Bona Fides

For two years one of the assets of Henry Sturgis ("Harry") Morgan, grandson of the late great John Pierpont Morgan, who rarely dealt in real estate, has been a $500,000 second mortgage. Last week in Manhattan he hustled his lawyers over to the New York County register's office to have it recorded. No ordinary second mortgage, it was junior to a first mortgage of $200,000, was non-interest bearing, payable on demand, and was a lien on a conventional Fifth Avenue mansion CNo. 934).

Last week the owner-occupant of the mansion had worse than mortgages pay-able-on-demand to think about. One evening the momentary peace of his after-dinner cigaret was shattered by the entrance of a U. S. marshal who promptly arrested him. Not even allowed to summon his own chauffeur, he was whisked downtown to a Federal judge in an automobile which the marshal had hastily borrowed. One of the prisoner's battalion of lawyers, Robert H. Thayer, suddenly called from a party, arrived in the courtroom in evening clothes, arranged for $10,000 bail. Two hours later the U. S. marshal dropped the prisoner at No. 934 Fifth Ave.

Later in the week Charles Edwin Mitchell was formally indicted for "wilfully attempting to defeat and evade" the Federal income tax. The foreman of the grand jury considered the occasion so momentous that the day he handed down the indictment he dressed in morning coat and striped trousers.

TAX LOSS SELLING WEAKENS MARKET--any financial page on almost any day in December 1929.

When it became apparent to the chairman of National City Bank that, even at the low rates of 1929, he would have to pay $500,000 income tax, he summoned his lawyers. When tax-day came he mailed his return to the Collector of Internal Revenue, with an oath that he owed the U. S. not a penny, since he had taken a capital loss of $2,872,000 in National City Bank stock, more than enough (with other deductions) to wipe out his year's income of $3,006,705.76--approximately $1,200,000 from salary & bonus, $400,000 from interest & dividends, $1,400,000 from stockmarket profits.

Among the 4,500,000 income tax returns which the Bureau of Internal Revenue received that year, few bristled with such big figures as Banker Mitchell's but many showed the same sort of deductions canceling income. The Government's accountants passed it. That Banker Mitchell had achieved his tax-loss merely by writing a brief letter to his wife, and that no money had passed, was the Government's contention last week. If Mr. Mitchell had erred in calculating his return, the civil statute of limitations would have run out after two years. But for the prosecution of fraud the limitation is six years. The Government has ample time to try Charles Edwin Mitchell.

Evidence was principally a confession which Banker Mitchell had been forced to blurt out before a Senate committee (TIME, March 6); that last year he had bought all the stock back from Mrs. Mitchell at the price she paid,* and that his previous "sale" to her was "frankly for the purpose" of tax-avoidance.

To extricate himself from such a simple episode. Banker Mitchell had need of no ordinary lawyer. He had already advised with such famed firms as Cravath, Degers-dorff, Swaine & Wood and Davis. Polk. Wardell, Gardiner & Reed. But even the most high-powered Manhattan legal talent agreed that there was only one thing to do: get slick little Crook-Defender Max D. Steuer, "greatest trial lawyer of our time." A brilliant, inconspicuous, hawk-faced Austrian Jew, Max Steuer has defended George Graham Rice, tireless stock swindler; Maurice Connolly, Queens sewer grafter. Harry Daugherty, boss of the Ohio Gang: Max ("Boo Boo") Hoff, Philadelphia underworld chief. He is the profession's ablest exponent of the old legal saw for a weak case: "Try the judge, try your opponent, try the police but don't try your client." Once when he had Anthony J. Drexel Biddle as a witness he was afraid that the fact that Mr. Biddle was a capitalist would react unfavorably on the jury. So shrewd Max Steuer instead of asking his occupation phrased his query: "W'hat do you do for occupation?" Said Mr. Biddle blandly: "I'm president of the International Bible Society."

Max Steuer's latest cause celebre turns on a simple question of bona fides. Did Elizabeth Rend Mitchell pay for the National City stock with her own money without thought of reselling it to her defendant husband? Nothing is harder to prove or disprove than "intent" and against her husband Mrs. Mitchell cannot be forced to testify. If despite Max Steuer the Government proves that the sale was not in good faith, handsome, steel-haired Charles Edwin Mitchell may be fined $10,000, clapped in jail for five years. Two good reasons for hiring Lawyer Steuer were 1) there would probably be Jews on the jury; 2) Lawyer Steuer was recently well advertised as an anti-banker lawyer, when he sent Bank of United States' Banksters Marcus & Singer to jail.

The defense was expected to explain many a hitherto obscure fact--including why Banker Mitchell had mortgaged to young Morgan-Partner Morgan not only his town house but also his places at Tuxedo Park. N. Y. and Southampton, L. I.

*Mr. Mitchell's 18,300 shares of City Bank stock cost him $370 a share or $6,771,000. He sold it to his wife and repurchased at $212 a share or $3,879,600. When he repurchased it the market price was $40 a share, is now $20.

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