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city of Lansing, all the others but one bank having failed and this bank having taken over one of those banks about to fail.

This is sent to Mr. Ernest Kanzler, chairman of the board, Guardian Detroit Union Group, Inc., Detroit, Mich. [reading:)

DEAR MR. KANZLER: At the suggestion of our executive committee, I am writing this letter.

For the past couple of weeks we have found that a great many rumors are circulating about town concerning our institution, and we find upon investigation that in nearly every case these rumors grow out of discussions of the price on Guardian stock. A group will get together and gossip about the price of the stock and someone remarks that there must be something wrong with Guardian or the stock would not act the way it does. Someone else will say, "Well, probably all the banks in the group are not in any too good shape," and the next fellow that tells it says he heard the Capital National Bank was not in any too good shape. The next person repeating the tale is likely to say that he heard on good authority that the Capital National Bank was in a bad way, and about the next time it is repeated it is to the effect that the Capital National will soon fold up.

There has not been anything in this gossip that has seriously affected us, but almost every day there are 1 or 2 or more withdrawals from savings accounts, chargeable to these rumors. Our people have felt that there should be some method created whereby the price of the stock could be maintained at a reasonable level. I personally think that it would be a great boost to all of our units if this could be done. Very truly yours,

F. E. GORMAN, President. Mr. PECORA. I offer in evidence photostatic reproduction of the letter just read by the witness, which has been produced by the witness.

The CHAIRMAN. Let it be admitted and entered on the record.

(Photostat of letter on letterhead of the Capital National Bank of Lansing, dated May 23, 1932, from F. E. Gorman, President, to Ernest Kanzler, was designated “Committee Exhibit No. 68, Jan. 5, 1934," and appears in full immediately above where read by Mr. Kanzler.)

Mr. PECORA. Any other letters on this subject you want to produce?

Mr. KANZLER. I think there is a whole file that could be collected, Mr. Pecora, but I just happened to take these to illustrate the point.

Mr. PECORA. What action was taken by the board of the group with regard to the suggestions that are discussed in these letters?

Mr. KANZLER. There were repeated meetings on the subject, with an almost equally divided opinion between directors present as to whether the stock should be withdrawn or not, and it was considered that Dr. Murphy's advice that in view of the fact of the withdrawal having immediately preceded the closing of the American State Bank and withdrawal from the exchange having immediately preceded the closing of the Fidelity Trust Co., the indications that might be in the minds of the public by such action would be too dangerous to attempt, and that therefore the stock was ridden through.

The CHAIRMAN. Was the stock ever withdrawn from the exchange?

Mr. KANZLER. It was not, Senator Fletcher. It was on the exchange the day the banks closed.

Mr. PECORA. As a matter of fact, during this time, say, in the early part of 1932, various unit banks of the group held as collateral large blocks of the group stock, didn't they?

Mr. KANZLER. There was a considerable amount of collateral held throughout the group.

Mr. PECORA. Do you know the amount?
Mr. KANZLER. I do not know the exact amount.
Mr. PECORA. Approximately, have you any idea?

Mr. KANZLER. The last examiner's report of the Guardian National Bank of Commerce, which is the only one I know about, as I recall, stated 111,000 shares, which was collateraled with other collateral for various loans.

Mr. PECORA. That is in that bank?
Mr. KANZLER. In that bank.
Mr. PECORA. That is, 111,000 shares in only one of these banks?
Mr. KANZLER. Yes, sir.

Mr. PECORA. How many thousands of shares of the group stock were held at about this time by all the unit banks that held such stock?

Mr. KANZLER. I haven't the figure, and I would not dare estimate, because I just would not know what that figure is.

Mr. PECORA. Wasn't it considered by the board of the group that in view of the fact that the various unit banks in the aggregate held several hundred thousand shares of the group stock as collateral against loans that the market price of the group stock should be maintained?

Mr. KANZLER. No, sir; I don't think that that was the consideration at all. I think the consideration was primarily on the question of deposits. Now, there were many of these shares held where they were held as collateral in loans that were thoroughly collateralized, so the fact that 111,000 shares were held as collateral is of some significance, but it does not tell the story.

Now, take my particular case: I had some bank stock up as collateral, but that loan was adequately collateraled by other shares and that loan has since been completely paid. So there were many similar circumstances to that that I am sure of.

There was also this fact, that as the depression continued-I don't know when it started, but as the depression continued—the officers, in their effort to further collateralize their loans, would naturally talk to the debtors and get as much collateral as they could, and in many cases the last thing that was offered was Guardian Bank stock, which was then added as additional collateral to a loan that had previously been thoroughly and adequately collateralized, and in that way there was quite an accumulation.

Mr. PECORA. Did you ever have any knowledge of the number of shares of Group stock pledged as collateral with all of the unit banks by officers and directors of the Group as well as officers and directors of the unit banks?

Mr. KANZLER. I think that toward the end of '32 there were some statistics gathered on that, but I don't recall the figures or know anything very definite about it.

Mr. PECORA. Was the amount substantial?
Mr. KANZLER. Yes, sir; it was.

Mr. PECORA. You have mentioned here that the stock of the Group was traded in very actively on the Detroit Exchange.

Mr. KANZLER. Yes, sir.
Mr. PECORA. Did you trade in that stock?
Mr. KANZLER. No, sir; I didn't trade in it.

Mr. PECORA. Were you a participant in any syndicate or pool accounts that traded in the stock of the group at any time?

Mr. KANZLER. Yes, sir. In October 1931-October 1930—Mr. PECORA. In October 1930?

Mr. KANZLER. In October 1930 this same condition as is expressed in these letters existed.

Mr. PECORA. In October 1930?

Mr. KANZLER. Yes, sir. At a time when the price of the stock was then around 75 or 80 or somewhere around there. Senator Couzens. From what point had it dropped to that?

Mr. KANZLER. In August 1929, I think, it had sold in quantities around 250 to 300.

Senator COUZENS. And it had dropped from that time up until October 1930 to 75 or 80?

Mr. KANZLER. Yes, and that was having a very disquieting effect upon the stockholders.

Mr. PECORA. Hadn't the quotation gone as high as 350?

Mr. KANZLER. I think there were a few shares traded in at that price, but I am not aware of just what that was.

Mr. PECORA. Go ahead and tell us about the pool account.
Mr. KANZLER. I would not call it a pool.
Mr. PECORA. What would you call it?
Mr. KANZLER. I would call it a purchase group.

Mr. Pecora. Well, we will adopt your term. Tell us about the formation of this purchase group.

Mr. KANZLER. In October 1930 when the price of the stock was beginning to be an unsettling factor, directors and officers felt it was such an important item that they should not let the unwarranted values in the market affect the institutions, and so they agreed among themselves —there were 110 or 112 directors in that list that agreed that they would purchase the stock at a figure not to exceed 60 and hold it for a year.

Mr. PECORA. Was any limitation placed in that purchase agreement on the amount of stock that the group would buy, that the participants in this purchasing agreement would buy?

Mr. KANZLER. It was agreed in the agreement that the agreement would not be binding unless people agreeing to buy at least 60,000 shares would sign in the general purpose, because otherwise it was thought that it would not be enough to stem the tide.

Mr. PECORA. Was such an agreement effected?
Mr. KANZLER. Such an agreement was effected.

Mr. PECORA. Who managed the transactions in behalf of that purchase agreement?

Mr. KANZLER. Mr. Charles B. Warren was on the committee and drew up the agreement. Mr. Warren, as you will doubtless remember, was formerly Ambassador to Japan. And with him on the committee were Mr. James Inglis, who is now chairman of the board of the National Bank of Detroit; Mr. Roy Chapin, formerly Secretary of Commerce; Mr. Hal Smith, a Detroit attorney, and myself. We acted as trustees for this group, and then in order to handle the mechanics of purchases the Guardian Detroit Co. was made agent on behalf of this group of directors, who all signed these individual and several agreements.

Mr. PECORA. Have you a copy of that purchase agreement?

Mr. KANZLER. I think I may have one here, Mr. Pecora. (And the witness begins looking through his papers.)

Senator COUZENS. While you are looking that up let me ask: Did all those about 110 directors sign that agreement? · Mr. KANZLER. Yes, sir. Senator COUZENS. You say all of them signed it?

Mr. KANZLER. Yes, sir. (After having looked through his papers.) No, Mr. Pecora, I haven't a copy of that agreement here.

Mr. PECORA. Can you get a copy of it for us?
Mr. KANZLER. I can get one.
Mr. PECORA. Tell us the substance of it.

Mr. KANZLER. It simply said that believing it advisable to purchase in the market a substantial amount of shares at a price not to exceed 60, the undersigned hereby severally agree, in consideration of the promises of each other, to purchase the amounts set opposite their names, at not to exceed 60; and that they appointed the Guardian Detroit Co. as agent to purchase this stock for them; and that they will not sell the stock for a year; and that they will honor sight draft attached to stock when received.

The CHAIRMAN. Did you purchase the 60,000 shares?
Mr. KANZLER. What was that, Senator Fletcher?

The CHAIRMAN. The agreement was to purchase 60,000 shares, I believe?

Mr. KANZLER. That is, it was not to become binding on any of the individuals unless there were enough individuals in the group who would agree to purchase a total of 60,000 shares.

Mr. PECORA. And the agreement became effective, did it?
Mr. KANZLER. Yes, sir.

Mr. Pecora. What transactions in the stock of the group were had in furtherance of the purposes of that agreement?

Mr. KANZLER. Well, as a result of that agreement there were purchased from time to time substantial blocks of stock, which were then drafted out to the individuals who purchased them and who took up the drafts.

Mr. PECORA. Did they all take up their drafts?

Mr. KANZLER. As I recall it they all took up their drafts. I think over a period of a year and a half about a total of $3,200,000 worth of stock was purchased. First of all, that syndicate ran for 6 months, or that purchase agreement ran for 6 months, and then that purchase group was renewed for another 6 months, except that the maximum price as set out was $45 as I recall it, and the amount for which they had to sign to make it operative was made 20,000 shares.

Mr. PECORA. That is, 20,000 shares in addition to the original 60.000 shares.

Mr. KANZLER. Well, the original 60,000 shares had not been purchased at the time that agreement expired. It expired by its own terms in 6 months.

Senator COUZENS. When that first agreement expired how many shares of stock had been purchased?

Mr. PECORA. That is, upon the expiration of the first 6 months' period, Senator Couzens?

Senator COUZENS. 'Yes.
Mr. KANZLER. I would suggest it was about 35,000 shares.
Senator COUZENS. About 35,000 shares had been purchased?
Mr. KANZLER. Yes, sir; I think so.

Mr. PECORA. How many shares were purchased under the terms of the renewal agreement?

Mr. KANZLER. I haven't the exact information but would say about 18,000 or 20,000 shares.

Mr. PECORA. What became of that stock purchased by that group?

Mr. KANZLER. I cannot tell you, sir. I know that the individuals paid for it.

Mr. PECORA. Did any of the individuals sell out before the expiration of the time at which they agreed to hold the stock?

Mr. KANZLER. I don't know.
Senator COCZENS. Wasn't there a selling group, too, at one time?
Mr. KANZLER. I do not know of any selling group.
Senator COUZENS. You do not know of any selling group?
Mr. KANZLER. No, sir.
Senator COCZENS. Did you ever hear that there was one?
Mr. KANZLER. No, sir.

Mr. PECORA. In the operations of this purchase group, did they also sell?

Mr. KANZLER. No, sir.

Mr. PECORA. I mean during the period when they were buying the stock.

Mr. KANZLER. No, sir.
Mr. Pecora. It was an out and out purchase group, was it?
Mr. KANZLER. Yes, sir.

Mr. PECORA. With no selling transactions as a part of its operations?

Mír. KANZLER. No, sir.

Mr. PECORA. Now, were you a participant in any other group trading in, buying, or selling the stock of the group?

Mr. KANZLER. No, sir. In 1932 I sold a few shares. I had an interest in about 40,000 shares, or 34,000 shares, at a cost to me of about 1/2 million dollars. I sold about $20,000 worth of that; I sold that and bought it back when I found that the market was about to establish a new low, as I did not want to see a new low because of the effect it would have on our stock. So I purchased it in December of 1932, purchased that same amount of stock back, and I held more when the bank closed than at any other time.

Mr. PECORA. Now, Mr. Lord in his testimony before this committee on yesterday gave the following answers

The CHAIRMAN (interposing). Let me get that matter straight. Mr. Kanzler, you had how much invested in the stock?

Mr. KANZLER. My investment when the banks closed, standing in my name, was $1,200,000, at my cost. And a corporation in which I only had a third interest had an amount of about $600,000 at its cost. That corporation bought the stock and never sold it.

Senator COUZENS. What was the name of that corporation?
Mr. KANZLER. The K.F.H. Corporation.
Senator CouZENS. Is that corporation still in existence?
Mr. KANZLER. No, sir.
Senator COUZENS. Where are the shares that that corporation had?
Mr. KANZLER. I have them.

Senator COUZENS. Who were the owners of the other two thirds interest?

Mr. KANZLER. Mr. George Fink and Mr. Carl Higbee.

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