Mr. PECORA. Now I want to just recall Mr. Higbie for a question about that.

Mr. COVINGTON. That assignment, Mr. Pecora, was Guardian Detroit Co. and Keane-Higbie.

Mr. PECORA. The assignment was to the Guardian Detroit Co.? Mr. COVINGTON. No; the assignment was against the Guardian Detroit Co. and Keane, Higbie & Co.

Mr. PECORA. And not

Mr. COVINGTON. Not against Mr. Carlton Higbie personally.
Mr. PECORA. Will you sit down again?

Mr. COVINGTON. Yes. I think there was a misunderstanding. Mr. PECORA. Why did you assign a claim against the Guardian Detroit Co. and Keane, Higbie & Co., in view of the fact, according to your testimony this morning, that that promise to pay you that $25,000 was made by Mr. Higbie?

Mr. COVINGTON. Well, I don't know whether he made it in an official capacity or whether he made it as an individual. I don't know that. Mr. Higbie was the one that told me. I only used his name as Mr. Higbie, but when I was asked about it later on I asked him about where he got it from and he said the Guardian Detroit Co. and "our Keane, Higbie & Co.", and that is the way it read.

Mr. PECORA. Did you tell the Union Co. at the time you assigned the claim the circumstances under which the claim arose?

Mr. COVINGTON. I don't remember whether I told them or not. Mr. PECORA. As a banking officer you would know that it would be necessary to tell them something about the claim before they would accept it?

Mr. COVINGTON. I told them, I imagine, Mr. Pecora. I realize that I must have told them, but I don't think there is any conversation that I know anything about. I told them I had a claim and I assigned the claim. That is all there was to it.

Mr. PECORA. All right. That is all right then, Mr. Higbie. Never mind, in view of what Mr. Covington said, that the claim he assigned was a claim against the Guardian Detroit Co. and Keane, Higbie & Co. It is not necessary to question you further about that, but I will need you tomorrow morning at 10 o'clock.

Mr. HIGBIE. Yes, sir.

The CHAIRMAN. The committee will take a recess until 10 o'clock tomorrow morning.

(Accordingly, at 4.02 p.m., an adjournment was taken until 10 a.m. of the following day.)

STOCK EXCHANGE PRACTICES

FRIDAY, JANUARY 19, 1934

UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE
ON BANKING AND CURRENCY,
Washington, D.C.

The subcommittee met at 10 a.m., pursuant to adjournment on yesterday, in room 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding.

Present: Senators Fletcher (chairman), Adams, Townsend, 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.

The CHAIRMAN. The subcommittee will come to order, please. I see that Mr. Higbie has taken the chair at the table.

Mr PECORA. Mr. Higbie, we won't want you on the stand any longer.

Mr. HIGBIE. I thank you.

Mr. PECORA. Mr. Bodman.

The CHAIRMAN. Mr. Bodman, please stand, hold up your right hand, and be sworn.

You solemnly swear that you will tell the truth, the whole truth, and nothing but the truth, regarding the matters now under investigation by the committee. So help you God.

Mr. BODMAN. I do.

TESTIMONY OF HENRY E. BODMAN, DETROIT, MICH.

Mr. PECORA. Mr. Bodman, will you please give to the committee reporter your full name, address, and business or occupation?

Mr. BODMAN. My name is Henry E. Bodman, 1400 Buhl Building, Detroit, Mich., attorney at law.

Mr. PECORA. Mr. Bodman, were you connected with the Guardian Detroit Union Group, Inc., in any capacity?

Mr. BODMAN. I was.

Mr. PECORA. In what capacity?

Mr. BODMAN. I was one of the original organizers, and for 2 years I was the chairman of the executive committee.

Mr. PECORA. Were you also a director?

Mr. BODMAN. And also a director.

Mr. PECORA. Did you continue to act as a director from the inception of the corporation down to the date when the receiver for it was appointed last year?

Mr. BODMAN. I did.

175541-34-PT 10- -25

Mr. PECORA. Were you also attorney or counsel for the corporation, or its legal adviser?

Mr. BODMAN. I acted as legal adviser for the Guardian Detroit Group, Inc., and the Guardian Detroit Union Group.

Mr. PECORA. Do you recall early in the year 1930 that the practice commenced whereby the group wrote surety bonds guaranteeing the repayment of certain deposits in behalf of various of its unit banks? Mr. BODMAN. I cannot remember when the practice began, but I do remember that they did it.

Senator TOWNSEND. Mr. Pecora, was the guaranteeing done for the unit banks only, or was it done for outside banks as well?

Mr. PECORA. For unit banks only.

Senator TOWNSEND. All right.

Mr. PECORA. Now, Mr. Bodman, were you consulted about that practice before it was instituted?

But I was

Mr. BODMAN. I wouldn't say I was, but I was consulted about it, and whether it was before or after, I am not sure. consulted, and I rendered an opinion in regard to it.

Mr. PECORA. Do you recall the substance of the opinion that you rendered?

Mr. BODMAN. I rendered an opinion that they had the legal right to enter into such bonds. And I might further say that additional advice was taken from two other firms in Detroit on that subject independently, and those firms were Goodwin, Hill & Hamblen and Bulkley, Ladyard, Dickinson & Wright.

Senator COUZENS. And they were all in agreement?

Mr. BODMAN. Yes, Senator Couzens; they were all in agreement. The CHAIRMAN. That it was within the chartered powers of the corporation?

Mr. BODMAN. Yes, Senator Fletcher; that it was within their chartered powers. I also obtained the opinion of the attorney general of the State of Michigan on that subject.

Senator TOWNSEND. And, of course, he was also an attorney?

Mr. BODMAN. He was, and I have a copy of his opinion here. Mr. PECORA. Will you produce a copy of the opinion that the attorney general of the State of Michigan rendered on the subject? Mr. BODMAN. Yes. May I read a copy of my letter to him, to which the attorney general of Michigan replied enclosing his opinion? Mr. PECORA. Yes.

Mr. BODMAN. On May 11, 1931, I wrote the following letter to the attorney general of the State of Michigan [reading]:

Hon. PAUL W. VOORHEIS,

Attorney General, Lansing Mich.

MAY 11, 1931.

DEAR MR. VOORHEIS: I am taking the liberty of attaching to this letter copies of previous correspondence on the subject of the execution by Guardian Detroit Union Group of surety bonds guaranteeing deposits of public funds held by so-called units of the "Group Co."

We are very anxious to discontinue this practice if there is any objection whatever on the part of any of the State authorities, including particularly the banking commissioner and yourself. I have no doubt that the pressure of other matters during the session of the legislature has made it necessary to lay this matter aside, and I am very hopeful that we can have an opinion from your department at an early date.

Yours very truly,

And that letter, as I stated, I addressed to him on May 11.
Mr. PECORA. You say "May 11, 1931 "?

Mr. BODMAN. Yes. Now, may I read the reply?

Mr. PECORA. If you will.

Senator COUZENS. Had you issued any surety bonds prior to that time?

Mr. BODMAN. I am not sure, but I think we had.

Senator TOWNSEND. You stated in your letter that you were anxious to discontinue that practice, which shows that you had. Mr. BODMAN. Yes; I imagine so.

The CHAIRMAN. It was only to guarantee public deposits, not individual deposits?

Mr. BODMAN. Oh, no; just public funds.

Mr. PECORA. All right. You may proceed.

Mr. BODMAN. On May 12, 1931, the Attorney General replied to me as follows [reading]:

STATE OF MICHIGAN, ATTORNEY GENERAL'S DEPARTMENT, Lansing, May 12, 1931.

PAUL W. VOORHIES,

Attorney General,

EMERSON R. BOYLES,

Deputy.

Mr. HENRY E. BODMAN,

Attorney at Law, Detroit, Mich.

My DEAR Mr. BODMAN: I acknowledge receipt of your letter of May 11, attached to which are copies of letters dated December 23 and April 14, written relative to the right of the Guardian Union Group to issue bonds guaranteeing deposit of public funds held by units of the Group Co.

This question was before my office some little time ago, and I am enclosing herewith, a copy of an opinion dated January 27, 1931, which was written to Hon. Charles D. Livingston, commissioner of insurance. I trust that this opinion will answer the inquiry contained in your letter.

Very truly yours,

(Signed) PAUL W. VOORHIES, Attorney General.

Now, Mr. Pecora, a copy of that opinion is attached to this correspondence.

Mr. PECORA. May I have it?

Mr. BODMAN. Yes, indeed.

Mr. PECORA. Mr. Bodman, I have what purports to be a photostatic copy of this opinion rendered by the attorney general of Michigan to the commissioner of insurance, under date of January 27, 1931. Will you look at it and tell me if you recognize it as being in conformity with the copy which you have presented of that opin

ion?

Mr. BODMAN. Well, I won't take the time to compare it with your photostat, but I have no doubt it is. I mean, I will not take the time to read it over.

Mr. PECORA. I have made a cursory comparison, and I think it is all right.

Mr. BODMAN. I have no doubt it is.

Mr. PECORA. Mr. Chairman, I offer this photostat in evidence. The CHAIRMAN. Let it be admitted and made a part of the record. (The opinion rendered by the attorney general of Michigan, Jan. 27. 1931, was marked "Committee Exhibit No. 95, January 19, 1934 ", and will be found at the end of the day's proceedings.)