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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 .."

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INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 

HEARINGS 

BEFORE THE 

TEMPOKARY NATIONAL ECONOMIC COMMITTEE 
CONGRESS OF THE UNITED STATES 

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 INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



. PART 24 



INVESTMENT BANKING 

GOLDMAN, SACHS & CO. 

LEHMAN BROTHERS 

SMITH, BARNEY & CO. 

KUHN, LOEB & CO. 
GLORE, FORGAN & CO. 

THE FINANCING OF 

CLEVELAND-CLIFFS IRON CO. 

STANDARD GAS & ELECTRIC CO. 

SHELL UNION OIL CORPORATION 

CONCENTRATION IN THE MANAGEMENT, UNDERWRITING 
AND SALE OF REGISTERED BOND ISSUES 



JANUARY 8, 9, 10, 11,, AND 12, 1940 



Printed for the use of the Temporary National Economic Committee 



UNITED STATES 
GOVERNMENT PRINTING OFFICE 
124401 WASHINGTON : iw*0 



. -..^.WjilMT^fJ 



.mWFRSlTYSCHOOtoftAWtlBWRV 



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 H. KING, Senator from Utah 

WILLIAM E. BORAH, Senator from Idaho 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

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 

irn 

GARLAND S. FERGUSON, Commissioner 
*EWIN L. DAVIS, Commissioner 
Representing the Federal Trade Commission C/3 

ISADOR LUBIN, Commissioner of Labor Statistics > __ A 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics <£) 

Representing the Department of Labor CD 



JOSEPH J. O'CONNELL, Ja., Special Assistant to the General Counsel 

♦CHARLES L. KADES, Special Assistant to the General Counsel » 
Representing the Department the Treasury 

CLARENCE AVILDSEN, Special Adviser to the Secretary 
Representing the Department of Commerce 

JAMES R. BRACKETT, Executive Secretary 

•Alternates. 

' Appointed January 9, 1940. 
II 



REPRINTED 
BY 

WILLIAM S. HEIN & CO , INC 

BUFFALO. N. Y. 

1968 



C£> 



CONTENTS 



Testimony of — Page 

Altman, Dr. Oscar L., Investment Banking Section, Securities and 

Exchange Commission, Washington, D. C 12688-12711 

Briggs, Joseph H., chairman, executive committee, and executive vice 

president, H. M. Byllesby & Co., Chicago, 111 12547-12561 

Coulson, William H., Smith, Barney & Co., New York, N. Y_ 12539-12543 
Duhig, S. W., vice president and treasurer, Shell Union Oil Corpora- 
tion, New York, N. Y 12626-12651 

Dulles, Allen Welch, Sullivan & Cromwell, New York, N. Y„ 12607-12623 
Emanuel, Victor, president, Standard Power & Light. Corporation, 
and chairman, finance committee, Standard Gas & Electric Com- 
pany, New York, N. Y 3 12561-12623 

Fennelly, John F., Glore, Forgan & Co., Chicago, Illinois _ 12469-12476 

Fuller, Carlton P., president. Schroder Rockefeller & Co., Inc., New 

York, N. Y 12565, 12568-12623 

Greene, Richard V., president, Cleveland-Cliffs Iron Co., Cleveland, 

Ohio 12415-12432, 12434 

Hall Perry E. t vice president, Morgan Stanley & Co., Incorporated, 

New York, N. Y 12658-12687 

Hancock, John M., Lehman Bros., New York, N. Y 12344-12413 

Huff, Charles H., associate utilities financial analyst, Securities and 

Exchange Commissiqn, Washington, D. C ._ 12682-12683, 12687 

Lyons, Barrow, associate financial economist, Securities and Exchange 

Commission, Washington, D. C 1 12682-12683 

Mathey, Dean, vice president, Dillon, Read & Co., New York, 

. N. Y___- 12651-12657 

Sachs, Walter E., Goldman, Sachs & Co., New York, N. Y___ 12344-12413 

Schiff, John M., Kuhn, Loeb & Co., New York, N. Y...1 12477-12508 

Stanley, Harold, president, Morgan Stanley & Co., Incorporated, New 

York, N. Y 12658-12687 

Strauss, Lewis L., Kuhn, Loeb & Co., New York, N. Y . 12477-12508 

Swan, Joseph R., Smith, Barney & Co., New York, N. Y 12477-12538 

Tompkins, B. A., vice president, Bankers Trust Co., New York, 

N. Y 12432-12468 

van der Wonde, R., president, Shell Union Oil Corporation, New 

York, N. Y." 12626-12651 

Wels, Richard H., assistant attorney, Securities and Exchange Com- 
mission, Washington, D. C 12688 

Whitehead, William S., securities analyst, Securities and Exchange 

Commission, Washington, D. C 12468,12682-12683 

Statement of — 

Henderson, Leon, Commissioner, Securities and Exchange Com- 
mission, Washington, D. C 12343-12344 

GOLDMAN, SACHS & CO.— LEHMAN BROTHERS 

Earliest financing by the two houses 12346 

Relations between the firms to 1920 ,. - 12346 

Relations from 1920 to 1926__ 12348 

Events leading to memorandum of 1925 . 12350 

Memorandum of January 5, 1926 12353 

Directorships in companies financed through investment bankers 12356 

Paragraph eight of memorandum of 1926 12364 

Paragraph seven of memorandum of 1926 12364 

Sharing commissions on trading and brokerage accounts 12367 

Life of memorandum of 1926 12373 

Handling financing under the memorandum of 1926 - 12374 

in 



IV CONTENTS 

Page 

Stockholder and officer participation in trading accounts.. 12375 

Stockholder and officer participation in underwriting syndicate 12376 

Abrogation of memorandum of 1926 in 1936 ■.... -. 12379 

Origin of the management fee 12381 

Attitude toward Morgan Stanley & Co. — . 12383 

Relations after the abrogation in 1936 ». 12385 

The national scope of investment banking 12386 

Underwriting group for Continental Can Co. financing 12388 

Financing by General Foods Corporation, 1938 12389 

Financing by National Dairy Products Corp., 1936 12393 

Financing by Cluett, Peabody & Co., 1937 12395, 12410 

Role of directors who are investment bankers .. 12401 

Competition with market conditions ... 12403 

Conflicts of interest. 12405 

Competitive bidding 12406 

Agreement of 1938 12412 

FINANCING OF CLEVELAND-CLIFFS IRON CO. 

Bank debt of the company 12416 

Discussions with Bankers Trust Co. with regard to a bond issue 12417 

Agreement of January 30, 1935 12419, 12433 

Paragraph 7 of the agreement of Jan. 30, 1935 -.- . 12420 

Composition of underwriting syndicate . 12429 

The commission earned 12430 

Selection of underwriters 12438 

Meaning of underwriting and the Banking Act of 1933 12444 

Authority to select the underwriting syndicate . _ 12447 

Discussion of underwriting terms, June 28, 1935 12450 

Position of Bankers Trust under agreement of June 28, 1935 12452 

Memorandum of July 8, 1935 12457 

Arrangements as of October 28, 1935 12458 

Bank loan of $5,000,000 12461 

Agreement Re : management of Cleveland Cliffs '. — 1 2462 

Brokerage transactions for Cleveland Cliffs 12466 

Fees paid to Lehman Bros, and Bankers Trust Co 12467 

GLORE, FORGAN & CO. 

Indianapolis Power & Light Co. financing, 1938 12469 

Agreement on leading positions in future financing of Indianapolis Power & 

Light and Utilities Power & Light 12471 

"Moral commitment" resulting from membership in an account . 12472 

Agreement on future financing of Associated Gas & Electric Co. and sub- 
sidiaries— 1937 12475 

Agreement re management of Cleveland-Cliffs Co. — Resumed — Statement 
by Mr. John F. Fennelly . 12476 

SMITH, BARNEY & CO.— KUHN, LOEB & CO. 

Financing of the Armstrong Cork Co. — 1935 and 1930 issues'. 12478 

M. L. Freeman discusses Armstrong financing with Kuhn, Loeb & Co 12480 

Seeking assurance that a company has made a "clean break" with its prior 

banker before discussing financing 12481 

Traditional attitude of Kuhn, Loeb & Co. toward competition where a 

satisfactory banking relationship exists 12484 

Payments by Kuhn, Loeb & Co. to M. L. Freeman 12489 

Professional character of investment banking 12491, 12535 

Competition in investment banking 12492 

Agreements for future financing- between underwriters and between issuer 

corporations and underwriters 12494 

The element of price in investment banking competition 12498 

Financing of the Armstrong Cork Co. — 1935 issue (Resumed)— "Edward B 

Smith & Co. believes Armstrong is its account <. .,_' , 12500 

"Shopping around' i -______ -_■__,. _■•_-'-. --„-___:. i-2w-- 125D4 



CONTENTS V 

Page 
Kuhn, Loeb & Co. informs Edward B. Smith & Co. of conversations with 

Armstrong Cork Co 12506 

Edward B. Smith & Co.'s relations with issuer corporations and with 

Guaranty Trust Co 12509 

Financing of Wilson & Company — 1935 issue • 12512 

Edward B. Smith & Co. discusses Wilson & Co. financingwith E. A. Potter, 

vice president of Guaranty Trust Co. and director of Wilson & Co ,._ 12514 

White, Weld & Co.'s interest in Wilson & Co.'s financing 12516 

Conversations with E. A. Potter — Resumed 12520 

Formation of the Wilson & Co. syndicate 12524 

Inclusion of Kuhn, Loeb & Co. in the Wilson & Co. syndicate 12529 

Relation of the investment banker to the issuer and the investor 12530 

Failure of White, Weld & Co. to be included in the syndicate .._ 12533 

Financing an underwriting transaction — the day-loan procedure. 12538 

STANDARD GAS AND ELECTRIC CO 

Agreements between underwriters and corpora tidns issuing securities 12546 

Relationship of H. M. Byllesby & Co. to Standard system of utility compa- 
nies 12548 

The Standard system — Constituent companies — Assets 12549 

Standard's acquisition of interest in Philadelphia Co. system — Agreement 

with Ladenburg, Thalmann & Co 12551 

Agreement with respect to future financing of Standard Power & Light Co., 

holding company of Philadelphia Co. utilities, March 1926 12553 

Security issues pursuant to agreement of March 1926 12554 

Stockholders' suits against H. M. Byllesby and Company, and Standard 

Power & Light Co., 1929 12555 

H. M. Byllesby & Co.'s control of Standard Power & Light Co. through 

holdings of management preferred stock 12556 

Acquisition of Standard Power & Light Co. stock by the Loewenstein and 

Emanuel interests ■ 12558 

United States Electric Power Corporation (USEPCO) and its organizers. . 12559 
General settlement between USEPCO and Standard Power & Light Co. — 

the Banking Memorandum of December 1929 12560 

Program of utility acquisitions of Victor Emanuel and Alfred Loewenstein. 12562 

Legal moves against Standard Power & Light Co 12567 

General settlement between USEPCO and Standard Power & Light Co. — 

resumed 1 2573 

Security issues pursuant to Banking Memorandum of December 1929 12576 

$15,000,000 loan to USEPCO secured by Standard Power & Light Co. 

stock — efforts to regain collateral 12577 

J. Henry Schroder & Co., London, desires assurance on future Standard 

Power & Light Co. financing „ 12595 

Summary of the record by counsel — comments by Mr. Emanuel 12602 

The group purchasing notes and collateral — continuing effectiveness of 

Banking Memorandum of December 1929 «. 12606 

Enforceability of the 75-25 percent agreement for future financing 12610 

Nature of and parties to the Banking Memorandum ^_ 12616 

"Moral force" of the Banking Memorandum 12620 

SHELL UNION OIL CORPORATION 

Symbols and abbreviations used in documents 12627 

Discussions with bankers leading up to 1936 financing 12629 

Purpose of previous negotiations to pave way for formal bids 12632 

Shell procedure in issuing securities 12633 

Formation of the 1936 syndicate 12634 

Waiver of management fee 12636 

Discussions with bankers in 1937 for redemptions of outstanding preferred 

stock . 12637 

Negotiations with Morgan, Stanley & Co. Inc 12640 

Negotiations with Equitable Life Assurance Society 12643 

"Shopping around".. 12644 



VI CONTENTS 

Page 

Shell endeavors to obtain reduction in interest 1 rate from Equitable 12646 

Execution of purchase contract with Morgan Stanley & Co., Inc 12649 

The Mathey-AddinseU conversation 12652 

Desire for "a solid front" 12652 

The custom of "clearing" 12654 

"The solid front" 1 12656 

The operative effect of the 1936 Dillon, Read & Co. underwriting agree- 
ment 12659 

The 1939 Shell syndication 12660 

Familiarity of Morgan Stanley & Co., Incorporated, with financial condi- 
tion and distributing ability of other, underwriters in syndicate 12661 

Articles II and IV of the Morgan Stanley & Co., Inc., underwriting agree- 
ment 12664 

Article VIII of the Morgan Stanley & Co., Incorporated, underwriting 

agreement 12665 

Overoffering to selling group 12667 

Criteria used in determining the amounts reserved for underwriters 12669 

Notification to underwriters relating to amcunts of debentures reserved for 

offering to dealers and for their own retail distribution 12671 

Operative effect of Article VIII 12673 

Position of Morgan Stanley & Co. Incorporated, under Article VIII 12675 

Underwriting agreement provisions with reference to unsold debentures in 
1936 Dillon, Read & Co. agreement compared with the 1939 Morgan 

Stanley & Co. agreement > 12676 

Purchases for stabilization 12679 

Extent to which Morgan Stanley & Co., Incorporated, is familiar with 

distributing ability of dealers — resumed 12681 

Performance records of dealers kept by other investment banking firms 12682 

CONCENTRATION IN THE MANAGEMENT, UNDERWRIT- 
ING, AND SALE OF REGISTERED BOND ISSUES 

Definition of terms 12689 

Concentration in management of all registered issues 12690 

Quality of registered bonds managed by selected firms: all industries 12692 

Bonds of manufacturing companies 12696 

Electric light and power, gas, and water companies 12698 

Transportation and communication companies 12700 

All other issues 12700 

Summary of concentration by quality and industry 12702 

Interparticipations in originations of eight firms 12704 

Distribution of sales by the distributing group 1 2706 

Summary . 12710 

Schedule and summary of exhibits vii 

Monday, January 8, 1940 12343 

Tuesday, January 9, 1940 . 12415 

Wednesday, January 10, 1940 12477 

Thursday, January 11, 1940 12545 

Friday, January 12, 1940 12625 

Appendix 12713 

Supplemental data 13007 

Index i 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1773. Letter, dated April 21, 1920, from Goldman, Sachs & 

Co. to Lehman ^Brothers transmitting profits from 
joint participation in B. F. Goodrich Co. $30,000,000 
five-year 7% convertible gold note selling*syndicate _ _ 12349 

1774. Letter, dated April 15, 1920, from B. A. Tompkins, 

Bankers Trust Company, to Goldman, Sachs & Co. 
transmitting underwriting commission of Goldman, 
Sachs & Co. on the $30,000,000 B. F. Goodrich Co. 
7% convertible gold note issue 12349 

1775. Letter, dated April 17, 1920, from Goldman, Sachs & Co. 

to Lehman Brothers transmitting Lehman Brothers' 
share in the underwriting commission on the $30,000,- 
000 B. F. Goodrich Co. 7% convertible gold note issue. 12349 

1776. Letter, dated February 9, 1920, from Goldman, Sachs & 

Co. to Lehman Brothers notifying them of their one- 
half interest in the obligation of Goldman, Sachs & Co. 
in underwriting The B. F. Goodrich Company 
$30,000,000 five-year 7 % con vertible gold notes 1 2349 

1777. Letter, dated September 9, 1922, without signature (in- 

itialed S. J. S. of Lehman Brothers) to Goldman, 
Sachs & Co. transmitting payment on half share of 
Goldman, Sachs & Co. in their joint interest in Detroit 
City Gas Company $13,500,000 First Mortgage 6% 
Gold Borid issue - 12350 

1778. Copy of letter dated September 9, 1922, without signa- 

ture (initialed S. J. S., Lehman Brothers) to Halsey, 
Stuart & Co., Inc., acknowledging payment of profit 
due jointly to Lehman Brothers and Goldman, Sachs 
& Co. derived from the Detroit City Gas Company 
$13,000,000 First Mortgage 6% Gold Bond issue 1)2350 

1779. Letter, dated September 7, 1922, from Halsey, Stuart & 

Co., Inc., to Lehman Brothers transmitting payment 
of Lehman Brothers' share of profit derived from the 
Detroit City Gas Company $13,000,000 First Mort- 
gage 6% Gold Bond issue '. --- 12350 

1780. Letter, dated September 2, 1926, from Lehman Brothers 

to Goldman, Sachs & Co. referring to underwriting of 
R. H. Macy & Co., Inc. $7,500,000 5%% Serial Gold 
Debenture Bonds, and stating understanding that 
Goldman, Sachs & Co. has a 50% interest in the under- 
writing, which Lehman Brothers is to manage 12350 

1781. Memorandum listing members of the purchase group for 

R. H. Macy & Co., Inc. stock offering of 1922 giving 
participation on original terms and in selling syndicate. '. 

1782. Memorandum, dated October 26, 1925, by Herbert H. 

Lehman, Lehman Brothers, regarding conference at 
Mr. Sachs' home relative to future relations between 
Goldman, Sachs & Co. and Lehman Brothers 12352 

1783. "Memorandum of recent conversations between Gold- 

man, Sachs & Co. and Lehman Brothers regarding 
the future relationship between the two firms", dated 
January 5, 1926, with a list of sixty corporations to 
whose financing the memorandum related __, — , 12353 

Vii 



12713 

12713 
12714 

12714 

12714 

12715 
12715 

12716 
12716 

12717 
12718 



vni 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1784. Letter, dated June 26, 1933, from A. B. Klepper, Gold- 

man, Sachs & Co., to Lehman Brothers enclosing 
check for Lehman Brothers' half share in the disposi- 
tion of 50,000 shares of Sears, Roebuck & Company 
capital stock for the estate of Julius Rosenwald 

1785. Copy of letter dated June 27, "1933, from The Julius 

Rosenwald Fund, Alfred K. Stern and Lessing J. 
Rosenwald to Goldman, Sachs & Co. authorizing sale 
of 26,000 shares of Sears, Roebuck & Company capital 

1786. Copy of letter dated June 27, 1933, from A. B. Klepper, 

Goldman, Sachs & Co., to Lehman Brothers stating 
understanding that Lehman 'Brothers and Goldman 
Sachs & Co. each have a 50% interest in the sale of 
26,000 shares of Sears, Roebuck & Company capital 

1787. Copy of "letter dated July 21, 1933> from O. Krause, 

Goldman, Sachs & Co. to L( ^man Brothers transmit- 
ting compensation representing Lehman Brothers' 
• 50% interest in the disposition of Sears, Roebuck & 
Company capital stock '1 

1788. Letter, dated January 26, 1927, from Waddill Catchings, 

Goldman, Sachs & Co., to Philip Lehman, Lehman 
Brothers, confirming the substitution of a new provi- 
sion for paragraph 7 of the agreement dated January 
5, 1926 

1789. Letter, dated October 3, 1929, from Walter Sachs, Gold- 

man, Sachs & Co., to Lehman Brothers confirming 
50% interest of Lehman Brothers and Goldman, 
Sachs & Co. in compensation and obligations of 
syndicate managers in underwriting of 168,000 shares 
of common stock of Gimbel Brothers, Inc ... 

1790. Letter, dated October 10, 1929, from Goldman, Sachs 

& Co. to Lehman Brothers confirming 50% interest 
of Lehman Brothers and Goldman, Sachs & Co. in 
compensation and obligations of syndicate managers 
in underwriting of 116,934 shares of common stock of 
May Department Stores Company 

1791. Letter dated March 14, 1928, from Goldman, Sachs & Co. 

j Lehman Brothers transmitting payment of Lehman 
Brothers' share in profits of B. F. Goodrich Company 
common stock underwriting 

1792. Copy of letter dated April 22, 1930, from Goldman, 

Sachs & Co. to Lehman Brothers confirming the sub- 
rogation to Lehman Brothers of one-half. the interest 
of Goldman, Sachs & Co. in the underwriting of the 
B. F. Goodrich Company $30,000,000 15-year 6% 
convertible gold debentures 

1793. Letter dated, October 30, 1930, from A. B. Klepper, 

Goldman, Sachs & Co., to Lehman Brothers trans- 
mitting payment of Lehman Brothers' share in profits 
of B. F. Goodrich Company $30,000,000, 6% deben- 
tures underwriting 

1794. Letter, dated May 5, 1926, from Goldman, Sachs & Co. 

to Lehman Brothers transmitting payment of Lehman 
Brothers' share in profits of underwriting of Pillsbury 
Flour Mills, Incorporated $1,000,000 serial 5%% col- 
lateral trust notes 



12367 



12367 



12367 



12367 



12374 



12374 



12374 



12374 



12374 



12374 



12374 



(0 



0) 



0) 



(0 



12720 



12720 



12721 



12721 



12722 



12723 



12723 



1 Qn flje with the Committee. 



CONTENTS 
SCHEDULE OP EXHIBITS— Continued 



IX 



Number and summary of exhibits 



1795. 
1796. 
1797. 

1798. 

1799. 
1800. 

1801. 

1802. 

1803. 
1804. 

1805. 
1806. 

1807. 



Letter, dated May 31, 1927, from A. C. Loring, presi- 
dent, Pillsbury Flour Mills, Incorporated, to Goldman 
Sachs & Co. expressing desire that Goldman, Sachs & 
Co. offer not participation to Lehman Brothers or 

anyone else 

Letter, dated March 13, 1925, without signature (from 

Lehman Brothers) to Goldman, Sachs & Co. and 

others stating participations in purchase of Cuyamel 

Fruit Company $5,000,000 fifteen-year 6% sinking 

fund gold bonds 

Letter, dated October 15, 1928, from Goldman, Sachs & 
Co. to Lehman Brothers confirming interests of Leh- 
man Brothers and Goldman, Sachs & Co. in underwrit- 
ing of 55,161 shares of Pet Milk Company common 
stock 



Intro- 
duced 
at page 



Letter, dated February 6, 1936, from Lehman Brothers 
to Goldman, Sachs & Co. declining to accept further 
commitments under agreements of October 26, 1925 
and January 5, 1926 

Letter, dated June 25, 1935, from Goldman, Sachs & Co. 
to Lehman Brothers regarding proposed financing of 
Brown Shoe Company, Inc 

Letter, dated June 26, 1935, from W. J. Creely to Walter 
E. Sachs, Goldman, Sachs & Co., regarding inclusion 
of St. Louis dealers in selling group for Brown Shoe 
Company issue 

Letter, dated June 28, 1935, from Walter E. Sachs to 
Walter J. Creely regarding inclusion of St. Louis 
dealers in selling group for the Brown Shoe Company 
issue 

Letter, dated September 27, 1935, from Goldman, Sachs 
& Co. to Lehman Brothers transmitting partial pay- 
ment of Lehman Brothers' share in profits of Brown 
Shoe Company debenture underwriting, after deduct- 
ing compensation due Goldman, Sachs & Co 

Letter, dated December 16, 1935, from Goldman, Sachs 
& Co., to Lehman Brothers transmitting final pay- 
ment of Lehman Brothers' share in profits of Brown 
Shoe Company debenture underwriting 

Letter dated January 31, 1,936, without signature (from 
H. S. Bowers, Goldman, Sachs & Co.) to George W. 
Johnson, Endicott Johnson Corporation, regarding 
underwriting group for Endicott Johnson Corporation 
issue and referring to high opinion held by investment 
bankers of the company and its labor policy 

Letter, dated February 7, 1936, from Goldman, Sachs & 
Co. to Lehman Brothers in response to letter of Febru- 
ary 6 accepting conclusion that arrangement between 
the two houses has been terminated 

Copy of letter dated September 20, 1937, from Lehman 
Brothers to the board of directors, Continental Can 
Company, Inc., declining participation in Continental 
Can Company financing because of minor position 
offered, and reciting history of association of Lehman 
Brothers with the company 

Letter, dated September 29, 1937, from O. C. Huffman, 
president, Continental Can Company, Inc., to Lehman 
Brothers stating that the company has regarded Gold- 
man, Sachs & Co. as its primary bankers and regretting 
Lehman Brothers' declining the participation offered.. 



12374 
12377 

12379 

12380 
12383 

12383 

12383 

12383 
12383 

12383 
12385 

12388 
12388 



Appears 
on page 



12724 
12724 

12725 

12726 

12727 

12727 
12728 

12728 
12729 

12729 
12730 

12730 
12732 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1808. Copy of letter dated October 4, 1937, without signature 

(from Philip Lehman, Lehman Brothers) to O. C. 
Huffman, president, Continental Can Co., Inc., 
stating that in the financing of the company, the 
relationship of the bankers was on a basis of equality. 

1809. Letter, dated January 5, 1940, from C. L. Austin, vice 

E resident, Mellon Securities Corporation, to Peter R. 
fehemkis, Jr., confirming telegram identifying memo- 
randum dated January 11, 1936, concerning inclusion 
of Goldman, Sachs & Co. in Johes & Laughlin Steel 
Corporation syndicate 

1810. Letter, dated February 11, 1938, from Sidney J. Wein- 

berg, Goldman, Sachs & Co., to C. M. Chester, Chair- 
man of board, General Foods Corporation, discussing, 
with reference to proposed issue of preferred stock, 
the inadvisability of joint management and of omitting 
compensation to the manager by other syndicate 
members 

1811. Letter, dated February 11, 1938, from Sidney J. Wein- 

berg to C. M. Chester regarding inability to compose 
differences with Lehman Brothers and stating con- 
ditions under which Goldman, Sachs & Co. is prepared 
to proceed with General Foods Corp. financing 

1812. Copy of letter dated February 18, 1936, from Robert 

Lehman, Lehman Brothers, to Thomas Mclnnerney, 
president, National Dairy Products Corporation, 
tendering resignation as director 

1813. Letter, dated February 21, 1936, from Thomas Mcln- 

nerney to Robert Lehman accepting his resignation as 
director . • 

1814. Copy of letter dated May 18, 1937, from John M. 

Hancock, Lehman Brothers, to C. R. Palmer, Cluett, 
Peabody & Co., discussing disagreement on financing 
plans of Cluett, Peabody & Co -.. 

1815. Copy of letter dated May 13, 1937, from G. A. Cluett to 

Sanford L. Cluett, Cluett, Peabody & Co., regarding 
early relations of Cluett, Peabody & Co. with Leh- 
man Brothers 

1816. Letter, dated May 24, 1937, from G. A. Cluett to John 

Hancock, Lehman Brothers, stating that he has 
equal treatment for Lehman Brothers and Goldman, 
Sachs & Co. in proposed Cluett, Peabody & Co. 
financing 

1817. Memorandum, dated June 30, 1938, signed by Gold- 

man, Sachs & Co. and Lehman Brothers covering 
relations between the two houses in the financing of 
39 enumerated companies 

18f8. Extract from prospectus of The Cleveland-Cliffs Iron 
Company in connection with $16,500,000 of 1st mtge. 
4%'s of 1950, offered in December 1935, showing 
holders of the company's 6 % Notes 

1819. Letter, dated January 30, 1935, from E. B. Greene, presi- 
dent, The Cleveland-Cliffs Iron Company, to Bankers 
Trust Company and agreed to by B. A. Tompkins, 
Bankers Trust Company, appointing Bankers Trust 
Company agent to procure underwriters for $24,000,- 
000 bond issue l 



12388 
12389 

12391 

12391 

12394 
12394 

12397 

12397 

12397 
12413 
12416 

12419 



12732 
12733 

12733 

12734 

12735 
12736 

12736 

12738 

12739 
12739 
12741 

12741 



CONTENTS 
SCHEDULE OF- EXHIBITS— Continued 



XI 



Number and summary of exhibits 



Intro- 
duced 
at page 



1821. 



1822. 



1823. 



1825. 



1820. Memorandum concerning refunding of Cleveland Cliffs 
bank indebtedness dated June 28, 1935, by ■ *>. B- 
Greene entitled "Brief summary of ™«otmtions mfch 
Bankers Trust Company, ^presented ttooughou t by 
Mr B A Tompkins, and at times by Dana Kelly and 
Mr! Graham, and also Lehman Brothers represented 

bv Mr. Gutman and Mr. Szold" -- £■-«"" 

Telegram, dated February 2, 1935, from Dana Kelly, 
Blnkers Trust Co., to V. P. Geffine, vice-president, 
The Cleveland-Cliffs Iron Co., regarding his arrival in 
Cleveland with Lehman Brothers representatives. - 
Copy of letter dated July 5, 1935 from E B, Greene 
to W. P. Belden, counsel, The Cleveland-Cliffs Iron 
Company regarding the price at which the bonds of 
The Cleveland-Cliffs Iron Co. are to besold . - . 
Copy of memorandum dated June 13, 1935, by &. a. 
Greene regarding financing arrangements discussed 
at meetinl with B. A. Tompkins, Dana Kellev and 

Mr Graham of Bankers Trust Company--- -- 

1824 Letter dated December 6, 1935, from E B Greene , to 

1824. i^g^ BrQther pieldi Qlore & Co , Hayden Stone 

& Co. and Kuhn, Loeb & Co. regarding consultation 

with them on choice of successor of W. G. Mather or 

E B Greene should either cease to hold office with 

The Cleveland-Cliffs Iron Co ^rr.— y n"' £' 

Letter, dated January 30, 1935, from White & Case to 
Bankers Trust Company approving form of proposed 
letter of appointment of Bankers Trust Company as 

aeent for The Cleveland-Cliffs Iron Co ... --- 

1826 Letter dated February 1, 1935, from E. B. Greene to 
1826. Letter, dateo ^y^ Trugt Company regarding 

firm commitment for underwr ting Cleve and-Cliffs 
bond issue for presentation to stockholders meeting- - 
LeUerfdated February 4, 1935, without signature (from 
B A. Tompkins) to E. B. Greene, stating that Bank- 
ers Trust Company may not legally underwrite, but 
that it mav attempt as agent to find underwriters for 
The Cleveland-Cliffs Iron Co. is sue--- ------- ------ 

Letter, dated May 25, 1935 from E B Greene to B A 
Tompkins, discussing relations between The Ueve 
land-Cliffs Iron Co. and Bankers Trust Co. with 
respect to forthcoming bond issue. _ --- ------ -*/"-«: ' 

Lette?, dated May 28, 1935, from. B. A Tompkins to K 
B Greene regarding the financing plans and the for- 
mation of an underwriting group--------- ---------- 

1830. Letter, dated February 2 1935, from B. A. Tompkins 
to E. B. Greene, regarding participation in the Hay- 
den, Stone & Co.'s purchase of Mr Mather's stock 
Letter dated June 6, 1935, rom B. A. Tompkins to K 
B. Greene, regarding conclusion agreed upon at meet- 
ing with members of Lehman Brothers, Field, Glore, 
KuhT, Loeb & Co.' and Hayden, Stone & Co relative 
to -Cleveland-Cliffs and Cliffs Corporation merger and 
a refunding bond issue of Cleveland-Cliffs.- --------- 

Letter, dated July 9, 1935, from Lewis Strauss !£& 
Loeb & Co., to B. A. Tompkins, regarding selection 
of counsel for the bankers in connection with the 
financing of Cleveland-Cliffs---^------ 



Appears 
on page 



1827. 



1828. 



1829. 



1831. 



1832. 




12436 12749 

12436 12750 

12436 12751 

12439 12751 

12450 12752 

12451 I 12753 



i Marked for identification only. 



XII 



CONTENTS 
SCHEDULE OF EXHIBITS — Continued 



Number and summary of exhibits 



1833. Memorandum by Lewis L. Strauss, of Kuhn, Loeb & 

Co., relative to the meeting at B. A. Tompkins' 
office regarding proposed financing of Cleveland- 
Cliffs Iron Co 

1834. Letter, dated June 28, 1935, from B. A. Tompkins to 

E. B. Greene, regarding the underwriting group to 
handle Cleveland-Cliffs Iron Company financing 

1835. Letter, dated July 2, 1935, from E. B. Greene to B. A. 

Tompkins regarding disappointment of the terms 
upon which Cleveland-Cliffs Iron Company bonds 
are to be handled 

1836. Memorandum, dated July 8, 1935, by B. A. Tompkins 

to Monroe Gutman of Lehman Brothers, and others, 
containing three items supplementing previous 
memo ["Exhibit No. 1833"] regarding Cleveland- 
Cliffs Iron Company financing 

1837. Memorandum, dated August 28, 1935, by Dana Kelley, 

Bankers Trust Company, regarding meeting with 
Cleveland-Cliffs Iron Company underwriting group 
relative to Mr. Greene's report that the management 
ment had decided to abandon the Cliff's merger plan 
and the change in financing plans which followed 

1838. Letter, dated January 5, 1940, from Lehman Brothers 

to Peter R. Nehemkis, Jr. enclosing stipulation for 

six documents 

Stipulation covering six letters that were prepared, 
received, or sent as the case may be from Lehman 
Brothers - 

1839. Letter, dated October 28, 1935, from Lehman Brothers 

to Hayden, Stone & Co., confirming understanding 
regarding Cleveland-Cliffs Iron Company financing. 

1840. Letter, dated October 28, 1935, from Lehman Brothers 

to Field, Glore & Co., confirming understanding 
regarding Cleveland-Cliffs Iron Company financing. 

1841. Letter, dated October 28, 1935, from Lehman Brothers 

to Kuhn, Loeb & Co., confirming understanding 
regarding Cleveland-Cliffs Iron Company financing. 

1842. Memorandum, dated December 2, 1935, by M. C. 

,Gutman to Douglas Dimond, both of Lehman 
Brothers, relative to Mr. Tompkins' request for 
position in Cleveland-Cliffs Iron Company financing 
for C. D. Barney & Co 

1843. Extract from registration statement of Cleveland-Cliffs 

Iron Co. for $16,500,000 of 1st mtge. 4%'s of 1950, 
showing participations in a bank loan of $5,000,000 
to supplement the bond issue 

1844. Letter, dated December 18, 1935, from B. A. Tompkins 

to E. B. Greene regarding sub-participation in bank 
loan supplementing The Cleveland-Cliffs Iron Com- 
pany bond financing 

1845. Letter, dated November 22, 1935, from Kuhn, Loeb 

& Co. to Lehman Brothers, regarding the sharing of 
commissions in sale of 10,000 shares of Republic Iron 
& Steel common 6tock by Cleveland-Cliffs 

1846. Memorandum, dated August 24, 1936, by M. C. Gutman 

to Mr. I. Sack, both of Lehman Brothers, relative to 
sharing of commissions on sale of Republic Iron & 
Steel common stock for Cleveland-Cliffs 



Intro- 
duced 
at page 



12451 
12456 

12456 
12457 



12458 



12461 



12462 



12466 



12466 



Appears 
on page 



12753 
12754 

12755 
12457 



12458 


12756 


12458 


12756 


12458 


12757 


12458 


12757 


12458 


12758 


12458 


12758 



12759 



12759 



12760 



12761 



12761 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XIII 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1847-1. 



1847-2. 



1847-3. 



1848. 



Extract from registration statement, showing agreement 
dated October 31, 1935, between Cleveland-Cliffs 
Iron Company and Kuhn, Loeb & Co. and others 
with regard to the sale of 20,000 shares of Republic 
Steel Corporation common stock 

Extract from registration statement, showing agreement 
dated October 31, 1935, between McKinney Steel 
Holding Company and Kuhn, Loeb & Co. and others, 
with regard to the sale of $5,500,000 principal amount 
of Republic 'Steel Corporation purchase money first 
mortgage convertible 5J4% bonds due November 1, 
1954.— _. r 

Extract from registration statement, showing agreement 
dated October 31, 1935, between McKinney Steel 
Holding Company and Kuhn, Loeb & Co. and others, 
with regard to the sale of 10,000 shares of 6% cumu- 
lative convertible prior preference Series A stock of 
Republic Steel Corporation. 



Copy of letter dated May 22, 1930, from Kuhn, Loeb & 
Co. to J. R. Swan, Guaranty Company of New York 
confirming agreement between Guaranty Trust Co. 
and Kuhn, Loeb relative to future financing by Amer- 
ican Smelting and Refining Company ^ 

1849. Letter, dated May 26, 1930, from J. R. Swan to Kuhn, 

Loeb & Co. regarding agreement between Guaranty 
Company and Kuhn, Loeb & Co. relative to future 
financing by American Smelting and Refining Com- 
pany 

1850. Letter, dated May 21, 1930, from Frank P. Shepard, 

Guaranty Company, to Kuhn, Loeb & Co. regarding 
175,000 shares of American Smelting and Refining 
Company 6% cumulative second preferred stock, con- 
firming Kuhn Loeb's 22% interest on original terms 
in purchase of this stock 

1851. Copy of letter dated May 21, 1930, from J. R. Swan, 

Guaranty Company, to F. H. Brownell, Chairman of 
the Board, American Smelting and Refining Com- 
pany, enclosing prospectus of the second preferred 
stock to be offered at 103 

1852-1. Letter, dated July 19, 1937, from H. T. Pritchard, 
President, Indianapolis Power & Light Company, to 
Lehman Brothers giving to Lehman Brothers the 
right to head the syndicate, authority to act as sole 
agent in Indianapolis Power & Light Company 
financing , 

1852-2. Letter, dated July 21, 1937, from O. C. Johnston, Simp- 
son, Thacher & Bartlett, to Robert Lehman, Lehman 
Brothers, relative to proposed reply .to Indianapolis 
Power & Light Company regarding contemplated 
financing 

1852-3. Copy of letter dated July 21, 1937, from Robert Lehman 
to H. T. Pritchard, president, Indianapolis Power & 
Light Company accepting position to head India- 
napolis Power & Light Company financing 

1853. Copy of letter dated May 24, 1938, from J. F. F. (John 
F. Fennelly), Glore, Forgan & Co., to J. Russell 
Forgan, Glore, Forgan & Co., regarding views of 
Charles Glore relative to Indianapolis Power & Light 
Company financing and position of Lehman Brothers 
in this financing 



12467 



12467 



12467 



12468 



12468 



12468 



12468 



12468 



12468 



12468 



12468 



12761 



12762 



12763 



12764 



12764 



12765 



12765 



12766 



12766 



12766 



12767 



XIV 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



1854-1. Memorandum, dated June 26, 1939, by Joseph A. 
Thomas, Lehman Brothers, regarding agreement be- 
tween Lehman Brothers and Goldman Sachs and The 
First Boston Corporation on Indianapolis Power & 
Light Company financing and future financing of 
subsidiary companies of Utilities Power & Light Co. . 

1854-2.- Letter, dated June 26, 1939, from Joseph A Thomas to 
to G. D. Woods, The First Boston Corporation, 
putting in writing the agreement regarding the 
financing or refinancing of Indianapolis Power & 
Light Company between Lehman Brothers, Goldman, 
Sachs & Co. and The First Boston Corporation having 
equal percentages 

1854-3. Letter, dated June 26, 1939, from Joseph A Thomas to 
Sidney Weinberg, Goldman, Sachs & Co. putting in 
writing the agreement regarding the financing or 
refinancing of Indianapolis Power & Light Company 
between Lehman Brothers, Goldman, Sachs & Co., 
and The First Boston Corporation having equal per- 
centages 

1855-1. Letter, dated" July 11, 1938, from Floyd Odium, Atlas 
Corporation, to Robert Lehman regarding Lehman 
Brothers' position in proposed financing of Indianapo- 
lis Power & Light Company and suggesting better 
treatment for other J rms 

1855-2. Copy of letter dated J ily 13, 1938, from J. A. Thomas 
to Floyd B. Odlun setting forth the considerations 
which prompted Lehman Brothers to act as they did 
in the Indianapolis Power & Light Company financing 

1855-3. Letter, dated July 13, 1938, from F. B. Odium to J. A. 

Thomas regarding Shields & Company dissatisfaction 

,with their position in Indianapolis Light & Power 

Company financing 

1855-4. Letter, dated July 18, 1938, from F. B. Odium to J. A. 
Thomas requesting the Shields & Company matter be 

straightened out with reasonable satisfaction 

1856. Transcription of telephone conversation on October 20, 
1932, between J. A. W. Iglehart, Glore, Forgan & Co., 
and P. N. Russell, N. W. Harris & Co., regarding 
New York State Electric & Gas financing 

1357-1. Letter, dated January 5, 1940, from Arthur H. Dean, 
Sullivan & Cromwell, to Peter R. Nehemkis, Jr., au- 
thorizing use of certain documents for the record re- 
lating to New York State Electric & Gas Corp. fi- 
nancing 

1S57-2. Memorandum, dated January 25, 193" 7 , by G. D. Woods, 
The First Boston Corporation, regarding inclusion of 
Lehman Brothers in underwriting group for issues of 
New York State Electric & Gas Corporation and other 
subsidiaries of Associated Gas & Electric Company, 

1857-3. Letter, dated January 25, 1937, from M. C. Gutman, 
Lehman Brothers, to The First Boston Corporation, 
enclosing memorandum embodying understanding on 
financing of New York State Electric & Gas Corp. 
and other financing of the Associated Gas & Electric 
systems 

1857-4. "Memorandum regarding relationship of The First 
Boston Corporation and Lehman Brothers in con- 
nection with Associated Gas & Electric financing," 
dated January 25, 1937___ 




Appears 
on page 



12468 
12468 

12468 

12468 

12468 

12468 
12468 

12468 
12475 
12475 

12475 
12475 



12768 
12768 

12769 

12769 

12770 

12771 
12771 

12772 
12773 
12774 

12775 
12775 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



X\ 




1858. 



1859. 



1860. 



1861. 



1857-5. Letter, dated January 29, 1937, from George D. Woods, 
The First Boston Corporation, to Lehman Brothers, 
correcting memorandum concerning Associated Gas & 
Electric Co. financing 

Memorandum, dated July 27, 1934, by J. M. Schiff, 
Kuhn, Loeb & Co., regarding discussion with M. L. 
Freeman relating to possible financing of Armstrong 
of Armstrong Corp Company 

Memorandum, dated November 18, 1927, by Jerome J. 
Hanauer, Kuhn, Loeb & Co., regarding discussion 
with Seward Prosser, Bankers Trust Co., explaining 
efforts made by Kuhn, Loeb & Co. to be sure they 
were not competing with Bankers Trust Co. for fi- 
nancing of Youngstown Sheet & Tube Co. Memoran- 
dum, dated November 18, 1927, by Jerome J. Hanauer 
giving telephone statement by James A. Campbell, 
president, Youngstown Sheet & Tube Co., regarding 
negotiations with Bankers Trust Co. for bond issue 

Extracts from diary entries, dated October 22, 1934, to 
July 24, 1935, by John W. Cutler and J. N. Land, 
Edward 3. Smith & Co., regarding Armstrong Cork 
Company financing 

Memorandum, dated February 4, 1935, initialed W. W. 
(Webb Wilson, Edward B. Smith & Co.) entitled 
"Outline of Guaranty Company of New York's rela- 
tionship to public financing of The American Rolling 

Mill Company" ■ 

1862-1. Memorandum, dated December 16, 1937, by K. 
. Weisheit to J. W. Cutler, Edward B. Smith & Co., 

2ferring to inquiry by Fred Krayer, Brown, Harri- 
an & Co., Inc., as to desires of Edward B. Smith 
& Co. on formation of account for purchase and sale 

of rights to preferred stock of Dow Chemical Co 

1862-2. Memorandum, dated July 23, 1935, by C. L. Austin, 
Edward B. Smith & Co., summarizing discussions 
with officials of Pure Oil Co. on proposed refunding, 
and commenting on various items in registration state- 
ment for $32,000,000 15 year 4#% notes, due 1950- 

Memorandum, undated, by C. L. Austin, Mellon 
Securities Corporation, discussing reasons for selec- 
tion of underwriters of $25,000,000 Koppers Com- 
pany first mortgage and collateral trust bonds, series 
A, 4%, due November 1, 1-951 

Memorandum, dated August 17, 1936, by C. L. Austin, 
Mellon Securities Corporation, regarding invitations 
to Morgan Stanley & Co., Inc., and Edward B. Smith 
& Co. to participate in Jones & Laughlin Steel Cor- 
poration financing. Memoranda, dated October 29, 
1935, and November 8, 1935, by Frank R. Denton, 
Mellofr Securities Corporation, relating to deferring 
the Jones & Laughlin Steel Corporation bond issue 
and discussions with Morgan Stanley & Co., Inc., and 

Edward B. Smith Co 

1865. Memorandum, dated October 18, 1934, by C. L. Austin, 
then of Edward B. Smith & Co., giving list obtained 
from the Guaranty Co., of purchase group members 
in Wilson & Co., Inc., note offering in January 1927 
and in offering of first mortgage bonds in April 1921... 



1863. 



1864. 



12475 



12484 



12775 



12776 



12487 



12508 



12509 



12510 



12510 



12511 



12776 



12779 



12781 



12781 



12782 



12787 



12511 



12514 



12788 



12789 



XVI 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



1866-1. Memorandum, dated September 10, 1934, by C. L. 
Austin to Joseph R. Swan, Edward B. Smith & Co., 
regarding possibility of recapitalization of Wilson & 
Co., Inc., and suggesting approach to the company 
through E. A. Potter, Jr 

1866-2. Memorandum, dated September 5, 1934, by Herman 
Safro to Karl Weisheit, Edward B. Smith & Co., 
reporting discussion with Paul Appenzellar regarding 
plan of recapitalization approved by Wilson & Co., 
Inc 

1867. Copy of letter dated July 8, 1935, from Faris R. Rus- 

sell, White, Weld & Co., to John W. Cutler, Edward 
B. Smith & Co., containing chronological history of 
discussions regarding position of White, Weld & Co., 
in Wilson & Co. issue of July 1935 and their failure 
to be included. (Carbon copy of "Exhibit No. 
1886.") : 

1868. Letter, dated February 25, 1935, from M. L. Freeman 

to Gurdon Wattles, White, Weld & Co., giving finan- 
cial position of Wilson & Co., Inc., and referring to 
discussions with its president concerning bond issue.. 

1869. Copy of letter, dated February 21, 1935, from Edward 

Foss Wilson, president, Wilson & Co., Inc., to M. L. 
Freeman expressing willingness to discuss sale of 
bonds 

1870. Memorandum, dated February 26, 1935, by G. W. Wat- 

tles to Mr. Timpson, White, Weld & Co., regarding 
M. L. Freeman's proposal on Wilson & Co. refunding 
issue and attitude of two insurance companies toward 
purchase of the bonds 

1871. Telegram, dated February 27, 1935, from M. L. Freeman 

to E. F. Wilson, president, Wilson & Co., Inc., sug- 
gesting meeting with bankers on Wilson & Co. financing. 

1872. Copy of telegram, dated February 27, 1935, from E. F. 

Wilson, president, Wilson & Co., Inc., to M. L. Free- 
man stating that J. D. Cooney, vice president, will 
visit New York and discuss financing 

1873. Letter, dated February 28, 1935, from M. L. Freeman to 

Gurdon W. Wattles, White, Weld & Co., enclosing 
copies of communications between M. L. Freeman and 
E. F. Wilson 

1874. Letter, dated February 28, 1935, from M. L. Freeman to 

G. W. Wattles proposing discussion prior to calling 
E. F. Wilson 

1875. Letter, dated February 28, 1935, without signature (from 

White, Weld & Co.) to M. L. Freeman stating compen- 
sa 1 ion to be paid to him if White, Weld & Co. com- 
pletes refunding operation for Wilson & Co., Inc 

1876-1. Letter, dated March 1, 1935, without signature (from 
White, Weld & Co.) to M. L. Freeman enclosing a 
signed letter. 

1876-2. Letter dated March 27, 1935, from M. L. Freeman to 
Gurdon W. Wattles, White, Weld & Co., requesting 
a new agreement 

1877. Diary entries, dated September 1 L 1934, to May 12, 1937, 
by John W. Cutler and others, Edward B. Smith & Co., 
regarding Wilson & Co. financing , , , 



12515 
12515 

12517 
12519 
12519 

12519 
12519 

12519 

12519 
12519 

12519 
12519 
12519 
12520 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



KVII 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appear? 
on page 



1878. Letter, dated March 15, 1935, initialed J. R. S. (Joseph 

R. Swan, Edward B. Smith & Co.) to Thomas E. 
Wilson, chairman of the board, Wilson & Co., Inc., 
regarding conversations with E. A. Potter, Jr., relating 
to possible financing of Wilson & Co., Inc., and readi- 
ness of Edward B. Smith & Co. to submit definite 
proposal ^ 

1879. Memorandum, dated March 8, 1935, initialed J. W. C. 

(John W. Cutler) to C. L. Austin, Edward B. Smith 
& Co., referring to denial by Wilson & Co. of M. L. 
Freeman's authority to speak for it and mentioning 
suggestion by E. A. Potter, Jr., that Edward B. Smith 
& Co. inform Wilson & Co. of willingness to negotiate 
on bond issue : 

1880. Copy of letter dated May 18, 1935, initialed D. R. L. 

(from D. R. Linsley, vice president, The First Boston 
Corporation) to J. H. Briggs, H. M. Byllesby & Com- 
pany, regarding The First Boston Corp.'s unwilling- 
ness to enter into highly competitive negotiations for 
Wilson & Co. financing and suggestion to Edward B. 
Smith & Co. to include H. M. Byllesby & Co. in the 
Wilson syndicate 

1881. Memorandum, dated May 16, 1935, by H. M. Addinsell, 

The First Boston Corporation, regarding J. R. Swan's 
invitation to The First Boston Corporation to join in 
refinancing of Wilson & Co. and suggestion by Addin- 
sell that H. M. Byllesby & Co. also be included 

1882-1. Copy of telegram dated March 15, 1935, from D. R. 
Linsley, The First Boston Corporation, to Miles 
Warner, H. M. ByUesby & Compaq', stating condi- 
tion under which The First Boston Corporation 
would be willing to discuss financing with Wilson & 
Co. , Inc 

1882-2. Memorandum, dated September 9, 1935, by J. J. B. 
(J. J. Buckley, Edward B. Smith & Co.) discussing 
conferences on the inclusion of investment banking 
firms in The Wilson & Co. bCnd-^yndicate 

1883. Letter, dated May 23, 1935, by James D. Cooney, vice 

president, Wilson & Co., Inc., to Mr. Wilson regard- 
ing details of forthcoming issue and selection of one 
or two underwriters as leaders 

1884. Pencil memorandum (apparently draft of cablegram) 

in response to J. D. Cooney's letter, suggesting lead- 
ing underwriters 

1885. Memorandum, dated June 27, 1935, by D. R. Linsley, 

The First Boston Corporation, listing the under- 
writers and their percentage participations in financ- 
ing of Wilson & Co., Inc., along with names of com- 
panies to head business 

1888. Letter, dated July 8, 1935, from Faris R. Russell, 
White, Weld & Co., to John W. Cutler, Edward B. 
Smith & Co., containing chronological history of dis- 
cussions regarding position of White, Weld & Co. in 
Wilson & Co. issue of July 1935 and their failure to 
be included. (Original of "Exhibit No. 1867.") 
Memorandum, initialed M. D. to John W. Cutler, 
stating that letter was discussed personally with 
Russell and reply by Cutler is thought unnecessary. 



12521 



12521 



12799 



12799 



12526 
12526 

12527 

12527 

12528 
12528 

12532 



12799 
12800 

12526 

12801 

12802 
12803 

12803 



12534 12804 



124491— 40— pt. 24- 



XVIII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1887-1. "Schedule of operations tollowed by Smith, Barney & 
Co. when acting in capacity of head manager in 
wholesaling a new issue," dated August 1, 1939 

1887-2. "Buying Department Work Sheet form," dated March 
9, 1937, used by Edward B. Smith & Co. when man- 
ager or comanager 

1887-3. Memorandum, for Industrial Division of Buying De- 
partment entitled "Industrial Investigations, Out- 
line for use as guide in conducting investigations of 
Industrial Companies" 

1887-4. Memorandum, dated January 1, 1937, entitled "Buy- 
ing Department Work Sheet form for use in connec- 
tion with issues headed by other houses in which we 

have a position as an underwriter" 

1888. Specimen of dealer performance record card used by 
Smith, Barney & Co 

1889-1. Letter, dated September 1, 1939, from W. H. Coulson, 
Smith, Barney & Co., to the Securities & Exchange 
Commission describing methods used by under- 
writers in financing the purchase of securities from 
issuing corporations 

1889-2. Schedules showing day loan and collateral loan for The 
Pure Oil Company 5% cumulative preferred stock 
underwritten by Edward B. Smith & Co., and activity 
of loan and collateral 

1889-3. Schedules showing day loan and collateral loan for Beth- 
lehem Steel Corporation 15-year sinking fund con- 
vertible 3H% debentures underwritten by Edward B. 
Smith & Co., and activity of loan and collateral 

1889-4. Schedule showing day loan for Shell Union Oil Corpora- 
tion 15-year 2%% debentures underwritten by Smith, 
Barney & Co _ _ ^ 

1889-5. Schedule showing day loan for Pennsylvania Power & 
Light Company first mortgage 3}i% bonds and 4J^% 
debentures underwritten by Smith, Barney & Co 

1890. Trust receipt form used by the Continental Illinois Na- 

tional Bank & Trust Company of Chicago. Trust re- 
ceipt form used by the City National Bank •& Trust 
Company of Chicago. Day loan agreement form 
used by The Natiorial City Bank of New York. Day 
loan agreement form used by the Chase National 
Bank of the City of New York. Day loan agreement 
form used by the Manufacturers Trust Co. of New 
York ." 

1891. Loan agreement form used by the National City Bank of 
* New York , . 

1892. General loan and collateral agreement form used by the 

Bank of. the Manhattan Company, New York. Gen- 
eral loan and collateral agreement form used by the 
Chase National Bank of the City of New York. Gen- 
eral loan and collateral agreement form used by the 
Guaranty Trust Company of New York 

1893. Day loan agreement form used by the Guaranty Trust 

Company of New York _ 

1894. Letter, dated August 29, 1939, from Kidder, Peabody & 

Co. to the Securities & Exchange Commission sub- 
mitting information regarding financing of their par- 
ticipation in Panhandle Eastern Pipe Line Co. 4s, dup 
1952, Commercial Credit Co. 2%s due 1942 and Pure 
Oil Company 5% cumulative convertible preferred 
stock ^ 



12535 
12535 

12535 

12535 
12535 

12543 

12543 

12543 
12543 
12543 



12544 
12544 



12544 
12544 



12544 



12806 
12811 

12819 

12829 
12831 

12832 

12833 

12834 
12836 
12836 



12837 
12840 



12842 
12849 



12850 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XIX 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1895. Copy of letter dated September 1, 1939, from Peter R. 

Nehemkis, Jr. to Nevil Ford, The First Boston Cor- 
poration, requesting information regarding method of 
financing participations in issues of securities. Letter, 
dated September 7, 1939, from H. M. Addinsell, The 
First Boston Corporation, to Peter R. Nehemkis, Jr., 
submitting memorandum. Memorandum, dated 
September 6, 1939, by E. J. Costello, assistant treas- 
urer to H. M. Addinsell, Chairman of executive com- 
mittee, The First Boston Corporation, describing 
method of financing participations in issues of secur- 
ities 

1896. Letter, dated September 11, 1939, by Halsey, Stuart & 

Co., Inc., to the Securities & Exchange Commission 
describing method of financing participations in 
issues of securities _ 

1897. Abstract of provision granting preferential rights to 

future financing, from contract dated April 28, 1939, 
between Airplane Manufacturing & Supply Corp. and 
G. Brashears & Co. 1 

1898. Abstract of provision granting preferential rights to 

future financing, from contract dated November 7, 
1924, between South Carolina Electric & Gas Co. and 
Halsey, Stuart & Co., Inc. 1 

1899. Abstract of provision granting preferential rights to 

future financing, from contract dated October 10, 
1919, between Metropolitan Edison Co. and Halsey, 

Stuart & Co., Inc. 1 .... 

, 1900. Abstract of provision granting preferential rights to 
future financing, from contract dated December 14, 
1927, between Lexington Water Power Co." and 
Halsey, Stuart & Co., Inc. 1 • 

1901. Abstract of provision granting preferential rights to 

future financing, from contract dated August 29, 1917, 
between Binghamton Light, Heat & Power Co. and 
Halsey, Stuart & Co., Inc. 1 

1902. Abstract of provision granting preferential rights to 

future financing, from contract dated September 30, 
1919,- between General Gas & Electric Co. re New 
Jersey Power & Light Co. Securities and Halsey, 
Stuart & Co. 1 

1903. Abstract of provision granting preferential rights to 

future financing, from contract dated February 17, 
1937, between Brown, McLaren Manufacturing Co. 
and the six directors and Alison & Co. 1 - - 

1904. Abstract of provision granting preferential rights to 

future financing, from contract dated February 20, 
1937, between Bender Body Co. and Wm. J. Mericka 
&C0. 1 •_ . 

1905. Abstract of provision granting preferential rights to 

future financing, from contfact dated July 7, 1937, 
between Qinecolor (Inc.) and G: Brashears & Co. 1 

1906. Abstract of provision granting preferential rights to 

future financing, from contract dated September 13, 
1937, between Mode O'Day Corp. and three officers 
and directors and Banks Huntley & Co. 1 

1907. Abstract of provision granting preferential rights to 

future financing, from contract dated September 15, 
1922, between Land & Sea Investment Co. re Wis- 
consin Public Service Corp. securities and Halsey, 
Stuart & Co. 1 ~.„ 

■ — •»'''' — - v. 

1 The fulLtext of the contract is on file withthe committee."-^ 



12544 
12544 
12547 
12547 
12547 
12547 
12547 

12547 

12647 

12547 
12547 

12547 
12547 



12852 
12854 
1-2854 
12854 
12855 
12855 
12855 

12855 

12856 

12856 
12856 

12856 
12856 



XX 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1908. Abstract of provision granting preferential rights to 

future financing, from contract dated July 14, 1938, 
between eight stockholders of Dixie Home Stores 
and J. G. White & Co. and nine others 1 .. 

1909. Abstract of provision granting preferential rights to 

future financing, from contract dated July 10, 1936, 
between Bell Aircraft Corp. and G. M. P. Murphy & 
Co. and four others. 1 

1910. Abstract of provision granting preferential rights to 

future financing, from contract dated May 5, 1939, 
between Rands and the stockholders and Floyd D. 
Cerf Co'. 1 

1911. Abstract of provision granting preferential rights to 

future financing, from contract dated January 17, 
1939, between Norwich Phaimacal Co. and two 
stockholders and F. Eberstadt & Co. 1 2 

1912. Abstract of provision granting preferential rights to 

future financing, from contract dated April 6, 1937, 
between Houston Oil Field Material Co. and Robin- 
son Miller & Co. 1 ,__o. 

1913. Abstract of provision granting preferential rights to 

future financing, from contract dated September 28, 
1937, between L. E. Carpenter & Co. and Whittaker 
Bros. & Co., Inc. (New York) 1 j 

1914. Abstract of provision granting preferential rights to 

future financing, from contract dated July 9, 1937, 
between Reed Drug Company and Floyd D. Cerf Co. 1 

1915. Abstract of provision granting preferential rights to 

future financing, from contract dated April 12, 1938, 
between General Plastics Inc. and Fuller Cruttenden 
&C0. 1 

1916. Abstract of provision granting preferential rights to 

future financing, from contract dated October 26, 
1939, between Continental Motors Corp. and Van 
Alstyne, Noel & Co. 1 

1917. Abstract of piovision granting preferential rights to 

future financing, from contract dated August 23, 
1939, between Butler's Inc. and R. S. Dickson & Co. 1 . 

1918. Abstract of provision granting preferential rights to 

future financing, from contract dated August 4, 1939, 
between Finch Telecommunications, Inc., and Dis- 
tributors Group Incorporated l ^ 

1919. Abstract of provision granting preferential rights to 

future financing, from contract dated March 25, 1939, 
between Hayes Body Corp. and A. W. Porter, Inc. 1 .. 

1920. Abstract of provision granting preferential rights to 

future financing, from contract dated February 4, 
1937, between Burd Piston Ring Co. and certain 
stockholders and Van Alstyne, Noel & Co. 1 

1921. Abstract of provision granting preferential rights to 

future financing, from contract dated January 19, 
1937, between Brewster Aironautical Corp. and a 
stockholder and Van Alstyne, Noel & Co. 1 

1922. Abstract of provision granting preferential rights to 

future financing, from contract dated May 15, 1922, 
between Commonwealth Power Railway & Light Co., 
Commonwealth Power Corp. and Federal Securities 
Corp. 1 . 

1 The full text of the contract is on file with the committee. 



12547 

12547 

12547 

12547 

12547 

12547 
12547 

12547 

12547 
12547 

12547 
12547, 

12547 

12547 

12547 



12857 

12857 

12857 

12857 

12857 

12858 
12858 

12858 

12858 
12858 

12858 
12859 

12859 

12859 

12859 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXI 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1923. Abstract of provision granting preferential rights to 

future financing, from contract dated September 24, 
1921, between Central Illinois Light Co. and Federal 
Securities Corp. 1 

1924. Abstract of provision granting preferential rights to 

future financing, from contract dated March 1, 1923, 
between Illinois Electric Power Co. and Federal 
Securities Corp. 1 

1925. Abstract of provision granting preferential rights to 

future financing, from contract dated November 29, 
1921, between Illinois Power Co. and Federal Secu- 
rities Corp. 1 

1926. Agreement, dated June 19, 1925, between Ladenburg, 

Thalmann & Co., H. M. Byllesby & Company, and 
Standard Gas & Electric Company granting H. M. 
Byllesby & Co. an interest in Pittsburgh Utilities 
Corporation. (Holding company of Philadelphia 
Company Utilities system.) 

1927. Memorandum of agreement between H. M. Byllesby 

& Company and Standard Gas & Electric Company 
dated June 19, 1925, granting Standard Gas & Elec- 
tric Company an interest in Pittsburgh Utilities 
Corporation 

1928. Agreement, dated March 22, 1926, between Ladenburg, 

Thalmann & Co., H. M. Byllesby & Company and 
Standard Gas & Electric Company altering interests 
of Ladenburg, Thalmann & Co. and associates in 
Pittsburgh Utilities Corporation and related com- 
panies, and including provisions regarding future 
financing, management and engineering fees, and 
counsel of the companies c 

Table: Securities sold to the public by Standard Power 
& Light Corp. and its subsidiaries, March 22, 1926- 
December 31, 1929, and percentages of participations 
therein .. 

Table: Names of iss"es, and participants therein, of 
securities sold to public from January 1, 1924, to De- 
cember 31, 1929, by Standard Gas & Electric Com- 
pany or any of the corporations in its system 

Memorandum, dated December 21, 1929, entitled 
"Banking," signed by J. H. Briggs, H. M. Byllesby 
& Co., Victor Emanuel, United States Electric Power 
Corporation, and Walter Rosen, Ladenburg, Thal- 
mann & Co., allocating participations, leadership, 
and management in future financing of Standard 
Gas & Electric, Standard Power & Light, and Phila- 
delphia Company systems 

Memorandum, dated May 15, 1928, by Victor Emanuel, 
United States Electric Power Corporation, regarding 
agreement covered in conversation between Alfred 
Lowenstein and Victor Emanuel relative to Standard 
Gas & Electric Co., American Water Works & Elec- 
tric Company, Inc., and Middle West Utilities Co- 
pany 

Memorandum, dated May 16, 1929, by Carlton P. 
Fuller, Schroder, Rockefeller & Company, Inc., re- 
garding status of Standard Gas & Electric Company 
for London interests 



1929. 



1930. 



1931. 



1932. 



1933. 



12547 



12547 



12547 



12552 



12552 



12859 



12860 



12860 



12860 



12865, 



12553 



12555 



12555 



12561 



12S64 



( 2 ) 



12867 



( 3 ) 



12868 



12563 



12569 I 12870 



» The full text of the contract is on file with the committee. 

' On.file with the Securities & Exchange Commissien, Docket 31 420, vol. 2, Exhibit No. .21. 

* On file with the committee. ' - -■ 



XXII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1934. Cable, dated October 15, 1928, from Frank Tiarks, to 

Schrodpriv^ (J. Henry Schroder & Co., London) with 
regard to acquiring control of Standard Gas & Elec- 
tric Company ^ 

1935. Copy of Cable dated October 19, 1929, from C. L. 

Fisher, vice president, Hydro-Electric Securities 
Corp. to Loewenstol, Brussels, (Hydro-Electric Se- 
curities Corp., Brussels office), regarding agreement 
as to terms in gaining control of Standard Gas & 
Electric Company 

1936. Copy of cable dated* September 12, ,1929., from Schroder, 

Rockefeller & Co., Inc. to Schrodpriv (J. Henry 
Schroder & Co., London) regarding invitation to 
Baron Schroder to accept directorship in United 
States Power Corporation 

1937. Cable from Baron Schroder, J. Henry Schroder & Co., 

to J. Henry Schroder Banking Corporation for C. L. 
Fisher, Hydro-Electric Securities Corp., accepting 
position on the board of directors - 

1938. Cable, dated September 13, 1929, from J. Henry Schroder 

Banking Corp. to Baron Schroder, J. Henry Schroder 
& Co., London, regarding position in UniteS States 
Electric Power Corporation business 

1939. Cable, dated September 13, 1929, from Schrodpriv (J. 

Henry Schroder & Co., London) to Schrobanco (J. 
Henry Schroder Banking Corporation, New York) 

fiving reason for accepting directorship of United 
tates Electric Power Corporation _ , 

1940-1. Table: Securities sold to the public by Standard Gas 
& Electric Company or any of the corporations in 
its system, January 7, 1930, to June 1, 1936, and per- 
centages of participations therein 

1940-2. Supplementary Exhibit A to Table: Securities sold to 
the public by Standard Gas & Electric Company or 
any of the corporations in its system, January 7, 1930, 
to June 1, 1936, and percentages of participations 
therein 

1940-3. Supplementary Exhibit B to Table: Securities sold to 
the public by Standard Gas & Electric Company or 
any of the corporations in its system January 7, 1930, 
to June 1, 1936, and percentages of participations 
therein 

1940-4. Supplementary Exhibit C to Table: Securities sold to 
the public by Standard Gas & Electric Company or 
any of the corporations in its system January 7, 1930, 
to June 1, 1936, and percentages of participations 
therein 

1941. Table: Names of issues, and participants therein, of 

securities sold to the public from January 1, 1930, to 
April 22, 1938, by Standard Gas & Electric Company 
or anv of the corporations in its svstem 

1942. Letter, dated June 11, 1938, from W. G. Pohl, H. M. 

Byllesby & Co., to C. Roy Smith, Securities and Ex- 
change Commission, giving names of syndicate man- 
agers in Standard Gas & Electric Company, January 
1, 1924, to April 22, 1938.. - 

' Onlfile with the Committee. 



12571 



12574 



12575 



12575 



12575 



12575 



12576 



12576 



12576 



12576 



12576 



12576 



12871 



12872 



12872 



12873 



12873 



12873 



Facing 
12874 



12874 



12874 



12875 



0) 



0) 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXIII 



Number and summary of exhibits 




1943. Memorandum, dated August 10, 1934, by Carlton P. 

Fuller, Schroder, Rockefeller & Co., Inc., regarding 
general evaluation of future prospects of Standard 
Gas & Electric Company 

1944. Cable, dated September 13, 1934, from Mr. Vander- 

straten, Hydro-Electric Securities Corp., to Alemanual 
(Albert Emanuel Co.) regarding Chase National 
Bank negotiating with group for Harrison Williams 
concerning pledged Usepco securities 

1945. Cable, dated September 16, 1934, from Alemanuel 

(Albert Emanuel Co.) to Mr. Vanderstraten, Hydro- 
Electric Securities Corp., regarding arrangement with 
H. M. Byllesby & Company giving Hydro-Electric 
Securities Corp. option on Usepco securities 

1946. Cable, dated September 21, 1934, from Schrobanco 

(J. Henry Schroder Banking Corporation, New York) 
to Schrodpriv (J. Henry Schroder & Co., London) 
for Major Pam regarding further financial interest 
by Hydro-Electric Securities Corp. in United States 
Electric Power Company 

1947. "Extract from Mr. Mocarski's letter of December 17, 

1934" regarding Hydro-Electric's bid for Usepco 
indebtedness 

1948. Cable, dated November 6, 1934 (from J. Henry Schroder 

Banking Corporation, New York), to Schrodpriv 
(J. Henry Schroder & Co., London) for Major Pam 
regarding necessary readjustments among operating 
companies to make Standard Power or Standard Gas 
equity attractive 

1949. Memorandum, dated December 18, 1935, by Robin 

Wilson, J. Henry Schroder & Co., London, regarding 
possible sale of $3,000,000 claim against Usepco by 
Chase Bank* Chemical Bank and Guaranty Trust 

1950. Cable, dated December 19, 1935, from Robin Wilson, J. 

Henry Schroder & Co., London, to Neil Adshead, J. 
Henry Schroder & Co., London, regarding Victor 
Emanuel, Hydro Electric and Leadenhall Securities 
Co. acquiring Usepco's holdings in Standard Power & 
Light shares and 75 percent of Standard Gas System 
financing 

1951. Cable, dated December 19, 1935, from Neil R. Adshead, 

J. Henry Schroder & Co., London, to C. F. Beal, J. 
Henry Schroder Banking Corporation, New York, 
with regard to delaying until more definite plan for 
Usepco available 

1952-1. Cable, dated December 20, 1935, from J. Henry 
Schroder & Co., London, to (J. F. Beal) J. Henry 
Schroder Banking Corporation, New York, regard- 
ing possible value of 75% financing of Standard Gas 
System ._ 

1952-2. Memorandum, entitled "Standard Gas & Electric Co. — 
Information obtained by Robin Wilson from Victor 

Emanuel" 

1953. Letter, dated December 26, 1935, from Carlton P. Fuller, 
Schroder Rockefeller & Co., Inc., to John L. Simpson, 
J. Henry Schroder Banking Corporation, New York, 
regarding plan to pay banks $1,500,000 for their claim 
against Usepco - 

1954-1. Letter, dated January 10, 1936, from Carlton P. Fuller to 
John L. Simpson reviewing situation with respect to 
Schroder interests and future prospects 



12578 
12579 
12580 

12583 
12583 

12583 
12585 

12585 

12586 

12586 
12586 

12588 
12591 



Appears 
on page 



12875 
12876 
12876 

12877 
12878 

12878 
12879 

12879 

12880 

12880 
12880 

12882 
12884 



XXIV 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1954-2. Cable, dated January 8, 1936, from Emanuel to Schroder, 
London, for Major Pam and Robin Wilson regarding 
respective participations in future financing of London 
and American interests 

1955. Cable, dated January 14, 1936, from Carlton P. Fuller to 

Schrodpriv (J. Henry Schroder & Co., London'), re- 
garding active competition for Usepco securities by 
Harrison Williams and stating that American group 
must be prepared to put in cash and/or reciprocity in 
order to retain position in Standard financing 

1956. Cable, dated January 15, 1936, from Schrodpriv, J. 

Henry Schroder & Co., London, to Schrobanco, J. 
Henry Schroder Banking Corporation, New York, re- 
garding Hydro Schroder group agreeing to take par- 
ticipation in purchase group of Usepso loan 

1957. Cable, dated February 14, 1936, from Schrodpriv, J. 

Henry Schroder & Co., London, to Schrobanco, J. 
Henry Schroder Banking Corporation, New York, re- 
questing information regarding advisability of Hydro 
and other clients participating in Usepco loan 

1958. Letter, dated February 17, 1936, from Victor Emanuel, 

Emanuel & Co., to C. P. Fuller, J. Henry Schroder 
Banking Corporation, offering suggestions for reply to 
J. Henry Schroder & Co.'s cable of February 14, 1936. 

1959. Cable, dated February 18, 1936, from C. P. Fuller, 

Schroder Rockefeller & Co., to Schrodpriv (J. Henry 
Schroder & Co., London) regarding attractiveness of 
Usepco loan acquisition and future underwriting of 
Standard Gas System securities 

1960. Cable, dated February 20, 1936, from Schrodpriv (J. 

Henry Schroder & Co., London) to C. F. Beal, J. 
Henry Schroder Banking Corporation (New York) 
regarding J. Henry Schroder & Co., or Leadenhall 
Securities Co. sharing directly in American under- 
writing 

1961-1. Cable, dated February 24, 1936, from C. P. Fuller, 
Schroder Rockefeller & Co., Inc., to Schrodpriv (J. 
Henry Schroder & Co., London) regarding disqualifi- 
cation of Leadenhall Securities Co. or new company 
and suggesting Conti-Trust as appropriate partici- 
pant for American underwritings 

1961-2. Letter, dated March 27, 1936, from Robin Wilson, 
London, to Victor Emanuel, New York, regarding 
Usepco deal having "gone completely to sleep for the 
moment" 

1962. Cable, dated May 22, 1936, from Schrodpriv (J. Henry 

Schroder & Co., London) to Robin Wilson, J. Henry 
Schroder & Co., London, regarding promise to Hydro- 
Electric Securities Corp. of participation in financing 
profits and other details on American underwriting.. 

1963. Cable, dated May 25, 1936, from Robin Wilson, J. Henry 

Schroder & Co., London, to Schrodpriv (J. Henry 
Schroder & Co., London) regarding possible returns 
on investment of Hydro-Electric Securities Corp.; 
difficulties of foreign underwriters enforcing reciproc- 
ity and advising underwriting risk still exists although 
limited to few hours 



12591 



12594 



12595 



12596 



12597 



12597 



12597 



12597 



12597 



12600 



12600 



12886 



12887 



12887 



12887 



12888 



12889 



12890 



12890 



12891 



12892 



12892 



' CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXV 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1964. 



1965. 

1966. 

1967-1. 
1967-2. 

1968. 

1969. 
1970. 

1971. 

1972. 
1973. 

1974. 



Letter, dated August 24, 1936, from J. Henry Schroder 
& Co. to Schroder Rockefeller & Co., Inc., regarding 
the taking over from J. Henry Schroder Banking 
Corporation by Schroder Rockefeller & Co., Inc., of its 
interest in United States Electric Power Corporation 
and Schroder Rockefeller k Co. to become agent for 
London interests in financing of Standard Gas Sys- 
tem -, 



Memorandum, dated May 28, 1936, by E. G. Dief en- 
bach, Bancamerica-Blair Corporation, regarding 
acquisition of notes of United States Electric Power 
Corporation and agreement between latter and H. M. 
Byllesby & Co. for 75% of the financing of the Stand- 
ard Gas & Electric System : 

Cable, dated January 6, 1936, from Schrodpriv (J. 
Henry Schroder & Co., London) to Schrobanco (J. 
Henry Schroder Banking Corporation, New York) 
requesting legal advice on Usepco program and 
whether contract assuring 75% future group financing 
to Emanuel and Hydro is binding 

Cable, from Victor Emanuel, Emanuel & Co. to Robin 
Wilson, J. Henry Schroder & Co., London, regarding 
difficulties with respect to Sullivan and Cromwell 

Cable, dated January 7, 1936, to Major Pam, Hotel 
Meurice, Paris, from Carolton P. Fuller, J. Henry 
Schroder .Banking Corporation, New York, regarding 
Sullivan & Cromwell's comments with reference to 
cable of January 6, 1936 

Memorandum, dated March 10, 1936, by Carolton P. 
Fuller, J. Henry Schroder Banking Corp., New York, 
to Messrs. Beal and Simpson, J. Henry Schroder 
Banking Corp., New York, regarding comments of 
Mr. R. Crispell, Sullivan & Cromwell, on Byllesby- 
Usepco agreement i. 

Memorandum, dated March 13, 1936, by Carlton P. 
Fuller regarding the three agreements entered into 

between H. M. Byllesby & Co. and Usepco 

.Copy of letter dated March 13, 1936, from J. L. Simpson, 
J. Henry Schroder Banking Corporation, to Frank 
Common, Messrs. Brown, Montgomery & McMichael, 
confirming view that financial agreement between 
Byllesby and Usepco is not legally binding 

Memorandum, dated May 18, 1928, regarding Standard 
Gas & Electric Company, American Water Works & 
Electric Company, Inc., and Middle West Utilities 
Company covering statistical information, earnings 
and dividends per shares, financial and statistical 
information along with explanation of certain items... 

Letter, dated January 4, 1940, from S. W. Duhig, vice 
president, Shell Union Oil Corporation, to Peter R. 
Nehemkis, Jr., Special Counsel, with stipulation 
covering communications or memoranda sent or re- 
ceived by Shell Union Oil Corporation 

Letter, dated June 7, 1935, from J. C. Van Eck, director, 
Shell Union Oil Corporation, to F. Godber, director, 
Shell Union Oil Corporation with regard to prospective 
financing by Hayden, Stone, Lee Higginson group 
approach by a banking syndicate consisting of Lehman 
Brothers and others 

Memorandum showing public offerings of Shell Union 
Securities with principal underwriters prior to 1935 



12600 

12606 

12611 
12611 

12611 

12616 
12622 

12623 

12623 
12628 



12628 
12629 



12893 

12894 

12895 
12895 

12896 

12896 
12897 

12899 

12899 
12903 



12904 
12905 



XXVI 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1975. Letter, dated July 22, 1935, from S. Belither, director, 
Shell Union Oil Corporation, to J. C. Van Eck, 
director, Shell Union Oil Corporation, regarding dis- 
cussions with Dillon, Read & Co. relative to refinanc- 



1976. 
1977. 

1978. 

1979. 

1980. 
1981. 

1982. 

1983. 

1984. 

1985. 
1986. 



ing. 



Cable, dated August 14, 1935, from Condeteck (Shell 
Union Oil Corporation, New York) to Sir Henri 
Deterding, director, Royal Dutch Company, regarding 
offer of Dillon, Read & Co. to underwrite $50,000,000 
4% debentures of Shell Union Oil Corporation 

Cable, dated October 14, 1935, from Sir Henri Deterding 
to J. C. Van Eck, director, Shell Union Oil Corpor- 
ation, regarding introduction of Pierre David Weill, 
Lazard Freres & Co., Paris, in view of possible future 
financing of Shell Union Oil Corporation, and to 
introduce Stanley Russell 

Cable, dated July 29, 1935, from Sir Henri Deterding 
to Condeteck (Shell Union Oil Corporation) attention 
J. C. Van Eck, et al, suggesting Dillon, Read & Co. 
first make their offer in Shell Union Oil Company re- 
financing with. suggestion that Lehman Brothers be 
considered next 

Cable, dated November 1, 1935, from Condeteck (Shell 
Union Oil Corporation, New York) to Sir Henri 
Deterding regarding terms of Dillon, Read & Co.'s 
offer in Shell Union Oil Corporation refinancing with 
suggestion that "other banker friends" be given 
opportunity to submit terms 

Letter, dated December 16, 1935, from Dillon, Read & 
Co. to Shell Union Oil Corporation regarding $50,- 
000,000, Zy-1% fifteen year debentures 

Letter, dated December 18, 1935, from Lee Higginson 
Corporation and Hayden, Stone & Company to Shell 
Union Oil Corporation regarding their interest in Shell 
Union refinancing as soon as market conditions reach 
the*point where issue can successfully be made 

Cable, dated January 14, 1936, from Sir Henri Deterd- 
ing, Royal Dutch Company, to Shell Union Oil Cor- 
poration regarding refinancing proposal and Pierre 
David" Weill's phone call. Recommends careful con- 
sideration of any proposal more attractive than that of 
Dillon, Read & Co.'s 

Cable, dated January 13, 1936, unsigned (from Shell 
Union Oil Corporation) to Condeteck, London, re- 
garding Clarence Dillon's verbal offer and relative to 
obtaining in writing an offer regarding $50,000,000 
refinancing from all interested parties 

Cable, dated January 22, 1936, from Shell Union Oil 
Corporation to Sir Henri Deterding remarking about 
undesirable complications of competitive bidding and 
reporting that Dillon, Read & Co. and Hayden, Stone 
& Co. are to be joint syndicate managers 

Table: List of participants showing the dollar amount of 
participations of the Shell Union Oil Corporation group 
dated February 10, 1936___: 

Telegram, dated March 6, 1936, from R. van der Woude, 
president, Shell Union Oil Corporation, to F. Godber, 
director, Shell Union Oil Corporation, regarding Dil- 
lon's desire t<> express views to Mr. Godber relative to 
ShclL, Union QiH ition'issue 



12905 
12905 

12906 

12906 

12906 
12907 

12908 

12908 

12908 

12909 
12910 

12910 



12629 
12629 

12629 

12629 

12630 
12631 

12631 

12631 

12632 

12632 
12634 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXVII 



Number and summary ofjexhibits 



Intro- 
duced 
at pa^e 



Appears 
on page 



1987. Telegram, dated March 6, 1936, from F. Godber to R. 

van der Woude relative to maintaining view already 
expressed to Dillon 

1988. Letter, dated November 3, 1939, from Wilbur C. 

DuBois, Dillon, Read & Co., to O. L. Altman, Secur- 
ities & Exchange Commission, enclosing photostatic 
copies of accounts connected with $60,000,000 Shell 
Union Oil Corporation 15-year, 3J4% debentures, and 
copy of underwriting agreement dated March 7, 1936 
between Dillon, Read & Co., Hayden, Stone & Co. 
and Shell Union Oil Corporation for $60,000,000 
15-year, 3)4% debentures, due March 1, 1951 

1989. Telegram, dated March 11, 1936, from J. W. Watson, 

Shell Petroleum Corp., to S. W. Duhig, treasurer, Shell 
Union Oil Corporation, regarding fact that $60,000,000 
15-year, 3%% debentures moving slowly 

1990. Telegram, dated March 11, 1936, from J. C. Van Eck, 

director, Shell Union Oil Corporation, to F. Godber, 
director, Shell Union Oil Corporation, regarding neces- 
sary time before $60,000,000 15-year, 3y 2 % debentures 
are absorbed as result of slow sale of issue 

1991-1. Letter, dated January 9, 1940, from H. H. Egly, Dillon, 
Read & Co., to Peter R. Nehemkis, Jr., confirming 
memorandum submitted regarding distribution of 
Shell Union 3}£% debentures in 1936 and explaining 
why no management fee was charged 

1991-2. Memorandum, prepared by Investment Banking Section 
of Securities and Exchange Commission dated No- 
vember 17, 1939, headed "Distribution of Shell Union 
3*/£% debentures in 1936" showing underwriting group 
and amount of participation of each 

1992. Letter, dated April 3, 1936, from J. C. Van Eck, director, 

Shell Union Oil Corporation, to G. Legh-Jones, 
director, Shell Union Oil Corporation, London, re- 
garding report of Mr. Clarence Dillon, Dillon, Read 
& Co., relative to Shell Union issue, and telling 
amount of bonds still in hands of several underwriters 

1993. Cable, dated January 20, 1937, from R. G. Van der 

Woude, president, Shell Union Oil Corporation to 
Vanwood, London, regarding Tide Water Associated 
financing ■_; 

1994. Letter, dated February 4, 1937, from R. G. A. Van der 

Woude to J. C. Van Eck regarding financial standing 
of Shell Union Oil Corporation and possibility of 
refunding outstanding preferred stock and raising 
additional capital 

1995. Cable, dated March 5, 1937, to Vanwood from R. G. 

Van der Woude relative to it being best not to disturb 
grouping of bankers as was formed in 1936 financing. 
Mentions fact that Dillon Read, Hayden Stone, and 
Lee Higginson have come to understanding among 
themselves 

1996. Memorandum, dated March 16, 1937, by S. W. Duhig, 

treasurer, Shell Union Oil Corporation, regarding 
proposal underwriting group were prepared to make 
in refinancing Shell Union preferred stock and the 
proportion each banker would share in the under- 
writing 



12635 



12911 



12635 



12636 



12636 



12636 



12636 



12637 



12637 



12637 



12639 



12639 



12911 



12914 



12636 



12915 



12915 



12918 



12919 



12919 



12922 



12923 



XXVIII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



1997. Cable, dated March 16, 1937, from R. G. Van der 

Woude, president, Shell Union Oil Corporation, to 
Vanwood, regarding unsatisfactory offer of Dillon, 
Read & Co. in proposed new financing of Shell Union 
Oil Corporation 

1998. Cable, dated March 17, 1937, from R. G. Van der 

Woude to Vanwood, regarding 10-day limit set for 
Dillon, Read & Co. to revise the offer in Shell Union 
financing at end of which period company considers 
itself "entirely free to approach others." 

1999. Letter, dated January 18, 1938, from J. C. Van Eck, 

director, Shell Union Oil Corporation, to R. G. Van 
der Woude regarding a possible new banking con- 
nection with Morgan Stanley & Co., Incorporated 
and latter's ideas about restrictions on proposed 
financing 

2000-1. Letter dated January 8, 1940, from C. B. Stuart, Halsey, 
Stuart & Co., Inc., to Peter R. Nehemkis, Jr., enclos- 
ing stipulation identifying letter initialed C. B. S. 
dated May 11, 1938 -' 

2000-2. Letter, dated May 11, 1938, from C. B. S. (Charles B. 
Stuart), Halsey, Stuart & Co., Inc., to H. L. Stuart, 
Halsey, Stuart & Co., Inc., relative to Morgan Stan- 
ley & Co., Incorporated working on Shell Union' Oil 
Corporation financing 

2001. -Letter, dated April 13, 1938, from R. G. Van der Woude, 

president, Shell Union Oil Corporation, to J. C. Van 
Eck, director, Shell Union Oil Corporation, regarding 
preliminary discussions with Morgan Stanley & Co. 
Incorporated for new financing of Shell Union 

2002. Memorandum dated April 22, 1938, by S. W. Duhig, 

treasurer, Shell Union Oil Corporation, regarding dis- 
cussions with M. C. Laffey of Equitable Life Assur- 
ance Society of U. S. A. regarding proposed $25,000' 
000 loan 

2003. Cable, dated April 30, 1938, from R. G. Van der Woude 

to Vanwood regarding various financing opportunities 
and opinion insurance companies most preferable to 
Shell Union. 

2004. Letter, dated June 1, 1938, from R. G. Van der Woude 

to A. Fraser, Shell Petroleum Corp. requesting com- 
prehensive preliminary report so Equitable Life 
Assurance Society of U. S. A. will be justified in clos- 
ing deal prior to receiving final report 

2005. Letter, dated May 23, 1939, from S. W. Duhig, treasurer, 

to R. G. Van der Woude, president, Shell Union Oil 
Corporation, regarding attempt to negotiate an ad- 
justment in the interest rate on $25,000,000 loan with 
Equitable Life . 

2006. Letter, dated May 24, 1939, from S. W. Duhig to R. G. 

Van der Woude giving summary of talk with William 
Ewing and Perry E. Hall, Morgan Stanley & Co. 
Incorporated, regarding Shell Union financing 

2007. Cable, dated June 6, 1939, from R. G. Van der Woude 

to Vanwood, regarding Equitable Life's willingness 
to reduce interest rate in exchange for bonus and 
suggestion that company' proceed to finance through 
Morgan Stanley 

2008. Cable, dated June 26, 1939, from R. G. Van der Woude 

to Vanwood regarding tentative agreement with 
Morgan Stanley & Co. Incorporated for the public 



12640 



12640 



12640 



12641 



12641 



12643 



12644 



12644 



12646 



12646 



12647 



12647 



12924 



12924 



12925 



12925 



12926 



12926 



12927 



12927 



12929 



12929 



12930 



12931 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXIX 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



2005. 



2010. 



2011. 



offering of $85,000,000, 15-year, 2}i% debentures at 
98^, as result of Equitable's refusal to make changes 

in existing agreements S| 1264? 

Cable, dated July 13, 1939, by R. G. van der Woude to 
Vanwood regarding discussion with Morgan Stanley 
& Co. Incorporated. Due to market changes a 
successful issue was impossible at an offering price, 

better than 97^ 12649 

Telegram, dated July 17, 1939, from R. G. van der 
. Woude to S. Belither, director, Shell Union Oil Cor- 
poration, regarding the signing of underwriting agree- 
ment with Morgan Stanley & Co. Incorporated at 



97%. 



Purchase contract between Shell Union Oil Corporation 
and Morgan Stanley & Co., Incorporated, covering the 
$85,000,000 Shell Union Oil Corporation 15-year, 
2>S% debentures dated July 1, 1939, due July 1, 1954 
showing list of participants and amount each received 
in underwriting. 

Selling group letter from Morgan Stanley & Co., In- 
corporated, covering dealer participations in the 

above described issue 

2012. Cable, dated July 20, 1939, from R. G. van der Woude, 
president, Shell Union Oil Corporation to Vanwood, 
regarding slow response of Shell Union Oil Corporation 
$85,000,000, 15-year, 2^% debentures 

2013-1. Stipulation by Arthur Dean, Sullivan & Cromwell, 
counsel to The First Boston Corporation, identifying 
memorandum dated March 10, 1937 by H. M. Addin- 
sell, The First Boston Corporation . 

2013-2. Memorandum, dated March 10, 1937, by H. M. Addin- 
sell, The First Boston Corporation, regarding tele- 
phone conversation with Dean Mathey of Dillon, 
Read & Co. concerning Shell Union's proposed pre- 
ferred stock issue. Mentions "well-known trading 
proclivities of the Shell people." 

2014. Letter, dated November 20, 1939, from Perry E. Hall, 

Morgan Stanley & Co., Incorporated, to P. R. 
Nehemkis, Jr., enclosing a memorandum relating to 
Shell Union Oil Corporation 3%% debentures 

2015. Underwriting agreements between Morgan Stanley & 

Co. Incorporated and Shell Union Oil Corporation 
regarding the $85,000,000 Shell Union Oil Corporation 
15-year 2#% debentures dated July 1, 1939, due July 
1, 1954, listing group of eighty-five underwriters and 
amount of participation of each 

2016. Extract of underwriting agreement dated July 17, 1939 

between Morgan Stanley & Co. Incorporated and 
Southern Bell Telephone & Telegraph Company for 
$22,250,000 3% debentures due July 1, 1979, con- 
taining Morgan Stanley & Co.'s guarantee of per- 
formance by underwriters ^ 

2017. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for Appalachian Electric 
Power Co. $57,000,000 first mortgage 4% bonds, due 
1963 and $10,000,000 sinking fund debentures 4J4% 
series, due 1948, dated January 28, 1938, Bonbright 
& Co. Inc. syndicate managers 1 



12650 



12650 



12650 



12651 



12651 



2660 



12660 



12663 



12667 



12931 



12932 



12933 



12933 



12650 



12942 



12942 



12943 



12944 



12956 



12957 



' The full text of the contract is on file with the Committee. 



XXX 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



2018. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Bethlehem 
Steel Corporation, $25,000,000 consolidated mort- 
gage 20-year sinking fund 3J4% bonds, Series F, due 
1959, dated June 26, 1939, Kuhn, Loeb & Co., Smith 
Barney & Co., Mellon Securities Corporation syndi- 
cate managers * 

2019. Provisions governing disposition of securities reserved 

dealers in selling group but not purchased by them, 
from underwriting contract for Central Illinois Public 
Service Company $38,000,000 first mortgage bonds, 
Series A, 3%%, due 1968, dated December 5, 1938; 
Halsey, Stuart & Co., Inc., syndicate managers 1 

2020. Provisions governing disposition of securities reserved 

for dealers in . selling group but not purchased by 
them, from underwriting contract for Central Maine 
Power Company, $4,500,000 first and general mort- 
gage bonds, Series J, 3)4% due 1968, dated February 
17, 1939; Coffin & Burr, Incorporated, syndicate 
managers ' . ^ 

2021. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for- Consolidated 
Gas, Electric Light & Power' Company of Baltimore, 
$7,000,000, Series P, 3% first refunding mortgage 
sinking fund bonds due 1969, dated June 5, 1939; 
White, Weld & Co., syndicate managers x 

2022. Provisions governing disposition of securities reserved 

for dealers in selling groups but not purchased by 
them, from underwriting contract for Dallas Power 
& Light Company, $16,000,000 first mortgage bonds, 
3#%, due 1967, dated February 6, 1937; Lee, Higgin- 
son Corporation, syndicate managers l 

2023. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Firestone Tire 
& Rubber Company $50,000,000 10-year 3#% 
debentures, due 1948, dated October 24, 1938 Brown, 
Harriman & Co., Incorporated and Otis & Co. (Incor- 
porated) syndicate managers ' 

2024. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Gatineau 
Power Company $52,500,000 first mortgage 3J4% 
bonds, Series A, due 1969, dated April 21, 1939 The 
First Boston Corporation, syndicate managers ' 

2025. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Indianapolis 
Power & Light Company $32,000,000 first mortgage 
bonds, S%% series, due 1968 and $5,500,000 serial 
notes, dated August 3, 1938 Lehman Brothers, 
syndicate managers l 

2026. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for Michigan Consoli- 
dated Gas Company, $34,000,000 first mortgage 
bonds, 4% series, due 1963, dated October 4, 1938; 
Dillon, Read & Co., Mellon Securities Corporation, 
syndicate managers 1 



12667 



12667 



12667 



12667 



12667 



12667 



12667 



12667 



12667 



12957 



12957 



12958 



12958 



12958 



12959 



12959 



129*9 



12960 



i The full text of the contract is on file with the Committee. 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXXI 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



2027. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Montana- 
Dakota Utilities Co. $9,000,000 first mortgage sinking 
fund bonds, 4J4% series, due 1954, dated May 20, 
1939; Blyth & Co., Inc. and Merrill Lynch & Co., 
Inc., syndicate managers ' .__ 

2028. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for National Distillers 
Products Corporation $22,500,000 10-year convertible 
Sy 2 % debentures, due March 1, 1949, dated March 17, 
1939; Glore, Forgan & Co., Harriman Ripley & Co., 
Inc., syndicate managers ' 

2029. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for National Steel Cor- 
poration $50,000,000 first (collateral) mortgage bonds, 
3% series, due April 1, 1965, dated April 24, 1939; 
Kuhn, Loeb & Co. and Harriman Ripley & Co., In- 
corporated, syndicate managers J 

2030. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for New York State 
Electric & Gas Corporation $13,000,000 first mortgage 
bonds, 3%% series, due 1964, dated June 19, 1939; The 
First Boston Corporation and Glore, Forgan & Co., 
syndicate managers l 

2031. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for North Shore Gas 
Company and North Shore Coke ( & Chemical Com- 
pany $5,100,000 joint first mortgage 4% bonds, series 
A, due January 1, 1942; A. G. Becker & Co., syndicate 
manager ' ,. 

2032. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for Pennsylvania Power 
& Light Company $95,000,000 first mortgage bonds, 
Zy 2 % series, due 1969, $28,500,000, 4^% debentures 
due 1974, dated August 7, 1939; Smith Barney & Co., 
The First Boston Corporation, Bonbright & Com- 
pany, Incorporated, and Dillon, Read & Co., syndi- 
cate managers ' * 

2033. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by them, 
from underwriting contract for Public Service Com- 
pany of Colorado $40,000,000 first mortgage bonds, 
3^% series, due 1964, dated November 25, 1939; 
Halsey, Stuart & Co., Inc., syndicate manager 1 

2034. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Rochester 
Gas & Electric Corporation, $8,323,000 general mort- 
gage 3#% bonds, Series J, due 1969, dated June 19, 
1939; The First Boston Corporation, syndicate man- 
agers * 



12667 



12667 



12667 



12667 



12667 



12667 



12667 



12667 



12960 



12960 



12961 



12961 



12961 



12962 



12962 



12963 



1 The full text of the contract is on file with the Committee. 



xxxti 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and" summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



2035. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Shell Union 
Oil Corporation $60,000,000 15-year 3K% deben- 
tures, due March 1, 1951, dated March 7, 1936; 
Dillon, Read & Co. and Hay den, Stone & Co., syn- 
dicate managers l i 

2036. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Southern In- 
diana Gas & Electric Company 85,895 shares 4.8% 
preferred stock, dated October 23, 1936; Bonbright 
& Company, Incorporated, syndicate manager 1 .. 

2037. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them; from underwriting contract for Texas Corpor- 
ation $40,000,000, 3% debentures due 1959, dated 
April 10, 1939; Dillon, Read & Co., syndicate man- 
agers 1 

2038. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Union Oil Com- 
pany of California $30,000,000, 3% debentures, due 
1959, dated August 14, 1939; Dillon,. Read & Co., 
syndicate managers ' , 

2039. Provisions governing isposition of securities reserved 

for dealers in sellii.g group but not purchased by 
them, from underwriting contract for West Texas 
Utilities Company $18,000,000 first mortgage bonds, 
series A, 3%%, due 1969, dated June 2, 1939; Harris, 
Hall & Company (Inc.), syndicate managers 1 

2040. Provisions governing disposition of securities reserved 

for dealers in selling group but not purchased by 
them, from underwriting contract for Wisconsin 
Electric Power Company $54,500,000 first mortgage 
bonds 3Yz% series, due 1968, dated October 21, 1938; 
Dillon, Read & Co., syndicate manager ' i 

2041. Table: Shell Union Oil C or P ora tion debentures pur- 

chased by underwriters from company and reserved 
to underwriters for retail distribution by Morgan 
Stanley & Co., Incorporated 

2042-1. Telegram, dated August 29, 1938, from T. E. Hough, 
Halsey, Stuart & Co., Inc., to J. H. Carlson request- 
ing information regarding amount set aside for special 
sales and selling groups in certain specified security 
issues 

2042-2. Copy of" Venegram dated August" 30, ~f 938, from J. H. 
Carlson to T. E. Hough stating he will check around 
and advise as to information requested 

2042-3. Copy of telegram dated August 30, 1938, from J. G, 
Carlson to T. E. Hough regarding "giveups" in 
issues headed by Morgan Stanley & Co. Incorporated, 
as reported by various houses 

2042-4. Copy of telegram dated August 31, 1938, from J. H. 
Carlson to T. E. Hough stating "giveups" in issues 
headed by Morgan Stanley & Co., Incorporated, as 
reported by Blyth & Co., Inc 

1 The full text of the contract is on file with the Committee. 



12667 

12667 

12667 

12667 

12667 

12667 
12669 

12671 
12671 

12671 

12671 



12963 

12963 

12964 

12964 

12964 

12965 
12965 

12670 
12670 

12671 

12671 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXXIII 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



2042-5. Copy of telegram dated August 30, 1938, from J. H 
Carlson to T. E. Hough regarding "giveups" in cer 
tain other security issues 12671 12966 

2043. Sample of dealer performance record card used by 

Morgan Stanley & Co., Incorporated 12681 12967 

2044. Sample of dealer performance record card used by 

Kidder, Peabody & Co. 1 12682 12975 

2045. Sample of dealer performance record card used by 

White, Weld & Co 12682 12975 

2046. Sample of dealer performance record card used by 

Mellon Securities Corporation 12682 

2047-1. Sample of dealer performance record card used by 

Harriman Ripley & Co. Incorporated . 12683 12977 

2047-2. Memorandum prepared by Harriman Ripley & Co. 
Incorporated entitled, "The syndication of new issues 
of corporate securities," describing formation of sell- 
ing groups and manner of keeping performance cards. 12683 12978 

2048. Stipulation by George A. Brownell, counsel to Morgan 

Stanley & Co. Incorporated, identifying documents 

from the files of Morgan Stanley & Co. Incorporated. 12683 12983 

2049. Telegram, dated July 18, 1939, from H. B. Cohle & Co. 

to Morgan Stanley & Co. Incorporated, asking for 
offering and participation in Shell Union Oil Corpora- 
tion syndicate . 12683 12985 

2050. Letter, dated July 18, 1939, from Sumner B. Emerson, 

Morgan Stanley & Co. Incorporated, to H. B. Cohle 
& Co. requesting information as to distributing 
ability, etc., before making an offering of Shell Union 
Oil Corporation debentures 12683 12985 

2051. Letter, dated July 14, 1939, from Morgan Stanley & 

Co. Incorporated, to Messrs. Surdam & Co. requesting 

Information as to distributing ability, etc ..- 12683 12985 

2052. Letter, dated July 14, 1938, from J. Lyle Osborne, 

Schwabacher & Co., to John Young, Morgan Stanley 
& Co. Incorporated, reporting on company's distribu- 
tion of Standard Oil Company of New Jersey issues.. 12683 12985 

2053. Letter, dated October 26, 193®, from John M. Young, 

Morgan Stanley & Co., Incorporated, to E. O. Dor- 
britz,- Messrs. Moore, Leonard & Lynch, expressing 
dissatisfaction with firm's excessive distribution of 
American Telephone & Telegraph Company deben- 
tures to country banks 12684 12683 

2054-1. Letter, dated January 14, 1937, from George V. Rotan, 
George V. Rotan Co., to John M. Young expressing 
hope that standing of George V. Rotan Co. will not 
be impaired for declining an offering 12684 1 2986 

2054-2. Letter, dated January 19, 1937, from John M. Young to 
George V. Rotan saying that "single instance" of dec- 
lination will not affect standing of George V. Rotan 
Co. with Morgan Stanley & Co. Incorporated- ., 12684 12987 

2055. Letter, dated July 19, 1939, from Earle F. Spencer, 

Spencer, Swain & Co., to William L. Day, Morgan 
Stanley & Co., Incorporated, hoping firm's future 
position with Morgan Stanley & Co., Incorporated, 
as result of returning $10,000 of Shell Union Oil Cor- 
poration bonds will not be jeopardized 12685 12685 

2056. Letter, dated July 19, 1939, from F. L. Dabney & Co. 

to William L. Day, Morgan Stanley & Co., Incorpo- 
rated, regarding acceptance of $10,000 debentures 
(although not sold) and return of $40,000 of Shell 
Union Oil Corporation 15-year 2^% debentures 

1XM491 — 10 — pt. 24 3 



XXXIV 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



2060. 



2061. 



2057. Letter, dated July 19, 1939, from Leland M. Bell, Kerr 

& Bell, to Sumner B. Emerson, Morgan Stanley & 
Co., Incorporated, regarding firm's return of Shell 
Union Oil Corporation 2%% debentures 

2058. Letter, dated July 19, 1939, from Philip H. Gerner, 

George D. B. Bonbright & Co., to Sumner B. Emer- 
son, Morgan Stanley & Co., Incorporated, regarding 
future participation in other deals as result of small 
sales of Shell Union Oil Corporation debentures 

2059. Memorandum, dated November 6, 1935, by Blyth & Co. 

to the sales managers relative to Morgan Stanley & 
Co., Incorporated, checking through brokers for 60 
or 90 days after selling groups are closed to find out 
who among underwriters and selling group are not 
selling bonds for permanent placement 

Letter, dated July 21, 1939, from C. H. Hyams, 3rd, 
Hyams, Glas & Carothers, to Perry Hall, Morgan 
Stanley & Co., Incorporated, expressing regret at 
failure to sell Shell Union Oil Corporation debentures 
or Southern Bell Telephone & Telegraph Company 
debentures 

Letter, dated July 20, 1939, from Arthur H. Bosworth, 
Bosworth, Chanute, Loughridge & Company, to 
Morgan Stanley & Co., Incorporated, regarding high 
price of Shell Union Oil Corporation debentures and 
Southern Bell Telephone & Telegraph Company de- 
bentures 

2062. Table: Securities offered for cash by type of offering, 

January 1934r-June 1939, covering registered and 
unregistered issues publicly and privately offered 

2063. Table: Securities offered for cash by type of security, 

January 1934-June 1939, showing bonds, notes and 
debentures, preferred stock and common stock and 
total ^-_. 

2064. Table: Anlount and percent of registered bond and 

preferred and common stock issues managed by 
selected investment banking firms, January 1934- 
June 1939 .. 

2065. Table: Distribution among bonds and preferred stock 

and common stock in registered issues managed by 
selected investment banking firms, January 1934- 
Juhe 1939 

2066. Chart: Quality of bond issues managed by 38 invest- 

ment banking firms — all industries, January 1934- 

June 1939 _. 

Table: Quality of bond issues managed by 38 investment 
banking firms — all industries, January 1934-June 
1939 

2067. Table: Amount and percent of registered bond issues of 

each quality grade managed by Morgan Stanley & 
Co., Incorporated, from organization to June 30, 1939- . 

2068. Chart: Quality of bond issues managed by 38 investment 

banking firms — manufacturing companies, January 

1934-June 1939 

Table: Quality of bond issues managed by 38 investment 
banking firms — manufacturing companies, January 
1934-June 1939 

2069. Chart: Quality of bond issues' managed by 38 investment 

banking firms — electric light and power, gas, and 

water companies, January 1934-June 1939 

Table: Quality of bond issues managed by 38 investment 
banking firms — electric light and power, gas, and 
water companies, January 1934-June 1939 



12685 
12685 

12685 

12686 

12686 
12690 

12690 

12691 



12987 
12988 

12686 

12989 

12989 
12990 

12990 

12991 



12692 


12992 


12693 


12694 


12693 


12993 


12696 


12994 


12696 


12697 


12696 


12996 


12698 


12699 


12698 


12997 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXXV 



Number and summary of exhibits 



2070. 



2071. 



2073. 



Chart: Quality of bond issues managed by 38 investment 
banking firms — transportation and communication 

companies, January 1934-June 1939 

Table: Quality of bond issues managed by 38 investment 
banking firms — transportation and communication 

companies, January 1934-June 1939 

Chart: Quality of bond issues managed by 38 investment 
banking firms — companies other than manufacturing 

or public utility, January 1934-June 1939 

Table: Quality of bond issues managed by 38 investment 
banking firms — companies other than manufacturing 

or public utility, January 1934-June 1939 

2072. Table: Distribution by grades of registered bond issues 
managed by Morgan Stanley & Co., Incorporated, 
and 37 other leading investment banking firms, 

September 16, 1935- June 30, 1939 

Table: Amount and percent of participations of selected 
investment banking firms in issues managed or co- 
managed by those firms, June 14, 1934-June 30, 1939: 
Part I, Morgan Stanley & Co., 'Incorporated. 
Part II, Kuhn, Loeb & Co. 
Part III, The First Boston Corporation. 
Part IV, Blyth & Co., Inc. 
Part V, Dillon, Read & Co. 
Part VI, Mellon Securities Corporation. 
Part VII, Harriman Ripley & Co., Incorporated. 

Part VIII, Smith, Barney & Co 

2074. Chart: Distribution of sales to various classes of pur- 
chasers by the distributing group, six bond issues, 

1936-1938 „ . 

Table: Distribution 6? sales to various classes of- pur- 
chasers by the distributing group, six bond issues,. 

1936-1938 

Chart: Distribution by states of the sales made by the 

distributing group of six bond issues, 1936-1938 

Table: Distribution by states of the sales made by the 
distributing group of six bond iagues, 1936-1938 



2075. 



SUPPLEMENTAL DATA 

Unnumbered. Letter dated January 27, 1940, from Peter R. 
Nehemkis, Jr., to John M. Hancock, Lehman 
Brothers, requesting amplification of testi- 
mony 

Unnumbered. Letter dated February 16, 1940, from John M. 
Hancock to Peter R. Nehemkis, Jr., replying 
to above 

Unnumbered. Letter dated January 27, 1940, from Peter R. 
Nehemkis, Jr., to Walter Sachs, Goldman 
Sachs & Co., requesting amplification of testi- 
mony 

Unnumbered. Letter dated February 6, 1940, from Walter E. 
Sachs to Peter R. Nehemkis,. Jr., replying to 
above i 

Unnumbered. Letter dated January 22, 1940, from Arthur H. 
Dean, Sullivan & Cromwell, to Peter R. 
Nehemkis, Jr., enclosing letter from C. R. 
Palmer, Cluett Peabody & Co., to John M. 
Hancock for inclusion in the record 

Unnumbered. Letter dated May 25, 1937, from C. R. Palmer, 
Cluett Peabody & Co., Inc., to John M. Han- 
cock, Lehman Brothers, replying to points 
raised in Mr. Hancock's letter of May 18th 
("Exhibit No. 1814")..., 



Intro- 
duced 
at page 



Appears 
on page 



12700 
12700 
12702 
12702 

12704 



12701 
12998 
12703 
12999 

13000 



12704 

12707 

12707 
12707 
12707 



13001 

12708 

13005 
12709 
13006 

13007 
13008 

13010 
13011 

13012 

13012 



XXXVI 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



supplemental data — continued 

Unnumbered. Letter dated January 30, 1940, from Edwin Gibbs, 
Lehman Brothers, to Peter R. Nehemkis, Jr., 
enclosing stipulation identifying documents 
from the files of Lehman Brothers 

Unnumbered. Letter dated December 22, 1937, without signa- 
ture (from Robert Lehman, Lehman Brothers), 
to C. M. Chester, General Foods Corporation, 
stating points which would constitute an equal 
basis for handling of General Foods financing 
by Goldman Sachs & Co. and Lehman Brothers 

Unni mbered. Letter dated February 1, 1938, without signature 
(from General Foods Corporation) to Lehman 
Brothers, enclosing resolution of Board of Di- 
rectors and copy of letter to Goldman Sachs & 
Co. 



Unnumbered. 
Unnumbered. 

Unnumbered. 

Unnumbered. 
Unnumbered. 

Unnumbered- 
Unnumbered. 

Unnumbered. 



Resolution dated January 27, 1938, of the Board 
of Directors of General Foods Corporation au- 
thorizing the offer of joint syndicate manager- 
ship of proposed stock issue to Goldman, Sachs 
& Co. and Lehman Brothers 

Letter dated February 1, 1938, from C. M. Chester, 
Chairman of the Board, General Foods Corpo- 
ration, to Goldman Sachs & Co. enclosing reso- 
lution of Board of Directors and copy of letter 
to Lehman Brothers 

Letter dated May 19, 1937, from R. O. Kennedy 
to Sanford L. Cluett describing regret at differ- 
ences between Lehman Brothers and Goldman, 
Sachs & Co. and efforts at compromise 

Letter dated August 20, 1937, from John M. 
Hancock, Lehman Brothers, to Cluett Pe&body, 
& Co. submitting resignation as a director 

Letter dated January 24, 1940, from C. P. Fuller, 
Schroder, Rockefeller & Co., Incorporated, to 
Peter R. Nehemkis, Jr., describing considera- 
tions leading to conclusion that agreement for 
the division of underwriting profits need not be 
included in registration statement 

Memorandum dated July 17, 1934, by Webb Wil- 
son, Edward B. Smith & Company, entitled 
"General Arrangements Pursuant To Which 
Investment Bankers Are Selected and Com- 
panies Comprising the Standard Gas & Electric 
Gas System 

Letter, dated February 5, 1940, from Perry E. 
Hall, vice president, Morgan Stanley & Co., 
Incorporated, to Peter R. Nehemkis, Jr., adding 
the names of three investment banking com- 
panies to those mentioned in testimony as hav- 
ing been suggested by Shell Union Oil Corpora- 
tion for inclusion in underwriting syndicate 

Supplement by Oscar L. Altman, Securities and 
Exchange Commission, to testimony on con- 
centration in the management, underwriting and 
sale of registered bond issues, entitled "The 
Role of Commercial Banks in the Distribution 
of Registered Bon " Issues and Some Aspects of 
Bond Acquisitions by Life Insurance Com- 
panies." 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWEE 



MONDAY, JANUARY 8, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. G. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Wednesday, December 20, 1939, in the Caucus Room, Senate Office 
Building^ Senator William H. King presiding. 

Present: Senator King (acting chairman) ; Representative Wil- 
liams; Messrs. Lubin, O'Connell, Henderson, and Brackett. 

Present also: Clifton M. Miller and Robert McConnell, Depart- 
ment of Commerce; Peter R. Nehemkis, Jr., special counsel, and 
Oscar L. Altman, associate financial economist, Securities and Ex- 
change Commission. 

Acting Chairman King. The committee will be in order. 

Mr. Henderson, have you anything on your mind? 

Mr. Henderson. Yes; I have an introductory statement, Mr. 
Chairman. 

STATEMENT BY MR. HENDERSON 

Mr. Henderson. Prior to the committee's recess, the S. E. C.'s 
Investment Banking Section presented testimony on "frozen ac- 
counts" and the realignments in the investment banking industry 
resulting from the divorce of the bank security affiliates pursuant to 
the Banking Act of 1933. This committee may sometime have to 
make a judgment as to whether actual divorce took place, or whether 
merely separate establishments were set up. There was also pre- 
sented in the former hearings evidence with respect to certain 
aspects of the concentration of economic power in this industry. 

Today and throughout this week, the witnesses to appear before 
the committee will testify, among other things, as to the treaties, 
agreements, and understandings which exist among investment 
banking houses and between investment banking houses and the cor- 
porations whose securities are issued. 

The committee will recall that, prior to our recess, evidence was 
offered with respect to a number of "understandings" existing be- 
tween various underwriting firms. There was testimony on the 
"understanding" relating to former National City Co. business 1 and 
the Pacific Gas & Electric Co. financing ; 2 Mr. Sidney Mitchell 
testified concerning his "understanding" — or as he characterized it, 

1 Supra, Part 22, pp. 11417, 11484 and 11511. 

2 Ibid, p. 11500 ff. 

12343 



12344 CONCENTRATION OF ECONOMIC POWER 

his "hope and expectation" — with Mr. Harold Stanley on Niagara 
Hudson Power Co. business ; * there was offered in evidence the 
written agreement between the Harris Trust & Sayings Bank and 
Harris Forbes & Co. concerning the respective division of the secur- 
ity originations and participations of those two organizations. 2 
Finally, the committee heard considerable testimony on the now 
famous "library understanding" of May 5, 1920, between Messrs. 
J. P. Morgan and H. P. Davison, of J. P. Morgan & Co., and 
Robert Winsor, of Kidder, Peabody"& Co., relating to A. T. & T. 
financing. 8 

In my considered opinion, the testimony on agreements and under- 
standings Trhich is being presented before this committee by the 
S. E. C.'s Investment Banking Section is highly significant. These 
treaties, agreements, and understandings are the sinews of the pre- 
vailing method of doing business ; they form the framework of 
banker-issuer relations and are the essence of the system of negoti- 
ated prices. 

According to the resolution of the Congress which created this com- 
mittee, restrictions upon competition and concentration of economic 
power — wherever they may appear in the American economic scene — 
are matters of concern. 

This morning, Mr. Nehemkis will present to the committee testi- 
mony on the first of a series of understandings or agreements between 
investment banking firms — the understanding between Lehman Bros, 
and Goldman, Sachs & Co. 

Mr. Nehemkis. Mr. Walter E. Sachs, Mr. John Hancock, please. 

Acting Chairman King. Do you solemnly swear that the evidence 
you will give in this hearing will be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Sachs. I do. 

Acting Chairman King. Mr. Hancock, do you solemnly swear that 
the testimony you will give in this hearing will be the truth, the 
whole truth, and nothing but the truth, so help you God? 

Mr. Hancock. I do. 

TESTIMONY OF WALTER E. SACHS, GOLDMAN, SACHS & CO., NEW 
YORK CITY, AND JOHN M. HANCOCK, LEHMAN BROS., NEW YORK 
CITY 

Mr. Nehemkis. Mr. Sachs, will you state your full name and 
address, please? 

Mr. Sachs. Walter E. Sachs, 120 East End Avenue, New York 
City. 

Mr. Nehemkis. Mr. Hancock? 

Mr. Hancock. John M. Hancock, Scarsdale, N. Y. 

Mr. Nehemkis. Mr. Sachs, when did you first become a partner of 
the firm of Goldman, Sachs & Co. ? 

Mr. Sachs. January 1, 1910. 

Mr. Nehemkis. When was Goldman, Sachs organized as a partner- 
ship, Mr. Sachs? 

1 Part 23, p. 12088. 

2 "Exhibit No. 1626-2," Part 22, p. 11525. 
» Part 23, p. 11872 ff. 



CONCENTRATION OF ECONOMIC POWER 12345 

Mr. Sachs. Well, the original partnership was organized in the 
year 1869; not under the name Goldman, Sachs & Co., but that was 
the origination of the partnership. 

Mr. Nehemkis. Was not Goldman, Sachs & Co. originally a com- 
mercial paper house? 
Mr. Sachs. That was our original business; yes, sir. 
Mr. Nehemkis. And a commercial paper house acts as an inter- 
mediary between business enterprises and banks, does it not? 
Mr. Sachs. Yes. 

Mr. Nehemkis. It buys commercial paper from business enter- 
prises and sells this paper to one or more banks ? 
Mr. Sachs. That is correct. 

Mr. Nehemkis. Now, as a result of its activities 

Acting Chairman King (interposing). And the bank, I suppose, 
sold to individuals as they cared to purchase the paper. 

Mr. Sachs. Yes; but in 99 percent of the cases I should say the 
buyers are banks, national banks, or trust companies. 

Mr. Nehemkis. As a result of its activities in handling commercial 
paper, did not Goldman, Sachs become well acquainted with many 
business enterprises, their officers, their finances, and their credit 
needs ? 

Mr. Sachs. Yes ; we established over the years many intimate rela- 
tionships of that kind. 

Mr. Nehemkis. But Goldman, Sachs never engaged in any under- 
writing activities during the first years of its existence despite these 
commercial contacts? 

Mr. Sachs. No. As far as I can recollect, our first underwriting 
activity was about the year 1906. 

Mr. Nehemkis. Mr. Chairman, I should say that we had hoped this 
morning to have Mr. Robert Lehman as a witness. Unfortunately, 
Mr. Lehman was taken ill with an attack of appendicitis last night. 
His partner, Mr. John Hancock, is appearing in his stead. 

Mr. Hancock, when did you first become a partner of Lehman 
Brothers ? 
Mr. Hancock. 1924. 

Mr. Nehemkis. There are some questions which I am going to ask 
you which were directed toward Mr. Lehman, and you may have some 
difficulties. If so, I will understand, and I am sure the committee 
will. Do you know when Lehman Brothers was first organized as a 
partnership ? 

Mr. Hancock. The date isn't a matter of history ; it was about 1848 ; 
it might have been 1850, within that range of those 2 years. 

Mr. Nehemkis. What was the nature of the original business of 
Lehman Brothers prior to its becoming an underwriting house? 

Mr. Hancock. Traditionally, and I don't know more than that, 
primarily a banker in the cotton industry. 
Mr. Nehemkis. A banker or a factor? 
Mr. Hancock. A banker. 

Mr. Nehemkis. A banker in the cotton industry. 
Mr. Hancock. That is right; dealing in commodities in large de- 
gree, of course. 

Mr. Nehemkis. Do you recall when Lehman Brothers first engaged 
m underwriting activities ? 



12346 CONCENTRATION OF ECONOMIC POWER 

Mr. Hancock. 1906 or 1907, around the turn of the century. 

Mr. Nehemkis. About the same time as Goldman, Sachs? 

Mr. Hancock. I believe that they were together in the first venture. 

EARLIEST FINANCING BY THE TWO HOUSES 

Mr. Nehemkis. Mr. Sachs, was not the earliest financing under- 
taken by Goldman, Sachs & Co. with respect to a preferred stock issue 
about the year 1906 of a company that later became the General Cigar 
Company ? 

Mr. Sachs. That is correct. It was then known as the United 
Cigar Manufacturers. 

Mr. Nehemkis. Two other houses were associated with you in this 
financing, Lehman Brothers and Kleinwort & Co., of London. Is 
that correct, sir? 

Mr. Sachs. Lehman Brothers were — I would have to refresh my 
memory. Kleinwort Sons & Co. were associated with us in some 
businesses in subsequent years. I am not quite clear whether they 
were associated in the United Cigar Manufacturers business. 

Mr. Nehemkis. We can correct the record at our convenience. 

Mr. Sachs. I would think they were not! but you may be entirely 
correct. 1 

Mr. Nehemkis. Suppose we correct the record if there is a differ- 
ence. 

Assuming, however, that I am correct, suppose we proceed on that 
basis. Did not ^Goldman, Sachs, Lehman Brothers, and Kleinwort 
have equal shares in their financing? 

Mr. Sachs. Yes ; very likely it was a 3-3 account. 

Mr. Nehemkis. And at this time Kleinwort & Co. was a very well 
recognized London banking house? 

Mr. Sachs. Yes ; they were one of the great merchant bankers of 
London, and are today. 

Acting Chairman King. Those associations were temporary? 

Mr. Sachs. No, sir; our association with Kleinwort Sons & Co. 
dated from about the year 1898, and we still have a very close associa- 
tion with them, have had for a great many years. 

Acting Chairman King. In all activities or just some of the trans- 
actions? 

Mr. Sachs. No, sir; in certain activities and certain specified busi- 
nesses, and also a running relationship in the commercial banking 
business. 

Mr. Nehemkis. The General Cigar Store financing, Mr. Sachs, 
marked, I believe, the first underwriting transaction in which your 
firm was associated with the firm of Lehman Brothers on an equal 
basis ? 

Mr. Sachs. That is correct. 

GELATIONS BETWEEN THE FIRMS TO 1920 

Mr. Nehemkis. Was not the relationship between the two firms, 
Goldman, Sachs & Co., and Lehman Brothers, so close at this time 

1 Mr. Sachs, under date of February 6, 1940, informed the committee that Kleinwort, 
Sons & Co., were not associated with Goldman, Sachs & Co. as originating bankers in the 
financing in 1906 of United Cigar Manufacturers. See appendix, p. 13011. 



CONCENTRATION OP ECONOMIC POWER 12347 

that if at any stage of the negotiations either firm had refused to go 
on, the other firm would in all probability have withdrawn from the 
financing? 

Mr. Sachs. Very likely. I might explain, if I may, that the rela- 
tionship was initiated at that time because of a very close personal 
friendship and personal relationship between Mr. Philip Lehman, 
who was the senior partner of Lehman Brothers, and Mr. Henry 
Goldman, who was one of the seniors of my firm. 

Mr. Nehemkis. Is it not a fact, Mr. Sachs, that at this time the 
two firms had in effect decided to go into the investment-banking busi- 
ness as partners, although they would continue to operate under sep- 
arate names and, of course, with separate physical establishments ? 

Mr. Sachs. I don't think it was quite like that. I think that that 
original business was done — and I don't know that in 1906 there was 
any preconceived plan as to the future — but I think it developed as 
a perfectly natural situation that subsequent businesses the following 
years were done together in the same way. In other words, at that 
time there was no written memorandum or anything, but it just de- 
veloped because of this personal relationship between these two men 
whom I have mentioned. 

Mr. Nehemkis. The two firms were associated together in many 
other pieces of financing after 1906, were they not ? 

Mr. Sachs. Yes; my recollection is that between 1906 and 1916 — 
1917 — that we financed initially about fourteen or fifteen different 
industrial companies. 

Mr. Nehemkis. Would it be correct for me to say, Mr. Sachs, 
from 1906 until the World War, all of the financing of Lehman 
Brothers and Goldman, Sachs was undertaken jointly ? 

Mr. Sachs. All the issue business, of course. 

Mr. Nehemkis. Issue business, originations. 

Mr. Sachs. Originations — that is definitely my recollection. 

Mr. Nehemkis. Am I also correct in understanding, Mr. Sachs, 
that where Lehman Brothers and Goldman, Sachs were the only 
underwriters, each firm usually shared in the participations on a 
50-50 basis? 

Mr. Sachs. That is correct. 

Mr. Nehemkis. And where other firms were brought in, the par- 
ticipations of the two firms remained equal ? 

Mr. Sachs. Yes. 

Acting Chairman King. Were these firms partnerships or did they 
become partnerships later ? 

Mr. Sachs. Goldman, Sachs was a partnership. I cannot speak 
for Lehman Brothers. My impression is it was also a partnership. 
During these years Goldman, Sachs was a partnership. 

Mr. Nehemkis. And still is ? 

Mr. Sachs. It is a partnership today. I may say there was an 
intervening period when Goldman, Sachs & Company was organized 
as a joint-stock association under New York State laws. 

Mr. Nehemkis. You have already indicated that during this period 
we have been discussing, 1906 Up to the World War, there was never 
any written agreement between the two firms. The close relation- 
ship was based upon the close ties between the heads of the two 
houses and their friendship, so may I summarize the relationship 



12348 CONCENTRATION OF ECONOMIC POWER 

as follows: that it was that kind of close relationship which exists 
between any two close business associates ? 

Mr. Sachs. Right. 

Acting Chairman King (to Mr. Nehemkis). Where the element of 
friendship becomes paramount. 

Mr. Nehemkis. Yes. 

Mr. Sachs. It was kind of an informal partnership for that type 
of business. 

Mr. Nehemkis. By 1920 had not the partners of Goldman, Sachs 
and their respective interests in the firm changed somewhat from 
what they had been before the World War ? 

Mr. Sachs. Yes • that is correct. 

Mr. Nehemkis. Mr. Hancock, is it not also true that about this time 
the partnership interests of Lehman Brothers had changed some- 
what from what it had been prior to the World War ? 

Mr. Hancock. My impression is that there was a moderate change 
of interest, but I was the first one outside the Lehman family to 
join the firm as a partner. I didn't come into the firm until 1924. 

Mr. Nehemkis. Mr. Sachs, when did Mr. Waddill Catchings and 
Mr. Sidney Weinberg become admitted as members of the firm? 

Mr. Sachs. Mr. Catchings was admitted on January 1, 1918. Mr. 
Weinberg, although a very important member of our organization, 
only became a partner on January 1, 1927. I might also say Mr. 
Henry Goldman retired from the firm at the end of the year, De- 
cember 31, 1917. 

Mr. Nehemkis. I take it there were during this subsequent period, 
that is to say after the World War, other changes in the partnership 
from its original membership. 

Mr. Sachs. There may have been minor changes. Those were the 
major ones. There were no other partners admitted until the 'thirties 
after that. 

Mr. Nehemkis. Mr. Hancock, you were admitted as a partner on 
August 1, 1924, were you not ? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. And Mr. Monroe C. Gutman was admitted as a 
partner on January 1, 1927, is that correct? 

Mr. Hancock. Correct. 

Mr. Nehemkis. And Mr. Robert Lehman, who was to have ap- 
peared here this morning, was admitted as a partner July 1, 1921 ? 

Mr. Hancock. Correct. 

Mr. Nehemkis. Those were the major changes that took place in 
the partnership immediately after the war ? 

Mr. Hancock. Correct. 

RELATIONS FROM 1920 TO 1926 

Mr. Nehemkis. Mr. Sachs, between the years 1920 and 1928, was 
there not a change in the previous underwriting relationship between 
the two firms, that is to say^ Goldman, Sachs for instance engaged 
in pieces of financing in which Lehman Brothers did not participate? 

Mr. Sachs. Well, if my recollection is correct, those changes only 
began to take place around 1926. There was a difference of feeling 
developing. 



CONCENTRATION OF ECONOMIC POWER 12349 

Mr. Nehemkis. That is to say in some of these financings Lehman 
Brothers was not offered a participation. 
Mr. Sachs. Well, not prior to 1925. 
Mr. Hancock. Not that I know of. 

Mr. Sachs. Not that I know of. There was little financing during 
the war. The first piece of issue business was in 1918, which was 
Endicott Johnson Corp. business. 

Mr. Nehemkis. May I attempt, subject to your corroboration, which 
is always difficult with two witnesses, to summarize this relationship. 
Please tell me if I have it correctly. There were financings in which 
Goldman, Sachs and Lehman Brothers had equal participations and 
equal profits — bear in mind our time period, if you will. There were 
financings in which Goldman, Sachs alone participated but shared its 
profits with Lehman Brothers, and finally there were a few isolated 
cases where Lehman Brothers had neither participation nor profits 
in Goldman, Sachs business; is that correct? 

Mr. Sachs. That was subsequent to 1915 or 1916, however. 
Mr. Nehemkis. With that qualification, you accept my characteri- 
zation of the situation? 
Mr. Sachs. Yes. 

Mr. Hancock. May I add, by participations you also mean obli- 
gations, I take it. You include the obligations in the participations. - 
Mr. Nehemkis. What do you mean by obligations? 
Mr. Hancock. The risk in the contract. 

Mr. Nehemkis. Yes; but I am not interested in that now, Mr. 
Hancock. 

Acting Chairman King. It is a fact, I suppose, if there were losses 
they would be deducted from the profits, and all participating would 
have to share those losses according to their respective interests. 
Mr. Hancock. That is right. 
Mr. Nehemkis. I assumed that. 
Mr. Hancock. I wanted to be sure ; that is all. 
Mr. Nehemkis. As illustrative of the situation where Goldman, 
Sachs alone participated but divided the profits with Lehman 
Brothers, there are a number of exhibits relating to the financing 
of B. F. Goodrich Company which I should like you to identify for 
the record, if you will. I now show you four letters. Would you 
be good enough to examine them and tell me if you recognize them 
to be copies of originals in your files and in your custody? 

For your convenience, may I say, Mr. Sachs and Mr. Hancock, each 
of the exhibits that will be offered to you for identification bears on 
the top of the exhibit a legend indicating the respective files from 
which it was obtained. I think you may assume that we have been 
accurate in that respect and that will save you considerable time. 
Mr. Sachs. Yes; I recognize these. 

Mr. Nehemkis. Mr. Chairman, I offer in evidence the four letters 
identified by the witness. 

(Committee conference off the record.) 

Acting Chairman King. They may be received. Do you want them 
printed ? 

Mr. Nehemkis. I think in this case they are all relevant. 
(The letters referred to were marked "Exhibits Nos. 1773 to 1776" 
and are included in the appendix on pp. 12713-12714.) 



12350 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Mr. Hancock, during this same period did not 
Lehman Brothers observe a similar practice with respect to financing 
in which Goldman, Sachs was not a member of the underwriting 
or purchase group? 

Mr. Hancock. I think that is correct. 

Mr. Nehemkis. I now show you three letters which are illustra- 
tive of this practice and involve an issue by Detroit City Gas Co. 
in 1922. That, as you recall, was an issue of $13,500,000 first mort- 
gage 6's of 1947, series "A." Will you examine these three docu- 
ments, Mr. Hancock, and tell me whether or not they are true and 
correct copies of originals in your possession and custody ? 

Mr. Hancock. They are. 

Mr. Nehemkis. And as further illustration of the same practice, 
I ask you to examine two documents relating to the financing of 
K. H. Macy & Co. in 1922 and 1926. Will you be good enough to 
examine these two documents? Are they true and correct copies 
of originals in your possession and custody ? 

Mr. Hancock. They are. 

Mr. Nehemkis. These five documents, Mr. Chairman, identified by 
the witness are offered in evidence. 

Acting Chairman King. They may be received. 

(The documents referred to were marked "Exhibits Nos. 1777 to 
1781" and are included in the appendix on pp. 12714-12716.) 

EVENTS LEADING TO MEMORANDUM OF 1925 

Mr. Nehemkis. Mr. Hancock, did not Goldman, Sachs and Lehman 
Bros, have an equal underwriting participation in the financing in 
1924 which resulted in the creation of the National Dairy Products 
Corporation ? 

Mr. Hancock. My impression is they did. I can verify it by the 
summary I have here. 

Mr. Nehemkis. Give me your best recollection at this time, subject 
to your privilege of checking the record later. What is your answer ? 

Mr. Hancock. My answer is their participation was equal. 1 

Mr. Nehemkis. Mr. Sachs, at this time were not two partners of 
your firm, Mr.* Catchings and Mr. Dauphinot, devoting a great deal 
of time to the affairs of National Dairy Products ? 

Mr. Sachs. Yes. I must make the correction that Mr. Dauphinot 
was not a partner. Mr. Catchings was. Mr. Dauphinot was a very 
trusted member of the organization. Other than that, your state- 
ment is correct. 

Acting Chairman King. In other words, he was an employee but 
not a partner. 

Mr. Sachs. That is correct ; a very trusted employee. 

Mr. Nehemkis. Did not Goldman, Sachs feel as the result of the 
efforts of these two men and others in the organization devoting a 
great deal of their time to the development of the company, that 
Goldman, Sachs was entitled to a larger compensation in connection 
with any transactions that might be effected ? 

Mr. Sachs. Yes, sir. 

J Mr. Hancock, under date of February 16, 1040, confirmed this statement. See 
p. 13008, paragraph numbered 1. 



CONCENTRATION OF ECONOMIC POWER 12351 

Mr. Nehemkis. Goldman, Sachs also believed that the same situa- 
tion might develop with respect to Lehn & Fink. 

Mr. Saohs. Yes, sir. 

Mr. Nehemkis. And if this situation should materialize, did not 
Goldman, Sachs feel this preferential position should also be recog- 
nized by Lehman Bros.? 

Mr. Saohs. That is correct. 

Acting Chairman King. That is to say, there were some transac- 
tions in which one side of the two firms, or one of the two firms, 
occupied a more important position than the other, by reason perhaps 
of former associations with the business enterprises. 

Mr. Sachs. Yes; or a great amount of work being done in that 
particular situation. 

Mr. Nehemkis. As the result of this view which we have been dis- 
cussing, Mr. Sachs, did not various conferences take place between 
the two firms with respect to rearranging their relative interests in 
future financing by these two companies? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Did not these conferences finally terminate in a 
conference at the nome of Mr. Arthur Sachs on the night of October 
25. 1925? 

Mr. Sachs. I take your word for the date. I know it was the latter 
part of 1925. 

Mr. Nehemkis. Will you state the partners of Goldman, Sachs who 
were present at this conference at the home of Mr. Arthur Sachs? 

Mr. Sachs. I think Mr. Catchings and Mr. Arthur Sachs were at 
that particular conference. 

Mr. Nehemkis. Was Mr. Arthur Sachs then the senior partner of 
the house of Goldman, Sachs? 

Mr. Sachs. No. 

Mr. Nehemkis. A senior partner? , 

Mr. Sachs, A senior partner, but we have no senior partner. He 
was a senior partner. 

Mr. Nehemkis. Mr. Hancock, are you familiar with the names of 
(he partners who were present at the conference in behalf of the 
House of Lehman? 

Mr. Hancock. I am. 

Mr. Nehemkis. And their names, please? 

Mr. Hancock. Herbert Lehman and Arthur Lehman. 

Mr. Nehemkis. Herbert H. Lehman is now Governor of the State 
of New York? 

Mr. Hancock. Right. 

Mr. Nehemkis. And is Arthur Lehman now connected with the 
firm? 

Mr. Hancock. He is deceased. 

Mr. Nehemkis. Was not Mr. Arthur Lehman senior partner of the 
firm at that time? 

Mr. Hancock. It lookf like collusion, but my answer is the same 
as Mr. Sachs'. We have older partners. We have no senior partners. 

Mr. Nehemkis. I have to keep checking up on you two, you see. 

Mr. Sachs, as the result of the conference which took place at the 
home of Mr. Arthur Sachs, was there not prepared a memorandum, 
the purpose of which was to govern the future relations between the 
two firms? 



12352 CONCENTRATION OF ECONOMIC POWER 

Mr. Sachs. Yes; that is a fair statement. 

Acting Chairman King. All relations, or just some? 

Mr. Sachs. Relations in connection with what is popularly known 
as the issue business. 

Mr. Nehemkis. We are going into that, Senator, in a moment. 

I show you, Mr. Sachs, a memorandum dated October 26, 1925. I 
ask you to examine this memorandum and tell me if that is not the 
memorandum resulting from that conference. 

Mr. Sachs. Yes ; it is. 

Mr. Nehemkis. Will you pass it on to Mr. Hancock, and will you 
tell me, Mr. Hancock, whether you recognize that as the memorandum 
of October 26, 1925? Incidentally, it was obtained from your files, 
Mr. Hancock. 

Mr. Hancock. It must be the right one. I had the impression it 
was signed by Herbert Lehman. 

Mr. Nehemkis. Just answer my questions, Mr. Hancock, as we 
proceed. 

Mr. Sachs, who was the draftsman of this memorandum ? 

Mr. Sachs. My impression is that it was Herbert Lehman. 

Mr. Nehemkis. Mr. Hancock, what is your impression? 

Mr. Hancock. That is my impression. 

Mr. Nehemkis. Can either of you be more positive and tell me it 
was drafted by him? 

Mr. Sachs. Yes; because there is a subsequent letter which sub- 
stantiates that. 

Mr. Nehemkis. Mr. Sac! ., what is your answer ? 

Mr. Sachs. I know it v as. 

Mr. Nehemkis. Mr. Hancock, what is your answer ? 

Mr. Hancock. I know it was drafted by him. 

Mr. Nehemkis. The memorandum is now offered in evidence. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1782" and 
is included in the appendix on p. 12717.) 

Acting Chairman King. Is the material merely for the purpose of 
showing that these two firms cooperated together in work subsequent 
to this? 

Mr. Nehemkis. Sir, it is rather difficult for me to answer that ques- 
tion. I expect to develop precisely the implications of your question 
through these two witnesses. 

Mr. Sachs, was not one of the problems settled by the conference 
the relationship of the two houses with respect to the future financ- 
ing of Lehn & Fink and National Dairy Products Co. ? 

Mr. Sachs. Yes. 

Mr. Nehemkis. I now read a portion of that memorandum to you 
[reading from "Exhibit No. 1782"] : 

Our joint relation to all Companies previously financed by the two houses 
was to remain exactly as it had been in the past, save that a different arrange- 
ment be entered into now with regard to the National Dairy Products Co. and 
later possibly with regard to Lehn & Fink. 

With the exception of these two companies, Mr. Sachs, was it not 
determined that the relationship of the two firms to all of the old 
business would remain on an absolutely equal basis? 

Mr. Sachs. That is correct. 



CONCENTRATION OF ECONOMIC POWER 12353 

MEMORANDUM OF JANUARY 5, 19 2 6 

Mr. Nehemkis. Now, it would appear, Mr. Sachs, would it not, 
that Governor Lehman's efforts at mediation between the two firms 
did not result in a clear definition of the rights and responsibilities of 
the two houses to each other ? 

Mr. Saohs. Yes; that would be indicated by the later memoran- 
dum of January 5. 

Mr. Nehemkis. And on January 5, 1926, did not the two firms 
again attempt to codify their relationship to each other with a mem- 
orandum ? 

Mr. Sachs. With repect to these old businesses ; yes, sir. 

Mr. Nehemkis. Now, Mr. Sachs, I show you a memorandum dated 
January 5, 1926, and I ask you to identify this as being a true and 
correct copy of that memorandum to which reference has been made. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. Will you show it to Mr. Hancock? Do you iden- 
tify it as a true and correct copy of the memorandum in question ? 

Mr. Hancock. I do. I would like to make a little explanation. 
The first memorandum didn't purport to be a final agreement. 

Mr. Nehemkis. I will give you full opportunity to develop that. 

Acting Chairman King. I think that is a proper interpretation 
of it. 

Mr. Nehemkis. The memorandum identified by the witnesses is 
offered in evidence, Mr. Chairman. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1783" 
and is included in the appendix on p. 12718.) 

Mr. Nehemkis. Who was the draftsman, Mr. Sachs, of this 
memorandum ? 

Mr. Sachs. I couldn't say who the actual individual was. 

Mr. Nehemkis. It was more or less a cooperative effort by various 
people ? 

Mr. Sachs. I think very likely. 

Mr. Nehemkis. What is your recollection? 

Mr. Hancock. My impression is Mr. Catchings and Mr. Lehman 
worked it out together. 

Mr. Nehemkis. Which Mr. Lehman ? 

Mr. Hancock. Herbert Lehman. 

Mr. Sachs. That may be. . 

Mr. Hancock. I never saw any drafting work done. The two 
men were working together on the draft, I know. 

Mr. Nehemkis. Mr. Sachs, I note that this memorandum is divided 
into nine sections or articles and contains an appendix, and the appen- 
dix lists 60 corporations. Mr. Sachs, is" it not a fact that the corpora- 
tions covered by this memorandum issued approximately $200,000,000 
of securities within the next decade, and that the issuance of these 
securities was governed by the memorandum of 1926 ? 

Mr. Sachs. The next decade from where? 

Mr. Nehemkis. From 1926. 

Mr. Sachs. I can't substantiate your figure because I haven't gone 
back to the record. There was a very substantial amount of financ- 



12354 CONCENTRATION OF ECONOMIC POWER 

ing done by some, not all, of these companies in the subsequent 
years. 1 

Mr. Nehemkis. Now I want to read from paragraph 1 of the 
memorandum dated January 5, 1926, which reads as follows [read- 
ing from "Exhibit No. 1783"] : 

With respect to the corporations specified on the attached list it will be 
the desire of the two firms to do any financing which may arise in the future 
upon the basis of the same relative interest in such financing which the firms 
had in the original business with respect to such company. 

Mr. Sachs, does not the phrase "same relative interest" in this 
paragraph 1 mean that the interests of Goldman, Sachs and Lehman 
Brothers were to be equal? 

Mr. Sachs. Yes. 

Mr. Nehemkis. Where only Lehman Bros, and Goldman, Sachs 
were to be involved, the interest of each under paragraph 1, was to be 
50 percent ? 

Mr. Sachs. Yes. 

Mr. Nehemkis. Where other houses in addition to Lehman Bros, 
and Goldman, Sachs were involved, the interests of each would be 
equal to half of the remainder after allotment to any of the other 
houses. 

Mr. Sachs. That is correct, always with the exception of the two 
companies. 

Mr. Nehemkis. Paragraph 1 continues as follows [reading further 
from "Exhibit No. 1783"]. 

Such business shall be handled either in the office of Goldman, Sachs & Co. 
or in the office of Lehman Brothers as indicated on the attached list. 

According to the list attached to the memorandum, Mr. Sachs, was 
not the financing of 41 companies to be handled in the office of Gold- 
man, Sachs, while the financing of 19 companies was to be handled in 
the office of Lehman Bros.? 

Mr. Sachs. I accept your count. 

Mr. Nehemkis. This division, therefore, Mr. Sachs, reflected, did 
it not, the sphere of interest of each house' in the. joint venture? 

Mr. Sachs. May I ask what you mean by the sphere of interest ? 

Mr. Nehemkis. Just what you meant when you set down in two 
categories 41 corporations under Goldman, Sachs, and 19 under 
Lehman Bros.; nothing different. 

Acting Chairman King. 19 might issue more than the 41. 

Mr. Sachs. Yes, but I think in fact they did not. 

Mr. Nehemkis. Mr. Hancock, this division, therefore, reflected the 
sphere of each interest in the joint venture, did it not? 

Mr. Hancock. I think not. 

Mr. Nehemkis. What did it mean, then? 

Mr. Hancock. It reflected the historical record as to what firm 
had handled the business originally in their office. 

Mr. Nehemkis. Neither house, however, Mr. Sachs, was to receive 
any additional compensation for handling the financing in their own 
office. 

Mr. Sachs. No ; not at that time. 

1 Mr. Sachs, under date of February 6, 1940, submitted supplemental Information on 
this point. See appendix, p. 13011. See also Mr. Hancock's comment under date of 
February 10, 1940, appendix, p. 13010, paragraph beginning "Regarding page 485 — ," 



CONCENTRATION OF ECONOMIC POWER 12355 

Mr. Nehemkis. Yet of course there were expenses involved in han- 
dling the financing. 

Mr. Sachs. The expenses were generally charged to the banking 
syndicate formed in connection with such issue rather than to joint 
account. 

Mr. Nehemkis. Now, paragraph 2 of the memorandum of January 
5, 1926, reads and provides that [reading further from "Exhibit No. 
1783"] : 

Each firm shall endeavor to maintain the present relationship of the other 
firm or of any of its members with the respective listed companies. 

If each house maintained its relationship with the issuer, I take 
it the participations of the two houses together would be larger, 
would it not ? 

Mr. Sachs. I don't follow that question ; I am sorry. 

Mr. Nehemkis. I say, if each house, your house and Lehman Bros., 
maintained its relationship with the issuing corporation, continued 
that relationship, the participations you each would have in the 
business would of course be larger than if you did not maintain 
the relationship. 

Mr. Sachs. You mean if we didn't have the business at all, yes, 
it is quite obvious. 

Mr. Nehemkis. I just want you to tell me that. 

I want to read to you the first clause of paragraph 3 of the memo- 
randum [reading further from "Exhibit No. 1783"] : 

it any of the listed companies refuses in the future to have either firm par- 
ticipate in a piece of financing, the other firm will endeavor to have such excluded 
firm afforded a full opportunity of presenting its case. 

This provision meant, in effect, did it not, Mr. Sachs, that if both 
firms were not jointly designated to handle this financing, either 
Goldman, Sachs, or Lehman Bros., as the case might.be, would use 
its good offices to permit the excluded firm to present oral argument, 
so to speak, before the board of directors ? Correct, sir ? 

Mr. Sachs. Correct ; but I also think it brings out one very interest- 
ing fact, that in spite of this mutual agreement between Goldman, 
Sachs, and Lehman Bros., corporations in every instance were per- 
fectly free agents and were under no obligation, contractual or other- 
wise, to do business with either firm or both firms. 

Mr. Nehemkis. I think that is correct; they could have gone to 
anybody. 

Mr. Sachs. They could have gone to anybody. 

Mr. Nehemkis. However, as the subsequent testimony shows, they 
preferred not to. 

Mr. Henderson. Mr. Nehemkis, may I ask a question? Did you 
regard the agreement as binding upon, each other? 

Mr. Sachs. At that time it was an understanding as expressed in 
these terms ; yes, sir. It wasn't from our point of view, at least, an 
agreement that that could not have been changed at any future time ; 
it had no term ; it didn't last so and so many years. 

Mr. Henderson. Your point is this wasn't binding on the 60 firms 
that were mentioned in their relationships with each other. 

Mr. Sachs. My point is exactly that ; it is the relationship between 
the two banking houses and had nothing to do with the relationship 
of these various industrial and mercantile firms with either or both 

124491— 40— pt. 24 4 



12356 CONCENTRATION OF ECONOMIC POWER 

of the banking houses ; that there was no contractual relationship as 
to future business. 

Mr. Henderson. But in the past the business had generally fol- 
lowed the lines that had been indicated. 

Mr. Sachs. These were old relationships, old clients, with whom 
we had a very pleasant and a very intimate relationship. They con- 
sidered us as their financial advisers, just as a man goes to his lawyer 
or to his physician, and without contract the relationship had con- 
tinued because apparently in the minds of those who conducted 
these corporations we were giving effective financial service. 

Mr. Henderson. But assuming that there was no overthrow or 
any extraordinary circumstance, you had reason to believe that the 
financing would go about like that in the future; that is, go in the 
future as it had in the past. 

Mr. Sachs. Yes. To put it quite simply, we believed as long as 
we did a good job we would get future business from these companies. 

Acting . Chairman King. You understood that there were other 
banking and investment organizations throughout the United States 
who perhaps were soliciting business and you were in competition 
with them? 

Mr. Sachs. We not only understood it, Senator; we knew it. We 
suffered from it occasionally. 

Mr. Henderson. But in relation to these 60 companies, competition 
had never been effective enough to get it away from them, had it ? 

Mr. Sachs. I will have to look at the list for just a moment. I 
think my answer would agree to that, but I want to be quite sure. 

Mr. Henderson. I think you did lose some part of that business. 

Mr. Sachs. I think there are certain exceptions; yes, sir. My 
associate just reminds me that — I don't see their name here — Under- 
wood Typewriter, yes, Underwood Typewriter — new elements came 
in ; I think we might consider the fact, for instance, while the B. F. 
Goodrich business was originally done between the three houses, the 
Bankers Trust Co. 2 , the Guaranty Trust Co., and Kleinwort & Sons, 
became associated in that. There was always the element, the dan- 
ger, of competition. 

Mr. Henderson. There was the danger, but it didn't come to frui- 
tion to such an extent that you lost much business. 

Mr. Sachs. No. I think the answer was that we did a good job, 
if I may say so. 

Acting Chairman King. At any rate, these firms whose paper you 
had taken and made the extension of credit, they were satisfied with 
the terms upon wr : m they did business with you ? 

DIRECTORSHIPS IN COMPANIES FINANCED THROUGH INVESTMENT BANKERS 

Mr. Sachs. Yes, sir; and I think there is another element to be 
taken into consideration, and that is that in the periods between suc- 
cessive financings, we spent a great deal of time as financial advisers ; 
we were on the boards of directors in most instances, and we gave a 
great deal of our time and a great deal of our thought to the wel- 
fare and the development of these companies. In other words, we 
were not the investment bankers only at the time when there was an 
issue to be made, but we were their financial advisers and investment 
bankers in the intermediate periods. 



CONCENTRATION OF ECONOMIC POWER 12357 

Mr. O'Connell. Did I understand you to say for most of these 
companies your firms were represented on the board of directors ? 

Mr. Sachs. In most cases, sir yes. 

Mr. O'Connell. Would you say that was an element helpful to you 
people, to your firm in maintaining the business? 

Mr. Sachs. I think it was. I would be very glad to state what our 
theory on that was. I am speaking for the moment for Goldman, 
Sachs & Co. We went on the board of directors because we sold 
these securities to the public and we in a sense represented the inter- 
ests of the public in being on the board of directors and in that way 
knowing what was going on in a company. In many instances" I 
think we probably could not have sold the securities as successfully 
if we had not indicated that we were going on the board because the 
general American public in these early years was not as investment 
minded, and certainly as far as equity securities were concerned, and 
we considered an element of strength all around to go onto these 
boards, and it became a very common practice in our instance. I 
think, in practically every instance we had some member of our firm 
who was represented on the board of directors. 

Mr. Nehemkis. In fact, in some instances, Mr. Sachs, not only did 
your firm and Lehman Brothers act from the very beginning, you 
were instrumental in putting together many of these corporations, 
and as the testimony will subsequently show, one of the conditions 
of the very financing was that you would be represented on the board 
and have a continuing perspective over financial plans- and programs. 
Isn't that correct? 

Mr. Sachs. Yes; it was not part of the contract, but it was an 
understanding that we should go on the board. After all, it was 
subject to reelection by the stockholders. 

Acting Chairman King. You felt a moral responsibility, if not a 
legal responsibility, having issued the securities through your firm, 
to see that the organization whose securities you issued were in a 
solvent and going condition all the time- 
Mr. Sachs. Exactly. We felt a certain moral responsibility for 
having sold these securities. 

Acting Chairman King. You didn't want to sell securities of com- 
panies whose solvency or ability to maintain themselves in the mar- 
ket you doubted. 

Mr. Sachs. We tried to do business with companies that had the 
possibility of continued growth and development and profitable 
operation. 

Acting Chairman King. Some of those companies were babies, so 
to speak, were they, when the securities were first issued ? 

Mr. Sachs. Yes, sir ; many of them were very, very much smaller. 
I could show you a balance sheet in our office of Sears, Roebuck & 
Co., in 1897, showing a net worth of $275,000. Ten years later we 
bought $10,000,000 of their 7-percent preferred stock. Today the 
company makes an annual profit of $40,000,000 a year. We are very 
proud of that record. 

Mr. O'Connell. I was interested in your statement to the effect 
that you would be represented on the board of directors of your com- 
panies as a sort of representative of the public, feeling you were pro- 
tecting the public interest in that respect. That is somewhat dif- 



12358 CONCENTRATION OF ECONOMIC POWER 

ferent from the iunction of the other members of the board of 
directors of an issuing corporation, I should take it. Sort of a public 
obligation, an obligation to the public as a member of the board of 
directors of the issuing company. 

Mr. Sachs. I can't see quite that it is different, because, after all, 
every member of the board of directors is interested primarily in 
the success and development of the company. As we wished our 
public to have and hold securities that would increase in value, our 
interest was exactly the same, it seems to me. We were primarily 
interested in the soundness and development of the company. 

Mr. O'Connell. You think that the interest of the issuing com- 
pany, and the interest of the public, and the interest of Goldman, 
Sachs in the underwriting of securities are all one ? 

Mr. Sachs. I think very identical, yes; except the fact I might 
add when there was occasionally a new issue, we made a banker's 
fee out of it, which we were very glad to make. 

Acting Chairman King. You assume that if you sold an issue of 
a corporation, and that corporation failed, that it would be more or 
less of a reflection upon you, and to that extent might injure the 
public who had bought the securities and at the same time perhaps 
have some little effect upon the reputation of your firm. 

Mr. Sachs. Why, certainly. I mean every firm can make mistakes,, 
of course. They try to make as few mistakes as possible. 

Acting Chairman King. So there was an interest in the public and 
your interest was in seeing that your issues were sound and that 
the corporation or partnership with which you identified yourself in 
the sale of securities was continued along reasonable lines so as to 
insure safety and the public confidence, 

Mr. Sachs. That is right. 

Mr. Miller. May I ask a few questions of the witness? I notice, 
Mr. Sachs, that on this list, they are all industrial companies, with 
the exception of one railroad, the French railroad, Paris-Lyons- 
Mediterranean, and the American Light & Traction Co. All the rest 
were industrials. In most of these instances, were the securities 
that were sold equity securities? By equity securities I mean com- 
mon stocks or preferred stocks instead of bond obligations. 

Mr. Sachs. I think we would find by checking up in most instances 
the sale was a combination of preferred stocks and common stocks. 
There were some instances, I think, where only common stocks were 
sold, and a few, a very few where only a preferred stock was sold. 
Generally speaking, it was a combination sale of some preferred 
shares and common shares; subsequently, in some instances it was 
debentures, or bonds, but these were somewhat rarer. 

Mr. Miller. As a matter of fact, when you did a good deal of this 
financing, was that not really the introduction to tne public, to in- 
vesting public, of that type of security ? That was not the generally 
accepted thing that had prevailed during the earlier period. 

Mr. Sachs. I think it was very definitely a new departure; yes, sir; 
and not only the preferred stocks, but certain provisions that were 
put in them which were somewhat new, notably that if the preferred 
dividend was passed for four periods, then the preferred stock had 
a vote. Also, I think it was a new departure that companies of this 
kind sold their equity securities to the public. There were some very 
definite reasons for that, I mean the necessity of men who owned 



CONCENTRATION OF ECONOMIC POWER 12359 

private businesses in toto, because of the development of the inher- 
itance tax, and ,so forth, the necessity of liquefying the investment 
in these companies in the face of death duties. 

Mr. Miller. In these equity issues, the question of management — 
and particularly in some of these industries, these mercantile con- 
cerns^ — was of utmost importance, and was that one of the main con- 
cerns, reasons for your putting directcrs on these boards because 
of the fact that if the management wasn't good, the company prob- 
ably would have a very precipitous downward career? It isn't like 
a railroad, it isn't like a public utility, which has a better organized 
base. 

Mr. Sachs. That is correct. We consider management of utmost 
importance in companies of this sort. It has always been our policy 
not to interfere with management if management was sound and 
getting along well; it was only in occasional instances where the 
board Of directors, of whom we were one, had to consider the ques- 
tion of finding management. That did occur, of course. 

Mr. Miller. There were instances where you were able to assist in 
finding management of particular ability? 
'Mr. Sachs. Yes, sir. 

Mr. Nehemkis. We were speaking earlier, Mr. Sachs, of the clause 
of paragraph 3 * which provided that in case one of the two firms were 
excluded, the other would afford the excluded firm an opportunity to 
be heard. Do you recall any instances in which Goldman, Sachs 
attempted to secure a hearing for Lehman Bros. ? 

Mr. Sachs. I think the Pillsbury case was one. I don't know if 
that is the case you have in mind. 

Mr. Nehemkis. Do you kno.v of any others? 

Mr. Sachs. Goodrich — I wish you would refresh my memory. 

Mr. Nehemkis. Would you, in the interest of making the record 
complete on that, Mr. Sachs, have one of your associates prepare a 
little statement about that and let us have it at the earliest con- 
venience ? • % 

Mr. Sachs. I would be glad to. 2 

Mr. Nehemkis. Mr. Hancock, do you recall any instance in which 
Lehman Brothers afforded Goldman, Sachs an opportunity for oral 
argument, so to speak, before a corporation covered by the list ? 

Mr. Hancock. I believe it was done in the case of M?cy. 

Mr. Nehemkis. R. H. Macy? 

Mr. Hancock. Right. 

Mr. Nehemkis. Do you know of any others? 

Mr. Hancock. I don't recall any. 

Mr. Nehemkis. Are you sure? 

Mr. Hancock. I am sure I don't recall; I am not sure it didn't 
nappen. _ — 

Mr. Nehemkis. May I make the same suggestion to you, if you 
will let us have a memorandum ? 

Mr. Hancock. I will be glad to. 3 

Mr. Miller. Were you always successful when you went to the 
mat for the other fellow ? 



^'Exhibit No. 1783." 

2 Mr. Sachs, under date of February 6, 1040, submitted the information requested. It is 
included in the appendix on p. 13011. 

8 Mr. Hancock, under date of Fubruary 16, 1940, submitted the information requested. 
It Is included in the appendix on p. 13008, paragraph numbered 2, 



12360 CONCENTRATION OF ECONOMIC POWER 

Mr. Sachs. No, sir. 

Mr. Hancock. I make the same answer. 

Mr. Nehemkis. Continuing from Paragraph 3, this clause reads, 
[reading from "Exhibit No. 1783"] : 

but if the corporation in question still maintains its refusal the other firm shall 
be free to do the business itself either alone or with other houses. 

Mr. Sachs, wasn't either Goldman, Sachs or Lehman Bros, free 
to do business with the company that objected to one of the firms? 

Mr. Sachs. Well, my recollection is that it hadn't come up prior to 
this time. We just had this practice of doing business each with 
the other. 

Mr. Nehemkis. Isn't it also true, Mr. Sachs, that in the years prior 
to the time we are discussing, because of the close personal friend- 
ship and business relationship between the partners, there was a 
general feeling that if something wasn't good for one firm, well, it 
wasn't good for the other firm ? 

Mr. Sachs. Well, there was a feeling, yes, of these two men whom 
I mentioned before who were intimate associates. I presume if one 
didn't like the business, the other one said, "Let's drop it," that kind 
of relationship. 

Mr. Nehemkis. But prior to the memorandum of January 5, 1926, 
and the business experience of the two firms preceding that period, 
would it not be correct to say that such a situation as was covered 
by Article 3 would never have arisen ? 

Mr. Sachs. Very likely not. I will admit that. 

Mr. Nehemkis. I think I have one other point in article 3 to call 
your attention to. I continue reading [reading further from "Ex- 
hibit No. 1783"] : 

offering to the other firm its participation in the profits 8.*.* losses provided the 
company in question does not object to such offering. 

Now, I take it, Mr. Sachs, the effect of this provision was that even 
if one firm were excluded from the financing, it would stiU share in 
the underwriting profits. 

Mr. Sachs. Yes ; it could still be offered its share. That did hap- 
pen in some instances. 

Mr. Nehemkis. Under this covenant, it was not necessary to ask 
the company for permission to divide such profits, was it? 

Mr. Sachs. No ; unless the company specifically would object to it. 
I mean they might inquire into it, I suppose. 

Mr. Nehemkis. Had you up to the time of this agreement always 
asked for such permission in such cases? 

Mr. Sachs. I think not; I wouldn't say positively. 

Mr. Nehemkis. Had you ever asked for permission? Did you 
usually ask for permission? 

Mr. Sachs. No; not usually. It may have come up in some in- 
stances in the course of discussion of a piece of business with one of 
these issuers. 

Mr. Nehemkis. Let me ask you to turn to paragraph 5 of the 
agreement of January 5, 1926. I read from that clause [reading 
from "Exhibit No. 1783"] : 

If the future financing results from, or pertains to a corporation resulting 
from, a consolidation of one or more of the corporations included in the ac- 
company . list, and such corporation or corporations or its or their stock 



CONCENTRATION OF ECONOMIC POWER 12361 

holders receive (including a proportional re of what the Bankers acquire) 

less than one-half of the total securities, including cash, issued in connection 
with the consolidation, then the firm originating the consolidation shall en- 
deavor to give the other firm an interest in the financing substantially equiva- 
lent to the proportion which such other firm's interest in the original financing 
of the listed corporation in question bears to the total new securities issued 
on the consolidation. 

As I read that, as I have read that clause on other occasions, I 
take it it means that the "proprietary interest," to use the phrase 
associated with A. T. & T. financing, of each firm in a company's 
financing, was recognized, shall we say through thick and thin, 
through merger, consolidation, absorption, or purchase. Is that sub- 
stantially correct. 

Mr. Sachs. Yes; except that "proprietary interest 5 ' is perhaps a 
strong term. 

Mr. Nehemkis. I qualified it as being used in another connection. 

Mr. Henderson. Well, Mr. Sachs, is it too strong a term in view 
of the historical banking relation? Didn't you acquire or seem to 
acquire some kind of a continuing interest that amounts almost to a 
"proprietary interest" in that financing ? 

Mr. Sachs. It was only a "proprietary interest" if the, business was 
done, if the issuer agreed to do the business. 

Mr. Henderson. We agreed a little while ago, did we not, that the 
business was done? That is, you had something there which was a 
valuable interest, did you not? 

Mr. Saohs If the interest was there it was to be divided in certain 
ways, that is perfectly correct, but I really must repeat that there was 
no contractual relationship with the issuer which would indicate 
definitely" that the interest was to be there. 

Mr. Henderson. If you had reduced it to a contract and made it 
binding on all the firms, which is quite logical to assume, of course, 
there would have been something which you could have peddled 
around and divided up and sold, and the like; in other words, 
you could have obtained a considerable financial return for it. But 
in effect, without the contractual relationship, without anything bind- 
ing on the issuer, you did have something which was still extremely 
valuable- 
Mr. Sachs. Yes. I also must repeat what Mr. Hancock indicated, 
that was, it was an obligation as well as a possible piece of profitable 
business. It worked both ways. 

Mr. Henderson. I didn't presume you had a one-way franchise 
or a one-way vested interest here. I am not suggesting that, but you 
took issue with the strength of the term "proprietary interest". Is 
that it? 

Mr. Sachs. Yes. Property is something that you actually own. 
We didn't actually own the business as far as financing was con- 
cerned. 

Mr. Henderson. You were on the boards of directors of firms 
which you financed? 

Mr. Sachs. Yes ; we were 1 director out of 10 or 20, whatever the 
board of directors was. That meant nothing. We didn't control 
these boards of directors. We didn't own any shares of stock in 
these companies, except perhaps a nominal amount. L would like 
to make that point while we are discussing it,, that* the fact that 
we were on these boards of directors meant in '-no sense of the word 



12362 CONCENTRATION OF ECONOMIC POWER 

that we or our firm in any sense of the word controlled these com- 
panies or these businesses. 

Mr. Henderson. These companies followed proprietary interests in 
financing; I didn't assume you were dominating the corporations. 

Mr. Saohs. No, indeed. 

Acting Chairman King. This agreement to which counsel has 
called your attention could be terminated at any moment? 

Mr. Sachs. That was my understanding of it ; yes, sir. 

Mr. O'Connell. Terminated how, by mutual consent? 

Mr. Sachs. By either party. 

Acting Chairman King. It wasn't a hard and fast rule that bound 
you for 1 year or 10 years; you could repudiate it the next day? 

Mr. Sachs. That is my understanding. 

Acting Chairman King. Either one. 

Mr. Sachs. Yes, sir. 

Acting Chairman King. Without the consent of the other. 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Mr. Sachs, the interest of the two firms in the 
financing of a merger or consolidated company under the covenant 
that we have been addressing ourselves to, was equal to an interest, 
and now I quote from paragraph 5 [reading from "Exhibit No. 
1783"] : 

substantially equivalent to the proportion which such other firm's interest — 

That is to say, Goldman, Sachs, or Lehman, depending upon who 
had originated the financing of the consolidation — 

in the original financing of the listed corporation in question bears to the total 
new securities issued on the consolidation. 

I take it that the merger of any of the corporations listed in the 
appendix to the agreement did not relieve Goldman, Sachs, or Leh- 
man Bros., of their partnership obligations to each other. Is that 
correct? 

Mr. Sachs. That is correct. 

Mr. Nehemkis. Now, I ask you to turn with me, if you will, to 
clause 6 of the agreement [reading further] : 

With regard to any financing not pertaining to any of the listed corporations 
either firm is at liberty at any time to make proposals to the other firm, but 
neither firm is under any commitment to the other excepting to the extent 
voluntarily made in each case. 

I take it, Mr. Sachs, this article meant in effect that the relation- 
ships governing the 60 corporations was fixed, but that with respect to 
new business, each firm was under no restriction to the other. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. Now, prior to the date of this treaty, if I may so 
refer to it, did either firm have any commitment to the other with 
regard to new financing ? 

Mr. Sachs. Prior to this date ? 

Mr. Nehemkis. Yes. 

Mr. Sachs. No ; but as I pointed out, in those early years it seems 
to have been jujst practice that one firm went to the other in case 
there was a new piece of business. 

Mr. Nehemkis. Now, I want you, if you will, to turn to the last 
part of paragraph 6 [reading further from "Exhibit No. 1783"] : 



CONCENTRATION OF ECONOMIC POWER 12363 

In thus relieving each firm of such commitments, banks, or security houses 
committed through either firm were similarly relieved. 

Will you be good enough, Mr. Sachs, to explain which banks, which 
investment banking firms, were also joined to Goldman, Sachs and 
Lehman Bros, by commitments? 

Mr. Sachs. Well, I haven't a list in mind. There were a number 
of people that were associated at one time or another, notably Klein- 
wort, Sons & Co., in London, and in a number of instances I think 
some business was done with Halsey Stuart in the traction business, 
I believe, and with the Bankers Trust Co. and the Guaranty Trust 
Co. in the Goodrich business. There may have been some other 
businesses. 

Mr. Nehemkis. If I correctly understand the situation, it may be 
explained as follows : Where one firm was relieved of its commitment, 
all other firms or banks associated with that firm were likewise re- 
leased from any commitment. 

Mr. Sachs. Yes ; I think that is a correct interpretation. 

Mr. Nehemkis. Is that your understanding, Mr. Hancock? 

Mr. Hancock. Substantially so. I think you have given a little 
too tangible a meaning to that, because there are commitments that 
are oral in character that survive, with reference to finder's fees, for 
example. 

Mr. Nehemkis. Are you generalizing about legal draftsmanship, or 
are you confining yourself to the meaning of the last part of clause 6 ? 

Mr. Hancock. I am confining myself to the last three lines of 
clause 6. 

Mr. Nehemkis. Will you proceed, sir? 

Mr. Hancock. The effort in that was to cover that kind of commit- 
ment. That was recognized in good morals, but was -not a legal 
commitment. 

Mr. Henderson. Could you give me a tangible instance that comes 
to your mind as to how this took place ? 

Mr. Hancock. I don't recall instances; I can recall a type. For 
example, a piece of business might have been under discussion on the 
part of Lehman Bros, with a certain industrial company, and there 
might have been anyone in the finder's position who had brought that 
business to us. We might have talked with Goldman, Sachs about 
the possibilities of doing that business some day and then when we 
change our relationship as to that, they are relieved of any obligation 
to that firm. We carry it ourselves. That is the character of trans- 
action referred to here. 

Mr. Henderson. Does that pertain only to a finder's fee? 

Mr. Hancock. It might be any other kind of an obligation. 

Mr. Henderson. Would it be a reciprocal obligation ? 

Mr. Hancock. There was no reciprocal obligation. 

Mr. Henderson. No; but if you had gotten, say, a piece of business 
through bankers, and a commitment originated there, then they would 
have a participation in any new business that you got. Would that 
be the kind of commitment that was involved ? 

Mr. Hancock. I don't know; that never happened in our firm, so 
far as I know. 

Mr. Sachs. You say "findings"; sometimes a security house, nat- 
urally 



12364 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. I wanted to find out whether it ran further than 
just a finder's fee. 

Mr. Nehemkis. Mr. Sachs did indicate, Mr. Commissioner, I think, 
in part in answer to your question that other houses associated with, 
let us say, the Goldman, Sachs group would be relieved of any obli- 
gation to continue as members of the Goldman, Sachs group, if Gold- 
man, Sachs pursuant to the clause in question were relieved of its 
commitment. It follows also that all members of the Lehman group, 
including any number of houses, I take it, in a particular piece of 
financing, previously associated with the Lehman group, would a 
fortiori be likewise relieved of their commitments to Lehman Bros. 
provided Lehman was relieved of its commitment to Goldman, Sachs. 
Does that sum it up? 

Mr. Hancock. In general terms; yes. 

PARAGRAPH EIGHT OF MEMORANDUM OF 192 6 

Mr. Nehemkis. Now, I ask vou, if you will, to turn to paragraph 
8 [reading further from "Exhibit No. 1783"]. 

Wherever joint financing business is done for any of the listed corporations 
the names of the two firms shall be used. 

Mr. Hancock, in the matter of the appearance of a banking house, 
advertising is purely a prestige question, is it not? 

Mr. Hancock. Correct. 

Mr. Nehemkis. Nevertheless, under paragraph 8 it was specifically 
covered. 

Mr. Hancock. Correct. 

PARAGRAPH SEVEN OF THE MEMORANDUM OF 192 6 

Mr. Nehemkis. Now, under paragraph 7 of the agreement, each 
firm also had the right to participate in trading accounts of the other 
with respect to the 60 corporations set forth in the appendix to the 
agreement. Is that correct? 

Mr. Hancock. Eight. 

Mr. Nehemkis. Would you explain briefly to the committee, Mr. 
Hancock, what is meant by a trading account? 

Mr. Hancock. I think trading accounts were of several types but 
the most important type and the one that has recurred most through 
the history of our firm has been in connection with a distribution 
of a new issue. The underwriters, not necessarily all, but the 
leaders, and those who chose to join in, would form a trading ac- 
count for the purpose of insuring a good distribution of the stock, 
of this new stock, to the public. I suppose its major purpose was 
stabilization ; it was hoped of course that it would be profitable, too. 
The same character of transaction would take place in a secondary 
distribution, where the large initial block had to be distributed, 
where some large holder would like to distribute his large holding. 
The trading account might then be handled and those securities 
would be sold customarily on the exchange, occasionally through 
dealers if that seemed to be the need of the situation. 1 



1 Mr. Hancock, under date of February 10, 1940, supplemented this testimony. See 
Appendix, p. ];<009, reference to "Page 4S9, first column." 



CONCENTRATION OF ECONOMIC POWER 12365 

Mr. Henderson. Making a market, or stabilizing, and if any profit 
accrued, it was to be jointly divided. 

Mr. Hancock. By the ratio set up in the account. 

Mr. Henderson. And to be managed by the two houses? 

Mr. Hancock. Ordinarily it was managed by one. 

Mr. Henderson. Stabilizing operations would be managed by one 
of the two houses? 

Mr. Hancock. In fact, but also in fact the men in the two firms 
would be talking to each other on the 'phone very frequently and 
seeing each other very frequently. They knew each day what they 
were doing. 

Mr. Nehemkis. Mr. Hancock, will you follow me as I read to you 
paragraph 7 of the agreement [reading further from Exhibit No. 
1783] : 

Any trading account formed by either firm in association with any of the 
listed corporations or any official thereof shall be managed by the firm specified 
on the accompanying list with respect to such corporations, but each firm 
shall be free to determine its relative participation in such trading account, 
having the option to participate in the primary profit and losses thereof up to 
its proportion in the original business of the two firms with respect to such 
corporation. Except as herein provided each firm shall be free to form and 
manage trading accounts in any securities of the listed corporations. 

Is it not a fact, Mr. Hancock, that the provisions with respect to 
trading accounts apply to trading in outstanding securities of the 
60 corporations as well as their newly issued securities? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. And under paragraph 7, is it not a fact that 
officers and stockholders of the 60 companies likewise participated 
in such trading accounts? 

Mr. Hancock. Sometimes ; not always. 

Mr. Nehemkis. They had that privilege if you so elected. 

Mr. Hancock. If they so requested and we consented. 

Mr. Nehemkis. And you elected to permit them to share. 

Mr. Hancock. Yes. 

Mr. Henderson. That is, in connection with any of the older under- 
writings which you undertook, it was permissible at that time for the 
corporation itself, or for the officers or the stockholders, to enter into 
a trading account with either of you people? 

Mr. Hancock. So far as I know the corporation never entered the 
trading account. 

Mr. Henderson (reading) : 

* * * any of the listed corporations * * *. 

Mr. Hancock. It is conceivable ; I don't think it happened ; as far 
as I recall it didn't. It happened with regard to large stockholders 
of the corporation. 

Mr. Henderson. It would be independent of the underwriting 
agreement? 

Mr. Hancock. As a document contract, yes; but it might happen 
about the same time. 

Mr. Henderson. It would be almost sure to happen about the same 
time. I mean that in connection with an underwriting thtere was 
usually a stabilizing operation, was there not? 

Mr. Hancock. It might have followed thirty days afterwards. 
There was no pattern; it would depend upon the needs of the 
situation. 



12366 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. I don't think you quite answered Mr. Henderson's 
question. Under clause 7 of the agreement, theoretically it was pos- 
sible for a trading account to be formed with any of the listed 
corporations. 

Mr. Hancock. In theory that is correct. 

Mr. Nehemkis. Is it not a fact, Mr. Hancock, that Lehman Bros* 
and Goldman, Sachs each had a one-third interest in various trading 
accounts in securities of Archer-Daniels-Midland Co. between the 
years 1927 and 1933. 

Mr. Hancock. I think so, but I can verify it. 

Mr. Nehemkis. Will you accept that subject to future correction? 
I merely say that in the interest of time. 1 

Mr. Hancock. Yes. 

Mr. Nehemkis. Mr. Sachs, did not Goldman, Sachs and Lehman 
Bros, each have various trading interests in the accounts of Sears, 
Koebuck & Co. ? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. And many others? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Did not Goldman, Sachs and Lehman Bros, act 
jointly and divide commissions in trading accounts involving out- 
standing securities held or owned by officers or directors covered by 
the agreement of January, 1926? 

Mr. Sachs. Yes. 

Mr. Henderson. Did that cover commissions from such trading 
operations? 

Mr. Sachs. Commissions — I suppose you mean commissions in- 
volved in connection with sales of securities on the exchanges. 

Mr. Henderson. That is what I mean. If one of the two handled 
all the trading operations and there was a commission derived, it was 
to be split. 

Mr. Sachs. Yes ; in these particular accounts we were referring to. 

Mr. Nehemkis. For example, Mr. Sachs, when the estate of Julius 
Rosenwald attempted to dispose of 50,000 shares of stock in 1933, did 
not Goldman, Sachs and Lehman Bros, act jointly in arranging for 
the sale? 

Mr. Sachs. *I don't know who arranged it originally, but it is a 
fact that commissions earned from the sale of those securities were 
divided between the two firms. 

Mr. Nehemkis. Your recollection is correct. Do you happen to 
recall the amount of the commissions you divided ? 

Mr. Sachs. I don't. 

Mr. Nehemkis. May I refresh your recollection by telling you it 
was $30,964? 

Mr. Sachs. I will accept that. 

Acting Chairman King. That is your commission for disposing of 
50,000 shares amounted to $30,000. 

Mr. Sachs. Those are the ordinary Stock Exchange commissions, I 
presume, laid down by the Stock Exchange. There was an addi- 
tional commission. I beg your pardon, I would like to correct that 
Statement. Plus some additional commission which was arranged be- 
tween the estate and the firms. 



1 Mr. Hancock, under date of February 16, 1940, confirmed the preceding testimony. 
See appendix, p. 13008, paragraph numbered 3. 



CONCENTRATION OF ECONOMIC POWER 12367 

Mr. Nehemkis. So that the record may be complete, I am going to 
ask you a full question and give you a chance to respond to it. Did 
you not jointly share commissions with Lehman Bros, in connection 
with an additional 26,000 shares of Sears for the Rosenwald Fund 
later in the same year? 

Mr. Sachs. I don't recall your figures. 

Mr. Nehemkis. You may accept them subject to correction. 

Mr. Sachs. Right. 1 

Mr. Nehemkis. I want to ask you, Mr. Sachs, to identify for me 
four letters pertaining to these transactions, if you will. You have 
before you a letter from Goldman, Sachs to Lehman Bros, dated 
June 26, 1933, a letter from the Rosenwald Fund to Goldman, Sachs 
dated June 27, 1933, and a letter from Goldman, Sachs to Lehman 
Bros, dated June 27, 1933, and another one dated July 21, 1933. Are 
those letters true and correct copies of originals in your custody? 

Mr. Sachs. Yes, sir. 

Acting Chairman King. There is no controversy? I am asking 
that as a preliminary to the question. Do you think it is necessary 
to insert the letters in the record ? 

Mr. Nehemkis. If you wish, they need not. 

Acting Chairman King. You may summarize them later if you 
desire. They will be identified and filed with the clerk. 

Mr. Nehemkis. Will the reporter mark the letters identified for 
the record ? 

(The documents referred to were marked "Exhibits Nos. 1784 to 
1787" and are on file with the committee.) 

Mr. Nehemkis. Mr. Sachs, in December of 1933, did not Goldman, 
Sachs purchase 8,966 shares of Lehn & Fink common stock for the 
account of Lehn & Fink Products Co. ? 

Mr. Sachs. I will have to ask my associate about that. 

Mr. Nehemkis. If you want to ask any one of your associates 
to join you on this I think it might be helpful. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. And were not these commissions on brokerage trans- 
actions shared with Lehman Bros. ? 

Mr. Sachs. That is my recollection ; yes, sir. 

SHARING COMMISSIONS ON TRADING AND BROKERAGE ACCOUNTS • 

Mr. Nehemkis. Mr. Hancock, is not the privilege of sharing in 
trading or brokerage accounts generally extended to the underwriters 
who are regarded as the bankers for a company ? 

Mr. Hancock. Generally not, so far as I know. 

Mr. Nehemkis. Usually? 

Mr. Hancock. No. 

Mr. Nehemkis. Sometimes? 

Mr. Hancock. Occasionally ; yes. 

Mr. Nehemkis. And in the case of Goldman, Sachs and Lehman, 
usually ? 

1 Mr. Sachs, under date of February 6, 1940, confirmed these figures. See appendix, 
pp. 13010-13011. 

Mr. Robert v. Horton, of Goldman, Sachs & Co., subsequently stated to the committee, 
by way of clarification, that the 26,000 shares of capital stock of Sears, Roebuck & Co. 
were sold for a trio account, as shown by "Exhibits Nos. 1784 through 1787," 



12368 CONCENTRATION OF ECONOMIC POWER 

Mr. Hancock. With regard to these companies, I think invariably. 

Mr. Nehemkis. Thank you very much. For example, did not 
Lehman Bros, share commissions on trades for the account of the 
Aviation Corporation and affiliates during 1033 with Brown Brothers 
Harriman & Co. ? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. And also with respect to stock of Columbia Broad- 
casting System in 1934 ? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. And did not Lehman Bros, share commissions with 
Kuhn, Loeb & Co. in connection with purchases of the 3'Vfc percent 
sinking fund debentures of 1952 for the account of Tidewater Asso- 
ciated Oil Co. ? That was in 1938. 

Mr. Hancock. Correct. 

Mr. Nehemkis. And this sharing of commissions resulted from 
the fact, did it not, that Kuhn, Loeb and Lehman Bros, were joint 
managers of the syndicate? 

Mr. Hancock. No ; I wouldn't say entirely that. 

Mr. Nehemkis. Did any other members of the syndicate share in 
the commissions? 

Mr. Hancock. Not so far as I know. Maybe I can explain how 
it happened. There is no mystery about- it. 

Mr. Nehe:.:kis. I want you to explain, but I do want the record 
to show what your answer was, if you can. give me an answer to my 
question. I will repeat my question to you. This sharing of com- 
missions resulted, did it not, from the fact that Kuhn, Loeb and Leh- 
man Bros, were joint managers in the syndicate. Can you answer 
that? 

Mr. Hancock. In some cases, yes ; in some cases, no. 

Mr. Nehemkis. Now, you want to make some explanation.. Will 
you proceed? 

Mr. Hancock. The handling of the case would depend upon the 
facts in the individual case. It would be perfectly easy in the case 
of the Kosenwald estate, which you have referred to, to give us orders 
to sell, and we would have the commissions on the one-half which 
we would do for their account. They could then turn to Goldman, 
Sachs and ask them to handle a similar amount and they would have 
had their own commission on their direct share of it. In order to 
simplify the operation it was put into one place, one man handled the 
whole transaction all through, and being a fellow member of the 
Stock Exchange we were allowed to share commissions and we did. 
That is the usual procedure, and that is usually the way it happens. 

Mr. Nehemkis. How many years have you been in the investment- 
banking business? 

Mr. Hancock. About 15 plus. 

Mr. Nehemkis. 15 plus. In your vast experience do you know of 
any instance where members of a syndicate, other than the manager 
or managers, have ever shared in the commissions derived from a 
trading account ? 

Mr. Hancock. I haven't thought of your question before, and I 
don't think of a case at the moment, but please leave out the words 
"vast experience," will you ? 



CONCENTRATION OF ECONOMIC POWER 12369 

Mr. Nehemkis. I will withdraw that phrase if it makes you feel 
better. Will you give the committee the benefit of your advice by a 
memorandum on that point? Discuss it with your associates. 

Mr. Hancock. On the question of whether 

Mr. Nehemkis. Whether you know of any case where a member 
of a group other than the manager or comanager has shared in the 
commissions derived from trading-account operations. 

Mr. Miller. Mr. Nehemkis, aren't we talking about two types of 

commissions ? If you are talking about Stock Exchange commissions 

you would be precluded under the.rules of the Stock Exchange would 

you not, from sharing with anybody but a member of the Exchange ? 

Mr. Hancock. Right. ; 

Mr. Miller. If you are talking about commissions that weren't 
Stock Exchange commissions, then you might be free, would you not, 
to share with others if you cared to do so. 

Mr. Nehemkis. I am sorry if my question wasn't clear, Mr. Miller. 
I was addressing myself to the latter. 

Mr. Miller. To the commissions that were not Stock Exchange? 
You were addressing yourself to commissions which were not Stock 
Exchange commissions? 
Mr. Nehemkis. Yes. 

Mr. Hancock. I misunderstood your line of questioning. These 
things we were talking about were Stock Exchange commissions. I 
will be very glad to get a statement of the kind you want. 1 

Mr. Nehemkis. So that whenever the co-manager of an issue, Mr. 
Hancock, buys or sells that security for the account of the issuing com- 
pany or directly for important stockholders of the issuer he is under 
an obligation to share profits on such transactions with the, co- 
manager? ': : 
Mr. Hancock. No; he is not. In the case of our two firms; yes. 
Mr. Nehemkis. But in the case of other such transactions, such as 
you have just testified for Kuhn, Loeb, Brown Bros. Harriman trans- 
actions, how did it happen that you snared in those commissions? 

Mr. Hancock. I am satisfied in the case of the Aviation Corporation 
that there were two members of the board, one partner from our firm, 
one from Brown Harriman and rather than divide the exchange busi- 
ness and let two men handle them separately they put them in the 
hands of one and the two men agreed to divide equally when they got 
through. 

Mr. Nehemkis. Let me see. if I follow you on that. Let's take the 
trades for the account of Aviation Corporation and affiliate. In whose 
hands was the account placed, Brown Brothers Harriman & Co. or 
yourself ? 

Mr. Hancock. I have no recollection. The memorandum shows it 
was in our office. 

Mr. Nehemkis. On what basis of morality, ethics, or obligation, or 
however you want to characterize it, was your firm constrained to share 
those commissions with Brown Brothers Harriman & Co.? Why 
didn't you share any of the others with someone else ? Why was it just 
Brown Brothers Harriman & Co. ? That is why I am trying to get you 
to give me a response. 

J Mr. Hancock, under date of February 16, 1940, submitted the information requested. 
See appendix, p. 13008, paragraph numbered 4. 



12370 CONCENTRATION OF ECONOMIC POWER 

Mr. Hancock. I wasn't the man who made the arrangement, but I 
am confident beyond any question that Averell Harriman, of the 
Brown Harriman firm, and Robert Lehman, of our firm, were asked to 
do a piece of business, and this was merely a method, a convenient 
method, of handling it. There was no question of ethics or anything 
else involved — a convenient way of handling a simple business opera- 
tion. 

Mr. Nehemkis. I am merely trying to explore your answer to see if 
I understand it and the committee does. 

Mr. Miller. Were these Stock Exchange commissions in the Avia- 
tion Corporation case or were they other commissions ? 

Mr. Nehemkis. These were Stock Exchange commissions. 

Mr. Miller. I think that is what you have got to make clear. 

Mr. Nehemkis. These were Stock Exchange Commissions. 

You have also testified, Mr. Hancock, a moment ago that Lehman 
Bros, shared commissions with Kuhn, Loeb & Co. in connection with 
purchases of the 3V2 percent sinking-fund debentures of 1952 for the 
account of Tidewater Oil. How did it happen that commissions were 
shared there? This is a Stock Exchange commission. Let me ask 
you a preliminary question ; perhaps this will aid you. Who was the 
leader of the account, Lehman Bros, or Kuhn, Loeb ? 

Mr. Hancock. It was a divided management and they led the 
bonds and we led the stock. 

Mr. Nehemkis. Right. How did it happen you both shared com- 
missions on that deal? 

Mr. Hancock. I don't pe sonally know. I can do some surmising. 

Mr. Nehemkis. I don't w nt you to do that. You wouldn't want to 
do that yourself. Will you follow our usual practice and let us have 
a memorandum on that point? 1 am going to repeat the question 
which caused the argument, retracing our tracks, and see if now, 
having tracked and double-tracked, we will come out with a con- 
clusion. Wherever the co-manager of an issue buys or sells that se- 
curity for the account of the issuer or directors or important stock- 
holders of the issuer, is he not under some obligation to share profits 
on such transactions with the co-manager of the account? 

Mr. Hancock. I know of no such obligation generally prevailing, 
though it was specifically covered with regard to our two firms, and 
the reason for the obligation in our case was that it had been spe- 
cifically stated in the argreement. 

Mr. Nehemkis. And you want this committee to understand that 
in several instances concerning which you have testified, the sharing 
of commissions was just a pure coincidence? 
Mr. Hancock. No, I didn't say that. 

Acting Chairman King. Will you make such explanation as you 
care to make ? 

Mr. Hancock. So far as I know, the relatively few cases in all the 
activity over the years arose because of the set of facts in each case. 
In the great majority of cases I would say it was a convenient way 
of handling it and it was handled that way for no other reason than 
that it was convenient. 



CONCENTRATION OF ECONOMIC POWER 12371 

Mr. Nehemkis. I accept your statement. I think there are prob- 
ably other factors involved, but then you have agreed to see if you 
can't enlighten the committee on it. 1 

(Mr. Henderson took the chair.) 

Mr. Nehemkis. May I ask you this question. May not this sharing 
of commissions be one of the reasons why a managership of an ac- 
count is so attractive, Mr. Hancock? I will repeat the question. Is 
not the sharing of commissions one of the reasons why the manager- 
ship of an account is considered to be rather attractive? 

Mr. Hancock. Do you mean being a member of a management ? 

Mr. Nehemkis. No ; being the manager. 

Mr. Hancock. Is attractive, to him because he gives something 
away ? 

Mr. Nehemkis. Is attractive to . him because he has the right to 
bring someone else in on the sharing of commissions and therefore 
may place that other party under a reciprocal obligation to him? 

Mr. Hancock. No. He cannot give a sharing except for services 
rendered, or with the consent of the Exchange. 

Mr. O'Connell. What were the services rendered by Brown 
Harriman & Co. 2 in connection with this Aviation stock handled by 
your company? 

Mr. Hancock. The two firms had originated the business. The 
origination of it and the developing of the business Was the im- 
portant part of it. The purely mechanical worth of handling it was 
the minor part. 

Mr. O'Connell. But after the business had been originated and the 
issue floated, the trading account continued, I take it, or was set up 
even after that point, and the trading account was handed by Lehman 
Bros. 

Mr. Hancock. Yes, sir. 

Mr. O'Connell. And the commissions received by you through the 
operation of the- trading account were shared with Brown Harriman 
&Co. 

Mr. Hancock. Right. 

Mr. O'Connell. Now, at that rime what services were being ren- 
dered by Brown Harriman & Co. in connection with the operation of 
the trading account ? 

Mr. Hancock. There was undoubtedly discussion every day between 
the man in our firm who was managing the account and the man in 
their firm who was supervising it for them. I am talking usual prac- 
tice; that has been the usual practice, done without exception, so far 
as I know. 

Mr. O'Connell. So that the successful operation of the trading ac- 
count by Lehman Bros, was dependent upon services rendered by 
Brown Harriman & Co. in connection with the operation of the trad- 
ing account. Is that what you mean ? 

Mr. Hancock. No. 

Mr. O'Connell. What services were rendered ? 

Mr. Hancock. There were services rendered by two people which 
were merged and agreed to be paid for in the division. 

1 Mr. Hancock, under date of February 16, 1940, submitted the information requested. 
See appendix, p. 13008, paragraph numbered 4. 

2 The reference is to Brown Brothers Harriman & Co. See p. 12374, infra. 

124491—40 — pt. 24 5 



12372 CONCENTRATION OF ECONOMIC POWER 

Mr. O'Connell. You are talking about the origination of the busi- 
ness now. 

Mr. Hancock. No. This particular business with Brown Harri- 
man * involved a sharing of Stock Exchange commissions, the pur- 
chase of securities by the Aviation Corporation on the New York 
Stock Exchange 

Mr. Nehemkis (interposing). Now, that was Lehman Bros.' busi- 
ness. How did Brown Brothers Harriman & Co. figure in it? 

Mr. Hancock. That wasn't Lehman Bros.' business. They didn't 
think so, certainly. Both had an interest in the original interest. 

Mr. Nehemkis. Since the question has arisen, how did you receive 
your instructions to enter into the transaction ; from whom ? 

Mr. Hancock. I don't know. 

Mr. Nehemkis. As far as your recollection serves at the present 
time, precisely what did Brown Brothers Harriman & Co. do in con- 
nection with this transaction? What were the physical labors per- 
formed ; the mechanical services rendered ? Do you know ? 

Mr. Hancock. I can't speak with certainty on this particular case. 
I speak only of the general practice, the general procedure that ap- 
plied to all cases. 

Mr. Nehemkis. Does Mr. Gibbs, your associate, know ? 

Mr. Edwin Gibbs (Lehman Bros.). No 

Mr. Nehemkis. Give your answer to Mr. Hancock and off the record. 

Let me ask you a formal question. Do you accept as being your 
answer the answer that Mr. Dean has furnished you and Mr. Gibbs? 

Mr. Hancock. I haven't given you the answer yet. 

Mr. Nehemkis. You are about to give it. 

Mr. Hancock. I am not going to give you the answer Mr. Dean 
gave me. 

Mr. Nehemkis. Fine. It will be your own information ? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. Don't take offense. 

Mr. Hancock: I'm not taking offense. 

Mr. Nehemkis. Proceed, Mr. Hancock. 

(The question was read : "Precisely what did Brown Brothers Harri- 
man & Co. do in connection with this transaction? What were the 
physical labors performed, the mechanical services rendered ? Do you 
know?") 

Mr. Hancock. I don't know. I'll be glad to get all the facts about it. 

Mr. Nehemkis. And submit it later ? 

Mr. Hancock. I can answer in a general line, however, that will 
cover all this kind of cases. 

Mr. Nehemkis. I would like to proceed to the particulars and then 
give you an opportunity, if you will, to send the committee a memoran- 
dum on the general practice. Let me go over once again certain testi- 
mony you have given. You have testified that Lehman Brothers shared 
commissions with Kuhn, Loeb & Co. in connection with the purchases 
of 3^2 percent sinking fund debentures of 1952 for the account of 
Tidewater Associated Oil Co. That was a transaction which took 
place in 1938. Was that a joint account between Lehman Brothers 
and Kuhn, Loeb or was Kuhn, Loeb the manager alone ? I am refer- 
ring to the original offering. 

Mr. Hancock. In the original offering we were 

Mr. Nehemkis (interposing). Joint managers ? 

1 See footnote ?, preceding page. 



CONCENTRATION OF ECONOMIC POWER 12373 

Mr. Hancock. Joint managers. As I explained, however, they were 
on the bonds and we on the stock. 

Mr. Nehemkis. Right. Now, what work in connection with the 
purchases of those debentures did Kuhn, Loeb do? Do you know? 

Mr. Hancock. I don't as a matter of fact; no. It is a general 
practice, though, that 

Mr. Nehemkis (interposing). Let me just — excuse me, sir; I want 
to afford you every opportunity to complete your testimony, but it is 
necessary for my purposes that this record be complete in all respects, 
and so, if I interrupt, it is only because I want the record to show a 
logical sequence. Now, what did Lehman Brothers do in connection 
with this transaction? 

Mr. Hancock. I don't know. 

Mr. Nehemkis. And you will furnish the answer to that question ? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. And you also have very graciously agreed to make 
available a memorandum to the committee on the general practice. 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. Very well. 1 

LIFE OF MEMORANDUM OF 192 6 

Mr. Nehemkis. Now, Mr. Sachs, may I turn to you for a moment? 
This document, 2 the agreement of January 5, 1926, which we have 
been discussing, which Mr. Hancock has been giving testimony about 
likewise, was considered so vital to the interests of your respective 
firms that you requested advice of counsel as to its form, did you not ? 

Mr. Sachs. I have no doubt it was submitted to counsel ; yes. 

Mr. Nehemkis. Do you know the name of counsel ? 

Mr. Sachs. Our counsel' was Sullivan and Cromwell. 

Mr. Nehemkis. Did not this agreement remain operative until 
February 6, 1936? 

Mr. Sachs. Well, I should say that on February 6, 1936, or there- 
abouts, there was an exchange of letters between Lehman Brothers 
and Goldman Sachs & Co. which certainly put into the discard this 
memorandum; there had been differences of opinion that had arisen 
before that date of February 6. 

Mr. Nehemkis. But actually the treaty was operative up until 
that date, in terms of identifying it. 

Mr. Sachs. Right. 

Mr. Nehemkis. During this decade, am I correct in understanding 
that only one provision was modified ; namely, clause 7 dealing with 
trading accounts? 

Mr. Sachs. Yes; there was a letter, an exchange of letters. 

Mr. Nehemkis. I show you a letter which purports to have been 
written by Mr. Waddill Catchings to Mr. Philip Lehman, dated 
January 26, 1927, and ask you to examine this document and tell me 
whether or not it is a true and correct copy of an original in your 
possession and custody. 

Mr. Sachs. Yes; it is. 

1 Mr. Hancock, under date of February 16, 1940, submitted the Information requested. 
See appendix, p. 13008, paragraphs numbered 4 and 5. 
» "Exhibit No. 1783." 



12374 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Will you examine it, Mr. Hancock, and tell me 
whether you find that to be a true and correct copy of an original 
in your possession and custody? 

Mr. Hancock. Yes, sir. 

Mr. Hehemkis. The document, Mr. Chairman, is offered in 
evidence. 

Acting Chairman Henderson. The document, having been identi- 
fied, may be received. 

(The letter referred to was marked "Exhibit No. 1788" and is 
included in the appendix on p. 12720.) 

HANDLING FINANCING UNDER THE MEMORANDUM OF 19 2 6 

Mr. Nehemkis. Mr. Sachs, I now show you letters on four cases 
which illustrate the manner in which the two firms handled specific 
pieces of financing under the agreement. Will you examine the fol- 
lowing exhibits, which I propose to offer in evidence, and tell me 
whether you recognize them to be true and correct copies of originals 
in your possession and custody? One refers to Gimbel Brothers, 
another to May Department Stores, a third to B. F. Goodrich Co., 
and the last to Pillsburv Flour Mills. 

Will the record show that these are but seven exhibits, referring to 
four cases, of a number of other letters which are not being offered? 

Mr. Sachs. Yes, sir ; I recognize those letters. 

Mr. Nehemkis. Thank you, sir. Mr. Chairman, may I offer in evi- 
dence the documents just identified by ti. y witness? 

Acting Chairman Henderson. Do you -vish them inserted in the 
record ? 

Mr. Nehemkis. I would like them printed, sir. 

Acting Chairman Henderson. The documents, having been identi- 
fied, may be received and printed in the record. 

(The 'letters referred to were marked "Exhibits Nos. 1789 to 1795" 
and are included in the appendix on pp. 12720-12724.) 

Acting Chairman Henderson. We will recess until 2 :30. 

(Whereupon, at 12 :15 p. m. the committee recessed until 2 :30 p. m. 
of the same day.) 

AFTERNOON SESSION 

The hearing was resumed at 2 :30 p. m. upon the expiration of the 
recess. 
Acting Chairman Henderson. The committee will be in order. 

TESTIMONY OF WALTER E. SACHS, GOLDMAN, SACHS & CO., NEW 
YORK CITY; JOHN M. HANCOCK, LEHMAN BROS, NEW YORK 
CITY— Resumed 

Mr. Nehemkis. Mr. Hancock, I wonder if you wouldn't care to cor- 
rect the record. In the course of your testimony this morning you 
referred to Brown Brothers Harriman & Co. as Brown Harriman & 
Co. 1 Would you like to indicate that you had in mind Brown 
Brothers Harriman & Co.? 

Mr. Hancock. Right, I would. 

1 Supra, pp. 12371-12372. 



CONCENTRATION OF ECONOMIC POWER 12375 

STOCKHOLDER AND OFFICER PARTICIPATION IN TRADING ACCOUNTS 

Mr. Nehemkis. Mr. Sachs, you recall this morning that we were 
speaking of trading accounts. Under article 7 of the agreement 1 it 
is possible, is it not, for a trading account to be formed in association 
with any of the listed corporations, or any official of such corporations. 
That is correct, is it not, sir ? 

Mr. Sachs. That is correct. 

Mr. Nehemkis. Do you recall whether or not such trading accounts 
have been formed with officials of any of the listed corporations in the 
past? 

Mr. Sachs. Yes ; I do. I can specifically recall in connection with, 
for instance, the May Department Stores Co ; I think that is one. 

Mr. Nehemkis. Do you recall who the individuals were? 

Mr. Sachs. My recollection is they were the wives of some of the 
principals. I am not certain of that. 

Mr. Nehemkis. Does this refresh you : Mrs. Rosa May and Mrs. 
Florence G. May, each of whom had a 25-percent participation ? 

Mr. Sachs. Right. 

Mr. Nehemkis. Is it not a fact that in connection with trading 
accounts of Cluett, Peabody & Co., E. H.. Benson and associates had a 
50-percent participation and D. G. Cluett and associates also had a 
50-percent participation ? 

Mr. Sachs. That is correct. 

Mr. Nehemkis. And in connection with a trading account of Con- 
tinental Can Co., Carle Conway, Charles Rich, and J. Horace Harding 
each had a 20-percent participation. 

Mr. Sachs. Yes; but J. Horace Harding was not an official of the 
company. He was a partner of C. D. Barney & Co. 

Mr. Nehemkis. But Carle Conway and Mr. Rich were officials. 

Mr. Sachs. Carle Conway was. I don't think Rich was. Carle 
Conway definitely was. 

Mr. Nehemkis. And in the case of the May Department Stores Co., 
as you have indicated, the two individuals previously mentioned had 
participations. Do you recall whether in the Munsing Wear, Inc., any 
individuals had participations in the trading account ? 

Mr. Sachs. I don't recall. 

Mr. Nehemkis. Would this refresh your memory^a Mr. F. M. 
Stowell ? 

Mr. Sachs. Yes ; he was the president of the company. 

Mr. Nehemkis. His participation was equal, was it not, to 25 per- 
cent ? 

Mr. Sachs. Well, I don't recall; but I accept your figure. 

Mr. Nehemkis. Now, in the case of Sears, Roebuck & Co. do you 
recall whether or not the Employees' Profit Sharing Fund of Sears. 
Roebuck had a 33^-percent participation? 

Mr. Sachs. I do recall they had a participation and I accept that 
percent. 

Mr. Nehemkis. And in the case of Spear & Co., is it not a fact 
that Nathaniel Spear had a 25-percent participation? 

1 "Exhibit No. 1783," appendix, p. 12718. 



12376 CONCENTRATION OF ECONOMIC POWER 

Mr. Sachs. I don't recall that. 

Mr. Nehemkis. By the way who is Nathaniel Spear? 

Mr. Hancock. He was the head, principal stockholder, and the 
president. 

Mr. Nehemkis. Do you have any information that would confirm 
that statement? 

Mr. Hancock. It was a trading account, No. 2, so-called in our 
books, March 21, 1935. 

Mr. Nehemkis. What was the percentage of participation? The 
same as that which I mentioned, 25 percent. 

Mr. Hancock. Twenty-five percent. 

Mr. Nehemkis. And in the case of the Studebaker Corporation, 
Mr. Sachs, do you. recall whether Mr. Erskine, Mr. F. S. Fiske, and 
Mr. James Studebaker, 3d ? had participations in the trading account? 

Mr. Sachs. Mr. Frederick Fish — I recall that was subject to con- 
firmation; I don't know that specifically. 

stockholder and officer participation in underwriting syndicate 

Mr. Nehemkis. Now, is it not also true, Mr. Sachs, that individ- 
uals from time to time have been given positions in the purchase 
group of originations brought out by Goldman, Sachs and Lehman 
Bros., pursuant to the terms of the treaty ? 

Mr. Sachs. Well, there have been instances of that sort : yes. 

Mr. Nehemkis. And would not one of the purposes of giving an 
individual who might perhaps have been an officer of the company 
whose security was being brought out an opportunity to participate 
in the purchase group — would not the purpose have been to cement 
relationships between the firms and such company ? 

Mr. Sachs. Well, not necessarily. These very individuals were, of 
course, selling their own — a portion of their own — interest in these 
companies, and then if they wanted to participate 

Mr. Nehemkis. Isn't it rather unusual to have an officer of a com- 
pany take a position in a purchase group? 

Mr. Sachs. Well, in those days it occurred from time to time; it 
wasn't universal at all ; it wasn't, perhaps, frequent, but it did occur. 

Mr. Nehemkis. Did you in conjunction with Lehman Bros, bring 
out an issue for the Cuyamel Fruit Co. in 1920? 

Mr. Sachs. Yes. 

Mr. Nehemkis. And was not Mr. S. Zemurray given the largest 
single participation in the purchase group? 

Mr. Sachs. Well, I don't recall. 

Mr. Nehemkis. I show you a letter from Lehman Brothers, ad- 
dressed to your firm, among others, containing the statement I just 
made. I ask you to examine this letter and tell me whether or not 
it doesn't refresh your recollection. Does that refresh your recollec- 
tion, Mr. Sachs? 

Mr. Sachs. Yes. Of course, this company at t,he time was a 
privately owned company and I take it Mr. Zemurray was by far 
the chief stockholder. That is my recollection of it. 

Mr. Nehemkis. Now, will you, while you have the letter in your 
hand, tell me the amount of the participation taken by Mr. Zemurray ? 

Mr. Sachs. $1,000,000 out of the $5,000,000. 



CONCENTRATION OF ECONOMIC POWER 12377 

Mr. Nehemkis. And that was the largest individual participation 
of any taken by the group ? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Now, who was Mr. Zemurray and what-was his 
official position? 

Mr. Sachs. He was the president and chief stockholder of the 
Cuyamel Fruit Co. 

Mr. Nehemkis. As a matter of fact that participation offered to 
Mr. Zemurray at that time involved Mr. Zemurray in no risk what- 
soever; is not that correct? 

Mr. Sachs. As to that I would have to refresh my memory on the 
terms of the — I should think he took his share of the risks involved 
in the business. 

Mr. Nehemkis. How could he when he was a member of the pur- 
chase group and you had subsequent groups organized thereunder 
who were going to take on the various commitments ? 

Mr. Sachs. Well, we might not have been able to form those selling 
groups; it might have been incumbent on this group of two, four, 
six, eight people to take up their share of the bonds, all or such 
part as was not syndicated. 

Mr. Nehemkis. Do you recall in this particular case that the deal 
was syndicated ? 

Mr. Sachs. I believe it was. 

Mr. Nehemkis. Therefore, do you care to withdraw your previous 
statement that Mr. Zemurray did not assume any risk whatsoever ? 

Mr. Sachs. Well, I should suppose that the purchase group was 
formed first and the selling group afterwards. 

Mr. Nehemkis. Right; and the purchase group received a profit 
on the transaction when it passed the deal on to the banking group, 
did it not? 

Mr. Sachs. Yes ; but I say it might not have been able to form the 
banking group. 

Mr. Nehemkis. But in this case it did ? 

Mr. Sachs. It was successful; yes. 

Mr. Nehemkis. Now, what is the relation between the Cuyamel 
Company and the United Fruit Co.? 

Mr. Sachs. Oh, subsequently the United Fruit Co. purchased the 
Cuyamel Fruit Co. That was sometime after. 

Mr. Nehemkis. And is it not a fact that one of the benefits to be 
derived by a banking house in permitting an officer of the company 
for whose securities underwriting is being done to share in the pur- 
chase group, as Mr. Zemurray did, is to solidify and cement good rela- 
tions with that company? 

Mr. Sachs. There might have been various reasons. I mean it 
might have been a question of the distribution of the risks. That is 
possible. 
, (Representative Williams assumed the Chair.) 

Mr. Nehemkis. You identify this letter as a true and correct copv ? 

Mr. Sachs. Yes; I do. 

Mr. Nehemkis. The letter is offered in evidence. 

(The letter referred to was marked "Exhibit 1796" and is included 
in appendix on p. 12724.) 



12378 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Mr. Sachs, do you recall bringing out an offering 
for the Pet Milk Co. in 1928 in which your firm and Lehman Brothers 
each had equal interest? 

Mr. Sachs. Yes. 

Mr. Nehemkis. And do you recall who your other associates in the 
purchase group were? 

Mr. Sachs. I don't recollect of my own memory, but my memory 
has been refreshed that Mr. J. S. Alexander and associates were. 

Mr. Nehemkis. Will you tell me who J. S. Alexander and associ- 
ates are, or were ? 

Mr. Sachs. J. S. Alexander at that time was president of the Na- 
tional Bank of Commerce, and the associates I suppose were some 
of the other officials in that bank. My recollection, I now remember, 
is that that business was brought to us through one of the vice 
presidents of the bank, Mr. Rovensky. 

Mr. Nehemkis. And was not Mr. John Kovensky also a member 
of the purchase group ? 

Mr. Sachs. I believe he was ; I think through one of the associates. 
He may have been independent. 

Mr. Nehemkis. He acted as an independent. 

Mr. Sachs. So he did. 

Mr. Nehemkis. So that the participations in that group were 
Goldman, Sachs, 33%; Lehman Brothers, 33 1 /3 r ; J. S. Alexander and 
associates, 16% ; and John Rovensky, 16%. Now, may I ask you with 
reference to John Rovensky, will you tell me once again who he 
was? 

Mr. Sachs. He was at that time a vice president of the National 
Bank of Commerce. 

Mr. Nehemkis. Did Mr. Rovensky take that 16% percent partici- 
pation for himself or was he acting for the bank? 

Mr. Sachs. That I can't say ; I don't know. 

Mr. Nehemkis. You have no knowledge at all? 

Mr. Sachs. I certainly don't recall. 

Mr. Nehemkis. "Would it be fair for me to assume that it is most 
unlikely that Mr. John Rovensky could have taken 16%-percent par- 
ticipation in an underwriting syndicate? 

Mr. Sachs. I don't know what his question of wealth was at that 
time. 

Mr. Nehemkis. So you would not care to say. 

Mr. Sachs. I believe that Mr. Alexander was reputed to be a 
wealthy man. I don't recall, that is so many years ago. 

Mr. Nehemkis. You don't think I would be justified in stating at 
this time that Mr. John Rovensky could not conceivably have taken 
that 16% participation for himself individually and that he must 
have been acting for the bank ? 

Mr. Sachs. Well, I can't say positively of my own knowledge. I 
wish I could, I would be glad to answer it. 

Mr. Miller. Mr. Nehemkis, what was the nature of the underwrit- 
ing, was it bonds or stocks?. 
a Mr. Nehemkis. I think probably we had better ask Mr. Sachs. 

Mr. Sachs. It was a common-stock issue. 

Mr. Miller. Would a bank be apt to underwrite a common stock ? 

Mr. Sachs. This was done by the individuals. 



CONCENTRATION OF ECONOMIC POWER 12379 

Mr. Miller. What was the dollar value involved in the 16% per- 
cent ? 

Mr. Sachs. Not very large. It was a relatively small issue. 

Mr. H vncock. Roughly a million and half. 

Mr. Nehemkis. There were 55,161 shares without par value, $33 
share. 

Mr. Sachs. Sixteen percent was about $300,000. 

Mr. Nehemkis. About that. 

Mr. Sacks. Sixteen percent was about $300,000. 

Mr. Nehemkis. Were you through, Mr. Miller? 

Mr. Miller. Yes. 

Mr. Nehemkis. Will you examine this letter and tell me whether 
you recognize it is to be a true and correct copy of the original in 
your possession ? 

Mr. Sachs. 1 don't see the final page of the letter. 

Mr. Nehemkis. You see the caption, Goldman, Sachs & Co. 

Mr. Sachs. Oh, yes; it is our letterhead, and I have no question 
about it. 

Mr. Nehemkis. I think the legend we used probably has fallen off. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. The letter, Mr. Chairman, is offered in evidence. 

Acting Chairman Williams. It may be received. 

(The letter referred to was marked "Exhibit 1797" and is included 
in the appendix on p. 12725.) 

(Discussion off the record between Mr. Hancock and Mr. 
Nehemkis.) 

Mr. Nehemkis. I would like Mr. Hancock to make a statement 
for the record. 

Mr. Hancock. I think it might help to an understanding of the 
whole facts in connection with the Cuyamel Fruit Co. testimony and 
the interest of Mr. Zemurray of $1,000,000 in the largest single 
participation in the account. 1 think it would help if it were under- 
stood that Mr. Zemurray took no profits out of that; that he 
showed his good faith in the value of the securities underwritten 
by him without expectation of profit. It was done on his part, as 
I believe, to convince the banking firm that the security was good 
and in fact had his personal guaranty of a million dollars expressed 
in that form. 

Mr. Nehemkis. Do I understand correctly, Mr. Hancock, that Mr. 
Zemurray took no profit comparable to that taken by the other 
bankers? 

Mr. Hancock. He took no profit in the group; the 1% percent on 
his share was divided among the remainder of the group. 

Mr. Nehemkis. Was your statement predicated upon some docu- 
mentation that you have in your possession? 

Mr. Hancock. Yes, sir; and memory, too. 

ABROGATION OF MEMORANDUM OF 1926 IN 1936 

Mr. Nehemkis. Mr. Sachs, you have previously testified * before 
the recess that the treaty of January 5, 1926, remained operative 
until February 1936. 

Mr. Sachs. Yes. 



12380 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Now, on February 6, 1936, did not Lehman 
Brothers declare the treaty of 1926 without force and effect and no 
longer binding upon the signatories thereto. 

Mr. Sachs. That is correct; they wrote us a letter. 

Mr. Nehemkis. I show you a letter from Lehman Brothers to 
Goldman, Sachs dated February 6, 1936, and ask you to tell me 
whether or not that is a true and correct copy of the original in your 
possession. 

Mr. Sachs. Yes; that is. It is a true copy of a copy of a letter. 

Mr. Nehemkis. Subject to that correction. 

Mr. Hancock, will you examine that letter and tell me whether you 
recognize that to be a true and correct copy of an original in the 
files of Lehman Brothers? 

Mr. Hancock. This is a true and correct copy of a carbon copy 
in the files of Lehman Brothers. I am sorry to be captious ; I hope 
it didn't appear so. 

Mr. Nehemkis. I might ask what happened to the original. 

Mr. Sachs. We have it. 

(The letter referred to was marked "Exhibit No. 1798" and is 
included in the appendix on p. 12726.) 

Mr. Nehemkis. Mr. Hancock, was not the reason for Lehman Bros.' 
abrogation of the treaty the fact that Lehman Bros, regarded Gold- 
man, Sachs had breached the spirit of the terms of the treaty? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. The particular instances of the violation of the 
terms of the treaty, according to Lehman Bros., were the financing 

Slans of Goldman, Sachs with respect to Brown Shoe Co., National 
>airy Products Corporation, and Endicott Johnson Corporation. Is 
that correct? 

Mr. Hancock. That is correct, as I recall them. 
Mr. Nehemkis. Now, I want to read to you, Mr. Hancock, from 
the letter of February 6, 1936, now in evidence [reading from "Ex- 
hibit No. 1798"] : 

As of October 26, 1925, and January 5, 1926, you and we agreed to memo- 
randa setting forth a mutual understanding that appeared to both of us equi- 
table and satisfactory. Briefly and generally stated, these memoranda outlined 
the arrangements as they related to both of us and our equal participation in 
future financing for a list of corporations. The list embraced those corpora- 
tions with which our two firms had a relationship over a great many years. 

We believe we have proceeded completely in accordance with these memo- 
randa and their spirit. The recent instances of the financing plans for Brown 
Shoe, National Dairy, and Endicott Johnson indicate clearly that you have not 
felt bound by your agreement with us, in spite of the fact that no notice has 
as yet been given us of the termination of the arrangement to which both firms 
were parties. 

In view of the situation, we see no alternative for us but to inform you that 
inasmuch as the arrangement has not been controlling upon you for some time, 
we cannot accept any longer any commitments inherent within our written 
arrangements which we have always assumed as controlling upon us. 

Mr. Hancock, just what had Goldman, Sachs proposed in these 
financing plans which caused Lehman Bros, to accuse Goldman, Sachs 
of having breached the arrangement? 

Mr. Hancock. I suppose an unequal division of a new factor iri 
security underwriting called the management fee. 

Mr. Nehemkis. In other words, Goldman, Sachs wanted to charge 
a management fee. 



CONCENTRATION OP ECONOMIC POWER 12381 



Mr. Hancock. It was determined- 



Mr. Nehemkis (interposing). Also, Goldman, Sachs in a number 
of issues wanted to act as sole manager. 

Mr. Hancock. Correct. 

Mr. Nehemkis. Goldman, Sachs wanted the real privilege of han- 
dling the syndicate books. 

Mr. Hancock. Yes. 

Mr. Nehemkis. And Goldman, Sachs wanted a relatively larger 
underwriting for themselves. Does that summarize the casus belli, 
shall I say? 

Mr. Hancock. I think so. They might not all have been perti- 
nent to any one case, but they were the kind of difficulties that were 
arising in the situation. 

Mr. Nehemkis. Just like sovereign powers, there is never one 
specific incident, but a concatenation of events ? 

Mr. Hancock. That is right. 

Mr. Nehemkis. Lehman Bros, was opposed to the idea of the 
management fee on the grounds that there was neither principle 
nor precedent for such a fee in the past relations between the two 
houses ? 

Mr. Hancock. Eight. 

ORIGIN OF THE MANAGEMENT FEE 

Mr. Henderson. Could I ask a question there? This is for my 
own information. Do you know when the management fee first 
got into the underwriting? 

Mr. Hancock. Yes, sir ; it came in with the law of 1933, the Securi- 
ties Act of 1933. 

Mr. Henderson. There had been management fees charged before 
that. What I am trying to get is the historical background. 

Mr. Hancock. No, not quite; it was conceivable that there were, 
but it was a different kind of situation. I would like to have counsel 
state the question, and maybe I can explain it in laymen's terms. 

That provision came into the law in an effort to safeguard the 
provision to prevent an underwriting firm with capital from creat- 
ing a dummy corporation to do the underwriting under which the 
real corporation, the real firm, would be getting all the profits and 
the liabilities would be put, under the Securities Act, upon the 
dummy. The management fee came in as a part of that protective 
device. 

Mr. Henderson. I am talking historically. What underwriting 
house first instituted it? It was before 1933 because last week or 
the week before last the question of management fee came up in 
connection with A. T. & T. financing, and Morgan instituted it 
somewhere in the twenties, 1928, wasn't it? I am wondering, to 
the best of your knowledge, if it antedated that. Do you recall? 

Mr. Hancock. I have no doubt there were cases, but it wasn't a 
general practice. 

Mr. Nehemkis. In those days, Mr. Hancock, there used to be 
something that was called by the business "over-writing fee" that 
occasionally made itself known. i 

Mr. Hancock. Yes. 



12382 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. But it would perhaps be correct to say that the 
term as we now use it, "management fee," is perhaps more clearly 
associated with contemporaneous financing than with financings that 
took place in an earlier period, and that is largely due to the change 
in the nature of syndication which has arisen as a result of the 
1933 act. 

Mr. Hancock. That is right. 

(Senator King assumed the Chair.) 

Mr. Nehemkis. It was Goldman, Sachs' position, was it not, Mr. 
Sachs, that in essence, since the Goldman, Sachs accounts were at that 
time the only ones which were very active, your firm had the right to 
charge a management fee for itself and not share this with Lehman 
Bros. ? 

Mr. Sachs. Well, our theory of charging a management fee was 
just this, that under the Securities Act the nature of doing business 
was changed, the amount of preliminary work that had to be done in 
connection with being helpful in the preparation of registration, 
statements, and these long prospectuses and what not, was such that 
that required a special amount of work that under ordinary instances 
it was simpler and more effective for one house to do, and therefore 
we felt that if that work was done it ought to be compensated. My 
recollection is quite clear that that question of management fee 
and this question of compensation because of the Securities Act came 
up first in the instance with Brown Shoe Co. financing that you men- 
tioned, and that was in 1935, and if I might answer Mr. Henderson's 
question, according to my best recollection the whole question of the 
management fee had become alive and active just prior to 1935, back 
in 1934, perhaps early in 1934, I don't remember exactly. 

Mr. Nehemkis. Mr. Sachs, I should like to show you five letters 
which I ask you to examine and identify and tell me whether they are 
true and correct copies of originals. I don't intend to examine you 
on the contents of those letters, Mr. Sachs, but I want to offer them 
for the record. 

Mr. Sachs. Yes, sir: T recognize them. 

Mr. Nehemkis. Mr. Chairman, I ask that these letters be admitted 
in evidence and that they be spread on the records of the committee. 

Acting Chairman King. What is the object? 

Mr. Nehemkis. The relevancy of the letters? They show various 
discussions that were taking place on the questions that I. have put 
to the witnesses and are the foundation for subsequent testimony that 
I will elicit and tie up at a later time. 

Acting Chairman King. I suppose they are offered for the purpose 
of showing the character of business conducted, and the conclusions 
to be drawn therefrom would be for the committee. 

Mr. Nehfmkts. Correct, sir. 

Acting Chairman KrNG. And you are making no contention that 
these transactions to which you refer are violations of the Sherman 
antitrust law or Securities Act? 

Mr. Nehemkis. Mr. Chairman, you know me better than that. I 
never make allegations of that. sort. 

Acting Chairman King. I just wanted to probe a little and ascer- 
tain what the relevancy of this testimony was. Of course, as a mere 
fishing expedition it is unimportant, but if it has some relation to the 
transaction 



CONCENTRATION OP ECONOMIC POWER 12383 

Mr. Nehemkis (interposing). You have my word for it that the 
evidence will be tied up before this hearing is concluded. 

Acting Chairman King. Proceed. The letters may be received. 

(The letters referred to were marked "Exhibit Nos. 1799 to 1803," 
and are included in the appendix on pp. .) 

Mr. Nehemkis. Mr. Sachs, turning to the financing of Endicott- 
Johnson Corporation, did you not proceed and form a syndicate 
without Lehman Bros, after they had declined to participate in the 
underwriting? 

Mr. Sachs. That is correct. 

Mr. Nehemkis. I show you a letter from H. S. Bowers to Mr. George 
W. Johnson, dated January 31, 1936. Will you tell me whether this 
is a true and correct copy of an original in your possession ? 

Mr. Sachs. We have the copy of this letter in our possession ; yes. 
This is a photostat of the copy of the letter that was sent. 

Mr. Nehemkis. I should like to read the first sentence of the second 
paragraph of this letter [reading from "Exhibit No. 1804"] : 

It is the custom for the house leading such a business privately to sound out 
by word of mouth important possible underwriters well ahead of the actual sign- 
ing of the contract. 

By "contract" was meant here, I take, the contract between the 
underwriters and the company? 
Mr. Sachs. Yes. 

ATTITUDE TOWARD MORGAN STANLEY & CO. 

Mr. Nehemkis. Now, I continue with that letter: 

We therefore approached Morgan, Stanley & Co. — this is the investment security 
end of J. P.. Morgan & Co. . . . 

Acting Chairman King. What is the date of that ? 

Mr. Nehemkis. January 31, 1938. T offer the letter in evidence. 

(The lettt. referred to was marked "Exhibit No. 1804" and is 
included in the appendix on p. 12729.) 

Mr. Nehemkis. i should say that Mr. Bowers, in accordance with 
the previous testimon}' before this committee, was not alone in that 
understanding. 

Mr. Sachs. I would not, if I may be permitted to say so, take that 
remark, which was in a conversational letter, too seriously. I 'don't 
think Mr. Bowers would write that today. Morgan Stanley had been 
formed, it was the same name, and in writing to Mr. Johnson in a very 
informal manner he may have made that remark, and I feel confident 
he wouldn't say that today. 

Mr. Henderson. Does that mean you would not say it ? 

Mr. Sachs. I don't believe it, and I don't believe Mr. Bowers be- 
lieves it. 

Mr. Henderson. You don't believe Morgan Stanley is the invest- 
ment end of the Morgan business? 

Mr. Sachs. No, sir ; I do not. 

Mr. Henderson. How about you, Mr. Hancock? Do you want to 
be heard? 

Mr. Hancock. I have no desire to be heard. 

Acting Chairman King. They can hardly be called upon as char- 
acter witnesses as to which is the better of the members of that firm 
or any other firm. 



12384 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. No ; but, Mr. Chairman, last week, or the week 
before, the evidence at this hearing showed that at one time there 
were certain partners and certain capital in the firm of J. P. Morgan 
& Co. Following the formation of Morgan Stanley & Co., what 
seemed to have happened was a division between partners and 
capital, and running throughout the various items of evidence that 
the part of people in the same business that Morgan Stanley & Co. 
is — perhaps not in a legal, contractual relationship — the investment 
end of the Morgan business. 

Mr. Sachs. I think the "Street" felt at the time, and feels today, 
that certain individuals decided to go into the investment banking 
business, certain individuals who had been connected with J. P. Mor- 
gan, rather than to remain with them, but that the two things were 
entirely separated. It followed perfectly naturally that some of these 
individuals had certain personal contacts and were able to build up a 
business for Morgan Stanley & Co. as members of that organization. 

Acting Chairman King. My observation was directed to the ques- 
tion of whether this committee should determine or ask you to pass 
upon the qualifications or the moral turpitude of one firm or another. 

Mr. Sachs. I have no definite 

Acting Chairman King (interposing) . It wasn't our business to do 
that. 

Mr. Henderson. I wasn'f asking a moral question. Mr. Sachs and 
Mr. Hancock are still in the same business of people similarly situated, 
and partners in other great houses have chosen in their private and 
public expressions to indicate that, and I was just giving them an op- 
portunity to comment if they wanted to. It is evident Mr. Hancock 
doesn't want to. 

Mr. Hancock. I don't want to be dragged into the conversation. I 
didn't write the letter. 

Mr. Sachs. The point I want to make, Mr. Chairman, is this remark 
in this letter written many years ago was a conversational letter and 
was not considered a particularly important or well-thought-out re- 
mark, nor was it intended to be a statement of fact. 

Mr. Nehemkis. I think we will assume all of this, Mr. Sachs, and 
had Mr. Bowers known that in 1939 this letter was to be used for this 
purpose he wouldn't have written it. 

I want to show you a letter dated February 7, 1936, from Goldman, 
Sachs & Co., to Messrs. Lehman Bros., in reply to the notice of termina- 
tion of the treaty. Would you be good enough to examine this and 
identify it for me so I may offer it in evidence ? 

Mr. Sachs. Mr. Nehemkis, may I make one observation in regard 
to a letter that was put into the record a little while ago ? There was 
a letter * put into the record which I wrote to our manager in St. Louis 
regarding the Brown Shoe Co. business, in which I said Mr. Horton, 
who was associated with us, was spending a day or a day and a half 
in St. Louis. I didn't want to create the impression that that was all 
the work that was involved in connection with the preparation of 
registration statements, and so forth, and therefore the earning of the 
management fee. There was a great deal more than the spending of a 
day or two in a foreign city. 

1 "Exhibit No. 1801." 



CONCENTRATION OF ECONOMIC POWER 12385 

Mr. Nehemkis. Having once had the pleasure of being an associate 
of Mr. Horton, I know that is impossible. 

Mr. Sachs (examining letter). Yes; this is correct. 

Mr. Nehemkis. Mr. Chairman, may I offer in evidence the letter 
identified by the witness ? 

Acting Chairman King. You want it printed in the record ? 

Mr. Nehemkis. Yes, sir. 

Acting Chairman King. It may be received. 

(The letter referred to was marked "Exhibit No. 1805" and is in- 
cluded in the appendix on p. 12730.) 

RELATIONS AFTER THE ABROGATION IN 19 36 

Mr. Nehemkis. Mr. Sachs, did not some of the companies covered 
by the agreement in 1926 issue securities after the agreement had been 
abrogated in 1936? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. For example, there were security flotations by Conti- 
nental Can Co. in 1936 and 1937. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. And by the B. F. Goodrich Co. in 1936. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. And by Sears, Roebuck & Co. in 1937. 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. By Cluett, Peabody in 1937. 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. By General Foods Corporation in 1937. 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. And by R. H. Macy in 1937.? 

Mr. Sachs. Well, I can't 

Mr. Nehemkis (interposing). Mr. Hancock? 

Mr. Hancock. That is correct. 

Mr. Nehemkis. Did not Goldman, Sachs manage the issues of Con- 
tinental Can? 

Mr. Sachs. They did. 

Mr. Nehemkis. Goodrich? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Sears, Roebuck? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. And Cluett, Peabody ? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Did not Lehman Bros, manage the issue of R. H. 
Macy & Co. ? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. May I summarize, subject to your correction, the 
situation with regard to the financing of Continental Can Co.? 
In the five pieces of financing involving common and preferred stock 
between 1912 and 1936, Goldman, Sachs and Lehman Bros, shared 
equally in the leadership and in the public offerings. In May of 
1936 Continental Can Co. offered $10,000,000 of common stock to 
its stockholders and the offering was underwritten by a syndicate 
headed by Goldman, Sachs & Co. Goldman, Sachs were managers 
of this issue, but Lehman Bros, did not have a position as co-man- 
agers, is that substantially correct, sir? 



12386 CONCENTRATION OF ECONOMIC POWER 

Mr. Sachs. You made the statement there was an equal participa- 
tion in five pieces of business. I don't think that is correct. There 
was an equal participation in probably the first three, and then sub- 
sequently we managed the business and received a management fee. 

Mr. Nehemkis. On the last two pieces of business? 

Mr. Sachs. On the latter two, according to my recollection. 

Mr. Nehemkis. Mr. Hancock, when Continental Can Corporation 
issued 20,000,000 of cumulative preferred stock in 1937, did not Leh- 
man Bros, refuse to accept the participation offered by Goldman, 
Sachs? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. This was because Lehman Bros, had not been 
offered co-managership and a participation equal to that taken by 
Goldman, Sachs? 

Mr. Hancock. Correct, largely that. I wouldn't say that tells the 
whole story. 

Mr. Nehemkis. So that for the first time in a quarter of a century 
of close personal relationship with this company, Lehman Bros, 
was no longer able to participate in its financing. That is a simple 
statement. 

Mr. Hancock. No, your last two or three words — "was no longer 
able to." We did not participate, I agree. I don't want to get in an 
argument about the wording. 

Mr. Nehemkis. I will correct that : so that for the first time in a 
quarter of a century Lehman Bros, did not participate in that 
financing. 

Mr. Hancock. Correct, so far as I know. 

Mr. Nehemkis. Mr. Hancock, I show you three letters dated Sep- 
tember 20, 1937, September 29, 1937. and October 4, 1937, corre- 
spondence between yourself and Mr. Huffman, and Mr. Philip Leh- 
man and Mr. Huffman. Will you be good enough to examine these 
letters and tell me whether they are true and correct copies of origin- 
als in your possession ? 

THE NATIONAL SCOPE OF INVESTMENT BANKING 

Acting Chairman King. While the witness is examining those pro- 
posed exhibits, I would like to ask Mr. Sachs a question, whether by 
and large during the past quarter of a century there have been differ- 
ent houses or corporations or partnerships or organizations to whom 
persons seeking capital have gone, in Chicago, New York, San Fran- 
cisco, or other important industrial or financial sections, for the sale 
of their securities or for the obtaining of capital with which to 
expand their business activities or to launch new activities? 

Mr. Sachs. Certainly; many. I might point out that although (I 
am sure Mr. Hancock would agree) both Goldman, Sachs & Co. and 
Lehman Brothers were important banking houses and are important 
banking houses of large capital, nevertheless their combined capital 
was only a small part of the underwriting capital available in the 
country, not only in New York City but in Chicago and Boston and 
some other centers. Does that answer your question? 

Acting Chairman King. I think so. And if they accepted as a 
client a man who was trying to obtain finances to launch a mining 
company in Utah or Nevada or ;n the West, or a manufacturing 



CONCENTRATION OF ECONOMIC POWER 12387 

company in St. Louis, they would then have to unload — I don't use 
that term opprobriously — but they would have to find markets for the 
securities in various parts of the United States. 

Mr. Sachs. They would have to go to — or would go to — some in- 
vestment banking house whom they knew as people of standing and 
who were accustomed to make original issues of securities. They were 
perfectly free, of course, to go to any one of a number of people. 

Acting Chairman King. Those investment houses, whether Lehman 
or Goldman, Sachs, would open up channels through which they 
might dispose of securities to various persons throughout the United 
States who had money to invest in securities or reputable organi- 
zations. 

Mr. Sachs. Yes, sir; we were essentially merchants of securities; 
in other words, according to the nature of the particular security that 
we underwrite, we have the channels, which may be partly through 
private investors, partly through what are known as investment deal- 
ers throughout the country, institutional buyers — we have the chan- 
nels through whom we can market these securities we originate. 

Acting Chairman King. I have in mind the fact that years ago, 
when I was a lawyer, I represented an organization that wanted funds 
with which to develop a property. Funds were not available in the 
immediate vicinity, and representatives of the corporation came East 
because it was believed there were in New York or Chicago banking 
or investment companies who would, through the channels that were 
open to them, find markets for those securities. Now, has that been 
the custom for many years for organizations, new organizations, or 
those which have been in existence for some time and desired to expand 
their business, to approach these various business houses and banking 
houses and investment companies for the purpose of obtaining capital 
with which to prosecute their activities? 

Mr. Sachs. Yes, sir; I just believe that in any country there must 
of necessity be money centers; one, or two, or perhaps three. That is 
true all over the world ; it is the natural place where these investment 
bankers make their headquarters. If they are to do national busi- 
ness — and we know it to be a fact -that while very small pieces of 
financing maybe done locally in some smaller cities, pieces of financ- 
ing that are of national size, of national importance — they naturally 
drift to the money centers like Chicago and New York, and that is 
where the investment banker establishes his main office. 

Acting Chairman King. Have you discovered in your business 
activities that from various parts of the United States, from the 
Pacific to the Atlantic, from the Canadian border to the Gulf, per- 
sons who would have some surplus funds in remote parts of the United 
States would send those funds or make them available to the banking 
and investment houses in Chicago or Denver — I repember in Denver 
we had an investment company, Rollins & Co., that took many of our 
securities from Utah — hoping or expecting to obtain from those invest- 
ment and banking houses funds with which to prosecute their busi- 
ness and find the market for the surplus funds which they who had 
them desired ? 

Mr. Sachs. Except the business is done, perhaps, just a little dif- 
ferently. The funds that are available for investment in Denver or 
Kansas City or Sioux City, or wherever it may be, are made avail- 
able through the local investment dealer, and the New York or the 

. 124491 — 40 — pt. 24 6 " - 



12388 CONCENTRATION OF ECONOMIC POWER 

Chicago house forms these large selling groups. We sometimes have 
as many as three or four, perhaps five or six or seven hundred dealers 
who become members of this selling group and who then sell to their 
individual customers in their particular territory. 

Acting Chairman King. All parts of the United States ? 

Mr. Sachs. Yes, sir. 

Mr. Henderson. I think the last two big issues in the S. E. C. have 
had anywhere from 60 to 100 different distributors. The last one had 
upwards of 90, if I recall. 

Acting Chairman King. The point I am trying to make is that 

Mr. Sachs. May I just reply "to -that ? Are you referring, Mr. Hen- 
derson, to underwriters? 
1 Mr. Henderson. Yes. 

Mr. Sachs. I was speaking of underwriters, but underneath that 
this selling group which is a very much larger group ordinarily. 

Mr. Henderson. Yes. 

Acting Chairman King. Proceed. 

UNDERWRITING GROUP FOR CONTINENTAL CAN CO. FINANCING 

Mr. Nehemkis. These documents identified by Mr. Hancock are, 
offered. 

(The documents referred to were marked "Exhibit Nos. 1806 to 
1808" and are included in the appendix on pp. 12730-12732.) 

Mr. Nehemkis. Mr. Sachs, at the time of the offering of Continen- 
tal Can's securities to which reference has been made, in 1936 and 
1937 was not your partner, Mr. Weinberg, a director of Continental 
Can Co.? . 

Mr. Sachs. Yes; he was. 

Mr. Nehemkis. Among other things Mr. Weinberg was a director 
of the company by virtue of Goldman, Sachs' long public sponsorship 
of the issues of that company, was he not ? 

Mr. Sachs. Yes. 

Mr. Nehemkis. Now when Mr. Weinberg became a director of Con- 
tinental Can Co. it was presumably intended that he would take an 
active interest in the affairs of that company ? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. And that his interest would attach to all matters of 
corporate policy and not merely to matters of prospective financing? 

Mr. Sachs. Yes. 

Mr. Nehemkis. Now shortly before the time this issue was offered 
do you recall, Mr. Sachs, whether or not Goldman Sachs & Co. was 
interested in the possible financing by Jones & Laughlin Steel Cor- 
poration of an offering which was managed subsequently by the 
Mellon Securities Corporation? 

Mr. Sachs. We were associate underwriters ; we were offered a par- 
ticipation as an associate underwriter in that business; yes. 

Mr. Nehemkis. Mr. Sachs, is it not a fact that Mr. Weinberg used 
his position as a director of Continental Can Co. to bring pressure on 
Jones & Laughlin to have Goldman, Sachs included in that financing? 

. Mr. Sachs. He may very likely have said to Carle Conway, "You 
know the Jones & Laughlin people, and we will see whether we 
can't have a participation in that attractive business." I don't recall 
the exact circumstances, but that may have very likely occurred. 



CONCENTRATION OP ECONOMIC POWER 12389 

Mr. Nehemkis. Mr. Chairman, I should like to offer in evidence a 
letter from Mr. C. L. Austin, Vice President of the Mellon Securities 
Corporation, Pittsburgh, Pa., and then when you have admitted it, if 
you will, may I read from it? 

Acting Chairman King. Who is Austin? 

Mr. Nehemkis. Vice President of the Mellon Securities Co. 

Acting Chairman King. It may be received. 

(The document referred to was marked "Exhibit No. 1809" and is 
included in the appendix on p. 12733.) 

Mr. Nehemkis. I now read to you, Mr. Sachs, from a diary entry 
made by Mr. C. L. Austin, dated January 11, 1936. 
1 Mr. Sachs. Who is Mr. Austin ? 

Mr. Nehemkis. Vice President of the Mellon Securities Corporation. 
He used to be with E. B. Smith. 

Mr. Sachs. I know him personally. 

Mr. Nehemkis [reading from "Exhibit No. 1809"] : 

Mr. Hackett spoke to me yesterday about pressure being exerted on tbem on 
tbe part of Continental Can on tbe inclusion of Goldman, Sachs & Co. Gold- 
man, Sachs & Co. has a director on the Board of Continental Can. Continental 
Can, of course, is an important customer of Jones and Laughlin. 

Now was not Goldman, Sachs included in the Jones & Laughlin 
1936 offering of $30,000,000 4^s of '61? 
Mr. Sachs. Yes, sir. 

FINANCING BY GENERAL FOODS CORPORATION, 1.9 38 

Mr. Nehemkis. On May 4, of 1938, did not General Foods Corpora- 
tion issue $15,150,000, $4.50 cumulative preferred stock? 

Mr. Sachs. That is correct. 

Mr. Nehemkis. During" the latter part of 1937. did not Goldman, 
Sachs discuss possible financing with Mr. C. M. Chester, chairman of 
the board ? Do you recall that ? 

Mr. -Sachs. Yes. 

Mr. Nehemkis. And had you not requested the managership for 
the proposed offering ? 

Mr. Sachs. Oh, yes. 

Mr. Nehemkis. Mr. Hancock, is it not a fact that Lehman Bros, 
also wanted the position of co-managership? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. I show you a letter from Mr. Robert Lehman to 
Mr. C. M. Chester dated December 22, 1937. Be good enough to 
examine this and tell me whether this is a true and correct copy of 
an original in your possession ? 

Mr. Hancock. It is. 

Mr. Nehemkis. This is a letter 1 from Mr. Robert Lehman, whose 
place Mr. Hancock is taking this afternoon, to Mr. C. M. Chester: 

Dear Clare: I want to tell you that I deeply appreciate the very fair way 
in which you handled the matter we discussed today. As I told you, I feel 
that the suggestion which you made is thoroughly satisfactory to me and my 
firm. 



1 Included in the appendix, p. 13014. 



12390 CONCENTRATION OF ECONOMIC POWER 

In order that there may be no misunderstanding as to what should be con- 
sidered "an equal basis," I am giving you the following notes which cover the 
more important points so that you may have them before you. 

Your suggestion that G. S. & Co. should handle the business in their office 
is entirely satisfactory to me, although, of course, I consider that that is a real 
privilege. 

And now Mr. Lehman lists the points as follows : 

1. Both firms to share equally in the profits and to take the same commit- 
ment. Any step-up to be shared equally by both firms. 

2. Both firms to be syndicate managers and both signatures to appear on all 
syndicate and selling group letters and letters of confirmation. 

3. Both names to appear on the same line in all newspaper advertising and 
any syndicate, selling groups and other letters. Both names to be included on 
a parity basis in newspaper publicity as jointly heading the business. 

4. Syndicate and selling groups to be formed jointly as to who should be 
included therein. 

Now on or about January 27, 1938, Mr. Hancock, did not the 
board of directors of General Foods Corporation offer to create a 
joint managership for the proposed security issue? 

Mr. Hancock. I understood so. 

Mr. Nehemkis. Mr. Sachs, was not this decision transmitted to 
Goldman, Sachs and to Lehman Bros, on or about February 1, 1938? 

Mr. Sachs. I so understood. 

Mr. Nehemkis. Do you understand, Mr. Sachs, that you, too, re- 
ceived such a proposal^ 

Mr. Sachs. Yes, sir. 1 

Mr. Nehemkis. Now, the board of directors, Mr. Hancock, of 
General Foods had decided that Goldman, Sachs and Lehman Bros 
were to be joint managers, but that either firm might do the actual 
.work without, however, getting a management fee, and furthermore 
that if neither firm accepted this offer, "then neither of said firms 
shall be selected as syndicate manager or as joint syndicate man- 
ager." Do you recall that? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Now, both firms refused this proposal, did they 
not, Mr. Sachs? 

Mr. Sachs. Well, in the first instance, I think. 

Mr. Nehemkis. Mr. Hancock, your firm refused that? 

Mr. Hancock. I don't recall that. 

Mr. Nehemkis. Suppose you consult with Mr. Gibbs. 

Mr. Hancock. What was the date on that last one? 

Mr. Nehemkis. That was February 1, 1938. 
Mr. Hancock. I will have to verify; my recollection is not clear. 2 

Mr. Nehemkis. Well, we will put it in later. When the issue was 
finally offered on May 4, 1938, Goldman, Sachs and Lehman Bros. 
were joint managers with equal participations, were they not? 

Mr. Sachs. That is correct. 

Mr. Nehemkis [to Mr. Hancock]. Is that your understanding, sir? 

Mr. Hancock. Yes. 

Mr. Nehemkis. Mr. Sachs, may I now call your attention to cer- 
tain letters written by Mr. Weinberg to Mr. Chester, chairman of the 
board of General Foods Corporation, on February 11, 1938. My 

1 See letters, February 1, 1938, C. M. Chester to Robert Lehman and to Goldman, 
Sachs & Co., appendix, p. 12390. 

1 Mr. Hancock, under date of February 16, 1940, submitted additional information on 
this point. See appendix, p. 13009, paragraph numbered 6. 



CONCENTRATION OF ECONOMIC POWER 12391 

associate will show you these two letters. Be good enough, please, 
to examine them and tell me whether you recognize them as true and 
correct copies of original letters in your possession and custody? I 
believe the legend there carries your firm's name. 

Mr. Sachs. Yes ; that is correct. 

Mr. Nehemkis. May I have them, please. These two letters, Mr 
Chairman, may it please the committee, are offered in evidence. 
- Acting Chairman King. You desire them inserted in the record? 

Mr. Nehemkis. If you will ; sir. 

(The letters referred to were marked "Exhibits Nos. 1810 and 
1811" and are included in the appendix on pp. 12733-12734.) 

Mr. Nehemkis. I want to read, if I may, Mr. Sachs, a paragraph 
from one of these letters from Mr. Sidney J. Weinberg, your partner, 
to Mr. Chester [Reading from "Exhibit No. 1810"] : 

First, the resolution contemplates that the transaction should be handled by 
two firms jointly, and this I believe to be fundamentally unsound and ineffi- 
cient. Under present day conditions, an offering of this kind covers a wide 
field. There is the negotiation with the company and the determination of the 
characteristics of the security. There is the registration with the S. E. C, a 
complex matter. Also, there is the problem of syndication, which calls for 
expert handling. Experience confirms that this is done best if responsibility 
and the making of decisions are centered in one firm. The company should be 
called upon to deal with only one firm in the negotiations ; one firm should 
make the primary and detailed investigation and supervise the preparation of 
the registration statement and the handling of it with the S. E. C, and one 
firm can best deal with the intricacies of syndication. The centralization of 
responsibility is desirable and productive of the best results. If inefficiency 
and delay, and all the other evils^pf divided authority and responsibility are to 
be avoided, joint management must develop into formalism, with one party 
the real manager; and for many reasons that usually is undesirable. 

Now at the time of this financing, Mr. Sachs, was not Mr. Wein- 
berg, a director of General Foods Corporation? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. As a director was he not under a duty to see that 
the General Foods Corporation made the best possible arrangements 
with respect to financing? 

Mr. Sachs. Yes, sir. 

Mr. Nehemkis. Now, despite the low opinion held by Mr. Wein- 
berg of joint managerships, Goldman, Sachs accepted a joint man- 
agership, did it not? 

Mr. Sachs. Yes. 

Mr. Nehemkis. Therefore did not Goldman, Sachs consent to a 
method of security flotation which Mr. Weinberg was on record as 
not being in the best interests of the General Foods Corporation ? 

Mr. Sachs. Well, my answer to that is perfectly simple, Mr. 
Nehemkis. 

Mr. Nehemkis. I will take it any way you want to give it to me, 
Mr. Sachs. 

Mr. Sachs. Mr. Weinberg believed then, and he still believes 
today, I am sure, as I certainly believe, that the statements made as 
to efficiency of management are best handled by one firm. In other 
words, that was our theory then; that is cur theory today. In spite 
of that, in life, as in business, compromises have to be made ; General 
Foods Company apparently didn't— or the officials of the General 
Foods Co. didn't — agree with that "theory. They insisted that tne 
matter be handled in the other way, and if was just a question, there- 



12392 CONCENTRATION OF ECONOMIC POWER 

fore, of trying to make some division of the work and dividing the 
fee, and we sometimes do things, even if we don't think they are the 
best way of doing it, even if there is no alternative, and that was 
the basis of our whole theory of why we believed the management 
fee should not be divided and should go to one house. 

Now we had to in this instance, on the insistence of the General 
Foods officials, make that compromise. 

Acting Chairman King. Let me ask a question there, for my own 
information. Where an investment or banking company underwrites 
or floats a considerable number of issues, there must come a time, 
it would seem to me, if they did not have cooperation with or collabora- 
tion with other investment or banking houses, they might have ob- 
ligations which might be a little too great for them and therefore 
they would seek cooperation or collaboration of organization with 
some other investment or banking house? 

Mr. Sachs. You mean obligations in underwriting? 

Acting Chairman King. In underwriting. 

Mr. Sachs. Well, we always are Seeking associates in the under- 
writing; what I was referring to was the actual work undertaken 
in preparing an issue for the market. Now, all of us maintain large 
and expensive organizations for conducting just that work. Unfor- 
tunately in the last few years those organizations haven't had as 
much to do as we would like them to have to do; we have, never- 
theless, had to maintain them at great expense to ourselves. I think 
that is true of most investment-banking houses in recent years. 

Acting Chairman King. It has organizations to prepare the neces- 
sary papers to present to the S. E. C. ? 

Mr. Sachs. Yes ; and prepare the whole issue — the registration, the 
prospectuses, the working with lawyers, the preparation of trust in- 
dentures, and all the many things that have to be done to prepare 
an issue for the market. As I say, I can only hope that the day 
will come, Senator, where we will find ourselves short-handed; that 
there would be too many burdens of that sort, but I think we would 
be very quick then — of course quite seriously — to increase our organi- 
zation in order to handle it. 

Acting Chairman King. But it isn't ar uncommon thing — indeed, 
experience has justified it, has it not — the c<_ "^Deration of two or three 
or four investment or' banking houses to handle very large issues of 
corporate securities? 

Mr. Sachs. In the way of finding underwriting associates to spread 
the financial responsibility, and that, of course, was true in all these 
instances. In all these instances in which we said that we thought 
the management fee should be given to one house we were ready to 
associate with ourselves other underwriters, and certainty Messrs. 
Lehman Brothers had equal underwriting participations with our 
own. I mean there was no question about that, and that is quite a 
different thing from the actual working of managing and preparing 
the issue for sale. 

Acting Chairman King. I didn't refer to the managing and pre- 
paring of the issue for sale, but generally the distribution of the 
Securities throughout the United States, or wherever there was a 
field ;n which they would absorb those issues. 



CONCENTRATION OF ECONOMIC POWER 12393 

Mr. Sachs. Certainly; because any conservative house would nat- 
urally limit the amount of its underwriting obligation at any one 
time in accordance with its own capital. 

Dr. Lubin. May I ask a question ? This has a little different bear- 
ing but I might for my own enlightenment ask this question : Has it 
always been customary in the industry for one house to compete one 
against the other for the right to have its name on the first line ? 

Mr. Sachs. Well, it is the recognized custom that the leader in the 
business appears either on the first line alone or on the left side of the 
first line. That is more or less traditional. I can recall, however, if 
I may just add, that curiously enough back in 1906 and 1907, when 
we first did this business, it was the leading house who had its name 
on the right-hand side on the first line, but that custom changed in 
subsequent years. 

Dr. Lubin. Evidently the movie stars have good precedent for 
competing one against the other for their names in the footlights. 

Mr. Nehemkis. In the case of the General Foods Corporation, Mr. 
Sachs, being a director of the corporation and at the same time a 
partner in an underwriting firm might have resulted in conflicts of 
interest, as we have been speaking earlier? 

Mr. Sachs. Well, I can't follow you. 

Mr. Nehemkis. But if there had been any conflict of interest in this 
situation it would appear, would it not, that Mr. Weinberg resolved 
them in favor of Goldman, Sachs & Co.? 

Mr. Sachs. No; I think the facts show that he was of necessity 
negotiating at arm's length with General Foods Co. and General 
Foods Co.'s decision prevailed in the matter. He may have thought 
that the other course was the wiser course, but they made the 
decision. 

Mr. Henderson. Mr. Hancock, may I ask you a question ? In this 
particular piece of financing, did your house ever consider the possi- 
bility of competing on terms for business and getting it for yourself? 

Mr. Hancock. You mean and breaking the partnership agreement, 
so-called partnership agreement, or treaties referred to? Not as far 
as I know; not during the life of the agreement. 

Mr. Henderson. Did you try in this particular case to get the 
exclusive managership ? 

Mr. Hancock. So far as I know we did not; never intimated it, so 
far as I know. 

Mr. Henderson. In other words, you suggested if you couldn't get 
it on a proper basis you would withdraw ? 

Mr. Hancock. I don't know; that question never arose in that 
form in the case of General Foods; as far as I recall it did not. It 
did arise in other cases. 

FINANCING BY NATIONAL DAIRY PRODUCTS CORP., 193 6 

Mr. Nehemkis. Which we will come to in a moment. 

Mr. Hancock, on or about April 10, 1936, do you recall whether 
National Dairy Products Corporation floated $63,000,000 of deben- 
tures ? 

Mr. Ha>«cock. Yea, sir ; it Aid. 



12394 CONCENTRATION OP ECONOMIC POWER 

Mr. Nehemkis. Was not Goldman, Sachs the manager of this offer- 
ing, Mr. Sachs? 

Mr. Sach. Yes. 

Mr. Nehemkis. Lehman Brothers was not given the joint man- 
agership or a position equal to that of Goldman, Sachs? 

Mr. Sachs. They did 1 * not participate in the management fee, that 
is correct. 1 

Mr. Nehemkis. And this was true despite the fact that Lehman 
Brothers had been associated along with Goldman, Sachs as the com- 
pany's bankers for over a decade? 

Mr. Sachs. Yes; I suppose about 10 years. 

Mr. Nehemkis. As a matter of fact the two firms were the original 
bankers responsible for the organization of the company? 

Mr. Sachs. Yes. 

Mr. Nehemkis. Now prior to this offering had not Mr. Lehman 
been a director of the National Dairy Products Corporation, Mr. 
Hancock ? 

Mr. Hancock. Yes, sir ; he had been a director. 

Mr. Nehemkis. Did he not resign as a director in February of 
1936? 

Mr. Hancock. I know he resigned ; I am ready to accept that date ; 
I have forgotten about the time. 

Mr. Nehemkis. This was some 3 months prior to the public offer- 
ing of the company's securities, I believe? 

Mr. Hancock. I think there was delay on the issue for some rea- 
sons I have now forgotten. 2 

Mr. Nehemkis. Now was not the motivating reason for Mr. Leh- 
man's resignation from the board of directors the fact that he be- 
lieved that Goldman, Sachs had violated the agreement of January 
5, 1926? 

Mr. Hancock. That was one of the reasons stated, yes, sir. 

Mr. Nehemkis. I show you two letters dated respectively February 
18, 1936, and February 21, 1936, which purport to come from the 
files of Lehman Brothers. Will you be good enough to examine 
them and tell me whether you recognize them as true copies? 

Mr. Hancock. That is correct. 

Mr. Nehemkis. Mr. Chairman, I ask that these be admitted into 
evidence and spread on the records of the committee. 

(The letters referred to were marked "Exhibits No. 1812 and 1813" 
and are included in the appendix on pp. 12735 and 12736.) 

Mr. Nehemkis. I now read you, Mr. Hancock, from a letter dated 
February 18, 1936, by Mr. Robert Lehman to Mr. Thomas H. Mc- 
Innerney, president of the National Dairy Products Corporation 
(reading from "Exhibit No. 1812") : 

About January 9, 1936, Goldman Sachs & Co. advised us that they had 
arranged with National Dairy Products Corporation that they should receive 
an overwriting fee — 



1 Mr. Robert V. Horton, of Goldman, Sacns & Co., subsequently offered supplemental 
information in regard to this point, to the effect that not only did Lehman Brothers not 
share in the joint managership nor bave a position equal to Goldman, Sachs & Co. in the 
National Dairy tinancing of 1936, but they did not have any interest at all in that 
financing. 

2 Mr. .'xthur H. Dean, of Sullivan & Cromwell, counsel to Mr. Hancock, subsequently 
informed the committee that the convertible debentures of National Dairy Products Cor- 
poration were offered in April, 1936 according to schedule and that there was no delay 
in tbj^off ering. , 



CONCENTRATION OF ECONOMIC POWER 12395 

That is another expression for management fee, is it not? 
Mr, Hancock. That is right. 
Mr. Nehemkis (reading further) : 

of %% (about $240,000.) upon the proposed financing, and that we would 
receive no share in such overwriting fee, but that we would be permitted to 
participate in the underwriting upon identically the same basis as other invest- 
ment bankers would be offered participations (except that our name would 
appear with theirs on the top line of any prospectus and that we would be joint 
syndicate managers with them). We protested to them that this proposal not 
only was a clear violation of a written agreement dated January 5, 1926, which 
existed between Goldman Sachs & Co. and ourselves, but wholly apart from 
that was an unwarranted attempt to deprive us of the position which we had 
had over mafly years as one of the two bankers of the Corporation on a parity 
with Goldman Sachs & Co. 

The agreement provided generally for equal participation, but there was an 
exception as to National Dairy, in which case my firm was entitled to an 
interest smaller in amount than Goldman Sachs & Co.'s interest but on the 
identical basis. In discussing the agreement with Mr. Weinberg on September 
13, 1935, Mr. Hancock was told that "the interests will be equal" in any 
National Dairy financing (though it must be pointed out that this discussion 
was not embodied in a modification of the agreement, as a general modification 
was under discussion). 

I continue : 

We believe that your Corporation will not wish to take the position that the 
sole question involved is a dispute between Goldman Sachs & Co. and ourselves « 
and a violation by them of their agreement with us, to which National Dairy 
Products Coi'poration is not a party. 

Now, was not the motivating reason for Mr. Lehman's resignation 
from the board of directors the fact that he believed that Goldman, 
Sachs had violated the agreement of January 5, 1926? 

Mr. Hancock. Yes, sir. 

FINANCING BY CLUETT, PEABODT & CO., 1937 

Mr. Nehemkis. Mr. Hancock, did not a similar situation arise in 
connection with the proposed financing of $2,500,000 of common stock 
in 1937 by Cluett, Peabody & Company? Jn that case, you recall, 
Goldman, Sachs won the sole managership. 

Mr. Hancock. Slightly different set of facts, slightly different 
conditions, but essentially the same main problem. 

Mr. Nehemkis. In view of the fact that Lehman Brothers had, 
along with Goldman, Sachs been instrumental in organizing the com- 
pany, your firm felt that such treatment wasn't justified? 

Mr. Hancock, will vou examine a letter which is now shown you 
from Mr. R. O. Kennedy to Sanford L. Cluett, dated May 19, 1937, 
and tell me whether you recognize that as having come from your 
files? 

Mr. Hancock. Yes, I do; it has some of my own handwriting on 
the margin. 

Mr. Nehemkis. I am going to ask you to hold that for a moment 
because I would like you to explain those notations. First, if I may, 
Mr. Chairman, I would like to read the letter to the committee. This 
is a letter, you recall, from Mr. R. O. Kennedy. Who is Mr. Ken- 
nedy, by the way? 

Mr. Hancock. Vice President of Cluett. Peabody. 

Mr. Nehemkis. Who is Mr. Sanford L. Cluett? Will you identify 
him? 



12396 CONCENTRATION OF ECONOMIC POWER 

Mr. Hancock. He was a director — I am not sure he was an officer 
at that time — of Cluett, Peabody Company. 

Acting Chairman King. That is addressed to whom? 

Mr. Nehemkis. The letter is from Mr. Kennedy to Mr. Sanford 
Cluett and is dated May 19, 1937. 1 

Thank you a lot for telling me about Mr. G. A. Cluett's letter. I can under- 
stand exactly Mr. Cluett's reaction. I feel sure that he does not understand 
the situation, just as we did not in the very beginning. 

What did hurt me about his letter, though, was the implication that some- 
thing is being done that would mar the long record of fair and honorable 
dealings. As you know, the Board faced a situation that was not only embar- 
rassing, but most upsetting. Naturally our inclination was to have both of 
these houses work together as they always have. We have always felt very 
close to each one, and particularly so to the representatives on our Board. 
But there has grown up between the two houses an antagonism that we simply 
could not break through. As you know, I had dinner twice with Mr. Hancock 
and met with Sidney — 

Mr. Sidney Weinberg? 

Mr. Sachs. That is right. 

Mr. Nehemkis (reading further) : 

two or three times. We told them how we felt, what we wanted, but we just 
could not get it. Goldman, Sachs just would not work with Lehman Brothers, 
for reasons which to them seemed sound, although to an outsider may seem 
just a little childish, and Mr. Weinberg admitted that they might be so. 

The feeling is so intense, however, that in all recent financing they have not 
shared, even though it be for companies in which they are both represented. 

Sears, Roebuck would not have Lehman Brothers. National Dairy gave all 
of the work to Goldman, Sachs. Endicott-Johnson had Goldman, Sachs do it 
alone. Continental Can was recently refinanced with Goldman, Sachs cooper- 
ation. 

We pleaded and put all the pressure we could, requesting that they overlook 
their differences, but those differences were too fundamental and we could do 
nothing about it. As late as last Friday night, Mr. Weinberg said he would 
think it over again and see if they could not make an exception. As you know, 
he has already offered Lehman Brothers full participation as to the amount 
that each is to have, but he called me up yesterday and said that he could 
not consent to go along with Lehman Brothers' name appearing along with 
theirs. 

Mr. Weinberg did suggest that we drop Goldman, Sachs altogether and give 
it all to Lehman Brothers. He promised he would do everything he could to 
help if we did. Lehman Brothers gave us no e ' 'h assurance and have not 
today. Lehman. Brothers feel that Goldman, Sacl " tVe taken the position that 
they would have it all or would not play. T*" 1 s not the case, whereas I 
do believe that Lehman Brothers up to no are iKing the position that they 
will not go along if not offered all that t ey want — half of the participation 
and the prestige of being a joint principal. 

As you know, the Board felt that Goldman, Sachs were in a position to do 
a better job in this particular instance than Lehman Erothers could- alone. 
We have been supported in this by the examples of other companies who have 
had similar work to do. Also it is true that Lehman Brothers have been helpful 
to us, but it is quite as true that Goldman. Sachs have. Goldman, Sachs' 
interest has been a warm and very cordial one during the last few years, and 
particularly during the dark y?ars of 1932 and 1933. where, on the other hand, 
I have an impression that Lehman Brothers were willing to drop us altogether 
back in 1932 and 1933. 

It is most unfortunate that this has happened. I know that it has bothered 
Mr. Palmer, as it has bothered all of us, all out of proportion to its importance. 
But what can we do? Goldman, Sachs will give Lehman Brothers much of 
which they ask, but will not accept their name as cooperator. No one could 
have tried harder to bring about the cooperation than have we. If Mr. G. A. 
Cluett would talk to Mr. Weinberg for just a few minutes, I am sure he 



1 Included in "appendix, p. 13015. 



CONCENTRATION OF ECONOMIC POWER 12397 

would appreciate that our situation is a difficult one, and that our decision has 
not been an altogether unwise or unfair one. 

Acting Chairman King [to Mr. Nehemkis]. That controversy seems 
to have been as to which would be the prima donna, but that didn't 
compel Cluett, Peabody to accept either as prima donna, they could 
go some other place if they desired. 

Mr. Nehemkis. I suppose so. As a result of further discussions 
with the Cluett people, Mr. Hancock, was it not generally understood 
that the financing would be handled on a basis of equality between 
Goldman, Sachs and Lehman Brothers? 

Mr. Hancock. There was at one time, but there was confusion of 
thinking. 

Mr. Nehemkis. But the board of directors subsequently altered 
that decision, did they not? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. I show you a letter from yourself to Mr. Palmer 
dated May 18, 1937. Will you be good enough to examine this letter 
and tell me whether you recognize it as a true copy of an original in 
your possession and custody? 

Acting Chairman King. Apparently there was some disagreement 
between these two companies. What effect would that disagreement 
have upon the ethical, the moral, or the legal status? 

Mr. Henderson. I think that the chairman asks a very pertinent 
question. This testimony shows a long line of joint managership, 
a rather unusual one, I think, in the history of American financing. 

Acting Chairman King. Based upon the friendship between Philip 
Lehman and the founder of Goldman Sachs. 

Mr. Henderson. Philip Lehman and others, and shows an intro- 
duction of new conditions and new concepts. While it may be per- 
sonally painful for some of these expressions and these conversa- 
tions to be brought forth, I think there is nothing more revealing 
than the explicit and implicit connotations of some of these letters. 
Certainly if you studied the whole prospectuses that come to S. E. C. 
you would never get really to understand what is going on in this 
kind of group financing. I think it is very germane to have these 
introduced. 

Acting Chairman King. I express no opinion as to whether it is 
relevant or germane. It only shows that human nature exists among 
bankers and among investment people as well as among lawyers 
and representatives of this committee. We differ in our views and 
our concepts in various policies and I can understand that business 
people disagree. 

Mr. Henderson. If it served no purpose other than showing that 
bankers are human it is very pertinent. [Laughter.] I think ours 
will stand out as one congressional inquiry that undertook to show 
that. 

Acting Chairman King. Well, I discovered they were human when 
I tried to borrow money. [Laughter.] 

Mr. Nehemkis. I offer these three letters. 

Acting Chairman King. They may be received. 

(The letters referred to were marked respectively "Exhibits Nos. 
1814, 1815 and 1816" and are included in the appendix on pp. 12736- 
12739.) 



12398 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. One of the letters which you have just been good 
enough to identify is a copy of a letter to Mr. Sanford L. Cluett from 
his father, G. A. Cluett. 

Mr. Hancock. Not his father. 

Mr. Nehemkis. Who is Mr. G. A. Cluett? 

Mr. Hancock. A cousin, I believe. 

Mr. Nehemkis. Who had at the time been retired from the busi- 
ness? 

Mr. Hancock. Yes — son of the original owner, I believe, and re- 
tired. 

Mr. Nehemkis [reading from "Exhibit No. 1815"] : 

I hesitated for some time the other day before calling you on the telephone 
regarding the proposed new financing and I did so finally only because Mr. 
John Hancock of Lehman Brothers had urged me to do so. Since my retire- 
ment from business some ten years ago, I have endeavored scrupulously to 
avoid offering advice or making suggestions to those who are now directing 
the affairs of the company. In this particular instance, I thought best to call 
you, as it often happens that the active directors of a company are not 
familiar with arrangements or commitments entered into by their predecessors. 

I call your attention, Mr. Chairman, to the next paragraph par- 
ticularly : 

At the time the present company was organized through the joint efforts of 
Lehman Brothers and Goldman, Sachs and Co., a representative of each bank- 
ing firm was elected to the board. It was clearly understood at the time that 
each firm would have a voice in the financial affairs of the company and that 
any new financing that the company might be called upon to do in the future 
would be handled by both firms. 

Mr. Henderson. Mr. Nehemkis, did you say that this firm was 
organized jointly? 

Mr. Nehemkis. By both of the houses. 

Mr. Henderson. Mr. Hancock, is that correct? 

Mr. Hancock. He used an unfortunate word when he said "organ- 
ized." I think he referred only to the sale of the securities. 

Mr. Nehemkis. To use banking language, Lehman Brothers and 
Goldman, Sachs sponsored the first issue of Cluett, Peabody. 

Mr. Hancock. There might have been a change of name at that 
time and therefore a new incorporation. 

Mr. Nehemkis. In connection with another letter which you were 
good enough to identify for me and which is now in evidence, Mr. 
Hancock, I want to read this to 3'ou, if I may. This, you will recall, 
is a letter which you wrote to Mr. C. R. Palmer. 

Mr. Hancock. President of the company. 

Mr. Nehemkis. This letter which I just read, Senator, was from 
the first president, who had been retired for some years. This is Mr. 
Hancock now writing to the present president [reading from "Ex- 
hibit No. 1814"] : 

If the board at its last meeting did carefully consider and decide that the 
stock split-up and offering of rights was best, then it should have considered 
its relations to its bankers and how best to use them for Cluett's benefit. 

After three men, you, G. A. Cluett, and E. H. Cluett, all separately told me 
that none ki-'-w a reason why the financing should not be handled on a basis of 
equality of the two banking firms represented on the board, and after R. O. 
told me on Tuesday afternoon that the board would drop the financing unless 
it were so workea out, and after Green and I both advised that there was no 
interference to the company plans in a week's delay in which this equal basis 
could be agreed upon, I was confronted on 'Wednesday, May 12, with a state- 



CONCENTKATION OF ECONOMIC POWER 12399 

ment that the board had changed its mind and had decided to go ahead on its 
original plan which subordinated us to the other firm. 

I am ready to accept the opinion of the Cluett board as to what is best for 
Cluett in connection with its relations with bankers, if the facts are examined 
before a decision is reached. In this case I doubt that the facts were looked 
into, and sometime I want you to learn more about them. 

In the course of the discussions some matters have arisen which I think are 
worth further consideration so I am going to present one. R. O. referred to the 
fact that our difference with Goldman Sachs put Cluett in a squeeze. I told him 
that I was sorry Cluett was in that position but that I had not put it there, but 
rather Cluett had put itself there by not consulting with me or the board at an 
early date and before it made any commitment to Goldman Sachs. I think you 
will find R. O. agrees with my position on this. I did not say to him at the 
time but it is obvious that Goldman Sachs is using Cluett in its dispute with us. 
It is also obvious that Cluett chose to squeeze me and be itself squeezed by sub- 
mitting to an unfair demand rather than squeeze the man making the unfair 
demand. If he threatened to resign in case Cluett did not give him undisputed 
leadership in its financing, did he not control the Cluett financing by the threat 
which the Board undoubtedly felt would, if carried out, harm the company. 
After the Board took its position Tuesday and when it reversed its position 
Wednesday in the face of that threat, Cluett surrendered its judgment to a man 
who was willing to harm Cluett for his own purposes. Instead of threatening to 
resign as I too might have done/ 1 made no demands and it now seems that I get 
the rough end of the stick because I was reasonable in my request for an equal 
position. The man who would not work on this basis does not claim to me that 
my suggestion of a fair plan was not fair. He only asserts that he owes no 
consideration to Lehman Bros, and that he will not do what I proposed. If my 
suggestion was not fair, in fact, then he should object to it on that ground. I did 
not feel that I was asking him to do me or my firm a favor. I felt I was asking 
him to do what Cluett wanted done. 

Mr. Hancock, who is this mysterious "he" and. "him" referred to in 
your letter? 
Mr. Hancock. The only one that I reca 1 ! is Mr. Weinberg. 
Mr. Nehemkis (reading further from "Exhibit No. 1814") : 

I have been given no reason and I know of none why my position is not fair. 
The net fact is that one man will not accept my suggestion, regardless of its fair- 
ness, and he governs the action of the Cluett Board. When the Board reversed 
its former position and accepted his demand, it made a decision in effect that my 
suggestion was not in the best interest of Cluett to accept. It may have con- 
cluded that my suggestion was not a fair one. I do not accept either conclusion 
as sound or soundly arrived at. 

Now, as to the purely personal aspects of the situation, it was personally 
embarrassing to be left out of the discussions, but that is a very minor point. 
The main point is whether the action taken by Cluett is wise and sound and in 
Cluett's best interests. 

Acting Chairman King. From this letter it appears there is some 
controversy between your company and Goldman, Sachs, and you com- 
plained because Cluett didn't' accept your view, and you blame, as I 
understand your letter, "Weinberg for insinuating himself too much 
into the activities of the control of Cluett Bros, and to the disadvantage 
of your company. 

Mr. Hancock. That is a partial summary ; insofar as it goes, it is 
accurate ; it isn't the whole story. 

Acting Chairman Kino. You are complaining because Cluett Co. 
didn't avail themselves of your organization to facilitate the disposi- 
tion of their funds, of their issue. 

Mr. Hancock. In the first place, they didn't discuss the matter until 
after the issue had arisen. They had made a decision without dis- 
cussion. 

Acting Chairman King. Didn't they have the right to do that? 

Mr. Hancock. I think a legal right ; yes. 



12400 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. Were you on the board at the time? 

Mr. Hancock. Yes, sir. 

Mr. Henderson. But you were not present at any discussions of the 
board ? 

Mr. Hancock. No, sir. 

Mr. Henderson. And was it the board, the management, that made 
the decision ? 

Mr. Hancock. I think, from information I have gathered since, that 
the management in the form of an executive committee made the 
decision. 

Mr. Henderson. And from that statement you understood that 
the board would drop the financing if it could not be arranged for a 
joint managership ? 

Mr. Hancock. Came to me from a vice president and the president 
of the company at the time. . 

Mr. Henderson. Well, now, as I understand, to go further, you said 
that Senator King gave a partial summary. Included would be two 
other things that you were relying on. One was this understanding 
that had been reduced to a pretty clear agreement, and the other was 
mentioned not in your letter, but in another which has been read into 
.He record, 1 that it was clearly understood at the time the company was 
or^inized that Sachs and Lehman were to have membership on the 
board, and they were very clearly to have quite a bit to say about the 
financing. Were you relying on the letter, also ? 

Mr. Hancock. I didn't know of .Mr. Cluett's statement at that time, 
and so far as I know, there was no such agreement. The traditional 
practice of the firm had been that they would ask for representation 
on the board for 1 year, or the shortest term for which directors were 
elected, and then during that year the management or control was 
satisfied with the representative of our firm, or they were not. If they 
were satisfied, they continued ; if they were not, they were dropped. 

Mr. Henderson. You are putting your complaint mainly ? then, on 
the agreement and on the lack of consideration of the financing on its 
merits. 

Mr. Hancock. And the fact that I had worked on that board for a 
longer time that Mr. Weinberg had, and had done as much work, I 
thought, as he had done. Opinions in that might naturally differ. 

Acting Chairman King. There is no question as to the right, the 
legal right of the Cluett board to give greater consideration to Gold- 
man, Sachs than to your organization. 

Mr. Hancock. None whatever, sir. 

Acting Chairman King. And there was no legal agreement which 
would compel Cluett Co. to accept your organization as an underwriter 
or as a coequal partner, if that is the proper term, with Sachs Bros, in 
handling their securities. 

Mr. Hancock. Not so far as I know, sir. 

Acting Chairman King. You just felt there was a breach of con- 
tract, a breach of understanding the terms of which 

Mr. Hancock (interposing). A breach of precedent, too, over the 
years. 

^'Exhibit No. 1815." 



CONCENTRATION OF ECONOMIC POWER 12401 

Acting Chairman King. But there was no agreement under the 
ten <as of which that precedent was to be perpetuated indefinitely. 

i -Hancock. That is correct. 

Mr. O'Connell. Mr. Hancock, as I understood that letter, though, 
there apparently was some question in your mind as to the propriety 
of Mr. Weinberg, as a member of the board of directors of Cluett, 
Peabody, in taking the position he did as regards that financing. Did 
you not have in your mind the fact that Mr. Weinberg was in a dual 
position in that he was a member of the board of directors of Cluett, 
Peabody and also a member of the banking firm interested in the 
financing of Cluett, Peabody? 

Mr. Hancock. I don't recall that I did. I would assume in that 
case, as in every case where I am working — I assume Mr. Weinberg 
would be governed by the same ethics and standards — that he would 
not have taken part m any decision. I have no reason to assume, he 
did. 

Mr. Henderson. You did say, however, if I recall, that he was using 
the Cluett case in the fight with you and putting the squeeze on you. 

Mr. Hancock. That is right. 

Mr. Henderson. You did raise a question of propriety in that, did 
you not? 

Mr. Hancock. I wasn't raising the question of propriety as affect- 
ing any counter interests of him as a director against him as a mem- 
ber of the firm of Goldman, Sachs. 

Mr. Henderson. But it would be very clear in your mind, would it 
not, that there would be a conflict? 

Mr. O'Connell. There is one portion of that letter that I would 
like to have reread that would illustrate the point I had in mind. 

ROLE OF DIRECTORS WHO ARE INVESTMENT BANKERS 

Acting Chairman King. The primary obligation of Mr. Weinberg 
would be, would it not, to Cluett Co. rather than to Goldman, Sachs, 
the same as if you had been on that board; your primary interest, 
duty, would be to serve the Cluett Co. rather than to serve Lehman 
Bros.? 

Mr. Hancock. I wouldn't take a position in an individual transac- 
tion where I was on the two sides. 

Mr. Nehemkis. You mean to say you would not vote or participate ? 

Mr. Hancock. I would not participate in any discussions. 

Mr. Nehemkis. Is that a fixed policy of the House of Lehman, for 
directors to adhere to that position? 

Mr. Hancock. I can't govern other partners; I know it is a fixed 
policy on my part. 

Mr. Nehemkis. You are speaking, then, for Mr. John Hancock. 

Mr. Hancock. I believe it is true for every other partner, but I 
can't vouch for it. 

Mr. Nehemkis. Would you say, Mr. Sachs, that was the policy of 
the House of Goldman, Sachs, that partners who serve as directors 
never participate in discussions of financing matters on the boards 
of which they serve on the part of Goldman, Sachs? 

Mr. Sachs. It seems to me that is absolutely a, b, c. 

Mr. Nehemkis. Are you sure about that ? You are testifying, now. 



12402 CONCENTRATION OF ECONOMIC POWER 

Mr. Sachs. Yes ; I understand. Certainly I should think that when 
the decision came as to the accepting of terms of a proposal a banking 
firm made that the director or partner of that banking firm who was 
a director would be absent himself, or would not vote on that actual 
decision. 

Mr. Nehemkis. You mean he leaves the room? 

Mr. Sachs. In many instances ; yes. In some of these very discus- 
sions he wasn't there, he didn't come to the board of directors' meet- 
ing. 

Acting Chairman King. It seems to me, even under the highest 
form of ethics that if you or Mr. Hancock were a director in Cluett 
Co. and a bond issue were necessary, and funds were to be secured, I 
can't see any impropriety in his participating with the board in 
discussing as to the best means of obtaining the funds at the lowest 
price or the best price in the interest of the company, but if a con- 
troversy arose as between determining what organization should be 
the vendor of the securities and the underwriter of the securities, then 
another question would arise, but it would seem to me that it would 
be his duty as a director, notwithstanding his affiliation with Lehman 
Bros., if he were on the board to give his best judgment as to what 
would be the best interest of Cluett Co., and what course should be 
pursued in order that the company might reap the highest rewards 
and the best terms in the disposition of the security. 

Mr. Hancock. Clearly so, Senator; no question. 

Mr. Sachs. He would do that -in the discussions that led to the 
final proposal, the fact that he made a proposal to purchase such and 
such securities he would participate in those discussions. 

Acting Chairman King. He wouldn't be muzzled in discussing the 
question of issuing securities in the best interest of the company. 

Mr. O'Connell. May I read to you from your letter? [Reading 
from "Exhibit No. 1814"] : 

If he threatened to resign in case Cluett did not give him undisputed leader- 
ship in its financing, did he not control the Cluett financing by the threat which 
the Board undoubtedly felt would, if carried out, harm the company. After 
the Board took its position Tuesday and when it reversed its position Wednes- 
day in the face of that threat, Cluett surrendered its judgment to a man who 
was willing to harm Cluett for his own purposes. 1 

Reading that in connection with your testimony, is it not fair for 
me to assume that this conduct described here is conduct which you 
have indicated you would not think proper for a member of the board 
of directors of your company? 

Mr. Hancock. You have forgotten the first word. I said "If" he 
did so-and-so. 

Mr. O'Connell. Did you understand he did not? 

Mr. Hancock. I have been told he did not. 

Mr. O'Connell. At the time you wrote this letter, did you know 
that he had? 

Mr. Hancock. I did understand at that time he had. 

Mr. O'Connell. If these facts, as stated, are correct, it indicates 
a course of conduct on the part of a director which you would not 
think proper? 

Mr. Hancock. Correct. 



1 For additional information on this point, see letter of January 22, 1940, from Arthur 
H. Dean to Peter R. Nehemkis, Jr., enclosing letter of May 25, 1937, from C R. Palmer, 
president, Cluett, Peabody & Co. to John M. Hancock, appendix, p. 13012. 



CONCENTRATION OF ECONOMIC POWER 12403 

Mr. Henderson. Mr. Sachs, an underwriting contract is a contract 
to purchase an issue, is it not? 

Mr. Sachs. Yes. 

Mr. Henderson. An underwriter buys an issue from the issuer. 
Now, in the negotiations leading up to the dealing with the under- 
writer, a man who is on the board of directors of the issuer and is a 
partner in the banking house does have a very serious conflict, does 
he not? 

Mr. Sachs. Well, in a sense I can see what you mean, that he is 
a buyer as a member of the banking house and a seller as a director 
of the company; yes, sir. 

Mr. Henderson. He does have a distinct conflict of interests there? 

Mr. Sachs. I know of no relationship in life or in business in which 
occasionally conflicts of interest don't arise. I know that subject 
has been up many times. You just can't go through life, certainly 
not through business life, without occasional conflicts of interest. 

Mr. Henderson. 'I agree with you there. We occasionally have 
them in government. We have conflicts, but this type of conflict 
I am instancing here is bound to arise, is it not, every time there is a 
question of financing when a member of an underwriting house is on 
the board? 

COMPETITION WITH MARKET CONDITIONS 

Mr. Sachs. Except for this, and I think this is as good a place, 
if I may be permitted to say it, as any, that in these, dealings with 
companies for the purpose of buying and then marketing the securi- 
ties, we are always in competition with market conditions. We 
couldn't attempt for a moment to buy an issue of securities from 
Cluett Peabody & Co. or Sears, Roebuck & Co., or any other industrial 
or mercantile concern without being faced with the problem that if 
we don't make the proper price in accordance with market conditions, 
that that company won't accept it and that they have got a dozen or 
25 other investment banking houses who will make the proper price. 
In other words, do ail the discussion about competitive bidding that 
you like, these relationships that we- are talking of have always got 
the competition of the market, and I have, if I may be permitted to say 
so, followed these hearings before the committee for the last week or 
two, and I haven't seen that point properly brought out. In 25 years 
of experience, I find that we are continually, even though we have 
done business with Sears, Roebuck & Co. for 25 years, in competition 
with the market. 

Mr. Nehemkis. Mr. Commissioner, would you permit me to break 
m for a moment? 

Mr. Henderson. Yes, sir. 

Mr. Nehemkis. Mr. Sachs, I think it is probably fair for me to 
say that during the numerous weeks 1 that we have plagued you, you 
have turned over everything in your files, have you not, to us? 

Mr. Sachs. As far as we have been requested. 

Mr. Nehemkis. And I think it is also fair to say, Mr. Hancock, 
that your firm, too, has very graciously given us full data and infor- 
mation of everything in your files pertaining to this treaty that we 
have been discussing today. Is that correct ? 

Mr. Hancock. It is correct, so far as I know ; it was certainly our 
intention. 

. 124491— 40— pt. 24 7 



12404 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. We lived there for many weeks. Now, I am liter- 
ally amazed — I have studied this correspondence with great care — 
that I find nowhere in any of this correspondence anything that bears 
out the statement that you just made, Mr. Sachs, that your respective 
firms were at any time concerned with competition from any other 
house with reference to the 60 corporations covered by the appendix 
to the agreement. 

Mr. Sachs. I can answer that very simply, that the memoranda in 
our files, or the letters, are just a fraction of what goes on in the 
discussions or in the placing of an issue. In other words, nine-tenths 
of it, or 99 percent is done by word-of -mouth discussion, and in these 
discussions, certainly in any of the negotiations that I have had to do 
with in the last twenty-odd years of experience, questions have always 
come up of price, conditions underlying the issues, and what others 
would do. We are constantly meeting the competition of the market. 
That hasn't found its way, it is quite true, into the files because into 
the files come your final documents of agreement, your final con- 
tracts, and so forth. But we have days and weeks and months of 
discussion before we make an issue. 

Acting Chairman King. Let me ask a question there. Did you con- 
sider that those corporations or companies that have been referred 
to were bound hook, line, and sinker to take their securities, or rather 
to have you, or Lehman Bros., handle all their securities? 

Mr. Sachs. Most certainly not. I stated earlier in the day that 
there was never any contractual arrangement, any contract or con- 
tractual arrangement between these companies and ourselves, and I 
presume I can speak for Lehman Bros, when I say that. 

Acting Chairman King. Is that your understanding, Mr. Hancock ? 

Mr. Hancock. That is my understanding. 

Acting Chairman King. Then each of those companies had a right 
to seek underwriters or investment houses for the purpose of handling 
their securities as they pleased. 

Mr. Sachs. Exactly. 

Mr. Hancock. Eight. 

Acting Chairman King. And was there competition in the mar- 
kets? Did you encounter prospective or active competition from 
other investment or banking houses for the securities or underwrit- 
ings of issues of these ? 

Mr. Sachs. There were sometimes threat of competition on price, 
because time and again those questions came up. We sometimes had 
verbal agreements with companies that we thought such-and-such 
would be the price, but if market conditions improved between the 
time that we were having our preliminary discussions and the final 
period of issue, we would give that company the benefit of price 
simply because our spread, so-called, was to be so-and-so much and 
not more. 

May I enlarge on one other thing? 

Acting Chairman King. Proceed. 

^Mr. Sachs. My associate reminds me of it. In connection with this 
Brown Shoe issue, we. bought $4,000,000 of 394-percent bonds. The 
first I knew that the Brown Shoe Co., which company I was a directoi 
of, was contemplating any business was that I received a letter from 
them one day saying that they had received an offer from a certain 
investment banking house in St. Louis, such-and-such an offer, and 



CONCENTRATION OF ECONOMIC POWER 12405 

as an active and energetic banker, the first thing I did was to jump on 
the very next train and go to St. Louis. I certainly had competition 
to get that business in that particular instance. I got the business; 
and probably would have gotten it becaase of the past, I will say 
frankly ; on equal terms I probably would have been given the pref- 
erence, but I certainly wouldn't have been the preference on unequal 
terms. 

Mr. Henderson. Leaving out any discussion of competition, Mr. 
Sachs — I can clearly see you and I would have quite a violent dis- 
agreement as to where competition actually takes place — if I thought 
that over that period of years in those 60 firms any large part of 
business actually passed on competition, I would feel more sympa- 
thetic to your present sentiments. 

But, getting; away from that, was Mr. G. A. Cluett the firstpresident 
of the Cluett Peabody Co.? 

Mr. Sachs. I think not. 

Mr. Hancock. An interim president, after the original organiza- 
tion and before Palmer went in. 

Mr. Henderson. He says in that letter of May 13, 1937, to Sanford 
Cluett [reading from "Exhibit No. 1815"] : 

it was clearly understood at the time each firm would have a voice in the finan- 
cial affairs of the company and any new financing that the company might be 
called upon to do in the future would be handled by both firms. 

Mr. Sachs. All right; that was their general intention, but there 
was no obligation on their part. 

Mr. Henderson. You mean no legal obligation? 

Mr. Sachs. Certainly not ; and if we hadn't proved satisfactory as 
investment bankers and a satisfactory, relationship they would have 
immediately gone elsewhere. Any businessman would have done that. 
We maintained our relationship simply by reason of the fact that we 
gave good and efficient service, and we couldn't have maintained it for 
one moment — Goldman, Sachs & Co. have had clients in other depart- 
ments of their business for 50 or 60 years, and they couldn't maintain 
those relationships if they didn't perform service. 

Mr. Henderson. I am prepared to^accept that. 

CONFLICTS OF INTEREST 

Mr. Henderson. I go on to this question of the conflicts of interest 
With this situation here, partially foreclosed, shall we say, doesn't a 
director have a difficult job in connection with any new financing? 

Mr. Sachs. I am sorry to disagree. I don't want to be controversial. 

Mr. Henderson. I see no reason why you shouldn't be controversial. 
This is an arena of controversy here. 

Acting Chairman King. We are not presumed to be judges. 

Mr. Sachs. I consider that the investment-banking business is a pro- 
fession of the highest professional type. It has high standards; it 
takes long experience ; it takes a lot of qualities that we hope some of 
us have. Now, I don't think due consideration is given to that, and I 
think that where investment bankers have attained a high position in 
their profession that that is recognized by their clients, just as if we 
have an attorney — we have no contract with him; there are lots of 
other good attorneys ; but we go back to the man whom we know and 



12406 CONCENTRATION OF ECONOMIC POWER 

the man that knows us; the same thing is true in the investment- 
banking business. 

Acting Chairman King. The attorneys do not have a partner on 
your board ? 

Mr. Sachs. Attorneys sometimes are on boards. 

Mr. Henderson. We are seeking an analogue here that he has used 
himself, Mr. Chairman. A legal firm would have to have a partner 
on the board of Goldman, Sachs. I am just pointing out— is Mr. 
Dean [of Sullivan and Cromwell] on your board? 

Mr. Sachs. No. 

Mr. Hancock. But, Mr. Dean has partners on the boards of indus- 
trial companies. 

Mr. Henderson. Of what? 

Mr. Hancock. It has been true at some time 

Mr. Henderson. Oh, the partners. 

Mr. Hancock. On the boards of industrial companies for which his 
firm is general counsel. 

Mr. Nehemkis. That would create in itself a conflict of interest, 
but that is another field of discourse. 

Mr. Miller. Is Mr. Dean counsel for both of your firms ? 

Mr. Sachs. He is. 

Mr. Hancock. At times. 

Mr. Sachs. I think we should modify that by saying usually the 
firm of Sullivan and Cromwell are counsel for both firms; different 
partners in those firms usually represent our two banking houses. 

Mr. Lubin. Mr. Sachs, how many members were there on the board 
ofCluettCo.? 

Mr. Hancock. Thirteen or fourteen. I would like to make just one 
point clear, that you may have overlooked, and I am presuming you 
can straighten it out quickly. How does this question of relation- 
ship or counter-interest arise? The first time a piece of business is 
done ? The first time that Cluett, Peabody, came tc. Goldman, Sachs 
and Lehman Bros., isn't it a fair assumption that at that time, having 
an important piece of financing to be done, that they had satisfied 
themselves and that these two firms could probably, in their opinion 
at least, do the best job that could be done in this country at that time. 

Mr. Henderson. I will accept that. 

Mr. Lubin. I don't think anybody would deny that fact, but does 
that necessarily mean that if they shopped around in an open market 
that they may not have found somebody who could have done it still 
better than you two? 

Mr. Hancock. No ; I wouldn't say it necessarily meant that, no ; but 
It meant an independent judgment by men certainly at arm's length 
at that stage of the transaction. 

COMPETITIVE BIDDING 

Mr. Lubin. I think that raises the whole question of responsibility 
of management, if a corporation where the stock is owned by stock- 
holders spread throughout the country, whether or not a group of 
that sort doesn't have a moral, if not legal, responsibility to see to it 
that they are sure after actual competitive bidding that they are 
getting the best returns for their stockholders and their organization 
that it is possible to be gotten. 



CONCENTRATION OF ECONOMIC I'OWER 12407 

Mr. Hancock. If I may comment, that question splits itself in two. 
These cases we are talking about were not that kind of case. In the 
first place, they were industrial companies, where the sale was made 
on the whole by the largest stockholder. They were not made by a 
management owning no stock. That is the first differentiation on that. 
So there was found to be actual arm's-length transaction. 

Now, I can readily conceive that as of any minute someone might 
get a better price for the sale of a security, but that isn't going to 
mean that necessarily over the years it is the best thing to have gotten 
a higher price merely because it could have been gotten at the moment. 

Acting Chairman King. Might have gotten a higher price on one 
issue and on the next got a much lower price? 

Mr. Hancock. Yes ; or if a large holder of securities wants to deaden 
public interest in securities by design, the most effective way would be 
to try to sell them at too high a price, so that the people who buy it 
the first time lost their money in part, and the public will be chilled 
in that security for years and years ahead. 

Mr. Henderson. Getting past this initial financing, at which time 
the issuer accepts the conditions of the underwriter or member of the 
board for a year and in succeeding years for new financing, those 
conditions are not present and there is bound to be a conflict of 
interest, is there not? 

Mr. Hancock. There has to be; but it can relate to a very minor 
point. It can relate only to the amount of the spread which the banker 
may accept as gross profit. Let me make an illustration. Suppose a 
security was bought at a hundred and sold at a hundred and two. 
The outside interest of the banker is two points. Now, if by com- 
petitive bidding we forced the banker to purchase the security from 
the issuer at 101, and if the two points spread was fair value for the 
services rendered by the banker, the result would be a price to the 
public of 103. 

Now, who is wise enough to say what is wise or right at that 
moment ? 

Mr. Henderson. I will tell you what I tlynk could have been the 
wisdom there that could be well trusted; that is the competitive mar- 
ket, and that is the thing on which America over a long period has 
relied. Once there has been a determination in a free and open and 
competitive market, people are willing to lay aside any kinds of doubts 
as to whether or not it is the fairest price. The fairest price in that 
situation, Mr. Hancock, to re-cite, might have been 97, and people 
would have been willing to accept that as being entirely free from 
any doubts. 

Mr. Hancock. Would they buy a large block of securities at that 
same price ? Let's take a concrete case. 

Mr. Henderson. I am taking a market for the full amount of the 
issue. 

Mr. Hancock. That market doesn't exist. 

Mr. Nehemkis. Mr. Commissioner, you may perhaps have over- 
looked at the moment that Mr. Hancock's firm has contradicted every- 
thing he has been saying, because they purchased by competitive bids 
the last successful offering of the Cincinnati Union Terminal Co. 
Mr. Hancock. No ; we didn't ; we purchased the security. 
Mr. Nehemkis. You were the leader of -the syndicate.- 



12408 CONCENTRATION OF ECONOMIC POWER 

Mr. Hancock. Your fact is correct but your conclusion isn't. 1 

Mr. Nehemkis. Perhaps there is room for a difference of opinion. 

Mr. Henderson. There is a conflict of interest, you say, but it is a 
minor matter. 

Mr. Hancock. There is a possible conflict, I will agree, and it could 
be a cause of difficulty, unless you have men who are going to handle it 
in a fair, honest way. 

Acting Chairman King. In your opinion, Mr. Hancock, with re- 
spect to those companies referred to in this memorandum which has 
been produced, if all of those issues, whether they were original or 
renewals, or what not, had been offered at public auction, in your 
opinion would the results to the company have been better than those 
which attended the disposition of those securities? 

Mr. Hancock. I don ; t think over the long time they would have 
been. There might have been differences at the moment in small 
measure for a short time. 

Acting Chairman King. When you are auctioning off a large issue 
you must underwrite it ? and would there not be difficulties in finding 
companies who would bid on it ? 

Mr. Hancock. It has been so found. 

Mr. Sachs. I may interject the observation that we are talking, I 
think, or thinking a good deal about times like the present which are 
what we know as seller's markets. There have been times when it has 
been very difficult to place securities, and where bankers who have had 
a continuing relationship with a company have had to put their 
shoulder to the wheel and take great financial responsibility in order 
to tide over a company over a difficult situation. 

Now, if you have competitive bidding, there will be nobody that 
will feel any responsibility for these companies that are being financed, 
and then you will see the difficulties and the losses that will come to 
security holders and to stockholders. I think we must take a long 
point of view instead of a short point of view. 

Acting Chairman King. Have there not been losses by underwriters, 
especially where there was a very large issue? 

Mr. Sachs. Yes, sir". In 1937 there were two very notable cases, 
one of a very prominent oil company and one of a steel company. 

Acting Chairman King. I think we all familiar with the fact that 
in many instances the banks or. investment companies, to use your 
expression, have put their shoulders to the wheel, and to strengthen 
the market have sustained great losses in underwriting business. 

Mr. Nehemkis. You have testified earlier that you believe that 
your fellow partners when they served on boards of corporations did 
not participate in discussions or in the voting of matters pertaining 
lo the underwriting agreements or the terms, and so on. 

Mr. Sachs. They didn't participate in, I should say, the final vote. 
Mr. Nehemkis. Presumably when a partner of your firm — and this 
would be true of Lehman Bros, as well as of any of the great banking 
houses of this country — consents to serve as a director of a corpo- 
ration, the corporation expects from that banker his judgment, his 
wisdom, his maturity, and experience in financial affairs, does it not? 
Mr. Sachs. Right. 

1 Mr. Hancock, in a letfer of Fubruary 10, 1940, submitted additional information in 
connection with Ibis pcfint. See appendix, p. 13010, paragraph beginning "Page 500, first 
column, after your suggestion, ." etc. . 



CONCENTRATION OF ECONOMIC POWER 12409 

Mr. Nehemkis. Now if, as you have just testified, a partner of a 
banking firm, who is also a director, has to withdraw from the dis- 
cussion and participation, even if it be the final discussion, hasn't he 
created an absurd situation? He can't then give to the corporation 
what it expects of him, and he ceases to be of any usefulness to the 
board? 

Mr. Sachs. I don't think so. I think when we speak of this with- 
drawal from the final vote it is just to lean backward so that a man 
is not voting for a financial operation in which he eventually, it is true, 
takes a responsibility, but also may be making a profit. 

Mr. Nehemkis. So we now have this situation, according to your 
testimony, that all that really happens is that a director leans back 
in his chair so that when the law clerk draws up the corporate minutes 
he can write, "did not participate in the voting and did not partici- 
pate in the discussion," whereas, as a matter of fact, he participated 
all along and hence was involved in a specific conflict of interest? 

Mr. Sachs. No ; I don't think it is quite that way. Let's look at it 
this way, that if there should be a close division in the board, suppos- 
ing there w T ere nine directors and he cast the fifth vote, he wouldn't 
want to be put in that position. He would want the directors to decide 
finally without him actively having the vote that woidd put over 
this particular financial operation. But he would certainly give his 
best advice and his best judgment as to what he believed was best for 
the corporations. I don't think 

Mr. Nehemkis (interposing). I think we have your position very 
clearly. 

Mr. Miller. You have spoken back a little further about always 
having the competition of the market. I wonder if the committee un- 
derstands just what you mean by the competition of the market that 
you always have. 

Mr. Sachs. I mean by that exactly this. If we are negotiating with 
the General Foods Co. or any other company for the purchase of its 
4y 2 percent preferred stock, we have the competition in the market in 
that we know that other comparable preferred stocks have dividend 
rates of, let us say 4*/2 percent, that they ure selling in the market at 
such and such prices, that the provisions under the line are so and so, 
that statistically these other companies compare approximately to the 
company we are dealing with in such and such a way, and that it has 
been customary for bankers to charge such and such a spread. We 
cannot undertake a negotiation in which we would be blind to those 
conditions in the market in other securities. That is what I mean by 
the competition of the market. If we tried to buy the General Foods 
414 percent preferred stock at par when similar stocks were selling at 
106, let us say, the General Foods officials would know that, and we 
would know it. In other words, we have that measure before us every 
moment of the day. Does that answer your question ? 

Mr. O'Conneil. Mr. Sachs, the word "competition" is really a 
wonderful word and it means something different to various people, 
but I think you would agree, would you not, that the competition 
you are talking about is a different type of competition than what I 
would mean when I think of competition between buyers for an ar- 
ticle. You are a representative of a buying group, you are buying 
securities. Now, in the buying there is no competition, in general, 



12410 CONCENTRATION OF ECONOMIC POWER 

isn't that correct? You do not generally, in this type of situation 
we have been discussing, compete with other buyers in the commodities 
with which we are dealing? 

Mr. Sachs. Not in the sense that we all stand in the market at the 
same time. 

Mr. O'Connell. It is very different; more analogous to a negoti- 
ated price between buyer and seller, so it is not the ordinary competi- 
tive price you arrive at in dealing in an issue of securities. 

Mr. Henderson. Isn't it true also that the price finally fixed comes 
along after all the mechanics and the work and the understandings 
have been accomplished ? It is on the eve of the issue. 

Mr. Sachs. But in the preliminary discussions, we don't make a 
commitment, but we give a general idea of what we think the market 
is and will be, subject to slight modification in the interim of a 30- or 
60-day period. 

Mr. Henderson. I would like you to be clear, although I am grateful 
for Mr. Miller's suggestion to you, that I did not mean to suggest for 
one minute that underwriting does not have to take into account what 
the prevailing price for like securities is. I think I am not naive 
enough to .take that position. I think we have stated our position in 
terms of what Mr. O'Connell has said. 

Mr. Hancock. I think I have seen one case where negotiations were 
in progress where the management showed a tabulation of at least 100 
comparable security issues showing the price, the spreads, the char- 
acter of the underwriting obligations. I have seen 100 such items 
drawn off the S. E. C. records. 

Mr. Henderson. I think I can show you, John, once that price has 
been fixed within a very short time out of a high percentage of 
the cases, the underwriter was shown to have guessed wrong as to what 
the market would pay for that particular security. 

Mr. Hancock. I would hope he would have. He doesn't claim to 
have foresight, you know. I don't claim it. 

Mr. Henderson. That is a point in my argument. 

FINANCING BY CLFETT, PEABODT & CO., 19 3 7 1 

Mr. Nehemkis. Mr. Hancock, in connection with the Cluett, Pea- 
body financing, as the result of Lehman Bros.' displeasure with the way 
the financing was finally handled, did you not resign from the board 
of directors ? 

Mr. Hancock. Yes, sir ; after the underwriting was finished. 

Mr. Nehemkis. Now, you have not identified that letter before you. 
Will you tell me if that is not a true and correct copy of an original in 
your possession? 

Mr. Hancock. Yes, sir. 

Mr. Nehemkis. I should like to read the second paragraph of this 
letter of August 20, 1937, from you to Messrs. Cluett, Peabody & Co., 
attention Mr. C. R. Palmer : 

After such long service on your board on the part of myself and Mr. Lehman, 
there cannot longer be any obligation on our part toward the stockholders who 
bought the stock from us at the time of the original underwriting. Though feeling 
free of any obligation I have delayed resigning so that the underwriting should 
be completed and I would be free of any possible charge of harming the company. 
My firm did not tafep any interest in the underwriting as it was desirous of 



1 This subject is resxnnect rom e. 12401. - 



CONCENTKATION OF ECONOMIC POWER 12411 

making it clear that a possible profit does not affect our view of the principles 
involved in this case. 1 

Now, really, did you not feel compelled to resign, Mr. Hancock, 
because you thought you would no longer be a director who directed? 

Mr. Hancock. That was made clear in various parts of the cor- 
respondence, and that was quite clearly demonstrated by that time. 

Mr. Nehemkis. In the committee's "Exhibit No. 1814," now in evi- 
dence, you had this to say in your communication of May 18, 1937, to 
Mr. Palmer: 

I have no desire to dominate any industrial company as to its financing, 
but I do object to being asked to ratify a plan arrived at as this one' was. 
In all the talk of the last year that "directors must direct" and of the present 
day that "bankers must not dominate industrial companies" I feel there was 
need for very careful handling of the problem and I do not see that this 
case had that kind of handling. 

In other words, you objected, Mr. Hancock, to the kind of financ- 
ing plan agreed upon by the company, feeling it was not to the best 
interests of Cluett, Peabody. 

Mr. Hancock. Well, I had reservations about certain parts of it, 
but I never had a chance to discuss them. 

Mr. Nehemkis. Yes; yet the dispute in this case essentially cen- 
tered about whether Lehman Bros, was being given an adequate 
participation in the plan of financing which Lehman Bros., through 
yourself, did not approve or think to be in the best interests of the 
company. 

Mr. Hancock. There were certain parts of the plan, as I recall, 
that stood up, that were approved in principle. The matter of the 
handling of the preferred stock was, and still is, a matter of doubt. 

Mr. Nehemkis. But when Goldman, Sachs was given its partic- 
ipation and you felt the company was not treating Lehman Bros, 
the same as Goldman, Sachs, you therefore resigned. 

Mr. Hancock. Right. 

Mr. Nehemkis. However, the corporation did not have any in- 
tention of eliminating Lehman Bros, from the underwriting group, 
did it? In other words, the participation offered Lehman Bros, 
was the same as the participation that Goldman, Sachs was going 
to take. 

Mr. Hancock. The obligation was the same and not the return 
for it. 

Mr. Nehemkis. That is a neat way of putting the problem. 

Mr. Hancock. That is an accurate way of putting it. 

Mr. Nehemkis. I would call that, if I may, a distinction without 
a difference. 

Mr. Hancock. But I differ on that very markedly. 

Mr. Henderson. I think, Mr. Counsel you have a partial point 
there. T want to be recorded as partially in favor of the witness. 

Acting Chairman King. And I want to be recorded as entirely 
in favor of the witness in that. 

Mr. Nehemkis. The difference so far as the affairs of the cor- 
poration were concerned, between having Goldman, Sachs managers 
of an issue and having Goldman, Sachs and Lehman Bros, as co- 
managers of an issue, were really not matters of vital corporation 
policy so as to affect the future functioning of the corporation? 

1 Included in the appendix, p. 13016. 



12412 CONCENTRATION OF ECONOMIC POWER 

Mr. Hancock. I hope not. 

Mr. Nehemkis. Even though Lehman Brothers did not have its 
name in the advertising alongside Goldman, Sachs, your ability, your 
wisdom, had you remained on the board, would still have been available 
to the company ? 

Mr. Hancock. It still is on request today. 

Mr. Nehemkis. But you are not on the board ? 

Mr. Hancock. No, sir ; I am not. 

Mr. Nehemkis. Now you will recall both I, and I think Mr. Com- 
missioner Henderson, have had occasion to refer to Mr. G. A. Cluett's 
letter to Mr. Sanford Cluett, in which he said [reading from "Exhibit 
No. 1815"] : 

At the time the present company was organized through the joint efforts of 
Lehman Brothers and Goldman, Sachs & Co., a representative of each banking firm 
was elected to the board. It was clearly understood at the time that each firm 
would have a voice in the financial affairs of the company. 

Mr. Hancock, would it be incorrect for the committee to assume that 
in view of this circumstance your concern about directors who don't 
direct, and bankers dominating industrial concerns was, shall I say, 
somewhat of a rationalization ? 

Mr. Hancock. It would not be correct to say that. I didn't even 
know that letter existed at the time and I don't believe it is a factual 
statement of the facts at the time. 

Mr. Nehemkis. Mr. G. A. Cluett knew something about the affairs 
of the company. 

Mr. Hancock. I wasn't in the negotiation. I am satisfied he wasn't 
when the first sale was made. 

Mr. Nehemkis. I am perfectly happy to accept your explanation. 

AGREEMENT OF 1938 

Mr. Nehemkis. Mr. Sachs, did not this internecine warfare, so to 
speak, cause a number of the companies for whom the two firms had 
been bankers considerable irritation? 

Mr. Sachs. Yes ; a certain amount of, shall I say, temporary irrita- 
tion ? 

Mr. Nehemkis. And to repeat your excellent phrase, such tempo- 
rary irritation, if permitted to continue, would eventually create a 
situation where the business of both houses would be materially 
reduced. 

Mr. Sachs. Both houses ? 

Mr. Nehemkis. Yes ; your house and Lehman Brothers. 

Mr. Sachs. Possibly. 

Mr. Nehemkis. Now the partners of Goldman, Sachs and Lehman 
Brothers being essentially statesmen, did they not determine to end this 
hostility between the two firms ? 

Mr. Sachs. They did ; yes. 

Mr. Nehemkis. And the two houses reached a rapprochement and 
joined hands in a new agreement on June 30, 1938. 

Mr. Sachs. That is correct. 

Mr. Nehemkis. I show you an agreement of June 30, 1938, be- 
tween the houses of Goldman, Sachs and Lehman Brothers. Will 
you be good enough to identify it? 

Mr. Sachs. Yes : that is it. 



CONCENTRATION OF ECONOMIC POWER 12413 

Mr. Nehemkis. The document identified by the witness is offered 
in evidence. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1817" 
and is included in the appendix on p. 12739.) 

Mr. Nehemkis. As statesmen, however, you were prepared for any 
contingency, so in article IV of the said agreement it was provided as 
follows : 

These arrangements may be terminated by either house at any time after 
January 1, 1939, upon three months' written notice to the other house. 

Mr. Sachs, up to the time of your testimony has either house as yet 
given notice of termination? 

Mr. Sachs. No, sir. 

Mr. Henderson. In other words, the high contracting parties have 
not denounced under article IV; is that it? 

Mr. Sachs. Not yet. 

Mr. Hancock. Nor anything else. 

Mr. Nehemkis. We might, then, perhaps, appropriately conclude 
your testimony, Mr. Sachs, in the words of Father Divine, "Peace, 
it's wonderful"? 

Mr. Sachs. Correct. 

Acting Chairman King. The committee stands adjourned until' 
10:30 tomorrow morning. 

(Whereupon at 3:45 o'clock the committee recessed until 10:30 
Tuesday morning.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



TUESDAY, JANUARY 9, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10 : 40 a. m., pursuant to adjournment on 
Monday, January 8, 1940, in the Caucus Room, Senate Office Building, 
Senator William H. King presiding. 

Present: Senator King (acting chairman); Representative Wil- 
liams; Messrs. Henderson, Lubin, O'Connell, and Bracket t. 

Present also : Clifton Miller, Department of Commerce ; Thomas C. 
Blaisdell, National Resources Board; and Peter R. Nehemkis, Jr., 
special counsel, and Oscar L. Altman, associate financial economist, 
Securities and Exchange Commission. 

Acting Chairman King. The committee will be in order. 

Mr. Nehemkis. Mr. Edward Greene, will you take the witness 
stand, please? 

Acting Chairman King. Do you solemnly swear the evidence you 
give in this hearing shall be the truth, the whole truth, and nothing 
but the truth, so help you God? 

Mr. Greene. I do. 

Acting Chairman King. Proceed. , 

Mr. Henderson. Mr. Chairman, in the presentation this morning, 
the S. E. C. Investment Banking Section, as I understand it, is 
utilizing this particular case of Cleveland-Cliffs Iron Co. as an 
example of the difficulties which banks found in accomplishing the 
divorcement that was intended by the Banking Act of 1933. 

TESTIMONY OF EDWARD B. GREENE, PRESIDENT, CLEVELAND- 
CLIFFS IRON CO., 1 CLEVELAND, OHIO 

Mr. Nehemkis. Mr. Greene, will you state your full name and 
address, please? 

Mr. Greene. Edward B. Greene, Cleveland, Ohio. 

Mr. Nehemkis. Are you not president of the Cleveland- Cliffs Iron 
Co., Mr. Greene? 

Mr. Greene. I am. 

Mr. Nehemkis. Does not the Cleveland-Cliffs Iron Co. own major 
iron mines in Lake Superior, and is it not one of the major ore pro- 
ducers in the United States? 

Mr. Greene. I think that is a fair statement. 



1 Mr. Greene previously testified during hearings on the iron ore industry ; see Hearings, 
Part 18. 

12415 



12416 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Prior to your appointment as president of the 
Cleveland-Cliffs Iron Co., had you not been a vice president of the 
Cleveland Trust Co.? - 

Mr. Greene. I was chairman of the executive committee and vice 
president. 

Mr. Nehemkis. Had not the Cleveland Trust Co. been a large 
creditor of Cleveland-Cliffs Iron Co.? 

Mr. Greene. They had been for something like 3 years. 

BANK DEBT OF THE COMPANY 

Mr. Nehemkis. Did not the company have considerable bank debt 
outstanding, occasioned largely by the purchase of steel securities ? 

Mr. Greene. They had, by the purchase of one particular invest- 
ment of the Corrigan, McKjnney Steel Co. 

Mr. Nehemkis. Did not the bank debt amount to about $25,000,000 
held chiefly by a group of eight creditor banks? 

Mr. Greene. Practically that is correct, held by eight banks and 
one or two others. 

Mr. Nehemkis. And among those banks who were in a creditor 
position was the P ankers Trust Co. of New York? 

Mr. Greene. Correct. 

Mr. Nehemkis. Mr. Chairman, I offer in evidence an extract from 
the prospectus of the Cleveland-Cliffs Iron Co. in coimection with the 
first mortgage sinking fund 4% percent bonds due November 1, 1950, 
principal amount $16,500,000, taken from the registration statement 
filed with the Securities and Exchange Commission. 

(The extract referred to was marked "Exhibit No. 1818" and is 
included in the appendix on pp. 12741.) 

Acting Chairman King. How did you incur such a large indebted- 
ness? 

Mr. Greene. The Cleveland-Cliffs Iron Co. ? 

Acting Chairman King. Yes. As I understand, $25,000,000 was 
held by eight banks and some smaller ones. 

Mr. Greene. In March of 1930 the Cleveland-Cliffs Iron Co. pur- 
chased a 62^ percent interest, or rather securities that represented 
a 62^ percent interest, in the Corrigan McKinney Co. That covered 
practically an investment of thirty-seven and a half million dollars, 
part of which was cared for in other ways. 

Acting Chairman King. You were on the stand before and I remem- 
ber some testimony given respecting the holdings of the Cleveland- 
Cliffs Iron Co. 

Mr. Greene. That was The Cliffs Corporation. 

Mr. Nehemkis. I might add, Senator, that this story this morning 
picks up where the committee left off in its earlier hearing on the 
subject. 

Acting Chairman King. Sort of an addendum. 

Mr. Nehemkis. You might call it that, or an appendix, as it were. 

Mr. Nehemkis. Mr. Greene, is it not a fact that you were really 
placed in charge of the affairs of the company in order to clean up this 
debt situation in 1933? 

Mr. Greene. No ; that is partially correct only. I had been asked 
b} r the banks to take that position and had declined it until I was asked 
by the management to do so. I did not go in as a representative of 



CONCENTRATION OF ECONOMIC POWER 12417 

the banks. I went in at the request of the management, and you might 
say on account of representing one of the largest interests in the com- 
pany. I represented a very substantial interest in the company. 

DISCUSSIONS WITH BANKERS TRUST CO. WITH REGARD TO A BOND ISSUE 

Mr. Nehemkis. About the middle of January 1935 did not the 
Bankers Trust Co. of New York suggest to you that it might be 
possible to refund the $25,000,000 of outstanding bank loans with a 
long-term bond issue ? 

Mr. Greene. They did. I would have said possibly December 1934. 

Mr. Nehemkis. Had not the Bankers Trust Co. already been at 
work on such a plan by which the then bank creditors, including 
Bankers Trust, would take the first five or six million, the balance 
to be sold wholesale to a number of life insurance companies or invest- 
ment trusts ? 

Mr. Greene. The plan, as time went along, between, we will say, 
January '35 and possibly November of '35, changed a number of times. 
It gradually evolved into something very different in the final con- 
summation of the plan that went through in December, if I recall, but 
was agreed upon in November. Now the original plan 

Mr. Nehemkis (interposing). I will ask you to develop that in the 
course of your testimony, if you will, Mr. Greene. 

At the time of your discussion, or discussions, I should say, with the 
Bankers Trust Co., were you aware that the Bankers Trust Co. was 
forbidden by law to engage in underwriting to refund an issue con- 
cerning which you were holding discussions at the time ? 

Mr. Greene. I was aware of it. 

Mr. Nehemkis. None the less you discussed the possibility of a bond 
issue with Mr. Tompkins, vice' president of the Bankers Trust Co., 
and other members of the staff and associates of Mr. Tompkins. 

Mr. Greene. No ; that is not correct. I discussed with Mr. Tomp- 
kins a plan of their acting as agent in disposing of an issue of bonds 
to other institutions in which I was told they would not be interested 
and was told that they would not be acting contrary to that Banking 
Act, and I understood that perfectly fiom the first day on. 

Mr. Henderson. You say, Mr. Greene, you were told. Was that 
advice of counsel ? 

Mr. Greene. I discussed it with Mr. Tompkins and Mr. Tompkins 
advised me that their position as agent was supported and approved 
by eminent counsel. 

Mr. Henderson. But when you went down to talk to Mr. Tompkins 
you had not been advised whether or not they could act as agent: 
is that it ? 

Mr. Greene. When I went down there, I didn't exactly know what 
was coming up. I went down to discuss it. 

Mr. Henderson. You went down to discuss the refinancing? 

Mr. Greene. Yes. 

Mr. Henderson. So to that extent you didn't go down to discuss his 
agency. I mean you went dowr to see how this particular perplexity 
of yours could be cleared up. 

Mr. Greene. No ; but what I meant was I did not have the plan we 
were going to discuss before me before I had my first talk with Mr. 
Tompkins. 



12418 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. That evolved as the result of a number of discus- 
sions ? 

Mr. Greene. That is right. T 

Mr. Nehemkis. And it was only after you had formulated a pro- 
gram that seemed feasible that^the problem of whether or not Bankers 
Trust could fulfill that program was reached, and it was at that point 
that the agency matter was discussed? 

Mr. Greene. No; quite the contrary. That came up at the first 
discussion, the very first discussion which I think was the last week 
in January. In other words, this came up immediately in my first 
talk with Mr. Tompkins and of course it was answered. While it 
did not pertain to me it was answered to the satisfaction of both of us. 

Acting Chairman King. The situation was such that you had to 
have some financial relief, that is, these companies did ? Those obli- 
gations were due and efforts were being made to secure the adoption 
of some plan that would relieve the situation, was that it? 

Mr. Greene. Of course, but it was more than that. We were oper- 
ating under a % creditors' committee; and if you know what it means 
to operate under a creditors' committee of eight, you know that it is 
rather slow work and it is a condition that you are very glad to reach 
the end of. 

Acting Chairman King. So it was important that some disposition 
be made of the matter, and a plan worked out under which the obliga- 
tions could be met and a continuation of the business proceeded with. 

Mr. Greene. Correct; we reestablish the credit of the company; 
better everything, better our ability to sell. 

Mr. Nehemkis. At this time was there not under consideration a 
merger of the Cleveland-Cliffs Iron, Co. and the Cleveland-Cliffs Co., 
which in turn held the Cleveland-Cliffs Iron Co. common stock? 

Mr. Greene. At the first discussion, that is correct. We had been 
discussing that for some time. 

Mr. Nehemkis. That is all I wanted you to give me at this time. 
There was also under discussion the merger of Corrigan-McKinney 
and the Republic Steel Corporation, was there not? 

Mr. Greene. Yes ; that was in process. 

Mr. Nehemkis. That was my question. Your answer is "yes" ? 

Mr. Greene. Yes. 

Mr. Nehemkis. Thank you, sir. Now at this time the collateral 
under the Bankers Tru^t loan included, did it not, directly and indi- 
rectly, important holdings of Corrigan-McKinney stock? 

Mr. Greene. At what time? 

Mr. Nehemkis. During the time that you were discussing the mat- 
ter with th# Bankers Trust. 

Mr. Greene. Not at the beginning. Let me see. 

Mr. Nehemkis. W..s this true immediately prior to your first dis- 
cussion with Mr. Tompkins ? 

Mr. Greene. I don't know as I quite understand your question. 
Would you repeat the first question ? 

Mr. Nehemkis. Would the reporter repeat the first question I asked 
of the witness, please ? 

(The reporter read the question: "Now at this time the collateral 
under the Bankers Trust loan included, did it not, directly and indi- 
rectly, important holdings of Corrigan-McKinney stock?") 

Mr. Nehemkis. As a matter of fact, is it true or 'sn't it? 



CONCENTRATION OF ECONOMIC POWER 12419 

Mr. Greene. The answer would be not only Corrigan-McKinney 
stock, but a holding company that held Corrigan-McKinney stock. 

Mr. Nehemkis. That is correct. Hence, Mr. Greene, the good will 
of Bankers Trust Co. was essential, was it not, in effecting both 
mergers ? 

Mr. Greene. Well, I wouldn't go so far as to say that, only to 
the extent that they were represented on a creditors' committee. 

Mr. Nehemkis. Now at the end of January 1935, after several 
days of negotiations, did not you and Mr. Tompkins agree that 
Cleveland-Cliffs Iron Co. would float an issue of $24,000,000 of first 
mortgage and collateral trust bonds, and that part of the proceeds 
would be used to pay off the bank creditors, including Bankers 
Trust Co.? 

Mr. Greene. Well, I would say that at our first interview 

Mr. Nehemkis (interposing). Let me repeat the question. 

Mr. Greene. We did not reach the full conclusions. 

Mr. Nehemkis. That was not my question. I made my question 
very specific, Mr. Greene. I said "At the end of January 1935, after 
several days of negotiations," that was the question. Can you answer 
my question? 

Mr. Greene. The latter part is correct. I would say this. At 
the first negotiation — and I do not recall that there was but one 
session — the agreement was only that the Bankers Trust Co. should 
endeavor as agent to place with one or more institutions a loan of 
$25,000,000, that that was as far as we got. 

Mr. Nehemkis. All right. Now the understanding that you 
reached with Mr. Tompkins was reduced to writing, was it not? 

Mr. Greene. It was. 

AGREEMENT OF JANUARY 30, 193 5 

Mr. Nehemkis. I show you, Mr. Greene, the document which 
purports to be the agreement which was reduced to writing. Will 
you examine it and tell me, if you recognize the photostat- copy as a 
true and correct copy of the origmal? 

(Acting Chairman King made an off-the-record remark regarding 
the relevancy of the testimony. ) 

Mr. Henderson. Mr. Chairman 

Acting Chairman King. It is off the record. Proceed. 

Mr. Henderson. Mr. Chairman, I think your statement, however, 
makes it almost incumbent on me to say that I think that as we go 
forward in this presentation, the relevancy will be very clear. In 
this particular case, Bankers Trust held part of the loan, this 
$25,000,000. 

Mr. Nehemkis (interposing). Mark this and return it. 

(The agreement referred to was marked "Exhibit No. 1819" and is 
included in the appendix on p. 12741.) 

Mr. Henderson (continuing) . There had been an act passed by the 
Congress of the United States which was intended to separate, as you 
know, underwriting from banking, and Mr. Greene went to, he 
Bankers Trust, and there was entered into this agreement which has 
been offered in evidence here 

Mr. Nehemkis (interposing). It is being marked for identification, 
sir. 

124491— 40— pt. 24 8 



12420 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. Which poses the question that I stated at the be- 
ginning of this hearing. If at any time in the proceedings it is not 
clear that that is relevant I will be perfectly willing to withdraw 
the entire hearing. 

Mr. Nehemkis. As the Senator knows, the question of relevancy 
always relates to counsel's work, and the Senator is too distinguished 
a lawyer to want me, a much younger man, to proceed without laying 
a very careful foundation. 

Acting Chairman King. I assume from what Mr. Henderson — I beg 
your pardon — the Commissioner has just stated that it deals with the 
question of a possible infraction of the law calling for separation of 
banking. 

Mr. Henderson. I said the difficulty that confronted the bank 
which formerly occupied a dual position and it was not intended to 
have a separation. 

If you will recall, Senator King, you were not here at the begin- 
ning of the investment-banking hearings. We are undertaking to 
present almost as complete a case as if we were on trial. We could 
shorten it very considerably, but I think, in fairness to the witnesses, 
that there ought to be a full documentation of the things presented 
here. 

Mr. Nehemkis. According to the terms of that agreement, the 
Cleveland-Cliffs Iron Co. contemplated a merger or consolidation 
with the Cliffs Corporation, which owned all of its common stock, 
did it not? 

Mr. Greene. I would say the management contemplated that. 

Mr. Nehemkis. As part of this merger or consolidation, did not 
Cleveland-Cliffs Iron Co. propose to issue some $24,000,000 of first- 
mortgage and collateral-trust bonds? 

Mr. Greene. Either $24,000,000 or $25,000,000. 

Mr. Nehemkis. Which is it? 

Mr. Greene. Well, I will have to refer to that. The amount that 
was 

Mr. Greene. Very well. 

Mr. Nehemkis (interposing). Suppose you accept my figures, sub- 
ject to later correction. 

PARAGRAPH 7 OF THE AGREEMENT OF JAN. 30, 19 3 5 

Mr. Nehemkis. 1 read to you now paragraph 7 of this agreement 
which was entered into by the respective parties. It reads as follows. 
Acting Chairman King. Has he identified that ? 
Mr. Nehemkis. He has, sir. [Reading from "Exhibit No. 1819"] : 

You [that is to say, the Bankers Trust Company] are to use your best efforts 
to secure a group or syndicate of investors who will purchase the entire issue 
of said bonds as above stated, or who will enter into an underwriting agreement 
in form acceptable to us [that is, Cleveland Cliffs] for the purchase of the 
entire issue of said bonds. 

I want you to pay rather careful attention, if you will, Mr. Greene, 
to the next sentence [reading from "Exhibit No. 1819"] : 

You shall not be liable under any conditions for your failure to secure the 
group or syndicate referred to above or for the purchase yourselves or for the 
underwriting of all or any part of said bonds. 

End of the quotation from article 7 of the agreement. 



CONCENTRATION OF ECONOMIC POWER 12421 

Would you be good enough to explain the occasion for the inclu- 
sion of the last part of this provision limiting the liability of the 
bank, which I have just read to you? 

Mr. Greene. Well, the contract was prepared by the Bankers Trust 
Co. and at that time we had no definite plan; it was merely that 
they as agents were going to endeavor to place a bond issue of an 
amount to pay off what we called our special bank loan and relieve the 
company from its short-time loans, and just how it was to be done 
wasn't then determined. 

Mr. Nehemkis. Mr.. Greene, may I ask whether Mr. Tompkins 
was not responsible for the inclusion of that provision? 

Mr. Greene. Well, I think he was — no more than the rest of them. 
Mr. Tompkins or his department drew that informal agreement. 

Mr. Nehemkis. May I as! whether you insisted upon that particu- 
lar provision; was it a suggestion that came from you? 

Mr. Greene. Not that portion. The whole agreement was drawn 
by Mr. Tompkins, or his department, the whole agreement. It 
wasn't that Mr. Tompkins drew that; the whole agreement was 
drawn 

Mr. Nehemkis. Then just to summarize briefly in response to my 
first question to you, the particular provision which I am now ques- 
tioning you about was not incorporated into the contract at your 
request, but rather at the insistence of Mr. Tompkins. That is what 
you have just testified, substantially. 

Mr. Greene. That is correct, but that leaves the impression that 
I might have drawn the rest of it, and he might have put that in. 

Mr. Nehemkis. I quite understand that the whole agreement was 
drawn at the instance of the Bankers Trust Co., and while we are 
discussing the agreement, do you happen to know the firm of counsel 
that was responsible for fhe drafting of that agreement ? 

Mr. Greene. I don't think I could tell you. 

Mr. Nehemkis. If I mention to you White and Case, would that 
help you?- 

Mr. Greene. I only recall that White and Case quoted to me as 
approving of their acting as agenfcs ki this matter. 

Acting Chairman King. Reported to you as approving? 

Mr. Greene." In my conversation with Mr. Tompkins when we were 
discussing the question of the Banking Act of 1933, the question of 
their acting as agent in such a matter, it was quoted to me that Bankers 
Trust had been advised by their counsel that they were acting well 
within their rights. 

Acting Chairman King. For my own information, as I understand 
the situation — if I am in error I want to be corrected — the companies 
that you represented, temporarily, I suppose, owed about $25,000,000, 
and the Bankers Trust Co. was one of the creditors,. The obligations 
were due, they were short-term obligations, and it was believed neces- 
sary to adjust the situation and to get a .new financing plan adopted. 
The Bankers Trust Co. owned about one-eighth of the $25,000,000 
obligation. 

Mr. Greene. About one-sixth. 

Acting Chairman King. And the rest of it was held by other banks. 

Mr. Greene. Mostly by seven other banks, and two individuals or 
other corporations. 



12422 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. And yon went to the Bankers Trust Co. for 
the purpose of discussing the steps necessary to be taken in order to 
accomplish the desire, namely, to convert the short terms into long 
terms or to make some arrangement to meet the situation which was 
then developed. 

Mr. Greene. That is a correct general statement of the situation. 

Mr. Nehemkis. Mr. Greene, did you understand by this provision, 
paragraph 7, 1 which we have been discussing, that Bankers Trust Co.. 
in fact, couid take a share on original terms of the bonds which were 
to be underwritten but that they were not liable to you if they did not? 

Mr. Greene. I don't think I gave it any particular thought. 

Mr. Nehemkis. Did not this provision that we have been discussing, 
article 7, give Bankers Trust Co. all of the advantages of an under- 
writer with none of the risks ? 

Did you happen to think of that ? 

Mr. Greene. I am quite sure my mind was entirely devoted to the 
troubles of getting a company that had a $25,000,000 short-term loan 
on its hands with four or five million of regular indebtedness, my 
thoughts were more than occupied with that problem. 

Mr. Nehemkis. You left the details, the mechanics of providing 
for those arrangements, to your friend Mr. Tompkins ? 

Mr. Greene. Well, I think very properly. 

Mr. Nehemkis. I wasn't inferring in the slightest, Mr. Greene, and 
don't want you to think for a minute that I had any other thought 
in mind. I want to continue reading from the contract that you 
entered into with the Bankers Trust, and I now quote [reading from 
"Exhibit No. 1819"] : 

Upon the purchase by said group or syndicate of the entire issue of said bonds, 
or upon the sale of said entire issue of bonds under said underwriting agree- 
ment, we [meaning Cleveland Cliffs] agree to pay to you [meaning Bankers 
Trust] for your services hereunder in cash, a fee of one per cent (1%) of the 
entire principal amount of said bonds. 

Mr. Greene, what return did Cleveland-Cliffs expect from Bankers 
Trust Co. for this' fee of $240,000; that is to say, 1 percent of 
$24,000,000? 

Mr. Greene. We expected that placing of a $24,000,000 or $25,- 
000,000 bond issue at a 1-percent feei — now, the cost of the Cleveland- 
Cliffs for their credit situation at that time, that was a very satisfac- 
tory arrangement. In other words, that was, in our opinion, better 
than we had expected to get at that-time. 

Mr. Henderson. That is, you expected that this fee, without the 
risks that were specifically eliminated in the contract, would be worth 
while to the Cleveland-Cliffs if they could in some manner get an 
underwriting group to handle the thing for you. 

Mr. Greene. That is it exactly. 

Mr. Henderson. You expected to pay the underwriting fee in addi- 
tion to this. 

Mr.' Greene. Oh, no; no; that is the point. At this time this was 
to be a placing of this entire issue at par, and we would get all the 
proceeds. 

Mr. Henderson. This would be the sum total of the expenses. 



1 "Exhibit No. 1819." 



CONCENTRATION OF ECONOMIC POWER 12423 

Mr. Greene. Then we pay the Bankers as agent a fee for services. 
Now, I think Ave ought to state here so that the members of the Com- 
mission will have those facts in mind that this contract was never 
carried out and was declared by both parties to it to be out the window 
some time in the spring, so that we are discussing a contract, or really 
not a contract, a memorandum, which in fact was never carried out. 

Mr. Nehemkis. We will develop that in due course, Mr. Chairman. 
I would prefer that the witness confine himself to the questions imme- 
diately directed to him and as is our usual procedure, he is at liberty 
to make statements after the line of inquiry has been developed. 

Acting Chairman King. It seems to me if this contract was never 
carried out it is not very material to proceed with it. 

Mr. Nehemkis. I don't like to take issue with the statement of the 
witness, but that is not, strictly speaking, a correct statement, as the 
evidence will show. 

Acting Chairman King. Then proceed. 

Mr. Nehemkis. Mr. Greene, I show you a memorandum which pur- 
ports to have been prepared by you dated June 28, 1935. Will you 
examine this and tell me whether you recognize it as a true and cor- 
rect copy? 

Mr. Greene. It is. 

Mr. Nehemkis. The memorandum identified by the witness, may it 
please the committee, is offered in evidence. 

(The document referred to was marked "Exhibit 1820" and is 
ncluded in the appendix on p. 12743.) 

SIGNING THE AGREEMENT OF JANUARY 3 0, 193 5 

Mr. Nehemkis. Now, Mr. Greene, were you not somewhat reluctant 
to execute the contract to which reference has been made? 

Mr. Greene. Well, I was reluctant only because the matter hadn't 
been submitted to the board of directors. I covered that point by 
writing above the signature 

Mr. Nehemkis (interposing). I will come to that in just a 
moment. 

Mr. Greene. Well, I can't answer your question. You asked if I 
wasn't reluctant. I wasn't reluctant to execute the contract as it is 
drawn with a memorandum included in it. 

Mr. Nehemkis. Correct. 

Mr. Greene. I had to explain that, Mr. Nehemkis. 

Mr. Nehemkis. Fine; thank you, sir. Now, you also wrote in the 
memorandum which you identified and which is now in evidence as 
follows [reading from "Exhibit No. 1820"] : 

At the time this contract was drawn, the writer assumed that he would take 
it to Cleveland and submit, i* to the Board and execute it only after approval by 
the Board. Mr. Tompkins objected to this procedure and wanted the writer 
to sign it at this time. 

In other words, Mr. Tompkins insisted upon your executing the 
contract. 

Mr. Greene. Mr. Tompkins regarded that as more or less — and I 
did, too — as a personal memorandum between the two of us, as a 
matter of good faith on my part to recommend such a plan to the 
Board, which I was not on^y willing to do but very eager to do. 



12424 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Mr. Greene, do I understand you correctly to say 
that this seven-page document which I show you, drafted by the law 
firm of White and Case, together with a formal letter of transmittal 
approving this contract as to form was regarded by you and Mr. 
Tompkins, the principals, as an informal document? 

Mr. Greene. I not only do, but I said so to Mr. Tompkins. 

Mr. Nehemkis. I just wanted to be sure I thoroughly understood 
you on the point. You continue in the memorandum which you 
identified a moment ago as follows [reading further from "Exhibit 
No. 1820"] : 

I explained to him that I had no authority to do so and that my signature 
would not be binding on the company and would only be a matter of good 
faith on my part to exert my best efforts to secure the approval of the Board. 

Now, Mr. Greene, your previous statement becomes relevant. Under 
these circumstances you inserted above your signature the following, 
"Subject to approval of the board of directors." That is correct, 
isn't it? 

Mr. Greene. That is correct. 

Mr. Nehemkis. Now, you further wrote in your memorandum 
which you have identified and which is in evidence as follows Tread- 
ing from "Exhibit No. 1820"] : 

Mr. Tompkins stated this was entirely agreeable to him and \. ^ed it signed 
with that understanding. After some further protest the wrik signed the 
instrument but wrote in above his signature "Subject to the app '1 of the 
Board of Directors." 

Now, can you tell me, Mr. Greene, why Mr. Tompkins wanteu to 
sign that agreement before you left New York City ? 

Mr. Greene. Well, I think I can. He was thoroughly familiar 
with the Cleveland-Cliffs situation. He felt that the matter oi 
time was important, and he felt that if he had a commitment on 
the part of the president of the company, even though it was an in- 
formal understanding, that that would enable him in a better way 
to approach the institutions who would be the purchasers of this 
issue. In other words, until he had something in writing it probably 
put him in a weak position to approach those institutions he had in 
mind, which I assume were insurance companies. 

Mr. Nehemkis. Mr. Greene, I show you the contract of January 
1935, which has been previously identified by you, and ask whether 
that is not your signature, "E. J. Greene, President." 

Mr. Greene. It is E. B. That is my signature. 

Mr. Nehemkis. Is that your handwriting immediately above your 
signature which reads, "Subject to the approval of the Board of 
Directors"? 

Mr. Greene. That is a photostatic copy of my writing. 

Mr. Henderson. You signed this as president and also subject to 
approval of the Board of Directors. 

Mr. Greene. Yes. 

Mr. Henderson. Did you sign that "Subject to the approval of the 
Board of Directors" standing up, or were you mad, or something at 
the time ? 

Mr. Greene. Oh, no, indeed; it was a very happy occasion as far 
as I was concerned. 

Mr. Henderson. Maybe it registers happiness,-*then. 



CONCENTRATION OP ECONOMIC POWER 12425 

Mr. Nehemkis. In these negotiations, Mr. Greene, did you not con- 
sider the Bankers Trust Co. was your agent acting in behalf of the 
Cleveland-Cliffs Iron Co.? 

Mr. Greene. I think that is what I considered. 

Mr. Nehemkis. And as agent, Bankers Trust Co. was to organize 
a syndicate to underwrite a bond issue for Cleveland-Cliffs Iron Co. 

Mr. Greene. You may call it a syndicate — a group of institutions. 

Mr. Nehemkis. It is the same thing, I believe. 

Mr. Greene. Yes. 

Mr. Nehemkis. I want to read to you from a memorandum which 
you previously identified and which is in evidence, as follows: The 
caption of this memorandum which you will recall has the following 
[reading from "Exhibit No. 1820"] : 

Brief summary of Negotiations with Bankers Trust Company, represented 
throughout by Mr. B. A. Tompkins, and at times by Dana Kelly and Mr. Graham, 
and also Lehman Brothers represented by Mr. Gutman and Mr. Szold. 

And then on page 1 of the memorandum there appears the following : 

A few days after the extension was granted the writer returned to New York 
and took the matter up with Mr. Tompkins and his associates — 

And then on page 2 appears the following [reading further] : 

Mr. Tompkins stated this was entirely agreeable to him and wanted it signed 
with that understanding. 

So that at these conferences with your agent, Bankers Trust Co., 
there were also present investment banking firms who likewise par- 
ticipated in the negotiations. Is that correct in accordance with your 
memorandum ? 

Mr. Greene. Well, that, unless I am rather permitted to tell the 
story, it is hard to answer your question. This is another deal. This 
is a gradual evolving of this deal into the thing that couldn't be ac- 
complished and then we began to explore other things, and you are 
getting into either the second or third phase of it. 

Mr. Nehemkis. In 1934, had not some -of the partners of Field, 
Glore & Co., suggested to you that their firm might be interested in 
financing Cleveland-Cliffs ? 

Mr. Greene. I can't remember the specific occasion, but I am in- 
clined to think that is correct. 

Mr. Nehemkis. Is it not a fact, Mr. Greene, that Hayden, Stone & 
Co., a firm of investment bankers in New York, had been in contact 
with Mr. Mather, a large stockholder in Cleveland-Cliffs with refer- 
ence to buying a block of his stock ? 

Mr. Greene. I think they had bought a block of both kinds of stock. 

Mr. Nehemkis. Had not Hayden, Stone & Co. also been in contact 
with you in regard to possible Cleveland-Cliffs financing prior to the 
time you entered into the contract with Bankers Trust Co. ? 

Mr. Greene. I think not ; I believe that the discussions that I had 
with the man who might be said to represent the Charles Hayden in- 
terests (they are a group of things) were mainly interested in the 
question of the terms of a possible merger between Cleveland-Cliffs 
and Cliffs. I believe Bankers Trust were the first one in a concrete 
and important way to take up the question of financing our loan. I 
do not think that Hayden, Stone or Charles Hayden interests had up 
to the time of January 1935, ever been specific about any possibility 
of financing. 



12426 CONCENTRATION OF ECONOMIC POWER 

mr. greene's suggestions for the underwriting group 

Mr. Nehemkis. Did you not ask Mr. Tompkins to include Hayden, 
Stone in the final underwriting syndicate? 

Mr. Greene. Now, you are getting again into the next phase and 
the one after the plan as outlined in that informal agreement. 

Mr. Nehemkis. Which informal agreement, the seven-page legal 
document that I waved up here a moment ago ? x 

Mr. Greene. Yes; the one that I said was subject to approval of 
the Board of Directors. It was after that plan was entirely given 
up that we got into other discussions and other possibilities and at 
that time, it is true that I suggested not only Hayden, Stone, but 
Kuhn, Loeb and Field, Glore. 

Acting Chairman King. What do you mean by the words "given 
up" after that contract Mr. Nehemkis said he waved before you ? 
What do you mean by "given up"? You regarded it, as I under- 
stood you in your testimony, as an informal understanding or con- 
tract or agreement that had to be subject to the approval of the 
Board and then you state now it was given, as I understand you, 
that the plan that was outlined in that informal agreement was 
given up. 

Mr. Greene. The story, and I won't go into any more particulars 
than necessary to answer your question, Senator King, the situation 
was this: In the mining business, while there is a parent company, 
it is very necessary to have a great many subsidiary mining com- 
panies for the reason that you often tie in minor interests ; conse- 
quently, when we came to take this matter up, our bankers or agent 
took it up, either one. We found that the relationship between our 
property, which was represented by land in fee and that which is rep- 
resented by the stocks of mining companies, were not in the propor- 
tion that the regulations required for insurance companies of the 
State of New York. That was a very big obstacle, and led to some 
considerable discussions and study of our figures. In addition, in 
February, the Federal Government filed a suit against Kepublic and 
against the merger, and our attorneys felt that we should make no 
move in the way of attempting to consolidate Cleveland-Cliffs and 
Cliffs Corporation until that litigation at least Avas tried. For those 
two reasons, the financing as outlined in this seven-page document 
had to be given up for the time, and then we began to discuss the 
other means of financing, and that led to an entirely different situa- 
tion, and the question that Mr. Nehemkis has asked me a couple of 
times refers to that second phase, and I couldn't very well go from 
one to the other without explaining that that developed after we 
gave up the possibility of this entire thing, so that we approached it 
from an entirely different way and in the way of going to the regu- 
lar investment bankers in the standard or conventional way. 

Mr. Nehemkis. You testified a moment ago, Mr. Greene, that you 
asked the Bankers Trust Co. to include Hayden, Stone & Co., Field, 
Glore & Co., and Kuhn, Loeb & Co., did you not? 
Mr. Greene. I did. 

Mr. Nehemkis. Now, had not all three of these investment banking 
firms had dealings with Cleveland-Cliffs at one time or other in the 

past, or its associated companies? 

*d)ibit No. 1819." 



CONCENTRATION OF ECONOMIC POWER 12427 

Mr. Greene. That is correct, and that is why I suggested, I didn't 
limit it. I just said it wasn't up to me to indicate only those that 
should be in the group, but I did want those three given the invita- 
tion, that was all. 

Mr. Nehemkis. And in view of the previous association of these 
three investment banking firms with the interests of Cleveland-Cliffs, 
they might, perhaps, by the customs and mores of the investment 
banking world, be said to have had an interest in Cleveland-Cliffs 
financing? 

Mr. Greene. I don't exactly know what you mean by interest. 

Mr. Nehemkis. I mean they were concerned about it, they had ren- 
dered previous services to your companies and therefore tfcey were 
interested in anything that pertained to financing, they were very 
much concerned about the future of the situation. That is what 1 
mean by interest. 

Mr. Greene. I think they took a friendly and cooperative attitude 
toward us and we wanted to be courteous enough to see that they 
were included. 

Acting Chairman King. Did they hold any of the securities or obli- 
gations of the Cliff or any of those organizations that owed the twen- 
ty-five million ? Did they have any stock ? 

Mr. Greene. Well, I just spoke about Mr. Charles Hay den's inter- , 
est, having made a purchase. I am quite sure that none of the others 
had any interest whatsoever. 

Acting Chairman King. You mean stock interest? 

Mr. Greene. I don't think they had any stock or obligation of 
bonds or securities, so far as I know. 

Mr. Nehemkis. These four firms that we have just enumerated 
were finally included in the syndicate, were they not ? 

Mr. Greene. It was my understanding that when they got together 
to make a deal they wanted to keep it to themselves. 

Mr. Nehemkis. That isn't my question, Mr. Greene. I think you 
and I will get along much better if you will try to answer my simple 
questions a little less cryptically. I said to you: These four firms 
were finally included in the syndicate, were they not? 

Mr. Greene. They were. 

Mr. Nehemkis. That's fine, thank you, sir. Was not Lehman 
Brothers finally selected as the manager of the underwriting syndi- 
cate? Do you recall? 

Mr. Greene. They were selected. 

Mr. Nehemkis. Do you recall, Mr. Greene, how it happened that 
Lehman Brothers was selected as the manager of the syndicate? 

Mr. Greene. At the suggestion of Mr. Tompkins. 

Mr. Nehemkis. Mr. Tompkins being the vice president of the 
Bankers Trust Co. 

Mr. Greene. Yes, sir. 

Mr. Nehemkis. Now I show you a telegram from a Mr. Kelley to 
a Mr. Geffine, dated February 2, 1935, obtained from the files of the 
Cleveland-Cliffs Iron Company. Will you be good enough to iden- 
tify this as being a true and correct copy of an original in your 
possession and custody? 

Mr. Greene. Did vou ask me to identifv this? 



12428 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Yes; just tell me whether you recognize that as 
being a true and correct copy of an original in your possession and 
custody. 

Mr. Greene. I haven't the slightest idea. 

Mr. Nehemkis. You don't know what is in your files? 

Mr. Greene. Well, it was 5 years ago; I wouldn't remember a 
telegram to another officer. 

Mr. Nehemkis. Then you will have to assume that in response to 
our request you did make this available, shall we say ? 

Mr. Greene. Yes. 

Mr. Nehemkis. Do you accept that? 

Mr. Greene. Yes, sir. 

Mr. Nehemkis. This telegram is offered in evidence, Mr. Chair- 
man. 

Acting Chairman King. It will be received. 

(The telegram referred to was marked "Exhibit No. 1821" and ap- 
pears in full below.) 

Mr. Nehemkis. I want to read from this telegram signed by Dana 
Kelly of the Bankers Trust Co., addressed to Mr. Geffine, vice presi- 
dent of the Cleveland-Cliffs Iron Company [reading from "Exhibit 
No. 1821"] : 

Plan be Cleveland Monday morning with Lehman representatives if satis- 
factory to you. Regards. 

And I want to call your attention, if I may, Mr. Greene, the date 
of that telegram, February 2, 1935. Now your agreement 1 — and by 
agreement I am now, for the sake of precision and accuracy, re- 
ferring to that seven-page legal document which you had signed 
with the Bankers Trust Company — Was signed on January 30, 1935. 
The telegram which I have just read from was dated February 2, 
1935. So that within 3 days after you had concluded your negotia- 
tions with Mr. Tompkins he had apparently already interested one 
underwriter in the deal, Lehman Brothers. Had Mr. Tompkins 
discussed with you, Mr. Greene, prior to the execution of the contract 
of January 30, 1935, the possibility that Lehman Brothers would 
manage the issue? 

Mr. Greene, My best recollection is that we didn't discuss that on 
January 30, but we discussed it some later. I am surprised to note 
that Lehman Brothers were in the picture as early as that. 

Mr. Nehemkis. It is always very interesting to have the witnesses 
enlightened about their own affairs, Mr. Greene. 

In November, did you not request the bankers that $2,000,000 of 
the issue be granted on original terms to various Cleveland invest- 
ment banking houses? 

Mr. Greene. I? went over the list and urged that the investment 
bankers of Cleveland, where I knew there would be a market, be 
included. I couldn't tell you whether it was just $2,000,000. 

Mr. Nehemhis. Substantially that. 

Mr. Greene. Substantially that amount. 

Mr. Nehemkis. Do you recall whether the houses that you sug- 
gested for participation of $2,000,000 actually received the participa- 
tion in that actual amount? 



1 "Exhibit No. 1819," appendix, p. 1274J. 



CONCENTRATION OF ECONOMIC POWER 12429 

Mr. Greene. It is my recollection that they did, possibly slightly 
more. 

Mr. Nehemkis. I think we had better stick to the $2,000,000 figure ; 
that is in the registration statement. 

Did you not ask Mr. Tompkins to grant A. G. Becker & Co., of 
Chicago, a participation of $200,000 ? Do you recall that ? 

Mr. Greene. I believe we did. 

Mr. Nehemkis. And do you recall whether or not A. G. Becker & 
Co. was granted such a participation ? 

Mr. Greene. I am quite sure they were. 

COMPOSITION OF UNDERWRITING SYNDICATE 

Mr. Nehemkis. Did not the syndicate, as finally constituted, con- 
sist of 4 principal underwriters and 10 secondary underwriters, Mr. 
Greene ? 

Mr. Greene. I know it was four principal ; I couldn't give you the 
exact secondary. 

Mr. Nehemkis. Will you accept my number subject to your further 
confirmation? 

Mr. Greene. I will. 

Mr. Nehemkis. And of the 4 principal underwriters and the 10. 
secondary underwriters in the syndicate, did you not select 13? 

Mr. Greene. Well, I couldn't testify that I did. 

Mr. Nehemkis. Recall your previous testimony. You have been 
developing this with me. 

Mr. Greene. I know I suggested a good many. 

Mr. Nehemkis. I am afraid I shall have to take you over your 
previous testimony unless you give me a more positive answer. Sup- 
pose I repeat my question. Perhaps that will help you, Mr. Greene. 
I said, if I recall correctly, of the 4 principal underwriters and the 10 
secondary underwriters in the syndicate, did you not select 13? 

Mr. Greene. I would have to see the list. I know I selected those 
that I testified but I don't remember. 

Mr. Nehemkis. Then assuming my arithmetic is correct, if your 
testimony were before you it would add up to 13 ? 

Acting Chairman King. How did you select, using that term as 
used by Mr. Nehemkis, just indicate or name them, or go to see them 
and agree to get them to become part of the syndicate? 

Mr. Greene. They were selected with a view to recognizing past 
services and also to recognizing what I thought would take care of 
the market that would exist for these bonds. 

Acting Chairman King. That is to say, to whom did you recom- 
mend them, if you made any recommendation ? 

Mr. Greene. I recommend those that I thought would be helpful 
to placing this particular bond, would have some knowledge of the 
iron-ore business, and in addition those that I thought the company 
was under some obligation to. 

Acting Chairman King. Were some of them creditors? 

Mr. Greene. Yes. 

Mr. O Connor. May I ask, to whom did you recommend? 

Mr. Greene. To Lehman Brothers, the head of the group. 

Mr. Nehemkis. So that we have this situation, if I may briefly 
recapitulate, Mr. Greene. You made suggestions to the syndicate 
manager concerning the selection of various underwriters and as a 



12430 CONCENTRATION OF ECONOMIC POWEIt 

result of the various suggestions that were advanced it happened that 
13 of your suggestions out of a list of 14 in the ultimate syndicate 
were accepted, and Mr. Tompkins therefore actually selected but 
one underwriter, namely Lehman Brothers. Is that correct, sir? 

Mr. Greene. Well, I had no right to select them. I suggested 
them. I wouldn't say that I selected them. 

Mr. Nehemkis. Just a moment, sir. I suggest that you attempt to 
answer my question. If you don't understand it 

Acting Chairman King (interposing). I think that is an answer. 

Mr. Nehemkis. I think it is an irrelevant, immaterial and incon- 
sequential answer. , 

Acting Chairman King. I don't agree at all. You indicated how 
they were selected and you indicated that 13 of them, did you? 
What number? And to whom did you indicate their names? 

Mr. Greene. To one't>f the partners of Lehman Brothers. I think 
I should explain that for 33 years I was connected with a trust com- 
pany and most of that time we operated a bond department. Here 
was a rather unusual bond that pertained to an industry that isn't 
particularly well known in Wall Street. Now, I was familiar with 
a group of distributors of securities that did know something about 
this and all I was attempting to do as the president of the company, 
the debtor company, was to assist in the wise distributing of those 
securities. Now, I didn't have the right to dictate; I merely sug- 
gested people that I thought would be good people to be purchasers 
of the bonds. 

Mr. Henderson. I think the chairman and counsel didn't suggest 
there was any impropriety in it. The result was there' were four 
principal underwriters and ten others. 

Mr. Nehemkis. It is to Mr. Greene's great credit that he was that 
much interested in this syndicate that he made the suggestions. 

Acting Chairman King. I thought he made the proper selection. 
Proceed. 

Mr. Nehemkis. So that as far as you know Lehman Brothers, the 
manager of the syndicate, did not select any of the underwriters? 

Mr. Greene. I couldn't name any right now. 

THE COMMISSION EARNED 

Mr. Nehemkis. Now, Mr. Greene, will you tell me exactly what 
Bankers Trust Co. did in this transaction to earn their commission 
as your agent in organizing and selecting and underwriting a syndi- 
cate to float $24,000,000 of bonds? 

Mr. Greene. Do you mean the commission finally paid? 

Mr. Nehemkis. That was finally paid. 

Mr. Greene. Well, I will state they were very helpful all the way 
through in the original deal. They were to secure the purchasers of 
the entire issue. They took it up with Lehman Brothers and intro- 
duced me to that firm. They counseled me about rates of interest, 
maturities, and so on. In the final financing which we haven't come 
to, $16,500,000 of bonds and a. $5,000,000 bank loan, they placed the 
$5,000,000 bank loan. A number of times when we were at grips on 
the negotiations they were helpful not only in their advice to us 
but they attended the meetings and placed before !he investment 
bankers the situation in a way better than I could. We finally paid 
them a fee of $25,000, as I recall it. 



CONCENTRATION OF ECONOMIC POWER 12431 

Mr. Nehemkis. That is correct. Mr. Greene, would you be good 
enough to glance at three letters which my associate will show you 
and tell me whether you recognize them as true and correct copies of 
originals in your possession and custody? One is a letter from 
yourself to Mr. Belden, dated July 5, 1935 ; another is a memorandum 
by you, dated June 13, 1935 ; and the third is a letter by you, dated 
December 6, 1935. 

Mr. Greene. I do. May I see this a moment ? 

Mr. Nehemkis. Mr. Greene, I might say I don't intend to examine 
you about them. These documents, Mr. Chairman, may it please 
the committee, are offered in evidence. 

Acting Chairman King. Yes. Would one mark do, put them 
together ? 

Mr. Nehemkis. I think the reporter prefers they be marked sep- 
arately. 

(The letters referred to were marked "Exhibits Nos. 1822 to 1824." 
"Exhibits Nos. 1822 and 1823" are included in the appendix on pp. 
12746 and 12747. "Exhibit No. 1824" appears in full in the text on 
p. 12462.) 

Mr. Nehemkis. Mr. Chairman ; may the witness be dismissed and 
may I have leave of the committee to call Mr. Tompkins of the 
Bankers Trusts Company? 

Acting Chairman King. Before leaving the stand, is there any 
explanation you care to make in addition to those which you have 
made to counsel respecting matters which he interrogated you 
concerning ? 

Mr. Greene. I would like to make this statement, if I may, to give 
the members of the committee a chance to see the reason for this 
gradual change in the situation. Not only were conditions in' the 
iron-ore industry continually improving, "but our condition was 
getting better all the time. Now, we start in with one deal and as 
general conditions and our particular conditions improved, this deal 
shifted around, and in the course of the 10 months between the time 
of its origination and the consummation it was something very 
different. 

It was an entirely satisfactory matter for the company and inas- 
much as the bonds sold readily, remained at a slight market premium 
above and were called at the full call price and refunded into a lower 
rate, why I think that as far as the company goes I want to go on 
record as saying it was an extremely happy and fortunate deal. 

Acting Ohairman King. Was the entire amount of $25,000,000 
ultimately paid? 

Mr. Greene. All paid in full. The total issue as finally concluded 
was $16,500,000 of bonds and $5,000,000 bank loan. The bank loan, I 
believe, was a 5-year loan, paid off in half that time. The other issue 
was paid in full in February of this year and was reduced to a Sy 2 
percent issue and a 2.16 percent 5-year bank loan. 

Acting Chairman King. Were those bonds guaranteed? 

Mr. Greene. No, sir; and they were on Cleveland-Cliffs alone. 
The two companies are still separate. 

Acting Chairman King. You may retire. 

Mr. Henderson. May I ask Mr. Greene while he is here 

(Off the record.) 



12432 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. May I say on behalf of the committee we are 
deeply grateful to him ? He has inconvenienced himself several times 
to be available to us. I want to express my thanks in the committee's 
behalf to him. 

Acting Chairman King. Yes. Is he excused? 

(Mr. Greene was excused.) 

Mr. Nehemkis. Mr. B. A. Tompkins, please take the witness stand. 

Acting Chairman King. 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. Tompkins. I do. 

TESTIMONY OP B. A. TOMPKINS, VICE PRESIDENT, BANKERS 
TRUST CO., NEW YORK CITY 

Mr. Nehemkis. Mr. Tompkins, will you state your full name and 
address release ? 

Mr. Tompkins. B. A. Tompkins,. 16 Wall Street. 

Mr. Nehemkis. Are you not an officer and director of the Bankers 
Trust Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. What position do you hold? 

Mr. Tompkins. Vice president. 

Mr. Nehemkis. Are you not also a director of the following com- 
panies — the Coronet Phosphate Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. The Detr -it Edison Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. The Otis Elevator Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Babcock & Wilcox Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. International Paper & Power Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. National Aviation Corporation? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. TJ. S. Leather Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Flintkote Co. ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Southern Kraft Co ? 

Mr. Tompkins. No. 

Mr. Nehemkis. You have gone off that ? 

Mr. Tompkins. I don't think I was ever on that. 

Mr. Nehemkis. Mr. Tompkins, prior to the Banking Act of 1933 
did not the Bankers Trust Co. have a security affiliate known as 
Bankers Co. ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Were you not an officer of the Bankers Co. ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. And pursuant to the terms of the Banking Act the 
Bankers Co. was dissolved, was it not? 

Mr. Tompkins. Long before the Banking Act was passed. 



CONCENTRATION OF ECONOMIC POWER 12433 

Mr. Nehemkis. I didn't know that; I am glad to have that. And 
thereafter, that is to say following the dissolution of the affiliate you 
became an officer of Bankers Trust Co., did you not? 

Mr. Tompkins. I continued as an officer of the Bankers Trust Co. 

Acting Chairman King. That is, you have been an officer of the 
Bankers Trust Co. before the dissolution of the Bankers Co. ? 

Mr. Tompkins. Yes, sir. 

Mr. Nehemkis. In December of 1935, the Cleveland-Cliffs Iron Co. 
sold $16,500,000 first mortgage 4% percent sinking fund bonds due 
November, 1950, did they not? 

Mr. Tompkins. Yes. 

Acting Chairman King. Are you the Mr. Tompkins to whom Mr. 
Greene referred ? 

Mr. Tompkins. Yes, sir. 

Mr. Nehemkis. As part of and in addition to this financing, did not 
Cleveland-Cliffs Iron Co. borrow $5,000,000 from three banks? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. And these were on notes which were due from 1936 
through to 1940? 

Mr. Tompkins. I believe so. 

Mr. Nehemkis. Of this sum, was not $2,000,000 borrowed from the 
Bankers Trust Co.? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. And another $2,000,000 from the First National 
Bank of Chicago ? 

Mr. Tokpkins. Yes. 

Mr. Nehemkis. And $1,000,000 from the Cleveland Trust Co.? 

Mr. Tompkins. That is correct. 

Mr. Nehemkis. I believe that you have been present in this room 
during Mr. Greene's testimony, have you not ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Did you hear that testimony ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. You followed it? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Mr. Greene's testimony shows that about the middle 
of January 1935 Cleveland-Cliffs owed about $25,000,000 in short- 
term loans to various banks. That is correct, is it not ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. And that included about $4,000,000 to the Bankers 
Trust Co.? 

Mr. Tompkins. Correct. 

agreement or January 3 0, 1935 * 

Mr. Nehemkis. Now, as a result of Mr. Greene's conversation with 
you, Bankers Trust entered into an agreement with Cleveland- Cliffs 
Iron Co. whereby the bank was appointed an agent to form an under- 
writing syndicate to handle the sale of the proposed $24,000,000 bond 
issue. Is that correct? 

Mr. Tompkins. Not necessarily to form an underwriting syndi- 
cate. It was to find purchasers for that amount of bonds. It might 

1 This subject is resumed from p. 12425, supra. 



12434 CONCENTRATION OF ECONOMIC POWER 

have taken the form of an underwriting syndicate, but it wasn't the 
intention for us to make the sales to institutions. 

Acting Chairman King. That is a different document, is it, from 
the one which you waved? 

Mr. Nehemkis. The one I was referring to in my question and to 
which the witness referred ? 

Acting Chairman King. Yes. 

Mr. Nehemkis. No ; that is the seven-page legal document 1 we have 
been referring to. 

Acting Chairman King. That is the one you still call a contract? 

Mr. Nehemkis. Yes, sir. 

Mr. Tompkins, I show you a letter which purports to be written 
from White & Case to your attention, dated January 30, 1935. Will 
you examine this and tell me whether you recognize it as a true and 
correct copy of an original in your possession? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. Mr. Chairman, I read from this letter. 

Acting Chairman King. Has Mr.' Greene gone? 

Mr. Nehemkis. No; he is here. 

Acting Chairman King. I would like to ask him one question. 
Excuse the interruption. Come forward, Mr. Greene, I want to ask 
you one question. 

TESTIMONY BY EDWARD B. GREENE, PRESIDENT, CLEVELAND- 
CLIFFS IRON CO., CLEVELAND, OHIO— Resumed 

Acting Chairman King. You stated that you interlined in that con- 
tract, "subject to the approval of the Board." When you went back to 
the Board, did they approve the instrument ? 

Mr. Greene. It is my recollection, Senator, that we were unable to 
get a quorum, that I discussed this with some of the directors and 
members of the Executive Committee and we were not able to secure 
a quorum; and before we could get the quorum, suit was started and 
the possibility of carrying this out was laid aside, so that while I 
later reported to the board, everything that was reported to the board 
was a matter of past history and not as a positive transaction. 

Mr. Nehemkis. I read from the letter of January 30, 1935 [reading 
from "Exhibit No. 1825"] : 

Enclosed herewith are several final copies of the proposed letter of appoint- 
ment of Bankers Trust Company as Agent for The Cleveland-Cliffs Iron Com- 
pany . . . and The Cliffs Corporation. 

We have examined the enclosed letter of appointment on your behalf and 
write to advise you that, in our opinion, the same is in satisfactory form and 
sufficient for the purposes indicated. 

The letter is offered in evidence. 
Acting Chairman King. It may be received. 

(The letter referred to was marked "Exhibit No. 1825" and is in- 
cluded in the appendix, on p. 12748.) 



1 "Exhibit No. 1819." 



CONCENTRATION OP ECONOMIC POWER 12435 

TESTIMONY OF B. A. TOMPKINS, VICE PRESIDENT, BANKERS 
TRUST CO., NEW YORK CITY— Resumed 

Mr. Nehemkis. I read to you from paragraph 7, Mr. Tompkins, of 
the contract of January 30, 1935, to which reference has been previ- 
ously made [reading from "Exhibit No. 1819"] : 

You— 

That is to say Bankers Trust Company — 

are to use your best efforts to secure a group or syndicate of investors who will 
purchase the entire issue of said bonds as above stated, or who will enter into an 
underwriting agreement in form acceptable to us — 

That is Cleveland-Cliffs— 

for the purchase of the entire issue of said bonds. You shall not be liable 
under any conditions for your failure to secure the group or syndicate referred 
to above or for the purchase yourselves or for the underwriting of all or any 
part of said bonds. 

Mr. Greene, has previously testified that the latter part of that 
provision was included in the contract mainly at your request. Does 
Mr. Greene correctly understand the situation? 

Mr. Tompkins. I don't recall it exactly, but I know that I would 
want that clause in any agency contract. 

Mr. Nehemkis. And Mr. Greene has also testified that whether 
or not the provision was included was not material to his considera- 
tions at the time, he was leaving it pretty much to your judgment, 
do you recall that line of testimony? 

Mr. Tompkins. Yes ; I recall that. 

Mr. Nehemkis. Did you understand by the provision in question 
that Bankers Trust Co. could in fact take a share on original terms 
of the bonds underwritten, but that the bank .was not liable to 
Cleveland-Cliffs if it didn't take the bonds ? 

Mr. Tompkins. No- I didn't understand that we had a right to 
participate in the underwriting of the bonds. We did have a right 
in case the bonds were underwritten by investment bankers; if after 
that fact they were offered to us for investment, we had a right to 
buy them. 

Mr. Nehemkis. Mr. Greene has testified that he was somewhat re- 
luctant to sign the contract at the time, and the testimony in evi- 
dence before the committee indicates that he did execute the docu- 
ment mainly upon your insistence. Why did you want him to 
sign that document prior to his obtaining approval of the board 
of directors? 

Mr. Tompkins. The purpose of that document was to set forth 
clearly what our understanding was, and the type of issue that I was 
to attempt to sell if I could. I had planned as soon as possible to 
take this issue of securities to a group of insurance companies, or 
perhaps to a group of investment bankers, and I wanted two things 
definitely: First, some evidence of my right to represent the Cleve- 
land-Cliffs Co.; and second, a description of the type of issue that 
had been given to me to sell if I could. 

Mr. Nehemkis. And you felt that you would be better fortified to 
engage in preliminary negotiations if 3 r ou had a formal instrument 
in the way of an agency contract ? 

124491 — 40— pt. 24 9 



12436 CONCENTRATION OF ECONOMIC POWER 

Mr. Tompkins. An agency contract. As far as Mr. Greene and 
I were concerned, we didn't need any contract at all. 

Mr. Nehemkis. Now, Bankers Trust Co., pursuant to the contract, 
was made an agent because, I presume, under the Banking Act, Bank- 
ers Trust could not engage at the time in underwriting activities itself? 

Mr. Tompkins. That is correct. 

Mr. Nehemkis. Now, examine, if you will, four documents which 
are now shown to you, and tell me whether you recognize them to be 
true and correct copies of originals in your possession. 

Acting Chairman King. Before you answer that, do you recognize 
the Bankers Trust Co. as an agent for the purpose of carrying out 
the suggestions contained in that so-called contract? 

Mr. Tompkins. Yes, sir. 

Yes ; I recognize those. 

Mr. Nehemkis. May it please the committee, the documents iden- 
tified by the witness are offered in evidence. 

Acting Chairman King. They may be received. 

(The documents referred were marked "Exhibits Nos. 1826 to 1829" 
and are included in the appendix on pp. 12749-12751.) 

Mr. Nehemkis. In Mr. Greene's letter to you, Mr. Tompkins, dated 
February 1, 1935, being Committee's "Exhibit No. 1826," he stated as 
follows : 

We both understand that this is an appointment of the Bankers Trust Company 
as agent to buy or underwrite a first mortgage and collateral issue of bonds. 

You pointed out immediately that Mr. Greene was under a misap- 
prehension in regarding the bank as an underwriter. In committee's 
"Exhibit No. 1827," your letter of February 4, 1935, you stated as 
follows : 

I have just had your letter of the first. I think that it fairly sets forth our 
understanding, with this exception. Under the law Bankers Trust Company is 
.prohibited from underwriting. We can, however, act as your agent on a com- 
mission basis to find underwriters for the issue. 

And again when Mr. Greene wrote to you on May 25, 1935, com- 
mittee's "Exhibit No. 1828," that— . 

the Bankers Trust Company are willing to include as equal partners in the deal, 
two or three firms whose participation would be of advantage to the Cleveland 
Cliffs Iron Company — 

You again were quick to point out that Bankers Trust Co. was not 
an underwriter. 

On May 28, committee's "Exhibit' No. 1829," you wrote : 

I am a little concerned as to just how to handle the commission of 1% which 
under the contract we are to receive for our services. Under the law we cannot 
become a partner in an underwriting and I will therefore have to make it clear 
to the houses which eventually constitute the underwriting group that we are 
acting in an agency capacity for a commission. 

You felt, did you not, Mr. Tompkins, that you had to make it quite 
clear to the investment bankers who might be included in the syndicate 
that Bankers Trust was not an underwriter ? 

Mr. Tompkins. I don't know that I felt I had to make that clear to 
them, because I could assume that they were familiar with the law. I 
did have to make clear to them that I was acting for the Cleveland- 
Cliffs Corporation and that a commission was payable to me. 

Mr. Nehemkis. You had to make it clear that you were acting as an 
agent and that was the sole role that you found yourself in and in 
which you were authorized to act. 



CONCENTRATION OF ECONOMIC POWER 12437 

Mr. Tompkins. That is correct. 

Mr. O'Connell. Mr. Nehemkis, have you available there the provi- 
sion in the Banking Act of 1933 which forbids that? 

Mr. Nehemkis. We have requested one of the gentlemen to find the 
mimeographed copy that was offered in evidence earlier. If that is 
not available, in the first day's proceedings before the committee there 
was offered in evidence the relevant portions. 

Mr. O'Connell. My memory isn't entirely clear, but I wasn't under 
the impression that the Banking Act merely prohibited underwriting 
in terms. My impression is that it referred to engaging to any 
extent 

Mr. Nehemkis (interposing). Or dealing in securities; that is my 
recollection. 

Mr. O'Connell. Sometime before we finish with this witness I 
should like to have it read for my information. It seems to me a little 
obscure to talk about underwriting if we are referring to the Banking 
Act of 1933. 

Acting Chairman King. You and your counsel, as you interpreted 
the Banking Act it did not prevent you or prohibit you from acting 
as agent for the Cliff Company in finding purchasers for the securities 
which they had issued? 

Mr. Tompkins. That is the way I was advised by counsel. 

Mr. O'Connell. May I understand, have you that in a formal opin- 
ion from your counsel ? Have you a formal opinion from your counsel 
to the effect that the activities you were engaging in in this instance 
would not be in violation of the Banking Act of 1933 ? 

Mr. Tompkins. Yes; in the form of a letter of transmittal which 
accompanied the contract whicn they drew up. 

Mr. O'Connell. You rnean the letter which says [reading from 
"Exhibit No. 1825"] : 

We have examined the enclosed letter of appointment on your behalf and write 
to advise you that, in our opinion, the same is in satisfactory form and sufficient 
for the purposes indicated. 

Am I to understand that is in response to an inquiry from you as 
to whether or not this particular transaction was in violation of the 
Banking Act of 1933? 

Mr. Tompkins. I don't know that I made the specific inquiry. I 
told counsel what the Cleveland-Cliffs Co. had asked us to do, and I 
asked for a contract or memorandum of agreement to be drawn, and 
naturally I assumed they would present to me a legal document. 

Mr. O'Connell. What I am interested in is what consideration 
you gave to the specific question, which undoubtedly was in the front 
of your mind, as to whether or not what you were doing was in viola- 
tion of the Banking Act, and whether or not you asked your lawyers 
as to whether it was in violation, and whether or not* what your lawyers 
told you is what we have here. 

Mr. Tompkins. You asked if I had a written document. That is all 
I have as a written, document. I had naturally, upon the passage of 
the Banking Act, studied it myself and talked about it with counsel, 
and this contract was in consonance with their advice to me- 

Acting Chairman King. Proceed. 

Mr. Nehemkis. Mr. Tompkins, in the four letters from which I 
have read and which are in evidence, reference is made in those let- 



12438 CONCENTRATION OF ECONOMIC POWER 

ters in various places to the following characterizatiors of this 7-page 
document. 1 It is referred to as a "gentlemen's agreement," it is re- 
ferred to as an "informal contract," and it is referred to as a "con- 
tract." Now all of these terms, I take it, do refer to this instrument ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. And this instrument was approved by counsel, 
your counsel? 

Mr. Tompkins. It was drawn by the counsel of both companies — 
drawn by my counsel with the counsel of Cleveland-Cliffs. 

Mr. Nehemkis. Now when Bankers Trust executed this agreement 
on January 30, 1935, you didn't think that the bank was merely in- 
itialing a gentlemen's agreement, did you ? You understood that this 
was at the time a binding and valid agreement, didn't you ? 

Mr. Tomkins. Yes. 

SELECTION OF UNDERWRITERS 

Mr. Nehemkis. You have heard Mr. Greene's testimony in regard 
to the selection of the underwriters, that of the 14 principal and sec- 
ondary underwriters, he selected 13. Do you think Mr. Greene ac- 
curately understands the role played by Bankers Trust in the selection 
of the underwriters for the syndicate? 

Mr. Tompkins. You are dealing now, Mr. Nehemkis, with an 
operation that wasn't contemplated by that agreement. You are in 
the second phase of this thing. 

Mr. Nehemkis. I have leaped a hurdle and I have gone into the 
second pasture, and you are right with me. 

Mr. Tompkins. Mr. Greene's testimony on that point, I think, was 
accurate. He suggested to Lehman Bros., and in some instances to 
me, the names of houses that he believed would be helpful in this 
business. I don't think it can be fairly said that he selected them, 
because the selection was in the last anatysis in the hands of Lehman 
Bros. 

Mr. Nehemkis. Yes; I will withdraw my use of the term "selection." 
It is perhaps not quite. accurate. He suggested, and the suggestions 
were followed. 

Mr. Tompkins. Yes. 

Acting Chairman King. Were there suggestions made that were 
not followed? Were any other companies suggested other than the 
14 companies to whom counsel has referred? 

Mr. Tompkins. I don't know, Senator, I would doubt it. I really 
don't know. 

Mr. Nehemkis. I will have occasion to refer to that later, sir, and 
, you will have a specific answer on it. 

Do you recall, Mr. Tompkins, in January of 1935, Hay den, Stone 
& Co. were negotiating with Mr. W. G. Mather, an important stock- 
holder and director of Cleveland-Cliffs, for the sale of Mr. Mather's 
holdings of the preferred stock? 

Mr. Tompkins. No ; I don't remember that. I recall that they were 
negotiating with Mr. Mather for purchase of Cliffs common. 

1 "Exhibit No. 1819." 



CONCENTRATION OF ECONOMIC POWER 12439 

HAYDEN, STONE & CO.'s REQUEST FOR AN UNDERWRITING PARTICIPATION 

Mr. Nehemkis. Now, when Hayden, Stone learned of the possi- 
bility of a bond issue by the Cleveland-Cliffs and of the contract of 
January 30, did they not ask you for a participation in the proposed 
underwriting? 

Mr. Tompkins. I have forgotten the time, but I know they did ask 
for an interest in the business. 

Mr. Nehemkis. Did they ask you ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. I show you a letter from yourself to Mr. Greene, 
dated February 2, 1935. Will you examine that letter and tell me 
if you recognize it to be a true and correct copy of an original in your 
possession and custody ? 

Mr. Tompkins. Yes; I remember this. 

Mr. Nehemkis. The letter is offered in evidence, may it please the 
committee. 

Acting Chairman King. It may be received. 

(The letter referred to was marked "Exhibit No. 1830" and is 
included in the appendix on p. 12751.) 

Mr. Nehemkis. This is a letter from Mr. Tompkins to Mr. Edward 
Greene, dated February 2, 1935. [Reading from "Exhibit No. 1830" :] 

This is just to put you up to date on the matter of the purchase of Mr. Mather's 
stock by Messrs. Hayden Stone et als and our hope that we would be given an 
opportunity to participate in that purchase. 

You will recall that when you told me that Hayden Stone & Co. had been 
in negotiation on that matter and asked what my point of view would be 
with reference to ceding that firm an interest in the bond financing, I told you 
that we would be very happy to offer them an interest. I believe that you advised 
Mr. Hayden of our attitude on that point. At that time I suggested that I 
thought it would be very gracious, and helpful to the whole situation, if in 
return for our offering them an interest in the bond business they offered us an 
opportunity to join them in their purchase of the stock. It was your feeling that 
that would make a happy party all around and you expressed that feeling to Mr. 
Mitchell. 

And Mr. Mitchell is Mr. Steele Mitchell at that time at Havden, 
Stone? 
Mr. Tompkins. Yes. 
Mr. Nehemkis [reading xurther] : 

You will recall the conversation which you and I had with Messrs. Mather and 
Belden — 

And Mr. Belden is counsel to Mr. Greene, is he not ? 
Mr. Tompkins. He was. 
Mr. Nehemkis (continuing) : 

just before they were leaving for their final talk with Mr. Mitchell. I pointed 
out to Mr. Mather that I was unwilling to have my request for a participation 
in the stock purchase in any way interfere with his selling his stock. I merely 
pointed out that I thought it would be in the interest of all parties concerned 
if Hayden, Stone & Co. through Mr. Mitchell offered us an opportunity to share 
in the purchase. 

Mr. Mather and Mr. Belden came to my office late that afternocn and advised 
me that Mr. Mitchell had stated that the two transactions were separate and 
distinct, that he was prepared to purchase the full 200,000 shares and that any 
participation which Hayden Stone & Co. might be offered in the bond issue was 
;i separate matter. I thereupon told Mr. Mather and Mr. Belden what I had 
already said to you, namely that that attitude on the part of Messrs. Hayden 
Stone &,Co. relieved me from any possiblcobligntiorr to. offer them "an interest in 



12440 CONCENTRATION OF ECONOMIC POWER 

the bond purchase. I said that I would immediately telephone Mr. Mitchell and 
advise him of that fact. 

Mr. Tompkins, in this letter from which I have just read, you indi- 
cate that you were prepared to offer Hayden, Stone an original po- 
sition in the bond syndicate in exchange for an original position in 
their preferred-stock syndicate. 

Mr. Tompkins, as agent for Cleveland-Cliffs, to arrange a syndicate 
for the proposed financing, was it not your duty to find the strongest 
syndicate, to obtain the best rate of interest and terms for Cleveland- 
Cliffs? 

Mr. Tompkins. Exactly. 

Mr. Nehemkis. But in this letter from which I have read, it would 
appear, Mr. Tompkins, that you were attempting to use your position 
as agent for Cleveland-Cliffs to obtain a trade for Bankers Trust in a 
deal which was of no possible interest to Cleveland-Cliffs. In other 
words, you were acting as any underwriter might act under similar 
circumstances. In short, you were expecting an exchange of recipro- 
cal favors. 

Mr. Tompkins. You say "it would appear," Mr. Nehemkis. You 
mean by that, -that is the way it would appear to you. It doesn't 
appear that way to me in the slightest. 

Mr. Nehemkis. That is what you are here to testify about. 

Mr. Tompkins. You have asked me the question, and the answer 
to it is "No." 

Mr. Nehemkis. You think my interpretation is not a correct one? 

Mr. Tompkins. Yes ; and I think I can explain it if you would like 
to have me. 

Mr. Nehemkis. I would be very happy to have you. 

Acting Chairman King. Proceed, Mr. Tompkins. 

Mr. Tompkins. You said you thought it was my function as agent 
to obtain the best terms I could for my principal, to which I agree. 
The Cleveland-Cliffs job at that time was not an easy one. The com- 
pany had lost money, a substantial amount of money, for a number 
of years. It was not known in tire East, it had never come to market 
for financing. My problem was to try to take the company, out of 
the creditors' committee and arrange to place some $24,000,000 of its 
bonds, form a syndicate for that purpose, if necessary. 

I had formed in a preliminary way a group which I believed could 
handle the business, consisting of Lehman Bros., Kuhn, Loeb, and 
Field, Glore, and at that point it was already apparent to me that 
while they were interested in the business, they themselves were not 
sure that it could be done. I wanted, of course, to make the business 
as attractive to them as I could. When Hayden, Stone applied for an 
interest in the bond business, if it were done, and there was an 
opportunity to receive from them a participation in a piece of busi- 
ness which they had at their disposal, whffih I could use in turn 
for the benefit of the syndicate that I had formed, it was natural in 
the interest of my principal to do it, and that is what I sought to do. 
That interest was not for the Bankers Trust C*>. 

Mr. Nehemkis. I beg your pardon, -sir. Do 1 understand you cor- 
rectly to have testified that at this time, in February 1935, specifi- 
cally February 2, 1935, that you had already formed an underwriting 
group consisting of the three firms I have mentioned? 



CONCENTRATION OF ECONOMIC POWER 12441 

Mr. Tompkins. I am not sure I had called them into a meeting, 
but I knew the firms I was going to select. 

Mr. Nehemkis. Isn't that in conflict with Mr. Greene's previous 
testimony that he suggested three of the four principal underwriters ? 

Mr. Tompkins. We discussed them together and decided that they 
would be the right people for the business. 

Mr. Nehemkis. So that you mean to state, then, that after the 
discussion with Mr. Greene and the passing upon the names, you did 
the mechanical steps of transmitting that to the group? 

Mr. Tompkins. I hoped that the service was a little more than 
mechanical. 

Mr. Nehemkis. I'm sorry, I didn't intend to infer in the use of 
the word "mechanical" anything other than carrying out your agency 
duties. 

Mr. Tompkins. I mean, Mr. Nehemkis, that we discussed the thing 
among ourselves and decided which houses, in the light of their 
experience in this particular type of business, would be the best. » 

Mr. Nehemkis. Now, .one other point that I would like you to 
clear up, if you will, which relates to the same matter. Mr. Greene 
testified, if I recall correctly, that he transmitted suggestions con- 
cerning the ultimate make-up of the syndicate to Lehman Bros. 
Did you both do that? ■ _. 

Mr. Tompkins. That was when it became apparent that I couldn't 
do what I proposed to do at the outset, that is to place $24,000,000 
of bonds. The property would not stand that issue. What Mr. 
Greene was testifying to had to do with a later phase when we were 
not talking in terms of $24,000,000 of bonds, but Lehman Bros, were 
going to sell $16,500,000 of bonds. At that stage in the proceedings, 
he was having discussions with Lehman Bros, about possible partici- 
pants in the issue with which I Had no concern whatsoever. 

Mr. Nehemkis. Now, in the letter from which I had previously 
read, Committee "Exhibit No. 1830," on February 2, 1935, you also in- 
formed Mr. Greene as follows : 

Today he — 
meaning Steele, Mitchell — 

telephoned me that he had discussed the matter with his partners— 
that is to say, the partners of Haycten, Stone — 

and they had decided to offer us no participation in the stock purchase. I 
said I was sorry but that I would have to accept that and that of course he 
understood that I had no obligation to offer his firm an interest in the bond 
matter. He confirmed that that was his understanding. 

I regret that Mr. Mitchell and his associates reached that decision, but I 
could do nothing but accept it. I thought,, however, that I should immediately 
write you and tell you the story. 

In other words, Mr. Tompkins, regardless of whether it was good 
or bad for Cleveland-Cliffs' bond issue, you excluded Hay den. Stone 
because they had not seen fit to give you, the bank, a participation 
in their stock purchase? 

Mr. Tompkins. No, not at all. 

Mr. Nehemkis. Well, will you explain to me what, the meaning of 
the two paragraphs from which I have just read is, if it doesn't 
connote the meaning I have just placed upon those two paragraphs? 



12442 CONCENTRATION OF ECONOMIC POWER 

Mr. Tompkins. It means this, that this was in the early part of 
February. 

Mr. Nehemkis. February 2, to be exact, is the date of your letter? 

Mr. Tompkins. Right. That was shortly after the drafting of this 
informal contract between Cleveland-Cliffs and the Bankers Trust 
Co. 

Mr. Nehemkis. That is, January 30, you mean? 

Mr. Tompkins. That is right, and this whole thing was in a 
formative stage. I had in my mind to invite Lehman Bros, to head 
this syndicate and with them would be associated Kuhn, Loeb and 
Field, Glore; others might later come in, but not necessarily on 
original terms. I at that time thought that if Hay den, Stone wanted 
to come in and make a friendly gesture to those other three houses 
by giving them an interest through me, if you will, that would make 
for a very happy party, but all I told Mr. Mitchell, when he de- 
clined to do that, was, "Then, will you understand I have no obliga- 
tion from here in to take you into this business?" 

Mr. Nehemkis. Assuming that you meant what you said in these 
last two paragraphs, would you be good enough to explain to me how 
it was possible, under the terms of the Banking Act, for Bankers 
Trust to participate in a Hayden, Stone syndicate ? 

Mr. Tompkins. That is what I have just pointed out to you; that 
that interest in the syndicate which you suggested I was taking for 
Bankers Trust Co. was never contemplated for Bankers Trust Co. 

Mr. Nehemkis. In other words, you want the committee to under- 
stand that in yotir activity you were merely a conduit by which favors 
could be exchanged and other arrangements effected which would 
benefit various parties to the syndicate ? 

Mr. Tompkins. I wouldn't call it the exchange of favors. I would 
say that I was acting as an agent for the Cleveland-Cliffs Corpora- 
tion, doing the best I could to get the best terms for them possible. 

Mr. Nehemkis. Well, now, I want to read back to you once again, 
if I may, those last two paragraphs. I have identified the personalities 
involved in here, and I won't do it this time. [Reading from "Exhibit 
No. 1830":] 

Today he telephoned me that he had discussed the matter with his partners 
and they had decided to offer us no participation in the stock purchase. I said 
that I was sorry but thai I would have to accept that and that of course he 
understood that I had no obligation to offer his firm an interest in the bond 
matter. 

Now, in that statement, assuming that Hayden, Stone had offered 
you a participation under the proposal then contemplated, you would 
have been obligated to bring Hayden, Stone into the deal on original 
terms, would you not? 

Mr. Tompkins. With the agreement of the other members of that 
syndicate. 

Mr. Nehemkis. Yes. Assuming they all agreed. Now, when you 
made that suggestion to Hayden, Stone, for whom were you acting; 
for the bank or for Cleveland-Cliffs Iron Co.? 

Mr. Tompkins. Cleveland-Cliffs; they were my principal. 

Mr. Nehemkis. But it was of no consequence, was it, to Cleveland- 
Cliffs whether or not Hayden, Stone offered you an exchange in thejr 
stock deal ? 



CONCENTRATION OF ECONOMIC POWER 12443 

Mr. Tompkins. Decidedly, because that was to be for the benefit of 
the other participants in the syndicate; not for the Bankers T~ust 
Co. We couldn't have taken it under the law, anyway. 

Mr. Nehemkis. Then why were you making these suggestions, if 
upon your own aamission you could not have taken it under the law ? 
Mr. Tompkins. Because I was doing it for the account of the par- 
ticipants in the syndicate. 

Mr. Nehemkis. Now I want to read a bit further, if I may. [Read- 
ing further from "Exhibit No. 1830" :] 
He- 
Meaning Steele Mitchell — 

confirmed that that was his understanding. 

I regret that Mr. Mitchell and his associates reached that decision, but I could 
do nothing but accept it. I thought, however, that I should immediately write 
you and tell you the story. 

Now if I may briefly recapitulate, at the time that Hayden, Stone 
was interested in the stock transaction and you offered them a par- 
ticipation on original terms in the deal that you were handling as 
agent, you were acting, you wish the committee to understand, in 
behalf 

Mr. Tompkins (interposing). I hadn't offered them an interest. 

Mr. Nehemkis. Beg pardon ? 

Mr. Tompkins. You said I had offered them an interest. I hadn't 
offered them an interest. 

Mr. Nehemkis. You had not offered Hayden, Stone an interest on 
original terms in the Cleveland-Cliffs transaction in exchange for 
participation by the bank in the Hayden, Stone stock deal? 

Mr. Tompkins. Not up until that time they were never offered an 
interest in it. 

Mr. Nehemkis. This letter is dated February 2, and that is the 
purpose of your letter of transmittal to Mr. Greene. You wrote in 
the second paragraph of this letter as follows, Mr. Tompkins. 
[Reading further from "Exhibit No. 1830" :] 

You will recall that when you told me that Hayden Stone & Co. had been in 
negotiation on that matter and asked what my point of view would be with 
reference to ceding that firm an interest in the bond financing, I told you that 
we would be very happy to offer them an interest. 

Mr. Tompkins. That is right. 
Mr. Nehemkis (continuing) : 

I believe that you advised Mr. Hayden of our attitude on that point. At 
that time I suggested that I thought it would be very gracious, and helpful to 
the whole situation, if in return for our offering them an interest in the bond 
business they offered us an opportunity to join them in their purchase of the 
stock. 

Now that is precisely the way investment bankers talk when they ne- 
gotiate a deal. That has been the whole tenor of the testimony before 
this committee which has been received here for the past three weeks 
or so. Now I repeat again, because I think this is very important, 
Mr. Tompkins, do you want this committee to understand that at 
the time you were writing to Mr. Greene, for whom you were author- 
ized to act only as agent, that in this particular transaction you were 
not acting at the same time for the Bankers Trust Co.? 

Mr. Tompkins. I certainly do want the committee to understand 



12444 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. Did the Bankers Trust Co. have any- 
interest in the activities which, you were carrying on as agent for 
Mr. Greene's company? 

Mr. Tompkins. I don't think I understand, Senator. 

Acting Chairman King. Did the Bankers Trust Co. have any- 
thing to do with the work of the syndicate, the placing of those 
securities which were being issued, or the canning out of that loan 
which was made to consolidate those debts which aggregated 
$25,000,000? 

Mr. Tompkins. Aiter the bonds were sold to the public there was 
a bank loan of $5,000,000 that had to be arranged and in that we 
participated. 

Mr. Henderson. May I ask a question here, Mr. Chairman, if you 
are through? 

Acting Chairman King. Yes. 

Mr. Henderson. I understand that j-our response to counsel's ques- 
tion was that you were trying to get this participation in the common 
stock in order to help carry the deal, and that you were acting as agent 
for Cleveland Cliffs and not for Bankers Trust? 

Mr. Tompkins. Yes ; that is correct. 

Mr. Henderson. But the negotiations were by yourself, representing 
Bankers Trust? You were not acting in an individual capacity as 
agent, were you ? 

Mr. Tompkins. No; I was acting as an officer of my bank; the bank 
was acting as an agent. 

Mr. Henderson. Did you submit the question of the legality of that 
action to counsel, also ? 

Mr. Tompkins. Which particular action ? 

Mr. Henderson. This attempt to negotiate a reciprocal obligation 
with Hayden, Stone's transaction. 

Mr. Tompkins. No ; I never discussed it with anyone. 

MEANING OF UNDERWRITING AND THE BANKING ACT OF' 19 33 

Mr. Henderson. The first paragraph of the Banking Act says : ' 

After one year from the date of the enactment of this Act, no member bank 
shall be affiliated in any manner described in Section 2b hereof with any corpo-. 
ration, association, business trust, or any other similar organization,. engaged 
principally in the issue, flotation, underwriting, public sale, or distribution at 
wholesale or retail or through syndicate participation of stocks, bonds, deben : 
tures, notes, or other securities. 1 

Do I understand thafyou take the position that the Bankers Trust 
as agent could do the tiling that it was not authorized to do by the 
Banking Act ? 

Mr. Tompkins. No ; I don't take that position. I have always as- 
sumed that the bank" although excluded from underwriting, could act 
as an agent for the account of another. 

Mr. Henderson. And acting as an agent to perform ail the acts that 
are ordinarily done by an underwriter, except that of taking the risk ? 

Mr. Tompkins. No ; my conception of my agency responsibility was 
to get as good terms as I could for my principal I had to do a lot of 
things to accomplish that. 

*The relevant provisions of the. Banking Act of 1933 are set forth in "Exhibit No. 1530 * 
Hearings, Part 22, p. 11607. 



CONCENTRATION OF ECONOMIC POWER 12445 

Mr. Henderson. And in doing that you felt that you were within 
3'our legal rights to try to get this reciprocal obligation for the com- 
mon stock? 

Mr. Tompkins. Yes; I felt I was trying to form a syndicate as 
successfully as I could, and that if this house of Hayden, Stone had a 
piece of business which might be attractive to the other houses that I 
had in mind, as I said in that letter, it would make a very happy party. 

Mr. Henderson. Why wasn't that something which Lehman 
Brothers would want? You had already at this time, had you not, 
selected Lehman Brothers to manage the deal ? 

Mr, Tompkins. If it were ever done; yes; but we were just starting 
then, Mr. Henderson. 

Mr. Henderson. I know, but what I would like to get at — I am 
not so much interested in this single transaction, as you probably 
perceive — in bringing out an issue by an underwriter there are a 
number of steps to be performed; there are the various conversa- 
tions with the issuers, sometimes leading on the part of the under- 
writer to the engaging of counsel, engineers, appraisers, and account- 
ants. Now, in your opinion, can a bank, acting as agent, go that far ? 

Mr. Tompkins. No; I think that agency means what the term 
implies. In this case it was just as if we were given an order to sell 
$24,000,000 of bonds for the account of Cleveland-ClifFs for a com-* 
mission. 

Mr. Henderson. Well, that is all right if you were given an order 
by Cleveland-Cliffs to underwrite. Very plainly, in your opinion, 
you couldn't do it? 

Mr. Tompkins. No; that would be unlawful. 

Mr. Henderson. But what I am getting at, where is the line 
drawn? What are the things in this contract? The thing which 
you excluded in the written terms was the assumption of the respon- 
sibility, and in the succeeding letters you were careful to make it 
clear that you were acting as agent ? 

Mr. Tompkins. Yes. 

Mr. Henderson. Now, is there anything else in the transaction of 
the ordinary underwriting of an- issue that a bank can't do, acting as 
agent? Do you think of anything? 

Mr. Tompkins. I think the bank could, in the first place, get to- 
gether, say, a group of insurance companies and try to get them to buy 
the bonds. That was my original intention here. That wasn't 
possible. 

Then the next thing it can do is to get together a group of houses, 
and it wants to make that group as strong as it can, of course. 

Mr. Henderson. And if the group takes the issue the bank then 
buys some of the bonds ? 

Mr. Tompkins. After the issue ; yes. 

Mr. Henderson. But they can buy them from the underwriter? 

Mr. Tompkins. Buy them from the underwriter, if he will sell them 
to him. 

Mr. Henderson. What other things can a bank acting as agent do ? 
Let me suggest one you have indicated here. It can do the thing 
which an underwriter ordinarily tries to do, or sometimes tries ho do — 
there has been some denial of testimony here— to get reciprocal 
obligations which will sweeten the contract, or in your terminology, I 
think it was, to make it a Y- ppier party. Now, the bank can do those 
things can it not ? 



12446 CONCENTRATION OF ECONOMIC POWER 

Mr. Tompkins. I think the bank could form a syndicate for the 
purpose of selling the bonds, and in the formation of that syndicate 
t he bank would be doing nothing improper if it made whatever moves 
were necessary to get a strong syndicate. 

Mr. Henderson. And the bank could select the manager and also 
the subunderwriters ? 

Mr. Tompkins. Well, it certainly could select the manager. 

Mr. Henderson. Could it select the subunderwriters? 

Mr. Tompkins. I should think after it had its basic syndicate 
as we did in this case of four strong houses, from there on the job 
was up to the syndicate manager. 

Mr. Henderson. Do you think it could go further and indicate any 
of the distributors that might take part in the issue ? 

Mr. Tompkins. Oh, I think it could properly suggest to the syndi- 
cate manager that this certain house, Smith, Jones & Co., be given an 
interest in the business. 

Mr. Henderson. So it could act in a cooperative capacity with the 
underwriters in determining what the distribution line should be? 

Mr. Tompkins. No; not that. I meant that just as a bank would 
do for any of its clients in any of its business, it would suggest to an 
underwriter that it would like to have such and such a name included. 
I don't think that after it passed — after the formation of the syndicate 
and there is a manager selected, then I think the bank steps out of the 
picture. 

Mr. Henderson. How about a stabilizing operation? 

Mr. Tompkins. The bank can't participate in that. 

Mr. Henderson. Can't participate under the terms of the '33 act or 
of the Exchange Acts ? 

Mr. Tompkins. I think that certainly under the Banking Act it 
couldn't. 

Mr. Henderson. Well, it can take a fee as an agent for performing 
all these things? 

Mr. Tompkins. Not all of them, Mr. Commissioner. I think it can 
take a fee for finding the buyer for an issue. 

Mr. Henderson. It can get a finder's fee? In this case it wasn't 
a matter of finding; the business walked into the office, in a way, didn't 
it ? I mean isn't that 

Mr. Tompkins. I don't think a finder's fee would accurately define 
what this was. 

Mr. Henderson. But it could take a finder's fee. you think? 

Mr. Tompkins. I don't know ; I have never had that experience. 

Mr. Henderson. In your experience no one of your clients has said, 
"We will pay you a fee"? Or you haven't had the experience in which 
you have said to a banking house, "One of our accounts is in need of 
financing and we think you ought to look into the business" and if 
they get the business, pay you a fee? You haven't had any experi- 
ence like that? 

Mr. Tompkins. We have done that on several occasions, but without 
suggesting any fee for it ; just service to the depositor. 

Mr. Henderson. Let me ask you this, before the manager of the 
syndicate is selected, can the bank, acting as agent, suggest the sec- 
ondary .group? 



CONCENTRATION OB 1 ECONOMIC POWER 12447 

Mr. Tompkins. It could if it were asked to by the manager of the 
syndicate. 

Mr. Henderson. Well, could it, before the manager was selected, 
pick out the secondary group and then after it selected the manager 
say, "This is the secondary group"? 

Mr. Tompkins Well, I think that it would perhaps be going beyond 
what it was asked to do by its principal if it did more than just get 
the first group. 

AUTHORITY TO SELECT THE UNDERWRITING SYNDICATE 

Mr. Henderson. But this seven-page document 1 that Mr. Nehemkis 
was waving at Senator King said, I understand, that you would 
use your best efforts. Now, would "best efforts" to you indicate the 
secondary group ? Do you think that the bank acting as agent would 
select them even before they had determined on the principal under- 
writer ? 

Mr. Tompkins. I think that it would have used its best efforts 
successfully to have gotten the commitment group, the original group ; 
then the question of the secondary group for distribution would be up 
to the syndicate manager. 

Mr. Henderson. Now, in this negotiation you had with Hay den, 
Stone, you were asking this reciprocal obligation as a quid pro quo 
for letting them in on original terms, not in the secondary group. 

Mr. Tompkins. For suggesting them to Lehman Bros, who had 
already been selected as the head. I couldn't dictate the inclusion or 
exclusion of Hayden, Stone. 

Mr. Henderson. You say you couldn't, maybe by that seven-page 
document, but you did. The very letter 2 that you wrote to Mr. Greene 
recites that you did, and then they understood that they were being 
excluded because they wouldn't come apross with the common stock. 

Mr. Tompkins. That letter showed that I would be under no obliga- 
tion to them to offer them an interest. 

Mr. Henderson. Obligation as an agent? 

Mr. Tompkins. As an agent. 

Mr. Henderson. Acting for C. C, I. 

Mr. Tompkins. Yes. If, however, Lehman Bros, and Kuhn, Loeb 
for reasons of their own, or the corporation, wanted them in the busi- 
ness, and they were prepared to make a commitment, of course they 
could come in. 

Mr. Henderson. Yes; but "did you discuss with Lehman Bros, at 
that time this reciprocal obligation? 

Mr. Tompkins. No, not at all ; I had nothing to discuss. 

Mr. Henderson. Well, you did have something to discuss in the way 
of getting this reciprocal obligation, because -when Mather was going 
over it you told him what you thought ought to be the terms on which 
they came in, and they came back and said the two transactions were 
separate. 

Mr. Tompkins. That is right. 

Mr. Henderson. Then you went further and talked a bit with him 
and said, "You take this attitude, you are not in the bond issue." 

Mr. Tompkins. But you asked if I discussed it with Lejffnali. 

1 "Exhibit No. 1819." 

2 "Exhibit No. 1830." 



12448 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. Yes. You said you had nothing to discuss, but 
you were discussing this particular item, and at the same time you had 
selected Lehman. 

Mr. Tompkins. I had nothing to discuss with Lehman Bros, because 
there was no stock interest to offer to Lehman Bros. The matter was 
Closed. 

Mr. Nehemkis. The point at issue, however, Mr. Tompkins, is that 
the manager was very much concerned, or should have been very 
much concerned, as to who the manager's associates were, and you 
might have been in a position of having brought in a house that 
might not have been acceptable to the manager. Such, of course, 
was not the case, but that is the logic of your position. That is 
what the Commissioner, I believe, is asking about. 

Mr. Tompkins. I don't know that I follow that. 

Mr. Henderson. You had. already selected Lehman, had you not? 

Mr. Tompkins. To head it up, that is right. 

Mr. Henderson. And now you were, as agent, going into a nego- 
tiation which admittedly is usually undertaken by the principal for 
the reciprocal obligation. If you had gotten that, then Hayden, 
Stone would have been in whether Lehman wanted it or not. 

Mr. Tompkins. Oh, no ; not at all. It was entirely up to them. 

Mr. Henderson. I thought you had the right to negotiate there, 
you. were acting as agent and presumably you could make a commit- 
ment. 

Mr. Tompkins. Our job a: agent was to' form a group sufficiently 
' strong to make a commitmen .. 

Mr. Henderson. , You take the position, then, that if you had gone 
through with Hayden, Stone and they had given you the common 
stock participation, Lehman Bros, could have thrown it down? 

Mr. Tompkins. Of course, because it was for them to accept, 
not me ; it ' wasn't for the Bankers Trust Co. I would have gone, in 
that event, Mr. Commissioner, to Lehman Bros., Kuhn, Loeb, Field, 
Glore, and said, "Hayden, Stone & Co. would like to come in this 
business and they are doing a piece of common-stock business and 
there is participation in that which will be available to you all if 
you want it." Now they may have said, "Well, we are not interested 
in their common-stock deal, nor do we want them in this business." 

Mr. O'Connell. What about Cleveland-Cliffs? Could Cleveland- 
Cliffs have required the syndicate manager to bring in this other 
firm? 

Mr. Tompkins. As a practical matter they could have, because 
if they made the request it was a responsible house. 

Mr. O'Connell. As an equally practical matter you were in the 
same position as Cleveland-Cliffs, were you not? You were their 
agent ? 

Mr. Tompkins. I was acting as their agent. 

Mr. O'Connell. Could you not have done anything Cleveland- 
Cliffs could have done, as a practical matter, as far as dictating who 
could have been in the syndicate ? 

Mr. Tompkins. I think so, in the light of the names of the houses 
involved. 

Mr. O'Connell. It doesn't seem to me that your position is dis- 
tinguishable from that of Cleveland-Cliffs. You operated as their 
agent with power to act; you could dictate who would be in the 



CONCENTRATION OF ECONOMIC POWER 12449 

syndicate. You dictated the manager, I mean you selected the man- 
ager. 

Mr. Tompkins. I selected the manager. You have to have a place 
to start from. But as a matter of fact, after the selection of a man- 
ager and in the formation of syndicates it isn't a matter of dictation, 
it is a matter of mutual agreement. You are dealing with respon- 
sible houses. 

Acting Chairman King. The manager of Lehman Bros, could 
have rejected any person participating in the syndicate if they de- 
sired to. 

Mr. Tompkins. Oh, yes. 

Mr. Henderson. But you as an agent could have rejected Leh- 
man Bros., too, could you not? You were the top man in this thing. 

Mr. Tompkins. I suppose I could have, theoretically. 

Mr. Henderson. You were the one who had the contract. 

Mr. Tompkins. Yes; but after having invited Lehman Bros, to 
head up this syndicate and told them of my contractual relationship 
with Cleveland-Cliffs and discussed the other members which I had 
in mind I can't see at that point that I could very well have 
dropped it. 

Mr. Henderson. Well, speaking legally you could. 

Mr. Tompkins. Legally I could have. 

Mr. Henderson. Yes; that is what I mean. 

Mr. Tompkins. But practically, no; I don't think I would have. 

Acting Chairman King. If you had suggested someone that Leh- 
man Bros, didn't want, they might have refused to take charge? 

Mr. Tompkins. Oh, absolutely. 

Acting Chairman King. In other words, your suggestion that A, 
B, or C might be included in the syndicate didn't compel them to 
accept them, and if you had made the request or if Mr. Greene had 
made the request that they take A, B, or C into the syndicate and 
Lehman Bros, had said "no," why, perhaps they might have with- 
drawn the commitment to Lehman Bros, if it hadn't been reduced to 
writing or hadn't become a concrete contract; nevertheless, Lehman 
Bros, could have rejected their suggestions, and ,they could have 
been bound by Lehman Bros.' action in the matter. 

Mr. Tompkins. That is right. 

Mr. Henderson. Let me ask you this : Do the officers of Bankers 
Trust sit in on discussions with underwriters and issuers or deposi- 
tors of Bankers Trust? 

Mr. Tompkins. We sit in with the borrowers, with the issuer. 

Mr. Henderson. You sit in as banker to the borrower. 

Mr. Tompkins. That is right. 

Mr. Henderson. In negotiations with the underwriters ? 

Mr. Tompkins. Not necessarily ; not always in negotiations. 

Mr. Henderson. But in discussion. 

Mr. Tompkins. Yes. 

Mr. Henderson. Did you take a fee for that ? 

Mr. Tompkins. No ; this is the only instance I know of where a fee 
was even suggested, 

Mr. Henderson. But if this long series of things we have been 
through is correct, there is nothing to prevent, legally, a bank from , 
engaging in a large number of the, activities which are ordinarily 
the function of an underwriter. 



12450 CONCENTRATION OF ECONOMIC POWER 

Mr. Tompkins. Yes. I have never seen it work in practice 

Mr. Henderson (interposing). No; because of the risk-taking in 
that respect. The thing which an issuer wants is that guarantee, of 
course, to buy. 

Mr. Tompkins. If the issuer is a depositor of the bank he certainly 
has the right to come to the bank and ask advice on a proposed issue, 
and that we give him. 

Acting Chairman King. The committee will stand adjourned until 
2:30. 

(Whereupon, at 12:40 p. m., the committee recessed until 2:30 
o'clock p. m. of the same day.) 

AFTERNOON SESSION 

At 2:30 p. m. the committee resumed its session, after the noon 
recess. 

Acting Chairman Henderson. The committee will be in order. 

Mr. Nehemkis. Mr. Tompkins, will you please resume the witness 
stand? 

No action was taken, Mr. Tompkins, with regard to the proposed 
bond issue between February 7 and May 3 because as Mr. Greene 
testified this morning the suit brought by the Department of Justice 
to restrain the merger of Republic Steel and Corrigan-McKinney ; 
is that your recollection, sir? 

Mr. Tompkins. Yes; I think we were doing our analytical work 
on the property, and so on. 

Mr*. Henderson. Off the record. (Making inquiry.) 

Mr. Nehemkis. After the decision had been reached in this case 
negotiations were once more resumed, were they not? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. And by June 6 the underwriters had been selected? 

Mr. Tompkins. I would say about that time. 

Mr. Nehemkis. And the underwriters were Lehman Bros., Field, 
Glore, Kuhn, Loeb, and Hayden, Stone? 

Mr. Tompkins. That is right. 

Mr. Nehemkis. I show you a letter by yourself dated June 6, 1935. 
Will you be good enough to examine this document and tell me 
whether you recognize it as a true and correct copy of an original in 
your possession and custody, Mr. Tompkins? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. The document as identified by the witness is of- 
fered in evidence, may it please the committee. 

Acting Chairman O'Connell. The document will be received. 

(The letter referred to was marked "Exhibit No. 1831" and appears 
in the appendix on p. 12752.) 

Mr. Nehemkis. Now did not the four investment banking firms 
meet in your office on or about June 28 to agree upon the terms of 
(he bond issue? 

Mr. Tompkins. They met in my office, but I don't think at that 
time set the terms at all. 

DISCUSSION OF UNDERWRITING TERMS, JUNE 2 8, 1935 

Mr. Nehemkis. I show you a letter dated July 9, 1935, from Mr. 
Lewis Strauss, addressed to you, together with a memorandum by 



CONCENTRATION OF ECONOMIC POWER 12451 

Mr. Strauss. Will you be good enough to examine it and tell me 
whether you recognize it as a true copy ? 

Mr. Tompkins. Yes; I do. 

Mr. Nehemkis. May it please the committee, the two documents 
identified by the witness are offered in evidence. 

Acting Chairman O'Connell. They will be received. 

(The documents referred to were marked "Exhibits Nos. 1832 and 
1833" and are included in the appendix on p. 12753.) 

Mr. Nehemkis. I read to you from the last paragraph of the letter 
dated July 9, 1935, from Mr. Strauss to yourself [reading from "Ex- 
hibit No. 1832"] : 

As you may recall I made a memorandum at our last meeting in your office 
of my understanding of the agreement which we had reached and read it to the 
group. It is now a part of my office record and I am enclosing a' copy of it 
herewith. 

And then there is attached to the document identified by you, and 
now in evidence, the following memorandum, prepared by Lewis 
Strauss. For the sake of the record, Mr. Lewis Strauss is a partner 
of Kuhn, Loeb & Co.? 

Mr. Tompkins. Correct. 

Mr. Nehemkis. The memorandum reads as follows [reading from 

"Exhibit No. 1833 "] : 

The following memorandum of conclusions reached at meeting in the office 
of Mr. B. A. Tompkins of Bankers Trust Company on June 28, 1935 — 

That was the date, you recall, I asked you about a- moment ago — 

jotted down by me at the time and read to those present, being — Messrs. B. A. 
Tompkins, Robert Lehman, Monroe Gutman. Russell Forgan, John Fennelly, 
Richard Morris, Lewis L. Strauss. 

"A group is formed to do financing for a company proposed to be organized 
by the consolidation of Cliffs Corporation and Cleveland-Cliffs Company, to 
consist of Messrs. Lehman Brother^ Field, Glore & Co., Hayden, Stone & Co., 
and Kuhn, Loeb & Co., each party to the group to have an equal interest o€ 
25% ; if any other parties are admitted to the business they are to receive par- 
ticipations made up pro-rata from the shares of the participants and re to 
be admitted only upon general concurrence. Lehman Brothers are to manage 
rhe initial business: supsequent leade sb'p is to rotate: Kuhn, Loeb & Co. to be 
silent members of tile gruup, that is to say their name is to appear where 
legally required- in the Registration Statement and in the body of the Prospectus 
(not the front page of the Prospectus or advertising) and on the last line in 
each instance and in no other documents without their consent. 

"Lehman Brothers and the Bankers Trust Company are to receive under the 
agreement with Mr. Greene, %% each from the Company — not to be a cost to 
the business — but Lehman Brothers' y 2 % may be in the nature of a manage- 
ment fee if legally necessary to so arrange it. No precedent of management fee 
is to be applicable to subsequent business. 

"The stock collateral when, as and if liquidated is to be handled by the group 
as a whole." 

Initialed "L. L. S.," being the initials of Lewis L. Strauss. 

(Senator King took the chair.) 

Mr. Nehemkis. According to this memorandum, Mr. Tompkins, you 
had agreed to divide your 1 percent agent's fee with Lehman Brothers, 
the manager of the syndicate. Is that correct ? 

Mr. Tompkins. It is and isn't. 

Mr. Nehemkis. In what respect isn't it correct ? 

Mr. Tompkins. In this respect : By that time it had become obvious 
that we could not do a first-mortgage and collateral -trust issue, that 

124491— 40— pt. 24 10 



12452 CONCENTRATION OF ECONOMIC POWER 

we would have to do two issues, iand .that I was not going to be able to 
make the arrangement that was contemplated in the January contract. 
I, therefore, agreed with Mr. Greene that my commission should be 
reduced by 50 percent, and he in turn agreed to pay half of 1 percent 
to Lehman Brothers as managers of the syndicate. I wasn't splitting 
my fee; I was taking a lower fee and he was making another 
arrangement. 

Mr. Nehemkis. This morning there was marked for identification 
committee "Exhibit No. 1823." I want to read to you from a memo- 
randum written by Mr. Greene on June 13, 1935 [reading from 
"Exhibit No. 1823"] : 

Mr. Tompkins then went on to state that they had discussed the matter of a 1% 
commission and had agreed to this arrangement : that the Bankers Trust Com- 
pany would keep %% for themselves out of which they would pay White & 
Case's bill up to the present time and also White & Case or any other firm who 
did the legal work drawing the issue and protecting the interests of the Bank- 
ers Trust Company as trustee of the bond issue. He stated — 

Referring to Mr. Tompkins — 

that the other y 2 % would be paid to Lehman Bros, for their assuming the 
leadership of the purchasing group. 

Now, just so that the record may be < horoughly clear, is it a fact that 
that the total 1 percent was shared by you with Lehman Brothers? 

Mr. Tompkins. No ; it was a fact that the Cleveland Cliffs Co. paid 
me a half and paid Lehman Brothers a half; I didn't share it with 
Lehman Brothers. Perhaps we both mean the same thing. 

Mr. Nehemkis. I rather think we do. 

POSITION OF BANKERS TRUST UNDER AGREEMENT OF JUNE 2 8, 193 5 

Mr. Nehemkis. Would this be a fair conclusion for me to draw from 
the memorandum embodying the agreement reached by the investment 
banking firms : that the Bankers Trust, having started out as an agent, 
in order to avoid conflict with the Banking Act, ended up by becoming 
co-manager of an underwriting syndicate, the very thing the law 
sought to prohibit? 

Mr. Tompkins. No ; that would not be a correct conclusion. 

Mr. Nehemkis. Then I ask you to state wherein the conclusion is 
unsound. 

Mr. Tompkins. Because the Bankers Trust Co. never departed from 
its agency position ; it never had a dollar of commitment in this situa- 
tion, and never proposed to take one unless it might, after the bond 
issue had been made into a public offering, elect to buy some bonds. 

Mr. Nehemkis. Mr. Tompkins, I recall to your attention, if I 
may, the following statement by Mr. Strauss, who in this memo- 
randum submitted to you apparently embodied the general under- 
standing reached by the banking group [reading from "Exhibit No. 
1833"] : 

Lehman Brothers and the Bankers Trust Co. are to receive under the agree- 
ment with Mr. Greene, x /2% each from the Company — not to be a cost to the 
business — but Lehman Brothers' %% may be in the nature of a management 
fee if legally necessary to so arrange it. 

Now, if you weren't in effect and for all practical purposes acting, 
whether consciously or unconsciously — don't misunderstand, I do not 
allege any impropriety on your part as co-manager of this issue, why 



CONCENTRATION OF ECONOMIC POWER 12453 

was it necessary for Mr. Lewis Strauss, who I think is a very careful 
draftsman in these mutters, to state — 

but Lehman Brothers' %% may be in the nature of a management fee if 
legally necessary to so arrange it. 

Mr. Tompkins. I don't know what was in Mr. Strauss' mind, but 
what that memorandum meant to me was that a syndicate having been 
formed and a manager having been selected, that manager was en- 
titled to a management fee, that he was to get from the company, and 
it was to be his to the exclusion of the other participants. It had no 
relationship whatsoever to my. job, the job I had done in forming the 
syndicate, because once that w ? as formed then it had to be managed, 
and the management of a syndicate involves getting participants set- 
ting up selling groups, arranging concessions. I had nothing to 
do with that. 

Mr. Nehemkis. I think I understand that and I think the com- 
mittee does. May I ask you to recall the concluding paragraph of Mr. 
Strauss' letter to you, in which he said as follows [reading from 
"Exhibit No. 1832"] : 

As you may recall, I made a memorandum at our last meeting in your office 
of m,y understanding of the agreement which we had reached and read it to 
the group. 

The group consisted of yourself, Mr. Robert Lehman, Mr. Monroe 
Gutman, Mr. Russell Forgan, Mr. John Fennelly. Mr. Richard Morris, 
Mr. Lewis L. Strauss. I think it is a fair inference, is it not, Mr. 
Tompkins, that had there been any dissent on the part "of any of those 
members Mr. Strauss would not have been at liberty to send you a copy 
of his office memorandum. That is a fair interpretation, is it not ? 
. Mr. Tompkins. That is right. 

Mr. Nekemkis. Now, wril you explain to me, if you can, why it was 
necessary for Mr. Strauss to insert that peculiar language — 

but Lehman Brothers' %% may be in the nature of a management fee if legally 
necessary to so arrange it. 

Mr. Tompkins. That I can't answer, I don't know why he put 
that in. 

Mr. Henderson. Mr. Tompkins, taken together with Mr. Greene's 
understanding of this 1 percent that was being split, is the inference 
a natural one that what was being done was that either the agency 
fee was being split or the management fee was being split ? It is that 
1 percent contained in your original contract that was being divided, 
was it not? 

Mr. Tompkins. Yes ; the 1 percent, so far as the company was con- 
cerned, was going to be paid one-half to me and one-half to some- 
body else. There was a reason for that, which was obvious because 
it was already apparent — it had been long befqre June — that we 
couldn't perform under that contract; that this property wouldn't 
stand $24,000,000 in bonds; that I couldn't take them and sell them 
to an insurance company or a group of insurance companies. 

We had to adopt an entirely different scheme, and we discussed 10 
or 12 before we reached this final one, and I didn't want the existence 
of that contract or the requirement on the part of the company that 
paid me 1 percent, or any other amount, to interfere with the conclu- 
sion of that business. When the time came that Lehman Brothers felt 



12454 CONCENTRATION OF ECONOMIC POWER 

if they were going to act as manager, they wanted a special fee for 
that, and Mr. Greene was prepared to pay that ; I said all right. 

Mr. Henderson. Pay it out of your 1 percent ? 

Mr. Tompkins. If you view it in that way, it was out of that 1 
percent. 

Mr. Henderson. According to Mr. Strauss' memorandum, 1 the only 
reason they called it a management fee was that it was legally neces- 
sary so to arrange it. That would mean that either you had been 
performing some of the managerical duties imposed on an under- 
writer or else Lehman, because you say he could not arrange it within 
the terms you expected so you couldn't complete your agency, was 
getting a half percent for taking over some of the agency's respon- 
sibility. 

Mr. Tompkins. No; I don't think that follows, Mr. Commissioner. 
A syndicate manager doesn't start to work until the syndicate is 
formed. That half of 1 percent to Lehman Brothers was to compen- 
sate them in the management position. 

Mr. Nehemkis. Do I understand by that 

Mr. Henderson (interposing). Pardon me, I think we went through 
this morning the things which a manager does, and it seemed to me 
that the agent in your case was doing some of them. Independent 
of the legal niceties in this particular case, and whether a manage-, 
ment fee was being split or an agency fee was being split, it is evident 
that if you wanted to call it one thing you could really have a bank 
getting an overwriting fee. Isn't that correct? 

Mr. Tompkins. No ; the bank would still be getting a fee for acting 
as an agent. 

Mr. Henderson. Then you can call it an agent ; that is, a bank can 
constitute itself an agent. Let's take the case of an issue. If a bank 
has a customer, a depositor, who needs some financing, in the old days 
you would take it over in the other department — in your case you 
could take it over to the company — and legally you could underwrite 
the issue, and no questions would be raised at all. Now, assuming there 
is a continued close relationship on the banking end, the same circum- 
stances present themselves; on account of the age-old relationship to 
f he company, the bank performs almost all the functions that it used 
to in the old days. 

If it is willing to take an agency contract, it could get what in effect 
is a split in the management fee, could it not, and still be within its 
legal terms? 

Mr. Tompkins. No; because the syndicate manager would require, 
as Lehman Brothers in this instance, full pay for their services as 
manager. 

Mr. Henderson. They might get their full pay, because the man- 
agement fee differs, as I have had occasion to note here recently; 
sometimes there was no management fee and sometimes it is a quarter, 
sometimes it is an eighth, and sometimes it is three-eighths. It might 
reasonably be, in troublesome issues, even higher. But I am assum- 
ing a good old rock-bound case, where the company was not put to a 
tremendous amount of expense, where the bank itself — well, maybe 
all they did was pick out the historical underwriters and take it over 
to an underwriting house and say: "The company will stand for an 

1 "Exhibit No. 1833." 



CONCENTRATION OF ECONOMIC POWER 12455 

overwriting here of a quarter of a per cent. We have done all the 
work, we will take an agency contract in this thing, and we will take 
one-half that quarter per cent management fee." 

That would be perfectly possible, would it not? 

Mr. Tompkins. That could be done. Of course, it isn't done. 

Mr. Nehemkis. It was done in the case we are discussing. 

Mr. Tompkins. No ; but you mustn't confuse that with the type of 
case that Mr. Henderson was dismissing. He said a good old rock- 
bound company. 

Mr. Henderson. Take the same set of circumstances. Suppose the 
bank did all the work ; suppose it said, "Give us the trust business, and 
give us the payment business, and give us a deposit with a com- 
pensating balance for our trouble" That would be perfectly legal, 
would it not ? 

Mr. Tompkins. That is right. 

Mr. Henderson. And isn't that the kind of thing that happens 
nowadays, rather than a splitting of a management or agency fee? 

Mr. Tompkins. This is the only case, Mr. Commissioner, that I have 
heard of where an agency arrangement was ever worked out. 

Mr. Henderson. But more likely it would be on the other basis, that 
is, the usual banking emoluments that come with an issuance. 

Mr. Tompkins. Trusteeship and compensating balances, and so on. 
That is correct. 

Mr. Nehemkis. Now, the agreement between the underwriters, Mr. 
Tompkins, according to the conference memorandum sent to you by 
Mr. Strauss, contained two major points. First, that that group con- 
sisting- of the four houses previously mentioned was to handle all 
future financing for Cleveland-Cliffs; and the second point was that 
any of those four underwriters had the power to "blackball" the admis- 
sion to the group of any new underwriters. 

Mr. Tompkins. That is a rather strong statement. This is not a 
club. 

Mr. Nehemkis. I shall read you the exact phrase if you hesitate 
about the word "blackball." 

Mr. Henderson. I agree with the witness. 

Mr. Nehemkis. I am not so sure, Mr. Commissioner. 

The statement x reads that participants "are to be admitted only 
upon general concurrence." Now, if I understand that correctly, it 
means that a new members of the group could only be admitted after 
those four houses approved and any one of the four by disapproving 
could exclude any other house. 

Mr. Tompkins. I think that is a much kinder way to express it. 

Mr. Henderson. Put it that they had the veto power. 

Mr. Tompkins. Surely. I think that is normal. 

Mr. Nehemkis. In other words this account, Cleveland-Cliffs, had 
already become, in the words of Mr. Charles E. Mitchell, a "frozen 
account," and "the boys were already dividing up something they 
didn't own," in the words of Mr. H. L. Stuart? 

Mr. Tompkins. Well, you had better ask Mr. Stuart or Mr. Mitchell 
to testify on that. 

Mr. Nehemkis. They have done so already. On the same day as 
this conference you wrote to Mr. Greene, outlining the terms of the 

1 "Exhibit No. 1833." 



12456 CONCENTRATION OF ECONOMIC POWER 

syndicate. I show you a letter from yourself to Mr. Greene, dated 
June 28, 1935. Tell me, if you will, sir, whether that is a true and 
correct copy? 

Mr. Tompkins. This is from me to Greene; yes. 

Mr. Nehemkis. The document identified by the witness, may it 
please the committee, is offered in evidence. 

(The letter referred to was marked "Exhibit No. 1834" and is 
included in the appendix on p. 12754.) 

Now it would appear, Mr. Tompkins, that Mr. Greene was very 
disappointed with your construction of the contract terms as set form 
in your letter of June 28, to which reference has just been made, being 
committee "Exhibit No. 1834"? 

Mr. Tompkins. I just glanced at the letter ; I didn't read it. I just 
identified it. 

Mr. Nehemkis. Mr. Tompkins, would you examine the letter dated 
July 2, 1935, from Mr. Greene to yourself, and tell me whether that 
is a true copy ? 

Mr. Tompkins. Yes; I identify it. 

Mr. Nehemkis. The letter identified by the witness, Mr. Chairman, 
is offered in evidence. 

Acting Chairman King. It will be received. 

(The letter referred to was marked "Exhibit No. 1835" and is 
included in the appendix on p. 12755.) 

Mr. Nehemkis. I read to you from the third paragraph of Mr. 
Greene's letter to you under date of July 2, 1935 [reading from "Ex- 
hibit No. 1835"X: 

I am disappointed, however, in the last paragraph on the first page in which 
you state the terms upon which the bonds will be handled. 

Note the next sentence, if you will, Mr. Tompkins : 

Your statement is, of course, a wide departure from our contract. 

And I call your attention to the date of this letter, July 2, 1935, so 
that despite the testimony of Mr. Greene this morning in which he 
referred to this as an informal agreement, a gentlemen's agreement, 
as late as July 2, 1935, he did refer to it as a contract. 

Continuing, Mr. Tompkins [reading further] : 

But even considering it as an offer to substitute a new plan, it is not satisfac- 
tory. Under our present understanding, the price of the bonds is set at par for a 
5% bond, less 1% commission, but with the usual clause that if market condi- 
tions change to a marked degree, the price is to be adjusted to a figure which 
is satisfactory to both parties. According to your letter of June 28 you reserve 
the right to buy the bonds at the best price which in the opinion of the group 
can be obtained at the time the issue is ready to go to the market. In other words, 
this would give us no part in determining the price at which the bonds are to be 
bought. If we are to depart from the contract provision that you are to take 
the bonds at par less 1% commission, it seems to me our arrangement should at 
least provide that the price at which the bonds will be bought will be mutually 
satisfactory. 

And again note what Mr. Greene says in his following paragraph, 
Mr. Tompkins [reading further] : 

Also the sentence in which you say that we can depend upon it that the public 
price will be fair to our company "and the syndicate spread equally fair" is 
open to the further objection that this clause apparently reserves to the group 
the sole right to determine what is fair in respect to these matters and would give 
us no voice in agreeing upon the syndicate spread. I think in respect to both of 
these vital matters, if they are to be left open to be determined in the future, it 
must be at prices and upon terms which are mutually satisfactory to the parties. 



CONCENTRATION OF ECONOMIC POWER 12457 

In a memorandum identified by Mr. Greene this morning, being 
committee's "Exhibit No. 1822," Mr. Greene wrote as follows 

Acting Chairman King (interposing). Did you want to ask any 
question concerning the matter to which you just directed his 
attention ? 

Mr. Nehemkis. No ; I am proceeding with the same line of question- 
ing now [reading from "Exhibit No. 1822"] : 

I am more than ever convinced that Tompkins' idea is to string this along, 
writing indefinite letters, trying to get us up to August 12th without reaching 
any decision. 

Now, why was the date August 12 significant? Was that the date 
on which the loan extension would terminate, Mr. Tompkins ? 

Mr. Tompkins. It has no significance in my memory. 

Mr. Nehemkis. It doesn't recall anything to you at all ? 

Mr. Tompkins. In fact, I think the bank loans were to mature in 
January 1936, as I remember it. 

MEMORANDUM OF JULY 8, 1935 

Mr. Nehemkis. I show you a memorandum by yourself dated July 
8, 1935. Will you be good enough to identify it for me, please ? Is 
that a true and correct copy, Mr. Tompkins, of an original? • 

Mr. Tompkins. That is right. 

Mr. Nehemkis. The document identified by the witness is offered 
in evidence. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1836" 
and appears in full in the text.) 

Mr. Nehemkis. I now read you the memorandum in question. 
This is for Mr. Monroe Gutman, Mr. Lewis Strauss, Mr. R. L. Morris, 
and Mr. Russell Forgan, from you to these gentlemen, dated July 8, 
1935. [Reading from "Exhibit No. 1836":] 

1. It is agreed that in any future financing no originating commission shall 
be paid to Bankers Trust Company or to any other member of the group. 

2. It is agreed that in any future financing leadership shall rotate as between 
the houses appearing in the circular and in the advertising. On any issue 
which follows the one now contemplated either Hayden Stone or Field Glore 
will lead. Assumedly they will match for first position and the loser in that 
instance will automatically become head of any subsequent issue. 

3. White & Case will act as counsel for the Trustee and Messrs. Lehman 
Brothers have suggested that Sullivan & Cromwell act as counsel for the 
bankers. 

If the above is according to your understanding kindly initial and return one 
copy of this memorandum and retain the other for your files. 

Did you receive confirmations from Kuhn, Loeb ? 

Mr. Tompkins. I assume that I did. 

Mr. Nehemkis. And from the other bankers as well ? 

Mr. Tompkins. I assume so. 

Mr. Lubin. Mr. Tompkins, was there any arrangement with the 
Cleveland Cliffs Iron Co. when this issue was arranged as to future 
financing? Apparently, judging from these memoranda, such 
arrangements were made. 

Mr. Tompkins. Yes ; this group was to do any future financing for 
Cleveland Cliffs. 

Mr. Nehemkis. In other words, that was part of the contract, that 



12458 CONCENTRATION OF ECONOMIC POWER 

if they wanted to do any financing in the future they would use the 
same group. 

Mr. Tompkins. That is right. 

Mr. Nehemkis. The original plans for the Cleveland-Cliffs Iron 
Co. merger with Cliffs Corporation contemplated by the contract of 
January 30, 1935, in the subsequent negotiations fell through, is that 
correct ? 

Mr. Tompkins. That is right. 

Mr. Nehemkis. And accordingly you released Mr. Greene from 
his obligation of his January 30 contract. 

Mr. Tompkins. For that and a lot of other reasons, not just on that 
technicality. 

Mr. Nehemkis. I show you a memorandum dated August 28, 1935, 
written by an associate of yours, Mr. Dana Kelley. Do you recognize 
that as a true copy of an original in your possession and custody, Mr. 
Tompkins ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. This document, identified by the witness, Mr. Chair- 
man, is offered in evidence. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked ""Exhibit No. 1837" and 
is included in the appendix on p. 12756.) 

ARRANGEMENTS AS OF OCTOBER 2 8, 19 35 

Mr. Nehemkis. On October 28, 1935, was not a new plan of financing 
worked out, one that did not depend upon a merger of Cleveland- 
Cliffs with Cliffs Corporation? 

Mr. Tompkins. At about that time ; yes. 

Mr. Nehemkis. And were not the participants in the financing and 
their interests set forth in letters by Lehman Bros, on or about October 
28,1935? 

Mr. Tompkins. Don't hold me to the date ; I don't remember. About 
that time ; yes. 

Mr. Nehemkis. Was not this the same group of investment banking 
firms as had previously been determined upon and acting under the 
terms as set forth in the first bankers' agreement ? 

Mr. Tompkins. That is right. 

Mr. Nehemkis. Mr. Chairman, I wish to offer in evidence at this 
time three letters to which reference has been made, covered by a 
stipulation entered into with me by Lehman Bros, under date of 
January 5, 1940. 

Acting Chairman King. They are explanatory of some of the mat- 
ters to which reference has been made ? 

Mr. Nehemkis. Yes, sir ; and this avoids calling one of the partners 
here, wasting his time, and so forth. 

Acting Chairman King. They may be received. 

(The documents referred to were marked "Exhibits Nos. 1838 to 
1842" and are included in the appendix on pp. 12757-12759.) 

Mr. Nehemkis. There will be offered later three further documents 
covered by the same stipulation. At the time they are offered in evi- 
dence I will indicate that they are covered by the stipulation under 
which the committee has received these documents in evidence. They 
are signed by Lehman Bros. 



CONCENTRATION OF ECONOMIC POWER 12459 

Mr. Tompkins, when the $16,500,000 bond issue was offered in De- 
cember, each of the four principal underwriters had participations of 
about $3,575,000, did they not? 

Mr. Tompkins. Right. 

Mr. Nehemkis. Mr. Greene had requested that A. G. Becker & Co., 
of Chicago, be included, had he not ? 

Mr. Tompkins. I don't remember that specifically. I think he made 
quite a few suggestions. 

Mr. Nehemkis. Do you recall whether this firm actually was given 
a participation of $200,000? 

Mr. Tompkins. No ; I don't recall ; but there is a list of the partici- 
pants there somewhere. 

Mr. Nehemkis. You requested, did you not, Mr. Tompkins, that 
Lehman Bros, give a participation to C. D. Barney & Co. ? 

Mr. Tompkins. I may have, but I don't remember. I may have. 

Mr. Nehemkis. Will you accept my statement as being correct, 
subject to your confirmation? 

Mr. Tompkins. Sure. 

Mr. Nehemkis. It would appear that unlike Mr. Greene's request, 
your request was not approved and C. D. Barney was not given a 
participation; do you recall that? 

Mr. Tompkins. No; I don't know. 

Mr. Nehemkis. This document which I am about to refer to falls 
under the stipulation and is "Exhibit No. 1842." 

Acting Chairman King. Mr. Witness, are you interested in any 
particular firm or firms being brought into the syndicate, or was j^our 
principal interest, or your sole interest, concerned in getting adequate 
and competent underwriters or members of the syndicate so that the 
necessary financing for the Greene organizations might be consum- 
mated ? 

Mr. Tompkins. My first interest was to have a group of original 
houses financially responsible for the size of the commitment. After 
that I had no further interest. 

Acting Chairman King. You felt that your agency was practi- 
cally completed when a syndicate was formed which consisted of 
persons or groups or corporations competent to handle maturing 
obligations and to take the companies out of the hands of the court, 
receivers, whatever position they were in, and make them going 
concerns ? 

Mr. Tompkins. That is right. 

Acting Chairman King. Were those companies — this is for my own 
information; it may not be relevant, strictly — in a bad way and had 
they been for some time, which resulted in receivership ? 

Mr. Tompkins. Cleveland-Cliffs? 

Acting Chairman King. Yes. 

Mr. Tompkins. Cleveland-Cliffs had escaped receivership. It was 
in the hands of a creditors committee. It owed, roughly, $25,000,000 
at the bank on short-term notes. 

Acting Chairman King. Were those commitments spread over a 
number of banks? 

Mr. Tompkins. I think about seven banks. It had made very sub- 
stantial losses in the 3 or 4 years preceding this ariangement. It was 
a God-awful mess. 



12460 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. Was it important that sol ething be done 
in order to save them from sale by some of their creditors ? 

Mr. ToMi-iaNS. No ; I don't think they were in danger of that, but 
what they had done, Senator, was to buy a long-term asset with short- 
term borrowing and they were constantly at the jeopardy of those 
short notes, and Mr. Greene very wisely worked toward a refunding of 
that short maturity into longer term bonds. 

Acting Chairman King. Well, I understood f rom you or Mr. Greene, 
or both, that the $2,6,000,000 was too large an obligation for the syndi- 
cate to assume, and so it was reduced down to $16,000,000, and then a 
$5,000,000 loan was made to the bank; the $16,000,000 was dealt with 
by the issuing of bonds or securities. 

Mr. Tompkins. As a mortgage issue; yes, sir. 

Acting Chairman King. Now, what became of the residue of the 
obligation between the $16,000,000, the $5,000,000 cash, and the 
$25,000,000? 

Mr. Tompkins. The Cleveland-Cliffs Co. not only operated its ore 
properties, but it was the holder through subsidiaries of various sub- 
stantial blocks of stock of steel companies, Republic Steel, Otis Steel, 
Wheeling Steel. The plant account of Cleveland-Cliffs stood at about 
$29,000,000. These underwriters, therefore, determined that they 
could only put a first-mortgage bond on that plant account to the ex- 
tent of about $16,500,000, or we will say 50 percent of the plant value, 
roughly. It had in addition to its plant some $11,000,000 market value 
of steel stocks which it had in its portfolio, so we lifted that block of 
steel stocks out of the portfolio and made those stocks the collateral 
for the $5,000,000 bank loan. 

Now, the difference that you mentioned was made up of the gradual 
sale of enough of those steel stocks to provide the cash for the differ- 
ence. 

Acting Chairman King. Did these negotiations in which you have 
been the agent result in the saving of the company and its emancipa- 
tion from its obligation so that it went on as a going concern ? 

Mr. Tompkins. That is the history of Cleveland-Cliffs. It is today 
a successful, going concern. 

Acting Chairman King. Did you, as an agent, obtain more than one- 
half of the 1 percent which was to be paid for the services to be ren- 
dered in obtaining the necessary financial resources ? 

Mr. Tompkins. No, Senator. Perhaps I can make this clearer if I 
say that when Mr. Greene came to us in January of 1935, the situation 
was as desperate as the figures indicated. During the year 1935, as 
we came up to the fall, it was constantly improving. Not only was the 
earnings picture of Cleveland-Cliffs itself better, but the price of the 
steel stocks which was in its portfolio was constantly increasing. 

Whereas in January he had contemplated selling a 5-percent bond 
issue to the extent of $24,000,000, 9 or 10 months late*, in November 
of '35, he sold 4%-percent bond issue, and he arranged a bank loan 
of 4% percent, and in the interim he sold some steel stocks and 
relieved the pressure on him in that way. But because a great many 
things had not happened which it was contemplated would happen 
"when that so-called contract was drawn, namely, the merger of Cliffs 
Corporation and Cleveland-Cliffs, which never took place and never 
has taken place, that was one. The beginning of the Government 
suit that we didn't contemplate at the time in connection with Re- 



CONCENTRATION OF ECONOMIC POWER j 2461 

public and Corrigan, McKinney. Mr. Greene and I by mutual agree- 
ment decided to forget that contract. It was never executed in finality, 
and after this job was completely done Mr. Greene said ^o me, I 
think it was in October 1935, "Now, it looks as if this job is about 
finished. You have arranged this syndicate for us, and they are 
prepared to make a commitment. You have arranged a bank loan 
for us which is to be secured by these steel stocks. Wc have spent 
endless days and weeks on this thing, and you have been, helpful, 
and while we both agree that we are going to forget this contract, I 
would like to pa}' you something for your time." 

I said, "That is quite all right with me, and you can write your 
own ticket." 

He said, "I would like to make you a payment of $25,000." 

I said, "All right" ; and that is what he paid me. 

The 1 percent called for in that contract was never paid. 

BANK LOAN OF $5,000,000 

Mr. Nehemkis. As one of the conditions of the bond issue, did not 
Cleveland-Cliffs agree to borrow $5,000,000 from three banks, which, 
together with the proceeds of the bond issue, would refund all of the 
outstanding bank loans ? 

Mr. Tompkins. By that time they were down to about twenty-one 
million-odd. They had sold some steel stocks. 

Mr. Nehemkis. I offer in evidence an extract from the loan agree- 
ment between Cleveland-Cliffs Iron Co., Bankers Trust Co., Cleveland 
Trust Co., and the First National Bank of Chicago with reference 
to a loan of $5,000^000, that the witness has testified about. This 
is taken from the registration statement filed with the Securities and 
Exchange Commission. 

Acting Chairman King. It will be received. 

(The document referred to was marked "Exhibit No. 1843" and is 
included in the appendix on p. 12759.) 

Mr. Nehemkis. Now, thfe Bankers Trust Co. and the National Bank 
of Chicago each received two million of this five ? 

Mr. Tompkins. That is risjht. , 

Mr. Nehemkis. And the Cleveland Trust Co. received the remaining 
$1,000,000? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. All the other banks, Continental Illinois, Bank of 
Manhattan, National City Bank, Central United of Cleveland, received 
no part of this loan, although, as a matter of fact, they had been carry- 
ing Cleveland-Cliffs loans for a number of years ? 

Mr. Tompkins. That is right; they were just as unhappy about 
them as we were. 

Mr. Nehemkis. Is it not a fact that some of these banks complained 
about their exclusion ? 

Mr. Tompkins. No ; not that I kr ow of. 

Mr. Nehemkis. They just "took it"? 

Mr. Tompkins. Well, if they did complain, they would have done 
that to our banking department ; it wouldn't have come to me. 

Mr. Nehemkis. Do you happen to know whether or not Charles 
Hay den and other partners of Hay den . Stone & Co. requested a sub- 
participation in the bank loan for the Equitable Trust Co. ? 



12462 CONCENTRATION OF ECONOMIC POWER 

Mr. Tompkins. I knew about that, because that came to me. They 
had never been in the picture at all. 

Mr. Nehemkis. But they had requested a subparticipation. 

Mr. Tompkins. For the Equitable Trust. 

Mr. Nehemkis. Do you happen to know of your own personal 
knowledge or information or belief whether or not Mr. Hayden owned 
the controlling interest in the Equitable Trust Co. at that time? 

Mr. Tompkins. I think he did. 

Mr. Nehemkis. Isn't it a fact that you refused a subparticipation 
to the Equitable Trust Co. ? 

Mr. Tompkins. That is correct. 

Mr. Nehemkis. Will you examine the letter dated December 18, 
1935, from yourself to Mr. Greene, and tell me whether you recognize 
that as a true and correct copy of the original that is in your custody ? 

Mr. Tompkins. That is right. 

Mr. Nehemkis. Th3 letter identified by the witness, Mr. Chairman, 
is offered in evidence. 

(The letter referred to was marked "Exhibit No. 1844" and is in- 
cluded in the appendix on p. 12760.) 

Mr. Nehemkis. Was not Bankers Trust Co. appointed corporate 
trustee under the indenture? 

Mr. Tompkins. Right. 

Mr. Nehemkis. And was not that in accordance with the contract 
of January 1,1935? 

Mr. Tompkins. Correct. 

Mr. Nehemkis. Are you familiar with the fact that the bankers 
in pursuance of their agreement of December 4 with Cleveland-Cliffs 
also obtained assurances from the directors of Cleveland-Cliffs that 
so long as the bonds were outstanding the bankers would have a con- 
tinuing interest in seeing that the company would have a satisfactory 
management? 

AGREEMENT RE : MANAGEMENT OF CLEVELAND CLIFFS 

Mr. Tompkins. I don't remember that. Part of the agreement, 3 r ou 
say? 

Mr. Nehemkis. Yes. From a letter identified by Witness Greene 
this morning, being committee's "Exhibit No. 1824," I now read to 
you, Mr. Tompkins, to see whether or not this doesn't refresh your 
recollection. That is a letter from Mr. Greene dated December 6, 
1935, to the bankers [reading "Exhibit No. 1824"] : 

Dear Sirs : Referring to the agreement dated December 4, 1935, between this 
company and yourselves and certain associates under which you severally agree 
as therein provided to purchase $16,500,000, principal amount of First Mort- 
gage Sinking Fund 4%% Bonds of this Company, the Board of Directors has 
authorized me to advise you as follows : 

We recognize that you will have a continuing interest for the protection of 
bondholders, in seeing that the Company has a satisfactory management, and, 
accordingly, desire to confirm tie assurances given you during the course of the 
negotiations to the effort that, so long as any of the Bonds remain outstanding, 
the Company will, in case Mr. William G. Mather, Chairman of the Board 
of Directors or Mr. E. B. Greene, president of the Company, shall cease to hold such 
offices or cease to exercise their duties by reason of death or other cause, consult 
■vith you regarding the choice of a successor to either or both of such officers, to 
the end that any such successor shall be satisfactory to three or more underwriters 



CONCENTRATION OF ECONOMIC POWER 12463 

named in the above-mentioned agreement who have agreed to purchase not less 
than 50% of the aggregate principal amount of bonds. 

Tours truly, 

Cleveland-Cliffs Iron Company 

by E. B. Greene. 

President. 

Mr. Henderson. May I ask a question right there 

Mr. Nehemkis. I just want to develop one or two things. 

In effect, Mr. Tompkins, this agreement meant that the bankers 
could dictate to the directors who the future president or chairman 
of the board would be. Is that not correct, sir? 

Mr. Tompkins. That was an agreement between Cleveland Cliffs 
and those underwriters. 

Mr. Nehemkis. Absolutely. You knew something about that, 
didn't you? 

Mr. Tompkins. I remember it only vaguely. 

Mr. Nehemkis. Had you ever heard of it prior to your testimony 
here and my reading of it ? 

Mr. Tompkins. No — Yes, in this way, that I know the bankers 
were concerned about a continuity of management there. They had 
seen what had happened to this company before Mr. Greene took the 
presidency and they were looking ahead to the day when he might 
not be president. 

Mr. Nehemkis. I am going to repeat to you my question, which I 
would like you, as an expert banker, to give me your opinion on. In 
effect, did not this agreement mean that the bankers could dictate 
to the directors who the future president or chairman of the board 
would be? 

Mr. Tompkins. I would have to examine the language of it pretty 
carefully" to know whether that is right or not. I think that its 
purpose was to see that future officers of the company would be 
selected only after consultation with the bankers, that would be 
agreeable to the bankers. 

Mr. Nehemkis. Would you say that the bankers possessing a veto 
power over who was to fill these two offices in reality were assured 
of controlling all future public financing by Cleveland-Cliffs? 

Mr. Tompkins. Under their agreement they had a first call on any 
future financing. 

Mr. Nehemkis. But in addition to that, pursuant to this arrange- 
ment in "Exhibit No. 1824." which has gone into evidence, since no 
person could be either president or chairman who was not acceptable 
to the bankers, didn't that in effect mean that they controlled all 
future financing because only these two men would ever hold those 
offices? 

Mr. Tompkins. Well, that assumes that a board of directors could 
abdicate its right to choose its officers, the officers of the corporation. 

Mr. Nehemkis. Isn't that precisely what was done in this case, Mr. 
Tompkins? 

Mr. Tompkins. If it is a good agreement ; I don't know. 

Mr. Nehemkis. I am not asking you to pass judgment on its legal 
validity; I am asking you as an expert, a banker of many years' 



12464 CONCENTRATION OF ECONOMIC POWER 

standing in the community and well known in financial circles, to give 
me your opinion as an expert. 

Acting Chairman King. As to what ? 

Mr. Tompkins. You are asking me to give my opinion as to valid- 
ity of that agreement and I can't do it. 

Mr. Nehemkis. No, sir, I ask you whether in effect the Cleveland- 
Cliffs management didn't abdicate all their rights of management to 
four banking firms. 

Mr. Tompkins. If that document is good legally, then the answer 
is "yes." I don't know whether they could impose that on a board of 
directors. 

Mr. Henderson. You say you don't recall this particular clause 
:ery explicitly. Was that negotiated when you were agent? 

Mr. Tompkins. This agreement about future management? 

Mr. Henderson. Yes. 

Mr. Tompkins. It was done between Greene and the syndicate. 

Mr. Henderson. It wasn't any part of your negotiation ? 

Mr. Tompkins. No. 

Mr. Henderson. Do you recall whether it is a common custom in 
connection with financing arrangements for the underwriters to get 
from the board of directors such a statement as this ? 

Mr. Tompkins. No, I think it would be. most unusual. 

Mr. Henderson. Do you recall any other cases in which similar 
terms were negotiated, perhaps in the companies that were in des- 
perate shape or the like? 

Mr. Tompkins. I can't give you the names. 

Mr. Henderson. It is done sometimes, is it not ? 

Mr. Tompkins. Yes, I would say, Mr. Commissioner, it is only done 
when you want to be sure that the people who are now in, and in 
whom you have confidence, are going to be there. 

Mr. Henderson. Where you might say that the management is 
one of the consideration^ upon which the underwriters engage, to 
take the underwriting? 

Mr. Tompkins. Yes. 

Acting Chairman King. Is it not a common thing between private 
persons in business and their local bank or persons who may loan 
them money, to annex as a condition to the extension of the credit 
that A, B shall continue in control of the sheep herd, or in control 
of the mine operation? 

Mr. Tompkins. Yes, in direct commercial loans we ought to do 
that. 

Acting Chairman King. I have in mind cases where in mining 
operations loans have been obtained largely upon the strength of 
the ability of the man who was in charge. He was an expert tech- 
nician and understood mining, understood the technology of mining, 
and the banker or private individuals would extend credit upon the 
ground that he be continued in control, because they had confidence 
in his technical knowledge and his understanding of mining activities, 
and if some new man came in who was unacquainted with the mine, 
the ore deposits, they would not feel safe in making the loan. 

Mr. Tompkins. They would at least want an opportunity to review 
it. 

Acting Chairman King. To find out his competency. 

Mr. Lubtn. Mr. Tompkins, do you know of any instances where 
such requirement was made on management, where management 



CONCENTRATION OF ECONOMIC POWER 12465 

yielded, except in those cases where management was so hard up it 
had no other alternative? In other words, would it be likely that any 
corporation would yield its right to select its own officers or that any 
board of directors would yield its right to select its own officers, 
except under those conditions where they were so hard pressed that 
they had no other alternative? 

Mr. Tompkins. I think you are right. 

Mr. Ltjbin. In other words, then, it is those instances such as the 
chairman just mentioned which are typical only when the management 
has no alternative and has to yield to what the banker demands? 

Mr. Tompkins. Well, in an industrial situation, management is of 
such paramount importance — it is the first thing we always look at — 
that a banker always tries to guard himself against a shift in that 
management, to the best of his ability. If you have an old-line com- 
pany that has a long record of successful management, where you 
are absolutely confident that the board will always fill those positions 
with competent men, it never occurs to you to have an agreement. 
As in this case, it was only the fact that Mr. Greene had taken over 
this and was operating it and giving it vitality that made it possible 
to do this business at all. 

Mr. Lubin. In other words, if a telephone company should go to 
an investment house and want to borrow $20,000,000, no investment 
banker would dare put such conditions in the contract. 

Mr. Tompkins. I don't think it ever would occur to an investment 
banker to do that. 

Mr. Henderson. Mr. Tompkins, in this case the underwriters might 
have had at least two thoughts in mind. In the first place, they were 
selling securities to the public, and in that case they wanted to keep 
the continuing good will of those with whom the bonds had been 
placed. The second thing they might have had in mind was the 
insurance of the continuing financing. Isn't that true ? 

Mr. Tompkins. To see that they 

Mr. Henderson (interposing). That they got the financing. 

Mr. Tompkins. I think they covered that in their first memorandum. 

Mr. Henderson. This might have been just a double lock. 

Mr. Tompkins. This was just to prevent any sudden shift in that 
management that might produce a management that would go out 
and buy another Corrigan, McKinney. 

Mr. Henderson. I was just about to asK you that. There was in the 
antecedent history of this company considerable gyration, investment, 
and some might call it speculation with the funds, and it is likely 
that they had that in mind also, Is that what you mean by buying 
Corrigan McKinney— not "doing a Corrigan" ? 

Mr. Tompkins. Mr. Commissioner, a little too much vision, one 
might say. 

Mr. Henderson. The vision turned out to be a nightmare in some 
cases. 

Acting Chairman King. Would not a reputable investment house 
that sells its bonds to the public, even though it doesn't put up the 
money itself but sells bonds and gets the money for its patron, be 
interested '.n having the company whose bonds it was selling or under- 
writing operated in a judicial manner and by persons competent to 
deal with the problems that would arise in the administration ? 

Mr. Tompkins. Absolutely. 



12466 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. And though they didn't put up their own 
monej' in some instances, their honor was more or less involved in 
the fact tnat they would sell these securities to the public. 

Mr. Tompkins. Yes, sir. 

Acting Chairman King. Therefore, is there anything improper, in 
your judgment, and has it not been the practice not only with private 
individuals who are loaning money, but investment companies and 
banks, to inquire into the character of the business and who was in 
charge of it, and to desire to be satisfied as to the competency of the 
persons in charge to discharge their duties and obligations so as to 
make the business a success ? 

Mr. Tompkins. That is always a very important consideration in 
handling money. 

Acting Chairman King. So the investment company, I would sup- 
pose, would feel its honor was more or less involved when it sold 
securities to the public, though it did not advance its own money. 

Mr. Tompkins. Yes ; it has a continuing responsibility to the people 
who buy the securities. 

Mr. Henderson. You get into a number of very delicate questions 
in management, do you not, when you get into the position of passing 
on management and its judgments. You get into what they call 
banker management once in a while, do you not ? 

Mr. Tompkins. Yes. Management itself is a thing that a banker 
tries to avoid. He feels that his responsibility is to help select man- 
agement, but wherever, in our experience, I have seen a banker as a 
banker try to operate an industrial company, the record of his man- 
agement generally indicates that he ought to have stayed in the 
banking business. 

Mr. Henderson. That isn't always true, though. There are some 
examples where the bankers took over successfully. 

Mr. Tompkins. There are some examples. 

Mr. Henderson. But I think I would incline to agree with you 
that they ought to stick to their banking. 

Mr. Tompkins. In general. 

BROKERAGE TRANSACTIONS FOR CLEVELAND-CLIFFS 

Mr. Nehemkis. Mr. Tompkins, did not the agreement between <ue 
bankers also include the right to participate in the commissions for 
brokerage transactions involving Cleveland-Cliffs? 

Mr. Tompkins. That is right. 

Mr. Nehemkis. And did not the four underwriting firms actually 
share commissions when Cle , eland-Cliffs sold 10,000 shares of Re- 
public Steel common in '35. and 20,000 shares in 1936 * 

Mr. Thompkins. That is right. 

Mr. Nehemkis. I now offer in evidence a letter from the files of 
Lehman Bros, and a memorandum from the files of Lehman Bros, 
covering brokerage transactions. These two documents are covered 
by the stipulation x previously admitted in evidence. 

(The documents referred to were marked "Exhibits Nos. 1845 and 
1846" and are included in the appendix on p. 12761.) 

1 "Exhibit No. 1838." 



CONCENTRATION OF ECONOMIC POWER 12467 

Mr. Nehemkis. And bearing upon the same subject three extracts 
from the registration statement of Cleveland-Cliffs Iron Co. on file 
with the Securities and Exchange Commission. 

Acting Chairman King. They may be received. 

(The memoranda referred to were marked "Exhibits Nos. 1847-1 
to 1847-3" and are included in the appendix on pp. 12761-12763.) 

FEES PAID TO LEHMAN BROS. AND BANKERS TRUST CO. 

Mr. Nehemkis. According to the underwriters' agreement, Mr. 
Tompkins, of June 28/ Lehman Bros, were to be paid one-half per- 
cent of the principal amount of the bonds as a management fee. Is 
that correct ? 

Mr. Tompkins. Yes. 

Mr. Nehemkis. But they finally received a fee of only three-eighths 
percent. 

Mr. Tompkins. It was readjusted among themselves. 

Mr. Nehemkis. Readjusted between the group ? 

Mr. Tompkins. That is right. 

Mr. Nehemkis. When the contract of January 30, 1935, 2 was drawn 
up, Bankers Trust Co. was to be paid a fee of 1 percent of $24,000,- 
000, or $240,000. 

Mr. Tompkins. Right. 

Mr. Nehemkis. When the agreement among the underwriters was 
drawn up on June 28, 1935, Bankers Trust was to be paid a fee of 
one-half percent of $24,000,000 or $120,000. 

Mr. Tompkins. Yes. 

Mr. Nehemkis. In December 1935, Bankers Trust was actually paid 
$25,000. 

Mr. Tompkins. Yes. 

Mr. Nehemkis. So it would appear, would it not, that the longer 
you worked the less you got paid? 

Mr. Tompkins. That is unfortunately the case. 

Mr. Nehemkis. No further questions, Mr. Chairman. 

Mr. Henderson. In some cases a banker works and doesn't get 
paid at all. 

Mr. Tompkins. In some cases. 

Acting Chairman King. In some cases the banker loans money and 
he doesn't get paid. 

Mr. Tompkins. That is very often true. 

Mr. O'Connell. I would like to ask a question. This morning I 
asked you a question or two about the consideration that was given 
to the question of whether or not what your bank did in this opera- 
tion was in violation of the 1933 Banking Act, and I am not entirely 
clear exactly what consideration was given thaj^ question by you. 
Will you clear that up for me? 

Mr. Tompkins. When Mr. Greene came to me and asked if we 
could undertake this job I said I thought we could as his agent. We 
discussed the general basis on which I might act as agent. Then I 
said, "We will reduce this to a contract which we will nave the law- 
yers draw and which they can submit to your lawyers." White & 

1 "Exhibit No. 1833." 

2 "Exhibit No. 1819." 

124491 — 10 — pt. 24 11 



12468 CONCENTRATION OF ECONOMIC POWER 

Case, ray counsel, drew a contract which they sent to me and which I 
naturally assumed was drawn in keeping with the law. 

Mr. O'Connell. But the only thing that you got from White & 
Case when they returned the contract to you was a statement to the 
effect that in their opinion [reading from "Exhibit No. 1825"] : 
the same is in satisfactory form and sufficient for the purposes indicated. 

Now that to you meant that they had considered whether or not 
that contract was proper under the Banking Act of 1933 and were so 
advising you in this fashion? 

Mr. Tompkins. That, supplemented by long conversations with 
various members of the firm on this subject. 

Mr. O'Connell. So it is clear in your mind at least that from this 
letter and from conversations with your lawyers it was their con- 
sidered opinion that the contract was legal within the Banking Act 
of 1933? 

Mr. Tompkins. That is correct. 

Mr. Nehemkis. I think, Mr. Tompkins, that you are dismissed and 
we are very grateful to you for having given us so much of your time. 

Mr. Tompkins. Thank you. 

(Representative Williams took the chair.) 

Mr. Nehemkis. Will Mr. William Whitehead take the stand, 
please ? 

Mr. Whitehead, will you examine these documents and tell me 
whether they were obtained by you from the files of Kuhn, Loeb 
& Co.? 

Mr. William Whitehead (Securities & Exchange Commission). 
They were. 

Mr. Nehemkis. Mr. Chairman, I am offering in evidence at this 
time the documents identified by Mr. Whitehead of my staff, insofar 
as they pertain to another agreement between the Guaranty Co., 
which as you recall was the old affiliate of the Guaranty Trust Co., 
and Kuhn, Loeb, concerning American Smelting & Refining Co. The 
matter will be dealt, with in the report which we will ultimately sub- 
mit to the committee, but I would like them spread on the records of 
the committee. 

Acting Chairman Wtlltams. They may be received. 

(The letters referred to were marked "Exhibits Nos. 1848 to 1851" 
and are included in the appendix on pp. 12764-12765.) 

Mr. Nehemkis. Mr. Mathers, will you take the stand, please? Both 
of these gentlemen have been previously sworn, and I merely want 
them to identify these documents. Mr. Mathers, will you examine 
those documents and tell me whether you obtained them from the 
firms, partnerships, or corporations indicated therein? 

Mr. L. C. Mathers (Securities and Exchange Commission). I did. 

Mr. Nehemkis. And they were given to you by duly authorized 
representatives in response to your request? 
• Mr. Mathers. That is correct. 

Mr. Nehemkis. Mr. Chairman, I ask leave of the committee that 
these documents be received. 

(The documents referred to were marked "Exhibits Nos. 1852-1 to 
1856" and are included in the appendix on pp. 12766-12772. 

Mr. Nehemkis. Mr. John F. Fennelly, please. 



CONCENTRATION OF ECONOMIC POWER 12469 

Acting Chairman Williams. Do you solemnly swear that the testi- 
mony you are about to give will be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Fennelly. I do. 

TESTIMONY OF JOHN F. FENNELLY, GLOBE, FORGAN & CO., 

CHICAGO, ILL. 

Mr. Nehemkis. Will you state your full name and address, Mr. 
Fennelly? 

Mr. Fennelly. My name is John F. Fennelly, partner of Glore, 
Forgan & Co., resident of Chicago. 

Mr. Nehemkis. How long have you been a partner of Glore, Forgan 
&Co.? 

Mr. Fennelly. Since July 1, 1935. 

INDIANAPOLIS POWER & LIGHT CO. FINANCING, 1938 

Mr. Nehemkis. On or about August 1, 1938, did not the Indianapolis 
Power & Light Co. engage in a refunding operation involving some 
$32,000,000 of 4-percent mortgage bonds and about $5,500,000 of serial 
notes? 

Mr. Fennelly. Yes. My recollection is that they were 3%-percent 
bonds, but that may be incorrect. 

Mr. Nehemkis. Is not Indianapolis Power & Light a subsidiary of 
Utilities Power & Light? 

Mr. Fennelly. That is correct. 

Mr. Nehemkis. Was not this financing brought out under the lead- 
ership of Lehman Bros. ? 

Mr. Fennelly. Yes. 

Mr. Nehemkis. Can you tell me who some of the principal under- 
writers associated with' Lehman Bros, were in that financing? 

Mr. Fennelly. Well, my firm, Glore, Forgan & Co., The First Bos- 
ton Corporation was, I recall. Frankly, the list as such is not in my 
mind. It was a very broad list 6*f underwriters. 

Mr. Nehemkis. But those who had the largest participations were 
your firm ancf First Boston, and I show you a prospectus to see if that 
doesn't refresh your recollection and give you a clue to the other names. 

Mr. Fennelly. The First Boston was in second position; Glore, 
Forgan in third — this is in appearance ; Halsey, Stuart in fourth posi- 
tion, and the last three houses named all having an equal interest in 
participation in the business; Stone & Webster and Blodgett, Inc., 
Blyth & Co., Brown Harriman & Co., all with the same interest; Gold- 
man, Sachs & Co. and Lazard Freres & Co. with an equal interest with 
the houses just previously named. Do you want me to go on? 

Mr. Nehemkis. No ; that is sufficient ; thank you very much. In the 
spring -of 1938 did not Mr. Charles True Adams approach your firm 
with the suggestion that he would like your firm to head up the 
financing of Indianapolis Power & Light ? 

Mr. Fennelly. That is correct. 

Mr. Nehemkis. Did you not at that time advise Mr. Adams that 
you were a member of the Lehman group, and being under a com- 
mitment to Lehman Bros., could not accept his invitation? 



12470 CONCENTRATION OF ECONOMIC POWER 

Mr. Fennellt. That is also correct. 

Mr. Nehemkis. Did not Mr. Adams inform you that he had no 
intention of having Lehman Bros, head up the group since he 
wanted the business handled by a Middle Western firm? 

Mr. Fennellt. That is the way that I stated his position in the 
letter that I subsequently wrote on this matter. I would like to 
say that is correct with a slight variation in that what he was trying 
to convey was that he had felt he had no commitment to do the 
business with Lehman Bros, and that as such he would prefer to do 
the business in the Middle West. 

Mr. Nehemkis. Were you aware at the time of your discussions 
with Mr. Adams that in the spring of 1938 the finance committee of 
Indianapolis Power and Light had on or about July 15, 1937, already 
authorized Lehman Bros, to head up a syndicate for the refunding 
operations ? 

Mr. Fennellt. No ; I was not. 

Mr. Nehemkis. You were not aware of that ? 

Mr. Fennellt. No. 

Mr. Nehemkis. Were you aware of that fact prior to your testi- 
mony here and my statement? • 

Mr. Fennellt. Not as such. I knew that Lehman Bros, had gone 
to work on the deal in 1937. How far they had entered into an actual . 
agreement with the finance committee I have never been aware. 

Mr. Nehemkis. Mr. Chairman, I now refer the committee to "Ex- 
hibit No. 1852, 1 to 3," previously received in evidence, containing 
the authorization of the finance committee of Indianapolis Power 
& Light to Lehman Bros., authorizing them to head up the syndi- 
cate to which reference has been made. 

Now, on May 24, 1938, during the time of your discussion with 
Mr. Adams, did you not have occasion to transmit the subject mat- 
ter of your discussion to your New York partner, Mr. J. Russell 
Forgan ? 

Mr. Fennellt. I did. 

Mr. Nehemkis. And now reading from "Exhibit No. 1853," 
previously received in evidence, a letter dated May 24, 1938, by 
Witness Fennelly to Mr. J. Russell Forgan, I call your attention, if 
I may, Mr. Fennelly, to the following paragraphs : 

Some weeks ago when Mr. Adams first approached us with regard to helping 
him work out the reorganization of Utilities Power & Light, he told us that 
he would like to have us head up the financing of Indianapolis Power & Light. 
We immediately told him of our commitment to Lehman Brothers and that 
we had already accepted a position in Lehman's group subject to that position 
being satisfactory to us. 

Now skipping to the third paragraph : 

More recently, Mr. Adams asked us if we could work out a satisfactory ar- 
rangement with Lehman Brothers, and advised us that if we could do so he 
was prepared to proceed immediately with the Indianapolis financing. We 
have told Mr. Adams that we felt it was entirely possible for us to work out 
such an arrangement and would proceed to do so at once. Our ideas, as you 
know, of a satisfactory arrangement are a joint managership account which we 
should head in the West and which Lehman should head in the East. Pending 
the reaching of such an agreement, we find ourselves in the awkward position 
of being unable to talk with Mr. Adams about this financing, and at the same 



CONCENTRATION OF ECONOMIC POWER 12471 

time realizing that practically everybody In the investment business is shoot- 
ing at him about it, in fact we have good reason to believe that other mem- 
bers of the Lehman account are working independently and actively for the 
business. Our sincere feeling about this matter is that if Lehman Brothers 
are willing to agree to a joint managership as outlined above, we can be very 
helpful in convincing Mr. Adams as to the desirability of proceeding at once 
with the business. If this is not done, we feel that Mr. Adams is likely to let 
the whole matter drift, at least until next fall, by which time he may have 
missed the opportunity to do the job under present favorable market conditions. 
If Lehman Brothers cannot see their way clear to such an arrangement, we 
shall feel obliged to withdraw from their account. If we do so withdraw, we 
will agree with them that we will do nothing about this business, either inde- 
pendently or in conjunction with others, for some reasonable length of time. 
Our idea of a reasonable length of time would be from now until next fall, 
during which time Lehman Brothers would have a free hand as far as we are 
concerned, to proceed with their present negotiations. 

Now Mr. Fennelly, did you succeed in getting joint managership? 

Mr. Fennelly. No; we did not. 

Mr. Nehemkis. You had, however, a substantial underwriting posi- 
tion, did you not? 

Mr. Fennelly. That is right; yes. 

Mr. Nehemkis. Now, if you will follow me on the postscript to 
your letter [reading from "Exhibit No. 1853"] : 

Since writing the above, I have discussed the matter further with Charlie — 

Charles Glore, I take it 

Mr. Fennelly. Yes. 

Mr. Nehemkis (continuing) : 

and we have both agreed it would be dangerous to show this letter to Lehman 
Brothers. He agrees, however, that the letter states his position exactly and 
that all of the matter contained herein can be used in discussing the matter 
with them; he is even willing to have you agree to a joint managership ar- 
rangement for all future Utilities Power & Light financing if you think it desir- 
able. He feels it is most important that Lehman give us an immediate answer 
on this matter because he has just had another call from Adams asking about 
the situation and telling him that the finance committee of the Company in 
Indianapolis is anxious to proceed at once and that pressure is being put on 
him from all directions. 

Did your partner discuss with Lehman Brothers the possibilities 
of joint managership on future Utilities financing? 

Mr. Fennelly. I really don't know whether they did or not, be- 
cause we never came to an agreement with them on this particular 
piece of financing, and it is my belief that that subject was never 
discussed. 

AGREEMENT ON LEADING POSITIONS IN FUTURE FINANCING OF INDIAN- 
APOLIS POWER & LIGHT AND UTILITIES POWER & LIGHT 

Mr. Nehemkis. If Indianapolis Power & Light should in the near 
future bring out another issue, what do you contemplate your rela- 
tionship to the syndicate would be, Mr. Fennelly? 

Mr. Fennelly. Frankly, I have never given it any thought. My 
guess would be that probably we would expect n substantial position 
m the group under, the leadership of Lehman Brothers. There is no 
necessity that that would follow at all. 

Mr. Nehemkis. Your treatment of Lehman Brothers in the spring 
of '38, when in effect you m ere offered the financing on a platter by 
the trustee of the organization, was extremely generous. Would you 



12472 CONCENTRATION OF ECONOMIC POWER 

not in view of that fact expect to receive, shall I say, favorable con- 
sideration (a) in any Indianapolis Power and Light financing, and 
(b) favorable consideration in any future Utilities Power & Light 
financing as well? 

Mr. Fennelly. Frankly, we might expect it but I would be very 
much surprised if we got anything back from them. That has been 
the history of all such expectations as far as I can see. 

Mr. Nehemkis. You would not then hope to have even the same 
consideration that might be accorded to, shall I say, First Boston 
Corporation, who had an equal participation with you? 

Mr. Fennelly. Well, yes; I would be surprised if -we did not 
receive as favorable consideration in the Indianapolis Power & Light 
account, but as far as the rest is concerned it would have no reference 
as far as I can see. 

Mr. Nehemkis. Well, I am afraid it is my painful dutv to inform 
you that you will not receive that consideration, because in this par- 
ticular case virtue was not rewarded. In connection with ''Exhibit 
No. 1854^1," previously received in evidence, I now read to you, Mr. 
Fennelly. a memorandum by Joseph A. Thomas, partner of the in- 
vestment banking firm of Lehman Brothers, dated June 26, 1939 
[reading from "Exhibit No. 1854-1"] : 

I met today with Sidney Weinberg and Howard Sachs, of Goldman, Sachs & 
Company, Harry Addinsell and George Woods, of the First Boston Corporation. 

We made the following agreement on Indianapolis Power & Light financing : 

Lehman Brothers is to head the business, handle the details in our office 
and negotiate the deal in behalf of themselves, Goldman, Sachs & Company and 
The First Boston Corporation. 

In the advertising the three firms are to appear on the same line in the 
following order : Lehman Brothers, Goldman, Sachs & Co., The First Boston 
Corp. 

The management compensation is to be divided as follows: 40% to Lehman 
Brothers, 40Tc to Goldman, Sachs & Company, and 20% to The First Boston 
Corporation. All three firms are to have equal percentages in the underwriting. 

We made a similar arrangement on Utilities Power & Light Company and 
its subsidiaries, i. e. management compensation to be divided into 4.0% to Leh- 
man Brothers. 40 % to Goldman, Sachs & Company, and 20% to The First 
Boston Corporation. 

And then I have here, but they will no longer interest you, letters 
of confirmation from the respective firms, and I regret to say that 
Glore, Forgan was not included. 

Mr. Fennelly. May I ask a question with reference to that? 

Mr. Nehemkis. I want to get one more thing in and then you may. 
I call attention to a collection of correspondence between Mr. Floyd 
Odium and Mr. Robert Lehman concerning the agreement entered 
into by the three linns to which reference has been made and which 
is now in evidence. 1 

Mr. Nehemkis. No further questions of the witness. 

Acting Chairman Williams. Has anyone any questions? 

""MORAL COMMITMENT" RESULTING FROM MEMBERSHIP IN AN ACCOUNT 

Mr. Henderson. Yes. What was the reason you felt you couldn't 
talk to Mr. Adams about the financing? 

Mr. Fennelly. Simply because we had made a commitment to 
Lehman Brothers, being a member of their account, and we regarded 

1 See "Exhibit No. 1S55-1 to 1S55-4. 



CONCENTRATION OF ECONOMIC POWER 12473 

that as a moral commitment which we weren't prepared to abro- 
gate- . . • 

Mr. Henderson. Is that a usual thing in the underwriting busi- 
ness? 

Mr. Fen nelly. I don't know whether it is usual or not, but I can 
assure you it was usual as far as my firm is concerned. 

Mr. Henderson. That is, they make commitments in groups and 
then they will not engage individually in trying to get the business. 

Mr. Fennelly. I would like to put it this way, Mr. Commis- 
sioner, that we have gone to Lehman Brothers and asked to be a 
member of their account, had asked for a position in their group. 
Having gone to them and put ourselves under obligation to them, 
and they having agreed to include us in their group, we felt that it 
would be an unethical thing, and I mean that not professionally, 
but just simply human ethics to turn around and try to take the 
business away from them. 

Mr. Henderson. They didn't have the business, did they? 

Mr. Fennelly. Well, they had it under the agreement which has 
been read to me. 

Mr. Henderson. What was the status of Mr. Adams in the pic- 
ture? 

Mr. Fennelly. Mr. Adams was a trustee of Utilities Power and 
Light, who, as I recall, had been appointed to that position in the 
spring of 1938, and as such he had no part in the negotiations in 
1937. 

Mr. Henderson. Yes; but did he have the say-so on the financing 
all that time? 

Mr. Fennelly. He led us to believe that he did. 

Mr. Henderson. Was there a doubt in your mind that he did 
have the say-so? 

Mr. Fennelly. I shouldn't think there was any doubt in our 
mind ; we knew that he was the chief factor in that holding company 
which controlled Indianapolis Power and Light. 

Mr. Henderson. Well, if you had not gone to Lehman, would you 
have been free, do you think, to accept the commitment? 

Mr. Fennelly. Yes; very definitely so; would have had no hesi- 
tation in so doing. 

Mr. Henderson. Knowing that the prior indication, of the board 
was that they wanted Lehman to hold it? 

Mr. Fennelly. Without any hesitation at all, because if Mr. 
Adams as trustee told us that he didn't recognize a previous commit- 
ment made when he was not trustee and was in a position to give 
us the business, if we had had no prior moral obligation in our own 
minds, we certainly would have taken the -business.' 

Mr. Henderson. Absenting the trustee status, suppose it was gen- 
erally understood that Lehman had the business and no contract had 
been executed, would you feel free to go ? 

Mr. Fennelly. Absolutely, yes. 

Mr. Henderson. Do you in many instances do that ? 

Mr. Fennelly. We have in my recollection in a number of in- 
stances, yes. 

Mr. Henderson. In those cases with a historical relationship with 
any banking firm as issuer? 

Mr. Fennelly. Very definitely. 



12474 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. Does that mean that your corporation is actively 
and vigorously trying to get accounts? 

Mr. Fennellt. All the time. 

Mr. Henderson. Are you having any luck? 

Mr. Fennellt. Sometimes too few, in my opinion. 

Mr. Henderson. Do you think any part of that is due to gen- 
eral feeling that you are a Chicago house ? 

Mr. Fennellt. The fact that we don't get more business? I 
shouldn't say so; no. 

Mr. Henderson. Do you go after any of the railroad accounts that 
come into Chicago? 

Mr. Fennellt. There has been so little railroad' financing I would 
hate to make a statement as to whether we had or not, Mr. Com- 
missioner. Nothing recent on it. 

Mr. Henderson. Do you make a persistent effort to try to get 
financing of Chicago concerns? 

Mr. Fennellt. Oh, yes ; all the time. 

Mr. Henderson. Have you been having any luck in getting any of 
them away from the eastern banking houses ? 

Mr. Fennellt. I couldn't answer the question as far as getting 
away from the eastern banking houses, Mr. Commissioner, because, 
frankly, we don't think of ourselves as a Chicago banking house. We 
have an office in New York with four partners in New York, and 
three partners in Chicago, and while our background is more middle 
western than others, we are doing business in the East and we are 
doing business in the West. Does that answer your question? 

Mr. Henderson. Yes. I have no further questions. 

Mr. Lubin. May I ask the witness a question? Just what is in- 
volved in what you call in this correspondence your commitment to 
Lehman Brothers? Is it a commitment not to try to get firms that 
have had agreements with Lehman in the past, or is it a commitment 
to stay out of certain definite fields of activity? 

Mr. Fennellt. No, sir; not at all. That commitment is our own 
idea of a moral commitment of ours on this specific piece of business 
because we had gone to Lehman and asked them to be included in 
their account, and refers not at all to historical relationships, and it 
isn't a question of competition or noncompetition. We had given our 
word to somebody, and we just thought it would be a low trick to go 
out and try to take the business away. 

Mr. Lubin. In other words, Lehman already had a relationship with 
this corporation and you had agreed that as far as that corporation 
was concerned you wouldn't undertake to get the financing. 

Mr. Fennellt. We didn't make any such agreement. We under- 
stood that Lehman was in a position to head up a syndicate. We went 
to Lehman Brothers and asked if they would include us in their busi- 
ness as a prominent house with an important office in the Middle 
West — this was a Middle Western piece of business — and they agreed 
they would be delighted to have us in the business, and the point I 
want to express is there was no agreement about staying clear of this 
thing, we had asked to be in their business, and because we had asked 
to be in their business, we felt we had a moral obligation not to com- 
pete with them on this specific piece of business. 

Mr. Henderson. It was a two-way commitment, was it not ? They 
had agreed to give ycu a piece of the business, and they didn't. 
Mr. Fennellt. Oh, yes ; they did. 



CONCENTRATION OF ECONOMIC POWER 12475 

Mr. Henderson. It had nothing to do with future financing. 
Mr. Fennelly. Absolutely not at all. 

AGREEMENT ON FUTURE FINANCING OF ASSOCIATED GAS & ELECTRIC CO. AND 

SUBSIDIARIES 1 9 3 7 

Mr. Nehemkis. Mr. Chairman, before we conclude this session I 
should like to read a memorandum which has been covered by a stipu- 
lation which I shall ask you to examine in a moment. This is a memo- 
randum regarding the relationship of The First Boston Corporation 
and Lehman Brothers in connection with Associated Gas & Electric 
financing and such is the agreement entered into on January 25, 1937, 
with reference to these companies. It reads as follows [reading from 
"Exhibit No. 1857-4"] : 

With respect to all future financing for Associated Gas & Electric or its sub- 
sidiaries, the two firms are to manage such financing jointly as leaders (details 
of the handling of the business to be worked out later) due recognition to be 
given in such financing to the obligations of The First Boston Corp. to old par- 
ticipants in the Chase-Harris Forbes groups in a manner satisfactory to both 
firms. 

In connection with New York State Electric and Gas Corporation financing, 
The First Boston Corp. and Glore, Forgan & Co. are to be managers; Lehman 
Brothers are to be offered an equal participation in amount with the above two 
firms, Lehman Brothers' name to appear in third place. 

This is covered by stipulation entered into with me by Mr. Arthur 
Dean, of Messrs. Sullivan & Cromwell, counsel to The First Boston 
Corporation. I ask that these documents be admitted in evidence, bear- 
ing on the points under discussion. 
Acting Chairman Williams. They may be admitted. 

(The documents referred to were marked "Exhibits Nos. 1857-1 to 
1857-5" and are included in the appendix on pp. 12773-12775.) 

Mr. Nehemkis. May I ask my associate, Mr. Mathers, to take the 
stand just for a moment? Mr. Fennelly, before you make your 
statement? Just be seated, if you will. 

Mr. Mathers, will you be good enough to identify "Exhibit No. 
1856," being a transcription of a telephone conversation by Mr. Igle- 
hart re New York State Gas & Electric Co., dated October 20, 1932, 
so that the record may be thoroughly clear? Tell me once again 
where you obtained that document ? 

Mr. Mathers. I found this document in the files of the New York 
office of Glore, Forgan & Co. It is a copy of a transcript of Mr. 
Joseph A. W. Iglehart's telephone conversation on October 20, 1932. 
relative to New York State Electric & Gas financing. 

Mr. Nehemkis. Now Mr. Iglehart is no longer a partner, to your 
knowledge, of Glore, Forgan & Co. ? 

Mr. Mathers. No, sir. 

Mr. Fennelly. He never was a partner. 

Mr. Mathers. He is presently a partner of W. E. Hutton & Co. 

Mr. Nehemkis. Will you tell me the other person with whom Mr. 
Iglehart was holding the telephone conversation at the time? 

Mr. Mathers. The memorandum does not state, but Mr. Joseph 
Iglehart told me it was with Mr. Russell. 

Mr. Nehemkis And can you tell me Mr. Russell's initials? 

Mr. Mathers. P. N. Russell, I believe it is. 

Mr. Nehemkis. And you went to see Mr. Iglehart expressly to ascer- 
tain who the other person on the telephone was, did yon no! ? 



12476 CONCENTRATION OF ECONOMIC POWER 

Mr. Mathers. Yes. 

Mr. Nehemkis. Thank you very much, Mr. Mathers. 
I shan't discuss the document at this time. I think the committee 
will find at its leisure that this document is well worth reading. 

AGREEMENT RE MANAGEMENT OF CLEVELAND-CLIFFS CO. — RESUMED 

STATEMENT BY MR. JOHN F. FENNELLY 

Mr. Chairman, may it please the committee, Mr. Fennelly has asked 
leave of the committee to make a statement clarifying certain things 
that were said during Mr. Tompkins' testimony, in which he feels 
there may be some misunderstanding, and I have no objection if it is the 
committee's pleasure. 

Mr. Henderson. What is the nature of it? 

Mr. Fennelly. With reference to the document that was filed, the 
contract entered into between Mr. E. B. Greene and the underwriting 
group, of which my firm was one, of which Mr. Tompkins testified he 
knew nothing about. 

Mr, Nehemkis. That was the letter in which Mr. Greene abdicated 
the functions of the board of directors for a period of time in favor of 
the four banking houses, one of which was Field, Glore, now Glore, 
Forgan, of which Mr. Fennelly is a partner. Does the committee care 
to hear Mr. Fennelly's statement ? 

Acting Chairman Williams. I think you might proceed with that. 
I think that is relevant, if it is about that matter. 

Mr. Fennelly. All I wanted to say was this, that that agreement was 
entered into between Mr. Greene and the four underwriting, four 
chief underwriting houses namely Lehman Brothers; Kuhn, Loeb; 
Field, Glore; and Hayden, Stone & Co. This point I wanted to put 
in the record was that that agreement was entered into at the specific 
request of Mr. E. B. Greene. Mr. Greene informed us he was con- 
cerned, in view of the past experience of Cleveland-Cliffs, about the 
continuity of that management, and was concerned about what might 
happen in the event he or Mr. Mathers, chairman of the board, should 
die, and he requested us to enter into that agreement with him. The 
agreement was never at any time brought up by the bankers and it was 
a kind of an agreement that I for one have never seen entered into in a 
mortgage issue of this kind. And it was only done because Mr. Greene 
was concerned that the continuity of the management should be pre- 
served, and he wanted to have the outside assistance of the underwrit- 
ers to that effect. 

Mr. Nehemkis. May I take this occasion, Mr. Chairman, of thanking 
Mr. Fennelly for having given us so freely of his time? He spent 
many hours with us on this problem. 

Acting Chairman Williams. Have you anything else at this time? 

Mr. Nehemkis. No, sir. Shall I tell you, sir, the witnesses for 
tomorrow? Tomorrow we expect to discuss the financing of the Wil- 
son Co. and the Armstrong Cork Co., and the witnesses will be Mr. 
Joseph R. Swan, head of the house of Smith, Barney & Co. ; Mr. John 
M. Schiff, and Mr. Lewis L. Strauss, partners of Kuhn, Loeb & Co. 
Acting Chairman Williams. That is all for the present? The 
committee will stand in recess until 10 : 30 tomorrow. 

(Whereupon at 4 : 05 p. m. the committee recessed until Wednesday 
morning at 10:30 o'clock.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



WEDNESDAY, JANUARY 10, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Tuesday, January 9, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator William H. King presiding. 

Present: Senator King (acting chairman); Representative Wil- 
liams; Messrs. Henderson, O'Connell, Lubin, and Brackett. Present 
also; Clifton Miller, Department of Commerce; Peter R. Nehemkis, 
Jr., special counsel ; and W. S. Whitehead, security analyst, Securities 
and Exchange Commission. 

Acting Chairman King. The committee will be in order. 

Mr. Henderson. Mr. Chairman, it is always difficult to indicate in 
a sentence the nature of a day's hearing, but today we will be con- 
cerned with typical examples as shown by two or three pieces of 
financing of the continuing relationship of some of the New York 
banks that had affiliates, and also we will be dealing with some 
aspects other than price competition that mark out the distinction 
between the investment banking business, or profession, as some 
choose to describe it, and the usual concept of competition as we see 
it in industry. 

Mr. Nehemkis. Will Mr. Joseph R. Swan, Mr. John M. SchifT, and 
Mr. Lewis L. Strauss take the witness stand, please? 

Acting Chairman King. Mr. Swan, you have been sworn hereto- 
fore, so we will not need to re-swear you. 

Will the other gentlemen raise their right hands ? 

Do you solemnly swear the testimony you give in this hearing will 
be the truth, the whole truth, and nothing but the truth, so help you 
God? 

Mr. Strauss. I do. 

Mr. Schiff. I do. 

TESTIMONY OF JOSEPH R. SWAN, SMITH, BARNEY & CO., NEW 
YORK CITY; JOHN M. SCHIEF, KUHN, LOEB & CO., NEW YORK 
CITY; AND LEWIS L. STRAUSS, KUHN, LOEB & CO., NEW YORK 
CITY 

Mr. Nehemkis. Will you state your full name and address, Mr 
Schiff? 

Mr. Schiff. John M. Schiff, Oyster Bay, N. Y. 

Mr. Nehemkis. Are you not a partner of the firm of Kuhn, Loeb & 
Co.? 

12477 



12478 CONCENTRATION OF ECONOMIC POWER 

Mr. Schiff. I am a partner of the firm of Kuhn, Loeb & Co. 

Mr. Nehemkis. How long have you been a partner of that firm ? 

Mr. Schiff. Since January 1, 1931. 

Mr. Nehemkis. Mr. Strauss, will you state your full name and 
address, please? 

Mr. Strauss. Lewis L. Strauss, 52 William Street, New York City. 

Mr. Nehemkis. And are you not a partner of the banking firm of 
Kuhn, Loeb & Co.? 

Mr. Strauss. I am. 

Mr. Nehemkis. How long have you been a partner of that firm? 

Mr. Strauss. Since January 1, 1929. 

Acting Chairman King. A partnership and not a corporation? 

Mr. Strauss. That is correct. 

Mr. Nehemkis. Mr. Swan, was not the account of Wilson & Co. 
once handled by the Guaranty Co., the security affiliate of the Guar- 
anty Trust Co., of New York? 

Mr. Swan. It was handled by them in conjunction with others. 

Mr. Nehemkis. And was that not the case also in the Pure Oil 
Co. financing? 

Mr. Swan. That was handled by Guaranty Co. alone. 

Mr. Nehemkis. And in the case of Bethlehem Steel Corporation, 
was that handled by Guaranty Co. alone, or in conjunction with 
others ? 

Mr. Swan. That was handled in conjunction with others. 

Mr. Nehemkis. Do you recall the situation with respect to Amer- 
ican KollingMill Co.? 

Mr. Swan. That was handled by the Guaranty Co. in conjunction 
with W. E. Hutton & Co. 

Mr. Nehemkis. And in the case of the Armstrong Cork Co., Mr. 
Swan, was that not an account of Guaranty Co. ? 

Mr. Swan. They were in that account. I think the account was, 
to my recollection, led by the Union Trust Co., of Pittsburgh. 

Mr. Nehemkis. And Guaranty was joint manager? 

Mr. Swan. Very likely they were joint manager. 

Mr. Nehemkis. Has not E. B. Smith & Co. either headed or par- 
ticipated in all of the foregoing accounts? 

Mr. Swan. They have, I believe. 

Acting Chairman King. Is that an investment banking company 
of New York— E. B. Smith & Co. ? 

Mr. Swan. Edward B. Smith & Co. was a private partnership; 
it was not a corporation. It was a private company in New York, 
an investment company in New York. 

Acting Chairman King. What was the name? 

Mr. Swan. Edward B. Smith & Co., a firm which was originally 
formed in Philadelphia many years ago and has since transferred 
its principal office to New York. 

FINANCING OF THE ARMSTRONG CORK CO. 19 35 AND 193 ISSUES 

Mr. Nehemkis. Mr. Swan, I show you a document which bears 
the title "Calendar Record on Armstrong Cork Co." Will you ex- 
amine this document and briefly describe its purpose to me? 

Mr. Swan. Tins document was kept by what we call our new 
business department and was a record of the various times when we 



CONCENTRATION OF ECONOMIC POWER 12479 

gave some attention to the company in question as to whether we 
should take some action in connection with them, or follow them up 
in some way. It was a record of our contacts with the company. 

Mr. Nehemkis. Will you be good enough to examine the second 
sheet, which is labeled "Contacts with Armstrong Cork Co."? Will 
you be good enough to examine this sheet and tell me its purpose 
or function? 

Mr. Swan. This was another sheet kept by our new-business de- 
partment to indicate what members of our firm were acquainted 
with and in contact with what members of some corporation we might 
be trying to do business with, or for whom we might be bankers. 

Mr. Nehemkis. Would you say, Mr. Swan, that that practice of 
keeping such references is a generally prevailing one in the industry ? 

Mr. Swan. I do not know. 

Mr. Nehemkis. Mr. Schiff, have you been following the testimony ? 

Mr. Schiff. Yes ; I have. 

Mr. Nehemkis. Do you know whether it is the custom of your 
firm to keep records of progress of negotiations and of individuals 
who have special contacts with officials of various companies? 

Mr. Schiff. I don't think it is the general practice of our firm; 
no. 

Mr. Nehemkis. Now on or about July 25, 1935, did not E. B. 
Smith & Co. head a group of underwriters which brought out a 
public offering of $9,000,000 15-year 4-percent debentures of the 
Armstrong Cork Co. ? 

Mr. Swan. We brought out such an issue and I take your date as 
being the approximate date. 

Mr. Nehemkis. You may, if you wish, Mr. Swan, accept my dates 
and figures subject to further check on your part. 

Do you recall who composed the original purchase group? 

Mr. Swan. My recollection is that it was Edward B. Smith, 
Lazard Freres & Co. 

Mr. Nehemkis (interposing). Kidder, Peabody? 

Mr. Swan. Kidder, Peabody and Kuhn, Loeb. 

Mr. Nehemkis. Now Kuhn, Loeb had a nonappearing position in 
that? 

Mr. Swan. That is correct. 

Mr. Nehemkis. And by a nonappearing position is meant that the 
name of a particular house does not appear in the public advertising? 

Mr. Swan. I think that is correct. 

Mr. Nehemkis. Now, to the best of your knowledge had Kuhn, 
Loeb ever been a participant in the financing of Armstrong Cork Co. 
when it had been led by the Guaranty Co. ? 

Mr. Swan. I think not. 

Mr. Nehemkis. Can you tell me that you are certain that it never 
was? 

Mr. Swan. I think I can go so far as to say I am certain; yes. 

Mr. Nehemkis. And I think you indicated a moment ago that the 
Guaranty Co., along with Union Trust of Pittsburgh, had headed 
the financing previously. 

Mr. Swan. That is correct. 

Mr. Nehemkis. And was not the last previous financing for the 
Armstrong Cork Co. an issue of $14,931,000 of 10-year convertible 
5-percent debentures due June 1, 1940, and offered in June of 1930? 



12480 CONCENTRATION OP ECONOMIC POWER 

Mr. Swan. I think that is correct. 

Mr. Nehemkis. And to the best of your knowledge and recollection, 
that was the last piece of. financing that the Armstrong Cork Co. en- 
gaged in prior to the offering under the leadership of E. B. Smith. 

Mr. Swan. To the best of my recollection ; yes. 

Mr. Nehemkis. Do you recall when the 1935 negotiations for the 
Armstrong Cork financing began, approximately ? 

Mr. Swan. I don't know exactly when the negotiations began. As 
soon as the various officers of Guaranty Co. who became partners of 
Edward B. Smith & Co. went into that new firm and took with them a 
large part of the Guaranty Co. organization, we immediately set out 
to see all of our old contacts; amongst others that we immediately 
contacted was the Armstrong Cork Co. From that time on we were 
in contact with them from time to time. We advised them, I think, 
at one time that a certain piece of business might be done, but I think 
we rather advised against doing it, and then later on we took up 
active negotiations for an issue, and exactly when we took up those 
negotiations I 'am afraid I couldn't' say. We were in rather constant 
touch with them over a period. 

Mr. Nehemkis. Would it be correct for me to state that the negotia- 
tions, discussions, conferences in the first instance, however, had been 
instituted by your people ? 

Mr. Swan. Oh, I think so. 

M. L. FREEMAN DISCUSSES ARMSTRONG FINANCING WITH KUHN, LOEB & CO. 

Mr. Nehemkis. Mr. Schiff, are you familiar with a gentleman whose 
name is M. L. Freeman ? 

Mr. Schiff. Yes ; I have made his acquaintance. 

Mr. Nehemkis. And do you recall whether or not on or about July 
27, 1934, Mr. M. L. Freeman had occasion to discuss with you the possi- 
bility of financing the Armstrong Cork Co. through the good offices of 
3'our banking firm ? 

Mr. Schiff. I believe he did. 

Mr. Nehemkis. Mr. Freeman, in the parlance of the Street, is a 
"finder," is he not? That is to say, he brings prospective deals to 
investment banking firms? 

Mr. Schiff. I don't know whether you would call him a finder. I 
think he is probably a sort of middleman that brings people together. 
I don't know quite what the correct term is. 

Mr. Nehemkis. What do you regard him as ? 

Mr. Schiff. I said a middleman who brings people together. 

Mr. Nehemkis. Now, just for my own information, what is the 
distinction between the person who is a "middleman" and one who is a 
"finder"? Perhaps there isn't any. If so, I would be glad to pass on. 
I just wanted to know, so I might be precise and accurate as I asked my 
questions of you. 

Mr. Schiff. I suppose there is no terrific distinction. I just prefer 
my own definition. 

Mr. Nehemkis. But you wouldn't object if I used the word "finder," 
would you ? It wouldn't disturb you in any way % 

Mr. Schtff. I just don't happen to like the word "finder," but 
that is a matter of preference. 



CONCENTRATION OF ECONOMIC POWER 12481 

Mr. Nehemkis. I will use for your benefit the word "middleman." 

Now, in a subsequent discussion with Mr. Freeman, did he not say 
to you that the Armstrong Cork Co. had, after their 1930 financing 
with the Guaranty Co., attempted to borrow $2,000,000 from the 
Guaranty Trust Co.? 

Mr. Schiff. I believe he did ; yes. 

Mr. Nehemkis. And that the bank would only grant the company 
some $500,000? 

Mr. Schiff. I believe he claimed that. 

Mr. Nehemkis. And as a result, did not Mr. Freeman state to you 
that the company was forced to borrow from certain Pittsburgh 
banks? 

Mr. Schht. I think Mr. Freeman stated that, as I remember. 

Mr. Nehemkis. And as a result of that dissatisfaction, as Mr. Free- 
man indicated to you, with treatment received by the Guaranty Trust 
Co., the Armstrong people were a little bit loath to deal with those 
closely associated in the past with the Guaranty ? 

Mr. Schiff. That was what Mr. Freeman stated ; yes. 

SEEKING ASSURANCE THAT A COMPANY HAS MADE A " CLEAN BREAK" WITH 
ITS PRIOR BANKER BEFORE DISCUSSING FINANCING 

Mr. Nehemkis. After the passage of the Banking Act, Mr. Schiff, 
was it not generally recognized in the Street that E. B. Smith & Co. 
had become the successor or heir of the Guaranty Co. ? 

Mr. Schiff. I think it was generally recognized that the chief 
officers and the main part of the staff of the Guaranty were going 
into E. B. Smith & Co. 

Mr. Nehemkis. Did you not yourself recqgnize E. B. Smith & Co. 
as the successor to the Guaranty Co. ? 

Mr. Schiff. We recognized that the individuals of E. B. Smith 
had the contacts that they had while they were in the Guaranty. 

Mr. Nehemkis. You were aware, were you not, at the time of your 
conversation with Mr. Freeman that the Armstrong business had been 
an account of the Guaranty Co. ? 

Mr. Schiff. I was aware either at that time or shortly afterwards, 
after I looked it up. 

Mr. Nehemkis. When it was presented to your mind you. were 
aware of that fact? 

Mr. Schiff. Yes. 

Mr. Nehemkis. Now, in view of the fact that the Armstrong Cork 
account had been a former account of the Guaranty Co., and in view 
of the fact that you and your associates recognized that E. B. Smith 
& Co. had certain relationships to that account, were you not some- 
what reluctant to discuss this matter with Mr. Freeman ? 

Mr. Schht. Well, I think we told Mr. Freeman that after all, any 
company could pick its own bankers, it was entirely up to the 
company 

Mr. Nehemkis. But 

Mr. Schiff. May I go on with that — that if the company wanted 
to leave the people who had done their banking in the past, for some 
legitimate reason, naturally we should be glad to receive them pro- 
vided they were the type of company that came up to our standards, 
but, on the other hand, if it was a perfectly happy relationship and 



12482 CONCENTRATION OF ECONOMIC POWER 

they had been successful in taking care of their needs and had done 
it properly, we had not desire to try to take that away from them. 

Mr. Nehemkis. Mr. Schiff, according to the professional code of 
the Street, would it not have been distinctly unethical for you to 
discuss this business with Mr. Freeman without first contacting E. B. 
Smith & Co., or unless you were quite certain that the company was 
coming to you of their own free will ? 

Mr. Schiff. I think it would have been bad business. 

Mr. Nehemkis. But not unethical? 

Mr. Schiff. Well, unethical and bad business, but after all you 
have a certain code of ethics, which I agree with, but you also are 
guided by what is good business and what is bad business. 

Mr. Nehemkis. But you do think that it would have been distinctly 
unethical to have discussed this with an official of the Armstrong 
Cork Co. without first having been in contact, let us say, with Mr. 
Swan's house? 

Mr. Schiff. I think it would have been unethical and bad business, 
just as if some dentist called me on the telephone and said, "I hear 
you want a tooth pulled," and tried to get the trade away from my 
usual dentist who had been doing a satisfactory job. 

Mr. Nehemkis. So you feel that under similar circumstances it 
would be necessary, if one were adhering, to the code of ethics of the 
Street, first to be clear of the other banking firm. 

Mr. Schiff. But I want to point out one thing. It is not only the 
code of ethics : it is what is good business, what is good business and 
bad business for the continuation of your future business with your 
clients. 

Mr. Henderson. With your clients and with other members of the 
fraternity, too? 

Mr. Schiff. I suppose so, out I mean basically with the corpora- 
tions with which you deal. 

Acting Chairman King. And if you established a reputation of 
trying to undermine other companies and steal the business away 
from them it would injure your own business. 

Mr. Schiff. It would injure our own business' certainly, just as 
much as if a doctor tried to steal patients; eventually he wouldn't 
have any patients at all. 

Acting Chairman King. Just like several lawyers dissolve and 
if they knew that the business of A, B, and C corporation was left 
with one member of the firm that had been dissolved, you would 
regard it perhaps as unethical to go to them and attempt to take it 
away from the one to whom it had been assigned and who had con- 
ducted it during the period of the partnership. 

Mr. Schiff. I think that is fair. 

Mr. Nehemkis. Mr. Schiff, unless you had such unequivocal assur- 
ance from the other firm that had prior association with the business, 
your firm would have been placed in the position of entering into 
competition with, shall I say, a friend, and such competition would 
not be considered desirable ? I take it that is the situation ? 

Mr. Schiff. No; I don't think it is. I think >e are willing to com- 
pete at any time when a corporation is dissatisfied with its existing 
banking relations. We wan' to do new business, we are anxious to 
do it, but we see no point i 1 trying to break up what is considered a 
happy relationship. 



CONCENTRATION OF ECONOMIC POWER 12483 

Mr. Nehemkis. I think you didn't quite understand my question, 
and I may not have made it as clear as it could be. In the situation 
that we are now discussing, the case of Mr. Freeman coming to you 
and telling you, "Here is a piece of business that I think you people 
might be interested in," under the code of ethics as adhered to by your 
firm and presumably by others, you do not feel free to discuss rhat 
with the company officials unless two things occurred: jou were 
assured that the company was clear of E. B. Smith & Co., or, on the 
other hand, that you had first discussed it with E. B. Smith & Co. to 
make quite certain that further discussions would be satisfactory. 
Does that substantially summarize the ethical problem there ? 

Mr. Schiff. I think we would say that we wouldn't want to discuss 
it unless we had everv assurance that the company had made a clean 
break with E. B. Smith & Co. 

Mr. Nehemkis. Now, if those circumstances were not present in 
this situation, then you would be in the position, Avould you not, of 
competing for business against a friend 

Mr. Schiff. No. 

Mr. Nehemkis. And that is not desirable. 

Mr. Schiff. No; we would be in the position of breaking up a 
relationship that had been perfectly satisfactory. 

Mr. Nehemkis. Now, perhaps you and I are having some difficul- 
ties about the use of words. I used the word "competing." You seem 
to be very allergic to that word so I will try and use another one. 
If you had actively continued discussing this piece of business with 
officials of the Armstrong Cork Co., knowing that it was a former 
Guaranty account and hence by inheritance, so to speak, -within the 
sphere of interest of E. B. Smith, that would not have been desirable 
Irom a business point of view. Do you follow me on that? 

Mr. Schiff. I don't think it would have been desirable because if 
we did it enough we would end up with no corporations doing busi- 
ness with. us at all. 

Mr. Henderson. May I ask a question there ? Would you be willing 
to say that it was unethical competition? 

Mr. Schiff. I am not quite "sure of the definition of the word 
kt ethical" that, keeps being brought in all the time. I am looking at 
it from the point of view of what is a sensible way to run your busi- 
ness. I think it would be bad business to do it. Certainly I think 
morals and ethics come in. It is just as unethical as it is in any 
profession. 

Mr. Henderson. Take the condition existing after the divorce 
when these accounts presumably might be free. If you went out after 
any of those accounts, would you be competing for them? 

Mr. Schiff. Certainty that is competing; yes. 

Acting Chairman King. As I understand the situation, if E. B. 
Smith & Co. had been doing business with the Armstrong Cork Co. 
and floated its securities, and the time had come when the situation 
developed that Armstrong Cork wanted to deal with somebody else 
and some representative came to consult with you, you would, before 
ye*-. would take that business, desire to know whether the relations 
be ^een E. B. Smith & Co. and the Armstrong Co. had been severed 
lether there were any obstacles, ethical or moral or in a business 
fva.y, to your becoming a competitor with E. B. Smith & Co. in nego- 
tiating a deal with the Armstrong Co. to handle their securities. 

124491—40 — pt. 24 12 



12484 CONCENTRATION OF ECONOMIC POWER 

Mr. Schiff. I think that is generally true. We are willing to com- 
pete where there is a complete break, but not where there is a con- 
tinuous and happy relationship as between lawyer and client, doctor 
and patient. 

Acting Chairman King. But if you were satisfied that E. B. Smith 
& Co. would be willing to have others associated with it and the 
Armstrong Co. were perfectly willing to have others brought into 
the handling of their securities, would there be any objection from 
your point of view to your organization becoming, shall I say, a com- 
petitor or a partner or cooperating with the E. B. Smith & Co. in 
handling the new issue or refunding the issue? 

Mr. Schiff. No ; I think not. 

Mr. Nehemkis. Mr. Schiff, I show you a memorandum which pur- 
ports to bear your initials. Will you examine this memorandum and 
tell me whether these are your initials and whether this memorandum 
was, in fact, dictated by you on or about July 27, 1934 ? 

Mr. Schiff. Yes. 

Mr. Nehemkis. I want to read to you a statement you wrote in this 
memorandum, Mr. Schiff. [Reading from "Exhibit No. 1858"] : 

Yesterday Mr. M. L. Freeman discussed with me the possibility of doing some 
financing for the Armstrong Cork Company, with which he has a connection. 
I told him that I would discuss it here in the office, and asked him to return 
today. 

Having j^hecked up on the Company and found that the original financing had 
been done^by the Guaranty Company, I explained to Mr. Freeman that the 
Guaranty Company's successor was E. B. Smith & Co. and that naturally we 
did not want to poach on their preserves. 

I venture to say, Mr. Chairman, that that statement epitomizes the 
entire problem that we have been discussing and presenting to you 
during these past several days. I am, indeed, very grateful to Mr. 
Schiff for having summed it up so neatly, so succinctly, for having 
made such an excellent presentation of a rather difficult problem. 

Then you continue, Mr. Schiff, as follows. [Reading further from 
"Exhibit No. 1858"] : 

I told him that provided he explained in detail to the company that they were 
coming to us of their own free will, we should be pleased to have a talk with 
them if he would bring in one of their senior officers the next time he was in 
New York, which he agreed to do. 

Mr. Chairman, may the document identified by the witness be 
presented in evidence ? 

Acting Chairman King. It may he received. 

(The memorandum referred to was marked "Exhibit No. 1858" 
and is included in the appendix on p. 12776.) 

TRADITIONAL ATTITUDE OF KUHN, LOEB & CO. TOWARD COMPETITION WHERE 
A SATISFACTORY BANKING RELATIONSHIP EXISTS 

Mr. Nehemkis. Mr. Schiff, hasn't the position to which you have 
given philosophic expression in your memorandum been the tradi- 
tional attitude of the house of Kuhn, Loeb? 

Mr. Schiff. I think the traditional attitude of the house of Kuhn, 
Loeb has been as I just stated a few minutes ago. I probably can't 
restate it in the same terms, but generally that the corporation has 
the right to choose its own bankers, it is not tied in any way, it is 
entirely in the hands of the corporation ; that if they want to change 



CONCENTRATION OF ECONOMIC POWER 12485 

bankers that is their privilege, but as long as there is a satisfactory 
relationship between the corporation and its bankers we are not going 
to try to steal it away from them, but we are willing to compete 
openly for any unaffiliated corporation or any corporation that is 
dissatisfied with its existing relationship. 

Mr. Nehemkis. Was not that the position of your father, Mortimer 
Schiff? 

Mr. Schief. He is no longer living ; it is very hard for me to spean 
for him. 

Mr. Nehemkis. You don't know, however, whether he had occasion 
to also express that view? 

Mr. Schiff. I hope that was his position. 

Mr. Nehemkis. Was it not also the position of your late, dis- 
tinguished grandfather, Jacob Schiff? 

Mr. Schiff. He died while I was still at school, so I can't tell you. 
I don't know whether he had that point of view.. 

Mr. Nehemkis. May I ask Mr. Strauss,' who has been associated 
with the firm a little longer than you, whether or not the position of 
Mr. John Schiff epitomized also the philosophy and position of Mr. 
Jacob Schiff? 

Mr. Strauss. It was. 

Mr. Nehemkis. Was it not also the position of Mr. Mortimer 
Schiff? 

Mr. Strauss. It was. It might be stated, however, by way of am- 
plification, that a change, a direct change in banker relationships of a 
corporate borrower was regarded by Kuhn, Loeb & Co. as contrary to 
the best interests of the public, the investing public, in that it made 
it impossible for a continual flow of banking advice to the borrower 
from one source. 

Mr. Henderson. May I'ask a question ? Mr. Strauss, how did the 
investment banking fraternity regard a company, that shifted 
around ? 

Mr. Strauss. I can't speak for the fraternity. 

Mr. Henderson. How did your house regard it? Did you have 
a sort of danger signal up ? 

Mr. Strauss. Well, I might illustrate it by^ an anecdote or an in- 
stance, if yon will permit me, that is fairly illustrative. Several 
years ago — I can't recall the date — the same intermediary or middle- 
man brought the president and one of the junior officers of a corpora- 
tion to see me, stated they wished to change their bankers, and 
upon their departure, I looked over their list of directors and found 
on their directorate a member of a banking firm whom I called to 
inquire about the circumstances, and who told me that they were in 
negotiation with that firm, whereupon we declined to have anything 
to do with it. The concern was McKesson & Bobbins, and the 
banker in question was our mutual friend Mr. Weinberg*. 

I think the adventitious change of bankers without good cause is a 
sufficient red flag to a conservative banker to make him wish to know 
more about the situation. 

Mr. Henderson. You wouldn't say, though, that everyone who 
wants to change bankers probably has something in his inventory. 

Mr. Strauss. No ; by no means ; by no means ; but in any event, a 
careful banker would wish to know why. 



12486 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson". Do you think in this case that McKesson & 
Robbins wanted to change because they felt that the continuing rela- 
tionship with Goldman, Sachs would disclose a fake inventory? 

Mr. Strauss. I can't imagine what was in their mind in that 
instance. 

Mr. Henderson. I was just wondering what was in your mind 
about it, because you used it as the instance. 

Mr. Strauss. I have engaged in many speculations, but I don't 
think any of them would be proper for the record. 

Mr. Nehemkis. Mr. Strauss, are you not regarded as the expert 
in your firm on Youngstown Sheet & Tube Company matters ? 

Mr. Strauss. The habit in our firm is for all the partners who are 
in the office at the time to be fairly familiar with transactions. 

Mr. Nehemkis. Is that a general practice in your firm? 

Mr. Strauss. Yes ; that is usually the practice where the number of 
partners are few. 

Mr. Nehemkis. In other words, Mr. SchifF, then, would be as 
familiar, let us say, with Armstrong Cork as any of the other part- 
ners? 

Mr. Strauss. Not necessarily; he might have been away at the 
time, or particular details of the transaction might have been handled 
by one or another, but there is no attempt to make an expert of any. 
partner. 

Mr. Nehemkis. For example, your firm differs in that respect from 
J. P. Morgan & Co. when it was in the investment banking business 
and had certain partners who were specialists in Telephone affairs 
and railroad affairs, and that sort of thing. 

Mr. Strauss. I am unable to testif} 7 as to that, sir. 

Mr. Nehemkis. You are familiar with Youngstown Sheet & Tube 
matters, aren't you ? 

Mr. Strauss. Yes. 

Mr. Nehemkis. I ask you to examine a memorandum dated No- 
vember 18, 1927,' which was apparently written by Mr. Jerome Han- 
auer. It bears the imprint of your stamp, Kuhn, Loeb & Co. For 
the sake of the record, will you be good enough to identify it for 
me, please? 

Mr. Strauss. It appears to be a fairly long memorandum, Mr. 
Nehemkis, and I came down prepared on Armstrong Cork and Lino- 
leum. I didn't know you wished me to testify with respect to this 
memorandum. 

Mr. Nehemkis. I shan't ask you any question on it. 

Mr. Strauss. The memorandum is one bearing Mr. Hanauer's 
initial. 

Mr. Nehemkis. That is fine, sir. Thank you very much. 

I note back in 1927 this same mysterious middleman, finder 
or entrepreneur also was in to see your firm in regard to Youngstown 
Sheet & Tube matters. Let me read you, Mr. SchifF, from a memo- 
randum by Mr. Hanauer as of November 18, 1927. [Reading from 
"Exhibit No. 1859" :] 

Mr. Seward Prosser, late in the afternoon of November 17th, telephoned to me 
asking whether he conld come around to see me and a few minutes after- 
wards he came. Mr. Prosser — 

Would you identify Mr. Prosser for the record ? 

Mr. Strauss. Mr. Prosser was chairman of the board of directors. 



CONCENTRATION OF ECONOMIC POWER 12487 

Mr. Swan. Chairman of. the board at that time. 
Mr. Nehemkis [reading further] : 

Mr. Prosser stated that he understood we were negotiating for the Youngstown 
refunding, and that he, realizing our usual practices, and our friendship for his 
company, felt we were negotiating under a misapprehension of the Bankers 
Trust Company's position : that the Youngstown Company and Mr. Campbell, the 
President, were the closest friends of the Bankers Trust Company, that Mr. 
Samuel Mather was a director of the Bankers Trust Company and it would be a 
great blow for the Trust Company if they should lose this business. * * * 
In reply I told Mr. Prosser that this matter had been suggested to us originally 
many months ago by an intermediary and we had at first ridiculed the suggestion, 
saying to the intermediary that the Bankers Trust Company was the banker of 
the Youngstown Company. The intermediary insisted that this was not so and 
that Mr. Campbell would like to do the business with us. We declined to discuss 
the matter any further with the intermediary and stated that we could only 
consider the matter if these things were stated to us directly by Mr. Campbell. 

Continuing with the memorandum, 

Mr. Schiff— 

And this is Mr. Schiff's father — 

came into the room at about this time and most of what was said above was re- 
peated on both sides — Mr. Prosser emphasizing what a blow it would be to his 
Trust Company to lose this business and Mr. Schiff emphasizing how we had made 
every effort to be sure that we were not competing with them. I stated that 
while we never competed for business, we of course would not take the position 
that if a corporation came to us and told us they were free that we would not 
deal with them. 

That pretty much sums up the historical position, does it not, of the 
house of Kuhn, Loeb by Mr. Schiff? 

Mr. Strauss. Mr. Nehemkis, of course, you are noting that you 
have omitted part of a paragraph there, and that is not a continuation 
of the memorandum. 

Mr. Nehemkis. I am offering for the record the entire document. 
May it be received ? 

Acting Chairman King. Yes. 

(The document referred to was marked "Exhibit No. 1859" and is 
included in the appendix on p. 12776.) 

Mr. Nehemkis. I asked a question, I believe, of Mr. Schiff and I 
don't believe the record shows any answer. 

Mr. Schiff. What was the question again, please? 

Mr. Nehemkis. The question was, did not the various excerpts I 
read pretty much sum up the historical position of the house of 
Kuhn, Loeb on the problem of competing or not competing? 

Mr. Schiff. They wouldn't compete except where there was dis- 
satisfaction. As a matter of fact, I wasn't with Kuhn, Loeb at that 
time ; I was working for the Bankers Trust Co. at that time. 

Mr. Nehemkis. The Bankers Trust Co. ? How interesting ! 

Acting Chairman King. If an issue were brought to the Street 
by a corporation from any part of the United States, and its repre- 
sentatives were seeking a house or an investment company that would 
take charare of their securities and dispose of them, I suppose that your 
house and any other investment house would feel at liberty to compete 
in the market for that business. 

Mr. Schiff. Provided the corporation would have the standing 
of securities that we would be willing to offer to the public, a cor- 
poration* of proper standing. 



12488 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. I am assuming that the securities which it 
would offer would be meritorious. 
Mr. Schiff. Yes, sir. 

Acting Chairman King. But if the person should come to your 
house and state that he or his firm had been doing business with 
the Jones Investment Co., and that their relations were strained, 
and they didn't care to continue with t the Jones Co., you would 
feel at liberty, then, to investigate the character of these securities 
with a view to deciding whether your house would undertake to 
negotiate ? 

Mr. Schiff. Yes, sir ; we would. 

Mr. O'Connell. I am not entirely clear on that. As I understood 
your prior testimony, it was to the effect that if an industrial con- 
cern or a prospective issuer came to, your firm and was considering 
using you as a banker, you would first ascertain what its former 
banking connection was and would not discuss the situation with 
their company until you had ascertained the connection between 
the former banking connection and the issuing concern was no longer 
in your judgment satisfactory. 

Mr. Schiff. If he told us he was no longer satisfied, we would 
take the word of the senior officer of the corporation. 

Mr. O'Connell. You wouldn't contact the other bankers? 
Mr. Schiff. I don't think — we might, we 'might not; I think 
circumstances alter cases. It is hard to lay down a hard and fast 
rule on that. 

Acting Chairman King. Would there be a different rule — and I 
am asking to make clear the distinctions which may be made in 
connection with your testimony and with the testimony of those 
who have preceded — would there be an analogy between the bank- 
ing fraternity and the legal fraternity? Suppose that you were a 
lawyer and some prospective client came and stated that his firm 
was Jones & McLaughlin, that they had been his lawyers for many, 
many years, but he desired to disassociate himself from them and to 
get other lawyers. Would not a reputable lawyer, before taking over 
their business, call up Jones & McLaughlin to ascertain whether or 
not the relation of the client and the attorney still existed? 

Mr. Schiff. I believe they would; I believe that is a very fair 
comparison, sir. 

Acting Chairman King. But if the relation did not exist, if they 
had broken off, then a reputable lawyer under the highest form of 
ethics would not feel debarred from taking on that business. 
Mr. Schiff. That is correct, sir. 

Mr. O'Connell. Mr. Schiff is not a lawyer, and I happen to be, 
and I am not so sure that a reputable lawyer, if approached by a 
prospective client, would be under any duty to determine that a 
change was satisfactory not only to the prospective client but also 
to the former attorney. 

Acting Chairman King. Well, then, you may differ from me. I 
have been a lawyer, and when a person would come to me to bring 
business and would tell me Jones & Co. had been their lawyers for 
years, that they had broken with them, I would feel at liberty to take 
their business, although I invariably would inquire of Jones & Co. 
whether that was a fact, that they had broken and they had paid 
their obligation, so that the relation between them no longer existed. 



CONCENTRATION OF ECONOMIC POWER 12489 

I didn't want my client to be sued by some other lawyer because he 
failed to pay his bill. 
Proceed. 
Mr. O'Connell. That is a very practical aspect of the problem. 

PAYMENTS BY KUHN, LOEB & CO. TO M. L. FREEMAN 

Mr. Nehemkis. Mr. Strauss, before leaving the matter of Youngs- 
town Sheet & Tube Co., I would like to ask you a few questions 
about it. We have been speaking of this middleman or entrepreneur 
M. L. Freeman. I note that he comes into the Youngstown Sheet & 
Tube picture as far as your firm is concerned as early as the year 
1927. Did he not in that year receive a payment from Kuhn, Loeb 
&Co. of some $75,000? 

Mr. Strauss. Yes; he did. 

Mr. Nehemkis. Was that in connection with bringing you the 
Youngstown Sheet & Tube business? 

Mr. Strauss. The question of whether he brought the business or 
not, Mr. Nehemkis, is a moot point. In any event, we felt suffi- 
ciently indebted to him for his services to pay him that. 

I would like to comment on just another question. You referred 
to him as a "man of mystery." He is hardly that, he is very well 
known in Wall Street and in many other institutions besides those 
which have been mentioned today. 

Mr. Nehemkis. I think before the testimony ends, we will see he is 
very well known elsewhere. 

Mr. Henderson. I think, if I may interpret, counsel had in mind 
the mystery as to whether he was intermediary, tinder, or middleman, 
and when you say it is a moot question whether he was paid a finder's 
fee, it still leaves it a nvvstery. 

Mr. Nehemkis. In any event, in 1936 did not Mr. Freeman also re- 
ceive payment of $20,000 from Kuhn, Loeb & Co. in full settlement 
of his services to date? 

Mr. Strauss. He did. I don't recall the date but you have the 
figures before you. 

Mr. Nehemkis. And was that not also in connection with the 
Youngstown Sheet & Tube matter? 

Mr. Strauss. That was in connection with a great multitude of 
services. Mr. Freeman favored us with suggestions of scores of pieces 
of business which may or may not have been feasible. They were 
not for us. But he exhibited a degree of good will that seemed to 
me to warrant that compensation. 

Mr. Nehemkis. It is interesting to observe, however, that ap- 
parently for internal purposes in your office, you regarded that $20,- 
000 payment in 1936 as referring to Youngstown Sheet & Tube mat- 
ters, because your letter of transmittal of your check appears in your 
files under Youngstown Sheet & Tube. 

Mr. Strauss. That is correct. It wasn't possible to allocate it 
against the profits of businesses that didn't eventuate. 

Mr. Nehemkis. Now didn't your firm bring out an offering for 
Youngstown Sheet & Tube about that time ? 

Mr. Strauss. I don't recall the dates, Mr. Nehemkis. As I said to 
you, I wasn't prepared to testify, on Youngstown financing, but those 
dates are of record, so it is quite easy to ascertain them. 



12490 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. On April 23, 1936, an offering of $60,000,000 first 
mortgage bonds and $30,000,000 of debentures was made public. Now 
you were the leader of that financing, were you not, I mean K. L. ? 

Mr. Strauss. Unfortunately, I am asked to testify now about 
something which is a matter of record, but I don't have the facts 
before me. 

Mr. Nehemkis. Then suppose you accept these matters of public 
record as I indicate them to you, subject to confirmation. 

(Off the record colloquy between Mr. Nehemkis and Mr. Swan.) 

Mr. Nehemkis. Now, Mr. Strauss, as one of the principal under- 
writers of that financing, were you not under a responsibility to have 
disclosed in your registration statement under item 25 that Mr. M. 
< L. Freeman had received a fee of $20,000 ? 

Mr. Strauss. No more than any other of our expenses. This 
Wasn't an expense of the business. 

Mr. Nehemkis. What was it, then ? 

Mr. Strauss. It was a part of our own expenses. 

Mr. Nehemkis. And this $20,000 fee was charged up to your own 
expenses ? 

Mr. Strauss. That is right, and not to the business. 

Mr. Nehemkis. If it had been charged up to the business, you 
would have had to disclose it. 

Mr. Strauss. I don't know what the legal requirement there is, 
but certainly he had nothing to do with the transaction at all. This 
was a compensation paid in respect of this and other services and 
was paid entirely as an expense of Kuhn, Loeb & Co. 

Mr. Nehemkis. Now is it your contention, Mr. Strauss, that the 
payment of $20,000 to the gentleman whom we have been designating 
M. L. Freeman, was not a finder's fee ? 

Mr. Strauss. Yes; it is my contention that it was not. 

Mr. Nehemkis. That it was not a finder's fee ? 

Mr. Strauss. That is right. 

Mr. Nehemkis. Can you enlighten me at this time' as to the nature 
of the services rendered by M. L. Freeman in 193 

Mr. Strauss. In connection with that transaction he performed no 
services whatever. In fact, I doubt if he knew anything about it 
until he read it in the press. 

Mr. Nehemkis. And for his performing no services you were 
prompted to pay him $20,000? 

Mr. Strauss. No. 

Mr. Nehemkis. Then what did you pay him fori 

Mr. Stkauss. If you refer to the answer I niafe to a previous ques- 
tion, 1 I indicated over a period of years he life on many occasions 
proposed business to us, and he has proposed to us business that 
wasn't always feasible. Sometimes it was feasible for others. And 
in order to compensate him for those services and so, shall I say, 
insure his continued goodwill, this payment was made. 

Mr. Nehemkis. Will you be good enough to explain to me, then, 
Mr. Strauss, why this letter of transmittal sending Mr. Freeman a 
check of $20,000 appears in the files, "Re Youngstown Sheet & Tube 
Company?" 

1 Supra, p. 12489. 



CONCENTRATION OF ECONOMIC POWER 12491 

Mr. Strauss. I have seen that letter and pencil notation, and out- 
side of the fact that there was no other place to file it, I can't account 
for the pencil notation. 

Mr. Nehemkis. Would it be a reasonable hypothesis for me to 
make that conceivably this may have been Yoimgstown business? 
You indicate a certain vagueness as to why it should have been filed 
under Yoimgstown Sheet & Tube. May there not be some gaps in 
your recollection as to whether or not it was Yoimgstown business? 

Mr. Strauss. No; it seems to me perfectly reasonable this man 
having been responsible, so far as I was concerned, for the initial 
Youngstown transaction, and this transaction having been not a 
direct continuation of it but nevertheless a contract with the same 
company, that some recognition of that might be appropriate even 
though it were not requisite. 

PROFESSIONAL CHARACTER OF INVESTMENT BANKING 

Mr. Nehemkis. By the way, and digressing for a moment, is it 
your opinion, too, Mr. Strauss, that investment banking is a profes- 
sion and analogous to that of the lawyer's profession ? 

Mr. Strauss. With some fine nuances of distinction, I have always 
regarded banking as a profession in the same way as the medicine, 
and the law; yes, sir. 

Mr. Nehemkis. Now, you have dealt with lawyers, I assume, for 
many years in connection with your business. What would you think 
of lawyers who paid fees to other people for having brought business 
to them? 

Mr. Strauss. I don't know as I ever heard of such an instance. 

Mr. Nehemkis. Have you ever read "The Canons of Legal Ethics" 
by chance? 

Mr. Straus. No ; I have not. 

Mr. Nehemkis. Have you, Mr. SchifF? 

Mr. Schiff. No. 

Mr. Nehemkis. Have you, Mr. Swan ? 

Mr. Swan. No. 

Mr. Nehemkis. Isn't this curious? How does it all happen that 
you use the analogy of the relationship of the banker to his clients 
as corresponding to that of the lawyer to his clients — and, inciden- 
tally, the committee will recall that Mr. Whitney used that analogy, 
Mr. Sidney A. Mitchell used that analogy, Mr. Walter Sachs used 
that analogy, and Mr. Charles E. Mitchell, and I think Mr. Leib, and 
possibly others. Isn't that curious? 

Mr. Strauss. Might I state what I think the analogy is? The 
analogy is, sir, that the choice is the choice of the client and that 
the relation is one of confidence. 

Mr. Nehemkis. Now you say you have never read "The Canons of 
Legal Ethics." Do you know there is a provision in "The Canons of 
Legal Ethics" that expressly forbids a lawyer from paying money 
to a third party for bringing in business? And as a matter of fact, 
if I recall — and there are more distinguished lawyers sitting at the 
bench here — we use a rather ugly term for anyone who does that. 
Mr. O'Connell, don't we call that "ambulance chasing"? 

Mr. O'Connell. That is right. 



12492 CONCENTRATION OF ECONOMIC POWER 

Mr. Strauss. Mr. Nehemkis, aren't there great differences between 
all the professions? For example, I am sure you would agree there 
is no question that both the law and medicine are professions, but 
no doctor would permit himself to be put up on the stand and ques- 
tioned, for example, on the private affairs of a patient. There are 
these differences between the relationships 

Mr. Nehemkis (interposing). May I interrupt a moment because 
I think you have raised a rather interesting point. Simply because 
no docotor or no lawyer, by the recognized concepts of society, is 
permitted to be subjected to the kinds of, shall I say, indignities 
that the members of your profession .are subjected to by people like 
myself, is plain recognition of the fact that society does not regard 
your profession as a profession in the same fashion that it regards 
the medical profession or the legal profession. 

Mr. Strauss. The professor of that profession may have a better 
opinion of it than society. 

Mr. Nehemkis. That is possible. 

Mr. Henderson. Since this has been raised, Mr. Strauss, do you 
regard investment banking as a competitive profession? Is there 
competition in it? 

Mi. Strauss. Within the limits of the definition of the term; we 
know that there is competition required by law in some instances, we 
know there is voluntary competition in others. I don't know just 
what you mean, Mr. Henderson. 

COMPETITION IN INVESTMENT BANKING 

Mr. Henderson. I think it is very pertinent since things have 
frequently come up during this hearing which would be a little bit 
quaint in competition. The investment banking witnesses have in- 
variably said, "Ours is a profession," and every time we were directly 
on the point of competition we have been assured that the most 
vigorous competition prevades the investment banking business. 

Now I am not qualified — I take it that you didn't undertake to be 
qualified either — to pass on the canons of the legal profession, but 
I think that I am reasonably qualified to test competition, and I am 
frankly between the two horns of a dilemma, and so we might say it 
is a competitve profession. Do we want to say that? 

Mr. Strauss. I don't want to get myself in the position where I 
am speaking for the investment banking community. I am not quali- 
fied to do so. I can only tell you how I personally regard it, and I 
would attempt to answer your questions in the first person if they 
were put in the first person singular. 

Mr. Henderson. Put them in the first person. What do you say? 
Do you regard it as a competing profession ? 

Mr. Strauss. I do in this sense, Doctor 

Mr. Henderson (interposing). I am not a doctor. I have pre- 
served my virginity for a good many years. I don't propose to 
lose it at this distinguished table. [Laughter.] 

Mr. Strauss. I will answer that off the record. [Laughter.] 

We are obviously in competition with all other investment bankers 
in that our brains and our experience are for sale. Our shingle 
is out. The prospective borrowers know that. That is the kind 
of competition that is going on day and night. However, we don't 



CONCENTRATION OF ECONOMIC POWER 12493 

send a catalog of baby carriages every time we see a wedding an- 
nouncement in the paper — following up your expression, to extend 
your metaphor. 

Mr. Miller. May I ask a question? Isn't the distinction, Mr. 
Strauss, that 3^011 are trying to make in answer to Commissioner Hen- 
derson's question as to competition, this, that in the investment bank- 
ing business you are selling services, whereas in ordinary commerce 
and businesses, commodities are being sold? Isn't that the distinc- 
tion that you attempted to make ? 

Mr. Strauss. If you will add to your point that we also take risks. 

Mr. Henderson. Well, do I understand then that accepting Mr. 
Miller's suggestion with your addendum, } r ou feel that any service 
industry is entitled to be outside the frame of competition? 

Mr. Strauss. I am sorry, I didn't follow that. 

Mr. Henderson. Well, the cleaning and dyeing industry sells a 
service, the barber sells a service, and we had in N. R. A. a long 
line of service codes that presumably were under the regulation of 
competition. Now none of them, of course, put themselves on the 
plane of the investment banker, but they were certainly selling serv- 
ices, and it was not considered unethical to go after an account. 
In fact, in the automobile industry, for example, there is no such 
thing, as I recall, as a successor to a business; there is no question- 
asked even in the steel industry whether IT. S. Steel had formerly 
gotten the business if Mr. Weir wants to go after it. 

Now, even if this were a selling of services, certainly all the 
ideology that surrounds American competition would be applicable, 
would it not ? 

Mr. Strauss. Perhaps it is my unfamiliarity with the subject — 
I don't know what the ideology surrounding American competition is. 

Mr. Henderson. And I gather that is true of a lot of the invest- 
ment bankers who have been down here. 

Mr. Strauss. I don't think so, Mr. Henderson, because the atti- 
tude of the investment banking fraternity toward, competition is a 
relative thing. Some institutions are more aggressive than others, 
and an answer that I might make as to our attitude wouldn't at all 
be applicable to the whole industry. 

Mr. Henderson. Now let's suppose there were — I guess you didn't 
like "fraternity" — in the competitive profession of investment bank- 
ing two or three firms which were more competitive, relatively. 
Aren't they working in a decidedly shrunken field when there is the 
captive company, you might say, the continuing relationship over a 
long period of years, when there is the reciprocal obligation passing 
all the time, and when there is the regard for business in its tradi- 
tional relationship such as we have instanced here today, where you 
will not touch it unless the company declares itself free? Aren't 
they working in a decidedly shrunken area ? 

Mr. Strauss. No. In the first place, I don't know of a captive 
company, speaking only of my own experience. We have no contrac- 
tual relation with any client that compels them to deal with us. As 
far as the more aggressive banker working in a restricted area, I 
think the record of the financing of the last year would bear me out 
that that is not the case. 

Mr. Henderson. Right on that point, are you sure that there are 
no frozen accounts with K. L.? 



12494 ' ONCJEKTRATION OF ECONOMIC POWElt 

Mr. Strauss. I don't know what a frozen account is. 

Mr. Henderson. Maybe T will have to get Charlie Mitchells defi- 
nition for you, then. But aren't there accounts that over a long 
period of years have stayed with K. L. ? 

Mr. Strauss. We are very proud of the fact that over a long period 
of years some clients have continued to use us as their bankers, but 
there has never been any compulsion and frequently many months 
go by without even consultation. 

AGREEMENTS FOR FUTURE FINANCING BETWEEN UNDERWRITERS AND 
BETWEEN ISSUER CORPORATIONS AND UNDERWRITERS 

Mr. Henderson. Leaving apart the fact that there is no obligation 
on the company, do you not have contract? as do other houses for the 
future financing of business? 

Mr. Strauss. Xone, none. 

Mr. Henderson. Have you been following the testimony before 
this committee? 

Mr. Strauss. I have not ; except in the newspaper. 

Mr. Henderson. Have you seen the references to the contracts for 
future financing ( 

Mr. Strauss. No ; I don't think I have. 

Mr. Henderson. We had one yesterday. Cleveland-Cliffs, where a 
part of the underwriting undertaking did envision going forward 
for all future financing. Then there is A. T. & T. 

Mr. Sirauss. You mean as between the underwriters? 

Mr. Henderson. Yes. 

Mr. Strauss. I saw some letters as I came in this morning that had 
been distributed yesterday. It seemed to me that perhaps was an 
arrangement that was subject entirely to the continued approval of 
the borrower, because, as I understand it. it is the borrower that allo- 
cates the participation. 

Mr. Henderson. In this case it was not that. This was a little 
unusual, because we had the veto power in the management in the 
Cleveland-Cliffs case by virtue of a board of directors? letter to the 
underwriters. But there have been over a peric ; — I think counsel 
could recite these better than I — numerous contractual relationships 
between the underwriting houses for continued financing. 

Mr. Strauss. We have no such. 

Mr. Xehemkjs. May I interrupt to point out, perhaps refresh Mr. 
Strauss' memory, that I had occasion to offer in evidence at the end 
of the hearing the day before yesterday an agreement, an understand- 
ing, if you will, between Kuhn, Loeb *& Co. and the Guaranty Com- 
pany of New York at the time that Mr. Swan was president of that 
company with reference to American Smelting & Refining Company 
financing. 1 I had occasion yesterday to offer in evidence before this 
Committee, and Ave listened to much discussion on a memorandum - 
written by Mr. Strauss in connection with Cleveland-Cliffs Iron Com- 
pany financing pertaining to mutual arrangements 

Mr. Strauss (interposing). Between the underwriters; and all 
those things. Mr. Xehemkis, are subject to the borrower. 

1 "Exhibit No. 1848." 
: "Exhibit No. 1833." 



CONCENTRATION OF ECONOMIC POWER 12495 

Mr. Nehemkis. Let me finish my sentence. An arrangement be- 
tween the underwriters pertaining to the future financing of the 
Cleveland-Cliffs Iron Company, and if my recollection serves me cor- 
rectly, Kuhn, Loeb is involved in some other arrangements of that 
sort involving underwriters. 

Mr. Strauss. There may be many such, but none of those are bind- 
ing on the borrower. 

Mr. Henderson. Your answer to me was that you had no such with 
other underwriters; that is what I understood. 

Mr. Strauss. There is a misunderstanding between us, then. 

Mr. Henderson. Assume that you have these contracts as far as 
future financing is concerned 

St. Strauss (interposing). I wouldn't call them contracts, there is 
nothing enforceable in connection with any of them. 

Mr. Henderson*. Let's make it understandings. 

Mr. Strauss. Precisely. 

Mr. Henderson. And the testimony here has shown that you are 
probably better off with an understanding than you would be with a 
contract. 

Mr. Strauss. Is that a question ? 

Mr. Henderson. I will make it a statement. I would say that 
the testimony as to the 60 companies covered by the Goldman, Sachs- 
Lehman Brothers treaty lid show that one of those accounts passed, 
which to me is at least one ^f the indicia of competition. Now, with 
these contracts you have, with the attitude towards not competing 
so long as the banking relationship has not been abandoned by the 
company, would you not agree with me that the area of vigorous 
competition open to an investment banker has considerably shrunken { 

Mr. Strauss. Why, no, Mr. Henderson, because if you will 'take 
the instance to which you have referred, you or Mr. Nehemkis. as 
having come up on yesterday or the day before, of the four firms who 
were in that particular piece of financing, Cleveland-Cliffs, the per- 
centage of the banking area involved in that was infinitesimal com- 
pared with the total picture. 

Mr. Henderson. Investment banking? 

Mr. Strauss. Yes. 

Mr. Henderson. The 1926 treatv for the Goldman, Sachs-Lehman 
agreement involved $200,000,000 and 60 firms. 

Mr. Strauss. I know nothing about that. 

Mr. Henderson. It is not a small amount that is covered by this 
type of understanding. 

Mr. Strauss. As I understand it. that understanding between 
Lehman Brothers and Goldman, Sachs was not one to which these 
60 firms were a party. 

Mr. Henderson. The evidence showed some of them were very 
painfully disturbed when there came that little dislocation between 
the companies. 

Mr. Strauss. Perhaps because of the personal relationship, but 
I am assuming from hearsay that they were not parties to any under- 
standing, any contracts between them. 

Mr. Neeeemkis. Mr. Commissioner, may I recall the witness' and 
perhaps your mind to the fact that Mr. Strauss' and Mr. Schiff's 
partner, Mr. Bovenizer, appeared here on the afternoon of the first 
day of our hearings on this subject. Mr. Bovenizer testified for 



12496 CONCENTRATION OF ECONOMIC POWER 

some time, I think we finished up that day around 6 o'clock, and 
the evidence indicated to me, at least — I don't speak for the com- 
mittee, of course — that the Chicago Union Station account, which 
was a joint account between your firm for many years and Lee 
Higginson, was as frozen as any account that I know anything about. 1 
I would even go so far as to say it was more frozen than A. T. & T. 

Mr. Strauss. Perhaps I am foggy-minded. Are you talking about 
an account between underwriters being frozen or an account between 
the borrowers and underwriters being frozen ? 

Mr. Nehemkts. This business of language is tricky. I am using a 
word that I didn't coin. A great banker, Charles E. Mitchell, coined 
that word in the presence of this committee, 2 and by "frozen account," 
Mr. Mitchell, if I understood him correctly, meant the kind of ac- 
count that over the years as the participations were allocated out 
by the leader or manager to the various members of the syndicate, 
remained fixed, crystallized, static. 

Mr. Strauss. That is greatly at variance with the subject that I 
understood Mr. Henderson to first question me about, or you, sir, 
namely, as to whether there was a contract or a frozen relationship 
between the borrower and the banker. There are agreements be- 
tween underwriters ; I have come prepared to admit it. 

Mr. Nehemkis. Dc you know of any . agreements between under- 
writers and issuers? 

Mr. Strauss. Do I know of any ? 

Mr. Nehemkis. Yes. 

Mr. Strauss. No; I can't say that I do. 

Mr. Nehemkis. Well, I intend to offer, may it please the com- 
mittee, Mr. Chairman, either tomorrow or the next day, at an appro- 
priate place, some 30 agreements which have in the past existed 
between investment banking firms and corporations controlling over 
a long period of time the issuance of securities by those corporations. 8 

Mr. Strauss. I would like to just say this, that I have negotiated 
with many dozens of borrowers and numbers of them second, third, 
fourth, and other times. I have never executed or even discussed 
such a contract. 

Mr. Nehemkis. But in the 'twenties wasn't that one of the most 
prevailing customs in the business? 

Mr. Strauss. Not as far as we were concerned. 

Mr. Nehemkis. Do you have any general knowledge on the 
subject? 

Mr. Strauss. I am sorry, I don't know what other houses have 
done. I would assume it was rather unusual, but that is purely 
pulled out of the air. 

Acting Chairman King. I assume that a banking house or invest- 
ment company that has a client, and that client is satisfied, has is- 
sues year in and year out, sort of a continual relation, that there 
are evidences of that character of relation where the investment 
banker has for long periods of time supplied the credit for a par- 
ticular client and that particular client when he needed additional 
funds, by refunding, or new issues, would go to that investment 
house that had been caring for his business for many years. 

Mr. Strauss. Yes, sir, Mr. Chairman; despite the objection to 
the parallelism of the professional relationship, it seems to me that 



1 Hearings, Part 22. pp. 11426 et seq. 

2 Ibid. pp. 11570, 11573 et seq 

» "Exhibits Nos. 1879 to 1925." 



CONCENTRATION OF ECONOMIC POWER 12497 

the client at any rate has regarded it in much the same way as he 
has the relationship with his lawyer and his doctor, he has gone to 
the institution he trusted and that he had dealt with before and 
whose habits of fair play he is familiar with and in most instances 
those relationships have continued over a period of time. 

Acting Chairman King. Can you conceive of anything unethical 
or improper for an investment banking house to establish relations 
under" the terms of which when its client, wants additional money 
and resorts to the investment house, that that investment house 
should not, if it can reach a satisfactory agreement with him, con- 
tinue to serve him ? 

Mr. Strauss. No, Mr. Chairman ; I not only agree with that, but I 
go further, I think a continuing relationship of a mutually free 
will nature is really essential to a proper consideration of the prob- 
lems of the borrower. It is only through long familiarity with the 
requirements of a business and coupled with familiarity with the 
market that the kind of service can be rendered that is of the most 
use to the borrower. 

Acting Chairman King. An investment house desires to know, 
does it not, before it takes on an obligation to sell securities or to 
underwrite them, something about the character of the business and 
the habits of those in charge, their dependability, their character 
and integrity, and also, further, if they have outstanding obligations 
and if so why, what disposition, what arrangements have been made 
to meet them? 

Mr. Strauss. Yes, sir. 

Acting Chairman King. And all of those considerations are in- 
volved before the prudent banking investment house will undertake 
to dispose of the securities of a client. 

Mr. Strauss. No investment banker could state it more succinctly. 

Acting Chairman King. What is that ? 

Mr. Strauss. I would accept that definition precisely. 

Mr. Nehemkis. What was your previous remark? 

Mr. Strauss. I said no one in this profession could state it more 
agreeably or succinctly. 

Mr. Nehemkis. Than the Chairman has just put it? 

Mr. Strauss. Yes. 

Acting Chairman King. Of course there is an element in those 
agreements where you underwrite that calls for perhaps great losses 
to be paid by the investment house if the securities are not sold or if 
there is a decline in the market, or if there is some interruption in 
the ordinary normal business. 

Mr. Strauss. There are risks. 

Acting Chairman King. There are risks, so that not only is the 
relationship to which we have referred where client and lawyer are 
involved, but there is the additional question involved — namely, the 
risk, and the investment house assumes those risks, especially if they 
underwrite the securites. 

Mr. Strauss. That is correct. 

Mr. Henderson. Mr. Chairman, I want the record to be decidedly 
clear. I think, if you will recall the interrogation, I have not raised 
the question of propriety with the witness. What I am interested 
in is, what is it? Is it a profession or is it a business, or is it a com- 
bination? It is at least slightly tinged with the public interest to 
know what this thing is that handles tremendous sums of the public's 



12498 CONCENTRATION OF ECONOMIC POWER 

money, and I think we are well served by this kind of discussion 
because if we get a clear picture, the public attitude is certainly on a 
good, strong, tactual basis. I am not here raising the question of 
propriety : I am trying to find out just exactly what this thing is, 
and I have undertaken at various points to indicate where in my 
opinion it does not meet the tests of competition — free enterprise 
and free entry — which we presume exist in the public mind and 
which certainly are contemplated by the statute set down for the 
regulation of competition. 

I think we are getting pretty well along in the testimony of the 
witness and the testimony of the committee. 

Mr. Nehemkis. Senator King, last night in looking over my 
papers, I read a rather interesting bit of testimony by one of the 
former partners of the gentlemen who are here this morning. I 
think it bears directly on the point. I want to read to you, if I may, 
the testimony pf the late Otto Kahn, who in 1933 testified on a simi- 
lar subject but a few doors down the corridor. 

Mr. Kahn was asked by Mr. Pecora the following questions. 1 

What is the general method, or what has been the general method by which 
your firm has financed railroad operations? 

Mr. Kahn. May I ask, in order that I may correctly understand your ques- 
tion before I answer: Do you mean the general method in detail of buying 
railroad securities, or the general method in approaching railroads? 

Mr. Pecora replied, 

Well, take the latter part of your inquiry, for instance, the general method 
of approaching railroads. 

Mr. Kahn. Well, I should say precisely the same method by which a lawyer 
approaches clients. 

Mr. Pecora replied, 

Well, lawyers are not supposed to approach clients. 

And then Mr. Kahn continued, and this is what I wanted to get at. 

Mr. Kahn. I was coming to that, Mr. Pecora. Or the method by which a 
doctor approaches a patient who is sick. He does not go after him. Ethically 
and as a standard of the legal profession you are not permitted to go after him. 
And I do not suppose that a doctor would be permitted to go after a patient 
under the ethical standards of the medical profession. For instance, he could 
not go if someone told him that "Mr. Smith in the next block is very sick with 
pneumonia, you better run in and try to find out if can get him." That 
would not be the way to do it. He gets his clients by reason of his reputation 
for ability and for successful cures and for sound advice given. And so it is 
with the lawyer. So it is with the architect. And so in our case it has long 
been our policy and our effort to get our clients, not by chasing after them, 
not by praising our own wares, but by an attempt to establish a reputation 
which would make clients feel that if they have a problem of a financial nature, 
Dr. Kuhn, Loeb & Co. is a pretty good doctor to go to. 

Mr. Strauss. I am awfully glad you read that. I wish I had that 
power of expression. I would like to put that in quotes. 

THE ELEMENT OF PRICE IN INVESTMENT BANKING COMPETITION 

Mr. O'Connell. Mr. Strauss, a few moments ago you explained, 
or I understood you to explain, the plane upon which you understand 

1 Reading from hearings before the Senate Committee on Banking and Currency, pursuant 
to S. Res. 84, 72d Cong, and S. Res. 56 and S. Res. 97, 73d Cong., Vol. 3, pp. 959-960, 
June 27. 1933. 



CONCENTRATION OF ECONOMIC POWER 12499 

competition operates in this industry. It is apparently a peculiar 
type of competition ; that is, it doesn't reflect the element of price. 

Mr. Strauss. Sometimes it does, sir. 

Mr. O'Connell. But the element of price is a disturbing element, 
a risk element, is it not? 

Mr. Strauss. No ; there are certain securities, for example munici- 
pal securities, in which they are usually sold on price. 

Mr. O'Connell. But they are sold that way because the law re- 
quires them to be sold that way. Would it not be fair to state that 
it is your position that price competition is undesirable in the field 
of investment banking? 

Mr. Strauss. In the field of public investing; I think it is much 
more important to the investor than it is to the investment banker. 

Mr. O'Connell. What is? 

Mr. Strauss. That price competition should not exist. 

Mr. O'Connell. Should not exist? 

Mr. Strauss. Should not. 

Mr. O'Connell. I am asking you if it is your position that price 
competition should not exist. 

Mr. Strauss. That is my position. 

Mr. O'Connell. What about in the field of public financing? Do 
you think it would be more desirable if competitive bidding for pub- 
lic securities were required by law? 

Mr. Strauss. I would be glad to go into the general question of 
competition in public bidding if you wish me to do it. I would hate 
to do it just in answer to a question because it seems to me that the 
problem is one that has a good many angles and I don't want to get 
myself in the position where if I start to present a general theory 
you Would feel that it is out of place. 

Mr. Henderson. I think the witness is correct in that. 

Mr. O'Connell. Yes. 

Mr. Strauss. I have read that is not your desire, but I am pre- 
pared to do it if you wish. 

Mr. O'Connell. That goes pretty far afield. The thing I want to 
be clear on is on whatever plane- competition in the investment bank- 
ing field operates it is your view that it should not include the ele- 
ment of price" competition. 

Mr. Strauss. That is my feeling, and of course it is obvious that 
sound performance is another element of competition as well as price. 

Mr. O'Connell. Oh, yes ; but it is equally obvious to me that price 
regulation is one of the most important functions of competition in 
competing enterprises. 

Mr. Strauss. That is right. 

Mr. CConnell. It is a regulator of price. 

Mr. Strauss. That is true. 

Mr. O'Connell. It is 1 one of the most important functions it has. 
As I understood it, it is one of the most important functions a system 
of competition has, and you feel that it is so inimical to the interests 
of the investment bankers and to the public that it should be elim- 
inated entirely. 

Mr. Strauss. Yes; and I am prepared to go into that at length 
if I am permitted to. 

Mr. Henderson. I think at the proper time we would be glad to 
have that because we hoped to hear it, but for the purpose of this 

124491 — 40— pt. 24 13 



12500 CONCENTRATION OF ECONOMIC POWER 

discussion I think, as was developed ? Mr. Chairman, that the element 
of price is a minor element, whereas m industry it is an extraordinary 
and prime element which determines whether or not competition 
actually exists. 

Mr. Nehemkis. Mr. Strauss, you may recall that earlier I offered 
in evidence a memorandum x prepared by Mr. Schiff in which he had 
occasion to communicate that it would not be desirable for your firm 
to "poach on the preserves" of E. B. Smith & Co. without first estab- 
lishing certain facts and conditions. I take it you agree with that 
general position. 

Mr. Strauss. Yes. Of course, this was a memorandum for the use 
of Mr. Schiff's partners and in the use of a term I presume Mr. 
Schiff felt it was unnecessary to go into a disquisition in the memo- 
randum of what he meant by a phrase or a sentence. 

Mr. Nehemkis. You all understood each other. 

Mr. Strauss. We understood it. 

FINANCING OF THE ARMSTRONG CORK CO. — 1935 ISSUE (RESUMED) — 
EDWARD B. SMITH & CO. BELIEVES ARMSTRONG IS ITS ACCOUNT 

Mr. Nehemkis. Is it not a fact, Mr. Strauss, that you had a number 
of conferences with Armstrong officials during the early part of the 
year 1935? 

Mr. Strauss. Yes. 

Mr. Nehemkis. And .that is the year following the date of Mr. 
Schiff's memorandum? 

Mr. Strauss. Precisely. 

Mr. Nehemkis. Had you satisfied yourself before holding these 
conversations that the Armstrong people were coming to Kuhn, Loeb 
of their own free will, to use Mr. Schiff's phrase? 

Mr. Strauss. I asked them that question when they came in. 
There was no other way of satisfying myself. 

Mr. Nehemkis. What did they indicate? 

Mr. Strauss. To* the best of my recollection they satisfied any 
qualms I might have had on that point. 

Mr. Nehemkis. But at that time you did not feel constrained to 
discuss the matter with E. B. Smith & Co. ? 

Mr. Strauss. I had nothing to discuss with E. B. Smith & Co. 

Mr. Nehemkis. But you had a very potent caveat by Mr. Schiff 
in his memorandum of July of 1934 that to continue such discus- 
sions might be construed as poaching on the preserves of E. B. 
Smith & Co.? 

Mr. Strauss. If those relationships which were referred to in that 
memorandum had not been ruptured. There was no way of ascer- 
taining that. 

Mr. Nehemkis. So that, if I understand correctly, you did ascer- 
tain that fact, namely, that the officials were coming of their own 
free will and you were satisfied on that point. 

Mr. Strauss. I think the correspondence bears that out. They 
came to me after telegraphing me for an appointment. 

1 "Exhibit No. 1858." 



CONCENTRATION OF ECONOMIC POWEIt 12501 

Mr. Nehemkis. But you did not discuss the matter at that time 
with any of the partners of E. B. Smith & Co.? 

Mr. Strauss. Very shortly thereafter I did. 

Mr. Nehemkis. In fact, on March 14, 1935, did you not com- 
municate with Mr. Swan and inform him that Kuhn, Loeb had 
this business and you would be very pleased if E. B. Smith & Co. 
would join hands with your firm in bringing out the financing? 

Mr. Strauss. The precise language I used you wouldn't expect 
me to remember, but the general sense of what I said was undoubt- 
edly just that. 

Mr. Nehemkis. Now, Mr. Swan, will you be good enough to ex- 
amine these diary entries which purport to be made by various 
partners of yours pertaining to Armstrong Cork events, and tell me 
whether this is a true and correct copy of the original diary in the 
possession and custody of your firm? 

Mr. Swan. It is. 

Mr. Nehemkis. Mr. Swan, do you recall that on or about March 
14, Mr. Strauss called you and said substantially what I have men- 
tioned a moment ago, namely, that K. L. had the business and they 
would be very glad to join hands with you? 

Mr. Swan. I remember that. 

Mr. Nehemkis. And do you recall, Mr. Swan, whether you ex- 
plained at this time to Mr. Strauss that the Armstrong business was 
an old account of yours? 

Mr. Swan. I believe that we explained to Mr. Strauss that we 
individuals who had been in the Guaranty Co. had previously 
handled Armstrong business and that we considered that at that 
time that we were in contact with them in respect to business in the 
future, that our relations /previously had been such that we expected 
that the Armstrong Cork Co. would continue with us as individuals. 

Mr. Nehemkis. Mr. Strauss, do you recall such a conversation 
between yourself and Mr. Swan? 

Mr. StRauss. In general terms, yes. 

Mr. Nehemkis. Now, I read to you, Mr. Strauss and Mr. Swan, 
from a diary entry of March 19, 1935, by your partner, Mr. Swan, 
John Cutler [Reading from "Exhibit No. I860"] : 

Lewis Strauss of KL t< W JRS and myself — 
that being Mr. Cutler— 

3/14/35 that they had this business — 

meaning K. L. had this business — 

and he — 

meaning Lewis Strauss — 

asked if we would be interested in joining them. We explained that this was 
an old account of ours and we believed it was still ours, but it was kind of 
him to think of lis and we would like to consider the situation. I subsequently 
talked to Roy Passmore at the Bank — 

Will _you be good enough to tell me who Roy Passmore is? 
Mr. Swan. He is vice president of Guaranty Trust Co. 
Mr. Nehemkis. And the reference to the bank is the Guarantv 
Trust Co.? 
Mr. Swan. Yes. 



12502 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Continuing the diary entry [reading further from 
"Exhibit No. I860"] : 

who said that he had been in conversation with officers of the Company within 
the last thirty days and felt very sure that there was nothing in KL's contention, 
and that the Company would not do anything without discussing the matter 
with them at the Trust Co. first, and that he could not believe they would accept 
any other offer without giving us a chance — 

"us" meaning E. B. Smith & Co. 

I suggested it might be well for us to take a day and run down to Lancaster 
to see the plant, and he — 

Roy Passmore — 

thought this would do no harm. 

Now following Mr. Strauss' call, Mr. Swan, did not one of your 
partners communicate with another official to discuss the same mat- 
ter, do you remember? 

Mr. Swan. Another official of the bank ? 

Mr. Nehemkis. Of the bank. 

Mr. Swan. I don't happen to recall. 

Mr. Nehemkis. Why was it necessary to consult an officer of the 
Guaranty Trust Co. in this matter, Mr. Swan ? 

Mr. Swan. When the officers of the Guaranty Co. became partners, 
when certain officers of the Guaranty Co., became partners of E. B. 
Smith & Co., they did so with the hope we could get the con- 
cerns with which the Guaranty Co. had been doing business to con- 
tinue to do their business with Edward B. Smith & Co. and with us 
as individuals. It was naturally a matter of the highest importance 
to us that we accomplish this. We were well and favorably known 
to all of the men in the Guaranty Trust Co., we had been working 
there for many years, we had had these contacts with these concerns 
as officers of the Guaranty Co. It was naturally of great im- 
portance that we get the officers of the Guaranty Trust Co. to recom- 
mend us to people whom we contacted and whom we wanted to con- 
tinue to hold. If they wouldn't recommend us, of course it would 
have been very adverse to us. Naturally we expected that they would 
recommend us, because they knew how we did" business, they knew 
how we had conducted business in the past, they knew that our new 
arrangement provided ample capital to take care of the needs of 
these customers, and therefore we kept in touch with the officers of 
the Guaranty Trust Co., who were. particularly handling the accounts 
which might be under discussion in order to urge them and persuade 
them and push them on to helping us in every way we could get 
them to. 

Mr. Nehemkis. And in that connection, Mr. Swan, was it not the 
practice and perhaps is it not the practice at the present time for 
members of your organization to frequently make use of the old 
records and books of account at the bank to check up on historical 
positions and percentage participation and advertising position and 
things of that sort? 

Mr. Swan. I would not say frequently, I would say occasionally. 

Mr. Nehemkts. Occasionally. 

Mr. Strauss, do you recall that on or about March 20, Mr. Swan 
communicated with you concerning your claims to the Armstrong 
business ? 



CONCENTRATION OF ECONOMIC POWER 12503 

Mr. Strauss. I wouldn't recall the date, but if there is a diary 
entry perhaps that would refresh my memory. I keep no dairy. 

Mr. Nehemkis. I beg your pardon ? 

Mr. Strauss. I keep no diaries. 

Mr. Nehemkis. You mean as a partner of Kuhn, Loeb you keep 
no diary entries? 

Mr. Strauss. No. 

Mr. Nehemkis. Do you, by the way, Mr. Schiff? 

Mr. Schiff. No, I don't. 

Mr. Nehemkis. Do any of your partners keep diary entries? 

Mr. Schiff. I wouldn't know. I shouldn't think so but I wouldn't 
know. 

Mr. Nehemkis. Did not Mr. Swan state, Mr. Strauss, that he 
believed the Armstrong business was E. B. Smith's at this time? 

Mr. Strauss. Yes. 

Mr. Nehemkis. Did you recognize the validity of Mr. Swan's 
position and did you not agree that K: L. would not compete for the 
business ? 

Mr. Strauss. Yes. As a matter of fact, I have some recollection 
at that time of having reached the conclusion that we were not the 
only parties with whom the company had discussed the matter. 

Mr. Nehemkis. Did you not also indicate to Mr. Swan that you 
so informed the Armstrong people? 

Mr. Strauss. I don't remember whether I did or not. 

Mr. Nehemkis. Let me read you from a diary entry of March 
20, 1935, by Mr. Swan's partner, John W. Cutler [reading from 
"Exhibit No. I860"] : 

JRS— 

meaning Mr. Swan — 

and I — 

meaning Mr. Cutler — 

talked to Strauss of KL&Co. and told him that we believed Armstrong to be 
our business and that when something could be done they would look to us. 
Strauss said if that were so KL would not compete, and that he would so 
inform the Armstrong people. If they really wish to make a change and clear 
with us, KL will then be willing to talk to them. We indicated that if and 
when the business would be clone we would have a place for them. 

Mr. Strauss. That is what I should have said and' probably did 
say. 

Mr. Nehemkis. In other words, Mr. Strauss, after Mr. Swan 
informed you of the fact that Armstrong Cork Co. was, so to speak, 
his business, and that this was confirmed by the Guaranty Trust 
Co., K. L. recognized, did it not, that the Armstrong business was 
within the sphere of interest, so to speak, of E. B. Smith and 
there 

Mr. Strauss (interposing). No, emphatically not. In fact, he 
said it was his business, in fact he indicated that the Armstrong 
Cork Co. regarded him as its banker and that there was some sort 
of negotiation or conversation, at any rate, that was under way or 
in progress or had taken place. In any event it was not a clear field, 
although if you will again turn to this memorandum that I have 
just heard I reserved the right, in the event that that should not be 
the case, to freedom of action. 



12504 CONCENTRATION OF ECONOMIC POWEK 

"shopping around" 

Mr. Nehemkis. On or about April 3, 1935, Mr. Swan, did not Mr. 
Cutler and Mr. Land of your firm call on some of the company of- 
ficials at Lancaster in pursuance of the suggestion of Mr. Passmore 
of the bank? 

Mr. Swan. I am not aware whether it was at his suggestion or 
their suggestion. 

Mr. Nehemkis. Do you recall whether or not these gentlemen dis- 
cussed with Mr. Suter, the vice president of the company, his previous 
visits to Kuhn, Loeb? 

Mr. Swan. I do not recollect that. 

Mr. Nehemkis. You don't? 

Mr. Swan. I don't happen to remember. 

Mr. Nehemkis. Do you recall whether or not Mr. Suter was accused 
by your partners of having committed the unpardonable sin, namely, 
of having "shopped around" on the Street ? 

Mr. Swan. I do not remember that they accused him of that. 

Mr. Nehemkis. Let me read you a rather interesting statement in 
a diary entry by J. N. L., and f think J. N. L. is J. N. Land? 

Mr. Swan. J. N. Land. 

Mr. Nehemkis. This is a diary entrv by Mr. Land as of April 6, 
1935 [Reading from "Exhibit No. 1860" :] 

JWC- 

being John W. Cutler — 

and JNL — 

just identified. 

called on the co.'s officials in Lancaster 4/3/35. Discussed refunding with 
4% debs, or pfd. See letter in Buying Dept. file dated 4/4/35 for outline 
of plans discussed. 

Notice carefully, if you will, the next sentence [Reading further :] 

Suter said Co. had not done any shopping around. 

Now obviously (and I believe I am correct in making this infer- 
ence) Mr. Suter upon meeting Mr. Lard and Mr. Cutler at the rail- 
road station at Lancaster didn't jump on their necks and say, "No. 
I didn't shop around " Somebody must have accused him of having 
shopped around so that he was forced to defend himself. 

Mr. Swan. I don't think that that inference is of necessity correct. 
I don't know how he happened to make the statement that he hadn't 
been shopping around, but I don't think it is fair from a memoran- 
dum to infer anything about what provoked that statement. 

Mr. Nehemkis. Let us s^e if we can agree on this. Perhaps you 
are correct that that inference may no! be fair, I don't know. Would 
you be willing to concede, however, that the problem of whether or 
not Suter had been shopping around was discussed in accordance 
with the diary entry from which I have just read ? 

Mr. Swan. From the diary entry you have just read apparently 
the subject of shopping around was discussed. 

Mr. Nehemkis. To put it in a way so we may all be clear on that 
phrase, what is meant by shopping around? 

Mr. Swan. "Well, I think shopping around means, as I understand 
it, getting simultaneous offers from two or more banking firms. 



CONCENTRATION OF ECONOMIC POWER 12505 

Mr. Nehemkis. Now the members of your profession, Mr. Swan, 
and your profession, Mr. Strauss, and your profession, Mr. Schiff, 
don't think that that is a very good practice, do you ? 

Mr. Swan. Are you asking me? 

Mr. Nehemkis. Yes. 

Mr. Swan. I think I would like to go into this at just a little length, 
if I may. Of course, you must recognize that at this particular time 
the Guaranty Co. had ceased to exist. They had previously been bank- 
ers for the Armstrong Cork Co. Certain officers of the Guaranty Co. 
had gone into Edward B. Smith & Co. as partners. Those partners 
were making a great effort to secure the business of the Armstrong 
Cork Co., together with other pieces of business which they had pre- 
viously handled. It is obvious from the record that at some stage 
of our effort to get this business, Mr. Suter was not clear as to just 
what he vv anted to do and he did what I think I would have done in 
similar circumstances, he went around and discussed in a general 
way the affairs of the Armstrong Cork Co. with different banking 
houses, with us and with others. I think that he was trying to clear 
up in his own mind whom he wanted to select as his bankers and 
he went around and got a view of this situation by these various dis r 
cussions. That I do not put in the category of shopping around. 
If I had beeen Mr. Suter I would have done just as he did. 

Mr. Nehemkis. What is shopping around, as you understand it ? 

Mr. Swan. Finally he came to the conclusion that he wanted to do 
business with Edward B. Smith & Co.. If after he had come to that 
conclusion he then continued to go to other bankers in order to get 
competitive offers to do his financing, that was what I would consider 
shopping around. 

Mr. Nehemkis. And Mr. Strauss, as you previously indicated in 
your earlier testimony, you do not think that that is a very good 
practice to encourage? 

Mr. Strauss. Well, it all depends on the circumstances, Mr. Ne- 
hemkis. If I had one security to sell and never expected to have 
another I would, to use the expression, shop around. If I expected, 
on the other hand, to do financing at some future time I would not. 

Mr. Henderson. You say if you 

Mr. Strauss (interposing). I can only answer for myself. 

Mr. Henderson. I know. If you were getting a piece of business — 
but how do you regard a company? 

Mr. Strauss. If I were an executive in the unusual position of 
never having to sell but one issue, never again, so that continuing 
banking relationship or continuing financial advice was of no interest 
to me whatever, I should shop around. 

Mr. Nehemkis. Mr. Schiff, suppose this situation occurred, would 
this be an instance of shopping around? The X corporation has 
had continuous banking relationships with a firm and comes to see 
you. You are aware of the circumstances, but in an unguarded 
moment you commit yourself on price and then that individual 
runs across the street and begins dickering around with another in- 
vestment banking firm on the basis of the price he has received 
from you. 

Mr. Schitt. I hope we wouldn't be that foolish as to let such an 
unguarded moment take us unawares. 

Mr. Nehemkis. You will recall I said "assume." 



12506 CONCENTRATION OF ECONOMIC POWER 

Mr. Schlff. I don't think I can talk from assumptions like that. 

Mr. Nehemkis. I thought I was giving you an instance that might 
lend itself to a "yes" or "no" answer. Suppose you tell me what your 
conception of shopping around is. 

Mr. Schiff. I think shopping around is talking to several banking 
houses at the same time. 

Mr. Nehemkis. With an idea of the issuer jacking up the price 
as a result of getting several bids ? 

Mr. Schiff. Perhaps jacking up the price, perhaps getting more 
liberal terms in the indenture, which would be of destructive nature 
to the security holder. 

Mr. Nehemkis. Do you as an investment banker regard that as a 
desirable practice? 

Mr. Schiff. I should think it would be most undesirable. 

Mr. Nehemkis. Beg your pardon? 

Mr. Schiff. I should think it would be most undesirable for the 
corporation issuing and for the public. 

Mr. Henderson. May I ask a question there? In that case I think 
you must put it on different grounds. I think I see your grounds, 
it is weakening the indenture, but it strikes me as a contrast between, 
we might say, the marketing of securities through an investment 
banking house and the selling of securities on the Exchange, which 
are strikingly different. The Exchange is the' outstanding example 
(I hope it will continue so) of a place where supply and demand 
exist, where buyer and seller exist, and where an attempt is made 
to have a large number of buyers and a large number of sellers trying 
to fix on a proper market price. The Exchange is always consid- 
ered the real place where free competition exists and it strikes me 
that there is a decided analogy there. I think you have explained 
some of the reasons why you feel that it marks itself off. 

Mr. Schiff. I might say that the Exchange is the market for 
trading in seasoned securities. We are talking about underwriting 
and offering new securities, after all. 

Mr. Henderson. That would be the same thing for the secondary 
distribution or for marketing some treasury stock that has already 
come on the market. 

Mr. Schiff. But then you are offering a big block. The exchange 
is dealing in small amounts. The offering of a large amount gives 
an entirely different reaction. 

Mr. Henderson. Yes ; but if you offered a big block, in other words 
if the supply side was very heavy and the buying side was less heavy, 
the market would determine the price. 

Mr. Schiff. And that is one of the main functions of the invest- 
ment banker, to determine what is the correct price for the existing 
market, to give the individual investor the opportunity to get it at the 
correct price and the issuer the opportunity to get the correct price 
for him, and if he doesn't price it right he won't stay in business 
very long, he will lose his business. 

KUHN, LOEB & CO. INFORMS EDWARD B. SMITH & CO. OF CONVERSATIONS 
WITH ARMSTRONG CORK CO. 

Mr. Nehemkis. Mr. Swan, after your conversation with Mr. 
Strauss, when you informed him that you regarded the Armstrong 



CONCENTRATION OF ECONOMIC POWER 12507 

account as belonging to your firm and that you were ready to handle 
it, did not Mr. Strauss thereafter keep you informed of all conversa- 
tions which he had with the Armstrong people? 

Mr. Swan. I believe that he may have had other conversations of 
which he probably informed us. 

Mr. Nehemkis. Do you recall, Mr. Strauss? 

Mr. Strauss. I don't recall, but if there were con vers? tions subse- 
quently there couldn't have been many. 

Mr. Nehemkis. That wasn't quite my question. My question was, 
do you recall keeping Mr. Swan or his associates informed of each 
and every time you had occasion to discuss the matter with the 
Armstrong people? 

Mr. Strauss. No, I don't recall that, but such things may have 
occurred. 

Mr. Nehemkis. I am going to read to you from a diary entry by 
Mr. John W. Cutler, May 1, 1935. [Reading from "Exhibit No. 
1860" :] 

Lewis Strauss called JRS, said Suter had been in to see hiin when he was 
in New York the end of last week and that he had told Suter of his conversa- 
tion with us. Suter had also been to the Guaranty and talked with Passraore, 
who said that he felt, sure if they were considering immediate action Suter 
would have spoken to him about it. 

Mr. Strauss. May I interrupt to say I am very glad you read that, 
because it enables me to answer a previous question to which I had to 
reply I didn't know. You asked me, as I recollect, whether having 
advised Mr. Swan that I would inform the company of my conver- 
sation, I had in fact done so ; I think that diary entry would indicate 
that I had done so. 

Mr. Nehemkis. Now again on June 13, 1935, Mr. Cutler made this 
entry. [Reading further from "Exhibit No. I860":] 

Strauss said he had not seen him recently — 

Referring to Suter — 

and believed he had reported to us each and every time the Company had said 
anything to them. 

Now, Mr. Swan, was not the reason for Mr. Strauss' reports to you 
the result of K. L.'s recognition that the Armstrong business was 
within your sphere of interest ? 

Mr. Swan. Oh, I think when we had the conversation in which Mr. 
Strauss said he would not compete unless the Armstrong people broke 
from us, that he recognized that the business was in our hands. 

Mr. Nehemkis. And that for K. L. to carry on discussions with 
the company under the circumstances would be a breach of banker's 
courtesy to you? 

Mr. Swan. I think that he did rot, as far as I know — he can testify 
to this; I don't think he carried on conversations with the company 
after he had advised Mr. Suter that he could not carry on such 
conversations unless he broke with us. 

Mr. Nehemkis. But you recall I just read into the record a diary 
entry as late as June 13, in which Mr. Strauss indicated that he was 
reporting to you each and every time the company had said anything 
to them. 

Mr. Swan. That may have referred to conversations far previous 
to that. I don't know — Mr. Strauss can testify as to whether or not 



12508 CONCENTRATION OF ECONOMIC POWER 

he had any conversations with Mr. Suter after he advised him that 
he would not compete unless he broke with us. I just don't know. 
I don't think he had any conversations after that. 

Mr. Strauss. I don't know. If I had any visits from Mr. Suter 
and Mr. Prentis, they were completely unsolicited and I have no 
recollection of them. On the other hand, if the records indicate they 
came in to see me, I would immediately confirm them. 

Mr. Nehemkis. I would like to offer in evidence the diary entries 
previously identified by the witness. 

(The diary entries referred to were marked "Exhibit No. 1860" 
and are included in the appendix on p. 12779.) 

Mr. Nehemkis. Is it your pleasure to recess at this time ? 

Acting Chairman Williams. How long will it be before you con- 
clude with these witnesses? 

Mr. Nehemkis. I should think Mr. Schiff and Mr. Strauss may be 
dismissed at this time. Mr. Swan unfortunately must continue this 
afternoon. 

Mr. Henderson. I have a question before they go. 

Acting Chairman Williams. Very well, proceed if it is just a ques- 
tion. I think it is time to recess, but if there is only a question or 
two, we will have it now. 

Mr. Henderson. I wanted to make this clear before these witnesses 
leave. When we were having the free-for-all discussion Counsel Ne- 
hemkis used the term "ambulance chasing" to indicate the payment 
of fees by the legal fraternity to bring in clients. I think he meant 
to say that" if banking were clearly and exclusively on complete fours 
with a profession, then that analogy would prevail. Certainly, I 
don't regard the function which a finqer or an intermediary performs 
as that of ambulance chasing. I think he performs a very definite 
function, and it would serve the general philosophy of investment 
banking much better if we had more finders and if they would bring 
in a lot of business to add to new investment. 

Mr. Strauss. I would like to say amen to that. 

Acting Chairman Williams. The committee will be in recess until 
2:30. 

Mr. Nehemkis. Mr. Chairman, I take it Mr. Strauss and Mr. 
Schiff are excused, and Mr. Swan must remain. 

Acting Chairman Williams. All right. 

(Whereupon, at 12: 35 p. m., a recess was taken until 2 : 30 p. m. of 
the same day.) 

AFTERNOON session 

The committee resumed at 2:35 p. m. at the expiration of the 
recess. 

Acting Chairman O'Connell. The committee will please be in 
order. 

Mr. Nehemkis. Mr. Swan, will you be good enough to return to 
the witness stand, please? 

(Representative Williams took the chair.) 

TESTIMONY OF JOSEPH It. SWAN, SMITH, BARNEY & CO., NEW 
YORK, N. Y.— Resumed 

Mr. Nehemkis. As you have already testified, Mr. Swan, on the 
subsequent public offering of the Armstrong Cork Co. issue, Kuhn, 



CONCENTRATION OF ECONOMIC POWER 12509 

Loeb was given a nonappearing position in the syndicate, is that 
not correct, sir? 
Mr. Swan. That is correct. 

EDWARD B. SMITH & CO.'s RELATIONS WITH ISSUER CORPORATIONS AND 
WITH GUARANTY TRUST CO. 

Mr. Nehemkis. Mr. Swan, I show you a document bearing the 
title, "Outline of Guaranty Co. of New York's relationship to public 
financing of the American Rolling Mill Company." This document 
waso obtained from your files. Will you be good enough to identify it 
for me ? 

Mr. Swan. Are you going to question me about this ? 

Mr. Nehemkis. I do not intend to, sir. 

Mr. Swan. I think that is correct. 

Mr. Nehemkis. Mr. Chairman, I ask that the document identified 
by the witness be spread on the records of the committee. 

Acting Chairman Williams. It may be received. 

(The document referred to was marked "Exhibit No. 1861" and 
is included in the appendix on p. 12781.) 

Mr. Nehemkis. Mr. Swan, will you examine this document which 
purports to be a memorandum by your partner, Mr. Weisheit, with 
reference to the Dow Chemical Co. ? 

Mr. Swan. I have never seen it, or I don't remember it, but I have 
no doubt that it is all right. 

Mr. Nehemkis. This memorandum prepared by Mr. Weisheit for 
Mr. Cutler reads as follows [reading from Exhibit No. 1862-1"] : 

Fred Krayer 

Will you tell me who Mr. Krayer is ? Do you recall ? 

Mr. Swan. Fred Krayer was formerly an employee of the Guar- 
anty Co. I think he was later an employee of Edward B. Smith 
& Co. I think he is now an employee of Harriman Ripley & Co. 

Mr. Nehemkis. Formerly Brown Harriman & Co. 

Mr. Swan. Formerly Brown Harriman. 

Mr. Nehemkis [reading further from "Exhibit No. 1862-1"] : 

Fred Krayer informed me today that he had been approached by Wertheim 
& Co. to form a joint account to buy rights to subscribe to this company's 
preferred stock with the idea of subscribing for the stock and marketing it. 
Recognizing us as the company's bankers, he had told Wertheim & Co. that 
Brown Harriman would do nothing without first talking to us and therefore 
wanted to know (1) whether we wanted to join Brown Harriman and Wert- 
heim in such a joint account, (2) if we did not want to go along, did we have 
any objection to their approaching the large stockholders with the idea of mak- 
ing a bid for their rights. 

Mr. Swan. That is not the whole memorandum, is it? 

Mr. Nehemkis. There is another part here. I am going to offer 
the entire memorandum in evidence. Would you like me to read" 
it all? 

Mr. Swan. I think it would be interesting just to have you read 
how we approached Mr. Dow, and so on. 

Mr. Nehemkis [reading further from "Exhibit No. 1862-1"] : 

Or (3) did we prefer that they take no action whatever. 

The next paragraph — 

After discussing the matter with JWC, CWK, and Hamilton Wilson, who 
discussed the whole story with Mr. Dow, I informed FK that Mr. Dow had told 



12510 CONCENTRATION OF ECONOMIC POWER 

us that he had received many letters from brokers who had common stock in 
their names — 

and so on. 

The rest of the memorandum is not relevant to the discussion. 

Mr. Swan. No; I just wanted it brought out. 

Mr. Nehemkis. It will all be in evidence. 

(The document referred to was marked "Exhibit No. 1862-1" and 
is included in the appendix on p. 12781.) 

Mr. Nehemkis. Mr. Swan, I show you a memorandum prepared 
by C. L. Austin, formerly with your organization, dated July 23, 
1935, which purports to come from your files. Will you identify it 
for me, please ? Do you so identify it ? 

Mr. Swan. I do. 

(The memorandum referred to was marked "Exhibit No. 1862-2" 
and is included in the appendix, p. 12782.) 

Mr. Nehemkis. I would like to read into the record, Mr. Chair- 
man, paragraphs of the memorandum identified by the witness [read- 
ing from "Exhibit No. 1862-2"] : 

JUS and CSC— 

Thai is a new set of initials to me 

Mr. Swan. Charles S. Cheston. 
Mr. Nehemkis. Charles S. Cheston. 

.TRS and CSC called on Henry Dawes in Chicago on October 22, 1934, and 
discussed generally with him the possibilities of doing a refunding job when 
market conditions warranted. In view of the fact that Edward B. Smith & Co. 
had inherited the Guaranty Company's position, we stated to Mr. Dawes that 
we felt we should be given first consideration. Mr. Dawes said that it was too 
early to discuss the matter, but that he appreciated our stopping in and that 
he would let us know whenever he had anything to talk about. 

Mr. Swan. May I comment on that? 

Mr. Nehemkis. Indeed, sir. 

Mr. Swan. It really is not a correct statement for us to say that 
we inherited the business. It has been testified here a number of 
times exactly what we did do, and we could not claim to have inher- 
ited the Guaranty Co.'s business. We as individuals had had rela- 
tionships with these companies which we were trying to continue. I 
wouldn't want the Guaranty Trust Co. to think that I let this go by 
in this investigation and have you gentlemen understand that we 
thought we inherited their business. 

Mr. Nehemkis. I think, Mr. Swan, that the committee under- 
stands that there was no will drawn up or formal instrument exe- 
cuted by which this business passed on and that the word "inherited" 
is used rather loosely but with some significance. 

Mr. Swan. Well, I think I would like to say something about that. 
There never was a more definite divorcement from an institution 
than there was in this case. The officers of the Guaranty Co. who 
became partners of E. B. Smith & Co. went into an organization 
with capital provided entirely by the partners. It is a fact that in 
the case of some partners who were not men who had been officers 
of the Guaranty Co. they did borrow some money to put in the part- 
nership. It was done entirely on our own resources and all that we 
got from the Guaranty Trust Co. was friendly Godspeed and hoping 
that we would do well and that they thought we were properly set up 



CONCENTRATION OF ECONOMIC POWER 12511 

so they could recommend us to clients who might call on them for 
advice in regard to these matters. 

Mr. Nehemkis. Mr. Chairman, may I have leave of the committee 
to offer in evidence two documents obtained from the files of the 
Mellon Securities Corporation of Pittsburgh? The member of my 
staff who obtained these documents is not available. Will you accept 
them subject to future identification? 

(Mr. O'Connell in the Chair.) 

Acting Chairman O'Connell. They may be accepted. Do I un- 
derstand that a witness will identify them ? 

Mr. Nehemkis. A member of my staff who did obtain them will 
be here tomorrow morning, or certainly not later than Friday, to 
identify them. 

Acting Chairman O'Connell. But you wish them inserted in the 
record ? 

Mr. Nehemkis. At this time so that the continuity will be clear. 

Acting Chairman O'Connell. That may be done. 

Mr. Nehemkis. I therefore offer in evidence two memoranda from 
the files of the Mellon Securities Corporation, one pertaining to the 
Koppers Co., $25,000,000, series A, 4 percent first mortgage and col- 
lateral trust bonds due November 1, 1951, and the second memoran- 
dum pertaining to Jones & Laughlin Steel Corporation financing, 
dated Aug. 17, 1936, this memorandum being a memorandum by 
C. L. Austin. 

Mr. Henderson. Do you have any objection to this insertion for 
later identification? 

Mr. Swan. I don't know what it is. 

Mr. Nehemkis. They bear directly on the point we are now dis- 
cussing, Mr. Swan. 

Mr. Henderson. They have been secured in the same manner at 
all other documents. 

Mr. Nehemkis. I would be very happy to allow Mr. Swan to 
read them. 

Mr. Swais. I am just a little in the dark. 

Mr. Nehemkis. There is really a very simple point about which 
I wanted to make the record clear. 

(Mr. Swan read the two memoranda referred to by Mr. Nehemkis.) 

Mr. Swan. I have no objection to their being offered. 

(The memoranda referred to were marked "Exhibits No. 1863 
and 1861" and are included in the appendix on pp. 12787 and 12788.) 

Mr. Nehemkis. May I read to you from the Koppers memorandum 
by Mr. Austin. By the way, that is the same C. L. Austin formerly 
associated with E. B. Smith & Co. is it not ? 

Mr. Swan. It is. 

Mr. Nehemkis. [Reading from "Exhibit No. 1863":] 

We stated clearly to Edward B. Smith & Co., and First Boston Corporation 
that we had no choice as to the selection of either house to appear second in 
the business : Smith on account of the indirect relationship through the Guar- 
anty Company to the Koppers business. 

_ By that Mr. Austin meant that the Guaranty Co. had had a par- 
ticipation in the Koppers business in the past? 

Mr. Swan. I expect that is so. 

Mr. Nehemkis. May I now read to you from Mr. Austin's memo- 
randum in regard to Jones & Laughlin Steel Corporation financing, 



12512 CONCENTRATION OF ECONOMIC POWER 

as of Aug. 17, 1936. In his second paragraph, which you glanced 
at a moment ago, he said as follows [Reading from "Exhibit No. 
1864"] : 

We then approached Messrs. Swan and Walker of Edward B. Smith & Co., 
who were formerly connected with the Guaranty Company of New York, which 
had second position to the Union Trust Company of Pittsburgh in the previous 
preferred stock issue of Jones & Laughlin. 

I merely offer these and discuss them at this time, Mr. Swan, 
not because they have any special significance other than this — 
it is the only way one can make judgments about these matters — 
that representatives of the industry regarded E. B. Smith & Co. as 
the successor to the Guaranty Co. Maybe they were all wrong, but 
there has been a fairly voluminous amount of evidence that has gon Q 
in on that point. 

Mr. Swan. If I may comment on that, when we were turned out 
into the world from the Guaranty Co. we made, as I have said 
many times before, every eitort we could to continue our relation 
with the business that the Guaranty Co. had done, and we didn't 
hesitate to stress very strongly our personal relationships which we 
had built up in the Guaranty Co. with whatever business was under 
discussion, and we tried to make our long personal relationship with 
this or that business count in our efforts to secure a favorable posi- 
tion in this or that respect. There is no question but that is what 
we endeavored to do. 

FINANCING OF WILSON & COMPANY — 1935 ISSUE 

Mr. Nehemkis. Mr. Swan, has E. B. Smith & Co. done any financ- 
ing for Wilson & Co.? 

Mr. Swan. Yes; we did, I think, two pieces of business. 

Mr. Nehemkis. In 1935, in July of 1935, to be specific, did not 
E. B. Smith & Co. bring out a $20,000,000 first mortgage 20-year 
bond series A offering? 

Mr. Swan. I accept your date. 

Mr. Nehemkis. And did not E. B. Smith & Co. head this issue? 

Mr. Swan. We did, jointly with Glore, Forgan. 

Mr. Nehemkis. Do you recall who composed the syndicate? 

Mr. Swan. Well, there were quite a number in the group. 

Mr. Nehemkis. I show you a memorandum bearing on this subject 
entitled "For Record Only," dated July 30, 1935, and ask you to 
examine page 2 and see whether it does not refresh your recollection. 

Mr. Swan. That is a correct statement of the group, I am sure. 

Mr. Nehemkis. Can you tell me who some of the members of the 
group were? 

Mr. Swan. Edward B. Smith & Co., Field, Glore & Co., Speyer & 
Co., The First Boston Corporation, Hallgarten & Co., Goldman, 
Sachs & Co., Bancamerica-Blair Corporation, Lazard Freres & Co.. 
Hornblower & Weeks, Lee Higginson Corporation, Kuhn, Loeb & Co. 

Mr. Nehemkis. Was Kuhn, Loeb in a nonappearing position? 

Mr. Swan. They were in a nonappearnng position. 

Mr. Nehemkis. What was the amount of Kuhn, Loeb's participa- 
tion? 

Mr. Swan. $2,000,000. 



CONCENTRATION OF ECONOMIC POWER 12513 

Mr. Nehemkis. Was that one of the largest of +he participations? 

Mr. Swan. That was the third largest. 

Mr. Nehemkis. Was not the Wilson & Co. account i. . >ld account 
of the Guaranty Co., Mr. Swan ? 

Mr. Swan. It was a joint account between Guaranty Co., Chase 
Securities Co., Blair & Co., and Hallgarten & Co. 

Mr. Nehemkis. Do you recall when the Guaranty Co. had handled 
the last piece of financing for the company immediately prior to 
the passage of the Banking Act ? 

Mr. Swan. I don't happen to recall it. 

Mr. Nehemkis. If I told you it was in 1931, would that help any? 

Mr. Swan. If you have got some memorandum that I could iden- 
tify, it would help. I don't happen to recollect. 

Mr. Nehemkis. I show you a memorandum by Mr. C. L. Austin, 
dated October 18, 1934, bearing on Wilson & Co., Inc. Will you 
glance at this and see whether this refreshes your recollection? 

Mr. Swan. May I read this? 

Mr. Nehemkis. Please. 

Mr. Swan [reading from "Exhibit No. 1865"] : 

The Guaranty Company informs me that the Purchase Group in the last 
Wilson financing, which was in June 1927 — 

That is dated 1934, this memorandum, so the last financing was 
6 years before. 

Mr. Nehemkis. I think in 1931 there was a note offering. I may 
be mistaken — I accept that, it is unimportant. 

Now can yc i tell me who composed the purchase group in that 
1927 offering? 

Mr. Swan. Guaranty Co., Hallgarten, Blair, Chase Securities, Con- 
tinental & Commercial Trust Savings Bank,' First Trust &' Savings, 
Illinois Merchants Trust. 

Mr. Nehemkis. Would you be good 'enough to read once again the 
first sentence of the first paragraph ? 

Mr. Swan [reading from "Exhibit No. 1865] : 

The Guaranty Company informs me. 

Mr. Nehemkis. We had occasion this morning to refer to the occa- 
sional practice, shall I say, of members of your organization to refer 
to the records or books of the Guaranty Co. for information on old 
Guaranty business, did we not? 

Mr. Swan. We did, yes. 

Mr. Nehemkis. And this would apparently be one of those occa- 
sions, would it not? 

Mr. Swan. We asked the Guaranty Trust Co. to search the records 
of the Guaranty Co. and see if they could give us this information. 
We did not have access to the records. 

Mr. Nehemkis. Isn't that a rather valuable right, Mr. Swan, to 
be able to have access to the material on file with the Guaranty Trust 
about past accounts of that bank? 

Mr. Swan. It is useful. I wouldn't say it was very valuable. 

Mr. Nehemkis. I just had in mind the fact that when The First 
Boston Corporation was organized, it thought that similar rights 
were sufficiently valuable that it was willing to pay for them. 

Mr. Swan. They got the records. 



12514 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Exactly, because they thought they were that 
important. 

Mr. Savan. We haA'en't-got the records. 

Mr. Nehemkis. But you have free entry and access. 

Mr. Savan. No, we have not. By special request, when they think 
our request is a reasonable and proper one, they will give us the 
information we ask for. 

Mr. Nehemkis. And this account we have been referring to was 
jointly handled, you say, with Hallgarten & Co. ? 

Mr. Savan. With Chase Securities, Blair, and Hallgarten. 

Mr. Nehemkis. Now while you haA'e the sheet before you, Mr. 
SAvan, will you indicate which banking houses of the original mem- 
bers of this purchase group are no longer in business? 

Mr. Swan. The Guaranty Co. is no longer in business. Blair & 
Co. combined in some manner with the Bank of America, so that 
there is now an organization known as the Bancamerica-Blair — I 
don't know what that arrangement consisted of. Chase Securities 
Co. is now a part of The First Eoston Corporation. 

Mr. Nehemkis. Are there any others on that list no longer in the 
investment banking business? 

Mr. Swan. The Continental & Commercial, First Trust, and Illinois 
Merchants are of course excluded from the investment banking 
business. 

Mr. Nehemkis. Mr. Chairman, I ask that this document dated 
October 18, 1934, and previously • identified by the witness, be ad- 
mitted in evidence. 

(The memorandum referred to A\ 7 as marked "Exhibit No. 1865" and 
is included in the appendix on p. 12789.) 

Would it be correct for me to say, reconstructing the condition at 
this time in 1935, that any neAv financing by the Wilson & Co. was re- 
garded as an open field, so to speak? 

Mr. Swan. Well, I think Wilson — of course, any banking business 
of any corporation is an open field so far as the corporation is con- 
cerned. 1 don't think that Edward B. Smith & Co. was regarded 
as ha\lng any preemptive rights to Wilson & Co. financing. 

Mr. Nehemkis. As a matter of fact, a number of other investment 
banking houses, as the evidence Avill subsequently show, were like- 
wise very interested in getting that business, weren't they? 

Mr. Savan. That is true. 

Mr. Nehemkis. White, Weld & Co., for example- 
Mr. Swan. That is true. 

Mr. Nehemkis. Field, Glore? 

Mr. Savan. That is true. 

Mr. Nehemkis. Kuhn, Loeb? 

Mr. Savan. Yss, Kuhn. Loeb & Co. Mr. Walker of Kuhn, Loeb & 
Co. of course had been connected Avith Blair & Co., who were in the 
business previously. 

EDWARD B. SMITH & CO. DISCUSSES WILSON & CO. FINANCING WITH E. A. 
POTTER, A T ICE PRESIDENT OF GUAEANTY TRUST CO. AND DIRECTOR OF 
WILSON & CO. 

Mr. Nehemkis. Now preceding the actual signing of the purchase 
contract with Wilson & Co. for toe offering of the securities, did you 



CONCENTRATION OF ECONOMIC POWER 12515 

or any of the members of your organization discuss the prospective 
financing with any of the officials of the Guaranty Trust Co. ? 

Mr. Swan. We discussed the prospective financing and other mat- 
ters in connection with Wilson probably quite a number of times 
with Mr. E. A. Potter who was a vice president of the Guaranty 
Trust Co. 

Mr. Nehemkis. I show you a memorandum dated September 10, 
1934, addressed to you, by Mr. C. L. Austin. Will you examine this 
and tell me whether you recognize it to be a true and correct copy 
of an original in your possession and custody? 
Mr. Swan. I identify that. 

Mr. Nehemkis. The document identified by the witness, Mr. Chair- 
man, is offered in evidence. 

Acting Chairman O'Connell. It may be admitted. 
(The memorandum referred to was marked: "Exhibit No. 1866-1" 
and is included in the appendix on p. 12790.) 

Mr. Nehemkis. Will you be good enough, Mr. Swan, to explain 
the purpose in seeing Mr. E. A. Potter, of the Guaranty Trust Co., 
on this matter? 

Mr. Swan. Mr. E. A. Potter was a director of Wilson & Co., and a 
vice president of Guaranty Trust Co. in charge of the Wilson & Co. 
account. Once again, we were pressing as hard as we could to try 
to get business, and going to anybody that we could think of who 
might help us. 

Mr. Nehemkis. You had a great number of conversations with 

Mr. Potter 

Mr. Swan (interposing). Members of the organization had a num- 
ber of conversations with him. 

Mr. Nehemkis. As a matter of fact, according to the diary entries 
which your firm has been good enough to make available to us, I find 
in checking those entries that altogether there were 21 conversations 
with Mr. Potter about this particular matter, and possibly others, 
but certainly about this one matter. 

Would it be correct for me to say that, as a matter of fact, Mr. E. 
A. Potter, Jr., was your chief conduit to the company? 

Mr. Swan.. .The Wilson & Co. matter goes back a long way. I 
myself, personally was a member of either the reorganization com- 
mittee of Wilson & Co. or of the bondholders' protective com- 
mittee, back I think in 1926, or thereabouts. Mr. Thomas E. Wilson 
was at one time a director of the Guaranty Trust Co. I knew him 
pretty well. Mr. Buethe, the treasurer of the company, was an old 
friend of mine from this previous contact with this reorganization. 
Mr. E. A. Potter was helpful to us in the matter because he knew 
us and knew our capability of doing business, but I think I can say 
that I had rather close personal relations with T^ilson & Co. for 15 
years. 

Mr. Nehemkis. Will you examine a memorandum I am about to 
show you from Mr. Safro, then of your statistical department, ad- 
dressed to Mr. Karl Weisheit, dated September 5, 1934, and tell me 
whether you recognize this to be a true and correct copy of an orig- 
inal in your possession? 
Mr. Swan. I so identify it. 

(The memorandum referred to was marked "Exhibit No. 1866-2" 
and is included in the appendix on p. 12790.) 

• 124491— 40— pt. 24 14 



12516 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. On the date specified, to wit, September 5, 1934, 
Mr. Safro wrote as follows to your partner, Mr. Weisheit. [Heading 
from "Exhibit No. 1866-2"] : 

He urged — 

Referring to another person — 

that we use our influence upon those in touch with the situation (he meant 
E. A. Potter, Jr.). 

Mr. Swan. I am just wondering what the significance of that is. 
I don't know that we had any influence with Mr. E. A. Potter, or 
whether we carried out what this memorandum requested us to do. 
I know of no conversation with Mr. Potter about that particular 
point. 

WHITE, WELD & CO.'s INTEREST IN WILSON & CO.'s FINANCING 

Mr. Nehemkis. About the same time, I think, as you testified 
earlier, White, Weld & Co. was also interested in obtaining this 
business.- Is that correct, sir ? 

Mr. Swan. Yes. 

Mr. Nehemkis. Is it not a fact that Mr. Ben Clark, of White, 
Weld, saw you on or about March 4 and advised you of their interest 
in the business ? 

Mr. Swan. They certainly advised us of their interest in the busi- 
ness at some time. 

Mr. Nehemkis. Do you recall at this time the reasons for Mr. 
Clark feeling it necessary to discuss the matter with you at all? 

Mr. Swan. My recollection is that Mr. Clark was approached by 
the gentleman about whom there was a great deal of conversation 
this morning. 

Mr. Nehemkis. Do you recall his name? Mr. M. L. Freeman? 

Mr. Swan. Mr. M. L. Freeman. Mr. M. L. Freeman indicated to 
him that he could secure the business of Wilson & Co. for White, 
Weld & Co. 

Mr. Nehemkis. I am not sure you have quite answered my ques- 
tion. May I just repeat it to you substantially as I gave it to 'you 
a moment ago ? Do you recall the reasons that prompted Ben Clark 
in manifesting his interest in the business to you? Why was it neces- 
sary for him to discuss it with you at all? As I understand the 
situation 

Mr. Swan (interposing). I can reconstruct in my mind perhaps 
why he talked to me. Of course, he could tell you better himself 
than I could as to why he came to me at all, but my interpretation 
of it is that he had been approached by Mr. M. L. Freeman ; that he 
knew of my past connection with Wilson & Co. ; that he doubted very 
much Mr. Freeman's ability to secure the business for him ; and that 
he came over to us, hoping that by approaching us as he did, that 
if we did the business he could get a position there. 

Mr. Nehemkis. Did you know that White, Weld had entered into 
a contract with Mr. M. L. Freeman, agreeing to pay him a finder's 
fee for that business ? 

Mr. Swan. I did not. 

Mr. Nehemkis. Never heard of that at all until this moment? 

Mr. Swan. Never heard of it. 



CONCENTRATION OF ECONOMIC POWER 12517 

Mr. Nehemkis. "Would that mean now that you know that infor- 
mation, that they had the business when they went to that extent? 

Mr. Swan. Well, they might have entered into a contract based 
on his delivering the business, but I don't believe they thought they 
had the business. I know as far as I was concerned I thought they 
didn't have a chance of getting the business. 

Mr. Nehemkis. Would it be a fair interpretation for me to say 
the following, Mr. Swan : That White, Weld felt they had some claim, 
possibilities of getting this business, but recognizing the old Guaranty 
position in this account and your relations and some of your as- 
sociates' relations to the financing, they felt that as a matter of 
bankers' courtesy, before going ahead too far perhaps they ought to 
discuss it with you. 

Mr. Swan. Well, of course it is difficult for us to say what their 
thoughts were. 

Mr. Nehemkis. Perhaps this will help me out. Mr. Whitehead, 
will you take the stand, please? 

Mr. Whitehead has been sworn. Mr. Whitehead, did you not ob- 
tain this letter that I now show you from the files of White, Weld 
&Co.? 

Mr. Whitehead (Securities and Exchange Commission.) Yes, I did. 

Mr. Nehemkis. Was that letter given to you by a partner of that 
firm in response to your request? 

Mr. Whitehead. That is correct. 

Mr. Nehemkis. I ask that this letter be received in. evidence. 

Acting Chairman O'Connell. It may be received. 

(The letter referred to was marked "Exhibit No. 1867" and is in- 
cluded in the appendix on p. 12791.) 

Mr. Nehemkis. This is. a letter dated July 8, 1935, addressed to 
John W. Cutler, of your organization, signed by Faris R. Russell, 
partner of White, Weld & Co. 1 [reading from "Exhibit No. 1867"] : 

You and Burnett Walker for your firm and Ben Clark and I for White, Weld 
& Co. have had several conversations during the course of the last several 
months with respect to refunding operations for Wilson & Co., Ine. Inasmuch 
as the understandings had between* us^ were primarily between yourself and 
myself, I am sending this letter to you with a chronological history taken from 
our files on ' his-,matter. The history is as follows : 

On February 26, 1935 an enterpreneur by the name of M. L. Freeman dis- 
cussed with us the question of refunding the outstanding bond issue. 

Mr. Henderson. What did they call M. L. Freeman this time ? 

Mr. Nehemkis. They called him an entrepreneur. I would hesitate 
to say whether that is the same thing as a finder or middleman; 
maybe I had better use just the name which is here. 

Mr. Henderson. I think he is an entrepreneur ; that is my economic 
opinion on it. 

Mr. Nehemki3. Is it all right for me to refer tp him as entrepre- 
neur? [Reading further from "Exhibit No. 1867"] : 

On February 26, 1935 an entrepreneur by the name of M. L. Freeman dis- 
cussed with us the question of refunding the outstanding bond issue. 
During the same week— — 

Will you note this, Mr. Swan? 

Mr. Freeman demonstrated that he was not merely presenting an idea which 
is, of course, open field for all free lance promoters but introduced in our 

1 In this connection see also infra, p. 12533 et seq. 



12518 CONCENTRATION OF ECONOMIC POWER 

office J. D. Cooney, Vice President of Wilson & Co., Inc., a;;d the whole dis- 
cussion was with respect to the matter of refunding their outstanding bonds. 

IJad you known that? 

Mr. Swan. I knew that. 

Mr. Nehemkis. [Reading further from "Exhibit No. 1867"] : 

After such discussion, Mr. Cooney said that they would in the next few 
weeks decide on their program and said he would again discuss with us the 
question of what sort of a trade we might be able to work out. 

We subsequently confirmed with Mr. Halstead Freeman — 

This is another Freeman, and this Freeman is now a partner in 
Glore, Forgan & Co. Is that correct? 

Mr. Swan. That is correct. 

Mr. Nehemkis. And just for the sake of correct identification, at 
this time, '35, this Halstead Freeman was a financial adviser to 
Wilson & Co. 

Mr. Swan. That is correct. 

Mr. Nehemkis. And not yet a partner of Glore, Forgan. 

Mr. Swan. That is correct. 

Mr. Nehemkis. [Reading further from "Exhibit No. 1867"] : 

We subsequently confirmed with Mr. Halstead Freeman that there was an 
open field for the business. 

We recognized also that of the original houses in the major position on 
this business, all but one had discontinued activities. 

Recognizing, however, that some of the partners of your firm had previously 
been officers of the Guaranty Co., which had discontinued its business, and 
not knowing whether you were active in considering this business, we decided 
to discuss it with you and, if you wished us to do so, join -hands with you in 
its development. 

On March 6 Ben Clark saw Joe Swan and advised him of the above and 
Mr. Clark's report on the meeting states that "Joe was frank to say that they 
had no discussion so far." Further that Joe said "I do not want to tie you up 
in any way and I will look into it with the idea that we are two friends and 
you will hear from me when I get posted." 

On March 11 you telephoned to me about this matter, stating that you 
understood Freeman had been in to see us saying that he had authority 
to represent the company. You stated that this had been checked with the 
company and it had been found that Freeman was not authorized to negotiate 
and you further stated that on account of your close friendship with the 
Guaranty Trust Co. you had as good a position as anyone to negotiate with 
Wilson & Co. and it was your thought that we should tell Mr. Freeman we 
were not in a position to deal with him and that your firm would follow the 
matter with -the company and come back to us as matters developed. 

On March 18th you telephoned me saying that the old account at the Guaranty 
was joint with Hallgarten & Co., that you had talked with Hallgarten & Co., 
whose Chicago partner is a director of the company, and had arranged that 
we were to be included in the business. You said further that you hoped it 
would be agreeable to us to let the matter of our percentage rest for the 
present as you intended to work out a fair and reasonable place for us. I 
told you this was satisfactory and left the matter in your hands. 

I asked you whether there was any indication of serious competition from 
other directions and you stated that you did not see how with the friendship 
of E. A. Potter and Emerich there could be much doubt as to your getting 
the business. We consequently folded our hands to await developments. 

Mr. Swan. May I remark on that? 

Mr. Nehemkis. After I get a few other things into the record, then 
you will be free to comment. Mr. Whitehead, will you take the stand 
once again ? I show you 10 documents from the files of White, Weld 
& Co. Would you be good enough to tell me whether these were 
obtained by you from the files of White, Weld & Co. ? 

Mr. Whitehead. These were obtained from those files. 



CONCENTRATION OF ECONOMIC POWER 12519 

Mr. Nehemkis. The documents identified by Mr. Whitehead are 
offered in evidence, may it please the committee. 

Acting Chairman O'Connell. They may be admitted. 

(The documents referred to were marked "Exhibits Nos. 1868 to 
1876-2" and are included in the appendix on pp. 12792-12796.) 

Mr. Swan, In spite of everything said in that letter I would like 
to reiterate it was my opinion at that time White, Weld & Co. had 
not the slightest chance of getting that business. That perhaps was 
borne out later, and adds substance to what I say, by the fact that 
we tried to get them in the business and that the company did not 
in the end want them in the business when the syndicate was being 
formed. 

Mr. Nehemkis. I was going to go into that with you, Mr. Swan, 
and if you wish we will discuss that. 

Mr. Swan. Because there are, of course, statements in that letter 
that certainly overstate any position we might have had at that time, 
that we had the business in our pocket — we thought we had a very 
good chance of getting it, and we were very confident they would 
not get it. 

Mr. Henderson. Mr. Swan, you have been at some length saying 
you didn't get it here, taking it from Guaranty, but when you come 
to dealing with White, Weld in this case your officers practically said, 
"Don't poach on this preserve," didn't they? 

Mr. Swan. No ; I don't think so. I think in this case 

Mr. Henderson (interposing). May I have the letter just a 
moment? [Beading from "Exhibit No. 1867"] : 

On account of your close friendship with Guaranty Trust Co. you had as good 
a position as anyone to negotiate with Wilson & Co. and it was your thought 
that we should tell Mr. Freeman we were not in a position to deal with him 
and that your firm would follow the matter with the company and come back 
to us as matters developed. 

Mr. Swan. It means to me, repeating what I said before, I didn't 
think they had a chance of getting the business. Here was an ac- 
count that had been upset a good deal by dissolution of various 
affiliates, put out of business of the banks. There was room in this 
business for others. White, Weld were good friends of ours and 
at the particular time we were rather anxious to do some business 
with them. We thought that they would add to the account and we 
were glad to have them in the account. Of course, any discussions 
we have of that kind with anybody prior to the formation of a syn- 
dicate always presuppose it is subject to the company's approval, 
which had to be obtained in this case, and in the particular case, 
could not be obtained. We pressed pretty hard on the fact that we 
had personal relation with this company and other companies, and 
that we were getting after business pretty hard and hoped and ex- 
pected to get it. 

Mr. Henderson. And if you could scare somebody off the preserve 
by saying, "We know the Guaranty Co.," you didn't 

Mr. Swan (interposing). That is an inference, of course, that 
might be made or you wouldn't have made it, but I would just like 
to say that certainly in this particular case which we are now dis- 
cussing there is no validity in that inference. 

Mr. Henderson. White, Weld certainly thought it had some valid- 
ity in this ? 



12520 CONCENTRATION OF ECONOMIC POWER 

Mr. Swan. White, Weld was trying mighty hard to get a piece of 
the business and they were trying to get it then. 

Mr. Henderson. And in writing this letter 

Mr. Swan (interposing). This was all after the fact they didn't 
get the business, and they were very much upset about it and they 
wrote us this letter. 

Mr. Nehemkis. You see this occurs after the financing, Mr. Com- 
missioner, and I want to take it up again at a later time. 

Acting Chairman O'Connell. Well, Mr. Swan, in cases similar 
to this one, as former representative of the Guaranty Co., and having 
the contacts you had with these former issuing companies, you had 
no hesitancy in confidently asserting a claim to that business, did 
you ? I am not saying a legal claim. 

Mr. Swan. I think I "had a great <Jeal of hesitation until the com- 
pany designated us as their bankers. We didn't know whether these 
companies who had formerly done business with the Guaranty Co. 
were going to do business with us. We asserted to the best of our 
ability our personal relationship with the companies in the past; no 
question about that. 

Acting Chairman O'Connell. You asserted that by virtue ot your 
former experience with the companies you hoped to do that business 
and that other people should 

Mr. Swan (interposing) . We hoped to get the business and we 
went to the companies; we said to them, "Because of our personal 
relationships with you in the past we nope you will give us the 
business." 

Acting Chairman O'Connell. Wouldn't you also think it proper 
to say to another investment banking house, "Keep your hands off 
this business"? 

Mr. Swan. I don't think we did this, and I think this letter would 
rather indicate — it says [reading from "Exhibit No.'1867"] : 

Joe was frank to say that they had ho discussion so far. Further that 
Joe said "I do not want to tie you up in any way." 

Acting Chairman O'Connell. Could you have tied them up in an} 
way? 

Mr. Swan. No, I don't believe so, unless they wanted to be tied 
up. I couldn't have tied them up in any way. 

CONVERSATIONS WITH E. A. POTTER — Resumed 

Mr. Nehemkis. Mr. Swan, will you examine what purports to be 
a series of diary entries made by various partners of your firm and 
tell me whether you recognize that sheet as a true and correct copy ? 

Mr. Swan. I do, yes. 

Mr. Nehemkis. The document identified by the witness is offered 
in evidence. It is that document, Mr. Chairman, to which I re- 
ferred earlier as showing twenty-one various conversations with 
people at the Guaranty Trust Co. concerning this piece of financing. 

Acting Chairman O'Connell. It will be admitted. 

(The document referred to was marked "Exhibit No. 1877" and 
appears in the appendix on p. 12796.) 

Mr. Nehemkis. Didn't Mr. E. A. Potter suggest that you write 
personally to Mr. Wilson about this matter, Mr. Swan ? 

Mr. Swan. I believe he did. 



CONCENTRATION OF ECONOMIC POWER 12521 

Mr. Nehemkis. And following his suggestion and your discussion 
with him is not this a copy of the letter you wrote to Mr. Wilson? 

Mr. Swan. That is correct. 

Mr. Nehemkis. And this letter dated March 13, 1935, by yourself 
to Mr. Wilson reads as follows [reading from "Exhibit No. 1878"] : 

During the past few months various of my partners and I have had con- 
versations with Mr. E. A. Potter, Jr., with respect to the possibility of a 
refunding operation in connection with your outstanding 6% Bonds. 

The letter is offered in evidence, Mr. Chairman. 

Acting Chairman O'Connell. It will be received. 

(The letter referred to was marked "Exhibit No. 1878" and is 
included in the appendix on p. 12799.) 

Mr. Nehemkis. And I show you now a memorandum by Mr. Cut- 
ler dated March 8, 1935. Will you examine this and tell me whether 
that is a true and correct copy of an original in your possession ? 

Mr. Swan. It is. 

Mr. Nehemkis. The document identified by the witness is offered 
in evidence, Mr. Chairman. 

Acting Chairman O'Connell. It will be admitted. 

(The letter referred to was marked "Exhibit No. 1879" and is 
included in the appendix on p. 12799.) 

Mr. Nehemkis. Now at the time of these conversations with Mr. 
Potter did I not understand you to testify earlier that Mr. Potter 
was a director of Wilson & Co.? 

Mr. Swan. I did. 

Mr. Nehemkis. Was Mr. Potter by chance authorized by Wilson 
& Co. to discuss financing plans and programs with investment bank- 
ing houses ? Do you recall ? 

Mr. Swan. Not as far as I know. 

Mr. Nehemkis. Is it customary for directors of corporations to 
hold informal discussions of this character with various banking 
houses concerning future plans and programs ? 

Mr. Swan. I think it is quite customary for investment banking 
houses to go to directors or officers of banks to discuss with them the 
possibility of business with a company in which they are directors. 
Of course, as far as Mr. Potter was concerned, we discussed no plan 
or program with him and he, as the memoranda and letters show, was 
on the telephone with Mr. Wilson informing Mr. Wilson that we 
had talked to him about this or that, and when I wrote the letter I 
referred to the fact that I had talked to Mr. Potter. There was a 
very close relationship between Mr. Potter and Mr. Wilson. Mr. 
Wilson was, as I testified — had been director of the Guaranty Trust 
Co. and he had a very high regard for the Guaranty Trust Co. and 
leaned on them a good deal for advice. 

Mr. Nehemkis. Now on March 12, 1935, Mr. John W. Cutler had 
occasion to make the following diary entry [reading from "Exhibit 
No. 1877"] : 

Talked again with Potter on telephone, who called me. Explained that the 
Guaranty had handled previous financing for Company, and had associates in 
those former deals, some of whom would have to be taken care of. 

Now was not Mr. Potter's communication tantamount to dictating 
who the members of the new syndicate were to be? In other words, 
did this not mean that the old banking group and their successors 
would have to be taken care of in the new financing? 



12522 CONCENTRATION OF ECONOMIC POWER 

Mr. Swan. I have examined that memorandum and I am at a loss 
to understand it, except by substituting the name of Russell, who 
called me. It makes sense that way, and doesn't make sense any 
other way. 

Mr. Nehemkis. I thought it made sense, leaving the name Potter 
in, but, of course, I may be mistaken about that. I accept your 
explanation. 

Acting Chairman O'Connell. Who is Russell? 

Mr. Nehemkis. Faris Russell of White, Weld & Co. Potter is 
the gentleman to whom reference has previously been made, namely, 
E. A. Potter, Jr., vice president of the Guaranty Trust Co. ; the wit- 
ness has just indicated^ that it may be it should have read Russell. 
I indicated, although I accept the witness's explanation, that it might 
make awfully good sense leaving Potter in. 

Acting Chairman O'Connell. In the second sentence which starts 
with the words [reading further from "Exhibit No. 1877] : 

Explained that the Guaranty had handled — 

Does that mean that Mr. Cutler explained or that Mr. Russell or 
Potter, as the case may be, explained ? Have you that memorandum 
in front of you ? Reading the word Russell in the first sentence, who 
explained in the second sentence? 

Mr. Swan. "Talked again with Potter." I would like to read this, 
substituting Russell. 

Talked again with (Russell) on telephone, who called me. Explained that 
the Guaranty had, handled previous financing for company. 

Now we wouldn't have to explain that to E. A. Potter. 

Acting Chairman O'Connell. Who would have explained that? 

Mr. Swan. J. W. Cutler who talked to Russell or Potter. J. W. 
Cutler would not have to explain to Potter that we did the last 
financing for the company. [Reading from "Exhibit No. 1877"] : 

Explained that the Guaranty had handled previous financing for the Company 
and had associates in those former deals — 

Which of course Potter had known for years. 

Some of whom would have to be taken care of. 

Mr. Nehemkis. May I interrupt just for a moment, Mr. Swan? 
May I have the same privilege of doing the same thing and leaving 
it as it is? 

Talked again with Potter on the telephone, who called me. 

Now I insert a word. [Reading from "Exhibit No. 1877"] : 

(Potter) explained that the Guaranty had handled previous financing for the 
company and has associates in those former deals, some of whom would have 
to be taken care of. 

Mind you, Mr. Chairman, I do not doubt the witness's statement, 
but I present for the evaluation of the committee that reasonable 
men could take either interpretation. 

Acting Chairman O'Connell. We are trying to interpret that, but 
I was merely asking Mr. Swan whether in the second sentence now, 
that we speak of, explained, he understood that it was Mr. Cutler 
that did the explaining, or whether it was the man on the other end 
of the telephone. 



CONCENTRATION OF ECONOMIC POWER 12523 

Mr. Swan. May I ask you to read the last sentence? [Heading 
from "Exhibit No. 1877"] : 

Russell said he understood and would leave it to us to take care of his Arm 
in the proper way. 

Now, why do we switch from Potter to Russell ? The only person 
that has been mentioned previously is Potter. The only way to me 
that this memorandum can be understood at all is to substitute 
Russell for Potter in the first line. 

Mr. Nehemkis. I will be frank to say that it puzzled me and I 
thought that it possibly meant that after this telephone conversation 
by Potter, who indicated that some of the old members of the group 
had to be taken care of ; that Mr. Cutler then called Faris Russell of 
White, Weld and explained that conversation, and that Faris Russell 
said, "Joe, I understand, and we will fold our hands and await 
results." 

Mr. Swan. I feel so confident that Potter understood all this, and 
Cutler understood all this, and I understood all this, I can only ask 
you to accept it and I really think my correction is correct. 

Acting Chairman O'Connell. Just not to labor the point, as I 
understand your interpretation of it, Mr. Cutler was in a position to 
tell Mr. Russell that this previous financing having been handled by 
Guaranty, that his firm, that is, Smith, Barney & Co. and other asso- ' 
ciates in the former deals, would have to be taken care of. 

Mr. Swan. That is right, if we got the business. We at this time 
had not been named as bankers by the company. This all presup- 
poses our securing the position as banker for the company. 

Acting Chairman O'Connell. Oh, yes. 

Mr. Nehemkis. Shall I proceed? 

Acting Chairman O'Connell. Yes; please. 

Mr. Nehemkis. Now, returning to the period of negotiations, Mr. 
Swan, on March 14, 1935, did you not, together with Mr. Cutler, talk 
with Maurice Newton, of Hallgarten & Co., about this business? Do 
you recall that? 

Mr. Swan. I believe so. 

Mr. Nehemkis. And on the following day, March 15, did you not 
discuss the matter with Mr. Enierich, a partner of Hallgarten, and 
also a director of Wilson & Co.? 

Mr. Swan. I believe so. 

Mr. Nehemkis. Now, in the diary entry of Mr. Cutler as of March 
18, J935, he had the following to say [reading from "Exhibit No. 
1877"] : 

JRS and I talked with Maurice Newton of Hallgarten 3/14/35 and the next 
day JRS talked with Enierich of Hallgarten, a director of Wilson. We told him 
we had been working on the business and referred to the old joint account 
they had with the Guaranty and asked them to join us, which they said they 
would be glad to do. 

Now may I call your attention to the next entry : 

We also told them we were committed to White, Weld & Co. for an interest 
if business resulted. 

I continue: 

I subsequently reported this to Faris Russell — 



12524 CONCENTRATION OF ECONOMIC POWER 

Faris Russell is the same Faris Russell, a partner of White, "Weld. 

who again said they were entirely agreeable to leaving the makeup of the 

group and interests to us. I also reported the Hallgarten development to Ned 

Potter- 
Ned Potter is the same E. A. Potter, Jr., vice president of the 

Guaranty ? 
Mr. Swan. That is right. 
Mr. Nehemkis (continuing) : 

who thought it was a wise move. 

Now I read to you a subsequent diary entry of April 4, 1935, by 
John W. Cutler, as follows [reading further from "Exhibit No. 
1877"] : 

JRS called on Mr. T. E. Wilson in Chicago 4/1 and was very cordially re- 
ceived by him. Explained to him the dissolution of Guaranty Company and 
status of EBP & Co. and advised him we were very anxious to be given' con- 
sideration in connection with any financing which he might do. 

So that up to this point the company had not yet really decided on 
who its bankers were to be ? 

Mr. Swan. I think that is correct. 

Mr. Nehemkis. Theoretically it might be anybody's business? 

Mr. Swan. It was entirely in the hands of the company to decide 
whom they might want to have handle their business. 

Mr. Nehemkis. And at this particular time, you recall, March 
and April of 1935,- the company was actively considering which 
banking house would receive the deal ? 

Mr. Swan. I presume they were considering it. I don't know; I 
don't know whether they were devoting such time to it or not. We 
were paying attention to trying to get it. 

Mr. Nehemkis. I wonder if that was altogether the case. For ex- 
ample, let me read you a diary entry by Mr. Cutler as of March 26, 
1935 [Reading from "Exhibit No. 1877"] : 

Newton rt sorted from Emerich, who attended directors meetings today, that 
the matter of ^financing was not discussed. 

Apparently Mr. Cutler was very anxious to know about these 
things, because at this time he wrote down it was not discussed, and 
on May 3 of 1935 Mr. Cutler again wrote the following [reading fur- 
ther] : 

Ned Potter said Company had engaged Price, Waterhouse to begin necessary 
work looking towards registration. 

In other words things are beginning to pick up. 

As far as he knew they had made no commitments with any bankers. 

Now although the business had not been definitely awarded to you, 
you were nevertheless proceeding tentatively at least with the or- 
ganization of the syndicate, were you not ? 

FORMATION OF THE WILSON & CO. SYNDICATE 

Mr. Swan. We were dLcussing it with others, yes. As I have said 
before, and I think these memoranda show, we were very active in 
trying to get this and other pieces of business. I think that we 
thought that one thing that would be helpful in getting this business 
was to get together a group of people who were persona grata with 



CONCENTRATION OF ECONOMIC POWER 12525 

the company and would be a group of people with whom the com- 
pany would like to do business. But we did not have the business 
at this time. We ma} r be said to have been a little previous in the 
way we proceeded, but that is what is often done, and previous to 
people getting a piece of business they will often get together to dis- 
cuss ways and means of securing it. 

Mr. Nehemkis. In fact, it is necessary, if you are going to do a 
piece of syndication, when the deal materializes ? 

Mr. Swan. We need a group if it materializes. 

Mr. Nehemkis. And you considered the advisability at this time 
of bringing in Field, Glore, now Glore, Forgan ? 

Mr. Swan. We did. 

Mr. Nehemkis. And that was because of Halstead Freeman's 
connection with the account, was it not? 

Mr. Swan. We were rather strongly of the opinion, in which we 
were correct, that in this piece of business that the company would 
undoubtedly want to have a Chicago banker associated with it. 
The three Chicago banks which had previously been associated with 
this business were not able to be in the business any longer. We 
thought that Field, Glore & Co. were the bankers in Chicago most 
fitted to represent that Chicago market in the business, and we also 
felt that Halstead Freeman was rather predisposed to them. 

Mr. Nehemkis. M*. Cutler, on May 14, 1935, had this to say [read- 
ing further from "Exhibit No. 1877"] : 

JRS spoke to Newton re inclusion of Field, Glore & Co., on account of 
Halstead Freeman, who is being retained by the company in connection with 
proposed financing. Speak to First Boston before going further. 

Was not the reason for communicating with the First Boston Cor- 
poration, Mr. Swan, due to the fact that Chase Securities Corpora- 
tion, the predecessor organization of First Boston, had been a mem- 
ber of the old Guaranty Company group ? 

Mr. Swan. That was one reason. Another reason was that, of 
course, they would be very acceptable members of any group to do 
a piece of business of this sort. 

Mr. Nehemkis. Mr. Chairman, subject to the arrangement pre- 
viously made, that certain documents be identified toward the end 
of. the week, I should like at this time to offer in evidence a letter by 
D. R. Linsley, vice president of The First Boston Corporation, under 
date of May 18, 1935, addressed to J. R. Briggs, vice president of 
H. M. Byllesby and Company, marked "Confidential." Mr. Linsley 
wrote as follows to Mr. Briggs [reading from "Exhibit No. 1880"] : 

On last Thursday Joe Swan of Edward B. Smith & Co. called up Harry 
Addinsell and told him that they were working on a refunding operation for 
Wilson & Co. 

In checking up our past historical records, it came to my attention that over 
a period of years the financing for Wilson & Co. was handled by a group of 
which the Guaranty Company was the manager and in which were included 
Chase Securities Corporation, Blair & Co., Hallgarten & Co., First Trust and 
Savings Bank, Chicago, Continental and Commercial, Chicago and Illinois 
Merchants Trust Company, Chicago. 

For your confidential information, the Guaranty, Chase, Blair and Hall- 
garten each had an interest of approximately 18.75%. 

In the early part of March Miles Warner 

Is that Warner or Werner? 
Mr. Swan. I don't know. 



12526 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis (continuing) : 

In the early part of March Miles Warner told rae of the discussions which 
he had had with one of the Wilsons and asked if we would be interested in 
figuring on the business and on the 15th of March, in response to a wire from 
George Leness, I indicated to Miles that we were unwilling to undertake a deal 
along the terms similar to Swift or to enter into negotiations which involved 
a high degree of competition and stated that if the company was prepared 
to sit down and discuss the best form of financing, we would be interested in 
principle in so doing. I did not hear anything further about this matter and 
assumed that it had died a natural death. 

At the time of my discussions with Miles, I did not realize that the Chase 
Securities Corporation had always been in the group headed by the Guaranty 
Company of New York. As Mr. Swan indicated that they had discussed this 
matter, we told him that we would be delighted to join with him in discussing 
the re-formation of the old group. We told Mr. Swan of Miles Warner's con- 
nection with one of the Wilsons and of our discussions with him and said that 
we would like to see — when, as and if the group is formed — that H. M. Byllsby 
and Company had a position in the business and that we assumed that this 
would be agreeable to him. He indicated to us that he also wanted to consider 
the inclusion of White, Weld and Field, Glore. 

I know that you will protect me on this information, but I want you to 
know, the facts in connection with these discussions and while, naturally, I 
would not want to attempt to involve you in making any decision, it seems 
to me that it is most logical that the old group should have a legitimate claim 
on the business — particularly with the tie-in with the Guaranty Trust Company 
and if we can work it around so that H. M. Byllesby and Company has an 
original interest and an appearance position, it would seem to be the desirable 
thing to do — rather than to get into a competitive mess. 

The document is offered in evidence, Mr. Chairman. 

Acting Chairman O'Connell. It may be received. 

(Letter referred to was marked "Exhibit No. 1880" and is in- 
cluded in the appendix on p. 12799.) 

Mr. Henderson. Has Mr. Swan a copy of this? The next to the 
last paragraph relates to him. I don't want him to miss it. 

Mr. Swan. All right. 

Mr. Nehemkis. Subject to the same arrangement, Mr. Chairman, 
I shall offer a memorandum by Mr. H. M. Addinsell of The First 
Boston Corporation, under date of May 16, 1935, relating to the 
Wilson & Company financing. Mr. Addinsell wrote as follows [read- 
ing from "Exhibit No. 1881"] : 

Mr. Swan asked me yesterday whether we would join with them in re- 
constituting the old group which the Guaranty headed for Wilson & Co. busi- 
ness. After discussion here I told Mr. Swan that we would be glad to do so. I 
called his attention to the fact that Mr. Miles Warner of Byllesby, who is a 
personal friend of some of the younger Wilsons, had talked with Mr. Leness 
about the matter some months ago, but that we told Mr. Warner that we would 
not want to be drawn into competition for the business and we have heard 
nothing about it since. 

This memorandum from which I have just read is offered in 
evidence. 

Acting Chairman O'Connell. It may be admitted. 

(The memorandum referred to* was marked "Exhibit No. 1881" and 
is included in the appendix on p. 12800.) 

Mr. Nehemkis. Mr. Chairman, subject to the same understanding, 
I shall offer in a moment a telegram from Mr. Linsley, of The First 
Boston Corporation, under date of March 15, 1935, over the Byllesby 
wire to Miles Warner in Chicago, as follows [reading from "Exhibit 
No. 1882-1"] : 

After thorough discussion Wilson and Company we have decided as matter 
of policy that we are unwilling to undertake a deal along terms which are 



CONCENTRATION OF ECONOMIC POWER 12527 

similar to Swift or to enter into negotiations which involve a high degree of 
competition. (Stop) If company is prepared to sit down and discuss best form 
of financing we would be interest ' in principle in so doing. 

May the document be received in evidence? 

Acting Chairman O'Connell. It may be received. 

(The telegram referred to was marked "Exhibit No. 1882-1" and 
appears in full in the text on p. 12526.) 

Mr. Nehemkis. Now, Mr. Swan, you will recall that that telegram 
from which I read was sent three months before the previous memo- 
randum by Mr. Addinsell of May 16, and that would seem to indi- 
cate that Mr. Addinsell's point of view was not a spur-of-the-moment 
decision, and that it was rather one which reflected the general posi- 
tion of his corporation. Would it not so seem to you, Mr. Swan? 

Mr. Swan. I don't know what Mr. Addinsell's views were. I 
wouldn't want to interpret his telegram. 

Mr. Nehemkis. Now, on June 6, 1935, did not the company finally 
decide to put the financing in your hands ? 

Mr. Swan. On June 6? I think that is the correct date. 

Mr. Nehemkis. But it was not to be leadership of the account? 

Mr. Swan. It was to be a joint leadership by ourselves and Field, 
Glore. 

Mr. Nehemkis. Do you recall the membership of the syndicate 
upon which E. B. Smith and Field, Glore & Co. had tentatively 
agreed ? 

Mr. Swan. I have read it over. I don't recall it without a memo- 
randum. 

Mr. Nehemkis. I show you a memorandum dated September 9, 
1935, and ask you whether this does not refresh your recollection. 

Mr. Swan. I identify this. 

(The memorandum referred to was marked "Exhibit No. 1882-2" 
and is included in the appendix, p. 12,801.) 

Mr. Nehemkis. Will you tell me the tentative members agreed 
upon at the time, if you can ? 

Mr. Swan. This list which I am reading was a list tentatively 
agreed upon by Forgan, of Fi3ld, Glore, and myself before consul- 
tation with the company ; this was to be submitted to the company : 
Edward B. Smith & Co. ; Field, Glore ; First Boston ; Speyer & Com- 
pany; Hallgarten & Co.; Bancamerica-Blair Corporation; White, 
Weld ; Goldman, Sachs. 

Mr. Nehemkis. Now the new names in that account as tentatively 
agreed upon were Field, "Glore; White, Weld; and Goldman, 
Sachs 

Mr. Swan (interposing). And Speyer. 

Mr. Nehemkis. And Speyer. E. B. Smith haa had some previous 
relation to the business through the association with Guaranty, the 
First Boston through the Chase Securities, Hallgarten having been 
joint account in the old days, Bancamerica-Blair also. 

Mr. Swan. That is correct. 

Mr. Nehemkis. Now, was not White, Weld's name suggested be- 
cause of your prior commitment to them? 

Mr. Swan. I suppose that is a proper way to put it, yes; that 
and because they were, of course, primarily — each one of these that 
were suggested for these accounts, when suggested by the bankers, 
I think it is because they will add something to the account, and 

1 So in original. 



12528 CONCENTRATION OF ECONOMIC POWER 

White, Weld would make good members of the account in the first 
place, and in the second place because we had had these discussions 
with them about which we have had testimony. 

Mr. Nehemkis. Now, in the world of investment banking, as in 
other activities, I suppose considerations other than those immedi- 
ately at hand enter into determinations, and in the Wilson & Com- 
pany syndication "banking politics" entered into the picture. For 
example, your list of participants was not altogether acceptable to 
the company. The company desired to include in the syndicate cer- 
tain other houses, do you recall? 
Mr. Swan. I do. 

Mr. Nehemkis. Can you recall at this time the names of the other 
houses that the company wanted included in the syndication? 
Mr. Swan. I do, yes. 

Mr. Nehemkis. What were the names of the houses that the com- 
pany wanted included in the syndication? 

Mr. Swan. At one period of the discussion, the following is the 
list which was tentatively named: Edward B. Smith; Field, Glore; 
Speyer; Kuhn, Loeb; Hallgarten; Lazard; Lee Higginson; Horn- 
blower; and Goldman, Sachs. The first list I read was before con- 
sultation with the company; the second list was after consultation 
with the company. 

Mr. Nehemkis. Mr. Mathers, will you take the stand for a moment 
please ? 

I show you two documents, one- a memorandum on the stationery 
of the S. S. Roma, and the other a letter from Mr. James D. Cooney 
to Mr. Wilson. Will you tell me where you obtained these docu- 
ments? 

Mr. Lloyd Mathers (Securities and Exchange Commission). 
These are photostatic copies of originals in the files of Wilson & Co., 
Chicago, 111. 

Mr. Nehemkis. The documents just identified by Mr. Mathers are 
offered in evidence. 

Acting Chairman O'Connell. They may be admitted. 
(The letters referred to were marked "Exhibits Nos. 1883 and 
1884" and are included in the appendix on pp. 12802 and 12803.) 

Mr. Nehemkis. Do you recall the reasons why the company wanted 
Kuhn, Loeb, Lazard Freres, Lee Higginson, and Hornblower in- 
cluded ? 

Mr. Swan. This memorandum states that Mr. Buethe insisted 
that Speyer appear ahead of all other houses. 
Mr. Nehemkis. Which memorandum are you reading from? 
Mr. Swan. Memorandum of September 9, 1935. ["Exhibit No. 
1882-2."] 

Mr. Buethe — 
whc is the treasurer of the company — 

insisted that Speyer appear ahead of a'? houses except the two leaders, be- 
cause Speyer had been helpful on the reclassification of the stock last winter 
and had offered the first refunding plan for the company's consideration. Gold- 
man, Sachs were included at the company's request because they had dealt in 
the company's commercial paper, and Hornblower was included at the company's 
request because they also had been of assistance to the company in the matter 
of reclassification of the company's stock. 



CONCENTRATION OF ECONOMIC POWER 12529 

INCLUSION OF KUHN, LOEB & CO. IN THE WILSON & CO. SYNDICATE 

Mr. Nehemkis. Kuhn, Loeb & Co. had never appealed in any of 
the Wilson & Co.'s syndicates. Kuhn, Loeb, however, was finally in- 
cluded in this syndicate. Is that not correct, sir? 

Mr. Swan. It was, at the request of the company, because of Mr. 
Elisha Walker's previous connection. 

Mr. Nehemkis. While you have the document in your hand, read 
what it says about Mr. Elisha Walker on his firm being included. 

Mr. Swan. A list was agreed to here after discussion [reading from 
"Exhibit No. 1882-2"] : 

subject to the approval of Mr. Thos. E. Wilson, who was expected to return 
from Europe within a few days * * * with the reservation that it might 
be necessary to make room for Kuhn, Loeb, who, through Elisha Walker, had 
put considerable pressure on the company for the business. (Blair, Walker's 
former affiliation, having had largest interest in previous financing.) 

Ultimately Kuhn, Loeb was included in the business. 

Mr. Nehemkis. As I understand that, Mr. Elisha Walker had 
formerly been associated with Blair & Co. and had a large participa- 
tion in the early Wilson business. 

Mr. Swan. And had been very active in the affairs of Wilson & Co. 
at one time. 

Mr. Nehemkis. I beg your pardon. 

Mr. Swan. And had been very active in the affairs of Wilson & Co. 
at one time. 

Mr. Nehemkis. Subseqently, Mr. Walker became a partner of 
Kuhn, Loeb & Co.? 

Mr. Swan. He did. 

Mr. Nehemkis. Kuhn, Loeb had never participated in the early 
historical- accounts of Wilson & Co. ? 

Mr. Swan. That is correct. 

Mr. Nehemkis. However, Mr. Elisha Walker was able to bring 
Kuhn, Loeb into this financing for one of the largest participations 
by virtue of the fact that he had formerly had an association with 
Blair & Co.? 

Mr. Swan. And that Kuhn, Loeb & Co. were a very strong and 
powerful house who would be acceptable as an addition to any 
underwriting group of this sort- 
Mr. Nehemkis. And according to the entry made by J. J. B. of 
your own organization, Mr. Walker apparently did something else. 
He [reading from "Exhibit No. 1882-2"] : 

Put considerable pressure on the company for the business — 

So that you have this anomalous situation. Mr. Walker is for- 
merly associated with Blair. He goes to Kuhn, Loeb. The legacy 
passes through the personage of Elisha Walker to Kuhn, Loeb. 
Kuhn, Loeb is included in the syndicate. 

Mr. Swan. It all indicates to me that each and all of us were very 
active in trying to get business, and if we had a previous connec- 
tion with the company, we made every effort we could to make our- 
selves acceptable to the company. 

Acting Chairman O'Connell. Mr. Walker was doing the same 
thing that you were doing. 

Mr. Swan. I think he was. 



12530 CONCENTRATION OF ECONOMIC POWER 

RELATION OF THE INVESTMENT BANKER TO THE ISSUER AND THE INVESTOR 

Senator King. Would, it strengthen the securities which were 
placed upon the market by having a number of reputable and strong 
investment bankers back of the guaranteeing or underwriting of the 
securities situation ? 

Mr. Swan. I don't think I quite say it would strengthen the 
security; I think it would strengthen the market for the securities 
and add public favor to the securities; certain names in offering 
securities have a very favorable effect on those securities. 

Senator King. Where there are a large number of corporations 
issuing securities, initially, or for the purpose of refinancing out- 
standing obligations, does it give to the securities which are issued 
a higher market value which would inure to the advantage of the 
stockholders by having the securities endorsed by and disposed of 
through a number of large and well-known reputable banking 
houses, investment houses ? 

Mr. Swan. ,>Well, I think taking the extreme case, if not well- 
known, if rather poor investment houses father the security, it is 
detrimental to this security as opposed to having more reputable and 
better-known people sponsoring the security. There are a number 
of groups whose sponsorship of a security would probably result in 
those securities having the same market value. 

Senator King. It is important, is it not, to find as wide a market as 
possible for securities? 

if. Swan. I think it is very advantageous to the company to have 
their securities well sponsored and well distributed. 

Senator King. And is it not beneficial to the public generally to 
have the securities instead of being concentrated in a few buyers, 
say, in New York City or Chicago, having them distributed and 
purchased in all parts of the United States? 

Mr. Swan. I think that is advantageous, and of course in the 
handling of these underwritings, they are eventually distributed all 
over the United States. 

Senator King. They are not held by a few corporations, then. 

Mr, Swan. Well, only in the case of the private placements where 
they are held by very few corporations, but when security is initially 
bought by a banking house or by a group of banking houses, they 
eventually form what is called a selling group, composed of invest- 
ment bankers distributed all over the country so that the bonds 
generally find lodgment pretty well all over the country. Of course, 
it is true certain securities will find a greater lodgment in Pennsyl- 
vania than they will in Now England; another security will find a 
greater lodgment in New England than in Pennsylvania, for tax 
reasons or reasons of people being more familiar with this or that 
type of security. 

Senator King. Where there are a number of large investment 
companies that take over the securities for the purpose of selling 
them, is there any disposition to depress the market or to depress 
the value, the original value of the securities so that they will sell 
for less than they otherwise would sell for, or is it to their advantage 
to get for the securities offered as large a price as possible for the 
benefit of the companies that are issuing the securities? 

Mr. Swan. I think the investment banker holds a different role 
perhaps from people in most other industries. The investment 



CONCENTRATION OF ECONOMIC POWER 12531 

banker has a very dual duty. He has a duty to the company that 
he is financing and he has a duty to the public that he is selling the 
securities to. I think the investment banker is always trying his best 
to find out what is the right price and that is not of necessity the 
highest price. If the investment banker isn't clever enough to find 
a price that is pretty close to the price that the securities will go to 
after they are issued, he wilkjbe unpopular with the borrower. If, 
on the other hand, he issues them at a price that declines from the 
offering price, it hurts his market. He has a very delicate position 
of finding the right price for a security, which is not of necessity the 
very highest price that at that particular moment the security might 
possibly be brought out at. 

Senator King. But doesn't it contemplate that the securities shall 
find markets and the house issuing the securities, or rather the cor- 
poration issuing the securities shall receive for its securities as "high 
market price, as under all the circumstances would be just and fair? 

Mr. Swan. The investment b nker stands a very much better chance 
of securing business if he has the reputation of paying corporations 
a good full price for their securities. 

Mr. Miller. Mr. Swan, if the price declines after issue immediately 
because it is overpriced, you spoke of the result as far as the investor 
is concerned, but it also, does it not, hurts the corporation's credit? 

Mr. Swan. Oh, it reacts unfavorably against the company. If 
a company is a constant borrower — that doesn't mean that they bor- 
row every year, but they borrow every 'once in a while — it is a very 
important thing to them that' the securities should be favorably re- 
ceived and should be popular with the public and that popularity 
certainly, as far as I know, is achieved in just about one way, and 
that is that it is a profitable thing for the investor to buy and not 
an unprofitable thing for him to buy, so that a decline from the 
offering price of the security is detrimental to the borrowing cor- 
poration, in my opinion, except as Mr. Strauss said this morning, 
this is the one and only time they are going to borrow, and then 
presumably they don't care, but there are very few corporations 
that can say, "This is the last and only time I am going to borrow." 

Mr. Lubin. Mr. Swan, getting back to the question asked by the 
Senator of Utah relative to the advantage of having firms that have 
a very good reputation and substantial houses added to a selling 
group ! in the sense that such an addition adds to the attitude of the 
public in its faith of the security, such a thing would not be true 
under conditions such as has been described in the Wilson & Co. 
case by the addition of Kuhn, Loeb & Co. under pressure, would it? 

Mr. Swan. I haven't been quite able to hear you. 

Mr. Lubin. Perhaps I can simplify the question. Assuming that 
the addition of a well-established firm to the group adds to the 
prestige of the issue, the addition of Kuhn, Loeb under the condition 
described in this Wilson case would not have had any such effect. 

Mr. Swan. Would not add, you say ? Kuhn, Loeb is an important 
name, very highly thought of by the investing public; I think it has 
a good effect on any issue. 

Mr. Lubin. Yes; but Kuhn, Loeb specifically provided that their 
name was not to appear in advertising or on the face of the prospec- 
tus, so that the public didn't know they had anything to do with it. 

Mr. Swan. The public may not, but every dealer did. It is the 

124491— 40— pt. 24 15 



12532 CONCENTRATION OF ECONOMIC POWER 

dealers who know those things. It is not the public who reads the 
prospectus which is prepared. The public doesn't read these great 
big prospectuses that we have nowadays; the dealer reads those 
prospectuses. 

Acting Chairman O'Conneix. But the public buy the bonds. 

Mr. Swan. The public buy the bonds because the dealer has read 
the prospectus and described the bond to the public from the 
prospectus, and the dealer makes his appraisal of the security and 
its value from the prospectus and he has clients who rely on him, 
and on his say-so to such an extent that they buy those bonds. They, 
I think, sell them, except to the professional buyer, from these pro- 
spectuses today. 

Acting Chairman O'Connell. It is clear, though, is it not, that 
the intrinsic value does not depend upon in any tangible way the 
identity of the underwriters, it depends rather upon the character 
of the issue. 

Mr. Swan. Only to this extent, that when people are known to 
have competent staffs and are competent people, I think it is gen- 
erally conceded that the intrinsic value of the bond has been taken 
care of through the provisions of the indenture. 

Acting Chairman O'Connell. Would that depend more on the 
character of the manager, or the issuer ? 

Mr. Swan. The manager of the account, oh, yes. 

Acting Chairman O'Connell. Kuhn, Loeb apparently had nothing 
to do with that. 

Mr. Swan. They had nothing to do with that, but their identity 
with it is helpful, their name is very highly regarded in our business. 

Mr. Nehemkis. Mr. Chairman, subject to the previous arrange- 
ment, I should like to offer in evidence a document from the files 
of The First Boston Corporation relating to the subject under dis- 
cussion by Mr. D. R. Linsley under date of June 27, 1935. The 
memorandum reads as follows (reading from "Exhibit No. 1885") : 

While Mr. Burnett Walker of Edward B. Smith & Co. was here this after- 
noon, he explained the banking politics in connection with the proposed issue 
of $20,000,000 bonds for this company. 

Field, Glore are going to head the business in the west and Edward B. 
Smith & Co. in the east. The respective interests in the business are as 
follows — 

And therein appears the list of the group and percentage of 
participation. 

While it has not yet crystallized, it is probable that only the first five names 
will appear in the advertisement. Mr. Walker explained, confidentially, to 
me that the senior Mr. Wilson originally wanted Field, Glore to head the 
business in the west and Kuhn, Loeb in the east, but that for various reasons, 
Edward B. Smith & Co. was finally selected. Mr. Walker stated that he might 
want to offer a slight interest to Kuhn, Loeb & Co. and that while he had 
not definitely made up his mind to do so, he might ask each member of the 
group to give up 10% of their total to a pool. However, if there is any re- 
sistance, he frankly feels that Field, Glore and themselves should make the 
contribution. 

I told Mr. Walker that as far as we were concerned he could write his own 
ticket. He stated that probably in the course of the next four or five days 
further details would be made available to us. 

I offer the document in evidence. 

(The document referred to was marked "Exhibit No. 1885" and 
is included in the appendix on p. 12803.) 



CONCENTRATION OF ECONOMIC POWER 12533 

FAILURE OF WHITE, WELD & CO. TO BE INCLUDED IN THE 8TNDIOATE 

Mr. Nehemkis. Mr. Swan, there was one phase of the "banking 
politics" that Mr. Burnett Walker did not explain to Mr. Linsley, 
and that was how did it happeu that White, Weld & Co. was not 
included in the final syndicate, although you felt all along that you 
had a commitment to them? Will you explain that? 

Mr. Swan. I would just like to comment on the words "banking 
politics." There never was any syndicate, that was more, I wonx 
say dictated, but more laid out by the company than this one was. 
We consulted together on it. ' It is obvious that we presented a list 
and they wanted to add some names and subtract some names, and 
they wanted this person in for a certain reason, and that person for 
a certain reason. The banking politics referred to have nothing 
to do with politics within the group. I think the banking politics 
have to do, as between the company and certain bankers, such-and- 
such a banker had helped them in their reorganization, Goldman, 
Sachs had sold their paper for a good many years, somebody else 
had done something else. This was certainly one of the most thor- 
ough company syndicates. As far as White, Weld were concerned, 
anything, of course, which we had said to White, Weld had to be 
subject to the final decision of the company. It was the final deci- 
sion of the company that they did not want White, Weld in the 
business. 

Mr. Nehemkis. I merely ask the question, Mr. Swan, because your 
partner Burnett Walker having discussed the banking politics of 
the deal and Mr. Linsley having recorded them I was forcibly im- 
pressed with the significant omission of the reason for the exclusion 
of White, Weld & Co., and I am very grateful to you for enlight- 
ening us. 

Mr. Swan. Is it important for your inquiry why they are ex- 
cluded ? 

Mr. Nehemkis. Yes. 

Mr. Swan. May I suggest that you call a witness from the com- 
pany? 

Mr. Nehemkis. It is not necessary, because I shall continue read- 
ing from "Exhibit No. 1867," previously received in evidence, being a 
letter sent to Mr. Cutler by Faris R. Russell. I now read from that : 

Recently when it became apparent that the business was in the immediate 
making and not having heard from you, I called your office but could not 
reach you. Later the same day Burnett Walker telephoned me asking for a 
review from us of the Wilson & Co. matter as between ourselves and yourselves. 
I gave him the above story. 

The committee will recall that I read that previously. 

I did not hear further from Burnett Walker but he came over and saw Ben 
Clark, expressed extreme regret and stated that embarrassing as it was to your 
firm, we could not be included in the Wilson & Co. business, that Field, Olore 
& Co. and the company itself had refused your request that we be included. 

The above chronological story of this matter is based on memoranda made 
immediately after the various conversations took place, and, hence, is neither 
hazy in our minds nor subject to misunderstanding or faulty recollection. 

The above is not sent to you as a record on which .we make any claim on 
you for Burnett Walker has already stated your position. 

The experience, however, makes it necessary for us to raise a question as to 
another matter so I request that you show this letter to Joe and ask that he 
let us know just what he wishes us to understand with respect to the position 



12534 CONCENTRATION OF ECONOMIC POWER 

reserved for us in the matter of Columbia Gas & Electric, ahout which I have 
uever had any conversation with him, but it was cleared with Joe by our 
mutual good friend, Jim Hutton. 

In order that you and Joe may have before you the Columbia Gas & Electric 
situation — 

and so on, the remainder not being relevant to your discussion. 

Mr. Henderson. Who is Mr. Hutton ? 

Mr. Nehemkis. Mr. Hutton is with W. E. Hutton, and Company, 
an investment banking firm. 

I now refer the committee to "Exhibit No. 1867" previously of- 
fered in evidence, subject to Mr. Swan's identification of a similar 
letter obtained from the files of his company, and the reason I am 
referring to them both is because of certain pencil notations on one 
and so that the record may be thoroughly correct and proper in all 
respects, we had better have them both. 

Mr. Swan. You handed me the White, Weld one. 

Mr. Nehemkis. Oh, I am sorry. This has already been marked 
for the record. 

Mr. Swan. May I see it ? 

M. Nehemkis. This being committee "Exhibit No. 1867." 

Mr. Swan. May I point out something in this ? 

Mr. Nehemkis. I just want to have one other identified. Mr. 
Whitehead', will you take the stand, please. 

Is this a copy of a letter which you obtained from the files of White, 
Weld & Co.? 

Mr. Whitehead (Securities and Exchange Commission). That is 
correct. 

Mr. Nehemkis. Now on this letter in connection with the statement, 
Mr. Chairman, that [reading from "Exhibit No. 1867"] : 

Field, Olore and the company itself had refused your request that we be 
included — 

There appears the following pencil notation : 

B. Walker says this js incorrect. 

Was that the comment you wanted to make? 

Mr. Swan. That is the comment I wanted to make. I have dis- 
cussed this with him and he tells me that Field, Glore & Co. had 
nothing to do with the exclusion of White, Weld. 

Mr. Nehemkis. That is precisely the reason why I wanted both 
letters in the record so that correction would appear. 

The document from the files of White, Weld & Co. is now offered. 

Acting Chairman O'Connell. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1886" and is in- 
cluded in the appendix, p. 12804.) 

Mr. Swan. I have here, Mr. Chairman, three or four papers which 
have to do rather with the technical and mechanical handling of our 
business. Here is one which we call [reading from "Exhibit No. 
1887-1"] : 

Schedule of operations followed by Smith, Barney & Co. when acting in 
capacity of head manager in wholesaling a new issue 

And you see it gives here all of the things that we have to go 
through when we are doing that. 



CONCENTRATION OF ECONOMIC POWER 12535 

I have here a "Buying Department Work Sheet" which shows all 
of the things we do in preparing an issue. 

And I have here a memorandum for the Industrial Division of the 
Buying Department, "Outline for use as Guide in conducting Inves- 
tigations of Industrial Companies." 

And I have here a "Buying Department Work Sheet Form for 
use in Connection with Issues Headed by other Houses in which we 
have a Position as an Underwriter." 

This record that you are making here is something that will doubt- 
less at some future time be studied by people who are interested 
in investment banking, and there is a good deal here that is of 
interest that those interested in investment banking could obtain a 
good deal of information from. I should like to present it for the 
record if it is your pleasure that I do so. 

Mr. Nehemkis. I am very happy to receive it and I recommend it- 
be spread on the records of the committee. 

Acting Chairman O'Connell. Very well, it may be received for the 
record. 

(The documents referred to Avere marked "Exhibit No. 1887-1 to 
1887-4" and are included in the appendix on pp. 12806-12829.) 

Mr. Nehemkis. While we were discussing the problem of me- 
chanics, Mr. Swan, will you be good enough to identify this per- 
formance record card kept by Edward B. Smith & Co. ? 

Mr. Swan. I identify that. 

Mr. Nehemkis. Will the reporter be instructed to mark two sheets, 
being the performance record cards or typical examples of perform- 
ance record cards kept by E. P. Smith & Co. These together with 
typical cards kept by other investment houses will be referred to on 
Friday. 1 Since the witness is here, I asked that he identify them. 

Acting Chairman O'Connell. These will be marked for the record. 

(The cards referred to were marked "Exhibit No. 1888" and are 
included in the appendix on p. 12831.) 

PROFESSIONAL, CHARACTER OF INVESTMENT BANKING — RESUMED 

Mr. Swan. Mr. Chairman and Mr. Examiner, before I leave the 
stand, I would like to ask whether it would be proper for me to say 
a few words about this question of the professional aspect of the 
banker. As an investment banker, I sat here this morning when you 
were questioning Mr. Schiff and Mr. Strauss, and I didn't like to 
break in on that at all, but I think it is something that I would like 
just to say something about, if you will ask me a question about it, 
or if I may just volunteer it. 

Mr. Nehemkis. I would be very happy to have you, if that is the 
pleasure of the committee. 

Acting Chairman O'Connell. That is fine, you may go ahead. 

Mr. Swan. I want to say this because it seems to me it is quite 
important. I don't think the investment banker can claim that his 
business is a profession. I think the investment banker, however, 
can claim that it has the characteristics of a profession, that it is 

1 Infra, p. 12682. 



12538 CONCENTRATION OF ECONOMIC POWER 

similar to a profession, that it is not the same as a profession but it 
has a great many similar characteristics. 

I think in addition to that it has what I have spoken about previ- 
ously in my testimony, this question of the dual capacity, our attitude 
toward or our relations with the borrower and our relations with 
the public. I have a feeling — I have had it during this investiga- 
tion — that the idea of stressing the professional character of our 
business is not quite accepted. Now we who have a good deal of 
pride in our business — and I think most of us in our business have 
a good deal of pride in it — do feel that our business has very pro- 
fessional aspects and we try to make our business as professional as 
we can. We think it is to the interest of the public that our business 
be regarded as professional. We think that it helps to carry out 
our obligations to the borrower and. to the public, that the greater 
professional character it can be given the better, and instead of 
aiming toward possibly depreciating our business or the character 
of our business by more severe competition, competitive bidding, 
and all that sort of thing, I feel very, very strongly that the effort 
should be to try to raise the character of our business. If our busi- 
ness isn't Sufficiently professional today, let us try somehow or other 
to get it on a more professional basis. I think that is the thing 
that is going to be for the best interest of the public. Now, Mr. 
Henderson, this morning you said in some connection with some- 
thing you were talking about that we were considering the public 
interest. I think it is the only interest to be considered. 

Mr. Henderson. I said it was at least slightly tinged with the 
public interest. 

Mr. Swan. Well, it is the only thing, sir, and I agree that we are 
talking about the public interest, we are not talking about the 
interest of the borrower, bank, or investor, but we are talking about 
the public interest, and I contend and contend very strongly that 
to raise the character of the investment banking business, to make 
it more professional rather than less professional, would accrue to 
the public benefit. If anything happens in connection with our 

business that makes us mere — what is the word I want — mere 

Mr. Nehemkis. Merchants of securities? 

Mr. Swan. Not merchants of securities, just peddlers of bonds, 
that is not going to accrue to the public interest in any way. I 
could go on and talk a good deal about the professional aspects, 
about competition, but I do want to stress this fact that I hope you 
gentlemen will consider in your deliberations, whether our business 
shouldn't be raised to a higher level rather than to try to push it 
down lower. 

Mr. Nehemkis. Who should do tne raising of the character of 
the business? You said someone should do it. Now who? 

Mr. Swan. We should raise it ourselves. Let me say this, Mr. 
Nehemkis, that I believe if you gentlemen feel there is a great deal 
of concentration in a few hands, I believe that that concentration 
is in few hands because we fellows have tried to make our business 
professional, because we have approached it on a professional basis, 
we have emphasized the professional aspect of it, and our attitude 
toward the borrower and the investor is a professional attitude. I 
think anything that makes us peddlers of bonds instead of invest- 
ment bankers, is not in the best interest of the general public. 



CONCENTRATION OF ECONOMIC POWER 12537 

Mr. Lubin. Mr. Swan, may I ask a question? Is it your opinion 
that the addition of competition in the functioning of an industry 
or a service lowers the standards of the service? 

Mr. Swan. I think that our business is very highly competitive 
as it is today. I think it is just as competitive as it can be, and I 
think all of this testimony that has been brought out here indicates 
it. When there is an opening for anyone to get a new piece of 
business, every banker in the country is after it. After a banker is 
selected for a piece of business, I think that the people who have 
a regard for the professional aspects of the banking business don't 
try to interfere with friendly and good relationships between banker 
and client, but every one of us, every one of us, is letting every 
concern in this country know that we are right there waiting to 
take business any tirne an issuer is dissatisfied. Every issuer knows 
that he can go to a half dozen or a dozen people and they will take 
his business just like that [snapping his fingers] and in our dealing 
with our borrowers we are constantly conscious of that fact, that 
there is great potential competition in our business all the time. 

Mr. Lubin. What would you, for the sake of the committee, say 
what the industry itself could do or what might be done by some 
other agency to improve the standards rather than lower them ? 

Mr. Swan. Well, I am fearful that competitive bidding would do 
everything harmful ; I think the S. E. C. has done a great deal for 
our business. I happen to think that the N. R. A., when our busi- 
ness had the opportunity to form a group under the N. R. A., gave 
us great opportunities. That was destroyed. I think the S. E. C. 
has done a great deal for the raising of standards of our business, 
and there have been a great many people in our business all the time 
whose standards have been very high; I don't mean that there 
haven't been high standards in our business, I believe there have. 
I think there have been periods, for instance in the twenties, when 
terrible mistakes were made, but I do think that the requirements of 
the S. E. C. for full publicity and various things like that that have 
been brought about by that law have been very beneficial. Now I 
am fearful that something is going to be done that will counteract, 

ferhaps, the good things that have been happening to our industry, 
think our industry is on a lot better basis and is getting increas- 
ingly so. I think this National Securities Association which is just 
about to become active under the act is going to be beneficial, and I 
think the tendency of our business is toward a higher basis all the 
time. I am just fearful that something will be done to retard it. 

Mr. Lubin. If we could just for the moment, for the sake of argu- 
ment, lay aside that fear, I would appreciate it very much if you 
could illuminate a bit further your previous statement, namely, 
that it should be made more professional. I am interested in that. 

Mr. Swan. I think all of these things are tending to do that. I 
think we within ourselves are tending to become more professional 
all the time. Mr. Nehemkis asked who will raise the standards. We 
should raise them, but we should have the help of people who can 
help us. The S. E. C. is helping to raise the standards of our busi- 
ness, but they can do things that will lower the standards of our 
business. I think things are improving in our business. There are 
some pretty high standards in my business, I think. 



12538 CONCENTRATION OF ECONOMIC POWER 

Mr. Lubin. But you do feel if you had more competition in the 
business you would be lowering the standards ? 

Mr. Swan. No; it isn't a question of competition. I think the 
competition exists, but there is a very distinct difference between 
competition and competitive bidding. I think competitive bidding 
would very materially lower the standards of our business. I think 
instead of getting away from this concentration which we are fearful 
of, it would increase the concentration. For instance, my firm is in a 
much better position to bid competitively than a lot of others. I 
think a lot of us would have a great deal better chance of getting this 
business on competitive bidding than we have now, maybe, but it 
wouldn't do the business any good, because competitive bidding — of 
course, you can talk at great length about competitive bidding — does 
two things : competitive-bidding not only raises prices to the investor, 
it certainly does that, but it lowers the quality of the goods, and I 
think a professional attitude and approach to this business raises 
the quality of the goods and gets the security, gets the goods, to the 
investor at a proper price. That isn't necessarily the top price but it 
is very close to it. 

Mr. Lubin. In other words, you don't feel that the same mechan- 
ism that is used in the markets for selling other types of goods and 
services, namely, that if the bidder who secures the order can't de- 
liver the goods the market should take care of that and that his com- 
petitor who can do a better job should survive, should be used here? 

Mr. Swan. I think our business is a different type of business from 
that. I say we are not professional but we have many characteristics 
similar to a profession, or we should have, and I believe we have. 
I hate to see that broken down. I believe this dual relationship with 
the investor is quite different from any other business that I know of. 

Mr. Lubin. Thank you. 

Acting Ch drman O'Connell. We are very grateful to you, Mr. 
Swan. 

(The witness, Mr. Swan, was excused.) 

FINANCING AN UNDERWRITING TRANSACTION — THE DAY-LOAN PROCEDURE 

Mr. Nehemkis. Mr. Chairman, I should like to ask your indul- 
gence for about 8 minutes. There are certain technical details in 
reference to the day-loan procedure which Mr. Swan and others in 
the industry have very kindly consented to make available to us. A 
member of Mr. Swan's organization will testify briefly with regard 
to the day-loan procedure with respeci; to certain offerings involving 
E. B. Smith Co., and then documents will be identified and offered 
in evidence that have been made available to us by other banking 
firms. I ask your indulgence in this matter because I regard this 
mechanical technique as rather important to the committee's under- 
standing of this problem of the investment banking processes that 
we are engaged in. 

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

Acting Chairman O'Connell. Do you solemnly swear that the tes- 
timony 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. Coulson. I do. 



CONCENTRATION OF ECONOMIC POWER 12539 

TESTIMONY OF WILLIAM H. COULSON, SMITH, BARNEY & CO... 

NEW YORE, N. Y. 

Mr. Nehemkis. Will you state your full name ? 

Mr. Coulson. William H. Coulson, Garden City, N. Y. 

Mr. Nehemkis. And you are a member of the staff of Smith, Bar- 
ney & Co. ? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. It is the customary procedure, is it not, Mr. Coul- 
son, for an underwriter when making payment for his participation 
to present a check to the manager drawn to the order of the corpora- 
tion whose securities have been offered by the underwriting group? 

Mr. Coulson. It is. 

Mr. Nehemkis. And immediately after the closing there is released 
to each of the underwriters by the syndicate manager the total num- 
ber of bonds to be taken down by such underwriter for his own 
retail distribution? 

Mr. Coulson. That is right. 

Mr. Nehemkis. And any bonds given up by an underwriter to the 
selected dealers, or, as the case may be, for institutional sales, are 
retained by the manager against receipt? 

Mr. Coulson. That is right. 

Mr. Nehemkis. And before the close of business on the initial 
delivery day, does not the manager reimburse the underwriters for 
the bonds retained? 

Mr. Coulson. He does. 

Mr. Nehemkis. Usually each underwriter takes out with a bank 
what is known as a day loan in order to pay for his commitment ? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. The day loan may be for the entire amount of the 
underwriting commitment or for a portion thereof? 

Mr. Coulson. It is usually for a portion of it. 

Mr. Nehemkis. In any event, the balance is financed out of firm 
capital ? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. It is the practice of the New York banks, is it not, 
to require the underwriter who applies for a day loan to execute an 
instrument which sets forth the purpose for which the loan is to be 
used, that is to say, to pay in whole or in part the purchase price of 
the securities that are being offered? 

Mr. Coulson. It is a rather technical document. 

Mr. Nehemkis. I think I have one here. Is net this the instru- 
ment, which happens to be of the Guaranty Trust Co. of New York, 
characteristic of the ones used by New York banks ? 

Mr. Coulson. Yes ; it is. 

Mr. Nehemkis. It is also required, is it not, Mr. Coulson, under 
the terms of this instrument which you have just identified, that the 
securities upon receipt by the underwriter be held in trust for the 
bank as collateral security for the loan? 

Mr. Coulson. It is. 



12540 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. In other words, the underwriter becomes a trus- 
tee with respect to such securities in behalf of the bank? 

Mr. Coulson. Yes; the proceeds of the day loan are used in facili- 
tating the delivery of the securities by the underwriter. 

Mr. Nehemkis. Now, in the case of such instruments, do you know 
whether or not it is stated that with respect to such securities a 
lien or mortgage shall arise in favor of the bank ? 

Mr. Coulson. On the securities involved ; yes. 

Mr. Nehemkis. That is the practice, incidentally, of the Guaranty 
Trust Co.? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. Does not the bank generally charge 1 percent 
interest for this accommodation? 

Mr. Coulson. They do. 

Mr. Nehemkis. Having executed the day-loan agreement, the un- 
derwriter usually sends it back to the bank, together with his check 
for the face amount of the loan, and then another check for 1 day's 
interest. Is that not correct? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. Generally the underwriter will take out this loan 
with the trustee of the new issue as a kind of compliment, perhaps, 
to the trustee, or perhaps, with banks where the underwriter keeps 
his deposits or otherwise uses such bank for his banking require- 
ments? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. In the event all of the bonds retained by the 
manager are not sold by the initial delivery day, does not the man- 
ager arrange a loan, using the unsold bonds as collateral ? 

Mr. Coulson. Yes; unless he wishes to use other capital for that 
purpose. 

Mr. Nehemkis. And if that be the case, each underwriter is there- 
after reimbursed from the proceeds of the loan made for its account? 

Mr. Coulson. That is right. 

Mr. Nehemkis. Each underwriter then uses the proceeds of such 
loan plus the proceeds he receives on the delivery of the bonds against 
his retail sales to liquidate the day loan? 

Mr. CouLscfN. And plus the amount he receives from his contri- 
bution to the selling group. 

Mr. Nehemkis. Or in the event he has failed to sell all of the 
bonds which have been allotted to him by the manager for his own 
retail distribution, and if his capital is insufficient, arrangement can 
be made for a collateral loan on the balance of the unsold bonds. Is 
that not correct? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. The day loan then serves a rather important func- 
tion in the underwriting business in that it releases for the period 
of its duration the underwriter's capital? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. To put the matter differently: If it were not for 
this credit accommodation by the commercial banks, underwriting 



CONCENTRATION OF ECONOMIC POWER 12541 

capital might become frozen and the extent of underwriting ac- 
tivities perhaps become somewhat restricted ? 

Mr. Coulson. That is a rather involved question. The day loan 
is a credit facility. It makes for a very simple operation. 

Mr. Nehemkis. Now, Mr. Coulson, just in the interests of econ- 
omy, can you furnish me with an answer to my question? I think 
it is a difficult question to ask you without much preparation. We 
might suggest that you write to us about it, when you can more 
leisurely study it. Would you prefer that? 

Mr. Coulson. I would say the day loan is used as a convenience. 
The underwriter might be in possession of wholly owned marketable 
securities equal the amount of his commitment which he could take 
to the bank and borrow against. Then he would pay the issuing 
corporation, but at the end of the day he would be in funds over 
and above his normal cash requirements, so he would have to go back 
to the bank and take up his wholly owned securities and bring them 
back to his office. 

Mr. Nehemkis. Now, I would like to turn with you, if I may, 
to specific examples of the day-loan procedure just by way of 
illustration. Suppose we take, as our first, the Pure Oil Co. 5 per- 
cent cumulative preferred stock. E. B. Smith & Co.'s commitment 
with respect to this offering was for 58,936 shares at 100 in the' 
principal amount of $5,893,600, is that correct, sir? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. And that was the amount which was paid to 
the Pure Oil Co.? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. Was not the closing date for this transaction 
October 22, 1937? 

Mr. Coulson. It was. 

Mr. Nehemkis. And did not E. B. Smith & Co. arrange a day 
loan at Guaranty Trust Co. on October 22 for $4,500,000? 

Mr. Coulson. They did. 

Mr. Nehemkis. And was not the balance, in the amount of 
$1,393,600 made up from a bank balance of E. B. Smith & Co. at the 
Guaranty Trust Co. on October 21 in the amount of $2,282,656.57? 

Mr. Coulson. It was. 

Mr. Nehemkis. Thus making a total of $5,893,600? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. Now was not the day loan paid off before the 
close of business on October 22 ? 

Mr. Coulson. It was. 

Mr. Nehemkis. However, this offering having been a slow moving 
deal with an unsold balance of stock remaining, was there not a 
collateral loan made by the Guaranty Trust Co. ? 

Mr. Coulson. There was. 

Mr. Nehemkis. And this loan was on 58,936 shares at a loan value 
of $64 per share ? 

Mr. Coulson. That is right. 

Mr. Nehemkis. Or the aggregate amount of $3,771,904? 

Mr. Coulson. That is true. 



12542 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. So that the difference between $64 and $100 which 
was financed by the firm was $2,121,696? 

Mr. Coulson. It was. 

Mr. Nehemkis. Those two figures giving a total of $5,893,600? 

Mr. Coulson. Yes. 

Mr. Nehemkis. Now suppose we turn, as a second illustration, to 
the $85,000,000 Shell Union Oil Corporation, 15-year 2i/ 2 -percent 
debentures due July 1, 1954. Was not Smith, Barney & Co.'s under- 
writing commitment for $4,000,000 at a value of 96^4 ? 

Mr. Coulson. Ninety-six and a quarter is right. 

Mr. Nehemkis. Ninety-six and a quarter. 

Mr. Coulson. Yes. 

Mr. Nehemkis. And that would represent $3,850,000? 

Mr. Coulson. That is correct. 

Mr. Nehemkis. And the accrued interest amounted to $6,388.88? 

Mr. Coulson. That is right. 

Mr. Nehemkis. So that the total paid to Shell Union Oil Corpora- 
tion by Smith, Barney & Co. was $3,856,388.88? 

Mr. Coulson. Correct. 

Mr. Nehemkis. Was not the closing date for this transaction July 
24, 1939? 

Mr. Coulson. It was. 

Mr. Nehemkis. Now, of the total underwriting commitment, was 
there not financed by day loan of the Guaranty Trust Co. on July 
24, 1939, $3,300,000? 

Mr. Coulson. That is right. 

Mr. Nehemkis. And was not the remainder made up by a bank 
balance of Smith, Barney & Co. at the Guaranty at that time, at 
the close of business July 21, $851,234.74? 

Mr. Coulson. That is true. 

Mr. Nehemkis. So that the amount taken from Smith, Barney & 
Co.'s bank balance for this purpose was $556,388.88 ? 

Mr. Coulson. That is right. 

Mr. Nehemkis. And those two figures represent a total of $3,- 
856,388.88? , 

Mr. Coulson. That is correct. 

Mr. Nehemkis. Now let us together recapitulate the situation. 
The underwriting involved $4,000,000? 

Mr. Coulson. That is right. 

Mr. Nehemkis. They have a give-up to the selling group of 
$750,000? 

Mr. Coulson. That is right. 

Mr. Nehemkis. Which left a balance for retail sales of $3,250,000? 
.Mr. Coulson. Correct. 

Mr. Nehemkis. Now there were additional bonds unsold to the 
dealers taken down in the amount of $274,000? 

Mr. Coulson. That is right. 

Mr. Nehemkis. So that there was a total for retail sales of 
$3,524,000? x 
. Mr. Coulson. That is correct. 

Mr. Nehemkis. And they were sold at a retail price of 97% ? 



CONCENTRATION OF ECONOMIC POWER 12543 

Mr. Coulson. That is right. 

Mr. Nehemkis. Giving a total of $1,624,000? 

Mr. Coulson. Correct. 

Mr. Nehemkis. So that as of July 28 there was an unsold balance 
of $1,900,000? 

Mr. Coulson. That is right. 

Mr. Nehemkis. However on July 28 this unsold balance was in 
fact sold ? 

Mr. Coulson. That is right. 

Mr. Nehemkis. So that none of these bonds were pledged for a 
collateral loan? 

Mr. Coulson. From July 24 until July 28. 

Mr. Nehemkis. Thank you very much, Mr. Coulson. 

Now before you leave may I ask you to identify that document 
which you have in your hand as one which was prepared by you 
and other members of your organization and made available to us 
pursuant to our request? 

Mr. Coulson. Yes; this is the document I prepared. 

Mr. Nehemkis. And is it your signature which appears on the 
letter of transmittal ? 

Mr. Coulson. Yes ; that is my signature. 

Mr. Nehemkis. Thank you very much, Mr. Coulson. 

(The witness, Mr. Coulson, was excused.) 

Mr. Whitehead, please take the stand. 

Were the following documents obtained by you from the houses 
indicated and will you be good enough to state which houses? 

Mr. Whitehead (Securities and Exchange Commission). These 
documents were obtained from Kidder, Peabody & Co., The First 
Boston Corporation, and Halsey, Stuart & Co. 

Mr. Nehemkis. And you have certain instruments that were fur- 
nished to you by several banks, have you not ? 

Mr. Whitehead. I have. 

Mr. Nehemkis. And which banks furnished those instruments? 

Mr. Whitehead. These were furnished by the investment banking 
houses that I have just mentioned. 

Mr. Nehemkis. And they are the 

Miv Whitehead (interposing). Forms used. 

Mr. Nehemkis. By which banks? 

Mr. Whitehead. They are used by the Guaranty Trust Co., the 
National City Bank of New. York, the Bank of the Manhattan Co., 
Chase National Bank of the City of New York, the City National 
Bank & Trust of Chicago, The Continental National Bank & Trust 
Co. of Chicago, and The Manufacturers Trust Co. of New York. 

Mr. Nehemkis. Thank you, Mr. Whitehead. 

May it please the committee, I ask'first that the document dated 
September 1, 1939, identified by Witness Coulson be admitted in 
evidence. 

Acting Chairman O'Connell. It will be admitted. 

(The letter referred to and accompanying schedules were marked 
"Exhibits Nos. 1889-1 to 1889-5" and are included in the appendix 
on pp. 12832-12836.) 



12544 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. And that the several documents and bank instru- 
ments identified by Witness Whitehead likewise be spread on the 
records of this committee. 

Acting Chairman O'Connell. May I ask if those documents 
indicate by title what they are ? 

Mr. Nehemkis. They do, sir. 

Acting Chairman O'Connell. They may be admitted. 

(The documents referred to were marked "Exhibits Nos. 1890 to 
1894, 1895-1 and 1895-2, and 1896" and are included in the appendix 
on pp. 12837-12854.) 

Mr. Nehemkis. The witnesses tomorrow appearing in connection 
with the financing of the Standard Gas & Electric Co. are as fol- 
lows : Mr. Victor Emanuel, Mr. Joseph H. Briggs, Mr. Allen Dulles 
of Sullivan & Cromwell, and Mr. Fuller of the J. Henry Schroder 
Banking Corporation. 

Acting Chairman O'Connell. The committee will stand in recess 
until 10 : 30 tomorrow mornmg. 

(Whereupon at 4 : 30 p. m. the committee recessed until 10 : 30 a. m. 
on Thursday.) 



INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER 



THURSDAY, JANUARY 11, 1940 

United .States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10 : 40 a. m., pursuant- to adjournment on 
Wednesday, January 10, 1940, in the Caucus Room, Senate Office 
Building, Representative Clyde Williams, presiding. 

Present: Representative Williams (acting chairman), Senator 
King; Messrs. Henderson, O'Connell, and Brackett. 

Present also: Clifton M. Miller, Department of Commerce; Peter 
R. Nehemkis, Jr., special counsel ; Samuel M. Koenigsberg, associate 
attorney, and Lawrence R. Brown, investigator, Securities and Ex- 
change Commission. 

Acting Chairman Williams. The committee will be in order. 

Mr. Henderson. Mr. Chairman, today the Securities and Exchange 
Commission Investment Banking Section continues with that part 
of the presentation which is related to the contracts and understand- 
ings existing between investment banking firms and corporations 
which are issuers of securities. Today, however, the case selected 
shifts the scene from what you might call the "deer runs" and the 
"salt licks" of Wall Street to the international theater, and banking 
concerns in Belgium, England, Paris, Berlin, and New York are 
concerned. 

The case to be presented involves another aspect which we thought 
important to present to this committee, a case in which a banking 
firm which has both investing and underwriting functions utilizes 
to a certain extent the investment portion of its business as an aid 
in securing contracts for future issues. 

This leads me, Mr. Chairman, to point out, as I have wanted to 
for some time, that the Investment Banking Section has been at 
work with a small staff for quite a long period. A really complete 
presentation, even along the narrowed lines we indicated at the out- 
set, could probably have occupied the attention of this committee for 
many, many weeks. As you are aware, numerous other subjects, 
probably 40, press for hearing before this committee. 

That means we have had to select certain cases for presentation. 
We have had to narrow down the number of cases, investment bank- 
ing houses, and statistics concerning them, to those we felt were 
illustrative. We have adopted, as you know, the case method because 
I think it is apparent to the committee that if we had relied merely 
on the cold information supplied by prospectuses and the generalized 
testimony of men in the investment banking field, the committee 

12545 



12546 CONCENTRATION OF ECONOMIC POWER 

would have had no opportunity for critical analysis of the varied 
functions of investment banking. 

There were several attempts on the part of witnesses to play 
down the implication of terminology which certainly would not 
have come before the committee had we not utilized private memo- 
randa and private letters. We take no great delight in exposing, to 
public view private and confidential information, but I will be glad 
to rest our case on the necessity of doing so in order to obtain a real 
basis, as I said before, for judgment by the committee. 

I think one other thing might be said at this time which I have 
wanted to say. Generally there has been associated with the banking 
inquiries, with anything banking, a certain amount of feeling about 
exercise of influence upon the investigators and upon the people re- 
sponsible for the presentation. I am prepared to say today, and I 
think Counsel Nehemkis will agree with me, that despite the fact that 
we have touched many of the most important investment banking 
houses in this country, no improper influence or pressure of any kind 
whatsoever, political or economic, has been attempted to be exercised 
on this staff. I think it is worth while noting that at this point, be- 
cause certainly there has been no interference in any way. In the 
completeness of the presentation I think the responsibility for choice 
of what would be presented has lodged with Counsel Nehemkis. Is 
that correct, Mr. Nehemkis? 

Mr. Nehemkis. Absolutely correct, sir. 

Mr. Henderson. I think we are ready to proceed. 

AGREEMENTS BETWEEN UNDERWRITERS AND CORPORATIONS ISSUING 

SECURITIES 

Mr. Nehemkis. Mr. Chairman, before calling my first witness, 
there is a bit of old business from yesterday which requires but a 
moment. The committee will recall that I had occasion to ask Mr. 
Lewis Strauss 1 of Kuhn, Loeb & Co., whether he knew of the exist- 
ence of agreements or understandings or contracts between invest- 
ment banking firms and issuers of securities, and Mr. Strauss said 
he did not. I then stated to the committee that either this morn- 
ing or tomorrow, I would have occasion to offer in evidence some 29 
or 30 contracts of that nature. I should like to keep my word with 
you this morning and take this occasion of offering in evidence 29 
contracts containing preferential rights to future financing entered 
into at various times between investment-banking firms and corpo- 
rate issuers of securities. 

Of these 29 contracts, 19 are as nearly as can be ascertained pres- 
ently in full force and effect. 

In the case of four of these contracts, the parties who are under- 
writers are out of business and it is questionable whether or not 
successors to such underwriters, if any, have succeeded to the rights 
under such cont *acts. 

In the case of six of these contracts, Mr. Chairman, they have been 
canceled by the mutual consent of the parties thereto. 

1 Supra, p. 12496. 



CONCENTRATION OF ECONOMIC POWER 12547 

This pile of contracts is perhaps too great to ask the committee to 
print, and so I ask leave of the committee that they be filed with 
the committee, and in lieu of printing these contracts, an abstract of 
the provisions of each of these contracts be spread on the record of 
the committee. 

Acting chairman Williams. Has the source from which those con- 
tracts came been placed in the record? 

Mr. Nehemkis. On each abstract appears the source. For example, 
the first one which, happens to be a contract between the Airplane 
Manufacturing & Supply Corporation and the underwriter, being G. 
Brashears & Co. of Los Angeles, the source' says, "From registration 
statement, Securities & Exchange Commission." 

The next one happens to be, and this I assure you was a pure coin- 
cidence, Associated Gas & Electric Co., and the source is Halsey, 
Stuart & Co., New York, and the name of my staff associate who 
obtained it appears. 

Acting Chairman Williams. Very well, they may be admitted. 

(The contracts referred to were marked "Exhibits Nos. 1897 to 
1925" and are on file with the committee. The abstracts accompany- 
ing each contract were numbered accordingly and are included in the 
appendix on pp. 12854-12860.) 

Mr. Nehemkis. Mr. Joseph H. Briggs will take the stand, please. 

Acting Chairman Williams. Do you solemnly swear the testimony 
you are about to give in the matter now pending will be the truth, the 
whole truth, and nothing but the truth, so help you God?' 

Mr. Briggs. I do. 

TESTIMONY OF JOSEPH H. BRIGGS, CHAIRMAN, EXECUTIVE COM- 
MITTEE, AND EXECUTIVE VICE PRESIDENT, H. M. BYLLESBY & 
CO., CHICAGO, ILL. 

Mr. Nehemkis. Mr.. Briggs, will you state your full name and 
address, please? 

Mr. Briggs. Joseph H. Briggs. I live in Highland Park, 111. 

Mr. Nehemkis. At the present time, Mr. Briggs, you are chairman 
of the board of directors And chairman of the executive committee 
and executive vice president of H. M. Byllesby & Co. ? 

Mr. Briggs. We have no chairman of the board ; I am chairman of 
the executive committee and executive vice president. 

Mr. Nehemkis. And H. M. Byllesby & Co. is an organization 
devoted to investment banking, is it not ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. You were a director of Standard Gas & Electric 
Co. at one time, were you not? 

Mr. Briggs. I was a director of Standard Gas & Electric ,Co. I 
would say for 10 or 15 years, resigning some time in 1936. 

Mr. Nehemkis. You, had also been a director of Standard Power 
& Light Co. at one time, had you not? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And a director of some of the subsidiaries of 
Standard Gas & Electric? 

Mr. Briggs. I was a director of two or three of the subsidiaries, as 
I remember. 

124491 — 40— pt. 24 16 



12548 CONCENTRATION OF ECONOMIC POWER 

RELATIONSHIP OF H. M . BYLLESBY & CO. TO STANDARD SYSTEM OF UTILITY 

COMPANIES 

Mr. Nehemkis. H. M. Byllesby & Co., the organization with which 
you are now associated, was originally an organization devoted to 
furnishing services for utility companies and other business organ- 
izations interested in the utility field. Is that not correct, sir? 

Mr. Briggs. At the beginning, H. M. Byllesby & Co. did operate, 
supervise, and manage utility properties. 

Mr. Nehemkis. And in connection with its operation and super- 
vision of such properties, did not Byllesby acquire small utility prop- 
erties here and there throughout the country? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And in connection with these acquisitions did 
' not H. M. Byllesby & Co. operate these companies itself ? 

Mr. Briggs. They did until about 1921. 

Mr. Nehemkis. And at that particular time what was the occa- 
sion for Byllesby ceasing to operate these properties ? 

Mr. Briggs. A separate corporation was created, a management 
and service corporation, whose stock was turned over to the Standard 
Gas & Electric Co. That corporation continued the operation and 
supervision of these properties. 

Mr. Nehemkis. What payment did H. M. Byllesby & Co. receive 
for turning over the properties to Standard Gas? 

Mr. Briggs. H. M. Byllesby & Co., as I remember it, received no 
payment. 

Mr. Nehemkis. Did you receive any securities of the company to 
which the properties had been turned over? 

Mr. Briggs. If there were any securities turned over, they hate 
been a very small amount. 

Mr. 'Nehemkis. What was the consideration, if any, for turning 
over these properties? 

Mr. Briggs. I do not remember at this time. 

Mr. Nehemkis. You can't recall at this time why it was that 
Byllesby turned over a number of utility properties to another 
system ? 

Mr. Briggs. Well, I think we all felt it would be much better to 
have our operating and supervision company owned by the holding 
company which owned the subsidiary properties. 

Mr. Nehemkis. But as a businessman of long standing, you don't 
want me to believe, and I am sure you don't want the committee to 
believe, that there was no consideration involved in making this 
transfer. 

Mr. Briggs. We had an investment in common stock of Standard 
Gas & Electric Co. 

Mr. Nehemkis. Prior to the transfer of the property? 

Mr. Briggs. That is correct, and to the extent that the profits 
would come in from the operating and supervising company, to that 
extent we would get some benefit on our common stock. 

Mr. Nehemkis. Between 1913 and 1919, did not H. M. Byllesby & 
Co. build up its own securities distributing organization? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And during those years did you not specialize in 
public-utility, securities ? 



CONCENTRATION OF ECONOMIC POWER 12549 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And in connection with this specialization in pub- 
lic-utility securities, did you not also specialize in the financing of 
companies within the Standard Gas system ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. Do I understand correctly, Mr. Briggs, that from 
the time of the incorporation of Standard Gas & Electric in 1910, 
until 1928 or '29, that Byllesby maintained control of Standard Gas 
& Electric by means of stock ownership and through various inter- 
locking directorates? 

Mr. Briggs. By control, you mean 51 percent of the voting stock? 

Mr. Nehemkis. Something of that nature. 

Mr. Briggs. I do not believe at any time between 1920 and '29 
we had actually 51 percent of the voting stock. I think the amount 
may have approximated 40 percent. 

Mr. Nehemkis. Without, however, having had that legal require- 
ment of voting control, is it not a fact that during this period, H. M. 
Byllesby & Co. to all practical purposes did have control through 
stock ownership? 

Mr. BRrGGS. I would say that is a correct statement. 

Mr. Nehemkis. And there were various interlocking directorates 
throughout the system, were there not ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. As a matter of fact, by November 9, 1936, did 
not H. M. Byllesby & Co. own about 76 percent of the Series B 
common stock of Standard Power & Light ? 

Mr. Briggs. I can answer that by saying I believe that is approxi- 
mately correct. 

Mr. Nehemkis. At the present time does not Standard Power & 
Light hold the following securities of Standard Gas & Electric: 
Some 40,000 shares of $7 cumulative prior preference stock and 
1,160,000 shares of common ? 

Mr. Briggs. I have not had an opportunity to recently check the 
holdings of Standard Power, but they do own in excess of 50 percent 
of the common stock of Standard Gas & Electric Co. 

Mr. Nehemkis. And the. common holdings are over 50 percent of 
all outstanding? 

Mr. Briggs. Of Standard Gas? 

Mr. Nehemkis. Yes. 

Mr. Briggs. That is correct. 

THE STANDARD SYSTEM — CONSTITUENT COMPANIES — ASSETS 

Mr. Nehemkis. Now, can you tell me, Mr. Briggs, what the prin- 
cipal companies are that make up the Standard system, as we shall 
be using that phrase "Standard system" throughout the day ? ' 

Mr. Briggs. The principal subsidiary companies 

Mr. Nehemkis (interposing). May I interrupt just for a moment? 
As you go over this list, for the convenience of the committee, so 
they see the breadth of the system perhaps you would also indicate 
generally the territory served by the companies you will enumerate. 

Mrl Briggs. Philadelphia Co., which in itself is a holding com- 
pany, controls the Duquesne Light Co., Equitable Gas Co., and those 
companies serve the territory in and around Pittsburgh, Pa. 



12550 CONCENTRATION OF ECONOMIC POWER 

The Northern States Power Co. serves the territory extending 
from on the north Minot, N. Dak., to some place in Iowa, and ex- 
tending as far east as Lake Michigan. It is rather integrated, an 
interconnected property, and pretty well covers that territory. 

The Louisville Gas & Electric Co. serves the town of Louisville, 
and surrounding territory, with both gas and electricity. 

The Oklahoma Gas & Electric Co. serves the principal towns of 
Oklahoma City, Muskogee, Norman, and I believe serves about 50 
percent of the otate with electricity. 

Do you want the smaller companies ? 

Mr. Nehemkis. Then you have the Mountain States Power. 

Mr. Briggs. The Mountain States Power Co., is a small company 
operating in the territory of the States of Oregon, Idaho, and runs 
down to Wyoming. 

Mr. Nehemkis. Then you have the San Diego Consolidated. 

Mr. Briggs. The San Diego Consolidated serves both gas and 
electricity in the city of San Diego and surrounding territory. 

Mr. Nehemkis. There is also the Wisconsin Public Service Co. 

Mr. Briggs. The Wisconsin Public Service Co. serves both gas and 
electricity to a territory situated in the center of Wisconsin. 

Mr. Nehemkis. Then you also have the Southern Colorado Power 
Co. 

Mr. Briggs. The Southern Colorado Power Co. serves Pueblo and 
surrounding territory. 

Mr. Nehemkis. And you also own some traction lines put in San 
Francisco, do you not, the Market Street Kailway Co. 

Mr. Briggs. Well, they own an interest in the Market Street 
Railway. 

Mr. Nehemkis. Haven't you got some utility properties down in 
Mexico ? 

Mr. Briggs. One or two isolated properties. 

Mr. Nehemkis. What do you. call that, Public Service Co. of 
Mexico ? 

Mr. Briggs. When you say "we," I suppose you are referring to 
Standard Gas. 

Mr. Nehemkis. Yes. What does the Standard Gas call that, do 
you know? 

Mr. Briggs. I do not know. 

Mr. Nehemkis. Have you any idea as of the present time, Mr. 
Briggs, what the total assets of the Standard system companies 
represent ? 

Mr. Briggs. Well, I would say they would be in excess of 
$1,000,000,000. 

Mr. Nehemkis. Do you know, roughly speaking, what they were 
about 1936? 

Mr. Briggs. Well, they would be slightly less; there has been 
some construction program since that time. 

Mr. Nehemkis. That $1,000,000,000 figure that you mentioned a 
moment ago wouldn't include certain affiliates where Standard Gas 
& Electric owns anywhere between 40 or 50 percent of the stock, 
for example, the Market Street Railway Co., Mountain States Power, 
and Northern States Power, would it? 

Mr. Briggs. My figures contemplated the inclusion of those prop- 
erties. 



CONCENTRATION OF ECONOMIC POWER 12551 

Mr. Nehemkis. In other words, from the description of the terri- 
tory served, which you have just given to the committee, and the 
assets involved here, we have a pretty substantial utility system, 
haven't we? 

Mr. Briggs. I would say that is correct. 

Mr. Nehemkis. It compares with any of the big systems in this 
country. 

Mr. Briggs. That is correct. 

STANDARD'S ACQUISITION OF INTEREST IN PHILADELPHIA CO. SYSTEM — 
AGREEMENT with ladenburg, THALMANN & CO. 

Mr. Nehemkis. Now, in 1924 and 1925, did not Byllesby and 
Standard Gas & Electric attempt to acquire stock control of the 
companies grouped under the Philadelphia Co. ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And these companies had been associated with 
Ladenburg, Thalmann & Co. and their banking associates who in 
turn controlled a large portion of this stock. Is that not substan- 
tially correct? 

Mr. Briggs. Those companies have been associated with Laden- 
burg, Thalmann, and other bankers. I do not believe that they 
have a large substantial stock. 

Mr. Nehemkis. They had some stock. 

Mr. Briggs. They had some stock, that is correct. 

Mr. Nehemkis. A question of degree, that would be perhaps open 
to further research. 

Mr. Briggs. I would say that is correct. 

Mr. Nehemkis. Do you happen to know at this true who the bank- 
ing associates of Ladenburg, Thalmann, were in these earlier financ- 
ings? 

Mr. Briggs. The First National Bank of New York, and the Chase 
Security Corporation, Lee, Higginson & Co., the Haystone Securi- 
ties Corporation. 

Mr. Nehemkis. The Haystone Securities Corporation, if I may 
be permitted to interrupt, was the personal holding company of the 
late Mr. Hayden, wasn't it? 

Mr. Briggs. No; the Haystone Corporation was a security affili- 
ate of Hayden, Stone. 

Mr. Nehemkis. You mentioned the Union Trust of Pittsburgh. 

Mr. Briggs. The Union Trust Co. of Pittsburgh. 

Mr. Nehemkis. You said the First National Bank of New York. 
Did you not mean the First Security Co., the affiliate of the First 
National Bank of New York? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And the Chase Securities Corporation was the 
affiliate of the Chase National Bank, was it not? 

Mr. Briggs. That is true. 

Mr. Nehemkis. Now, Byllesby's attempt to obtain control of the 
Philadelphia Co. system through stock acquisitions was not alto- 
gether successful, was it? 

Mr. Briggs. Eventually it was successful. 

Mr. Nehemkis. But at the earlier period there were certain diffi- 
culties, were there not? 



12552 CONCENTRATION OF ECONOMIC POWER 

Mr. Briggs. That is correct. 

Mr. Nehemkis. So that instead of, at the earlier time, obtaining 
complete control did not Byllesby come to an agreement with Laden- 
burg, Thalmann concerning the control of the properties about June 
of 1925? 

Mr. Briggs. I would not remember the date, but I believe that is 
substantially correct. 

Mr. Nehemkis. And was not the net effect, shall I say, of this 
agreement to give Byllesby a voice substantially equal to that of 
Ladenburg, Thalmann in the affairs of the Philadelphia Co. system? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And did not Ladenburg, Thalmann also emerge 
with a stock interest in Standard Power & Light? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. I now offer in evidence an agreement dated the 
19th day of June 1925, between Ladenburg, Thalmann & Co., H. M. 
Byllesby & Co., and Standard Gas & Electric Co. This was obtained 
from the files of the Securities and Exchange Commission, Docket 
No. 31-420, Commission's exhibit No. '29. It is a matter of public 
record. It is now offered in evidence. 

(The agreement referred to was marked "Exhibit No. 1926" and 
is included in the appendix on p f 12860.) 

Acting Chairman Williams. Do you want this for the record? 

Mr. Nehemkis. I think it should be printed in full, if the com- 
mittee please. 

Acting Chairman Williams. It will be accepted. 

Mr. Nehemkis. I now offer in evidence a memorandum of agree- 
ment between H. M. Byllesby & Co. and Standard Gas & Electric Co., 
dated June 19, 1925. This document which I am offering in evidence 
was likewise obtained from the files of the Securities and Exchange 
Commission, being Docket No. 31-420, Commission's exhibit No. 30. 

(The memorandum referred to was marked "Exhibit No. 1927" 
and is included in the appendix on p. 12865.) 

Mr. Nehemkis. Mr. Briggs, was not the Standard Power & Light 
Co. made the repository for the securities of the holding companies 
which controlled the Philadelphia Co. stock? 

Mr. Briggs. That is true. 

Mr. Nehemkis. Was not Byllesby & Co. somewhat anxious at this 
time to establish a more complete measure of control over the Phila- 
delphia Co. utilities? 

Mr. Briggs. Well, we were anxious to consolidate all of these prop- 
erties within the Standard Gas system. 

Mr. Nehemkis. And by an agreement of March 22, 1928, Laden- 
burg, Thalmann agreed to certain sales of securities, do you recall 
that? 

Mr. Briggs. I am not familiar with those transactions because I 
did not handle them. 

Mr. Nehemkis. You, of course, were aware that they had taken 
place? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And are you not aware that there was provided 
for at that time, on your own knowledge and information and 
belief, that the resignation of certain Ladenburg, Thalmann partners 



CONCENTRATION OF ECONOMIC POWER 12553 

and associates from voting trusts and offices connected with the 
Pittsburgh Utilities was contemplated? 

Mr. Briggs. That is correct. 

Mr. Nehemkis? And the execution of proxies for Ladenburg, Thal- 
mann's remaining holdings of Standard Power & Light stock in favor 
of certain corporation action contemplated by Byllesby or Standard 
Gas & Electric was likewise contemplated? 

Mr. Briggs. I believe that is correct. 

AGREEMENT WITH RESPECT TO FUTURE FINANCING OF STANDARD POWER & 
LIGHT CO., HOLDING COMPANY OF PHILADELPHIA CO. UTILITIES, MARCH 
1926 

Mr. Nehemkis. I offer in evidence an agreement of Ladenburg, 
Thalmann & Co., Standard Gas and Electric and Byllesby, dated 
March 22, 1926. This document, like the other previously offered, is 
obtained from the files of the Securities & Exchange Commission, 
being Commission's Exhibit No. 31, in volume 2 of exhibits in con- 
nection with the file 31-420. 

Mr. Chairman, may I suggest tha£ it merely be filed and not 
printed. It is a public record. Anybody who wants to make refer- 
ence to it in the future can go up to the S. E. C. and look at it. 

Acting Chairman Williams. All right; it may be filed. 

(The agreement referred to was marked "Exhibit No. 1928" and is 
on file with the Securities and Exchange Commission.) 

Mr. Nehemkis. Mr. Briggs, did not this agreement, to which refer- 
ence has been made, contain a provision with respect to future 
financing ? 

Mr. Briggs. I can't recollect at the present time that it did. 

Mr. Nehemkis. Perhaps this will refresh your recollection about it. 
Paragraph 2 (c) of the agreement to which reference has been made 
provides as follows [reading from "Exhibit No. 1928"] : 

That Ladenburg and Byllesby shall at all times be the bankers for Standard 
Power & Light Corporation and United Railways Investment Company and 
their respective successors, and for all their respective subsidiaries and sub- 
subsidiaries (including Market Street Railway Company) as the same may now 
or hereafter exist in connection with the issuance of any securities and other 
related matters, and that all profits therefrom shall be divided between them 
equally, subject to such allowance as may be jointly made to other bankers. 

Now, was not the effect of this provision to provide for a sharing 
in financing profits between Byllesby and Ladenburg, Thalmann? 

Mr. Briggs. I think that is correct. 

Mr. Nehemkis. The agreement also contained provision with re- 
spect to management engineering fees, did it not ? 

Mr. Briggs. I do not remember that. 

Mr. Nehemkis. I read to you from paragraph 2 (d) of the agree- 
ment. Perhaps this will recall it your mind [reading further from 
•''Exhibit No. 1928"] : 

That all management, engineering and similar fees, less expenses Incurred 
in connection with the handling of such fees, and less fees paid to any person, 
firm or corporation not directly or indirectly connected or affiliated with any 
party thereto, to be paid by Standard Power and Light Corporation or by 
United Railways Investment Company, or their respective successors, and by 
their respective subsidiaries and sub-subsidiaries, as the same may now or 
hereafter exist, shall be paid to the aforesaid Standard Power and Light Cor- 



12554 CONCENTRATION OF ECONOMIC POWER 

poration or to some corporation all the stock of which is owned by Standard 
Power and Light Corporation or to some other corporation or fund or account 
jointly agreed upon between Ladenburg and Byllesby. 

Does that refresh your recollection? 

Mr. Briggs. No; it does not. I have forgotten that completely. 

Mr. Nehemkis. Do you recall whether or not this agreement to 
which we were referring also contains provision with respect to 
counsel ? 

Mr. Briggs. No, I do" not remember that. 

Mr. Nehemkis. Perhaps this will refresh your memory [reading 
further from "Exhibit No. 1928"] : 

2 (e) That Reed, Smith, Shaw and McClay and any firm successor to it shall 
for a period of five (5) years from the date of this agreement, unless Laden- 
burg and ■Byllesby shall otherwise in writing agree, be General Counsel in 
Pittsburgh to the Philadelphia Company (or its successors) and to all its 
subsidiary and sub-subsidiary corporations, substantially as heretofore; that 
Van Vorst Siegel & Smith, and any firm successor to it shall (in conjunction 
with Cummins, Roemer & Flynn, or other General Counsel) for a period of 
five (5) years from date of this agreement, unless Ladenburg and Byllesby 
shall in writing agree, be counsel in connection with corporate matters relating 
to Standard Power and Light Corporation, United Railways Investment Hold- 
ing Corporation, Pittsburgh Utilities Corporation, United Railways Investment 
Company, Philadelphia Company, their respective successors, and all sub- 
sidiaries and sub-subsidiaries thereof, as the same may now or hereafter be 
constituted, to the extent of assuring Van Vorst, Siegel & Smith aggregate 
compensation of at least Seventeen Thousand Five Hundred Dollars ($17,500.) 
annually in connection with general corporate matters. 

Does that refresh your recollection, sir ? 

Mr. Briggs. No, it does not. I might say at this time that my 
duties at that time were manager of our bond department, which 
involved the sale and' distribution of securities and these matters 
were handled by other officials. 

Mr. Nehemkis. So that you wouldn't be able to testify, I take it, 
at this time why it was thought necessary to freeze counsel into this 
agreement at the time? 

Mr. Briggs. No, I cannot. 

Mr. Nehemkis. Returning for a moment to the provision with re- 
spect to future financing, Mr. Briggs, there were several security 
issues by Standard Power & Light and its subsidiaries beginning 
with the year 1926, were there not? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And did not the participations follow the lines 
laid down in the agreement substantially ? 

Mr. Briggs. My memory is that they did. 

SECURITY ISSUES PURSUANT TO AGREEMENT OF MARCH, 19 2 6 

Mr. Nehemkis. Mr. Chairman, I offer in evidence at this time a 
chart or table showing the securities soldf to the public by the Stand- 
ard Power & Light Corporation, and its subsidiaries, for the period 
March 22, 1926, through December 31, 1929, and the percentages of 
participation therein on the part of a number of investment banking 
firms. I also want to offer in evidence at this time a document 
furnished to the Commission by the Standard Gas & Electric Com- 
pany showing the sources on which this table was predicated. 

I leave it to your judgment, sir, whether you desire to have this 
merely filed or incorporated. It is merely for your convenience. 



CONCENTRATION OF ECONOMIC POWER 12555 

Acting Chairman Williams. Have you any recommendation to 
make about it ? The committee has had no time to examine it. 

Mr. Nehemkis. I should say, sir, that if it is the pleasure of the 
committee "Exhibit No. 1930, which you now have in your hand, 
should be filed with the committee and the table printed in full. 

Acting Chairman Williams. It may be filed and the table may be 
admitted to the record. 

(The table referred to was marked "Exhibit No. 1929" and is in- 
cluded in the appendix on p. 12867. The document referred to was 
marked "Exhibit No. 1930" and is on file with the committee.) 

Mr. O'Connell. Mr. Briggs, is the Standard Power & Light Com- 
pany the top holding company ? 

Mr. Briggs. It is at the present time. It was not at that time. 

Mr. O'Connell. What was Standard Gas ? 

Mr. Briggs. Standard Gas & Electric Company. 

Mr. O'Connell. As of that time the Standard Gas & Electric 
was the holding company and the Standard Power & Light was an 
operating company? 

Mr. Briggs. Standard Power & Light was the holding company, 
owning the securities of the properties operating in Pittsburgh. 
Standard Gas & Electric Co. owned the securities of the rest of the 
properties throughout the United States. In 1930, the transaction 
was put through turning all the properties over to Standard Gas 
and in turn making Standard Power the top holding company, hold- 
ing 52 percent of the common stock of the Standard Gas. 

Mr. Nehemkis. I believe that the committee has before it the 
table which has now been received in evidence. I should like to 
direct your attention, if I may, to certain facts which appear in 
that table. It will be noted that the groups with one exception 
were Composed of the same banking houses, apart from the occa- 
sional exclusion of the two smaller participants. It will also be 
noted that the principal underwriters were H. M. Byllesby Com- 
pany and the Ladenburg, Thalmann group. It will be further noted, 
that with the exception of one issue the interests of the- several houses* 
remained substantially the same through each of the issues from 1927, 
the first after the agreement, through 1929. 

It will be noted further from this table that when a newcomer 
appeared each of the other houses took a small proportionate cut. 
Throughout all of this financing Byllesby and Ladenburg, Thalmann 
were the leaders of the financing. Each of these houses obtained 
either one-quarter of the issue or slightly less. In one case you will 
note ? in the Standard Power and Light 6's of 1957, this percentage 
participation was changed. 

stockholders' suits against h. m. byli-esby and company and 
standard power & light co., 19 29 

Mr. Nehemkis. Mr. Briggs, in the spring and fall of 1929 were 
there not several stockholders' suits brought against Byllesby and 
Standard Gas & Electric? 

Mr. Briggs. There was one stockholders' suit; I don't remember 
several. 



12556 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Was there not a mandamus proceeding .brought 
against Standard Gas & Electric by a group of stockholders for 
the inspection of its books? Did that not occur in June of 1929? 

Mr. Briggs. I do not remember. 

Mr. Nehemkis. Do you recall that in September of 1929, suit 
was instituted by a group of stockholders and an action was brought 
against Byllesby for an accounting? 

Mr. Briggs. I do not remember ; no, sir. 

Mr. Nehemkis. Do you recall that this accounting action was 
accompanied by a demand that Byllesby turn over to the Standard 
about $5,000,000 of profit resulting from its transactions with 
Standard? 

Mr. Briggs. I can't identify the particular suit you have in mind. 

Mr. Nehemkis. Now, you say you do recall that there was one 
suit, can you identify that suit? What was that about? 

Mr. Briggs. I am not sure ; it was a suit, some proceedings, brought 
against us in connection — well, at this time I don't remember for 
what purpose. 

Mr. Nehemkis. Do you know who brought it, a group of stock- 
holders or someone else ? 

Mr. Briggs. It was brought by a group of stockholders in New 
York. 

Mr. Nehemkis. Do you recall who some of these stockholders were 
or the names of the stockholders who instituted the suit? 

Mr. Briggs. I believe it was brought — if there was a suit, I do 
not know that — brought by the Schroder banking interests. 

Mr. Nehemkis. The Schroder banking interests? 

Mr. Briggs. Stock owned by the Schroder banking interests. 

Mr. Nehemkis. And do you recall who the interests were that 
made up the Schroder banking interests ? 

Mr. Briggs. No ; I do not. 

H. M. BYLLESBY & CO.'S CONTROL OF STANDARD POWER &. LIGHT CO. 
THROUGH HOLDINGS OF MANAGEMENT PREFERRED STOCK 

Mr. Nehemkis. Now, wasn't there also a demand that Standard 
Gas & Electric $1 par voting preferred stock held by Byllesby, and 
which in turn gave Byllesby control over the system, be canceled ? 

Mr. Briggs. I believe there was some discussion about canceling 
it at that time, but I do not know whether or not it was a formal 
demand. 

Mr. Henderson. Do I understand correctly that the preferred 
stock had voting rights ? 

Mr. Briggs. In which company ? 

Mr. Henderson. Standard Gas & Electric. 

Mr. Briggs. No; the only stocks that had voting rights were the 
common stock and a special — you are correct, it was a special pre- 
ferred stock called a management stock. 

Mr. Henderson. A management stock ? 

Mr. Briggs. Yes. 

Mr. Nehemkis. That was a peculiar stock. It was worth $1 and 
each stock had one vote ? 

Mr. Briggs. That is correct. 



CONCENTRATION OF ECONOMIC POWER 12557 

Mr. Nehemkis. One-dollar, one-vote stock? Now, you said there 
were some discussions about canceling Byllesby's interest in this 
stock. Discussions with whom, Mr. Briggs? Do you remember? 

Mr. Briggs. No ; I do not recall that. 

Mr. Nehemkis. The Schroder banking interests? 

Mr. Briggs. Well, I do not know that these stockholders were 
actually Schroder banking interests, but they were probably identi- 
fied with foreign interests. 

Mr. Nehemkis. They were, to use a blunt word, "stooges 1 '? 

Mr. Briggs. No ; I do not know that, even. 

Mr. Nehemkis. They were "fronting" for foreign interests? 

Mr. Briggs. Is that a question ? 

Mr. Nehemkis. Were they ? 

Mr. Briggs. I do not know that. 

Mr. Nehemkis. Now the voting power obtained by Byllesby 
through these holdings that we have been speaking of were approxi- 
mately 40 percent of the voting power of all classes of the Standard 
Gas & Electric stock, were they not ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. Do you recall at this time how much Byllesby 
paid for this stock ? 

Mr. Briggs. Which stock is that? 

Mr. Nehemkis. This $1 preferred stock which had one vote per 
share ? 

Mr. Briggs. Paid $1 per share for it. 

Mr. Nehemkis. What was the aggregate cost to Byllesby? 

Mr. Briggs. One million shares were offered to the stockholders 
and I believe all except — I believe that only 2,000 shares were taken 
by the stockholders, and Byllesby bought the rest. 

Mr. Nehemkis. Cost you about $1,000,000? 

Mr. Briggs. Close to $1,000,000. 

Mr. Nehemkis. And do you recall how much the other voting 
stock cost ? 

Mr. Briggs. Our holdings of Standard Gas common? 

Mr. Nehemkis. Per vote ; yes. 

Mr. Briggs. We had accumulated whatever holdings we had of 
Standard Gas common from time to time in the market ; it would be 
impossible for me to say just what it cost us. 

Mr. Nehemkis. But of this preferred stock to which we have been 
making reference and which was held by the public, that didn't cost 
one dollar, and that didn't have the right of one vote per stock held, 
did it? 

Mr. Briggs. The ordinary preferred stock of Standard Gas? Oh, 
no, that was stock in one case with no par value and in another case 
$100 par value. 

Mr. Nehemkis. How about the common stock ? 

Mr. Briggs. The common stock, as I remember it, was no par 
value. 

Mr. Nehemkis. Did that cost more than $1 a share ? 

Mr. Briggs. Well, Standard Gas common was issued from time to 
time by the treasury at varying prices. 

Mr. Nehemkis. Do you recall at this time whether any of that 
common stock ever did have a price of $1 per share ? 

Mr. Briggs. The ordinary Standard Gas common? 



12558 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Yes. 

Mr. Briggs. I do not believe that is correct. 

Mr. Nehemkis. Now, you are unable to recall at this time who 
initiated the series of litigation against Standard Gas and Byllesby, 
the time to which we are referring? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. You do think, however, that the instigating of a 
series of steps in a move to perhaps oust Byllesby from control was 
done under the leadership of the Schroder interests ? 

Mr. Briggs-. No, I do not believe it was done under the leadership 
of Schroder interests; I think the first large stockholdings of 
Standard Gas were owned by the Loewenstein interests in Europe. 

ACQUISITION OF STANDARD POWER & LIGHT CO. STOCK BY THE LOEWENSTEIN 
AND EMANUEL INTERESTS 

Mr. Nehemkis. Do you recall that about 1927 and 1928 two par- 
ticular interests began buying into Standard Gas & Electric 
common ? 

Mr. Briggs. Well, the only one I remember at that time is the 
Loewenstein interests, which I think accumulated stock in 1927. 

Mr. Nehemkis. And that was done through the Hydro Electric 
Securities Corporation, was it not? 

Mr. Briggs. I am not sure ; that may be right. 

Mr, Nehemkis. And when you speak of the Loewenstein interests 
you refer to the late Captain Alfred Loewenstein, the Belgian finan- 
cier, do you not ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And do you also recall that one of these two 
interests that began buying into common at this time was a group 
represented by Mr. Victor Emanuel ? 

Mr. Briggs. Well, you are referring again to 1927 9 

Mr. Nehemkis. Between 1927 and 1928. 

Mr. Briggs. Well, I do not know. 

Mr. Nehemkis. You can't buy up common over night; it takes a 
little time. 

Mr. Briggs. I do not know just which period Mr. Emanuel and 
his associates started to accumulate stock. I imagine it was a little 
bit later. 

Mr. Nehemkis. Now, did not the interests or the foreign interests 
represented by Captain Loewenstein demand representation on the 
board of Standard Gas & Electric? 

Mr. Briggs. It did. 

Mr. Nehemkis. And Mr. John O'Brien, who was then the presi- 
dent and a dominant figure in this system, refused that demand, did 
he not? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. Did not counsel for Mr. Emanuel's interests, as 
well as the Hydro Electric interests representing Captain Loewen- 
stein, demand access to the books? 

Mr. Briggs. I am not familiar with that. It may be correct. 

Mr. Nehemkis. Do you recall that this demand was refused? 

Mr. Briggs. No; I do not. 



CONCENTRATION OF ECONOMIC POWER 12559 

Mr. Nehemkis. Do you recall that immediately after such de- 
mands, to which reference has been made, that suits were brought 
by the respective interests? 

Mr. Briggs. Well, I think I have testified that there was talk of 
suits being brought. Whether or not they were actually brought 
I do not know. 

UNITED STATES ELECTRIC POWER CORPORATION (USEPCO) AND ITS 
ORGANIZERS 

Mr. Nehemkis. Do you recall that about September 1929 — we are 
moving a little farther now — that several additional financial inter- 
ests joined hands with Captain Loewenstein's group and Mr. Eman- 
uel's group ? 

Mr. Briggs. Well, I was not familiar with the operations of that 
group at all. 

Mr. Nehemkis. Do you recall a company known as United States 
Electric Power Corporation? 

Mr. Briggs. I do. 

Mr. Nehemkis. And do you recall who formed that corporation 
on or about September 10, 1929? 

Mr. Briggs. I do not know who the original incorporators were. 

Mr. Nehemkis. You have some general idea of the people back of 
that corporation ? 

Mr. Briggs. Subsequently I did learn. 

Mr. Nehemkis. Who were they ? 

Mr. Briggs. Mr. Emanuel, Mr. Riggs. 

Mr. Nehemkis. Mr. Riggs? 

Mr. Briggs. Mr. Riggs, R. T. Riggs, attorney in New* York, Mr. 
Langley, Mr. Granbery, Mr. Seagrave of United Founders Corpora- 
tion. They were the principal men, I believe. 

Mr. Nehemkis. And Mr. Langley is the head of W. C. Langley & 
Co,? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. Now was not also the Hydro-Electric Securities 
Corporation interested in United States Electric Power? 

Mr. Briggs. I believe they were. 

Mr. Nehemkis. And the J. Henry Schroder Banking Corporation? 

Mr. Briggs. I believe they were. 

Mr. Nehemkis. And the Seaboard National Corporation? 

Mr. Briggs. Yes, sir, I remember that name, also. 

Mr. Nehemkis. And A. C. Allyn & Co,? 

Mr. Briggs. And A. C. Allyn, that is correct. 

Mr. Nehemkis. And American Founders Corporation? 

Mr. Briggs. Well, the Founders is part of the Founders group. 

Mr. Nehemkis. And United Founders Corporation? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And the latter two are investment trusts ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And have we mentioned Harris, Forbes & Co. ? 

Mr. Briggs. No, I believe they had a small interest, but I am not 
sure. 



12560 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. And Harris, Forbes & Co. and W. C. Langley & 
Co. and A. C. Allyn & Co. and J. Henry Schroder Banking Corpora- 
tion were all investment banking firms? 

Mr. Briggs. I am not sure about Schroder being an investment 
banking concern at that time. 

Mr. Nehemkis. And Mr. Emanuel's company, Albert Emanuel & 
Co., was an investment banking house, was it not? 

Mr. Briggs. I do not believe they came into the investment bank- 
ing picture until later. 

Mr. Nehemkis. And Koppers United was also interested for a short 
time, wasn't it? 

Mr. Briggs. I do not know that. 

Mr. Nehemkis. These concerns pooled their Standard Gas & Elec- 
tric holdings in the United States Electric Power Co., did they not? 

Mr. Briggs. I subsequently found that out, yes. 

Mr. Nehemkis. And Victor Emanuel was the president of U. S. 
Electric Power Co.? 

Mr. Briggs. He became president, but I do not know when. 

general settlement between usepco and standard power & LIGHT 

CO. — THE BANKING MEMORANDUM OF DECEMBER 1929 

Mr. Nehemkis. Now, these various interests we have gone over, 
united interests in U. S. Electric Power, obtained a sufficiently pow- 
erful position in Standard Gas ; did they not, to obtain joint control 
not only over the system, but with your support as well ? 

Mr. Briggs. An arrangement was made in 1929. 

Mr. Nehemkis. Now, as a part of the general settlement follow- 
ing this new alignment of interests, was not a memorandum pre- 
pared embodying an agreement between Byllesby, U. S. Electric 
Power and Ladenburg, Thalmann? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And this memorandum was dated, was it not, 
December 21, 1929? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. I show you this memorandum and ask you whether 
you recognize it? 

Mr. Briggs. I do. 

Mr. Nehemkis. Is that your signature which appears among the 
signatories to the agreement? 

Mr. Briggs. No; it is not. 

Mr. Nehemkis. Whose signature is that ? 

Mr. Briggs. I think the document is all signed by the same per- 
son, evidently a copy of a copy. 

Mr. Nehemkis. Who is the Mr. Briggs referred to there? 

Mr. Briggs. J. H. Briggs is myself. 

Mr. Nehemkis. Did you sign that document? Did you sign the 
original of which this is a copy? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. Thank you, sir. And this document is entitled 
"Banking," is it not? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And the other signatories to it, if you recall, were 
Mr. Victor Emanuel, representing U. S. Electric Power Corporation 
as its president? 



CONCENTRATION OF ECONOMIC POWER 12561 

Mr. Briggs. That is correct. 

Mr. Nehemkis. And Walter T. Rosen, a general partner in Laden- 
burg, Thalmann & Co. ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. The document identified by the witness is offered 
in evidence, may it please the committee. 

Acting Chairman Williams. It will be accepted. 

(The document referred to was marked "Exhibit No. 1981" and 
is included in the appendix on p. 12868.) 

Mr. Nehemkis. Now, did not the agreement of December 21, 1929, 
which is now in evidence before this committee, embody a division 
of the future financing of the system, Mr. Briggs ? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. Subject to certain particular situations specifically 
set forth in the agreement, did not this agreement provide that 75 
percent of all future financing of the Standard Gas & Electric system 
was to go to United States Electric Power Co., and 25 percent was 
to go to Byllesby? 

Mr. Briggs. That is correct. 

Mr. Nehemkis. I ask- leave of the committee that the witness be 
dismissed and that I call at this time Mr. Victor Emanuel. I think 
the witness should remain within call of the committee, but it is not 
necessary for him to remain in the witness chair. 

Acting Chairman Williams. You may be excused, Mr. Briggs, for 
the present. 

(Mr. Briggs was excused, to remain within call.) 

Mr. Nehemkis. Mr. Victor Emanuel, will you please take the chair ? 

Acting Chairman Williams. Do you solemnly swear that the testi- 
mony you are about to give in this proceeding shall be th'e truth, the 
whole truth, and nothing but the truth, so help you God? 

Mr. Emanuel. I do. 

TESTIMONY OF VICTOR EMANUEL, PRESIDENT, STANDARD POWER 
& LIGHT CORPORATION, AND CHAIRMAN, FINANCE COMMITTEE, 
STANDARD GAS & ELECTRIC CO., NEW YORK, N. Y. 

Mr. Nehemkis. Will you state your full name and address, Mr. 
Emanuel, please? 

Mr. Emanuel. Victor Emanuel, 895 Park Avenue, New York. 

Mr. Nehemkis. You were formerly senior partner of Emanuel & 
Co., were you not? 

Mr. Emanuel. For about 3 or 4 years. 

Mr. Nehemkis. And what was the business of Emanuel & Co. ? 

Mr. Emanuel. Emanuel & Co., as I recall it, was— I don't know- 
formed in 1927 to 1928 and were purely a brokerage house up till 
1934, 1935, and after that period at times they went into or they were 
in the investment banking business. 

Mr. Nehemkis. Are you not now a special partner in Emanuel & 

Mr. Emanuel. I am. 

Mr. Nehemkis. You are a director of several of the companies in 
the Standard Gas system, are you not, Mr. Emanuel ? 
Mr. Emanuel. Two. 



12562 CONCENTRATION OF- ECONOMIC POWER 

Mr. Nehemkis. Which ones are they? 

Mr. Emanuel. Standard Power & Light Corporation and Stand- 
ard Gas & Electric Co. 

Mr. Nehemkis. You are chairman ofHhe board in both of these 
organizations are you not? 

Mr. Emanuel. I am president of Standard Power & Light Cor- 
poration and until recently was chairman of Standard Gas & Elec- 
tric, but now I am chairman of the finance committee of Standard 
Gas & Electric. 

Mr. Nehemkis. And do you not hold any offices in the Philadel- 
phia Co.? 

Mr. Emanuel. No; I used to. 

Mr. Nehemkis. And you no longer hold an office in the Duquesne 
Light Co. ? 

Mr. Emanuel. No. 

Mr. Nehemkis. Or in the Louisville Gas & Electric? 

Mr. Emanuel. No. 

Mr. Nehemkis. You are, "however, a director of the Republic Steel 
Corporation, are you not? 

Mr. Emanuel. I am. 

Mr. Nehemkis. And you are at present president of the Aviation 
& Transportation Corporation? 

Mr. Emanuel. I am. 

program or utility acquj itions or victor emanuel and Alfred 

LOEWENSTEIN 

Mr. Nehemkis. Is it not a fact, Mr. Emanuel, that in associations 
with the late Capt. Alfred Loewenstein you bought into the Standard 
Gas system? 

Mr. Emanuel. He bought, or his companies bought, stock in 
Standard Gas considerably before I did. 

Mr. Nehemkis. And you subsequently became associated with 
Captain Loewenstein in the venture? 

Mr. Emanuel. Well, not exactly associated, because he died in 
1928 and — I mean I don't know what you mean by associated. 

Mr. Nehemkis. Perhaps it will develop in the course of the tes- 
timony. 

Mr. Henderson. Is that the fellow who fell out of the plane ? 

Mr. E mandel. It was. 

Mr. Henderson. Was that in 1928 ? 

Mr. Emanuel. In 1928, 1 think in the early part of July. 

Mr. Nehemkis. Now did not you and the late Captain Loewen- 
stein have a number of discussions about the subject? 

Mr. Emanuel. Well, in the winter of 1927 I think it was, I was 
in England and he had a number of holdings in American com- 
panies, including a considerable number of utility companies, and I 
never met him up to that time, but he had known my father, and he 
consulted me about some of these American investments. 

Mr. Nehemkis. In the course of your conversations and discus- 
sions with Captain Loewenstein did you not formulate a fairly large- 
scale program for utility acquisitions which you then thought it was 
possible to acquire ? 



CONCENTRATION OF ECONOMIC POWER 12563 

Mr. Emanuel. No; I can't say that I did. He came over here 
after I met him and he had a number of utility investments which I 
talked to him about and I think at one time I either wrote him or 
talked to him about forming a company in which we consolidated 
a number of public utility companies, but he wasn't interested in that 
and nothing came of it. 

Mr. Nehemkis. Mr. Emanuel, will you tell me whether you recog- 
nize this memorandum as one prepared by you on or about May 15, 
1928? 

Mr. Emanuel. Yes ; I think that was. 

Mr. Nehemkis. Mr. Emanuel, I am going to read you from this 
document which you have just been good enough to identify for me. 
This document is entitled "Memorandum of Agreement Covered in 
Conversation Between Alfred Loewenstein and Victor Emanuel,'" 
regarding [reading "Exhibit No. 1932"] : 

Standard Gas and Electric Company 

American Water Works and Electric Company Inc. 

Middle West Utilities Company 

1 — In the first instance, it is desired, if possible, to purchase control of the 

Standard Gas and Electric Company at a reasonable price. 
2 — If and when this is accomplished, an earnest endeavor would be made — 

a — To purchase control of American Water Works and Electric Company 

Inc. 
b — To effect a merger of the two companies. 
3— At some future date, to secure control, if possible, of the Middle West 

Utilities Company on a mutually satisfactory basis. 
4 — In all the above negotiations, Captain Loewenstein and his associates and 
Victor Emanuel and his associates would be joint partners; that is, eacb 
group would take fifty percent interest 
5 — A new holding company would be formed to finance with the public up to 
seventy-five percent of the purchase price of the different companies. It 
would be decided later if these securities would be offered solely in Amer- 
ica, or in America, England, and on the Continent. 
6 — The balance of twenty-five percent, or more, to be raised equally by Alfred 
Loewenstein and his associates and by Victor Emanuel and his associates 
through their respective holding companies. 
7 — Victor Emanuel and his public utility organization to have operating charge 
of these properties, Victor Emanuel to receive a satisfactory compensation 
therefor. 
8 — The banking to be divided equally between banking houses connected with 
Alfred Loewenstein and banking houses connected with Victor Emanuel, 
it being understood that initially such bankers are the J. Henry Schroder 
Banking Corporation and A. C. Allyn^& Company. 
0— Exclusive of dividends on securities purchased, it is understood that reve- 
nues will probably inure to the groups through financing, management, and 
engineering services ; these revenues, exclusive of the salary to be paid 
to Victor Emanuel as operating head of the company, will be divided 
equally between the groups. 
10 — In the first instance, these charges would probably be paid into the new 
holding company to be formed to take over these securities. As a half 
interest in the equity of this holding company would be owned by each 
group, each would share equally in such earnings. 
11 — It is understood that the bankers, the J. Henry Schroder Banking Corpo- 
ration and A. C. Allyn & Company, would purchase these securities from 
friendly hands at prices which would result in their purchases being made 
on a non-competitive basis and at fair prices. 
12 — Should it be necessary, it is understood that Victor Emanuel could nomi- 
nate six <iut of nine of the members of the board of directors of the new 
holding company, it being further understood, however, that Alfred Loew- 
enstein and his associates would be fully protected by agreement as to all 
matters such as the purchase and sale of properties; purchase and sale 
of securities; management, financing, engineering, and all important 

1244»1 — 40 — pt. 24 17 . 



12564 CONCENTRATION OF ECONOMIC POWER 

phases of the operation and management of the properties. Such agree- 
ments are common, and Alfred Loewenstein and his interests would be 
just as fully protected as though they had half of the members of the 
board of directors. 
13 — It is further understood that Victor Emanuel would secure the approval of 
Alfred Loewenstein of any director he would name of American nation- 
ality, or his approval of any change that might be made in the board of 
directors. 

Mr. Emanuel, I want you to examine the document once again. 
At the top of the document you will find three initials. Will you 
tell me whose initials they are? 

Mr. Emanuel. I think they must be Mr. Beale's. 

Mr. Nehemkis. Who is Mr. Beale? 

Mr. Emanuel. I think he is president of Schroder Trust Co. 

Mr. Nehemkis. And Mr. Beale having read this document wrote 
on the top : "Not to be taken too seriously." 

Mr. Emanuel. He was absolutely correct. I never received a 
reply. 

Mr. Nehemkis. When you wrote this document you took it pretty 
seriously, didn't you? 

Mr. Emanuel. I suppose I did. 

Mr. Nehemkis. That is offered for the record of the committee. 

Acting Chairman Williams. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1932" and 
appears in full in the text on p. 12563.) 

Mr. Nehemkis. Do you recall about the same time you dictated 
the memorandum now in evidence preparing another memorandum 
sent to Mr. Fuller and Mr. Beale ? I show it to you and ask if 
that isn't the memorandum. Do you recall preparing that memo- 
randum ? 

Mr. Emanuel. No ; I do not. I might have. 

Mr. Nehemkis. It refers to "I" in the latter part and I have 
assumed from the nature of the discussion that it was written or 
dictated by you. 

Mr. Emanuel. It might have been, or it might have been some- 
body else in my office. I can't recall now. 

Mr. Nehemkis. Would it have been possibly dictated by some- 
one else in close contact with Alfred Loewenstein? 

Mr. Emanuel. No; it would probably be somebody in my office. 

Mr, Nehemkis. Who else besides yourself knew Captain Loewen- 
stein so intimately as to be able to discuss the details of this long- 
range program? 

Mr. Emanuel. I can't recall now. Mr. O'Hara, who was an asso- 
ciate of mine, might have been. 

Mr. Nehemkis. You don't recognize that document at all? 

Mr. Emanuel. In the first place, I can't read this photostatic copy. 

Mr. Nehemkis. The only other person who could possibly have- 
drafted that memorandum would be Mr. O'Hara? 

Mr. Emanuel. I can't say that. 

Mr. Nehemkis. You don't know that? I think I shall have to call 
someone else to identify the document for just a moment, sir, so I 
can get it into the record. Is Mr. Fuller here? Mr. Fuller, will 
you be good enough to raise your hand and be sworn? 

Acting Chairman Williams. Do you solemnly swear that the 
testimony you are about to give in the matter noAv pending shall be 



CONCENTRATION OF ECONOMIC POWER 12565 

the truth, the whole truth, and nothing but the truth, so help you 
God? 
Mr. Fuller. I do. 

TESTIMONY OF CARLTON P. FULLER, PRESIDENT, SCHRODER 
ROCKEFELLER & CO., INC., NEW YORK, N. Y. 

Mr. Nehemkis. Please state your full name and address, for the 
record. 

Mr. Fuller. Carlton P. Fuller, Summit, N. J. 

Mr. Nehemkis. And what is your business position, sir? 

Mr. Fuller. I am president of Schroder Rockefeller & Co., Inc. 

Mr. Nehemkis. Mr. Fuller, I show you a document which came 
from your files. Will you be good enough to tell me if you recog- 
nize this as a true copy of an original in your possession and 
custody ? 

Mr. Fuller. I do not recall of my own memory this document 
indicated here, and I see nothing to identify^ here, but I am willing 
to accept the probability that there is an original of it. Is that suf- 
ficient for your purpose ? 

Mr. Nehemkis. That is, sir. May I ask you one further question ? 
Are you familiar with the contents of that memorandum? 

Mr. Fuller. No. 

Mr. Nehemkis. You have never seen it before? 

Mr. Fuller. I wouldn't say that. It is quite a long time ago, 
but I am not familiar with the contents of it. 

Mr. Nehemkis. Do you know of your own knowledge or do you 
know on information and belief that that memorandum was pre- 
pared by Mr. Emanuel? 

Mr. Fuller. I don't. 

TESTIMONY OF VICTOR EMANUEL— Resumed 

Mr. Nehemkis. Thank you very much, sir. Mr. Fuller, you are 
dismissed for the moment. 

The document which has been identified as coming from the files 
of Schroder Rockefeller & Co. by Mr. Fuller contains the following 
interesting paragraphs, and this is the purpose for which I wanted 
it identified so I might discuss it with you. I read to you from 
the last page of this memorandum dated May 18, 1928, entitled 
"Standard Gas and Electric Company, American Water Works and 
Electric Company, Inc. Middle West Utilities Company (combined 
with National Electric Power Company)" which the committee will 
recall are the same three companies that are referred to in a previous 
memorandum prepared and identified as having been prepared by 
Mr. Emanuel. [Reading from "Exhibit No. 1971"] : 

Notwithstanding the fact that the entire transaction might be financed out 
for $137,000,000, provided we could purchase the controls above outlined, I 
agree with Captain Loewenstein that it would be good policy for us to have 
some amount of actual cash in the equity. 

Nowhere in this memorandum have I discussed the many advantages that 
would inure to the bankers in this situation. I have thought this was too 
apparent to make any comment; it is sufficient to say, however, that they 
would be assured of an immense amount of prime public utility securities each 



12566 OOWUJfiNTKATIOM OF ECONOMIC POWER 

year that would be purchased from friendly hands, and that their position 
in the situation would be even more attractive than that of the operators. 

Do you recall having written those two paragraphs? 

Mr. Emanuel. I do not. 

Mr. Nehemkis. It is certainly apparent, however, from the lan- 
guage of those two paragraphs that only a person who knew of this 
long-range program that you and Captain Loewenstein were plan- 
ning could possibly have written that statement; is that a fair infer- 
ence ? 

Mr. Emanuel. Perhaps somebody had talked to me, but Captain 
Loewenstein, as I recall it, was never a part of that program. I 
probably sent him the letter that you asked me to identify, but he 
definitely was not interested. 

Mr. Nehemkis. In other words, as it was set forth in this memo- 
randum from which I have read, and in the memorandum of conver- 
sation and agreement between yourself and the late Captain Loewen- 
stein, the public was to really finance this acquisition to the extent 
of $137,000,000, and you and your associates would obtain all the 
advantages which would accrue to the bankers "from purchasing 
prime securities from friendly hands" was the phrase, and by that 
I take it at noncompetitve prices. Is that the general gist of the 
situation ? 

Mr. Emanuel. That might have been my idea at the time. As I 
have to say again, I don't believe I ever received a reply from Cap- 
tain Loewenstein to that letter I sent him, and I think it was always 
in my own mind that we would have an equity in the properties. 
I think I was merely pointing out that if they could be purchased 
at that price it might be possible to raise most of the money. 

Mr. Nehemkis. As it says in the statement from which I have 
previously read, "I," whether that is you or some other person, "agree 
with Captain Loewenstein that it would be a good policy for us to 
have some amount of actual cash in the equity." 

Mr. Emanuel. I think that was always the idea. I think, in this 
letter I read, it said something about that. 

Mr. Nehemkis. To proceed with this program, Mr. Emanuel, did 
you not induce the London banking house of J. Henry Schroder 
& Co., and its American affiliate J. Henry Schroder Banking Cor- 
poration, to join hands with you in effecting the program ? 

Mr. Emanuel. As I recall it, they had nothing to do with it. I 
knew that J. Henry Schroder & Co. in London had a relationship 
with the late Captain Loewenstein. 

Mr. Nehemkis. Let me see if I understand the record at the pres- 
ent moment. Are you contending that you never had anything fur- 
ther to do with canning out this understanding that you reached 
with Loewenstein? 

Mr. Emanuel. As I recall it, he died in July of 1928, and he was 
succeeded by a man by the name of Fisher and I might have dis- 
cussed it with Fisher subsequent to that, but I think by the fall of 
that year, I didn't discuss it any further because, as I recall it, he 
wasn't interested either. 

Mr. Nehemkis. You don't recall at this time, Mr. Emanuel, that 
you spent three or four years of your life in an endeavor to effec- 
tuate this program? 

Mr. Emanuel. No; I do not. 



CONCENTRATION OP ECONOMIC POWER 12567 

Mr. Nehemkis. Then we will go along with the evidence and that 
will recall it to you. 

When I say "effectuate the program,"' I had in mind of course the 
concentration of activity on Standard Gas, on the acquiring of con- 
trol of Standard Gas System which was a sizeable operation in itself. 

Mr. Emanuel. Well, after Captain Loewenstein died and Mr. 
Fisher came in the picture 

Mr. Nehemkis (interposing). He was the agent of the late Captain 
Loewenstein, was he not, at that time ? 

Mr. Emanuel. He was an employee of his, and he succeeded him 
as, I think, managing director of the Hydro Company. 

I don't think, in fact I am quite sure, that after the fall of that 
year, the year of Captain Loewenstein's death, that we never con- 
templated getting control, as you call it, of Standard Gas & Electric 
Company. 

Mr. Nehemkis. You never contemplated obtaining control? 

Mr. Emanuel. That is my best recollection. We did have some 
securities in the company, a large block of common stock, and I think 
we did ask for representation and we also asked for the retirement 
of the million shares of $1 stock, and we asked that the Philadelphia 
Company go directly into the Standard Gas & Electric Company. 
It was divided at that time between Standard Gas and Standard 
Power. But I don't think we ever asked for control, if you mean 
by control actually running the system. 

Mr. Nehemkis. Do you recall at this time that Loewenstein's in- 
terests were represented by the Hydro Electric Securities Corpora- 
tion, a Belgian Corporation domiciled in Canada? 

Mr. Emanuel. I think that is correct. 

Mr. Nehemkis. And do you recall that that corporation joined 
you in effectuating the program? 

Mr. Emanuel. Well, again it comes around to what you mean by 
program. They had a very substantial stock interest in Standard 
Gas which they had considerably before the time I met Captain 
Loewenstein, at least I was so informed. And I think my first ac- 
quisition of Standard Gas stock personally was in 1927 to '28 — '28, 
I think, the end of that year, and I conferred with Fisher about 
especially this million shares of preferred stock and the Philadel- 
phia Company, and a few other points we had in mind, and we did 
cooperate in regard to that. 

LEGAL MOVES AGAINST STANDARD POWER & LIGHT CO. 

Mr. Nehemkis. Do you recall, Mr. Emanuel, at this time plan- 
ning out the first of a series of tactical moves, legal and otherwise, 
for acquiring control of the Standard Gas properties? 

Mr. Emanuel. If what you mean by "moves" is a mandamus ac- 
tion we had, and also a demand on the directors; they weren't for 
the purpose at the time of acquiring control. We had dropped that 
idea. 

Mr. Nehemkis. Did you bring the mandamus suit ? 

Mr. Emanuel. I don't believe I brought it directly, but the people 
in my office, I think Mr. Skillman, and a few other stockholders 

Mr. Nehemkis (interposing). That you rounded up? 

Mr. Emanual. I can't remember that far back. 



]2568 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Did they come to you voluntarily or did you go 
out and produce them? 

Mr. Emanuel. What I am trying to recall — I am trying to re- 
member whether Hydro was a part of that action or not. I think 
it was piimarily brought by me. 

Mr. Nehemkis. And what was your purpose in bringing this 
mandamus proceeding? 

Mr. Emanuel. As I recall it, in order to ascertain some infor- 
mation we didn't have. 

Mr. Nehemkis. And that was the only way you could get it? 

Mr. Emanuel. It seemed to be the only way at the time. 

Mr. Nehemkis. Do you recall being instrumental in organizing 
other legal proceedings? 

Mr. Emanuel. I donH, think there was any other, except perhaps 
a communication to the directors asking for information. 

Mr. Nehemkis. Mr. Fuller, will you be good enough to take the 
stand, please. 

TESTIMONY OF CARLTON P. FULLER— Resumed 

Mr. Nehemkis. Mr. Fuller, I show you a" document which pur- 
ports to come from the files of Schroder, Rockefeller & Co., Inc., 
dated May 16, 1929. Will you tell me whether you recognize this 
as a true and correct copy of an original in your possession and 
custody, and be good enough also to glance at the top of this 
memorandum and tell me whether the initials that appear there 
are not your initials? I do not intend to examine you on this 
document. T merely ask that you identify it for the purposes indi- 
cated. Are those your initials? 

Mr. Fuller. Those are my initials. 

Mr. Nehemkis. That is a true and correct copj 7 of an original 
in yourjpossession and custody? 

Mr. I uller. I assume so, I haven't seen the original for a long 
time. 

Mr. Nehemkis. Mr. Emanuel, I read to you from this memoran- 
dum under date of May 16, 1929, headed "Standard Gas & Electric 
Company." [Reading from "Exhibit No. 1933"] : 

A letter on present status for London: 

l.)-Our cable No. 361 of April 12th outlined the possibility of litigation in 
which we did not desire to become involved and their reply No. 183 of April 
13th agreed with this attitude and suggested that Harrison Williams and 
Electric Shareholdings press the attack. No communication with London has 
taken place since, but the following events have occurred : 

2.) G. Reginald Schumann as nominee for Hydro-Electric signed a letter 
addressed to Standard Gas & Electric in conjunction with other stockholders 
demanding access to the books. This demand was refused. 

3.) Emanuel's next step was to collect proxies for the annual meeting of 
Standard Gas, which was held May 15th. He procured 217,000 shares which 
were voted against Byllesby's nominations for directors. 

4.) Schumann signed a proxy for Hydro-Electric stock in his name and in 
favour of Emanuel's men upon cable authorization from Fisher. 

5.) Emanuel now asks Schumann as nominee to sign two further letters: 
a) a letter to Sie^bert 1 & Riggs, authorizing them to represent the stock in his 
name in legal proceedings against Standard Gas b) a letter to Standard Gas 
vV- Electric Company in complete legal detail demanding access to their books and 
setting forth the reasons for such demand, presumably to be submitted to the 
court upon another refusal of the Standard Gas. Fisher has cabled special 

1 So in original. 



CONCENTRATION OF ECONOMIC POWBB 12569 

authorization to Schumann to sign the letter to Siegbert 1 & Kiggs under si) 
above. 

Mr. A. Dulles— 

That I presume is Mr. Allen Dalles, of Messrs. Sullivan & Crom- 
well. Do I hear any agreement on that from either of the witne 
Mr. Fuller. Yes. 
Mr. Nehemkis [reading further from "Exhibit No. 1933"] : 

Mr. A. Dulles states that there is no possibility of Schrobanco — 

Schrobanco being the New York affiliate of J. Henry Schroder of 
London ? 

Mr. Fuller. That is the cable address of J. Henry Schroder Bank- 
ing Corporation which is the New York office of the London house. 

Mr. Nehemkis [reading further from "Exhibit No. 1933"] : 

* * * that there is no possibility of Schrobanco being drawn into these 
proceedings officially. It is of course possible that in the course of the trial 
some lawyer might refer to Schumann as employee of Schrobanco. and it is 
quite probable that our close relations to Fisher and Hydro Electric and 
Loewenstein will tend to identify us in the public mind with the litigation. 
Incidentally, Mr. Dulles says that this case, if it comes to trial, will be followed 
with the closest interest by all lawyers and will doubtless be one of the out- 
standing cases of the year, since it will make law on this particular subject. 

However, Mr. Emanuel, that was not your interest in bringing this 
series 6"f legal moves, was it ? 
Mr. Emanuel. To make law ? No. 
Mr. Nehemkis [reading further from "Exhibit No. 1933"] : 

Emanuel has sent Fisher rather complete details which London might ask 
Fisher to show them. 

I offer in evidence the document identified by Mr. Fuller from 
which I have been reading. 

Acting Chairman Williams. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1933" 
and is included in the appendix on p. 12870.) . 

Mr. Nehemkis. Mr. Emanuel, do you now wish to chtahge your 
testimony, or has your recollection been refreshed? Were you not 
at that time planning a series of legal moves ? Were you not actively 
engaged' in a series of tactics to obtain control of the Standard Gas 
System ? 

Mr. Emanuel. I was not. I was trying to obtain information. 

Mr. Henderson. Trying to obtain information for information's 
own sweet sake? 

Mr. Emanuel. No; we wanted to get representation on the board, 
not control, and we wanted to get the 1,000,000 shares of $1 pre- 
ferred stock retired. We wanted to get the Philadelphia Company 
back entirely in Standard Gas & Electric Company, as I recall it. now. 

Mr. Henderson. Who had control at this time ? 

Mr. Emanuel. Well, I don't think anyone had 51 percent, but the 
practical control we construed to be in the hands at that particular 
time of H. M. Byllesby and Company. 

Mr. Henderson. In order to achieve what you wanted, you had to 
supersede the existing nominal control, did you not? 

Mr. Emanuel. No; not necessarily. What we wanted to do was 
to get them to agree to these things. 

Mr. Henderson. You are making some kind of a distinction on 
"control" in your own mind; is that it? 

1 So In original. 



12570 CONCENTRATION OF ECONOMIC POWER 

Mr. Emanuel. Yes, sir. By control I mean where you actually 
control the company ; you have the power of initiation in its manage- 
ment; you really run it. 

Mr. Nehemkis. Was not the purpose of these series of legal moves 
and other moves really to change positions with Byllesby, remove 
them from their then position in relation to the affairs of the 
company ? 

Mr. Emanuel. No ; I don't think it was. 

Mr. Nehemkis. Mr. Fuller, will you be good enough to examine a 
cable from the J. Henry Schroder Banking Corporation, dated 
October 15, 1928, and tell me whether you recognize this as a true 
copy of an original in your possession. For the sake of the record 
this is a cable sent to London, J. Henry Schroder & Co. I do not 
intend to examine you, -sir, on the contents of that document. You 
are being asked to identify it. 

Mr. Fuller. That seems to be a photostat of a cable. 

Mr. Nehemkis. I read from the cable identified by the witness, 
dated October 15, 1928. Cable from Schrobanco to Schrodpriv — that 
is the cable address of the London house, Schrodpriv. [reading from* 
"Exhibit No. 1934"] : 

Emanuel is seeing O'Brien again next week and proposes to alter his tacties 
telling him we have increased our holdings and have intention of further 
increasing (stop) ' 

Also that we are not anxious to buy his preferred stock as we doubt validity 
:md fear public enquiry (stop) 

In view of O'Brien's fears, Emanuel feels we can obtain representation on 
board and interest in finance as large shareholders and have such a nuisance 
value as critics of all Byllesby operations as to make preferred stock of little 
value to them (stop) 

Plan is to force O'Brien to join Emanuel and ourselves in all financial opera- 
tions of Standard Gas and between us gradually obtain real control of common 
stock instead of trick control as now held by Byllesby (stop) 

Mr. Emanuel, do you recall what you had in mind by the reference 
to the phrase "trick control"? 

Mr. Emanuel. I suppose I meant unusual control due to the fact 
that one million shares had one voted share with a par value of only 
one dollar. 

Mr. Nehemkis. Do you have in mind that this is an unusual means 
of control, for one dollar of preferred stock to exercise as against the 
equity interest? Is that what you had in mind? 

Mr. Emanuel. I think that is right, sir. 

Mr. Nehemkis. Continuing with the cable from Schrobanco to 
Schrodpriv. [Reading further from "Exhibit No. 1934"] : 

If O'Brien inclined to cooperate on these lines corporation would be formed 
along lines described in my notes mailed to Baron into which Emanuel and 
Hydro would place all their Standard Gas common and O'Brien would place 
his preferred stock and some Byllesby stock in exchange for common stock 
of corporation for amounts to be agreed (stop) 

The Baron referred to there, Mr. Emanuel, is Baron Schroder, of 
London ? 

Mr. Emanuel. I did not write that, but I presume that is who it 
means. 

Mr. Nehemkis. Do you recall who the.Baron was? 

Mr. Fuller. I assume so. 

Mr. Nehemkis. Head of the London house? 



CONCENTRATION OF ECONOMIC POWER 12571 

Mr. Fuller. Head of the London firm. 
Mr. Henderson. Is he still alive? 
Mr. Fuller. Yes. 

Mr. Henderson. Where is he located now? 

Mr. Fuller. London ; he always has been in London in his business 
control. 

Mr. Nehemkis [reading further from "Exhibit No. 1934"] : 

This corporation would proceed to acquire real control and finance its opera- 
tions by means of bank borrowing followed by issues of stock and bonds STOP 

Next steps contemplate very important mergers of companies known to 
Fisber STOP 

Mr. Emanuel, were there not at this time taking place a series of 
steps, moves, and plans, all parts of a carefully formulated design for 
ousting Byllesby from its position in the Standard Gas system, and 
substituting in place thereof the interests represented by the late Cap- 
tain Alfred Loewenstein and the interest represented by Mr. Victor 
Emanuel ? 

Mr. Emanuel. I can't recall that that is the case; no. I don't 
think that I had in mind, as near as I can recall it, ousting Byllesby. 

Mr. Nehemkis. Did this cable sent by Schroder Banking Corpora- 
tion, which has been identified by witness Fuller, to Schrodpriv in 
London, misrepresent your notions at the time it was sent, namely. 
October 15, 1938? 

Mr. Emanuel. I don't think it entirely reflected my notions, if 
you mean by that that I was in favor of ousting Byllesby from 
Standard Gas. I was in favor of getting just what I testified before. 

Mr. Nehemkis. The document will speak for itself, may it please 
the committee. 

Acting Chairman Williams. The exhibit may be received. 

(The cable referred to was marked "Exhibit No. 1934" and is 
included in the appendix on p. 12871.) 

Mr. Henderson. I wanted to ask a direct question. One clause of 
the telegram says, "This corporation would proceed to acquire real 
control." 

Mr. Emanuel. I meant by that control through the regular com- 
mon stock, and not through the one dollar preferred stock. 

Mr. Henderson. Then you did have some idea of acquiring real 
control ? 

Mr. Emanuel. Well, evidently what that cable tried to express — 
it has been many years ago, and I can't recall everything that hap- 
pened then — was an idea to put into a new company these securities 
held by Loewenstein and myself and my associate, and have control 
of the company evidenced through its regular common stock, and not 
though the $1 preferred stock. 

Mr. Henderson. But who would have that real control ? 

Mr. Emanuel. What was the date of that? 

Mr. Nehemkis. October 15, 1928. 

Mr. Emanuel. I think that in my own mind was that the corpora- 
tion would but Byllesby would continue operating the properties. 

Mr. Henderson. But the real control on an equity basis would 
lodge with your group, would it not, assuming you got this group 
together ? 



12572 CONCENTRATION OF ECONOMIC POWER 

Mr. Emanuel. That I can't say, because it all depended on how 
much common stock Byllesby would receive in the new corporation 
for their new securities and if they wanted to buy any more or not. 

Mr. Nehemkis. Before proceeding so the record may be clear, is 
that now in evidence? 

Acting Chairman Williams. It may be admitted. 

Mr. Nehemkis. The document is signed by Frank, Mr. Fuller; 
that is Mr. Frank Common, president of Hydroelectric? 

Mr. Fuller. My recollection is Mr. Frank Tiarks, a partner in 
our London firm, who was probably here at that time. 

Mr. Nehemkis. You said a moment ago that Baron Schroder was 
head of the London house. Does the London house of J. Henry 
Schroder have other banking connections on the Continent? 

Mr. Fuller. No. 

Mr. Nehemkis. Does it have any in Germany ? 

Mr. Fuller. No. 

Mr. Nehemkis. Does the Baron spend part of his time in Germany, 
Munich ? 

Mr. Fuller. No ; except for vacation. 

Mr. Nehemkis. For the sake of identifying the figure, is that the 
same Baron Schroder whose name appeared in the press some time 
ago in conection with activities in Germany ? 

Mr. Fuller. No ; not that I know of. 

Mr. Nehemkis. Not the same Baron Schroder ? 

Mr. Fuller. No. The Schroder family in Germany, and, of course, 
the Schroder family in England has many relatives there, but the 
English firm has been in England since 1804 and have never had any 
branch in Germany that I know of. 

Mr. Nehemkis. I was wondering — this is Baron Bruno Schroder? 

Mr. Fuller. That is right. 

Mr. Nehemkis. Isn't it Baron Bruno Schroder who was the man 
instrumental in introducing Chancellor Hitler to the industrialists 
in Germany? 

Mr. Fuller. No; he is not. I believe he is a member of the 
family but certainly not a member of the firm in London, and had 
no connectionwith them. 

Mr. Nehemkis. I was anxious to see if we had the same people 
here. 

Mr. Fuller, I show you a copy of a cable from Fisher to Loewen- 
stol — I presume that is a cable name — Brussels 

Mr. Fuller (interposing). As I recall. 

Mr. Nehemkis. As of October 19, 1929, and which purports to bear 
your initials in the upper right corner. Will you be good enough 
to tell me whether or not this is a true copy of an original in your 
possession and custody and whether or not in fact those are your 
initials ? 

Mr. Fuller. It seems to me to be a true copy. 

Mr. Nehemkis. Were not the international and domestic banking 
forces marshalled against Byllesby too great, Mr. Emanuel, and did 
not Byllesby finallv capitulate to you and your associates? _ 

Mr. Emanuel. The only international, so-called international, firm 
that had* any stock interest in this was Hydro, as far as I knew. 

Mr. Np^kmkts. A Belgian corporation domiciled in Canada? 



CONCENTRATION OF ECONOMIC POWEIt 12573 

Mr. Emanuel. That is right, domiciled in Canada. I think what 
eventuated was that some time in 1929 — I can't just offhand fix the 
date, but it was after this mandamus proceeding which hadn't come 
up to any court hearing, .and after the demand on the directors for 
access to the books and records had been refused, that as I recall it, a 
Mr. Gray, I think it was, a firm called Ward and Gray 2 Wilmington, 
who I believe were counsel for Standard Gas in Wilmington, talked 
to Mr. Biggs, who was my attorney, and suggested that we have a 
meeting about this matter and that eventually resulted in the reor- 
ganization of Standard Gas and Standard Power in early 1930. 

GENERAL SETTLEMENT BETWEEN USEPCO AND STANDARD POWER & LIGHT 

CO. — RESUMED 

Mr. Nehemkis. Do you recall whether as a result of the series of 
events which have been described in documents offered in evidence 
that Byllesby agreed to give you and your associates 50-percent con- 
trol of the Standard Gas system? 

Mr. Emanuel. What happened was that it was sort of a com- 
plicated transaction. The group I represented got a minority of 
the directors of Standard Gas and a majority of the directors of 
Standard Power. However, the majority of directors of Standard 
Gas, of course, had a majority of that company and the Byllesby 
Engineering & Management Corporation, as it was then called, con- 
tinued to operate the properties and have all power of initiative con- 
cerning their management. We had certain veto powers as to certain 
major actions that could not be done without the consent of three- 
quarters in number of the board of directors of Standard Gas & 
Electric Co. Those matters involved principal items like buying or 
selling properties or mergers or consolidations, reorganizations, and 
things of that nature. Also, as a result of that, $1,000,000 of pre- 
ferred stock was retired, and the Philadelphia Co. went entirely into 
the Standard Gas & Electric Co. 

Mr. Nehemkis. Mr. Fuller, you said that Loewenstol was probably 
a cable name. Is that a cable name for certain directors who were 
part of the European group ? 

Mr. Fuller. Does it give a city ? 

Mr. Nehemkis. Yes, Brussels. 

Mr. Fuller. I assume that was Hydro, Brussels office. 

Mr. Nehemkis. Mr. Emanuel, I should like to call your attention 
to the following, which is a cable from Fisher, then representing the 
Loewenstein interests, to some of the Belgian directors of Hydro- 
Electric, as follows [Beading from "Exhibit No. 1935"] : 

Subject to our counsel and Byllesby's counsel coming to terms between them 
upon language of series of written agreements embodying undermentioned 
.settlement we have settled with Stand Gas board after long and exhaustive 
negotiations on following conditions: Firstly Byllesby surrender their own mil- 
lion preferred for cancellation. Secondly Stand Gas board equally divided our 
group appoints chairman company and chairman finance committee Byllesby 
keep presidency. 

Continuing the cable, 

Will explain to you on my return by what series of transactions this new 
company becomes possessed of half all Stand Gas common outstanding. It will 
therefore own control Stand Gas. * * * 



12574 CONCENTRATION OF ECONOMIC POWER 

This gives us full power protect our investment and means our cooperation 
necessary for everything material. 

My associate calls my attention to one other provision that I should 
read to you, Mr. Emanuel: 

Sixthly, our group receives 75 percent of banking which means issuance new 
securities to provide for annual growth parent company and subsidiaries totaling 
thirty to sixty million dollars. Seventhly, when steps to accomplish above com- 
pleted we withdraw our legal action (stop) Emanuel has borne largest share 
work and deserves great credit. Please communicate above confidentially Fabri 
Baron Schroeder. 

Mr. Emanuel, as a result of this series of operations which had been 
formulated and planned by you and your associates in cooperation 
with the international banking firm of J. Henry Schroder & Co., and 
the domestic forces that had oeen marshalled and against Byllesby, 
it is fair to recapitulate, is it not, that Byllesby completely capitulated. 
to you and your associates that Byllesby agreed to give you and your 
associates 50 percent control over the Standard Gas System, in fact, 
the battle had been won ? 

Mr. Emanuel. Well, we carried our main point about the retire- 
ment of the million shares of preferred stock and the putting of Phil- 
delphia Company into Standard Gas and had gotten representation 
on the board, which we thought our interests deserved. However, I 
didn't send that cablegram. We never got the chairmanship of Stand- 
ard Gas or any office of Standard Gas. We had a minority repre- 
sentation on the board, and as I explained, due to the bylaws of 
Standard Gas, or charter, I don't know which it was, I suppose the 
charter, on certain major things it took three-quarters of the board 
to agree before that could be done. It was more in the nature of a 
right to pass on those major things. "We had no power of initiation 
whatsoever. 

Mr. Nehemkis. Now, as part of the settlement reached from the 
Byllesby capitulation to you and your associates, did not you and 
your associates obtain an agreement from Byllesby to enjoy 75 per- 
cent of all future Standard Gas System financing? 

Mr. Emanuel. As I recall that agreement, it was an agreement 
between United States Electric Power and Byllesby, and Byllesby, as 
I recall it, had 25 percent of the banking, and United States Electric 
had the right to nominate, I presume you would call it, where the 
other 75 percent of the banking would go. 

Mr. Nehemkis. Mr. Chairman, so that the record may be complete. 
I will offer in evidence at this time the cable previously identified by 
witness Fuller. 

Acting Chairman Williams. This will be received. 

(The cable referred to was marked "Exhibit No. 1935" and is in- 
cluded in appendix on p. 12872.) 

Mr. Nehemkis. Did not the J. Henry Schroder Banking Corpora- 
tion of New York attempt to obtain a share in this 75 percent divi- 
sion, Mr. Emanuel, do you recall? 

Mr. Emanuel. I don't recall exactly. I think they had a small 
interest in subsequent financing, I don't recall that it was very major. 

Mr. Nehemkis. Do you recall whether other members of the Amer- 
ican group were somewhat reluctant to cede to Schrobanco an interest 
in this 75-percent division ? 

Mr. Emanuel. I don't recall that. 



CONCENTRATION OF ECONOMIC POWER 12575 

Mr. Nehemkis. Do you recall whether or not at this time it was 
not thought desirable to have as a director of United States Electric 
Power Baron Bruno Schroder, the senior partner of the London 
house ? 

Mr. Emanuel. I remember he went on the board when the com- 
pany was formed, or shortly after. 

Mr. Nehemkis. He did consent to serve as a director, did he not? 

Mr. Emanuel. I think he did ; yes. 

Mr. Nehemkis. But in so consenting to serve as a director, didn't 
he make a rather important proviso, do you recall ? 

Mr. Emanuel. I don't recall, no; I don't think I had any com- 
munications with him about it. 

Mr. Nehemkis. But you, of course, were intimately familiar with 
all of the details and arrangements at the time, being one of the 
moving spirits? 

Mr. Emanuel. Well, I of course had intimate knowledge of the 
situation, but I think as regards Mr. Fisher's interests in it, he 
handled that himself; I think he was over here, as I recall it. 

Mr. Nehemkis. Do you recall that Baron Bruno Schroder pro- 
vided that he would accept a directorship on the condition that a fair 
position in the future banking business would result for the London 
firm's New York branch, Schrobanco ? 

Mr. Emanuel. No ; I don't recall that. 

Mr. Nehemkis. Mr. Fuller, what is your recollection on the ques- 
tion I asked Mr. Emanuel? 

Mr. Fuller. It is quite clear in my mind that he did make that 
proviso and that that was subsequent to efforts of Schroder New 
York to get a participation here which has not been granted as 
originally planned. Since we had no financial interest in it at any 
time, and it is my recollection that one of the provisos made on giving 
us any representation was that Baron Schroder should go on the 
board and our counter suggestion was that if he did, which was not 
his custom, then naturally his interest should be well recognized in a 
future profitable financing that came along. 

Mr. Nehemkis. 1 I show you four documents, cables, from Schro- 
banco to Schrodpriv or from Schrodpriv to Schrobanco. Will you 
be good enough to tell me whether you recognize these as documents 
coming from your files and in some instances bearing your initials? 

Mr. Henderson. While we are waiting on that, did Loewenstein 
have any interest in Sofina? 

Mr. Emanuel. At one time I think he controlled it. I can't say 
exactly; I think he did. He had a large interest in the Barcelona 
Traction Light & Power Co. which he developed. 

Mr. Henderson. Did Schroder have any interest in Sofina? 

Mr. Emanuel. I don't know. 

Mr. Henderson. Do you know, Mr. Fuller? 

Mr. Fuller. No ; they never did. 

Those seem to be documents from our file. 

Mr. Emanuel.. I think, Mr. Henderson, that Loewenstein had had 
some interest in Sofina, but I don't think he ran it. 

Mr. Nehemkis, The four documents identified by the witness are 
offered in evidence, may it please the committee. 

(The cablegrams referred to were marked "Exhibits Nos. 1936 to 
1939" and are included in the appendix on pp. 12872-12873.) 



12576 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. As part of the dgal which resulted from Byllesby's 
capitulation to your interests, did you not then buy up Ladenburg, 
Thalmann's interest in Standard Power for $25,000,000 and 266,666 
shares of United States Electric Power Co.? 

Mr. Emanuel. As a result of the agreement with Byllesby, I 
think it was during the time it was being negotiated, we found for 
the first time about Ladenburg, Thalmann's large interest in Standard 
Power and the agreement they had on that, and that resulted in 
United States Electric buying their stock for the consideration you 
mentioned. 

Mr. Nehemkis. Then you paid $10,000,000 in cash and the balance 
in notes, did you not? 

Mr. Emanuel. As I recall, that is correct. 

Mr. Nehemkis. Now, the deal was finally consummated on or 
about December 21, 1929, was it not? 

Mr. Emanuel. I think we came to an agreement on that date. 

Mr. Nehemkis. And about that time you became president of 
Standard Power, the top holding company of the Standard Gas 
System, did you not, sir? 

Mr. Emanuel. I think I became president when the company 
was reorganized on January 7, 1930, when the stockholders' meeting 
occurred, if not then right afterwards. 

SECURITY ISSUES PURSUANT TO BANKING MEMORANDUM OE 
DECEMBER, 1929 

Mr. Nehemkis. Mr. Chairman, I should like to offer in evidence 
at this time a table which shows the securities sold to the public 
by Standard Gas and Electric Company or any of the corporations 
in its system from the period January 7, 1930, to June 1, 1936, and 
the percentages of participations therein by the various banking 
firms, arranged as per the terms of the Banking Memorandum be- 
tween Byllesby and the United States Electric Power Corporation 
and Ladenburg, Thalmann & Co. December 21, '29. You will recall 
we have had evidence on that in "Exhibit No. 1931." Together with 
this table are three supplementary tables identified here again as 
supplementary exhibits A, B, and C. 

(The tables referred to were marked "Exhibits Nos. 1940-1 to 
1940-4" and are included in the appendix facing p. 12874 and on pp. 
12874 and 12875.) 

Mr. Nehemkis. For your information, sir, I state that the data 
appearing on these tables were furnished to the Securities and 
Exchange Commission and appear in the Commission's Docket No. 
31-379 and Docket 31-420, also, and these are Exhibit No. 20 and 
Exhibit No. 21 in those dockets. I think that it would be advisable, 
if I may suggest, sir, that these two documents be placed on file 
with the committee, and that the table which I now offer to you be 
spread on the records of the committee. 

Acting Chairman Williams. That may be done, these are sub- 
mitted for filing. 

(The documents referred to were marked "Exhibits Nos. 1941 
and 1942" and are on file with the committee.) 

Acting Chairman Williams. Is this a convenient place to adjourn ? 

Mr. Nehemkts. Excellent. 



CONCENTKATION OF ECONOMIC POWER 12577 

Acting Chairman Williams. The committee will stand in recess 
until 2 : 30. 

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

AFTERNOON SESSION 

The committee resumed at 2:35 p. m. on the expiration of the 
recess. 

Acting Chairman Williams. The committee will be in order, 
please. 

Mr. Nehemkis. Mr. Emanuel and Mr. Fuller, will you be good 
enough to return to the witness stand, please? 

TESTIMONY OF VICTOR EMANUEL AND CARLTON P. FULLER— 

Resumed 

Mr. Nehemkis. The committee will recall that before our recess I 
offered in evidence committee "Exhibit No. 1940," which showed the 
financing for the Standard Gas system for the period 1929 through 
1936. This exhibit shows that all of this financing which was under- 
taken during this period complied exactly with the terms of the 
Banking Memorandum. 

Thus, for example, in the financing covered under group A of 
the table in evidence the distribution was precisely as called for on 
page 1 of the Banking Memorandum, and in the case of group B 
on the table the distribution of the participations to the investment 
banking firms was precisely pursuant to paragraph 3 on pages 2 and 
3 of the Banking Memorandum. 

In the case of the distribution of participations under group C 
on the table before you those participations' were pursuant to para- 
graph 4 on page 3 of the Banking Memorandum, with further de- 
velopment of those participations appearing to the supplementary 
exhibit A, and so on. 

Mr. Fuller, as Mr. Emanuel's earlier testimony shows, Ladenburg, 
Thalmann's interest in Standard Gas was bought out by United States 
Electric Power for $25,000,000. You recall that testimony; do you 
not? 

Mr. Fuller. Yes. 

$15,000,000 LOAN TO USEPCO SECURED BY STANDARD POWER & UGH, CO. 
STOCK — EFFORTS TO REGAIN COLLATERAL 

Mr. Nehemkis. And do you not also recall the transaction which 
involved that exchange of cash and securities? 

Mr. Fuller. No; I was not familiar with it in any detail at the 
time, since Schroder Banking Corporation had nothing to do with it. 

Mr. Nehemkis. You know only of it then 

Mr. Fuller (interposing). By hearsay. 

Mr. Nehemkis. Do you recall that to raise this sum some $15,000- 
000 had to be borrowed from the Chase, the Guaranty, and Chemical ? 

Mr. Fuller. I recall at a later date I realized that fact, yes. 

Mr. Nehemkis. And that this loan was secured by Standard Power 
stock? 

Mr. Fuller. Eventually; yes. 



12578 CONCENTRATION OF ECONOMIC POWEK 

Mr. Nehemkis. Do you recall, Mr. Emanuel, that ultimately this 
loan was reduced to about $12,500,000 in 1934? 

Mr. Emanuel. I think. that is probably right. 

Mr. Nehemkis. And do you recall, Mr. Emanuel, that United 
States Electric Power had defaulted on its interest to the banks? 

Mr. Emanuel. That is right. 

Mr. Nehemkis. And that the banks thereafter increased their col- 
lateral by taking over all of the assets of, may I say Qsepco in order 
to avoid that long name? 

Mr. Emanuel. That is right. 

Mr. Nehemkis. This meant, in effect, did it not, that the control 
had passed under the pledge to the banks ? 

Mr. Emanuel. Well 

Mr. Nehemkis (interposing). Potential control, at least. 

Mr. Emanuel. Yes; they had all the collateral. 

Mr. Nehemkis. In 1934 did you, Mr. Fuller, not recognize about 
the only worthwhile thing left in Usepco was the future Standard 
Gas financing? 

Mr. Fuller. I don't recall my state of mind at the time, but I 
should think probably the figures would have shown that the current 
value of ; ts holdings was not very large. 

Mr. Nehemkis. I show you a memorandum bearing your initials 
vl^ted August 10, 1934, entitled "General Evaluation of Future Pros- 
pects of Standard Gas & Electric Corporation." Will you be good 
enough to examine this document -and tell me whether or not it was 
prepared by yourself and whether those initials are yours? 

Mr. Fuller. Yes; this memorandum consists of a list of favoiable 
points as to the future prospects of Standard Gas & Electric Corpo- 
ration, and also unfavorable points, there being five favorable and 
eleven unfavorable. I don't know just how they would be evaluated 
as to rating. 

Mr. Nehemkis. And among the favorable points that you enumer- 
ated at this point [reading] : 

There is considerable financing in the system to be counted upon and hitherto 
U. S. Electric has had a small participation in the profits of such issues. 

Mr. Chairman, I offer in evidence the document identified by Mr. 
Fuller. 

Acting Chairman Williams. This may be received. 

(Tae document referred to was marked "Exhibit No. 1943" and is 
included in the appendix on p. 12875.) 

Mr. Nehemkis. Did not the banks begin looking around to find a 
market for the stocks pledged to them? 

Mr. Fuller. I am not familiar with the situation. We were not 
in close contact with United States Electric, in spite of membership 
on the board. Those negotiations were handled by Mr. Fisher. 

Mr. Nehemkis. Is it not a fact, Mr. Emanuel, that about this time 
the banks to whom the stock had been pledged began looking around 
for a purchaser or market to dispose of their holdings? 

Mr. Emanuel. What time was that ? 

Mr. Nehemkis. 1934. 

Mr. Emanuel. I think that is true. I mean they wanted to get 
paid. 

Mr. Nehemkis. That is right. And do you recall some negotia- 
tions with Harrison Williams, of the North American Power & 



CONOJWI'KATION OF ECONOMIC FOWEK 12579 

Light, in regard to acquiring that pledged collateral? I am ad- 
dressing my question to you, sir. 

Mr. Emanuel. I had one conference with Mr. Williams about that 
matter. I think that is all I had, and he was talking about one of 
the banks' having told him they were reducing these notes in their 
possession. 

Mr. Nehemkis. Mr. Fuller, I show you a document which purports 
to come from the files of your company. Will you examine it and 
tell me whether you recognize it as a true and correct copy of an 
original in your possession and custody? 

Mr. Fuller. It would seem to be. 

Mr. Nehemkis. And this is a copy of a cablegram from Brussels 
to — I assume that is a code name — Alemanuel. 

Mr. Emanuel. That is the code name of Albert Emanuel & Co. 

Mr. Nehemkis. And it is signed by Vanderstraten, and his cable 
address is Canabelge, and Vanderstraten is a director or was a direc- 
tor of Hydro-Electric, do you recall? 

Mr. Emanuel. I think he was. 

Mr. Nehemkis. One of the Belgian directors. 

Mr. Emanuel. That is right. 

Mr. Nehemkis. This cable reads as follows [reading from "Exhibit 
No. 1944"] : 

Hydro Committee surprised learn Chasebank negotiating with group Harrison 
Williams cession securities pledge by Usepco feeling that Chasebank appeared 
disposed accept our proposals about which other banks had to be approached 
(stop) What is present position (stop) We suppose Chasebank could not 
conclude deal with Harrison Williams without Usepco's renunciation assets 
pledged or protracted formalities (stop) Usepco under no circumstances must 
give such renunciation but should endeavor obtain consent Chasebank that our 
negotiations be postponed for few weeks until Fisher's recovery (stop) 

I offer in evidence, Mr. Chairman, the document identified by the 
witness. 

The Chairman. This may be received. 

(The cable referred to was marked "Exhibit No. 1944" and is 
included in the appendix on p. 12876.) 

Mr. Nehemkis. Now, that came over on the code name of your 
firm. You recall that particular cable, do you ? 

Mr. Emanuel. No ; it has been years since I received that. I have 
no doubt it is correct. 

Mr. Nehemkis. In accordance with the discussions that were tak- 
ing place between New York and London and Brussels at this time, 
you did all you could, did you not, Mr. Emanuel, to delay any deal 
of the banks with Harrison Williams? 

Mr. Emanuel. I was engaged for three or four years, I suppose, 
I can't remember exactly the period, in trying to do everything I 
could to save that company, and we were working during that whole 
period on trying to make a compromise of our position with the 
banks who held our notes. Naturally, I did everything I could. 

Mr. Nehemkis. The thing you were really trying to save, of course, 
was the collateral, not the company. 

Mr. Emanuel. That is — well, we were trying to save the company. 

Mr. Nehemkis. Well, the company without the collateral was a 
meaningless shell, was it not? 

Mr. Emanuel. That is right, but what we were trying to do was 
to work out some compromise with the banks whereby the principal 

124491 — 10— pt. 24 18 



12580 CONCENTRATION OF ECONOMIC POWER 

stockholders of the company could redeem that collateral and keep 
it in the company. 

Mr. Nehemkis. The point at issue, at stake at this particular time, 
was who would get possession or be able to regain possession of the 
collateral pledged to the banks. Now, the thing you had to get hold 
of, if this system was going to mean anything to you, was the pledged 
collateral, is that correct, sir? 

Mr. Emanuel. No; I couldn't answer that question that way. 1 
was president of IT. S. Electric Power, and as such I was trying to 
keep the company alive for the benefit of its stockholders. The 
banks held this collateral and their notes were under water. For a 
period of three or four years I and some of the other principal 
stockholders of this company, a good many of us, tried repeatedly, 
time after time to make a deal with the banks whereby we could 
compromise these loans, because obviously they were under water. 
I don't know if that is exactly in answer to your question, but that 
was the situation. 

Mr. Nehemkis. And in connection with these negotiations that 
were taking place over this period of time, you were doing every- 
thing conceivable to protect your interests, to delay any sale of the 
pledged collateral by the banks to Harrison Williams, or anyone 
else ? 

Mr. Emanuel. Correct. 

Mr. Nehemkis. Mr. Fuller, I show you a document, a cable, pur- 
porting to come from the files of Schroder Rockefeller & Co., and 
ask you to tell me whether or not this is a true and correct copy, and 
whether this doesn't bear your initials on the right-hand top corner. 

Mr. Fuller. I presume that is the case, although I didn't sign the 
initials. 

Mr. Nehemkis. The document is offered in evidence. 

Acting Chairman Williams. It will be received. 

(The cable referred to was marked "Exhibit No. 1945" and is 
included in the appendix on p. 12876.) 

Mr. Nehemkis. N&w, Mr. Emanuel, why was it important for you 
to gain possession of the pledged collateral and to avoid, if possible, 
any disposal of this pledged collateral to Harrison Williams or any 
other group? 

Mr. Emanuel. Well, if it hadn't been avoided the U. S. Electric 
Power stockholders would have all been wiped out. 

Mr. Nehemkis. And what would have happened to Victor Eman- 
uel and his interests if Harrison Williams or any other group got 
this pledged collateral? Victor Emanuel and his interests would 
have been completely wiped out, wouldn't they? 

Mr. Emanuel. That is correct. 

Mr. Nehemkis. Therefore, it was to your interest, was it not, and 
the European interests who were counting on you, to see that that 
pledged collateral remained intact until you could buy it on your 
terms, is that correct ? 

Mr. Emanuel. It was to be our interest to see that the collateral 
wasn't sold to anybody else or anybody except the U. S. Electric 
Co. ; that was at that time, 1934, what we were trying to do. 

Mr. Nehemkis. And as you and I said we might refer to it, that 
Usepco was merely a shell without that pledged collateral ; that com- 
pany was nothing but a fiction without the pledged collateral behind 



CONCENTRATION OF ECONOMIC POWER 12581 

it. With it, it meant you and your interests and the European in- 
terests had control over the utility empire, is that correct? 

Mr. Emanuel. No; that isn't. 

Mr. Nehemkis. In what particulars do I misinterpret the situa- 
tion? 

Mr. Emanuel. I think you asked me two or three questions in 
that one question. I will have to take them up by sections. 

Mr. Nehemkis. Please. 

Mr. Emanuel. In the first place had that collateral been sold by 
the banks to outsiders or to anybody but U. S. Electric, IT. S. Electric 
would have been entirely without assets and busted. Secondly, dur- 
ing that entire period from 1934, and I think most of 1935, a group 
of U. S. Electric principal stockholders were trying to come to an 
agreement with the banks. I can't tell you now how many confer- 
ences we had; they perhaps were monthly. We had plan after 
plan, time after time; we thought we had a plan that the banks 
would accept; they all fell through. It wasn't to keep me, though, 
from having control of the utility empire because, whether U. S. 
Electric was saved or not, we didn t control Standard Gas. We did 
have the power, as I previously testified, in Standard Gas to sort of 
veto, if you will, certain policies of the company or certain things 
like the purchase or sale of properties, and that sort of thing, within 
the agreement. I think you have the record of it. 

Mr. Nehemkis. Mr. Fuller, Schrobanco at this time was not very 
enthusiastic about blocking Harrison Williams. As a matter of 
fact, it was trying to work out a plan of its own with Williams and 
Byllesby, wasn't it? 

Mr. Fuller. I don't recall the circumstances offhand. Of course 
we had other business relationships with Harrison Williams. I 
imagine we weren't particularly interested in blocking any plans of 
his in other connections, but I couldn't recall what you have in mind 
at the time. We had many conferences with him about many dif- 
ferent things. 

Mr. Nehemkis. I show you a cable from Schrobanco to Schrod- 
priv, London, dated September "21,- 1936, and purporting to bear your 
initials. Will you examine this and tell me 

Mr. Fuller (interposing). You are now talking about 1936, hav- 
ing just been talking about 1934. 

Mr. Nehemkis. I beg your pardon, it is 1934. Will you tell 
me whether you recognize this as a copy coming from your files? 

Mr. Fuller, does that document now refresh your recollection? 

Mr. Fuller. Yes ; I recall now. 

Mr. Nehemkis. What is your recollection at this time of whether 
or not Schrobanco was or was not interested in blocking Harrison 
Williams? , 

Mr. Fuller. Schrobanco at that time had no interest any more 
than it ever had in Usepco itself, and- it wasn't even close to the 
internal operations of it, and Schrobanco was naturally interested 
in getting any business it could and having good business relation- 
ship with Harrison Williams, would naturally not want to imperil 
good relationships with rather tenuous relationships. Therefore, I 
assume that this cable discusses one of the numerous plans that Mr. 



12582 CONCENTRATION OF ECONOMIC POWER 

Emanuel has mentioned about rescuing the collateral from the banks. 
I don't recall the details of it more than given in that cable. 

Mr. Nehemkis. Did I understand you to say a moment ago that 
you had no particular interest in the Standard Gas matter? 

Mr. Fuller. No; I didn't say that; I said Schroder Banking Cor- 
poration never had any financial interest in Usepco. 

Mr. Nehemkis. How does it happen that all these documents that 
I have been offering in evidence come from the files of Schroder 
Rockefeller & Co., Inc.? 

Mr. Fuller. That is quite a story in itself, but you must realize 
that we were acting as bankers in New York for Hydro interests 
so far as we could, that our London house was their chief London 
banker, and in most of these matters we were acting for a London 
house and trying hard to act more dosely for Hydro, although at 
this period we were not very close to them. 

Mr. Nehemkis. You were perhaps a conduit for these various 
interest, say a clearing house. 

Mr, Fuller. I think that is a good expression. 

Mr. Henderson. As far as control over Usepco was concerned, 
however, your company and Mr. Emanuel's company still really 
had that while the stock was pledged, did you not ? 

Mr. Fuller. Perhaps it isn't clear in your mind, Mr. Henderson, 
that our company, meaning the Schroders, had never had any finan- 
cial interest in the U. S. Electric Power Company, and we have never 
had any financial interest in Hydro, either. That is not a Schroder 
company. 

Mr. Henderson. Weren't you acting, however, as their conduit ? 

Mr. Fuller. That is correct. 

Mr. Henderson. I am saying, assuming that you represented the 
Hydro interest 

Mr. Fuller (interposing). Which is a rather far-fetched assump- 
tion at this period, but, assuming we did, your question is ? 

Mr. Henderson. And taken together, the two interests, yours and 
Mr. Emanuel's, were a majority, were they not? 

Mr. Fuller. Well, it depends there, I suppose, where you put the 
United Founders interest, and I couldn't tell offhand just where the 
control lay. I wouldn't think it did. 

Mr. Nehemkis. Mr. Emanuel, at this time the financing, the right 
to do the financing still resided in that original document. 1 That had 
not passed until Chase would reduce the stock to possession? 

Mr. Emanuel. That agreement was still in effect as much as it ever 
could be in effect. 

Mr. Fuller. And I might add that Schroder Banking Corporation 
was not a party to that agreement at any time. 

Mr. Emanuel. You asked about control of the United States Elec- 
tric. Of course, all this collateral was deposited with the banks at that 
time, they had first call on it, but the largest stockholders of United 
States Electric were still the same as what it had been when the com- 
pany was formed which was the United American Founders group, 
so-called, and the Hycko Electric-Securities Corporation. At all times, 
as I recall it, they had a majority of the stock of the United States 
Electric. 



'Referring to "Rxhil.U No. 1981. 



OXXNUKNTKATION OF MUONOMKJ FUVVKK 12583 

Mr. Henderson. Was there any financing during this period in 
'34 and '35? 

Mr. Emanuel. I can't recall offhand, Mr. Henderson. As I re- 
member it, markets weren't very good during that particular period. 

Mr. Nehemkis. The previous exhibit x showed the sale or volume of 
financing during the period from '30 through '36 pursuant to the 
agreement. 

Mr. Emanuel. I thought you were asking about '34. 

Mr. Henderson. I was. 

Mr. Emanuel. I don't recall offhand. 

Mr. Nehemkis. Mr. Chairman, may I at this time offer in evidence 
the document previously identified by Mr. Fuller. 

(The cable referred to was marked "Exhibit No. 1946" and is in- 
cluded in the appendix, p. 12877.) 

Mr. Nehemkis. Mr. Fuller, for purposes of offering it lor the rec- 
ord, will you identify for me the two documents I now hand you ? I 
do not intend to examine you, Mr. Fuller, on those documents. Merely 
tell me, if you will, if they come from your files, and if they are true 
and correct copies. 

Mr. Fuller. I should think so. 

Mr. Nehemkis. The two documents identified by the witness are 
offered in evidence. 

(The documents referred to were marked "Exhibits Nos. 1947 and 
1948" and are included in the appendix on p. 12878.) 

Mr. Nehemkis. The pledged collateral more or less went to sleep 
for a period of time, nothing could be done until about '35, when the 
next suggestion for recapturing the pledged collateral was advanced 
by you, Mr. Emanuel. Is that not so, as you recall the situation? 

Mr. Emanuel. During this entire period, constantly we were work- 
ing on these bank loans, because the situation was always highly dan- 
gerous. Of course, the loans were undercollateralized, and, as I say, 
I can't recall offhand how many different plans we had to redeem it, 
but it was constantly on the fire. 

Mr. Nehemkis. And at that time you did organize a group to buy 
the Usepco notes, did you not? 

Mr. Emanuel. I think that was in '36, wasn't it? 

Mr. Nehemkis. Substantially, the end of '35 or early '36; I guess 
it was the end of '35. 

Mr. Emanuel. What had happened was that Mr. Fisher, who had 
succeeded Captain Loewenstein at the Hydro Company, was ill him- 
self, and he did come over here I think once or twice while he was ill, 
and he was hoping not seriously. It developed, however, that he had 
cancer. During that same period, also in 1935, the Founders group 
companies had disposed of their United States Electric stock by 
declaring it out to their stockholders, so they wouldn't come under the^ 
Public Utility Act, and always in the plans heretofore, the Founders 
group of companies had always been willing to make their fair con- 
tribution of capital to save the United States Electric Co. So had 
Mr. Fisher, as far as he could. I think they both felt a high degree 
of responsibility, akin to my own, to do everything to save the com- 
pany. When trie Founders group disposed of their stock by declar- 
ing it out to the stockholders, Mr. Fisher became seriously ill, and 

1 Referring to "Exhibit No. 1940." 



12584 CONCENTRATION OF ECONOMIC POWER 

during this period sometime, we sent, well, t think Mr. Granbery went 
over twice to see him, he had some free time, and I think Mr. Sea- 
grave went over once, also. Always we were on the verge of settling 
with the banks. One time Mr. Fisher, when he was here, had a plan 
of his own which he thought the banks would approve, and when wc 
lost the support, you might say, of the Founders group, they no 
longer were stockholders, Fisher was very ill, then we had to formu- 
late new plans to try and save the company if we could. And I think 
that those came to a head in '36, as I recall it. I can't remember the 
exact date. 

Mr. Nehemkis. Mr. Fuller, who is Robin Wilson ? 

Mr. Fuller. He is associated with Schroder, in London. 

Mr. Nehemkis. Connected with the banking house? 

Mr. Fuller. Of J. Henry Schroder & Co., London; yes. 

Mr. Nehemkis. I show you a confidential document relating to 
Usepco bearing the initials of Mr. Wilson, with the date 12/18/35, 
which purports to come from the files of your company. Tell me 
whether you recognize this as a true and correct copy. 

Mr. Fuller. It would seem to be. 

Mr. Nehemkis. And I show you another cable from Schrobanco 
to Adshead, a code address, 17 John Street, Adelphi, London, signed 
by Robin, and tell me if you likewise recognize this as a correct copy. 

Mr. Fuller. Yes. 

Mr. Nehemkis. In the confidential memorandum prepared by 
Robin Wilson in regard to Usepco, Mr. Emanuel, he had this to 
say [reading from "Exhibit No. 1949"] : 

Emanuel believe that the Chase Bank, Chemical Bank and Guaranty Trust 
are prepared to sell for $3,000,000 their claim against USEPCO which is secured 
by that company's holdings of Standard Power & Light shares. He proposes 
to offer them $1,000,000 and thinks they might compromise at between $1,500,000 
and $2,000,000. He proposes : 

(a) A three party joint account with this transaction between himself, Leaden- 
hall Securities and Hydro Electric. 

Mr. Fuller, Leadenhall Securities is the investment end of the 
London bank. Is that correct? 

Mr. Fuller. I would say it is a wholly owned financing company 
of Schroder, London. 

Mr. Nehemkis [reading further from "Exhibit No. 1949"] : 

Having acquired the claim, he would foreclose and take title to the Standard 
Power & Light stock. He would then call a meeting of directors and principal 
stockholders of USEPCO and inform them that the shares of USEPCO were 
valueless, but he proposed to offer pro rata to each shareholder of USEPCO the 
right to buy from our syndicate all the Standard Power & Light shares, less 
a small number of commission shares, for the sum which we had paid for them. 
These Standard Power & Light shares are about 70% of the company and 
before making the offer to USEPCO shareholders, he would want the directors 
to confirm that our syndicate acquired the benefit of the existing contract allot- 
ting 75% of Standard Gas financing to the present finance group. Our syndicate 
would then be left with such shares of Standard Power & Light as USEPCO 
shareholders would not take up, and the right to 75% of Standard Gas financing. 

The next step would be to confirm with the Byllesbys that their management 
contracts with Standard Gas were secure, and obtain their cooperation in 
liquidating Standard Power & Light, shareholders of which would receive their 
due proportion of Standard Gas & Electric shares, thereby turning our syndicate's 
investment into marketable securities. 

Mr. Emanuel, in whose interest were you working, the stockholders 
or the interest of Victor Emanuel and his associates? I offer the 



CONCENTRATION OF ECONOMIC POWER 12585 

document identified by Mr. Fuller and the cable from Hobin to 
Adsheach 

(The documents referred to were marked "Exhibits Nos. 1949 and 
1950" and are included in the appendix on p. 12879.) 

Mr. Emanuel. I was working solely in the interest of the United 
States Electric stockholders. I did not send that cable. I never saw 
that cable or heard of that cable until at this time. 

Mr. Nehemkis. Does Robin's statement misrepresent your position ? 

Mr. Emanuel. It certainly did, if that is what he said. 

Mr. Nehemkis. He was identified by Mr. Fuller as a close associate 
of yours, tied up with Schrodpriv, and he should have known what 
was going on. 

Mr. Emanuel. He may have known perfectly well what was going 
on, but you are asking me to say that those were my views. This 
entire thing, until the time that Founders withdrew, was entirely to 
save this for the United States Electric stockholders. 

Mr. Nehemkis. Do you deny, Mr. Emanuel, that the steps laid 
forth in that confidential memorandum by Wilson were not those 
that you intended to pursue at the time ? 

Mr. Emanuel. I can't speak for what Mr. Wilson said, but they 
certainly don't coincide with any views that I can now recall. 

Mr. Nehemkis. Do you think it is possible that the steps set forth 
in that confidential memorandum could have been misunderstood by 
Robin Wilson, who was in close association with you and the other 
interests, and who, as a matter of fact, was in this country at the time 
to represent the London interests ; could he have so misunderstood the 
steps ? 

Mr. Emanuel. I might say that up to that time I knew Robin 
Wilson ; I did not know him well. Since then I have known him much 
better. At that time I wouldn't have construed that Robin Wilson 
represented any interest in this company other than his house happened 
to be bankers in London for the Hydro Electric Securities Corporation. 

Mr. Henderson. Could I ask a question, Mr. Fuller? You said that 
your companjr has no interest in Hydro? 

Mr. Fuller. No financial interest in Hydro. 

Mr. Henderson. Partners do not have any interest financially ? 

Mr. Fuller. No ; not of any substance. 

Mr. Henderson. There is no kind of interest on the part of the 
partners of the company, directly or indirectly, in Hydro? 
..Mr. Fuller. There is a personal relationship. They are banker 
advisers to them. Two of the members of the Schroder organization 
are on the board of Hydro as bank advisers. I was referring specifi- 
cally to financial interest, which they never had. They never spon- 
sored Hydro or securities to the public. It has been a purely banker 
advisory relationship all through. 

Mr. Emanuel. I would like to say, Mr. Henderson, I don't think the 
time that cable x was sent — I don't recall that any of the associates of 
Schroder were even on the board ; they might have been. 

Mr. Fuller. I think there was one at that time rather than two, 
but that one had very little to do with the affairs of the company. 

Mr. Henderson. Were you going into the question of what Mr. 
Emanuel did have in mind at that time? 



RoOrrinff to "Exhibit No. m r .O." 



12586 CONCENTRATION OP ECONOMIC POWER 

Mr. Nehemkis. I think, sir, that the evidence as it unfolds itself 
will indicate that. 

Mr. Fuller, I show you a cable from Schrodpriv and another 
cable from Schrodpriv of December 19, 1935, and December 20, 
1935. Will you examine them and tell me whether you recognize 
them to be true and correct copies? Do you recognize those as com- 
ing from your files, Mr. Fuller ? 

Mr. Fuller. Yes. 

Mr. Nehemkis. I note in the cable from Schrodpriv to Schrobanco, 
addressed to the attention of Beal, the following reference [reading 
from "Exhibit No. 1951"] : 

Robins wire USEPCO think preferable await definite plan. 

Apparently Robin was pretty close to the London people at the 
time, Mr. Emanuel 

Mr. Fuller (interposing). He was employed by them at the time. 

Mr. Nehemkis. So he must have known what was going on. The 
two documents identified by the witness are offered in evidence. 

(The cablegrams referred to were marked "Exhibit No. 1951 and 
1952-1" and are included in appendix on p. 12880.) 

IMPORTANCE OF FUTURE STANDARD POWER & LIGHT CO. SYSTEM FINANCING 
IN CONSIDERING REDEMPTION OF THE PLEDGED COLLATERAL 

Mr. Nehemkis. Didn't Schrobanco, Mr. Fuller, get the details of 
the future possible financing from Mr. Emanuel ? 

Mr. Fuller. Yes; we had numerous details at various times of 
these proposed rescue parties that Mr. Emanuel has referred to. 
They changed from time to time. The documents you have just 
shown me were relatively early in the negotiations, and we always 
understood that Mr. Emanuel was trying very hard at the time to 
raise money, and it was rather difficult to raise money for any utility 
situation at that period, and as he discussed the matter with us, he 
naturally had to bring out any facts he could in the favorable side 
to persuade our clients of our London house to put up money, and 
I believe he brought out all the points that could be done, at least 
he got the money. 

Mr. Nehemkis. I note, Mr. Emanuel, a memorandum which bears 
the initials R. W., dated 12/24/35, with this caption, and also ini- 
tialed by Mr. Fuller [reading from "Exhibit No. 1952-2"] : 

Standard Gas and Electric Co. Information obtained by Robin Wilson from 
Victor Emanuel — 

And then a very elaborate detailed statement outlining the various 
steps to be taken in the future, dissolution steps, financing, in the 
near future, and so on, and then the following caption: "Possible 
New Financing," and then a list of the new financing with a nota- 
tion, "$700,000,000 total over years." 

(The memorandum referred to was marked "Exhibit No. 1952-2" 
and is included in appendix on p. 12880.) 

Mr. Nehemkis. Don't you think that Mr. Robin Wilson was pretty 
closely in touch with the situation and knew what was going on? 

Then I call your attention to another caption, "Standard Gas 
Refunding, all issues now outstanding of subsidiaries mentioned by 
Victor Emanuel for refunding." 



GOJNCEJN'JKATIOK OF E< t)NOMl(J l'OWKK 12587 

Mr. Emanuel. I don't know just what your question is. I have 
never seen this document. 

Mr. Nehemkis. My question was a very simple one. You indi- 
cated that Mr. Wilson apparently misconstrued the steps that were 
going through your mind at the time and that he might not have 
heen informed. I merely call your attention to the fact that Wilson 
knew extremely intimately and with great detail everything that was 
taking place because you told him. 

Mr. Emanuel. He might have. I presume from what you say he 
was in this country during the time this particular thing was done, 
bul what I am saying is you asked me whether I wasn't trying to 
help my own interests and not the stockholders of Usepco, and 
that is the only thing I took exception to, because I think I am the 
only one who would know that. Mr. Wilson wouldn't. I was talk- 
ing to him about trying to save his company. 

Sir. Nehemkis. Mr. Wilson had had many conferences with you, 
had he not? 

Mr. Emanuel. I can't recall; probably did. 

Mr. Nehemkis. The evidence that has been going into the record 
indicates that he has. 

Mr. Emanuel. He may have; I didn't say he didn't. 

Mr. Nehemkis. You don't remember whether or not he did ? 

Mr. Emanuel. During this whole period this thing wasn't some- 
Ihing that came up one month and then died for six months; there 
were dozens and dozens of conferences on this thing, meeting after 
meeting, the principal interests in Usepco making trip after trip 
to the bank. 

Mr. Nehemkis. What about a memorandum like this, which reads : 

Memorandum, Standard Gas and Electric Company. Information obtained by 
Hobin Wilson from Victor Emanuel? 

Take a look at it. Do you think a man can write a memorandum 
like that unless he knows what is in your mind? Just thumb through 
it. Look at the details of that memorandum. Where did Robin 
Wilson get this information? 

Mr. Emanuel. I never said, Mr. Nehemkis, that he didn't get 
information from me; he undoubtedly did. 

Mr. Nehemkis. Mr. Fuller, I show you a letter by Carlton P. 
Fuller to Mr. John L. Simpson, dated December 26, 1935, which 
purports to come from the files of Schroder Rockefeller & Co., Inc. 
Will you be good enough to tell me whether this is in fact a true 
copy? And tell me whether you recognize that as having been a 
letter you wrote. 

Mr. Fuller. Yes; Mr. Simpson was at that time in Paris, which 
was much closer to the real source of authority on Hydro, which 
was Brussels, than we were, and we naturally wanted to keep him 
fully informed of any negotiations over here, just as Mr. Wilson 
had to keep his principals in London, who were advising Hydro, 
informed, and therefore many details were transmitted at various 
times about various trips of proposed rescue parties. 

Mr. Nehemkis. In other words, the traveling ambassadors at this 
time were Robin Wilson, with headquarters in London, and John 
Simpson, making headquarters in Paris, but working toward 
Belgium ? 



12588 CONCENTRATION OF ECONOMIC POWER 

Mr. Fuller. They happened to be in those places, not for this par- 
ticular business, because they were regular trips they made, and this 
business came up while they were there. 

Mr. Nehemkis. The document identified by the witness is offered in 
evidence, may it please the Committee. 

Acting Cnairman Williams. It may be received. 

(The letter referred to was marked "Exhibit No. 1953" and appears 
in the appendix on p. 12882.) 

Mr. Nehemkis. This letter rends as follows [reading from "Exhibit 
No. 1953"] : 

Jerry — 

May I know who Jerry is, please ? 

Mr. Fuller. Mr. Beal ; we have two Jerrys. 

Mr. Nehemkis (continuing) : 

Jerry and I have just spent four hours with Robin and Victor Emanuel on this 

situation — 

And "this situation," according to the caption of the letter is re 
U.S. Electric? 

Mr. Fuller. That situation was the question of buying the collateral 
or the notes from the bank and raising money to do it. 

Mr. Nehemkis (reading further from "Exhibit No. 1953") : 

And Robin has departed for the boat, escorted by Victor. He is extremely 
keen on the situation we have been discussing and we have been having long 
talks in London about it as well as with you upon your return there, so that 
we thought you would like to have our own slant on the whole matter. 

And then the letter — I won't read all the details set out in very neat 
little captions: "Proposal"; then there comes one under the category 
"Strategy," which I would like to read: 

Jerry has emphasized with Robin that the latter's chief object upon his return 
should be to convince Hydro and other prospective underwriters that the Stand- 
ard Power & Light stock securing the bank loans is an attractive gamble at the 
present time. 

Now, according to the evidence which has gone into the record only 
a few minutes ago, Schrodpriv thought it was practically worthless. 

Mr. Fuller.. I would like to call attention there to the word "gamble" 
and call attention also to the market situation in second-grude utilities 
at that time. 

Mr. Nehemkis. The record so shows your comment, Mr. Fuller 
[reading from "Exhibit No. 1953"] : 

Leaving the question of the financing well In the background in order that it 
may not appear that the scheme is designed to use other people's money for 
acquiring a position in the financing . . . 

Mr. Fuller, isn't that exactly what the scheme was designed to do? 

Mr. Fuller. I call your attention that this is a letter concerned with 
Hydro-Electric Securities' money and "other people's money" is their 
money as distinguished from Schroder money. At that time we were 
just renewing our contact with Hydro after Fisher's death, and I may 
say that the relationships were not very good. Today we could go to 
them on a direct basis and discuss the whole thing. At that time we 
didn't want to emphasize the advantages we would get, which were 
important in our minds. 



CONCENTRATION OF ECONOMIC POWER 12589 

Mr. Nehemkis. Now, another comment by you set out under the 
category, "Receivership" [Reading further "Exhibit No. 1953''] : 
A 77b action has been proceeding since the October 1st default — 

That is the default in the interest on the notes? 

Mr. Fuller. Standard Gas notes. 

Mr. Nehemkis. Standard Gas notes? 

Mr. Fuller. I assume so. 

Mr. Nehemkis. [Reading further from "Exhibit No. 1953"] : 

* * * but the conditions of this receivership seems unusually lenient, 
with the Management left as sole Trustees, 70% of the maturing bonds now 
in the hands of the Committee representing the Management, and the opposing 
Protective Committees not too obstreperous. On the information Emanuel 
produces, it would not seem unlikely that the Company could be brought out 
of receivership in the near future. 

And then the following caption on page 3 of your letter to Mr. 
Simpson: "Future financing:" 

Since Jerry has written you separately regarding our prospects for doing 
underwriting, we'll simply assume here that we shall find a way to take ad- 
vantage of such ^ a situation as we are discussing. Once the group has 
acquired the claims from the banks, there will undoubtedly be terrifically 
bitter negotiations with the present Usepco group over the future division 
of financing. The idea is not to exclude them from it, but to swap with them 
participation in some of their financing. The plan is. to leave the Byllesby 
management and interest in the situation undisturbed. 

And then you conclude with the caption, "Our point of view:" 
which I read to you : 

We are not carried away by all these big figures, nor by Emanuel's eloquence, 
nor by Robin's enthusiasm. We are, however, definitely impressed by the 
possibility of getting into the middle of a very large picture with good gam- 
bling possibilities, on the basis of a moderate contingent commitment. 

Is this prospective commitment really moderate? We certainly would not 
undertake such a contingent guarantee if it amounted to a million dollars 
maximum if the situation proves entirely worthless, and we should definitely 
prefer it to be only $100,000. Nevertheless, a $250,000 maximum commitment, 
especially when it begins to operate only after a 50% decline in the relatively 
low cost of acquisition, does not seem to us out of line with the possibilities 
in the situation. (These possibilities, of course, include deposits and fiscal 
agencies from the Standard Gas system and perhaps an underwriting commis- 
sion in the form of Standard Power & Light shares at the time they are 
offered to Usepco shareholders.) 

We have fully in mind, of course, the political pressure on utilities, the 
fact that Standard Gas may not get out of receivership as soon as Emanuel 
expects, the possibility that the banks may decide not to sell their claims 
at a sufficiently low price, the difficulties of making arrangements with the 
present Usepco group, the stickiness of sqme Standard Gas securities even 
if we control the financing, etc., etc. Nevertheless, we think there is a chance 
to make a good play here without any heavy commitment, and we hope that 
Robin will be able to produce some sort of bid from Hydro and others to be 
presented to the banks. 

Now, Mr. Simpson was not certain of the wisdom of buying into 
the financing, was he? 

Mr. Fuller. Neither were any of us. We lined up the possibilities, 
as you so very clearly and eloquently read, at the time, and we 
thought for a modified commitment anything we could do would be 
useful. 

Mr. Nehemkis. Yes; it was a good deal as it appeared at that time 
and Mr. Simpson's feeling was that Schrobanco would probably get. 
little consideration unless it did, however, buy in. 



12590 CONCENTRATION OF ECONOMIC POWER 

Mr. Fuller. That is right, our relations with Hydro were such 
at the time we couldn't count on full support in any sort of under- 
taking. 

Mr. Nehemkis. And the thing you were buying in here was financ- 
ing? 

Mr. Fuller. As far as Schroder Banking Corporation was con- 
cerned, they were interested in any banking participation they could 
get because that was their function. As far as Hydro was concerned, 
they also had the investment interest in mind. 

Mr. Nehemkis. Schroder was interested in deposits, etc? 

Mr. Fuller. Yes ; in any banking participation. 

Mr. Nehemkis. And the thing that you really were concerned 
about, or rather your people were really concerned about, was the 
possibility of buying into the future financing of this system. How- 
ever, the medium for buying in would ultimately be worked out, is 
that correct, sir? 

Mr. Fuller. As far as we were concerned, that is our business and 
naturally what we were interested in. 

Mr. Nehemkis. However, while Schrobanco may not have been 
too keen on the deal, you, Mr. Emanuel, never lost your original 
enthusiasm, did you? 

Mr. Emanuel. Keen on what deal? 

Mr. Nehemkis. Buying in on 75 percent of the financing of 
Standard Gas System, that is what we are talking about. 

Mr. Emanuel. That was not a primary consideration with me. I 
was trying to save this company. 

Mr. Nehemkis. Save the company for the stockholders? 

Mr. Emanuel. Yes, sir. 

Mr. Nehemkis. 1 wanted to be clear, Mr. Emanuel. 

Mr. Emanuel, perhaps you can recall a cablegram to Schroder, 
London, from yourself, dated January 8, 1936, in which you, among 
other things, had this to say to Major Pam and Robin Wilson [read- 
ing from "Exhibit No. 1954r-l"] : 

Of course as previously explained, it impossible avoid participation in particu- 
lar pieces System financing by houses long identified in the business with local 
houses in territories served which however never major amount which 
situation understood by your office here from their previous experience in 
Systems financing (stop) As explained the negotiations with other houses which 
are part of American group now in business would have to be conducted deli- 
cately and one hundred percent reciprocation might not be possible or advisable. 

Suppose you look at that and tell me whether that isn't a cable 
you sent to Major Pam and Robin Wilson ? 

Mr. Emanuel. That cable was probably sent by me. By this 
time, 1936, the Founders' group, as I have previously testified, dis- 
tributed their shares in Usepco. Fisher I think by that time had 
died. He had been my contact with the Hydro Company, and ever 
since Loewenstein's death, he is the one who had worked with me on 
any number of previous plans. 

At this particular point, it seemed impossible to save this com- 
pany with the resources of the company in America who had been 
working on it previously, because we had lost Founders' support, and 
on Fisher's death, it made the Hydro situation very difficult, but 
what I was trying to do was to do anything I possibly could leading 



HUJSOJCNTKATION OK' HJUONOMIO POWJfflK 12591 

toward a redemption of this collateral and this collateral was finally 
redeemed and it was offered to the United States Electric share- 
holders at the exact same price at which it was redeemed. 

I am perfectly willing to admit in order to get that done, in which 
I have spent my life during this whole period, and because all the 
time from the time United States Electric was formed the depression 
started immediately afterwards, and this company had had trouble; 
I had served it for many years without any salary or other compen- 
sation, and in fact paid good many of the expenses out of my own 
pocket. I was willing to do almost anything to save some stake in 
this thing for the stockholders. That was my primary consideration. 
I admit that Emanuel & Co. by this time was in the investment bank- 
ing business, but they never could have participated much in any 
financing because we weren't a large house. I think there was only 
one issue in which Emanuel & Co. had what you might call a really 
large participation. 

(The cable referred to was marked "Exhibit No. 1954-1" and is 
included in the appendix on p. 12884.) 

Mr. Nehemkis. Mr. Fuller, I show you a letter from yourself to 
Mr. John L. Simpson, dated January 10, 1936. Can you tell me 
whether you recognize this to be a true and correct copy of an orig- 
inal in your possession and custody ? 

I meant to ask you, Mr. Emanuel, you intended, did you not, for 
the preferred stockholders to take up their pro rata share? 

Mr. Emanuel. I think we had some formula worked whereby they 
were to take up a small number of the shares. We didn't give them 
a very generous percentage because that stock was only held in three 
hands, as I recall it. 

Mr. Nehemkis. Now, if the stockholders had taken up that offer, 
it would have just about ruined your plans, wouldn't it? 

Mr. Emanuel. No ; that is what we wanted them to do, is to take 
it up. They took about a third of the stock, as I recall it. 

Mr. Nehemkis. You mean you wanted them on paper to do thai, 
but you hoped they wouldn't? 

Mr. Emanuel. No, sir ; we hoped that they would, but we couldn't 
send out any selling letters on it because this stock wasn't registered. 

Mr. Nehemkis. Have you identified the letter for me, Mr. Fuller? 

Mr. Fuller. Yes. 

Mr. Nehemkis. "Yes" means it is a true and correct copy of an 
original in your possession? . 

Mr. Fuller. I presume so, I haven't seen the original for some 
time. 

Mr. Nehemkis. The document is offered in evidence. 

Acting Chairman Williams. Do you mean the whole document? 
Some of it seems to be crossed out. 

Mr. Nehemkis. I apologize for that, that is an error. I don't know 
how those lines got on it. But the document should be printed, if 
you will so order it, in its entirety. 

Acting Chairman Williams. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1954-2" and is 
included in the appendix on p. 12886.) 



12592 CONCENTRATION OF ECONOMIC POWER 

FURTHER EFFORTS TO REGAIN THE COLLATERAL— 1936 

Mr. Nehemkis. I want to read to you, Mr. Emanuel, from Mr. 
Fuller's letter which he has just identified. This is on page 3 of 
Mr. Fuller's letter of January 10, 1936, to Mr. Simpson, London 
[reading from "Exhibit No. 195^-2"] : 

After the above discussion of philosophy, you may be interested to learn that 
Victor Emanuel is all in a sweat about how to proceed next in this situation 
after receiving approval of the $2,000,000 bid limit. The promptness of the 
action on the $2,000,000 really staggered him a bit and made him wonder .if 
Robin had fully disclosed all the obstacles in the situation, such as the possi- 
bility of a long lock-up before Standard Power & Light stock can be reduced 
to possession on account of delays in registration of the stock; or the other 
possibility that Usepco stockholders may — 

Note that word, it is underlined in this letter — 

take up Standard Power & Light stock and leave our group with only Hydro's 
25% participation in hand, whereas real control — 

Mind you, I am not manufacturing these words, I am reading a let- 
ter from Mr. Carlton P. Fuller— 

whereas real control of the financing depends on a 51% voting control of th« 
Standard Power Board, which could then be obtained only through proxy solici- 
tation, etc., etc. Emanuel (still believing that the London group will do all its 
underwriting in this situation through us as soon as we have set up a new 
vehicle) is trying definitely to tie Schrobanco into all these problems so that 
London will not place the entire blame on his shoulders if a fiasco results. 
It is really a frightfully complicated situation— 

And I sympathize with you, Mr.' Fuller, it is, — 

and both he and we are trying to avoid a denouement in which we would have 
lost the business and at the same time have antagonized all the present financial 
group. Equally, we wish to proceed so that our bid can't be used to raise that 
of some competitor. There is also the problem of possibly getting together with 
Harrison Williams. 

All of which may lead you to conclude with us that the deal is far from done ; 
but there is some money in hand now, and before the time this reaches you, 
another stage will probably have developed. 

Since writing the above, mote gyrations have occurred, and Emanuel has 
decided not to talk to the Chase today but sit down with us tomorrow to plan 
the campaign once more. Allen Dulles has called up to tell lis a little more openly 
than previously that Harrison Williams is interested in the picture, so the kettle 
is boiling merrily, and probably Victor will approach the Chase on Monday. 

Now, will you tell me who Allen Dulles is? 

Mr. Fuller. He is counsel for Schroder Banking Corporation. 
Mr. Nehemkis. And he is connected with what law firm? 
. Mr. Fuller. Sullivan & Cromwell. 

Mr. Nehemkis. Can you explain to me the meaning of this rather 
cryptic statement [referring to "Exhibit No. 1954-2"] : 

Allen Dulles has called up to tell us a little more openly than previously that 
Harrison Williams is interested in the picture. 

Mr. Fuller. As Mr. Emanuel has testified, it was well known Mr. 
Williams was interested in the Standard Gas picture at the time, but 
we had not received any direct intimation of that fact until counsel 
indicated that someone might be, not identifying the someone, and at 
this time apparently he disclosed the principal for whom he had indi- 
cated an interest. 



CONCENTRATION OF ^ECONOMIC POWER 12593 

Mr. Nehemkis. But previously he had been apparently somewhat 
reluctant to make this information available, although you thought 
you knew it. 

Mr. Fuller. Presumably he had not been authorized by this prin- 
cipal to reveal the name of the principal. 

Mr. Nehemkis. And Mr. Dulles was then representing Harrison 
Williams? 

Mr. Fuller. No; other members of the firm represented Harrison 
Williams, and he represented us. 

Mr. Nehemkis. And Allen Dulles represented Schrobanco ? 

Mr. Fuller. As general counsel. 

Mr. Nehemkis. But the same firm, however, was representing two 
different interests ; is that your understanding ? 

Mr. Fuller. Well, I hope they represented many different interests 
for their sakes. 

Mr. Nehemkis. I am addressing myself to the facts in hand. As 
you have testified, apparently Sullivan & Cromwell represented 
Harrisor Williams. 

Mr. Fulter. They are general counsel for North American Co. 

Mr. Nehemkis. You have also testified that Allen Dulles, a partner 
of the firm, represented Schrobanco. 

Mr. Fuller. That is right, and a lot of other clients. 

Mr. Nehemkis. I didn't ask you that. Confine yourself to my 
questions, if you will, sir. 

Did not the Hydro London interests agree to put up $1,500,000 in 
the deal? 

Mr. Fuller. What time is this? 

Mr. Nehemkis. This is in January of 1936. 

Mr. Fuller. I have forgotten the time there, but I remember the 
amount that the London interests were persuaded to put up varied 
from, I think, a low of $1,000,000 to an eventual high of a $1,500,000 
or a $1,750,000. 

Mr. Nehemkis. I show you two cables from Schrobanco to Schrod- 
priv, London. Will you be good enough to examine them and tell me 
whether you recognize these to be true and correct copies? 

Mr. Fuller. Yes; these indicate that Mr. Emanuel had made some 
progress in trying to persuade the Hydro interests to put in some 
money which he had started when Mr. Wilson was in the country. 

Mr. Nehemkis. That was not my question. My question was, do 
you identify these two documents as being true and correct copies of 
documents in your possession and custody ? 

Mr. Fuller. I said yes. 

Mr. Nehemkis. Thank you, sir. I note that the cable dated Jan- 
uary 15, 1936, to Schrodpriv bears the notation: "Copy to Mr. 
Emanuel," and the cable dated January 14, 1936, reads as follows 
[reading from "Exhibit No. 1955"] : 

Emanuel made tentative approach Chase and had favorable reception but finds 
active competition from Harrison Williams through Guaranty and others (stop) 

Emanuel indicated they must be prepared put in cash and/or reciprocal financ- 
ing if they wished retain position in Standard financing (stop) Initial reaction 
favorable and substantial cash will probably be forthcoming as well as good start 
on later reciprocal financing agreements (stop) If business can be done for two 
million dollars Emanuel assumes you would be willing if necessary to allocate 
up to five hundred thousand to- that group leaving total London participation at 
on*» million dollars and total American one million including Emaniml for. 
minimum $'2no,000 (stop) 



12594 CONCENTRATION OF ECONOMIC POWER 

What is the meaning of this expression that the group, if they wish 
to retain their position in Standard financing, would have to either put 
up cash or indicate that reciprocity on future financing was in order, 
Mr. Emanuel ? 

Mr. Emanuel. I don't know. I didn't send that cablegram. 

Mr. Nehemkis. Does that misrepresent your views at the time? 

Mr. Emanuel. I can't say exactly what my views were. What I 
was trying to raise was cash. 

Mr. Nehemkis. And you went around to the group and said, if 
I might put it in colloquial language, "You fellows fork over either 
cold cash or assure us of future reciprocity in financing, or you aro 
out of this deal." 

Mr. Emanuel. I certainly don't think I did. I don't remember 
asking for any reciprocity. I was trying to raise money for this deal, 
and I might also add I was in constant touch with other members of 
the North American group throughout all the negotiations from the 
time they started. 

Mr. Nehemkis. Mr. Fuller, this cable which you were good enough 
to identify bears your initials, its authorization over the cable wires 
was by you ; how does it happen you so grossly misunderstood Mr. 
Emanuel ? 

Mr. Fuller. Do you expect me to answer that question? 

Mr. Nehemkis. Yes; why not? 

Mr. Fuller. I don't know how to answer it. 

Mr. Nehemkis. Did you misunderstand Mr. Emanuel? You were 
charged with the responsibility of informing London of develop- 
ments. Mr. Emanuel has no recollection of this fact. You state in 
the opening of your cable. [Reading from "Exhibit No. 1955"] : 

Emanuel made tentative approach Chase — 

And so forth, then you proceed to indicate — 

Emanuel indicated they must be prepared put in cash and/or reciprocal financ- 
ing if they wished retain position in financing. 

Mr. Fuller. I can't interpret that cable for you but I can tell 
you in general what the situation was then. Very definitely we were 
interested in either financing or reciprocity or anything else we could 
get or they could give us. 

Mr. Nehemkis. Did you write this cable? 

Mr. Fuller. Are my initials on it ? 

Mr. Nehemkis. Yes. 

Mr. Fuller. I wrote it* yes. 

Mr. Nehemkis. The cable identified by the witness is offered in 
evidence. 

Acting Chairman Williams. This may be received. 

(The cablegram referred to was marked "Exhibit No. 1955" and 
is included in the appendix on p. 12887.) 

Mr. Nehemkis. And the second cable which Mr. Fuller has been 
good enough to identify has the following that I call to the com- 
mittee's attention. [Reading from "Exhibit No. 1956" :] 

Hydro Schroder group agree they will take participation of between $1,000,- 
000 and $1,500,000 in purchase provided total cost does not exceed $2,500,000 
and provided their proportion not less /than/ 50% of total (stop) 

While aproving Emanuel tactics we wish to be kept informed important 
negotiations and also to know what percentage financial benefits will accrue 
to our group direct and reciprocal. 



CONCENTRATION OF ECONOMIC POWER 12595 

And that, I call to the committee's attention, is a cable from 
Schrodpriv to Schrobanco at New York, and a copy of which was 
sent to Mr. Emanuel. 

I oifer this in evidence. 

Acting Chairman Williams. This may be received. 

(The cablegram referred to was marked "Exhibit No. 1956" and 
is included in the appendix on p. 12887.) 

Mr. Nehemkis. At this time London was pretty hard put, was it 
not, to see what benefits it could get from this deal, do vou recall 
that? 

Mr. Fuller. I recall very well they had gone into the merits -of 
things as a speculation and decided it had some speculative merit 
but was a borderline case. They were more convinced of the pros- 
pects of second-grade utilities than we were in this country, but not 
quite convinced enough and had some trouble in persuading their 
clients, one of whom was Hydro, of the benefits at that time of pro- 
posing second-grade utilities in the utility division of the market, 
and tney actually acquired some other securities. In this particular 
case they didn't think it quite made the grade for a purchase that 
way and all sorts of arguments had to be used to get them to do the 
one which was of possible benefit for the financing. That was a 
very definite consideration all the way through this period because 
the gambling attraction of it as a speculative security wasn't of 
quite enough interest. 

J. HENRY SCHRODER & CO., LONDON, DESIRES ASSURANCE ON FUTURE 
STANDARD POWER & LIGHT CO. FINANCING 

Mr. Nehemkis. Mr. Fuller, will you be good enough to examine a! 
copy of the cablegram from Schrodpriv, presumably to Schrobanco, 
and tell me whether you recognize it to be a true and correct copy of 
an original in your files and custody ? 

Mr. Fuller. Yes. 

Mr. Nehemkis. Before you .release it, will you take it back, please? 
There appears on the lower left-hand margin a pencil notation. Will 
you read that, please? 

Mr. Fuller. It says, "Copy to Mr. Emanuel." 

Mr. Nehemkis. I beg pardon ? What did you say ? 

Mr. Fuller. It says, "Copy to Mr. Emanuel." 

Mr. Nehemkis. Cable No. 135 from Schrodpriv in London to 
Schrobanco, dated February 14, 1936 [reading from "Exhibit No. 
1957"] : 

To help us form opinion as to advisability for Hydro and other clients par- 
ticipating in Usepco loan acquisition should Emanuel make suitable proposal, 
please enlighten us on value of share in future refinancing Standing Gas sub- 
sidiaries STOP 

Emanuel has repeatedly said that this financing probably more valuable than 
prospects of appreciation of Standard Power stock so we want assurance that 
new syndicate will really thus acquire valuable asset STOP 

The London banking house wererathef shrewd fellows; they 
wanted to know precisely what it is they were putting their money 
in, weren't they," Mr. Fuller? 

Mr. Fuller. That is quite right. 

124491 — 40— pt.24 19. 



12596 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Now [Reading further from "Exhibit No. 1957"] : 

Please discuss with Emanuel and cable how this asset could in your opinion 
be valorised STOP 

That meant if Schrodpriv put its money in here the one thing 
they were concerned about, ,,were they not, is how they could write 
this thing up on their books as an asset, does it not? 

Mr. Fu ller . No; they weren't. Schroder, London, were not put- 
ting any money in this at any time. 

Mr. Nehemkis. I mean Hydro was putting the money in. 

Mr. Fuller. They wanted to know how they could justify an in- 
vestment that had no return on it in a speculative field when it didn't 
seem quite as valuable as some other speculative investments at the 
time; if they could show how they could get a return, they might 
justify themselves. 

Mr. Nehemkis. That was with reference to "Please discuss with 
Emanuel and cable how this asset could in your opinion be valorized" ? 

Mr. Fuller. Yes. 

Mr. Nehemkis [Reading further from "Exhibit No. 1957"] : 

Is there no danger that present First Boston syndicate could insist on right 
future financing without compensation to us STOP 

Even if syndicate could acquire right to 75% future financing what benefit 
could there be to Hydro and others here who are not American issuing house' 
STOP 

Please cable fully to enable us explain situation in detail to our friends. 

The document identified by Witness Fuller, from which I have been 
reading is offered in evidence, Mr. Chairman. 

Acting Chairman Williams. It will be received. 

(The cable referred to was marked "Exhibit No. 1957" and is 
included in the appendix on p. 12887.) 

Mr. Nehemkis. Now, you spent a good deal of time in preparing 
your- answer to Schrodpriv's cable, did you not, Mr. Fuller? 

Mr. Fuller. Presumably. 

Mr. Nehemkis. And you consulted with Mr. Emanuel, did you not, 
about it? 

Mr. Fuller. Presumably. 

Mr. Nehemkis. And did you not also consult with Mr. Allen 
Dulles? 

Mr. Fuller. At some stage, I am not sure just when it was. 

Mr. Nehemkis. As a matter of fact, 4 days were required — excuse 
me. (Conferring with member of staff.) 

As a matter of fact, 4 days were required to complete your studies 
before preparing the reply to Schrodpriv, do you recall? 

Mr. Fuller. I don't recall, but if you have the document that 
shows so I assume it did. 

Mr. Nehemkis. I show you four documents, dated February 17, 
1936, February 18, February 20, and February 24, 1936, which pur- 
port to come from the files of your company. Will you be good 
enough to identify them for me, please? 

Mr. Fuller. Yes; I identify them. 

Mr. Nehemkis. This is a letter from Mr. Victor Emanuel under 
date of February 17, 1936, to you, Mr. Fuller. It reads as follows 
[Reading from "Exhibit No. 1958"] : 



CONCENTRATION OP ECONOMIC POWER 12597 

Dear Carl: I have now had a chance to read your draft Qt the cable to 
London in reply to their cable to you of the 14th, received by you on the 15th. 
I believe the cable is all rigbti except for the following suggestions ; 

1. That a satisfactory arrangement be worked out as to how you handle 
the agreed percentage of any profits to be paid the London group, but I pre- 
sume you have talked to Alan Dulles about this. 

Did you discuss this with Mr. Dulles ? 

Mr. Fuller. I presume so. 

Mr. Nehemkis. And can you tell me at this time what Mr. Dulles 
advised? 

Mr. Fuller. What was the question involved at the time? I was 
consulting him constantly. 

Mr. Nehemkis (reading further from "Exhibit No. 1958") : 

That a satisfactory arrangement to be worked out as to how you .handle the 
agreed percentage of any profits to be paid the London group, but I presume you 
have talked to Alan Dulles about this. 

Mr. Fuller. I can't recall right now what the particular discussion 
was, 

Mr. Nehemkis. Then the next thought that Mr. Emanuel pre- 
sented to you was this : 

(5) The last statement in your cable is very conservative, as to Standard Gas 
financing, as all in all the underwriting group profit averages more than 1 point, 
which is the amount you have stated. 

I do not know whether you want to say that the present USEPCO position 
of 75%, as a base for financing, is not covered by a legal agreement but by 
a memorandum, but that Byllesbys have verbally agreed with me, and will, I am 
certain, before we consummate a deal, agree to continue the ' memorandum to 
the new group, and that with this assurance, plus the position our stock would 
give us, there is no question in my mind that our group could inherit the posi- 
tion the present group now has. This, of course, does not change what you have 
said as to valorizing this for the London group who might not want to partici- 
pate direct in the financing. 

I offer the document in evidence, Mr. Chairman, as well as the two 
other documents identified by the witness. There should be four 
documents. 

Acting Chairman Williams. They may be admitted. 

(The documents referred to were. marked "Exhibits Nos. 1958, 1959, 
1960, and 1961-1" and are included in the appendix on pp. 12888- 
12890.) 

Mr. Nehemkis. Now, the Usepco deal seems to have gone com- 
pletely to sleep during this time. Do you recall, Mr. Emanuel ? 

Mr. Emanuel. I don't know what the dates of those are. 

Mr. Nehemkis. We are now in the early spring of the year 1936. 

Mr. Emanuel. I can't recall that exactly ; I don't remember it ever 
slept very long. 

Mr. Nehemkis. Now*I show you a letter from Robin Wilson to you 
under date of the 27th of March, and I ask you to look at the third 
paragraph and see whether that doesn't refresh your recollection. 

Mr. Emanuel. This is a letter from Wilson evidently to me. It 
might have had a short lull. He rather gathers it was, but he might 
not know whether it was or not. 

(The letter referred to was marked "Exhibit No. 1961-2" and is in- 
cluded in the appendix on p. 12891.) 

Mr. Nehemkis. It was sort of slumbering embers on the fire all the 
time? 

Mr. Emanuel. Always. 



12598 OONtVKJNTKATlON ON' taJOJNOMMJ POWEtt 

Mr. Nehemkis. And when you gave a good, strong blow, why, up 
she went ? 

Mr. Emanuel. It wasn't me giving a blow, if the banks wanted 
to reduce this collateral. I might help this whole thing by saying 
that I was doing anything I could to raise this money from any 
decent source. 

Mr. Nehemkis. Mr. Wilson wrote to you as follows : 

The USEPCO deal seems to have gone completely to sleep for the moment, 
but I gather from Carl Fuller that you are being kept pretty well informed 
of the intentions of our competitors. If by any chance the deal does come off 
I feel it will be a good thing for me to be in New York to represent our group 
in negotiations over our share of underwriting. 

Just how were you informed, Mr. Emanuel, of what your com- 
petitors were doing at this time, and what their intentions were? 

Mr. Emanuel. I swear I don't know. I naturally heard one way 
or the other of people considering the purchase of this collateral. 
The only person I can think of at the moment principally was 
Harrison Williams, I knew he was interested. I can't say just 
exactly at that time, during the period about this collateral. 

Mr. Nehemkis. It just strikes me as being a little bit unusual for 
a man in your position, who has a tremendous stake here, to know 
what his competitor's moves are. How did you know what 
Harrison Williams was going to do in this situation ? 

Mr. Emanuel. I certainly didn't know from him. 

Mr. -Nehemkis. That is it. Now how did you know ? 

Mr. Emanuel. I don't know. 

Mr. Nehemkis. But somehow or other you did manage to keep 
pretty well informed of what the next move would be ? 

Mr. Emanuel. I suppose what happened at times, one of the 
bank officers would call me up and say I had better put on all the 
hurry I could in resolving this matter. I suppose that is the way I 
knew. 

Mr. Nehemkis. By the way, who was your counsel at this time? 

Mr. Emanuel. Seibert and Riggs. 

Mr. Nehemkis. Seibert and Riggs are in New York, your counsel ? 

Mr. Emanuel. Yes, they are. 

Mr. Nehemkis. Now about this time that we are discussing the 
problem, the spring of '36, did not Bancamerica Blair come into the 
picture, do you recall? 

Mr. Emanuel. Yes, they came in sometime before we had what 
we called rescue parties. 

Mr. Nehemkis. And there were certain difficulties that were crop- 
ping up at this time about giving Hydro underwriting participations, 
do you recall that, Mr. Emanuel ? 

Mr. Emanuel. Well, it is pretty hard to recall. I don't think 
Hydro ever wanted underwriting. They never have been bankers, 
to my knowledge, at any time. 

Mr. Nehemkis. Now, Mr. Fuller, may I trouble you once again to 
identify a cablegram from Schrodpriv to Schrobanco under date 
of May 26, 1936. Would you identify the cable I am now showing 
you at the same time? 

Mr. Fuller. (Examines and returns papers to Mr. Nehemkis with- 
out comment.) 



CONCENTRATION OF ECONOMIC POWER 12599 

Mr. Nehemkis. Mr. Emanuel, I want to call your attention to a 
paragraph in Schrodpriv's cable to Schrobanco as of May 22,1936. 

Mr. Fuller. May I point out those cables are to a particular 
person ; the cables are addressed to a particular person. 

Mr. Nehemkis. This is addressed for Mr. Wilson and this one 
refers to 257. 

Mr. Fuller. Yes. 

Mr. Nehemkis. (Heading from "Exhibit No. 1962") : 

We could certainly arrange with Hydro and others to accept less than 
theoretical percentage if all risk avoided although we understand underwriting 
and even selling syndicate now practically without any risk owing to new issue 
conditions but drop from point 375 to point, one seems impossible to explain 
and we fear great difficulties. 

And then came the reply to that. 
(Heading from "Exhibit No. 1963") : 

Very difficult for foreign underwriter like Leadenhall enforce reciprocity 
and Schroder Inc. would have hard work to protect our interests. There still 
is risk on underwriting because underwriting jgroup must take commitment few 
hours before registration statement effective and selling group cannot be legally 
bound until registration effective. 

Now I had assumed that there was — at least from the testimony of 
the witnesses who have appeared before this committee — tremendous 
risk involved in underwriting and I now find out that there is very 
little risk, and whatever risk does occur in a matter of a few hours. 

Mr. Fuller. That is why I wanted to point out who wrote the 
cables ; those were written by Mr. Wilson of our London office, who 
was here in New York at the time, and they are very clear evidence 
of some of the difficulties we were having in the situation where 
they assumed that London conditions might be the same as in this 
country, and they also had the very false assumption that the Secur- 
ities Act and the other legislation at the time set up for the protection 
of investors had made it perfectly riskless for the underwriter. 
They just didn't know the facts. 

Mr. Wilson discovered some of the facts while he was here and 
still rather played them down in his cable saying a few hours' risk. 

Mr. Nehemkis. I call to your attention, Mr. Fuller, that this cable 1 
which you have identified, bears your initials; that its transmission 
over the wire from Schrobanco to Schrodpriv was authorized by 
CPF, being Carlton P. Fuller. If Mr. Wilson had made such a mis- 
take as to misunderstand syndication under American conditions, how 
did it happen you authorized the transmission of that cable ? 

Mr. Fuller. Authorization simply means authorized to be charged 
to a certain account, and has nothing to do with the content of the 
cable itself. 

Mr. Nehemkis. And you were not at all concerned about the con- 
tent of this cable when it passed your desk ? 

Mr. Fuller. I didn't say that. 

Mr. Nehemkis. What? 

Mr. Fuller. I didn't say that. 

Mr. Nehemkis. You saw the cable? 

Mr. Fuller. Yes; but I didn't say I wasn't concerned with the 
content ; I simply said I didn't censor the cable. 

1 "Exhibit No t'Jfii!" 



12600 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. But certainly this was a most serious thing to let 
your London people have the impression that underwriting involves 
no risk. How did it happen that you allowed this cable to go over 
your desk? 

Mr. Fuller. The cable, 1 as I recall, says that is only a few hours 
risk; a few hours might in that terminology mean 48 hours. We 
are dealing here with high grade securities and that probably was 
the understanding at the time. 

Mr. Nehemkis. You think about all the underwriting risk there 
is today is probably 48 hours ? 

Mr. Fuller. I didn't say that. I said at the time this cable was 
written that is probably the understanding that went into it. You 
must remember at that time we ourselves were not in the underwriting 
business; all the Security Acts were relatively new, certainly as far 
as we were concerned, and therefore our more complete knowledge 
of today cannot be attributed to that period in which the cable was 
written. There was a whole period of education going on there 
then. 

Mr. Nehemkis. I recall your attention, however, that this was in 
May of 1936. 

Mr. Fuller. That is right. 

Mr. Nehemkis. Now, Mr. Chairman, I don't believe I have offered 
in evidence the cable from which I have just been reading, being 
cable dated May 25, 1936, identified by the witness. As well as the 
cable identified by Mr. Fuller to which the cable you now have is 
an answer. 

Acting Chairman Williams. They may be admitted. 

(The cables referred to were marked "Exhibits Nos. 1962 and 1963" 
and are included in the appendix on p. 12892.) 

OBTAINING THE STANDARD POWER & LIGHT CO. STOCK PLEDGED AS COL- 
LATERAL ORGANIZATION OF SCHRODER ROCKEFELLER & CO., INC., JULY 

1936 — AGREEMENT WITH J. HENRY SCHRODER & CO., LONDON 

Mr. Nehemkis. I show you, Mr. Fuller, a letter dated August 24, 
1936, to Messrs. Schroder Rockefeller and Company, Inc., from the 
London banking house of J. Henry Schroder and Company. Do you 
recognize this to be a' true and correct copy of an original in your 
possession ? 

Mr. Fuller. It seems to be a copy of an agreement by which they 
were to share in the proceeds of underwritings ; yes. 

Mr. Nehemkis. I offer the document in evidence, Mr. Chairman. 

Acting Chairman Williams. It may be received. 

(The document referred to was marked "Exhibit No. 1964" and is 
included in the appendix on p. 12893.) 

Mr. Nehemkis. Eventually the Usepco notes were reported to 
the banks, were they not, and the Standard Gas stock reduced to 
possession? 

Mr. Fuller. The Standard Power stock reduced to possession. 

'Mr. Nehemkis. Standard Power, is that your understanding, Mr. 
Emanuel? 

Mr. Emanuel. That is right. 

^"Exhibit No. 1963." 



CONCENTRATION OF ECONOMIC POWER 12601 

Mr. Henderson. What was the amount paid eventually? 
Mr. Emanuel. $3,500,000 cash. 
Mr. Nehemkis. What was the value of the stock? 
Mr. Emanuel. I couldn't recall at that time. I think it was prob- 
ably less than that, or a little less than that. 

Mr. Nehemkis. Mr. Fuller, when was Schroder Rockefeller & Co., 
Inc., organized? 
Mr. Fuller. Early in July 1936. 

Mr. Nehemkis. And can you tell me the purpose underlying the 
organization of Schroder Rockefeller? 

Mr. Fuller. Yes; to engage in the underwriting of securities 
business. 

Mr. Nehemkis. Who was instrumental in organizing Schroder 
Rockefeller ? 

Mr. Fuller. Several Schroder interests and Rockefeller interests, 
primarily. 
Mr. Nehemkis. And who owns the stock of Schroder Rockefeller? 
Mr. Fuller. There are two classes of the million-dollar capitaliza- 
tion; the nonvoting stock is practically all owned by the Schroder 
banking corporation; the voting stock is owned, $200,000 by Mr. 
Avery Rockefeller and his family; $225,000 by J. Henry Schroder 
& Co., London; and $50,000 by Atlas General & Industrial Invest ^ 
ment Trust, London, which is an independent investment trust. 

Mr. Nehemkis. And was not Schroder Rockefeller & Co. organized 
for the purpose of engaging in underwriting activities involving the 
75-percent financing into which the European and American inter- 
ests had bought? 

Mr. Fuller. It was organized to get as much of a participation in 
Standard Gas financing as was possible under the circumstances, and 
to engage in other business. 

Mr. Nehemkis. And did not Schroder Rockefeller enter into a 
contract * with its parent, J. Henry Schroder & Co. ? 
Mr. Fuller. This one you have just shown me? 
Mr. Nehemkis. And which you have identified? 
Mr. Fuller. Yes. 

Mr. Nehemkis. And substantially what were the terms of that 
contract ? 

Mr. Fuller. As I have testified before, all through this period re- 
garding the rescue party the London interests concerned wanted to 
see some way of getting a return on their money on their hook-up of 
funds. Various means discussed of doing that, ranging from their 
doing direct underwriting over here to doing it through somebody 
else, and finally when we evolved the Schroder Rockefeller set-up 
they agreed to do it through them, so long as Schroder Rockefeller 
gave them the return on the earnings they made from underwriting 
in the Standard Gas system. 

Mr. Nehemkis. And what was the return which Schrorock was to 
pay to Schrodpriv? 
Mr. Fuller. Schrodpriv as agent? 
Nr. Nehemkis. Yes. 

Mr. Fuller. As I recall, it was about one-tenth of 1 percent on the 
face value of an issue. 



"Exhibit No. 1964. 



12602 (XJNOMJNT.IiA.T10M OF ECONOMIC POWER 

Mr. Nehemkis. And have such payments been made in the past ? 

Mr. Fuller. That agreement was outstanding for about 5 months, 
as I recall, and two payments were made under it. 

Mr. Nehemkis. And do you recall approximately when those pay- 
ments were made ? 

Mr. Fuller. They came after the Louisville issue and the Oklahoma 
Gas & Electric issue which were August and December '36, respec- 
tively. 

Mr. Nehemkis. Do you know whether or not it is required under 
the registration statements that are filed with the Securities and 
Exchange Commission to report such payments or similar payments? 

Mr. Fuller. We were advised by counsel at the time that these 
particular payments were not required. 

Mr. Nehemkis. May 'I inquire at this time the name of counsel 
who so advised? 

Mr. Fuller. Our counsel is Sullivan and Cromwell. 

Mr. Nehemkis. Did they render a legal written opinion that such 
payments were not required to be reported to the Commission ? 

Mr. Fuller. I don't recall whether it was in writing or not. 

Mr. Nehemkis. Will you be good enough. to make available that 
information to this committee by a letter when you have the leisure 
to ascertain that fact? 

Mr. Fuller. Yes. 1 

SUMMARY OF THE RECORD BY COUNSEL — COMMENTS BY MR. EMANUEL 

Mr. Henderson. Mr. Nehemkis, I must confess that I am a little- 
bewildered by the rapid introduction of evidence here. Somewhere 
after the loan went under water, I went under water, too, and I 
wonder, for my benefit, before we go any further, if you couldn't 
start back with that financing of U. S., and bring it down to date. 

Mr. Nehemkis. To put it very simply, and to rush over a vast 
amount of detail which I can't put quite as precisely as one would 
like to, the situation, briefly, is this: Back in 1928, a much younger 
man, Victor Emanuel became acquainted with an European capitalist 
;ind financier, one Captain Alfred Loewenstein, who had investments 
in various utilities and other enterprises all over the Continent, and 
Mr. Emanuel and Captain Loewenstein sat down together and decided 
that that was a good time to buy into American utilities. So they 
worked out a scheme of acquiring control of Standard Gas & Electric, 
American Water Works, and another utility. Had one devil not 
intervened at that time, namely, the depression, it would appear from 
the evidence that Mr. Emanuel and Captain Alfred Loewenstein might 
have controlled the utility system of this country. But unfortunately 
for those plans, there was a thing called the depression, and some of 
the plans went awry. However, the program was carried out pretty 
much with reference to the acquisition of the Standard Gas system, 
and the committee will recall from the testimony of the first witness 
that the Standard Gas system was an empire worth fighting over, 
there were assets in that empire of about a billion dollars, with prop- 
erty scattered throughout the United States and Mexico. Now, the 
problem, of course, of getting control of that utility empire centered 

*Mr. Fuller, under date of January 24, 1940, submitted the Information requested. 
It 1b included in the appendix on p. 13017. 



CONCENTRATION OF ECONOMIC POWER 12603 

about acquiring the stock held largely by the Byllesby interests, and 
you recall that the testimony showed this morning that Mr. Emanuel 
worked out a series of legal moves, stockholders' suits were brought, 
mandamus proceedings were instituted, all in an endeavor to acquire 
this stock from the Byllesbys, who had the crucial position. 

The alignment of interests both at home and abroad were too great 
for the Byllesbys, and finally they capitulated to Mr. Emanuel's 
interests and Mr. Loewenstein's interests, who by that time had fallen 
out of an airplane when it was crossing the British Channel. 

Well, the depression, as I say, came along and even Standard 
Gas & Electric Co. found itself in difficulties. I should, however, 
retrace one step. It was necessary at this time to take care of a 
banking house oy the name of Ladenburg, v Thalmann, that always 
had a rather important place in the financing and it was as a result 
of this necessity that the difficulties arose, because a certain cash 
payment had to be made to this banking firm, and in order to 
raise cash, borrowings had to be made from some of the banks. 

As a result of borrowing from these banks, stock was pledged with 
the banks, and subsequent battles centered around the recapture of 
this pledged security, and you will recall that earlier this morning 
there was introduced in evidence a banking agreement 1 that was 
evolved after the first battle had taken place. You will recall that* 
the evidence shows that the financing followed very closely the terms 
of that banking agreement. 

Mr. Henderson. That was between the Byllesby group and what 
you might call the Emanuel group. 

Mr. Nehemkis. That is correct; substantially, yes, that is the 
situation. 

Following the pledging of the stock with the New York banks, 
us the testimony has shown this afternoon, a long, protracted struggle 
took place in which Mr. Emanuel bended every effort to raise cash 
in order to obtain and repossess that pledged collateral, because the 
secret to the Standard Gas system rested with whoever had owner- 
ship or could reduce to possession the pledged collateral. You will 
recall, sir, from the evidence that Mr. Harrison Williams at this 
time became interested in possibly buying this pledged collateral. 

Finally, the collateral was obtained by Mr. Emanuel's group, and 
always the big stake in this empire was the future financing, whether 
or not 75 percent of this utility empire's financing would fall to the 
interests represented by Mr. Emanuel and the European group. 

Now, for various legal difficulties and complexities, Schrodpriv. 
the London house, couldn't very well participate in American 
underwriting activities, and in order, however, for Schrodpriv's 
American house, Schrobanco, to get its full reciprocity out of this 
75 percent financing that they were buying into, as Mr. Fuller has 
previously testified, a new investment banking firm was organized, 
Schroder Rockefeller & Co. And Mr. Fuller has just testified as to 
where that stock is held, some of it held in London, some by the 
Rockefeller interests, some here. 

Some of the previous charts that have been offered in evidence 
show the various percentage participations of the investment bank- 
ing houses that belong to the various groups lined up in this situation 
and how that financing followed the terms of the original banking 
agreement. 

1 "Exhibit No. 1931." 



12604 CONCENTRATION OF ECONOMIC POWER 

That is about where we are at the present moment. 

Mr. Henderson. Do you have anything to say ? 

Mr. Emanuel. I would like to correct that. In the first place, 
I met Captain Loewenstein in 1926, not 1928. In the second place 
he already owned a large block of Standard Gas and large blocks 
of stock in a number of other American companies, four or five, as 
I recall. I made one proposal to him, I remember, about acquiring 
other companies and forming a company to do that. I believe I 
testified that he was not interested in that, and that whole thing fell 
when he died in 1928, although I might have talked to Fisher about 
it, who succeeded him early in 1928. Also, Captain Lowenstein died 
before the depression came on by well over a year. 

There was only one legal move that I recall that we ever made, 
and that was a mandamus proceeding which I recall it was just to 
get information. We did make a demand on the directors, but I 
don't think that was legal, I mean in a court. 

Mr. Henderson. Eventually what resulted then was your counsel 
and the other counsel got together and you got^— — 

Mr. Emanuel (interposing). And there was a settlement of all 
of our differences, which did not give me or Usepco control of 
Standard Gas; we didn't mention it, or we had no power of initia- 
tion; we merely had power to pass upon certain matters. 

Mr. Henderson. How about the directors? 

Mr. Emanuel. We had a minority of the board of Standard Gas 
and they had the majority. 

Mr. Henderson. How about the principal officers? 

Mr. Emanuel. The principal officers were all people who were 
officers of Standard Gas before ; we had no officers. 

Mr. Henderson. How about the management contract? 

Mr. Emanuel. That stayed in the Byllesby Engineering & Man- 
agement Corporation, which was a wholly owned subsidiary of 
Standard Gas. 

Mr. Henderson. How about the financing? 

Mr. Emanuel. Byllesby had 25 percent, which I think was based 
upon their historical interest in the business, and Usepco had the 
right to designate 75 percent. 

Mr. Henderson. And what collateral was really posted with Chase ? 

Mr. Emanuel. Everything we had was eventually put up. 

Mr. Henderson. Mainly Standard Power? 

Mr. Emanuel. And that included the large block of Standard Gas 
and Electric stock owned by Standard Power. 

Mr. Henderson. And it was recognized that even though that was 
pledged before the bank reduced its possession, the finance contract, 
75-25, still continued. 

Mr. Emanuel. Yes, that still was in existence. I would like to say 
there that that was a memorandum, right at the time it was made; 
the counsel for Usepco, which was Seibert & Riggs, advised us, and it 
is on the minute books of the Usepco, that that agreement was of no 
legal force or effect. 

Mr. Henderson. If you had an economist or financier and he 
looked back over the record, he would say it had a financial and eco- 
nomic effect, would he not? 

Mr. Emanuel. That is right, but what I am trying to point out, it 
wasn't an agreement enforceable in law, because it would have been 



CONCENTRATION OF ECONOMIC POWEK 12605 

binding future actions of boards, which we cannot do, and also most 
of the financing was in the subsidiary companies which financing 
had come up before the respective boards of these companies, and 
also for the most part be approved by the various Public Service 
commissions. 

Mr. Henderson. But in this attempt to get the stock out from 
under water, it was pretty generally recognized that the old 75-25 
would still obtain. 

Mr. Emanuel. I was trying to get this collateral back for the 
Usepco itself. During this entire period the company was in 
trouble, every plan was to get it back for the company until the 
Founders' group distributed their stock and Mr. Fisher died. When 
that happened, it became apparent that I couldn't do it for the com- 
pany because the Founders group had a majority of its stock I think 
of Usepco by that time, and without their support, it seemed impos- 
sible, so the best thing I could do was to use every means at my com- 
mand, which I admit I did, to try and sell my people 

Mr. Henderson (interposing). I am not sure that we got all of the 
testimony today. 

Mr. Emanuel. I did nothing else for years but try to do this, and 
I used every means at my command to try and save something for 
the stockholders, which finally resulted in the agreement of 1936,, 
whereby we paid the banks $3,500,000 for the collateral, and then as 
soon as we could, because the stock wasn't registered, we offered it 
to the United States stockholders at the same price at which we paid 
without any commission whatsoever. 

Mr. Henderson. Who finally bought it? 

Mr. Emanuel. I think, Mr. Henderson, that something over a third 
of the stockholders bought the stock. The offer expired on a certain 
day, but we just extended that thing by letting any stockholders 
who came in later buy their pro rata share. The stock then went up 
in the market and quite a few came in, and every time we felt they 
were bona fide stockholders who had bought their stock before this 
period came on, and not for as few cents a share as the worth of 
the security, we let them have the stock. 

Mr. Henderson. The stock did get down to a few cents a share, 
did it not? 

Mr. Emanuel. The United States Electric stock after the col- 
lateral was reduced by possession was worthless, but it appeared it 
still was being sold by unscrupulous people for a few cents a share. 

Mr. Henderson. There was a good gamble, however. 

Mr. Emanuel. There was no gamble then because the company 
had no assets. 

Mr. Henderson. But it did have something which if you could 

Mr. Emanuel (interposing). If you could send it in and get this 
other stock for it. 

Mr. Henderson. Mr. Fuller, have you any comments? 

Mr. Fuller, I don't think I have anything to add, unless there are 
some further questions. 

Mr. Nehemkis. Just a few more questions. 

Senator King. Do you assent, with the exception you made, to the 
resume made by Mr, Nehemkis ? 

Mr. Emanuel, Yes. 



12600 OONOJfi-NTRATlON OF KOONoMIC FOWEK 

Senator King. I regret I have been in the Finance and Judiciary 
Committees all morning and it was impossible for me to be here. 
Mr. Henderson. I think we are ready to go on. 

THE GBOUP PURCHASING NOTES AND COLLATERAL — CONTINUING EFFECTIVE- 
NESS OF BANKING MEMORANDUM OF DECEMBER 1929 

Mr. Nehemkis. Mr. Fuller, we were saying earlier in connection 
with your direct testimony that a new group had entered into the pic- 
ture, the Bancamerica- Blair people. Do you recall that? 

Mr. Fuller. Yes. 

Mr. Nehemkis. I show you a memorandum which was obtained from 
the files of Schroder Kockefeller and I ask you to tell me whether you 
recognize this to be a true and correct copy of an original in your 
possession. 

Mr. Fuller. Yes ; I identify it. 

Mr. Nehemkis. Can you tell me who Mr. E. G. Diefenbach is ? 

Mr. Fuller. At that time he was vice president of the Bancamerica - 
Blair Corporation. 

Mr. Nehemkis. This is what Mr. E. G. Diefenbach had to say after 
his people had come into the picture [reading from "Exhibit No. 
1965"] : 

On May 20, 1936 J. Henry Schroder Banking Corporation, Bancamerica-Blair 
Corporation, W. C. Langley & Co., A. C. Allyn & Co., Inc., and Emanuel & Co. 
purchased from the Chase National Bank of the City of New York, Guaranty 
Trust Co. of New York and Chemical Bank and Trust Co., $12,500,000 Notes of 
the United States Electric Power Corporation, secured by — 

And then he lists the various stock that had been pledged and which 
was now out of pledge. 
He continues : 

United States Electric Power Corporation had an agreement with H. M. 
Byllesby & Co. which gave them a first call on 75% of the financing of the Stand- 
ard Gas & Electric System. H. M. Byllesby & Co. agreed to continue this financ- 
ing arrangement with the new group which purchased the Notes of the United 
States Electric Power Corporation, secured by Standard Power & Light Common 
Stock, from the three New York banks. The purchasers of the Notes agreed 
that their interest in this finance contract should be on the same percentage 
basis as their interest in the purchase of United States Electric Power Notes. 

I offer in evidence the document so identified by the witness. 

(The memorandum referred to was marked "Exhibit No. 1965" 
and is included in the appendix on p. 12894.) 

Mr. Nehemkis. So that after the shooting was over, the battle 
had subsided and the captains had retired, what was really at stake 
here in this struggle that had taken place over the years was the 
acquisition of 75 percent of the financing of the Standard Gas system. 
Is that correct, Mr. Emanuel » 

Mr. Emanuel. Not from *uy standpoint. I have no doubt that 
rhat was one of the considerations. Some of the other members of 
the group joined the so-called rescue party. It was never with me 
any primary consideration. It was one of the considerations, though, 
that undoubtedly helped me raise the money. 

Mr. Nehemkis. Mr. Fuller, will you be good enough to examine 
a copy of a cablegram from Schrodpriv under date of January 
6, 1936, and tell me whether you recognize this to be a true and cor- 
rect copy of the original in your possession ? 



CONCENTRATION OF ECONOMIC POWER 12607 

Mr. Fuller. I identify it. 

Mr. Nehemkis. And Mr. Emanuel, will you glance at the photostat 
copy of what purports to be a cable from you to Robin Wilson in 
Paris under date of January 6, 1936, and tell me whether you recog- 
nize this to be a true and correct copy of an original that you are 
familiar with and that was sent by you ? 

Mr. Emanuel. It was sent by me. 

Mr. Nehemkis. Mr. Fuller, there appears to be on the lower left 
hand margin of this cable from Schrodpriv certain pencil nota- 
tions. Before I offer the document in evidence, will you be good 
enough to read to me what those pencil notations are ? 

Mr. Fuller. It says [reading from "Exhibit No. 1966"] : 

Copy to Mr. Emanuel, also Mr. Dulles. 

Mr. Nehemkis. And Mr. Dulles is Mr. Allen Dulles, your counsel i 
Mr. Fuller. Yes. 

Mr. Nehemkis. Now, on January 6, 1936, Schrodpriv inquired of 
Schrobanco as follows [reading from "Exhibit No. 1966"] : 

Please arrange with Victor Emanuel joint consultation with Sullivan & Crom- 
well and enquire whether they foresee any serious legal difficulties in our 
USEPCO programme. 

You may recall, Mr. Emanuel, I used the word "program" this 
morning. I think I got it from this cable. 

And one of the points they wanted Schrobanco to enquire about of 
Messrs Sullivan and Cromwell of eight points enumerated was the 
following, which is point 8 [reading further from "Exhibit No. 
1966"] : 

How binding a contract can be made assuring 75% future group financing to 
Emanuel aud Hydro. 

And then your cable, Mr. Emanuel, to Robin Wilson, care of Major 
Albert Pam, at the Hotel Meurice, Paris [reading from "Exhibit 
No. 1967-1"] : 

Fuller communicated to me your cable sixth stop Difficulty arises in thai 
Sullivan and Cromwell counsel for First Boston and Langley who for reasons 
you understand do not want know about this now stop Fuller having conn 
dential talk with Dulles first this morning and if they see their way clear act 
confidential basis we will have joint meeting this afternooD stop 

I ask leave of the committee at this time to call Mr. Allen Dulles 
to the witness stand. Mr. Dulles, will you be good enough to take 
the witness stand, please? 

Acting Chairman Williams. Do you solemnly swear that the evi- 
dence you are about to giv6 in the matter now pending will be the truth, 
the whole truth, and nothing but the truth, so help you God? 

Mr. Dulles. I do. 

TESTIMONY OF ALLEN WELCH DULLES, SULLIVAN & CROMWELL, 

NEW YORK 

Mr. Dulles. Mr. Examiner, as I mentioned to you, I have acted, as 
these papers indicate, in the capacity of counsel. I want to be of help 
in any way I can to the committee. I don't know whether the question 
of professional privilege is going to arise or not. 

So far as Mr. Fuller is concerned, I think he has been very glad to 
waive it. There may be other matters that come up on which Mr. 



12608 CONCENTRATION OF ECONOMIC POWER 

Fuller cannot waive the privilege ; and I want to make that statement 
and I hope we can avoid the question arising. 

Mr. Nehemkis. Will you, so that we may proceed in an orderly 
fashion, state your full name and address ? 

Mr. Dulles. Allen Welch Dulles. 

Mr. Nehemkis. And are you not a partner in the firm of Sullivan & 
Cromwell ? 

Mr. Dulles. I am. 

Mr. Nehemkis. How long have you been a partner in that firm, Mr. 
Dulles? 

Mr. Dulles. About 10 years. 

Mr. Nehemkis. And, as the testimony has shown this afternoon, you 
have had fairly intimate knowledge of many of these transactions, 
have you not, sir? 

Mr. Dulles. Well, I wouldn't say fairly intimate. I have had 
knowledge^ of certain phases of them; yes. I have been consulted now 
and again, but I wouldn't say I had intimate knowledge of the trans- 
actions. 

Mr. Nehemkis. And your firm represents, does it not, the J. Henry 
Schroder Corporation, of New York, which we have been referring to 
as Schrobanco? 

Mr. Dulles. It does. 

Mr. Nehemkis. And does not your firm also represent other mem- 
bers of the American group, for example, The First Boston Cor- 
poration ? 

Mr. Dulles. Well, how do you include them as members of the 
American group? We have done considerable work for The First 
Boston Corporation ; yes. 

Mr. Nehemkis. I mean when I say members of the American group, 
members of that group who were aligned with Mr. Victor Emanuel in 
the financing and in connection with the various events that have been 
testified to this morning and this afternoon. Incidentally, have you 
been in the room this morning and this afternoon ? 

Mr. Dulles. I have been in the room this morning ; yes. 

Mr. Nehemkis. And you have heard the testimony ? 

Mr. Dulles. I have heard the testimony today ; yes. 

Mr. Nehemkis. Does my explanation clarify to you what I meant 
by the American group ? 

Mr. Dulles. I don't recall The First Boston having been identified 
as a member of the American group. I know that they have done a 
certain amount of financing in the Standard group system, but I 
didn't know that they were a member of the so-called American group, 
if you mean the group that purchased the notes. 

Mr. Nehemkis. Do you recall that Harris, Forbes & Co. and its 
allied interests were associated with this deal ? 

Mr. Dulles. Which deal, Mr. Examiner? 

Mr. Nehemkis. I am talking about the transaction that began in 
1928 and was consummated in 1936, as we have been hearing testi- 
mony on it this afternoon and this morning. 

Mr. Dulles. Well, I know nothing about that, except hearsay, 
insofar as any relationship they had in this picture. 

Mr. Nehemkis. Does your firm represent Lafcgley & Co. ? 

Mr. Dulles. No, it does not. 

Mr. Nehemkis. I had occasion a moment ago-^ — 



CONCENTRATION OP ECONOMIC POWER 12609 

Mr. Dulles (interposing). I think we have done some work occa- 
sionally for Langley, not in this connection. 

Mr. Nehemkis. I had occasion a moment ago to ask Mr. Fuller 
to identify a cable from the J. Henry Schroder Co. of London to 
Schrobanco in New York, in which the following question was asked 
and the request made that legal advice be obtained from your firm 
[reading from "Exhibit No. 1966"] : 

How binding a contract can be made assuring 75% future group financing to 
Emanuel and Hydro. 

And I had occasion to ask Mr. Emanuel to identify a cable from him 
on January 6, the same date as this cable to which reference has just 
been made, to Mr. Robin Wilson. Mr. Emanuel cabled Mr. Wilson 
as follows [reading from "Exhibit No. 1967-1"] : 

Fuller- 
Mr. Carlton Fuller who sits at your side — 

communicated to me your cable sixth stop Difficulty arises in that Sullivan 
and Cromwell counsel for First Boston and Langley who for reasons you under- 
stand do not want know about this now stop Fuller having confidential talk with 
Dulles first this morning and if they see their way clear act confidential basis 
we will have joint meeting this afternoon. 

It is with reference to these two documents that I am now asking 
my questions. You have indicated your answers and I don't want to 
retrace them with you. Can you clarify that cablegram and the 
references made therein? 

Mr. Dulles. As I recall, we desired to talk with The First Boston 
Corporation, whom we had represented in connection with certain of 
the earlier financing, to see whether we were free to discuss the matter 
with Mr. Fuller, or whether they were still interested. As I recall, 
the answer came from The First Boston Corporation that they were 
not at this time interested and that we, were free. That is my recol- 
lection. 

Mr. Nehemkis. To discuss it with Mr. Fuller ? 

Mr. Dulles. To discuss it with Mr. Fuller and Mr. Emanuel, yes. 

Mr. Nehemkis. But you do recall, then, according to your present 
testimony, that The First Boston Corporation was interested in this 
whole larger transaction? 

Mr. Dulles. We did not know whether they were interested or not. 
I don't think they were interested in the purchase of the notes, in the 
reduction of the collateral. 

Mr. Nehemkis. Now, Mr. 'Emanuel, may I ask you at this time 
whether you can clarify the meaning of this statement which you 
wrote to Robin Wilson [reading from "Exhibit No. 1967-1"] : 

Difficulty arises in that Sullivan and Cromwell counsel for First Boston and 
Langley who for reasons you understand do not want know about this now. 

Do you recall what you meant? 

Mr. Emanuel. I don't recall what I referred to. I would like to 
say this about that cable, that Emanuel is used as a name, I am sure 
Schroder Co. didn't mean me personally. 

Mr. Nehemkis. It is a code name? 

Mr. Emanuel. I mean — I think I have to explain something about 
it — that Emanuel & Co. was always a small house and never came 
into this financing until 1935, 5 or 6 years after this company was 



12610 CONCENTRATION OF ECONOMIC POWER 

formed. Emanuel I think they use broadly to mean the American 
group which was composed, of a number of houses other than 
Emanuel & Co., who had just a small interest when they did have 
any interest in this financing. 

I think I remember the last part of the cablegram. 

Mr. Nehemkis. What did you mean by "Fuller having confidential 
talk with Dulles"? 

Mr. Emanuel. I meant prices. 

Mr. Nehemkis. The stock market prices at the time? 

Mr. Emanuel. What I was afraid of was that if the indicated 
market value of Standard Gas securities went up I wouldn't raise 
enough money. 

Mr. Nehemkis. Mr. Fuller, do you remember having a talk with 
Mr. Dulles about the situation referred to in the cable? 

Mr. Fuller. Yes. 

Mr. Henderson. Mr. Emanuel, you don't know what this cable 
means when it says [referring to "Exhibit No. 1967-1"] "for reasons 
you understand" ? 

Mr. Emanuel. I can't recall, Mr. Henderson, what was meant. 

Senator King. You drafted the telegram, did you? 

Mr. Emanuel. I think I did; yes. 

Senator King. Was anybody else conferring with you simulta- 
neously ? 

Mr. Emanuel. I think almost everybody, concerned was. It might 
have meant difficulties of reoffering this Standard stock to the United 
States Electric shareholders without a registration statement. I 
know that was one of the things that were troublesome at that time. 

ENFORCEABILITr OF THE 75-25 PERCENT AGREEMENT FOR FUTURE 

FINANCING 

Mr. Nehemkis. Mr. Dulles, was not one of the pressing questions 
which the London firm wanted your firm's opinion on, whether the 
75 percent agreement was binding legally and enforceable at law ? 

Mr. Dulles. That was one of the questions that was in that tele- 
gram that you have introduced in evidence, which was presented to us 
at this conference Mr. Fuller has mentioned. 

Mr. Nehemkis. Did your firm render an opinion on that question ? 

Mr. Dulles. I don't believe we rendered any opinion. My best 
recollection is that we discussed it with Mr. Fuller and Mr. Fuller 
drew up his cable on the basis of that discussion. 

Mr. Nehemkis. Is it not a fact, Mr. Dulles, that your firm, and 
perhaps you in particular, felt it inadvisable at that time to render 
'written opinion, but preferred to make your opinion oral? 

Mr. DuLLEsr I think lawyers always, when they can render oral 
opinion, prefer it to rendering written opinions. 

Mr. Nehemkis. Although when we render written opinions, since 
I, too, am a lawyer, I know we sometimes get paid more. But the 
fact remains you rendered an oral opinion at the time. 

Mr. Dulles. That is my recollection ; yes. 

Mr. Nehemkis. Did you not have some particular reason why 
you felt under the circumstances you preferred to render an oral 
opinion rather than a written opinion ? 

Mr. Dulles. I don't recall it; no. 



CONCENTRATION OF ECONOMIC fOWiliK 12611 

Mr. Nehemkis. I offer these cablegrams in evidence. 

Acting Chairman Williams. They may be received. 

(The cablegrams referred to were marked "Exhibits Nos. 1966 
and 1967-1," and are included in the appendix on p. 12895.) 

Mr. Nehemkis. Pursuant to the advice you obtained from Mr. 
Dulles, Mr. Fuller, did you not advise Schrodpriv? 

Mr. Fuller. I believe I did. 

Mr. Nehemkis. I show you a telegram from Schrobanco to Major 
Pam at Paris, under date of January 7, 1936. Will you be good 
enough to glance at this cable and tell me whether you recognize 
it as a true and correct copy of an original? And by the way, will 
you tell me who Major Pam is? 

Mr. Fuller. Major Pam is associated with J. Henry Schroder & 
Co. in London, with power to sign the firm's signature: I iden- 
tify it. 

(The cablegram referred to was marked "Exhibit No. 1967-2'" 
and is included in the appendix on p. 12896.) 

Mr. Nehemkis. May I have the document? I think I requested 
that Mr. Fuller identify it. The cablegram reads as follows: 

Sullivan and Cromwell have following comments your particular inquiries. 

And then you itemize them from 1 through 8, and under 8 you 
reported as follows : 

They consider contractual control of financing unfeasible and undesirable 
but agree with Emanuel that real source of control would be Hydro's holdings 
and the majority on the directorate plus an agreement and good relations 
with Byllesby. 

Mr. Dulles, is that substantially in conformity with your under- 
standing at this time of what transpired in the nature of the advice 
rendered Mr. Fuller? 

Mr. Dulles. I don't remember, but I have no doubt if Mr. Fuller 
put that in a cablegram at the time that represented his under- 
standing of the advice I gave him. 

Mr. Nehemkis. Can you enlighten us at this time as to, what you 
had in mind when you referred to an agreement ? 

Perhaps I had better show you the particular paragraph. You 
will find it enumerated under 8 on page 2 of the document I now 
show you. 

Mr. Dulles. As far as I can read back my thoughts at the present 
time, presumably that was not any written agreement because I 
apparently advised that a written agreement or anything that pur- 
ported to be in a contractual form was both unfeasible and 
undesirable. 

Mr. Nehemkis. May I interrupt at the moment and ask, since we 
have been spending a great deal of time on these so-called agree- 
ments, treaties, contracts, that investment bankers enter into, why 
you, a lawyer of many years' standing, felt that such an agreement 
was undesirable — I think that is the word in the cable. 

Mr. Dulles. Well, I think anything that purports to be a contract 
but is not really a contract, something that is entirely unenforceable, 
something that relates to the disposition of something you do not 
control, has no real value as an agreement, and therefore, as a law- 
yer, I would oppose my clients — I believe — entering into that type 
of so-called contractual agreement which really was no contract at all. 

124491—40 — pt. 24 20 . 



12612 CONCENTRATION OF ECONOMIC POWEK 

Mr. Hendebson. May I ask a question there? Is your firm coun- 
sel for Goldman, Sachs? 

Mr. Dulles. They are. 

Mr. Henderson. Is it counsel for Lehman Bros. ? 

Mr. Dulles. They are, in certain matters. 

Mr. Henderson. Are you aware that they reduced their under- 
standings on the matter to a treaty? 

Mr. Dulles. I have seen it in the paper recently. I knew nothing 
about it at the time. 

Mr. Nehemkis. You didn't yourself pass on it? 

Mr. Dulles. No. 

Mr. Nehemkis. And if you had passed on it you probably would 
have said about the same thing said here, "not feasible"? 

Mr. Dulles. Well, certainly if I were looking at it from the point 
of view of today I would ; whether I would have been wiser in those 
days or not I can't say. 

Acting Chairman King. Your idea was that it would be unfeasible 
to have a written contract as to property that you didn't control ? 

Mr. Dulles. That would be one of my reasons, Senator. 

Mr. Nehemkis. Or property that was not owned, Mr. Dulles? 

Mr. Dulles. Property not owned? 

Mr. Nehemkis. Yes. 

Mr. Dulles. Property you could not dispose of; yes. 

Mr. Nehemkis. Either through control or ownership? 

Mr. Dulles. Yes. 

Mr. Nehemkis. Do you recall, Mr. Dulles, that in connection with 
the agreement that Mr. Commissioner Henderson referred to, operat- 
ing between Lehman Bros, and Goldman, Sachs, that the form of that 
agreement was passed on by your firm ? 

Mr. Dulles. I -didn't recall that. 

Mr. Nehemkis. Such is the testimony before this committee. A de- 
ceased partner of your firm 

Acting Chairman King (interposing). Are we going into the Gold- 
man, Sachs in this? 

Mr. Nehemkis. No, sir; but we are discussing now the problem of 
the legal validity of the agreements, contracts, and treaties entered 
into by investment banking firms, and the testimony, in my opinion, 
of the witness to whom the questions are now being put is directly 
relevant to that subject. 

Acting Chairman King. They may be relevant on that, but not rele- 
vant — I am trying to ascertain whether or not you are offering that 
testimony as a part of the investigation of this corporation Mr. 
Emanuel is connected with. 

Mr. Nehemkis. The question has arisen, sir, that Mr. Dulles had 
advised his client Schrobanco 

Acting Chairman King (interposing). I know what he stated there. 
Is that what you mean ? 

Mr. Nehemkis. I wanted to know how it happened this firm passed 
on the form of another contract, when Mr. Dulles has just testified 
that he doesn't thing these contracts are either feasible or desirable. 
I think that is a high]y relevant question, I submit. 

Acting Chairman 'King. Perhaps it is; I have no objection. 



CONCENTRATION OF ECONOMIC POWER 12613 

Mr. Dulles. I am perfectly willing to say. Senator, that partners 
in law firms often differ, and maybe I am profiting here by hindsight. 
That is the way I view it today. 

Acting Chairman King. I understood you to testify that you knew 
nothing about that contract to which counsel referred in the Sachs, 
Goldman matter. 

Mr. Dulles. Knew nothing whatever about it. 

Mr. Miller. Mr. Nehemkis, may I ask Mr. Dulles a question? I am 
not clear in referring to this agreement, the opinion requested by 
Mr. Fuller, who was that agreement to be between ? Who were to be 
the parties to the agreement that he contemplated ? 

Mr. Dulles. I assume that the parties to that agreement would 
have been someone representing Hydro-Electric Securities Corpora- 
tion, or acting for them, and other possible American underwriters of 
the subsidiaries of the Standard Electric Co., Standard Gas. 

Mr. Miller. Well, would the agreement with the Hydro-Electric 
Securities company be with them, because they were owners of stock 
of Standard Power? 

Mr. Dulles. That was the theory in those days ; yes. 

Mr. Miller. In other words, it was an agreement with the chief 
stockholder ? 

Mr. Dulles. Agreement with a substantial stockholder; not the 
chief. 

Mr. Miller. Not just an agreement between banking houses? 

Mr. Dulles. Well, it might be an agreement between the banking- 
house, let us say, which Hydro might designate as its bankers. That, 
I think, is a possibility. 

Mr. Nehemkis. Mr. Miller, may I interpose ? I have passed to you 
a copy of the agreement. . It is that agreement concerning the legal 
validity of which that the question was asked of Messrs. Sullivan 
and Cromwell, Mr. Dulles. 

Mr. Dulles. Mr. Examiner, may I say here that I am speaking 
as an individual when I give you my personal opinion of what I 
think of an agreement or its feasibility or un feasibility. It is quite 
possible that some of my partners would differ from the views I 
express here, and I don't purport to bind them or express their 
views. 

Mr. Nehemkis. That is generally characteristic of the legal pro- 
fession. 

Mr. Miller. Mr. Nehemkis, this agreement here is of December 21, 
1929. 1 I thought this was a new agreement that was contemplated 
that Mr. Fuller talked to Mr. Dulles about, not this agreement. 

Mr. Nehemkis. What is your testimony on that? 

Mr. Fuller. I was considering the possibility of a new agreement 
at the time of the 1936 deal. 

Mr. Nehemkis. But the original agreement that Schrodpriv 
wanted to know whether or not it was enforceable, and which they 
requested you to ascertain advice of counsel, was this agreement? 

Mr. Fuller. Whether that or any similar one could be. 

Mr. Nehemkis. That was not the question in the cable. 

Mr. Fuller. I have forgotten the cable, then. 

1 "Exhibit No. 1931." 



12614 CONCENTRATION OF ECONOMIC POWER 

Mr. O'Connell. Will you read the cable provision? I am not 
clear between whom this agreement would be. 

Mr. Nehemkis. The cable is in the record; Witness Briggs testi- 
fied this morning wrth referenceto committee "Exhibit No. 1931," that 
the contract dated December 21, 1929, was entered into on that date 
and was executed by H. M. Byllesby & Co. by J. H. Briggs, United 
States Electric Power Corporation, which we have been referring to 
here as Usepco, and signed by Victor Emanuel, and Ladenburg, 
Thalmann & Co. by Walter Rosen, a general partner. 

Now it was this contract that we have been referring to as giving 
the 75-25 rights. Now, the London people had put a considerable 
amount of money into this thing; they wanted to know whether 
they were buying a piece of paper or something that was legally 
enforceable, and so they cabled to their American house, Schrobanco, 
and said, "Get in touch with our counsel and find out whether this 
is just a piece of paper, or whether we are buying something that 
has a legal and binding contractual effect," and, as I understand 
the evidence, counsel advised Schrobanco — by counsel I refer to 
Messrs. Sullivan and Cromwell — that they didn't think it was legally 
binding, but that it had a certain moral effect, and as the evidence 
will show in a few moments, we will come into the actual interpre- 
tation that was placed upon it by Sullivan and Cromwell. At least, 
such is my understanding of the evidence, Mr. O'Connell. 

Mr. O'Connell. Is that your general understanding of the ques- 
tion put to you in 1936 ? 

Mr. Dulles. Not quite. It was my understanding as to whether 
any agreement of this kind could be concluded which would be 
binding as to the future. 

Mr. O'Connell. An agreement between underwriters? 

Mr. Dulles. Between underwriters to control a certain percentage 
of financing. 

Mr. O'Connell. And when you advised your client that in your 
judgment such an agreement was not feasible, or what was the other 
word used? 

Mr. Dulles. Desirable. 

Mr. O'Connell. Desirable; you had in mind it was in the nature of 
a legal opinion that such a contract would be unenforceable? 

Mr. Dulles. Quite. 

Mr. O'Connell. You didn't think such an agreement would have 
any legal effect? 

Mr. Dulles. Quite. 

Mr. Emanuel. I think I could facilitate this by saying that as I 
recall the agreement of December 21, 1929 (referring to "Exhibit No. 
1931"), was by its terms not transferable, so if any agreement was 
being discussed it was probably a new agreement. 

Mr. Nehemkis. Mr. Fuller; I beg pardon, Mr. Dulles, is Mr. 
Crispell an associate of yours ? 

Mr. Dulles. Partner. 

Mr. Nehemkis. Partner of Sullivan & Cromwell. On or about 
March 10, Mr. Fuller, did you have occasion to consult Mr. Crispell in 
regard to the contract here in question and other agreements? 

Mr. Fuller. Sometime in that period ; yes. 

Mr. Nehemkis. I show you a memorandum dated March 10, 193ti, 
addressed to Messrs. Beal and Simpson, your associates, from your- 



CONCJ^NTKATIUJN OF JBOOJNOM1U POWJffllt 12615 

self, and ask you to tell me whether that is a true and correct copy of 
such memorandum in your possession. Will you examine this and 
tell me whether you recognize that as a memorandum which you 
drafted or dictated, as the case may be? 

Mr. Fuller. Yes. 

Mr. Nehemkis. Now, following your discussion with Mr. Crispell, 
Mr. Dulles' partner, you wrote to your associates, Messrs. Beal ahd 
Simpson $ as follows [reading from "Exhibit No. 1968"] : 

Mr. Crispell was very cautious and reserved because he has commitments to 
.so many interests in this situation, and he would not discuss the terms of the 
agreements at all without clearing with all his principals, who include others 
besides Victor Emanuel. I told him if it became necessary to get an official 
opinion from Sullivan & Cromwell, we might later approach him to get a 
clearance, but for the time being our telephone conversation would suffice. 

He says that the two gentlemen's agreements — 

Now, can you tell me to which two gentlemen's agreements refer- 
ence is made here ? 

Mr. Fuller. I assume the one you have been referring to. 

Mr. Nehemkis. December 21, 1929, being committee "Exhibit No. 
1931"? 

Mr. Fuller. Yes. I don't know what the other one was unless 
there was some parallel document at the time. 

Mr. Nehemkis. Neither do I, and that is why I was somewhat 
puzzled as to what the reference to the two agreements is. Shall we 
assume 

Mr. Fuller (interposing). You must remember at this time I had 
never seen these agreements, and I may have been mistaken in inter- 
preting his conversation as to there being two, and they might have 
been all in one. 

Mr. Nehemkis. Am I correct in assuming this is it? (Holding up 
"Exhibit No. 1931.") 

Mr. Fuller. Yes. 

Acting Chairman King. Had you seen the agreement at that time? 

Mr. Fuller. I don't think so ; we had not seen it. 

Acting Chairman King. Do you know its contents ? 

Mr. Fuller. I knew there was such an agreement, and I knew what 
it was about. I may have seen it; about this time the new deal 
came along. 

Senator King. Have you any recollection whether you had seen 
it at that time you made the memorandum to which counsel has 
referred ? 

Mr. Fuller. I don't offhand ; I don't think I had. 

Mr. Nehemkis. I repeat the early part of that sentence that 
[reading from "Exhibit No. 1968"] : 

the two gentlemen's agreements are not legally binding, as we already under 
stand, but that they have worked perfectly and will continue to do so as 
long as they are between people who have confidence in each other and who 
wish to play ball. In general such agreements have been difficult to enforce. 

May I pause for a moment and ask you, Mr. Dulles, are you 
familiar with many such agreements that are operative or that have 
been entered into between investment banking firms ? 

Mr. Dulles. Not recently; no. I knew of certain in the days 
1928, 1929, and 1930; I don't know that I could recall many by . 
name. 



12616 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Were you in the room by chance this morning 
when I offered in evidence some 30 agreements 1 which have been 
entered into by investment banking firms with issuers at various 
times, some of which are still operative? In fact, I think the bulk 
are still operative, the rest of which have lapsed. 

Mr. Dulles. I was in the room; I didn't know what the agree- 
ments were, but I heard the testimony. 

Mr. Nehemkis. In your experience do you know of a single situ- 
ation where there has ever been any litigation concerning such agree- 
ments ? 

Mr. Dulles. I don't recall any ; no. 

Mr. Nehemkis. I know members of my staff have been very much 
interested in that. We have been searching the reports to see if 
we could find a single -instance where such an agreement had ever 
been brought to the courts for enforcement, and we can't find any 
such thing. 

I now continue reading from your memorandum, Mr. Fuller. 

Senator King. You mean for enforcement or for breach. 

Mr. Nehemkis. Or for breach. [Reading further from "Exhibit 
No. 1968":] 

In general such agreements have been difficult to enforce, although he can 
conceive of such agreements being made and being enforced if based upon a 
definite long-term program of specific financing. 

So that in this particular instance your partner, Mr. Crispell, 
did appear to indicate there was some possibility of such agreements 
being enforceable and having legal effect provided there was a long- 
term range in the financing. 

However 

he continues — 

since the latter would involve the question of price which obviously cannot 
be set long in advance, as a practical matter it is difficult to see how such a 
contract could actually be drawn up in practice. 

The charter and by-law provisions of Standard Power and Standard Gas 
are presumably legal documents, which would stand regardless of the position 
of U. S. Electric, but some outside lawyers have questioned even that situation. 

I offer in evidence, Mr. Chairman, the memorandum identified by 
Witness Fuller from which I have been reading. 

Acting Chairman Williams. It will be received. 

(The memorandum referred to was marked "Exhibit No. 1968" 
and is included in the appendix on p. 12896.) 

nature of and parties to the banking memorandum 

Mr. O'Connell. I am not at all clear at all times we have been 
talking about the same type of contract. This most recent one, is it 
a contract between underwriters distributing future business of an 
issuer, or a contract between underwriters on one hand and issuer on 
the other ? 

Mr. Nehemkis. It is, sir, the former, a contract entered into — it is 
not altogether that, it is a contract between investment bankers and a 
utility company, the largest stockholder of the system. The com- 
pany that we have been referring to here as Usepco. It combines 
elements of both. 



'•'Exhibits Nos. 1897 1925. 



CONCENTRATION OF ECONOMIC POWER 12617 

Mr. O'Connell. Combines elements of both; it is not strictly 
speaking a contract between underwriters or between underwriters 
and issuing corporations? . 
Mr. Nehemkis. That is my understanding. 

Mr. O'Connell. Is that your understanding, Mr. Dulles? You 
seem a little perturbed. 

Mr. Dulles. In this particular picture we are discussing, as I 
understand it, Usepco had dropped out at this time because when 
the notes were foreclosed, Usepco had no further assets and was a 
shell, and so any agreement with Usepco seems to me would be so 
far as Usepco was concerned, certainly a nullity and probably as 
regards all the parties. 

Mr. O'Connell. It was a nullity before, as I understood you. 
Mr. Dulles. Probably not a nullity, but unenforceable. 
Mr. O'Connell. It remained unenforceable after Usepco lost the 
stock? 

Mr. Dulles. What I understood was being presented to me here 
at this time, as to the best of my recollection after four years, was 
the question of a validity of an agreement between underwriters. 
Mr. Miller. In your opinion, was Usepco ever an issuer? 
Mr. Dulles. No. 

Mr. Miller. Was it a utility company? 

Mr. Dulles. How do you mean, issuer? It issued its own secu- 
rity ; it didn't issue other people's securities. 

Mr. Miller. I mean an issuer in the sense that it was used by 
Mr. Nehemkis in referring to these contracts that were presented this 
morning, financing contracts with issuers, borrowers. 
Mr. Dulles. I didn't catch that last. 

Mr. Miller. Mr. Nehemkis presented a group of agreements be- 
tween banking houses and issuers, companies who did financing, and 
these bankers did the financing for them. Do you classify Usepco 
in that category? 

Mr. Dulles. Not entirely. I may say that I am not at all familiar 
with these agreements involving Usepco, and when I gave my opin- 
ion here as to the invalidity and unenforcability of agreements, 
I was directing myself solely to agreements as among other under- 
writers to control some underwriting business. 

Mr. Fuller. Perhaps I can clarity Mr. Miller's understanding by 
pointing out that Usepco never issued to the public any of its own 
securities that were underwritten. Does that help ? 
Mr. Miller. Yes. 

Acting Chairman Williams. Was it ever an underwriting com- 
pany? 

Mr. Fuller. In those days, or under the present definition of 
underwriter? 
Acting Chairman Williams. At any time. 

Mr. Fuller. In those days it was never considered an underwriter ; 
no. 

Acting Chairman Williams. I have had the impression here dur- 
ing all this time that here was an issuer on the one hand and the 
investment bankers or the underwriters on the other hand who signed 
this contract. That is the impression I have had rrom this testimony 
that has gone on here all the time about this agreement. 



12618 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. As to the old agreement, 1 maybe counsel can tell 
us what flowed out of the agreement between Usepco and Byllesby. 
There was a 75-25 division. Who got the financing that flowed out 
of that? 

Mr. Nehemkis. I introduced a table this noon which set that f orth,- 
and if one of my assistants will give it to me, I can give you your 
answers very precisely, sir. 
Mr. Henderson. You remember it, do you not? 
Mr. Nehemkis. Generally speaking, the investment banking houses 
which benefited from the agreement entered into as of December 21, 
1929, being committee "Exhibit No. 1931," with those banking houses 
that had associated themselves with the Emanuel interests. 
Mr. Henderson. And had formed Usepco. 

Mr. Nehemkis. And through various exchanges, and so on, had 
been instrumental in forming Usepco. For example, Ladenburg, 
Thalmann & Co. had a very potent interest in the earlier historical 
underwriting syndicates and you will recall the testimony shows 
that Ladenburg, Thalmann had to be bought out and cash was paid to 
them, and it was as a result of that heavy paymerit in cash that 
the Emanuel group ultimately got into difficulties because they had 
to pledge the collateral with the banks in order to get the cash to 
pay Ladenburg, Thalmann. 

Mr. Miller. You said Usepco was an issuer. It was the principal 
stockholder. 

Acting Chairman Williams. My question was, who are these 
parties that signed this original agreement, whether they are 
investment houses, underwriters, or whether there is one of them an 
issuer and the other two are underwriters. 

Mr. Nehemkis. I would say, sir, that the answer to your ques- 
tion is as follows: If I correctly understand the testimony 

Senator King. Pardon me, I hope Mr. Fuller listens so we can 
get his views. 

Mr. Nehemkis. H. M. Byllesby & Co. at the time it entered into 
this contract would be considered an investment banking house. 
Ladenburg, Thalman & Co. at the time it entered into the contract 
would be considered an investment banking house. United States 
Electric Power Corporation, referred to throughout the testimony as 
Usepco, was a holding company that held the stock of underlying 
corporations, and was a signatory to the agreement. Now, it is true, 
Mr. Miller, that Usepco was not an issuer. The issuers were the 
underlying corporations, but as Mr. Miller well knows, the underly- 
ing corporations couldn't issue without the consent and approval 
of Usepco. 

Acting Chairman Williams. It certainly was not an underwriter. 
Mr. Nehemkis. No, sir; by no conceivable stretch of the imag- 
ination. 

Senator King. Is that your view, Mr. Fuller? 
Mr. Fuller. From the time I have known much about this agree- 
ment I have always in my own mind, not being a party to it, you 
understand, considered it as an agreement amongst bankers and for 
convenience I thought that certain of the underwriting bankers' 

1 "Exhibit No. 1931." 
'"Exhibit No. 1040." 



CONCENTRATION OF ECONOMIC POWER 12019 

interests were concentrated in Usepco, and I think you will cut 
through all of this by going down to the division under the Usepco 
percentage mentioned. In essence it was a banking underwriting 
arrangement rather than an issuer-banking contract, in my opinion. 

Mr. Nehemkis. Undereath Usepco you had Hydro. 

Mr. Fuller. We had a whole group. As a matter of fact, I don't 
think Hydro participated in that financing at that time. 

Mr. O'Connell. May I ask a question of Mr. Dulles? This is a 
question you may not be in position to answer, but I am curious to 
know whether in your experience you have ever had any occasion to 
pass on the enforceability of a contract for future financing over an 
indefinite period of time and without a very definite term between 
investment bankers and issuing concern. 

Mr. Dulles. I recall one — I would rather not mention the name — 
where a banking house had an option on the financing of the par- 
ticular issuer over a certain period of time. There were several 
issues by the banking house pursuant to that contract, and then the 
company desired to cancel it and it was canceled, as I recall, for a 
relatively small consideration. That is the only instance that I 
recall. 

Mr. O'Connell. I was more interested in the general legal pro- 
priety of an issuing concern contracting for general future financing • 
with a group of underwriters. 

Mr. Dulles. It was done a good deal and there is a good deal to 
be said, I think, pro and con. 

Mr. O'Connell. You mean speaking of the legality. 

Mr. Dulles. As far as the legality is concerned, I think it would 
be very difficult to enforce such a contract because it isn't precise 
enough. There is no agreement as to the terms of the future financ- 
ing, and if the particular banking house that has the contract with 
the issuer is not prepared to do the financing, and some other house 
is, it seems to me almost inconceivable that that banking house could 
enforce the contract and prevent the issuer from financing under 
those conditions. 

Mr. O'Connell. If the terms were reasonably precise and a formula 
were set up for determining the price of the securities to be issued by 
the issuing house and the contract were entered into with the approval 
of a given board of directors for an indefinite period of time or for a 
given number of years, and assuming that the issuing house wished 
to change its banking connection and that the former banking con- 
nection wished to assert its right under such an agreement, do you have 
any opinion as to whether such an agreement would be enforceable? 

Mr. Dulles. I could conceive that an agreement could be made for 
a first refusal which might be enforceable. That assumes, of course, 
(hat the banking house that the issuer approached, was ready and 
willing to do the financing on the same basis as anyone else would. 
(Senator King assumed the Chair.) 

Mr. O'Connell. I heard something said some time, I think, during 
the hearing about whether or not a given board of directors could 
bind a corporation that they represent over such a period of time. 
# Mr. Dulles. On that point' I think it is extremely doubtful as to 
whether one board of directors could bind the judgment of another 
board of directors for any long period of time. Of course, if all you 



12620 CONCENTRATION OP ECONOMIC POWER 

have is a first refusal, you haven't bound the company to anything 
very serious. 

Mr. O'Connell. It is exactly the same situation as the one, I assume, 
in which the issuing house want to change their house, that the invest- 
ment house want certain rights to its securities, because that is the 
same as the right to first refusal. It is exactly the situation that I 
assume because I am assuming the former investment house want to 
keep the connection so the refusal would be in effect exactly the same 
as the right to enforce the agreement. 

I see no distinction between those two, do you? 

Mr. Dulles. Except that the one contract might be bad for indefi- 
niteness, whereas the first refusal contract might not be bad on that 
ground. It might well be as being an improper delegation of author- 
ity by assumption of authority by one board of directors. 

Mr. O'Connell. That is the point I had in mind, that one you just 
mentioned. _* ; 

"moral eorce" of the banking memorandum 

Mr. Nehemkis. About the time that we are discussing, Mr. Fuller, 
you had occasion to write a memorandum in which you set forth your 
understanding of these various agreements and the agreement in par- 
ticular. ,1 ask you to identify this memorandum for me, if you will. 

Mr. Fuller. That seems to be from our files. 

Mr. Nehemkis. You stated this, Mr. Fuller, as your understanding 
of these arrangements [reading from "Exhibit No. 1969"] : 

Upon the formation of U. S. Electric Power Corporation, three agreements 
were entered into between H. M. Byllesby & Co. and Usepco, copies of which were 
in Mr. Fisher's possession. Only one of these is considered a legally enforceable, 
signed contract, under which Byllesby gives Usepco an option on its holdings 
of Standard Power & Light stock in case Byllesby wishes to sell. It includes a 
provision that if Usepco declines at the price offered, and Byllesby sells elsewhere, 
then Byllesby will execute an irrevocable proxy for the shares to Usepco. 

The other two documents are merely gentlemen's agreements with no binding 
force in law, which was understood at the time of their negotiation. The one 
called the "Dividend Agreement" is signed by the parties ind obligates them 
to confer on dividend policy, awards 50% of the system's bank deposits and all 
fiscal agency functions to Usepco's nominees, covers publicity, public relations, etc. 

The other, called the "Financial Agreement," is merely initialed. 

But you were in error about that as you have already testified be- 
cause you had not seen the agreement, which was not initialed but 
which contains the signatures. [Reading further from "Exhibit No. 
1969":] 

It is this agreement which divides the financing 75% to Usepco and 25% to 
Byllesby, with certain other provisions. 

And it is over that division of financing that the struggle that we 
have been describing this afternoon concerned itself, is that not cor- 
rect? 

Mr. Fuller. Yes ; as I understand the question. 

Mr. Nehemkis. [Reading further from "Exhibit No. 1969" :] 

While arrangements as to Standard Gas financing are thus not on a legallv 
enforceable basis, they have worked without difficulty since 1929 

You were referring to these arrangements covered here? [Holding 
up "Exhibit No. 1931."] 

[Mr. Fuller nodded in agreement.] 



CONCENTRATION OF ECONOMIC POWER 12621 

Mr. Nehemkis (continuing) : 

and are similar to many other such arrangements, all of which operate as long 
as the parties thereto are reliable. 

I take it that) at the time you wrote this, you were of your own 
knowledge familiar with other such arrangements, were you not? 

Mr. Fuller. I am trying to recall any specific examples. I assume 
I was because it was fairly common knowledge. 

Mr. Henderson. Were you relying on Mr. Crispell's advice? 

Mr. Fuller. Not necessarily so. I think out of my own experi- 
ence I had heard of such agreements, and I had certainly heard of 
them in foreign banking and other fields. Offhand I couldn't cite 
many examples. 

Mr. Nehemkis. Of your personal experience, do you know of any 
instance where an agreement such as we have had occasion to dis- 
cuss, which is not legally enforceable, but which has evidently moral 
effect, has ever, been breached and where suit has been brought to 
enforce the terms of the agreement? 

Mr. Fuller. I can't recall where suit has been brought to enforce 
the terms, but I recall an indirect breach of such contract in a foreign 
financial field where a certain house had a time agreement on the 
financing and the foreign state breached that by setting up its f 
financing in such a way that technically it didn't come under the 
agreement, although it should have. There was no suit about it 
because you can't very well sue a foreign entity on such grounds. _ 

Mr. Nehemkis. But you know of no instance where an agreement 
of this nature has been breached here in America? -" 

Mr. Fuller. With the following suit? 

Mr. Nehemkis. Yes. , j 

Mr. Fuller. I don't recall offhand. Of course, I might explain 
from the banker's point of view I think I personally, and certainly a 
good many of my friends, feel these agreements are a good "foot 
in the door," a chance to negotiation. We never considered that it 
really gave us a firm hold on the business. 

Mr. Henderson. Mr. Emanuel, at the time the loan was under 
water how did the bank regard this gentlemen's agreement ? 

Mr. Emanuel. I don't recall that they particularly had any regard 
for it. 

Mr. Henderson. Didn't they ask that wliile the loan was under 
water, any consideration of financing should be taken up with them 
and did not Usepco write a long letter to them explaining their 
understanding as to this? 

Mr. Emanuel. I can't presently recall, Mr. Henderson. It is quite 
possible, though. It is so long ago I can't recall. 

Mr. Henderson. I can assure you that is the case, and if it gets 
important, I will introduce the document. 

Mr. Nehemkis. Mr. Henderson, my associate calls 

Mr. Emanuel (interposing). I don't say it isn't true. 

Mr. Nehemkis. My associate calls my attention to a document 
which I had intended to offer a little later, but which bears on your 
point. This is the understanding of Smith, Barney & Co., con- 
cerning this whole arrangement, and they write as follows concerning 
the matter you have asked the witness: 1 

1 The memorandum referred to Is included in the appendix on p. 13018. 



12622 CONCENTRATION OF ECONOMIC POWER 

General arrangements pursuant to which investment bankers are selected 
for companies comprising the Standard Gas & Electric Company System: 

As of March 2, 1933, U. S. Electric Power Corporation had demand bank 
loans totalling $12,500,000 (of which Chase National held 50% or $6,250,000— 

and so on, they outline the bank holdings. 

These $12,500,000 U. S. Electric Power Corporation secured demand notes 
(dated March 1, 1933), were given to the three banks pursuant to a written 
agreement between U. S. Electric Power Corporation and the banks dated 
and executed on March 1, 1933, and all but a small part of them are still 
outstanding and unpaid. 

Note the following paragraph, if you will, sir. 

Among other things, that March 1 agreement contained a provision that 
U. S. Electric Power Corporation would furnish the banks with a certified 
list of all contracts to which they were then a party (except those covering 
ordinary current operations) and agree (so long as any of the $12,500,000 
demand notes remained unpaid) not to change any such contracts without 
the consent of the banks. The March 1, 1933 agreement also provided that 
U. S. Electric Power Corporation (recognizing that those contracts were assets 
which should be available to creditors) agreed in so far as possible to give 
the three banks the benefit of such contracts and pay over to them any con- 
sideration received by U. S. Electric Power Corporation therefrom. 

And the following very important provision : 

One contract covered by the foregoing provision is a Memorandum dated 
December 21, 1929— 

This is the agreement we have been talking about — l 

signed by H. M. Byllesby & Co., U. S. Electric Power Corporation and 
Ladenburg, Thalmann & Co., which sets forth the manner in which the invest- 
ment bankers to handle securities issues of the Standard Gas and Electric 
Company system are to be selected. Subject to certain exceptions (including 
particularly the financing of the Philadelphia Company and subsidiaries) the 
general arrangement contemplates that financing shall be undertaken as to inter- 
est and liability, at original cost, as follows : 

U. S. Electric Power Corporation, 75%. 

H. M. Byllesby & Company, 25%— 

And that is the old 75-25 thing that I have been speaking about 
all afternoon and morning. 

And then they continue as follows : 

In connection with the March 1, 1933 bank loan negotiations, Mr. Lewis H. 
Seagrave, Chairman of the Board of U. S. Electric Power Corporation, verbally 
confirmed to R. L. Garner, Vice-President and Treasurer of the Guaranty Trust 
Company, that U. S. Electric Power Corporation would consult the banks 
(which are parties to the March 1, 1933 bank loan agreement) in connection 
with subsequent financing of the Standard Gas and Electric Company system. 

In connection with specific financing for any part of the Standard Gas and 
Electric Company system, reference should be made to the December 21, 1929 
Memorandum signed by H. M. Byllesby & Company, U. S. Electric Power Cor- 
poration, and Ladenburg, Thalmann & Co., but the more important provisions of 
that Memorandum are summarized in the general outline set forth on the 
following page hereof. 

Mr. Emanuel. I think that is true, Mr. Henderson. 

Mr. Henderson. I seemed to remember it as such. 

Mr. Nehemkis. I offer in evidence the document which Mr. Fuller 
was good enough to identify a moment ago. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit 'No. 1969" 
and is included in the appendix on p. 12897.) 

Mr. Nehemkis. And will you be good enough to identify the fol 

1 "Exhibit No. 1931." 



CONCENTRATION OF ECONOMIC FOYVEK 12623 

lowing document for me, Mr. Fuller, which purports to come from 
your files? 

Mr. Fuller. I identify it. 

Mr. Nehemkis. This is a letter from Mr. Simpson to Mr. Frank 
Common, who was associated with Hydro-Electric. Is that correct, 
sir? 

Mr. Fuller. Yes. 

Mr. Nehemkis. I want to read Mr. Simpson's understanding of 
this matter which was discussed at the time and which bears the same 
date as the previous discussions. Mr. Simpson wrote as follows 
[reading from "Exhibit No. 1970'*'] : 

The legality of the contractual arrangements with Byllesby. 

We have gone into this question carefully, both with Sullivan & Cromwell and 
Victor Emanuel, and Carl Fuller has prepared a memorandum as of today's 
date which sets forth the position. It confirms your view that the financial 
agreement is not legally binding. On the other hand Victor Emanuel feels 
strongly that the agreement has moral force, has in the past been adhered to, 
and is playing a role in the present negotiations. By this last I mean that he 
states that all parties concerned, including Byllesby, Harrison Williams and the 
banks, recognize the force of the Byllesby-Dsepco financial agreement. 

And that confirmation incidentally is what Smith, Barney recog- 
nized. 

He contends that everybody feels Usepco's position in this respect is strong 
enough so that account must be taken of it, and that Byllesby have taken this 
attitude with all parties concerned. 

Mr. Fuller, you will recall that it was on the basis of that in- 
terpretation of this agreement that Hydro put its money into this 
venture. 

Acting Chairman King. Is that right? 

Mr. Fuller. Not entirely true. Of course there is a long period 
of cable correspondence, visits back and forth, and any number of 
other considerations involved. That was one consideration amongst 
many. 

Mr. Nehemkis. And it was because of that important considera- 
tion that Schrodpriv cabled to Schrobanco's attention requesting it to 
obtain legal opinion? 

Mr. Fuller. That is quite right. 

Mr. Nehemkis. In order to find out whether it was legally en- 
forceable. 

Mr. Fuller. That is quite right. They were very careful. 

Mr. Nehemkis. I offer this in evidence. 

Acting Chairman King. It may be received. 

(The letter referred to was marked "Exhibit No. 1970" and is in- 
cluded in the appendix on p. 12897.) 

Mr. Nehemkis. My associate, Mr. Chairman, advises me that in- 
advertently a document which had been identified by the witness was 
not offered. I ask that it be admitted at this time and I will advise 
the reporter of the exact place it should appear. 

Acting Chairman King. No objection. 

(The document referred to was marked "Exhibit No. 1971" and is 
included in the appendix on p. 12899.) 

Acting Chairman King. Have you anything you gentlemen would 
like to say? The witnesses are excused and we will recess until 
10 : 30 tomorrow morning. 

(Whereupon at 5:20 p. m. the committee recessed until 10:30 
o'clock Friday morning.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER 



FRIDAY, JANUARY 12, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. G. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Thursday, January 11, 1940, in the Caucus Room, Senate Office Build- 
ing, Representative Clyde Williams presiding. 

Present: Representative Williams (acting chairman), Messrs. 
Henderson, O'Connell, Lubin, and Brackett. 

Present also : Clifton M. Miller, Department of Commerce ; Thomas 
C. Blaisdell, Jr., National Resources Board ; Peter R. Nehemkis, Jr., 
special counsel; David Ryshpan, financial analyst; Oscar Altman, 
associate financial economist; Howard V. McEldowney, accountant 
investigator, Securities and Exchange Commission. 

Acting Chairman Williams. The committee will be in order. 

Mr. Henderson. Mr. Chairman, in line with our previous practice 
of trying to give a bare outline of the day's presentation, I have this 
to say : Today, as the Investment Banking Section of S. E. C. relies 
again on the case method of presentation. Today we are concerned 
with certain investment-banking practices as exemplified by the fi- 
nancing of Shell Union Oil Corporation. 

The committee will recall that there was placed in the record a 
I able 1 indicating the experience of Morgan Stanley with about, 70 
issues, and if my memory serves me correctly, on all the issues which 
Morgan Stanley managed, they had the proud record of not a single 
loss. In this particular case, I believe Morgan Stanley was a par- 
ticipant in the underwriting for Shell Union, and I believe the record 
will show that some of the participants, some underwriters, distrib- 
utors, did suffer some disadvantages, due, I think the publicity stated, 
to the overpricing of the issue — I believe that is the term. 

We are concerned today with the presentation of the type of nego- 
I iation that went on between the issuer and those who handled the 
issue in the investment-banking field, and it will be necessary to go 
back into some of the previous issues which were brought out by 
American investment-banking firms. We are hoping that the testi- 
mony today will indicate not only the nature of the negotiations 
between the issuer and the investment-banking house, but the nature 
of the understandings and the practices and the type of contractual 
provisions that exist between the underwriter and those participating 
with him in the diffusion of the risk attendant upon bringing out an 
issue. 



See "Kxliibit No. 1TCL'." Hearings!, Part 2'-'., fm:ing j>. "122D1. 

12025 



12626 CONCENTRATION OF ECONOMIC POWER 

The other day Mr. Nehemkis put into the record x some data indi- 
cating how the day loan operates. I think it was apparent to the 
committee that in many cases, practically every case, and as the later 
information concerning the financial resources of underwriting 
houses will show the issues are far larger, of course, than the total 
capital of the principal underwriter and in some cases exceed the 
total resources of all the underwriters concerned. 

I think we ought to note again that the Investment Banking Sec- 
tion selected this particular case many months ago for presentation, 
that no one of the questions which will be addressed to witnesses was 
formulated by anybody connected with the S. E. C, and I particu- 
larly want the record to show that I did not suggest any part of the 
questions. 

I say this, Mr. Chairman, because I have to note again that the 
S. E. C. has before it in a . quasi-judicial capacity a pending issue 
in which Morgan, Stanley is interested. Therefore, again I will be 
inhibited from asking some questions about which I believe logically 
I would be prepared to interrogate' the witness. 

Acting Chairman Williams. You may proceed, Mr. Nehemkis. 

Mr. Nehemkis. Will Mr. S. W. Duhig be good enough to take the 
witness stand, please? 

Mr. Henderson. One other thing, Mr. Chairman. I think the 
record ought to note that some of the witnesses, particularly Mr. 
Stanlej 7 , have very graciously consented to come back from well- 
earned vacations to take part in this hearing at the convenience of 
the committee. 

Acting Chairman Williams. Do you and each of you solemnly 
swear that the evidence you are about to give in this matter will be 
the truth, the whole truth, and nothing but the truth, so help you 
God? 

Mr. van der Woude. I do. 

Mr. Duhig. I do. 

TESTIMONY OF R. VAN DEE WOUDE, PRESIDENT, AND S. W. 
DUHIG, VICE PRESIDENT AND TREASURER, SHELL UNION OIL 
CORPORATION, NEW YORK CITY 

Mr. Nehemkis. Mr. van der Woude, will you state your full name 
and address, please ? 

Mr. van der Woude. R. van der Woude — v-a-n d-e-r W-o-u-d-e. 
I am president of the Shell Union Oil Corporation, 50 West Fiftieth 
Street, New York. 

Mr. Nehemkis. What office do you hold with the Shell Union Oil 
Corporation? 

Mr. van der Wotjde. 1 am the president. 

Mr. Nehemkis. You are the president of the company ? 

Mr. van der Woude. Yes. 

Mr. Nehemkis. Mr. Duhig, will you state your full name and 
address, please? 

Mr. Duhig. Stanley W. Duhig, 50 West Fiftieth Street, New York. 

Mr. Nehemkis. And what position do you hold with the Shell 
Union Oil Corporation, Mr. Duhig? 

1 Supra, pp. 12538-12544. 



CONCENTRATION OB 1 ECONOMIC POWER 12627 

Mr. Duhig. I am vice president and treasurer of the corporation. 
Mr. Nehemkis. And will you describe briefly the nature of your 

duties ? 

Mr. Duhig. The usual duties that you jvould assign to a treasurer 
of an oil company in looking after the conservation of the company's 
cash and the financing of operations as needed, budgetary work, and 
so forth. - 

Mr. Nehemkis. Do you not, as part of your duties, specifically con- 
cern yourself with securities matters, that is to say, do you not 
make a study of market trends, questions of price as they appear on 
other offerings? Do you not concern yourself in general with finan- 
cial and . corporate problems so that you may better execute your 
official duties? 

Mr. Duhig. I would say that that is an important part of my 
duties. 

Mr. Nehemkis. And will you describe briefly the kind of business 
that the Shell Union Oil Corporation is engaged in ? 

Mr. Duhig. Shell Union Oil Corporation is a holding company 
having 100 percent subsidiaries engaged in the United States in pro- 
ducing, refining, and marketing petroleum products, with some inter- 
ests in Canada. 

SYMBOLS AND ABBKEVIATI0N8 USED IN DOCUMENTS 

Mr. Nehemkis. May I, for the sake of convenience, Mr. Duhig 
and Mr. Van der Woude, refer to Shell Union Oil Corporation 
hereafter in the hearings as "Shell" ? Will that be agreeable ? 

Mr. Duhig. Yes. 

Mr. Nehemkis. We will have occasion, Mr. Duhig, to discuss; a 
number of cablegrams between New York and -London, and these 
cablegrams bear certain code addresses, such as Condeteck, Deterding, 
and so on. Will you briefly describe to> the committee the meaning 
of the various code symbols? 

Mr. Duhig. Yes; code addresses for cablegram purposes are used 
both in sending and receiving .ommunications to and from London. 
It happens that of our 12 directors, 4 of them at the present time 
are resident oh the other side, although 3 of those 4 have been former 
officers and directors in this country of Shell, and it is common 
practice to arrive at unanimous decisions of the board by conferring 
with those members who are on the other side by cablegram. Natu- 
rally, for the sake of convenience and economy, we use cable 
addresses, code addresses, and I confirm those are the ones you 
refer to. 

Mr. Nehemkis. When you and I have occasion to refer to 
Condeteck, as we shall, what will the committee understand? 

Mr. Duhig. That would be a cable from Shell Union New York 
office to the directors in, well, it would be from van der Woude to 
his fellow directors on the other side of the Atlantic. \ 

Mr. Nehemkis. And when we have occasion to refer to 
Deterding, what shall the committee understand to be the meaning 
of that code symbol? 

Mr. Duhig. Similarly. It is just- another code to cover the same 
purpose. 

124491— 40— pt. 24- 21 



12628 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. And occasionally we shall refer to Van wood. 
What will the meaning be that is accorded to that symbol? 

Mr. Duhig. That is another confidential code symbol from Mr. 
van der Woude to the London office. 

Mr. Nehemkis. Mr. Chairman, may it please the committee, I 
intend to offer some 37 letters, memoranda, and cables between New 
York and London and others. If I were to ask that Mr. van der 
Woude or Mr. Duhig identify each cable before offering, we would 
probably be here much longer than I hope will be necessary. Accord- 
ingly I have asked Mr. Duhig to enter into a stipulation with me 
identifying each and every caole which will be offered to the com- 
mittee this morning. 

Mr. Duhig has been good enough to do so, and I show you, sir, the 
stipulation, with the documents which will be offered, and I respect- 
fully request that the Committee permit me to offer these documents 
through the stipulation without the identification of each cable as 
the occasion arises. 

Acting Chairman Williams. This stipulation, I assume, identifies 
the various cables by number, so they can be designated? 

Mr. Nehemkis. Correct, sir. You will find attached to the stipu- 
lation the list of the cables and their numbers, and in that order they 
will be submitted to the reporter. 

Acting Chairman Williams. That may be done. 

(The stipulation referred to was marked "Exhibit No. 1972" and 
is included in the appendix on p. 12903.) 

Acting Chairman Williams. Now that the record may be clear, do 
I understand this stipulation covers all the documentary evidence 
you propose to offer with reference to these witnesses? 

Mr. Nehemkis. Correct, sir. 

Mr. Duhig, on June 1935 and thereafter, did not Shell negotiate 
toward raising $50,000,000 to $60,000,000 in order to refund its out- 
standing 5-percent debentures? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. Were not negotiations carried on with a number of 
investment bankers at this time? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. Did not Shell discuss its financing needs with Lee 
Higginson .Corporation and Hayden, Stone & Co. ? 

Mr. Duhig. They did; yes. 

Mr. Nehemkis. I offer a letter from Mr. J. C. van Eck to Mr. F. 
Godber, dated June 7, 1935. 

Acting Chairman Williams. It may be received, and all of those 
will be received without formal declaration because they are covered 
by a stipulation. 

Mr. Nehemkis. May I then just pass them directly to the reporter? 

Acting Chairman Williams. . Unless you want them back. 

Mr. Nehemkis. No. 

(The letter referred to was marked "Exhibit No 1973" and is 
included in the appendix on p. 12904.) 

Mr. Nehemkis. Lee, Higginson & Co. was the predecessor of Lee 
Higginson Corporation, was it not? 

Mr. Duhig. That is correct. 



CONCENTRATION OF ECONOMIC POWER 12629 

Mr. Nehemkis. And Lee, Higginson & Co. had headed all of the 
public offerings of Shell securities from the time of its first public 
financing in 1927? 

Mr. Duhig. The first public financing in 1922. 

Mr. Nehemkis. 1922; yes. 

Mr. Duhig. I think that is correct. 

Mr. Nehemkis. I offer a table compiled by the staff of the Securi- 
ties Exchange Commission from information appearing in Moody's 
Manual, showing various public offerings of Shell Union securities 
prior to the year 1935. 

(The table referred to was marked "Exhibit No. 1974" and is 
included in the appendix on p. 12905.) 

DISCUSSIONS WITH BANKERS LEADING UP TO 1936 FINANCING 

Mr. Nehemkis. Hay den, Stone & Co. had been one of the principal 
underwriters associated with Lee, Higginson in the underwriting of 
Shell securities, had it not, Mr. Duhig? 

Mr. Duhig. I think that is correct. 

Mr. Nehemkis. Shell had also negotiated with Dillon, Read & Co. 
at this time. Is that not also correct, sir ? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. I offer in evidence at this time a letter from Mr. 
S. Belither to Mr. Van Eck, dated July 22, 1935, and a cable from 
Condeteck to Deterding dated August 14, 1935. 

(The documents referred to were marked "Exhibits Nos. 1975 and 
1976" and are included in the appendix on p. 12905.) 

Mr. Nehemkis. At this time, Mr. Duhig, did Shell not also discuss 
the proposed financing with Brown Harriman & Co. ? 

Mr. Duhig. I think that they did ; yes. 

Mr. Nehemkis. And do you recall whether this financing was also 
discussed with Lazard Freres & Co.? 

Mr. Duhig. It was. 

Mr. Nehemkis. I offer a cable from Deterding to Mr. Van Eck, 
dated October 14, 1935, and a caible from Deterding to Condeteck 
dated July 29, 1935, and in connection with that last cable, I should 
like to read into the record the following [reading from "Exhibit No. 
1978"] : 

We entirely agree every possible avenue must be investigated but anxious not 
to appear in any great hurry as we are satisfied with time our side. 

(The cables referred to were marked "Exhibits Nos. 1977 and 1978" 
and are included in the appendix on p. 12906.) 

Mr. Nehemkis. In undertaking these discussions, Mr. Duhig, was it 
not Shell's intention to consider proposals from various firms in order 
to determine the best terms obtainable in the market? 

Mr. Duhig. I would say that Shell did not go around soliciting 
different proposals ; rather bankers offered proposals as to what might 
be done to meet Shell's situation, all of which we were very glad to 
consider and compare. 

Mr. Nehemkis. And the purpose or interest, shall I say, of Shell in 
examining these various proposals was to obtain the best possible 
terms that the market made possible at the time ? 



12630 CONCENTRATION OP ECONOMIC POWER 

Mr. Duhjg. That is correct. 

Mr. Miller. May T #sk a question of the witness ? You say that you 
were not soliciting proposals from the bankers. How did they know 
that you were in the market for financing? Did they come to you 
without any solicitation — maybe that isn't the word — without any 
approach from you? 

Mr. Duhig. Well, that is rather hard to make a general answer to, 
because naturally in following the financing business one becomes ac- 
quainted with bankers and discusses the subject of corporation finance 
on various occasions. I think that in most cases the investment bank- 
ers are sufficiently on their toes that they sense the possible needs of 
the corporation and inquire as to what might be worked out to improve 
the financial structure. 

Mr. Miller. These were all voluntary approaches, then, to you and 
your associates from the investment banking firms? 

Mr. Duhig. As I said, that is very difficult to answer. I nryself 
dropped in in investment bankers' offices to discuss finance in general, 
or to discuss what some other oil company was currently doing as a 
matter, of interest. 

Mr. Nehemkis. On November 1, 1935, had not Dillon, Read made a 
tentative proposal to Shell ? 

Mr. Duhig. Yes; they had. 

Mr. Nehemkis. And on November 1, 1935, Condeteck sent the 
following cable to Deterding in London, from which I read a part 
[reading from "Exhibit No. 1979"] : 

If indicated terms acceptable as basis for further negotiations would recom- 
mend we give other banker friends opportunity to indicate their terms stop 
Bankers whom we think should be given opportunity are 

First Lee Higginson and Hayden Stone 

Second Lehman Bros. 

Third Lazard Freres. 

I offer it in evidence. 

(The cable referred to was marked "Exhibit No. 1979" and is in- 
cluded in the appendix on p. 12906.) 

Mr. Nehemkis. After further discussion with the various bankers, 
Mr. Duhig, did not Shell, in December, advise Dillon, Read as to the 
terms on which Shell was prepared to sell the proposed issue ? 

Mr. Duhig. I think the answer to that is that we probably indicated 
the terms at which Shell felt they could make a profitable deal and 
that anything less than that would; not be worth doing. 

Mr. van der Woude. They quoted terms at which they thought they 
could make a deal with us. 

Mr. Nehemkis. Let me read you from the letter from Dillon, Read 
& Co. to Shell, dated December 16, 1935 [reading from "Exhibit No. 
1980"] : 

You have informed us that you are preparing a registration statement and 
a prospectus for an issue of $50,000,000 3%% Fifteen- Year Debentures of your 
Company to refund your outstanding Twenty- Year Sinking Fund Debentures— 

and so on. 

"We understand that you are prepared to sell the issue at a price of 97% 
of the principal amount plus accrued interest. This price does not take into 
consideration the expenses to be borne by your Company in connection with 
the financing including the fees and disbursements of counsel and other experts 
and travelling, telephone, telegraph, and other similar out-of-pocket expenses 
(except selling expenses) of the underwriters. . . . 



CONCENTRATION OE ECONOMIC POWER 12631 

It is understood that this letter is not to be construed as a commitment, 
either legal or moral, on our part or on the part of your Company. 

(The letter referred to was marked "Exhibit No. 1980" and is in- 
cluded in the appendix on p. 12907.) 

Mr. Nehemkis. Now, on December 16, 1935, Dillon, Bead wrote to 
Shell Union confirming these terms and stating that they were pre- 
pared to proceed with an investigation in the belief that they would 
be able to purchase the issue at the price mentioned. Is that not 
correct? 

Mr. Duhiq. That is correct. 

Mr. Nehemkis. And Shell also advised Hayden, Stone and Lee 
Higginson as to the terms on which it was prepared to do business. 
Do you recall that, Mr. Duhig? 

Mr. Duhig. That is correct; yes. 

Mr. Nehemkis. And on December 18, 1935, these two firms jointly 
wrote Shell stating that as soon as the market made it possible for 
them to meet these terms, they would communicate with Shell? 

Mr. Duhig. Correct. 

Mr. Nehemhis. I offer in evidence a letter from Lee Higginson 
Corporation and from Hayden, Stone & Co. to the Shell Union Oil 
Corporation dated December 18, 1935. 

(The letter referred to was marked "Exhibit No. 1981" and is in- 
cluded in the appendix on p. 12908.) 

Mr. Nehemkis. However, Mr. Duhig, the price confirmed by Lee 
Higginson and Hayden, Stone was one-half point higher, was it not, 
than the price confirmed by Dillon, Bead ? 

Mr. Duhig. That is according to the record ; yes. 

Mr. Nehemkis. Was this due to their possible misunderstanding, or 
had you indicated different terms to Lee Higginson and Hayden, 
Stone? 

Mr. Duhig. We certainly hadn't indicated different terms; it pos- 
sibly was a question of our not having indicated at all to Lee Higgin- 
son and Hayden, Stone or that they assumed something which they 
put in their letter and which was a surprise to us when we saw it. 

Mr. Nehemkis. I read from a cable by Deterding, London, to 
Condeteck, under date of January 14, 1936 [reading from "Exhibit 
No. 1982"] : 

Weill telephoned us from Paris today and we recommend you keep in touch 
with Lazard Freres in New York and consider carefully any proposal more 
attractive than that of Dillon Read's. 

For the sake of the record, "Weill" refers to the Paris partner of 
Lazard Freres & Co. 

I offer the cable in evidence. 

(The cable referred to was marked "Exhibit No. 1982" and is in- 
cluded in the appendix on p. 12908,) 

During this period, after the proposals had been received from 
Hayden, Stone and Lee Higginson and Dillon, Head, Shell continued 
to consider proposals from other bankers, did it not, Mr. Duhig? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. And on January 13, 1936, did not Mr. Clarence 
Dillon advise Shell verbally that his firm could now pay 97, this being 
the price at which Shell had indicated to Dillon, Bead that it was 
prepared to sell the debentures ? 



12632 CONCENTRATION OF ECONOMIC POWER 

Mr. Duhig (to Mr. van der Woude). Can you answer that? 

Mr. van der Woude. That is correct. 

Mr. Nehemkis. I offer in evidence a cable to Condeteck, London, 
under date of January 3, 1936, and I read the second paragraph 
of this cable, marked "Confidential" [reading from "Exhibit No. 
1983] : 

In order to make progress my opinion we should now obtain from all parties 
interested offer in writing say by next Thursday for alternative $50,000,000 
with obligation refund one of present Shell" Union Oil Corp. issue or $60,000,000 
with obligation to refund both Shell Union Oil Corp. and Shell Pipe Line Corp. 
issues stop 

What is your opinion 

PURPOSE OF PREVIOUS NEGOTIATIONS TO PAVE WAT FOR FORMAL BIDS 

Mr. Nehemkis. Mr. Duhig, was not the purpose of the previous 
negotiations to pave the way for a later request to the bankers to 
submit formal bids? 

Mr. Duhig. That is correct. 

(The cable referred to was marked "Exhibit 1983" 'and is included 
in the appendix on p. 12908.) 

Mr. Nehemkis. But the idea of obtaining competitive bids from all 
the interested parties was discarded, was it not ? 

Mr. Duhig. Yes ; it was. 

Mr. Nehemkis. And in a cable to Deterding, London, by Conde- 
teck, under date of January 22, 1936, there appears the following 
[reading from "Exhibit No. 1984"] : 

As contemplated procedure of competitive bidding caused undesirable com- 
plications we have had discussions with view bring bankers possibly together 
without injury to our interests and understanding between two groups now 
arrived at on basis Dillon Read Hayden Stone will be joint syndicate managers 
both houses to head prospectus but Dillon Read to keep syndicate books. 

I offer in evidence the cable previously identified. 

(The cable referred to was marked "Exhibit No. 1984" and is in- 
cluded in the appendix on p. 12909.) 

Mr. Nehemkis. Will you tell me, if you will, Mr. Duhig, what 
undesirable complications would have resulted from the contemplated 
procedure of competitive bidding? 

Mr. Duhig. Well, we were faced with a multiplicity of plans, to 
begin with, trying to compare apples and oranges, you might say, and 
decide which was preferable, and we felt that our relations with all of 
the bankers being very cordial, there was nothing to be gained by 
trying to set one off against the other, because as the exhibit you have 
entered states, it was felt that there would be no disadvantage to the 
corporation in the terms by bringing them together and getting them 
jointly to enter into negotiations for this financing. 

Mr. Henderson. Mr. Duhig, you weren't comparing apples to 
oranges but comparing oranges of different kinds or apples of dif- 
ferent kinds. It all related to the specific issue. 

Mr. Duhig. They all related to that, some of which suggested the 
possibility of convertible debentures or attaching warrants; some had 
different ideas from others as to what was the right call price or 
sinking fund terms, and as I remember it, and as you might naturally 
expect, each proposal slightly differed from the other because they 
had not been made up in the same office. 



CONCENTRATION OF ECONOMIC POWEIt 12633 

Mr. Henderson. Ymi had had no difficulty in wading through the 
relative advantages to the company. Did you have these different 
proposals ? You are an experienced financial officer. 

Mr. Duhig. I think not as experienced, however, as the bankers are 
in such matters. 

Mr. Henderson. I think the record here shows that you rather out- 
smarted the bankers, does it not? I don't want to get ahead of the 
story. I like modesty in its proper place, but it would seem to me 
you are a little too modest. 

Mr. Duhig. I think that is something not borne out by the record, 
Mr. Henderson. 

Mr. Henderson. I think we will have to let the committee judge 
from the record. 

SHELL PROCEDURE IN ISSUING- SECURITIES 

Mr. Nehemkis. Mr. Duhig, was not Shell's final procedure designed 
to obtain the best competitive price while at the same time utilizing 
the accepted forms of banker-corporation relationships? 

Mr. Duhig. That is correct, if you mean by best competitive price 
not necessarily the highest price for the interests of the corporation. 

Mr. Nehemkis. In other words, Mr. Duhig, Shell was trying to eat 
its cake and have it, too. Is that not so ? 

Mr. Duhig. I don't understand what you are referring to. 

Mr. van der Woude. You don't blame us for that, do you? 

Mr. Nehemkis. No. 

Mr. Duhig, how did you manage to bring the two groups together 
without injury to your interests? 

Mr. Duhig. I think the answer to that is that we had our own idea 
as to what would be a profitable deal, and the line which we couldn't 
cross for fear of the deal not being worth doing at all. 

Mr. van der Woude. May I say more as a matter of policy, you have 
to go back a little bit. The record shows we used to have our financial 
transactions with Lee Higginson. You know that Lee Higginson had 
certain misfortunes, and as a result they were no longer in the same 
situation as they had been before. Hayden, Stone also were in close 
relation with them, and also Mr. Charlie Hayden, a senior partner of 
Hayden, Stone, was upon the board of our company. So for « while 
Lee Higginson was in a different position from what they were before, 
and Dillon, Bead, at that time, in '35, made proposals for financing, 
and we, of course, considered it, which came, as Mr. Duhig pointed out, 
to other bankers, and different propositions from other bankers, and 
then it finally came to deciding how we would deal with the situation, 
and we felt that Dillon, Read having come first, and there was an 
opportunity of doing solid financing, we naturally felt that Dillon, 
Read should be given preference and should be given a chance of 
getting it. 

Two or three had been soliciting our business in line with their 
own ideas. There wasn't much difference in the different offers. I 
think you are right in saying it was comparing oranges with oranges 
or apples with apples. It was just a question on what basis we pre- 
ferred to do our financing. Finally we thought the basis of Dillon, 
Read was a more acceptable one, and it was logical to do business with 

Olir old friprtrlQ 



12634 CONCENTRATION OF ECONOMIC TOWER 

FORMATION OF THE 1936 SYNDICATE 

Mr. Nehemkis. Dillon, Head and Lee Higginson were selected to be 
joint managers, were they not ? 

Mr. van der Woude. That is correct. 

Mr. Nehemkis. I think you have already indicated, but I would like 
the record to show at this point again, were not'all of the investment 
bankers with whom Shell had negotiated included in the syndicate ? 

Mr. van der Woude. I think they were ; yes. 

Mr. Nehemkis. I offer a list of the participations, the dollar amount 
of the participations of the Shell Union group dated February 10, 1936. 

(The list referred to was marked "Exhibit No. 1985" and is included 
in appendix on p. 12910.) 

Mr. Nehemkis. Also, -Mr. Duhig, all of the investment bankers that 
had been principal underwriters in previous Shell issues were also 
included, were they not ? 

Mr. Duhig. I think that is correct, 

Mr. Nehemkis. In addition, other investment bankers were also in- 
cluded, but these bankers were selected by Dillon, Reed, and 
Hayden, Stone, subject, of course, to the approval of Shell ? 

Mr. Duhig. That is right. 

Mr. Nehemkis. Among such bankers chosen were Morgan, Stanley 
& Co. for a participation of $5,000,000 of debentures, is that correct ? 

Mr. Duhig. That is correct ; yes. 

Mr. Nehemkis. On March 6, 1936, did not Dillon, Read endeavor 
to induce Shell 'to reduce the price from 97 to 96!/2 5 despite the fact 
that a firm commitment had been made ? 

Mr. Duhig. I think Mr. van der Woude can answer that. 

Mr. van der Woude. That is correct. Of course, they hadn't made 
a firm commitment. All they did was to indicate what conditions 
were at the time of the issue, then the price would be so and so. If I 
remember the letter of Dillon, Read, they did not make a firm com- 
mitment. 

Mr. Nehemkis. What did you understand it to be ? 

Mr. van der Woude. We understood that is what it would be unless 
there was a change in the market. 

Mr. Nehemkis. In other words, you understood what my question 
implied, that it was a firm commitment, despite the provisions that 
surrounded the transmittal letter, which I read into the record, that 
this didn't have any moral or legal effect, is that not correct ? 

Mr. van der Woude. I think in our minds, yes; because we subse- 
quently told Mr. Dillon that we considered it definitely indicated a 
firm price, and he had to adhere to iti 

Mr. Nehemkis. And may I now repeat my question so the record 
will be clear. Is it not a fact on or around March 6, 1936, Dillon, Read 
endeavored to induce S^iell to reduce the price from 97 to 96i^>, despite 
the fact that a firm commitment had been made ? May I have your 
answer to that? 

Mr. van der Woude. It is correct he endeavored to reduce it. 

Mr. Nehemkis. I offer in evidence a telegram to Godber from R. 
van der Woude. 

(The telegram referred to was marked "Exhibit No. 1986" and is 
included in, the appendix on p. 12910.) 



CONCENTRATION OF ECONOMIC POWER 12635 

Mr. Miller. May I ask a question, Mr. Nehemkis? Mr. van der 
Woude, why did Dillon, Read & Co. wish or suggest a reduction in 
the price from 97 to 96% ? 

Mr. van der Woude. Because they thought the market couldn't stand 
the price which they had indicated. 

Mr. Miller. Had the market changed in their opinion? 

Mr. van der Woude. Apparently, in their opinion ; in our opinion, 
it had not. 

Mr. Nehemkis. And Shell, of course, saw no reason to accede to this 
request? 

Mr. van der Woude. No. 

Mr. Nehemkis. I offer in evidence a telegram from Godber to van 
der Woude dated March G, 1936. 

(The telegram referred to was marked "Exhibit No. 1987" and is 
included in the appendix on p. 12911.) 

Mr. Nehemkis. On March 7, 1936, Mr. Duhig, was not a purchase 
contract entered into by Shell with 29 underwriters? 

Mr. Duhig. I think that is the correct date. 

Mr. Nehemkis. And did not Shell agree to sell to the 29 under- 
writers"$60,000,000 15-year 3y 2 percent debentures due March \, 1951? 

Mr. Duhtg. At 97 — that is correct. 

Mr. Nehemkis. And the underwriters agreed to purchase severally 
specified amounts of debentures as you have indicated at 97, plus 
accrued interest? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. The public offering price, therefore, was to be 99 
and accrued interest. 

Mr. Duhig. Correct. 

Mr. Nehemkis. And was not a selling group formed to purchase 
severally a portion of the debentures from the underwriters at a 
concession of 1*4, less expenses not to exceed one-eighth percent? 

Mr. Duhig. That is my recollection. 

Mr. O'Connell. May I ask a question? Mr. Nehemkis said, "And 
therefore the offering price by the underwriters would be 99." Is that • 
by virtue of your agreement with the underwriters, the spread of two 
points ? 

Mr. Duhig. It was agreed that the spread would be two points; 
yes, sir. 

Mr. Nehemkis. Mr. Chairman, I wish to comment at this moment 
that the document I now propose to offer is not covered by the stipu- 
lation. It is a copy of the purchase contract which Dillon, Read have 
been good enough to submit to us, and I ask no one to identify it, 
because there is a letter of transmittal accompanying the document. 

May it be received in evidence? 

Acting Chairman Williams. It may be received. 

Mr. Nehemkis. I beg your pardon, my associate tells me I inadvsr- 
ently referred to it as the purchase contrafct. It is the underwriting 
agreement. 

(The document referred to was marked "Exhibit No. 1988" and 
is included in the appendix on p. 12911.) 

Mr. Nehemkis. The public offering was made on March 11, 1936, 
at 99 ; is that correct, sir ? 

Mr. Duhig. That is correct. 



12636 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. And is it not also correct that the debentures moved 
slowly ? 

Mr. Duhig. They did. 

Mr. Nehemkis. I offer in evidence a telegram to Mr. Duhig from 
J. W. Watson under date of March 11, 1936. 

(The telegram referred to was marked "Exhibit No. 1989" and is 
included in the appendix on p. 12914.) 

Mr. Nehemkis. I offer a telegram from Mr. van Eck to Mr. Godber 
under date of March 11, 1936, and I read from this message to Mr. 
Godber at Mexico City [reading "Exhibit No. 1990"] : 

Understand sale of issue going very slowly and first day only about 50% 
of issue sold (stop) Am afraid will take some time before whole issue absorbed. 

I offer this in evidence. 

(The telegram referred to was marked "Exhibit No. 1990" and 
appears on this page.) 

waiver of management fee 

Mr. Nehemkis. For the convenience of the committee, Mr. Chair- 
man, we have prepared a memorandum which gives in great detail 
the technical steps that took place in this early issue. If we were 
to go into them at this time, it would take too great a time. Accord- 
ingly, we have prepared as I have indicated, our memorandum of the 
understanding of the facts. 

We have submitted this memorandum to Messrs. Dillon, Read & 
Co, for their understanding as .to whether our statement of the facts 
and interpretation is correct, and I have here a letter from Mr. Harry 
H. Egly, an officer of that firm, addressed to me, in which he indicates 
that his firm accepts the data. So that there may be no misunder- 
standing, I ask leave of the committee to read this letter. As I say, 
it is addressed to me. [Reading from "Exhibit No. 1991-1" :] 

As you have requested, we have looked over the memorandum prepared by 
your office, which was enclosed with your letter of November 27, 1939, and 
which' is headed "Re: Distribution of Shell Union 3V 2 % Debentures in 1936." 
In general the data appear to be correct. 

For your information, the amount of Debentures offered to the Selling 
Group was $27,480,000. This figure was left blank in your memorandum. 

We had requested them to fill that information in because we didn't 
know what it was. 

Tou have asked why no management fee was charged although it was orig- 
inally contemplated that each of the Managers was to receive % of 1%. In 
view of the general market uncertainty which existed just prior to the offering 
date and of the unwillingness of the Company to meet our recommendation in 
pricing the issue, it was decided to waive the Tee in this instance thus 
permitting the full discount to be divided among all underwriters and selling 
group members. 

I offer, sir, the letter of transmittal and the memorandum to which 
reference has been made. 

Acting Chairman Williams. It may be received. 

(The documents referred to were marked "Exhibit No. 1991-1 
and 2" and are included in the appendix on p. 12915.) 

Mr. Nehemkis. On April 3, 1936, Mr. Duhig, were not most of the 
underwriters still left with large amounts of unsold debentures? 

Mr. Henderson. Mr. Nehemkis, has that memorandum been sub- 
mitted to the Shell Union people also? 



CONCENTRATION OF ECONOMIC POWER 12637 

Mr. Nehemkis. No, sir ; we did not feel it was necessary to do that, 
because the Shell Union people really had no knowledge of these 
transactions. They are the specialized transactions that only a 
manager of a syndicate would know about, since the information 
must come of necessity from the manager's own syndicate books. 
Obviously, we felt that the Shell people would not know about those 
facts. 

Mr. Henderson. I suggest if Mr. Duhig wants a copy, we will be 
glad to mail it to him. 

Mr. Duhig. Thank you very much. 

Mr. Nehemkis. I offer in evidence a letter from Mr. van Eck 
to Mr. G. Legh-Jones at London, dated April 3, 1936. 

(The letter referred to was marked "Exhibit No. 1992" and is 
included in the appendix on p. 12918.) 

DISCUSSIONS WITH BANKERS IN 193 7 FOR REDEMPTIONS CF OUTSTANDING 

PREFERRED STOCK 

Mr. Nehemkis. And now, Mr. Duhig, I would like you to turn 
with me, if you will, to the events leading up to the negotiations of 
1937. In January of the following year, that is to say, 1937, did not 
Shell commence negotiations for the refunding of $34,350,000 5^>-. 
percent preferred stock then outstanding ? 

Mr. Duhig. I wouldn't call them negotiations, Mr. Nehemkis, be- 
cause as a matter of fact no such operation has ever been carried 
through as the refunding of that preferred stock, but we did have 
discussions with various parties regarding the refinancing of that 
preferred stock. 

Mr. Nehemkis. I offer in evidence a cable to Vanwood, London, 
under date of January 20, 1937. 

(The cable referred to was marked "Exhibit No. 1993" and is 
included in the appendix on p. 12919.) 

Mr. Nehemkis. And were not discussions held with Dillon, Read & 
Co. and Hayden, Stone about this matter ? 

Mr. Duhig. In January 1937 ? 

Mr. Nehemkis. On or about the beginning of January or the early 
part of January 1937. 

Mr. Duhig. Yes; I believe that the proposal was talked over with 
Dillon, Read; Hayden, Stone; and others; Lazard; and Lee Higgin- 
son. 

Mr. Nehemkis. And Lee Higginson. 

Mr. Duhig. Correct. 

Mr. Nehemkis. And had not Lee Higginson and Lazard Freres 
actually made some tentative proposals? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. So that by the time the proposals were received 
from Lee Higginson and Lazard, the scene had shifted somewhat, 
shall we say, from discussions to, perhaps, negotiations, although not 
consummated ? 

Mr. Duhig. I think you could call them negotiations ; yes. 

Mr. Nehemkis. I offer in evidence a letter from Mr. van der 
Woude to Mr. van Eck, dated February 4, 1937. 

(The letter referred to was marked "Exhibit No. 1994" and is 
included in the appendix on p. 12919.') 



12638 CONCENTRATION OF ECONOMIC FO\VER 

Mr. Henderson. Mr. Chairman, I would like to advert back to a 
letter of April 3, 1936, which has been offered in evidence, which 
was evidently sent by Mr. van Eck to Mr. Legh-Jones. Mr. van 
Eck says [reading from "Exhibit No. 1992"] : 

Most of the other underwriters and dealers have either been able to dispose 
of their bonds or only have a very nominal amount on hand. 

Then he says a survey shows what certain houses still had on 
hand. I would like to indicate that in my opinion, that is not a 
nominal amount. Just roughly, in some cases the amount on hand 
represented as much as one-third of the total underwriting resources 
of some of the underwriting houses, and does indicate how under- 
writing capital can get frozen if there is an issue which is overpriced 
or hits a sticky market. 

Mr. Miller. I would like to ask a question. According to this 
letter of April 3, the price on that date which the bonds were quoted 
was 95^2? a nd as I understood, the issue price was 99 ? 

Mr. van der Woude. That is right, yes. 

Mr. Miller. The public who had purchased these bonds at 99 — 
apparently most of the issue had been distributed to the public at 
this date — suffered a loss in the quoted value of their securities. 

Mr. van der Woude. Not if they kept them. 

Mr. Miller. At this stage? 

Mr. van der Woude. If they had sold them at that stage, yes. 

Mr. Miller. Did you think they were happy about that, these 
purchasers, public investors? I mean from the issuer's standpoint, 
Mr. van der Woude, is there reason for the issuer to be concerned 
for the welfare of the public who had purchased your securities? 

Mr. van der Woude. I should think so. We have often been 
told that it is not to our interest to make an issue that goes down . 
directly after the issue, but in most cases I think prices have come 
back again. 

Mr. Miller. In other words, it is harmful to the issuer. 

Mr. van der Woude. We have never felt ourselves it was harm- 
ful to us if we made an issue that went down in price. We have 
never felt it as such, certainly. We have never felt it in subsequent 
financing transactions. In whatever subsequent deals we made, the 
investment houses and the public were always anxious to take 
them up. 

Mr. Miller. In other words, you feel it hasn't hurt your future 
borrowing credit with the underwriters or the public. 

Mr. van der Woude. All I can say is that experience has shown it 
did not. 

Mr. Miller. Then you feel from a public standpoint that the issuer 
really isn't concerned with what happens to the public's bonds? 

Mr. van der Woude. Certainly he is, but I don't think you can 
take a short interval. For instance, in the investment of our pension 
funds we buy bonds all the time, we don't look every day to see 
whether those bonds have gone up in price or gone down. We see that 
it is a good bond and we don't look every day to see what it closed at 
on the stock exchange. There are so many considerations — there may 
be a war in Europe or something that may be quite unforeseen. But 
it doesn't mean that subsequently the bond isn't good. I generally 
buy bonds and lay them aside and when they fall due, you get the 



CONCENTRATION OF ECONOMIC POWER 12639 

full price, if you have bought bonds in a company that is a good 
company. 

Mr. Miller. Suppose it was the general experience that every time 
there was a new issue, there was an immediate price decline and that 
became general, do you think the public would be anxious to purchase 
new issues? 

Mr. van der Woude. I can't tell you. The only thing I can give 
you is our experience, the fact that the investment bankers have told 
us that we are apt to drive too hard a bargain, but we have always 
found when the next issue came, they were always anxious to make 
the issue and the public was anxious to buy it. 

Mr. Nehemkis. Mr. Chairman, may I offer in evidence a cable to 
Vanwood under date of March 5, 1937. 

(The cable referred to was marked "Exhibit No. 1995" and is 
included in the appendix on p. 12922.) 

Mr. Nehemkis. I read from that cable to Vanwood [reading from 
"Exhibit No. 1995'"] : 

Furthermore in my opinion best not to disturb grouping of bankers as was 
formed under last year's bond issue in fact I understand Dillon Read Hayden 
Stone and Lee Higginson have already come to such understanding amongst 
each other (fullstop) My reasons are: 

Firstly. We should avoid running into same complications as last year 

Secondly. Neither Hayden Stone nor Lee Higginson would in my opinion be 
suitable leaders 

Thirdly. We could not very well switch over to entirely new leaders without 
first giving last year's group their opportunity (fullstop) 

My idea is therefore to give last year's leaders in Dillon group an opportunity 
of jointly making us an offer along the lines as per your cable (fullstop) If 
their offer is unsatisfactory to us I would favour inviting Lehman Bros, to 
make us an offer (fullstop) They are anxious to take leading position and 
I personally feel as you know that a closer connection with them would be 
advantageous (fullstop) Presumably they would Handle matter in conjunction 
with Kuhn Loeb (fullstop) 

On March 16, was not a banking group composed of Dillon, Kead & 
Co., Lee Higginson & Corp., Hayden Stone & Co., and Lehman 
Brothers prepared to underwrite a preferred stock issue for Shell, 
Mr. Duhig? 

Mr. Duhtg. Yes, that is correct. 

Mr. Nehemkis. And in a memorandum prepared by you, Mr. 
Duhig, under date of March 16, 1937, you wrote as follows [reading 
from "Exhibit No. 1996"] : 

On March 16th bankers called at the Shell Union office for the purpose of 
stating the proposition which they and their group were prepared to make 
in connection with refinancing the present Shell Union preferred stock and 
raising additional money, if necessary. Dillon, Read & Co. were represented 
by Mr. Dean Mathey and Lee Higginson & Co. by Mr. E. N. Jesup. 

In opening their discussion they stated that they had agreed among them- 
selves that the group would be approximately the same as the 1936 group 
and that the group management would be shared in the following proportions : — 

And there you list the proportions. 

I offer • in evidence the memorandum from which I have been 
reading. 

(The memorandum referred to was marked "Exhibit No. 1996" 
and is included in the appendix on p. 12923.) 

Mr. Nehemkis. Did not Shell advise this group that the offer was 
unsatisfactory, Mr. Duhig? 



12640 CONCENTRATION OF ECONOMIC POWER 

Mr. Duhio. Shell advised the group that the offer was disappoint- 
ing and unsatisfactory. 

Mr. Nehemkis. I offer. in evidence a cable to Vanwood from Mr. 
van der Woude. 

(The cable referred to was marked "Exhibit No. 1997" and is 
included in the appendix on p. 12924.) 

Mr. Nehemkis. On March 17, 1937, the following cable was sent 
to Vanwood in London by Mr. van der Woude [reading from "Ex- 
hibit No. 1998"] : 

Referring my cable 24 consider we should give Dillon group every oppor- 
tunity of revising their offer and propose to set limit of time say 10 days. 

At the end of this period in case the revised offer if any is not acceptable 
we to notify them that we consider ourselves entirely free to approach others. 

I understand that provided it is made clear negotiations with Dillon have 
come to an end members of group then free, to deal with us. 

Mr. van der Woude, that was your understanding of the customs 
of the Street, was it not? 

Mr. van der Woude. Yes. 

Mr. Nehemkis. I now continue reading from the cable [reading 
further from "Exhibit No. 1998"] : 

In aforementioned event suggest we consider Kuhn, Loeb/Lehman combina- 
tion or Morgan Stanley as leaders. 

I offer in evidence the cable from which I have been reading. 

(The cable referred to was marked "Exhibit No. 1998" and is 
included in the appendix on p. 12924.) 

Mr. Nehemkis. Due to unfavorable market conditions, Mr. Duhig, 
negotiations regarding pub ic financing were discontinued until some 
time in January of 1938 ; i that not substantially correct, sir-? 

Mr. Duhig. You said for public financing? 

Mr. Nehemkis. Correct. 

Mr. Duhig. That is correct; yes. 

NEGOTIATIONS WITH MORGAN, STANLEY & CO. INC. 

Mr. Nehemkis. At this time, that is to say in 1938, was it not deter- 
mined to begin negotiations with Morgan Stanley & Co.? 

Mr. Duhig. It was. 

Mr. Nehemkis. I offer in evidence a letter from Mr. van Eck to 
Mr. van der Woude under date of January 18, 1938. 

(The letter referred to was marked "Exhibit No. 1999" and is 
included in the appendix on p. 12925.) 

• Mr. Nehemkis. Mr. van der Woude, was not the reason that your 
company at this time decided to open up negotiations with Morgan 
Stanley due to your dissatisfaction with Dillon Bead's leadership of 
the previous financing? 

Mr. van der Woude. No ; I can't say that. It was a combination 
of circumstances. Previous to 1936, Mr. van Eck who is here referred 
to so often was in New York and was chairman of our company, 
and he dealt chiefly with our finances, so that naturally I was in- 
formed of what he was doing. After he left, about in 1936, I more 
or less took direct charge of our financing. 

As to our connections and what possibly happened in the past, 
it is very difficult to say exactly what the reason was. You have to 
bear in mind that Dillon, Read was not a long standing connection 



CONCENTRATION OF ECONOMIC POWER 12641 

of the Shell Union here in this country, that our older, standard con- 
nection was Lee Higginson and Hayden, Stone, and the only transac- 
tions we had ever made with Dillon, Read was the issue of 1935 
or '36 of $60,000,000. I had been acquainting myself with both con- 
ditions and people, and generally forming my own views, and for 
various reasons I came to the conclusion that I would like to see our 
company get a connection with Morgan Stanley. 

Mr. Nehemkis. Thank you very much, sir, for your explanation. 

Mr. Chairman, may it please the committee: In connection with 
the next document that I propose to offer in evidence, I have asked 
Mr. Charles B. Stuart of Halsey, Stuart & Co., Inc., New York, 
to enter into a stipulation with me concerning the identification of the 
document, purely so that Mr. Stuart would not have to come down 
here to identify this document, and as I offer it to you, sir, I ask 
you, if you will, sir, to examine the stipulation. 

I read to you from an office memorandum dated May 11, 1938, from 
the New York office of Halsey, Stuart to Mr. H. L. Stuart at the 
Chicago office. [Reading from "Exhibit No. 2000-2"] : 

I understand Morgan Stanley are working on a good size bond deal for Shell 
Union Oil. I further understand that Dillon Read, who handled the last issue, 
made such a botch job of it, the Company will have nothing further to do 
with them. 

I offer this in evidence. 

(The documents referred to were marked "Exhibits Nos. 2000-1 
and 2000-2" and are included in the appendix on pp. 12925 and 
12926.) 

Mr. van DJ2R Woude. I would like to add one thing to what I said, 
that I think you will find amongst the records which you have got 
there that on more than one occasion I pointed out to Dillon Itead 
that we did not look upon them as our permanent banking connec- 
tion. On two or three occasions I .made it quite clear that we 
considered ourselves entirely free. That in itself shows that our 
mind was open, and that was not to be interpreted as anything 
definite that had happened between the two of us. 

Mr. Henderson. Mr. van der Woude, do you in any of your 
world-wide enterprises regard any group as your bankers ? 

Mr. van der Woude. In other countries, you mean? Before I 
answer, you have to bear in mind that our company here is an en- 
tirely separate company from our various companies in the rest 
of tne world. But as far as conditions in other countries are con- 
cerned, I think the situation is — I am not sure because I haven't 
been there for a long time, but I think we have got certain banking 
houses that in the ordinary course of events would do our financing. 
It might quite well happen that there might be a financing trans- 
action with another firm. 

Mr. Henderson. There would be a continuing relationship, as the 
expression is here? 

Mr. van der Woude. Yes. In this business as in the case of law- 
yers, doctors, and so on, you get to know each other. It is very 
important in a financial house that you know in what way you do 
your business. You ought to build up certain confidence, and cer- 
tainly you ought to know what way the business is being conducted. 

Mr. Henderson. You used to regard Lee Higginson as your bank- 
ers here? 



12642 CONCENTRATION OP ECONOMIC POWER 

Mr. van der Woude. Yes, they were the people we would look to 
first. 

Mr. Henderson. Do you regard Morgan Stanley as your bankers 
now? 

Mr. van der Woude. Yes. 

Mr. Nehemkis. As your permanent bankers? 

Mr. van der Woude. Who can say what is permanent? It de- 
pends a good deal on how Morgan Stanley can do the work for us. 

Mr. Nehemkis. And depending upon market conditions and sub- 
sequent opportunities at a later time. 

Mr. van der Woude. Yes ; and a great number of other things. 

Mr. Miller. Mr. Nehemkis, I wanted to ask a question which I 
think is related to Mr. Henderson's. What is the relation of the 
Royal Dutch Co. to Shell Union Co. ? Do they own stock in Shell 
Union ? 

Mr. van der Woude. Yes; the relationship is that they own ap- 
proximately 64 percent, and we have three or four of their repre- 
sentatives on the board of the Shell Union, and that is the reason 
why you see a certain number, not very many but a certain number 
of cable exchanges take place on matters of financing or policy, seeing 
that three or four members of the Royal Dutch Co. are on the board 
of the Shell Union in America. 

Mr. Miller. Did Dillon, Read ever do any financing for Royal 
Dutch in this country? 

Mr. van der Woude. Not in this country, but on the other side 
they did. 

Mr. Miller. It seems to me I recollect there was an issue in this 
country 

Mr. van der Woude. I don't think so. 

Mr. Dean Mathey (Dillon, Read & Co.). We did two issues in 
this country, one for the Batavia and one for the Royal Dutch direct 
in dollars in this country. 

Mr. van der Woude. I got confused. Actually it was closed on the 
other side, wasn't it? I perhaps ought not. to do this because I have 
information only with regard to Shell. My recollection with regard 
to the dealings of Royal Dutch Shell with Dillon, Read was that 
about 10 years ago, or 12 years ago, they made an issue for them 
which was entirely negotiated in The Hague or London, but it was a 
dollar loan. Mr. Mathey ought to be able to answer the question 
better than I, because I was certainly not in on the financing opera- 
tions for the Royal Dutch in London or The Hague. 

Mr. Nehemkis. Mr. van der Woude, do you recall that^ in April of 
1938, more specifically April 13, 1938, you had occasion to write to 
Mr. van Eck at London, in which you said the following [reading 
from "Exhibit No. 2001"] : 

On the question of finance we have had some preliminary discussions with 
Morgan, Stanley with a view to enabling them to familiarize themselves some- 
what with our activities, and judging from the discussions I have had with 
them I do not anticipate any di^iculties such as you referred to in your letter 
of the 18th January. Morgan Stanley seem to be very pleased to get an oppor- 
tunity of establishing a connection with us. 

Do you recall that? 

Mr. van der Woude. I recall that. 

Mr. Nehemkis. The letter is offered in evidence. 



CONCENTRATION OF ECONOMIC POWER 12643 

(The letter referred to was marked "Exhibit No. 2001" and is 
included in the appendix on p. 12926.) 

Mr. Nehemkis. In other words, at the time we have now reached, 
the door was open for full discussion with Morgan Stanley? 

NEGOTIATIONS WITH EQUITABLE LIFE ASSURANCE SOCIETY 

Mr. Nehemkis. Mr. Duhig, while carrying on negotiations with 
Morgan Stanley did not Shell at the same time also carry on nego- 
tiations with til Equitable Life Assurance Society? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. And these negotiations led, did they not, to a private 
placement of $25,000,000 of 3% debentures in June 1938? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. And was not the only difference between the propo- 
sition that Morgan Stanley finally advanced to you, and the proposi- 
tion that you finally agreed upon with "Equitable, the 2-percent 
underwriting fee that Morgan Stanley would have had to have been 
paid ? 

Mr. Duhig. I don't know that mathematically that is strictly cor- 
rect; I certainly have it distinctly in mind that the arrangement we 
made with Equitable direct, and without any commission, was a better 
one than we would have negotiated at that particular time through 
underwriters. 

Mr. Nehemkis. Do you recall, Mr. Duhig, on April 22, 1938, you 
made a memorandum regarding a number of your discussions with 
Mr. Lafferty, of the Equitable Life Assurance Society, as well as 
details of your discussions with Morgan Stanley? 

Mr. Duhig. Yes ; that is, right. 

Mr. Nehemkis. I now read to you from that memorandum, and I 
quote [reading from "Exhibit No. 2002"] : 

Incidentally, this is approximately the same proposition as suggested tentatively 
by Morgan, Stanley & Co., except that they would charge 2 percent for under- 
writing. 

I offer in evidence the memorandum from which I have just read. 

Mr. Van der Woude. May I see this ? 

Mr. Nehemkis. This is a memorandum written by Mr. Duhig on 
April 22, 1938, identified by Mr. Duhig, and covered in the stipulation 
which has been offered to the committee. Do read it. 

Mr. O'Connell. May I ask a question? Do I understand, then, 
that the price that your company received from the Equitable was sub- 
stantially the price at which Morgan Stanley would have offered? 

Mr. Duhig. That is my recollection. Tney would have done a 
similar deal. 

Mr. O'Connell. The net result was your company got two points 
more for the bonds ? 

Mr. Duhig. That is approximately correct. I don't think you can 
ever say two deals are identical. 

Mr. O'Connell. I understand. I mean substantially. 

Mr. Van der Woude. I think there is a misunderstanding here. It 
is awfully hard to go back, with so many things happening, to exactly 
what happened, but I did discuss the matter personally with Morgan 
Stanley before we closed the deal with the insurance company. You 

124491— 40— pt. 24 22 



12644 CONCENTRATION OF ECONOMIC POWER 

have to bear in mind here this is just a memorandum, perhaps not too 
carefully written, for office use. But it says here [reading from "Ex- 
hibit No. 2002"] : 

Arrange a loan to Shell Union of say 20 to 25 million dollars for ten years, at 
3%%. for which they would pay us 99. 

We were dealing with Morgan Stanley on the basis of 15 years, and 
my recollection is that Morgan Stanley, when I discussed this with 
them, before we decided to go to the insurance company, they quoted 
different rates, and that the difference between the two offers was not 
just the commission that Morgan Stanley would get ; it was smaller 
than that. 

We were comparing really different things here in this memo- 
randum. 

Mr. Nehemkis. Oranges and apples this time? 

Mr. van der Woude. No ; all oranges, perhaps large and small ones, 
and of a different color. There is a confusion between 10 and 15 years, 
and also a confusion of interest, because we closed with the insurance 
at 3%. 

Mr. Nehemkis. And the writer of the memorandum was confused ? 

Mr. van der Woude. I wouldn't say that, but it certainly doesn't 
give the facts exactly as they were. 

Mr. Duhig. As I tried to say a moment ago, there are no two deals - 
alike. 

Mr. van der Woude. I had a discussion with Morgan Stanley be- 
fore we closed the deal with the insurance company, and unless I am 
very much mistaken the difference was much smaller than the com- 
mission was. 

Mr. Nehemkis. You wish the record to show at this time that the 
difference between the deal with Equitable and the deal with Morgan 
would not have been the two percent underwriting commission? 

Mr. van der Woude. That is my recollection. I can't vouch for 
that, but that is distinctly in my mind. 

"shopping around" 

Mr. Nehemkis. I now offer in evidence the memorandum previously 
referred to, and I also offer in evidence a cable to Vanwood, London, 
by Mr. van- der Woude under date of April 30, 1938. 

(The documents referred to were marked "Exhibits Nos. 2002 and 
2003" and are included in the appendix on p. 12927.) 

Mr. Nehemkis. Mr. Duhig, was not the effect of negotiating simul- 
taneously with Morgan, Stanley and Equitable to "shop around" and 
obtain the best price possible for Shell? 

Mr. Duhig. I think you can put several interpretations on that 
term "shop around." We wouldn't like to give the interpretation that 
we went first to one and then the other and said, "Now, look what we 
can do. Can't you do better, and so on?" I think we sought those 
two sources of financial advice to see which one was most profitable 
to the Shell stockholders. 

Mr. O'Connell. Do you think it was proper to "shop around," as 
you define it here ? 

Mr. Duhig. I wouldn't feel comfortable about it -or feel it tended 
to promote friendly relations with the people that Ave were looking 



CONCENTRATION OF ECONOMIC POWER 12645 

to for advice to offset one against the other and run back and forth 
between the two offices offsetting offers in order to try to beat down 
the price or anything of that kind. 

Mr. O'Connell. It would have probably resulted in a better price 
for Shell. 

Mr. Duhig. A lower price but maybe not a better price. 

Mr. O'Connell. To me that use of the words is practically synony- 
mous. 

Mr. van der, Woude. The use of the words "shopping around" is per- 
haps exaggerated. What we have in mind is not exactly shopping 
around. 

Mr. Henderson. Maybe it is something like this. You remember 
when Chanticleer rolled an ostrich egg into the henyard and said, 
"I don't want to offer any complaint, but this is what they are doing 
in other places." [Laughter.] 

Mr. van der Woude. No, to add to what Mr. Duhig was saying, it is 
not a question of going around from Morgan Stanley to the insur- 
ance company and vice versa. Morgan Stanley knew what we were 
doing. I told Morgan Stanley we had to negotiate with the insur- 
ance company, and I didn't give them definitely what the insurance 
company offered us, but did tell Morgan Stanley, "What is the best 
you can do?" and Stanley told us certain terms, and I said, "I am 
afraid that is not good enough." They said, "If you can do better 
go ahead. We don't like it, naturally." 

Of course, it is to our disadvantage to have a loss in. the open mar- 
ket. The price is offered and when the time of offering comes if the 
market is different the price should be different. 

Mr. O'Connell. Offhand, I couldn't see anything improper in at- 
tempting to get the best price you could get for your securities. I 
merely wanted to get an idea of what you had in mind. It is a little 
refreshing to me to find an issuer is really taking a very active part in 
determining the price at which he can sell securities. 

Mr. van der Woude. I don't see any harm in it. [Laughter.] 

Mr. Henderson. I think what Mr. O'Connell means by refreshing is 
that in all the testimony here, "some of it concerning financing, for 
example, in the interim period between divorcement of J. P. Morgan 
from their underwriting business and the formation of Morgan Stan- 
ley, it was plainly evident that many of the issuers took very little 
part in the arrangements, and other testimony indicated, as I recall, 
that frequently the banker would suggest that now was the time to 
finance. Other testimony this week indicated that the underwriters 
formed the groups and that it was sometimes 2 to 3 months before 
they went to the issuer. In your case it seems to be at a bare mini- 
mum — at least you took the initiative. 

Mr. van der Woude. Yes. I haven't had as much experience in the 
financial market as many other people here, but after all money is a 
commodity that has its price. It is more or less fixed. In issuing 
securities, there isn't very much difference. Money is money, and it 
has a certain value on a certain date, yet it has a different relative 
commodity market. So it is just playing one's views against the 
other man's views and hoping your own views may prevail. 

Mr. Henderson. You say money has a price, but in the prior issue 
price was put at 99, and at the time van Eck was writing it was 95y 2 . 



12646 CONCENTRATION OF ECONOMIC POWEU 

Mr. van der Woude. J3.ut there I think you should bear in mind 
that — at least that is my view — the stock exchange doesn't indicate the 
true value of money. The stock exchange is in fact subject to all 
kinds of changes today, and something may happen in 2 or 3 months' 
time. You may get inflation, and someone may start selling bonds 
and bonds will go down. My feeling about bonds is you shouldn't 
look at what your price is today or tomorrow, but should buy bonds 
from companies you have confidence in, and if you have confidence in 
the company you can buy those bonds, and that is the extent, whether 
it is 95 tomorrow and 99 today. 

The only investment we have is the pension fund. We have mil- 
lions of dollars in the pension fund. We don't get every day, the 
price going up or down. We look to the companies where we have 
invested our funds. 

Mr. Henderson. I think I understand the distinction you are mak- 
ing. As a matter of fact, if you got 97 from Dillon, Read, and if you 
had received and accepted their proposal, you would have got less 
money for your company, regardless of what did happen in the future 
in the price of money. 

Mr. Nehemkis Mr. van der Woude, do you recall that on or about 
June 1, 1938, you-had occasion to write to a member of your organiza- 
tion, Mr. A. Fraser, at St. Louis, Mo., and in connection with that 
letter you stated to him as follows [reading from "Exhibit No. 2004"] . 

I shall appreciate it very much if you will have your people do all possible to 
expedite this work and at the same time please do everything you can to keep 
the deal with Equitable strictly under cover. Their commitment to us is entirely 
contingent on clearance being given by their counsel on all legal phases and 
therefore it would be very regretable if word got about which would offend 
Morgans in any way, seeing that we are still relying on them in case there is a 
hitch with Equitable, as well as in case of future public financing. 

Mr. van der Woude. Yes. 

Mr. Nehemkis. I offer in evidence the letter from which I have been 
reading. 

(The letter referred to was marked "Exhibit No. 2004" and is in- 
cluded in the appendix on p. 12929.) 

SHELL ENDEAVORS TO OBTAIN REDUCTION IN INTEREST RATE FROM EQUITABLE 

Mr. Nehemkis. Mr. Duhig, do you recall that in the latter part of 
1938 and the early part of 1939 interest rates had declined appreci- 
ably? 

Mr. Duhig. That is true. 

Mr. Nehemkis. And in an endeavor to take advantage of this de- 
cline, do you recall that Shell attempted to negotiate an adjustment 
in the interest rate with Equitable? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. I offer in evidence a letter from Mr. Duhig to Mr. 
van der Woude under date of May 23, 1939. 

(The letter referred to was marked "Exhibit No. 2005" and is in- 
cluded in the appendix on p. 12929.) 

Mr. Nehemkis. At the same time, do you recall, Mr. Duhig, that 
Shell commenced discussions with Morgan Stanley for the refunding 
of $60,000,000, 3i/ 2 -percent debentures? 

Mr. Duhig. That is right. 



CONCENTRATION OF ECONOMIC POWER 12647 

Mr. Nehemkis. And in this letter from which I now read, by Mr. 
Duhig to Mr. van der Woude, under date of May 24, 1939, the follow- 
ing is said [reading from "Exhibit No. 2006"] : 

I have just hah a talk with Ewing and Perry Hall. They will be sending me 
some figures in the morning, but this is a summary of what they think we could 
do at today's market — 

And there you cite the information. Continuing with this letter, 
you state : 

Ewing feels we should be able to get Equitable down to today's market on our 
present $25,000,000 and he does not expect to beat them out on a public issue ; but 
for our $60,000,000 of 3y 2 's (in which he feels our best interests would be served 
by putting ourselves in Morgan's hands) they could save about $278,000 per 
annum on new 15-year bonds (not including registration expense) and about 
$150,000 per annum on the 20-year. 

I offer in evidence the letter from which I have been reading. 
' (The letter referred to was marked "Exhibit No. 2006" and is in- 
cluded in the appendix on p. 12930.) 

Mr. Nehemkis. And I will also offer in evidence at this time a copy 
of the cable to Vanwood, London, by Mr. van der Woude, under date 
of June 6, 1939. 

(The cable referred to was marked "Exhibit No. 2007" and is 
included in the appendix on p. 12931.) 

Mr. Nehemkis. Equitable, Mr. Duhig, declined to recognize Shell's 
request for reduction. Is that not correct, sir? 

Mr. Duhig. They were willing to make some reduction. 

Mr. Nehemkis. But not quite the interest reduction Shell wanted at 
the time ? 

Mr. Duhig. Not quite what we thought the market entitled us to. 

Mr. Nehemkis. As a matter of fact, isn't it true that Equitable 
thought it wasn't quite cricket of Shell to be asking for a reduction in 
the interest rates so soon after the private deal had been placed ? 

Mr. Duhig. They did state that having made a 15-year loan, they 
thought it was somewhat unusual to be discussing revision of interest 
12 months after the deal was made. On the other hand, they had 
made a very good deal the year before which entailed a million-dollar 
penalty for calling the loan before maturity, and they did very well 
on that one year's money they had outstanding, 3% percent plus a 
million dollars. 

Mr. Nehemkis. Accordingly, Shell turned to Morgan Stanley for 
the refunding of both issues. Is that not correct, sir ? 

Mr. Duhig. That is correct. 

Mr. Nehemkis. And on June 26, did not Shell reach a tentative 
agreement with Morgan Stanley for the public offering of $85,000,000, 
15-year, 2y 2 debentures at 98y 2 ? 

Mr. Duhig. To the public. That is correct. 

Mr. Nehemkis. I offer in evidence a cablegram to Vanwood by 
R. G. A. van der Woude, under date of June 26, 1939. 

(The cablegram referred to was marked "Exhibit No. 2008" and 
is included in the appendix on p. 12931.) 

Mr. Duhig. I don't remember the exact wording of your question, 
but I think it is quite clear that 2% percent debenture at 98y 2 to the 
public was what they thought they could do a deal for at that time, 
subject naturally to correction according to the way the market went 
and without definite commitment. 



12648 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. That was the meaning of my question, Mr. Duhig. 
1 think we understood each other correctly. 

Was not the bankers' commission fixed at 1% points, making a net 
price to the company of 96% ? 

Mr. Duhig. No; it was not fixed. That also was subject to further 
settlement later on. It was suggested that the spread would be be- 
tween 963/4 and 98y 2 , as I remember. 

Mr. Nehemkis. It was tentatively agreed upon, 

Mr. Duhig. Very tentatively, as I recall. 

Mr. O'Connell. May I ask a question? What was the distinction 
between the commitment that Morgan Stanley made for these deben- 
tures and the commitment made by Dillon, Read in connection with 
earlier commitment? As I recall, their letter (referring to "Exhibit 
No. 1980") to you distinctly stated, that they were not legally or 
morally obligated to pay 97. 

Mr. Duhig. Well, the distinction was that the first one was a letter 
which was written very close, as I remember, to the time the deal was 
made, whereas what we are now discussing is what might be done 
at that particular time subject to the market as it progressed during 
the course of working out the papers. 

Mr. O'Connell. Dillon, Read definitely stated in a letter they didn't 
consider it binding. That seems to me about as tentative or similar 
to the situation which existed in that later date which was Morgan 
Stanley. 

Mr. van der Woude. It is all based on recollection, but my recol- 
lection of Dillori, Read, in the financial discussion, was that Mr. Dillon 
came, in this case-, as a matter of fact, to our people in London. He 
happened to be on the other side, and he went to the head of our 
company there. Subsequent to the event, our people said, "You had 
better talk to our people in New York." At the opening of the dis- 
cussion the distinct understanding was that our people would pass 
it on to us. 

Mr. Nehemkis. Morgan Stanley don't write their tentative offers 
on paper in any event, do they? 

Mr. van der Woude. No. The understanding may be due to the 
fact that they went to our London people instead of coming to us in 
New York. 

Mr. Henderson. In' other words, there was a market-out in the 
conversation. 

Mr. van der Woude. In regard to ? 

Mr. Henderson. Morgan Stanley. 

Mr. van der Woude. I wouldn't call it a market-out. Morgan 
Stanley said, "We think we can do 98 1 /2," but emphasized very 
strongly that the market might change. 

Mr. Henderson. That is what I meant. I was just reducing it to 
the language of the underwriter. 

Mr. van der Woude. Yes. I do not make myself clear. 

Mr. Henderson. Your additional explanation which supplements 
the record would indicate it was your view, by virtue of something 
other than this letter of Dillon, Read, that Dillon, Read had made a 
commitment to you, but prior to your explanation, there was to my 
mind little distinction between the existing terms. 



CONCENTRATION OF ECONOMIC POWER 12649 

Mr. van der Woude. It may have been entirely due to misunder- 
standing, due to our people in London naturally not being acquainted 
so well as we are here with the way things are conducted. 

Mr. Henderson. But you later took the view that Dillon, Read 
were firmly bound. 

Mr. van der Woude. Yes, we understand also the view that they 
had made a clear market and they had to stand by it. 

Mr. Nehemkis. As a result of changes in the market, Mr. Duhig, 
did not Morgan Stanley inform Shell on July 13 that a successful 
issue was impossible at an offering price better than 97^ ? 

Mr. Duhig. That is correct. I don't know as they said impossible. 
On the 13th of July they stated that after canvassing the situation, 
they felt that 97 y 2 to the public was the correct price. 

Mr. Nehemkis. And did they not agree to reduce the banker's com- 
mission from 1% to iy 2 percent, making a price to the company at 96? 

Mr. Duhig. They had never made it firmly at 1% percent, so I don't 
know that you can say they agreed to reduce it, but they did propose 
on July 13 that the spread should be \y 2 percent, whereas first tentative 
discussions had been on the basis of 1%. 

Mr. Nehemkis. Now, on July 13 Mr. van der Woude, do you recall, 
cabled to Vanwood at London as follows [reading from "Exhibit No. 
2009"] : 

Morgan Stanley discussed with us today final terms based on present market 
conditions and general reaction they received from underwriters and prospective 
large buyers. 

Response from latter has been disappointing and contrary to expectations 
entertained by Morgan Stanley. 

Apparently due mainly to weaker government bond market and resistance 
against 2y 2 % rate this being first issue ^t this new low rate and to some 
extent due to remembrance limited success our last issue. 

Under circumstances Morgan Stanley of opinion successful issue cannot be 
made at better than 97 "Y 2 with commission l x /->% other terms unchanged. 

Judging from discussions doubt whether can hold out much hope obtaining 
better terms though of course after receiving your views we would try to do so. 

And as follows : 

Our own inclination would ordinarily be to hold out for 98 but we doubt 
whether it is really case of bargaining and believe Morgan Stanley sincere in 
their opinion issue could not at present be successful at higher than 97% and 
therefore would not undertake issue at higher rate. 

I offer in evidence the cable from which I have been .reading. 
(The cable referred to was marked "Exhibit No. 2009"