Article Text
Penney Warned Gordon But Note Was Ignored
Attorneys delved into the innermost affairs of the defunct City National bank in Miami yesterday as Hugh H. Gordon, Jr., former president of the bank, testified at the deposition session of the $3,000,000 suit brought by depositors against J. C. Penney, former chairman of the bank's board of directors.
Gordon told of his manipulations to improve the condition of the bank and how he succeeded in wiping out $2,000,000 worth of bad paper. But even then, Gordon said, the bank was weighted down with bad assets totaling $1,032,489.
This took place in the spring of 1930 prior to the time that the bank closed on December 20. Every effort was made, Gordon said, to straighten out the bank's affairs and place it on a sound footing.
"I knew I was playing with fire," the former president said, "for if the public had learned we were making such an investigation there would have been a run on the bank."
The high light in yesterday's testimony in the deposition session of the suit was when Gordon told of notifying Penney of the tremendous amount of bad accounts carried by the bank after the $2,000,000 worth of worthless paper had been disposed of.
Gordon told of the thorough accounting of the bank as of May 22 and of the fact that it revealed more than a million dollars worth of bad paper.
Penney was notified of the condition of the bank immediately, Gordon said, but only acknowledged receipt of the statement.
through the pyramiding of values and juggling of stocks, Holt said:
"In my own state we have a utility known as the Kentucky-West Virginia Gas and Electric company. This concern is owned in turn by a Philadelphia company which is controlled by the Standard Gas and Electric company. Standard Gas and Electric is controlled by Standard Power and Light corporation, which is controlled by the U. S. Power company and U. S. Power is owned and controlled by still another holding company."
"It is this kind of pyramiding," Holt said, "that permits the top corporation to control as much as one and one-fifth billions of dollars in property values with only as little as a three million dollar investment, and this is worked out through the alphabetical classifications of stock."
Assailing stock manipulations which make possible the pyramiding process and give holding companies voting control, Holt said that buying utility stocks was like "walking into a grocery store—you can buy any kind of stock you desire—and there are many fine varieties to choose from."
The senator said the varieties were divided into classifications with alphabetical designations and into preferred stocks, common stocks, bonds and debentures for the purpose of promoting huge selling schemes that will not involve the danger of giving the investor the right to vote in the company.
"The only preferred issues," he said, "are those that carry with them voting power and they are not the stocks and bonds that reach the hands of the widows and orphans they cry upon my shoulder about."
Concluding with a condemnation of the manner in which utilities fix their own appraised values, which are not used for fixing tax values, he said in his home state the system is called "horseback appraising."
"A company owned and company paid appraiser rides over the property on horseback," he said. "When he comes to some company property he scans it and says, 'This is worth so much,' and goes on. When he has finished, ledger values have been disregarded and the net result is a write-up of many times actual worth."
"The only remedy for this situation," Holt said, "is the complete abolition of holding companies and it is to this end that we are working in Washington."
Senator Holt was followed by Baldwin Buckner Bane of Washington, director of registration division of the securities and exchange commission. He outlined the workings of the SEC as an organization, maintaining a file containing the names of "75 percent of all swindlers, crooks and others who have or are now operating in the securities business."
Earlier in the day securities commissioners gathered here from all states in the Union heard Harold K. Bradford of Washington, president of the association, outline the needs of the securities organization.
He described them as better and more uniform state certificate laws, more appropriation for the work and increased personnel.
"For years we have needed better co-operation between the various state securities departments, and we are nearer the accomplishment of this today than ever before," he said.
William V. Knott, state treasurer, welcomed the organization to say:
"Florida is a pioneer in securities legislation. Our original act regulating the sales of securities dates from 1913. While it was not the first of this sort to be passed by any state, I believe our state Supreme court was the first high court to sustain what was then known as 'Blue Sky' legislation."
The convention will be addressed today by Attorney-General Cary D. Landis. Other speakers will be Ambrose V. McCall, assistant attorney-general of New York; John M. Godfrey, securities commissioner of Ontario, Canada; Dean K. Worchester, executive vice president of the New York stock exchange; Russell Maloney, securities commissioner for Missouri; Judge Robert E. Healey, member of SEC. Election of new officers is scheduled for late in the afternoon.
