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STOCK EXCHANGE PRACTICES

WEDNESDAY, FEBRUARY 14, 1934

UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met at 10:30 a.m., pursuant to call, in room 301 of he Senate Office Building, Senator Duncan U. Fletcher presiding.

Present: Senators Fletcher (chairman), Bulkley, Gore, Costigan, dams, Byrnes, Goldsborough, Townsend, Walcott, and Kean.

Present also: Ferdinand Pecora, counsel to the committee; Julius ilver and David Saperstein, associate counsel to the Committee; nd Frank J. Meehan, chief statistician to the committee; Millard 6. Tompkins, 116 John Street, New York City, attorney for Ruloff 9. Cutten.

The CHAIRMAN. The committee will come to order, please. Who vill you have first this morning, Mr. Pecora ? Mr. PECORA. Mr. Russell R. Brown. The CHAIRMAN. Please come forward to the committee table, stand, old up your right hand, and be sworn:

You solemnly swear that you will tell the truth, the whole truth, ind nothing but the truth, regarding the matters now under invesigation by the committee. So help you, God. Mr. BROWN. I do, sir. The CHAIRMAN. Take a seat right there opposite the microphone.

TESTIMONY 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 to the committee reporter for the record.

Mr. Brown. Russell R. Brown, 405 Lexington Avenue, New York City, N.Y.

Mr. PECORA. What is your business or occupation?

Mr. Brown. I am chairman of the board of the American Commercial Alcohol Corporation.

Mr. Pecora. How long have you been the chairman of the board of that corporation ?

Mr. Brown. Șince April of 1931.

Mr. PECORA. Prior to your becoming chairman of the board were you 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. PECORA. How about Guy I. Colby?
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,

Mr. PECORA. In what proportions and amounts?

Mr. Brown. I think approximately $4,000,000 in bonds, and 2,000,000 in preferred stock, and the balance in common stock.

Mr. PECORA. How many shares of stock was the corporation uthorized to issue, and what were the classifications of stock? Mr. BROWN. That I do not remember.

Mr. PECORA. Do you know what the capital structure of the company was at the time you became chairman of the board in April of 931 ?

Mr. Brown. There was nothing but common stock outstanding hen.

Mr. PECORA. And how many shares ? Mr. Brown. If my memory serves me correctly, 380,000 shares bf no-par value, which was subsequently changed to $10 par value, ind afterwards cut in half to 190,000 shares of $20 par value.

Mr. PECORA. When was the stock put on a $20 par value basis? Mr. BROWN. I think in 1932, if I am not mistaken.

Mr. PECORA. Will you tell the committee what the business is generally of this corporation ?

Mr. Brown. The company has 4 plants, 1 located at Philadelphia, Pa.; 1 at New Orleans, La.; 1 at Sausalito, Calif., across the bay from San Francisco; and then an enormous grain plant at Pekin, Ill. That has a capacity of approximately 100,000 gallons of whiskey and 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 organization of the corporation, with the exception of the California plant, 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 company is the manufacture and sale of commercial alcohol?

Mr. Brown. I should say, going on with the story about the plants, that the plants at Philadelphia had been used for the manufacture of commercial alcohol as well as beverage spirits in the old days. The plant at New Orleans, I think, was started in 1926 or 1927, and had been used exclusively for the manufacture of industrial alcohol, but today is being used for the manufacture of rum. The plant at Sausalito, Calif., was originally built, as I understand it, for a whisky plant and changed afterward to an industrialalcohol plant, which business has continued up to the present time, and also devoted to the sale of beverage spirits. The plant at Pekin, Ill., was originally a whisky plant, manufacturing gin and whisky and other beverage liquors. After prohibition it liquidated a great part of its stocks of whisky and then turned to the manufacture of commercial alcohol as long as it was economically feasible, as manufactured either from grain or molasses, and while prices for commercial alcohol were at a sufficient level it was possible to continue the operation of it as an industrial-alcohol plant. It has also been used for the manufacture of grain alcohol' for sale to doctors, dentists, and druggists, and also to such concerns as still require grain alcohol in the manufacture of their various industrial products

Mr. 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 350.00 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. BROW'x. 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. Browx. That is correct. There have been approximatels 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. BROWN. That all has a par value of $20 a share.

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?

Mr. Brown. The directors have the right to decide that at their cretion. Mr. PECORA. Now Mr. BROWN (interposing). With your permission, I have a statent which I should like to read. Mr. PECORA. Have you a copy of it, Mr. Brown? Mr. Brown. I have just this one. I would be glad to submit it you if you would like to read it. Mr. PECORA. May I see it, please? Mr. Brown. Certainly. I think it will clarify the situation [handng to Mr. Pecora a two-page typewritten statement). Mr. PECORA (after reading the statement). I have read this stateent, Mr. Brown, and it seems to me to read like an apology in dvance for certain things that have not yet been brought out. Mr. Brown. I would not say it was an apology. Mr. PECORA. I beg pardon? Mr. Brown. I say, I have not offered it in the sense of an apology.

Mr. PECORA. Weil, you have indicated a desire to put it in the ecord now, and I think it is untimely or premature at this stage f the examination. Any statements you have embodied in this paper you will have opportunity to put into the record through the nedium of answers to questions or as your own statement at the proper time. Mr. BROWN. All right.

Senator KEAN. Mr. Chairman, there is no objection to the witness putting in the statement now if he wants to, is there?

The CHAIRMAN. There seems to be some objection to it, and it an come in later when it is more in order, as I understand it.

Senator KEAN. I suppose he has the right to put it in now if he wants to, hasn't he? The CHAIRMAX. Well, Mr. Pecora thinks it is not in order now.

Mr. PECORA. I think it would be taking the matter up entirely out pf order. I have no objection to it except that it is not in accordance with the procedure of the presentation of evidence here.

Senator KEAx. I haven't seen the statement at all, but it seems to me that a man who goes on the witness stand has a right to put in a statement.

Mr. PECORA. He has the right to put in a statement if the committee wants to accord him that right. He is here as a witness, and I have already indicated, after having read the statement for the first time, upon the witness handing it to me a few minutes ago, that it seems to me to be an apology in advance.

Senator Kean. That may be, but if he chooses to put in a statement 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 to 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 read it. Mr. Chairman, I ask that that may be done. The CHAIRMAN. Let it be marked in evidence.

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