66 (A 2-page prepared statement presented by Mr. Brown w marked Committee Exhibit No. 1, February 14, 19347, and w be found immediately following where read by Mr. Pecora.) Mr. PECORA. The statement produced by the witness has bee marked "Committee Exhibit No. 1" as of this date, and reads & follows: Investigators for your committee have had free access to the records and papers of the American Commercial Alcohol Co. for the purposes of this inquiry. Mr. BROWN. Might I interrupt you right there, Mr. Pecora, for u explanation? 66 Mr. PECORA. Yes. Mr. BROWN. The stenographer in copying that paper wrote company" when it should be “corporation." It is in there in that way at several places. Mr. PECORA. Then we will understand that where the word “company" appears in this statement it should be "corporation." Mr. PECORA. I will now resume the reading of the statement. Whatever those records disclose with respect to the issuance and distribution of the shares of stock of the corporation, you or your investigators are fully familiar with. The validity of the issuance of the shares of the corporation was, of course, passed upon by counsel. The importance of what was done as reflected by the records which have been examined by your investigators, consists primarily in its purpose. At the time, the American Commercial Alcohol Co was a corporation with many stockholders, representing a fair value in excess of $8,000,000. Although it had no funded debt, and there was a substantial ratio between current assets and current liabilities, nevertheless, it had substantial bank loans, and its business required substantial further outlets for its products if the then condition was to continue for even a short time. The banks were insistent that the loans be paid. In order to protect the stockholders of the company it was necessary that, not a month later, or 60 days later, but immediately, something should be done which would result in expanded outlets for the company's products, and the payment of a substantial amount of its bank debts. It is unnecessary to call to the attention of the committee the difficulty of financing industrial corporations during the months of March, April, May, and June of 1933. To obtain financing during those periods in the ordinary way, through banks or investment bankers, was wholly impossible, but unless financing were obtained for the purposes above mentioned, a very serious sacrifice of the value of the business was possible, with resultant loss to those who had invested their money and effort in complete good faith in the enter prise. It was, therefore, with equal good faith and solely for the purpose of properly protecting the investments which had already been made, and for the purpose of making it possible for the business to survive the most serious interval of the depressed condition, that the steps with respect to the common stock of the company, with which your investigators are fully familiar, were taken. The risk of loss was assumed by the optionees, underwriters, and officers of the corporation, and with that risk went the opportunity for profit. In my particular case, as I view the matter, a loss was suffered rather than a profit realized. In other instances I am informed that profits were realized, but whatever profit was realized, in my opinion, constituted small consideration for the service which at the time I and those associated with me deemed necessary if the large investment in the business of the company, which I have mentioned above, was not to be seriously impaired or perhaps destroyed in part beyond any reasonably prompt recovery. Every conceivable method of handling the situation promptly was surveyed by me and my associates, and the method pursued seemed at the time and still seems to me to have been the only method which would fairly accomplish the which was accomplished, namely, the protection of the stockholders of merican Commercial Alcohol Corporation. plan was my own undertaking, with the intention of aiding the comn its emergency, and in this I had the support of my associates in the ny. For their acts in so cooperating I wish to assume full personal sibility. I, with their help, and through market support, protected the ny and its stockholders in a grave emergency, more grave than the emerof 1929, when, as has been said, undisclosed market support by companies ot only justified but desirable. method employed was unusual and abnormal. The emergency and the mal time and no selfish motive created the necessity, and the present ent condition of the company is one of the best evidences of the justifica-f the steps that were taken. ter reading this statement it seems to me it emphasizes the neliness of its introduction into the record at this point because, ling by itself, it is meaningless. But I wish, Mr. Chairman, to mine the witness with a view to working out the detailed facts this statement in the main has general reference to. ne CHAIRMAN. All right. You may proceed to do that, Mr. ora. r. PECORA. Mr. Brown, before I leave this statement temporarily me ask you: Who prepared it? r. BROWN. I prepared it myself. r. PECORA. When did you prepare it? Ir. BROWN. I prepared it on yesterday, and then I corrected it er it was written. Ir. PECORA. You prepared it in anticipation of being asked a aber of questions with regard to the stock issues that are referred In this statement, I presume? Mr. BROWN. No. I prepared it so as to have a definite statement the record of the committee that I assume full responsibility for atever was done. Mr. PECORA. Well, the transactions that you refer to here were nsactions that you anticipated you would be questioned about, ren't they? Mr. BROWN. Yes, sir. Mr. PECORA. And you prepared this statement in anticipation of ch questions? Mr. BROWN. Yes, sir. Mr. PECORA. Now, Mr. Brown, have you the balance sheet of your mpany for the year 1932? Mr. BROWN. I have it here in the files. Mr. PECORA. And also the balance sheet for the year 1931? Mr. BROWN. I do not think I have it for 1931. I had the auditing epartment get those papers together. I mean by that statement at it was because I did not get the final subpena until about 4 clock yesterday afternoon, and then I had to gather together my wn papers, and we brought what papers were required from the ompany, by my having the company's auditor bring them down his morning. Mr. PECORA. Will you produce the balance sheet for the company or the year 1932? Mr. BROWN (calling upon an associate to produce the paper). Yes, ir; I have one here for December 31, 1931, and also I find here the one for December 31, 1932. Mr. PECORA. Embodied in the one staternent? Mr. BROWN. Yes, sir. They are embodied apparezy, in listing application that the secretary of the company just g to me. Mr. PECORA, Will you let me have that paper? Mr. Brows. Yes: certainly [handing over a paper to Mr. Pecora Mr. PECORA, Mr. Chairman. I ask that this paper may now marked an exhibit for identification. The CHAIRMAN. That will be done. (The balance sheets of the American Commercial Alcohol Corpurtion for the years 1931 and 1932 were marked “Committee ExLİM No. 2 for identification, Feb. 14. 1934 ", and will be found among the papers of the committee.) Mr. PECORA. Now, during the year 1932, while you were chairman of the board, did you and other directors and officers of the compazy give any options? Mr. BROWN. Yes. Mr. PECORA, Covering the capital stock of the company to aty individual or individuals? Mr. BROWN. Yes, Mr. PECORA. Did you give more than one such option during that year? Mr. BROWN. Yes, sir. Mr. PECORA, How many did you give? Mr. BROWN. I cannot tell you exactly. I think the first one was given to Mr. Frank E. Bliss, and I think the next one was given to Ames Bros. The next one was given to a man named Goodwin. Mr. PECORA. Will you talk a little louder? We cannot hear you Mr. BROWN. The next one was given to Goodwin, or to Prentice & Slepack. Mr. PECORA. You will have to talk a little louder. We cannot hear you. Mr. BROWN. And finally a series of options was given to Mr. Ruloff Cutten. Mr. PECORA. What was the business of these optionees whose names you have given to us? or Mr. BROWN. Well, they were connected with the stock exchange Mr. PECORA (interposing). Do you mean the New York Stock Exchange? Mr. BROWN. Either with the exchange, or they worked down in the Street there; yes, sir. Mr. PECORA. That is Mr. BROWN (continuing). All of them were connected with the exchange, I believe. Mr. PECORA. As members? Mr. BROWN. I think so. Mr. PECORA. I now show you what purports to be a photostatic reproduction of the so-called" option " given to Frank E. Bliss, who is named by you as one of the parties, I believe. Mr. BROWN. Yes, sir; that is correct. Mr. PECORA. That is one of the names you have already given to us. BROWN. Yes, sir. - PECORA. Will you look at it and tell me if it constitutes a and correct copy of the first one in point of time of those as? . BROWN. There was a series of options. . PECORA. Well, of the series of options given to Mr. Bliss. BROWN (after looking at the photostats). These look all right -. PECORA. Mr. Chairman, I wish to offer them in evidence. e CHAIRMAN. Let them be admitted. . PECORA. There are three option agreements pinned together e, and I suggest that they be marked with the proper number then lettered A, B, and C. The three option agreements granted to Frank E. Bliss, the first dated Feb. 15, 1932, were marked "Committee Exhibit No. 3, 3, and C, Feb. 14, 1934 ", and will be found immediately followwhere read by Mr. Pecora.) r. PECORA. The memorandum of agreement dated February 15, 2, reads as follows: emorandum of agreement made this 15th day of February, 1932, between SELL R. BROWN, party of the first part, and FRANK E. BLISS, party of the nd part. hereas the party of the first part is the owner of American Commercial hol Common Voting Trust Certificates, and Whereas FRANK E. BLISS desires an option upon such certificates on certain ms, Now, therefore, it is agreed by and between the parties hereto as follows: 1) In consideration of the sum of Ten Dollars ($10.) paid by the party of second part, receipt whereof is hereby acknowledged, and the mutual proms herein contained, the party of the first part gives to the party of the ond part for a period of thirty (30) days from the date of this agreement, option to purchase all or any of American Commercial Alcohol Common ting Trust Certificates in the amount and at the prices herein below set -th: 1500 shares at $7.00 per share. (2) The party of the first part agrees to loan to the party of the second part any time during the option period, all or any part of such 6,000 certificates en remaining unsold under this option, such loans to be made according to he usual Street custom, the party of the second part to deposit, upon borrowg such certificates, an amount equal to the market value thereof and keep uch deposit up to an amount equal to the market value thereof from time to me thereafter; certificates so loaned not to be called for during the option eriod except as necessary to fulfill delivery of purchases. Deliveries of stock will be made to the party of the second part upon one day's notice. (3) The party of the first part may buy and sell American Commercial Alcool Common Voting Trust Certificates, but such orders will be given through such Stock Exchange house as shall be named by the party of the second part, and the party of the first part agrees not to buy or sell stock through any other source. (4) The option herein granted may be assigned by the party of the second part but the party of the second part and such assignee or assignees agree to use all reasonable efforts to maintain an active and stable market for such stock consistent with its value and with its earning possibilities. In witness whereof the party of the first part and the party of the second part have hereunto set their hands this 15th day of February 1932. Extbit no. 2-B is. I understand, in identical form with exnizz 10. 5. A. except that the parties are Pullip Funlierez, vas or te first part, tue optioner, and Frank L. Bliss, party of the seront part, as the optioner. The number of suars and the option ps in exploit & B are as follows: 1.000 shares at 5 per share shares at 58 per suare; 1000 stares at 5 per share: 10 sure I $8.50 per suare; 2,000 stares at 10 per share; and 2,000 sure I 121 per share. Sólator GoldsboroʊCH. This was after the split-up from 201 Mr. Prora. These were voting trust certificates. Mr. Brown. The equivalent vaine today wolic be just with TIME figures mentioned Mr. Prooza. Who is Philip Publicker! Mr. Brown. Mr. Publisker is one of the directors of the combary. Mr. PROORA. Was he a director of the compary on the Zbor at of February 1982, which is the date of this option marked extint 3-BI Mr. BROWN, Yes, sir. Mr. PECORA, And he still is a director of the company! Mr. BROWN, Yes, sir. Mr. PECORA. And has been continuously since February 15, 19E) Mr. BROWN, Yes; even before that. Mr. PECORA, I beg your pardon? Mr. BROWN, I came in at the time he was originally chairman of the board, and I succeeded him as chairman of the board. Mr. PECORA, He remained as a director from the time you came in as chairman of the board, in April 1931? Mr. BROWN, Yes. It was at Mr. Publicker's request that I came into the company. Mr. PECORA, I notice that the option prices set forth in the Publicker option", so called, are the same as the option prices set forth in the option agreement which you gave Mr. Bliss on the same day. Mr. BROWN. I think that is correct. I think they are all the same. in varying quantities. Mr. PECORA, The third option agreement offered in evidence here, and which has been marked " Exhibit 3-C", is also identical in form with the one that has been read into evidence, the one marked “ Exhibit 3-A." It is the same date, but it is made by William S. Kies, as party of the first part, and Frank E. Bliss, as party of the second part. The shares and option prices fixed therein are as follows: 1,000 shares at $7 per share; 1,000 shares at $8 per share; 1,000 shares at $9 per share; 1,000 shares at $9.50 per share; 1,000 shares at $10 per share; 1,000 shares at $11 per share. It is also dated February 15, 1932. I notice, Mr. Brown, that those option prices are the same as those mentioned in the two previous option agreements that have already been referred to. Mr. BROWN. Yes. Mr. PECORA. Who is William S. Kies, the optioner on this agreement? Mr. BROWN. Mr. Kies is a director of the company, and also chairman of the executive committee. Mr. PECORA. Was he a director of the company on February 15, 1932, when this option was given? |