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Mr. PECORA. Is there any statement shown there whatsoever to that effect, whether specific, general, obscure, or of any other kind or nature?

Mr. VERHELLE. By means of comparison, of course, as I have already indicated, it could be quite simply deduced.

Mr. PECORA. And that is the only way. There is nothing in the report itself for the year 1931 that gives a reader of it any such knowledge or information, is there?

Mr. VERHELLE. No, sir.

Mr. PECORA. And the declaration of that special dividend; is that right? Mr. VERHELLE. No, sir.

Mr. PECORA. Now, let us adopt for the time being the method that you have resorted to, whereby, as you say, a person reading the annual report to stockholders of the Detroit Bankers Co. for the year 1931 and by comparing that report with the annual report issued for the preceding year of 1930, would learn that there had been any declaration of this special dividend. Is it possible even by that method to learn of that?

Mr. VERHELLE. I am terribly sorry, but the question is so long and involved that I do not get it. Do you ask: By simply reading it is it possible to learn that?

Mr. PECORA. And by comparing it with the annual report for the previous year?

Mr. VERHELLE. Yes. It is to be noted that there has been a reduction if one will make such comparison; very decidedly so, as have said.

Mr. PECORA. Well, all that such a comparison would show to a person making it would be, that there had been a reduction of the capital funds of the Trust Co., isn't that so?

Mr. VERHELLE. That is correct.

Mr. PECORA. But that wouldn't show how the reduction had been effected, would it?

Mr. VERHELLE. No. It shows a worse picture than really existed,

Mr. PECORA. And it would not show who the beneficiary was of that reduction of the capital funds, would it?

Mr. VERHELLE. (Witness shakes his head).
Mr. PECORA. Is that right?
Mr. VERHELLE. No, sir.

Mr. PECORA. It would not show anything at all, for instance, about this special dividend having been declared in favor of the Detroit Bankers Co., would it?

Mr. VERHELLE. No, sir.

Mr. PECORA. Now, as a matter of fact, by this process of the surrender for cancelation of 20,000 shares of the capital stock of the First Detroit Co. which the Detroit Bankers Co. received through the medium of this special dividend, the Detroit Bankers Co. was able to raise the sum of $2,000,000, which it applied to the reduction of this $7,000,000 indebtedness in December of 1931, didn't it?

Mr. VERHELLE. Well, I am not certain whether that is the same $2,000,000 dollars that was applied on that indebtedness, if $2,000,000, was applied on that date.

Senator COUZENS. What other sources would you have from which to pay that money?

Mr. VEPHELLE. Ibup wa- 200tuer 1., wibon dolars de Pared. Mr. PEC'RA. I am coming to that.

Mr. TERHELLE. I huren i the two amount: quitt straight in my mind, as to which is which

Mr. PECORA Well, I will come to the 11. million colar Dus 1: your iind, but before I do that I want you to all-Wes niT giseansin: about the 2 million dollar reduction.

Mr. T ER HELLE. A to whetler or not

Mr. PECORA (continuing). In other words, the only rules the Detroit Bankers Co. reduced it-indetstedness of imitar to i million dollars up to the end of December 1931. was talveg the declaration of this special dividend of 3000 starta ti sok of the First Detroit Co and the surrender for (allation from the sud of 2 million dollars of 20000 shares of those 34 shares in that 50%

Mr. VEPHELLE. Toa sir. I cannot conimit urself on the piti that 2 million dollars. that it was used in connection with that reduction

Mr. PERA. All right. What was that 2 million dollars Usefur according to your best recollection?

Mr. V'ERHELLE. That 2 million dollars, plus anotber 11, millon dollars, resulting in a total of 31., million dollars, was tu nt recullertion put togetber in one ba-ket, so to speak, and 2 million Juliarreinored from it and applied to that indebtedness. Now. I am no certain wbeiber it was that 2 inillion dollars or whether it was $500,000 of the 11 million dollars. or just which 2 million dollars it was. And 10w. Jr. Pecora. I should like to make a correction in the statement I have just made: The repost definitely states to tokholder's that the Detroit Trust Co.. having transferred its ownership of the First Detroit Co. from its book to those of the Detroit Bankers Co. is now deroting its entire attention, and so forth, thus definitely notifying stockholders of the fact that that had been switched to the Detroit Bankers Co. That is in the same report you had there. page-well. there is no page numbering of the report.

Mr. PECORA. Do you think that definitely notifies stockholders of this declaration of the special dividend!

Mr. V'ERHELLE. It mentions specifically that there has been that transfer made.

Mr. Pecora. Well, we will see by looking at it. What page were you looking at or reading from?

Mr. V'ERHELLE. The pages are not numbered. This is the December 31, 1931, statement.

Mr. PECORA. Where is it to be found?

Mr. VERHELLE. It is about the third page over, after the names. The paragraph begins with The Detroit Trust C0.

Mr. PEURA. Well, now, the statement that you refer to textually is as follows:

The Detroit Trust Co., having transferred the ownership of the First Detroit Co. from its own books to those of the Detroit Bankers Co. is now deroting its entire attention to activities of a purely corporate and fiduciary nature.

Is that the statement that you refer to?
Mr. VERHELLE. Yes, sir.

Mr. PECORA. And you say that that statement specifically informs stockholders of the declaration of the special dividend ?

Mr. VERHELLE. No, sir.
Mr. PECORA (continuing). In favor of the Detroit Bankers Co.!
Mr. VERHELLE. No, sir.

Mr. PECORA. So far as this statement shows upon its face and according to its text, does it indicate whether or not any consideration was paid by the Detroit Bankers Co. to the Detroit Trust Co. upon the transfer of ownership of those shares of the First Detroit Co.?

Mr. VERHELLE. Not to the best of my knowledge.

Mr. PECORA. Oh, no; not according to the best of your knowledge, but does it appear in black and white on the statement which you refer to?

Mr. VERHELLE. No, sir.

Mr. PECORA. So that anyone reading that statement could just as well infer from the language employed that there was a consideration paid by the Detroit Bankers Co. to the Detroit Trust Co. upon the transfer of ownership, could he not?

Mr. VERHELLE. Well, it is hard to conceive that one could, because anyone who would be interested in reading that statement would, quite naturally, refer to the balance sheet of the Detroit Trust Co. and make a comparison between that which is published in here and that which was published in the previous report.

Mr. PECORA. You mean in the one of the previous year?
Mr. VERHELLE. Yes; or the one of 3 months before that.

Mr. PECORA. And that is what you call giving stockholders specific information of that special dividend, do you?

Mr. VERHELLE. No, sir.

Mr. Pecora. Well, that was the very term you used, specifically informing him, you said, basing it upon this statement or annual report of 1931.

Mr. VERHELLE. I do not recall those exact words. Mr. PECORA. Now, Mr. Verhelle, I want to address myself to you with regard to this one and one half million dollars that you have already made some reference to.

Mr. VERHELLE. All right.

Mr. PECORA. How did the Detroit Bankers Co. receive that one and one half million dollars that you have in mind and which you have already spoken of?

Mr. VERHELLE. Substantially in the form of a dividend for the purpose of reducing the indebtedness of the First National Co.

Mr. Pecora. Well, do you know when the Detroit Bankers Co. got that one and one half million dollars substantially in the form of a dividend?

Mr. VERHELLE. I do not recall the exact date.

Mr. PECORA. I have it here as being December 23, 1931. Would that refresh your recollection?

Mr. VERHELLE. That is approximately the time, I think.

Mr. PECORA. Do you know the circumstances that surrounded the declaration of that special dividend of one and one half million dollars by the First National Bank in Detroit? Mr. VERHELLE. I believe I do.

175541-34PT 11-5

Mr. PECORA. Will you tell the committee about it, please?

Mr. VERHELLE. In the latter part of 1931, in order to show a true statement of condition, that is, not simply a set of figures, it was decided to write off a substantial amount of the assets appearing on the books of the various units. In fact, all the losses that were indicated by examination were to be written off or indicated by various examinations, I should say, so that a true statement might be reflected, not simply consisting of figures but one having real assets behind them. Among the various liabilities that existed, it being quite a question among the legal fraternity as to who was responsible, liable, or what-not in connection with the First National Co. debt, it was there and had to be cleaned up, and after giving due consideration to all methods available, it was thought best, after consultation with banking departments, both State and National, to provide 51/2 million dollars toward the liquidation of this debt.

Mr. PECORA. What debt are you referring to now?

Mr. VERHELLE. The 4 million dollars, and the 112 million dollars, and 112 million dollars of this was to be provided from the banking units.

Mr. PECORA. The 4-million-dollar debt is the one.
Mr. VERHELLE. The one we have been discussing; yes.
Mr. PECORA. The one owed to the Chase National Bank.

Mr. VERHELLE. The entire indebtedness was the point involved at that time.

Mr. PECORA. The entire indebtedness had been reduced, as we have seen, from 7 million dollars to 5 million dollars, of which 3 million dollars was due and owing to the Detroit Trust Co. and 2 million dollars to the Chase National Bank on this reduction.

Mr. VERHELLE. I believe there was more than that owing at that time.

Mr. PECORA. I am talking about the 7-million-dollar indebtedness with which the Detroit Bankers Co. virtually was born.

Mr. VERHELLE. Well, we had not only in mind that particular indebtedness, but all indebtedness, and the purpose was to get rid of all indebtedness.

Mr. PECORA. Owing by whom, the Detroit Bankers Co.?

Mr. VERHELLE. Owing by any of the units, to take care of their dead assets, to write them down to a point where there was real value behind the figures.

Mr. PECORA. Well, now, are you talking about the indebtedness only of the units or the indebtedness of the Detroit Bankers Co. as a separate corporate entity?

Mr. VERHELLE. The indebtedness of the Detroit Bankers Co. aside from its capital indebtedness, that is, its outstanding stock, was limited.

That is, its other indebtedness was limited to the indebtedness of its units. It had no indebtedness of its own other than that of the First National

Mr. PECORA (interposing). Other than the $7,000,000 we have been talking about all afternoon.

Mr. VERHELLE. Yes. So that, so far as the Detroit Bankers Co. was concerned, the only point involved was this $7,000,000. The one and one half million dollars was declared in the form of a dividend to the Detroit Bankers Co.

Mr. PECORA (interposing). All right. Which banking unit declared that dividend? Mr. VERHELLE. The First National Bank.

Mr. PECORA. And it declared it on December 23, 1931, or thereabouts ?

Mr. VERHELLE. Thereabouts; yes, sir. Mr. PECORA. It was in the form of a special cash dividend, wasn't it!

Mr. VERHELLE. Yes, sir. Mr. PECORA. Well, through the medium of this special cash dividend of 112 million dollars was it hoped to take care of the outstanding indebtedness existing at that time?

Mr. VERHELLE. Yes, sir.
Mr. PECORA. Of all the units?
Mr. VERHELLE. Yes, sir.

Mr. PECORA. As distinguished from the $7,000,000 indebtedness of the holding company?

Mr. VERHELLE. Well, no; you could not do that, because the indebtedness of the units included the deposit indebtedness. Of course, technically speaking, I should say not. Mr. PECORA. You know what kind of indebtedness I mean.

Mr. VERHELLE. As far as the kind of indebtedness is concerned. not including such a thing as deposits, the payment or normal debts of banking units in the normal performance of their business, it was hoped that by the declaration of that dividend, and the normal operations, this thing we have been discussing here, the $7,000,000, and the $1,500,000 and so forth, would be eliminated, and the Detroit Bankers Co. pulled out of the particular hole they were in at that particular time.

Mr. PECORA. Are you familiar with the terms of the resolution adopted by the board of directors of the First National Bank in Detroit in connection with the declaration of this special cash dividend of $1,500,000 ? Mr. VERHELLE. Generally. speaking I am, because I know what

But if you have anything to refresh my memory, Mr. PECORA. What was that intent? Mr. VERHELLE. The general intent was to liquidate the indebtedlness of the First National Co.

Mr. PECORA. That was the general intent, was it? Mr. VERHELLE. That was the general intent. Mr. PECORA. You have been talking here, if I have correctly followed your testimony, about liquidating the indebtedness of the various units, and not of the First Detroit Co.

Mr. VERHELLE. I have done two things, though, in connection with that

. I have hooked up the resultant dividend from the First National Bank, and I am not familiar with which dollars it was used. But I think that is immaterial in the point you are driving at. Mr. PECORA. Go ahead with your explanation.

Mr. VERHELLE. And the outstanding indebtedness that was involved here was that which we have been discussing, the $7,000,000, or the $7,200,000, or whatever it was. Mr. PECORÁ. Now, I want to ask Mr. Ballantyne some questions.

the intent was. all right.

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