Mr. VERHELLE. Well, I had a number of discussions with them over the type of letter, which letter was sent out to Mr. Ballantyne that evening for his review; and I have here a letter which was sent out to him, together with a letter that was actually sent out to the stockholders containing the changes recommended by him in that particular letter. There was also that day

Mr. PECORA. Before you go any further, will you produce the letter that you say was sent out to the stockholders?

Senator COUZENS. First, produce the one, if you can, that was sent to Mr. Ballentyne, and then the one that was corrected by him and sent to the stockholders.

Mr. VERHELLE (handing two papers to Mr. Pecora). In addition to those letters there were other methods by which the public was informed, of which I can get you copies.

Mr. PECORA. You have produced here in response to a question a photostatic copy of what purports to be a letter on the letterhead of Detroit Bankers Co. addressed "To our stockholders ", dated November 21, 1931; but I see a legend or inscription in the upper right-hand corner of this photostatic copy reading as follows:

"This letter was not sent out."

Was this letter sent out?

Mr. VERHELLE. As I have attempted to explain, that was the first draft of the letter, and the next letter was the actual one.

Mr. PECORA. Suppose we put in evidence the photostatic copy of the letter that the witness has now referred to as the first draft of the letter to the stockholders but which was not sent out to the stockholders.

Senator COUZENS. That may be entered.

(Photostatic copy of draft of letter dated Nov. 21, 1931, addressed, on the letterhead of the Detroit Bankers Co., "To our stockholders was received in evidence, marked "Committee Exhibit No. 12, Jan. 25, 1934.")

Mr. PECORA. You also have given me, in response to a request that you produce the letter or copy thereof that was sent to the stockholders, what appears to be a mimeograph copy of a letter on the letterhead of the Detroit Bankers Co., dated November 21, 1931, addressed "To our stockholders" and bearing a facsimile of the signature of John Ballantyne, president. I offer that in evidence. Senator COUZENS. That may be entered.

(Mimeograph copy of letter on letterhead of the Detroit Bankers Co., dated Nov. 21, 1931, addressed "To our stockholders" and bearing facsimile signature of John Ballantyne, president, was received in evidence, marked "Committee Exhibit No. 13, Jan. 25, 1934.")

Mr. PECORA. The letter last offered in evidence, or the copy of the letter last offered in evidence, marked "Exhibit 13" of this date, is a copy, you say, of the letter that was actually sent out to all stockholders of the Detroit Bankers Co.?

Mr. VERHELLE. I would say so; yes, sir.

Mr. PECORA. Do you know who prepared the first letter, that is, the draft which was not sent out and which has been marked as "Exhibit no. 12" of this date?

Mr. VERHELLE. I believe I did, sir.

Mr. PECORA. Who prepared the letter marked "Exhibit no. 13" which was sent out to the stockholders?

Mr. VERHELLE, The letter, no. 13, is substantially a copy of letter no. 12, with the addition of one paragraph.

Mr. PECORA. Who prepared it in the form in which it was sent out and in which it has been received in evidence?

Mr. VERHELLE. The change was made by Mr. Ballantyne, but I do not know who did the actual wording of it, who is responsible for the actual wording of the paragraph itself.

Mr. PECORA. The only change or difference between exhibit 12 and exhibit 13 is the inclusion in exhibit 13, which is a copy of the letter that was sent out, of what appears therein as the second paragraph; is that right?

Mr. VERHELLE. I believe that is correct, sir.

Mr. PECORA. And you believe that in all other respects exhibit 13 is the same as exhibit 12 in form?

Mr. VERHELLE. I could read them back and determine definitely. Mr. PECORA. I will read Exhibit No. 12, the draft of the letter which was not sent out

Senator COUZENS. And which was sent to Mr. Ballantyne for revision?

Mr. PECORA. Yes. [Reading:]

"To our Stockholders:

"The board of directors of the Detroit Bankers Company believe that greater progress in attaining the purposes of this company can be made by the consolidation of the Peoples Wayne County Bank and the First National Bank in Detroit, and accordingly have recommended the consolidation of these two institutions under the name of the First Wayne National Bank. To you as stockholders the results will be reflected in increased earnings for your com pany, and to you as customers in an improved and more convenient type of service. It is contemplated that this consolidation shall be effective on or about December 31, 1931. This will give Detroit, which is the fourth largest city in the United States, a bank commensurate with its importance. "According to the latest published statements the resultant consolidated insti tution will be among the first ten in the country in resources and deposits. "We trust that you will share the management's pride not in the size of the First Wayne National Bank, but in its usefulness to the community. The usual quarterly dividend has been declared to holders of record on December 21, 1931."

The letter marked as "Exhibit no. 13 " in evidence reads as follows [reading]:

"To our Stockholders:

"The board of directors of the Detroit Bankers Company believe that greater progress in attaining the purposes of this company can be made by the con solidation of the Peoples Wayne County Bank and the First National Bank in Detroit, and accordingly have recommended the consolidation of these two institutions under the name of the First Wayne National Bank.

"The new bank will have a capital of $25,000,000, surplus of $25,000,000. and undivided profits in excess of $7,000,000. It will have total deposits of approximately $500,000,000 and total resources of approximately $600,000,000. "We have taken this occasion to make the needed charge-offs and to set up ample reserves. To you as stockholders the results will be reflected in economy of operation, and to you as customers in an improved and more convenient type of service.

"It is contemplated that this consolidation shall be effective on or about December 31, 1931. This will give Detroit, which is the fourth largest city in the United States, a bank commensurate with its importance.

"According to the latest published statements the resultant consolidated institution will be among the first ten in the country in resources and deposits. "We trust that you will share the management's pride, not in the size of the First Wayne National Bank, but in its usefulness to the community. "The usual quarterly dividend has been declared to holders of record on December 21, 1931."

It is signed "John Ballantyne, president ", and dated November 21, 1931.

The only differences that have been noted between these two letters, Mr. Verhelle, is the inclusion as entirely new matter in exhibit no. 13 of the second paragraph thereof, which gives the capital set-up of the new bank, and the following change in the phraseology of the third paragraph of the letter that was sent out, Exhibit No. 13, which corresponds in substance to the second paragraph of the draft of the letter, Exhibit No. 12, which was not sent out. That paragraph in the proposed, or draft letter, reads as follows:

"To you as Stockholders the results will be reflected in increased earnings to your company, and to you as customers in an improved and more convenient type of service."

In exhibit 13, which is the letter sent out, that reads as follows: To you as sockholders the results will be reflected in economy of operationinstead of increased earnings to your company

and to you as customers in an improved and more convenient type of service. Which corresponds to the balance of the paragraph in exhibit 12. Now, Mr. Verhelle, you produced these two exhibits in answer to my question as to whether or not there was given to the stockholders of the Detroit Bankers Co. any information showing that at the end of the year 1931 the financial condition of the company was not as good as it was at the end of the preceding year. Wherein do you seen anything in either of these two exhibits, 12 and 13-or let us confine it to exhibit no. 13, which is the one that was sent to the stockholders, according to your testimony-which gives that information to the stockholders of the Detroit Bankers Co.?

Mr. VERHELLE. I am not quite sure that those letters were given to you in answer to that specific question.

Mr. PECORA. For what purpose, then, or in answer to what question, did you produce these letters?

Mr. VERHELLE. As an indication-at the time I produced them I thought I was producing them as an indication of some specific notice to the stockholders that changes were taking place. As to the actual condition of the Detroit Bankers Co. at the end of 1931 and 1930, it is my very definite opinion at the present time, which, of course, takes into consideration events that have since occurred-but as far as the statement to the effect that the Detroit Bankers Co. was not in as good shape at the end of 1931 as it was at the end of 1930 appearing in a letter sent the stockholders, of course, no such statement appears there and it would have been completely out of order in any statement at that particular time.

Mr. PECORA. Why would it have been out of order if it was the fact?

Mr. VERHELLE. Well, there are a great many and varied reasons.

Mr. PECORA. Give us the reasons that cause you to believe it would have been out of order to have sent out any letter or information to the stockholders which would have informed them that the condi tion of the company at the end of the year 1931 was not as good as it was at the end of the preceding year.

Mr. VERHELLE. One very good reason was that at that particular time we felt that we were climbing the hill and getting back out with this organization; that this organization was definitely coming out of the woods.

Mr. PECORA. Was the fact that you were coming out of the woods reflected by the reduction of $23,000,000, approximately, in the capi tal assets of the company as compared with those capital assets in the preceding year?

Mr. VERHELLE. No, sir; not by that, but by other factors.
Mr. PECORA. Go ahead-what other factors?

Mr. VERHELLE. The first one would be, I presume the most im portant, the assurances which we had received that we had made a thorough job of housecleaning

Mr. PECORA. Who gave you those assurances?

Mr. VERHELLE. The comptroller's representatives.

Mr. PECORA. Who?

Mr. VERHELLE. Mr. Leyburn.

Mr. PECORA. Did he give you those assurances?

Mr. VERHELLE. No, sir.

Mr. PECORA. Did you hear him give them to anybody else?
Mr. VERHELLE. No, sir.

Mr. PECORA. Did you ever see those assurances from him in writing addressed to anybody?

Mr. VERHELLE. Not that I can recall, sir.

Mr. PECORA. How do you know about the giving of those assurances?

Mr. VERHELLE. Principally because I was informed of the fact that Mr. Leyburn had stated that

Mr. PECORA. Who informed you of that?

Mr. VERHELLE. Mr. John Ballantyne.

Mr. PECORA. Anyone else that you can recall?

Mr. VERHELLE. I cannot think of anyone just at this moment. Mr. PECORA. Didn't you know, as the comptroller of the Detroit Bankers Co. during all of this time, Mr. Verhelle, that special divi dends aggregating in amount 52 million dollars had been declared by certain of the units of the holding company to enable the holding company to meet its obligations during the year 1931?

Mr. VERHELLE. I would like to add to that question--I will answer the question. Yes; I knew that dividends had been declared of 51⁄2 million dollars.

Mr. PECORA. Special dividends?

Mr. VERHELLE. Special dividends, so that the holding company might meet the obligations which it had incurred in connection with this $7,000,000 that has been the subject of so much discussion here.

Mr. PECORA. So long as you put it in that way, Mr. Verhelle, let me again ask you if it is not the fact, to your personal knowledge, that of those special dividends aggregating 52 million dollars, 1% million dollars was declared by the unit which paid it for the specific purpose of enabling the First National Co. to discharge an

obligation of about a million and a half which it owed to the First National Bank in Detroit? Is not that the fact, to your absolute knowledge?

Mr. VERHELLE. No, sir; it is not.

Mr. PECORA. Is not that the fact set forth in the resolution declaring that special dividend that was the subject of the examination of Mr. Long before this committee this morning, in your presence and hearing?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. Why do you say that it would have been out of order to have sent out a report to the stockholders of the Detroit Bankers Co. showing that its condition at the end of the year 1931 was not as good as it was at the end of the year 1930?

Mr. VERHELLE. That question has such a broad answer that-
Mr. PECORA. I do not care how broad the answer is.

Mr. VERHELLE. It would have been disastrous to do a thing of that sort, because in the first place the truth of it would have been questionable. In the second place, to make a statement of that sort would have been certainly contrary to everything that everyone was attempting to do at that time, and that is to hold up the house, the general siuation existing throughout the country.

Mr. PECORA. And in the effort to hold up the house do you think it was necessary to keep the stockholders of the Detroit Bankers Co., which is the house, I understand, you were trying to hold up

Mr. VERHELLE. No, sir; I beg your pardon, sir. I qualified the statement and stated that the house referred to the general situation existing throughout the country.

Mr. PECORA. You said the truth of the statement to the effect that the financial condition of the Detroit Bankers Co. at the end of he year 1931 was worse than it was at the end of the year 1930, could be questioned. You yourself have admitted here this afternoon that it was the truth that at the end of the year 1931 the financial condition of the Detroit Bankers Co. and its units was not as good as it was at the end of the preceding year, so how could the truth of it be questioned?

Mr. VERHELLE. Because my admission was based upon facts now in my possession, since the closing of this bank, whereas I referred to that statement as of the end of that particular year, and the knowledge then in my possession.

Mr. PECORA. You know now that the knowledge in your possession enables you to assert that the financial condition of the company at the end of 1931 was worse than it was at the end of the preceding year, do you not?

Mr. VERHELLE. The knowledge now in my possession; yes, sir. Mr. PECORA. Did you not have substantially that same knowledge when you gave Mr. Ballantyne the figures that were embodied by him in his annual report to the stockholders for the year 1931? Mr. VERHELLE. No, sir.

Mr. PECORA. Didn't you have knowledge at that time that the capital assets of the Detroit Bankers Co. had been reduced by over 23 million dollars at the end of 1931, from what they were at the end of 1930!

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