell. In this instance, did the representative of the Kansas 
department become a party to both sides of the deal ? 

Mr. De Buchananne. Yes, sir. 

The Vice Chairman. Didn't the policyholder as a result of this 
deal have different provisions in his policy ? 

Mr. De Buchananne. To the best of my recollection on that, those 
things were worked out in this way. The actuary, of course, also 
handled those things, but I believe as a practical operation, and as 
a fact in the matter, with the cash surrender, that was in the reserve 
and some other clauses that would be in there for extra participation, 
and so on, that would about take care of half of the cost of rewriting 



6686 CONCENTRATION OF ECONOMIC POWER 

this business, and of course the other half came out of the reserve of the 
policyholder on his old policy and he started off new with probably 
$15 per thousand less reserve than before. 

The Vice Chairman. Did he start off with a different type of 
policy ? 

Mr. De Buchananne. It would be a different type, but sometimes 
it might have every clause his policy had in it. 

The Vice Chairman. Do you know whether the original objection 
of the Commissioner of Insurance of Indiana was based on the fact 
that the policy as rewritten changed the relationship between the 
insurance company and the insured in a way unfavorable to the 
policyholder ? 

Mr. De Buchananne. My opinion, is that the greatest objection to 
any of that rewrite stuff was the fact that there was a depletion of 
the original reserve under the old policy; that is, the policyholder 
would lose some eight or ten dollars per thousand reserve. 

The Vice Chairman. But, in general it must have been true, the 
general objection was based on the fact that under the new arrange- 
ments the policyholders were getting less. 

Mr. De Buchananne. Yes; I think that was the real reason. 1 
think that more than any clause in the policy because they were 
all just about the same. 

Mr. Gesell. Now, just one thing before we get to the Farmers' 
National. After these mortgages in Mississippi got into the hands 
of Federal Reserve, did you pay the interest on those mortgages ? 

Mr. De Buchananne. No; I did not. I collected the money for 
them because Mr. D. H. Holt and two of the directors of the Federal 
Reserve Co. went to see the men who owned the land and they thought 
maybe for some reason or other they might be a little slow in getting 
their interest and payments. The mortgages had been reduced I 
think about 20 or 30 percent. They arranged with this Mr. Rowling 
and Mr. Stewart that I was to represent them and collect the money 
as fast as the corn was sold, and I looked after it and as the corn was 
sold I collected it for them. 
Mr. Gesell. -You had no other interest except agency to collect ? 
Mr. De Buchananne. No, sir. 

Mr. Gesell. With respect to the Farmers' National deal, were you 
an officer of Farmers' National ? 

Mr. De Buchananne. No ; I was a broker in that deal. 
Mr. Gesell. How did you get into that transaction? 
Mr. De Buchananne. Mr. John Sees and Mr. Paul Temple and I 
were sort of — we called ourselves insurance brokers. We would find 
out where a company was for sale and try to find some company that 
wanted to buy it, and tried to bring them together and bring about 
a deal whereby we could make our commission. 
M. Gesell. How did you hear about Farmers' National? 
Mr. De Buchananne. We had tried to buy the Farmers' National a 
number of times because we knew we had a sale for it different times, 
and Mr. John Sees had told us that Mr. Billeter was getting along 
in years and he believed we could make a deal. 
Mr. Gesell. That is B-i-1-l-e-t-e-r? 

Mr. De Buchananne. Yes. He was a newspaper man in Hunting- 
ton. So after several weeks of negotiations we came to some kind of 
terms and agreement, I don't remember all of them, that we could sell 



CONCENTRATION OF ECONOMIC POWER 6gg7 

the company for him and we contacted Mr. Wilson and Mr. Merritt 
of the Federal Reserve, I believe, and then made a deal to sell the 
Farmers' National to them, and it was bought and we received our 
commission for that, and that is all I had to do with that. 

Mr. Gesell. What commission did you get ? 

Mr. De Buchananne. It was on the basis of $2 a thousand and I 
got a third of whatever that was. I think my commission was about 
$28,000 in that deal. 

Mr. Gesell. There were about forty-two million of insurance in 
force. 

Mr. De Buchananne. It would be $84,000 commission. 

Mr. Gesell. And you got a third? 

Mr. De Buchananne. I got a third, and, of course, I had some 
expenses out of it. I didn't get it all at one time. 

Mr. Gesell. Whom were you in contact with there ? 

Mr. De Buchananne. An officer by the name of Mr. Presnal, Mr. 
Billeter, and two other gentlemen, I don't recall their names. 

Mr. Gesell. Did you buy the stock from those men ? 

Mr. De Buchananne. I didn't. 

Mr. Gesell. Their personal holdings. 

Mr. De Buchananne. I didn't. 

Mr. Gesell. You brokered it. 

Mr. De Buchananne. Mr. Wilson's company did, the Investment 
Co. or whatever it was. I don't remember the whole transaction. 

Mr. Gesell. Did the officers of that company receive any special 
commission for selling the stock ? 

Mr. De Buchananne. I don't know that they did. 

Mr. Gesell. Did you also acquire some stock by purchasing it from 
the stockholders? 

Mr. De Buchananne. I didn't have a thing to do with that. I got 
my commission and I was through. That is the last I ever heard of it. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. Quite early in your testimony in referring 
to the superintendent of insurance of Illinois, you referred to what 
apparently was one of the considerations in advising you of companies 
that you might buy, as being his desire to protect the policyholders. 

Mr. De Buchananne. That is right, and keep the business within 
the State. None of them like to have a failure, you know, of an insur- 
ance company, and naturally they get some other company to take the 
business over. They would like to see it brought about, rather than 
to have it go into receivership. 

The Vice Chairman. The theory is, if the company ceases to do 
business, it naturally hurts the policyholders. 

Mr. De Buchananne. And if the company ceases to do business, 
just the fact that they do cease to do business means they automat- 
ically go into receivership. 

The Vice Chairman. The assets remain of the same character? 

Mr. De Buchananne. Oh, yes. That's right. And then they 
would get their proportionate part of whatever their reserve would be.^ 

The Vice Chairman. Of all of these companies, do you know 
i whether any of them or all of them are still doing business? 

Mr. De Buchananne. Well, I don't believe there are but two or 
three of the companies left in Missouri, and only three or four in 



6688 CONCENTRATION OF ECONOMIC POWER 

Illinois, in addition to these companies that have been mentioned 
-'here in this hearing. I know the Continental Life is out. 

The Vice Chairman. What happened to them? 

Mr. De Buchananne. The Continental Life was taken over by the 
Kansas City Life in Missouri, and the Central States Life has had 
considerable trouble. 

Mr. Gesell. What happened to the companies we have been talking 
about here? What happened to the Mississippi Valley? 

Mr. De Buchananne. They are all extinct now. They have been 
reinsured with other companies, I think, weren't they? Mississippi 
Valley was reinsured with some company in Detroit, and part of the 
business was reinsured in Mississippi; 

Mr. Gesell. We are still trying to catch up with where it ended up. 

Mr. De Buchananne. I don't know. As I recall, just from what 
I saw in the papers, I was not in St. Louis then, but part of the 
Mississippi Vallev business was reinsured by this Detroit Life, and 
some of it. by Washington Life, I believe, and then the Federal 
Reserve was reinsured by the Occidental out in California. That 
would take care of the Providers. The Providers went to Federal 
Reserve and Farmers' National went to Federal Reserve, and the 
Federal Reserve failed and went to the Occidental in Califo nia, 
and then the Kaskaskia was the same as the Mississippi, the Western 
went into that, and the Two Republics went into that, and that in 
turn went into a Detroit company and a Texas company. 

The Vice Chairman. So to protect the policyholders we have had 
a series of reorganizations, each one resulting in more liability and 
a little less for the policyholders. 

Mr. De Buchananne. That is right. And I think in some cases 
liens against the policies. I wouldn't say, but I expect there was, 
in some cases. 

Mr. Gesell. That is all, Mr. De Buchananne. 

(The witness was excused.) 

Mr. Gesell. If the committee please, I think I shall finish in an 
hour if you want to sit until 1 o'clock. 

Mr. Wilson is the next witness. 

The Vice Chairman. Do you solemnly swear that the testimony 
you shall give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. Wilson. I do. 

The Vice Chairman. Please be seated. 

TESTIMONY OF MASSEY WILSON, OAK HILL, ALA. 

FEDERAL reserve — ACTIVITIES OF MASSEY WILSON 

Mr. Gesell. Will you state your full name, please, sir? 

Mr. Wilson. Massey Wilson. 

Mr. Gesell. Where do you reside? 

Mr. Wilson. Oak Hill, Ala. 

Mr. Gesell. Your first name is spelled M-a-s-s-e-y ? 

Mr. Wilson. Yes. 

Mr. Gesell. Mr. Wilson, I want to ask you first of all concerning 
your participation in the purchase of Federal Reserve securities, hav- 
ing reference to the $375,000 transaction which was discussed here 



CONCENTRATION OF ECONOMIC POWER 6689 

yesterday. May I ask you first what made you interested in getting 
an interest in the Federal Reserve? 

Mr. Wilson. Mr. Merritt came to me and told me that he was 
buying a block of stock — I believe it was 8,000 shares — for $375,000, 
as I remember it, and didn't have money eribugh to buy it and pay 
for it all, and wanted me to loan him — well, he first offered for me to 
go in with him to buy it, but I didn't want to do that because I 
thought he was paying too much for it, and then he wanted me to 
loan him $125,000, which I did. I was in that business at the time, 
buying and selling insurance companies and insurance stocks and 
loaning money on insurance stocks, and the like, so I loaned him the 
money, some of it myself and some of it through a company of which 
I was president, the Insurance Investment Corporation of St. Louip. 

Mr. Gesell. Insurance Investment Corporation? 

Mr. Wilson. Yes. 

Mr. Gesell. Mr. Merritt was then associated with the Reserve Life 
Insurance Co., was he not? 

Mr. Wilson. The Reserve Co.; he had a corporation he called the 
Reserve Co. 

Mr. Gesell. You were not interested in that company ? 

My.. Wilson. Not at all. I had nothing to do with it and knew 
nothing about it. 

Mr. Gesell. Your loan to him was made to the Reserve Co., was 
it not? 

Mr. Wilson. Yes ; the loan was to the Reserve Co. 

Mr. Gesell. How much did you loan him in the final analysis of 
the transaction? 

Mr. Wilson. I just don't remember now, but he asked me to be- 
come president of the company when he bought these 8,000 shares, 
which I agreed to do, and did become president of it, and afterward 
the Insurance Investment bought other shares, subsequently acquired, 
I think maybe several thousand shares. I don't remember just how 
much. 

Mr. Gesell. I am going to come to that in a moment. I wanted to 
know how much you loaned the Reserve Co. 

Mr. Wilson. I think it was about $125,000 ; it may have been more 
than that. 

Mr. Gesell. In that neighborhood? 

Mr. Wilson. Yes. 

Mr. Gesell. And in return for that loan I assume you received the 
note of the Reserve Co. ? 

Mr. Wilson. Yes; and the stock as collateral. 

Mr. Gesell. That was the 8,000 shares of Federal Reserve? 

Mr. Wilson. Yes. 

Mr. Gesell. Then did you keep that stock as an individual, or did 
you place that stock in any other company? 

Mr. Wilson. I believe the Insurance Investment took it over; the 
Insurance Investment Corporation took it over. 

Mr. Gesell. The Insurance Investment Corporation foreclosed on 
the note, or did they purchase it from the Reserve Co. ? 

Mr. Wilson. Oh, no ; they never foreclosed on the note. They held 
the note and held the stock as security, and finally sold the stock to 
the Fire Insurance Co. of Chicago. 



6690 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. That was a subsidiary of the Insurance Investment 
Co.? 

Mr. Wilson. Of Insurance Investment; yes. 

Mr. Gesell. So that the control of Federal Reserve went from the 
Reserve Co. to yourself, to Insurance Investment Co., and then down 
to the Fire Co. of Chicago. 

Mr. Wilson. It really went from the Reserve Co. to the Fire Insur- 
ance Co. of Chicago. We never really did foreclose on it, although 
we had a lien on it for this money. 

Mr. Gesell. And it was held during that time in the portfolio of 
the Investment Co.? 

Mr. Wilson. Yes. 

Mr. Gesell. Did you sell that stock to the Fire Co. or to the 
Investment Co. at a profit? 

Mr. Wilson. I don't believe it was at a profit. I think it about 
brought us out of it. There may have been some little profit in it. 

Mr. Gesell. Did you have dealings at this time with Mr. Herndon ? 

Mr. Wilson Mr. Herndon put this stock in a bank, this 8,000 
shares of Federal Reserve Life Insurance Co. stock — I say Mr. Hern- 
don did it ; I don't know that he did. It was put in a bank ; I 
thought at the time he did, that is the way I understood it. Anyway, 

was put in a bank in Kansas City. 

Mr. Gesell. Did you have any negotiations and conferences with 
him? 

Mr. Wilson. Yes, I did some, but only about the amount of the 
stock, the issue of the stock, and the price Merritt was paying for it. 
I had no negotiations as to terms and everything; I knew what the 
terms were, but when I came into it the terms were all agreed to, 
they were all settled. 

Mr. Gesell. Was it not at your insistence that arrangements were 
made to get Mr. Gregory out of his contract with Federal Reserve? 

Mr. Wilson. Yes. I think before I was willing to go in as presi- 
dent I wanted that contract of Gregory's out of the way somehow, 
and there were negotiations about it. 

Mr. Gesell. You told Herndon that you wanted Gregory out of 
the way before you would buy in on the stock? 

Mr. Wilson. Before I was willing to lean the money on the stock 
I wanted that contract canceled. 

Mr. Gesell. Why was that? 

Mr. Wilson. It was a burden on the business, and with it out of 
the way it left the business that much'more profitable to the company. 
The company had that much better chance to win with it out of the 
way. 

Mr. Gesell. You say you acquired additional shares of Federal 
Reserve stock. How did you obtain those? 

Mr. Wilson. We bought some of it for cash and traded the pre- 
ferred stock of the Insurance Investment Corporation for some of it. 

Mr. Gesell. In other words, you switched th'e stockholders of Fed- 
eral Reserve from common stock of Federal Reserve to preferred 
stock of Insurance Investment Co.? 

Mr. Wilson. Yes. 
- Mr. Gesell. I presume that you obtained the names of the share- 
holders through your access to the shareholders' list which you ob- 
tained at the time you entered into the management of the company. 



CONCENTRATION OF ECONOMIC POWEK QQ91 

Mr. Wilson. Yes. 

Mr. Gesell. Whom did you use to carry out this shifting of the 
shares? 

Mr. Wilson. I have forgotten now who the field man was. There 
were several. 

Mr. Gesell. I didn't mean the names. I meant were they em- 
ployees of Federal Reserve or Insurance Investment? 

Mr. Wilson. No ; nothing to do with Federal Reserve. They were 
employees of Insurance Investment. 

Mr. Gesell. You had people in Insurance Investment Co. who did 
that type of work? 

Mr. Wilson. Exactly. The Federal Reserve had nothing to do 
with it. 

Mr. Gesell. Now, did you know at that time that Mr. Herndon was 
connected with the Kansas department? 

Mr. Wilson. Yes; I knew he was connected with the department. 
Well, I say I knew he was connected with the department — I knew he 
examined for the Kansas department at times and I knew he had then 
just concluded an examination of the Federal Reserve, or had just 
made an examination. I discussed that Federal Reserve condition 
with him, discussed their business in force and the persistency of 
policies and the loading of the premiums and the assets and the entire 
situation, to arrive at what I thought was a fair value, and I decided 
it was a very nice little plant. 

Mr. Gesell. Did you know that he received on this transaction a 
commission of $100,000 and a note of $15,000? 

Mr. Wilson. No; I didn't. I didn't know until yesterday any- 
thing about that. I just knew 

Mr. Gesell (interposing). That was handled by Mr. Merritt, I 
take it. 

Mr. Wilson. So far as the talk with Herndon was concerned, it 
was handled by Merritt. All I knew about it was that the stock 
was put up in the bank and so much money had to be paid down to 
get the stock and the money was* paid, and we loaned Merritt part 
of the money, or rather the Reserve Co., part of the money to pay. 
I didn't know what interest Herndon had in it, if any. 

Mr. Gesell. Did you become president of the company prior to 
the consummation of the transactions? 

Mr. Wilson. It may have been just prior, or it may have been 
just after, but it was in contemplation of the transaction. 

Mr. Gesell. Were you a director prior to the time you became 
an officer? 

Mr. Wilson. No; I don't — well, it may be that I was on the board, 
but it was all as a result of this purchase of this stock. 

Mr. Gesell. Who put you on the board? 

Mr. Wilson. I have forgotten whether the board filled vacancies 
or whether the stockholders' meeting did. 

Mr. Gesell. Do you recall whether you had to convene a stock- 
holders' meeting? 

Mr. WilsoN. I didn't convene one for that purpose. 
Mr. Gesell. Do you recall any statement of Mr. Herndon to the 
effect that he arranged for your appointment to the board and for 
an officership to illustrate his good faith in this transaction? 
Mr. Wilson. Yes ; it may have been done that way. 



6692 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What is your recollection with respect to that, sir? 

Mr. Wilson. My recollection is now, since you mentioned it — I 
had forgotten it, but I think I was elected a member of the board 
and elected president before this money was paid for the stock, but 
it was all meant to be simultaneous. 

Mr. Gesell. That was before you had purchased the securities? 

Mr. Wilson. Yes; before we had loaned Merritt this money to 
pay on them. 

Mr. Gesell. Before you actually had gotten any interest in the 
company ? 

Mr. Wilson. Yes. 

Mr. Gesell. Who arranged for that? 

Mr. Wilson. Arranged for me going in the company as a director 
and president? 

Mr. Gesell. That is right. 

Mr. Wilson. I think Mr. Herndon did. 

Mr. Gesell. Now, coming to the time when you left the manage- 
ment of that company, will you tell us the circumstances under which 
you resigned as an officer and director ; you and Mr. Merritt, I should 
say? 

Mr. Wilson. The company was having a lot of difficulty with Mr. 
Hobbs about the assets and about different things, and finally the 
attorney general, Mr. Smith, attorney general of the State, advised 
me that it would be necessary for Mr. Merritt to retire from the com- 
pany, and he was going to ask Mr. Merritt to come to his office, and 
was going to tell him he had to get out of the company, so I told 
General Smith if he did that, to also ask me to get out. He said 
he had no objection to me remaining but Merritt had to get out, 
and I told him that Merritt had brought me in and if Merritt got 
out and I stayed in, Merritt would always think I had double-crossed 
him and stayed in and got him out. So I went out with Merritt. 

Mr. Gesell. That was at the request of the attorney general of the 
State of Kansas? 

Mr. Wilson. Yes. 

Mr. Gesell. That was subsequent to this suppressed examination 
report which we discussed yesterday ? 

Mr. Whson. Yes; it was. I thought the examination report did 
not reflect the condition of the company. I thought the securities 
were grossly undervalued and, a lot of things made much about. I 
thought that arose largely from the feeling of hostility between Mr. 
Hobbs, the then commissioner, and Mr. Baker and Colonel Herndon, 
the preceding commissioner and actuary. I thought then that if we 
would get out of it and select a small board of five members — repre- 
sentative, good, honest, straight, capable business fellows — that they 
would all let the company alone. The company had been a target for 
attacks of different kinds, alleged policyholders' suits or alleged stock- 
holders' suits — they were not lawsuits in good faith; they were just 
suits brought for ulterior motives of some kind or another, with almost 
nothing involved in any case, but, of course, it all injured the com- 
pany and gave it publicity; and all these examinations it was going 
through kept it in the limelight all the time and gave it a bad name, 
and it looked like I couldn t steer it away from all of that, so I 
thought if I would arrange a good board and put thern in there and 
Merritt would get out and I would get out with him, I thought they 



CONCENTRATION OF ECONOMIC POWER 6693 

would let the company alone, I thought the company could go on 
and succeed. 

Mr. Gesell. You continued, after you and Mr. Merritt got out, to 
hold the controlling stock interest? 

Mr. Wilson. Yes. 

Mr. Gesell. Can you tell whether the new board which went in was 
appointed by you and Mr. Merrit.', or, if not, by whom it was 
appointed ? 

Mr. Wilson. The board was selected after consultation with every- 
one that apparently had any right to talk about it. For instance, we 
agreed on Mr. Jordan, who was then Mr. Hobb's examiner. We 
thought that would satisfy Mr. Hobbs. Mr. Jordan was a capable 
young insurance man, and we thought that, by making him a director, 
it would satisfy Mr. Hobbs. 

Mr. Gesell. Who became the president of the company ? 

Mr. Wilson. Frank Bushman. 

Mr. 'Gesell. Was he acceptable to Mr. Hobbs? 

Mr. Wilson. I was led to believe he w T as. The company had made 
loan contracts with the Bushman interests, and the Bushmans had 
loaned money on its stocks that it had reinsured and was financially 
interested pretty heavily. They were capable businessmen, thought 
at that time to be very wealthy men, and had a reputation as perhaps 
being the best real-estate-loan men in and about Detroit. 

Mr. Gesell. I want to ask you about that contact. 

Mr. Wilson. Just before I leave that. Then Frank Bushman 
agreed — I have forgotten whether; he approached me or I approached 
him and asked him about it, but he agreed to move down to Kansas 
City and take charge of the company and become its president. And 
I thought, being a businessman of the standing he was and the reputa- 
tion he had and the interest he had at stake. I thought it would be a 
good thing for the company. So that was two of them. There was a 
man named Sandell, president of one of the banks at Kansas City, 
Kans., and a man of good standing, a stockholder in the company, 
and we agreed on him for a third director. And I believe Judge 
Brady was the fourth one. 

Mr. Gesell. And there was an an associate of Mr. Bushman's, Mr. 
Green? 

Mr. Wilson. I don't believe Alex Green went on the board. Frank 
was on the board, and Judge Brady as a lawyer at Kansas City, 
Kans., perhaps the outstanding lawyer then, was then, and I have 
forgotten who the fifth one was, but we thought this board would 
satisfy Mr. Hobbs, satisfy the insurance department, insure good, 
clean, capable management, and through their weight and influence, 
they could keep down these periodical attacks on the company, suits 
for receiver, and faked-up litigation, and all sorts of stuff like 
that. 

Mr. Gesell. When you say faked-up litigation, dc you have definite 
information as to any litigation against the company which was 
faked up? 

Mr. Wilson. Well, I know that the amounts ii^olved were so 
trivial that you know people wouldn't have brought suits 

Mr. Gesell (interposing). That isn't an answer to my question. 
Do you have any definite information on that, sir? 

Mr. Wilson. Not of my own personal knowledge. I have talked 
to a great many people, and a lot of general rumors 



gg94 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell (interposing). We want your own personal knowledge. 

Mr. Wilson. Not of my own personal knowledge. 

Mr. Gesell. Coming to this Bushman contract, that was entered 
into prior to the time you and Mr. Merritt left the company, wasn't 
it? 

Mr. Wilson. Yes. 

Mr. Gesell. You say that was a loan contract ? 

Mr. Wilson. Yes. 

Mr. Gesell. Can you tell us in gene' 1 what the terms of that 
contract were ? 

Mr. Wilson. Bushman became really the investment agent of the 
company, he really had a contract to invest the company s funds in 
real estate at 50 percent of its value, and such securities as the com- 
pany would hold, for an amount that practically absorbed the com- 
pany's investment business. He really became the company's invest- 
ment agent. 

Mr. Gesell. He was given a contract for $1,750,000, wasn't he? 

Mr. Wilson. Spread over a period of 7 years. 

Mr. Gesell. Did not the contract also provide that that money 
could be loaned directly to Bushman properties? He wasn't just a 
loan correspondent. That contract was sufficiently broad to cover his 
own properties as* well. 

Mr. Wilson. Yes; the company agreed to buy the mortgages from 
him. 

Mr. Gesell. Those could be his own mortgages and mortgages he 
brokeraged ? 

Mr. Wilson. Yes ; his own or mortgages he got from other people. 

Mr. Gesell. That contract was still in force and effect when you 
left, was it not ? 

Mr. Wilson. Yes. 

Mr. Gesell. And it remained in effect thereafter, did it not? 

Mr. Wilson. Yes. 

Mr. Gesell. Were you associated with Mr. Bushman in any other 
venture outside of your interest in Federal Reserve? 

Mr. Wilson. Yes; I had been. I had known him for many years 
and had had various transactions with him and I believe it was 
previous to this that the Insurance Investment Corporation had 
bought a little life insurance company in Detroit from the Bushmans, 
the Agricultural Life Insurance Co. of Detroit. 

Mr. Gesell. So you were in pretty close business relations with 
him, were you not? 

Mr. Wilson. Yes; I was. 

Mr. Gesell. Now I believe we had testimony yesterday to the effect 
that you contributed $300,000 or $375,000, 1 am in some doubt as to the 
figure, to Federal Reserve at the time you left. What was the amount 
first of all? 

Mr. Wilson. Three hundred thousand dollars. 

Mr. Gesell. Did you contribute that amount? 

Mr. Wilson. The Insurance Investment Corporation did put in 
$300,000 cash to the surplus of the company under a contract that it 
should be repaid out of surplus earnings in excess of $50,000, and if 
there never were any surplus earnings in excess of $50,000 in any 
year, it never would be repaid. 



CONCENTRATION OF ECONOMIC POWER 6695 

Mr. Gesell. Was that repaid with interest ? 

Mr. Wilson. Yes; repaid with interest, but only out of profits 
excess each year. Whenever the profits exceeded $50,000 then they 
would be applied on it. It provided further if the business was re- 
insured in some^other company, then it was to be repaid out of the 
profits of the reinsured business. 

Mr. Gesell. Do you know what was done with that $300,000? 

Mr! Wilson. It was deposited with the insurance commissioner of 
the State of Indiana on the reserve deposit. 

Mr. Gesell. On the reserve deposit of that State? 

Mr. Wilson. Yes. 

Mr. Gesell. You got a participating certificate, did you not, as 
the evidence of your contribution? 

Mr. Wilson. The obligation; yes. 

Mr. Gesell. And you assigned that from the insurance investment 
company to the fire company of Chicago, did you not ? 

Mr. Wilson. When the Insurance Investment sold this stock of the 
Federal Reserve to the fire company, it sold the certificate with it. 

Mr. Gesell. Was Mr. Bushman interested in the fire company? 

Mr. Wilson. No ; he was not at that time. 

Mr. Gesell. He subsequently became interested, did he? 

Mr. Wilson. Yes; he subsequently became interested. May I tell 
you why this $300,000 was put into the surplus of the Federal 
Reserve ? 

Mr. Gesell. Certainly. 

Mr. Wilson. The Federal Reserve had reinsured the business of 
the Farmers' National Life, and the Farmers' National Life had an 
agency plant producing about, as I remember it, $800,000 of new 
business a month. 

The premium income from first-year business is not enough to pay 
the costs of first-year business. The Federal Reserve Life at that 
time had a very small surplus, it may have been $50,000 or something 
like that. So in order to get the best use of this agency plant, it had 
to have surplus enough to stand the drain of that first-year loss for 
new business, or else it had to cut off this agency plant that cost the 
Farmers' National 2 million or 2y 2 million dollars to build and had 
taken many years to build, so that is why the $300,000 was put into 
the surplus. 

Mr. Gesell. Did you know the $300,000 that was contributed was 
loaned out immediately under the Bushman contract? 

Mr. Wilson. No ; it wasn't loaned out immediately. It wasn't until 
I retired from the company. As long as I was in the company it was 
on deposit with the insurance department of Indiana. 

Mr. Gesell. Let me read you what is stated to refresh your recol- 
lection on that, from the examination report of 1933, which was 
identified yesterday. The report reads, commencing at page 22 
[reading from "Exhibit No. 1348-3"] 4 

Receipt of the proceeds from this participating certificate was recorded in the 
general ledger of the Federal Reserve Life under date of November 30, 1929, 
the record thereof, indicating that said proceeds came to the company in the 
form of a certificate of deposit for $300,000, dated November 20, 1929, and issued 
by the State Bank of Chicago, Chicago, Illinois. The amount of such proceeds 
was credited in the general ledger of the company to surplus paid in. It appears 
that immediately after the Insurance Investment Corporation received this 
participating certificate, it sold and assigned thhe same to the Fire Insurance 



6696 CONCENTRATION OF ECONOMIC POWER 

Company of Chicago, Illinois, in which company your examiners understand 
Mass^y Wilson was somewhat interested. It also appears that said certificate 
was t ill held by the last-mentioned company on June 30, 1933, the date of this 
examination. The records of the Federal Reserve show no interest or principal 
payments on the certificate, up to and including June 30, 1933, and the financial 
statement included in this report shows they havej paid up as a liability the 
sum of $4,721.09 as due the owners of this certificate as of June 30, '33, this 
amount having been determined on the basis of said financial statement and as 
provided in the certificate. Entries in the general ledger of the Federal Reserve 
Life under date of April 12, 1930, show withdrawal from the State Bank of 
Chicago, Chicago, Illinois, of the $300,000 represented by the certificate of de- 
posit, and the deposit of said funds in the States Savings and Trust Company, 
Indianapolis, Indiana, together with the sum of $3,624.55, representing interest 
paid by said State Bank of Chicago on the certificate of deposit. Statement 
from the States Savings and Trust Company in the files of the Federal Reserve 
Life show a deposit of $300,000 as having been made on April 14, 1930, and the 
deposit of interest proceeds of $3,624.55, to have been paid on April 16, 1930. 
It also showed two other deposits. These are in small amounts. Said statement 
shows that the company's balance in the States Savings prior to the making 
of these four deposits, $137,542.49. This balance plus said deposit made the 
total funds of $442,532.04. The records of the company show checks issued on 
this account with the States Savings and Trust Company under date of April 
11, 1930 (that is within three days of the time of the deposit) — 

Mr. Wilson ( interposing) . You mean within 3 days of the time we 
put this $300,000 in the Federal Reserve? 

Mr. Gesell. No ; the time of the deposit in the State Savings. 

Mr. Wilson. They just transferred the money from the Chicago 
bank to the Indianapolis bank ; I suppose the Commissioner did that. 

Mr. Gesell. Just follow me on this. • [Reading from "Exhibit No. 
1348-3"] : 

The records of the company show > checks issued on this account with the 
State Savings Bank and Trust Company, that is after the money is in Chicago, 
under date of April 11, 1930, totaling $380,000, and another check on the same 
account issued under date of April 14, 1930, in the amount of $15,000. These 
checks, however, were not presented to the bank for payment -until after 
deposit of $300,000 had been made. The amounts of these checks, or $395,000, 
deducted from the above amount of $442,532.04, left a balance of $47,532.04 
in the bank on April 26, 1930. The bank was closed and is now being liquidated. 

Up to and including June 30, 1933, the Federal Reserve had realized nothing 
from this balance. The above-mentioned checks totaling $395,000 were issued 
for the following purposes : 

There are then listed five different checks in the amount of $330,000 
total, issued to the General Holding Company, mortgagor; Franklin 
E. Bushman, mortgagor; State Security & Realty Co., mortgagor; 
Franklin E. Bushman and wife, mortgagor; Franklin E. Bushman 
and Fanny Bushman, mortgagor. 

Those checks of $330,000 were on the proceeds of this fund? 

Mr. Wilson. Yes, sir. 

Mr. Gesell. So the money you deposited did go directly to the 
Bushmans or companies in which they were interested. 

Mr. Wilson. That is, the company bought mortgages from Bush- 
man and paid him this money. 

Mr. Gesell. And some of these mortgages were actually Bushman 
mortgages. 

Mr. Wilson. Yes, sir. 

Mr. Gesell. Not mortgages placed through Bushman? 

Mr. Wilson. Yes. 

Mr. Gesell. Were you associated with Bushman at that time. 
April 1930? 



CONCENTRATION OF ECONOMIC POWER @697 

Mr. Wilson. I had nothing whatever to do with the Federal Ke- 
serve Life. I had nothing whatever to do with that. No; I don't 
believe I was. I had business interests with him. I don't believe I 
had any kind of 

Mr. Gesell (interposing). You said you had nothing to do with 
Federal Reserve Life. You were the principal stockholder, weren't 
vou ? 

Mr. Wilson. The Fire Co. was ; yes. 

Mr. Gesell. And you controlled the Fire Co. ? 

Mr. Wilson. Yes; I controlled that; but we had given Bushman 
a contract to buy the stock and given him an exclusive option to 
vote on it, and he never consulted me about anything in it. In fact, 
he ran it as if I was a stranger. I had nothing more to do than you 
had. You notice that that was some 4 months after we put this money 
in the company, before Bushman loaned it to himself. 

Mr. Gesell. I was interested in showing the money went out under 
this Bushman contract, which had been entered into prior to the time 
you left the company. 

Mr. Wilson. Yes; it did. 

Mr. Gesell. I want just for a few minutes, Mr. Wilson, to discuss 
witfi you in a more general way your activities in the insurance field. 

Are you in the business at the present time? 

Mr. Wilson. No. 

Mr. Gesell. You are retired? 

Mr. Wilson. I am farming and have been for 2 years. 

Mr. Gesell. Up until 2 years ago, were you in the insurance busi- 
ness? 

Mr'. Wilson. Yes. 

Mr. Gesell. For how long? 

Mr. Wilson. From 1909 to about 2 years ago. 

Mr. Gesell. Most of that time you were engaged in buying and 
selling and consolidating, merging insurance companies. 

Mr. Wilson. No ; for 16 years of the time I was the president of a 
company and actively engaged as its' chief executive. 

Mr. Gesell. What company? 

Mr. Wilson. International Life of St. Louis. 

Mr. Gesell. Did that company buy up other companies during 
that period? 

Mr. Wilson. Yes ; bought up a great many of them. 

Mr. Gesell. How many? 

Mr. Wilson. I suppose 20 or more, some of them very ' small. 
While the. company reinsured many companies, it really reinsured a 
very small percent of its total business of $325,000,000 when I finally 
left it. 

It wrote most of other business, built a splendid organization and 
splendid company. 

Mr. Gesell. Did that company subsequently fail? 

Mr. Wilson. Yes. 

Mi-. Gesell. You went from there into the Insurance Investment 
Corporation, did you? 

Mr. Wilson. Yes. 

Mr. Gesell. What kind of an organization was that? 



Qg98 CONCENTRATION OF ECONOMIC POWER 

Mr. Wilson. That was a corporation whose charter powers was to 
buy and sell companies, and loan money and deal in securities, and 
almost anything. 

Mr. Gesell. It was a holding company which was used to gather 
together insurance companies. 

Mr. Wilson. Well, insurance companies and other companies, other 
properties. 

Mr. Gesell. Mostly insurance companies that you gathered to- 
gether in that? 

Mr. Wilson. Largely, I wouldn't say mostly, but largely. 

Mr. Gesell. How do you go about assembling a bunch of insurance 
companies? 

You heard Mr. De Buchananne's explanation of the holding com- 
pany preferred stock reinsurance, rewrite procedure. Did you adopt 
that same procedure? 

Mr. Wilson. No; we never adopted that method. In all the years 
I was connected with buying companies, somebody would bring us a 
company, bring it to our attention, and many people are engaged in 
that, some way they would find out a company is for sale or think 
that maybe if is for sale. It may be the fellow who owns it, it may- 
be the fellow who owns the stock, it may be somebody else; anyway 
it comes to our attention. And when a company was brought to our 
attention that was for sale, we would look into it, find who owned it, 
and get in contact with whoever did own it and trade for it the best 
way we could, sometimes a reinsurance, sometimes a merger, some- 
times buy the stock, just in any way we could trade for it. 

Mr. Gesell. When you bought the stock, did you frequently then 
corner all of the stock by trading the other stockholders out of their 
common stock in the company to preferred, in some company you were 
interested in? 

Mr. Wilson. I didn't with the International Life. But the Insur- 
ance Investment was a company on that line. 

Mr. Gesell. It did operate on that basis? 

Mr. Wilson. Yes; Insurance Investment, but that wasn't formed 
until, I think, a year after I had gone out of International Life. 

Mr. Gesell. So you would say that is one technique in acquiring 
a company, to buy a controlling' interest, get a place in the manage- 
ment, switch the other policyholders out of their stock and into 
preferred stock of an affiliated organization ? 

Mr. Wilson. Yes; I had a dream of building another great com- 
pany, and I thought by getting a whole lot of companies together 
and merging them into one I could finally build a great company 
from that. 

Mr. Gesell. In a transaction such as that the policyholders are 
not consulted are they? 

Mr. Wilson. They have to be consulted when you finally reinsure it. 

Mr. Gesell. They at that time are sort of in the position of having 
to jump from the trying pan into the fire, aren't they? If they go 
with the reinsurance contract, they must put their chances there, or 
if they stay, their interest is liquidated, isn't it? 

Mr. Wilson. That is right. 

Mr. Gesell. It isn't a very happy choice at that stage for any 
policyholder, is it? 

Mr. Wilson. Usually they go along with the reinsurance. 



CONCENTRATION OF ECONOMIC POWER 6699 

Mr. Gesell. It isn't a very happy alternative for a policyholder to 
have to face? 

Mr. Wilson. No; it isn't. 

Mr. Gesell. Particularly when the reinsurance contract is being 
entered with a man who is, in effect, shaking hands with himself, 
having controlling interest in the two companies involved. 

Mr. Wilson. No. 

Mr. Gesell. So, would you say I was perhaps fair in my statement 
that the policyholder doesn't have much choice in a proposition like 
that? 

Mr. Wilson. Yes; you are right about that, but on the other hand, 
when these companies are sola and change hands, there is usually 
some reason for it. It generally has got in trouble some way, and 
my thought was that by merging a lot of these smaller companies 
together, putting more money in them, curing the defects, whatever 
they were, we could make a good big company. Usually when you 
can buy these little companies and when they are ready for reinsur- 
ance, they would finally go out of business anyway. 

Mr. Gesell. You mean by the time they are ripe for the doctor, 
to use Mr. De Buchananne's phrase, they have already' gotten into 
some difficulties, either investment- wise or management-wise or some- 
thing of that sort? 

Mr. Wilson. Almost always. 

Mr. Gesell. But reinsurance is, after all, a way of solving a diffi- 
culty that has already arisen. 

Mr. Wilson. Yes. 

Mr. Gesell. Are there many companies, do you think — do you 
always find there were many companies which were ripe for rein- 
surance arrangements, such as you were attempting? 

Mr. Wilson. We negotiated with a great many that never resulted 
in anything. 

Mr. Gesell. That doesn't answer tny question. 

Mr. Wilson. Yes. 

Mr. Gesell. Did you find there were a lot of companies that were 
ready and willing to reinsure? 

Mr. Wilson. I didn't say we did. When you find them, either the 
price is impossible or they want you to do something you can't do, 
unbusinesslike, like taking them in as officers or something. I 
wouldn't say. there are a great many. 

Mr. Gesell. You reinsured two in the International Life? 

Mr. Wilson. Yes. 

Mr. Gesell. How many did you reinsure in the Insurance Invest- 
ment Corporation? 

Mr. Wilson. Well, of course, it was not an insurance company, it 
merely owned stock. 

Mr. Gesell. How many did you bring together? 

Mr. Wilson. We handled, I guess, half a dozen, maybe more than 
that. , 

Mr. Gesell. Can you tell us the names of some of these companies 
that you brought into the Insurance Investment Corporation holding- 
company arrangement? 

Mr. Wilson. The Agricultural Life Insurance Co. of Detroit. 

Mr. Gesell. That company subsequently failed, didn't it? 

124491 — 40 — pt. 13 23 



6700 CONCENTRATION OF ECONOMIC POWER 

Mr. Wilson. I don't know whether it has failed. The last I heard 
anything about it, it was still going on, it wasn't doing anything, 
it had almost dried up. But the last I heard of it, it hadn't got to 
where it couldn't pay what it owed. 

Mr. Gesell. What other companies? 

Mr. Wilson. The Federal Reserve Life Insurance Co. Well, the 
Insurance Investment's holding in the Federal Reserve was a minority 
holding, but then, in turn, a subsidiary of the Insurance Investment 
did acquire the Federal Reserve. 

Mr. Gesell. That would be the Fire? 

Mr. Wilson. Yes. 

There were some other small ones. I just don't remember. 

Mr. Gesell. You got the United States Reserve finally, didn't you ? 

Mr. Wilson. No. 

Mr. Gesell. A subsidiary of the Reserve Corporation? 

Mr. Wilson. No ; not the Insurance Investment. 

Mr. Gesell. Who held that? 

Mr. Wilson. The Reserve Co. 

Mr. Gesell. Didn't that eventually come over into the investment 
Corporation, one of its subsdiaries ? 

Mr. Wilson. No, sir. It came into Federal Reserve Life Insur- 
ance Co. 

Mr. Gesell. And the Federal Reserve was held by the Fire Co., 
which in turn was held by Insurance Investment Corporation? 

Mr. Wilson. Yes. 

Mr. Gesell. Farmers' National was held 

Mr. Wilson (interposing) . By Federal Reserve. 

Mr. Gesell. And the stock of that company was held by Insurance 
Investment, was it not? 

Mr. Wilson. Yes; a large part of it, it wasn't all of it. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. Earlier in the testimony, you referred to 
the difficulties that you had with the insurance department of the 
State of Kansas after Mr. Hobbs became commissioner, and I under- 
stood you to say that you thought by putting in a new board of 
directors, and so forth, that you would set the situation up in such 
a way that they would leave you alone. 

Mr. Wilson. Yes. 

The Vice Chairman. I take it that the period of interference with 
your operation of your company coincided in point of time with 
Mr. Herndon's leaving the insurance department of the State of 
Kansas ? 

Mr. Wilson. Yes ; it did. 

The Vice Chairman. That is while Mr. Herndon was there you 
were substantially let alone? 

Mr. Wilson. Yes. 

The Vice Chairman. And from your standpoint, that was a much 
happier situation than when Mr. Hobbs was investigating your insur- 
ance company? 

Mr. Wilson. Well, I never — as long as I was in the business I never 
objected to the proper regulation, but what I did object to was these 
continual examinations and great expense. I think one of these 
examinations cost up into $20,000 or more. 



CONCENTRATION OF ECONOMIC POWER 6701 

The Vice Chairman. Of course, if we can believe what was said 
here yesterday, that happy period that Mr. Herndon was there was a 
source of expense too ? 

Mr. Wilson. Yes. 

Mr. Gesell. One further question, if I might. I neglected to ask 
you what profit you made when yrn sold out of the International. 

Mr. Wilson. Around a half mil ' ^ dollars. About a half million 
dollars. 

Mr. Gesell. Whom did you sell the company to ? 

Mr. Wilson. I sold it to General Atkinson, John C. Martin, J. R. 
Paisley, Dave Hill, and some others. I think there were seven of 
them. 

Mr. Gesell. What happened to the company after that? 

Mr. Wilson. They operated it for 2 years and sold it to a man 
named Toombs in Chicago. 

Mr. Gesell. Then what happened after that ? 

Mr. Wilson. Toombs took $5,600,000 of its money. 

Mr. Gesell. And the company failed? 

Mr. Wilson. And caused it to go broke, and the Federal court 
took charge of it, put it in receivership, and appointed me receiver. 

The Vice Chairman. Thank you, very much. 

Mr. Gesell. By the way, Mr. Toombs was convicted ? 

Mr. Wilson. Yes. 

The Vice Chairman. Before we recess 

Mr. Gesell. I have one further witness, that is all. It \. take 
5 minutes. Miss Nordell. 

The Vice Chairman. Will you raise your right hand? Do you 
solemnly swear that the testimony you are about to give in this pro- 
ceeding will be the truth, the whole truth, and nothing but the truth, 
so help you God ? 

Miss Nordell. I do. 

TESTIMONY OF EVA DOROTHY NORDELL, OCCIDENTAL LIFE 
INSURANCE CO., KANSAS CITY, KANS. 

Mr. Gesell. What is your full name ? 

Miss Nordell. Eva Dorothy Nordell. 

Mr. Gesell. Is that N-o-r-d-e-1-1 ? 

Miss Nordell. That is right. 

Mr. Gesell. You were connected with the Federal Reserve at one 
time, were you, Miss Nordell ? 

Miss Nordell. Yes; I was. 

Mr. Gesell. In what capacity? 

Miss Nordell. In the cashier's department, either as assi, 
cashier, or cashier. 

Mr. Gesell. Were you also an officer for a while ? 

Miss Nordell. Just as cashier. 

Mr. Gesell. You were not assistant secretary ?, 

Miss Nordell. No. 

Mr. Gesell. After the company was reinsured by the Occidental 
Life Insurance Co., did you go to the Occidental Life? 

Miss Nordell. Yes; I did. 

Mr. Gesell. You are familiar with the books and records of the 
company, are you not? 



6702 CONCENTRATION OF ECONOMIC POWER 

Miss Nordell. Yes, sir. 

Mr. Gesell. You produced the various minute books and ledgers 
which we have used in the course of these hearings in response to 
subpena duces tecum of the Occidental ? 

Miss Nordell. That is right. 

Mr. Gesell. There are two letters which I showed Mr. Vernon 
Holt which he was unable to identify. I want to show them to you 
now and ask you if you can identify them as letters coming from 
the files of the Federal Reserve Life ? 

Miss Nordell (examining them). Yes. 

Mr. Gesell. These are letters dated July 14, 1926, and July 15, 
1926, respectively, the first being written by Mr. D. H. Holt to Mr. 
Merritt, and the second being written by Mr. Merritt to Mr. D. H. 
Holt. I wish to offer them for the record. 

The Vice Chairman. You may. 

(The letters referred to were marked "Exhibits Nos. 1348-4 and 
1348-5" and are included in the appendix on pp. 7017 and 7018.) 

Mr. Gesell. I would like to read the first letter if the committee 
please. It is dated July 14, 1926, and states Treading from ''Exhibit 
Nos. 1348-4"] : 

I have been in Chicago nearly every day since the agency force began their 
transfer work. As you know, I am here in the interest of our company with a 
view of the protection of our company in the minutest details. 

I believe in the transfer work, believe it is a good thing for the company and 
the policyholders of the old Providers Life provided it is done in the right way. 
And the right way is what I want to discuss with you in this letter. 

You know the Federal Reserve Life Insurance Company is not in the business 
for just a day. A Life Insurance Company, if it endures, goes on down the 
avenue of time from generation to generation. People who have to do with 
the Life Insurance Company may pass off the sphere of action but the Life 
Insurance Company itself goes on and on for all time. We are interested in 
the future. 

The representative in the field, as a rule, is interested only in the present and 
in his commission in the immediate placing of business. The transfer men are 
no exception to this rule. They are anxious to place a large number of new 
policies each day for the purpose of making the daily earning more attractive. 
If they can put it over without a proper discussion of the principles back of it, 
they want to do, that because it is traveling the road of least resistance. But 
this is where trouble, for the Federal Reserve Life Insurance Company begins. 

We have them (Providers policyholders) now coming into the office, telling 
us stories of seeming duress and without any knowledge of what the change 
means to them. These people, as a unit, believe that the management of the 
Providers has been to rob them of their rights and of their cash, and they 
believe that this transfer is the last stroke to take their money away from 
them and to put them in a position where their insurance will not be effective. 

Some of the agents will go into a home with the policy of some member of 
the family, and if this policyholder be not present, the a§ent will require some 
other member of the family to get -the policy, get that member of the family 
to sign the cash-surrender certificate, to sign all other papers in connection 
with the transfer, take up the old policy, leave the new one, and return the 
case to the office here as a completed case and congratulating himself on the 
fact that he made a sale. Then the next day in comes the irate policyholder 
and states that the whole process was one of duress and he demands that the 
old policy be returned and that his status as before be established. I fear this 
process is being done in a more general way than is indicated by the specific 
case which turned up here at the office, and if it is sometime down the line, 
we may have serious trouble with these people whose policies have been taken 
up and new policies, by unauthorized signatures of people whom the agents 
know are not legally qualified to sign same. 

This work can be done in the right way, and if it is, there will be scarcely 
any comeback and this is the way we want it done. Yesterday we had a case 
where the policy of Pavil Gofron, 2617 West Haddon Street, -was brought into 



CONCENTRATION OF ECONOMIC POWER g7()3 

the office by a son. This young fellow said his father was very irate and 
wanted his old policy returned. He said the agent forced his mother to give up 
the old policy — the father's policy, in his absence — and sign all the papers. We 
tried to find who the agent was who did this indiscreet act. 

I will not read the rest of the letter. 

Mr. Gesell. Miss Nordell, I want to ask you first of all whether you 
are familiar with the expense which the Federal Reserve was required 
to pay in connection with the examining of that company by the 
Kansas department during the time that Mr. Herndon was in charge 
of thejexamining. 

Miss Nordell. I have gone through the ledger accounts on it. 

Mr. Gesell. And have you been able to tell from the ledger ac- 
counts the exact amount? 

Miss Nordell. Not every one. 

Mr. Gesell. Can you for any years? 

Miss Nordell. For 1929. That, however, isn't Mr. Herndon's ex- 
amination. 

Mr. Gesell. What was the expense of the '29 examination, while we 
are on it? 

Miss Nordell. $26,587.36. 

Mr. Gesell. That was the one discussed with Mr. Jordan yes- 
terday ? 

Miss Nordll. Yes. 

Mr. Gesell. For other years do you know approximately what the 
amount ran? 

Miss Nordell. No; not just offhand. 

Mr. Gesell. You recall typing these sheets from the ledger show- 
ing the expense? 

Miss Nordell. That is right. 

Mr. Gesell. Can you segregate there the items for insurance exam- 
ination that are definitely ascertainable and make some estimate as to 
the amount of the expense involved in some of the Herndon examina- 
tion? 

Miss Nordell. Well, in this 1921 one, there is one item on March 30, 
$264.31, to expense of W. K. Herndon, and of $261.51, A. E. Fritz. 
April 12, to W. K. Herndon, $24.36. 

Mr. Gesell. Now, they were paid on a per diem basis, were they? 

Miss Nordell. That is right. 

Mr. Gesell. How much a day? 

Miss Nordell. $15 a day and expenses. 

Mr. Gesell. They were there from 2 to 3 weeks on each examina- 
tion? 

Miss Nordell. At least that. 

Mr. Gesell. Now, have you prepared from the records of the com- 
pany some analysis of the loss taken on the transfer of certain mort- 
gages from Federal Reserve to the .Occidental on the reinsurance of 
the business in 1926? 

Miss Nordell. Yes. 

Mr. Gesell. Referring first of all to the Bushman loans or Michi- 
gan loans, did you prepare a detailed schedule showing information 
with respect to loss taken on those loans ? 

Miss Nordeli.. I had it prepared. 

Mr. Gesell. I beg your pardon? 

Miss Nordell. I had it prepared. 



6704 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. It was prepared by the people familiar with the books 
and the records? 

Miss Nordell. In the office. 

Mr. Gesell. Is it correct to say that this schedule shows that Fed- 
eral Reserve made loans on Michigan mortgages to the Bushmans 
or their interests in the amount of $1,698,500? 

Miss Nordell. That is right. 

Mr. Gesell. And that those were paid off in the amount of $137,238, 
making the total loans outstanding at the time of the reinsurance in 
Occidental of $1,561,262? 

Miss Nordell. That is. right. 

Mr. Gesell. Am I correct in saying that the net value approved by 
the court when the Federal Reserve receivers sold the assets to the 
Occidental based on appraisals at that time less delinquent taxes, and 
estimated foreclosure cost at $331,988 ? 

Miss Nordell. That is right. 

Mr. Gesell. So, as a result the loss sustained on the basis of these 
values approved by the court were $1,229,274, were they not? 

Miss Nordell. That is right. 

Mr. Gesell. Out of $1,561,262 loaned? 

Miss Nordell. Yes. 

Mr. Gesell. Now, with respect to the five Mississippi mortgages 
which came to Federal Reserve via Mr. De Buchananne and Providers, 
and which then came from Federal Reserve to Occidental, am I cor- 
rect in saying that you prepared a schedule in the same fashion with 
respect to these mortgages ? 

Miss Nordell. That is right. 

Mr. Gesell. Does it disclose that those five mortgages at that time 
had an unpaid principal amount of $248,050? 

Miss Nordell. Yes. 

Mr. Gesell. And that the court valuation on those same properties 
was only $102,723? 

Miss Nordell. Yes. 

Mr. Gesell. As a result, the write-down on those five mortgages 
was $143,776.28, was -it -not? 

Miss Nordell. That is right. 

Mr. Gesell. Now, one other matter. May I ask you who was made 
receiver in 1936 of the Federal Reserve Life Insurance Co. ? 

Miss Nordell. William R. Baker. 

Mr. Gesell. That is the same Mr. Baker who was insurance com- 
missioner? 

Miss Nordell. Yes, sir. 

Mr. Gesell. Did he receive an allowance for his services as the 
receiver at the rate of $1,000 per month or $10,666.66? 

Miss Nordell. Yes. 

Mr. Gesell. Was he commissioner at that time? 

Miss Nordell. No. 

Mr. Gesell. That is all I have. 

The Vice Chairman. At the time that the Federal Reserve Insur- 
ance Co. went into receivership, who was the president of the com- 
pany? 

Miss Nordell. Mr. Clarence Schultz. 



CONCENTRATION OF ECONOMIC POWER 6705 



The Vice Chairman. During what pfffod, if you know, was Mr. 
Bushman president of the company? I understand he started about 
the end of 1929. 

Miss Nordell. Until his death, which I believe was 1933. 

The Vice Chairman. Thank you very much. 

Before we recess, I would like to insert something in the record. 
During the testimony of Thomas Parkinson, president of the Equit- 
able Life Assurance Society of the United States before this com- 
mittee on October 26, 1939, it was agreed between Mr. Parkinson and 
Mr. Gesell, conducting the examination, that Mr. Parkinson at a later 
date would submit for the record a statement with respect to the 
rules and practices the company follows in determining the amount 
of life insurance it feels it can offer to applicants. 1 Mr. Parkinson's 
statement and accompanying letter are herewith received and ordered 
to be inserted in the record. 

(The documents referred to were marked "Exhibit No. 1348-6" 
and are included in the appendix on p. 7018.) 

The Vice Chairman. The committee will stand in recess until 
Thursday, December 14. 

Mr. Gesel>l. At which time the first witness will be Mr. W. K. 
Herndon. 

(Whereupon, at 1:05 p. m., the subcommittee adjourned until 
10:30 a. m. Thursday, December 14, 1939.) 



1 See supra, pp. 6552. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



THURSDAY, DECEMBER 14, 1939 

United States Senate, 
Subcommittee of the Temporary 

National Economic Committee, 

Washington, D. C. 

The subcommittee met at 10: 35 a. m., pursuant to adjournment on 
Friday, December 8, 1939, in room 357, Senate Office Building, Joseph 
J. O'Connell presiding. 

Present : Mr. O'Connell (vice chairman) , Representative Reece, and 
Mr. Brackett. 

Also present : James B. Ross, representing the Department of Com- 
merce ; Gerhard A. Gesell, special counsel ; Helmer Johnson and Erik 
G. Peterson, attorneys, Security and Exchange Commission. 

The Vice Chairman. The hearing will please come to order. 

Mr. Gesell. If the committee please, we are going to continue this 
morning the testimony with respect to some of the subjects covered 
last week, and the first witness this morning is Mr. Herndon. 

The Vice Chairman. Will you raise your right hand? Do you 
solemnly swear that the testimony you are about to give in this pro- 
ceeding will be the truth, the whole truth, and nothing but the truth, 
so help you God ? 

Mr. Herndon. I do. 

TESTIMONY OF WILLIAM K. HERNDON, FORMER EXAMINER 
KANSAS DEPARTMENT OF INSURANCE, BEVERLY HILLS, 
CALIF. 

FEDERAL RESERVE ACTIVITIES OF WILLIAM K. HERNDON 

Mr. Gesell. Will you state your full name, please ? 

Mr. Herndon. William K. Herndon. 

Mr. Gesell. And what is your occupation, Mr. Herndon ? 

Mr. Herndon. I haven't any now. 

Mr. Gesell. You haven't any at the present time ? 

Mr. Herndon. No. 

Mr. Gesell. Where do you reside ? 

Mr. Herndon. Beverly Hills, Calif. 

Mr. Gesell. How old are you, Mr. Herndon? 

Mr. Herndon. Fifty-three. 

Mr. Gesell. Were you at one time special examiner for the Kansas 
Insurance Department? 

Mr. Herndon. Yes ; I did a great deal of work for them. 

Mr. Gesell. Can you tell us during what years you worked for the 
Kansas department? 

Mr. Herndon. Well, I only was doing special work when they called 
onmeH that was from— I don't know, 1920, 1921 to 1927 or 1928. 

6707 



6708 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Will you tell us what the nature of the work you did 
for them was? I understand you weren't on the pay roll regularly or 
anything of that sort? 

Mr. Herndon. That is right. 

Mr. Gesell. You were taken on from time to .time to aid in ex- 
amination work, is that right? 

Mr. Herndon. That is right. 

Mr. Gesell. Who would appoint you ? r 

Mr. Herndon. The commissioner of the State for which I was 
working. 

Mr. Gesell. And that would be for the purpose of conducting a 
specific examination? 

Mr. Herndon. That is right. 

Mr. Gesell. And it would be conducted on a special per diem basis, 
is that correct? 

Mr. Herndon. Yes ; paid by the company. 

Mr. Gesell. What was the usual per diem ? 

Mr. Herndon. From ten to twenty-five dollars a day and expenses. 

Mr. Gesell. Had you been in the insurance business in any way 
prior to the time you became associated with the Kansas department, 
the first time? 

Mr. Herndon. Yes. 

Mr. Gesell. Will you tell us what you had done in the insurance 
business ? 

Mr. Herndon. General agent of a life and casualty company in 
1914, 1915, and 1916. ^ * 

Mr. Gesell. Now, did you work for any other departments other 
than the State of Kansas? 

Mr. Herndon. Yes, sir. 

Mr. Gesell. Will you tell us what departments you worked for ? 

Mr. Herndon. District of Columbia, Texas, Pennsylvania, Ne- 
braska; that is all I remember now. I think I did some work in 
Wyoming and some in Colorado. I am not sure of that. 

Mr. Gesell. You worked in Indiana, didn't you ? 

Mr. Herndon. I might have. 

Mr. Gesell. Did those commissioners employ you on the same 
basis as you are employed by the Kansas department, that would be 
for purposes of special examination? 

Mr. Herndon. That is true. 

Mr. Gesell. In all those cases your per diem was paid, was it not, 
by the company in accordance with the usual procedure in those 
cases ? 

Mr. Herndon. In most cases; yes. I think some examiners were 
on salaries. 

Mr. Gesell. You were never on a salary basis with any depart- 
ment? 

Mr. Herndon. No, sir. 

Mr. Gesell. Now, when you first became connected with the Kan- 
sas department, was Mr. Travis the commissioner? 

Mr. Herndon. He was. 

Mr. Gesell. And you subsequently worked from time to time for 
the department while Mr. Baker was commissioner, is that correct? 

Mr. Herndon. That is right. 



CONCENTRATION OF ECONOMIC POWER Q709 

Mr. Gesell. Had you been associated with Mr. Travis and Mr. 
Baker in any way prior to that time ? 

Mr. Herndon. I knew them both before the war, and at one time 
Baker had an insurance agency in Kansas City, Kans., and I had 
some business with him at that time. That was before the war, 
and Travis had one at Iola, Kans., and I had some contacts with 
him. 

Mr. Gesell. Had you and Mr. Baker and Mr. Travis been in the 
war together? 

Mr. Herndon. I was going to say we served in the same regiment, 
the three of us, during the World War. 

Mr. Gesell. Do you recall that on several occasions you partici- 
pated in an examination of the Federal Reserve Life Insurance Co. 
of Kansas City, Kans.? 

Mr. Herndon. Quite a few times. 

Mr. Gesell. Can you recall how many times? 

Mr. Herndon. No; I wouldn't say, probably seven or eight. 

Mr. Gesell. I have here some examination reports for the Fed- 
eral Reserve, purporting to have been signed by yourself. 

Mr. Herndon. This one I didn't sign. The commissioner of in- 
surance signed that one, Mr. Hobbs. 

Mr. Gesell. Which is the first one where your name appeared? 

Mr. Herndon. April 7, 1922; July 21, 1923. Do you want me to 
call all these off? 

Mr. Gesell. If you would, please. 

Mr. Herndon. Here is an unsigned one dated January 24, 1925; 
February 24, 1926; another unsigned one dated February 24, 1928; 
February 28, 1927. Here is one dated January 7, 1929, it is not signed 
and I don't see how I could have signed it. I might have par- 
ticipated in the examination, but I wasn't in this country on Jan- 
uary 7, 1929. 

Mr. Gesell. You may have participated in the examination but 
were not responsible for the report. 

Mr. Herndon. I might have been responsible for helping to write 
the report, too. 

Mr. Gesell. Who ordered those examinations, the insurance com- 
missioners in each instance? 

Mr. Herndon. Yes; it looks like some of them were authorized by 
the chairman of the committee on examinations of the National Asso- 
ciation of Insurance Commissioners. I notice they appear to be 
convention examinations so far. 

Mr. Gesell. It occurs to me that the examinations were rather fre- 
quent, one in 1925, one in 1926, one in 1927, one in 1928, one in 1929. 
Is there any special explanation as to why the company was examined 
that often that you can give us? 

Mr. Herndon. Nothing, only the troubles that Gregory was 
probably getting into. 

Mr. Gesell. The customary procedure, at least the legal require- 
ments, is usually examination of a company once every 3 years, are 
they not? 

Mr. Herndon. I don't remember about that. Different States have 
different laws on these examinations. 



6710 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. You can't give us any more specific reasons why these 
examinations were made so frequently other than the possibility of 
Mr. Gregory being in difficulties ? 

Mr. Herndon. Some of them are caused probably by reinsurance 
deals he was in. 

Mr. Gesell. You would be called in to appraise the results of a 
particular reinsurance deal that had taken place? 

Mr. Herndon. Either that, or of the companies before they were put 
together. 

Mr. Gesell. Were you in charge of the examinations where you 
appeared as the examiner for Kansas? 

Mr. Herndon. Not necessarily so ; no. 

Mr. Gesell. Is it customary for the examiner from the home State 
to be in charge of examinations ? 

Mr. Herndon. They usually do look to him, of course, to guide them 
about, but they are absolutely free to do as they please and write 
their own report. 

Mr. Gesell. I understand that, they are on their own, but someone 
has to take a certain amount of responsibility. 

Mr. Herndon. That is usually the man in the home .State, of course. 

Mr. Gesell. And therefore in most of those cases it was yourself, 
was it not ? 

Mr. Herndon. In the ones I participated in. However, there were 
several in there that I did not participate in. 

Mr. Gesell. Where you did participate in the examination as a repre- 
sentative of Kansas, you were more or less in charge of the examination ? 

Mr. Herndon. I would say that I was. 

Mr. Gesell. Now, what interest, if any, did you have in the Federal 
Eeserve Life Insurance Co. during this period? 

Mr. Herndon. I don't think I had any directly. There was some 
deal that I had with Mr. Gregory, and as I remember it now, he 
hypothecated some stock with me to protect that amount of money. He 
didn't take it. all up and when I finally sold the stock of the company 
to Wilson and Merritt, part of that stock went on in that transaction. 

Mr. Gesell. First of all, did you have any interest in Gregory's 
agency contract? 

Mr. Herndon. Partially, yes; at times. 

Mr. Gesell. Do you recall what that interest was ? 

Mr. Herndon. You mean in money ? 

Mr. Gesell. Or in percent. 

Mr. Herndon. He reinsured the Provider's Life, as I remember, of 
St. Louis, and Mr. Merritt, who had been associated with that company, 
and prior to that time had been transferring business of other com- 
panies, wanted a contract "for the transfer of that business and Gregory 
wouldn't give it to him, and Merritt had me see Mr. Gregory and make 
a contract with him for the' transfer of that business, and I don't 
remember the exact percentage, but either Gregory or Merritt gave me 
2, 2y 2 , 3 percent for getting that- contract. 

Mr. Gesell. That was an interest you had on the rewriting or the 
transfer of the Provider policies? 

Mr. Herndon. That is right. 

Mr. Gesell. I think you misunderstood my question. Did you have 
any interest in the Gregory agency contract ? He had a contract, didn't 
he, with the company ? 



CONCENTRATION OF ECONOMIC POWER 6711 

Mr. Herndon. No ; other than just — that was put under his contract 
as I remember it now. 

Mr. Gesell. That was specifically in rewritings? 

Mr. Herndon. That was specifically in rewritings and I got a per- 
centage on that business. 

Mr. Gesell. Do you not recall you had a 2V2-percent interest in his 
contract at one time quite apart from any rewriting? 

Mr. Herndon. No, sir ; I don't recall that. 

Mr. Gesell. Do you recall that you gave a deposition, Mr. Herndon ? 

Mr. Herndon. Yes. 

Mr. Gesell. One time in connection with a suit brought by the in- 
surance company against the estate of Mr. Gregory and certain other 
people ? 

Mr. Herndon. In Kansas City, Mo. ? 

Mr. Gesell. Yes. 

Mr. Herndon. Yes. 

Mr. Gesell. Do you recall being asked this question and giving this 
answer : 

What, if anything, did your dealings or your transactions there reflected have 
to do with W. L. Gregory's premium commission contracts? 

And the plaintiff's answer was — 

I had a contract with Mr. Gregory. A memorandum, as I call it, that was 
either 2 or 2% percent of his premium income as consultant for his agency. 

Do you recall that? 

Mr. Herndon. No ; I don't. Doesn't that refer to the same 2y 2 per- 
cent I am just talking about with the Provider ? 

Mr". Gesell. No ; I think you will find that is discussed separately in 
the deposition on page 149. You may take your time to refresh your 
recollection on that. 

Mr. Herndon. Well, this would appear that Gregory had assigned 
me 2y 2 percent of his contract, of his income, to pay me this money 
he owed me that is referred to at the bottom. 

Mr. Gesell. You say, do you not, you had a contract with him as 
consultant for his agency ? 

Mr. Herndon. Yes ; that is right. 

Mr. Gesell. What is your recollection with respect to that? 

Mr. Herndon. I don't remember it at all, as a matter of fact. I 
remember the other. 

Mr. Gesell. You mean you remember the fact that you received at 
one time a thousand shares from him. 

Mr. Herndon. Yes ;" hypothecated for this money referred to here, 
and then I was getting 2i/ 2 - percent, but my thought was that it was 
only on the Provider's transfer business. I can't remember, it is so 
long ago. 

Mr. Gesell. Have you referred to page 149 of the deposition to see 
whether or not it is not a fact that the Provider's commissions were 
quite independent of these commissions we are talking about here? 
They would appear to be two distinct transactions. 

Mr. Herndon. Wait a minute; I am on the wrong page. It seems 
here the 2y 2 percent on Provider's was with Meritt, but I believe 
Gregory paid me that instead of Merritt. 

Mr. Gesell. They are two different transactions? 

Mr. Herndon. It seems to be. 



6712 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. You recall giving those Questions and answers, do you. 
sir? 

Mr. Herndon. No. 

Mr. Gesell. And you have no present recollection as to whether you 
had any interest in Mr. Gregory's contract or not? 

Mr. Herndon. No ; no't definitely. 

Mr. Gesell. Have you any recollection about it whatsoever, sir ? 

Mr. Herndon. No; I remember the 2y 2 percent on the Provider's 
business very well, but I do not remember the other 2%. 

Mr. Gesell. This deposition says "as consultant for his agency." 
You have no recollection about that ? 

Mr. Herndon. No; I was in and out of there so much and so 
often 

Mr. Gesell (interposing). And in so many different capacities? 

Mr. Herndon. In so many different capacities that I don't recall. 

Mr. Gesell. Let's see if we can get a little light on this 1,000-share 
transaction, then, Mr. Herndon. Mr. Gregory gave you a thousand 
shares of Federal Reserve stock which were in his own name, did he 
not, for you to hold under an arrangement with him? 

Mr. Herndon. I think that is correct. 

Mr. Gesell. And he was to repurchase those shares within a speci- 
fied period for $25 a share, or a total of $25,000? 

Mr. Herndon. That is correct, I think. 

Mr. Gesell. He did repurchase 500 shares for $12,500? 

Mr. Herndon. As I remember it, that is right. 

Mr. Gesel j. And you subsequently sold the other 500 shares to Mr. 
Massey Wilsjn and Mr. Merritt for $10,000. 

Mr. Herndon. That is correct. 

Mr. Gesell. Making $22,500 which you received for those 1,000 
shares. 

Mr. Herndon. That is correct. 

Mr. Gesell. Will you tell us how you came into possession of those 
1,000 shares?