to the lead-pencil notations, of the memorandum when submitted to Mr. Ballantyne?

Mr. VERHELLE. Not necessarily, sir. It all depends upon whether I redictated this or whether I just returned it with the idea of making these particular changes. I am trying to recall that right

now.

Mr. PECORA. The fact is that, among the papers you produced last week, that is the only draft of such a memorandum that was con tained therein.

Mr. VERHELLE. Under the terms of the subpena I produced every thing that I had along this line.

Mr. PECORA. I don't get you, Mr. Verhelle.

Mr. VERHELLE. I say under the terms specified in the subpena I produced this, and it would seem to me that I probably-in fact, I am almost certain that this was rewritten, and I don't know whether or not other changes were made and the pencil notations contained

herein.

Mr. PECORA. How do you account for the fact that you have a copy of a tentative draft among your possessions and not a copy of the memorandum in its final form?

Mr. VERHELLE. Because I probably took this home to work on it, as I did with a lot of things.

Mr. PECORA. I observe that you gave generally similar testimony last week, when I asked you to identify what purported to be a copy of another memorandum addressed by you to Mr. Ballantyne. In referring to that memorandum last week you also said you were not sure whether or not that actual memorandum or any copy thereof had been delivered to Mr. Ballantyne. But I have observed here today that you have no hesitancy in identifying copies of memoranda that I have shown you addressed to Mr. Mills. I am wondering, Mr. Verhelle, if your memory is hazy about memorandums addressed to Mr. Ballantyne and clear about those addressed to Mr. Mills. Mr. VERHELLE. No, sir; there would be nothing

Mr. PECORA. How is that?

Mr. VERHELLE. No, sir; I don't believe that that has

Mr. PECORA. Well, you recall dictating that memorandum, a copy of which I have just shown you?

Mr. VERHELLE. I think I do.

Mr. PECORA. I offer it in evidence.

The CHAIRMAN. Let it be admitted.

(Memorandum dated May 28, 1932, from Joseph F. Verhelle to John Ballantyne, previously marked "Committee Exhibit No. 42 for Identification" on January 25, 1934, was thereupon, upon being received in evidence, designated "Committee Exhibit No. 100, January 30, 1934", and appears in full at the end of today's record.) Mr. VERHELLE. This particular one happens to be marked up. Senator COUZENS. Of course, you could have marked that up any time.

Mr. VERHELLE. But I did not.

most

Mr. PECORA. This memorandum or copy thereof has been received in evidence as Committee's Exhibit No. 100 of this date. Let me ask you if the lead-pencil notations or corrections that appear on the face thereof are in your handwriting?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. I notice in this memorandum you say, among other

depen things, as follows-first let me state that it is dated March 28, 1932, and is addressed specifically as follows:

it i

The following is an unusually frank discussion of our organization. Please do not consider me presumptuous.

Later on you state as follows in this memorandum:

The purpose of this memorandum, however, is to find a means whereby the officers may be informed of their responsibilities, this being considered necessary for the following reasons:

A considerable group of senior officers who handled a large variety of functions in their old institutions do not appear to have any specific duties or responsibilities. These men are of such senior rank from the standpoint of their titles that their activities either require almost constant meetings or else almost invariably result in embarrassment to the official staff as well as themselves.

What did you mean by that, Mr. Verhelle?

Mr. VERHELLE. Well, I would say that they either had to meet continuously to discuss things or else one would do something and another would not know about it and the result would be an embarrassing situation.

Mr. PECORA. Did you also mean to call attention to the fact that a large number of senior officers had no specific duties or responsibilities assigned to them and hence were in one another's way?

Mr. VERHELLE. Not necessarily, sir.

Mr. PECORA. Well, does it mean that?
Mr. VERHELLE. I would say, "No."

Mr. PECORA. What did you mean then when you say that

A considerable group of senior officers who handled a large variety of functions in their old institutions do not appear to have any specific duties or responsibilities.

Mr. VERHELLE. Well, that they continued to handle the variety of subjects which they had handled prior to the consolidation.

Mr. PECORA. Oh, don't you say just the opposite to that? Don't you say that they handled-you say

A considerable group of senior officers who handled

Speaking of the past—

a large variety of functions in their old institutions do not appearSpeaking of the present

to have any specific duties or responsibilities.

Mr. VERHELLE. No; I would have to read that memorandum a little more closely.

Mr. PECORA. Well, read that paragraph [handing document to Mr. Verhelle]. I attach certain meaning and intendment to your language there, but if you understand anything other than what seems to me to be the plain meaning of the words you use I would like to know what else you understand.

Mr. VERHELLE. In order to explain this you have to have just a little bit of background in connection with this particular situation

at that particular time. This was after the consolidation of two institutions with their physical quarters continued in their old loca tions, and directly thereafter during the next few months steps were taken to consolidate the functions so that one function would be assigned to one certain officer and another function to another officer. As these became assigned in certain instances, quite naturally the duties were different from the others, and there was a switching of duties of these officers.

The result was that-and then I quote here:

A considerable group of senior officers handled large

Mr. PECORA (interposing). "Who handled "-" in their respective institutions" you say. And that means you were referring to their activities prior to the consolidation, which is prior to December 31, 1931?

Mr. VERHELLE. No; not necessarily, because the duties were not immediately changed due to the fact that a group of figures were thrown together. The functions remained as they had been, but were being shifted as slowly as possible, with the result that we got here to the point of where, through this switching of functions and the centralization of certain specific functions into certain officers and the switching of officers themselves, for that matter, from one physi cal building to another, it resulted in a group of men having nothing but more or less general activities; that is, waiting on the public and handling whatever happened to come up, without any specific duty being assigned.

Mr. PECORA. You don't say that in that language, do you Mr. Verhelle?

Mr. VERHELLE. I don't say it in that language, but

Mr. PECORA. The language you use indicates, does it not, that at the time you wrote that memorandum in March 1932 those senior officers had no specific duties or responsibilities assigned to them! Isn't that what you would gather from it?

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

The CHAIRMAN. Were they all drawing salaries?

Mr. VERHELLE. Well, that does not mean that they were not all working.

Mr. PECORA. That is not the question. Were they all drawing salaries?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. Now, Mr. Verhelle, in this memorandum of March 28, 1932, marked Committee Exhibit No. 100 in evidence, you also say this, referring to an investment committee which was headed by Mr. Mark A. Wilson as chairman:

To extend their activities to all assets, the value of which is predicated on securities other than real estate, will involve the appointment of a subcommittee. This is highly desirable for the following reasons:

1. There are numerous corporations whose stock is used as collateral, and so forth, in the various units, and to such an extent that if difficulties arose in connection with the company, the losses will be passed to us.

2. Numerous unlisted securities are used as collateral to loans, and no facilities are provided the loan officers from which they can determine the actual value of the securities in them unless those involve real estate.

3. There are a few very heavy concentrations of collateral that should be under constant surveillance by the investment committee, and upon which arbitrary values should be set.

Now, what were the facts and circumstances that you had ascertained the existence of which prompted you to make that recommendation in this memorandum?

Mr. VERHELLE. I would say, principally, the amount of unlisted collateral securing loans.

Mr. PECORA. You found that kind of collateral in considerable volume in the various unit banks of the Detroit Bankers Co., did you?

Mr. VERHELLE. I would say so.

Mr. PECORA. And what were the few very heavy concentrations of collateral that you referred to in this paragraph of your memorandum, and as to which you recommended they should be under constant surveillance by the investment committee, and upon which arbitrary values should be set?

Mr. VERHELLE. Well, I would consider large concentration, any stock of which a large portion of that outstanding is held as collateral for a loan. Irrespective of the actual amount involved in dollars, any one of those would be a large concentration.

Mr. PECORA. You say there were a few very heavy concentrations of such collateral. What were those classes of collateral? Or, rather, what kind of stock or security made up those few very heavy concentrations?

Mr. VERHELLE (after a pause as if in deep thought). I do not know that I could answer that question.

Mr. PECORA. Well, did you find, for instance, heavy concentrations of collateral consisting of capital stock of the Detroit Bankers Co. in the various unit banks of the company?

Mr. VERHELLE. Of course, that would not be involved in that recommendation.

Mr. PECORA. Well, I am asking if you found such heavy concen-
trations, I mean of that kind of stock.

Mr. VERHELLE. Well, there was a large amount of stock of the
Detroit Bankers Co.

Mr. PECORA. About how much was the volume of that stock held
as collateral against loans in the various unit banks?

Mr. VERHELLE. I have been trying to recall that figure, but I just can't answer you.

Mr. PECORA. Just make a little effort to give us even an approximation of it, will you?

Mr. VERHELLE (again lapsing into deep thought).

Mr. PECORA. Possibly in order to help you along I will say, my recollection of the evidence here is that there was something like one-million-seven-hundred-thousand-odd shares of that stock outstanding. Is that right?

Mr. VERHELLE. Yes, sir; that is correct.

Mr. PECORA. Now, how many hundreds of thousands of those shares did you find were pledged as collateral to secure loans in the various unit banks?

Mr. VERHELLE. I just could not give you an approximate idea of that. The figures are hazy in my mind, and I could not approximate

it.

Mr. PECORA. You could not even approximate it?

Mr. VERHELLE. It is covered in the reports, I think.

二

Mr. PECORA. In whose reports?

Mr. VERHELLE. I think in the bank examiner's reports. Mr. PECORA. Of course it is, but I just want to see how much of it you can tell this committee about in that respect.

Mr. VERHELLE (as if lapsing into deep thought again).

Mr. PECORA. Let me ask you specifically: Do you know of any other collateral that was held as security for loans in any larger amounts than in the case of the stock of the Detroit Bankers Co.? Mr. VERHELLE (again lapsing into deep thought).

Senator COUZENS. He seems to want to think it over a good deal. Mr. PECORA. Can't you tell us?

Mr. VERHELLE. I cannot say; but that answer would not mean that there was not.

Mr. PECORA, That there was not what?

Mr. VERHELLE. Any other stock that was carried in larger amounts. Mr. PECORA. You cannot think of any other stock that was more heavily concentrated as collateral for loans than that of the Detroit Bankers Co., can you?

Mr. VERHELLE. I cannot think of any. There might be I just can't think of any.

some, but

Mr. PECORA. Now, Mr. Verhelle, in this memorandum marked "Committee Exhibit No. 100" in evidence you say as follows, under the caption of "Detroit Company":

This company acts as nominee for any of the units. It will take a considerable length of time to place stock in the names of others, under control, Stock has been transferred in the names of employees and their families in a most negligent manner. In certain cases bank stocks or stocks that have been charged off, have been carried in this manner, and it will take a considerable length of time before we can know that we are receiving all the income to which we are entitled, and that we are not subject to the liability that normally accompanies the holding of bank stock. The use of this company as a nominee has resulted in the stoppage of a very substantial leak.

Now, Mr. Verhelle, do you recall the circumstances and facts that prompted you to call Mr. Ballantyne's attention to that particular matter?

Mr. VERHELLE. Well, I think that was more or less a review of all the various major items, and I think I wanted it understood that it would take some time to get that particular phase of it organized to a point where the entire matter was left under the control which it was intended to be produced through the use of that company.

Mr. PECORA. Had it been the practice or the custom of the Detroit Bankers Co. to transfer to nominees, banks stocks that it held in order to enable the company, and I mean the Detroit Bankers Co., to avoid the liability that normally accompanies the holding of bank stock?

Mr. VERHELLE. Well, the particular type of item that would go into the Detroit Co. was collateral resulting from a loan that was Mr. PECORA (interposing). I am not asking about collateral. Mr. VERHELLE. Well, that was the use of the Detroit Co. Mr. PECORA. What was the use of the Detroit Co.!

Mr. VERHELLE. It acted as nominee for the collateral in the way of stocks securing, or the securities rather, securing loans. That was the principal function.