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STOCK EXCHANGE PRACTICES

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THURSDAY, JANUARY 4, 1934

UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON

BANKING AND CURRENCY,

Washington, D.C. The subcommittee met at 10 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), Adams (proxy for Costigan), Townsend, Couzens, and Goldsborough (substitute for Norbeck).

Present also: Ferdinand Pecora, counsel to the committee, Julius Silver and David Saperstein, associate counsel to the committee, and Frank J. Meehan, chief statistician to the committee.

The CHAIRMAN. The subcommittee will come to order. proceed, Mr. Pecora.

Senator COUZENS. Who will you have first this morning, Mr. Pecora?

Mr. PECORA. Colonel Walsh.

Mr. LORD. Mr. Pecora, Colonel Walsh is confined to his bed at the hotel, under the care of a physician and a nurse.

Mr. PECORA. Is he quite sick?
Mr. LORD. Yes, he is quite sick.
The CHAIRMAN. Then who will you have first, Mr. Pecora?
Mr. PECORA. I will recall Mr. Lord.

You may

TESTIMONY OF ROBERT 0. LORD Resumed

Mr. PECORA. Mr. Lord

Mr. LORD (interposing). Mr. Pecora, before you begin your examination of me may I make a statement?

Mr. PECORA. Yes.

Mr. LORD. During the session of this committee held on Friday, reference was made to certain annual statements for the years 1929, 1930, 1931, and 1932.

Mr. PECORA. What Friday do you refer to?
Mr. LORD. Friday, December 22.
Mr. PECORA. All right.

Mr. LORD. In regard to the Guardian Detroit Union Group, Inc., statements submitted to the Securities Commission of the State of Michigan, photostatic copies of which statements submitted here, were apparently made from office copies taken from the office of the Group, which office copies made it appear that they were not properly acknowledged before a notary public as required by lav . In addition, the photostatic copy from the office copy of a repor (

one of the years made it appear that the record had been actually signed by others than myself and Mr. Haberkorn, respectively, president and secretary of the corporation. I have secured and am handing to this committee photostatic copies of the originals of those four reports filed with the Michigan Securities Commission, which show clearly that the originals, as required by law to be filed with the Michigan Securities Commission, at Lansing, were complete as to signatures, acknowledgment, and were in proper form. Furthermore, those reports were at all times open to public inspection.

Now, the two reports which were referred to--and I should like, first, to turn these photostatic copies of the reports over to you, Mr. Pecora, so that you may have correct copies of them here, for the 4 years 1929, 1930, 1931, and 1932.

The two reports which were compared—that is, the Annual Report to stockholders and the report of the Group Corporation individually--are not comparable at all. The annual report to the stockholders is a consolidated report for the year's business of all the units that make up the group, including the Group Co. itself. While the report to the Michigan Securities Commission is the report of the holding company alone, which, under the requirements of the Michigan Securities Commission, does not and cannot reflect the earnings or losses of the units of the Group or of their condition.

The earnings of the holding company come chiefly from dividends from the units. If the holding company alone paid out more than

. it received in dividends or other income, it would naturally show a deficit. That, however, would not mean a loss on the year's business of the units making up the Group. It would merely mean a deficit for the holding company alone and not of the Group as a whole.

Now, as perhaps further clarifying these Michigan Securities Commission reports, I should like to read the statement of Fred Guider, the examiner of the Michigan Securities Commission, which statement appeared in a Detroit newspaper of Sunday, December 31, 1933, and which I think is quite clear. This article reads as follows:

Mr. Pecora (interposing). What article are you now referring to and proposing to read?

Mr. Lord. An article from the Detroit News of December 31, 1933, and which contains a statement made by Mr. Guider, which statement I think will probably clarify better than I can just what these commission reports mean.

Mr. Pecora. Well, we do not have to take our evidence from a newspaper story. That is not legal evidence.

Mr. Lord. This is a statement made by Mr. Guider as examiner for the Michigan Securities Commission, and seems to me has a bearing on these reports.

Mr. PECORA. If you want any views of Mr. Guider submitted to this committee let Mr. Guider come here and submit to an examination about such views.

The CHAIRMAN. I scarcely think any newspaper account of what Mr. Guider may have said would be proper testimony. We may disagree entirely with that statement and are entitled to examine him and have the matter clarified.

Mr. Lord. It is not merely a question of commenting on the reports. He is simply commenting on what the reports to the Securities Commission are.

The Chairman. But you do not know whether he reported right or not.

Mr. LORD. Whether he reported right?
The CHAIRMAN. Yes.
Mr. LORD. He is employed by the Michigan Securities Commission,

Mr. Pecora. The reports to the Securities Commission speak for themselves, and they are in evidence here. They will tell what they are better than anybody else can. Here they are, and have been made a part of the record of this committee.

Mr. Lord. It seems to me, however, that Mr. Guider's comments on those reports are quite pertinent to this inquiry.

Senator Couzens. I think the committee would have no objection to Mr. Guider coming down here and testifying if he wishes to do so. But we can hardly take a newspaper account of his comments.

Mr. Lord. I have no doubt that Mr. Guider would testify to the same effect that he has written in regard to these commission reports.

Senator COUZENS. I think it is the committee's rule not to take any evidence unless the person himself comes and gives it. That is the rule we have followed right along, not to take any newspaper items as evidence.

The CHAIRMAN. I scarcely think a newspaper account of what was said would be proper evidence here. However, probably that is not very material anyhow. We know what the reports are, and we know what the law required. Is there anything else you wish to say along that line, Mr. Lord?

Mr. LORD. No, I thank you. The CHAIRMAN. Do you offer these photostatie copies of the originals?

Mr. LORD. Yes, sir; I do. Mr. PECORA. The annual reports made by the Guardian Detroit Union Group, Inc., to the Michigan Securities Commission for the calendar years 1929, 1930, 1931, and 1932, respectively, have been been presented by the witness. I ask that they may be marked in evidence in the order in which I have designated them. The CHAIRMAN. Let them be received.

Senator COUZENS. We are not making them a part of the record, but are simply marking them in evidence.

Mr. PECORA. Yes; I just ask that they may be marked in evidence. As I understand it, the only purpose Mr. Lord has in presenting these photostatic copies is to show that the originals were duly signed and acknowledged.

Senator COUZENS. Then these photostatic copies will be marked as exhibits and held for the purposes of the committee.

Mr. PECORA. Yes.
The CHAIRMAN. Let them be admitted as exhibits and filed.

(A photostatic copy of a report made for the year 1929 by the Guardian Detroit Union Group, Inc., to the Michigan Securities Commission, was marked "Committee Exhibit No. 59, Jan. 4, 1934”, and will be retained in the committee's files.)

(A photostatic copy of a report made for the year 1930 by the Guardian Detroit Union Group, Inc., to the Michigan Securities Commission, was marked "Committee Exhibit No. 60, Jan. 4, 1934", and will be retained in the committee's files.)

(A photostatic copy of a report made for the year 1931 by the Guardian Detroit Union Group, Inc., to the Michigan Securities Commission, was marked "Committee Exhibit No. 61, Jan. 4, 1934", and will be retained in the committee's files.)

(A photostatic copy of a report made for the year 1932 by the Guardian Detroit Union Group, Inc., to the Michigan Securities Commission, was marked "Committee Exhibit No. 62, Jan. 4, 1934", and will be retained in the committee's files.)

Mr. PECORA. Mr. Lord, have you a copy of the statement that you read into the record a few minutes ago?

Mr. LORD. No. I have only my own notes that I used.
Mr. Pecora. You read from some manuscript, did you not?
Mr. LORD. I have some piecemeal notes of my own.

Mr. PECORA. Well, may I just have them for my guidance in examining you about them? I want to have the exact text of your statement before me.

Mr. LORD. All right [handing to Mr. Pecora a paper). Mr. PECORA. Now, I am interested particularly in this portion of the statement which you read into the record and which I will repeat to you:

The two reports are not comparable at all. The annual report to the stockholders is the consolidated report of the year's business of the units that make up the group, including the Group Co. itself. The report to the securities commission is the report of the holding company alone, which, under the requirements of the Michigan Securities Commission, does not and cannot reflect the earnings or losses of the units of the group or their condition. The earnings of the holding company come chiefly from dividends from the units. If the holding company alone paid out more than it received in dividends or other income, it would naturally show a deficit. That, however, would not mean a loss on the year's business of the units making up the group. It would merely mean & deficit for the holding company alone.

Now, Mr. Lord, in making that statement, the two reports to which you refer as not being comparable at all were the reports respectively made by the Group Corporation to its stockholders embodied in its printed annual report, and the report made by the Group Corporation to the Michigan Securities Commission, were they not?

Mr. LORD. Yes, sir.

Mr. Pecora. Now, why do you say that the two reports are not comparable at all?

Mr. LORD. Because in the one case, the annual report to stockholders was a report of operations of the entire group including its units. On the other hand, the report to the securities commission was a report of the Group Corporation as such and did not include the operations of the units that constituted the assets of the Group Corporation.

Senator COUZENS. Mr. Lord, is that a correct statement in view of the testimony we have heretofore had in respect of the annual reports to stockholders--that is, not including the many affiliates that are units of the group?

Mr. Lord. Senator Couzens, I do not understand your question. Will you kindly repeat it?

Senator CouZENS. As I remember the prior testimony it was to the effect that your annual report to stockholders did include the operating results of the many affiliates?

Mr. LORD. The annual report to the stockholders did include that as I understand.

Senator COUZENS. Of the various affiliates?
Mr. LORD. Yes, sir; as I understand them.

Senator COUZENS. Í did not recall that those reports included all of the affiliates.

Mr. PECORA. It only includes the banking units that were members of the group.

Mr. LORD. Which report are you now referring to?
Mr. Pecora. The annual report to the stockholders of the group.
Mr. LORD. For 1929?
Mr. PECORA. Yes; or any of the years reported.

Mr. Lord. A report of earnings and operations as included in the annual reports covered the operations of all the units, including the Group Corporation itself, according to my understanding. And I think that is correct.

Mr. PECORA. Does it show earnings or deficits, whichever it may be, that the group as a whole earned or suffered, as the case might be?

Mr. LORD. Do you mean the Group Corporation?
Mr. Pecora. Yes; in its annual report to its stockholders.
Mr. LORD. My understanding is that it does.

Mr. PECORA. Will you point out in the printed annual report of the group to its stockholders for the year 1929 where that may be found?

Mr. LORD. The results of operations during 1929 according to my understanding included the operations of all the units, and the operations of the Group Corporation itself.

Mr. PECORA. Point out from the printed report of the group to its stockholders for the year 1929 any statement which tells the stockholder what the earnings of the group as a whole were for the year, if any, or what the deficit of the group as a whole was for the year, if any.

Mr. LORD. Mr. Pecora, this statement says: The results of operations of the above upit institutions of Guardian Detroit Union Group, Inc., for the year ending December 31, 1929, were satisfactoryAnd then it lists them below. I admit that it does not state that the operations of the Group Corporation as such are included, but they were included.

Senator Couzens. On what page is that, please? Mr. LORD. On page 8 of the printed annual report for 1929. Mr. Pecora. The annual report to which you have referred says: The results of operations of the above unit institutions of Guardian Detroit Union Group, Inc., for the year ending December 31, 1929, were satisfactory in spite of the difficult condition which confronted every banking institution during the last 10 weeks of the calendar year.

Mr. Lord. Yes, sir. And it then follows with the aggregate gross earnings of the units of the Group, stating that they amounted to $41,847,489.21. And it says:

From which all expenses (including taxes of all kinds, and depreciation of buildings and equipment) were paid to the amount of $32,435,031.08.

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