The volume of mortgages in connection with the senior officers was such as to make it practically impossible for those operating the mortgage department to give the matter proper attention. What did you mean by that statement in this report? Mr. VERHELLE. I do not just recall specifically what I meant there, unless it refers to the preceding sentence which you just read. Mr. PECORA. Apparently not, because it refers to mortgages in connection with the senior officers. Who were the senior officers that you had in mind? Mr. VERHELLE. It would be those whom I have covered there. Mr. PECORA. You have mentioned specifically up to this point 15 officers. Senator COUZENS. Which ones in that list are the senior officers referred to there? Mr. PECORA. Look at the list [handing document to the witness]. Senator COUZENS. Who were the senior officers in that list? Mr. VERHELLE. They are referred to in the preceding paragraph— Sweeny and Moody. That is my recollection. Mr. PECORA. What offices did they have in the bank, respectively? What was Mr. Sweeny's position? Mr. VERHELLE. President. Mr. PECORA. What was Mr. Moody's position? Mr. VERHELLE. Vice President. Mr. PECORA. I observe this statement in your report, which I will read to you [reading]: Before entering into a discussion of all the types of transactions involving the officers of the bank it should be stated that under the system in use it was entirely possible for a loaning officer to borrow or loan to himself or anyone else and discharge the liability without the matter coming to the attention of those concerned. Did you find that that was the situation? Mr. VERHELLE. I found that that was possible; yes, sir. Mr. PECORA. What was the system in vogue at that time that made that possible? Mr. VERHELLE. A bank of that size has a very large number of loans on its books. They run into very many thousands. Upon an examination by the banking authorities it was generally recommended that certain items be placed in the loss column, and it is a rather regular practice to charge those items against reserves at that time. It therefore becomes essential to follow up those items and attempt to recover in connection with them. That particular item there was handled by setting up a separate individual group of persons, individuals who would have nothing to do with the originating of those items, and those individuals would follow up the collection of them and therefore prevent a possibility of that happening. Mr. PECORA. Were not you also calling attention in this portion of your report to a system which would enable the senior officers of the bank to have the bank make a loan, an officer to himself, and to discharge his liability and remove the note evidencing that liability, without the transaction coming to the attention of others in the bank? Mr. VERHELLE. That could hardly be done, sir. Mr. PECORA. Then what did you mean when you said that— It is entirely possible for a loaning officer to borrow on a loan to himself, or anyone else, and to discharge his liability without the matter coming to the attention of those concerned. Senator COUZENS. You meant the management, didn't you? Mr. VERHELLE. No, sir. I meant just exactly what that particular paragraph says. And that is, that there are Sentaor COUZENS (interposing). Who were those that you had reference to? Mr. VERHELLE. Well, any loaning officer, if he knew how to do it, under a system that had come down through the ages, could possibly develop a method whereby that might possibly be done. Mr. PECORA. Whereby what could possibly be done? Do you mean having the bank to make a loan to himself on a note, and then discharge that liability, and remove the note without the matter coming to the attention of others in the bank concerned with such transactions? Is that what you meant? Mr. VERHELLE. Substantially so; yes. He would have to know how to do it, of course. Mr. PECORA. Now, you found that to be a weakness, did you? Mr. PECORA. Or at least you considered it to be a weakness? Mr. PECORA. And you recommended that steps be taken to correct it? Mr. VERHELLE. Yes, sir. Mr. PECORA. Well, now, you further say in this memorandum, immediately following the portion I have just read to you, as follows: It is understood that definite steps have been taken to place the liability ledgers under control and to remove the original notes from the control of the loaning officer. Mr. VERHELLE. Yes, sir. Mr. PECORA. That was one of the steps that you caused to be taken to correct the situation or system that you have just referred to here? Mr. VERHELLE. Yes, sir. Mr. PECORA. Now, you also say in this report of yours as follows: A memorandum was addressed to Mr. Sweeny, calling his attention to the erroneous impression which was given to the directors, and his attention is specifically called to the control necessary and which was being set up under the new operations. Under those operations numerous transactions have been brought to our attention, the details of which are not recorded here, but a large number of which are written up and on file in our office. These indicate that large and substantial losses have been incurred through negligence, and so forth. Every effort to establish any effective control over the loaning practices of the Peoples office has been strenuously opposed. Who had strenuously opposed efforts to establish effective control over the loaning practices of this bank or of any of its branches? Mr. VERHELLE. I would have to use the general term, and say the management. Mr. PECORA. Now, can't you tell us which individuals among the managing personnel had strenuously opposed efforts to establish effective control over the loaning practices of the bank? Mr. VERHELLE. Well, among them were Mr. Sweeny. Mr. PECORA. Who was the president of the bank? Mr. VERHELLE. Yes, sir. Mr. PECORA. And who was one of the officers whose unethical practices are alluded to in this report of yours? Mr. VERHELLE. Or rather, he was one of the officers in connection with whom the transactions are recorded there, as shown by the books of the bank, which on the basis of the records of the institution might indicate, or would indicate, unethical practices. Mr. PECORA. They would also indicate irregularities, wouldn't they? Mr. VERHELLE. I am not familiar at the present moment, I am sorry to say, so as to be able to answer your question. I have not read that thing since I submitted it. Mr. PECORA. Well, for the purpose of refreshing your mind on that, let me read from the fore part of this report, the following sentence: The following is, therefore, only an outline, and indicates the nature of the transactions which it is believed are irregular. So that these practices you referred to as unethical, were also irregular, were they? Mr. VERHELLE. On the face of the record as it appeared; yes. Mr. PECORA. Now, in addition to the specific transactions that are enumerated by you in this report, there were many other transactions which you did not cover in this report because, as you have stated here: A large number of them are written up and on file in our office. Mr. PECORA. Were those transactions of the same general character as those which you specifically enumerate in this report? Mr. VERHELLE. Well, I saw one or two pages of that other report a few days ago, and I don't recall the particular transactions enumerated in there, and so I am not sure whether they were of a similar character or of a different character. Mr. PECORA. Well, where did you see that other report a few days ago? Mr. VERHELLE. In the hands of-I don't know whether he is one of your men or one of Mr. Pratt's men. Mr. PECORA. What is the name of the man? Mr. VERHELLE. I don't know his name. Mr. PECORA. What was your answer? Mr. VERHELLE. I know him when I see him, but I don't know his name. Mr. PECORA. I am assured that he was not one of our men. Mr. PECORA. Where did you see him? Mr. VERHELLE. He brought it over to me and asked me if I could Mr. PECORA (interposing). Where was he, here in Washington or in Detroit? Mr. VERHELLE. He was in Detroit. He showed it to me and asked me if I could give him any information on the transaction that was covered in there. Mr. PECORA. Before I proceed to further question you about this report, let me ask you: I note that the cover page of the exhibit in evidence is marked "Copy No. 5." Would that indicate that at least five copies of this report were typewritten? Mr. VERHELLE. Yes, sir. Mr. PECORA. To whom were they given? Mr. VERHELLE. All were given to Mr. Mills. Mr. PECORA. All of them were given to the one man? Mr. VERHELLE. All but the copy which I kept. Mr. PECORA. Well, apparently, this is the copy you kept, which is marked "Copy No. 5 "? Mr. VERHELLE. Yes, sir. Mr. PECORA. Do you remember how many copies all told you caused to be made of this report? Mr. VERHELLE. I am not certain, but I think there were six. Mr. VERHELLE. No; there was one copy placed in the files of the Detroit Bankers Co., and the remaining copies were given to Mr. Mills, and I kept one copy myself. Mr. PECORA. Were you asked by Mr. Mills to have four copies given to him? Mr. VERHELLE. I do not recall, sir. Mr. PECORA. What was the office which Mr. John R. Bodde held in this bank? Mr. VERHELLE. Well, let me see (the witness rising and starting toward Mr. Pecora as if to borrow the paper.) Mr. PECORA. He was vice chairman of the board, wasn't he? Mr. PECORA. In May of 1932. Mr. VERHELLE. Yes; he was vice chairman of the board. Mr. PECORA. Now, in this report, marked " Committee Exhibit No. 95", in evidence as of this date, under the caption "John R. Bodde " ', you say, in part, as follows: And an improperly secured note of $20,000 of the Greenville (Mich.) Bank, endorsed by John R. Bodde, was placed in the Peoples Wayne County Bank, and approved by Donald N. Sweeny, (the full collateral was $7,950 on the date it was taken over). This note, although approved by the executive committee, should have been known to have been uncollectable by the officers recommending it. It is a part of a $56,000 obligation on the part of an employee, W. L. White, who only recently was in charge of the discount department at the Peoples office. This employee had previously been given a $750 increase in salary by order of John R. Bodde, against the judgment of the personnel and operating officers. No attempt has been made to determine the original purpose of this loan, nor of any other of the items endorsed by him. You mean there that you made no attempt to find out who the actual beneficiary was for the discounting of this $20,000 note? Mr. VERHELLE. Yes, sir. Mr. PECORA. Was it of interest to you at the time you made this investigation, to ascertain whether or not Mr. Bodde might have been the beneficiary of this discount? Mr. VERHELLE. It might have been, but I did not believe it was up to the comptroller of the Detroit Bankers Co., being the business of the chairman of the board of the bank. Mr. PECORA. You say further in this report, under the caption "John R. Bodde": Incidentally our records indicate that the following officers and employees' notes are endorsed by John R. Bodde: Rooks, $14,000; White, $20,000; Erwin, $3,000; Rooks, $1,600; Frazier, $10,200. Now, did you have any information that these other officers' and employees' notes, endorsed by John R. Bodde, were notes which had been discounted for the benefit of Mr. Bodde? Mr. VERHELLE. I do not recall that I had any opinions of any particular kind. I would say offhand that they were not, but I do not know, of course, that I had any opinion. Mr. PECORA. In this report you say further: On November 2, 1931, the account of John R. Bodde was overdrawn $2,190. On November 3, 1931, Anthony Bodde, who then had a liability of $9,106, reduced his note to $7,500 and made a new note in the amount of $6,062. The $62 presumably represented interest. The $6,000 was credited to the account of Anthony Bodde on that note, and a similar amount was checked out, and again the same amount credited to the account of John R. Bodde. While the records indicate definitely that the $2,000 borrowed by John H.. Rooks was the same as that credited to Mr. Bodde's account, the $6,000 in connection with the Anthony Bodde loan was not definitely checked to determine that this was an accommodation loan. In saying that, didn't it indicate that you felt that at least some of these discounts of other officers' and employees' notes were made for the benefit of John R. Bodde? Mr. VERHELLE. I certainly did not want to create that inference. I wanted to tell as much as I knew, based absolutely on the facts, and no more. That is, on the facts as indicated by the records. Í did not interview those people. I merely personally reviewed the records and found statements in there to be in accordance with the records of the bank. Mr. PECORA. Yes; but from your review made of the records and the facts you ascertained therefrom, didn't it at least raise the question in your mind as to whether or not some of these discounts of notes signed by others but endorsed by Mr. Bodde, were really for Mr. Bodde's benefit? Mr. VERHELLE. It is pretty hard to say what questions would be raised in the mind of a man going over Mr. PECORA (interposing). Well, where the one interrogated is the one in whose mind the question arose it ought to be easy for that person to answer the question propounded here. Mr. VERHELLE. Well, you are going back 2 years, and I think as to the questions which arose in my mind at that time, I would be hardly able to say. Mr. PECORA. Now, among the other loan transactions that you investigated and made the basis for this report, committee exhibit no. 95 in evidence, this date, there was a loan account in the name of the Wise Chrome Products Co. Isn't that so? Mr. VERHELLE. I presume so; yes, sir. Mr. PECORA. And under the caption "Wise Chrome Products Co." in this report of yours, the first paragraph following is as follows: On a "Dun" report dated October 9, 1931 it states that Dudley W. Bower, whose relationship with the bank has not been looked into, stated: "That John R. Bodde and Donald N. Sweeny retained their interests but were not officially directors of the company." Now, the company that you referred to there was the Wise Chrome Products Co., wasn't it? 175541-34-PT 11-12 |