STOCK EXCHANGE PRACTICES

FRIDAY, FEBRUARY 2, 1934

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), and Couzens.

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.

Senator COUZENS (presiding). The chairman, Senator Fletcher, is attending a meeting of the Home Loan Bank Board this morning, and has asked me to preside until he gets through with the other meeting.

TESTIMONY OF JAMES 0. MURFIN-Resumed

Mr. PECORA. Judge Murfin, will you resume the stand? For the purpose of refreshing my recollection, Judge Murfin, will you be good enough to tell me when you first became a director of the First National Bank in Detroit?

Mr. MURFIN. When it merged with the Peoples' Wayne County Bank.

Mr. PECORA. That was on December 31, 1931, wasn't it?

Mr. MURFIN. Yes.

Mr. PECORA. Prior to that time had you had any connection with the First National Bank in Detroit?

Mr. MURFIN. None.

Mr. PECORA. Were you, after you became a member of the board of directors of that bank, a member of any special committees of the board?

Mr. MURFIN. I served several times as a member of the executive committee. And I was on a special claims committee, that met every Tuesday afternoon to consider past-due accounts.

Mr. PECORA. How was the executive committee of the board constituted?

Mr. MURFIN. The executive officers and a chosen list of directors that were appointed by Mr. Mills, the chairman of the board; and they more or less rotated. But they did not rotate with any degree of accuracy. The board was very large, consisting, I think, of nearly 90 members, and the chairman chose such members of the

whole board as he wished to serve on the executive committee. I think there were either 7 or 9 directors that served on the executive committee, and the executive officers of the bank.

Mr. PECORA, And in this rotating process of service, how long did a director appointed to the executive committee serve on the executive committee?

Mr. MURFIN. Mr. Pecora, that was changed several times. I think last year, if my memory is correct, they served for 2 or 3 months at a clip. Prior to that time they served a month at a time.

Mr. PECORA. Was there a governing committee of the board? Mr. MURFIN. There was.

Mr. PECORA. Were you ever a member of the governing committee! Mr. MURFIN. I was not. The governing committee was a perma nent committee.

Mr. PECORA. That was a standing committee?

Mr. MURFIN. That was a standing committee; yes.

Mr. PECORA. And its members were appointed by the chairman, or were they elected by the board?

Mr. MURFIN. Well, sir, I don't recall. I think-well, I just don't recall.

Mr. PECORA. What were the essential functions of the governing committee of the board?

Mr. MURFIN. They ran the bank.

Mr. PECORA. They ran the bank?
Mr. MURFIN. Yes.

Mr. PECORA. Was the chairman of the board the chairman of the governing committee as well, either ex officio or by virtue of any provision of the bylaws?

Mr. MURFIN. At one time I know he was not, but whether he did so serve when Mr. Mills became chairman of the board I am not sure. I was never on that committee, never on that board, I mean, and I am not certain enough to answer that question.

Mr. PECORA. Did any of the members of the governing committee receive salaries for serving as such?

Mr. MURFIN. No. They received directors' fees, as I understand, at each meeting.

Mr. PECORA. Do you know how frequently the members of the governing committee met officially?

Mr. MURFIN. No; I do not. Mr. Mills can tell you all those things. I don't know. The executive committee met every other day. Mr. PECORA. Was the governing committee the managing power of the bank from the time when you first became a member of the board of directors?

Mr. MURFIN. It was.

Mr. PECORA. And it continued to serve in that way?

Mr. MURFIN. It did.

Mr. PECORA. Do you know whether any amendment of the bylaws of the bank corporation was specially made in order to equip the governing committee with the power to run the bank, which you say it had?

Mr. MURFIN. I so understood, but I have no detailed knowledge of it. I know that that was the plan, that the governing committee was to have primary charge of questions of policy, and it ran the bank.

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Mr. PECORA. Did that plan become effective before you became a member of the board of the bank or afterward?

Mr. MURFIN. I think it was part of the original set-up, Mr. Pecora, when the two banks merged.

Mr. PECORA. That would, then, be coincidental with your becoming director of the consolidated bank?

Mr. MURFIN. Yes.

Mr. PECORA. Do you recall what change was made in the bylaws at that time which was designed to give the governing committee the power of management which you say it had?

Mr. MURFIN. I do not. Mr. Long is in the room, and he drew what changes there were in the bylaws, and he could tell you all about that. I know almost nothing about it.

Mr. PECORA. Well, was the change in the bylaws made by the board of directors?

Mr. MURFIN. I think-well, now, I am quite certain, that this governing committee was set up as a part of the original organization when those two banks came together.

Mr. PECORA. How frequently did the board of directors of the bank meet after you became a member? Mr. MURFIN. Every month.

Mr. PECORA. That is, once a month?

Mr. MURFIN. Once a month.

Mr. PECORA. And were those monthly meetings held continuously throughout the year 1932 and up to the time that the receiver was appointed for the bank?

Mr. MURFIN. They were.

Mr. PECORA. Do you know how frequently the governing committee met?

Mr. MURFIN. No; I do not.

Mr. PECORA. Was it the routine procedure for the governing committee to make written reports to the board at the monthly meetings of the board?

Mr. MURFIN. Correct. Before each director there was placed this typewritten-well, very substantial portfolio it was, in which was disclosed what the governing committee had done, and the action of the executive committee.

Mr. PECORA. Those statements or reports were left in the board room by the directors, I presume?

Mr. MURFIN. That is true.

Mr. PECORA. They did not take them away with them?

Mr. MURFIN. We were requested not to take them away with us. Mr. PECORA. Now, you gave some testimony with respect to the bank, its condition, and other things relating to the bank, before the so-called "one-man grand jury" in Detroit last summer, didn't you, Judge Murfin?

Mr. MURFIN. I was a witness; yes, sir.

Mr. PECORA. You testified at that time, I presume, of your own volition?

Mr. MURFIN. The prosecuting attorney sent for me. I did not wait to be escorted over by the sheriff, but a young man in the prosecutor's office came and asked me to come and testify. And it came like that (snapping thumb and forefinger), and he did not give me 5 minutes, and I just went over there.

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Mr. PECORA. Hadn't you expected to be called as a witness the time you were requested to appear?

Mr. MURFIN. I had not.

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Mr. PECORA. Had you indicated your desire to testify prior to the time when you were called?

Mr. MURFIN. Quite the contrary. I did not know why I was called there, or why I was called here. The contrary was that many officers and executives knew a hundred times as much about it as I did.

Senator COUZENS. Judge Murfin, I can tell you why you were called here. It was because at the time you were called here we did not have the committee's report on the examination of Mr. Verhelle's private and confidential report.

Mr. MURFIN. That is what Mr. Pecora told me on yesterday. Mr. PECORA. Judge Murfin, were you during the year 1931, or, rather, during the year 1932 and up to the time that the receiver for the bank was appointed-which, I believe, was in March 1933, wasn't it?

Mr. MURFIN. The receiver was appointed in May. The conservator went in in March.

Mr. PECORA. Had you kept yourself currently posted as to the condition of the affairs of the bank?

Mr. MURFIN. I did, except for the year 1932, when I had this attack of phlebitis, which laid me up the last week in May and I did not get down but 1 hour until January.

Mr. PECORA. Until the following January, in 1933?

Mr. MURFIN. Yes.

Mr. PECORA. Do you recall the general substance of the testimony you gave in that so-called "one-man grand jury" proceeding last year?

Mr. MURFIN. Oh, I recall it in general. I was mad, and lost my temper, as one often does in such a case, and was sorry that I did. Mr. PECORA. Well, there was no one there bully-ragging you to cause you to lose your temper, was there?

Mr. MURFIN. No. I was not bully-ragged at all. I did the bullyragging on my own account.

Mr. PECORA. I have had the pleasure of reading the testimony you gave before that one-man grand jury within the last 24 hours, and I could not see anything in the line of questioning to which you were subjected that would ordinarily cause a witness to lose his temper. Mr. MURFIN. Well

Mr. PECORA (continuing). Was your loss of temper due to any instance that you can recall?

Mr. MURFIN. I do not know that this is a proper inquiry for this committee, is it?

Mr. PECORA. Well

Mr. MURFIN (resuming). I might say

Mr. PECORA (continuing). If you do not want to answer the question, I will not press it.

Mr. MURFIN. During this period of the one-man grand jury the city of Detroit was agog with talk and gossip and recriminations and calling of names, and there was a spirit of controversy wherever one went. You could go to your club and you heard nothing else than

be cales something of this kind: Why did he say that? Why didn't he say the other? The town was seething. I do not believe it would be profitable to stir up things that should not be stirred up.

Mr. PECORA. Well, do you think the subject matter of the testimony which you gave in that one-man grand jury proceeding is something wholly unrelated to the purpose of this inquiry?

Mr. MURFIN. I would think so. This inquiry is only justified on the ground that you are eliciting information in aid of framing legislation. And what a poor bank director said last July would not aid you in framing any legislation.

Mr. PECORA. Well, in order that anybody may properly and appropriately frame legislation, it would be advisable to have a factual basis, wouldn't it?

Mr. MURFIN. Correct.

Mr. PECORA. And this committee, as you undoubtedly know, is charged with the mission of inquiring into banking customs and practices generally. You know that, don't you, Judge Murfin? Mr. MURFIN. I suppose so.

Mr. PECORA. Now, the one-man grand jury proceeding to which reference has been made was a proceeding that had to do with banking conditions in the city of Detroit, and throughout the State of Michigan generally, in recent times.

Mr. MURFIN. The 1-man grand jury in Detroit was supposed to inquire into the causes for the closing of the Detroit banks and why they could not get them reopened.

Mr. PECORA. Who initiated that proceeding?

Mr. MURFIN. Oh! There was more or less quite a clamor about it, and some of the newspapers took it up, and finally, after some considerable newspaper agitation, the attorney general of the State came in and asked for a grand jury. Then there was a colloquy as to whether it would be a secret grand jury or an open grand jury, or as to whether they could have an open grand jury; and they monkeyed around about it and decided to have this 1-man grand jury; and about this time the prosecuting attorney stepped into the picture, and I think the general feeling in Detroit, if I may use a colloquialism, was that he stole the show from the attorney general. It was quite a circus. It gaves the newspapers copy and it kept the town stirred and kept the people irritated, and what was said and done there would not help here.

Mr. PECORA. Do you know what prompted the attorney general to initiate the proceeding? Was it, for instance, by reason of any request made of him to do so by the bank or by any of the officers or directors of the bank?

Mr. MURFIN. I am quite sure it did not come from the bank or any of the officers or directors of the bank. I am quite sure it was because of the public clamor, superinduced by the newspapers fanning the flames. I am quite certain it was not brought about by any request of any bank or the officers of any banks.

Mr. PECORA. Do you recall having given expression to opinions about different matters you were questioned about in that one-man grand jury proceeding?

Mr. MURFIN. I do not recall what you mean as I have not read a lot of the testimony. I don't think I even had a copy of it. I may