Mr. PECORA. Now, the report filed with the Michigan Securities Commission shows a charge-off of subsidiary investments of $6,977,707.11 and a charge-off of notes receivable of $3,100,000. That amounts to an item of over $10,000,000. Is there any reference to that in the annual report to the stockholders?

Mr. MILLS. It seems so to me, but I am not an accountant.
Mr. PECORA. Where is it?

Mr. MILLS. It says here that provision is made for reduction in asset values by transfers to reserves of nearly $10,000,000.

Mr. PECORA. Does it indicate what those transfers were, and what they were due to?

Mr. MILLS. I think in the case of any bank statement or banking unit or holding company of banks the conclusion is perfectly obvious, that it is a charge-off.

Mr. PECORA. Well, now, you say in the annual report to stockholders

Mr. MILLS (interposing). No; I don't say so.

Mr. PECORA. Well, I am referring to the company, and you were one of the directors of the company.

Mr. MILLS. I was one of the directors of it; yes.

Mr. PECORA. And I presume you helped to issue it..

Mr. MILLS. I was at the annual meeting of stockholders when this was read.

Mr. PECORA. In the annual report to stockholders, you say:

Provision was made for reduction in asset values by transfers to reserves of nearly $10,000,000.

And in the report to the Michigan Securities Commission reference is made to charge-offs, mentioning two items, one of $6,977,000 and the other of $3,100,000. You don't think those two statements mean practically the same thing, do you?

Mr. MILLS. Yes; I do, and more particularly when read in connection with the next paragraph, where they say they have charged off $37,000,000 by setting up provision for losses and contingencies, in excess of $37,000,000.

Mr. PECORA. But they do not say that they have charged off $37,000,000.

Mr. MILLS. They say they have set up provision for losses and contingencies in excess of $37,000,000. I think that is a pretty frank

statement.

Mr. PECORA. But that is not equivalent to a statement of charging off $37,000,000, is it?

Mr. MILLS. Well, many of those items that were charged off have come back. A charge-off, if I may say it on the record, does not mean that the debtor is forgiven.

Mr. PECORA. No; I know that, Mr. Mills.

Mr. MILLS. Well, if you know it, I am saying it for the record then. Mr. PECORA. Well, you say that the information given to stockholders was comparable to that given to the Michigan Securities Commission, if I correctly understood your testimony.

Mr. MILLS. I think I did not. I said I thought more real information was given in the Stair report; more real information is given in that report than would be given by a mere statement in any

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rezator Corzase. I want to say to Mr. Petra, that be argued to Mr. Mule about tang form instead of substance, and be, very prop eng, pointed out that lawyers are too prone to consider form in stead of eubstance. I think now Mr. Pebora is considering form instead of betalde

Mr. PROORA. Well there is nothing in the statement to show whether a transfer to reserves should be considered the same as a charge-off.

Débator Couzes. In accounting practice that can be the same thing. The general understanding in accounting practice is that a transfer to reserves is a very doubtful asset, and that a transfer to Josses may be a definitely learned loss, or may be a loss which is contemplated,

Mr. PYCORA. Well, that is the difference I have in mind.

Senator CouZENS. But it is quite reasonable to bunch both of them. Mr. PECORA. Well, I yield to your superior knowledge of accountancy, Senator Couzens,

Senator CocZENS. I have no prejudice in this matter at all, but I think we are now talking about form rather than substance.

Mr. PECORA. Now, Mr. Mills, I want to ask you a few questions about this confidential memorandum of Mr. Verhelle, which was received in evidence here as committee exhibit no. 95. It has been testified to here, in substance, that a copy of this confidential memorandum was submitted by Mr. Verhelle to you, among others. Does that conform to your recollection of the fact?

Mr. MILLS. May I tell you the story?

Mr. PECORA. Yes.

Mr. MILLS. In April, I believe it was-and what is the date of that report?

Mr. PECORA, May 18, 1932, and the letter of transmittal is dated May 19, 1932.

Mr. MILLS. In April of 1932 Mr. Ballantyne saw me and stated that Mr. Verhelle had discovered something he, Mr. Verhelle, thought was wrong; that certain transactions of many officers of the bank

he thought were wrong. Mr. Ballantyne asked me if I would take it up and investigate it, and if I would take charge of the matter. I said I would.

It was stated to the governing committee that certain officers were under suspicion. I saw Mr. Verhelle, and told him that this matter had been referred to me, and that those men were entitled to one of two things-well, first, he told me in a general way who they were, and I told him they were entitled to one of two things, either to be convicted, if I might use that word, or to be acquitted; that their reputation, name, and everything else were at stake, and that they were entitled to it, and it must be the one or the other, and that promptly.

I then said to him: "Now, in order that there may be no mistake about it I want you to be good enough to put everything that you have, everything that you know about these matters, in written form. And I want it as promptly as it may be secured."

About 2 weeks thereafter I asked Mr. Verhelle where the written report was. I told him I would want five or six copies of-well, we will call them, charges. About 2 weeks thereafter I asked him where those charges were, and he said he was still working on them, and did not have them. Well, I asked him to please hasten it. He said it was a big job. I told him to hurry, for those men, in the minds of the members of the governing committee, were under suspicion, and if again I might refer to that word, that they were entitled either to be convicted or acquitted.

A couple of weeks later I again pressed Mr. Verhelle for his report. He said he would have it in about 2 weeks longer, at which time he gave it to me.

In the meantime, at a meeting of the governing committee-and at that time I was not a member of the committee, but I occasionally attended their meetings-I either stated that I had appointed or asked them to confirm the appointment of a committee to examine the charges, the committee to consist of Judge Murfin, Senator Newberry, Lawrence K. Butler, and myself. Mr. Pipper, who is the auditor, and who in the organization of the bank was responsible only to the board of directors-that is, no one had any control over Mr. Pipper except the board of directors-he was also named, as I recall it, on the recommendation or suggestion of Judge Murfin. Whether he was a full member of the committee or not-and I mean now Mr. Pipper I don't know.

Examinations of these gentlemen were either approved or notice was sent, and a copy of the charges was given to each member of the committee, including Mr. Pipper, the auditor.

I saw Mr. Pipper and told him I wanted him, as the auditor of the bank, to take all these transactions that were mentioned and to get the records covering all of the transactions together, and that we would have what would amount to a trial of these gentlemen.

Mr. Pipper proceeded to get a very voluminous bunch of records together, and one day this committte met and, without any warning, we telephoned Mr. Sweeny and asked him to come.

I might say right here that the committee had considered the advisability of having Mr. Verhelle present, but reached the conclusion that it would be best not to have him present, but

Senator Corzaxe Why did you reach than conclusion !

Me. Mirza Senator Conzens. I was just about to say that The committee reached the enndleton not to have Mr. Verbelle present berance we decided we would not tell any of those men by whic any of the charges were made, for if they di mow, and any of them scould prove as most of them did prove to be absoittag innocent in our minds, that because of their not knowing who bai made the charges they would continue to work side by side with the man And it was perfectly obrions to me, or at least I thought a was, if they knew that Mr. Verhelle had made the report, had made those charges about some of these men, and they later should be acquitted and I do not like to use that word, so I will say exonerated that it would be difficult for the morale of the institution. Besides we thought by having Mr. Pipper, who had assisted Mr. Verhelle and Mr. Pipper had stated this in securing some of the information. and he having all those records, and that being a part of his business, that he would be ample to check any statement that was made.

One day, without any warning whatsoever, this examining committee met and telephoned Mr. Sweeny and asked him to come over. When Mr. Sweeny came I said: "This is an embarrassing situation. Certain charges have been made against you by an unnamed person, and you are going to be either completely exonerated or you are going to be found guilty of these charges. Either way it goes, we are going to clear this thing up right now." And that same thing was said to every other person as he appeared.

Mr. Sweeny was the first. He was asked questions. He asked time to bring in some additional records, deeds, and so forth, of his side of it; and my recollection is that the following day he brought in the other records.

And then the day after that the proceeding was reenacted with Mr. John Bodde, who is the vice chairman of the board, I believe, as the party then present.

Thereafter we were unanimous in the report, Mr. Pecora, that you have before you, except as to Mr. Pipper, on the question of the motive of Mr. Verhelle.

In regard to the Sweeny transactions, of course, a long time has passed, well, 2 years almost, and I don't remember all of the details, and I was then a very busy man, but I remember, for instance, a part of them were as to the Wise Chrome matter that has been talked about here, and the inference from the report was that he had initialed the note-and by initialing a note in a bank, that means giving authority to discount it or advance the cash on it; that he was a stockholder of the Wise Chrome Products Co., and that there was something wrong about it. Now, at least as to some of those loans of the Wise Chrome Products Co., as I recall the testimony, which Mr. Pipper checked, they were in the bank long before Mr. Sweeny was a director of the bank; and the bank had a rule that no loan of over $15,000, or a total of over $15,000, should be made by any officer on a general line of credit unless it first went to the executive committee and had their approval.

The balance of the $25,000 of loans to the Wise Chrome Products Co. was according to my recollection, it was proved at that time

that Mr. Sweeny was not on the board when those loans were originally made; that they were approved by the executive committee on statements filed by the Wise Chrome Products Co.

Senator COUZENS. Mr. Mills, have you any record of the executive committee when they passed that loan?

Mr. MILLS. The receiver has that.

Senator COUZENS. Do you know if there is a record made in the executive committee meetings of the authorization of the loans? Mr. MILLS. Oh, it certainly should be available.

Senator COUZENS. Do you think it good practice to let large stockholders, or a stockholder in a corporation, initial loans to the corporation itself?

Mr. MILLS. I do not think it makes the slightest difference under the control that we had, or which we were putting into effect in the bank at the time, and for this reason: A loan to the Wise Chrome Products Co. could not be made by any officer of the bank except on prior approval of four men, unless the board completely overruled them; and the four men in charge of loans commencing with the letter W were the ones in charge. They also had in charge a number of other letters, say, from S to W.

Senator COUZENS. Were those loans approved by those four men and by the executive committee?

Mr. MILLS. The institution of those loans was made before this system had been put into effect; yes, sir; but, again, as I recall itand we were perfectly satisfied-the loan had been authorized by the executive committee upon a proper credit statement before the advance was made.

Senator COUZENS. Of course, when you had this examination of Mr. Bodde and Mr. Sweeny you had access to the minutes of the executive committee made at the time, I take it?

Mr. MILLS. Oh, yes. Mr. Pipper had all those records. In fact, he had information on this thing about Mr. Sweeny, and I had told him he would be there, or that he was to get some information, and that he was to be there almost as prosecutor, being the auditor of the bank.

And this kind of error crept into the Verhelle report: Mr. Sweeny was charged in the report with having overdrawn an account of his as trustee in a branch of the bank, and on a certain date had immediately telephoned funds to that bank to cover, telephoning from the main office. And then the report went on to say: Just prior to the national bank examination or State bank examination, and I know it says just prior to an examination, and that certainly gve the committee the idea, and we started on the assumption that there had been an overdraft in the bank in the account of Donald N. Sweeny, trustee.

But what were the facts as we developed them? The facts which we developed in this inquiry were that Donald N. Sweeny, trustee, kept two accounts in the banks, one in the main office and one in a branch bank. That he drew a check one day, and his stenographer happened to draw on the Delray branch, which was a part of the bank, and it did create an overdraft in that particular account; but that the account in the bank as a whole contained no overdraft whatsoever. As soon as the error was discovered, as soon as it was dis