STOCK EXCHANGE PRACTICES WEDNESDAY, FEBRUARY 14, 1934 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. he committee met at 10:30 a.m., pursuant to call, in room 301 of Senate Office Building, Senator Duncan U. Fletcher presiding. resent: Senators Fletcher (chairman), Bulkley, Gore, Costigan, ams, Byrnes, Goldsborough, Townsend, Walcott, and Kean. resent also: Ferdinand Pecora, counsel to the committee; Julius ver and David Saperstein, associate counsel to the Committee; Frank J. Meehan, chief statistician to the committee; Millard Tompkins, 116 John Street, New York City, attorney for Ruloff Cutten. The CHAIRMAN. The committee will come to order, please. Who 1 you have first this morning, Mr. Pecora? Ir. PECORA. Mr. Russell R. Brown. The CHAIRMAN. Please come forward to the committee table, stand, d up your right hand, and be sworn: You solemnly swear that you will tell the truth, the whole truth, 1 nothing but the truth, regarding the matters now under invesation by the committee. So help you, God. Mr. BROWN. I do, sir. The CHAIRMAN. Take a seat right there opposite the microphone. STIMONY OF RUSSELL R. BROWN, CHAIRMAN OF THE BOARD, AMERICAN COMMERCIAL ALCOHOL CORPORATION, NEW YORK CITY Mr. PECORA. Mr. Brown, will you give your full name, and address the committee reporter for the record. Mr. BROWN. Russell R. Brown, 405 Lexington Avenue, New York ty, N.Y. Mr. PECORA. What is your business or occupation? Mr. BROWN. I am chairman of the board of the American Comercial Alcohol Corporation. Mr. PECORA. How long have you been the chairman of the board E that corporation? Mr. BROWN. Since April of 1931. Mr. PECORA. Prior to your becoming chairman of the board were ou affiliated with the corporation in any other capacity? Mr. BROWN. No. Mr. PECORA. Do you know when the corporation was organized? Mr. BROWN. In March of 1928. Mr. PECORA. And was it incorporated under the laws of the State of Maryland? Mr. BROWN. It was, sir. Mr. PECORA. You were not connected with the corporation in any way at the time of its incorporation, were you? Mr. BROWN. No, except through an interest I had in the company. Mr. PECORA. That is, as a stockholder? Mr. BROWN. As a stockholder, yes. Mr. PECORA. Now, when did you first become connected with the company in any capacity whatsoever? Mr. BROWN. On the date I have mentioned, in April of 1931. Mr. PECORA. Will you give the day of the month, and the year when you became chairman of the board? Mr. BROWN. It was in April of 1931. Mr. PECORA. Prior to your becoming chairman of the board of the corporation, what was your business, occupation, or profession! Mr. BROWN. I was president of the United States Industrial Alcohol Co. Mr. PECORA. At the present time, Mr. Brown, who are the executive officers of the corporation? Mr. BROWN. I am chairman of the board, Mr. Richard H. Grimm is president, and Mr. Guy I. Colby is vice president and treasurer, and Mr. Cecil Page is secretary, and Mr. Charles Beebe is auditor, and Mr. William S. Kies is chairman of the executive committee. Mr. PECORA. How many gentlemen compose the board of directors of the corporation? Mr. BROWN. If my memory serves me correctly, it is 15. Mr. PECORA. Can you give the names of those directors either from memory or by reference to any document available to you? Mr. BROWN. Robert W. Atkins, Russell R. Brown, Marshall H. Runk, James A. S. McMicken, Philip Publicker, Robert L. Pond, J. M. Kessler, S. M. Mayer, Walter E. Buck, J. M. Michell, W. S. Kies. How many have I named now? The COMMITTEE REPORTER (Mr. Hart). You have named 11. Mr. BROWN. Yes, sir. Mr. PECORA. And how about Humphrey W. Chadbourne? Mr. BROWN. Yes, sir. Mr. PECORA. How about Warren W. Foster? Mr. BROWN. Yes, sir. Mr. PECORA. How about Richard H. Grimm? Mr. BROWN. Yes, sir. Mr. PECORA. And how about Cecil Page? Mr. BROWN. Yes, sir. I am sorry, but I could not recall all of them offhand. Mr. PECORA. How about Edward S. Paine? Mr. BROWN. That is correct. Mr. PECORA. And how about H. G. Atwood? Mr. BROWN. He is no longer a director. He is out and Dr. J. M. Michell came on the board after Mr. Atwood retired. Mr. PECORA. At the time of the incorporation of the company, what was its capital structure, Mr. Brown? Mr. BROWN. Bonds, preferred stock, and common stock. . PECORA. In what proportions and amounts? . BROWN. I think approximately $4,000,000 in bonds, and 0,000 in preferred stock, and the balance in common stock. . PECORA. How many shares of stock was the corporation orized to issue, and what were the classifications of stock? . BROWN. That I do not remember. r. PECORA. Do you know what the capital structure of the comI was at the time you became chairman of the board in April of ? r. BROWN. There was nothing but common stock outstanding r. PECORA. And how many shares? r. BROWN. If my memory serves me correctly, 380,000 shares o-par value, which was subsequently changed to $10 par value, afterwards cut in half to 190,000 shares of $20 par value. r. PECORA. When was the stock put on a $20 par value basis? r. BROWN. I think in 1932, if I am not mistaken. [r. PECORA. Will you tell the committee what the business is erally of this corporation? Ir. BROWN. The company has 4 plants, 1 located at Philadelphia, ; 1 at New Orleans, La.; 1 at Sausalito, Calif., across the bay m San Francisco; and then an enormous grain plant at Pekin, That has a capacity of approximately 100,000 gallons of whiskey ■ beverage spirits per day. Mr. PECORA. When did it acquire those plants? Mr. BROWN. All of these plants came in at the time of the organtion of the corporation, with the exception of the California nt, which was acquired at a subsequent date. Mr. PECORA. When? Mr. BROWN. I think in 1929. Mr. PECORA. Would you say generally that the business of the mpany is the manufacture and sale of commercial alcohol? Mr. BROWN. I should say, going on with the story about the ants, that the plants at Philadelphia had been used for the manucture of commercial alcohol as well as beverage spirits in the old ys. The plant at New Orleans, I think, was started in 1926 or 27, and had been used exclusively for the manufacture of indusial alcohol, but today is being used for the manufacture of rum. he plant at Sausalito, Calif., was originally built, as I understand , for a whisky plant and changed afterward to an industrialcohol plant, which business has continued up to the present time, nd also devoted to the sale of beverage spirits. The plant at Pekin, l., was originally a whisky plant, manufacturing gin and whisky nd other beverage liquors. After prohibition it liquidated a great art of its stocks of whisky and then turned to the manufacture of ommercial alcohol as long as it was economically feasible, as manuactured either from grain or molasses, and while prices for commerial alcohol were at a sufficient level it was possible to continue the operation of it as an industrial-alcohol plant. It has also been sed for the manufacture of grain alcohol for sale to doctors, denists, and druggists, and also to such concerns as still require grain lcohol in the manufacture of their various industrial productsMr. PECORA. What is the total Senator WALCOTT (interposing). Let me ask a question right there: Did any of those plants formerly belong to the Walker Distilling Co.? Mr. BROWN. No. They had nothing to do with them. It was the American Distilling Co., and the present American Distilling Co., through which our beverage business is conducted, was owned by the successor corporation to the old American Distilling Co.: and that was owned by a family named Wilson in Pekin, Ill. Mr. PECORA. You have said that when you became chairman of the board in April of 1931 this corporation had outstanding 380.000 shares of common capital stock of no-par value. Mr. BROWN. That is correct. Mr. PECORA. And subsequently that stock was changed to $10 par value basis. Mr. BROWN. That is correct. Mr. PECORA. And then thereafter the par value was increased to $20 a share. Mr. BROWN. That is correct. Mr. PECORA. Now, since you became chairman of the board have there been any additional issues of capital stock? Mr. BROWN. That is correct. There have been approximately 55,000 or rather 66,000 shares issued. Mr. PECORA. When was that issue made? Mr. BROWN. In June or July, or at least in May, June, or July of 1933. Senator GORE. How much? Mr. BROWN. What was that? The CHAIRMAN. Senator Gore wishes to know how many shares were issued. Mr. BROWN. Approximately 66,000 shares; of which 25,000 shares were issued in exchange for other corporations, and forty-one thousand-odd shares issued for subscription by stockholders. The CHAIRMAN. And did those shares have any par value? Mr. PECORA. Now, Mr. Brown, the charter of this company requires that any additional issue of stock shall first be offered to the existing stockholders of record, does it not? Mr. BROWN. Not all of necessity. There is a provision in the charter of the corporation which provides that stock may be issued either for property, or for cash and property, and also issued to stockholders. Mr. PECORA. Under what circumstances must it first be offered to the stockholders of record? Mr. BROWN. When it is offered for other than cash, or for cash and property, or for property. Mr. PECORA. That is, when it is issued except on an exchange basis? Mr. BROWN. That is correct. Mr. PECORA. Either for cash or property of any kind? Mr. BROWN. Yes; that is correct. Senator WALCOTT. Did the directors have the right to decide that matter? BROWN. The directors have the right to decide that at their -tion. . PECORA. Now . BROWN (interposing). With your permission, I have a statewhich I should like to read. PECORA. Have you a copy of it, Mr. Brown? . BROWN. I have just this one. I would be glad to submit it u if you would like to read it. . PECORA. May I see it, please? . BROWN. Certainly. I think it will clarify the situation [hando Mr. Pecora a two-page typewritten statement]. . PECORA (after reading the statement). I have read this state, Mr. Brown, and it seems to me to read like an apology in nce for certain things that have not yet been brought out. r. BROWN. I would not say it was an apology. r. PECORA. I beg pardon? r. BROWN. I say, I have not offered it in the sense of an apology. r. PECORA. Well, you have indicated a desire to put it in the rd now, and I think it is untimely or premature at this stage he examination. Any statements you have embodied in this er you will have opportunity to put into the record through the ium of answers to questions or as your own statement at the per time. r. BROWN. All right. enator KEAN. Mr. Chairman, there is no objection to the witness ting in the statement now if he wants to, is there? he CHAIRMAN. There seems to be some objection to it, and it come in later when it is more in order, as I understand it. enator KEAN. I suppose he has the right to put it in now if he nts to, hasn't he? The CHAIRMAN. Well, Mr. Pecora thinks it is not in order now. Mr. PECORA. I think it would be taking the matter up entirely out order. I have no objection to it except that it is not in accorde with the procedure of the presentation of evidence here. Senator KEAN. I haven't seen the statement at all, but it seems me that a man who goes on the witness stand has a right to put a statement. Mr. PECORA. He has the right to put in a statement if the comttee wants to accord him that right. He is here as a witness, d I have already indicated, after having read the statement for e first time, upon the witness handing it to me a few minutes ago, at it seems to me to be an apology in advance. Senator KEAN. That may be, but if he chooses to put in a stateent I cannot see why the committee ought to object to his doing it. The CHAIRMAN. Very well; let it go in. Mr. PECORA. I have no objection to it, and only thought it ought go in in the regular order. Mr. BROWN. Do you want me to read it now? Mr. BROWN. Yes; that will make it all right. Mr. PECORA. Let us have it marked in evidence and then I will ad it. Mr. Chairman, I ask that that may be done. The CHAIRMAN. Let it be marked in evidence. |