the total result was $4,000,000, which was then applied to the Chase National Bank loan, resulting in a reduction in that indebtedness to $2,000,000.

Mr. PECORA. And resulting in the wiping out of the indebtedness of $4,000,000 owed by the Detroit Bankers Co, to the Chase National Bank, wasn't it?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. In other words, the $2,000,000 which the Detroit Bankers Co. paid to the Chase National Bank was the $2,000,000 that it obtained upon the surrender for cancelation of 20,000 shares of the capital stock of the First Detroit Co.?

Mr. VERHELLE. That was a part of the $3,500,000 which the Detroit Bankers Co. had.

Mr. PECORA. But that was the $2,000,000 it got in connection with that particular transaction, wasn't it?

Mr. VERHELLE. I don't know that, sir.

Mr. PECORA. Doesn't this resolution make that clear to you?
Mr. VERHELLE. No, sir.

Mr. PECORA. Doesn't this resolution inform you very specifically and definitely that that $2,000.000 obtained by the Detroit Bankers Co. upon the surrnder of those shares of the capital stock of the First Detroit Co. was to be turned over to the Chase National Bank!

Mr. VERHELLE. I would have to read that very carefully. May I borrow it from you for a second?

Mr. PECORA. Yes; and you may read it as carefully as you want to, Mr. Verhelle. I now hand it over to you.

Mr. VERHELLE. That was what I have been trying to figure out for quite a while. [Witness looks over the photostatic copy of minutes for a time, and then hands the same back to Mr. Pecora.] Yes; that does refresh my memory.

Mr. PECORA. To what extent?

Mr. VERHELLE. To the extent that that $2,000,000 was, according to that resolution, obtained for the purpose of Iquidating a part of the $4,000,000 indebtedness to the Chase National Bank.

Mr. PECORA. Which was owed by the Detroit Bankers Co.
Mr. VERHELLE. At that time; yes, sir.

Senator COUZENS. So, in fact, this 12-million-dollar dividend that you got from the First National Bank in Detroit was not used for the purpose stated on yesterday?

Mr. VERHELLE. Oh, no, sir; it was not.

Mr. PECORA. Why, Senator Couzens, the $2,000,000 the witness spoke of in his last answer was the $2,000,000 which was obtained through the surrender of 20,000 shares of the capital stock of the First Detroit Co.

be

Senator COUZENS. I understand that, but I understood on yesterday that this 12-million-dollar dividend from the First National Bank in Detroit was used for that purpose in part. But it I misunderstood the answer, and you may go ahead for I think it is unimportant.

Mr. VERHELLE. It may not be important, but

may

Mr. PECORA (interposing). Senator Couzens, we have definitely allocated $2,000,000 which the Detroit Bankers Co. got in the form of this special dividend. Isn't that so, Mr. Verhelle?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. And that $2,000,000 was used to pay back a part of the loan that it owed to the Chase National Bank?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. That brings us down to the special cash dividend of 11⁄2 million dollars which the Detroit Bankers Co. obtained from the First National Bank in Detroit on December 23, 1931. Now, Mr. Verhelle, what was done with that 1/2 million dollars?

Mr. VERHELLE. There was $750,000 used

Senator COUZENS (interposing). No; prior to the use of the $750,000 for the First National Bank of Pontiac, what was done with it?

Mr. VERHELLE. Certificates of deposit

Mr. PECORA (interposing). How many?

Mr. VERHELLE. Two.

Mr. PECORA. And for what amounts, respectively?

Mr. VERHELLE. One was for $1,000,000, and the other was for $500,000. I believe the $1,000,000 was the Detroit Trust Co. and the $500,000 was the First National Bank-certificates of deposit were taken out.

Mr. PECORA. Yes.

Mr. VERHELLE. And the money was left on deposit there.

Senator COUZENS. Was that augmenting the deposits of the two institutions?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. Now, that means that

Mr. VERHELLE. No, sir; not necessarily. Well, let me see. [Witness appears to be considering the matter for about a minute.] Pardon but I would like to think that question over. [After another pause.] Yes; it did.

me,

Senator COUZENS. Well, even a layman understands that.
Mr. VERHELLE. All right.

Mr. PECORA. Those two certificates of deposit were purchased on December 24, 1931, were they not?

Mr. VERHELLE. Well, let me see

Mr. PECORA (interposing). That was the day after the 12-milliondollar cash dividend was received by the Detroit Bankers Co. from the First National Bank in Detroit.

Mr. VERHELLE. I would presume it was within a day of that time, anyway.

Mr. PECORA. Now, do you know what use was made of those funds by the Detroit Bankers Co., after the purchase of those two certificates of deposit?

Mr. VERHELLE. I cannot specifically allocate it, except as to $750,000 of that, but its use was for the same identical purpose as the $2,000,000. The other $750,000 went to the bank at Pontiac.

Mr. PECORA. How could the use of the first $750,000 thereof have been devoted to the same purpose as the $2,000,000 that you have already spoken about, when that $2,000,000 which was paid to the Chase National Bank, plus a further sum of $2,000,000 that the Detroit Bankers Co. that same month borrowed from the Continental Illinois Trust Co. and turned over to the Chase National Bank,

went to liquidate entirely the indebtedness of the Detroit Bankers Co. to the Chase National Bank?

Mr. VERHELLE. Well, there were other banks to which the Detroit Bankers Co. was indebted, and it was for the same indebtedness rather than for the indebtedness that had already been liquidated. of course, or I mean for the same type of indebtedness, or indebtedness of the same character.

Mr. PECORA. Oh, the same type of indebtedness is one thing, and the same indebtedness means quite another thing, doesn't it? Mr. VERHELLE. Well, of course, we wouldn't pay twice on the same indebtedness.

Mr. PECORA. I should say not. Well, you say it was paid for the same indebtedness, when that indebtedness had been completely liquidated through the payment of $4,000,000 out of funds obtained in the manner I have indicated, by the Detroit Bankers Co. to the Chase National Bank. Now, you said that $750,000 of this $1,500. 000 special cash dividend was used to pay off the same type of indebtedness. Whose indebtedness do you refer to that was paid off with that $750,000, and when was it paid off?

Mr. VERHELLE. I am referring to the indebtedness created by the First National Co. and assumed by the Detroit Bankers Co. for the purpose of reducing the interest rate, and so forth, and which was at that time held by-well, there was the $2,000,000 we have just seen held by the Continental Bank, and I don't know which bank received the benefit-or banks it might have been-received the benefits of that $750,000.

Mr. PECORA. Now, on December 23, 1931, the First National Co. owed the First National Bank in Detroit the sum of $1,564,000. Do you recall that?

M. VERHELLE. Not exactly that amount, but approximately that,

yes.

Mr. PECORA. Well, it was approximately that?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. That is, it was approximately $1,500,000?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. Now, that was about 1 week before the First National Bank in Detroit merged with the Peoples Wayne County Bank under the name of First Wayne National Bank, wasn't it?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. Do you recall, Mr. Verhelle, that it was in contemplation of that merger, which became effective on December 31, 1931, that it was desired by the First National Bank and the Peoples Wayne County Bank, that the First National Co. should liquidate its indebtedness of approximately one and a half million dollars which it owed to the First National Bank? Do you recall that? Mr. VERHELLE (after a pause). Not that specific indebtedness, sir. Mr. PECORA. Well, what indebtedness? Let me read to you for the purpose of possibly refreshing your recollection, the following resolution adopted by the board of directors of the First National Bank in Detroit, at a meeting which it held on December 22, 1931. I will read not only-well, I will read just the resolution in question, as it appears in the minute book of the meeting of the board of that date, a photostatic copy of which I have before me:

Whereas the net assets to be contributed by this bank on the consolidation thereof with the Peoples Wayne County Bank were fixed at $12,654,968.61, by first setting up a reserve of $1,500,000 out of the total net assets of this bank, to assist in the liquidation of the First National Bank in Detroit, Inc., which is affiliated with and largely indebted to this bank:

Resolved, That to carry out the purpose of said reserve and making said $1,500,000, or substantially all thereof, available for liquidation of the indebtedness of said First National Bank, there is hereby declared payable to all shareholders of record of this bank at the close of business on the date hereof, said shareholders being also beneficial owners in the same proportion of all the capital stock of said First National Co., a dividend in the sum of $1,500,000, provided said shareholders, or substantially all thereof, agree in advance, or in receipting for said dividend, to apply same, or substantially all thereof, in liquidation of the indebtedness of said First National Co., other than indebtedness thereof to any shareholder or beneficial owner of shares thereof.

Mr. VERHELLE. I recall that; yes.

Mr. PECORA. Does not this resolution inform you that the purpose of declaring this special cash dividend of a million and a half was to enable the First National Co. to liquidate an indebtedness which it then owed of approximately that sum to the First National Bank in Detroit?

Mr. VERHELLE. I do not know just what the purpose of that resolution was.

Mr. PECORA. Was the purpose of that resolution other than that set forth in the terms of the resolution itself?

Mr. VERHELLE. Other than would be indicated by the construction that has been placed on it here

Mr. PECORA. I have not placed any construction upon it; I have merely read the terms of the resolution to you.

Mr. VERHELLE. With the construction that the money should be used to be applied to this sum of approximately a million and a half dollars' indebtedness to the First National Bank.

Mr. PECORA. Is that construction a strained construction of this resolution?

Mr. VERHELLE. It is not the purpose

Mr. PECORA. Is it a strained construction of the language of this resolution?

Mr. VERHELLE. Possibly not.

Mr. PECORA. Possibly not. Well, then, if that construction is a fair and reasonable construction of the language of this resolution, do I understand you to mean that this resolution was adopted to effectuate a purpose other than that set forth by the resolution itself? Mr. VERHELLE. There were other purposes to be served by that resolution.

Mr. PECORA. What were those other purposes?

Mr. VERHELLE. I can explain those other purposes, I believe. However, it is quite a legal question, and if I use the wrong terms I hope I may be pardoned. At that particular time there was outstanding stock of the First National Bank in the hands of others than the Detroit Bankers Co., a purely nominal number of shares. I do not recall how many or how few. The entire purpose of declaring this dividend, the underlying motive, was definitely to reduce the burden of indebtedness that had come to the Detroit Bankers Co. through the First National Co., and in order to do that and in order to permit this consolidation to go through—

Mr. PECORA. You mean, the consolidation with the Peoples Wayne County Bank?

Mr. VERHELLE. And the First National Bank-we were advised by counsel

Senator CouZENS. What counsel?

Mr. VERHELLE. Monahan, Crowley & Riley and Stevenson, Eamon. Butzel & Long-to declare this dividend in, I think, what they call a restricted manner, so as to be sure that all of the proceeds went toward this obligation which at that time had been incurred through the actions of this $7,000,000 proposition that was discussed here yesterday, and so none of it would be diffused in other channels. Mr. PECORA. Mr. Verhelle, do you know who drew up the resolution that I have read to you?

Mr. VERHELLE. I believe Mr. Long and Mr. Monahan did.

Mr. PECORA. Mr. Long is in the room at the present time, is he not?
Mr. VERHELLE. Yes.

Mr. PECORA. Mr. Long, will you be good enough to come forward and be sworn?

TESTIMONY OF THOMAS G. LONG, OF DETROIT, MICH.

Senator COUZENS. Mr. Long, you do solemnly swear that your testimony in this hearing will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. LONG. I do.

Mr. PECORA. Give your full name and business or profession to the reporter for the record.

Mr. LONG. Thomas G. Long; 1436 Chicago Boulevard, Detroit; lawyer.

Mr. PECORA. Are you a member of any law firm having an office in the city of Detroit, Mich.?

Mr. LONG. I am.

Mr. PECORA. What is the name of that firm?

Mr. LONG. Stevenson, Butzel, Eaman & Long.

Mr. PECORA. How long have you been a member of that firm?
Mr. LONG. Since it was organized.

Mr. PECORA. Was that firm counsel to the First National Bank in Detroit at any time in the past?

Mr. LONG. They were.

Mr. PECORA. Were you counsel for that bank in the year 1931, and particularly during the month of December of that year? Mr. LONG. We were.

Mr. PECORA. Did you hear the testimony given at the session this morning by the preceding witness, Mr. Verhelle?

Mr. LONG. The testimony that he has just given; yes.

Mr. PECORA. Did you hear his testimony particularly in connection with a resolution that appears to have been adopted by the board of directors of the First National Bank in Detroit at the meeting of said board held on December 22, 1931, which resolution was read to Mr. Verhelle by me?

Mr. LONG. Yes, sir.

Mr. PECORA. Are you familiar with the facts and circumstances regarding the drawing up, presentation and adoption of that resolution by the board of directors of the bank at this meeting?