STOCK EXCHANGE PRACTICES WEDNESDAY, DECEMBER 20, 1933 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The subcommittee met at 10:30 a.m., pursuant to adjournment on yesterday, in Room No. 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding. Present: Senators Fletcher (chairman), Gore (substitute for Barkley), Adams (proxy for Costigan), Norbeck, Couzens, and Townsend. Present also: Ferdinand Pecora, counsel to the committee; Julius Silver and David Saperstein, associate counsel to the committee; and Frank J. Meehan, statistician to the committee. The CHAIRMAN. The subcommittee will come to order, please, may proceed, Mr. Pecora. You Mr. PECORA. Mr. Lord, you will resume the stand. Mr. LORD. Yes, sir. TESTIMONY OF ROBERT 0. LORD, PENOBSCOT BUILDING, Mr. PECORA. Mr. Lord, do you recall a transaction involving the purchase of a block of about 1,000 shares of the stock of the Grand Rapids National Bank, in the name of Mr. Joseph H. Brewer? Mr. LORD. Very vaguely. Mr. PECORA. How much do you recall of that transaction? Mr. LORD. Practically nothing, Mr. Pecora. Mr. PECORA. Do you recall that there was such a transaction? Mr. LORD. Not as to the exact number of shares, but that there was some stock purchased in the name of Mr. Brewer. Mr. PECORA. What, if anything, did you have to do with that transaction? Mr. LORD. I should say very little. Mr. PECORA. Well, what was that very little? Mr. LORD. I knew that Mr. Brewer was buying some of the Grand Rapids National Bank stock. Mr. PECORA. What did you have to do with it? Mr. LORD. In what way, Mr. Pecora ? Mr. PECORA. In any way. Mr. LORD. My recollection is very dim on that transaction, but it took place, as I recall it, in the summer of 1929. Mr. Brewer was at that time connected with the Grand Rapids National Bank. He was very aggressive in the affairs of the bank, very anxious that his bank should become a member of the Group. And I understood that he was purchasing some of the stock. My recollection is that the stock was carried for him by the Guardian Detroit Co. Mr. PECORA. The Guardian Detroit Co. was the securities affiliate of the Guardian Detroit Bank, wasn't it? Mr. LORD. Yes, sir. Mr. PECORA. And you were the president, then, of the Guardian Detroit Bank? Mr. LORD. It was the security affiliate of the Group. I was then the president of the bank and also of the Group. Mr. PECORA. And of the Group also? Mr. LORD. Yes, sir. Mr. PECORA. Well Mr. LORD (continuing). But quite inactive in the securities company. I was vice president of it, as I recall it, and inactive. Mr. PECORA. Do you recall how much was involved in that transaction in the matter of dollars and cents? Mr. LORD. No, sir; I do not. Mr. PECORA. Do you recall that it was in excess of the sum of $850,000? Mr. LORD. NO; I do not recall any figure at all. Mr. PECORA. Do you recall the circumstances under which the Guardian Detroit Co. financed the purchase of that stock for Mr. Brewer? Mr. LORD. Not in detail. I remember they carried it for him. Mr. PECORA. Do you recall at whose instance Mr. Brewer pur chased the stock? Mr. LORD. I suppose at his own instance. He was a substantial stockholder at the time in the Grand Rapids National Bank, and I suppose he wanted to acquire additional stock. Mr. PECORA. At the time of that transaction was the Grand Rapids National Bank one of the unit banks of the group? Mr. LORD. I would say it was in process of negotiation at the time. Mr. PECORA. And Mr. Brewer was the president of the Grand Rapids National Bank? Mr. LORD. I think he was chairman of the board, but am not certain. He and Mr. Waters were associated together. Just what title Mr. Brewer held I do not recall. Mr. PECORA. But negotiations on behalf of the Group toward acquisition of the Grand Rapids National Bank had progressed to the point where at about the time of this stock transaction it was practically assured that the Group would acquire control of the Grand Rapids National Bank. Is that your recollection? Mr. LORD. I wouldn't say no, that it was assured, but I would say it was tending favorably in that direction. Mr. PECORA. Well, all the plans had been completed but not consummated about that time? Mr. LORD. I am not certain of that, Mr. Pecora. Mr. PECORA. Do you recall anything more in connection with that transaction than you have just now testified to? Mr. LORD. As I recall, Mr. Brewer never took up that stock, never was able to, and never paid for it. It therefore belonged to the Guardian Detroit Co. Mr. PECORA. How long did the Guardian Detroit Co. carry that stock for Mr. Brewer? Mr. LORD. I do not recall. Mr. PECORA. Was it a period of more than a year or two? Mr. LORD. I do not recall the length of time. Mr. PECORA. Who eventually took up the stock? Mr. LORD. I would think the Guardian Detroit Co. took up the stock. Mr. PECORA. And during the time that the Guardian Detroit Co. carried that stock for Mr. Brewer did Mr. Brewer pay interest on the loan? Mr. LORD. I do not know. Mr. PECORA. Do you recall having had any correspondence with Mr. Brewer in connection with that transaction? Mr. LORD. I do not recall any personally; no. I might have had, but Mr. PECORA (interposing). What was that? Mr. LORD. I say I might have had but I do not recall it. Mr. PECORA. Well, then, possibly for the purpose of refreshing your recollection, will you look at this paper which I now show you, and which purports to be a photostatic reproduction of a letter addressed by you, under date of August 24, 1929, to Mr. Joseph H. Brewer? Will you look at it and then tell me, first, if you recognize it as a true and correct copy of such letter? Mr. LORD (after reading the photostat). I would say that that is my letter. Mr. PECORA. Mr. Chairman, I offer it in evidence, and ask that it may be made a part of the record. The CHAIRMAN. Let it be admitted, and the committee reporter will make it a part of the record. (The letter dated August 24, 1929, addressed to Joseph H. Brewer by Robert O. Lord, was marked "Committee Exhibit No. 15, Dec. 20, 1933", and will be found immediately following where read by Mr. Pecora.) Mr. PECORA. The letter received in evidence as Committee Exhibit No. 15 of this date, is as follows: MR. JOSEPH H. BREWER, (Personal) Grand Rapids Trust Building, Grand Rapids, Mich. AUGUST 24, 1929. DEAR MR. BREWER: Understanding that there appears to be a movement on the part of outsiders to buy a substantial interest in the Grand Rapids National Bank, and desiring to be of any possible service to Mr. Dudley Waters and his associates in the bank, we are willing to have you buy for us not to exceedThat figure is not clear. I do not know whether that is 1,000 or 1,600 shares of the stock of the Grand Rapids National Bank, at a price not to exceed $515 a share. This stock should be bought by you, issued in your name, and endorsed in blank and forwarded to us. We will hold the stock, and you may consider this our commitment for a period of six months from the date of purchase, to return this stock to you or to your order, at its actual cost to us plus interest at the rate of 7% per annum on our investment in the stock. Please advise me from time to time as to the amount of stock which has been purchased, and send the stock to the Guardian Detroit Company either for my attention or for the attention of Mr. John C. Grier, Jr. Very truly yours. And it is signed by you as president of the Guardian Detroit Bank. Mr. LORD. I do not know whether I signed it as president of the bank or the Group. Mr. PECORA. Well, I judge it was of the bank, because the letter appears to have been written on the letterhead containing in its upper right-hand corner the printed inscription: "Guardian Detroit Bank." Would that indicate that it was written on the letterhead of the bank and therefore written as the president of the bank? Mr. LORD. It might have been written on that letterhead. Yes; it would indicate it, as far as that is concerned. Mr. PECORA. And that it was written by you in your capacity as the president of that bank rather than the president of the Group? Which was it? Mr. LORD. Well, that would indicate it was written on bank stationery. Mr. PECORA. Well, was it a letter that you sent to Mr. Brewer in your capacity as president of the Guardian Detroit Bank, or is it your personal recollection that you wrote to him as president of the Guardian Union Group, Inc.? Mr. LORD. Mr. Pecora, without seeing the original I would not know, because it is quite possible that a carbon of the bank's stationery might have been used. Senator ADAMS. You just stated a minute ago, if I recall correctly, that your part in the Group was a very inactive part. Mr. LORD. No; in the Guardian Detroit Co., the securities company. Senator ADAMS. Oh, in the securities company. Mr. LORD. Yes, sir. The transaction, apparently, was handled entirely through the securities company, and the stock as I recall it was delivered to the securities company. Senator ADAMS. You were inactive in the securities company? Mr. LORD. Yes, sir. Senator ADAMS. Then the probability would be that you were acting in your capacity as president of the bank, because of your inactivity in the affairs of the securities affiliate. Mr. LORD. Well, the bank did not buy that stock, and therefore I could not have been acting in my capacity as the president of the bank. Senator ADAMS. Well, the letter would indicate some activity along that line. Mr. LORD. The bank never did buy the stock. The stock was bought by the securities company. The CHAIRMAN. And the money was furnished actually by the securities company? Mr. LORD. Yes, sir. The CHAIRMAN. And the stock was turned over to the securities company? Mr. LORD. Yes, sir. Neither a national nor a State bank can buy stock. |