Article Text
SUIT AGAINST BANK OF KENTUCKY DIRECTORS CHARGES WASTEFUL, ILLEGAL MANAGEMENT
SAYS THEY FAILED THEIR DUTY
Conversant With Brown's Incompetence Or Did Not Learn It, Charge.
CHARGES ARE SPECIFIC
Rested Easy' Despite Warnings From Comptroller, Petition Says.
INDEX
Section Nos service of defendant directors Bank 6-17 Special Kentucky 1834 Amendments Nationalization of bank, 1900. 10 Constitution of Kentucky. 1850 11 Consolidation three banks, 1919 Unification stock bank and trust company 1927
Organization Kentucky the duly Company 22 acting receiver
Company bank used beginning business. 1919 23 individual Changes personnel, corporate bank 26 named fendant directors to the directors 27 characterize obligations and lia 28 directors
Common obligations and Generally Formal declaration on minutes of responsi32 said Careful conduct bank's af. bank fairs, 1919-1922 James Changes 37-49 Particular denoting National condition 50-57 in Resting easy 58 Knowledge of restrictions of against him charter and good banking determined by Knowledge examinations by course will National Bank Examiners and with allowed Comptroller Currency bankruptcy and pointed against the withdraw from National Banking charged frustrated el.m and ination large paper charged and suit is ness James Brown president, Charles 84 receiver and ciation. negligence of liabilities addition 95-101 Wagon ManufacCompany loans 102-142 up 143-178 Murray Rubber Company enforce liability 189-225 the United Norman 226-279 losses on doubt by and paper standing 280-314 Packing exceeds pany thousand Kentucky Company 328-385 Caldwell defendant James B. 440 of suit 441-443 is the text Monday States District Stuart November Keyes, reJoseph naming direc1919 and lirectors of S. former William to November institution, which closed Henry doors last November 17 November The of Charles forrecovery Saunders losses hich alleges George M. through alNovember illegal and Edward rovident acts of manageent. November
United District Court the District of to John edness of the Receiver of the was made Kentucky 1919, to John James the No. Wagon ady exceeded D. of the Henry Judges November Court for the District Kentucky Charles Parties receiver November 16, National Bank Kentucky Baylor bill against brings July 1923, Akers, Dr. Oscar Oscar M. to January Bohmer James B. Charles H. Lee Anthony to January Coons, M. Allen Allen January Joseph Durham. James James 14, January directors Baylor Angereau Saunders Kennedy severally Clay to January Minary Clarence Henry to January respond Huston Milburn such dhn William to January John H. Walter directors Columall the of the January Drum- Arthur M. Had done liability Trust to more tha the bank the would ceased, uary 14, Clay bank then cause ville
Trust Company. Churchill Humphrey as of estate Alexander Humphrey deceased: the Louisville Trust Company as of the will and estate Milburn Kelley deceased Fidelity & Columbia Trust Company as receiver of said the Louisville Trust Liberty Bank Trust Company administrator bonis with the will annexed Brainard deceased: the Louisville Trust Company as executor the will and tate William Short deceased and Fidelity & Trust Company Company receiver said the Louisville Trust and will and Anthony deceased. of such persons also having directors of said
November William Short May 27, 1927, to Brainard July 23. February 3, 1919, to Huston May 27, 1927, to May 1929. Richard S. Reynolds, January 9, to George May 1927, January John January to November 1928 Edwin M. Drummond, May 27, 1927, January 22, Alexander February 1919, 10. 1928. William W. Crawford, May 27, 1927, December Allan R. Hite, February 3, 1919, to January John H. Wilkes, February 3, 1919, to
1-The Bank of Kentucky of banking United under the States commonly as Banking Jefferson County the Western District of Kentucky bank was closed order its Board 16th Thereafter on the 17th day 1930 in accordance with the authority vested in law the Controller the Currency United States appointed plaintiff Paul receiver Bank of Kentucky plaintiff duly qualified such, and has and now acting in the duty.
2-Each individual defendant resident County the Western District of Kentucky The Louisville Trust Company Trust Company Liberty Bank Trust Company of Kentucky and domiciled in Jeffer County Western District The Louisville its doors and operations November Fidelity Columbia Trust qualified The Louisville hereinafter characterize and denote the named of the directors term "defendants and denote the individua said The Bank of Kentucky the directors now are named fendant named prise all di said within the defendant herein adjudged Bankruptcy and his of administra but the liability until it is and and ascertained and liability said herein the he may may bankruptcy against as plainofficer the United States suit arises under Constitution brought banking it brought imposed States the duties resulting the interest and For others aphas Period of Service Defendant Directors
Each defendant served bank James Brown. February 1919 February February 3. 16. February 1919, February February 3. February 1919, February 3, 1919, to Mengel, January 13, February 13, January 10, 1922, 16. January November 16, 1930. Samuel W. Coons, January 8, 1924, 16, 1930. May 1927 Henry to November 1930; February January Akers, May November 16, February 1923. to November 1930 February 3, January February May 1927, 1930. September 14, Hickman, 1930. May 27, 1927, E. Bloch, May 27, 1927, Bohmer, 1930. 27, 1927, to Dodd, May 27, 1927, to Garnett, May 1930. 27, 1927, to Gray, May May 27, 1927, Helm, 14, 1930. May 27, Hieatt, May 1927. Kohn, May January John Pirtle, May 27, 1927, to May 1930. John January May 27, 1927, to Jan1927, to May 27, Lyons, January 10, 1930
History Bank.
National Bank Kentucky of traces its owner and operator of banking stitution at Louisville, Kentucky the the Legislature of February 1834 Acts, 618) whereby the Bank located an authorized of subscribed the State of Kentucky in until October 7-Such act the bank incur any the its capital to due president and take be liable all action debt any administrators court hav ing jurisdiction itor creditors said be judgment and the notwithstanding the the were the being should the which was he not be liable the affidavit file the officer of the newspapers printed in the said act provided that the the loss stock the bank the neglect be jointly and any who and guilty of such like manner The Kentucky banking acts Kentucky February 836 February March March January February 1848 March February March 1861 whereby bank authorized, whenever was endangered by public enemy whereby the of funds and assets branches the the during the and war March March ruary 20. 1868 February 1872 whereby was authority to fund stock the bank and the State appoint whereby the charter life further tended April and whereby the and ters of banks, on May should file Secretary State's prescribed the ing In of the the act last mentioned and the apfor, and received April charter 5312, under the National became Kentucky Louisville as national with capital 1,645,000 and surplus of of Kentucky adopted had provided, Section of Article in common should held the comand such schools belonging the State of Kentucky said stock continued the stock The Bank of Kentucky of Louisville. nationalization, said without corporate change, but bank, with increasing business, continued until February 1919, at which time other banks in National Commerce Louisville National Bank under and charter to its name consolidation its capital 000 and its of the of the agreement consolidation. the consolidated capital bank began 2,000,000 of surplus profits of undivided and the The Preliminary of Kentucky of LouisNational Bank ville distributed $945,000 of its capital assets to its thus ducing its contribution of capital funds the consolidated bank $2,250,000. National Bank that Commerce 750,000 capital funds, National Bank of Louisville supplied the $1,of capital to the con- the solidated making the $5,000,000 with which began November 1930 suspended business and notified the Comptroller of the Currency of the United States its action that he might take steps as the the said bank, common with the directors Louisville Trust tion the laws Kentucky trust conceived idea unifying of nearly and majority the both institutions, and having directorates such thereupon they caused trust the as such ing means of carrying into 1927 the transferred $500,000 from and clared stock dividend per cent increase capital the diApril transmitted the agreement with their approval the stockholders of the and recommended The and the Louisville Trust Company likewise transmitted agreement the of and in due course majority the stockholders the agreement and as into the the of both By stocks Henry Thomas Stuart Charles H. Bohmer transferred to the trustees, was stitute and tificates Participa- It tion Certificates whereby the tees of shares par shares the last the stocks constituting the might required holders majority of the trustees participation and regular meetings was participation instruct the the that the The $100 plus The Trust aggregated the par $100 that stock institution signed the should trustees' participation certificate the par value and that the and The National Bank Kentucky resented 80 per the the two that and the company should be treated worth 20 the and institutions majority The Louisville Company approximately standing by 39,820 National Bank of Kentucky of ing the also deemed directors assigned the The Louisville the and The Louisville National Company Louisville Louisville National sult value The Louisville change The Louisville caused the certificates stocks National Bank said Louisville whereby Louisville Company its $100 additional the said Bank ville National trustees 17,235 the The Trust all the the exception of 265 and 39,820 shares the stock The National Bank Kentucky of Louisville, total 57,055 shares, against they had issued participation certificates 57,055 was agreed that par value each trustees share should $10 and the existing the ten such shares $10 par share $100 Theretrustees participation certificates for 570,550 was part the plan for the the the stocks of the trust company and the as that the direc- torates of bank and the trust company enlarged. that the directors of the trust should directors the bank. and the be the trust company. that the two institutions should directors. The unification of said plan made effective prior May and that date the said The ville directorate and added the board those who viously members of the trust board. until November when suspended shares its the number 39,820 were owned by under the terms agreement 1929, defendant fully averred the laws known The BancoKentucky Company authorized capital $10 each, purpose acquiring the outstandtrustees' participation tificates to said The Company 1,080,768 capital stock. The BancoKenCompany trustees' participation beneficial portion the stock The Louisville Trust Company and The National Bank of Kentucky of LouisFebruary the first the the solidated gated and its deposits its directors formally noted the of their bank was largest the that had enjoyed existence had weathered all financial and ReconIt had deposithe the areas from smaller throughout was the important depository Kentucky held liability as DiSo characterized had fit the industry to the wisdom, the conduct of the
The personnel of the senior oftain changes bank beand its on gan business, November who been The Bank president many Kentucky chair1919 and officer Bank president consolidated the resignation said chairman executive affairs. Earl its National ville. the was his Likewise Noel his 1921 an during displaced who by thereafter was the closest the James the had as the for Isham Bridges of the vice November 16, of the 1930.
Loss of Bank.
26-At the time the suspension the on 16, 1930. its total liabilities as shown by Its books aggregated insufficient for the creditors. plaintiff recover all the the sustained the as herealleged the debts inafter bank to its creditors may be Duties of Directors. director and his acting under defendant his authority. at frequent each original promptly into the yearly appointment each of the bank pursuance that he obedience had and was being. and devolved given: the duty (iii) To conduct and diand honestly admindiligently bank, and rect business said the affairs such tently faithfully and truthfully. would not knowingly stockholders and creditors, in such to be violated any of the ingly provisions law embodied in the Title "Banks Banking' the United States Code which includes as Chapter as the National Banking Act. the provisions the said Title the said National and Section 56 the said Title the during time peraeither the of dividends any portion its capand any any exceeding its divided idend should be made and that dividend by any association banking amount profits therefrom its and any on the be due and period six and the meaning of said Sec- ed ion said the fect any net profits, that each before its net the plus fund the the capital Section the total any association company including the liabilities of s of the lost centum the paid in ine terial this and the the said to the no at debted to amount capital actually paid and remaining indiminished otherwise the 83 of the effect of the said the powers ing ing bills and and the tion 93 banking knowingly any servants the association any including the referred participated held liable violation and capacity any person should consequence diassumed the and the United States addition. under and general directors said and obligated and creditors said who and creditors thereafter exercise. respective business They and bound to diligence direction the business said and in obligation and hereinbefore be and institution the confidences deposits defendant director, though contemblating director said bank, was part each and was, and be use ordinary diligence to done by pany with all that in the the The obligation and promise aforesaid To and direct the business of said bank in accordlaw and National the instrucand of the Comptroller of the Currency of the United States and of his subordinates under his authority: To to cause to be obeyed by the all of law and particularly the National Banking and the proper instructions directions Comptroller the Currency the United States as promptly obligations the bank and make the largest proper profit for the stockand protect and cause to kept by and employes which should and correctly reflect transactions the bank and its financial into whether the and were being, kept as aforesaid grant, cause to be of repayment adequate security was the repayment the character unand deliberately deemed sufficient, interaffairs of grantfunds were such and conserved and of things the or the bank for extenthe other obligations the bank. and pursue practice reference the such enforce collateral the take with reference and other with obdue act release, dissipate, permit reduced. the colthe bank, and examinto bank such rights, paand had protected. given rights taken of to extended repreunless monthe and unand the of the off and assets financial Compand locally portion and disthe bank true the which to affairs and were being, (ix) To discharge dismiss, at inany each rethe affairs port the bank examiner bank and each of suggesdirection supercharacter the Currency of States, and act or necessary the the and its creditors and and with the of the reference mentioned in such rethe port and cause conserved profrom unfaithand and from use, motives personal est political influprestige bank; examine into the affairs termine and had been being, and act, vote thought as diand independent judgand not to the as as that any opinion director, and unopposed suggestion which does own inrequiring to be one, the data the must To sufficient attention form judgment the called to and beconwith one in. proper in the interest or for the benefit of the bank; critiand and employes the bank in their conduct of its affairs; (xvii) ascertain directly from the files records and and officers the bank are not directors, how the bank and not rely alone upon information supplied meetings of the are (xviii) To maintain distribution authority and bility the both ficers and the too concentration person or group clique: (xix) To prevent the dominance any other one person the the bank's especially already such dominance discourages sition, criticism and expression of contrary thought on the part of COordinate or subordinate officers and employes: (xx) To encourage. effect and enforce independence and action on the part of all officers the bank whose assent may be required invited to any act: (xxi) To examine and inquire independently into the official conduct of the executive officers of the bank, without determine the bank's affairs are conducted (xxii) To preclude such concentration of authority and control of the funds the bank by one officer or that large amounts of the credit may be committed may be loaned. or, being may be renewed and be permitted to main unpaid, by such officer clique to institutions or firms in which they may be personally, or in which they stockholders or the bank be interested, or to create fictitious market for stock in which such interest may exthought to to maintain the price otherwise-from motives of favoritism, friendship. personal interest or advantage, political influence, prestige advancement: (xxiii) To such concentration authority control the funds the bank by one officer or by clique that any such loans as last described, once made, successively renewed over long periods the exaction of payment and without the sale of collateral. (xxiv) To preclude such concentration of authority such control funds the officer may authorize the creation the continuance for long time of overdrafts. especially persons, firms corporations with which the officer or clique may be which he may be (XXV) concentraof authority and control of the funds the bank by one officer clique or inimportant policies adopted, commitments given, affiliations involving questions of propriety and of legality without and or counsel obtaining financial and other reasonably necessary determine the propriety the same: put into effect such the the bank above moderate amount may constitute ordinary borrowings due existing customers the bank, and loans must be first committee officers and directors. encourage and effect independence thought action on the part such persons in passing upon such loans (xxvii) maintain proper distribution of risk the loans and extensions of credit by the bank and among the securities, any, held by the bank loans sions of credit, to preclude too great risk one borrower or in associated or affiliinterdependent or or affiliated (xxviii) Irrespective the financial worth the magnitude of the erations any borrower. preclude loan the bank to such borrower of bearing the available funds of the bank and to its other loans, and also to average deposit of such upon which claim accommodation ordinarily (xxix) To restrict the loans and extensions of credit bank to the without from the Federal Reserve Bank save neccessary to the normal and yearly curring seasonal demand the bank's and never otherwise except when the directors expressly permit; To see to that when loans made the bank collateral, such collateral is the proper quality. and that such are properly that the market price collateral thenceforth regularly watched and checked. and that whenever the collateral declines additional collateral is the and the note and prevented: (xxxi) see to that all securities property acquired by the and bank in of defaultthe bank are as speedily and especially when they for the amount of the defaulted obligation; (xxxii) To preclude the officers of the bank from time lending. the funds the bank borrower who has unable to existing ligations to the bank, and particularly borrower whose has been charged off by the bank as To prevent the conduct of an outside business by the bank, dior indirectly. though the account oblawfully may the To preclude any loan, dior the the and particularly circumstances hereinbefore and hereinafter alleged, preclude stock BancoKentucky Com(XXXV) To preserve untarnished the good name the bank freedom from and (xxxvi) any activity on part, on the part the officers of the the bank in promoting another corporation the and after averred. with reference to the promotion BancoKentucky and making loans the entire purchase to induce enable purchasers buy the To ascertain all facts pertaining the net profits the bank hand its losses and its bad on defined Section the title, Banking facts pertaining to the propriety divibefore and dend declaring paying (xxxviii) Rigidly to forbid the sion attempt of the United States limiting ten per centum the amount the capital stock actually paid and the total unimpaired liabilities any person company. corporation including liabilities the several members promptly to discipline any of evasion or attempt evasion, and
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