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Mr. BALLANTYNE. Yes,
Mr. PECORA. Will you be good enough to look at it and tell me if you recognize it to be a true and correct copy of such articles of association?
Mr. BALLANTYNE (after looking at the paper). It is substantially correct.
Mr. PECORA. Mr. Chairman, I offer it in evidence.
(The Articles of Association of the Detroit Bankers Co. was marked " Committee Exhibit No. 1, Jan. 24, 1934 ", and will be found at the end of the day's proceedings; and also there are portions of it appearing immediately below as read by Mr. Pecora.)
Mr. PECORA. This paper has been marked Committee Exhibit No. 1 ” as of this date. "I shall only read for our immediate purposes article III of these Articles of Association, as follows:
The purpose or purposes of this corporation are as follows:
To acquire, own, hold, vote and exercise all rights of ownership of and to sell and dispose of shares of the capital stock of banks and trust companies and of other corporations or associations engaged in purchasing, selling on their own account or as agents of others, underwriting or dealing in corporate and other securities, or of any other corporation engaged in any business or activity incidental to or related to or of assistance in the conduct of any such business aforesaid.
Now, and the following provisions of article V thereof: The total capital stock authorized is Fifty Million ($50,000,000.00) Dollars and one hundred and twenty (120) shares of no par value.
The amount subscribed is one hundred and twenty (120) shares of no par value.
The amount paid in is One thousand two hundred ($1,200.00) Dollars.
The number of shares of Common Stock is two million five hundred thousand (2,500,000) of the par value of Twenty ($20.00) Dollars each.
The number of shares of Non-Par Value Stock is one hundred and twenty (120); the price of each and at which they have been or it is proposed they shall be sold is Ten ($10.00) Dollars.
The classification of the capital stock and the privileges, rights, voting powers and restrictions thereof are as follows:
The par value shares shall be known as Common Stock.
The non par value shares shall be all of one class and shall be known as Trustee Shares. Said Trustee Shares shall not participate in dividends, assets or subscription rights.
Until December 31, 1934, the Trustee Shares shall have exclusive voting power in the election and in the removal of Directors, and all other voting power shall be vested in the Common Stock, except that no increase or decrease of the capital stock or change in the number or qualification of directors shall be authorized or other class of stock created or the sale of all of the property or business of this corporation, or the sale of any substantial part of the shares of capital stock or property or business of the following institutions: the Peoples Wayne County Bank, the First National Bank in Detroit, the Detroit and Security Trust Company, the Bank of Michigan, or the Peninsular State Bank, shall be authorized except by and with the vote of at least two-thirds of all of the outstanding shares of the Common Stock and of a like proportion of the Trustee Stock. Upon December 31, 1934, said Trustee Shares shall be redeemed and cancelled on payment of Ten ($10.00) Dollars per share. On and after January 1, 1935, all of the voting power of the stockholders shall be vested in the Common Stock.
During the time the voting powers in the election of directors shall be vested in the Trustee Shares the right to vote the same cumulatively shall obtain.
The right of holders of Common Stock to vote cumulatively for directors from and after the date the voting powers in the election of Directors shall be vested in the Common Stock shall be and the same is waived, and the Directors of this corporation shall be elected by the affirmative vote of a majority of
the stock then entitled to vote present in person or by proxy at any meeting of such stockholders called for that purpose.
The amount of Common Stock paid for in cash is No Dollars and No Dollars have been paid in in property.
The amount of No Par Value Stock paid for in cash is One Thousand Two Hundred ($1,200.00) Dollars.
The amount of actual capital in cash or property, or both, which this corporation owned and possessed at the ti of executing these articles is One Thousand Two Hundred ($1,200.00) Dollars.
And article VI thereof:
And article VIII thereof:
The names and addresses of officers and directors for the first year of the corporation's existence, are as follows:
Julius H. Haass.
75 Cloverly, Grosse Pointe Farms, Mich... Yes.
No... 15 E. Kirby, Detroit, Mich..
Fred J. Fisher..
Secretary • treas.
I will read the following from article IX of the Articles of Association:
The following special statements pertaining to the primary organization of this corporation and not included in the foregoing requirements are set forth under this article.
(A) The holder of each share of Common Stock of this corporation shall be individually and severally liable for such stockholder's ratable and proportionate part (determined on the basis of their respective stockholdings of the total issued and outstanding stock of this corporation) for any statutory liabiliy imposed upon this corporation by reason of its ownership of shares of the capital stock of any bank or trust company, and the stockholders of this company-by the acceptance of their certificates of stock of this companyseverally agree that such liability may be enforced in the same manner and to the same extent as statutory liability may now or hereafter be enforceable against stockholders of banks or trust companies under the laws under which said banks or trust companies are organized or operate. A list of the stockholders of this company shall be filed with the Banking Commissioner of Michigan or the Comptroller of the Currency, whenever requested by either of those officers.
(B) The stock of the corporation authorized by these articles and any stock of this corporation authorized by any certificate of increase of the capital stock may be issued and disposed of by the Board of Directors to such persons, firms, corporations or associations in exchange for capital stock and/or assets of banks, trust companies or other corporations or associations included within the provisions of Article III, and upon such terms as the Board of Directors in their discretion may determine. In any of such instances no holder of any stock of this corporation shall be entitled, as of right, to subscribe for, purchase or receive any proportionate er other share of stock so to be issued. In case, however, the Board of Directors shall determine to issue any stock of the corporation created by these articles or by any certificate of increase of the capital thereof, for any other purpose than exchange as aforesaid, the holders of Common Stock of this corporation shall first be entitled to subscribe for, purchase and receive such stck to be issued, ratably and at such price and upon such terms as may be fixed from time to time by the Board of Directors.
(C) No contract or other transaction with any other corporation, association or firm shall be in any way affected or invalidated by the fact that any of the Directors of this corporation are Directors of or otherwise interested in such other corporation, association or firm. Any Director of this corporation may vote upon any contract or other transaction between this corporation and any subsidiary or affiliated corporation, without regard to the fact that he is also a Director of such subsidiary or affiliated corporation.
(D) No substantial part of the shares of the capital stock at any time owned by this corporation in any of the following named institutions:
Peoples Wayne County Bank
Peninsular State Bank shall be mortgaged, pledged or sold, nor shall consent be given to the mortgage, pledge or sale of the property or business of any of said institutions except by and with the vote of at least two-thirds of all of the outstanding shares of the Common Stock and-until December 31, 1934of a like proportion of the Trustee Stock, except
(1) The Board of Directors may vote to consolidate or merge any one or more of said institutions with any one or more of the others of said institutions or with any one or more other institutions provided a like proportion of the shares of the capital stock of the resulting or continuing institution shall be acquired and owned by this corporation as were owned and held of the capital stock of said institution above named being a party to such consolidation or merger and the capital stock of said resulting or continuing institution so acquired shall likewise be subject to the limitations aforesaid; and
(2) The Board of Directors in order to qualify persons to act as directors or officers of any of the institutions aforesaid may sell to each such person the minimum number of shares required to so qualify such person but shall take back from each such person an appropriate and adequate option or agreement whereby this corporation shall have the absolute right to re-acquire said shares at any time when such person shall cease to be such director or officer.
Subject only to the limitations aforesaid the Board of Directors shall have full power and authority to mortgage, pledge, sell or otherwise deal with or dispose of any of the corporate property without action by or reference to the stockholders or any of them.
(E) The Board of Directors shall consist of twelve directors each of whom shall be—until December 31, 1934—the holder in his name as Trustee of ten shares of Trustee Stock, and thereafter shall be the owner in his own right of ten shares of the Common Stock of this corporation. The President shall be
but no other officer need be a member of the Board of Directors or a stockholder.
These articles were signed.on the 9th day of October 1929 by the following-named gentlemen:
Julius H. Haass, John R. Bodde, Emory W. Clark, D. Dwight Douglass, Ralph Stone, McPherson, Browning, John Ballantyne, T. W. P. Livingstone, Herbert L. Chittenden, Fred J. Fisher, William T. Barbour, and Wesson Seyburn.
And the execution of these articles was acknowledged by the aforesaid incorporators on December 31, 1929.
Senator COUZENS. Mr. Ballantyne, do you know who drafted those articles of incorporation!
Mr. BALLANTYNE. It is very difficult to tell. There were half a dozen firms of lawyers, I think, connected with them. Mr. Long had a good deal to do with them, and Mr. Mills had a good deal to do with them.
Senator Adams. Senator Couzens, is there any requirement in Michigan, or any authority, which compels the submission of articles of incorporation to any State authority before they may be become effective?
Senator COUZENS. Oh, yes. They have to be filed with the Secretary of State, I think.
Senator Adams. Yes; but does he have authority to pass upon them, say, on the ground that they exceed what is proper?
Mr. PECORA. Probably it is nothing more than the usual power, to insist upon a change of a proposed corporate name because it may conflict with some other name.
Senator Adams. In some States they have given a commission authority to pass upon it. But I gather in Michigan it is rather wide open upon that subject.
Senator COUZENS. It would appear to be so.
Mr. PECORA. It was in 1930, anyway. Now, Mr. Ballantyne, do you know who conceived the idea of having the directors of this corporation chosen from among only those persons who held the socalled “ trustee shares "?
Mr. BALLANTYNE. I think that was Mr. Haass' idea entirely.
Mr. PECORA. In any discussions or conferences that you attended that led up to the preparation and execution and filing of these articles of association, what advantages or benefits were claimed for that plan or that particular feature of the plan of this corporation?
Mr. BALLANTYNE. I think Mr. Haass had in mind—and, mind you, I just think so now, and my memory is not Mr. PECORA (interposing). Please talk a little louder. Mr. BALLANTYNE. As you know, this is a long time back.
Mr. PECORA. Well, if there is any way by which you can refresh your recollection, either by reference to any documents available to you, or by conference with any of your associates, just refresh your recollection.
Mr. BALLANTYNE. There is a trust agreement here which was drawn concurrently and from which I quote:
The spirit of the foregoing being to perpetuate a proportionate representation of each of the foregoing institutions or their successors during the period of the trust. Mr. PECORA. Will you let me look at that so-called
trust agreement” that you have read from?
Mr. BALLANTYNE. Yes, indeed. Mr. Pecora, my memory tells me this, and it was the point that interested me most in the matter: That at the time this was formed it was intended to write off all furniture and fixture accounts.
Mr. PECORA. To write off what?
Mr. PECORA. To the various banks it was proposed at the outset were to be acquired by this holding company?
Mr. BALLANTYNE. Yes. I think that amounted to $1,600,000, as I recall it. And it was proposed to charge off all defaulted bonds. I do not know to what extent that was carried out, but in the case of the Bank of Michigan it was carried out substantially. It was proposed to start a clean institution, and it was intended that each institution should run as is. It was never contemplated at the beginning that they should all be thrown into one hopper.
Mr. PECORA. Well, isn't that the very thing that this holding company, called the “ Detroit Bankers Co.”, was virtually authorized to do by its articles of association, namely to acquire these various banks and to control their operation?
Mr. BALLANTYNE. Really, Mr. Pecora, I can only speak from memory, and
my honest belief was that no such thought was given to that at the time. It was contemplated that these banks should run as units, and to eliminate necessarily unwise competition as between them. You have got really to know Detroit in order to understand what I am trying to tell you.
The CHAIRMAN. How could you eliminate unwise competition if each unit was to operate just as it was?
Mr. BALLANTYNE. How could we?
Mr. BALLANTYNE. Oh, I don't know. Perhaps you could have more influence over them as against unwise prejudices.
Senator COUZENS. What was your capacity when this agreement was entered into?
Mr. BALLANTYNE. Oh, I was chairman of the board of the Bank of Michigan. I was on my way out, Senator.
Mr. PECORA. Mr. Chairman, I want to offer in evidence the copy of the trust agreement produced by the witness. I think it an important document, and I am trying to place in the committee's record important documents.
The CHAIRMAN. Let it be admitted.
(The trust agreement with reference to the Detroit Bankers Co. was marked " Committee Exhibit No. 2, Jan. 24, 1934 ", and will be found at the end of the day's record.)