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PRICE FOUR CENTS.
sented that a number of 7.30 bonds sent to Bayne & Co. were still in possession of the bank, while in fact they were beyond its control. This was done to conceal the indebtedness of Bayne & Co. from the Comptroller of the Currency, who, at the time mentioned, owed to the bank $283,586 56, which was, reduced, in the returns, to $20,900, the difference being represented as bonds in the bank. President Hayek, it is suspected made these false statements, in the books of the bank, at night with the assistance of the bookkeeper.
It appears by the testimony that a most pernicious system was adopted by the President of the bank, Mr. Huyok, in connection with Mr. Oscar King, one of the directors, and Mr. H. G. Fant, by which they undertook to procure deposits of public money by disbursing officers, for which Mr. Fant and Mr. King received compensation in the nature of interest upon the deposits of those officers, whom they claimed to have influenced to open accounts with the bank. Mr. King was the special friend and bondsman for Paymaster Paulding, Mr. L. P. Bayne, of the house of Bayne & Co., being the other surety on his bond-both of them directors of the bank. It does not appear by any testimony that the officers making the deposits had knowledge of this payment of interest on their accounts, or that they derived any benefit from it. On the contrary, the parties concerned expressly declare that they concealed all knowledge of that fact from the officers whose acts they thus made the source of profit to themselves. Other paymasters, beside Col. Paulding, deposited public moneys in this bank, but Col. Paulding made the deposits with the view of giving assistance to the First National Bank of Washington, which was known to be in trouble, while the other deposits were not made with the same knowledge or purpose.
On the 20th of April, the bank was in great difficulty, on account of the impending failure of Bayne & Co., and it was requested by a Mr. Oscar King, that Col. Paulding should make a transfer of $150,000 from the First National Bank. Mr. Huntington, the cashier of this bank, was desired to recommend such transfer, but he declined having anything to do with it, more especially as he learned that Col. Paulding had already a deposit of several hundred thousand dollars in the Merchants National Bank. At the request of Col. Paulding, Mr. Huntington made inquiries respecting the condition of the Merchants' National Bank, and found their assets consisted chiefly of a debt of Bayne & Co.; and to satisfy him in regard to the responsibility of that firm. Mr. Lawrence Bayne was telegraphed by the President, Mr. Huyck, and came from Baltimore that evening to make a representation of the condition of his affairs. The statement of Mr. Bayne was verbal, but so satisfactory that at the close of the interview Mr. Huntington said he was inclined to recommend the transfer, if the statement of Bayne & Co.'s condition could be relied upon as true.
On reflection, however, this was not satisfactory; so he consulted the president of his bank, Mr. Henry D. Cooke, who expressly charged him not to make any recommendation or to take any responsibility in the matter. He then said to Colonel Paulding if his checks were presented they would be paid; but he must act on his own responsibility. On that day Colonel Paulding's checks for $200,000 were presented at the First National Bank by Mr. Sherman, cashier of the Merchants' National Bank; and in accordance with Mr. Sherman's request, $50,000 was placed to the credit of Bayne & Co., with Seott, Capron, & Co., New York; $50,000 to the credit of Bayne & Co., with Hoyt, Anthony, Douglass, & Co., of New York; $50,000 in a check on New York, which was delivered afterwards by Mr. Sherman to Oscar King, for Bayne & Co.; the remaining $50,000 was paid in currency, of which $30,000 was used, according to the testimony of the cashier, to make good certain checks given the day previous by the Merchants' National Bank to Bayne & Co; thus making a total of $180,000 of the amount of Colonel Paulding's checks paid directly or indirectly for the benefit of Bayne & Co.
The Board of Directors of the Merchants' National Bank were required by the by-laws to meet every Tuesday, but Mr. Sherman, the cashier, says there was no meeting of the Board from the time he went there until the 9th of January last. Mr. Boteler says that since January 1, 1866, when he was appointed Vice President of the bank, there have not been three meetings of the Board of Directors, and whenever a quorum happened to be present. Mr. Huyek told them there was nothing for them to do. A Finance Committee, composed of the President Mr. Huyck; the Vice-President, Mr. Boteler, and the cashier, Mr. Sherman, were authorized to transact all the duties of the Board of Directors, Mr. Boteler, finding that he was not consulted when money was loaned, or other important matters transacted, had a resolution passed by the Board of Directors forbidding money to be loaned except by unanimous consent of the Finance Committee. Notwithstanding this, Mr. Huyck continued to act as though the bank was his own, and neither informed Mr. Sherman nor Mr. Boteler of his transactions.
When the bank was organized, the name of Mr. J. B. Stewart appeared as one of the original subscribers to the Merchants' National Bank, for $60,000. M. Stewart never subscribed a cent, in any shape or way. He was represented without his consent, at the organization of the bank, by Mr. Oscar A. Stephens, who also represented him before the Notary Public when the organization certificate was sworn to.
As soon as the bank commenced business, Mr. Stewart opened an account at the bank, and made an arrangement to draw for money as he may require it, depositing 950 shares of the Washington, Alexandria and Georgetown Railroad Company as collateral security for any money he might owe the bank; also that he made a special deposit, for safe keeping in the bank, of $169,000 in bonds of the Union Pacific Railroad Company, which he held in trust. In March last he discovered that those bonds had been sent by Mr. Huyck, the President of the bank, to Messrs. Bayne & Co., and by them used as collateral security for loans obtained in various banks in Baltimore, without his knowledge or authority; that he did not know of their abstraction until he went to the Merchants' Bank for the bonds in March, when Mr. Huyck refused to deliver them, or to give him any information in regard to them. Mr. Stewart also testified that after the failure of the bank, and the appointment of a receiver, he was notified to pay his debt to the bank; when he offered to make the payment, and asked for the nine hundred shares of railroad stock he had deposited as collateral security, he found that they had likewise been abstracted, and had been disposed of in the same manner as the bonds.
No institution could be safe in the hands of men so reckless and unscrupulous; and the failure of this bank, involving so considerable a loss of public money, must be attributed wholly to the dishonest and criminal conduct of the men who controlled it.
The only other loss of public money deposited in a national bank that has come to the knowledge of the Committee is in the case of the Venango National Bank of Franklin, Pennsylvania, which failed on or about the 28th of March. It was a depository bank, with $50,000 in bonds and treasury notes as security for the deposits. The amount of public money in that bank is $223,883 72 to the credit of the Treasurer, and 2.-584 93 to the credit of Mr. McGough, the collector, There is also a draft of that bank on Culver, Penn & Co. for $65,000, which was sent on the 26th of January inst, to transfer that amount of public money from the Venango National Bank to the Sub-Treasury in New York. The draft has never been paid; the bank claims that it is relieved from any responsibility, as the draft was received at the Sub-Treasury in payment of that amount, and was not protested for non-payment. There is said to be sufficient security for this draft in the possession of the Government.
The capital of the Venango Nationa' Bank was $300,000 It seems to have been managed for the benefit of Culver, Penn, & Co. of New York, who had nearly all of the funds of the bank, their debt to the bank being over $600,000. Under such circumstances the failure of Culver, Penn & Co. necessarily involved the failure of this bank. The law limiting the maximum of the aggregate loan of any party to 10 per centum of the capital of the bank was wholly disregarded in this case, as it was in the case of Bane & Co. by the Merchants' National Bank. This is excused in both cases by the specious pretence that these debts were not loans, but balances due from the parties. It should be stated that $400,000 of Culver, Penn & Co.'s debt was for Government bonds which, as appeared by the testimony before the Committee, the bank claims were deposited by them for safe-keeping, but were used by them without the authority of the bank.
Many of the national banks which were converted from State banks do not make proper exertion to withdraw their old circulation, and in many instances pay it out and take measures to continue it in circulation, thereby receiving the benefit of the old circulation and of the national currency notes received from the Bureau of the Controller. It was stated to the Committee that there were instances of banks having reported to the Controller that the State circulation had been withdrawn again paying it out. In justice to the very large majority of national banks that are honestly conducted, it seems right to give in this report all the testimony the Committee had on this subject, though it is not so definite as they desired.
The Committee have also inquired into the affairs of the national banks in Springfield, Mass.; some of the national banks in Providence, R. I.; the Chemung Canal Bank of Elmira, N. Y.; some of the national banks of New Jersey and New-York: the First National Bank of Fenton, Mich.; the National Bank of Michigan, at Marshall, and are of opinion that they are not conducted to the strict letter of the law.
In conclusion, the Committee say they have performed the duty assigned to them in the resolution of the House, by an examination into the affairs of the national banks so far as any circumstances that came to their knowledge seemed to demand; they have examined and reported on the facts and circumstances connected with the recent failure of the Merchants' National Bank of Washington; the amount of public money deposited, and by whom, in that bank, and the cause of its failure. The bill to regulate the deposits of public officers, which has been reported and passed, and the amendments reported to the National Currency act, embrace the legislation which the Committee deem necessary, in regard to the national banks, to protect the public and the Government.
In regard to the gross abuse of their trusts as a depository of public money by the Merchants' National Bank, the Committee are of opinion that legal proceedings should be had for the punishment of those of its managers who are responsible for that breach of trust; and also such proceedings as may be necessary to recover any portion of the money; and as it was mostly money intrusted to disbursing officers of the War Department, the duty of instituting and conducting these proceedings should be committed to the War Department.
The Committee close this report by submitting the annexed resolution:
Resolved, That the Secretary of War be directed to institute such
