Mr. VERHELLE. Officially they certainly would not have known, but as to whether or not any of them knew anything about it, it is a rather difficult statement for me to answer.

Mr. SAPERSTEIN. Did you find as a result of your investigation that there was any attempt on the part of directors or officers of the First National Bank to conceal the fact that those purchases were made?

Mr. VERHELLE. Well, I individually called on a large number of directors and officers at the time of my investigation, and they all claimed, or those that I had interviewed who might have had knowledge of it, that they had no knowledge whatsoever up to New Year's Eve of 1930.

Mr. SAPERSTEIN. You say the directors of the First National Bank had no knowledge of those purchases?

Mr. VERHELLE. Those whom I interviewed, including the President of the First National Co.; and, you understand, the First National Co. had actually supplied the funds. The funds of the First National Co. were procured and used for the purpose of purchasing this stock. Mr. Hoover was the president of the company, and, quite naturally, I interviewed him, but he claimed to have no knowledge or connection with the transaction, and denied all knowledge of it. There were others I interviewed, and who gave me substantially the same statement.

Mr. SAPERSTEIN. Will you name those officers or directors of the First National Bank or of the First National Co. who did have knowledge of the acquisition of those bank stocks?

Mr. VERHELLE. Well, Mr. Howard Russ, of course, had, as the evidence shows.

Mr. SAPERSTEIN. What was Mr. Russ's position?

Mr. VERHELLE. Vice president of the First National Bank. I believe he was executive vice president. And D. Dwight Douglas. Mr. SAPERSTEIN. What was his position?

Mr. VERHELLE. President of the First National Bank.

Mr. SAPERSTEIN. Yes. Go ahead.

Mr. VERHELLE. Mr. Emory Clark, who was chairman of the board of directors of the First National Bank.

Mr. SAPERSTEIN. Have you now named all the officers or directors who knew about the acquisition of those stocks by the First National group?

Mr. VERHELLE. I believe they are all that I can recall right now. Mr. SAPERSTEIN. How many directors were there on the board of the First National Bank at that time?

Mr. VERHELLE. I would have to look up the record in order to tell you. I presume around 22.

Mr. SAPERSTEIN. Twenty-two members of the board?

Mr. VERHELLE. I believe that is correct.

Mr. SAPERSTEIN. And the remainder, or substantially all the remainder that you interviewed, disclaimed any knowledge of the purchase of those bank stocks by the First National Co., did they? Mr. VERHELLE. Mr. Ralph Gilchrist, a director, knew about it. Mr. James T. McMillan denied knowing anything about it. Mr. Hoover denied knowing anything about it. I think the most of them did know about it after the first of the year.

Mr. SAPERSTEIN. I mean before the first of the year.

Mr. VERHELLE. Before the first of the year is what 1 have been referring to.

Mr. SAPERSTEIN. Have you now exhausted your recollection as to the names of officials or directors of the First National Bank who knew about the acquisition of those bank stocks by the First National Co.?

Mr. VERHELLE. Yes, sir; substantially so.

Mr. SAPERSTEIN. You have named four persons?

Mr. VERHELLE. I think that is correct.

Mr. SAPERSTEIN. Very well; you may now go ahead with your

statement.

Mr. VERHELLE. Well, at that time, as indicated in that letter read this morning, the First National group agreed to hold the Bankers Co. harmless from any losses resulting from those purchases. It was a matter of very different interpretation with the directors and others, as to the matter that the directors were responsible therefor. or those who were responsible for the purchases, for a sum of ap proximately 8 million dollars, because afterward those stocks be came not only valueless but resulted in liability to the First Na tional Co., which reflected itself in the Dertoit Bankers Co. A trustee agreement, with quite a large number of amendments, had been drawn up that lent itself to numerous interpretations, and many legal opinions were obtained in connection with it. But one of the items specifically contained in it was that these directors would agree to provide credit in the sum of $1,141,000 for the use of the First National Co., and the asset was set up on the books of the First National Co. at that figure. It was probably secured at the time when the trustee agreement was entered into, but some time later on the statement of the First National Co. had been changed to reduce that asset down to $443,000, which was approxi mately the asset value of the stock, the underlying collateral.

Mr. SAPERSTEIN. What was the underlying collateral!

Mr. VERHELLE. The Detroit Bankers Co. stock; 5,364 shales, I believe.

Mr. SAPERSTEIN. What was its value at the time it was deposited as collateral?

Mr. VERHELLE. I believe it was $1,140,000.

Mr. SAPERSTEIN. Do you mean it had a value equivalent to the amount of the obligations those directors had assumed?

Mr. VERHELLE. Yes, sir.

Mr. SAPERSTEIN. Who were the directors who undertook to furnish this credit to the First National Co.?

Mr. VERHELLE. Mr. Emory Clark, according to the minutes, on which I based by investigation, together with such other inquiries as I made, had made the commitment that the directors would look after that particular liability; and Mr. Dwight Douglas was also a party to it, and the two jointly paid the interest on $1.140,000 regularly up to the time when I left there. That 3-year agreement expired on January 1, 1933, approximately a month and a half after I left the Detroit Bankers Co.

Mr. SAPERSTEIN. You say the value of the collateral declined subsequently, until it was worth only about $450,000?

Mr. VERHELLE. Yes, sir; that asset had been written down to $443,000.

Mr. SAPERSTEIN. How did that come about?

Mr. VERHELLE. That is exactly the question I asked the treasurer of the company, and he said it was done by authority of the board of directors of the company. I suggested to him that it was highly improper for the company to write down their own liability, and that it was my opinion he ought to set it back up on the books until he had obtained propery authority.

Mr. SAPERSTEIN. You were talking with Mr. Clark then?

Mr. VERHELLE. No. I was talking with Mr. Blessed, the treasurer of the company. He requested a memorandum or letter from me to that effect, which I immediately gave him. And the asset was set back upon the books at the original figure of $1,140,000. Mr. SAPERSTEIN. Go ahead.

Mr. VERHELLE. Just the morning prior to the next meeting of the First National Co., Mr. Douglas demanded a letter of me authorizing on the part of the Detroit Bankers Co. the reduction of this asset by substantially $700,000. I wrote a letter to the effect that I neither could give such authority nor could I see where such authority was in line. He returned it to me, and I wrote two or three other letters, and none of those was satisfactory; and, finally, a few minutes before the meeting, I wrote some letter, a copy of which I do not have, and the contents of which I am not certain of, except that it was to the effect that there were legal opinions that this asset might be changed from a value of $1,140,000 to $450,000. It was my opinion the directors' liability was still as I had originally contended it was.

Mr. SAPERSTEIN. When was this meeting held?

Mr. VERHELLE. About the middle or early part of the year 1931. Senator COUZENS. When did you first become connected with the Detroit Bankers Co.?

Mr. VERHELLE. In the early part of 1930, I think February 26, or something of that sort.

Senator COUZENS. You were with the Detroit Bankers Co. at the time the First National Co. of Detroit had all these deposits, then? Mr. VERHELLE. Yes, sir.

Senator COUZENS. Do you know how those deposits were liquidated?

Mr. VERHELLE. By the sale of certain assets of the First National Co., and I think it was practically the way they were all eliminated. Senator COUZENS. Were they all liquidated 100 percent?

Mr. VERHELLE. Yes, sir.

Senator COUZENS. In looking over the list of these customers' deposits as of the close of business shown here I find some substantial amounts, including, for instance, some from public sources. For instance, here is the Brockway Township School District, $20,000, and there is another public deposit here of the Grosse Pointe Village of $12,357. I wonder how public officials got authority to deposit public funds in a holding company of this sort.

Mr. VERHELLE. Well, it might have been for the purpose of picking up certain securities or taking care of coupons or something of

that sort. I know that these deposits were all taken care of just as fast as the liquidation of those assets would allow, and I know that they were continuously followed up with a view to liquidating them.

Senator COUZENS. Could that be the case in a deposit like W. S. Butterfield, $100,000, and Detroit Free Press, $100,000, and DetroitWindsor Ferry Co., $150,000, and Lewis H. Jones and Ida Jones, $50,000, and Pacific Steel Boiler Co., $100,000, and Stout Air Lines, Inc., $150,000? Would they likely be made for the purpose of taking up obligations?

Mr. VERHELLE. No sir.

Senator COUZENS. What were they?

Mr. VERHELLE. Those deposits were probably left there. The original intent of deposits with the security company was to leave on deposit money so that securities might be purchased when, as, and if certain issues came out without the necessity of transferring the money. In those particular instances it was done with a view of holding up or helping out the company in a number of those cases which you have read off there.

Senator COUZENS. In other words, of holding up the First Na tional Co.?

Mr. VERHELLE. Yes, sir.

Senator COUZENS. They paid 4 percent for the privilege of being held up; is that it?

Mr. VERHELLE. Yes, sir.

Mr. SAPERSTEIN. Will you now go ahead with your statement in regard to the First National Co.?

Mr. VERHELLE. Well, after Mr. Wilson left, and after Mr. Ballantyne left, or before they left, a study was made, as I say, by me of that particular company, and an attempt was made to provide a solu tion for it. The matter was taken up with the directors of the First National Co.; that is, with the old directors, for a new set of directors was appointed for the purpose of liquidating the company. And the matter was brought to their attention, the condition of these Statebank stocks, indicating that there was a substantial liability in connection with the holding of them, in addition to the loss involved in connection with the original investment. And it was rather definite in my opinion that there was a moral obligation on the part of the directors of $8,000,000, and a legal obligation to the extent of $1,140,000 Senator COUZENS. Do you know whether any effort has been made to assert that liability?

Mr. VERHELLE. No, sir; I do not.

Mr. SAPERSTEIN. Was your refusal to give your approval to the writing down of this liability of the directors to approximately $450,000 the subject of criticism on the part of those directors?

Mr. VERHELLE. My resignation was requested a number of times by Mr. Clark, and I understand he was the principal obligor in con nection with that liability.

Senator COUZENS. He was the principal obligor, do you say!

Mr. VERHELLE. Yes, sir. He had made the commitment to the Detroit Bankers Co. at the time of its confirmation, that he would hold them harmless from any loss in connection with that transaction.

Senator COUZENS. You will remember that Mr. Mills disagreed with your testimony, and that he regretted having to let you go. You heard his testimony?

Mr. VERHELLE. Yes, sir.

Mr. SAPERSTEIN. Did you ultimately resign as a result of those repeated requests made on you to tender your resignation?

Mr. VERHELLE. That was one of the many contributing factors of a similar nature. In other words, in view of the Pontiac transaction, that might be considered in connection with it.

Mr. SAPERSTEIN. That was another contributing factor?

Mr. VERHELLE. Well, that specific item was not, but it might have been in connection with this.

Mr. SAPERSTEIN. Have you anything further to say in regard to testimony that has been offered here by other witnesses?

Mr. VERHELLE. Not particularly; no, sir.

Senator COUZENS. Well, let us go to the next witness?
The CHAIRMAN. You are now excused, Mr. Verhelle.
(Thereupon the witness left the committee table.)
The CHAIRMAN. Who will you have next?

Mr. SAPERSTEIN. Mr. Leyburn.

The CHAIRMAN. Mr. Leyburn, you will come around to the committee table. You have already been sworn, I believe.

Mr. LEYBURN. Yes; in the other Detroit case.

The CHAIRMAN. Well, that is all right.

TESTIMONY OF ALFRED P. LEYBURN, CLEVELAND, OHIO, CHIEF NATIONAL BANK EXAMINER FOURTH FEDERAL RESERVE

DISTRICT-Resumed

Mr. SAPERSTEIN. Mr. Leyburn, I believe the record already shows that you are now the chief national bank examiner of the fourth Federal Reserve district.

Mr. LEYBURN. That is correct.

Mr. SAPERSTEIN. And that you were formerly chief national bank examiner of the seventh Federal Reserve district.

Mr. LEYBURN. That is correct.

Mr. SAPERSTEIN. Which includes Detroit.
Mr. LEYBURN. That is correct; yes, sir.

Senator COUZENS. Mr. Leyburn, before Mr. Saperstein proceeds with your examination let me ask you: Can you tell us why you were transferred from the seventh Federal Reserve district to the fourth Federal Reserve district as chief national bank examiner?

Mr. LEYBURN. Senator Couzens, I knew you would bring that up. Senator COUZENS. Well, I don't know how you knew it. I did not discuss it with you.

Mr. LEYBURN. I know that. But I will tell you what is was: Politics!

Senator COUZENS. Oh, I did not know that politics entered into the Comptroller's office.

Mr. LEYBURN. When did you find that out?

Senator COUZENS. Well, I have been getting lessons recently, and been assured that it did not.

Mr. LEYBURN. Well, that was why I was transferred. You may draw your own conclusions.

Senator COUZENS. Tell us why.

Mr. LEYBURN. Well, the junior Senator from Michigan, with whom you are acquainted, and although I have never met him per