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of that meeting as follows: I am reading from the photostatic copy of the minutes (reading]:

Note payable. The Treasurer reported that note, given to the Detroit Trast Company in the amount of 4 million dollars, secured by an obligation of the First National Company for a like amount, against which is pledged certain state bank stocks, would mature on November 17, 1930. (pon duly supported motion, the proper officers of the company were authorized to execute a full renewal bearing a maturity date of December 30th, 1930.

Mr. VERHELLE. That confirms what I had in mind, sir, and what I stated here before, that the Detroit Trust Co. note had the security behind it.

Mr. PECORA. The security behind it consisted of what is described in this treasurer's report to the board on November 11, 1930, as certain State bank stocks. Were those stocks the same minority holdings of those 10 State banks that were responsible for the creation originally of this $7,000,000 indebtedness!

Mr. VERHELLE. Yes, sir.
Mr. PECORA. Were those stocks worth the amount of the loan?
Mr. VERHELLE. That was purely a matter of opinion, sir.
Mr. PECORA. What was your opinion at the time!
Mr. VERHELLE. That they were not.
Mr. PECORA. How much undercollateralized was that loan?
Mr. VERHELLE. At that particular time I would be unable to say.

Mr. PECORA. Were the loans aggregating $4,000,000, which had been obtained from the Chase National Bank in December 1930, on December 30, 1930, fully collateralized!

Mr. VERHELLE. I would say definitely no.
Mr. PECORA. To what extent were they undercollateralized?

Mr. VERHELLE. I presume $4,000,000, sir. I do not believe that was a collateral note.

Mr. Pecora. There was no security at all, is that right?
Mr. VERHELLE. There was no actual collateral.

Mr. PECORA. Now, up to the present point we have seen that this indebtedness of $7,000,000 which the Detroit Bankers Co. acquired at practically the very outset of its existence, remained with it to the

end of its first corporate year. Is that not true? Mr. VERHELLE. Yes, sir.

Mr. PECORA. What happened in 1931 to take care of that obligation, do you know?

Mr. VERHELLE. I am confused on the dates. If I had the minutes I would be able to tell you definitely.

Mr. PECORA. Do you recall that on August 5, 1931, the Detroit Bankers Co. borrowed $1,000,000 from the First National Bank of Detroit, which it turned over to the Detroit Trust Co., thereby reducing its indebtedness to the Detroit Trust Co. from $3,000,000 to $2,000,000?

Mr. VERHELLE. I would assume that that is correct.

Mr. PECORA. And at that time, in August 1931, the Detroit Bankers Co. still owed $4,000,000 to the Chase National Bank of New York?

Senator COUZENS. What is your answer? We do not hear.

Mr. VERHELLE. My answer would be that on that specific date I would not know whether they still owed the $4,000,000 at that particular time. I would not be certain of the dates.

Mr. PECORA. Well

Mr. VERHELLE. I am perfectly willing to assume that they did, if you have the records there.

Mr. PECORA. So that in August of 1931 this $7,000,000 indebtedness rested as follows: The Detroit Bankers Co. still owed $4,000,000 of it to the Chase National Bank, $2,000,000 of it to the Detroit Trust Co., and $1,000,000 of it to the First National Bank in De. troit; is that right?

Mr. VERHELLE. Yes.

Mr. PECORA. Now, Mr. Verhelle, are you familiar with the fact that on or about December 1, 1931, the Detroit Trust Co. declared a special dividend consisting of 30,000 shares of stock of the First Detroit Co., which was the investment affiliate of the Detroit Trust Co.?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. And those 30,000 shares of the stock of the First Detroit Co. constituted all of the outstanding capital stock of that First Detroit Co., did they not?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. And the Detroit Trust Co. in turn had all of its capital stock owned at that time by the Detroit Bankers Co. ?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. So that by declaring this special dividend, consisting of those 30,000 shares of the capital stock of its investment affiliate, the First Detroit Co., the Detroit Bankers Co., was enabled to acquire that stock.

Mr. VERHELLE. Yes, sir.
Mr. PECORA. Do you know why that was done, Mr. Verhelle?
Mr. VERHELLE. Yes, sir.
Mr. PECORA. And why was it done?

Mr. VERHELLE. The first and primary reason was to pay an obligation of some $7,000,000, or to provide payment at least in part.

Mr. PECORA. Is that this obligation of $7,000,000 that has been the subject of considerable testimony heretofore ? Mr. VERHELLE. Yes, sir. A second reason was, for the purpose

of eliminating the security business from that of the group.

Senator COUZENS. Is that all?
Mr. VERHELLE. I think that is all.

Senator COUZENS. What did you do with the 30,000 shares of the First Detroit Co. stock after you got it?

Mr. BALLANTYNE. Are you addressing me, Senator?

Senator COUZENS. No; I was propounding that question to Mr. Verhelle.

Mr. VERHELLE. Well, physically we locked them up in our vault, and we set them up on our books.

Senator COUZENS. How did you get the cash out of those shares to pay off a part of this $7,000,000 indebtedness?

Mr VERHELLE. The First Detroit Co. declared a liquidating dividend of $2,000,000.

Senator COUZENS. In cash?
Mr. VERHELLE. Yes, sir.

Mr. PECORA. Now, Mr. Verhelle, what did you say was the second reason for the declaration of this special dividend?

Mr. VERHELLE. Elimination of the security business from the group, I mean from the activities of the group.

Mr. PECORA. Now, what was the value of those 30,000 shares of stock at the time they were turned over to the Detroit Bankers Co. in the form of this special dividend?

Mr. VERHELLE. Approximately $3,890,000.

Mr. PECORA. It was then carried on the books of the First Detroit Co., or of the Detroit Trust Co., at $4,000,000, wasn't it?

Mr. VERHELLE. At the time of the declaration of the dividend it

was, sir.

Mr. PECORA. What was done by the Detroit Bankers Co. with those 30,000 shares of capital stock of the First Detroit Co. which it so acquired? In other words, what disposition was eventually made of those 30,000 shares of stock by the Detroit Bankers Co.?

Mr. VERHELLE. Do you mean eventually?
Mr. PECORA. Yes.
Mr. VERHELLE. I can only carry it up to November of 1932.

Mr. PECORA. Well, what disposition was made of them up to that time?

Mr. VERHELLE. A liquidating dividend of $2,000,000 was declared at the beginning of the year 1932, which makes the moneys, together with others, that were applied on this First National Bank loan that has been the subject of discussion here. Subsequently a further liquidating dividend of some $200,000 was declared.

Senator COUZENS. By the Detroit Trust Co.?

Mr. VERHELLE. By the First Detroit Co. That was in July or in June of 1932.

Mr. PECORA. Well, now, let us see about that. Do you recall that on December 28, 1931, the Detroit Bankers Co. surrendered 20.000 of those 30,000 shares of the capital stock of the First Detroit Co. for cancelation and received thereupon $2,000,000 for them?

Mr. VERHELLE. Well, that doesn't sound right to me, sir.
Mr. PECORA. What is the trouble with it?
Mr. VERHELLE. May I have the question read!
Mr. PECORA. The committee reporter will read it to you.

(Which was done.) Mr. VERHELLE. I think that one of your figures, as to the number of shares, is out of order.

Mr. PECORA. What figure is that?
Mr. VERHELLE. The 20,000, I think.

Mr. PECORA. Do you mean the number of shares it surrendered for cancelation?

Mr. VERHELLE. I think so.
Mr. PECORA. What is your recollection of that number?

Mr. VERHELLE. Well, I think you have them reversed. It seems to me the capital was 3 million dollars, at that time, and that the surplus was around 1 million dollars, but I am not quite certain and maybe you are right. I do zot just recall that. Suffice to say that they had received cash of 2 million dollars.

Mr. PECORA. They did receive cash of 2 million dollars?
Mr. VERHELLE. Yes, sir.

Mr. PECORA. Do you recall that that sum of 2 million dollars was thereupon, the following day paid to the Chase National Bank in reduction of its 4-million-dollar loan?

Mr. VERHELLE. I would have to straighten myself out on the record in connection with that, because I am not sure that that was the money which was applied on the Chase Bank note. I am not sure about that just now.

Mr. PECORA. Can you refer to any records that may be available to you for the purpose of ascertaining yourself whether or not that is the fact ?

Mr. VERHELLE. I do not know that I can. [Witness bows his head in his hands for about a minute.) Well, I have no record that would show that, and I just cannot recall about it.

Mr. PECORA. I think you can accept the figures and the dates as correct, at least subject to any check-up you may want to make on it.

Mr. VERHELLE. All right.

Mr. PECORA. Now, Mr. Verhelle, isn't it the fact that when, on December 1, 1931, the Detroit Trust ('o., as the sole owner of all the 30,000 shares of outstanding capital stock of the First Detroit Co., declared this special dividend consisting of those 30,000 shares of stock, which you say were worth around 4 million dollars

Mr. VERHELLE (interposing). I said $3,890,000.

Mr. PECORA. Well, I said around 4 million dollars, and that is close enough, isn't it?

Mr. VERHELLE. All right.

Mr. PECORA. That the depositors of the Detroit Trust Co. had their security for their deposits impaired to that extent?

Mr. VERHELLE. No, sir.
Mr. PECORA. Why not?

Mr. VERHELLE. Because I had ample security for those deposits at that time, I mean to permit of the declaration of that dividend.

Mr. PECORA. But the fact of the matter is that by the withdrawal of that property, worth nearly $4,000,000, which was wholly owned by the Detroit Trust Co. for future purposes, that amount of assets was made unavailable to depositors of the Detroit Trust Co. Isn't that so?

Mr. VERHELLE. No, sir.
Mr. PECORA. Why isn't it so?
Mr. VERHELLE. The depositors had no occasion to make a call

on us.

Mr. PECORA. But for future purposes that amount became unavail. able to those depositors, didn't it?

Mr. VERHELLE. If the occasion arose; yes.
Mr. PECORA. Yes; if the occasion arose.
Mr. VERHELLE. All right.

Mr. PECORA. Do you know whether the depositors of the Detroit Trust Co. were ever informed of that action ?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. When and by what means was that information conveved to them!

Mr. VERHELLE. By means of the statements published by the Detroit Trust Co. at frequent intervals. Also by newspaper publicity at the time when this took place, and after a pause) well, I think that is all.

Mr. PECORA. I want you to produce here as soon as you can bring them here any publications that you referred to. Will you do so?

Mr. VERHELLE. Yes, sir.

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Mr. PECORA. I have printed copy of the si Bankers Co. for the at it and tell me, firi, ; copy of such printed in witness

Mr. VERHELLE. It is :

Mr. PECORA. Senator (: asmuch as it is quite les record.

Senator Coczens (pres marked by the committee !" not be incorporated in the

(The printed annual rer was marked - Committee filed with the records of the the hearings.)

Mr. PECORA. Mr. Verheil this annual report, which mittee exhibit no. 9 of this dat whatsoever therein to the fa the medium of this special surplus and undivided pro'i. depleted by nearly $4,000,000

Mr. VERHELLE. Do you
Mr. PECORA. Yes.
Mr. VERHELLE. That, of

Mr. PECORA. And you of it at all in the report:

Mr. VERHELLE. No. 1 two questions, first; having been declared in

Mr. PECORA. Well, what you call the fir :

Mr. VERHIELLE. I
Mr. PECORA. As of

Mr. VERHEIT Y
undivided profit
$8,000,000

Mr. PECORA Y

Mr. VERHFUL shows a capital months befi...!

Mr. Preup were going statement , in this ar with the point out anywhere year 1931 issued to the decla depletion

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