Mr. PECORA. And what is the amount of the corresponding item shown on exhibit no. 105? Mr. WILKIN. $1,500,000. Mr. PECORA. Now, why is there this conflict between these two exhibits with respect to that item? Mr. WILKIN. They are two different statements Mr. PECORA. Do they not both purport to relate to the same thing? Mr. WILKIN. Yes, sir. Mr. PECORA. That is, each one of these exhibits purports to show the general journal ledger and statement of condition of that bank as of Thursday, December 31, 1931? Mr. WILKIN. That is right. Mr. PECORA. Why were there two separate ledger statements of condition of the same date containing these conflicting items? Mr. WILKIN. It would be only a guess. I don't remember, but I can guess. When this item was not straightened out the way it should have been, in all probability the bookkeeper went back to reflect the true condition of the books and made up the statement as it should be, and without this $600,000 entry. That is the only explanation I can think of. Mr. PECORA. Do you note also that on exhibit no. 104 the item of "Certificates of deposit, commercial", is shown to be $308,832.74? Mr. WILKIN. Yes, sir. Mr. PECORA. And you notice that the corresponding item on exhibit no. 105 is $908,832.74, or exactly $600,000 more than the amount of the item as it appears on exhibit 104? Mr. WILKIN. Yes, sir. Mr. PECORA. How do you explain that conflict? Mr. WILKIN. Well, that is the only explanation I can give. It would be the same as the other, that when this entry was not taken care of in Detroit the auditor went back and had a proper statement put in his book. That is the only thing I can say. There may be another reason, but I don't know. Mr. PECORA. Which of these two exhibits do you regard as the proper statement? Mr. WILKIN. Well, on December 31 I regarded the one showing the $1,500,000 of bills payable as proper. Mr. PECORA. And the certificates of deposit of $300,000? Mr. WILKIN. Nine hundred thousand and odd, that would be. Mr. PECORA. That is right. You regard that as the correct one? Mr. WILKIN. Yes. Mr. PECORA. Did the bank have two separate ledger sheets for that day? Mr. WILKIN. Yes, sir; apparently. I have never seen them before, but there are two sheets there. Senator COUZENS. Which one was given to the public in the statement of December 31, 1931? Mr. WILKIN. I could not say, Senator. The statement is there. Mr. PECORA. Mr. Wilkin, did you ever discuss this $600,000 certificate of deposit transaction with Governor Grossbeck, the receiver? Mr. WILKIN. Yes, sir. I would say it would be in April or May of 1933. Mr. John Farley, of Flint, on behalf of his client, was suing Mr. Mott, who was president of this bank. Farley came in to see Governor Grossbeck about it and about the bank generally Mr. PECORA. About the Flint bank? Mr. WILKIN. Yes, sir; and this matter, among others, was brought up at that time, and I, of course, knew about it and told Farley what had happened. Mr. PECORA. Do you know a Mr. Orcutt? Mr. WILKIN. Yes, sir. Mr. PECORA. Who was he? Mr. WILKIN. He was formerly a banker in some little place in Michigan; I have forgotten the place; but then he came to Flint to take care of the directors' end of this directors' proposition in connection with this defalcation. He kept the books for the directors, and incidentally did some work for me in the bank. Mr. PECORA. I want to read to you for the purpose of possibly refreshing your recollection concerning the events that will be stated in my reading of this document, from a statement made by Mr. Orcutt in regard to the covering up of the bills payable [reading]: On the 26th day of May 1933 when I found this transfer on the books- Mr. WILKIN. Yes, sir. Mr. PECORA (Continuing reading): I called in the attorneys and showed them the entries that were made, They called up former Governor Grossbeck and made an appointment to meet him because Mr. Wilkin was working with him, and they wanted to interview Mr. Wilkin on items that were transferred, and on May 26, 1933, we drove down there and by appointment met Mr. Grossbeck in his office in the Penobscot Building. I had those take-off sheets that you have, and Governor Grossbeck looked at them and he had those accounts that were not broken down, and he said, "This is some more high financing ", and laughed and called Wilkin in. Do you recall that occasion? Mr. WILKIN. Yes, sir. Orcutt was not there. Mr. Wilkin was cross-examined by Mr. Farley and admitted before all of us that this was a scheme that was put up by Col. James L. Walsh to cover up teir bills payable, to dress up their statement, is the phrase he first used, and Mr. Farley said, "That was to deceive them", and he said, "Yes", and he said they did it with all of their units to cover up all their bills payable so that when their combined statement came out they reported no bills payable. In previous statements they had in the neighborhood of $21,000,000 of bills payable, all of the group, but the report came out with a statement which was signed by Mr. Blair and Mr. Lord, authorized by the executive committee, commenting on the fact that previous statements showed $21,000,000 and that amount had been gradually reduced until at the time this statement was made none of their units had any. Then Governor Grossbeck turned to Mr. Wilkin and said, Boy, you are going to jail." Wilkin was quite worked up about it, He argued and said the other banks did the same and he thought it was all right to do it. 66 Do you recall that? Mr. WILKIN. I recall beating Orcutt, but I never heard of the $21,000,000 before. And as far as telling him I deceived people, that is an absolute lie. Mr. PECORA. There is nothing that I have read here that said you had deceived them. Mr. WILKIN. Then I have misunderstood what you have read, Mr. Pecora. It says there, according to what I heard, that Farley questioned me and asked if this was to deceive people, and I said I never said any such thing. 66 Yes.' Mr. PECORA. The statement reads as follows, with regard to that [reading]: Mr. Wilkin was cross-examined by Mr. Farley and admitted before all of us that it was a scheme that was put up by Col. James L. Walsh to cover up their bills payable; to dress up their statement, is the phrase he first used; and Mr. Farley said that was to deceive them, and he said, Yes", and he said they did it with all of their units to cover up all their bills payable, so that when their combined statement came out they reported no bills payable And so forth. Mr. WILKIN. That is not true. Mr. PECORA. Was there any such conversation? Mr. WILKIN. Yes. This is all with Orcutt. Orcutt was not in the meeting with Grossbeck and Farley and I at all; he was in another office. In Orcutt's presence I said to him, "Well, of course, Orcutt, you have been in a bank long enough to know that all banks windowdress", and Orcutt said, "I never heard of it." So that is the only conversation I had with him, because we had nothing in common and I wouldn't be bothered talking to him. Mr. PECORA. What was the conversation referred to that you had with Mr. Farley at that time? Mr. WILKIN. I explained several things to Farley. Farley was suing or at least his client was suing-Mr. Mott, I think, on the ground, that the bank was insolvent when she contributed her share of this defalcation that Mr. Mott testified about, and he claimed his client had no business to owe it. So I talked to him, I would say, about 20 different items in connection with that bank. Mr. PECORA. Did you discuss in that conversation or interview with Mr. Farley, in Governor Grossbeck's office, this item of bills payable? Mr. WILKIN. Yes, sir. Mr. PECORA. Tell us what you said to Farley about that. Mr. WILKIN. Well, I told him exactly that obviously these moneys came into the bank to take care of the bills payable. Mr. PECORA. Did you say that was window-dressing, or words to that effect?. Mr. WILKIN. I did to Orcutt; yes. I don't remember saying that to Mr. Farley. Mr. PECORA. Did you say to Farley that all of the unit banks had adopted this policy of covering bills payable through the medium of certificates of deposit? Mr. WILKIN. No, sir. I didn't know that was the case. There are some banks that I don't think ever did it, in our group. Mr. PECORA. Did you not tell this committee this morning that that was the general policy of the Group Co. with its unit banks? Mr. WILKIN. No; I did not, Mr. Pecora. Mr. PECORA. Did you first learn what the method of covering up bills payable was in connection with these transactions of December 31, 1931, that have been referred to in the course of your testimony? Mr. WILKIN. No, sir; but I knew that a few of the banks had done it, but I thought they were banks a good deal like the one I was running. For instance, the Flint bank was the most frozen-asset bank in Michigan, I think, in 1929. When I went to Flint we had a run, 2 very pronounced run, on that bank for 60 days, in which I lost between 5 and 6 million dollars in deposits. I couldn't liquidate fast enough to keep the depositors satisfied. So the Bethlehem Steel Co., the American Rolling Mills, Ford Motor Co., and Armour & Co. came in with huge deposits into that bank, and that came all through Guardian, and I thought that I was being, and I know I was being, particularly taken care of on account of the condition of that bank. Mr. PECORA. Mr. Wilkin, do you recall as an incident to that meeting in Governor Grossbeck's office, referred to in this statement of Orcutt, that Governor Grossbeck turned to you saying something about your going to jail? Mr. WILKIN. Yes; it was a joke. Mr. PECORA. He said it as a joke? Mr. PECORA. Did you think it was a joke when he said that? Mr. PECORA. And instead of being worked up about it, did you laugh at the joke? Mr. WILKIN. I couldn't help it, Mr. Pecora. If this had been deception I would have put in $2,100,000 of C.D. and wiped out my bills payable. There was no deception as far as I am personally concerned with this matter. Mr. PECORA. Because you did not wipe out the entire amount of bills payable, $2,100,000, but only wiped out $600,000 thereof, it was no deception? Mr. WILKIN. Not on my part. Mr. PECORA. On whose part? Mr. WILKIN. I don't think, on anyone's part. Mr. PECORA. It would have been deception if the entire amount of $2,100,000 bills payable had been wiped out? Mr. WILKIN. I might so construe it; yes. Mr. PECORA. If you go all the way in wiping out those items of bills payable it is deception, but if you only go part of the way it is not deception? If that your philosophy? Mr. WILKIN. Oh, no, no; providing you do it by soliciting funds and wiping out $2,100,000 in this instance-yes; I would say it was deception. The $600,000 came in unsolicited and went to pay off bills payable. Mr. PECORA. On January 2, 1932, that certificate of deposit, as appears from the record here, was withdrawn and canceled, was it not? Mr. WILKIN. That is right. Mr. PECORA. And that restored that $600,000 to the bills payable account, did it not? Mr. WILKIN. That is right. Mr. PECORA. You signed this statement of condition of the bank marked in evidence here as "exhibit no. 103 " on January 8, 1932, did you not? Look at the exhibit and see the date of it. Mr. WILKIN. Yes, sir. Mr. PECORA. When you signed that on January 8, 1932, it showed bills payable amounting to only $1,500,000 instead of $2,100,000, and you knew that 6 days before you signed that report, namely, on January 2, 1932, the certificate of deposit by which you were enabled to reduce the bills-payable item from $2,100,000 to $1,500,000 had been withdrawn or canceled? Mr. WILKIN. I knew it at that time, and should have, of course, checked this statement, which I did not do. The CHAIRMAN. Were the deposits by the Bethlehem Steel Co. and the Ford Motor Co.-the large deposits that you mentioned— temporary deposits? Mr. WILKIN. Some were for several months, and some were in the bank, part of them, when the bank closed for the holiday on February 11. But I would like to say this, Mr. Pecora, if I may, that when I went to Flint the deposits were $24,000,000. Senator COUZENS. When was that? Mr. WILKIN. November 1, 1929. I paid off in that bank over 50 percent of those deposits during my 2 years or two and a quarter years in Flint. In other words, the people got a real 50-percent dividend before I left there. The CHAIRMAN. The committee will now adjourn until 2 o'clock next Tuesday. Senator COUZENS. And you will return, Mr. Wilkin, will you? (Whereupon, at 1:15 p.m., the subcommittee adjourned until Tuesday, Jan. 23, 1934, at 2 p.m.) COMMITTEE EXHIBIT NO. 95, JANUARY 19, 1934. CORPORATIONS-SURETYSHIP: Corporations may guarantee obligations of subsidiary companies and others where its own rights or property interests are directly benefited or promoted. Hon. CHARLES D. LIVINGSTON, JANUARY 27, 1931. Commissioner of Insurance, Lansing, Michigan. DEAR SIR: You have submitted for determination by this Department the question whether a holding company organized to own the stock of other corporations, including the stock of banks and trust companies, and which owns all of the stock in such subsidiaries except directors qualifying shares, may become surety on bonds securing the deposits of public funds in the subsidiaries. The holding company is organized under the general corporation code, and no express power to act as surety is found in the enumeration of the objects and purposes for which the corporation is formed. The general rule relating to the right of a corporation with reference to guaranty and suretyship is "that it is ultra vires of a corporation to enter into contracts of guaranty or suretyship not in furtherance of its business, unless given express authority to do so. The fact that the corporation may reap some indirect benefit from becoming a surety or guarantor for another does not confer upon it implied power to do so; * * * It is not, however, ultra vires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate furtherance of its purposes and business." 7 R.C.L. 603 This rule was restated by the Circuit Court of Appeals of the Second Circuit in In Re John D. Rose Company, 275 F 416, where the court said "A corporation ordinarily is without power to enter into a contract of guaranty, as such a contract is foreign to the objects of its creation and hazards its funds in a manner unwarranted by the contract which exists between it and the state, and between it and its stockholders. The existence of such a power is sometimes implied, however, when it is necessary to enable a corporation to accomplish the objects for which it is created, or when it is reasonably necessary in the conduct of its business." The reason for this rule was well stated in Munaz v. Brasel (Tex. civ. app.) 108 S.W. 417, where a corporation formed principally to buy and sell liquors at wholesale and retail was held to have implied power to sign a saloon keeper's |