Getter-Out, Getter-In

Resuming his investigation of U. S. railroad finance in Washington last week after an extended holiday adjournment, Montana's Senator Burton Kendall Wheeler proceeded to another chapter in the popular annals of the late Brothers Van Sweringen (TIME, Dec. 28). Again the belligerent Senator did little except add spicy paragraphs to a chronicle already well-outlined. The chapter under revision last week concerned a hapless $30,000,000 bond issue put out by the Vans in 1930 with the aid of the best names in Wall Street.

Negotiations for this loan started with old Guaranty Co. in the spring of 1929, the Vans then talking of $60,000,000. Some of the money was to be used for a Cleveland Rapid Transit promotion, some for the Van Sweringen real estate developments, including suburban Shaker Heights. Guaranty Co., then headed by Joseph R. Swan, turned down the financing not once but twice. In August 1929, while he was vacationing in Glacier Park, Banker Swan received a telegram from one of his vice presidents, reporting a conversation with Harold Stanley, then a partner of J. P. Morgan & Co. Mr. Stanley had informed the Guaranty that "our friends are sore"--meaning the Vans.

Upshot was that negotiations were resumed, the Shaker Heights and traction ideas were dropped and $30,000,000 worth of bonds in Van Sweringen Corp. were sold to the public by a Guaranty Co. syndicate in the ominous spring of 1930. But the House of Morgan let it be known that it did not even want a "silent interest" in the deal. As it turned out, that was a wise wish indeed.

Among other things revealed by Senator Wheeler last week was that the Vans wrote up the company's real estate holdings $25,500,000 shortly before the bonds were sold, that more than $19,000,000 of the proceeds were used to buy securities from other Van Sweringen companies at prices above the market, that there was some doubt about the possibility of getting the issue qualified under State blue-sky laws. Banker Swan, now a partner in Edward B. Smith & Co., sadly shook his head, declaring: "The basis of this transaction was the confidence we had in the Van Sweringens. You may say that later on they did things which should not have been done, and we will agree with you. We were mistaken."

Said Senator Vheeler with rare charity: "I do not doubt your good faith, but I do doubt your judgment."

Corporate trustee for the Van Sweringen Corp. issue, in which the public lost $15,000,000, was Guaranty Trust Co., the bank, not the security affiliate. It was Senator Wheeler's contention that the trustee had a moral if not a legal obligation to keep an eye on the Van Sweringens after they got its money. Guaranty Chairman William Chapman Potter, who can swap inquisitorial punches with any Senator, stoutly maintained that he had done his duty. While Mr. Potter was on the stand Senator Wheeler revealed that the banker had sold his personal holdings of Alleghany Corp. stock (20,000 shares) at a smart profit, although the Guaranty Co. considered Alleghany stock fit collateral for a public bond issue.

Said Banker Potter: "Senator, I don't know where you got your information, but it is right. I am a professional getter-out." The audience roared.

For a getter-in Senator Wheeler put on the stand that old investigation favorite, Richard Whitney, Depression president of the New York Stock Exchange. It developed that Broker Whitney and his predecessor as Stock Exchange president, Edward Henry Harriman Simmons, were on the famed "Morgan preferred list" for 1,000 shares each of Alleghany common stock. They got their allotments before they received application to list the stock.

Senator Wheeler: And you still think it was all right for you to accept from Morgan the Alleghany common at $20 when the market was $35?

Broker Whitney: I certainly do. It would not and did not affect my judgment in the least.

Senator Wheeler had trouble getting at the Stock Exchange's private files until last week when that institution suddenly swamped him with so much material that he had to adjourn for a week to digest it. Before adjournment, however, he unearthed a memorandum to the Exchange's listing committee from John Minor Botts Hoxsey. its listing expert. Last week the Stock Exchange honored Mr. Hoxsey by making him a full-fledged member of the listing committee, invited him to sit in on meetings of the governing committee. It appeared from his writings, however, that the Exchange could have done worse than elect old Mr. Hoxsey president ten years ago. In 1930 in reference to Alleghany Corp. old Mr. Hoxsey memorialized prophetically: "If corporations of this type are multiplied, there is likely to be a strong public protest."

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