did not get from the annual report of that company for the year 1931, which he had received.

Mr. VERHELLE. It was quite apparent from his letter that he had not only that statement, but the one before it, or another statement, at least, that indicated that reducion in the capital structure.

Mr. PECORA. He wanted to know what was responsible for that reduction, did he not?

Mr. VERHELLE. And in that report, or in both those reports, there were included individual statements of the individual units. My recollection is that if you total up all the units you will arrive at this combined statement. So, therefore, the explanation lay in two units, that is, the First Wayne Bank and the Detroit Trust Co.

Mr. PECORA. That did not explain the reason for the reduction of approximately 23 million dollars in the capital assets of the Detroit Bankers Co. in 1 year's time, did it?

Mr. VERHELLE. It was all covered by the units that follow that consolidated statement.

Mr. PECORA. All followed by what? I did not hear that answer. (The reporter read the last answer of the witness.)

Mr. VERHELLE. That is, Mr. Hentschell may have been someone who knew and could analyze the statement. I would judge that from the very letterhead. I do not know what position he signed on there. Maybe it is on the top of the letterhead.

Mr. PECORA. He did not sign any position. The letterhead does not carry his name as an officer of the Manistique Pulp & Paper Co. Mr. VERHELLE. If he is an officer, he would be able to analyze statements rather well, so that he would naturally look at the various units to determine where the decrease came about. To some stockholders you have to give one type of explanation; and to others you can give a shorter explanation, depending upon the type of people they are, I presume.

Mr. PECORA. You did not know the type of person that Mr. Hentschell was, did you?

Mr. VERHELLE. If there is an indication on there that he is an officer of that company

Mr. PECORA. There is not any such indication on his letter to the

company.

Mr. VERHELLE. I recall that name. I have a notion that he is an officer of the Manistique Pulp & Paper Co.

Mr. PECORA. But Mr. Hentschell asked specifically to be informed-and I will quote from his letter again [reading]:

What disposition was made of the difference in the capital surplus and undivided profits amounting to approximately $23,000,000, as compared to your report for the previous year.

He was not given that information in your reply letter, was he? Mr. VERHELLE. Well, I think he was, sir; but I do not know just how I would answer it any other way.

Mr. PECORA. Point out in your reply letter to him any statement which informed Mr. Hentschell as to the disposition that was made of the $23,000,000, approximately, that he referred to in his letter. [Handing paper to the witness.]

Mr. VERHELLE. It becomes necessary, of course, to take into consideration his entire letter, a part of which asked for an income

and expense statement of the company, and the very question itself indicated that he was not familiar with the general make-up or set-up of the organization. The particular drop in the invested capital to which he refers was made up by setting up substantial reserves as a guarantee against the assets of the newly consolidated Wayne National Bank, which is included in this letter, together with the reduction in the capital structure of the Detroit Trust Co. through the removal of the First Detroit Co. from its books.

Mr. PECORA. Mr. Verhelle, those items do not account for a $23,000,000 reduction, do they?

Mr. VERHELLE. I would have to check up, sir?

Mr. PECORA. You know that they do not, without checking up, do you not?

Mr. VERHELLE. I really do not.

Mr. PECORA. Was not that $23,000,000 reduction due, substantially, to the losses and write-offs made during the year 1931, as appears from the annual report filed by the Detroit Bankers Co. with the Michigan Securities Commission, showing a decrease in investment values of over $22,000,000?

Mr. VERHELLE. That figure is taken right off this report, sir.
Mr. PECORA. What report?

Mr. VEBHELLE. Right off the same record from which this report is made up.

Mr. PECORA. He did not have a copy of the report filed with the Michigan Securities Commission, did he?

Mr. VERHELLE. That did not enter into the discussion.

Mr. PECORA. The fact is that the $23,000,000 to which Mr. Hentschell refers in his letter, and about which he sought information, represented approximately the amount of the write-offs or reserves due to decrease in the invested capital, as shown by the annual report filed with the Michigan Securities Commission; is that not true?

Mr. VERHELLE. Those are the same figures he was inquiring about, becuse the invested capital, as shown in the report to the Michigan Securities Commission, the one that was up for discussion here yesterday, is the statement of the Detroit Bankers Co. from which it was taken. It carries the value of the surplus account, which is nothing but the invested capital of these units set up on that statement. In other words, the books are continuously adjusted so as to reflect the invested capital of these units, because there is no other value at which they could logically be carried.

Mr. PECORA. I know, but why was not Mr. Hentschell given the information that he asked for?

Mr. VERHELLE. I will just answer the question-I have answered that question. You have questioned it, so I was just trying to figure out here if that difference was not made up in those two units. [After examining papers.] Yes, sir. The difference between the two reports is to be found by referring to the First Wayne National Bank as against the 2 old banks, and also referring to the Detroit Trust Co. statements in the 2 statements I have referred to. The drop in the First National, just as I have figured it here-unless I am in error-is $17,000,000 of the $23,000,000, and the balance of it is in the Detroit Trust Co.

Mr. PECORA. Subsequent to the sending of your letter of February 10, 1932, to Mr. Hentschell, did you receive from him a letter in reply to your letter, of which this paper which I now show you is a photostatic copy?

Mr. VERHELLE. I cannot read this copy.

Mr. PECORA. It will probably help you to show you this copy [handing paper to the witness].

Mr. VERHELLE. While I do not recall the letter, undoubtedly it is a true copy.

Mr. PECORA. I offer that letter in evidence.

Senator COUZENS (presiding). The same may be entered.

(Letter Feb. 16, 1932, Hentschell to Verhelle, was received in evidence, marked "Committee Exhibit No. 93, Jan. 26, 1934 ", and the same was subsequently read into the record by Mr. Pecora.)

Mr. PECORA. The $17,000,000 item you mentioned as reserves was not really reserves, was it? Was not that amount made up of write-offs?

Mr. VERHELLE. I have been trying to recall the answer to that question, which I rather expected, and I am not just quite clear as to what portion of that was written off immediately and what portion was used later, or whether a good substantial amount of it was carried on through as a reserve, or just what happened to it.

Mr. PECORA. The letter last offered in evidence, and marked Committee's Exhibit No. 93 of this date, is on the letterhead of the Manistique Pulp & Paper Co. and reads as follows [reading]:

DETROIT BANKERS COMPANY,

Detroit, Michigan.

(Attention Mr. J. F. Verhelle.)

FEBRUARY 16, 1932.

GENTLEMEN: With further reference to your letter of February 10, it was not my intention to ask for an itemized statement of all income and disbursements, but what I would like to get is some idea as to why there was such a substantial decrease in the capital investment account. It would appear to me that the company sustained substantial losses during the past year, and I would like to have some information as to what these were and the amounts. It is stated in your letter that certain assets were removed from the banking units, which do not appear on the compiled statement, and that in addition substantial reserves were set up as a guarantee against certain assets of the newly consolidated First Wayne National Bank. If these items are carried as reserves, it would seem to me that such items should be carried on your financial statement. At any rate, I would appreciate hearing from you fully with reference to the above matter.

Yours truly,

(Signed) R. G. HENTSCHELL.

Did you, in reply to that letter, send Mr. Hentschell a letter, a photostatic copy of which I now show you?

Mr. VERHELLE (after examining paper). This letter is undoubtedly written by me, and is in reply to the letter which you have shown me.

Mr. PECORA. I offer it in evidence.

Senator COUZENS (presiding). Let it be entered in the record. (Letter Feb. 23, 1932, Verhelle to Hentschell, was received in evidence, marked "Committee Exhibit No. 94, Jan. 26, 1934", and the same was subsequently read into the record by Mr. Pecora.)

Mr. PECORA. The letter received in evidence as Committee Exhibit No. 94 of this date reads as follows [reading]:

Mr. R. G. HENTSCHELL,

FEBRUARY 23, 1932.

Manistique Pulp & Paper Co., Manistique, Michigan. DEAR MR. HENTSCHELL: The following is in answer to yours of February 16 requesting information in regard to my letter of February 10. It appears from your letter that you were not aware that this statement under discussion is a "combined statement of the banking units" and not a statement of the Detroit Bankers Company. Substantial reserves, not carried in our statement, were set up in anticipation of losses, the principal character of which were in connection with assistance rendered to other banking institutions. It is the desire of the officers and directors of this company, and the banks, as well as in accordance with the desires of the various banking departments that these reserves be not reflected on the statement of the bank.

Very truly yours,

(Signed) J. F. V. Comptroller.

The amount of the reserves that had been set up during the year 1931, and to which you refer in your letter of February 23, 1932, as follows: "Substantial reserves, not carried in our statement, were set up in anticipation of losses, the principal character of which were in connection with assistance rendered to other banking institutions" refers particularly to what reserves or to what assistance?

Mr. VERHELLE. I think the largest items of reserves for that year by far, which probably outweighed any other, were the reserves set up by the various institutions in connection with the American State Bank of Detroit.

Mr. PECORA. What did those reserves amount to?

Mr. VERHELLE. This is 1931?

Mr. PECORA. 1931. Give us the approximate amount.

Mr. VERHELLE. It is more than a million and a half, and it might be as high as four or five million. I am not at all sure, because those reserves were set up from time to time, and I am not at all sure as to the amount, sir.

Mr. PECORA. Mr. Hentschell was correct in his statement in his letter of February 16, 1932, wherein he said [reading]:

It would appear to me that the company sustained substantial losses during the past year, and I would like to have some information as to what these were and the amounts.

Isn't that so?

Mr. VERHELLE. Hardly, sir.

Mr. PECORA. What is that?

Mr. VERHELLE. That is hardly so.

Mr. PECORA. Why isn't it so? Had not the Detroit Bankers Co. sustained substantial losses during the year 1931

Mr. VERHELLE. They had written off a large amount of assets, written down.

Mr. PECORA. How much?

Mr. VERHELLE. Or set up reserves against them.

Mr. PECORA. Those write-offs accounted for by far the greater part of the 23-million-dollar reduction?

Mr. VERHELLE. Those write-offs are the reserves that were set up, whenever they came.

Mr. PECORA. They were not losses?

Mr. VERHELLE. As a matter of fact-it is purely my recollection, but rather definite, that the bankers company paid quite an income tax in 1931, if that would have any bearing on it.

Mr. PECORA. Were they losses, or were they not losses?

Senator COUZENS. They were really contemplated losses, were they not?

Mr. VERHELLE. It depended upon what conditions would develop, as to whether they would become losses or whether they would not become losses.

Mr. PECORA. As a matter of fact, in March 1932 you dictated this memorandum that was put in evidence yesterday as Exhibit 15, in which you stated that "During October 1931 we estimated total losses at $48,793,000." You were referring to losses in that statement, were you not?

Mr. VERHELLE. But that statement was not used

Mr. PECORA. Whether it was used or not, you were setting forth a fact, were you not?

Mr. VERHELLE. That depends upon what the reason was why I may not have used that letter.

Mr. PECORA. But whatever the reason was for your dictating this memorandum of March 7, 1932, when you set forth therein that “During October 1931 we estimated total losses at $48,793,000", you were setting forth what you knew to be the fact, were you not?

Mr. VERHELLE. First of all, I question seriously whether or not that memorandum was used and whether or not that definitely

Mr. PECORA. Will you please refrain from saying that again, Mr. Verheile? You have told us that a dozen times y terday, and you have told it to us three or four times already this morning. I am not asking you anything about whether or not this memorandum was actually delivered by you to anyone else. You have admitted that you dictated it. When you made that statement, or dictated that statement as part of this memorandum which is dated March 7, 1932, you made a statement that was within your knowledge, did you not! Mr. VERHELLE. Or my opinion, at least.

Mr. PECORA. Or your opinion. All right. Yesterday afternoon you turned over quite a number of documents which were marked for identification, and which you stated were copies that you had in your possession of certain memoranda which, from time to time you had prepared as comptroller of the Detroit Bankers Co., and submitted to various other officers.

Among the memoranda which you produced yesterday afternoon is this one which was marked Committee's No. 16 for identification. as of January 25, 1924. I show it to you again so that you may make sure that it is one of the papers that you turned over yesterday. Will you look at it and tell if it!

Mr. VERHELLE after examining paper). It is.

Mr. PROCRA. Do you recall having been acket, in the care of your examination résteriar—I belieñe it was by Senator Cons if it was not the fix that you had from time to time prepared memoranda estaming what was referred to as making! Do you recall that!

Mr. Vmani Ts: theE TERE ETELi qestina

Mr. Phone. There was a era of questita ang dat he