STOCK EXCHANGE PRACTICES HEARINGS BEFORE THE CIOMMITTEE ON BANKING AND CURRENCY UNITED STATES SENATE SEVENTY-SECOND CONGRESS FIRST SESSION ON S. Res. 84 A RESOLUTION TO THOROUGHLY INVESTIGATE PRACTICES OF STOCK EXCHANGES WITH RESPECT TO THE BUYING AND SELLING AND THE BORROWING AND LENDING OF LISTED SECURITIES, THE VALUES OF SUCH SECURITIES AND THE EFFECTS OF SUCH PRACTICES PART 2 APRIL 23, 26, MAY 19, 20, 21, AND JUNE 3, 1932 Printed for the use of the Committee on Banking and Currency UNITED STATES GOVERNMENT PRINTING OFFICE 119852 WASHINGTON : 1932 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis COMMITTEE ON BANKING AND CURRENCY FETES NORBECK, South Dakota, Chairman SMITH W. BROOKHART, Iowa. DUNCAN U. FLETCHER, Florida. PHILLIPS LEE GOLDSBOROUGH, Maryland. CARTER GLASS, Virginia. JOHN G. TOWNSEND, Jr., Delaware. ROBERT F. WAGNER, New York. FREDERIC C. WALCOTT, Connecticut. ALBEN W. BARKLEY, Kentucky. JOHN J. BLAINE, Wisconsin. ROBERT J. BULKLEY, Ohio. ROBERT D. CAREY, Wyoming. CAMERON MORRISON, North Carolina. JAMES E. WATSON, Indiana. THOMAS P. GORE, Oklahoma. JAMES COUZENS, Michigan. EDWARD P. COSTIGAN, Colorado. FREDERICK STEIWER, Oregon. CORDELL HULL, Tennessee. J u lia n W . B lou n t, Clerk H obacb R. J a c k s o n , Assistant Clerk Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Testimony of— Pa*e Bolles, Norman T., New York (president Indian Motocycle Co.)------- 593 Bragg, Thomas E., New York__________________________________ 406,465 Breen, George F., Rye, N. Y_____________________________________ 549 Content, H., New York__________________________________________ 596 Cornell, R. J., Jersey City, N. J__________________________________ 606 Gray, William A. (committee counsel), relative to stock of Radio Corporation of America_________________________________________ 517 Relative to Anaconda Copper________________________________ 756 Hansell, Howard F., jr., New York______________________________ 584 Higgins, Joseph E., Green Haven, N. Y___________________________ 750 Kenny, Thomas A.-E. W. Clark & Co., correspondence--------------------- 378 Knight, Edward P., accountant, New York________________________ 385 La Guardia, Hon. F. H., Member of House of Representatives from New York____________________________________________________ 440 Levenson, John J., White Plains, N. Y__________________________ 601,618 Lion, David M., New York_______________________________________ 672 McConnachie, James F., New York (member of the firm of M. J. Meehan & Co.) ________________________________________________ 492 McConnachie, James F. (resumed)_______________________________ 517 Mitchell, Charles E., New York (chairman National City Bank)___ 767 O’Brien, Esmonde F., New York__________________________________ 502 O’Hanlan, Joseph F., Philadelphia (accountant)_________________ 757 Raskob, John J., Centerville, Md. (director General Motors Corpo­ ration ________________________________________________________ 712 Rules, extracts from (of the New York Stock Exchange)------------------ 670 Sachs, Walter E., New York City (member of firm of Goldman, Sachs & Co.)--------------------------------------------------------------------------- 566 Smith, Bernard E., New York____________________________________ 425 Warner Bros., Pictures (copy of certain publicity)------------------------ 655 Warner, Harry M., Mount Vernon, N. Y. (president of Warner Bros. Pictures (Inc.) ) _________________________________________ 622 Weeks, John L., New York (member of the firm of Luke, Banks & Weeks)_______________________________________________________ 531 ra Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis STOCK EXCHANGE PRACTICES SATURDAY. AFRIT. 23, 1932 U n it e d S t a t e s S e n a t e , C o m m it t e e o n B a n k i n g a n d C u r r e n c y , Washington, D. C. The committee met at 10.30 o’clock a. m., pursuant to adjournment on yesterday, in room 301 Senate Office Building, Senator Peter Norbeck presiding. Present: Senators Norbeck (chairman), Brookhart, Townsend, Walcott, Couzens, Watson, Fletcher, Glass, and Barkley. Present also: William A. Gray, Esq., counsel to the committee. The C h a ir m a n . The committee will come to order. You may pro­ ceed, Mr. Gray. Mr. G ray. Mr. Chairman, we have prepared certain charts show­ ing the range of the market as to certain pivotal stocks over a period of time, and at the same time showing upon these charts the short position from day to day so that a comparison can be made. We are handing these charts to the committee reporter, for the purpose of your record, in order that you may have them and examine them at such time as you wish. I am now offering them in evidence. The C h a ir m a n . They will be received and appropriately marked by the committee reporter. (The charts offered by counsel to the committee were identified by being marked as follows:) Chart as to American Can, Exhibit 39. Chart as to American Telephone & Telegraph Co., Exhibit No. 40. Chart as to J. I. Case Co., Exhibit No. 41, Chart as to Consolidated Gas Co. of New York, Exhibit No. 42. Chart as to E. I. du Pont & de Nemours Co., Exhibit 43. General Electric Co., Exhibit 44. General Motors Corporation, Exhibit 45. New York Central Railroad, Exhibit 46. Mr. G r a y . And, Mr. Chairman and gentlemen of the committee, without any further comment I will, with your permission hand to the committee reporter some correspondence that has passed between the brokerage firm of E. W. Clark & Co. and Thomas A. Kenny and between Thomas A. Kenny and the committee on business con­ duct of the New York Stock Exchange, so that this correspondence may also be placed in your record. The purpose of offering the cor­ respondence is to show you what in this particular instance was done for the purpose of compelling Mr. Kenny to sign the authorization to E. W . Clark & Co. permitting them to loan his stock, although he objected to signing it. The C h a i r m a n . If there is no objection, the correspondence will be copied into the record. 377 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 3 7 8 STOCK EXCHANGE PRACTICES (The Thomas A. Kenny-E. W. Clark & Co. correspondence is as follows:) ___ N e w Y o r k S t o c k E x c h a n g e C o m m i t t e e o n B u s i n e s s C o n d u c t , A p r il 18, 1932. T h o m a s A . K e n n e y , E s q ., Manayunh, Philadelphia, Pa. D e a s Sir: With reference to your letter of April 9, 1932, the correspondence with you has turned so specifically to the relations between yourself and your brokers in connection with the separate agreement covering the loaning oi stocks which they have requested you to sign that the committee on business conduct feels that further communication with you can be more intelligently carried on if it is given an opportunity to inquire into the facts. Will you not please supply the name of your brokers for this purpose? Yours very truly, L . R . H a r r is o n , Secretary of the committee. P hiladelphia , P a ., April 19, 1932. M r . L . R . H a k r is o n , Secretary Committee on Business Conduct, Newi Yorh Exchange, New York City. D e a r S ir : With reference to your letter of yesterday, I am gratified to know that your committee will inquire into the facts of the case. I am, therefore, inclosing a brief outline of my side of the controversy, which I trust you will consider in making the inquiry. Upon receipt of a request for me to sign a loan-authorization form, I noti­ fied my brokers, E. W. Clark & Co., Sixteenth and Locust Streets, Philadelphia, Pa., that I preferred not to do so. I fully explained my position to the cus­ tomer’s man with whom I did business, Mr. John A. Murphy. I told him I was entirely willing to sign an agreement whereby I would authorize the loan­ ing of any of my securities to any of the firm’s customers, to avoid buy ins, etc. But in the event that any of my securities were loaned through the “ loan crowd ” or other brokers, I would expect to receive a fair portion of any pre­ miums collected. I further stated that I felt I should obtain some benefit from the lower interest charges on stocks loaned. (My brokers have increased their monthly interest charges very regularly—the rate was increased three-fourths per cent in October, 1931; an extra one-fourth per cent in November, 1931; still another one-fourth per cent in December, 1931, and on April 1 added still another one-half per cent to the T a te .) About the same time I fully explained my feeling to the manager of the board room, Mr. Graham Dougherty, and told him in effect the same thing. About a week later I received a letter, which I considered the equivalent of a demand to sign such an authorization as written. Some days later the firm notified me (March 29) as follows: “ We are sorry to inform you that we can no longer carry in your account $5,000 Central Zone Bonds 6’s of 1936, as there is no actual bid for the bonds. As of the close of business to-night, your account is undermargined to the extent of $200, and we would appreciate an immediate response. Very truly yours, E. W. C l a r k & Co., Per A. P. Z o o k . The above letter contained a postscript: “ Kindly sign and return to us the inclosed loan authorization letter. I spoke to the margin clerk, Mr. Allen Zook, upon receipt of this letter and told him my figures showed that after the 5,000 bonds in question were elimi­ nated my account was not undermargined.