(Stotmll VntitttBitg ffiibtarg Jtljara. SJ*m $orlt .Mr.s,...H J ....Ge.oj^ge. r ---Jr.. 3 1924 092 210 792 The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://archive.org/details/cu31924092210792 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 1 DECEMBER 26, 1912 &\ WASHINGTON \{ |i |. |._ GOVERNMENT PRINTING OFFICE , , , t , . . , , 1912 ' K °' l ' fCMAKY p\S-\\5\iV INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Office Building, House of Representatives, Subcommittee of the Committee on the District of Columbia, Washington, D. C, December 26, 1912. The subcommittee this day met, Hon. Ben Johnson (chairman) presiding. There were also present the Commissioners of the District of Columbia — Hon. Cuno H. Rudolph, Gen. John A. Johnston, and Lieut. Col. William V. Judson, United States Army — and Mr. Francis H. Stephens, assistant corporation counsel of the District of Columbia. Also George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, representing the Commercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. Mr. Johnson. Gentlemen, the investigation may be considered as formally opened. The committee have determined upon this plan of procedure, that inasmuch as Gen. Johnston, as acting president of the Board of Commissioners for the Eistrict of Columbia, has sent a formal note to me as chairman of the House C ommittee on the District of C olum- bia, suggesting the investigation which is now to begin, it will perhaps be best that Gen. Johnston be the first witness before the committee to advise us in his own way as to what has led up to his sending in this formal communication, and that then the other two commis- sioners be heard; that the matter be treated much like the preference of any kind of a charge in court; that those against whom the charges are preferred should be heard after the charges have been made specific so that they can know what they are answering. Without that, if they were called early in the investigation they would not know what they were answering. There seems to be, from what the committee can gather, charges of two characters: One, that the insurance company is carrying its real estate at more than its worth and calling it part of its surplus fund. Another feature of it, as presented to us, is that the methods of the insurance companies have not been just what they should be. I take it for granted that we can not go into detail concerning the methods of the insurance companies until we have had something of an investigation of their books, papers, and accounts. The New York accounting firm of Price, Waterhouse & Co. has been employed to go through the books of these insurance companies. That work we desire to begin to-morrow morning. If I had known it sooner than 4 INVESTIGATION OF INSURANCE COMPANIES. a few minutes ago I would have so advised the insurance companies. I wish them to take advice from the statement that I am now making that we wish to begin the investigation of their books to-morrow, and ask them to please have their books and papers and literature in such shape that these accountants can get at them. As I said before, inasmuch as we can go into detail as to these affairs better after the accountants have gone through the books, I am rather inclined to believe that the first thing after hearing the commissioners would be to hear Mr. Best, whose insurance paper has had some criticism at least of these companies, and then to take up the question as to whether or not the insurance people are carrying their real estate at more than its worth; and then in conclusion to go minutely into the affairs of these companies as shown by their books and accounts. With this general outline of the work, unless there is some objec- tion to be offered that shall convince the committee we are wrong, we will adhere to this plan of procedure. Mr. Easby-Smith. Mr. Chairman, I appear for Mr. Ingham, super- intendent of insurance of the District of Columbia. I desire to inquire for mj- client whether or not any charges, either of incompetency or misconduct, have been made against Mr. Ingham, either in writing or verbally, to this committee or any member of this committee, by the commissioners or by any one of the commissioners, in order that we may know what we have to meet here. Mr. Johnson-. As I just said, Mr. Easby-Smith, the committee have deemed it best that Mr. Ingham be heard, if not last, at least toward the latter part of the investigation, after whatever may develop against him has been brought out. As to what charges have been preferred against him, either in writing or orally, by any of the commissioners, does not occur to me to be of so much importance as what the proof will be, and I think if Mr. Ingham is given the opportunity to answer the proof that is made that may affect him, that would be ample for him. I am sure the committee will not be biased or prejudiced by any representations, whether in writing or verbally. Mr. Easby-Smith. You spoke a few moments ago of a letter having been addressed to yourself by Gen. Johnston as acting president of the board of commissioners inclosing certain documents. May I ask that, as counsel for Mr. Ingham, I may have opportunity to inspect those documents ? Mr. Johnson. Mr. Redfield telegraphs he will be here at 1.35 p. m. I was going to say Mr. Redfield has that letter and will be here at 1.35 p. m., but I am informed Gen. Johnston has a copy of the letter here which we will put into the record. Mr. Easby-Smith. I refer more particularly to the documents transmitted with that letter. Mr. Johnson. Mr. Redfield has those documents. Mr. Easby-Smith. Perhaps Gen. Johnston has copies of them. Mr. Johnson. I was just looking through my papers. Col. Judson. I have copies of them here, but if I am to go on the stand, I wish to keep my papers in sequence. When I am on the stand, they can be introduced at that time. Mr. Johnson. For the purpose of getting Gen. Johnston's letter in the record, I will have it read, and the stenographer can incorporate INVESTIGATION OF INSUHANCE COMPANIES. 5 it in the record ;. or, as Gen. Johnston will be first on the witness stand and is going to make this letter a part of his statement, I suggest we wait until he is on the stand. Mr. Easbt-Smith. At the beginning, Mr. Chairman, I should like, also to ask permission, for myself as counsel for Mr. Ingham — I do not know whether I am speaking for other counsel or not — to inspect such records as may exist in the office of the Commissioners of the District of Columbia relating to the insurance matter which this com- mittee is about to investigate; and, for the convenience of counsel, I ask that the commissioners be requested to produce all those r cords before this committee and leave them here where counsel may inspect them. Mr. Johnson. I take it for granted the commissioners will not hesitate to let the committee have anything of the kind, but the com- mittee is vested with authority to secure these papers if the commis- sioners should hesitate, though I do not apprehend they will. As the matter progresses, I have no doubt we can get at every paper that counsel may want. Mr. Douglas. I have only one suggestion to make, if I may be permitted, as to the order of the testimony. It seems to me after the commissioners have testified it would be the better order to proceed then to the taking of the testimony on the question of the value of this property, reserving Mr. Bests's testimony to come when you go into the insurance side of this matter. I think to sandwich in Mr. Bests's testimony between the testimony of the commissioners and the testimony as to the correct appraisal of the property would not be the order that would best simplify and facili- tate the situation, and I suggest Mr. Bests's testimony comes after we have finished the question of evidence on the subject of the value of the property. I understand you are going to have an accountant examine these books and start in on that examination to-morrow morning ? Mr. Johnson. Yes, sir. Mr. Douglas. I would therefore take the liberty of suggesting that testimony on the insurance side of this matter proper be taken up when we get to that phase of it, and go right straight through with it. I do not think it makes very much difference, however. Mr. Johnson. It may be, whether the committee desires another course or not, that it will be compelled to adopt yours, inasmuch as Mr. Best has not yet been subpoenaed. Mr. Douglas. I think there will be no difficulty. We have no objection. Mr. Johnson. We will endeavor to get him here by telegram without subpoena. If he does not come without a subpoena, then We will send a sergeant at arms with a subpoena and bring him down here. Several days ago, in fact, the matter was discussed, and this order of procedure was arrived at. Mr. Douglas. It is satisfactory to us. Mr. Johnson. As Mr. Best's paper contained some charges, and the real estate charge is one of them, we deemed it best to hear those who have the charges to prefer, and then hear the testimony. Gen. Johnston, will you take the witness stand ? 6 INVESTIGATION OF INSURANCE COMPANIES. TESTIMONY OF HON. JOHN A. JOHNSTON, COMMISSIONER OF THE DISTRICT OF COLUMBIA. The witness was duly sworn by the chairman Mr Johnson. Gen. Johnston, vou are fully advised as to the inves- tigation which is now about to commence. The committee will be glad to have you state in your own way everything that you consider worth hearing which has led up to the institution of this investigation. Mr Johnston. I am not competent to do all that you suggest, for the reason that I was absent at the inception of it. I returned to Washington on Sunday evening, the 8th of December, and returned to the office on Monday morning, the 9th. At that time the assessors of the District of Columbia, under the direction of the commissioners, were making a revaluation of the building Mr. Johnson. State what building. Mr. Johnston. The Southern Building; and the insurance depart- ment of the District, I believe, were then engaged in an examination of the books of the company; so that I acquired a knowledge of the status up to that time by conference with my colleagues, particularly with Commissioner Judson. On the following day the Board of Commissioners passed a resolu- tion to this effect Mr. Easby-Smith (interposing). If the chairman please, I suggest that if a resolution was passed and is in writing, we ought to have the resolution and not the effect of it. Mr. Johnston. I think, Mr. Easby-Smith, that is correct. A copy of the resolution might be introduced in the record. Mr. Johnson. Have you got it here, General? Mr. Johnston. I do not mink I have it here. Mr. J< >hnson. Col. Judson says he has it here and will let it become a part of the record when he comes to make his statement, and that will suffice. Mr. Douglas. I would like to have this resolution now. It is very important we have the resolution at this time. Col. Judson. Can I read it in the record now, because I have a great bunch of papers here ? Mr. Johnson. That will be satisfactory; yes, if Gen. Johnston will delay for a few moments so we may have it read into the record. Mr. -Johnston. I have a copy here. Mr. Johnson. General, please read the order. Mr. Johnston (reading) : December 10, 1912. Understanding that the insurance department of the State of New York has requested the cooperation or consent of the insurance department of the District of Columbia necessary to examine into the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, one or both, I move that the insurance department of the State of New York be advised that such consent is granted and that such cooperation as it is practicable for the insurance department of the District of Columbia to render will be freely accorded in the making of such examinations as it may desire, preferably in the near future, and that the super- intendent of insurance of the District of Columbia be instructed accordingly. Mr. Johnson. By whom is that signed ? Mr. Johnston. Signed by Col. Judson and by myself. Mr. Johnson. Just proceed in your own way. INVESTIGATION OP INSURANCE COMPANIES. 7 Mr. Johnston. That resolution having been passed, on the same day a letter was addressed to the Hon. William T. Emmett, super- intendent of insurance Mr. Johnson (interposing). I would like to interrupt you just there. Mr. Johnston. Yes, sir. Mr. Johnson. Were all three commissioners present when that resolution was considered, or just two ? Mr. Johnston. They were present when it was considered. Mr. Johnson. And when it was voted upon ? Mr. Johnston. And when it was voted upon. Mr. Johnson. And how many of you voted for it ? Mr. Johnston. Two voted for it. Mr. Johnson. Did the other commissioner, Mr. Rudolph, vote against it or not vote ? Mr. Johnston. I do not recall just exactly. He probably noted it, as is our practice. Col. Judson. Our practice is, when we want to vote "no," to stamp it "Noted." Mr. Johnson. What does that mean ? Col. Judson. That means you do not vote for it, but you note the fact it was presented to you for signature and that you do not vote for it. That has long been the practice of the board. Mr. Johnson. Proceed, General. Mr. Johnston (reading) : Hon. William T. Emmett, Superintendent of Insurance of the State of New York, Albany, N. Y. Sir: With the understanding that the insurance department of the State of New York wishes the cooperation or consent of the insurance department of the District of Columbia to examine the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, one or both, the Com- missioners of the District of Columbia hereby grant such consent and will freely accord such cooperation as it is practicable for the insurance department of the District of Columbia to lender in making of such examinations as the insurance department of the State of New York may desire, preferably in the near future. Very respectfully, The Board op Commissioners op the District of Columbia. That is signed by myself as acting president. In answer to that communication this letter was received: Albany, November 11, 1912. Hon. John A. Johnston, Acting President Board of Commissioners of the District of Columbia, Washington, D. C. Dear Sir: I beg to acknowledge receipt of your letter of December 10 granting consent to the making of an examination of the First National Fire Insurance Co. upon its application for admission to the State of New York by the insurance depart 1 - ment of this State. I thank you very much indeed for this consent and for the friendly offer of coopera- tion which you tender, and will communicate with you again on the subject within the next two or three days. Very respectfully, yours, W. T. Emmett, Superintendent. I have not seen any further communication from Mr. Emmett as to what further action the insurance department of the State of New York proposed to take. Mr. Johnson. General, under which of the three commissioners does the insuranpe department come ? 8 INVESTIGATION OF INSUKAXCE COMPANIES. Mr. Johnston. Commissioner Rudolph. On December 13, 1912, this communication was addressed to Hon. Ben Johnson, chairman Committee on District of Columbia, House of Representatives . Sir: The Commissioners of the District of Columbia have the honor to transmit herewith a copy of a report of the superintendent of insurance of the District of Colum- bia of an examination made as of October 31, 1912, and a copy of a statement issued by the commissioners on the 11th instant; and to call attention to the statement made by Charles F. Carusi, general counsel for the First National Fire Insurance Co. of the United States, in his communication dated December 5, 1912, to the Commissioners of the District of Columbia, a copy of which is inclosed, that the further action then contemplated should be made under the direction of either the House or Senate Committee of Congress." Very respectfully, Board op Commissioners of District of Columbia, By John A. Johnston, Acting President. The papers referred to in this latter communication were trans- mitted to you. Copies of them are in the possession of Col. Judson, who is competent to explain their meaning and content. Mr. Johnson. Have you the communication from Mr. Carusi with you, General? Mr. Johnston. I may have. I think this is it [producing paper]. I would like to have Col. Judson look at it, because he is familiar with these papers and I am not entirely familiar with them. Col. Judson. Yes, sir; this is it. Mr. Johnson. Gen. Johnston, please read that into the record. Mr. Johnston (reading) : First National Fire Insurance Company of the United States, Home Office, Southern Building, Washington, D. C, December 5, 1912. Honorable Commissioners of the District of Columbia, Municipal Building, Washington, D. C. Gentlemen: Gen. Wynne, president of the First National Fire Insurance Co., informs me that there is dissatisfaction expressed at the District Building at the appraised value placed upon the Southern Building by Messrs. Hopewell H. Dar- neille, former assessor of taxes of the District of Columbia, Alexander T. Hensey, of the firm of Swartzell, Rheem & HeDsey, and William P. Lipscomb, the well-known .. company to decline to appomt any appraisers for such purpose, I can well understand that adjoining property owners, who have not the same reason for carrying their real estate assets at then- actual value may have called attention to what they claim to be an appraisement in excess of that of the tax office. We shall resist any attack upon this appraisal made for any such purpose and if this appraisal is to be disturbed we shall insist that it shall not be done so by a new appraisal by persons interested only in keeping their tax rates reduced, but such new appraisal shall be made under the direction of either the House or Senate committee of Congress. Yours, very respectfully, Chas f CarusIj General Counsel. Mr. Easbt-Smith. May I inquire at this point whether or not that is one ot the inclosures in the letter addressed by Gen. Johnston as acting president of the board to yourself as chairman of this com- mittee 5 Mr. Johnston. That is one of the inclosures. ^^"i Easbt-Smeth. I again ask, then, that all the documents with that letter be now put into the record. INVESTIGATION" OF INSTJKANCE COMPANIES. 9 Mr.. Johnson. Mr. Easby-Smith, I have just said that those docu- ments are in the possession of Mr. Redfield, who will be here at 1.35. Mr. Easby-Smith. I understand, Mr. Chairman, that Col. Judson has present copies of the documents which were transmitted. Mr. Johnson. If he has, when he takes the stand in a few moments, that will be ample time to give them. Now, Mr. Easby-Smith, you may interrogate Gen. Johnston, if you desire. Mr. Easby-Smith. General, when did you become a member of the Board of Commissioners of the District of Columbia ? Mr. Johnston. In January, 1910. Mr. Easby-Smith. Did you have any acquaintance with Mr. Ing- ham, superintendent of insurance, prior to your becoming a com- missioner ? Mr. Johnston. No. Mr. Easby-Smith. Neither personal nor official ? Mr. Johnston. No. Mr. Easby-Smith. Do you remember what position he was occu- pying in the District government when you became commissioner ? Mr. Johnston. He was an employee, a subordinate employee of the insurance department of the District of Columbia, under the then superintendent, Drake. Mr. Easby-Smith. Do you remember the position which he occu- pied ? To refresh your recollection, did he cocupy the position of statistician ? Mr. Johnston. I believe that was the case. Mr. Easby-Smith. And Mr. Curry occupied the position of ex- aminer 1 Mr. Johnston. Yes. Mr. Easby-Smith. Do you remember the salaries — that they were the same ? Mr. Johnston. I do not. Mr. Easby-Smith. Prior to Mr. Drake's death, did you have any personal acquaintance with Mr. Ingham or any acquaintance with the business of the department ? Mr. Johnston. No. Mr. Easby-Smith. When the question of appointing a successor to Mr. Drake came up, do you remember who the candidates for the position were % Mr. Johnston. I do not remember that there were any candidates, as such, for the position. Mr. Easby-Smith. You remember, I presume, that Mr. Ingham was, in a sense, a candidate ? Mr. Johnston. I do not recall that he was a candidate. Accord- ing to the policy of the present board of commissioners, vacancies are filled by promotion, preferably by promoting an employee of the par- ticular department concerned, if a worthy, efficient man may be found in that department; if not in that department, then a worthy, effi- cient man m the service, in the building. . Mr. Easby-Smith. Do you remember whether or not the commis- sioners at that time considered both Mr. Ingham and Mr. Curry, one being statistician and the other being examiner in the department of insurance ? 10 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnston. It happened that the superintendent of insurance, Mr. Drake, died very suddenly in August. It was known to the commissioners that his office was very much behind, something like two years behind, in the work of the office. Congress itself took notice of the fact that the business of his office was belated, and in one of the appropriation acts provided that hereafter his reports should be up to date and available for their consideration. I think it is a matter of record that Mr. Drake sought to explain this relation in his office by stating he was inefficiently assisted, that none of his assistants could have passed into their possession work which otherwise they might well do, if they were efficient, and therefore he was obliged to do it all; and in his statements, made claim that Mr. Ingham could not be trusted to formulate correspondence prop- erly, and he had to attend to that. Mr. Johnson. Do you mean by "trusted," lack of ability or lack of integrity ? Mr. Johnston. Simply that he was not capable of originating cor- respondence — was not equipped to do it. Commissioner Rudolph, I believe, was on his vacation at the time, as was Col. Judson, and almost immediately after the death of Col. Drake Col. Judson (interposing). You mean at the time of the death of Drake ? Mr. Johnston. Yes; at the time of the death of Drake. Desiring to inform myself and at the same time get such information as I knew my collegues would desire in regard to the situation of affairs in the office, I directed an examination of it to be made by the auditor of the District. Mr. Easby-Smith. That was made, I believe, by Mr. Donovan? Mr. Johnston. That was made by Mr. Donovan. The report of the investigation by Mr. Donovan, I understand, is before the chair- man of this committee. Mr. Easby-Smith. I do not think that yet answers my question, General. I will repeat it: Were Mr. Ingham and Mr. Curry consid- ered by the commissioners for promotion to the position of superin- tendent ? ' ^ Mr. Johnston. I do not know that Mr. Curry was. Mr. Ingham was considered. Mr. Easby-Smith. This investigation by Mr. Donovan was re- ported to you ? Mr. Johnston. Yes. Mr. Easby-Smith. Mr. Ingham was not appointed until the 18th of November, 1910? Mr. Johnston. I do not remember the date. Mr. Easby-Smith. Do you remember that some months elapsed?' Mr. Johnston. Some little time elapsed. ■ Mr - Easby-Smith. During which a thorough and careful examina- tion oi the office was made ? Mr. Johnston. Yes. Mr. Easby-Smith. As a result of which you voted for Mr. Ingham's promotion ? ° Mr. Johnston. I must have. I do not recall that fact. Mr. Easby-Smith. Do you remember whether the other two com- missioners voted for his promotion ? Mr. Johnston. I do not remember how they voted. INVESTIGATION OF INSURANCE COMPANIES. 11 Mr. Easby-Smith. So that you became convinced that Mr. Ingham, was capable of fulfilling the duties of the office ? Mr. Johnston. Well, I think the thought in my mind was that he deserved the opportunity to prove whether he was or not. Mr. Easby-Smith. Did anything in the investigation by Mr. Dono- van or your inquiries otherwise develop anything leading you to be- lieve that Mr. Ingham could not be trusted either from the stand-, point of ability or integrity? Mr. Johnston. I certainly at that time had no reason to mistrust. Mr. Ingham's integrity. Mr. Easby-Smith. Have you had at any time since then ? Mr. Johnston. No. Mr. Easby-Smith. Nor at the present time ? Mr. Johnston. No, I do not mean to say that. The report of the insurance commissioner with reference to those two particular com- panies Mr. Johnson (interposing). What insurance commissioner? Mr. Johnston. I mean Mr. Ingham. Mr. Easby-Smith. The recent report on the condition of these two companies 1 Mr. Johnston. Yes; which indicates the need, perhaps, for this investigation. Mr, Easby-Smith. Gen. Johnston, prior to this recent insurance matter being called to your attention, did you ever hear anything concerning Mr. Ingham, either personally or officially, which caused you to have any suspicion whatever of his integrity ? Mr. Johnston. I do not recall at the moment anything of the kind. Mr. Easby-Smith. Have you ever heard anything since this ques- tion arose to cause you to question Mr. Ingham's personal or official integrity ? Mr. Johnston. Nothing, except this report of his with reference to those two particular companies. Mr. Easby-Smith. And that was called to your attention, as I understood, for the first time on Monday, the 9th of December ? Mr. Johnston. Yes; either on the 9th or 10th of December. Mr. Easby-Smith. Prior to that time you had no knowledge of it ? Mr. Johnston. No. Mr. Easby-Smith. And, as I understand, you received the informa- tion which you obtained from your colleagues, but principally from Col. Judson? Mr. Johnston. From both of them. Mr. Easby-Smith. In the letter which you have put in the record, which you signed as acting president of the board, addressed to the chairman of this committee, under date of December 13, you refer to a statement issued by the commissioners on the 11th instant. Do you remember by whose order that statement was issued, whether it was by vote of the entire body of commssioners or not ? Mr. Johnston. By vote of two. Mr. Easby-Smith. Who were they ? Mr. Johnston. Commissioner Judson and myself. Mr. Easby-Smith. Who prepared the statement issued to which you have referred in this letter ? Mr. Johnston. I think Col. Judson; I do not know. He sent it to me for examination. 12 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Easby-Smith. Will you examine that and state whether it is a copy of this statement to which you refer ? Mr. Johnson. General, will you please read it ? Mr. Johnston (reading) : In partial explanation of certain action taken by the board of commissioners with a view to securing an immediate examination of the books and accounts of certain local fire insurance companies, including the Commercial Fire Insurance Co., the commis- sioners state that the necessity of an examination of the latter and of a revaluation of its real estate was brought forcibly to their attention through a study of the report of the superintendent of insurance of the District of Columbia as of October 31, 1912, said report being dated November 8, 1912. The following facts are apparent from study of this report in connection with the leport of an examination of the company as of De- cember 31, 1911. On December 31, 1911, the capital stock of the company was $200,000. It had a net surplus over capital of $72,423.26. Between December 31, 1911, and October 31,1912, its capital stock paid in was increased to $337,307.50, and incident to such increase of capitalization it received as a premium on the sale of stock $144,441. Apparently, therefore, without great losses in the conduct of the company's business, and without the necessity of adding largely to its liabilities for unearned premiums, its surplus should have been increased during the year from $72,423.26 to something like the sum of that amount and the premium received on the sale of stock, to wit, to something like $216,864.26, less the amount expended for the marketing of the stock. The com- missions paid for sale of stock was $56,349.70. The surplus, then, with the reserva- tions above stated, should apparently have been, on October 31, something like $160,514.56, this without any increase in the book value of real estate as set forth in the report of November 8, 1912, to the amount of $226,715 as below described. As a matter of fact, omitting such increase by adjustment in book value of real estate, the report of the superintendent of insurance as a result of his examination of October 31, 1912, shows a surplus of $2,723.49. The difference between $160,514.56 and $2,723.49 is $157,791.07. A small part of this difference is due, of course, to the increased lia- bility for unearned premiums. Incidentally it may be said that the total payment to policy-holders for fire loss was $1-15,090.57. In other words it appears that there would probably have been a diminution of the surplus over what one might have expected to find therein even if the company had not been required to pay a single fire loss. The statement of the superintendent of insurance, however, includes in income the following: "Increase by adjustment in book value of real estate, $226,715." With this item taken into account £s income, it appears that the surplus over all liabilities was, on October 31, $229,438.49. To quote from the report of the superin- tendent of insurance — That is quoted. Col. Judson. I beg your pardon; that part is not quoted. Mr. Johnston. It is on this copy. Col. Judson. It should not be — that particular sentence. The end of the quotation is at the figures $226,715. Mr. Easby-Smith. The words "increase by adjustment in book value of real estate, $226,715" seems to be the end of a subquote. The whole article apparently is quoted. Mr. Johnston. Mr. Chairman, may I say at this point that I am reading a paper not prepared by myself, and Col. Judson is better prepared to read this paper. Col. Judson. It is not important. Mr. Easby-Smith. I was simply anxious to identify it at this point. Mr. Johnson. Just continue to read, please. Mr. Johnston (reading) : ,. W .^ n . tnis item taken into account as income, it appears that the surplus over all liabilities was, on October 31, $229,438.49. To quote from the report of the superin- tendent of insurance Col. Judson (interposing). That shows it is not a quotation. INVESTIGATION OF INSURANCE COMPANIES. 13 Mr. Johnston (continuing reading) : To quote from the report of the superintendent of insurance: "Real estate. — The records of the company show that this company, in conjunction with the First National Fire Insurance Co. of the United States, of this city, pur- chased the Southern Building, located at the northeast corner of Fifteenth and H Streets NW., in this city, on October 29, last, for $246,570 and assumed two mortgage indebtednesses on same amounting to $1,300,000, share and share alike. An appraise- ment was made of this property, by your (the superintendent's) order, for the pur- pose of this examination, by a committee of three real estate men of this city, who placed its value at $2,000,000." Inasmuch, then, as this piece of real estate, purchased by this company in partner- ship with another on October 29 last, appears in the statement of condition as of October 31 to be valued at $453,430 more than it had cost two days before, and inas- much as the half of this increment of value attaching to the Commercial Fire Insur- ance Company forms nearly 99 per cent of its entire surplus over all liabilities, it becomes very important to know exactly what the building in question is worth. The company owning the other half of the building in question is the First National Fire Insurance Co. of the United States. With reference to the proposed revaluation of the building, the following letter has been received from the general counsel of the First National Fire Insurance Co. of the United States Mr. Douglas. I suggest it is unnecessary to read further. Mr. Easby-Smith. All my question related to was whether this statement, as Gen. Johnston has now read it, is a copy of the state- ment which was transmitted in his letter of December 13 to this committee — substantially so ? Mr. Johnston. Yes. Mr. Easby-Smith. To whom was that statement issued ? Mr. Johnston. It is simply a statement of what it purports to be on its face — a partial explanation of our asking a revaluation of the building and an examination of the books, and filed with the motion that had been passed by my colleagues for a revaluation of the building and an examination of the books. Mr. Easby-Smith. To whom was it issued ? In your letter to Mr. Johnson you say, "A copy of the statement issued by the commis- sioners on the 11th instant." To whom was it issued? Mr. Johnston. It was not issued to anybody. Mr. Easby-Smith. Was it not issued to the four newspapers of Washington ? Mr. Johnston. It was not. Mr. Easby-Smith. Are you sure of that ? Mr. Johnston. I am sure of it. Mr. Easby-Smith. So far as your personal knowledge is concerned ? Mr. Johnston. Except as filed as an explanation with a copy of the order. Mr. Easby-Smith. Then it was not issued, so far as you know ? Mr. Johnston. It was issued to that extent. Col. Judson. There was a motion, if I may remind the general Mr. Easby-Smith (interposing) . If the chairman please, I think I should be permitted to examine the witness. Col. Judson. It would elucidate the matter for you. Mr. Easby-Smith. If this statement was issued, and an exact copy of it delivered to each of the newspapers in this city, on the 11th of December, was that done without your knowledge ? Mr. Johnston. It was a public matter and accessible to the news- papers in the secretary's office, I suppose, as all other public matters are. 14 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Easby-Smith. I will repeat the question. If four copies of this statement were issued and sent by one of the commissioners or all of the commissioners to each newspaper in the District of Columbia on the 1 ] th of December, was that without your knowledge ? Mr. Johnston. It was without my knowledge. I do not believe they were issued to the newspapers, certainly not by any commissioner. They were obtained in the usual way, so far as I know, from the sec- retary of the board. Mr. Easby-Smith. How do you know whether they were secured or not, General ? Mr. Johnston. I do not know anything about it, but I presume if they were secured by the press they were secured in that way. Mr. Easby-Smith. But, so far as your personal knowledge is con- cerned, you have none ? Mr. Johnston. No. Mr. Easby-Smith. I believe you say that the statement was pre- pared by Col. Judson ? Mr. Johnston. I do not know whether he prepared it or not. He handed it to me and called my attention to it. Mr. Easby-Smith. Did you take means to verify the correctness of the statements contained in that document ? Mr. Johnston. I do not know that I had the report of the super- intendent in my own personal possession, but I glanced over it. Mr. Easby-Smith. You glanced over this document? Mr. Johnston. I glanced over that document. Mr. Easby-Smith. Did you vote that it be filed as a public docu- ment and open to the press for publication? Mr. Johnston. I do not remember that this particular statement was voted upon at all. It was merely filed as an explanation of the motion to revalue. If it was, it is a matter of record. Yes, it was the subject of a formal motion. Mr. Easby-Smith. Will you read the motion ? Mr. Johnston (reading): December 11 , 1912 . T move that the following be adopted in board session and copies of the same be issued to those requesting them by the secretary of the board. Mr. Easby-Smith. Who made the motion ? Mr. Johnston. Col. Judson. Mr. Easby-Smith. Who voted for it ? Mr. Johnston. Approved by myself, noted by Commissioner Rudolph, and the statement follows. Mr. Easby-Smith. Before you voted for it, as I understand, you had simply glanced over this and did not at the time have the super- intendent's report before you ? Mr. Johnston. Yes; the superintendent's report was before me and read to me, parts of it. I understood it to be a fact that the Commercial Fire Insurance Co. on the 31st of December had a paid- up capital stock of $200,000, a surplus of $72,000, and that in the succeeding 10 months they had increased their paid-up capital to something like $337,000, and a premium from the sale of stock of $144,000, which, together with the $72,000, would make an apparent surplus of $216,000, not including deduction for commissions on the sale of stock, which amounted to $56,000. Mr. Easby-Smith. Did you make an inquiry to satisfy yourself as to where the difference might have gone ? INVESTIGATION OJi' INSURANCE COMPANIES. 15 Mr. Johnston. I did not. I expected that to be made as the result of an investigation which I concluded, of course, the insurance department of the District of Columbia would welcome. Mr. Easby-Smith. You have spoken of the fact that when you returned about December 8 or 9 the assessors of the District were making a revaluation of the property. What valuation did they put on it under this new valuation? Mr. Johnston. I do not recall their exact figures. Mr. Easby-Smith. Do you recall that the building had been as- sessed, that the ground had been assessed at $14 per square foot, which would indicate its true value as being $21 per square foot ? Mr. Johnston. I have not that information. Mr. Easby-Smith. When you voted for the issuing of this state- ment, you did not know any of those facts ? Mr. Johnston. I did not know any of those details. You under- stand, Mr. Easby-Smith, that I assume Mr. Ingham, the superin- tendent of the department of insurance of the District of Columbia, would be instant in his desire to have his department thoroughly investigated, and I understand that to be his desire at this moment. Mr. Easby-Smith. Yes, sir; it is. General, in the resolution which you read into the record adopted by vote on December 10, 1912, I call your attention to the first words, which are: Understanding that the insurance department of the State of New York has re- quested the cooperation or consent of the insurance department of the District of Columbia, etc. How was that understanding acquired by you ? Mr. Johnston. From my colleagues. Mr. Easby-Smith. Col. Judson and Mr. Rudolph ? Mr. Johnston. Yes. Mr. Easby-Smith. You know nothing as to how their desire for such examination was communicated to the commissioners, or why ? Mr. Johnston. I understood from them, that the superintendent of insurance of the State of New York desired to make this examina- tion, and I presumed it was because this company had sought to do business in the State of New York. There was or is in the record, I believe, some correspondence between the superintendent of insurance of the District of Columbia and the superintendent of insurance of the State of New York in regard to the matter. Mr. Johnson. General, please wait just a moment. I wish to say to the official stenographers that they will not permit any witness to revise or change his testimony. It is the intention of the committee to print daily, and any witness who finds himself misquoted or who wishes to make any change, alteration, or correction in his testimony will be compelled to come before the committee for that purpose. Mr. Easby-Smith. General, in the course of the matter of the reports by the superintendent of insurance, or the employees of his office, concerning these two companies, and the subsequent develop- ments, have you had any interview with Mr. Ingham, the superin- tendent ? Mr. Johnston. In regard to this matter ? Mr. Easby-Smith. Yes. Mr. Johnston. No; I have not. Mr. Easby-Smith. You have not talked with him at all ? Mr. Johnston. No, sir. 16 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. I think that is all I care to ask, Mr. Chairman. Mr. Johnson. Mr. Douglas, do you care to ask any questions? Mr. Douglas. General, I believe in answer to a question by Mr. George, you stated that Commissioner Rudolph had charge of the insurance department of the District of Columbia? Mr. Johnston. Yes. Mr. Douglas. In the District government? Mr. Johnston. Yes. Mr. Douglas. You have not yet in your testimony stated any- thing with reference to the position of Mr. Rudolph on these various matters that you and Commissioner Judson acted upon. "Will you state what was his position in regard to all these various steps that you gentlemen took? Mr. Johnston. He did not express himself at length. He simply noted the motion. Mr. Douglas. Did he express himself in brief? Did he express himself at all ? Mr. Johnston. I do not feel competent to quote my colleague in that regard. It seems to me that he himself is the best witness in that respect. It is in my mind that he thought it was inexpedient. Mr. Douglas. What was inexpedient, General? Mr. Johnston. To pass the motion that we passed. Mr. Douglas. Why? Mr. Johnston. I do not know. Mr. Douglas. Do you mean to say that Mr. Rudolph gave no reason for his position that it was inexpedient to do these thmgs ? Mr. Johnston. He did not give me any reason. Mr. Douglas. You heard no reason? Mr. Johnston. No special reason. Mr. Douglas. Did you ask him if he had any? Mr. Johnston. I did not. Mr. Douglas. As a matter of fact, did he not give this reason, General — see if I can refresh your memory: Did he not state that he thought it was inexpedient and unfair to precipitate an investigation of these companies, with no more data and information than you had before you ? Mr. Johnston. He never made any such statement as that to me. Mr. Douglas. Didn't he? Mr. Johnston. No, sir; he never made any such statement as that to me. Mr. Douglas. Did he discuss with you and Commissioner Judson the question of giving consent to the New York people to investigate the books and affairs of the Commercial Fire Insurance Co. ? Mr. Johnston. He gave his conclusion. Mr. Douglas. What was his conclusion ? Mr. Johnston. He noted the motion. Mr. Douglas. That is to say, he opposed it? Mr. Johnston. He noted it. Mr. Douglas. What do you mean by note, General? Do you not mean he opposed it ? Mr. Johnston. It counts as a negative vote Mr. Douglas. It counts as a negative vote ? Mr. Johnston. Yes, sir; a negative vote. INVESTIGATION OF INSURANCE COMPANIES. 17 Mr. Douglas. Do you not know, General, that when you did this, when you and Commissioner Judson did this thing — that is to say, gave consent to the New York insurance department to investigate these companies — that you were doing it over the head of the superin- tendent of msurance of the District of Columbia ? Mr. Johnston. I did not know that it was over— what do you mean? We have a right to do it; he is a subordinate to the com- missioners. Mr. Douglas. I understand that quite well. Mr. Johnston. Yes. Mr. Douglas. But you knew it was giving consent to a department of insurance in a foreign jurisdiction — the State of New York — leave to examine into the affairs of these companies that your own insurance commissioner or superintendent had already examined ? Mr. Johnston. Yes. Certainly we have that right — and we claim the right Mr. Douglas (interposing). Did you consult with the superin- tendent of insurance before you passed the order ? Mr. Johnston. No; we did not need to. Mr. Douglas. I did not ask whether you needed to or not. I asked whether you consulted with him before you passed it or not. Mr. Johnston. No. Mr. Douglas. You did not ? Mr. Johnston. No, I did not. Mr. Douglas. Had you any reason at that time to believe that the work of your insurance superintendent was inaccurate and untrust- worthy ? Mr. Johnston, This report of his appeared to need some explana- tion. Mr. Douglas. Did you ask him for an explanation ? Mr. Johnston No. Mr. Douglas. Why not ? Mr. Johnston. The matter was then taken up by the board of commissioners, and I do not know why we paused at that point, except that in the evolution of the case it was carried up here to the District Committee. Mr. Douglas. We have not come to the evolution or revolution stage up to this, point. I am asking now about your conduct as commissioner of the District of Columbia. I ask you, now, when you voted to give this department of insurance of the State of New York the right to examine the books of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. if you at that time had asked Mr. Ingham for any explanation that you thought was needed? Mr. Johnston. I had not. Mr. Douglas. You did not take him into advice or council at all with you in the matter ? Mr. Johnston. No. Mr. Douglas. Can you point out anything now in the report of October 31, 1912, of Mr. Ingham's that you thought needed explana- tion or was entitled to criticism at your hands ? Can you point out anything now that you thought was a proper subject of criticism, with reference to the work of the commissioner of insurance? 71391— No. 1—12 2 18 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnston. The valuation of the building, which was enhanced something like 55450,000 overnight. Mr. Douglas. That was done in accordance with the report of appraisers selected for that purpose, was it not? Mr. Johnstox. Yes. That is as to the valuation of the building. Then, as to the surplus reported in the accounts of the company Mr. Douglas. Do you intend to criticize him in his report of October 31 in that regard? Do you intend to criticize Mr. Ingham in that regard ? Mr. Johnston. I do not understand what you mean ? Mr. Douglas. Did you criticize anything in Mr. Ingham's report ? I am trying to find out if you had any justification for giving consent to the insurance department of a foreign jurisdiction to examine into the affairs of the local concerns here, without consultation with, with- out any advice, and without any explanation from your own commis- sioner of insurance ? Mr. Johxstox. My explanation of that point, sir, is this; that if any of the recognized authorities of the insurance department of any State in the country desires to examine any company in this District, their books, the valuation of their property, etc., they shall have my consent at any time to do so, regardless of what the views of the head of the insurance department of the District of Columbia may be on that point. Mr. Douglas. You do not even ask him anything about it ? Mr. Johnston. No. If they insist upon it, I would expect him to feel exactly as I do, that their minds should be cleared up with regard to any company that has its headquarters here and that is doing busi- ness outside of the District of Columbia. I should not expect him to hesitate upon the matter. Mr. Douglas. I want to know whether you would not consider the doing of that, without first talking to your own insurance superin- tendent, a reflection upon the work of the insurance commissioner of the District of Columbia ? Mr. Johnston. I would not consult him in regard to it. Mr. Douglas. Will you please answer my question, General ? Head it, Mr. Reporter. The Reporter (reading) : I want to know whether you would not consider the doing of that, without first talk- ing to your own insurance superintendent, a reflection upon the work of the insurance commissioner of the District of Columbia? Mr. Johnston. I would not regard it as a reflection upon him. Mr. Douglas. You would not ? Mr. Johnston. No. Mr. Douglas. You would give that consent to anybody in any jurisdiction — I mean any insurance department in any jurisdiction — that might ask you ? Mr. Johnston. That made a point of it. Mr. Douglas. That has asked for it ? Mr. Johnston. Yes, that had made a point of it. Mr. Douglas. "That had made a point of it" — do you make any distinction ? Mr. Johnston. I do not know what the reasons are, and I do not care to ask. INVESTIGATION OE INSUKANCE COMPANIES. 19 Mr. Douglas. They did not make any point of it so far as you know, did they ? They simply asked for it. Mr. Johnston. I was not here, you know. Mr. Douglas. They simply asked for it, as you understand ? Mr. Johnston. I do not know what the facts were. Mr. Douglas. You do not know what the facts were? Mr. Johnston. I do not know what the facts were except I knew they wanted to make that investigation. Mr. Douglas. And you never even saw the letter upon which you acted, did you ? Mr. Johnston. I saw one letter that was addressed by Mr. Em- mett, I think, to Mr. Ingham, stating certain things, or transmitting certain queries that would have to be answered before the Commer- cial Insurance Co. would be permitted to do business in New York. Mr. Douglas. That was long after your action was taken, was it not ? You did not see that then, did you ? You could hardly have seen if it transpired after that time ? Mr. Johnston. I do not recall. Mr. Douglas. I mean these inquiries made by the superintendent of insurance of New York to Mr. Ingham to which you now refer, transpired long after that action of yours in this matter — days after- wards — did they not ? Mr. Johnston. I do not remember the date. Mr. Douglas. Do you not remember it took place after you had actually acted in the matter ? Mr. Johnston. The inquiries ? Col. Judson. I have the papers here that will show the dates. Mr. Douglas. That may be so. If the committee please, I object to any interruption by Col. Judson during the examination of this witness. He will have ample time to explain, if he can, all these matters. Had you seen the data to which you now refer in the shape of inquiries from the superintendent of insurance, Mr. Ingham, at the time you voted to give this permission to the New York insurance department to examine these books ? Mr. Johnston. I do not think I had. I never have — I do not think I have. Mr. Douglas. These investigations by the various insurance de- partments are right expensive for the insurance company, are they not ? Mr. Johnston. They are expensive. Mr. Douglas. You certainly would not give permission to do that, with reference to any concern here in the District of Columbia, to any State, unless it was doing business there or seeking to do business there, would you? Mr. Johnston. No; unless they were, doing business in the State or seeking to. Mr. Douglas. You would consider it very wrong of the commis- sioners to impose that burden and publicity upon any company where it is not seeking to do business in the particular State from which the request came, would you not ? It would be wrong to do that under such circumstances, would it not? Do I make my question plain to you ? 20 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnston. What do you mean by wrong? The imposing of that expense on the company ? Mr. Douglas. I will change the form of the question. Do you think it would be fair or just, or would it be fair or just, for the com- missioners to do this — to grant that permission to any insurance department of another State to investigate a company here unless that company, whose affairs are sought to be investigated, was either doing business there or attempting to do business? Mr. Johnston. It would not be quite fair. Mr. Douglas. It would not be at all fair ? Mr. Johnston. It would not be fair. Mr. Douglas. Didn't you do that in this instance ? Mr. Johnston. I did not. Mr. Douglas. You did not? Mr. Johnston. No. Mr. Douglas. Did you examine into the question as to whether or not the Commercial Fire Insurance Co., at the time this request was made, was doing business or applying to do business in New York. Mr. Johnston. As I understood it, they had applied to do business in the State of New York. Mr. Douglas. As a matter of fact, did you not know they had not done anything of the sort ? Mr. Johnston. I did not know that. I understood they had applied. Mr. Douglas. From whom did you get that information? Mr. Johnston. I got that from Col. Judson Mr. Douglas. Did Col. Judson tell you, and upon that information did you vote to grant to the insurance department of the State of New York the right to inquire into the affairs of the Commercial Fire Insurance Co. ? Did he tell you at that time that the Commercial Fire Insurance Co. had made application to do business in the State of New York ? Mr. Johnston. Yes; that they had applied to do business, or were seeking to apply — that they were seeking to do business in the State of New York. Mr. Douglas. Were seeking to do business ? Mr. Johnston. Yes. Mr. Douglas. In other words had applied to do business in the State of New York ? Mr. Johnston. Yes. Mr. Douglas. And had you known that was not correct, you would not have voted to write that letter to Emmett, would you ? Mr. Johnston. I would not have been willing to write the letter if I had known they were not applicants. Mr. Douglas. You would not have done it at all, would you ? You would not have done it at all ? Mr. Johnston. My action would have depended altogether upon the fact that the request was made and upon the facts upon which it was founded, as might have been disclosed in their request to examine the company. Mr. Douglas. Then, you change your testimony in that regard, do you, when you said a while ago that it would not be fair to do it? Mr. Johnston. You are asking me a sort of a hypothetical case. Mr. Douglas. I am asking a hypothetical case to be borne out by facts. I will give you notice of that now. I will tell you now we INVESTIGATION OF INSUKANCE COMPANIES. 21 will show that the Commercial Fire Insurance Co. made no applica- tion to do business in the State of New York, and I will ask you if you have any other justification for voting with Col. Judson to give to Emmett, the insurance superintendent of the State of New York, the right and power to examine the books and affairs of the Commer- cial Fire Insurance Co. 1 Mr. Johnston. I understood this: I understood that Mr. Ingham had had written correspondence with them in reference to their desire to examine this company, or had conferred personally with some of the officers of the insurance department of the State of New York upon a personal visit while in New York. Mr. Douglas. Did Mr. Ingham tell you that ? Mr. Johnston. No; he did not. Mr. Douglas. Did you send for him to get the facts ? Mr. Johnston. I did not. Mr. Douglas. You simply voted to do this upon the statement of Maj. Judson? Mr. Johnston. I accepted that state of facts from my colleague, Mr. Douglas. At whose instance was this matter of the general investigation of the affairs of the First National and Commercial Fire Insurance Cos. brought to the attention of the House of Rep- resentatives ? Was it done at your instance ? Mr. Johnston. I think at Col. Judson's instance. Mr. Douglas. Col. Judson's instance ? Mr. Johnston. Yes. Mr. Douglas. Did you mean to have this general investigation of the affairs of these two fire insurance companies ? Mr. Johnston. Yes. That seemed to meet the wishes of counsel of the company as well. Mr. Douglas. Can you point to any communication that justifies you in that statement ? Mr. Johnston. Counsel, Mr. Carusi, made that suggestion. Mr. Douglas. Was it in a letter of Mr. Carusi's ? I will ask you to look at this letter of December 5. That is the one you have already read into the record. I will ask you to read it carefully and say whether or not tbat is the letter from which you drew the infer- ence that these insurance companies asked for this investigation into their affairs by the House of Representatives. Mr. Johnston. The final paragraph of the letter, signed by Charles F. Carusi, general counsel, First National Fire Insurance Co., dated December 5, 1912, already read into the record, is: We shall resist any attack upon this appraisal made for any such purpose, and if this appraisal is to be disturbed we shall insist that it shall not be done so by a new appraisal by persons interested only in keeping their tax rates reduced, but such new appraisal shall be made under the direction of either the House or Senate com- mittee of Congress. Mr. Douglas. That is your answer to my question, and that is a justification for your stating that this investigation generally into the affairs of these insurance companies was done at the instance of the general counsel of this company ? Mr. Johnston. It indicated a meeting of the minds of the com- missioners and counsel of the company in regard to the matter. Mr. Douglas. Did not that letter confine itself and is not the subject matter of that letter exclusively the question of the appraisal of the Southern Building ? 22 INVESTIGATION OP INSURANCE COMPANIES. Mr. Johnston. I should not think so. Mr. Douglas. Can you find anything in this letter that refers to anything else ? Examine it, because we regard that as important. Mr. Johnston. I do not know what Mr. Carusi had in his mind; but what I had in my mind was the whole subject of a reexamination of the books of the company and revaluation of the real estate. Mr. Douglas. Point out anything hi that letter that bears in the remotest degree upon any reexamination of the books of the company or suggesting a congressional investigation. Mr. Johnston. I understand the final paragraph to refer to that investigation by the House District Committee. Mr. Douglas. It will only take a moment to read that letter. It will not take a minute by the watch. Read it and tell me whether or not there is any paragraph anywhere in it that bears in the most indirect fashion upon a reexamination of the books of the company ? Mr. Johnston. I will read the letter again. Mr. Douglas. I wish you would. Mr. Johnston (reading) : Gen. Wynne, president of the First National Fire Insurance Co., informs me that there is dissatisfaction expressed at the District Building at the appraised value placed upon the Southern Building by Messrs. Hopewell S. Darneille, former assessor of taxes of the District of Columbia, Alexander T. Hensey, of the firm of Swartzell, Rheem & Hensey, and William P. Lipscomb, the well-known builder of this. city. It is further suggested that a reappraisement should be had, apparently with the view of reduc- ing the previous appraisal. As general counsel of the company I have advised the company to decline to appoint any appraisers for such purposes. I can well understand that adjoining property owners who have not the same reason for carrying their real estate assessed at their actual value may have called attention to what they claim to be an appraisement in excess of that of the tax office. We shall resist any attack upon this appraisal made for any such purpose, and if this appraisal is to be disturbed we shall insist that it shall not be done so by a new ap- praisal by persons interested in keeping their tax rates reduced, but such new appraisal shall be made under the direction of either the House or Senate Committee of Congress. It says nothing about an examination of the books. Mr. Douglas. Yet you construed it to mean that, did you not ? Mr. Johnston. I did not construe his letter at all. Mr. Douglas. You did not 9 Mr. Johnston. I mean to say, except as to that final matter. I had in my own mind what I termed was a meeting with his — ah investigation by the District Committee of the House and Senate. Mr. Douglas. You assumed that really without reading this letter before you acted, did you not ? Mr. Johnston. I can not see any distinction between a reappraisal of the value of the building Mr. Douglas (interposing). That does not answer my question. Mr. Johnston (continuing). And the value of the building — the increased value of the building — as carried on the books of the com- pany. Mr. Johnson. Mr. Douglas, I would suggest you let the witness conclude his answer before breaking in on him. Mr. Douglas. Yes; I beg your pardon, Mr. Johnson. I did not do it intentionally. Let us see, General, if this additional correspondence on the sub- ject does not throw some light on it. Mr. Johnston. Did you get my answer? INVESTIGATION OF INSURANCE COMPANIES. 23 Mr. Douglas. I did. Mr. Johnston. I do not see how you can make a distinction between the two — the revaluation of the building and the value of the building as carried on the books of the company as surplus. Mr. Douglas. That would change but one item, would it not ? Mr. Johnston. I do not see how you can go into the books of a company with respect to one item. Mr. Douglas. Suppose the sole question in your mind and the sole question in the mind of Commissioner Judson had been whether or not they appraised this building too high, do you mean to say you would not nave an entire reexamination of the affairs of this company and of the books of this company to ascertain the value of the South- ern Building ? Would you do that ? Mr. Johnston. Why not ? Certainly. Mr. Douglas. I am asking you whether you would. Mr. Johnston. Certainly. Mr. Douglas. You would ? Mr. Johnston. Certainly, with reference to a company of this char- acter doing business with the public and selling its stock to the public, I would want and I should think they would want to have a thorough investigation, and by this body — by the District Committee. Mr. Douglas. Every few days or every few weeks ? Mr. Johnson. Mr. Douglas, as this matter will have to appear in print, and it can not be very well done if you continue to break in upon the witness in the middle of his answer, I have again to request that you let him answer and then ask another question. Mr. Douglas. Yes; I shall not transgress further. I thought he had finished his answer when I asked the further question. As a matter of fact, did not these gentlemen request of the Board of Commissioners that they examine into the affairs of this company themselves and was not that request denied ? Mr. Johnston. When and by whom and where? You must remember I was absent part of the time. If you are asking me about something that occurred during my absence, I can not answer you. Mr. Douglas. I supposed you had familiarized yourself with what had taken place when you got back to Washington on the morning of December 9. Mr. Johnston. My colleagues were both present during the whole of this proceeding and can answer best these questions. Mr. Douglas. Did you see a letter from Gen. Wynne to your board of date December 7, 1912, before you took this action and gave this whole situation to the public ? Mr. Johnston. Have you the letter ? Mr. Douglas. I haven't it. It is a part of the records of your office, dated December 7, 1912. If you are not familiar with it, I will not pursue it further. You never saw that letter ? Mr. Johnston. I dp not know; I do not know whether I did or not. Mr. Douglas. I call for the production of the letter of General Wynne, Mr. Chairman, of December 7, 1912, on the subject of the reexamination. Mr. Johnson. A letter written by Mr. Wynne to the commission- ers? Mr. Douglas. Yes. Mr. Johnson. Is it preferable to put it in here rather than later ? 24 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. I simply want to know whether Gen. Johnston voted on these matters without knowledge of that letter. Mr. Rudolph. I have a copy of it, Mr. Chairman. Mr. Douglas. You need not take the time of the committee to read it all unless you deem it necessary, but it is a letter dated December 7, supposed to be a letter from General Wynne to the commissioners. Mr. Johnson. I suggest it would be better to put the whole letter in. Mr. Douglas. That would be just as well; yes. Mr. Johnston. Shall I read it ? Mr. Johnson. Yes, if you please. Mr. Johnston. The letter reads: [Home offlpe, Southern Building.] First National Fire Insurance Co. of the United States, Washington, D. C, December 7, 1912. Honorable Board of Commissioners for the District of Columbia, Washington, D. C. Gentlemen: This company, of which I am president, and the Commercial Fire Insurance Co. of this city, of which I am one of the directors and a stockholder, have been formally notified by the insurance department that a new examination into its affairs had been ordered by your board, and that along with said new examination would come a new appraisement of the real estate. It further appears from a con- versation between one of our directors, who is vice president of both of these com- panies, and a member of your board that many criticisms concerning both of these companies and their methods have been brought privately to the attention of one of the members of your board. Criticisms concerning both of these companies have been rife in Washington ever since their remarkable success in bringing capital into the city for the ptirpose of writing fire insurance, attracting the attention of their competitors in business, as well as the general public. These criticisms have been traced to three sources: First, the agents of fire insurance companies in the District of Columbia; secondly, to some of the banking institutions; and, thirdly, to what is known as the "real-estate ring." The Commercial has been writing a large amount of fire insurance as the result of a policy of giving to the people of the District of Columbia the amount of the premium generally paid to agents. This the company was able to do profitably, by reason of the fact that the entire premium received from a policy holder went into the treasury of the company with no deduction for commissions to any person or persons what- soever. A number of the banks run small local fire insurance companies as a side issue. In some cases, which it is not necessary to name, the president of the bank will be the president of the insurance company; in other cases the directorates will be more or less interlocking. The loss of business to the subsidiary fire insurance com- panies as a result of local competition has been considerable, and the result has been a constant display of animus on the part of the affiliated banking institutions. The third and most formidable enemy which these companies have made consists of cer- tain institutions having large real-estate holdings in the immediate vicinity of the Southern Building, upon which it has been publicly asserted by numerous Members of Congress that they are paying far less in taxes than the real value of their real-estate holdings would require, thus unduly increasing the burdens upon the Federal office- holding and other less fortunate classes. Until these criticisms took the form which would permit of some answer these companies have, perforce, remained silent. The whispered slander of the streets can never be met, except by demonstrated success. In view of the fact, however, that they have now been brought to the official attention of the District government, the purpose of this communication is to respectfully request, on behalf of both this company and the Commercial Fire Insurance Co.. that the entire subject matter of such criticisms be investigated in some deliberate and impartial manner. We trust that in this way they may be permanently laid at rest. I suggest, therefore, that a conference be arranged with the officers and general counsel of these companies and your honorable board and the corporation counsel at which some mode may be determined upon whereby criticisms against these com- panies may be made specific and the companies be given an opportunity to place upon record the facts and figures concerning same, and a mode be agreed upon whereby the facts and figures so given may be verified from the records of the company. It is INVESTIGATION OF INSUKANCE COMPANIES. 25 hardly necessary for me to call attention to the fact that any publicity concerning these companies would have upon their business in the many States in which they are now engaged in writing fire insurance the same disastrous effect that would be felt by a banking institution if unjustly attacked without an opportunity to be heard in its defense. Not only would our stockholders be the sufferers by such a course, but it would mean that the people of this District, who now have an opportunity to acquire fire insurance at two-thirds of the prevailing rate, would be compelled to continue to pay the rate prevailing among the older companies, which they must continue to main- tain, unless they can also devise some means of getting their business on their books free from the 30 to 40 per cent which goes into the pockets of the local agents, incorporated and unincorporated. I will be pleased to hear from you upon this matter at your convenience. Yours, very respectfully, Robert J. Wynne, President. P. S. — Since writing the above I am informed that Judge Gould has arranged for an interview between himself and Mr. Carusi with the engineer commissioner. I desire, however, that formal action should be taken by your honorable board upon this communication . Mr. Douglas. I will ask you now, General, if you ever saw that letter before ? Mr. Johnston. No; I have never seen it. I was absent from the city on its date. Mr. Douglas. I will ask you if you saw these two letters that I now hand you, one from Mr. Tuttle, the president of the Commercial Fire Insurance Co. and the other from Mr. Wynne, the president of the First National Fire Insurance Co., both being dated December 6. I will ask you to personally read them into the record and tell me whether you ever saw the letters before you acted or hot. Mr. Johnston. These letters read. First National Fire Insurance Company of the United States, Washington, D. C, December 6, 1912. Hon. George W. Ingham, Superintendent of Insurance,Washington, D. C. Dear Sir: Responding to your request for an examination of the First National Fire Insurance Co. following your examination of one month ago, I beg to advise you that it would be very inconvenient at this time for an examination to take place, as we have an extra force of employees getting the figures for our annual statement, as of December 31, three weeks hence, at which time we request that you examine this company. As you must be aware, all fire insurance companies have their busiest time during the month of December and, so far as we know, no insurance department of " any of the 48 States has ever requested an examination of a company in the month of December, because of the fact that on the 31st of that month of every year a full and accurate report for the entire year's business has to be made. K In view of the fact that you examined this company one month since, and found it in a perfectly solvent condition, we request that you give us, in writing, your reasons for the necessity of an examination so soon following the last one and such a short time before the one which we request as of December 31. Very truly, yours, First National Fire Insurance Co., Robert J. Wynne, President. [Chartered 1890.] Commercial Fire Insurance Co. of the District of Columbia, Washington, D. C, December 6, 191%. Hon. George W. Ingham, Superintendent of Insurance, Washington, D . C. Dear Sir: Responding to your request for an examination of the Commercial Fire Insurance Co. following your examination of one month ago, I beg to advise you that it would be very inconvenient at this time for an examination to take place, as we have an extra force of employees getting the figures for the entire year for the purpose 26 INVESTIGATION OF INSURANCE COMPANIES. of our annual statement as of December 31 — three weeks hence — at which time we request that you examine this company. As you must be aware, all fire insurance companies have their busiest time during the month of December and, so far as we know, no insurance department of any of the 48 States has ever requested an examina- tion of a company in the month of December, because of the fact that on the 31st of that month of every year a full and accurate report for the entire year's business has to be made. . In view of the fact that you examined this company one month since, and found it in a perfectly solvent condition, we request that you give us, in writing, your reasons for the necessity of an examination so soon following the last one and such a short time before the one which we request as of December 31. Very truly, yours, Commercial Fire Insurance Co., Robert R. Tuttle, President. Mr. Douglas. Now, I will ask you, General, if you ever saw before either one of these two letters. Mr. Johnston. Yes, sir. Mr. Douglas. Did you see them before you voted to take the steps referred to in this partial statement referred to by Mr. Easby- Smith ? Mr. Johnston. That is my recollection. Mr. Douglas. You had already seen those letters? Mr. Johnston. One of them, at least. I had seen at least one of them, but they are both to the same effect. Mr. Douglas. They are both to the same effect? Mr. Johnston. Yes. Mr. Douglas. I will ask you generally, General, if you made any examination into the figures that are set out in tbis statement that is called a partial explanation. Did you examine these things yourself I Mr. Johnston. I accepted those. Mr. Douglas. You accepted those statements from Col. Judson? Mr. Johnston. As facts. Mr. Douglas. As to this apparent dissipation of the surplus of the Commercial Fire Insurance Co., commented upon here, you did not ask Mr. Ingham for any explanation of it at all, did you ? Mr. Johnston. No. Mr. Douglas. Or anyone else ? Mr. Johnston. No. Mr. Douglas. You just assumed that the statements were true, and that you had a right to make these deductions Mr. Johnston (interposing). I assumed that that needed explana^ tion, and that the explanation would come about sooner or later. Mr. Douglas. That is all. Mr. Johnson. I notice that Mr. Stephens is present, he being one of the corporation counsel for the District of Columbia. I will ask you whether or notyou desire to interrogate the witness, Mr. Stephens ? Mr. Stephens. I have no questions. Mr. Johnston. Mr. Stephens does not know much about this matter. Mr. Johnson. Having come here in response to a letter addressed by me to the commissioners, that they could be represented by coun- sel, I took it for granted that you might want to ask something. Mr. Judson. Commissioner Rudolph informs me that he was to be present for the purpose of giving any information as to the law relat- ing to insurance. I do not think he is posted about the facts in this case at all. INVESTIGATION OF INSURANCE COMPANIES. 27 Mr. Johnson. I have not received any such communication from Mr. Rudolph. Mr. Rudolph. You will find in the second paragraph of the letter that I said that the corporation counsel would be on hand to eluci- date such insurance questions as the committee might desire informa- tion on. Mr. Johnson. I did not so read the letter, but it is hardly worth while to get it now to see whether or not that is the case. General, when any one of these three concerns which we are now investigating was in process of organization, or since, were you approached Dy anybody to take any stock in any one of them? Mr. Johnston. Through the mails, as I recall, I received Mr. Johnson (interposing). You received their literature? Mr. Johnston. Yes. Mr. Johnson. Did anybody come to you in person? Mr. Johnston. No. Mr. Johnson. Are you interested, directly or indirectly, in any other insurance company which is doing a competitive business with any of these companies ? Mr. Johnston. No, sir. Mr. Johnson. I might ask you further, General, did you see any letters recommending Mr. Ingham for this position before he was appointed to it? Mr. Johnston. I do not recall, Mr. Johnson. I may have, but I do not recall. Mr. Johnson. Will you please state whether or not he was appointed upon the recommendation of any particular individual ? Mr. Johnston. No, sir; I do not think so. Mr. Johnson. In so far as you remember, then, you voted for him upon your opinion that he could transact the business of the office ? Mr. Johnston. Yes; and in adherence to my understanding of the policy that obtains in the present board, that if it is reasonable at all to fill a position by promotion, to do so. Mr. George. General, in the letter addressed by General Wynne to the board of commissioners, he uses this statement : These criticisms have been traced to three sources: First, the agents of fire insur- ance companies in the District of Columbia; secondly, to some of the banking insti- tutions; and thirdly, to what is known as the real-estate ring. What do you understand that phrase the "real-estate ring" to mean? Mr. Johnston. I do not understand it, sir. Mr. George. Did you ever hear it used at any other time ? Mr. Johnston. I do not recall ever having heard it. Mr. George. Then you do not know what he meant by that statement ? Mr. Johnston. No. Mr. George. Would you suppose now that he referred to Mr. Johnston (interposing). I might say I am not engaged in the real-estate business. I own my ownhouse; that is all. I would not, in the course of business, come into contact with real-estate men or information that might substantiate the existence of such an insti- tution. -I never heard of it. Mr. George. You have never heard of a "real-estate ring"? Mr .TroTTCSTON. No : I never heard of a real-estate ring. 28 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. Did you ever hear of certain real-estate men being prominent in real-estate matters in the District of Columbia ? Mr. Johnston. Oh, I know real-estate people who are engaged in the real-estate business in the District of Columbia. Mr. George. Did you know of any real-estate people in the neigh- borhood of the Southern Building being interested in the valuation of the property there ? Mr. Johnston. Do you mean those who were engaged in this revaluation ? Mr. George. Yes ; anybody interested in the revaluation ? Mr. Johnston. No. Mr. George. Did you hear, in the course of your official business, any complaints from anybody Mr. Johnston (interposing). I have not. Mr. George (continuing) . Interested in real estate in the neighbor- hood of the Southern Building Mr. Johnston (interposing). No. Mr. George (continuing). As to the valuation being too high or too low ? Mr. Johnston. No. Mr. George. Did you ever hear of anybody within a block, say, of the Southern Building taking any interest in the valuation, the various valuations, or in any of the valuations Mr. Johnston (interposing). No. Mr. George (continuing). Of the Southern Building property? Mr. Johnston. No; nobody ever voiced any such sentiments to me. You are speaking of real estate people, are you not, or people interested in real estate ? Mr. George. Yes; owning real estate or dealing in real estate. Mr. Johnston. No; no such individual ever came to me on the matter. Mr. George. Has anything come before the board that you know of relative to the valuations, or any of the valuations, of the Southern Building property, at any time ? Mr. Johnston. Except as brought forward in this analysis of the report of the insurance commissioner. No individuals ever came be- fore the board in my hearing to speak of valuations or relative valua- tions there or elsewhere, or before me individually. Mr. George. Did you ever take any note of this passage in General Wynne's letter? Mr. Johnston. That letter I do not recall; and if I ever saw the let- ter, I did not read it. It may have been accessible to me to read, but I never read the letter until I read it here to-day. Mr. George. I believe Mr. Carusi, in his letter, referred to valua- tions also ? Mr. Johnston. Yes; he did. Mr. George. Did you know what he referred to there. Did you understand that he was referring to particular valuations ? Mr. Johnston. I did not understand he was. He referred to peo- ple in the neighborhood, who were desirous, as I understood his letter, of keeping their valuations low. Mr. George. Did you have in mind anybody when you read that portion of the letter ? Mr. Johnston. No. INVESTIGATION OF INSURANCE COMPANIES. 29 Mr. George. Did you know of anybody who would have any interest in keeping values low ? Mr. Johnston. No; I do not. Mr. George. Or of putting values high ? Mr. Johnston. No ; the only thing I knew in that regard was a little table prepared by the president of the board and called to our attention as to values of property in that neighborhood. Mr. George. When was that ? Mr. Johnston. It was in the course of this matter that is now before the committee, as it was coming up. Mr. George. At what stage of the matter ? Mr. Johnston. The president can tell when that was. Mr. George. But you do not know yourself ? Mr. Johnston. I do not recall just exactly what stage of the matter. Mr. George. Did you understand what the assessment of the property was, the triennial assessment ? Mr. Johnston. I did not know what it was. I do not know now what the last assessment of the particular property of the Southern Building was, or of any of the other values in the neighborhood. Mr. George. Have you any knowledge of any subsequent valu- ation of the assessors of that same property ? Mr. Johnston. They made an assessment in connection with these proceedings. My recollection is that it was in the neighborhood of $1,600,000, or something of that kind. Mr. George. But you are not sure of those figures ? Mr. Johnston. No. Mr. George. That was the recent Mr. Johnston (interposing). That was the last valuation made by the assessors. Mr. George. That is not a regular assessment which goes on the. assessment books ? Mr. Johnston. No. Mr. George. It is an appraisal of the property? Mr. Johnston. Yes; it is an appraisal of the property. Mr. George. At whose request was that appraisal made? Mr. Johnston. It was made in obedience to an order of the board of commissioners. Mr. George. Have you a copy of that order? Mr. Johnston. I do not know whether I have or not in this bundle here. It was made, however, before I returned from my leave of absence. Mr. George. You were not present ? Mr. Johnston. I was not present. Mr. George. If you were not present, we will let that go. But did you subsequently take an interest in the matter ? Did you follow it m any way ? Mr. Johnston. Yes ; I took an interest of my own. Mr. George. But you can not now remember anything about the official assessment for taxation purposes, known as the triennial assessment, the most recent triennial assessment ? Mr. Johnston. No ; I do not know the figures for their assessment on any particular piece of property; no, sir. SO INVESTIGATION OF INSURANCE COMPANIES. Mr. George. And what did you understand was the purpose of a new appraisement of that property I Mr. Johnston. To ascertain some explanation of the extraordi- nary increment in value, apparently overnight, after the purchase of the building. As I understand, 'the building was purchased on the 29th of October, and in the report of the insurance commissioner as of October 31, it was appraised— having been purchased at $1,500,000 plus, or 81,554,000— on October 29 it appeared in the report of the Commissioner of Insurance as of October 31 as worth two millions, an enhancement in value of something like four hun- dred and forty odd thousand dollars. Mr. George. But you had the official assessment of the board of assessors. Did you question that assessment — that valuation? Mr. Johnston. Which I Mr. George. Did you think the assessment made by the assessors for taxation purposes was too low I Mr. Johnston. I did not. I mean, generally speaking. In the first place, the labor of the assessors does not come under my imme- diate supervision. Mr. George. No; but as commissioner ? Mr. Johnston. But I have confidence in the assessors, and I be- lieve their assessments are fair and just; and I think their figures will show, as in some instances I have seen, that their valuations are close to the market valuations; that is, the prices paid for the properties. Mr. George. Did you believe the valuation of the Southern Build- ing by the assessors was based upon sales in the neighborhood ? Mr. Johnston. I think in that general neighborhood; yes. Mr. George. That was your feeling? Mr. Johnston. I have had cases shown me, for instance, where the totals in a particular neighborhood were remarkably close to the totals derived from actual sales of property in the neighborhood. Mr. George. General, I am not asking you now about that, but what your state of mind was then. Mr. Johnston. That is how I happen to derive confidence. They are not under my immediate supervision. I have confidence in the fairness and justness of the valuations of the assessors of the District of Columbia. Mr. George. And you had at that time ? Mr. Johnston. I had. Mr. George. Then why did you approve of a revaluation of the property in question; that is, the Southern Building property ? Mr. Johnston. The extraordinary increment in value of $450,000 within two days after they had paid $1,554,000 seemed to need some explanation, I presume; and the two commissioners, who passed the order in my absence directing the revaluation, probably thought the same thing — that it needed some explanation. Mr. George. From whom? Mr. Johnston. I presume from the commissioner of insurance of the District of Columbia. Mr. George. But you asked the board of assessors to make a revaluation; that is, your colleagues on the commission Mr. Johnston (interposing). Yes. Mr. George (continuing). Asked the board of assessors to revalue the Southern Building property ? INVESTIGATION OF INSURANCE COMPANIES. 31 Mr. Johnston. Yes. Mr. George. How is it you explain that to yourself ? Why should they do that ? Mr. Johnston. Why should they do it ? Mr. George. Yes. Why should the commissioners ask the board of assessors to make a new valuation? Mr. Johnston. I do not know what was in their minds. You are asking me to explain what was in their minds. Mr. George. I am asking you what was in your mind ? Mr. Johnston. As to that, I wanted to have some explanation of it; and believing in the fairness of the assessors of the District, I would base my judgment of the real value of the property on the value arrived at by them. Mr. George. Well, it was already on the books. You had the value on the books, their official assessment, and taxes were paid upon that assessment ? Mr. Johnston. Yes. Mr. George. And then, subsequently, in your absence, your col- leagues ordered a new examination and a new appraisement ? Mr. Johnston. Yes. Mr. George. And was it in your mind that you did not quite have full confidence in the figures of the assessors in this particular respect ? Mr. Johnston. On the contrary. I do not know that there has been any variation in the revaluation made by them in any respect. I venture to say the figures are the same or closely alike. Mr. George. Are you assuming that the appraisement made by the board of assessors brought out practically the same result as the trien- nial assessment ? Mr. Johnston. I think so; very nearly the same- Mr. George. You never examined the matter ? Mr. Johnston. No ; I have not examined into it. I have not the information as to those two valuations. Mr. George. You never heard that there was any material differ- ence between the assessor's figures for taxation and the triennial report ? Mr. Johnston. No; I have never heard that. Mr. George. And a subsequent assessment made by the same board of assessors ? Mr. Johnston. I never heard there was any material difference. Mr. George. You never heard there was something like $500,000 difference ? Mr. Johnston. No; that might be explained by improvements in the neighborhood since the triennial assessment was made. Mr. George. Yes. I just wanted to find out how you were impressed in this matter, and what was the process of your thought. Mr. Johnson. General, by whom was your attention fhst called to this increase in appraisement of value ? Mr. Johnston. On my return Commissioner Rudolph first spoke to me about the insurance matter being before them, and that Col. Judson would probably see me later in regard to the matter. As to that particular item, Col. Judson first called my attention to it. Mr. Johnson. Col. Judson, do you want to ask a question ? Col. Judson. I merely wanted to ask the general it he did not re- m omT-.oT- that a Arm airWaKI ft timfl p.la.ns prl between the time the asses- 32 INVESTIGATION OF INSURANCE COMPANIES. sors made their assessment for the purpose of taxation and the time just recently when they made their appraisement for the purpose of this inquiry ? Mr. Johnston. Yes. I do not remember just when they made their appraisement, what month they made their appraisement. Col. Judson. Mr. George, I think it was, asked you about a table as to the value of property that Commissioner Rudolph had prepared, and whiach you said you had seen. Do you remember anything about that table, as to whether banks in the neighborhood carried as assets their banking buildings at higher figures than the assessments ? That was it substantially, was it not ? Mr. Johnston. Yes; in every instance. Col. Judson. Upon that list occurred the Union Trust Co., that is diagonally opposite the Southern Building ? Mr. Johnston. Yes; I recollect that. Col. Judson. In other words, this table showed a desire on the part of those bankers to exaggerate the value of their property? Mr. Johnston. It appeared to be so in this table. Col. Judson. In other words, if there was any desire on the part of these insurance companies to exaggerate the value of their build- ings, for the same reason there would be present the desire on the part of the banks to exaggerate the value of their property for the purpose of placing it among their assets? Mr. Douglas. One moment, General. If the committee please, I think this is an unusual and an objectionable procedure upon the part of Col. Judson, to undertake to ask his fellow-commissioner questions, and leading questions at that, suggesting the answer he wants. He is not here as counsel in the matter; he may be here as prosecutor, prosecuting this investigation, but if he is permitted to examine the witnesses at all, it seems to me that he certainly should not be allowed to ask questions suggestive of the answer he wants to get. Mr. Johnson. Before the investigation commenced the committee determined, and I so announced this morning, that all parties in interest might ask questions, and we consider the commissioners parties in interest. They have, at least, a general interest in the whole matter for the public. The committee has also decided that the in- vestigation will be permitted to take wide range. It is objectionable that Col. Judson should put his questions in such a leading way, and it is hoped that in the future he will ask questions and let the witness answer them without suggesting the answer in his question. Mr. Johnston. Might I suggest that this would all be simplified if we introduced that table in the record. The chairman of the board probably has the table with him. I have a copy of it, but have not it with me. That would answer all the questions that Col. Judson has asked me. Mr. Johnson. The committee would be glad to put it in the record. Mr. Rudolph (handing a paper to Mr. Johnson) . There are some pencil notes on there, Mr. Chairman, that I do not think it is necessary to copy into the record. Mr. Johnson. Do you wish the pencil memorada not to appear ? Mr. Rudolph. No, sir; because those figures were very hastily prepared, and may not be exactly right, not nearly enough right to put in the record. INVESTIGATION OF INSURANCE COMPANIES. 33: Mr. Johnson. Will you be kind enough to furnish me with a copy of this with the pencil memoranda on it ? Mr. Easby-Smith. Are those pencil memoranda percentages, or what ? Mr. Rudolph. Percentages of the difference between the true value, or the apparent true value, and the amount carried upon the books as assets of the various companies. Mr. Easby-Smith. I have a table here in which I have carried out to the end in pencil the percentage which the true value, indicated by the assessments, is of the value as carried upon the books of the Treasury Department, computed accurately [handing a paper to Mr. Johnson]. Mr. Johnson. The desire now, I believe, is to get into the record the statement just furnished by Mr. Rudolph, which does not include the pencil memoranda. Mr. Rudolph. Yes. Mr. Johnson. By general consent it may go into the record without being read. If there is no objection it will be done and the stenog-' rapher will incorporate it at this point. The table referred to above is in the words and figures following, to wit: Assess- Indicating ment. true value. $651,266 $976,899 53,254 79,881 247,486 371,229 109,536 169,304 64,430 96,645 25,311 37,966 38,160 57,240 200,500 300,750 370,078 555,117 228,500 342,750 419,151 628,726 284,787 427,180 460,831 691,246 124,620 186,930 149,560 224,340 7,660 11,490 Carried at— Union Trust Columbia National American National Bank Second National Bank Lincoln National Bank Washington Mechanics Savings Bank United States Savings Bank Commercial National Bank National Metropolitan Bank Eiggs National Bank Washington Loan & Trust Co National Savings & Trust American Security & Trust Co District National Bank Union Savings Bank Anacostia Bank $1,167,106.37, 80,000.00 458,872.34 208,550.18 130, 000. OS 30,516.30- 69,300.00 358,561.86 858,841.30 346,434.05 892,274.41 765,000.00 750,000.00 267,095.34 319,950.00 14,831.4!} Mr. Johnson. As to that statement, it occurs to me that it can come out later when we have some of the owners of adjacent property to this insurance company's building, and question them as to it. Mr. Easby-Smith. Might I suggest at this point that the commis- sioner be requested to have prepared for use in the future hearings, and have prepared as speedily as possible, a plat showing the various parcels of real estate contained in the four blocks which converge at the corner of Fifteenth and H Streets NW., and indicate upon the face of each parcel the assessed value. I think if we could have that as an exhibit here, to refer to in the course of the testimony ; it would be a very great aid, and it seems to me that map could be prepared very readily from the records in the surveyor's office. Mr. Johnson. I will ask you, Mr. Rudolph, as president of the board of commissioners, if you can do that ? Mr. Rudolph. I will be glad to do it. Col. Judson. May I suggest on behalf of the commissioners that there be added to it any data as to actual sales of property in that same area. 34 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. I would like to ask just there if the data would be the recited consideration or the real consideration ? Col. Judson. I think in most cases they can ascertain the true consideration. I think where they can not that they should omit it. Mr. Johnson. The committee itself can call such witnesses here as it may wish for the purpose of establishing the real consideration. Col. Judson. Yes ; it could be verified by your calling witnesses from whom to obtain the data. Mr. Douglas. I do not think this statement ought to be encum- bered with that, because that would necessarily be hearsay. Mr. Johnson. That would be a matter of separate inquiry. Mr. George. You mean the map shall merely show the assessment ? Mr. Johnson. I think that is all the map should show as an official document; and, as has been indicated, the widest range will be given everybody for ascertaining the truth and all the truth. Col. Judson. Then. I would suggest that we have another one made of the same size, putting down such sales as the assessors believe have occurred and the figures at which they reported them, so the com- mittee will have a basis for actual investigation and verified or dis- proved. Mr. Johnson. The committee would like to have the same informa- tion and perhaps additional information that the assessors would have, in making a report of that kind. Col. Judson. Exactly; that was my idea, that they would give you exactly their sources of information, and you can verify it under oath or make your own investigation. Mr. Easby-Smith. I submit that the only matter which can be considered by this committee in that regard is the testimony of wit- nesses who are brought here to testify before this committee, and not any hearsay information collected in the office of the assessor of taxes or the Commissioners of the District of Columbia, and this map ought to be unincumbered with any marks except those of the official records of the surveyor's office and the tax assessor's office showing the assessment. And we are prepared — I do not know as to the insurance companies, but I am prepared, if necessary, for my client, to produce testimony showing actual sales within that territory and showing the actual value of those properties. I presume the insu- surance companies will do the same thing, and if the commissioners desire to do it, I think they should bring their witnesses here to testify. Mr. Johnson. One of the principal questions in this investigation is whether or not the insurance company's building is being carried upon their books at too high a figure, and this committee wfll under- take to ascertain whether it is carried at too high a figure or not, and we will be glad to go into the value of that property from any stand- point that may show it, and one of the points from which we will view it will be the value of surrounding property. Mr. Carusi. If the committtee please, there are three suggestions, relating to the same thing, that I would like to make of information that will throw fight upon the subject. That the Comptroller of the Currency be requested to furnish a list of the figures at which the dif- ferent financial institutions of the District under his jurisdiction carry their property. INVESTIGATION OF INSURANCE COMPANIES. 35 Mr. Johnson. I would suggest that the committee can get at that in the course of their investigation. Mr. Carusi. It will be valuable as material for cross-examination of witnesses who may testify about these things. Mr. Johnson. We will try to get that. Mr. Carusi. I would like to suggest also that the superintendent of insurance be asked to furnish a list from his official records of the figures at which the various insurance companies carry their real property in this District. Mr. Johnson. It was announced by the committee at the beginning of this investigation that the commissioner of insurance would be permitted to go upon the stand later on in the investigation, he being treated very much in the nature of a defendant in this matter. .If he desires to come sooner, of course, he will be subject to cross-examina- tion sooner. Mr. Carusi. My third suggestion is that the tax office furnish a separate and short list of the properties carried by .the banks, trust companies, and insurance companies. Mr. Johnson. The intention of the committee was to take that up by witness after witness and get it in the order in which they thought it would best come. Now, gentlemen, are you all through with. Gen. Johnston ? Mr. Easby-Smith. There are one or two questions suggested by the redirect examination that I would like to ask Gen. Johnston. Gen- eral, you said you had every confidence in the ability, etc., of the tax assessors of the District ? . Mr. Johnston. Yes. Mr. Easby-Smith. I desire to ask whether or not, when you made that answer, you were aware of the fact that the. National Savings & Trust Co., of which Mr. William D. Hoover is president, located at the northeast corner of Fifteenth Street and New York Avenue NW., pays taxes upon an assessment of $284,787, indicating a true value, according to the assessors, of $427,180, and that the property is car- ried by that banking institution in the Treasury Department as an asset amounting to $765,000? Mr. Johnston. That figure at which they carry it, I believe, is con- tained in the table prepared by the president of the board of com- missioners. Mr. Easby-Smith. Did you have knowledge concerning that state of affairs when you made answer to Mr. George concerning your con- fidence in the board of assessors ? Mr. Johnston. Yes. Mr. Easby-Smith. There is one other matter that was brought out in one of your answers to Mr. Douglas. You stated that, so far as you remembered, the president of the board, Mr. Rudolph, had not expressed his reasons for his vote for or against certain motions. Does the fact that he had this table prepared and discussed it with you refresh your recollection as to any reasons he may have advanced for his vote 1 Mr. Johnston. The table had been prepared by the president of the board of commissioners. He did not hand it to me personally. It was sent to me, so we did not discuss the table. Mr. Easby-Smith. Concerning the votes on the motions, you stated during- Mr. Douglas's examination that Mr. Rudolph had said it was 36 INVESTIGATION OF INSURANCE COMPANIES. inexpedient to vote for certain motions. Will you state whether or not there were certain motions made in the course of this matter before the board against which you voted or which you noted and did not vote for ? Mr. Johnston. There was one motion made with regard to the request of the insurance department of the State of New York that was not passed as drawn by the party proposing it. Mr. Easby-Smith. Who proposed it ? Mr. Johnston. It was proposed by Col. Judson. Mr. Easby-Smith. Did not that motion involve the alternative of inviting the insurance department of New York to come or the removal from office of Mr. Ingham ? Mr. Johnston. I would have to look at that particular motion to refresh my memory on it. Mr. Easby-Smith. Have vou the minutes of the board here, Mr. Rudolph ? Mr. Rudolph. Yes. [Certain papers were here handed to Mr. Easby-Smith.] Mr. Easby-Smith. General, will you examine this paper and state whether or not that is the motion to which you refer? Mr. Johnston. This was not the one I referred to when I was speaking. Mr. Easby-Smith. Will you state whether or not you voted for that motion [indicating] ? Mr. Johnston. No; I did not. Mr. Easby-Smith. You voted against it. Mr. Johnston. I do not really know that this was brought to my attention, or brought to the attention of the board to vote on. Mr. Johnson. Mr. Easby-Smith, you are interrogating the witness and referring to a motion, as "that motion," while the committee has no knowledge of what it is. Mr. Easby-Smith. I was going to identify it [reading] : Engineer Commissioner, District op Columbia, Washington, December 9, 1912. Unless, in pursuance of my motion of December 6, 1912 ' Col. Judson. Read the date of that motion. Mr. Easby-Smith. December 9, 1912. [Continuing:] the insurance department of the State of New York be invited to examine into the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, and unless that department accepts this invitation, I am constrained to move that the commissioners declare the office of superintendent of insurance of the District of Columbia vacant, and proceed to seek and appoint to that office the best man that can be found to accept the position. W. V. Judson, Lieutenant Colonel of Engineers, XI. S. Army, Engineer Commissioner, District of Columbia. Do you have any recollection, Gen. Johnston, as to whether or not you voted on that ? Mr. Johnston. Xo; I do not recall being called upon to vote for this at all. This is not the one I had in mind when I spoke. Mr. Easby-Smith. I will ask the president of the board whether or not he has any other motion similar to that among the records of the commissioners ? Mr. Rudolph. I have not, Mr. Easby-Smith. INVESTIGATION OF INSURANCE COMPANIES. 37 Mr. Easby-Smith. Will you state whether or not you have the motion of December 6 referred to in that motion of December 9. Mr. Rudolph. I have not a copy of the motion of December 6. Mr. Easby-Smith. I will ask Col. Judson whether or not he has. Col. Judson. I have them all here in sequence, all the motions I have made in this matter and the action upon them. Mr. Johnson. As Col. Judson will testify immediately after lunch, would it not be very well to let it go until then ? Mr. Easby-Smith. I want to identify the motion by this witness as the motion which he says he did not vote for, and I have exhausted my other means of procuring it. The president of the board does not have it, and I submit I ought to be permitted to exhibit it to Gen. Johnston and let him state whether or not that is the motion to which he has referred in his testimony. Mr. Johnson. Very well, sir. Mr. Easby-Smith. Will you look over these papers [indicating] and see if you find it? I refer now to a paper dated December 6, 1912, now before you, which I will read in the record for the sake of identi- fication, as follows: December 6, 1912. Understanding that the insurance department of the State of New York has recently been refused the cooperation or consent of the superintendent of insurance of the Dis- trict of Columbia, necessary to examine into the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, one or both, I move that the Insurance Department of the State of New York be invited to make such examinations at such times as it may desire, preferably in the near future, and I further move that the superintendent of insurance of the District of Columbia be instructed to cooperate with the insurance department of the State of New York in this matter. W. V. Judson. Lieutenant Colonel of Engineers, U. S. Army, Engineer Commissioner, District of Columbia. Is that the motion to which you referred recently, in answer to a question, that there had been a motion made which you voted against ? Col. Judson. Will you let me prompt the general, for the sake of getting at that ? Mr. Johnston. Will you get the one that was introduced? It differs from the one here. Col. Judson. That is the one right here [indicating]. You sub- stituted for this motion [indicating] this motion [indicating], which is very similar, and I approved this [indicating]. Mr. Johnston. I was looking for this one, which is already in the record. The motion that prevailed, in lieu of the one just read by Mr. Easby-Smith, is the one that has already been introduced in the record, dated December 10, 1912, and reads as follows: Understanding that the insurance department of the State of New York has re- quested the cooperation or consent of the insurance department of the District of Columbia necessary to examine into the books and accounts of the Commercial Fire •Insurance Co. and the First National Fire Insurance Co. of the United States, one or both, I move that the insurance department of the State of New York be advised that such consent is granted, and that such cooperation as it is practicable for the in- surance department of the District of Columbia to render will be freely accorded in the making of such examination as it may desire, preferably in the near future, and that the superintendent of insurance of the District of Columbia be instructed accord- ingly. Mr. Easby-Smith. With the exception of those two motions, which are now explained, the motion which you have last read having 38 INVESTIGATION OF INSTJKANCE COMPANIES. been adopted with your vote, in lieu of the previous one dated Decem- ber 6, will you state whether or not there were any other motions made by any member of the board of commissioners during the course of this matter against the adoption of which you voted or which you noted without voting ? Mr. Johnston. Not that I recall. Mr. Easby-Smith. Were you at any time called upon to vote upon the removal from office of Mr. Ingham, either as a director or as an alternative proposition? Mr. Johnston. I do not recall. Mr. Easby-Smith. You testified in Mr. Douglas's examination and again on redirect, I think Mr. Johnston. You are speaking of the board action, of course? Mr. Easby-Smith. I mean, as a commissioner of the District, whether in formal board meeting or outside of formal board meeting, you were ever called upon to vote upon the proposition of the removal from office of Mr. Ingham? Mr. Johnston. I think there is on my desk at the present time a motion to — this is a copy of it [producing paper]. Mr. Easby-Smith. Will you read it? Mr. Johnston (reading): December 13, 1912. In view of the fact that the State of New York has not yet sent a representative to inspect the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, I move that the office of superintend- ent of insurance lie declared vacant. Mr. Easby-Smith. Who made that motion? Mr. Johnston. Col. Judson. Mr. Easby-Smith. Were you called upon to vote upon that motion ? Mr. Johnston. It is on my desk at the present time. I have not acted on it. Mr. Easby-Smith. Either affirmatively or negatively? Mr. Johnston. No. Mr. Easby-Smith. Do you know whether or not that motion has been submitted to the president of the board for his vote ? Mr. Johnston. I do not. Mr. Easby-Smith. Has it been brought before the board in regular board meeting ? Mr. Johnston. Not to my knowledge. Mr. Easby-Smith. Is it usual, in conducting the business of the board, for one commissioner to make a motion and submit it to another commissioner for his vote before taking it up in board meeting ? Mr. Johnston. If it is done, it is always confirmed by board action before it is made effective. Mr. Easby-Smith. Is it usual to follow that course of action; in other words, is it usual for Mr. Judson to prepare a motion and, before submitting it to the board in board meeting, to submit it first to you and gain your support of it and your vote upon it, and then subsequently bring it before the board, and you and Col. Judson adopt it by voting for it, either with or against the president of the board ? Mr. Johnston. I do not think that is usual; no. INVESTIGATION OF INSURANCE COMPANIES. 39 Mr. Easby-Smith. Has it ever been done before, except in this case? Col. Judson. I submit it has not been shown that it has been done in this case. Mr. Johnston. Well, let him ask any questions he cares to ask. Col. Judson. Counsel is getting evidence in; that is all. Mr. Easby-Smith. We are getting a good deal in, Colonel. Will you read the question? [The question referred to was read by the stenographer as follows :] Has it ever been done before except in this case? Mr. Easby-Smith. Has it ever been attempted to be done except in this case, to your knowledge ? Mr. Johnston. Making motions ? Mr. Easby-Smith. In the manner in which I have described. Mr. Johnston. In the course of the administration of the business it frequently happens that communications come across my desk embodying motions with reference to various matters, and the paper is stamped "approved" or "noted" by myself, and if it is a matter upon which board action is actually required, it is subsequently confirmed by the action of the board as such. Mr. Easby-Smith. General, was that motion submitted to you by Col. Judson before or after you signed the letter referring this matter to this committee ? Here is a copy of it [handing paper to witness]. Mr. Johnston. They are both dated on the same date. Mr. Easby-Smith. I have asked you for your personal recollection. Mr. Johnston. That I can not recall. I could not make up my judgment to approve that motion. Mr. Easby-Smith. Do you remember the conversation between Col. Judson and yourself, when he submitted to you that motion ? Mr. Johnston. No; I had no conference with Col. Judson as to that motion at all. That was just placed on my desk. I found it lying on my desk. Mr. Easby-Smith. Did you have any conference with him at the time you wrote and signed that letter addressed to the chairman of this committee ? Mr. Johnston. No. Mr. Easby-Smith. Did you dictate that letter? Mr. Johnston. I did not. Mr. Easby-Smith. It was dictated by Col. Judson ? Mr. Johnston. I do not know who dictated it. Mr. Easby-Smith. By whom was it brought to you ? Mr. Johnston. I can not recall — by messenger, I think. Mr. Easby-Smith. You have no method of refreshing your recol- lection so that you could tell this committee whether or not that motion was submitted to you before or after you signed this letter addressed to the chairman of this committee? Mr. Johnston. I do not recall. I found this motion on my desk in the ordinary course of business. Mr. Easby-Smith. You do not know where it came from, except that it bore Col. Judson's signature ? Mr. Johnston. It came to me in the ordinary course of business. Mr. Easby-Smith. And bore Col. Judson's signature ? Mr. Johnston. And bore Col. Judson's signature, as I recall it. 40 INVESTIGATION OF INSURANCE COMPANIES. , Mr. Johnson. The committee will now take a recess until 2 o'clock. Whereupon, at 12.35 o'clock p. m., a recess was taken until 2 o'clock p. m. AFTER RECESS. The subcommittee met, pursuant to the taking of recess, at 2 o'clock p. m. TESTIMONY OF ME. JOHN A. JOHNSTON— Continued. Mr. Easby-Smith. I have one further question to ask Gen. John- ston. General, I understood you to say, in answer to a question of Mr. Douglas, that Mr. Ingham's appointment was in pursuance of the usual policy of the commissioners in promoting persons in the service, so far as they are capable, etc. Do you remember whether or not Mr. Curry, as examiner, and Mr. Ingham, as statistician, stood upon the same basis, so far as salary was concerned ? Mr. Johnston. I believe he was. Mr. Easby-Smith. As a matter of fact, were you not aware that an order had been made some time previously by the commissioners to the effect that in the absence of the superintendent of insurance the examiner should be acting superintendent and sign all mail and vouchers as such, so that in fact Mr. Curry was senior in rank to Mr. Ingham ? Mr. Johnston. I do not recall absolutely. I believe it was so. I believe that is correct, though. Col. Judson. May I ask a question or two ? Mr. Johnson. Yes. Col. Judson. Do you recall on further thought, General, whether there were a number of candidates or not for this position ? Mr. Johnston. I do not know who asked me that question. Mr. Easby-Smith. I did originally. Mr. Johnston. In thinking it over I recall a Mr. Howard who was a candidate, and who came to see me with regard to his own appoint- ment, who was not in the District government service, but claimed to have had experience as an insurance man. Col. Judson. And do you remember whether there were petitions for the appointment of various ones ? Mr. Johnston. There was one other man who came to me person- ally, also preferring his claims for the appointment, who was not an employee of the District government, whose name I can not recall. Col. Judson. Do you remember anything about any charge against Mr. Ingham that might be said to be a charge against his integrity and the propriety of his appointment, that was made during this time that the position was vacant ? Mr. Johnston. Yes; I remember that there was a charge of that nature. I do not recall the name of the party who made the charge. Col. Judson. And what was the nature of the charge ? Mr. Johnston. Of the payment, of some sort of small amount — it was some time ago. Mr. Johnson. What was that ? I did not catch it. INVESTIGATION OF INSURANCE COMPANIES. 41 Mr. Johnston. The payment of a small amount to Mr. Ingham. Col. Judson. For what purpose ? Mr. Johnston. For the purpdse of securing him employment, I think, in the District service, as I recall. Mr. Easby-Smith. What was that last statement ? The Reporter (reading) : For the purpose of securing him employment, I think, in the District service, as I recall. Col. Judson. Mr. Ingham, that is to say, used his influence for money to get him appointed ? Mr. Johnson. Yes. Col. Judson. What influence could Mr. Ingham have ? Mr. Johnston. None whatever. Col. Judson. Not with the commissioners Mr. Johnston. Not with the commissioners. Col. Judson. But with anyone in Congress who was important ? Mr. Johnston. Mr. Ingham has been variously stated to be a nephew, a relative, or one in whom Senator Gallinger is interested. Col. Judson. Do you know whether Senator Gallinger wrote a letter to the board or to any members thereof, to yourself or to any other member, requesting Mr. Ingham's appointment to that position when he was appointed ? Mr. Johnston. I do not recall any letters received by myself, but I believe a letter was addressed to the board of commissioners or to the chairman of the board. Col. Judson. Were you present when Mr. Ingham was brought in before the board to be questioned with reference to this charge that some one had paid him money to get him a position in the District service ? Mr. Johnston. I do not recall that distinctly, but I probably was. Col. Judson. You do not remember the incident, or what occurred ? Mr. Johnston. No, sir; I do not remember what occurred. Col. Judson. One other question: You were asked by counsel on the other side of the table to read a statement of the reasons why the commissioners had directed an immediate examination of the books and papers. Do you remember reading a portion of that statement ? Mr. Johnston. Yes. Col. Judson. Did you read all of the statement? Mr. Johnston. There were other papers connected with the state- ment that I did not read. Col. Judson. I will refresh your mind by handing you the whole statement. Mr. Johnston. I read only what I had here. Col. Judson. This is the beginning and end of the statement [indicating]; this is the motion that was adopted [indicating]. There is the end of it [indicating]. I will ask you if you will not read into the record the rest of that statement. Mr. Johnston (reading) : First National Fire Insurance Co. of the United States. Home office, Southern Building, Washington, D. C, December 5, 1912 Mr. Douglas. I beg your pardon. What are you reading from now? 42 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. Start here [indicating]; that connects it up. Mr. Johnston. I read this morning what has been introduced before the committee as a partial explanation of a certain action taken by the board of commissioners, which. concludes: The company owning the other half of the building in question is the First National Fire Insurance Co. of the United States. With reference to the proposed revaluation of the building, the following letter has been received from the general counsel of the First National Fire Insurance Co. of the United States Col. Judson. I beg your pardon. That letter is already in the record. You may skip that. Mr. Johnston (reading) : First National Fire Insurance Co. of the United States, home office, Southern Build- ing, 'Washington, D. C, December 5, 1912 That has already been read. Col. Judson. That has been read. Mr. Johnston. Signed by Charles F. Carusi, general counsel The superintendent of insurance has received a letter of which the following is a copy: Commercial Fihb Insurance Co. of the District of Columbia, December 6, 191%. Hon. George W. Ingham Col. Judson. That has also been read. Mr. Johnston. And that has also been read. Col. Judson. Begin after that. Mr. Johnston. That communication being signed : Very truly, yours, Commercial Fire Insurance Co., Robert R. Turtle, president. It is understood that the stock of the Commercial Fire Insurance Co. is being marketed at the present time for $11 per $5 share. The following is a printed copy of what purports to be a resolution adopted by the board of directors of the Commercial Fire Insurance Co., on November 11, 1912, three days after the date of the report of the superintendent of insurance: Commercial stock advances to $12 per share — To take effect after payment of January dividend. [Extract from resolution passed by the board of directors Nov. 11, 1912.] Whereas a ready market has been found for the sale of Commercial stock at $11 per share on account of the large volume of business being transacted by this com- pany, resulting in a large addition to its agency plant and premium income ; and Whereas the capital and surplus of the company have been recently materially increased and the company has earned for its stockholders a large sum of money in addition to paying the regular 12 per cent dividends, thereby increasing the amount of surplus on hand as well as the actual value of the stock: Now, therefore, Be it resolved, That on and after the payment of the semiannual dividend, payable January 1, 1913, no more of the capital stock of this company shall be sold for less than $i2 per share. Paul F. Grove, Secretary Commercial Fire Insurance Co. Col. Judson. Now, do you recall, in connection with that resolu- tion of the board of directors of November 11, that the statement of the commissioner of insurance of November 8, showing its con- dition as of October 31, discloses exactly what the business of the company has been during the preceding 10 months ? Mr. Johnston. I do not recall. Col. Judson. And what has happened to its surplus ? Mr. Johnston. I recall certain items. I do not recall the items of the statement in detail. INVESTIGATION OF INSURANCE COMPANIES. 43 Col. Judson. But you recall, do you not, that it started out at the beginning of that 10 months' period with a surplus of $72,000? Mr. Johnston. $72,000. Col. Judson. And sold stock or received premium on sale of stock of $144,000? Mr. Johnston. Yes. Col. Judson. And that, nevertheless, although those two amounts, within reason, with a certain small deduction should have appeared in the surplus, if its business has been running along normally during that 10 months, although it should have been there, yet it was not there, except to the extent of $2,000? Mr. Easby-Smith. I object to that, on the ground that it is argu- mentative. Mr. .Johnson. I think that would be more in order when you testify yourself, Col. Judson. Mr. Easby-Smith. I move that the question be stricken out as being argumentative. Mr. Johnson. I do not believe we will do that now. The com- mittee will not strike out this question, but wishes to emphasize the request, formerly made of Col. Judson, that he will desist from that kind of questioning. Col. Judson. I have no more questions, at any rate. Mr. Johnson. I hope that is not the reason why you are stopping. Col. Judson. Not at all; I was through with the last question. Mr. Johnson. If any more questions like that are asked the com- mittee will strike them out. The committee appreciates full well that Gen. Johnston can testify for himself. Mr. Easby-Smith. Besides Mr. Howard, was Mr. Donovan an ap- plicant for this position ? Mr. Johnston. No. Mr. Easby-Smith. The man who made this examination ? Mr. Johnston. No; not so far as I recall. Mr. Easby-Smith. Who made the charge against Mr. Ingham of having received money in payment for his influence in obtaining a position in the District service ?. Mr. Johnston. I said I did not recall the party's name. Mr. Easby-Smith. What position was Mr. Ingham to seek to obtain for this man ? Mr. Johnston. That I do not recall. Mr. Easby-Smith. How much money was paid ? Mr. Johnston. I do not recall. Mr. Easby-Smith. Do you recall anything in regard to it ? Mr. Johnston. Just the recollection that there was something of the kind. Mr. Easby-Smith. How was your recollection refreshed since your testimony of this morning ? Mr. Johnston. In talking over the matter with Col. Judson I recalled the fact. Mr. Easby-Smith. Did you recall it or did he remind you of it ? Mr. Johnston. I recalled it. Mr. Easby-Smith. What was said in the conversation which caused you to recall this fact which you did not remember this morning ? Mr. Johnston. He mentioned it. 44 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easbt-Smith. That charge was made, was it, before Mr. Ingham was appointed ? Mr. Johnston. It was. Mr. Easbt-Smith. And Mr. Ingham was called upon to respond to the charge ? Mr. Johnston. Yes. Mr. Easbt-Smith. And did he respond? Mr. Johnston. Yes. Mr. Easbt-Smith. And he was subsequently appointed ? Mr. Johnston. Yes. Mr. Easby-Smith. That is all. Mr. Douglas. General, Col. Judson asked you to finish the reading of the papers connected with that partial statement. You have not read a letter which purports to be one from yourself, as acting presi- dent of the commissioners, to Senator Gallinger, dated December 13, 1912. I see it is attached to a Senate paper. Mr. Johnston. No, sir. Mr. Douglas. That is all. Col. Judson. I might ask one question more, perhaps, and I will try not to make it a leading question. I am not very experienced, however, in asking questions; I am more experienced in answering them, or trying to answer them. Have you recently read the report of Mr. Donovan which has been referred to, which was the report of his investigation of the insurance office, or have you heard it read in part? Mr. Johnston. Partially. Col. Judson. Did it comment upon Mr. Ingham's ability to punc- tuate and spell ? Mr. Easby-Smith. I object. The document will speak for itself. Col. Judson. That is all. Mr. Johnson. Well, in the beginning we concluded that the ends of justice might be served to let the investigation take a wide range. While the document itself wovkl show, yet we deem it best to let attention be called to that document in that way. Mr. Easby-Smith. I have no objection to the document going in; that was not my objection. We should have the best evidence here, and not the hearsay or conclusion of this witness. Mr. Johnson. We understand that is the best evidence, and if Mr. Ingham, or you representing him, wish that in, we will put it in if there is not too much of it. But I think if Col. Judson had asked his question in a different shape, it would have been better, and that was one of the reasons why you hesitated about appointing him, if you did; but inasmuch as he was appointed, it was not of so much importance. Mr. Johnston. I think myself the document is, of course, the best evidence in regard to it. There is such a statement in the report. Mr. Johnson. If nobody desires to ask Gen. Johnston any more questions you may be excused, General, and we thank you. TESTIMONY OF LIEUT. COL. WILLIAM V. JUDSON. The witness was duly sworn. Mr. Johnson. Col. Judson, you are the engineer commissioner for the District of Columbia ? Col. Judson. Yes. INVESTIGATION" OF INSURANCE COMPANIES. 45 Mr. Johnson. You were advised with, at the time that Gen. Johnston, as acting president of the board of commissioners, sent a letter to me as chairman of the House District Committee relative to the investigation of the superintendent of insurance for the District and the three companies which have now been so many times mentioned ? Col. Judson. Yes, sir. Mr. Johnson. Now, General, I will ask you to please take up the- matter as it relates to the superintendent of insurance, Mr. Ingham, and also as it relates to the three insurance companies named in the resolution, and give us what information you have relative to them, in your own way. Col. Judson. I will find it difficult, perhaps, in testifying, for two reasons. One is, I have had the grippe for about 10 days, and I feel Very badly now; I have a headache, and I do not know but what I will have to ask your indulgence, if it lasts too long. Another matter is that I may run into hearsay evidence, because as a first-hand witness, I knew very little. Mr. Johnson. And I would request of other parties and attorneys that, in so far as it is possible, they let Col. Judson finish his statement, and then interrogate him relative to it. Col. Judson. On or about the 2d or 3d of December a prominent and very high-minded citizen, I believe, of the District of Columbia, brought to me several papers. Mr. Johnson. Would you name him, Colonel ? Col. Judson. Mr. Edward Stellwagen, president of the Union Trust Co. One of these was a report of the insurance commissioner, dated November 8, showing the condition of the Commercial Fire Insurance Co. as of October 31. Another was an extract from the report of Best's Insurance News, or Agency, I do not remember which. Others were letters that purported to have been written by those selling the stock of the Commercial Fire Insurance Co. to people to whom they were endeavoring to sell stock. Several were pamphlets that were printed, to be used in connection with the sale of stock. One was a printed copy of a resolution by the board of directors of the Commer- cial Fire Insurance Co., dated November 11, 1912, referring to the very excellent business of the company, to its large earnings, and to the fact that after the payment of the next semiannual dividend the selling price of the stock would be increased from $11 per $5 share to $12 per $5 share. This gentleman, whom I believe to have been interested in this matter mainly because he was a public-spirited citizen Mr. Johnson (interposing). You mean Mr. Stellwagen? Col. Judson. Mr. Stellwagen; yes. Asked me to go over these papers carefully, and see whether there was not some duty that was owed by the Commissioners of the District of Columbia to the com- munity in the matter. I took them home with me, and I went over them, and I came to the conclusion that there was a duty the com- missioners owed to the community and to the public in the matter. I regarded the report of the commissioner of insurance, which I have here, as showing that this company had apparently lost nearly all but not quite $160,000 — speaking broadly — in the way of loss. I do not mean that they had dropped it on the street; I mean they had lost it during the 10 months that had preceded this examination. 46 INVESTIGATION OF INSURANCE COMPANIES. That it had on hand — this is, omitting, however, a certain real-estate transaction that I shall treat of later. And that this amount of $160,000 was nearly one-third of all it should have had at the end of that period — because it had but $337,000 plus a few odd dollars plus $2,700 plus a few odd dollars — if it were not for this particular real- estate transaction which I questioned. In other words, that it had done an enormously losing business, losing one-third of all its assets in 10 months — not quite, but nearly. And in the face of such a busi- ness, when its directors passed such a resolution as that I have just described and which Gen. Johnston read into the record, a resolution referring to the great earnings of the company, to its being on a 12-per cent dividend basis, and the fact that it was earning so much money they were going to raise the price of the stock, it looked to me as if a wrong was being done, and so I thought some action was necessary. I have here the report of the commissioner of insurance, which I think should go in the record. Mr. Johnson. Has that gone in yet ? Mr. Easby-Smith. No; it has not been put in yet. Mr. Johnson. I think it ought to be in. Col. Judson. I will say that this statement does not show that the surplus over all the liabilities was but $2,700, as I stated, with a reservation, because it contains an item added thereto of $226,715, which is placed under the head of income, and is described as increase by adjustment in book value of real estate. Mr. Easby-Smith. May I suggest that I have two certified copies, one on each company, and they might go into the record and be filed as exhibits. Mr. Johnson. What are these ? Mr. Easby-Smith. Certified copies of two reports, one on the Commercial Fire Insurance Co. and the other on the First National, the same as Mr. Judson has before him. Mr. Johnson. These two certified copies may be inserted in the record at this point. Said copies follow. Department of Insurance of the District of Columbia, Washington, November 8, 1912. I, George W. Ingham, superintendent of insurance for the District of Columbia, do hereby certify that an examination has been made of the books and accounts of the Commercial Fire Insurance Co. of the District of Columbia, and the following is a true and correct copy of the report of said examination as the same remains on file in this department. In witness whereof I hereunto set my hand and the seal of this department the day and year first above written. [seal.] Geo. W. Ingham, Superintendent of Insurance, District of Columbia. Department of Insurance of the District of Columbia, Washington, D. C. 3 November 8, 1912. Mr. George W. Ingham, Superintendent of Insurance, District of Columbia. Dear Sir: Pursuant to your order No. 85, we have made an examination of the books and affairs of the Commercial Fire Insurance Co. of the District of Columbia, as of October 31, 1912. INVESTIGATION OF INSUKANCE COMPANIES. 47 The financial status of the company on said date was as follows: CAPITAL STOCK. Amount of capital paid up in cash $337, 307. 50 Amount of ledger assets December 31, 1911 $364, 950. 29 Increase of paid-up capital during the year 137, 307. 50 502, 257. 79 Gross premiums : $276, 881. 57 Deduct reinsurance $16, 535. 29 Deduct return premiums 72, 266. 16 88, 801. 45 Total premiums , 188, 080. 12 Interest on mortgage loans 5, 965. 91 Interest on bonds 2, 868. 39 Interest from all other sources 269. 52 Premium on sale of stock 144, 441. 00 Commissions on mortgage loans 146. 75 Increase, by adjustment, in book value of real estate 226, 715. 00 Total income 568,486.69 Sum 1,070,744.48 DISBURSEMENTS. Gross amount paid policy holders for losses $148, 942. 63 Deduct salvage ::....:::::.::: $70. 00 Deduct reinsurance 3, 782. 06 3, 852. 06 Net amount paid policy holders for losses Expenses of adjustment and settlement of losses Commissions or brokerage . Salaries, fees, and all other charges of officers, directors, trustees, and home-office employees Kent Advertising Printing and stationery Postage, telegrams, telephone, and express Legal expenses Furniture and fixtures Maps, including corrections State taxes on premiums Insurance department licenses and fees All other licenses, fees, and taxes Commission and expense on sale of stock Janitor Car fare Notary fees Water and ice Toilet supplies Newspapers Miscellaneous Paid stockholders for interest or dividends Loss on sale or maturity of ledger assets — bonds Total disbursements. Balance 145, 090. 57 3, 175. 39 65, 156. 58 13, 051. 64 1, 155. 00 2, 469. 79 2, 014. 58 977. 22 105. 75 1, 499. 48 720. 75 1, 144. 17 3, 636. 05 1, 238. 30 56, 349. 70 2.00 38.00 251. 90 61.64 7.50 86. 00 2, 176. 97 28, 632. 60 1, 715. 00 330, 756. 58 739, 987. 90 48 INVESTIGATION OF INSURANCE COMPANIES. LEDGER ASSETS. Book value of real estate (equity) $350, 000. 00 Less balance of purchase money due 18, 077. 94 $331, 922. 06 Mortgage loans, first liens 215, 750. 00 Book value of bonds 116,591.02 Cash in company's office 5, 783. 30 Deposited in bank not on interest 12, 973. 31 Agents' balances 55> 614. 02 Due from industrial department 13. 11 In hands of trustees of building fund 1, 255. 47 Deposit to clear title 85. 61 Total ledger assets, as per balance 739, 987. 90 NONLEDGEE ASSETS. Interest due and accrued on mortgages 3, 043. 41 Interest due and accrued on bonds 2, 016. 40 Gross assets 745, 047. 71 DEDUCT ASSETS NOT ADMITTED. Book value of bonds over market value 1, 341. 02 Total admitted assets 743,706.69 LIABILITIES. Gross losses, not yet due $6, 216. 38 Reserved for unpaid losses 21, 132. 74 Net amount of unpaid losses and claims 27, 349. 12 Unearned premiums 136, 260. 92 Estimated amount hereafter payable for taxes 1, 500. 00 Accrued taxes and interest on real estate 11, 850. 66 Total amount of all liabilities except capital 176, 960. 70 Capital actually paid up in cash $337, 307. 50 Surplus over all liabilities 229,438.49 Surplus as regards policy holders 566, 745. 99 Total liabilities 743, 706. 69 Real estate. — The records of the company show that this company in conjunction with the First National Fire Insurance Co. of the United States, of this city, purchased the Southern Building, located at the northeast corner of Fifteenth and H Streets NW., in this city, on October 29 last, for $246,570 and assumed two mortgage indebtednesses on same amounting to $1,300,000, share and share alike. An appraisement was made of this property, by your order, for the purposes of this examination, by a committee of three real estate men of this city, who placed its value at $2,000,000. All of the papers connected with the purchase of the building have been submitted to and approved by you. Each of the companies have taken their prorated Bhare of the increase in the value of the real estate in their assetB. Mortgage loans. — The mortgage loans were found to amount to $215,750. These were all shown to be first liens by careful examination of the certificates of title and deeds of trust. We checked all of the mortgage notes in each loan. Bonds. — The bonds amounted to $116,591:02. The rate used in arriving at the market value was secured from a very reputable bond house in this city. Cash. — The cash in office and deposited in bank was found to be $18,756.61. This amount was verified by certificates of deposit from the banks and the books of the company. INVESTIGATION OF INSURANCE COMPANIES. 49 Agent's balances. —The agent's balances, amounting to $55,614.02, were verified by the books. The item of $1,225.47 represents an unexpended amount of the purchase price of the real estate. The office building above referred to is occupied in part by the Commercial Fire Insurance Co. as its home office. The interest due and accrued on mortgage loans and bonds was carefully computed. LIABILITIES. The net amount of unpaid losses, amounting to $27,349.12, was carefully verified by the records. The unearned premium liability, amounting to $136,260.92, was also carefully verified. HISTORY. This company was incorporated on May 17, 1890, under the general incorporation laws of the District of Columbia, with a paid-up capital stock of $100,000. It con- fined its underwriting to the District of Columbia until 1910, when it made a rein- surance contract with a prominent firm of underwriters of New York City. In 1911 it increased its paid-up capital stock to $200,000. During that year it was admitted to a number of the States. Its paid-up capital stock was further increased this year to $337,307.50. The records are well and accurately kept, and the officers and employees of the company furnished all records and information called for, and the uniform courtesy is herewith acknowledged. Respectfully submitted. Daniel Curry, Examiner. W. S. Hall, Statistician. District op Columbia, ss: Personally appeared before me, Daniel Curry, examiner, and W. S. Hall, statis- tician, of the department of insurance for the District of Columbia, who, being sworn, depose and say that the foregoing report is true to the best of their information, knowl- edge, and belief. November 8, 1912. [seal.] Gertrude Ellis, Notary Public, District of Columbia. Department of Insurance of the District of Columbia, Washington, November 7, 1912. I, George W. Ingham, superintendent of insurance for the District of Columbia, do hereby certify that an examination has been made of the books and accounts of the First National Fire Insurance Co. of the United States, of the District of Columbia, and the following is a true and correct copy of the report of said examination as the same remains on file in this department. In witness whereof, I hereunto set my hand and the seal of this department, the day and year first above written. [seal.] Geo. W. Ingham, Superintendent of Insurance, District of Columbia. Department of Insurance of the District of Columbia, Washington, November 7, 1912. Mr. George W. Ingham, Superintendent of Insurance, District of Columbia. Dear Sir: Pursuant to your Order No. 84, 1 have made an examination of the books and affairs of the First National Fire Insurance Co. of the United States, of this city, as of November 2, 1912. 71391— No. 1—12 4 50 INVESTIGATION OF INSURANCE COMPANIES. The financial status of the company on that date was as follows: INCOME. -Interest on mortage loans $288. 96 Interest on deposits in banks 46. 17 Subscriptions to capital stock 250, 000. 00 Subscriptions to surplus 250, 000. 00 Commissions on mortgage loans 555. 00 Overpayments on subscriptions 72. 76 Exchange 3. 65 Increase, by adjustment, in book value of real estate 226, 715. 00 Total income $727, 681. 54 DISBURSEMENTS. Salaries, fees, and all other charges of officers, directors, trustees, and home office employees $2, 641. 27 Advertising • 2. 00 Furniture and fixtures 150. 00 Commission on sale of stock 29, 400. 00 Expense account, sale of stock 40, 600. 00 Accrued interest on mortgages purchased 378. 90 Premium on bonds purchased 322. 14 Discounts 9. 08 Office supplies 368. 35 Protested checks 50. 00 Refunds on stock payments 197. 75 Appraisal fee, real estate 100. 00 Total disbursements 74, 237. 49 Balance 653, 444. 05 LEDGER ASSETS. Book value of real estate f 1, 000, 000. 00 Less incumbrance 650, 000. 00 ■ $350, 000. 00 Mortgage loans, first liens 172, 050. 00 Less deferred payments 30, 600. 00 ■ ■ 141, 450. 00 Book value of bonds 80, 000. 00 Cash in company's office 1,525. 00 Deposited in bank, not on interest 10, 000. 00 Deposited in bank on interest 51 ) 135. 64 In hands of trustees on building fund l' 255. 47 Due from Commercial Fire Insurance Co 18^ 077. 94 Total ledger assets $653, 444. 05 NONLEDGER ASSETS. Accrued interest on mortgages 1 790, 87 Accrued interest on bonds ' 742I 49 Market value on bonds over book value 282! 00 Total admitted assets 656 259. 41 LIABILITIES. Accrued interest and taxes on real estate $11 850, 67 Capital actually paid up in cash $250, 000. 00 Surplus over all liabilities 394' 408. 74 Surplus as regards policy holders 644 408. 74 Total liabilities 656, 259. 41 INVESTIGATION OF INSTJBANCE COMPANIES. 51 Real estate. — The real estate consists of the Southern Building, located at Fifteenth and H Streets NW., this city, and is owned by this company and the Commercial Fire Insurance Co., of this city, share and share alike. This property was acquired on October 29 last and has been appraised at your direction. A copy of the appraisal is attached hereto. Mortgage loans. — The mortgage loans are all first liens on improved property in the District of Columbia. I examined the notes, deeds of trust, and certificates of title for each loan. The company appears to have ample security in each case. The deferred payments, amounting to $30,600, apply to two builder's loans, and the money due on account of same is being paid as the buildings approach completion. Bonds. — The bonds were examined and the market values ascertained by inquiry of a local stock broker. As they were all recently purchased, the book value was allowed in the two cases where no market price could be obtained. Cash. — The cash in office was verified by counting same, and the deposits in bank were verified and reconciled in the usual manner. The balance in the hands of the trustees for the building fund consists of funds remaining after the purchase of the building had been effected and which will be accounted for and returned to the company in a short time. The money due from the Commercial Fire Insurance Co. is also in connection with the purchase of the Southern Building and same will be adjusted without delay. The company was incorporated under subchapter 4 of chapter 18 of the Code of Law for the District of Columbia on July 9, 1912, with a capital stock of $250,000 divided into 50,000 shares of the par value of $5 each, and, according to its articles of incorporation, it intends to increase its capital to $1,000,000 at some future time. The term of its existence is perpetual, and it proposes to carry on a general fire insurance business. The stock of the company was sold at twice par, and all over the par value was credited to surplus. The contract for the sale of the stock allowed a commission of 7£ per cent and an allowance for expenses not to exceed \2\ per cent. By reference to the financial statement you will note that the expense allowance and commission on the $250,000 of stock issued together amounted to approximately 14 per cent. Additional stock of the compans' is being sold at the present time on the installment plan, but the funds received on this account are being held separate, and no stock will be issued imtil fully paid for and the increase in the company's capital is authorized. On this account $840,025 of capital and surplus has been subscribed, on which $239,407.50 has been paid, and from which is deducted $117,607.24 com- mission and expenses, leaving a balance in bank of $121,800.26, for which the company is allowed no credit in its statement. A contract has been entered into between the company and Tuttle, Wightman & Dudley (Inc.) giving these gentlemen the exclusive underwriting territory outside of the District of Columbia with a commission of 37J per cent and 10 per cent contin- gent on the net profits, as computed according to the agreement, for a term of 15 years from July 11, 1912. Under the by-laws the trustees, who are elected by the stockholders, elect the officers of the company, and on July 11, 1912, the following were elected: Robert J. Wynne, president; Ashley M. Gould, first vice president; Robert N. Harper, second vice president; Charles F. Carusi, general counsel; Frederick S. Dudley, treasurer; W. J. Davis, assistant secretary. The uniform courtesy of the officers and employees, who furnished all documents and records called for, is herewith acknowledged. All of which is respectfully submitted. W. S. Hall, Statistician, Department of Insurance, District of Columbia. District of Columbia, ss: Personally appeared before me, W. S. Hall, statistician of the department of insurance for the District of Columbia, who, being sworn, deposes and says that the foregoing report is true to the best of his information, knowledge, and belief. [seal.] Paul F. Grove, Notary Public, District of Columbia. Washington, D. C, October 28, 1912. To the Superintendent op Insurance, District of Columbia. Sir: Pursuant to appointment, we have examined the real estate of the Southern Building Corporation, known as three parts of lot 44 and buildings, in square 220, and to the best of our knowledge and belief the present cash value of such property, 52 INVESTIGATION OF INSURANCE COMPANIES. judging from its revenue-producing capacity, its location in the heart of Washinton's Wall Street or financial center and its very promising outlook for the future is $2,000,000. The building is a first-class fireproof steel and brick construction, and the ground is increasing in value. Respectfully submitted. H. H. Darneillb. Alexander T. Hensey. William P. Lipscomb. Col. Judson. One of the things that I did not like about this report if I may say so, the commissioner of insurance being a subordinate of ours Mr. George (interposing). Which report do you mean? Col. Judson. This report I have in my hand of the Commercial Fire Insurance Co., dated November 8. One objection I had was as to this real estate matter. It appeared that in the report — the report of the subordinates is made to the commissioner of insurance and then adopted by him. That is the usual form in the making of reports by the commissioner of insurance — it appeared to me as if those sub- ordinates who had made that report by the verbiage of it had en- deavored to protect themselves to a certain extent. For instance, referring to this purchase of this building, they said: "All of the papers connected with the purchase of the budding have been submitted to and approved by you." It looked as if there was an explanation as to why they did not go into this transaction. And another state- ment: "An appraisement was made of this property by your order for the purposes of this examination by a committee of three real estate men. Mr. Easby-Smith. Excuse me. Is it to be understood that these two reports will go into the record at the beginning of this analysis by Mr. Judson ? Mr. Johnson. The stenographer has already made a memorandum as to where they wdl go. Col. Judson. If I may, I would ask that there be put into the record, also, copy from the reporting service of the Best company, which was also brought to me, and which is dated November 26, 1912. Mr. Douglas. Let us see that. [After examination.] May it please the committee, I object, as representing the insurance com- panies, to this so-called copy of the reporting service of Best & Co., to whom I do not know. I object to it being introduced in evidence in this case on half a dozen grounds, two of which, I think, will be entirely sufficient. Mr. Johnson. We will save you a little time, Mr. Douglas. The committee will sustain your objection. Mr. Redfield. I would like to ask Mr. Douglas a question, how- ever, before you are through. You are the counsel for these insur- ance companies ? Mr. Douglas. Yes, sir. Mr. Redfield. Did I understand you to use the language "whom I do not know" ? Mr. Douglas. "Whom I do not know;" with reference to that? Mr. Redfield. With reference to this report of Alfred M. Best &Co. Mr. Douglas. I said it does not purport to state to whom it was made. It purports to be a copy of a report made by Best & Co. to somebody. INVESTIGATION OF INSURANCE COMPANIES. 53 Mr. Redfield. Did I understand you as to Alfred M. Best & Co., to use the words "whom I do not know" ? Mr. Douglas. With reference to the person to whom it was made. Mr. Redfield. But with reference to Alfred M. Best & Co. ? Mr. Douglas. No; I know nothing about Best & Co. except that they have something to do with insurance. I am making no reflec- tion upon Best & Co. at this time, if at all. I do not know them except in a general way. My statement was only as to the person to whom the report was made. It was in that connection I made the statement. Mr. Johnson. If this statement should be inserted in the record now, no statement having been made by Mr. Best, there would be no opportunity to cross-examine him with reference to it, and for that reason, and that reason alone, the committee deems it best not to insert it. Col. Judson. Among other papers which were handed to me, as described here, were two letters, one signed by Robert J. Wynne, president of the First National Fire Insurance Co., and one signed by Robert R. Tuttle, vice president, as he signs it, of the Commercial Fire Insurance Co., obviously addressed to prospective purchasers of stock. These I would like to put into the record, although it is im- material to me whether they go into the record or not. Mr. Douglas. I would like to ask preliminarily who cut the name out of this letter ? Col. Judson. I do not know; it was cut out when it was given to me, but I have been told it was addressed to the American Security & Trust Co. Mr. Johnson. In Washington ? Col. Judson. In Washington. Mr. Douglas. We had better not take the time to read them now, but we have no objection to going ahead and reading them. Mr. Johnson. Is it necessary to read this letter ? Mr. Douglas. I was going to suggest, to save time, the stenographer might embody this in the record. Col. Judson. That is all right. The letter referred to is as follows : First National Fire Insurance Co. of the United States, Washington, D. C, November $5, 1912. Dear Sir: In view of our previous correspondence with you, it gives me pleasure to write you of the successful completion of the organization work done by this com- mittee in connection with the First National Fire Insurance Co. The 2,000 owners were secured within 16 weeks. The first issue of First National stock, $500,000, was quickly taken; the second issue, $500,000, was subscribed within 20 days after it was offered; the third issue, $500,000, was also snapped up as soon as offered; and the fourth issue, $500,000, is now being subscribed for by the company's original stockholders at the rate of from $20,000 to $35,000 per day. This notable success in organization has been set forth in detail by one of the oldest and most influential insurance journals of the country, namely, the United States Review, published in Philadelphia. A copy of this article, detached from that publication, is inclosed herewith. It should receive your immediate and careful attention. We intended to tftart business with an initial capital and surplus of $500,000.; instead of that our success in organization has been so great and rapid that we have already begun business and the earning of profits for our stockholders, with a subscribed cap- ital and surplus of $1,500,000. We have also been enabled to invest the company's funds so advantageously that an income has been earned for the stockholders during the organization period. These 54 INVESTIGATION OF INSURANCE COMPANIES. investments, made through our finance committee, are chiefly in high-grade State and other bonds and in first mortgages upon real estate in the District of Columbia. The exceptionally strong financial status of this company is set forth in the inclosed financial statement, to which your special attention is called . Moreover, in connection with another large and long-established financial institu- tion of Washington, we have acquired title to the Southern Building, which was completed about a year ago. It is the largest and most successful office building in the National Capital, producing a rental revenue of approximately SI 50.000 per annum and yielding an exceptional return on the investment. This purchase, made under specially advantageous conditions, will give the First National the dignity and sta- bility enjoyed by other million-dollar fire companies which own and occupy Iheir own office buildings. The Southern Building is located in a neighborhood where values are rapidly advancing, and our directors believe that this investment will prove increasingly attractive each year both from a revenue-producing standpoint and as a notable addition to the permanent assets of the company. Based on the official appraisal of the department of insurance, the net profit to our stockholders on this transaction is .8200,000. or 10 per cent on the company's entire authorized capital and surplus. You will be especially interested to know that by the judicious handling of the funds of the company the directors of the First National have succeeded in wiping out all organization expense to stockholders, leaving the company with its full capital and a net surplu? far in excess of the amount subscribed, and thereby making First National stock, based on the company's admitted assets, worth considerably more than its present selling price. This is indeed a triumph — something which has been hitherto unknown in fire insurance organization in this country. Now, thus far, you have not availed yourself of the opportunity to share with us in the organization and profit of this great company, which began business during the present month — November — and has an insured premium income of over $1, 000,000 for the first year of its operation. It ought not to be that way. In your own interest — for personal profit — you should at least try to secure one of the few remaining 25-share blocks of the fourth issue of First National stock at the original and lowest price of $10 per share, totaling $250, and payable at the rate of $25 per month for 10 months. The sale of the fourth issue will be completed probably within the next 2 weeks, and therefore this opportunity is a passing one. I know that you have been interested in learning about our company, and therefore it seems but fair that you should have another and final opportunity to apply for 25 shares of First National stock. Therefore if you will sign and send in the inclosed conditional application, I will notify you within 5 days after its receipt whether or not your application can be accepted. If it can — upon being so notified — you may send your first $25 and then the same amount monthly for 9 more months, thus completing your gradual and total investment of $250. You need send no money with this application, which simply registers in this office your desire to have 25 shares in case they can be allotted you from the fourth and final issue which is now being so rapidly taken up. Don't forget that 22 American fire companies, in the class of the First National with respect to capitalization, made the remarkable average earnings in 1911 of 41.24 per cent. As the newly elected president of the First National, I shall be honored by the prompt receipt of your conditional application and, if the 25 shares can be made available for you, I shall do all in my power to make your ownership in the First National continually pleasant and profitable. Respectfully, yours, Robert J. Wynne, President. Col. Jtjdsox. Also I submit for the record a little pamphlet, which was the other paper handed to me. In that is printed a copy of the resolution of the board of directors of November 11, to which I referred. The only significant thing in that pamphlet to me or the most significant thing is that resolution printed on the back of it. Mr. Johnson. That will be printed in the record. Mr. Douglas. I do not suppose you want the whole pamphlet copied in the record, Mr. Chairman. Col. Judson. I say that is the most important thing. There are other things in it, but not so significant as that. Mr. Johnson. Yes; it is just as well to insert it as a whole. INVESTIGATION OE INSURANCE COMPANIES. 55 The pamphlet referred to is as follows : SPUR — A MAGAZINE ON ONWARDNESS. Vol. 2, Nov. 15, 1912. No. 2. Published now and then by Tuttle, Wigbtman & Dudley (Inc.). W. V. J. Managing underwriters for tbe United States Commercial Fire Insurance Co. Wash- ington, D. C.J Since you got the last number of Spur there have been Borne important doings. The Commercial has acquired a valuable home-office property of its own. The assets of the company have been increased by $286,000. The borad of directors has advanced the price of Commercial stock from $11 to $12 per share, this advance to take effect January 1, 1912. Copyright, 1912. Tuttle, Wightman & Dudley (Inc.). The Southern Building recently acquired as the home office property of the Com- mercial Fire Insurance Co. On October 29, 1912, the Commercial Fire Insurance Co., in joint connection with another large financial institution of Washington, acquired title to the Southern Building, in which the company's home office has been located since the completion of the structure in 1911. The financial interests of every Commercial stockholder are directly conserved by this important transaction. Located in the best business center of Washington, at the corner of Fifteenth and H Streets, one block distant from the United States Treasury and one block from the new $6,000,000 Arlington Hotel, now in process of erection, the Southern Build- ing is the finest equipped office building in the South. It is also the largest, the most popular, and most successful office building in the National Capital. Its space is 93 per cent rented and produces a rental revenue of approximately $150,000 per annum. The top floor of the Southern Building is occupied by the United States Court of Commerce and a considerable portion of the ground floor is leased to the United States Trust Co., one of the great financial institutions of Washington, with resources of $8,000,000. The eighth floor is almost entirely given over to the home office needs of the Commercial Fire Insurance Co. and the First National Fire Insurance Co., the two leading fire insurance companies of the District of Columbia. The tenants of the Southern Building are served by four electric high-speed ele- vators of modern design. The more than 400 offices are especially lighted, and all the rooms are outside rooms, insuring perfect ventilation. The architects, the well- known firm of D. H. Burnham & Co., of Chicago, have achieved perfection in the three prime essentials of a metropolitan office building — namely, light, ventilation, and sanitation. Each office has a lavatory, hot and cold water, and is lighted with electricity. On each floor toilets for the accommodation of the tenants and patrons of the building are provided. A private rest room for women, equipped for use in case of health emergencies, has also been provided and is maintained under careful supervision. Several Government departments occupy portions of the Southern Building, whose architecture and equipment are ranked high among the interesting sights of Washington, which municipality has justly gained the fame of being the most beautiful city in the United States. Commercial stock advances to $12 per share. To take effect after payment of January dividend. [Extract from resolution passed by the board of directors Nov. 11, 1912.) Whereas a ready market has been found for the sale of Commercial stock at $11 per share on account of the large volume of business being transacted by this com- pany, resulting in a large addition to its agency plant and premium income; and Whereas the capital and surplus of the company have been recently materially increased and the company has earned for its stockholders a large sum of money, in addition to paying the regular 12 per cent dividends, thereby increasing the amount of surplus on hand as well as the actual value of the stock: Now, therefore, be it Resolved, That on and after the payment of the semiannual dividend, payable January 1, 1913, no more of the capital stock of this company shall be sold for less than $12 per share. [seal.] Paul F. Grove, Secretary Commercial Fire Insurance Co. 56 INVESTIGATION OP INSTJKANCE COMPANIES. THE MAN IN THE LITTLE NICHE. It is commonly supposed that the great-work of the world is done by the world's noted men, its captains, inventors, teachers, and financiers. Not so. It bulks too large to be the work of the few, and so is distributed in small stents among the hands of the many. The low- waged man, being the real producer, is the real king. When he stays at home traffic and transportation are paralyzed. The manufacturer may direct the tilting of oil cans over the driving shafts of his machines, but he can not tilt them himself. When all his Joes and Jims quit work he is a manufacturer no longer, but just a flustered person owning an idle plant. A publisher may print a hundred thou- sand copies of a newspaper, but they will be worthless in five hours if they are not scat- tered among the people by the grimy hands of newsboys stationed along the thorough- fares. Thus, the worker in the obscure sphere is supreme. He is not tolerated, but needed. He has a right to move among his tasks with dignity and assurance. His grime responsibility is to himself, to fill his little niche as a man should fill it, to do is work with skill and honor, not as a drudge, but as a faithful servant of the interests of mankind. This is at once his duty and his gain, for his real pay is not in the Sat- urday envelope, but in the doing of the task itself — the spirit of the doing and the method of it. These, being right, lift him from the level of the tyro to the level of the artist. He becomes an accomplished man, badged, within if not without, with the insignia of the only rank worth striving for — the insignia of worthy achievement. .... — ~^ COMMERCIAL ITEMS. The presidential election seemed to have no effect upon the sales of Commercial stock. The company trudged along through the campaign, increasing its capital, surplus, and assets with sturdy determination. Even election day itself, Tuesday, November 5, was a remarkable day in the stock-sales department. The Surveyor — that sprightly New York publication — hands a bouquet to Spur in the following words: "Spur is the name of a little house periodical issued by the Com- mercial Fire, of Washington. Whoever it may be who writes the things in it is some writer, and this is no carp." Then follow two extended quotations from our last number. The largest sale of Commercial stock in the history of the company was made the latter part of October. It consisted of 5,000 shares taken by two Pennsylvania bankers and, at $11 per share, the transaction aggregated $55,000. Commercial premiums received from the District of Columbia for the month of October were nearly half as much as the total premiums received during the entire year 1911 from the same territory. This increase is at the ratio of approximately 800 per cent, and is due largely to the efforts of the new local department established on the ground floor of the Southern Building in the month of September, 1912. Mr. William S. Quinter is in charge of this department, and is ably aided by an alert force of competent salesmen. THIS MAGAZINE. The circulation of Spur is increasing and now exceeds that of many another insur- ance journal. This number of the magazine is not any fatter than the previous num- bers, but Spur manages to keep sufficiently fed and paid for without any advertising, solicitation, or trimming. Spur thinks its own thoughts and says them in its own way. It is not committed to any particular creed or political party, but feels somehow that the world is getting on pretty well and that the new administration at the National Capital will be conducted in the interests of all the people and for the advancement of good business throughout the country. He came up smiling — used to say He made his fortune that-a-way. He had hard luck a-plenty, too, But settled down and fought her through. And every time he got a jolt He jist took on a tighter holt — Slipped back some when he tried to climb, But came up smilin' every time. — Quoted. INVESTIGATION OF INSURANCE COMPANIES. 57 OTHER PROFITS. Let no Commercial stockholder think for a minute that his only profit consists in the regular dividends which he receives from time to time on the shares which he owns. In addition to these dividends there is a constant accretion to the value of the stock itself because of the Commercial's persistent progress. The company is nearly five times as big as it was two years ago; and the bigger it gets, the more its stock is worth. The larger a company is, the more business it can do and the ultimate worth of its shares is governed only in part by the dividends it pays. For instance: If a company's stock doubles in value by a legitimate and safe increase in the volume of its business, that doubled value is practically a 100 per cent dividend. Watch out for some such experience with your holdings in the Commercial Fire, and get more stock, if you can, while the price is where it is now — $11 per share. THE NEXT DIVIDEND. We are approaching another dividend date, January 1, 1913. All new subscribers to Commercial stock who become stockholders of record prior to December 28, 1912, will participate in this dividend in the same amount as the old stockholders do. If you want to confer a real favor upon some friend of yours who has some idle money which ought not to be idle, just tip him off to this approaching dividend and see that he gets some of his money into Commercial stock at once. TRIUMPH OVER ENVIRONMENT. There is a purpose in circumstance. Nothing in our lives is for naught. All things which have been given us, even our chains, are meant for our making — meant for the working out of our goodly destiny. Bunyan in prison, apparently cursed by sun- less hours of solitude and loneliness, was a greater Bunyan than if he had been free to roam afield. The walls which shut his body in could not confine his soul; it escaped them and went out into all the world to lift to higher levels the hope and vision of mankind. The log cabin in which Lincoln was born lent its ruggedness and sim- plicity to the man himself, and has become a shrine which men approach with rev- erent feet as to some holy place which love and truth have glorified. The hard lot is ever the school in which greatness is taught, and the best scholars are those who per- ceive the purpose of difficulty and do not grow bitter as they grapple with it. The very genius of progressive living consists m a capacity to appreciate the day and what the day holds; to find in all seasons and events a divine conspiracy to refine the soul and make it a greater soul; to hail hardship with grim gladness and bless the hills which must be climbed; to look with kindly eyes upon every human thing; to accept with complacence the small circle of opportunity until it has been shown that we are worthy to move in a wider one. Along no other path may we come to our best and largest estate of being and serving. The letters from stockholders printed on the next four pages relate to the Commer- cial's thirtieth dividend, which was paid in July of the present year. These letters express the satisfaction and good will which is felt by our entire constituency of stock- holders. The Commercial's thirty-first cash dividend is payable to stockholders on or before January 5, 1913. LETTERS FROM STOCKHOLDERS. Gentlemen: Have received the dividend. Thanks. I am director and president of the above bank, own considerable property here, have a $500,000 block in Chicago, with large orange groves and other interests in Riverside, Cal., and elsewhere. Am president of board of trade and a dozen other things. Yours, very truly, F. T. Pember, President Farmers' National Bank, Granville, N. Y. Gentlemen: Check received on thirtieth dividend. Many thanks. Will be glad when you open business in Kentucky, as I want to place my insurance with the Commercial. J. H. Taylor, M. D., Providence, Ky, 58 INVESTIGATION OF IXSUKANCE COMPANIES. Gentlemen: I have just received a check for the semiannual dividend. Thanks. I am pleased with my investment in the Commercial. Francis A. Stark, Whitestown, Ind. Gentlemen: I have received your letter inclosing check and want to thank you for same. I am sending you herewith a list of ten names of people who would make desirable stockholders. Joseph G. Schuler, Wilkes-Barre, Pa. Gentlemen: J am in receipt of your favor inclosing dividend check, for which please accept my thanks. I am very much pleased with the progress the Commercial is making. J. D. Bashore, D. D. S., Shippensburg, Pa. Gentlemen: Thank you for the dividend check, for which I inclose receipt. Please rest assured that I will help the company whenever I can, as I have every confidence in the company and wish it continued success. I think you have a very faithful agent in our town, and am always glad when he has something fine to tell me about the Commercial. Mary A. C. Uhler, Meadow Bank, Pa. Gentlemen: Yours to hand with dividend check, for which please accept my thanks. I congratulate you on the good management and progress your company is making. Thomas W. Shields, Frankford, W. Va. Gentlemen: Your check for July 1 dividend received. Please accept my thanks and appreciation. H. L. Fox, Walkers, Va. Gentlemen: Your July 1 dividend check is received and is very satisfactory. C. W. Bowtell, Fort Edward, N. Y. Gentlemen: I beg to acknowledge the receipt of your esteemed favor of the 5th, inclosing check for the thirtieth semiannual dividend, for which please accept my thanks. I congratulate you upon the showing made by the company, which is most satisfactory. The outcome of my investment is very much better than I had antici- pated. H. Edson Webster, Counselor at Law, Buffalo, N. Y. Gentlemen: It is with great pleasure that I acknowledge receipt of my July divi- dend. It gives me much satisfaction to know that you are so prompt, and as a stock- holder to hear the words of praise spoken in favor of your company. I hope it may always be that way. M. Davison, Cashier Union Trust & Sainngs Bank, Flint, Mich. Gentlemen: I beg to acknowledge receipt of your check sent me for my July divi- dend and am inclosing herewith a few names of prospective stockholders, which I trust you will find satisfactory. John G. Roth, President John C. Roth Packing Co., Cincinnati. Ohio. INVESTIGATION OF INSUBANCE COMPANIES. 59 Gentlemen: I wish to acknowledge receipt of dividend check. I am pleased that toy investment is producing such good results. I shall transfer all my policies, as they expire, to your company. Edw. T. Smith, Hanover, Pa. Gentlemen: I wish, to acknowledge the receipt of the dividend on my 60 shares of Commercial stock and beg to state that 1 have had, from the beginning, implicit con- fidence in your company. Otto Bautze, Reading, Pa. Gentlemen: Your favor of the 5th instant, inclosing check covering my share of the thirtieth dividend declared by your company, has been received. Please accept my thanks for same. It is very gratifying to know that the business of= the Commercial is being conducted along conservative as well as aggressive lines, and under such methods we can look for nothing but success. James Young, Mount Vernon on the Potomac, Va. Gentlemen: We have received dividend on stock, which we hereby acknowledge with thanks. We shall try to do what we can to place as much insurance in the company as possible and have others do so. Williamsport Planing Mill Co., Williamsport, Pa. Attention of all Commercial stockholders is called to the fact that since the October number of Spur was issued the assets of the company have increased from $506,000 to $792,000, a gain of $286,000. This fact needs no comment. It is clearly significant of the company's rapid progress and increasing success. [Photograph.] This is the newly acquired home office building of the Commercial Fire Insurance Co., Washington, D. C. Full-paid capital Jan. 1, 1911 $100, 000 Full-paid capital Jan. 1, 1912 200,000 Full-paid capital Nov. 1, 1912 337,000 Subscribed capital Nov. 1, 1912 471, 000 Surplus to policy holders 566, 000 Assets Nov. 1, 1912 792,000 Authorized capital (now being subscribed) 1,000,000 Col. Judson. On my arrival at the office next morning, after hav- ing studied these papers and becoming convinced that the commis- sioners should take some action thereon, I sent for Mr. Ingham, but was informed he was not in the office. I sent then for Mr. Curry, who is the next one in the office. I showed Mr. Curry this report and asked him what he thought of it, and he said he thought it was a very bad report Mr. Easby-Smith (interposing). Mr. Chairman, I was going to object, but I suppose you will have Mr. Curry before the committee. Mr. Johnson. Did you say it was Mr. Curry you called or Mr. Ingham ? Col. Judson. I called Mr. Ingham and he was out of town, so I sent for Mr. Curry, the one next in authority in the office. Mr. Curry further said that Mr. Ingham was at that time in New York, he thought, on business connected with getting these companies admitted to do business in the State of New York. He said when this report was written by him and his associates that it was written in the evening under the eyes of Mr. Ingham, 60 INVESTIGATION OF INSUBANCE COMPANIES. whom he described as standing over him while he wrote the report, asking him to hurry, in order that it might be taken on a train that was leaving for New York that night — whether by Mr. Ingham or not, I do not remember. Mr. Douglas. You say that was Mr. Curry? Col. Judson. That was Mr. Curry. He invited my attention to those reservations in his report, and that of his assistant, where he speaks of "the papers in the case hav- ing been submitted to and approved by you," and "the appraise- ment of the property having been made' by your order," as protect- ing him in the matter of an affair that did not seem to him to be right. He told me that about two weeks before there had been a man over here from New York to investigate one or the other of these two companies which are promoted by the same gentlemen. Mr. George. About what time did he tell you that? Col. Judson. As nearly as I can recall, it was on the 3d or 4th of December. Mr. Easby-Smith. The 4th of December? Col. Judson. I do not know whether it was the 4th or 3d. Mr. Johnston. Where was this gentleman from? Col. Judson. From New York. Mr. Curry said a man had been over from New York seeking to look into these two companies, or one of them, about two weeks before, but that, I understood him to say, Mr. Ingham had refused him permission. I did not know at that time just what that meant and do not know now just what he meant. Then I went to Mr. Rudolph — Gen. Johnston was away — and I described to him these things as I have described them to you, and I said that I thought that probably the best thing we could do was to get a first-class superintendent of insurance and put him on the job of inspecting these companies. I thought — if you care for my thoughts — that it was rather sig- nificant that Mr. Ingham had made this examination as of the 31st of October, when it was just on the 29th of October that there had occurred this purchase of real estate which might be used to wipe out this apparent great loss of surplus. I think I am getting a little ahead of my story, because I think in the meantime I had seen Mr. Ingham, but I have forgotten whether I had or not, because Mr. Ingham arrived home the next day and I did see him then. I told him I was about to make a motion that there be a reexamination of this company and a reappraisement of its real estate, and he said that it was not necessary to make the motion, because he would start in, anyway; that he had authority to do so. He said when the firm of Tuttle, Wightman & Dudley came down here to do business he was familiar with the fact their record in New York was very bad — in Syracuse, N. Y., I believe he said. He said he had gone to the Post Office Department to enlist its cooperation against their enterprises here. He said the Post Office Department, as I remember it, had had two bags of stuff in the matter, but that Wade EUis had been active there as counsel, or something, and that nothing had been done. Mr. Johnson. As the counsel for whom ? INVESTIGATION OF INSURANCE COMPANIES. 61 Col. Judson. For the insurance companies or promoters of the insurance companies, I do not know which. Mr. Johnson. That Wade Ellis had been active where ? Col. Judson. As I understood him to say, he had. been active with the post-office authorities, and that they had done nothing. I asked him if he had been very active against them recently, and he said he had not. Mr. Johnston. If who had been recently active against them ? Col. Judson. Mr. Ingham. He said he had not. He said he attended a dinner they gave, a large dinner, a month or two ago. I asked him — or he volunteered, I have forgotten which — I asked him for an explanation or he volunteered it as to how he happened to be at the dinner, and he said he had to go as sort of a detective to places where people were that he did not really like to associate with, and accounted for his being at the dinner in that way. I asked how he had made this appraisement of the building which showed the building to be worth $453,000 more on the 31st of October than it was pur- chased for on the 29th of October, and he said he had sent for Hope- well Darneille, a former assessor of the District, and had asked him to go and get two other men and appraise this building and bring him the appraisement, and that he had gone and associated with him Messrs. Hensey and Lipscomb, a real-estate agent and a builder, re- spectively, of the City of Washington. I asked him some details about this appraisement, but he naturally placed it all upon the appraisers; that was their business. The appraisers, he told me, had been paid by the insurance company, as is the usual rule in such cases, I believe. Either before or after seeing Ingham, I proposed to my colleague, Mr. Rudolph, who was the only other commissioner here, that we discharge Mr. Ingham, and get a first-class man and put him in charge; that we had a serious condition here; that we must have one whom we could absolutely rely upon, and put him in charge of the examination of these companies, and I understood there were others here. Mr. Johnson. You understood there were others here ? What do you mean by that? You understood there were other insurance companies ? Col. Judson. I understood Best's Insurance Reports are almost equally unfavorable to a company known as the something assurance company, not promoted by these gentlemen, or connected with them in any way. Mr. Redfield. And not covered by the current resolution ? Col. Judson. Not covered by the current resolution. I thought and had thought for a long time that Mr. Ingham was not properly qualified for this position, and especially now he was not qualified when we had a very serious condition. I thought that his conduct in connection with this report indicated weakness or lack of ability or lack of courage or lack of some quality that certainly he ought to Eossess; I do not know just which or how many of them he lacked, ut it was a question to be considered from the public-interest stand- point, and not from any individual standpoint. It was to get a good man for the purpose of taking up a difficult situation. It happened that on the 4th or 5th of December Mr. Darneille came in. Mr. Darneille was the gentleman whom Mr. Ingham asked to 62 INVESTIGATION OF INSURANCE COMPANIES. pick out two other men to make an assessment of this building and bring in the result. I asked Mr. Darneille how he made the appraisal. He said at first it was principally based on data furnished them by the company, showing the earning capacity of the building, and he said it had been checked up by figuring what was the value of the land and what was the value of the building. I believe he said that figur- ing the land and building separately and adding them together you would get a larger sum than the $2,000,000. However, his main con- tention was that it was based upon the earning capacity of the build- ing or based upon some communication he had from them; and I asked if he could get that letter that he used in the matter, which he said he could. He brought in a letter of which this [indicating] is a copy. It was not signed, but he told me, I think, that Mr. Carusi had dictated the letter. The last paragraph of that letter is as follows Mr. Easby-Smith (interposing). I object. Let us have the whole letter. Mr. Johnson. Colonel, was this signed ? Col. Judson. It was not signed. That is a copy of the paper that was handed to me. Mr. Johnson. Are you objecting to that going into the record? Mr. Easby-Smith. Not at all, sir, not at all. Mr. Johnson. Wo will put it in the record, then. It may be con- sidered in the record, and you may comment upon it. The paper referred to is as follows : October 25, 1912. Alexander F. Henacy, Hopewell H. Darneille, and William P. Lipscomb. Gentlemen: Replying to your request for statement as to the income for the S uth- ern Building, I wish to state as follows: The rental capacity of the building at the rentals now being asked is $150,000 per annum. The building is now approximately 92 per cent of 93 per centfull. The entire ground floor is rented at an annual rental of $2,396.21 per month. There are.no vacan- cies on this floor. The rent of the United States Trust Co. is automatically increased in their 10-year lease each year. Of the 37 rooms on the second floor there are vacant, 6; on the third floor there are vacant 7 rooms; on the fourth floor, there are vacant 5 rooms; on the seventh floor, there are three rooms vacant; on the eighth floor there are no vacancies, and the entire ninth floor is rented to the Government for $1,387.70 per month. The taxes are $13,000, and the cost of running the building is approximately $22,500 a year. It is estimated that two additional stories may be placed upon the building at slight additional cost, as the building was originally designed to be an 11-story building, and the steel construction coptemplates two additional stories, and the roof itself is temporary, which will enable the other stories to be built without much expense. If the other two stories can be rented at the same monthly rental that the ninth floor brings this will add $33,204.89 to the income of the building, or if rented only to the same percentage as at present, $30,000 to the income of the building with but slight increase in the running expenses and taxes, making the property produce considerably over 5 per cent of the valuation of $2,000,000. Col. Judson. What appealed to me especially was this last para- graph or the last two paragraphs : It is estimated that two additional stories may be placed upon the building — Then skipping some — If the other two stories.can be rented at the same monthly rental that the ninth floor brings, this will add [so much] to the income of the building * * * making the property produce considerable over 5 per cent of the valuation of $2,000,000. In other words, if the building were two stories higher than it in fact is, it would produce this income on $2,000,000, which is the appraisement value. INVESTIGATION OF INSURANCE COMPANIES. 63 Mr. Easby-Smith. I object to that. It is argument which is not based upon the letter, because the first paragraph of the letter and the second paragraph of the letter show that the income from the building is now $150,000, and that the net income is more than 5 per cent upon $2,000,000; and the last paragraph Col. Judson (interposing). I think that is so. Mr. Easby-Smith (continuing). Simply shows that an increase of two stories on the building would make the income that much greater; so it is not susceptible of that interpretation. Col. Judson. I will read the lastparagraph. Mr. Easby-Smith. I am objecting to its being commented upon without reading the whole letter. Col. Judson. I will read it without comment: If the other two stories can be rented at the same monthly rental that the ninth floor brings this will add $33,204.80 to the income of the building, or if rented only to the same percentage as at present, $30,000 to the income of the building, with but slight increase in the running expenses and taxes, making the property produce con- siderable over 5 per cent of the valuation of $2,000,000. Mr. Easby-Smith. The first paragraph shows it already produces more than 5 per cent. Col. Judson. If the committee desires me to go into that as an expert — because I feel qualified to do it in a way, I think I could qualify as an expert as to the cost of operating the building and as an expert in arithmetic, which is about all that is required to show that it will not produce an income on $2,000,000 Mr. Johnson (interposing). The committee will hear you. Mr. George. Do you mean it does not now produce such an income ? ^ CoL Judson. It does not now produce such an income. Mr. George. And it could not be made to produce it ? Col. Judson. I do not know what it could be made to do, if the alteration were made. Mr. Douglas. It is not claimed it is producing now actually 5 per cent. It is claimed, if rented to its full capacity — 93 per cent of the rooms now being rented and the balance not rented Mr. Johnson (interposing) . Let us hear what Col. Judson was going to say. Mr. Douglas. My thought was to understand what the colonel was saying. Col. Judson. I was just going to give a little calculation to show what the building might be considered to be worth from its earning capacity. Perhaps this is not the time for it. Mr. George, it is a good time. Mr. Johnson. The committee will hear you. Col. Judson. I do not wish to do so if the committee does not want to hear it. I do not want to impose upon the committee. They state that the building will produce a gross rental of $150,000, if it is all rented. It is considered fair to deduct $15,000, or 10 per cent, from that for rooms that are vacant or rents that are not paid, so that we get $135,000. Mr. Johnson. By whom is that considered fair, Colonel ? Col. Judson. For example, Mr. Carusi, I believe, when he was in my office, said he felt it was fair. Is not that correct, Mr. Carusi ? Mr. Carusi. I think generally a 10 per cent allowance is made. 64 INVESTIGATION OP INSURANCE COMPANIES. Col. Judson. So. the other side have conceded that the gross return that may be expected is $135,000, if it is all rented and all paid for but 10 per cent. . On the other side of the book we have $70,000, which they pay out for interest on an indebtedness of $1,300,000. I figure that the cost of operating that building — and I will be glad to submit figures to prove that— would be about $30,000 a year; that is, for heating it, lighting it, cleaning it, and minor repairs upon it. Mr. Carusi the other day admitted that it would cost about $22,500, I think. Mr. Carusi. Yes, sir. Col. Judson. But I believe he said that was the record of the pre- vious year, and I believe that the building was not all rented last winter; so that it did not all have to be heated, for example, or cleaned, and I understand from an investigation which I have had made and for which I will submit the figures, that this does not include the salary of the manager of the building, a clerk, and things like that; so that I figure that $30,000 is about the operating cost. Mr. Carusi and I figured this together one time, and I take much the same line of figuring that we indulged in together. Taxes : If the building were worth $2,000,000, the taxes would be $20,000 a year. Mr. Johnson. On a two-thirds valuation-? Col. Judsox. Yes, on a two-thirds valuation; one and one-half per cent on a two-thirds valuation. Putting that down, then I figure the insurance at §2,000 or $3,000. Mr. Carusi — I do not remember whether he admitted the two or three thousand dollars or no"t. Just what figures did we agree upon for that ? Mr. Carusi. I think it was $5,000 for three years. That is my information. Col. Judson. That would be about $1,900 for insurance. For depreciation — such a building depreciates about 2 per cent a year. That is considered fair for depreciation and obsolescence, because after 50 years such a building ordinarily is torn down or replaced by another. Two per cent on what you like — Mr. Carusi said on $900,000 and I figured it on $800,000, which would be $16,000. Now, adding those amounts together, we get $137,960, whereas the gross income is $135,000; so it appears that the equity is not worth anything at all and that the building is worth but some little more than the indebtedness. That corresponds with street report that the building, at any time during the past year, could have Deen bought for the incumbrances, plus the agent's commission. Mr. Darneille confirmed Mr. Ingham's report that he himself, on Mr. Ingham's authority, had selected the other two appraisers. He said that Mr. Lipscomb was an expert builder, and I knew that to be the case myself, although in a letter Mr. Lipscomb says he makes no pretense about knowing anything about the value of real estate. Mr. Hensey I knew to be a member of the important real estate firm of Swartzell, Rheem & Hensey; but very soon after that I found this significant thing that the District National Bank is, I am told, the depository for the funds of these fire insurance companies in whole or in part and also of those selling stock. The president and organizer of that bank is a director of both of the insurance companies that are being promoted. Mr. Johnson. Who is that ? INVESTIGATION OF INSURANCE COMPANIES. 65 Col, Judson. Robert N. Harper, and of course he is also a director in his own bank. Upon that board of directors I find, in addition to Mr. Harper, Mr. Charles F. Carusi, the counsel for these two insurance companies* Mr. Robert R. Tuttle, the president of one of them, Mr. Lipscomb, the builder, and Mr. Hensey, the third appraiser. Do you want that in the record [indicating paper] ? - Mr. Johnson. Yes; we want it all. The paper referred to is as follows : R. N. Harper, president. E. S. Wolfe,, cashier; DISTRICT NATIONAL BANK, WASHINGTON, D. C. [Illustration of bank building here.) Capital $400, 000 Surplus and undivided profits over 117, 000 Officers: Robert N. Harper, president; W. S. Hoge, first vice president; J. S\ Tyree; seGond vice president; Wm. P. Lipscomb, third vice president; E. S. Wolfe, cashier; Wm. T. Poole, first assistant cashier; Theo. S. Mason, second assistant cashier^Gharlea F. Carusi, attorney. Directors: Ralph P. Barnard, Chas. J. Butler, jr., Charles F. Carusi, John W. Chil- dress, Ernest H. Daniel, John T. Devine, Wm. K. Ellis, Robert N. Harper, Alexander T. Hensey, James M. Hoge, W. S. Hoge, Lewis Holmes, J. W. Harper, William R Lipscomb, Gerson Nordlinger, Robert Lee O'Brien, J. Castle Ridgway, Charles C. Rogers, N. L. Sansbury, Else Sheets, Robt. R. Tuttle, J. S. Tyree, Sidney West, Martin Wiegand. Condensed statement showing the condition of the District National Bank of Washington') organized September 20, 1909, 1406 G Street NW., Washington, D. C, at the close. of business Nov. 26, 1912: RESOURCES. Loans and discounts fl, 2l9, '218. 62 United' States bonds to secure circulation 400, 000: 00 Bonds to secure Government deposit 105, 950. 07 Bonds, securities, etc 18, 505. 64 Banking house, furniture, and fixtures 287, 095. 34 Cash and reserve 373, 127. 51 Due from banks 304, 912. 39 2,688,-809.57 LIABILITIES. (Sapital 400, 000. 00 Surplus and profits 122, 735. 73 Circulation 400,000.00 Bills payable 45,000:00 sits 1, 721, 073. 84 2, 688,' 809. 57 District National Bank of Washington. (Washington Monument illustrated.) 1909; Col. Judson. I just mentioned that for such significance as the committee may choose to attach to it, or for such further informa- tion as it may wish to secure in the matter. Now,. one of the directors of one or both of these companies was Judge Gould, of our District Supreme Court, who is a very good friend of mine, and I have enjoyed playing bridge with him. I - 71391— No. 1—12 5 66 INVESTIGATION OF INSURANCE COMPANIES. showed him this statement, for he came to my office at his own option Mr. Johnson. "When ? Co]. Judson. Oh, I think, the 5th of December. I showed him this statement that shows such heavy losses during the year and he said he did not understand much about figures, but that he would get out of the company if he thought things were wrong. He said that Mr. Carusi he relied upon largely for his knowledge of insurance matters; that Mr. Carusi, although he was a man he did not care for and of a stripe that did not please him, nevertheless, he said he knew the insurance business from A to izzard, and he placed great reliance, upon all he said concerning insurance affairs. There was nothing else significant in our conversation. Mr. Johnson. Did he use the word "strine" ? Col. Judson. I do not know that he did use the word "stripe." He may have said "kind" — not the kind of man. I have naturally forgotten the matter. I am not quoting him verbatim. Mr. Johnson. I was just wondering whether he used that expres- sion and at the same time said he would rely upon him. Col. Judson. No; he said he relied upon his knowledge, but that he did not care for his style, as near as I can remember the substance of what he said. Now, on the 7th, I think it was, Judge Gould came back, because when he was there the first time I said, "If you do not understand figures, get seme one that does to explain them to you, and if you can not understand them then, or if you wish an explanation of these figures, come up again." He came up, the 7th, I think — about the 7th. Mr. Easby-Smith. Mr. Chairman, I submit that Mr. Judson appears to be testifying from a carefully prepared memorandum, He reads from that and in answer to questions he retracts words which he has placed in the mouths of Judge Gould and others. I do not think he should testify from a memorandum here unless he first qualifies the memorandum by showing that he prepared it at the time of the interview. Mr. Johnson. Well, the committee announced in the beginning that it would not adhere to the rules of evidence, but would permit the investigation to take as wide a range as is necessary to get at the whole truth of the matter; and if you will recall, when Col. Judson was put upon the witness stand, he was requested to go ahead and recite in his own way the reasons why this was brought to the atten- tion of Congress. Proceed, Colonel. Col. Judson. So that on the 7th, I think it was, Judge Gould returned with Mr. Carusi and with another gentleman whom I do not know, but I think it was the statistician or actuary or employee of the Commercial Fire Insurance Co., I do not know what his name was. One of the significant things that was said in that interview was by Mr. Carusi, to the effect that the company lost a great deal of money during the year, about $50,000, he said ; and, incidentally, at that time I asked him then how they passed this resolution that indicated that they had made so much, and had paid $28,000 out in dividends, and so forth. Judge Gould spoke up and said, "If I had known it, I would not have voted for the resolution." Most of the INVESTIGATION OF INSURANCE COMPANIES. 67 time, I think I may say, was taken up with the argument as to the value of the building on the basis of its earning capacity, and so on. There was no explanation really for the condition of the company as shown in this statement — no contradiction of my understanding of the situation. Now, Gen. Johnston, one of the commissioners, was away during the early part of this trouble that I have been reciting, and Mr. Rudolph and I, as two minds do not always agree, were not in tho- rough agreement as to what should be done. As to what I proposed to do, as to what he agreed upon should be done, and as to what we all three, or any two of us finally agreed to do, I can go into that if you wish, taking these resolutions up in order. Mr. Johnson. The committee is not averse to having the history of the whole matter. Col. Judson. On December 5, 1912, I made the following motion Mr. George. Excuse me; I did not get that date. Col. Judson. On December 5. Mr. George. Yes. Col. Judson. I made the following motion, having, as I before described, previously verbally proposed the discharge of the super- intendent of insurance and the procuring of as good a man as we could secure in this emergency that we found ourselves in: I move that the superintendent of insurance be directed to make an immediate and exhaustive examination of the books and accounts of the Commercial Pire Insur- ance Co. of the District of Columbia; that there be a revaluation as of this date of the Southern Building, one-half of an equity in which is owned by the Commercial Fire Insurance Co.; that for the purpose of this valuation the superintendent of insurance be directed to secure, if possible, the services of Mr. William D. Hoover, president of the National Savings & Trust Co., and Mi. Harold E. Doyle, a real estate expert, they to select a third; that the real estate assessois of the District be instructed to make a valuation of the Southern Building as of this date; that it be suggested to the superintendent of insurance that an average of the two valuations above sug- gested be taken as the value of the Southern Building; that the matters referred to in the appended memorandum be elucidated by the superintendent of insurance in connection with his report; that upon the completion of the examination above referred to the superintendent of insurance be directed to immediately make a similar searching and full examiiatinn of the books and accounts of the First National Fire Insurxnce Co. of the United States. Appended to that was a memorandum that was referred to in the resolution giving certain matters that the resolution required should be elucidated in connection with the examination. I will not read that, because it is rather long, but it can go into the record. Mr. Johnson. All right. Memorandum Appended to Motion of Commissioner Judson, Dated Decem- ber 5, 1912, to Direct Certain Examinations by the Superintendent op Insurance, District op Columbia. 1. Statement on page 3 of report of November 8, 1912, under head of 'Assets, real estate," says Commercial Fire Insurance Co., in conjunction with First National Fire Insurance Co., purchased the Southern Building en October 29, 1912 (a little over a month ago), for $245,570, subject to two mortgages, indebtedness amounting to $1,300,000. Who did they buy from and to whom was this $246,570 paid? Report all of the cir- cumstances of the transaction. 2. There are at this date, December 4, 1912, three deeds of trust upon the Southern Building which were there when the purchase was made by the Ccnrrercial Fire Insurance Co., and are there unreleased to-day. ' The first one is dated May 11, 1910, 68 INVESTIGATION OF INSURANCE COMPANIES. and secures the Equitable Life Assurance Society the sum of $800,000. The second is dated May 12, 1910, and secures an issue of $450,000 worth of 6 per cent gold bonds. The third is dated April 1, 1911, and secures an issue of $325,000 6 per cent general mortgage gold bonds. These three mortgages aggregate $1,575,000. What has become of the third deed of trust securing the $325,000 6 per cent gold bonds? 3. What had happened in these nine days to enhance the value of this building some $454,430 over what it is alleged was paid for it? 4. Who are the officers of this company, which of them draw salaries, and how much? 5. Get list in detail of the mortgage loans held by the company, with the names of the borrower, and where this is a man of straw, give real borrower's name, and property upon which secured, and detail information. Get list of bonds said to aggregate in value $116,591. 6. If the company has lost a great deal of money in the past year or has paid extrava- gantly for any services, so state and give details. Mr. Rudolph approved this motion with the exception of the clause referring to the valuation of the property by Mr. Hoover and Mr. Doyle, together with the third, and that portion suggesting that an average of the two valuations be taken as the true value. I neglected to say that Mr. Ingham, when he was present in my office, corroborated what Mr. Curry had told me as to the man from New York not having been given permission, as I understood the phrase to be, to investigate one or both of these companies which he wished to investigate; so that I made this further motion on Decem- ber 6, 1912: Understanding that the insurance department of the State of New York has recently been refused the cooperation or consent of the superintendent of insurance of the District of Columbia necessary to examine into the books and accounts of the Com- mercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, one or both, I move that the insurance department of the State of New York be invited to make such examinations at such times as it may desire, preferably in the near future, and I further move that the superintendent of insurance of the Dis- trict of Columbia be instructed to cooperate with the insurance department of the State of New York in this matter. I may say that that resolution was not approved by Mr. Rudolph nor by Gen. Johnston, although Gen. Johnston did make a counter proposition which was very similar to that, and I approved of that. As a result of the counter resolution, as you might call it, there, was a letter of invitation written to the State of New York. Now, I may say when I made this first motion I took the liberty of taking Mr. Redfield's time, knowing that he was from New York, and asked him if he would not write to the insurance department of the State of New York with a view to securing their speedy acceptance of our invitation, so that we might have some one here from that strong department to go over this matter. Mr. Redfield. Col. Judson, may I ask if the invitation that you have mentioned to the insurance department of the State of New York was that dated December 10, signed by Gen. Johnston and yourself ? Col. Jtjdson. I think it was. Mr. Redfield. I hand you a copy and ask you if that is the docu- ment to which you refer ? Col. Judson. Yes, sir. This is not the letter. This is the resolu- tion upon which the letter was based. . Mr. Redfield. Have you a copy of the resolution ? Col. Judson. Yes, sir. Mr. Redfield. To make the record clear. : INVESTIGATION OF INSURANCE COMPANIES. 69 Col. Judson. Yes, sir; I have that right here. Mr. Redfield. At this point I would like to have this document made a part of the record. Col. Judson. Yes. Mr. Easby-Smith. It was put in the record this morning. Col. Judson. It differs only from the motion I made principally that instead of inviting them down, it consents to their coming down. Mr. Redfield. So that the only official document existing between your office and that of the insurance department of the State of New York is a consent in form ? Col. Judson. Is a consent; yes. Mr. Redfield. And not, in fact, an invitation? Col. Judson. And not, in fact, an invitation. My understanding is this also — that at the time this man came down here one or both of these companies was an applicant for admission to do business in the State of New York. Mr. Rudolph informed me the other day, and he verified it a few moments ago, that he had been informed by Mr. Darneille that they had very recently withdrawn their application for entrance to the State of New York, which may be the reason why the State of New York did not send a man down. Mr. Johnson. That is, the insurance company had withdrawn its request ? Col. Judson. Yes; so Mr. Darneille told Mr. Rudolph. Mr. Rudolph would be a better witness than I as to that. I will say that Gen. Johnston and I consulted together about this, and Mr. Rudolph also, but Mr. Rudolph was of the opinion that matters might proceed more slowly, and he did not apprehend that the emergency was as great as it seemed to myself and to Gen. Johnston. Mr. George. To make it quite clear to me, Colonel, was this con- versation that you speak of between the commissioners at a meeting of the commissioners or was it through this informal passing of papers ? . Col. Judson. Well, it was both. We were quite excited about insurance matters for several days, and I think we discussed it, the three of us together, and in pairs, and otherwise. For example, Gen. Johnston and Mr. Burke, a Member of Congress from Pennsyl- vania, and myself talked it all over. He thought the commissioners owed a duty to the public in this matter and I think he, perhaps, spoke to Mr. Redfield about it, too. I do not know as to that; but, at any rate, he was convinced that we owed a duty to the public in this matter, and that reenforced my view that we did, and Gen. Johnston's view that we did, and so we persisted and that eventually led to our sending the matter up to Congress. On December 11, 1912, I moved that the attached statement be adopted in board session and copies of same be issued to those requesting them by the secretary to the board. Gen. Johnston approved that on the same date, and Mr. Rudolph noted it on the following date. That is the statement that Gen. Johnston read into his testimony, and you do not wish me to read it again, I suppose. It rehearses the fact that the surplus of the company was 172,000 on December 34, 1911; that 10 months later, although it had taken in $144,000 as premiums upon the sale of stock in the interim, its surplus had gone down to about $2,700, except as that surplus was increased 70 INVESTIGATION OF INSURANCE COMPANIES. by this increase in value of this building to the extent of $453,000 in two days. It rehearses also the letters, quoting the letters from Mr. Carusi and from Mr. Tuttle, the one objecting to a reappraisal and the other opposing a reexamination at that time; and it also stated the reso- lution passed by the board of directors on November 11, 1912, just after this very remarkably poor showing had been made, wherein it is stated — The company has earned for its stockholders a large sum of money, in addition to paying the regular 12 per cent dividends, thereby increasing the amount of surplus on hand as well as the actual value of the stock. Now, therefore, be it Resolved, That on and after the payment of the semiannual dividend payable January 1, 1913, no more of the capital stock of this company shall be sold for less than $12 a share. And it is to be noted that inasmuch as the surplus was only $2,700, except for this real-estate item, on the 31st of October, they could not on that date have declared a dividend without impairing the capital unless this real estate appraisement should prove to be cor- rect, or unless in the meantime through the sales of additional stock. And I understand there are vast amounts of it being sold. They built up the surplus somewhat by means of this premium on the sale of the stock, so that they can pay the dividend out of it or have a marvellous change in the business of the company during these two months. On December 13, 1912, on the advice of several members, I moved that letters be addressed to the chairmen — no; I will correct that; I am not sure it was on the advice of several members— but on the advice of one member I made the following motion : I move that letters be addressed to the chairmen of the House and Senate Commit- tees of the District of Columbia inclosing copies of the report of the superintendent of insurance of the District of Columbia, as of October 31, 1912, on the Commercial Fire Insurance Co. and copies of the statement-issued by the commissioners on December 11, 1912, and that attention be called to the statement made by Charles F. Carusi, general counsel for the First National Fire Insurance Co. of the United States in his communication, dated December 5, 1912, to the Commissioners of the District of Columbia, that the further action then contemplated should be made "under the direction of either the House or Senate Committee of Congress." Mr. George. May I ask right there, was that motion made at a meeting of the board ? Col. Judson. No ; it was not written in meeting, but I think there was a meeting then in my room in which I think Mr. Rudolph and Gen. Johnston participated, but I am not sure of that. It may have been that Gen. Johnston alone was there. But you can ascertain that from Mr. Rudolph. I have forgotten. Then a letter was written by Gen. Johnston, acting president, on December 13, trans- mitting those papers referred to in the resolution to both committees of Congress, of the Senate and of the House. By that time I had become convinced that the man from New York was not coming down here soon enough to suit me; that is to say, to suit the public interests, as I conceived it to be, so I made another motion, as follows : In view of the fact that the State of New York has not yet sent a representative to inspect the books and accounts of the Commercial Fire Insurance Co. and the first National Fire Insurance Co. of the United States, I move that the office of superin- tendent of insurance be declared vacant. INVESTIGATION OP INSURANCE COMPANIES. 71 There is still another resolution and that resolution you may say; is pending before the board. Mr. Redfield. To what effect ? Mr. Rudolph. The discharge of the superintendent of insurance. Mr. Douglas. That is the one of December 13 ? Col. Judson. Yes, sir; December 13. On December 17, 1912, 1 was sick at the time, my grippe had begun, and I was sick in bed, but I communicated through my secretary with Capt. Brooke, who was the acting commissioner during my sickness, and he made this motion: I move that there be a revaluation as of this date of the Southern Building, one-half of an equity in which is owned by the Commercial Fire Insurance Co., and that the commissioners secure, if possible, for the purposes of this valuation, the services of Mr. William D. Hoover, president of the National Savings & Trust Co., and Mr. Harold E. Doyle, a real-estate expert, they to select a thitd. Those being the same two gentlemen that Mr. Rudolph had not agreed with me in asking to serve in the earlier resolution. That was approved by Gen. Johnston, so that it has become effective; and they are, I believe, valuing the building. Mr. Johnson. Mr. Rudolph objected to those two persons acting as appraisers. Col. Judson. He objected. Whether it was on account of the per- sonnel or the idea of having any others do it, I do not know. Mr. Johnson. They did not suit him ? Col. Judson. Either they did not suit him, or it did not suit him to have anyone do it other than the assessors. I do not know what he had in mind. I will say the reason why I specified in my original motion these two gentlemen is that for Mr. Hoover I have the highest opinion of his integrity and of his ability in such matters. I had no other reason for choosing him than that. I knew no one whose valuation I would rather have for my own purposes. I believe that Mr. Doyle is known to Mr. George as a real estate expert and, perhaps, one of the best. I do not know whether he believes he is one of the best or not, but I understand he is able to say whether Mr. Doyle is a competent expert in real estste. Mr. George. He testified before the subcommittee last summer. Col. Judson. Yes ; and I may say that about a month or two ago, before this insurance matter came up at all, Gen. Young, at the soldiers' home, wrote and asked me to indicate to him the best real estate man in the city of Washington to make a valuation for him, an appraisement of some land which he contemplated having or endeav- oring to have bought for the soldiers' home. I named Mr. Doyle to him in a letter which precedes any of this trouble at all. My recol- lection of that letter is that I spoke of him as in my opinion the leading expert in real estate matters in the District, and I so believe. That is the reason his name is there. Now one motion, which seems to have escaped me for the moment, but which I now find, is a motion made by Mr. Rudolph, to which I agreed, under date of December 7, 1912: I move that the superintendent of insurance be directed to procure from Messrs. Lipscomb, Hensey, and Darneille a statement in detail as to how they arrived at their valuation of the joint property of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, to wit, the properly known as the Southern Building. 72 INVESTIGATION OF INSURANCE COMPANIES. I voted for that resolution, and we have the three letters, one from Mr. Lipscomb, one from Mr. Darneille, and one from Mr. Hensey, of which I have copies here explaining how they got their particular valuation. Mr. Johnson. Without objection they will be inserted in the record. Mr. Easby-Smith. I have no objection. The letters referred to are as follows : [Office of Wm. P. Lipscomb & Co., contractors and builders, 1405 F street NWJ Washington, D. C, December 9, 191$. Mr. Geo. W. Ingham, ■ Superintendent of Insurance, Washington, D. C. Dear Sin: Replying to your communication of the 7th instant, I beg to state that my valuation of the Southern Building was derived as follows: Total cubic contents, cubic feet 2, 658, 291 Price per cubic foot, cents 35 $930, 401. 85 5 per cent increased cost of building material since building was begun. . 46, 520. 00 Present value 976, 921. 00 This estimate is based upon the cost of material at the time the building was begun. I accepted the judgment of Mr. Alexander T. Hensey and Mr. H. H. Darneille, my associates, as to the value of the land, as I am not an expert in land values. It is impossible to make an accurate estimate in this manner. The only way to make an,' exact estimate would be to do it in detail, item by item. That is, in my opinion, a close, approximate estimate, and I so stated to the owners at the time the estimate was made. In order to reenforce the judgment of the appraisers, we asked for a statement from the owners of the Southern Building showing the earning capacity of the property. Afterttfeducting the running expense of the building and taxes from the amount shown by. tha statement, we found that upon a $3,000,000 appraisement the building would Jvave a net earning capacity of about 5 per cent. Trusting this will be satisfactory to you, I remain, ■ ' : Very truly, yours, Wm. P. Lipscomb. [Hopewell H. Darneille, 314-315 Maryland Building. Telephone, Main 4833.] Washington, D. C, December 10, 1912. Hon. Ctjno H. Rudolph, President Board of Commissioners, District of Columbia. Dear Sir: Pursuant to a letter of request from George W. Ingham, for information relative to our assessment of the Southern Building, I have to state that after the appraisal was made and submitted to the superintendent of insurance, who comes under your supervision, he called upon me for a statement as to the way we reached our conclusions, which I forthwith sent to him. I valued the ground at $50 per square foot, which being or containing 22,212 square feet, made the ground come to $1,110,600 and the building was valued at $975,000, building and ground, $2,085,600. But after going over the figures of the earning, capacity of the building and finding that they were in the neighborhood of 5 per cent on $2,000,000, we decided to return said f building and ground at $2,000,000, which we considered a conservative estimate. We do not hold ourselves as being infallible, as some others do, but we did the best weeould, taking the advice of others, competent to judge, to substantiate our con- clusions. Very respectfully, H. H. Darneille, Appraiser. ., Dictated by H. INVESTIGATION OF 1NSTJKANCE COMPANIES. 73 {Swartzell, Rheem & Hensey Co., 727 Fifteenth Street NW., Washinglon. D. C. Geo. W. F. Swartzell, president; Clarence B. Rheem, vice president and treasurer; Alexander T. Hensey, vice president and secretary; J. J. Darlington, counsel. Cable address, Swarmhen. George W. Ingham, Esq., superin- tendent.] December 10, 1912. Insurance Department, District of Columbia, Washington, D. C. Dear Sir: Your esteemed favor of December 7, has been received, stating that you had been directed by the Board of Commissioners of the District of Columbia to obtain from me a statement in detail as to how I had arrived at the valuation of the Southern Building, which was recently appraised by Mr. H. H. Darneille, Mr. William P. Lipscomb, and myself. 1 Leg to siate that during this appraisement the committee found a diversity of opinion among real estate brokers and others as to the land valuation of this property per -square foot. I personally considered this corner to be worth between $45 and $50 per square foot, and based my opinion somewhat on the values of inside lots on Fifteenth Street south of H Street, where it is held, so I understand, at $40 per square foot. At my lower valuation of $45 per square foot, the ground containing 22,212 square feet, came to $999,540. Mr. Lipscomb, who is a practical builder, estimated that the building would cost about $975,000 to build. This made a total estimated valuation df $1,974,540. It was suggested, however, that the fairest way to get at an appraisement of this property would be to take its net rental capacity on a basis of 5 per cent per annum, and the committee called for a statement from the Southern Building Corporation, and was informed that the rental earning capacity of the building was $150,000 per annum; and that the building was approximately 82 per cent or 93 per cent full, the running expenses and taxes amounting to approximately $35,500 per year.- This left a yearly net earning capacity of $114,500, allowing $14, 500 for repairs, which showed a net percentage of 5 per cent per annum on $2,000,000. With kind regards, I am, yours, very truly, Alexander T. Hensey. [Office of Wm. P. Lipscomb & Co., contractors and builders, 1405 F Street N. W.] Washington, D. C, December 9, 1912. Mr. Geo. W. Ingham, Superintendent of Insurance, Washington, D. C. Dear Sir: Replying to your communication of the 7th instant, I beg to state that my valuation of the Southern Building was derived as follows: ^ Total cubic contents (cubic feet) 2, 658, 291 Price per cubic foot (cents) 35 Value $930, 401. 85 Five per cent increased cost of building material since building was begun, $46,520. Present value, $976,921. This estimate is based upon the cost of material at the time the building was begun. ■I accepted the judgment of Mr. Alexander T. Hensey and Mr. H. H. Darneille, my associates, as to the value of the land, as I am not an expert in land values. It is impossible to make an accurate estimate in this manner. The only way to make an exact estimate would be to do it in detail, item by item. That is, in my opinion, a close approximate estimate, and I so stated to the owners at the time the estimate was made. In order to reinforce the judgment of the appraisers we asked for a statement from the owners of the Southern Building showing the earning capacity of the property. After deducting the running expense of the building and taxes from the amount shown by the statement we found that upon a $2,000,000 appraise- ment 'the building would have a net earning capacity of about 5 per cent. Trusting this will be satisfactory to you,- 1 remain, Very truly, yours, Wm. F. Lipscomb. Col. Jtjdson. I do not recall that I have any other knowledge, if Jou can call what I have said knowledge; it is mostly, as I said, earsay, or a great deal of it is; except to add another piece of hearsay evidence, if you please, and it is this: That the sale of stock in these two companies is to-day aggregat- ing a great many thousand dollars per day, perhaps twenty or thirty 74 INVESTIGATION OF INSURANCE COMPANIES. or forty thousand dollars per day, coming in here for the purchase of stock in these two companies. As I understand it, the First National Insurance Co. has but re- cently been authorized to do business, and has done so far as I know but very little business. The Commercial Fie Insurance Co. is a company which has been doing business for 20 years or more in the District of Columbia, but which was bought by those people, or control acquired by them, a year or so ago. I have a few other things here. Mr. Ingham told me, contrary to what Mr. Curry had told me, that he had not been to New York on the business of getting these companies admitted to do business in the State of New York. But in an argument to Mr. Kudolph a few days later against the proposition of asking the New York peo- ple to come over, he introduced in a letter of his to Mr. Rudolph a copy of a Mr. Easbt-Smith. I have it here, if you can not find it, Colonel. Col. Judson. Thank you. He wrote a letter to Mr. Rudolph, in which he says: Referring to your verbal request — Mr. Rudolph, though not voting for this resolution, must evidently have verbally requested him to invite the representatives of the New York State insurance department to come to Washington. [Reading :] Referring to your verbal request that I invite representatives of the New York State insurance department to come to Washington and examine the affairs of the First National and the Commercial Insurance Cos., I beg to call your attention to the following letter: State of New York, Insurance Department, New York, December 5, 191X. Hon. George \V. Ingham, Superintendent of Insurance, Washington, D. C. Dear #ir: Pursuant to our understanding, as expressed in my talk with you at the Hotel Astor on Tuesday last — I want to interject right here that that seems to show that if he was not there on that business particularly, he took it up while he was there. Mr. Easbt-Smith. I have to again object to argument on the part of Col. Judson in this case. We will show in due time why Mr. Ing- ham was in New York, what business he was on there, and how he came to meet Mr. Emmett. I object to the interjection of argument during the reading of documents into the record. I think it is entirely improper. Mr. Johnson. As has been announced, the committee is not going to confine itself to legal rules of evidence; and before writing a report in the matter the committee will be glad to hear arguments upon both sides of any question which may arise. If it will facilitate matters, we are not opposed to hearing explanations or comment as we go along. Mr. Easby-Smith. I submit, Mr. Chairman, it is fair to read the document as a whole, and then if Mr. Judson has any comments to make, he may make them. Mr. Johnson. I think the document ought to go in as a whole, and not any part of it. Col. Judson. Very well. [Reading:! INVESTIGATION OF INSURANCE COMPANIES. 75 Pursuant to our understanding, as expressed in my talk with you at the Hotel Astor on Tuesday last, I hand you herewith inclosed a list of interrogatories designed to develop further information relative to the affairs of the First National Fire Insurance Co. of the United States, and which information I feel should be in my possession in passing; upon the application of said company to transact business in the State of New York. You are requested to please examine the compny's records, in order that the answers to the various questions may include a full and clear exposition of all necessary facts regarding each particular query, and in submitting the called for information it is also requested that the answer to the interrogatories be given in numerical sequence. It will be clearly understood, as already expressed to you personally, that the department's action in submitting the inclosed list of interrogatories for your inves- tigation is without any prejudice as to the ultimate decision on the application of this company, and that this department reserves the right to take steps looking to an examination, if such action be considered necessary. Inclosed please find blank forms of certificates to be furnished by depositories. Please send with your report copies of all literature issued by the company, includ- ing all the various forms of subscription agreements. While recognizing the necessity of appealing to the company's executives for certain of the required information, it is my desire that this communication and inclosed interrogatories be treated by you as confidential in so far as the same is pos- sible in the course of your investigation. Respectfully, yours, William T. Emmett, Superintendent of Insurance. The interrogatories made by the New York officials have been fully answered, and no reply has up to the present time been received. Mr. Easby-Smith. What letter is that ? Col. Judson. A letter from Mr. Ingham to Mr. Rudolph. No reply has been received by Mr. Ingham from the New York department as to letting the company in. And I therefore do not know whether the answers are satisfactory or whether they will desire to send examiners to Washington as indicated in the letter referred to above. In view of the foregoing I respectfully suggest that the answers by the New York State insurance department be awaited before further action is taken. That is the matter of bringing down their examiner. Referring to the interrogatories mentioned in the letter of the superintendent of insurance to Mr. Ingham, I would say I asked Mr. Rudolph if he would procure for me insurance department copies of the interrogatories and of the answers thereto, and I will put those in the hearing. Mr. Easby-j-Smith. No objection. The interrogatories and answers thereto are as follows: Interrogatories in re Application for Admission op the First National Fire Insurance Co. of the United States. 1. Give period of time covered by statement of income and disbursements appear- ing in lepoit on page 1. 2. The company was incorporated on July 9, 1912. The stock was offered to sub- scribers at 200 per cent, or $10 per share on the installment plan requiring a peiiod of 10 months to complete the payments on account of subscriptions. If the above is correct, please explain in what manner were the payments on account of subscriptions to the present capital stock and surplus completed on or before November 2, 1912. 3. Are the items of commissions and expenses on account of sale of stock, aggre- gating $70,000, applicable exclusively and completely to the present capital stock and surplus of $500,000? 4. Does the item of $117,607.24 appearing on page 4 of report represent exclusively and completely commissions and expenses on account of subscriptions to additional capital and surplus of the company? 5. Give date of receipt of first payment on subscriptions. 6. Give date of completion of present $500,000 capital and surplus, and date of last payment thereon . 76 INVESTIGATION OF INSURANCE COMPANIES. 7. Have stockholders, representing $500,000 subscriptions to capital and surplus, completed their payments on or before November 2, 1912? 8. Give statement of funds held for subscribers to additional capital and surplus, including statement of expenses disbursed and incurred. 9. Does such fund contain any forfeited payments? 10. State the aggregate amount of forfeited payments on stock subscriptions, show- ing separately forfeitures on present capital and on additional subscriptions. 11. How many subscribers to the present capital stock have subscribed for the additional capital, and the amount of additional stock thus subscribed? 12. Was any of the present stock, or proposed increase of stock, given or promised as a bonus? 13. Was any of the present stock, or proposed increase of stock, given or promised in exchange for stock of other corporations? 14. Was any of the present stock, or proposed increase of stock, given or promised in consideration for services rendered by organizers, officers, agents, or employees? 15. Give (a) number of present and names of principal stockholders, (6) same as to proposed increased stock. 16. Show to whom payments were made for commissions and expenses, and state separately the aggregate amount paid to each stock selling agent. 17. Were the payments made by subscribers on account of stock subscriptions paid directly to the company? If not, give names of individuals, firms, or corpora- tions who received such payments. 18. Give names of individuals, corporations, and committees, which at any time held moneys paid by subscribers to the capital and surplus. 19. Give all disbursements in connection with acquisition of real estate; cash book dates and names. 20. Give report on title examination. 21. Give due date of first mortgage. 22. Give maturity date of junior bonds. 23. {'Ave names of principal stockholders of Richmond Realty Co. 24. Have any officers or directors of the company any financial interest in the Southern Building Corporation or the Richmond Realty Co., or have they had any such interest? 25. Show present, rentals actually received from tenants; on basis of monthly or yearly leaseholds. 28. Explain appraiser's report showing value of land, building and promising future outlook stated separately as to each item. 27. What is the Richmond Realty Co., and what does the stock of such company represent? 28. Give names of officers and principal stockholders of said company. 29. Ts said corporation now in existence; if not, when was it dissolved? 30. Same queries as to Southern Building Corporation. 31. If the Southern Building Corporation has been dissolved, please explain the status of the outstanding bonds of such corporations. 32. Give successive steps in the purchase of the Southern Building, naming dates of payments made to vendors, stockholders, or other interested parties. 33. When, if ever, have the fire companies acquired control of the Richmond Realty Co. stock? If so, what was the consideration? If so, was such purchase the initial step tending toward the acquirement of the property? 34. Name all liens against real property. 35. Is company's equity free ancl clear from all liens except such as are repre- sented by the Equitable mortgage and the $500,000 junior bonds? " 36. Have the companies assumed any obligation, actual or contingent, on account of the purchase of the realty other than as represented by the above liens? 37. Give date of first payment on account of such purchase. 38. Are the mortgage loans held in name of the company and so recorded? 39. Give cash-book dates of purchases, dates of assignments, and appraisals. 40. Show transcript of bank accounts covering all deposits of the company's funds. 41. Furnish bank certificates on inclosed department forms. 42. Explain acquisiton of $25,000,000 Southern Building Corporation bonds on November 1, 1912. 43. Do these bonds represent a lien on the Southern Building? 44. From whom were such bonds purchased? 45. Give transcript of minutes of the directors and committees. 46. Show all amounts paid to officers and directors. 47. What justification for statement in literature that income has been earned for stockholders during organization period? INVESTIGATION OF INSURANCE COMPANIES. 77 48. What justification for statement in literature that 22 American fire companies made the remarkable average earnings in 1911 of 41.24 per cent? 49. What justification for the ass?rtion in literature that th& company has an assured premium income of over $1,000,000 for the first year of its operation? 50. Why does circular letter of November 26, 1912, fail to mention the fact that the price of $10 per share repressnts $5 toward capital and $5 toward surplus? December 7, 1912. Hon. William T. Emmett, Superintendent of Insurance, 165 Broadway, New York, N. Y. My Dear Sir: Here following will be found complete answers to the questions sub- mitted by you to my department concerning the First National Fire Insurance Co. of the District of Columbia. 1. The first subscriptions to stock were received during the week ending March 2, on which date a report of the sales for the week was rendered to the finance committee of the organization committee of the First National Fire Insurance Co., and Messrs. Tuttle, Wightman & Dudley were reimbursed on March 11 for expenses to the amount of 10 per cent of the total subscriptions received during the said week. The end of the period covered by statement is November 2, 1912. 2. Many of the stockholders paid their subscriptions in full and thereby secured a cash discount of 1 per cent; many others after paying one or two monthly subscrip- tions paid up the balance in full, etc. 3 and 4. To prevent misconstruction, these questions are answered together. The experse was calculated upon the entire subscriptions up to date of examination, and pro rated against so much of said subscriptions as were full paid at the date of the examination. In case of failure to complete subscriptions against which expense had been charged, the ratio is not increased, but would probably be decreased by reason of the fact that under the code of laws of the District of Columbia such delinquent subscriptions may be forfeited to the surplus of the company. 5. Februarv 26, 1912. 6. November 1, 1912. 7. Yes. 8. See original examination. 9. No. There were very few delinquents and they have been encouraged to com- plete their subscription s. 10. See arswered question 9. 11. 840. For amount see original report. 12. No. 13. No. 14. No; everyone subscribirg to stock in every case paid $10 per share cash therefor. 15. (A) There were 1,156 stockholders of record November 2, the largest stock- holders being the directors of the company, who subscribed to' stock of the initial issue of $250,000, each of capital and surplus, and who held collectively 1,575 shares of the capital stock of the First National, paying for the same at $10 per share $15,750. The names of these directors are as follows: Hon. George W. Atkinson, Charles F. Carusi, Hon. Robert J. Wynne, William J. Davis, Frederick S. Dudley, Robert N. Harper, Richard Wightman, Howard C. Shober, John Lewis Smith. Robert R. Tuttle, Hen. Ashlev M. Gould. (B). Impossible to answer now as of November 2. Number of stockholders will appear as the subscriptions are paid up, the stock is issued, and credit is taken for same under the charter. 16. No stock-selling agents were employed, the stock being sold exclusively by mail through the agency of Messrs. Tuttle, Wightman & Dudley. All payments on account of commissions and expenses were made to Messrs. Tuttle, Wightman & Dudley. The aggregate amounts paid will appear from my principal examination On file in your department. 17. All payments on account of subscriptions were made directly to the company and deposited in the company's depositories. 18. During the organization period and before the charter was obtained and com- pany officers elected, the funds were deposited to the credit of the organization com- mittee of the company, subject to withdrawal upon the signature of three members of the finance committee. The members of the finance committee were, Charles F. Carusi, Robert N. Harper, Judge George W. Atkinson, Bldridge E. Jordan, Justice Ashley M. Gould. 78 INVESTIGATION OF INSURANCE COMPANIES. 19. Dates of all moneys deposited in the District National Bank to the credit of Robert N. Harper and Charles F. Carusi in connection with the acquisition of the Southern Building are as follows: Sept. 3, 1912 $110,000.00 Sept. 10, 1912 7, 500. 00 Sept. 19, 1912 10, 000. 00 Sept. 23. 1912 5, 118. 41 . Nov. 2, 1912 10, 000. 00 142, 618. 41 Charged against real estate, per cent, Nov. 2. 1912 123, 285. 00 Charged against Commercial Fire Insurance Co., Nov. 2, 1912 18,077.94 141, 362. 94 Balance in bank to credit of Harper A Carusi 1, 255. 47 142, 618. 41 Dates of resolutions of board in references to building, September 9, 1912. Dates of resolution of finance committee in reference to building: September 16, 1912. November 4, 1912, 20, 21, 22. The District and Washington Title Insurance Companies, by their cer- tificate of title, show the Southern Building to be good in fee simple in the First National and Commercial Fire Insurance Companies as tenants in common, each of an individual one-half interest subject to a trrst dated May 11, 1910, to secure the Equitable Life Assirance Society of the United States $800,000. One note, pay- able in installments of $50,000 on June 1, 1915, and a lire amount on the 1st day of June, 1916, 1917, 1918, and 1919, and the residue of $550,000 payable on June 1, 1920, with interest at the rate of 5 per cent per annum, payable semiannually on the 1st day of June and December of each year. Subject also to trust dated May 12, 1910, to the United States Trust Co. to secure bonds for $450,000, bonds payable May 1, 1915, with interest at the rate of 6 pei cent. Trust dated April 1, 1911, United States Trust Co., to secure bond issue of $325,000 due April 1, 1915, with interest at the rate of 6 per cent. Of the $450,000 of bonds authorized by the Southern Building Corporation, only $275,000 were ever issued by the Southern Building Corporation, and of the $325,000 of general mortgage bonds secured by the third trust of $100,000 were taken over by the fire companies as part consideration for the purchase of the Richmond Realty Co.'s stock control, the par and accrued interest being paid therefor. The $25,000 of bonds afterwards purchased by the First National Fire Insurance Co. were of the second series, so that as the matter now stands there are outstanding in hands other than those of the two fire companies $250,000 of the second trust bonds and $225,000 of the third trust bonds, or in all $475,000 of junior bonds. As already explained, the $25,000 of second trust bonds purchased by the First National constitute as between the two companies a lien for that amount in favor of the First National over the Commercial. The company's offi- cers state that they can secure a straight mortgage of $1,000,000 at 5 per cent, or if the money market should ease up at a fraction thereunder and can, if necessary, float sufficient junoir bonds to bring the encumbrance up to the average loaning value maintained in the District of Columbia. 23. I know nothing whatever about the Richmond Realty Co. except that no officer or director of either the First National Fire Insurance Co. or the Commercial Fire Insurance Co. are now or ever have been stockholders of said company or in anywise connee'ei with it. 24. No officers or directors of either the First National or the Commercial Fire Insurance Co', have ever had any interest, direct or indirect, in the Southern Building Corporation or the Richmond Realty Co. As part of the proceeding whereby title was secured to the building, stock purchased through Mr. John P. Story, jr., who held options on most of the stock was transferred upon the books of the Southern Building Corporation to Mr. Carusi and Mr. Harper to enable them to carry out the transfer of the property. The Mr. Story mentioned never had any interest, direct or indirect, with either insurance company, but was dealt with as the party in the position to deliver the stock control of the Southern Building Corporation. 25. The rental capacity of the building with its present nine stories is $150,000, at the present schedule of rentals. Of this the space actually occupied or for which INVESTIGATION OF INSURANCE COMPANIES. 79 tenants have been secured is something over $130,000. Taxes and expense of opera- tion total about $36,000. '26. Appraisers' report as accompanying previous examination was supplemented by a second and detailed report showing building at $975,000 and ground at $50 per square foot for 22,212 square feet. Value of building was arrived at by cubing same and careful inspection. Value of ground was arrived at by comparison with sales in the neighborhood and prices at which other properties were held in the market ranging from $35 per square foot to $100 per square foot, property within one block having been sold at a price which represented $100 a square foot. Promising outlook based upon large improvements in immediate neighborhood and change of street into one of the principal business thoroughfares. 21. 1 nave no information whatever as to the Richmond Realty Co. 28. See answer to 27. 29. See answer to 27. 30. It is my information that many of the officers and stockholders of the Southern Building Corporation were interested in the Richmond Realty Co.. and that the Rich- mond Realty Co. was the dominant factor in the Southern Building Corporation. After a control of the Southern Building Corporation was secured by Messrs. Harper and Carusi on behalf of the insurance companies a new board of directors was elected, a deed of the property made to the fire companies at exactly the price paid for it, with- out deductions of any kind, and the Southern Building Corporation was then dissolved and a certificate of dissolution procured from the State Corporation Commission of Virginia. 31. The status of the outstanding bonds of the Southern Building Corporation is that of mortgage liens secured upon the Southern Building, which liens are wholly unaffected by the dissolution of the Southern Building Corporation. As the Southern Building constituted the entire assets of the Southern Building Corporation the bonds are i T1 P + ^s cood now ?s thev were ! e + 'ore. 32. The report of Messrs. Harper & Carusi, trustees, for the insurance companies, made to the insurance companies, accompanied by their vouchers for all of the said trust funds as expended by them, is on file with each company. These vouchers con- sist of checks and receipted bills. It is not deemed necessary to furnish the names of the payees of the various checks beyond a statement that in no case was any check made payable to any officer or director of either of the companies or to anyone except John P. Story, jr., and the Richmond Realty Co., and certain bills, such as that of the title company, etc. This question is not literally answered, but I believe the purpose of the question is sufficiently answered. 33. The fire companies never acquired control of the Richmond Realty Co.'s stock, and have never owned any stock in it, and own no stock in it now, nor has any officer or director ever owned any stock in it. 34. See answer to question 20. 35. Yes. 36. There is no obligation, actual or contingent, on account of the purchase of the realty except a suit by the Thompson-Starrett Co. against the Southern Building Corporation for $14,000 and a counter suit against the Thompson-Starrett Co. for $35,000. The Thompson-Starrett Co. has offered to offset, but this the Southern Build- ing Corporation refused to do. 37. The way this building was purchased was by purchasing 100 per cent of the stock of the Southern Building Corporation through the trustees appointed for that purpose. The first payment, therefore, on account of the purchase must refer to the first payment on account of stock, and from the vouchers filed in the report of Messrs. Harper & Carusi appears check to John P. Story, jr., dated September 18, 1912. 38. All mortgage loans made by the company or in the name of the company are so recorded, except in the case of the mortgages purchased from the Franklin Fire Insurance Co., which are represented by eight notes made to the order of that company and properly indorsed to this company by the president and secretary in accordance with resolution of the board of directors of the Franklin Fire Insurance Co. 39. Since my principal examination the company has substituted in its admitted assets for the Franklin mortgages an equivalent number of United States Government 80 INVESTIGATION OP INSURANCE COMPANIES. bonds, the acquisition of which I have verified. The dates of the other loans and the appraisals thereon are as follows: Date. Aug. 6, 1912... Aug. 21, 1912 . Aug. 30, 1912. Do Sept. 3, 1912... Sept. 4, 1912... Sept. 5, 1912... Sept. 9, 1912... Sept. 13, 1912.. Oct. 2,1912... Aug. 15, 1912.. Do Aug. 15, 1912.. Do Name. Charlotte Dailey Kennedy Bros Lillian v^. Rouzee P. L. Whitmarsh J. E. Sparks A. O. Bliss John Ferry John J. O'Day George E . Shake Chas. F. Carusi Vv\ E. M. M. u aggener Building and loan payments on account as per cash book do Hattie R. Forest Building and loan pavments on account as per cash book do : Appraisal. Aug. Aug. Aug. Aug. Aug. Sept. Aug. Aug. Sept. Oct. Aug. Sept. Oct. Aug. Oct. Oct. 3, 1912 20, 1912 29, 1912 21,1912 20, 1912 3. 1912 28, 1912 21,1912 13,1912 1,1912 15,1912 27, 1912 19, 1912 20, 1912 4, 1912 25, 1912 Amount loaned. 330,000 20,000 4,500 3,000 2,000 8,000 4,750 2,500 4.50O 2.500 30,000 1,000 2,000 8,500 3,500 1,400 40. As the answer of this question would involve a large amount of clerical work, out of all proportion probably to its importance, the company has loaned me its pass books, for the safe return of which I have made myself personally responsible to the company. I inclose them herewith for your inspection. Kindly see that they are safely returned as promptly as possible. 41. Certificates requested are inclcsed herewith. To arrive at the true balance to the credit of the company's capital and surplus account as of November 2,, you will deduct from the District National Bank's balance checks outstanding, amounts ing to $10,177.50, and $121,800.26, which amount was received on account of sub- scriptions to the capital and surplus of the company in excess of the $500,000, full paid, for which credit was given, and add $1,525, cash in office. 42. By resolution of the board of directors appearing upon the minutes of the com- pany, it appears that the offer of the Richmond Realty Co. to allow $35,000 of the bonds held by them to be taken up before maturity at par and accrued interest, was accepted by the company. I am since informed that the reason for this purchase was that it constituted a 6 per cent investment of the idle cash of the company. 43. As between the two fire companies these bonds constitute a lien upon the building in favor of the company holding them, 44. See answer to 42. 45. The answer to this question would consume too much clerical work and the question itself is not sufficiently specific to come within my understanding with Mr. Emmett. 46. The salaries of all officers and directors appear from the minutes of the directors'! meeting as follows: Robert J. Wynne, president $2, 500 Ashley M. Gould, vice president 750 Charles F. Carusi, general counsel 2, 500 Wm. J. Davis, assistant secretary 750 All of these being per anuum. In addition to these the directors meet once a month and those present receive $25 each. There is no other remuneration or salaries paid to any of the officers or directors. . 47. An income was earned for stockholders during organization by the investment of funds received on account of subscriptions and an arrangement with the deposit tories to pay 3 per cent interest over and above the checking balance of $10,000. 48. I am informed by the underwriters that the figures for each of the 22 companies were taken from the published volume of the Spectator Co., which in turn were taken from the files of the New York insurance department. The average is a matter of arithmetical calculation. The booklet clearly states, that these earnings were from underwriting, investments, and appreciation, on the same page on which the list of companies is given. They also inform me that the same table was used by the Detroit National Fire Insurance Co., and perhaps by several otners recently organized. 49. This amount of premiums was promised the company, in writing, by reputable general fire agents in advance of organization. 50. The circular letter of November of November 26 was directed to correspondents and prospective stockholders of the company who had already received the company's INVESTIGATION OF INSURANCE COMPANIES. 81 prospectus and had been informed that oi each $10 paid for the company's stock, $5 went to the capital account and the balance, less only the organization expense, to the surplus account. The booklet further stated that perhaps as much as 20 per cent of the amount paid in would be used as organization expenses. The amount actually expended waB much less than this amount as will appear from my principal, examination. I have answered all of the foregoing questions as fully as possible in oider that your department might have as complete a record as could be furnished. Very respectfully, , Superintendent of Insurance. Col. Judson. I have a circular I think should be read into the record. Following the adoption of this resolution by the House groviding that this investigation of the Commercial Fire Insurance o. should be had, Mr. Tuttle, its president, issued a circular explain- ing the matter, which explanation is as follows : Commercial Fire Insurance Co. of the District of Columbia, Washington, D. C, December 17, 1912. To Commercial stockholders: Following our custom of keeping our stockholders fully informed of all matters concerning this company .and its progress, we now remind you that during the month of October your company, in connection with another large fire insurance company, bought the Southern Building. After the purchase was concluded, the building was officially appraised by com-- petent and disinterested appraisers appointed by the insurance department of the District of Columbia, at a figure which showed a profit of over $200,000 to your company. There has been pending in Congress for some time an investigation of alleged discrimination by the local tax office in favor of large property owners who own buildings in the financial section. The effect of the appraisal of the Southern Building at a higher figure than the tax office assessed it over a year ago created protests among other property owners and taxpayers in the financial part of the city who are interested in keeping their assess- ments and taxes down. An official of the local District government tried to force a new and lower appraisal of the Southern Building, but this the companies declined to agree to and insisted that the whole matter be investigated by Congress. This is now about to be done under a resolution introduced in the House. The result will be that the value of our home office building will be established directly by Congress and that the other property owners who own property in this vicinity will probably have to pay their just proportion of the District of Columbia taxes. We inclose herewith a financial statement showing the result of the official examina- tion of your company as of October 31, since which time the total subscribed capital and surplus has been very substantially increased. We also inclose a reprint of an advertisement of the Southern Building which recently appeared in all the Wash- ington papers. Yours, very truly, Commercial Fire Insurance Co. Robert R. Tuttle, President. Incident to that, I may say I have here a few of the advertisements that have been in the local papers since the 5th of December relating to these two companies and to the Southern Building. They are interesting on account of the volume of them. Has tne committee any use for these advertisements ? Mr. Johnson. We will be obliged if you will leave them here. Something might develop for which we will want them. Mr. Easbt-Smith. May I inquire whether or not they are from all the Washington papers ? Col. Judson. I think so. I told my secretary to get them all, and he said some of them had been clipped, and he might not have gotten them alL 71391— No. 1—12 6 82 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. I would ask at this point that the list of officers and directors of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, furnished by telephone to the secretary of the board of commissioners by the secretary of the Com- mercial Fire Insurance Co., be made a part of the record. Mr. Johnson. That will be incorporated in the record. The list referred to is as follows: LIST OF OFFICERS AND DIRECTORS OF COMMERCIAL FIRE INSURANCE CO. AND FIRST NATIONAL FIEE INSURANCE CO. OF THE UNITED STATES. [.Furnished by telephone to the secretary to the board of commissioners by the secretary of the Com- mercial Fire Insurance Co., Dec. 9, 1912.] Commercial Fire Insurance Co.: President, Robert R. Tuttle; first vice president, Ashley M. Gould; second vice president, Frederick S. Dudley; secretary, Paul F. Grove; assistant secretary, John McKee; counsel, Charles F. Carusi. Directors: Hon. George W. Atkinson, Charles F. Carusi, John W. Childress, Allen C. Clark, Frederick S. Dudley, Ashley M. Gould, PaulF. Grove, Robert N. Harper, W. F. Robeits, Robert R. Tuttle, John Lewis Smith, Martin Wiegand, Richard Weightman, Robert J. Wynne. First National Fixe Insurance Co. of the United States: President, Robert J. Wynne; first vice president, Ashley M. Gould; second vice president, Robert N. Harper; third vice president, Robert R. Tuttle; secretary and treasurer, Frederick S. Dudley; assistant secretary, William J. Davis, counsel, Charles F. Carusi. Directors: Hon. George \V. Atkinson, Charles F. Carusi, John L. Cassin, William J. Davis, Fred Dubois, Frederick S. Dudley, Ashley M. Gould, Robert N. Harper, John McKee, Howard 0. Schober, John Lewis Smith, R. R. Tuttle, Richard Weightman, R. J. Wynne. Mr. Redfield. Col. Judson, do you know anything of a court record which includes the valuation of this Southern Building ? Col. Judson. Yes, sir; I have that in my hand. Mr. Johnson. Is it a copy of the record? Col. Judson. It is a copy of the record. I asked the corporation counsel to have a copy made, and he had this copy made. Mr. Johnson. Is it a certified copy? Col. Judson. I do not think it is a certified copy. I asked him how the committee would probably desire it and he said they would probably desire to call the clerk of the court. Mr. Easbt-Smith. We do not make any point of that. We will furnish copies of the bill if you desire. Col. Judson: Then, if you have no objection, perhaps it can go in as it is. Mr. Easby-Smith. Are the bill and the cross bill both there ? Col. Judson. I understand the bill and cross bill are both here. The papers referred to are as follows: Filed January 24, 1912. Eq. 30763. Bill to enforce mechanics lien. Thompson- Starrett Company, complainant, v. Southern Building Association, defendant. Par. II. Property. — Lot 44 in sub of lots in square 220, as per plat liber 24, folio 142, surveyor's office. Subject to trust made by defendant to American Security & Trust Co. to secure its note for $800,000 to Equitable Life Assurance Society of the United States. III. On March 23, 1910, written contract was made between complainant and de- fendant, "whereby complainant, in and for the consideration therein mentioned, agreed to provide the materials and perform the work in the erection of a building on the parcel of land described in the preceding paragraph hereof, and to charge the defendant the actual cost thereof to the complainant plus the sum of $60,000 for its profit." Copy of contract filed as Exhibit No.' 1 to bill. IV. Building completed 19th day of October, 1911, at a cost to complainant of 5681,480.92, which includes the sum of $60,000 profit to complainant. Building INVESTIGATION OF INSURANCE COMPANIES. 83 accepted by defendant. During construction defendant paid complainant $667,000, but has refused to pay the balance of $14,480.92, which is claimed with interest from October 19, 1911. V. Notice of lien for $14,480.92 filed on January 18, 1912. Copy filed, Exhibit No. 2. CONTRACT. Date, March 23, 1910. 1. Contractor is to do work under direction of D. H. Burnham & Co., of Chicago, 111. Contractor to do entire work for $850,000 and $60,000 for its profit. Building to be completed on or before February 1, 1911; 90 per cent of the value of material to be paid each month to contractor. Typewritten paper attached. Says owner is procuring loan of $800,000 from the Equitable Life Assurance Society, $600,000 of which is to be used for payments under this contract. The payments, as hereinafter provided, may be deferred in so far as may be necessary to adjust the mak- ing of these payments with the receipt of moneys from the Equitable Life Assurance Society. On any such deferred payments the contractor shall be entitled to interest at the rate of 6 per cent per annum, such payments by owner to contractor hereunder shall be made in cash, except that after such cash payments shall have been made to the aggregate amount of $600,000 any further payments may, at the option of the owner, be made in second mortgage bonds of the owner, at par, of the principal thereof and accrued interest; provided, however, that the total amount of bonds which the contractor may be required to take for work included in this contract shall in no event exceed the sum of $170,000. Subcontractors and material men may be paid in second-mortgage bonds bearing interest at 6 per cent, to become due not later than January 1, 1916, and be a part of the issue of second-mortgage bonds not exceeding $450,000 in the aggregate. Second mortgage shall provide for installment payments on account of principal at rate of $25,000 per annum commencing January 1, 1913, and the second mortgage shall con- tain a provision that it may be subordinated to a first mortgage to an amount not exceed- ing $900,000 in event owners conclude to erect an 11-story building instead of the 9-story building now contemplated. The $450,000 second mortgage above provided is contingent upon the cost of the building being $850,000. If less than $850,000, then second-mortgage bonds shall be limited to the difference between $600,000 and the cost of the building plus $225,000 to the owners. Obligations of the contractors are contingent upon a proper building loan agreement being executed by the Equitable Life Assurance Society, and the second mortgage, in form as above provided, recorded. Cross bill of Southern Building Corporation alleges contractor did not supply good workmanship and good quality of material. Sleepers poor quality, in laying them did not allow moisture in cinder concrete to evaporate, sleepers were laid in small pools of water, and have rotted, and will continue to rot — flooring rotting; necessary to relay at least 25 or 35 per cent of flooring of building. Ceilings throughout are not straight and true — they are wavy and cracked. Metal windows upon building do not fit and are not properly painted — two coats of varnish used instead of three coats, oil never rubbed off woodwork; masonry inferior; brick work never properly cleaned, terra cotta cracked throughout, chipped in many places,' and in many places out of plumb. Hot-water plant, vacuum pumps, and elevators do not come up to specifications. Claims $25,000 damage. In the Supreme Court of the District of Columbia, holding an equity court. Thomp- ' son-Starrett, a corporation, v. Southern Building Co., a corporation. In Equity, 30763. Bill to enforce mechanic's lien for $14,480.92, No. 6340, filed January 24, 1912. Lot 44, square 220. Paragraph IV of bill avers that building cost of $681,480.92, which includes $60,000 profit to complainant as per contract. Decree pro confesso taken against defendant March 6, 1912. Douglas, Baker, Ruffin, & O'Bear, Attorneys for Southern Building Co. Alms B. Browne, Alex. Britton, Evans Browne, Charles C. Tucker, Attorneys for Complainant. 84 INVESTIGATION OF INSURANCE COMPANIES. February 21, 1912, cross bill filed by Southern Building Co. v. Thompson-Starrett Co. averring that Thompson-Starrett Co. did not comply with contract and used inferior material, etc., and Southern Building Co. has had to expend $30,000 to make good defective work and asks to have an account stated to ascertain how much if anything is due to Thompson-Starrett Co. The contract was to build building at cost of material and $60,000 profit. Assessed cost (by Thompson-Starrett Co. and not in controversy) $681, 480. 92 Expended to make good by Southern Building Co., paragraph 5, cross bill 30, 000. 00 Total cost of improvements as shown in proceedings 711, 480. 92 Last step, November 26, 1912, answer and demurrer of defendant to cross bill. Mr. Redfield. Are you able to state in a few words what the valu- ation of the building is from that record ? Col. Judson. My understanding of it is this, that it is alleged in the bill in equity, which is filed to enforce a mechanic's lien for a balance of $14,000 alleged by the builder to be due — that it is alleged by him that he was to be paid $60,000 plus cost, and that when the build- ing was completed, that figured up an aggregate of $681,000. He alleged, however, that he had not received $14,000 of that, and that is what he sued for. In the cross bill the then owners of the building, accepting that statement as being correct as to the terms of the contract and as to the figures that had been stated, alleged that the building was so very badly built that they had been obliged to spend $30,000 in addition to paying the contractor $681,000, less $14,000, and they asked that he be obliged to pay them the difference between $14,000 and $30,000. I have been informed by our assessors, who in turn were informed, I understand, by the insurance company or Mr. Carusi or somebody, that the contractor was now willing to quit; that he would call it square and quit. If it were settled in that way, the building would have cost $681,000 minus $14,000 plus $30,000, and, of course, we would have to figure in interest during the construction and archi- tect's fees. Mr. Johnson. The architect's fees would amount to about how much ? Col. Judson. I should think it would have been about in the neighborhood of 5 per cent on, say, $700,000— about $35,000. They had Burnham, and he is a good architect, one of the best, to make the plans. Mr. Redfield. G. H. Burnham, of Chicago ? Col. Judson. Burnham, of Chicago. I understand he is the archi- tect, and I understand he planned the building two stories higher than it was built. Mr. Redfield. Do I understand you correctly, therefore, that on the basis of calculation you have sketched the approximate cost of the building, all things included, would be $720,000 ? Will you make a note of your figures and see what they show ? Mr. Easbt-Smith. I understand he is basing this upon the allega- tions of the bill and cross bill. Mr. Redfield. Upon his own understanding. Col. Judson. Of the bill and the cross bill. Mr. Easby-Smith. The bill and cross bill ? Mr. Redfield. Certainly. Col. Judson. Yes. INVESTIGATION OF INSUEANCE COMPANIES. 85 I figure $681,000 — I am leaving off the odd hundreds of dollars — less $14,000 is $667,000, plus $30,000 is $697,000, plus the architect's fees, which would be, say, $35,000, which is $732,000, plus the interest on the money employed during the time of construction. I suppose that would be fair, although, according to the cross bill, the building is a pretty bad one. It alleges the contractor did not supply good workmanship and good quality of material; sleepers poor quality; in laying them did not allow moisture in cinder concrete to evaporate ; sleepers were laid in small pools of water and have rotted and will continue to rot; flooring rotting; necessary to relay at least 25 or 35 per cent of flooring of building; ceilings throughout are not straight and true; they are wavy and cracked; metal windows upon building do not fit and are ndt properly painted; two coats of varnish used instead of three coats; oil never rubbed off woodwork; masonry inferior; brickwork never properly cleaned; terra cotta cracked throughout and chipped in many places and in many places out of plumb; hot water plant, vacuum pumps, and elevators do not come up to specifications. If those allegations were all true, the building would not be really worth what it cost, of course. Mr. Thomas, the corporation counsel, has handed me some matters which he thought were valuable in connection with this investigation, and I asked him to write a brief note that would describe what he was handing to me, and I have not even had the time to read it, but he said it was for use in connection with this investigation; and so as the last thing I have to hand in, I will read his letter to me for the first time myself. Mr. Johnson. Would it not be just as well for him to come here so he can be cross-examined ? Col. Jtjdson. I think so. Mr. Johnson. Would it not be better ? Col. Jtjdson. I think these are papers which were handed to him by some other attorneys here in town which he is transmitting. Mr. Johnson. If there is any comment upon them, I think he had better come. Mr. Redfield. Will you so instruct him ? Mr. Johnson. He will come when we call him. Col. Jtjdson. You will let him know ? Mr. Johnson. Yes. Mr. Redfield. Col. Judson, did you have any talk with Commis- sioner Rudolph with respect to his becoming a director of this com- pany, and if so what ? Col. Jtjdson. About, I should say, a year ago, maybe more and maybe less, Mr. Rudolph told me he had been asked to become a director of, I think it was, the First National Fire Insurance Co. of the United States, one of these two companies. Mr. Rudolph. May I, in order to save time, explain that while I was under the impression that it was one of these two companies, upon looking the matter up I find that it was neither the Commercial nor the First National that invited me to become a member of their directorate. Col. Jtjdson. I think you did think it was one of them at the time. Mr. Rudolph. Yes; I did. 86 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. At any rate, whichever company it was — I think it was this assurance company, then, was it not, Mr. Rudolph ? Mr. Rudolph. That is right. Col. Judson. It was this assurance company. Mr. Redfield. Did you have any conversation with Commissioner Rudolph, Col. Judson," respecting the appointment of Mr. Ingham ? Col. Judson. Yes. I was opposed to the appointment of Mr. Ingham. I did not think that he measured up to the job, and I wrote a number -of letters. I wrote to the president of the North- western Mutual Life Insurance Co., whom I happened to know — and that is one of the best insurance companies in the country, at Milwaukee, where I had been stationed — and asked him if he could tell me what was the best way, asking him as a friend, to go about getting a good commissioner. He told me we could not get a good one for the price we were allowed to pay — not a crackajack, not a very good one — but he recommended that I correspond with some one, And I think it was the insurance commissioner of Michigan. Mr. Johnson. What is the salary? Col. Judson. $3,500 or $3,600. Mr. Rudolph. $3,500. Col. Judson. $3,500. I corresponded with the insurance commis- sioner of Michigan, if it was Michigan, and I got the same thing from him, that the pay was not enough; that he could not recommend anyone fit for the position at the pay. I also consulted with Mr. Norton, who was then the President's private secretary, because ■ Mr. Redfield (interposing). You mean Mr. Charles D. Norton? Col. Judson. I think those are his initials, C. D. I did not know him personally particularly, but knowing that he had been in the insurance business I wrote him. But in no direction could I find any man I conceived to be a first-class man for this department, one who would be competent to suggest a body of law that we need here to cover insurance matters, for example. We have not any; we have no code that amounts to anything. So I was unable to propose such a name as that, but I continued to oppose Mr. Ingham, because I did not think he was up to the job. I brought up to Mr. Rudolph a report that Capt. Kelly, my assist- ant, had made to me. Capt. Kelly had at that time gone away to the Philippines, but I remember that he had told me of hearing that Mr. Ingham, then a clerk in the insurance department — and I believe he thought a nephew or some kinsman of Senator Gallinger — that he had heard he had taken money from somebody to get him a position in the District service, and I think Mr. Rudolph and I called in Mr. Ingham and we asked him about it. My recollection of this may not be quite correct, but I give it just as well as I can. Mr. Ingham said that the man had not given him the money, but he had loaned him the money, and complained that the man had asked him for the money back again. I did not understand the reason for that com- plaint, if it had been a loan. I remember commenting on that at the time. Finally, however, after four months — I may say, I think Mr. Rudolph can give better evidence than I can as to all the reasons why he favored Mr. Ingham. But, finally, after these four months had elapsed, Mr. Rudolph made a formal motion, and it was approved by the other commissioner, INVESTIGATION OP INSURANCE COMPANIES. 87 last by me, and regretfully by me, but I am not sure that I did approve it, because I can not find the original papers. It has been abstracted from the files. I tried to find it the other day to see whether I had approved it or whether I had noted it, but I could not tell you now; I could not find the paper. At any rate, I accepted the situation, and I remember having a long talk with Mr. Ingham, in which I asked him to study up the insurance business and the laws of the State, and the practices of the other departments, and to see if he could not bring about some improvement, which I knew was very necessary. Mr. Redfield. Col. Judson, have you any knowledge of a visit paid by Commissioner Rudolph to Senator Gallinger at the latter's home in New Hampshire on this matter ? Col. Jtjdson. Commissioner Rudolph told me he had visited the Senator there, and that he had there asked him to appoint Mr. Ingham but Mr. Rudolph would be a better witness than I about that. Mr. Redfield. Have you any knowledge as to whether Mr. Ingham is in any way related to the chairman of the Senate Committee on the District of Columbia ? Col. Judson. No; I have no positive knowledge.. Mr. Ingham was was reported to-be and, I believe, generally held to be a nephew down around the building; but the Senator told me he was not a nephew. I do not know; but maybe he is a step-nephew, or something of that kind. Mr. Ingham can tell you that. Mr. Redfield. Is it your understanding of the report of the Dis- trict commissioner of insurance that it shows that the business of the Commercial Fire Insurance Co. for the first 10 months of the year 1912 was operated at a loss ? Col. Judson. At a very great loss, it seemed to me, and Mr. Carusi stated to me that it was at a very great loss ; he thought about $50,000, although I could not see how you could place it at so little. Mr. Redfield. Can you explain, on the basis of the report of the insurance commissioner itself, the following statement, purporting to be signed by Paul F. Grove, secretary of the Commercial Fire Insur- ance Co., and to be an extract from a resolution passed by the board of directors of that company, passed on November 11, 1912 Col. Judson. I beg your pardon Mr. Redfield (interposing). One moment. I have not read the statement. [Reading:] And whereas the capital and surplus of the company have been recently mate- rially increased — And now I call your attention to the words which follow: and the company has earned for its stockholders a large sum of money in addition to paying the regular 12 per cent dividend. Col. Judson. I beg your pardon. That is not from the insurance commissioner's report. Mr. Redfield. I understand, and I did not say it was. Col. Judson. Oh, I understand — on the basis of it >■. Mr. Redfield. My question is, Can you explain that ? Col. Judson. I can not. Mr. Redfield. Is the statement signed by the secretary of the company purporting to be an extract from the resolution passed by 88 INVESTIGATION OF INSURANCE COMPANIES. the board of directors on November 11, 1912, at variance with the report of the superintendent of insurance dated October 31, 1912 ? Col. Judson. Utterly, it seems to me. Mr. Redfield. If the report of the superintendent of insurance dated October 31, 1912, is a truthful report, the company had during those 10 months made serious losses, had it not ( Col. Judson. It had made serious losses, but apparently had re- couped itself by a lucky real-estate investment. Mr. Redfield. But, so far as its business is concerned ? Col. Judson. So far as its business is concerned Mr. Redfield. Pardon me. But, so far as the business of the company is concerned, the actual business transacted by it had re- sulted in a loss of something over $100,000? Col. Judson. Yes, sir. Mr. Redfield. So that the statement made in the resolution of the board of directors, 12 days after the insurance commissioner dated his report, claiming that the company earned for its stockholders a large sum of money was not a truthful statement so far as appears from the report of the insurance commissioner ? Col. Judson. So it seems to me. Mr. Redfield. Has anyone connected with any one of these com- panies ever explained to you that apparent loss ? Col. Judson. No, sir; they have talked with me at length, but never even attempted to explain it. Mr. Redfield. Has no officer of that company shown you that this loss was only apparent, and not real ? Col. Judson. No. Perhaps I made my last answer preceding this a little too general, because Mr. Carusi did say that fire losses were exceptionally great, and I can think of no other thing that would be an explanation. Mr. Redfield. So far, then, as any knowledge that has come to you is concerned, including the report of the insurance commissioner itself, this company has been paying 12 per cent dividends, while, as. a matter of fact, it was transacting its insurance business at a loss; is that so ? Col. Judson. Yes, sir. Mr. Redfield. And is it so that on the basis of the same facts the company was issuing statements to its stockholders that were not true ? Col. Judson. Undoubtedly. Mr. Redfield. Does it appear in your judgment from the report of the insurance commissioner that the dividends of 12 per cent that this company has been paying are, in fact, paid out of the premium paid by the stockholders for the stock they bought ? Col. Judson. Out of that or out of the existing surplus at the beginning of that period — out of the combined surplus. Sir. Redfield. So that, as a matter of fact, if it were not for the appraisal which increased the value of the Southern Building there would be only a surplus on the 31st of October, on the basis of the insurance commissioner's report, of $2,723.49? Col. Judson. That is all. Mr. Redfield. And that was all that they had upon which to predi- cate, so far as the insurance commissioner's report is concerned, an offering of stock on the basis of 120 per cent premium ? INVESTIGATION OF INSURANCE COMPANIES. 89 Mr. Judson. Yes, sir. Mr. Redfield. Have you any knowledge as to whether this com- pany is admitted to do business in the State of New York ? Col. Judson. I understand it is not. Mr. Eedfield. Have you any knowledge as to whether this com- pany is admitted to do business in the State of Wisconsin ? Col. Judson. I understand that it was not, but they sought to mandamus the State of Wisconsin to admit it; and I have heard it asserted that they had won that suit ; but whether that is so or not, I do not know. I do not believe they have, though. Mr. Eedfield. Have you ever heard of any difficulties that this company has had with the insurance department of either the State of Maine or the State of Massachusetts ? Col. Judson. I have heard, but so indefinitely that my information would be of no service to the committee. Mr. Redfield. Have you any knowledge of the record of Tuttle, Wightman & Dudley, or any of them, in the State of New York ? Col. Judson. As derived from Best's reports; yes, sir. Mr. Redfield. Have you any knowledge of the Protective Cor- poration of the city of Syracuse, N. Y. 1 Col. Judson. Yes, sir; as derived from Best's reports. Mr. Redfield. Have you any knowledge of the Protective Fire Insurance Co. of that State ? Col. Judson. Yes, sir; as derived from the same source. Mr. Redfield. Have you knowledge as to whether Messrs. Tuttle, Wightman & Dudley left the State of New York and came to Wash- ington before the report upon their practices in that State and of the New York State Fire Insurance Co. was made public ? Col. Judson. I do not know whether they came before or after. Mr. Redfield. Have you seen the letters that this company- has written, or any of them, soliciting sales of stock ? Col. Judson. I have seen a number of them. Mr. Redfield. Have you noticed in any of these letters whether it is stated to the persons who are asked to buy the stock of the com- pany that the company is not permitted to do business in the State of New York? Col. Judson. No, sir. Mr. Redfield. Have you ever seen any letter from Mr. Ingham, the superintendent of insurance of the District of Columbia, to Mr. Robert J. Wynne, suggesting the proper procedure on the part of the District of Columbia insurance department in the event this company was refused admission into the State of New York? Col. Judson. I do not remember seeing any such letter as that. Mr. Redfield. You have seen no such letter? Col. Judson. No, sir. Mr. Redfield. Did you ever hear that the superintendent of insur- ance of the District of Columbia threatened in a letter to Mr. Wynne that in the event the Commercial Fire Insurance Co. was obliged to be examined before it was admitted to the State of New York that a like examination would be required of New York State insurance companies that wished to do business in the District of Columbia? Mr. Easby-Smith. I submit, Mr. Chairman, that it is absolutely immaterial as to whether or not this witness may have heard of the contents of a letter written by Mr. Ingham. If there were such let- 90 INVESTIGATION OF INSURANCE COMPANIES. ters, they can be produced, and I submit that it is absolutely imma- terial whether this witness heard that or not. I object to that. Mr. Redfield. Answer the question, please. Col. Judson. I never saw that. Mr. Johnson. I believe I understood vou to say a few moments ago, Colonel, in answer to Mr. Redfield,' that the 12 per cent divi- dend which had been paid was not paid out of the real earnings, but had been paid out of subscriptions to stock which were coming in? Col. Judson. Out of subscriptions to stock which were coming in. That is a fair way to state it. Mr. Johnson. And premiums on stock? Col. Judson. Yes, sir; premiums on stock. Mr. Easbt-Smith. In order that it may go in at this point, may I ask Mr. Redfield whether this is the letter to which he referred, and then will you allow it to go into the record at this point? Mi". Redfield. I presume that it is. Mr. Easbt-Smith. May it go into the record at this point ? Mr. Redfeeld. I would be glad to have it inserted m the record. Thereupon Mr. Easby-Smith read into the record a letter ad- dressed to Hon. George W. Ingham, superintendent of insurance, Washington, D. C, signed Robert J. Wynne, and dated November 20, 1912, which appears hereinafter. Mr. Easby-Smith. I would like to offer in connection with that letter and to precede it in the record the following letter : [First National Fire Insurance Co. of the United States. Home office, Southern Building:] Washington, D. C, November 20, 1912. Hon. George W. Ingham, Superintendent of Insurance, Washington, D. C. Dear Sir: We have pending an application for admission for license in New York State. There has been some delay in admitting us, and it has been suggested by our counsel, Mr. Hoffman, after a talk with some of the State officials, that it would greatly facilitate matters if the New York department would send its own examiners here to examine into the affairs of our company. We have no objection to this being done but Mr. Carusi tells me that on a former occasion, when a similar proposal was made by the superintendent of the State of Illinois with respect to another company, that you declined to allow this to be done. Although we are very anxious to facilitate in every way our entry into New York, we would not care to take any step that might injuriously affect the very pleasant relations we now have with your department. I am sending this by messenger as I am leaving for New York late this afternoon and will appreciate very much if you will communicate with me before I leave. Yours, respectfully, Robert J. Wynne. November 20, 1912. Robt. J. Wynne, Esq., President First National Fire Insurance Co., Washington, D. C. Dear Sir: In reply to your communication of this date, I beg to advise you that this department has no control over the question as to whether your company is or is not examined by representatives from any other insurance department. It is customary where an insurance department desires information concerning an insurance company within the jurisdiction of another department, that the informa- tion should be Bought through official channels. If there is any information that the New York or any other insurance department can get through its representatives, concerning any of the companies within my jurisdiction, that my department has not already and can not furnish, I shall be very much surprised, and I have uniformly taken the position that this department will resent being ignored by similar depait- ments of other jurisdictions. * Should such occur, I shall immediately send a force of INVESTIGATION OF INSUKANCE COMPANIES. 91 actuaries to any jurisdiction so acting and make my own examination of every com- pany from that jurisdiction that is operating in the District of Columbia. This de- partment is ready at all times to furnish the New York department with any infor- mation concerning any District of Columbia company that it may require, but if the examinations of this department aie not accepted by the New York department, I shall decline to accept the examinations of the New York department. Very respectfully, Geo. W. Ingham, Superintendent. Mr. Johnson. Because of the interruption I will repeat the ques- tion, so as to take up the chain of thought upon which we were about to enter when these interruptions came on about putting these letters in the record. I will therefore ask the stenographer to read my question. The stenographer read as follows: I believe I understood you to say a few moments ago, Colonel, in answer to Mr. Redfield, that the 12 per cent dividend which had been paid was not paid out of real earnings, but had been paid out of subscriptions to stock which were coming in? Col. Judson. I would say that is a fair statement, meaning that it had been paid out of premiums on the sale of stock which were part of the subscriptions. Air. Johnson. Since the matter has taken such a wide range in "both the questions and answers, may I not ask if, in your opinion, the doing of that is not equivalent to fraud ? Col. Judson. If I were to do it, I should consider that I was guilty of fraud. Mr. Johnson. To what extent, Colonel, do you hold Mr. Ingham, the superintendent of insurance, responsible for the existence of the conditions with these insurance companies that would permit that ? Col. Judson. Well, I do not know just how far I hold him respon- sible. I think the absence of a proper insurance code is somewhat responsible. I think that, so far as I understand it — I think he might have animadverted upon the conditions which were revealed by his examination as they animadvert upon certain conditions in the State of New York when the insurance department is making a report, so that his report, instead of being used as advertising material for the company, would have been the last thing that would have been so used. I blame him for that, although I am uncertain whether under our law he has any right to animadvert, but I presume he has. Mr. Johnson. How long did you oppose the appointment of Mr. Ingham to this place ? Col. Judson. I suppose I opposed it for several months. Mr. Johnson. Did you ever approve it, or simply acquiesce in it? Col. Judson. I do not know. I can not find the original paper. If I acquiesced I did so regretfully, after the matter was an accom- plished fact — that is, after the other two commissioners had voted for him, if I did vote for him; but as I say, I do not know; I might have voted for him, or I might have noted it. Mr. Johnson. Your mind underwent no change, as to your opposi- tion to him, from the time his name was first suggested for the place, until after the two commissioners had voted ? Col. Judson. No; it underwent no change. Mr. Johnson. You were opposed to him from the first to the last? Col. Judson. I am quite sure I was opposed to him from first to last; yes, sir. 92 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Did you receive a letter from Senator Gallinger, asking you to support him ? Col. Judson. I think I did, but it may have been a letter to the board; I am not sure. Mr. Johnson. Did you not answer Senator Gallinger Col. Judson. But lam not sure there was a letter; I am not sure; I think so. . Mr. Johnson. If you wrote to Senator Gallinger, in answer to a letter from him, see if you can recall to your mind whether or not you used the expression that you would be glad to see Mr. Ingham win out in the matter ? Col. Judson. Well, sir, now, I do not know whether I said that or not. That would have been politic, but I hope I did not say it; I do not remember it. Mr. Johnson. Will you say you did not say it, Colonel ? Col. Judson. No; I would not say I did not say it. It might have been written at the end, when I knew he was going to be appointed at any rate, and I might have written such a letter, but I do not remem- ber it. Mr. Johnson. In the face of your opposition, then, you think it possible you might have written a letter expressing the hope he might win out ? Col. Judson. I suppose most anything is possible; but I do not remember it. I know this, and it is perhaps impolitic to volunteer this statement, that at one time Mr. Burleson, whom I often consult in such matters Mr. Johnson. What Mr. Burleson ? Col. Judson. Member of Congress and chairman of the Appropria- tions Subcommittee. He told me at one time, knowing that I had been opposed to Mr. Ingham, "You must not oppose Mr. Ingham any longer; you can not afford to do it," meaning not that I per- sonally could not afford to do it, but that I could not afford to oppose him any longer because of District legislation. Mr. Johnson. Just what do you mean by that, because of Dis- trict legislation ? Col. Judson. I had to appear before Senator Gallinger's two com- mittees. He is chairman of the Subcommittee on Appropriations that handles the District bill, and also is chairman of the District Committee, and I have much District business with him. Mr. Johnson. And so Mr. Burleson was urging on you your acqui- escence in the appointment of Mr. Ingham simply because Senator Gallinger was chairman of the Appropriations Committee, and that therefore you could not antagonize him ? Col. Judson. He thought my antagonism would not be successful and that I had better not antagonize him any further, but to assent. That, I think, is a fair statement of the advice of Mr. Burleson. It is possible at that time, when he was about to be appointed, I might have written such a politic letter, and I regret it. Mr. Johnson. And it was urged that you had better assent simply because of Mr. Ingham's relation to Senator Gallinger, and that Senator Gallinger was chairman of the Appropriations Committee ? Col. Judson. With whom, as engineer commissioner, I had to do a large business and remain on good terms for the sake of the District, not for my own sake. This would all be very interesting to some INVESTIGATION OF INSURANCE COMPANIES. 93 others, and I am sorry for them, but still I am obliged to tell the truth, the whole truth. Mr. Johnson. Can you set out any material part of the conversa- tion between you and Mr. Burleson in which he urged your acquies- cence in this appointment because of Senator Gallinger ? . Col. Judson. I will not say he urged. I will say he. advised my acquiescence in it. No, I could not set out the conversation. That was a year and a half ago. Mr. Johnson. Did Mr. Burleson at that time convey to your mind the impression that you had better acquiesce in this appointment in order that the appropriation bill and the items which you were advocating might have easier sailing with Senator Gallinger ? Col. Judson. I do not remember that he went into details of that kind, and I will say also that he realized and was of the opinion that he would be appointed anyway, and that I had better acquiesce in it. Mr. Johnson. And you did ? Col. Judson. And I probably voted for it, as I say, although I can not find the original paper. Mr. Johnson. Therefore you were induced by that kind of argu- ment to accept or to drop your fight against Mr. Ingham, when Mr. Donovan's report had been before you, that he was incompetent ? Col. Judson. I know when I have lost a fight. Mr. Johnson. And that you also had charges pending before you as to his integrity ? Col. Judson. No, sir; we had no charges pending at that time. We had investigated the charge, and we had not established it. That matter was then dismissed for what it was worth. I opposed the appointment of Mr. Ingham for a long time. My opposition was unsuccessful, and Mr. Burleson's advice related rather to the foolish- ness of not quitting when I was beaten. It related to that rather than to turning around and securing his appointment. That is not what I did. Mr. Johnson. Col. Judson, did I understand you correctly a few moments ago upon your direct testimony to say that you did not understand why Mr. Ingham should become offended when asked for the return of a loan if it had been a legitimate loan ? Col. Judson. Yes; that simply happened to stick in my mind as humorous. Mr. Johnson. And it continues to stick in your mind ? Col. Judson. And it sticks there until now, unless I dreamed it. It was a year and a half ago. Mr. Johnson. Notwithstanding that during the time you enter- tained the conviction that he did not possess the integrity that he should have for this important place, you quit your opposition to him, and thus had come this condition of affairs against which you are now taking a part 1 Col. Judson. I will not go so far as to say that I was convinced of his lack of integrity. I thought he was unfit. There is this particu- lar case that has been referred to and was not proven. I could not say that I was confident of a lack of integrity, nor that he In eked good judgment, nor that he lacked ability, nor that he lacked courage. But I did not think he possessed the proper combination of the four to make a proper insurance commissioner. But I hoped when he was appointed that he would get along all right. He was appointed, 94 INVESTIGATION OF INSURANCE COMPANIES. and I had hopes he would do verj- well, and in some respects he has done well. I will testify to that. He conducted a fight against some little assessment companies here in which he displayed a good deal of energy and courage, and put them out of business, as I remember it. I was quite pleased with him from what I heard at one time. Mr. Johnson. You wrote and made the motion, Col. Judson, for the dismissal of Mr. Ingham before this investigation commenced. Col. Judson. My first proposition to Mr. Rudolph was made ver- bally, that we dismiss him. Mr. Rudolph did not agree with me. My next proposition was to let him go if the State of New York did not receive an invitation from us and accept it, to send a man down here who might be investigating, parallel with him. That motion was made before there was any thought of any investigation by Congress. Mr. Johnson. But you' do feel sure, Colonel, that Mr. Ingham did not relieve the doubt in your mind as to his integrity concerning the acceptance of $50 to secure a position for another, which he could not secure ? Col. Judson. I had my doubts, but when it was over I gave him the benefit of the doubt. Mr. Johnson. But the last thing that he said to you, when you had him up inquiring as to his conduct on that occasion, was a complaint against the man from whom he had borrowed the money for asking for its return ? Col. Judson. Well, that was an illogical thing. That excited more my distrust of his logical faculties than anything else, that he should have said that. It is a remarkable thing, just as I thought it was another remarkable thing that having denied to me that he had been in New York on business with these insurance companies, he had then written a letter to Mr. Rudolph, quoting a letter from the superin- tendent of insurance of the State of New York, which showed me he had taken up that business while he was over there. I just thought that was a queer lack of logic in his mind. Mr. Johnson. You called him before you to answer questions con- cerning the transaction of taking money to secure a place for another ? Col. Judson. My recollection is that either it was the board or two members of the board. It might possibly have been myself alone, but I think it Was two members of the board. Mr. Rudolph may remember about it. Mr. Johnson. And his answers were unsatisfactory ? Col. Judson. They were not entirely satisfactory to me. But my recollection of it is that this man was not a good witness — the man who had been the applicant for the job. He had not stuck to any story very strongly. Mr. Johnson. He impressed you as being a man of such moral bluntness concerning those matters that he practicallv saw no wrong in it « Col. Judson. No; I would not say that. He denied he had taken the money to get the man a job. He did not admit it. Mr. Johnson. He did admit he had borrowed the money ? Col. Judson. That is my recollection. Mr. Johnson. And then became offended because the man had asked him for its return ? Col. Jtjdson. That is my recollection. INVESTIGATION OF INSURANCE COMPANIES. 95 Mr. Johnson. You expressed wonderment at that ? Col. Jtjdson. That is my recollection. Mr. Johnson. In consequence of that, you then douhted his integrity ? Col. Jtjdson. I had doubted it, of course, when Capt. Kelly had origi- nally told me about the thing. Although it was hearsay, naturally it excites a doubt. I did not have any more doubt than I had had . all the time. Mr._ Johnson. The interview with him did not remove the doubt? Col. Judson. Oh, it did not remove the doubt, but I gave him the benefit of the doubt, because it was not proven. Mr. Johnson. In what way did you give him the benefit of the doubt ? Col. Judson. In my mind, I mean. I made up my mind to accept him, after an unsucessful fig-ht on him, Mr. Johnson. Did you give him the benefit of the doubt to the detriment of the welfare of the public ? Col. Judson. No, sir. Mr. Johnson. In dealing with insurance companies in the District of Columbia ? Col. Judson. No; because he would have been appointed any way, whether I voted no or yes. Mr. Johnson. How do you know ? Col. Judson. Because when the paper came before me it was voted upon by Mr. Rudolph and Gen. Johnston, doubtless. Mr. Johnson. Are you sure it came to you last? Col. Judson. Generally they do. That is the usual way; that is the regular way. Mr. Johnson. Colonel, I ask you again to refresh your memory and see if you can not recall having written to Senator Gallinger expressing the earnest hope that Mr. Ingham would be appointed to this position. Col. Judson. I say I may have written it; I do not remember writing it, but I might have written it. Mr. Johnson. In the full knowledge of these questions as to his competency and integrity having been raised with you ? Col. Judson. Well, no; my knowledge was not full about those matters; it was hazy. There was no proof. Mr. Johnson. I think you have failed to fully interpret my ques- tion, Colonel. I will ask the stenographer to read it to you agam. The last preceding question was repeated by the stenographer, as above recorded. Col. Judson. Oh, yes; in the full knowledge that those questions had been raised ; yes, sir. Mr. Johnson. You say, Colonel, that if you wrote such a letter to Senator Gallinger, as I have indicated, that letter was written out of policy ? Col. Judson. It was probably largely out of policy; yes, sir. That was the reason for writing the letter. Mr. Johnson. For what reason was it politic ? Col. Judson. As I explained at that time, it must have been after I quit my fight on Mr. Ingham, and had decided I must acquiesce 96 INVESTIGATION OF INSURANCE COMPANIES. in it. I wrote the letter through a policy at that time doubtless which dictates most letters, I suppose. I suppose nearly all letters except business letters are written from policy. Mr. Johnson. Was not this strictly a business letter and one of the utmost importance ? Col. Judsox. I do not think so. Mr. Johnson. At least the quitting of your opposition ? Col. Judson. I do not think so; I doubt whether Senator Gallinger himself was not fully aware I had been opposing his appointment for months. I am quite sure he was. I do not think the letter was anything more than a polite, formal letter. Mr. Johnson. And you feel inclined to the belief that Senator Gal- linger was not disposed to take you at what you wrote ? Col. Judson. I imagine he took it with the full knowledge of the spirit in which it was written, and with what had preceded it. Mr. Johnson. And you think it improbable then that Senator Gal- linger would have taken it for granted that his kinsman would no longer have your opposition after you had written him expressing the hope that he would he appointed ? Col. Judson. I do not suppose I opposed it after that. I do not suppose so. That must have been written about the time I had determined on advice to acquiesce in it. Mr. Johnson. If you had followed your original opinions as to the competency and integrity of Mr. Ingham and had appointed a man possessing the qualifications which you say he lacked, would not this state of affairs now most probably have been avoided? Col. Judson. It was not up to me to make such an appointment. I think if it had been I would have made such an appointment, and I think this situation would not be as bad as it is now, although I still think we would need a body of laws to handle the insurance situation. Mr. Johnson. And do you to-day Col. Judson (interposing). I am assured it would by the corpora- tion counsel. Mr. Johnson. Do you to-day entirely acquit yourself of having voted for a man whom you say possessed such a lack of integrity and ability ? Col. Judson. I sometimes do, and I sometimes do not. I do not know that I can answer that question. Mr. Johnson. What are the conditions under which you some- times do ? Col. Judson. When I think it is a matter of very small importance whether I voted for him or not, inasmuch as he was going in anyway. Mr. Johnson. What are the conditions under which you some- times do not ? Col. Judson. When you question me thus. Mr. Johnson. Not until I question you ? Col. Judson. No, sir; I do not think it had really appealed to me before. Mr. Johnson. When you testified directly here this afternoon and brought that matter in yourself, the incompetency and lack of integ- rity of the man had not theretofore occurred to you ? Col. Judson. I will say this: That I had had several changes of mind with reference to Mr. Ingham. I thought two months ago that INVESTIGATION OF INSUKANCE COMPANIES. 97 he was making good and making very good. I know about his fight on these assessment companies, and I was rather thinking that it was a good thing that I had not allowed these doubts Mr. Johnson (interposing). When did it first come to you, Colonel, that he was not making good ? Col. Judson. When I studied this report. Mr. Johnson. Did it not come to you that he was not making good when Mr. Stellwagen came to you ? Col. Judson. When he came to me with these papers ? Mr. Johnson. Yes. Col. Judson. That was almost simultaneous. He brought the papers there. Mr'. Johnson. Did you and he go over them together ? Col. Judson. We went over them, but hastily. No, I will not say we went over them. I did not understand the papers when he left. He was only there for a little while on this occasion when he brought the papers. I took them to my home. Mr. Johnson. Which feature of the report did you and Mr. Stell- wagen dwell upon most ? Col. Judson. I think Mr. Stellwagen and I did not read the report over carefully together at all. He said: Here is the report; here are various papers; here is Beet's report; here is the report of the insurance commissioner ; here is some literature. I want you to look these papers over and make a study of them and see if you do not think the commissioners of the District have some duty to the public to perform. Mr. Johnson. Was one of his complaints that the building had been assessed too high ? Was one of his criticisms that the building had been appraised too high ? Col. Judson. I do not remember the first conversation, but I will say I have had many since, in which he has. If he did not the first time, he has at other times. Mr. Johnson. He has emphasized that feature of the statement ? Col. Judson. I will not say he has emphasized it any more than he has emphasized the business of the company during the year. I think he has been about as much emphatic on the one as the other. Mr. Johnson. You say you were quite sure Mr. Stellwagen came to you upon this occasion to invite your attention to this statement out of duty upon his part as a good citizen to the community ? Col. Judson. I have found him one of the highest type, a man that is interested in the public welfare, and in having things and business done rightly within the District of Columbia. That is my opinion of Mr. Stellwagen. Mr. Johnson. What position does Mr. Stellwagen occupy with the Union Trust Co J Col. Judson. He is president of it. Mr. Johnson. Did Mr. Stellwagen upon that occasion or upon any other tell you that the banking building of his bank is assessed at $651,266, and that his company has reported it to the Treasurer of the United States as being worth $1,167,106.37 ? Col. Judson. The assessment is only two-thirds of the true value . Mr. Johnson. Then I will change the question. Did he tell you that the three-thirds of his building had been valued by the assessors of the District at $966,899 and that they were reporting it to the 71391— No. 1—12 7 98 INVESTIGATION OF INSURANCE COMPANIES. Treasurer of the United States and carrying it upon their own books as worth $1,167,106.37 ? Col. Judsox. No; he did not tell me that, although we may have discussed it. Mr. Johnson. Can you tell me the difference in the duty he owed to the public because of this insurance building and his own ? Col. Judsox. You mean whether he should pay more taxes or not ? Mr. Johxsox. No; I mean that if he were actuated simply by patriotic purposes, by motives coming from the mind of a good citizen, in calling your official attention to the fact that these insurance companies were overvaluing their building, would he have fully discharged his duties as such a citizen without also telling you that his own building was being carried for a very considerable sum more than its appraised value ? Col. Judsox. It was not a question of whether it was carried at more than its appraised value. It was a question of whether or not it was not carried at a value of more than it was worth. Mr. Johxsox. If he was paying taxes upon less than two-thirds of its real value, was he playing the part of a patriotic citizen, in which spirit you say he came to you ? Col. Junsox. I think so. I think there are a good many patriots who do not seek to have their taxes increased. Mr. Johnson. But are they the kind that go about insisting on having other people's taxes increased ? Col. Judson. I never heard of his going around to get the people's taxes increased. Mr. Johnson. But he came around to insist that this other build- ing should not be valued so highly, at such a high figure ? Col. Judsox. Not to insist that it should not. Mr. Johxsox. To invite your attention to the fact it was and to have you investigate whether or not that was right ? Col. Judson. Yes. Mr. Johnson. And that was really the cause of the investigation upon your part ? Col. Judson. You can hardly say it was the cause. It was the first notice I had of anything being, as I thought, wrong. Mr. Johnson. You acted upon the first notice ? Col. Judson. I acted upon the result of ray study, which followed that first notice. Mr. George. Colonel, did Mr. Stellwagen suggest to you the intro- duction of the resolution of September 5 ? Col. Judson. No; I do not believe he did. Mr. George. The resolution, I mean, which called upon the super- intendent of insurance to secure, if possible, the services of Mr. William D. Hoover, president of the National Savings & Trust Co., Mr. Harold E. Doyle, and a real estate expert to be chosen by them. Col. Judson. No; I do not think he suggested that, although I asked him at one period whether Mr. Doyle he thought would serve without pay, inasmuch as the insurance companies had refused to pay, as is common for such appraisals, and I asked him whether he thought Mr. Doyle would serve without pay. He said he thought he would. I think that is all I asked about that. I know he did not suggest it; that was my own thought, but whether I discussed it with him or not I do not know. I have discussed the whole business INVESTIGATION OF INSURANCE COMPANIES. 99 with him so frequently that I may have discussed it with him, but I do not think so — not before the motion was made. Mr. George. What did he say about that? Col. Judson. Well, I do not remember his expressing any opinion at all; he did not go into the details of that at all. Mr. George. Did you talk with him about selecting Mr. William D. Hoover ? Col. Judson. I do not remember that I did. I do not remember that I asked his advice in the matter, but I doubtless talked with him as to whether lie would be a good man or not, and I think after I had made the motion I did. Mr. George. Did you know who Mr. Harold E. Doyle was at the time you talked to Mr. Stellwagen about it ? Col. Judson. Who he was ? Mr. George. Yes. Col. Judson. I knew him personally; I knew him quite well. I have seen quite a good deal of him. Mr. George. What is his relation to Mr. Stellwagen? Col. Judson. Well, he is the real estate expert of Fisher & Co. Mr. George. What is Mr. Stellwagen's relation to Fisher & Co. ? Col. Judson. I do not know but what he has a very considerable interest in it, but I do not know what. Mr. George. Well, is he an officer in the company ? Col. Judson. Well, I suppose he is, but I am not sure; he may be an officer in it, but I do not know. Mr. George. You do not know? Col. Judson. It is rather remarkable that I do not know, but it just happens that I do not know. I do not know whether he is or his brother-in-law — what is the brother-in-law's name ? Mr. Easby-Smith. Gale. Col. Judson. I do not know whether he or Gale, but I imagine one of them would be president of the company, but I do not know which one. Gale seems to be the one who runs the business. Mr. George. Did you read any of the testimony taken by the subcommittee of the District Committee ? Col. Judson. Well, I read some of it, but not all of it. Mr. George. Did you read the testimony of Mr. Stellwagen ? Col. Judson. No. Mr. George. Did you read the testimony of Mr. Doyle ? Col. Judson. No. Mr. George. So that you do not know that Mr. Stellwagen is president of Fisher & Co. ? Col. Judson. No; but I am not surprised to hear that he is. I knew that he was either president or his brother-in-law was president. Mr. George. Do you know where Fisher & Co. are doing business ? Col. Judson. Yes. Mr. George. Where, if you please ? Col. Judson. In the Union Trust Building. Mr. George. And the Union Trust Building is where? Col. Judson. It is, however, in the back end, the remote end of .the Union Trust Building, from the corner of H Street, and the Union Trust Building is diagonally opposite the Southern Building. Mr. George. So that Thomas F. Fisher & Co. are large real estate people here in the District? 100 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. I suppose that is as large ancT reputable a firm as there is in the town. Mr. George. And Mr. Stellwagen is one of the officers, president, in fact ? Col. Judson. I have no doubt. Mr. George. And Mr. Doyle is the expert, the real estate agent for that company ? Col. Judson. Yes. Mr. George. So that in recommending and talking about Mr. Doyle becoming one of the appraisers on the Southern Building property you were talking about somebody very close to Mr. Stell- wagen ? Col. Judson. Well, he is very close to Mr. Stellwagen in that sense, that he is working for Fisher & Co., but I believe that his expert knowledge is none the less because he happens to have an office nearby that office. It ought to be greater on that account. And so far as Mi. Stellwagen's interest is concerned I imagine he would be very glad if appraisals all around there would show that his building is worth $2,000,000 itself, because that would enable him to increase the assets of his bank by that amount, increase the book value of it, and have the company's stock go up from $140 to S160. Mr. George. You did read the testimony as to the assessment on that very property ? Col. Judson. No; I did not read that. Mr. George. You did not see what Mr. Stellwagen said to the committee about the assessment of his lands and improvements ? Col. Judson. No. I know Mr. Stellwagen does not like to pay taxes any more than anybody else. Of course, nobody likes to pay their taxes. Mr. George. And it is presumed he would want a low assessment, then? Col. Judson. As to taxes, I suppose everybody objects. That is universal Mr. George (interposing). Assessments are made for what pur- pose? Col. Judson (continuing). But for the purpose of carrying his building as an asset he would like — he would be willing to own froperty — he would be willing to pay taxes on property to own it, have no doubt, and he would be very glad to have his property go up because it would appeal to him as being useful to him m the state- ment of the condition of his bank, just as it is shown on that paper. Mr. Johnson. Do I understand you correctly, then, that he would like his assessment kept down and the value of his property increased upon his books ? Col. Judson. Well, I say that is universal and it is so with him as with anybody else, I imagine; he did not tell me that, but I imagine he would, because of its being to his interest. Mr. Johnson. You have just said that is what you thought he would like. Col. Judson. I should think that is what everybody would like, because that is the selfish view. Mr. Johnson. Then he occupies exactly the same position in this matter that these fire insurance companies occupy ? INVESTIGATION OF INSURANCE COMPANIES. 101 Col. Judson. I admit the fire insurance company wants its build- ing appraised at $2,000,000 ; there is no question about it. Mr. Johnson. Have you instituted any proceedings, or do you con- template the institution of any proceedings to start an investigation of the Union Trust Co. because of the conditions which you have just recited ? Col. Judson. Oh, no. Mr. George has just been investigating that, as a matter of fact. Mr. George. Not investigating insurance matters. Col. Judson. Mr. Johnson said about the real estate taxes, and so on? Mr. George, Yes. Col. Judson. He asked if we had taken any steps to have that investigated, and I said you just completed that. Mr. Johnson. It has occurred to me that your diagnosis of the condition at the Union Trust Co. is on all fours with the one at the Southern Building? Col. Judson. It is largely on all fours. Mr. Johnson. And you have been very active to bring about the dismissal of Mr. Ingham and to secure an investigation mto the insurance companies' matters without doing anything or making any suggestions, or contemplating doing anything relative to the Union Trust Co. ? Col. Judson. Well, the difference is this, Mr. Johnson, that the value placed by Mr. Stellwagen upon the Union Trust Co.'s building is a question for a Federal officer, the Comptroller of the Treasury, with whom we have nothing whatever to do ; we have nothing what- ever to do with that bank or the statement of its assets. Mr. Johnson. Is the Union Trust Co. a national bank % Col. Judson. No, sir; but it is under the control of the United States just the same. Mr. Johnson. Under what law ? Col. Judson. I do not know the law. Mr. Johnson. Is it under a national law or a District law >, Col. Judson. Well, they are the same, the law of Congress. Mr. Johnson. Yes; but you catch the difference, of course, which I intend to convey to you ? Col. Judson. No ; I suppose it must be the law of Congress applying locally, because trust companies Mr. Johnson (interposing). If it is your duty to protect the public from investing in an insurance company which is kiting its assets, is it not also your duty, as a Commissioner of the District of Columbia, to protect the public, in so far as you can, from either investing in the stocks of or depositing in a trust company which may be kiting in the same way? Col. Judson. Hardly, because the insurance department of the Dis- trict of Columbia is under the commissioners, and the comptroller is not under the commissioners, but under the Secretary of the Treasury; one we have nothing to do with and the other it is our business to look into. Mr. Johnson. Is it not your business, as Commissioners of the District, to protect the public from every fraud which may be at- tempted to be perpetrated upon the public in the District '. 102 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. Well, sir, I think if we are active within our own I'urisdiction in those things in which the law holds us responsible we lave all our time occupied. Mr. George. Col. Judson, is it the duty of the commissioners to see that taxes are properly paid? Col. Judson. That they are properly assessed and paid? Mr. George. Yes. Col. Judson. Yes. Mr. George. So that you, as a commissioner, would be interested in getting a proper assessment ? Col. Judson. Yes, sir; we are all interested. Mr. George. Yet you think Mr. Stellwagen would be interested in getting his valuation down so that his taxes would be at a minimum? Col. Judson. Well, I only applied the usuaL rule that applies to every human being; he never told me anything about it. Everybody wants their taxes lowered and wealth increased. Mr. George. So that any man who might recommend or talk to you about Mr. Doyle, for instance, going on the board of appraisers for the Southern Building property would likely want to get as low a valuation as possibly could be made ? Col. Junsox. I would not think so: it does not appeal to me so; it appeals to me on the contrary. If I were Mr. Stellwagen and could control some one that was making an appraisement over there and were willing to attempt it, I would be glad to see him appraise the neighboring property high, so as to tend to justify a high value for my own property, because I woidd rather it go up than to keep my taxes down. However, T do not know that I am any better able to analyze Mr. Stellwagen's mind than anybody else. Mir. George. Have you on record anywhere, Colonel, any protest made by Mr. Stellwagen as to assessments made by the board of assessors of any property owned by him, either as an individual or as the head of a corporation ( Col. Judson. Well, now, there may be, and I have heard of one. I have heard that he discussed with the assessors — he, in common, I think, with many of the bankers here — as to what should constitute the gross earnings of a bank, because the law says that they shall pay 6 per cent on their gross earnings. Now, I understand there is a suit between the District and a certain group of bankers — probably all of the bankers — and T doubt not he is in it. So that is one thing I know about. Another thing I have heard him talk about was with refer- ence to the assessment of the furniture of the New Willard . I think that he thinks that is assessed too high. Mr. Johnson. If the Lincoln National Bank should make a sworn statement to the Comptroller of the Treasury that their real estate was worth $130,000 and the assessor for the District of Columbia should assess it at only $96,645, would you think he had done his duty? Col. Judson. Well, I would not know; that would not be sufficient data; the question would be what the property was worth. Mr. Johnson. Does that mean you would not believe the officials of the Lincoln National Bank under oath that their property is worth $130,000? Col. Judson. Well, I might not believe them under oath. Mr. Johnson. Who are they? INVESTIGATION OP INSUEANCE COMPANIES. 103 Col. Judson. I have no idea in the world. Mr. Johnson. And because you do not know them you are pre- pared to say that Col. Judson (interposing). I would say there was a difference of opinion between us. Mr. Johnson. You are prepared to say, however, that you doubt whether you would believe under oath the officials of the Lincoln National Bank ? Col. Judson. I would not believe necessarily that they were falsify- ing, but I might have an opinion that they were making a certificate to an error. Mr. Johnson. If the officials of the National Metropolitan Bank were to make a sworn statement to the Comptroller of the Treas- ury that their real estate was worth $858,841.30, would you com- sider that the assessor, had done his full duty by the public when he placed a value upon that property at $555,117 ? Col. Judson. I would not know; I would not have enough data. Mr. Johnson. With that great discrepancy between the two, you would not deem it important to call the assessor before you and ask him whether or not he had made a mistake or had gone sufficiently well into it 1 Col. Judson. Well, I remember once calling the assessors before me and then in board session we called them before us and we did admonish them, that we wished them, in making this appraisal, to be very careful to comply with the law, and I remember making this suggestion, that the law said that they should appraise prop- erty at not less than two-thirds of its true value, and I said, "If you are shooting and wish to shoot above the mark, you must not aim at the mark, but you must aim above it, so aim a little high and you will not disobey the law." Mr. Johnson. Do you think he has followed your instructions to shoot above the mark if the officials of the Washington Loan & Trust Co. in a sworn statement made to the Comptroller of the Treasury said that their real estate was worth $892,274.41, whereas the assessors placed the valuation of $628,726 upon that property ? Col. Judson. Well, I would not say unless I knew more about it than I know. Mr. Johnson. Not knowing any more about it than you do, you would not say whether he had undershot or overshot the mark ? Col. Judson. No. This probably is true, that each one of those statements of value is of a later period than the date of the assess- ment; that would account for some considerable portion of the differ- ence, I think. I am not sure what those dates are, but probably one is of last July and the other of the year before, and property has increased very rapidly in value, as you will notice one increased here very rapidly. Mr. Johnson. Are you of the opinion that property has increased very rapidly around Fifteenth and H Street, where this Southern Building is 1 Col. Judson. I think the construction of that building and of other buildings there has tended to increase the value of property very considerably there. Mr. Johnson. If the officers of the National Savings & Trust Co. 1 d stated under oath to the Comptroller of the Treasury that 104 INVESTIGATION OF INSURANCE COMPANIES. their real estate was worth $765,000 would you consider that your assessor had done his duty in fixing a two-thirds valuation on that property of $284,787 ? Col. Judsox. I would not know; I would not have the data. Mr. Johnson. What data would it require? Col. Judsox. Well, it would be a question whether the comp- troller let them estimate the property a little high or whether the assessors estimated it a little low. Mr. Johxsox. With that great difference Col. Judsox (interposing). And also as to date and as to whether there has been a change in the value of the property in the meantime. Also there may be other questions that I am not familiar with. For example, it may be that for purposes of taxation they do not include certain — I am in doubt about this but it may be true— of the fixtures, but for the purposes of valuation, to go in their assets, they may fairly include them; I do not know whether that is true or not. But as to two of these banks that you have spoken about, my fellow com- missioners can tell you better than I can, because one is a director of one and the other is a director of the other, and I do not know any- thing about either one of them. However, I have no doubt there is a reasonable explanation of that, and I would suggest that the gentlemen who are the heads of those banks might explain better than I can those discrepancies. Mr. Johxsox. Well, if the National Savings & Trust Co. would swear that their real estate was worth $765,000 and your assessor, under oath, would value that same property at $427,180, would you not readily reach the conclusion that one or the other of them had sworn falsely? Col. Judson. Well, I do not know; that is a pretty big question. Mr. Johxsox. You are not as quick, then, to determine in your own mind the question of fraud in this instance as you were in answer to one of the first questions which I put to you relative to one of these insurance companies ? Col. Judson. I have not been so quick in this other case, because I have been thinking about this one thing for a month, this particular thing — that is, since the 5th of December, 20 days — so I was not very quick. Mr. Johxsox. Did you not say very early in your statement that you were not prepared to charge the insurance companies with fraud ? Col. Judson. That I was not prepared to charge it ? Mr. Johnson. With fraud; yes. Col. Judson. Well, I do not know that I care to charge them with fraud necessarily. Mr. Johxsox. Did you not say a few moments ago, in answer to a question of mine, when you had stated that they had paid dividends out of the premiums received and not out of earnings, that they were guilty of fraud 1 Col. Judsox. I said I thought that if I had done that my con- cience would have told me I was guilty of fraud. I believe that was my answer. Mr. Johxsox. Well, now, Colonel, if you Col. Judsox (interposing). I think it is for your committee to find out whether this is fraud or not. That is a question of opinion. INVESTIGATION OF INSURANCE COMPANIES. 105 Mr. Johnson. If you were president of the National Savings & Trust Co. and would make a sworn statement that your real estate was worth 1765,000 and the assessors were to report that same prop- erty as being worth only $427,180, what would your conscience first suggest to you in that matter 1 Col. Judson. If I were the assessor and the comptroller both ? Mr. Johnson. Yes. Col. Judson. I would say I was guilty of a very grave inconsistency and I would reconcile those matters. Mr. Johnson. Now, then, nobody out of a disposition to demon- strate his good citizenship, has called your attention to anything of this kind just recited ? Col. Judson. No, sir. That question is only in part under us, and has just been investigated by Congress, and the committee has pro- posed legislation which will doubtless correct very largely those things. Mr. Johnson. Colonel, I will ask you what, if the officials of the District National Bank had made a sworn statement to the Comp- troller of the Treasury that their real estate was worth $267,095.34, while that same real estate was valued by the assessor for taxable purposes at $186,930, you would think of that ? Col. Judson. The same answer. Mr. Johnson. And what is that ? Col. Judson. Well, can I ask you to repeat the question ? The stenographer repeated the question, as follows : Colonel, I will ask you what, if the officials of the District National Bank had made a sworn statement to the Comptroller of the Treasury that their real estate was worth $267,095.34, while the same real estate was valued by the assessor for taxable purposes at $186,930, you would think of that? Col. Judson. I would think it was very sad. Mr. Johnson. With that sad condition existing, Colonel, and with an investigation into the taxable methods of the District of Columbia having been prosecuted by a committee headed by Mr. George during the last 12 months, and a printed report setting out various inequali- ties in the present assessor's system at arriving at values, have you not looked into the matter at all, as a commissioner of the District of Columbia, to ascertain whether or not assessments were properly made? Col. Judson. I have felt that this investigation by the District Committee, together with the legislation which it has suggested, would go very far toward correcting those legislative inequalities in taxation which are universal — in your home community and in mine and in everybody's. I have very great hopes that there will be some legislation that will be of great advantage to the public in correcting those things. Mr. Johnson. Advantage in what way ? Col. Judson. In correcting the inequalities and securing proper assessments. Mr. Johnson. In correcting what inequalities ? Col. Judson. Those you have mentioned. Mr. Johnson. The inequalities that I mentioned were those made by the assessors of the District. Col. Judson. Yes. 106 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Now, Col. Judson, before this investigation com- menced, you wrote a resolution to dismiss the superintendent of insurance for the District of Columbia I Col. Judson. Yes. Mr. Johnson. With all the knowledge you had during the last 12 months and that at least you could easily have gotten, because hear- ings were going on all the time, have you done anything looking toward the dismissal of the assessor of the District '? Col. Judson. No, sir. On the contrary, I think he is one of the best men in the District service: that is my honest, frank opinion. If I believed he was otherwise, I would make such a motion very quickly. I will say that not only is that my opinion, but Col. Biddle, who was engineer commissioner for six years, in speaking to me, has expressed the same opinion, that he was the very finest official we had in the District service. Mr. Johnson. And you, Colonel, in the performance of your duty as commissioner of the District of Columbia, have not seen fit, not- withstanding all of the evidence that has been taken relative to the assessor for the District, to go into the question to see whether or not his assessments of property have been sufficiently high ? Col. Judson. No, sir; but I may say this, that I have been very busy all the time, and I do not see where I could have put in more work in any other direction. Mr. Johnson. Were you not just as busy when this matter came up as you were when the assessment matter came up ? Were you not more busy 2 Is not the District appropriation bill approaching, and in addition to that, have you not been ill during the meantime? Col. Judson. Yes. Mr. Johnson. But, notwithstanding all these facts, you could go into the insurance matter? Col. Judson. We felt obliged to. Mr. Johnson. But you did not feel obliged to go into the assess- ment matters '. Col. Judson. No. Mr. Johnson. With all of these charges made through the public prints and otherwise ? Col. Judson. That has just been investigated by a committee which reported favorably upon certain legislation which it was hoped would correct any conditions which were not proper. Mr. Johnson. And your idea, then, was to take no action as the result of that investigation of the assessment methods ? Col. Judson. I have not it in mind to take any action now. I certainly have not. Of course, if I came to have that in mind, I would take it. Mr. Johnson. Is it in your mind now to take action relative to the superintendent of insurance when this investigation is concluded? Col. Judson. Unless I have a new light as the result of that investi- gation, I should continue to believe Mr. Johnson (interposing). What distinction do you make and why, as to your attitude toward the superintendent of insurance and your attitude toward the assessor of the District ? Col. Judson. Because I am doubtful as to the qualifications of the insurance superintendent, and I do not think we should have a super- tendent whose qualifications are doubtful. As to the assessor, I INVESTIGATION OF INSURANCE COMPANIES. 107 believe that he is a man of the utmost probity, of the utmost skill in estimating values, and thoroughly competent, with a law providing him with proper facilities to make as good assessments as can bo made anywhere. Mr. Johnson. You mean to infer that your lack of confidence which you first had in the superintendent of insurance is still with you? Col. Judson. Yes; I still have a lack of confidence in him, since this report, you understand ? Mr. Johnson. And this report Col. Judson (interposing). It has not lingered ever since the begin- ning. Mr. Johnson. And this report is such a report as you might have expected from the superintendent of insurance as you considered him or thought him to be at the time you voted for his appointment ? Col. Judson. Well, I think that it is; yes. Mr. Johnson. You referred to your conscience a moment ago. Does your conscience prompt you to say anything now as to your own attitude in that matter of having given to the public a superin- tendent of insurance of whom you entertained the opinion when you voted for his appointment which you now hold ? Col. Judson. No; I think I made every effort that I could per- sonally to secure a proper man for that job, and I was beaten by the contrary opinion of others. Mr. Johnson. You lay all the blame for his appointment on Commissioners Rudolph and Johnston ? Col. Judson. Oh, no; I do not lay it on anybody. I think they were doing the best they could, and I was doing the best I could. Mr. Johnson. They were doing the best they could, in your opinion, when you had a written report from Mr. Donovan that he was incompetent ? Col. Judson. No; I do not think he said that. Mr. Johnson. And when you had the preference of charges before you that he had been receiving money from another to secure the appointment for another when he could not possibly secure it ? Col. Judson. Well, in the first place, we did not have any report from Mr. Donovan that he was incompetent ; and, in the second place, this charge was not proven. It was certainly not believed by two of the commissioners, and with me it was only a matter of doubt. But I might say that we never appoint any one to office, or, rarely, but what some one may make some charges against him. We have to form our best judgment as to whether the charges are probably true or not, and that is frequently the case. I notice the President has very great difficulty in appointing commissioners. He finds that each one has his faults pointed out plentifully. Mr. Johnson. Do you believe that the President has appointed a commissioner when the charge of a lack of integrity has been made against that contemplated appointee ? Col. Judson. Well, I am sure I do not know. I should imagine he has appointed many where that charge has been made, because it is very easy for malicious people to make charges, as well as for people who are mistaken. Mr. Johnson. Do you believe if any man was an applicant for the position of Commissioner of the District of Columbia, and that appli- 108 INVESTIGATION OF INSUKANCE COMPANIES. cant should be called before the President and there state in his presence that he had borrowed money from one who desired an appointment and had felt insulted when the lender of the money came to ask for its return, that he would be appointed ? Col. Judson. Yes, I think he would appoint him. Mr. Johnson. Yes. Col. Judson. I think he might. I do not know, I am sure; I have no idea. Mr. Johnson. You say he might. Do you think if that opinion was so entertained by the public that it would enter into his defeat ? Col. Judson. I do not know. That is a pretty big question. Mr. Johnson. Yes, sir, it is. But that is your opinion of the President ? Col. Judson. Xo; I expressed no opinion. Mr. Johnson. That he might do that ? Col. Judson. I expressed no opinion of him, I am sure. Mr. Johnson. If I understood you correctly Col. Judsox (interposing). I mean any President might do that. I expressed no opinion of the present President. Mr. Joiixsox. You withhold any opinion as to the present Presi- dent ? Col. Jtdsox. I hope you will pardon me, unless you wish me to put a compliment in the record. Mr. Johxson. You can do that, if you like. Col. Judsox. I assume that we all feel the same way about it, and there is no use to express the compliment. Mr. Johnsox. I did not intend, Colonel, to reflect upon the Presi- dent, but I was endeavoring to carry to its last analysis the theory upon which your answer was based. Let me ask you further: If the officials of the Anacostia Bank should make a sworn statement to the Comptroller of the Treasury that their real estate was worth $14,831.45 and your assessor, for the purposes of taxation, had valued the same property at $11,490, would you believe that the assessor had done his full duty ? Col. Judson. I would not know whether the comptroller or the assessor was at fault. Mr. Johnson. Would the assessor make a serious blunder to accept the sworn statement of the owners of the property in making his valuation ? Col. Judson. I do not know. I think it might almost amount to fraud, his accepting it. If a person wishes to sell a piece of land to the United States next year, and the assessor, understanding the intention of the United States to buy in that vicinity, should boost up his assessment for the purpose of enabling him to obtain more for his property, I would say it would be a crime for them to accept his statement. Mr. Johnson. Do you think that is sometimes done ? Col. Judson. I do not think so; but I have heard it charged. Mr. Johnson. Before we get off of the subject, Colonel, is not per- sonal property in the District of Columbia assessed according to the valuation placed upon it by the owner of the property, particularly when the owner of the property fixes a valuation which is sufficiently high to meet the opinion of the assessor ? Col. Judson. I really do not know. INVESTIGATION- OF INSURANCE COMPANIES. 109 Mr. Johnson.. Are you not sufficiently familiar with the laws of the District of Columbia, Colonel, to know that personal property is taxed by a blank being submitted to the property owner upon which he must enumerate all of his personal holdings and swear whether or not that list is correct ? Col. Judson. I think so; but I think there are also other ways of making assessments. If the return is not made, the assessors make their own valuation. Mr. Johnson. But where the return is made ? Col. Judson. Where the return is made, I think occasionally where they have reason to doubt it, they make their own valuation. That is my understanding. I may be wrong. Mr. Johnson. When the valuation is fixed by the owner of the per- sonal property at a figure which the assessor believes is sufficiently high, dees not the assessor take that valuation? Col. Judson. I suppose he does. Mr. Johnson. Now, then, tell me why when the owner of real estate values, under oath, his own property your assessor does not take his valuation of it when he thinks that it is sufficiently high? Why need he, in other words, deliberately and purposely go below the sworn statement made by the owner of the property as to real estate when he does not do it as to personal property ? Col. Judson. I do not know that I can answer that. Mr. Johnson. Is there any answer to it ? Col. Judson. I should think there was a great deal to be said about it, but I think it would require very serious thought. Mr. Johnson. Is there a great deal to be said for it or a great deal to be said against it ? Col. Judson. I should say a great deal could be said on either side. Mr. Johnson. Please state something that could be said for it. Col. Judson. The matter of taxation is a great question, and I have never seen the last word said on it. I have given you one reason why he should not accept the statement of the man who owns the property, and I have given you one reason — I do not think the same reason applies with equal force to accepting a high valuation of personal property. Mr. Johnson. Again, Colonel, you know and I know that the law for the District of Columbia is that personal property is assessed for taxable purposes at its full value and that real estate is assessed for taxable purposes at not less than two-thirds of its real value. You having agreed with me that the correct practice should be that when the owner of personal property testifies as to the value of his personal property, and the assessor accepting it at that, that sworn value being sufficiently high, why should he not accept upon a two- thirds plan of valuation the same condition as applicable to real estate ? Col. Judson. I have given you the only answer I could give you offhand as to that. Mr. Johnson. What is that, now; let us hear it again? Col. Judson. In real estate I can conceive that, the assessors might in certain cases be a party to a fraud if they accepted the valuation put upon the property by the owner. Mr. Johnson. That is the only case you can imagine why it should not be done ? 110 INVESTIGATION OP INSURANCE COMPANIES. Col. Judson. That is quite important in the District. The Gov- ernment owns so much land here and has it in mind to acquire so much. As to personal property, I can not see any objection to their taking the party's estimate of it, if the assessors check it up and think it is high enough. Mr. Johnson. But as a general rule Col. Judson. I do not even know it is the general rule. I accept your statement of it. I should say even there if a person was insane and set too high a value upon their property, that you would pro- tect them by cutting it down; or if there was any serious error, an obvious error, the assessors should cut it down. I do not think it is a rule that they should follow. I do not know that they do. Mr. Johnson. In searching your mind for some reason as to why the things which I have indicated should not be done, you have finally reached the conclusion that some insane person might do it, and that therefore an exception should be made of it ? Col. Judson. I should say there ought to be one in that case, surely. Mr. Johnson. And that a general rule should not be made to apply to the public because some insane person Col. Judson (interposing). I do not know, Mr. Johnson. If you are asking my opinion — and this is purely a matter of opinion — as to whether it would not be a good thing to state in the law that whenever any bank or similar mstitution is allowed to carry in its assets its property at a certain figure by the comptroller that the assessor shall put it at that figure, I do not oppose that view. I think it would be a pretty good law. And yet under existing law it might not be the duty of the assessor to do it. Mr. Johnson. Is there any law which forbids the assessor from valuing for taxable purposes real estate at its full value ? Col. Judson. No; there is none. Mr. Johnson. Can you please tell me, then, why your assessor, without meeting your objection, invariably appraises it at two-thirds or less ? Col. Judson. I have complained a good deal in times past of that. Mr. Johnson. Has your complaint ever reached the stage where you contemplated his dismissal because of that ? Col. Judson. No ; it never reached that stage, because I think that the present assessor is endeavoring to the best of his ability to carry out the law. Mr. Johnson. Why do you think that? TeU us, now, why you entertain those views. Col. Judson. We find that when property is sold in different neighborhoods and it is put down on the books the charts that he is now keeping as the result of that investigation Mr. Johnson (interposing). When did he first begin doing that? Col. Judson. I do not know. He is doing it now. Mr. Johnson. When did it come to your knowledge that he was doing it ? Col. Judson. Perhaps, in the last four or five months. Mr. Johnson. Did you have any knowledge he was doing that before the investigation as to the assessment methods of the District was inaugurated ? INVESTIGATION OF INSURANCE COMPANIES. Ill Col. Judson. No. I think that has been one improvement effected by the investigation. It has made them very much more careful in keeping up their records of sales for comparison with assessments. I think, of course, that the assessments will always fall behind the sales or tend to, because of the fact that we have only triennial assess- ments. I think that Mr, George in his bill has a provision for annual assessments, and I think we are all agreed, or nearly all agreed, that that is a very good thing. Mr. George. You mean in the committee's report. Col. Judson. Yes; in the committee's report. And you have for- mulated a bill, I believe. Have you not formulated a bill ? Mr. George. Oh, yes. Col. Judson. That is what I had reference to. I think the prac- tice will be very much more improved after that bill passes. ' Mr. George. If you think the assessor is so competent, why do you recommend in this motion of December 3 the appointment of two outside men to appraise this property ? Col. Judson. For two reasons. One is that nobody is infallible, and I would like to have four or five committees pass on that, and then average them all, so as to eliminate the personal equation in an important matter like this. Another is that the assessors have been under attack, and I have tried to think of the psychology of it, whether the fact that they have been under attack would make them assess higher or lower, or have any effect, because a man's mind is affected by attack; and I do not know whether they would assess that building a little too high or a little too low by reason of the strictures that have been passed upon them. I hoped that they would get it just exactly right. I hoped that they would both get it right, and that the average would be just the same as each one of them, although that would be an unreasonable hope, because no two people would ever make the same estimate, of course. Mr. George. Did you examine the last triennial assessment of this property, the Southern Building ? Col. Judson. I have seen it. I think it was eight hundred and some odd thousand dollars. I think that was probably correct when it was made. Mr. George. Was that the building and the land or the building? Col. Judson. No; the building and land together. As I remember it, they assessed it at $825,000 or $864,000. That would make the value of the building about $1 ,300,000. I think it was worth no more than that when it was built, because it only cost, as we have seen, some $700,000 and odd, and the land cost some $500,000 and odd. So that at that time, a year and a half ago, that was a very fair esti- mate. But I think it has increased since then. Mr. George. I will ask you to be careful about the matter, whether this $800,000 and odd represented the value of the land or the value of the building or the value of the total real estate ? Col. Judson. My recollection is, but I may be wrong, that they took the true value of the building at $825,000 and assessed it at two- thirds of that, and that the two-thirds value of the building and the land together was $864,000. That is as I remember the figures, but I may be wrong. Mr. George. Did vou think that was a reasonable assessment ? 112 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. It seems to me a very reasonable one, considering when it was made and the information that they could possibly have possessed. I believe they sought to know exactly what it cost, and they were refused the exact figure. Then they said, "Well, we will call it so much." They said, "That is a little more than it cost." Then they said, "Well, what did it cost?" And I understand they said, "We will not tell you exactly what it cost." So they put it at $825,000, which was a sort of an outside guess. Mr. George. When did this assessment close ? Col. Judson. I think it was a year and a half ago. But for the building it must have been more recent. For the land it must have been a year and a half ago, and for the building, of course it was not finished until last year. They add the buildings which are new. I do not know when it was finished, but about a year and six months ago. Air. George. Did you consult the assessors — the chief assessor, or the board of assessors — as to the valuation of this property since this question of the Southern Building property arose ? Col. Judson. I have seen him; I sent for him in order to give him a copy of that Mr. George (interposing). To whom are you referring? Col. Judson. The assessor. I sent for him in order to give him a copy of the proceedings in court which bear upon the value of it. Mr. George. That equity case? Col. Judson. That equity case, yes. Practically that was all that I handed to him, and invited the attention of the three real estate assessors, who were to make the assessment. Then he came to me and said he was going away and he would ask me to see and give to them this proceeding — to see Mr. Kalbfus, who was the senior mem- ber. He sent him up to my office, and I handed it to him. Mr. George. Did you ask the assessor or any of the assistant asses- sors to make a new appraisement of that property at any time after their appraisal of it for taxation ? Col. Judson. Oh, yes, I made the motion that is in the record. Then I made still another, which was outside of any formal motion. I understand that in response to our motion they were directed to make a valuation and they made one. They called the building $825,000, I think it was. I then got this court proceeding and asked them to take that and consider that, whether there was any change they wished to make in it as the result of that. Mr. George. But if the assessor, or the board of assessors, were so competent, why should you ask them for a new appraisement ? Col. Judson. Because the other one was made a year and a half ago. The property has undoubtedly risen very much since then. I can not believe otherwise. Mr. George. What is the total now ? Col. Judson. You see that land sold, so I am informed by the Catholic Church, within two or three years for $300,000, and the building cost something over $700,000. That would be only a mil- lion dollars. It is certainly worth a great deal more than that now. It has advanced. Mr. George. The assessor has that information. Col. Judson. I think he undoubtedly has all the information about it. Mr. George. It would not cause any difference in your mind? INVESTIGATION OF INSURANCE COMPANIES. 113 Col. Judson. What would not cause any difference ? I do not understand you. Mr. George. The assessor had that information about the sale of that church property. Col. Judson. I think so. Mr. George. When he made his assessment ? Col. Judson. Well, I do not know whether he did or not, and really with me it is hearsay. I have not positive knowledge. I have heard that is what Father Lee says he got, $300 000. I do not know. Then I know they put it in for considerable more than that, into the Southern Building Corporation. I have heard it was $490,000, and different sums at which the people who got it from Father Lee put it into the corporation building. Mr. George. But that was prior to the triennial assessment ? Col. Judson. That was prior to the triennial assessment, yes. Mr. George. And the assessor had that information, or it was his business to have that information in making the assessment ? Col. Judson. I do not know what information they had a year and a half ago, but I know it seemed to me if I am right in thinking it was $864,000, that it was a very fair assessment at that time; that is, to the best of my knowledge and belief. I am not an expert real estate appraiser. Mr. George. Do you remember wh at the appraisal has been ? Col. Judson. Before ? Mr. George. No; the appraisal that was recently made by the assessor of this property. Col. Judson, It was somewhere along about $1,600,000. You mean of the building or the whole thing ? Mr. George. The whole thing. Col. Judson. I think it is somewhere in the neighborhood of $1,600,000— something less than that, perhaps. Mr. George. What was the difference in time between the triennial assessment of the property and this recent appraisement ? Col. Judson. I think about a year and a half. Mr. George. And these assessors who made both appraisals, one for taxation purposes and the other in order to give your board infor- mation, discovered such a difference in value ? Col. Judson. Yes. I think they put it a little high, may be, the last time, because they got the building a little high, but perhaps if they modified the building on the basis of that information in the suit they may get it pretty close, not close to what it was before, but close to the reasonable difference between them. Mr. George. Have you the report of the assessors on this sub- ject — this new appraisement? Col. Judson. No; I have not. I understand they sent a report to Mr. Eudolph, but withdrew it when they got this court record. Mr. George. Mr. Chairman, I ask to have this incorporated in the record. I will hand this to you, Colonel, and ask if that is the report made by the assistant assessors. Col. Judson. I understand this is one which they asked to with-t draw. I understood they had asked to withdraw it or to hold it up in the light of better information as to the building. 71391— No. 1—12 8 ■114 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. Did they make a subsequent report on the same subject? . Col. Judsox. I do not know. I understood they were working on it now. I thought they had withdrawn this in order to make one. Mr. George. Do you identify that as a withdrawn report ? Col. Judsox. No;' I was not sure about its being withdrawn. That was my understanding from the fact that they were going ahead Mr. George (interposing). Will you read that into the record, please ? Col. Judson (reading) : Commissioners of the District of Columbia. Gentlemen: Pursuant to your order of December 7, 1912, we respectfully report that, in our opinion the Southern Building, at the corner of Fifteenth and H Streets NW., is worth SI, 602,420; land, 8707,420, at §35 per square foot; improvements, $825,000. This is signed by S. T. Kalbfus, A. McKenzie, and Matthew Trimble, board of assistant assessors. Mr. George. Did you ask the board of assessors to withdraw that report ? Col. Judson. I do not know that I did. I asked them to take this information which was in a court record and see whether they wished to modify that item of their report which related to the value of the building. I understood they had — because it would have been the logical thing for them to have done — to have withdrawn the report and to submit it again, although it would be equally logical to have written another letter to modify it. I did not know which they were doing. Mr. George. Did not the assessor's office have that information before ? Col. Judson. I do not think it did; no. Mr. George. Do they not have men there watching these records and getting that information for the assessor's office ? Col. Judsox. I think you found they did not have men enough to do those things. Mr. George. The assessor, in his testimony before this, com- mittee, insisted he got all that information. Col. Judsox. I do not believe he had that. Mr. George. The assessor said in his testimony that he had two men and had them there constantly to get all the information and keep that on the records of the assessor's office. . Col. Judson. I do not think he had this, Mr. George. . If he had had it, I should think he would have told me so. Mr. George. Have you followed this thing any further to see whether or not the board of assessors turned in any other report on the subject ? Col. Judson. I have not followed it yet, but I shall, of course. ■ Mr. George. Of what date is that report ?' Col. Judson. That is December 10. » Mr, Geoege. And since the 10th two weeks have gone by? Col. Judson. It may have been a day or two later than that that I gave them this court record. I do not remember when that' was; maybe a week or'two; it was before I got sick, I think, and I, have teen sick about 10 days. j . . ' INVESTIGATION OP INSURANCE COMPANIES. 115 Mr. George. How efficient do you think the board of assessors is when you have to bring information to them in this way ? Col. Judson. I think they ought to get information anywhere they can. Mr. GeOrGe. Yes, even from a commissioner. Col. Judson. Even from a commissioner. Mr. George. But this is a court record, and they reported to the Committee that they had men working on that kind of information. : Col. Judson. I can not explain that at all. Mr. George. And they constantly spoke of that in the testimony. Col. Judson. I can not explain that. Mr. George. Outside of that, abandoning the assessor's whole establishment, you have OjTered a resolution asking for some other men, who have nothing whatever to do with the assessing establish- ment, to get at the valuation of that property ? Col. Judson. I explained that. There are two reasons: First, there is the psychology of the thing. Will these assessors assess too; high or too low by reason of strictures having been imposed upon them recently Mr. George (interposing). But by law they are required to assess justly. Col. Judson. I know, but the human mind does not always work absolutely justice, even although they desire to. Mr. George. Or the assessor's office is not competent ? Col. Judson. Yes; that might be. If they were not competent, there would be the same result. But this would tend to eliminate the personal equation, and I believe that Doyle is a higher class expert, real-estate expert, than we can hire as assessor, because he would not work for that money — and Hoover also. Mr. George. You would not consider the abandonment of the assessor's establishment because some man outside is a better man, in your judgment ? Col. Judson. I would not say they were the best there are. There are real estate experts that must be better than they, because other- wise they would not be assessors at $3,000. Mr. George. Mr. Doyle represents Mr. Stellwagen, who wants hia taxes down ? Col. Judson. I do not think he wants them down any more than anybody else does. Mr. George. But he does want them down ? Col. Judson. I do not know whether he does or not. Mr. George. He likes the valuation low when for taxation pur- poses and the valuation high when for assets ? Col. Judson. I think that is general. I do not know that it ia; specially applicable to him. Mr. George. And Mr. Doyle represents Mr. Stellwagen, who wants that ? Col. Judson. If he had had some one else, he would also, you might say, want his taxes down. Mr. George. The other man named in your resolution was William D, Hoover, of the National Savings & Trust Co. Where is this trust company ? . " J ; Col. Judson. It is on the corner of New York Avenue and Fifteenth.?- Street, just one block south of this Southern Building. 116 INVESTIGATION OF INSUBANCE COMPANIES. Mr. George. Within that neighborhood ? Col. Judson. Just a block south. Mr. George. He, like Mr. Stellwagen, is a neighbor, so to speak, of the insurance company ? Col. Judson. You see, the land at the corner of New York Avenue and Fifteenth Street, on the south side of New York Avenue, is doubtless the most valuable corner in the city of Washington, by a large majority, where the Baltimore & Ohio ticket office is. That is a block south of this Southern Building. On the other hand, go a block west you come to the Arlington Hotel site, which was sold, I believe, for $10 a foot recently. In other words, there are two properties a block away — one a block away in one direction and one in another direction — and I understand one is worth 10 times what the other is, although I am not an expert and can not be sure of that. So it is that in property changing in value like that you do not have to proceed very far before you get to very much higher or very much lower values. Mr. George. What would you say was Mr. Hoover's business interest in having a high valuation or a low valuation on this property ? Col. Judson. Do you mean from knowledge of the man individu- ally or from knowledge of human nature — an expert on human nature ? Mr. George. From any knowledge. Col. Judson. I should say he would like his property to go up, just from a human-nature standpoint — not from my knowledge of him. I expect he is like everybody else and would like his property to go up. Mr. George. He is like Mr. Stellwagen ? Col. Judson. Like everybody— Stellwagen and everybody else. Mr. George. So you recommended those men to make an appraisal of the Southern Building property, believing that Mr. Stellwagen would like to have a low Col. Judson (interposing). — No; I do not believe Mr. Stellwagen would care to depreciate his property by representing that the corner diagonally opposite is very cheap property. I should not think so. Again, I am judging from human nature. I should think he would like to see it boosted up. Mr. George. Just one more question, going back to the assessors. In the new valuation of this property of the Southern Building do you remember what the assessor valued the land at per square foot in his assessment in the triennial assessment ? Col. Judson. No; I do not. I do not remember. I have a hazy recollection of $23 or $24. Mr. George. Do you remember what valuation the board of assessors put upon that same piece of property per square foot? Col. Judson. I say my recollection Mr. George (interposing) . I mean in this subsequent valuation. Col. Judson. $35, I just read there. Mr. George. And it was twenty-odd dollars a year ago ? Col. Judson. A year and a half before. Mr. George. The same men? . Col. Judson. The same men and the same property; but undoubt- edly it had gone up very materially since then. The property was sold for $15 or $18 a foot within three or four years. If you are going INVESTIGATION OP INSURANCE COMPANIES. 117 to take the position it does not advance in one period of a year and a half Mr. George (interposing). Have you knowledge from any source that property has gone up to any such degree in that neighborhood ? Col. Judson. It is my judgment that it has; yes. It is my judg- ment that it has, and my judgment is formed from very many things that I can not recollect now. Mr. George. Did you get any information from Mr. Stelrwagen on the subject? Col. Judson. As to whether it had gone up or not? Mr. George. Yes. Col. Judson. I do not think I did. No; I do not remember that. Mr. George. Did you get any from Mr. Hoover? Col. Jtjdson. Not as to whether it had gone up, but as to what it was worth now. Mr. George. Whether the property in that general neighborhood had gone up materially? Col. Judson. No; I never heard him express an opinion whether it had gone up or not. Mr. George. Or gone down? Col. Judson. No, I never heard him say it had gone down. I never heard him say it had gone either up or down. Mr. George. Have you any information that has come to you your- self, either personally as a citizen or as a public official, that would indicate how values have gone in that general neighborhood, up or down? Col. Judson. No, I have not anything I can quote; I have not any- thing I can refer to, any specific thing. Mr. George. So your judgment is based upon what ? Col. Judson. Generalities. I am not a specialist in that matter. It just happened to be a matter of general knowledge, an impression perhaps more than knowledge, that the property has been going up there. Mr. George. Did you get your impression from nothing ? Col. Judson. No ; from a great many things which I do not remem- ber in detail at this moment. Mr. Johnson. Just one more question, please. You said a few moments ago that if the owner of a property desir- ing to sell it to the Government places a high valuation upon it for assessment purposes, the assessor would do the proper thing and not assess it at that high value fixed by the owner, but should assess it at a value fixed by himself. Col. Judson. That is my belief. Mr. Johnson. Why ? Col. Judson. Because his business is to assess property without regard to what the owner may think it is worth, but with regard to its true value, at not less than two-thirds thereof. The law does not say anything about taking what a man thinks it is worth, but says that he shall assess it at not less than two-thirds its true value. I do not know but that it would be a very good thing to let the people assess their own property in that way. I believe they do it in New Zealand. It is a pretty good scheme. 118 INVESTIGATION OF INSUKANCE COMPANIES. ; Mr. Johnson. And in Kentucky. In Kentucky the owner of property, both real and personal, must swear as to what he regards, it-, worth. You then regard it as the duty of the assessor, by reducing the value placed by the owner, to in that way protect a perjured criminal ? .Col. Judson. I think if the law requires him to assess property at not less than two-thirds its true value- — I do not think the law or reason would dictate that he would let the owner pf the property fix what it should be taxed at. I have expressed that opinion, before; I can onlyreiterate it. Mr. Johnson. What effect would the high assessment have upon a sale to the Government? Col. Judson. I suppose it would have a tendency to make the jury award a higher amount. Mr. Johnson. Do you not know that when a condemnation jury foes out, it goes out with instructions from the court that it shall not ear the price fixed by the assessor for taxable purposes ? Col. Judson. I did not know that; no. Mr. Johnson. That is true. Col. Judson. I did not know that. The committee thereupon adjourned until 10 o'clock a. m., Decem- ber 27, 1912. X INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF EEPEESENTATIVES No. 2 DECEMBER 27, 1912 WASHINGTON GOVERNMENT PRINTING OPEIOE 1912 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, ^Washington, December 27, 1912. The subcommittee met at 10 o'clock a. m., Hon. Ben Johnson (chairman) presiding. There were present: The Commissioners of the District of Colum- bia — Hon. Cuno H. Rudolph, Gen. John A. Johnston, and Lieut. Col. William V. Judson, United States Army — and Mr. Francis H. Stephens, assistant corporation counsel of the District of Columbia. Also George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, representing the Commercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. Also William Otis Badger, jr., Esq., attorney for Mr. Alfred M. Best. Mr. Johnson. If counsel for either Mr. Ingham or for either of the insurance companies desire to interrogate Col. Judson, they may do so now. Mr. Easby-Smith. If the committee please, at this point I should like to ask, if agreeable to the Commissioners of the District, to amend my request concerning the preparation of a plat, and ask that that plat .shall include not only the four blocks converging at Fifteenth and H Streets, but to have it so extended as to show the two streets, Fourteenth and Fifteenth Streets, from F to II Streets. That will extend Fourteenth Street south a couple of blocks, and also Fifteenth Street, because, after giving the matter some study last night, I felt that the valuations of corner lots in the other squares will be of great value to the committee. Col. Judson. I would like to suggest that that be extended sim- ilarly in the other direction, so as to make the building in question a sort of center. Mr. Johnson. I do not think there will be any objection to that. Mr. Easby-Smith. No. Mr. Johnson. Then it is agreeable to you to furnish that plat, Col. Judson, as engineer commissioner? Col. Judson. Mr. Rudolph has that department. Mr. Johnson. I did not know whose department it came under. Col. Judson. Yes; the tax assessors are under Mr. Rudolph. Mr. Rudolph. I will furnish that, Mr. Chairman. Mr. Easby-Smith. If agreeable to the committee, I will defer to Mr. Douglas, so far as the order of examination is concerned. 119 120 INVESTIGATION" OF INSURANCE COMPANIES. TESTIMONY OF LIEUT. COI. WILLIAM V. JUDSON— Continued. Mr. Douglas. Mr. Judson, I believe you stated in your direct examination that this matter came to your attention about the 2d day of December ? Col. Judson. Well, I should say about the 2d or 3rd or 4th; I have forgotten which. Mr. Douglas. And the papers you presented here bearing on this matter were delivered to you by Mr. Stellwagen ? Col. Judsox. Not all the papers that I presented, but those that I presented first. Mr. Douglas. The letter, for instance, signed by Mr. Wynne, addressed to the superintendent, with the name clipped out was one of the letters ? Col. Judson. I think that was handed to me the first time he brought any papers to me. Mr. Douglas. And some reports upon these companies and the literature were brought to you by Mr. Stellwagen ? Col. Judson. Yes: and a copy of the report of the superintendent of insurance. Mr. Douglas. Yes. Col. Judsox. And a copy of Best's Mr. Douglas. He brought the report of the superintendent of insurance to you ? Col. Judsox. Yes. Mr. Douglas. Was that report published in the papers? Col. Judsox. I do not think so. I do not know whether it was or not. Mr. Douglas. In what form was it when it came to you ? Col. Judson. It was in typewritten form, the same identical one that I handed to the stenographer. Mr. Douglas. Did he say from what source he had gotten that report ? Col. Judson. He told me more recently he had gotten it from the companies themselves; that there had been many inquiries made at his bank, as at each bank in town, with reference to this stock that was being sold, and they all had difficulty in answering these queries, and some representative of Tuttle, Wightman & Dudley, or of one of the insurance companies, presumably the Commercial, brought this in to him to demonstrate by it that the company was in good condi- tion, so he told me. Mr. Douglas. Did he say how he got the letter that was addressed, I believe you said you thought, to the American Security & Trust Co.; how he came into possession of it ? Col. Judson. I do not know how he got the letter. Mr. Douglas. You do not? Col. Judson. No. I am not even sure that it had been addressed to the American Security & Trust Co., but I have a recollection that some one said they thought it was. Mr. Douglas. I thought the copy presented here yesterday was addressed to the American Security & Trust Co. Col. Judson. No; it was blank; it had been cut out. Mr. Douglas. I mean the one you put in evidence was addressed to the American Security & Trust Co. INVESTIGATION OF INSUKANCE COMPANIES. 121 , : Col. Judson. Oh, I see. ! Mr. Douglas. At the time Mr. Stellwagen came to see you, he also talked with you more particularly about the appraisement of the Southern Building, did he not ? Col. Judson. I would not say more particularly. He dwelt, rather, I should say, or equally he dwelt upon the very bad showing made as to the business of the company during the year. He dwelt upon the appraisal feature also. Mr. Douglas. Did he say he thought it was appraised too high? Col. Judson. He said it was a very remarkable thing that, in two days, it had jumped $450,000. Mr. Douglas. Did he say he thought it was appraised too high? Col. Judson. I think he did, at that time or later, express that opinion to me. Mr. Douglas. Did he say to you on that occasion, and on several occasions afterwards, that the effect of such an appraisement would be to increase the assessment of property in that neighborhood ? Col. Judson. No; I never heard him make any such statement as that. Mr. Douglas. Col. Judson, do you mean to say he never said that to you at any time since then? Col. Judson. I do not remember any such statement as that at all. I do not remember in any such conversation with me he ever seemed to be looking at that aspect to which you refer. Mr. Douglas. He seemed to be concerned alone from the stand- point of the public interest ? Col. Judson. Of the public interest, desiring to see that the busi- ness of the District was clean. Mr. Douglas. He showed no interest in the matter himself, in a selfish way ? Col. Judson. I did not detect any selfish interest he had in the matter at all. Mr. Douglas. Don't you know, as a matter of fact, that Mr. Stellwagen went to Mr. Rudolph before he went to you and com- plained that this would have the effect of increasing the assessment on property in that neighborhood ? Col. Judson. No ; I do not know that. He told me he had shown these papers to Mr. Rudolph before he brought them in to me, but he did not say what Mr. Rudolph said, except I inferred from his conversation that Mr. Rudolph did not think it was advisable to take the matter up, and then he brought it to me. Mr. Douglas. Did Mr. Rudolph tefl you that Mr. Stellwagen had complained that it would have the effect of increasing assessments on property ? Col. Judson. I do not remember that he did. That is my answer to that question ; I do not remember that he did. Mr. Douglas. You don't remember that he did? Col. Judson. No. Mr. Douglas. You yourself thought the appraisement was too high, did you ? Col. Judson. On consideration I thought so; yes. Mr. Douglas. And it was on your motion or Mr. Rudolph's that the new assessment was ordered to be made by the assessors ? 122 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. It was on my motion, to which Mr. Rudolph' agreed, in part, providing for a reappraisement. He agreed to that, and providing for a reexamination of the books of the companies. Mr. Douglas. Did you give the assessors any instructions as to how they should go about appraising this building ? Col. Judson. None whatever, until there came into my possession the records of a proceeding in court, and when they came into my possession, I gave them to Mr. Richards and told him, "Here is some- thing upon which you can exactly base the value of the building, apparently, and I advise you to utilize it in making your appraise- ment." Mr. George. That was the equity case that you speak of ? Col. Judson. That was the equity case. Mr. Douglas. At the time, they had already written up the report, had they not ? Col. Judson. I so understood, but it had not come before the board. Mr. Douglas. You had seen it, had you not ? Col. Judson. I had seen it on Mr. Rudolph's desk. Mr. Douglas. You had read it ? Col. Judson. I had read it; yes. I had seen it there and read it. Mr. Douglas. You thought it was too high, did you not, Colonel? Col. Judson. Well, as a matter of fact, I did think it was too high; yes. Mr. Douglas. It was too high ? Col. Judson. Yes; because when I saw it I did not have any opinion — at the time when I first saw it — that it was too high, because I think it was a day or two after that I saw this proceeding in court, and then I saw it was too high with respect to the valuation of the building. Mr. Douglas. Yes. Col. Judson. And as we wanted to get at the facts, it was very natural, having a very important conclusive piece of evidence there as to the value of the building, and as the facts were what we were after, that I should take it up with the appraisers, and give them this data, so that they might utilize it. Mr. Douglas. You did that after their report had been filed ? Col. Judson. Well, after their report had come upon the desk of Mr. Rudolph. It had not come before the board. Mr. Douglas. That was the proper place for it to go ? Col. Judson. It was the proper place; yes. Mr. Douglas. When they had finished their work ? Col. Judson. That was all they had to do, was to hand it to Mr. Rudolph. Mr. Douglas. Did you ask Mr. Richards to withdraw that report? Col. Judson. I do not remember whether I asked him to withdraw it or not, but I asked him to take this into consideration in connection with the appraisal. Whether they would withdraw it or make a sup- plemental report, I was perfectly indifferent. I did not care. Mr. Douglas. You told him that the appraisal was too high, and you thought the facts in the bill in equity Col. Judson (interposing). I told him I thought the valuation placed on the building was higher than probably they would have placed upon it if they had had this evidence. Mr. Douglas. You told him, in substance, that you thought it ought therefore to be changed and reduced? INVESTIGATION OF INSURANCE COMPANIES. 123 Col. Judson. Either changed or a supplemental report made; I cared not which. Mr. Douglas. Looking to a lower assessment? Col. Judson. Looking to a more correct assessment; a more cor- rect appraisal., Mr. Douglas. And your idea was that a more correct appraisal would be a lower appraisal than they had reported. Col. Judson. Naturally, as the proceedings in equity which seems to be conclusive proof as to what the building cost, showed that it cost less than they appraised it at. Mr. Douglas. We will come to the bill in equity later, but I want to get your attitude and what you asked him to do. Col. Judson. My attitude was wholly based upon the proceedings in equity, because I had never seen that, I would have had no con- versation with the assessors about the matter. Mr. Douglas. At any rate, you told him to withdraw that report ? Col. Judson. No; I do not think I told him to withdraw that report. I said, "Here is some data that will materially assist you in making that appraisal," and I thought they ought to give considera- tion to it. Now, as to whether they would change the report or put in a supplemental report, I did not know and did not care. Mr. Douglas. What you wanted was to have the change made? Col. Judson. I wanted to get it as correctly made as possible. Mr. Douglas. You told Mr. Richards, in substance, that the appraisal of the building, in your judgment, was too high, because of the contents of the bill in equity ? Col. Judson. It so seemed to me. Mr. Douglas. And you so stated to him ? Col. Judson. I suppose I so stated to him. Mr. Douglas. It was in your interest — not in your interest but it was your duty, generally, was it not, Colonel, to see to it that prop- erty was assessed as high as possible consistent with the facts, and not as low as possible consistent with the facts ? Col. Judson. In this particular case ? Mr. Douglas. In any case — in all cases ? Col. Judson. I should not say, where a building is to be used as an asset by an insurance company, it was my business to see that it was assessed as high as possible consistent with the facts; no, but as cor- rectly as possible. Mr. Douglas. You are not willing to take the judgment of your appraisers or your assessors, on that subject, are you ? Col. Judson. Oh, most certainly. I made the motion that they should make the appraisal. Then there came into our possession some evidence as to the value of the building, and of course I believed that they should have that evidence, if they had not had it. Mr. Douglas. How many times did you talk with Mr. Richards and Mr. Kalbfus about this matter before you first suggested the withdrawal of this report ? Col. Judson. I suppose I have talked with Mr. Richards once or . twice about it, and the last conversation I had with Mr. Richards was to the effect he was going away, and he had placed this information in the hands of Mr. Kalbfus, and that Mr. Kalbfus was coming up to talk with me about it. , Mr. Douglas. You did send for Mr. Kalbfus? 1>24 INVESTIGATION OP INSURANCE COMPANIES. 1 Col. Judson. No; I did not send for Mr. Kalbfus. Mr. Richards sent him up to me. Mr. Douglas.. You told him in substance what you have already testified to ? Col. Judson. Just the substance of it. I Mr. Douglas. They did not withdraw the report, did they? Col. Judson. I did not know whether they did it or not, but I learned yesterday they had not from Mr. Rudolph. Mr. Rudolph would know; I would not. Mr. Douglas. I believe you stated on yesterday, Colonel, at the commencement of your direct examination, you were ready to qualify as a real estate expert. • Col. Judson. Not as a real estate expert, but perhaps as an expert in the matter of the cost of operating a building. That is what I perhaps should have said, if I did not. Mr. Douglas. You testified yesterday, Colonel, that you were ready to qualify and testify as to the values of real estate. ' Col. Judson. No; I do not think so; at least, if I did, it was not my intention so to state. I do not regard myself as an expert in real estate values. Mr. Douglas. You do not, then, claim to be qualified to pass upon the values of real estate ? Col. Judson. I do not regard myself as an expert in real estate Values; no. Mr. Douglas. You do not claim to be qualified to pass on the values of real estate? Col. Judson. No; not particularly on the land. I perhaps could fairly qualify with reference to the building, and the cost of its con- struction and the cost of operating it, and such matters. Mr. Douglas. Have you been a builder? Col. Judson. Well, I have had charge of a great deal of building; yes, and have now. For the last four years I have had charge of the building of the schoolhouses and what not in the District of Co- lumbia, and have handled the building department. Mr. Douglas. You have had no experience in operating buildings, have you ? Col. Judson. Well, for the last four years, my two assistants under me have had the operation of the District building, for example. Mr. Douglas. That is the extent of your experience in operating buildings ? |5( Col. Judson. I have operated a good many small buildings incident to my work, at different places. That is the largest building. I may say that, incident to the operation of the District building, I have had occasion to study the cost of operation of buildings in the District of Columbia; among others, the cost -of operation of the War Department Building, the Colorado Building, and the Southern Building. Mr. Douglas. Do you know the cost of operating the Colorado Building? : Col. Judson. I have not it in my mind. Mr. Douglas. Can you approximate it? 'Col. Judson. No; I can not even approximate it, although I should say — well, I will endeavor to approximate it, if you will excuse very great possible inaccuracies. My recollection is that it cost INVESTIGATION OP INSURANCE COMPANIES. 125 something like $22,000 to operate the Colorado Building, which is about two-thirds the size of the Southern Building. Mr. Douglas. You do not give that as any accurate information ? Col. Judson. No; I give it as very approximate, however. Mr. Douglas. You stated yesterday that the cost of operating the Southern Building was $30,000. Col. Judson. That would be my judgment. Mr. Douglas. What do you base that on ? Col. Judson. On what it costs to operate other buildings within the District of Columbia and on what it cost to operate the Southern Building last year. Mr. Douglas. Did you ever ask the manager of the building what it cost to operate the Southern Building last year? Col. Judson. I think I have seen figures that were based on what he gave to the superintendent of the District building. Mr. Douglas. What are they? Col. Judson. I think it was comething like $23,000 for the last year. Mr. Douglas. But you nevertheless stated it would cost $30,000 to operate Col. Judson (interposing). Yes; but Capt. Brooke, a man whom I would be glad to have the committee call as a witness in this matter, and also the superintendent of District buildings — Capt. Brooke had in my office at one time figures prepared by the superin- tendent of the building and by himself with reference to these dif- ferent buildings I have spoken of, which showed the cost of operating the Southern Building last year to be about $23,000; but Capt. Brooke informed me that this did not include the salary of the man- ager of the building, the rent of the office which he used in the build- ing, and various other things, and also that it was for a year when, during the winter of the year, the building was not completely occu- pied, and it would cost less for various purposes for that reason. ■ Mr. Douglas. And one of the items which you take into account with reference to the Southern Building is to put the cost of operating it at $30,000 ? Col. Judson. That is my idea of a fair estimate of the cost of oper- ating that building. Mr. Douglas. I believe you stated that the cost Col. Judson. And that is cheap, too. Mr. Douglas. That there should be a charge — we will see later whether it is cheap or not, but I will ask you this now. You deducted from the income of the building $16,000 for depreciation. Col. Judson. $15,000. Mr. Douglas. You said 2 per cent on $800,000. Col. Judson. $16,000 for depreciation; yes. Mr. Douglas. Colonel, don't you know, as a matter of fact, that the item of depreciation is not charged against income at all in the operation of buildings, but charged against the corpus, against the fund, against the property itself? Col. Judson. I did not say it was charged against operating. I should say it would be fairly chargeable. It has to be written off and should be charged against the total income from the building; yes. I do not say it is an operating charge; that was separately stated at $30,000. 126 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. But you would charge it against the income of the building, and not against the property itself. Col. Judson. I can not differentiate between the property itself and income, because, essentially, the property itself means the income from it to any owner of the property. That is what it means to him. Mr. Douglas. Did you not admit to Judge Gould and Mr. Carusi, in discussing this very matter, that the depreciation fund was not properly chargeable against the income, in order that you might arrive at the net income of the building ? Col. Judson. No; not exactly. I admitted this, that they did not have to pay that out annually; but I did maintain that presumably the appraisement of the building would have to be kept up to date, as statements were made of the condition of the company, and it would have to be written off, so that, as far as the company was con- cerned, it would be a loss, as much as if it had been an expenditure. Mr. Douglas. You thought $16,000 was a proper figure to be set apart for that purpose ? Col. Judson. I think that is very close to a right figure, as near as I can get at it. Mr. Douglas. In a perfectly new building? Col. Judsox. Yes. Mr. Douglas. In making assessments upon buildings in the Dis- trict of Columbia in your assessor's office, do you make any allowance for depreciation at all ? Col. Judsox. Well, I do not, because I don't do it, you know. Mr. Douglas. As a matter of fact, the assessors don't, do they? Col. Judson. I am not qualified to testify as to that. I suppose they do allow for the depreciation of buildings. Mr. Douglas. You don't know ? Col. Judsox. No; I don't know. Mr. Douglas. With reference to depreciation : Col. Judson. If you will pardon me Mr. Douglas. Pardon me. Col. Judson. I can conceive cases where there would be very little depreciation and of other cases where it would be much, because I would include in depreciation the item of obsolescence. If a building is just suited in character to property of a certain value and there is built upon that property of a certain value, and that property goes down, or the real estate goes down there and in that neighborhood, the building will become obsolescent by reason of being too good for thelcoation very rapidly. Mr. Douglas. No such situation as that exists here? Col. Judson. No; but I am trying to answer your question fully. If, on the other hand, a building is built on a location that is very rapidly advancing in value, the tune will come very quickly when that building will have to be torn down and another building erected in that locality. For example, if the Southern Building were located in Alexandria, it would not be worth much, if anything, because the land would not be adapted to such a building. If it were located, on the other hand, on the corner of Wall Street and Broadway, it would not be worth anything, because they would tear it down and build another building there. I think the building is very well adapted to the present value of the land there, and therefore has its maximum INVESTIGATION OF INSURANCE COMPANIES. 127 value to-day; but if that land goes up or if that land goes down very rapidly it will cause the obsolescence of the building to develop more rapidly. Mr. Douglas. Well, assuming that this building is fitted for its site, and being a new building, as a matter of fact, for the first 10 years, if it is properly operated, there is really no appreciable depre- ciation at all, is there ? Col. Judson. Including obsolescence with depreciation, I should say Mr. Douglas (interposing). I thought you had cut the obsolescence out. Col. Judson. Oh, no. Mr. Douglas. As not befitting this situation. Col. Judson. I say there is no accumulated obsolescence there, because it is adapted to the present conditions there. But I have no doubt that within 50 years that building will make room for another. Mr. Douglas. Suppose we confine ourselves to the present. Col. Judson. I only guess by what happens elsewhere. There are very few buildings in growing cities that are not torn down in 50 years. Mr. Douglas. At any rate, you think its being a new building, and being fitted for its purposes and for its site, that there should be a charge out of the income of $16,000 per annum for depreciation? Col. Judson. That is my opinion, including obsolescence in that. Mr. Douglas. Yes. Let us pit appreciation against depreciation. Is it not your judgment that the land itself is increasing in value, enhancing in value, much more rapidly than would be necessary to consume the depreciation ? Col. Judson. I think that is speculative. It is apt to occur. Mr. Douglas. Without regard to the purely speculative side of it. Of course, there is speculation in it to a degree. Col. Judson. There is nothing speculative about the depreciation of a building. The other is entirely speculative and can not be considered. Mr. Douglas. Let us see whether we will consider it or not. What do you regard, yourself — if you are willing to express an opinion — as the present value of the land upon which the Southern Building is located ? Col. Judson. I said I was not an expert. The assessors reported it as worth $35 a foot. Mr. Douglas. Do you think that is a fair valuation for it? Col. Judson. I would submit my judgment to theirs in that matter. Mr. Douglas. How much has that land increased in value on the basis of the $35 valuation now ? How much has it increased in value since the St. Matthews Church people sold it ? Col. Judson. I think they sold it for something like $18 a foot, which shows it apparently has doubled in value in the last three or four years. Mr. Douglas. Doubled in value in the last three or four years. Say it has increased $18 a foot in four years. That would be some- thing over $4 per foot per year. Col. Judson. Apparently. Mr. Douglas. How many feet of ground ? 128 INVESTIGATION OP INSURANCE COMPANIES. Col. Judson. I would say I would like to have in an important matter of this kind the judgment of the assessors confirmed by other appraisers. As I said yesterday, I am afraid the strictures that have been passed upon them might have a tendency to make them assess it too high or too low, I do not know which, but that has a psycho- logical effect. Mr. Douglas. Pardon me; we are not upon that particular sub- ject now. I am interrogating you in reference to the enhanced value of the property. You are undertaking to show this building is worth nothing to the fire insurance companies in that it is costing them $2,000 a year to carry it. That is what you testified to yesterday. In order to do that, among other things, you charge off $16,000 of an income of $135,000 to depreciationof a, perfectly new building. I am now asking you to address your attention to the question of the appreciation of the land itself. You have stated just now it doubled itself in value in the last three or four years. Assume it has done it in four years. That is over $4 per square foot per annum, is it not ? Col. Judson. Yes. Mr. Douglas. And there are 21,500 feet of ground in that lot? Col. Judson. Yes. Mr. Douglas. That is between $85,000 and $100,000 per year in the increased value of the land itself ? Col. Judson. Yes. Mr. Douglas. And you do not ihink that should be considered at all ? Col. Judson. That is considered. Mr. Douglas. Pardon me one moment. You do not think that should be considered at all in connection with the depreciation charge ? Col. Judson. Oh, yes; the depreciation charge is for the future, and the increment in value of the land' is in the past. Mr. Douglas. Is it not going on at this very moment? Col. Judson. I do not know it is going on any more. I would not be surprised if it was worth $25 a foot two years from now. Mr. Douglas. You really would not be surprised? Col. Judson. No; I would not be surprised. I apprehend there will be a recession in real estate values here before there is a substan- tial increase in them. That will not be testimony for the benefit of the real estate ring, but that is what I think. Mr. Douglas. It depends upon what the real estate ring wants, whether a lower assessment or higher prices. Col. Judson. I imagine they would rather have their property go up than to have it go down. . Mr. Douglas. Let us see whether you are really in earnest about that last statement. Col. Judson. Oh, I am in earnest about it. Mr. Douglas. You would not be surprised to see that property go down to $25 a foot in the next year or two ? . Col. Judson. No. I would be less surprised to see it go down to $25 a foot than to go up to $45 a foot. Mr. Douglas. Do you not know in that same neighborhood, within one block of it, is now being built the New Arlington Hotel, INVESTIGATION OF INSUKANCE COMPANIES. 129 which is going to be one of the finest hotels in the United States, one block farther out; is not that true ? :' Col. Jtjdson. Yes; I understand it will be a very fine hotel. Mr. Douglas. And right across the street from this very building the Shoreham Hotel is being practically converted into a new hotel ? Col. Jtjdson. Yes. Mr. Douglas. And right directly north of it, within one block, the old Normandie has been converted into a first-class small hotel, called the Bellevue ? Col. Judson. All those things have been discounted before giving it this increased value you have alluded to. Mr. Douglas. It had increased in value from $18 to $36 even before the Arlington Hotel was in contemplation ? Col. Judson. I do not think so. Mr. Douglas. It started before? Col. Judson. It has been in contemplation for a year or more, and that is the period during which it has appreciated most, and the same is also true of the other improvements. Mr. Douglas. This appreciation has been going on for four years since the St. Matthew's Church sold it for $18 ? Col. Judson. I do not think it has been going on regularly during that period. Mr. Douglas. Just intermittently or interspersed? Col. Judson. I am not qualified to say how that has been divided between those four years, but certainly it was not regular. Mr. Douglas. The improvements going on now — the improvements which are just being started now — in that immediate neighborhood, is it not true they will have the effect of increasing the value of that property ? Col. Judson. Not necessarily. I think those improvements have been discounted. Mr. Douglas. They have been discounted? Col. Judson. I would say so. It would be reasonable, would it not ? Mr. Douglas. I am asking you. You are now questioning me, instead of my questioning you. Col. Judson. That is my opinion. Mr. Douglas. The new building of the University Club has been built within one block and has not yet been opened for use ? Col. Judson. It has been intended to open it there. They have owned the land for some years. Mr. Douglas. At any rate, if it increased as much as 75 cents a foot, it would more than counterbalance your depreciation charge, would it not ? Col. Judson. If in the future it appreciated more than 75 cents a foot, it would; and if it depreciated 75 cents a foot, that would have to be written off. Mr. Douglas. Your present views of the value of this building and of the ground are affected by the pessimistic consideration you have just suggested, that this land may go down from $35 and $45 a foot to $25 a foot, notwithstanding the marked improvements going on all around it, in all four directions ? Col. Judson. You may call it a pessimistic view of the future or an optimistic view for the present. It is the present we are talking 130 INVESTIGATION OF INSURANCE COMPANIES. about, and so you get the benefit of that optimistic view I have at present. Mr. Douglas. Coming now to the question of the building itself: You read this bill in equity, did you ? Col. Judson. Yes ; I read most of it. Mr. Douglas. Is it not a fact that the price of $680,000 was alone the price of the limited contract of the Thompson-Sterrett Co. to build the building, and did not include at least $200,000 of other items ? Did you know that then ? Col. Judson. No ; and I do not know it now. Mr. Douglas. Did you make any inquiry to find out the facts as to that ? Col. Judson. I told Mr. Kalbfus in using that he must be very care- ful to use it properly, which meant that he must investigate all those things. When Mr. Kalbfus came to me at Mr. Richards's dictation — I had suggested that he come — I told him he must take into consid- eration much more than that ; anything that entered into the value of the building in addition to that. I also told him that he should take into consideration interest during the period of construction and architects' fees, and anything else that was proper to take into consideration. Mr. Douglas. Did you figure out what was the cost of that build- ing by the data you got from the equity bill ? Col. Judson. Oh, in my own head I did. Mr. Douglas. How much did you make it ? Col. Judson. Without information that he would get Mr. Douglas. How much did you make it ? Col. Judson. I don't remember. As I say, the only two charges that I presume should be added would be interest on the cost of con- struction and the architects' fee. Then, also, I believe the owners of the building have alleged that they had to spend considerable to complete it. There was a question for Mr. Kalbfus to look into, as to whether that should be added or not. Mr. Douglas. You do admit Col. Judson. If you will let me finish. Mr. Douglas. Pardon me. Col. Judson. There was also the contention that they had not paid $14,000 of that $681,000 and that if they had not paid it, it should be deducted presumably. Mr. Douglas. How is that ? Do you mean to say when you come to appraise a piece of property for assessment or any other purposes, you are going to deduct from the value of the building what a man might happen to owe on an open account ? Col. Judson. In valuing the building. We are trying to ascertain the value of the building. Mr. Douglas. What do you mean by deducting the $14,000? Col. Judson. I will go over the matter of the suit. It was agreed the contract price was $681,000, including $60,000 to the contractor as his lump-sum profit. He sued for $14,000 unpaid of that $681,000. The cross bill alleged that they had been obliged to expend about $30,000 in completing the building and rectifying the mistakes in constructing the building. Mr. Kalbfus told me that they had told him the contractor was willing to quit and have one offset the other. INVESTIGATION OF INSURANCE COMPANIES. 131 In that case you would get at the value of the building by taking $681,000, subtracting $14,000 from it, and adding $30,000 to it, plus these other charges for interest' and architect's fee. Mr. Douglas. If the amount actually due to Thompson-Sterrett would be $681,000 for building the building, and the owners had to expend $30,000 more to complete their uncompleted contract, you would add the $30,000 to the $681,000, would you not? Col. Judson. No; because they alleged they would not pay this $14,000, and I understand they allege that the contractor was willing to knock that off. Mr. Douglas. You do not mean to say they alleged anything of that sort in the bill ? Col. Judson. No, not in the bill. Mr. Douglas. Where did you get that information? Will you tell me ? Col. Judson. What information ? Mr. Douglas. Who told you what the contractors were willing to do ? Col. Judson. Mr. Kalbf us told me that the people at the building, your representatives, had told him that. Mr. Douglas. He said he got that there ? Col. Judson. Yes; he got that there, and he would be competent to testify to that better than I, because it is mere hearsay on my part. Mr. Douglas. Let us assume the building cost $681, 00Q and that you added to that the difference between $16,000 and $40,000, run- ning it over $700,000. You say the fixed charge, or rather the car- rying charge, would have to be added to that. Col. Judson. That would make it $697,000. Mr. Douglas. And the carrying charge would have to be added to that ? Col. Judson. I should think so. ' Mr. Douglas. Suppose the carrying charges during that period of time amounted to $66,000. Would that be added to the $697,000 ? ■ Col. Judson. If that was a fair carrying charge. If, on the other hand, that was interest upon the use of $60,000 or $75,000, I should say it was not fair, because what would be fair to add as interest would be interest during the course of construction. That would be fair interest. Mr. Douglas. Would interest upon the property and interest upon the money invested be fair ? Col. Judson. Not money actually paid, but a fair interest on the amount of actual cash that was used during the operation of the building. Mr. Douglas. Would $65,000 be excessive ? Col. Judson. I do not know whether it would or not. Mr. Douglas. You do not know ? Col. Judson. I should say it would be. Mr. Douglas. Suppose the architect's fees were $41,500, that would properly be added 1 Col. Judson. That would be a little large, but if correct it should be added. Mr. Douglas. Why would it be large ? Col. Judson. I believe it is 5 per cent, probably. Mr. Douglas. Is not 6 per cent the architects' standard charge ? 132 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. They vary; sometimes 5 and sometimes 6. Mr. Burn- ham built the building, and Mr. Burnham does not belong and never would join the Institute of American Architects, because he liked to make his own prices. I think he generally makes about 5 per cent, and has an enormous volume of business. He is dead now. I am referring to his firm. I should have guessed he would have charged 5 per cent. Maybe he charged 6 per cent. But $41,000 is not far out, I should say. Mr. Douglas. Assume that $65,000 would be about correct — you say it might be excessive, or it might not — then $41,000 for the archi- tect's fee Col. Judson (interposing). I think it would be easier to figure it right now. Mr. Douglas. That is what I am going to have you do, right now, if you will. If you will take your pencil and pad, we can have some figures on the cost of the building. It will not take long to do it. Col. Judson. I should say the land Mr. Douglas. We are not talking about the land; we are talking about the building. Col. Judsox. I am going to allow an interest on the cost of the land during the period of construction, while it was idle during construc- tion. Mr. Douglas. You say you are going to allow it; you would have to allow it, would you not? Col. Judson. You objected to my considering it. Mr. Douglas. I beg your pardon; I thought you were talking about the value of the land. Go ahead. We will come to that item later. Let us assume, for the moment, that $65,000 would be a proper car- rying charge, but you can attack it, if you wish, later, and $41,500 for the architect's fee. I suppose you would allow, would you not, in appraising the value and the cost of this building — in ascertaining it — you would allow any additions to the building that had been made by the builders, outside of the contract with Thompson & Sterrett? Col. Judson. Depending on whether they added to its value or not, I would. If they did add to its value, I would allow it, of course. Mr. Douglas. Let us suppose the United States Trust Co., of which Mr. Eldridge E. Jordan is the president, expended there for the benefit of this building and becoming a part of it, in the building, of a splendid trust company office the sum of $75,000. Would you add that to the cost of the building, if it was carrying part of the cost ? Col. Judson. To the value of the building? Mr. Douglas. Yes. Col. Judson. If the United States Trust Co. were to move out of there to-morrow, and if in moving out to-morrow all of its fixtures and improvements, that cost $75,000, would come then immediately into the possession of building, without any payment to the United States Trust Co., I should say that that $75,000 should in part be counted. It probably would not be worth as much to them as to the United States Trust Co. because it was all adapted to a specific use. But my understanding is that the United States Trust Co. did not give these things to the building, but has a contract with the building by virtue of which it gets cheaper rent for the first ten years, and at the end of the first ten years, if it moves out, the company has to pay the United States Trust Co. one-half of that expenditure. So that INVESTIGATION OP INSUBANCE COMPANIES. 133 in fact the United States Trust Co. has an equity in all of that to-day that has not been earned by the building at all yet. Mr. Douglas. Suppose we do not consider the equity it has. We are talking now about this building, as it stands to-day, at Fifteenth and H Streets. If $75,000 were expended in that building, as a part of it, for the quarters of the United States Trust Co., is not that a part of the cost of the building that honestly and fairly should be added to it? Col. Jtjdson. Not when considering what is owned in that building, unless you add the indebtedness. There is a liability there that must be considered. Mr. Douglas. For the purpose of taxation, you would not sub- tract it, would you ? Col. Judson. No; not for the purpose of taxation, but for the purpose of arriving at the equity of your company in that building, it would have to be subtracted. Mr. Douglas. We are not talking about the equity of the com- pany. I am talking about the cost of this building. I want to hold you right down to it. When you would come to assess this building for taxation pur- poses, you would pay no attention to any private contract between the United States Trust Co. and the Southern Building Corporation ? Col. Judson. Not a bit, when being assessed for taxation. There- fore, by your own admission, you would have to pay taxes on a much larger sum than you can carry the building for as an asset. Mr. Douglas. Pardon me; you are mixing my admissions with yours. I admit nothing of the sort. I am holding you down to the cost of this building, and it is a matter of grave importance. You make these charges, first, that the appraisement made by the appraisers selected by the commissioners was too large; second, that your own appraisement, or rather the appraisement by your own assessors, was too large. Col. Judson. No. Mr. Douglas. Pardon me; you asked him to withdraw it for the purpose of having it reduced. Now you are undertaking to make yourself an expert in building operations — building costs. I ask you if $75,000 was expended — if the sum of $75,000 was expended over and above the Thompson-Starrett contract without regard to who expended it if it became a part of the building, would it not be added to the Thompson-Starrett purchase price ? Col. Judson. If they were fixtures to the building that could not be removed, they should be added, but not necessarily to the extent of $75,000, because the larger part of them might have been especially adapted to the needs of a particular company and not have a market value equal to that. Mr. Douglas. We are talking about cost of this building, not about depreciation. Col. Judson. I understand. Mr. Douglas. I am talking about the work you had your own assessor's office do. Col. Judson. I understand. Mr. Douglas. They put this building at $825,000. Col. Judson. Yes. 71391— No. 2—12 2 134 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. And you asked them to withdraw this and consider the allegations of the bill in equity to see whether or not it should be reduced, and you are therefore talking about the cost of this building. I am asking you if the sum of $75,000 was expended on the building, in addition to the Thompson & Sterrett contract, should it not be added to it as a part of the cost ? Col. Judson. I think that is the question I have just answered. Mr. Douglas. Do you say it should or should not be added as part of the cost of the building ? Col. Judson. I should say, with a very important qualification, that it should be added to the cost of the building; but if the building is carried at this higher cost as an asset of the insurance company, the indebtedness of the insurance company, which is stated to be about $1,300,000, should be increased by its liability to the United States Trust Co. for this expenditure, which would have exactly the same effect as of reducing your equity in the building. Mr. Douglas. We will see later on whether it will or not. I am on only one subject now. The taxes on the property during the course of construction would be part of the fixed carrying charges, would they not ? Col. Judson. I should think so. Mr. Douglas. Suppose they amount to $10,000; that would be added, would it not ? Col. Judson. Yes. Mr. Douglas. Any other improvements or changes in the building, for instance, in the construction of suites ? Col. Judson. I should say if changes were partly destructive and partly constructive they might result in the expenditure of a large sum of money without really adding to the value of the building. Mr. Douglas. I am not talking about that. That adds to the cost of the building, does it not ? Col. Judson. I am testifying as to the cost. That adds to the cost of the building, but not to its value, necessarily. Mr. Douglas. It might or might not add to the value? Col. Judson. It may or may not add to the value. Mr. Douglas. It depends on the wisdom exercised in the doing of' that work ? Col. Judson. It might be quite a wise thing to do it in order to get tenants, and yet might not add anything to the value of the building, because special adaptation of the building to certain tenants might make it more unadaptable to other tenants. For instance, on the top floor of your building you doubtless spent a great deal of money in taking out partitions and perhaps putting in others for the Com- merce Court. The Commerce Court goes out of business the 4th of March, and you will probably spend more money restoring it to the condition in which it was when the Commerce Court went in there. I do not see that the building, being the same building which it was before the Commerce Court went in there, with the increased debt and expenditures incidental to adapting it to the Commerce Court, and then readapting it to its former condition, is more valuable. That should be charged to operating cost. Mr. Douglas. Suppose the Southern Building did not expend a dollar for the arrangement for the Commerce Court, then all your observations on that subject would go for naught ? INVESTIGATION OF INSURANCE COMPANIES. 135 Col. Judson. No, not quite that. Mr. Douglas. Suppose they made no change at all in the arrange- ment of the suites or rooms except in the mere Commerce Court room itself, then those observations would not be of any consequence ? Col. Judson. So far as they are applicable, they are applicable. Mr. Douglas. Assume that the carrying charges on that building would be $65,000, the architect's fees $41,000, and the United States Trust Co. additions to the building $75,000, and the other improve- ments in the building, changing of suites, amounts to $9,000 odd, and taxes $10,000; what would you think of your testimony yesterday — these figures aggregating over $900,000 ? Would it alter your views as to what you did and suggested to your appraisers ? Col. Judson. Oh, no; not as to what I suggested to them, because what I suggested to them was to take into consideration as evidence — not as proof, but as evidence as to what the building was worth, what was stated in that proceeding in equity. I have no doubt all these items will be fairly considered by the assessors, although they may not be considered to be an amount equal to that stated by you. If the assessors did not include those, I should find fault with them. If they did not include all of them as far as they are properly inclusive, I should find fault with them. However, if they do include $75,000, or any part of it, for the United States Trust Co., then I should say we would have to take up with the insurance commissioner the idea of lessening your equity. Mr. Douglas. We will meet that situation later, but I am asking you now this question: If this building cost two years ago $970,591.15, could it be reproduced now for that figure ? Col. Judson. It is my belief that it could. Some things have risen and some things have fallen. I think I have asked our inspector of buildings and our municipal architect both that question recently, and they thought that, taking one thing with another, it could be built as cheaply to-day as then. Mr. Douglas. Forty cents a cube is about right as a building figure now, is it not ? Col. Judson. No; that is too high. Take the Army and Navy Club, which is fitted out as a club and very much more handsomely fitted up than that, and that only cost 35 cents. I should say this building cost in the neighborhood of 30 cents. Mr. Douglas. You have spoken very highly of J. H. Burnham &Co. Mr. George. Pardon me, Mr. Douglas. I did not understand the answer of the colonel. Col. Judson. I say this building cost about 30 cents a foot. Mr. Douglas. Thirty cents a foot ? Col. Judson. To tell the truth, I have never been through the building to see the character of its construction or anything of the kind, so I do not pretend to make an estimate of what it cost per cubic foot. I should say as an office building Mr. Douglas (interrupting). You have never been through the building, and yet you are giving all of this testimony about a. building which you have only seen from the outside ? Col. Judson. Yes, and I have given the particular sources of my information. 136 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Have you confidence in the judgment and integrity and experience of Burnham & Co. ? Col. Judson. I think Mr. Burnham was one of the greatest archi- tects in the country. Mr. Douglas. That firm ? Col. Judson. But Mr. Burnham had a great amount of business, more than that of any other architect in the country, and Mr. Burn- ham personally did not ordinarily do things. He would probably have had nothing to do with the planning of this building. He had very large offices and an enormous amount of business there. It is a great business enterprise — his architects' firm is. Mr. Douglas. That firm has fine equipment ? Col. Judson. Splendid. Mr. Douglas. First-class architects? Col. Judson. Yes. Mr. Douglas. Do you know Mr. Graham, of that firm? Col. Judson. No. Mr. Douglas. They were the architects at the Union Station down here, were they not? Col. Judson. Burnham and Root were; yes. In a job of that kind I suppose Mr. Burnham would give his personal attention to it, of course ? Mr. Douglas. If Burnham & Co. should estimate the cost of this building, to reproduce it now, to be 40 cents a cube, that would have some weight even with you, would it not? Col. Judson. If Mr. Burnham did, it would. Mr. Douglas. Anyone else ? Col. Judson. He has an enormous office. Some employee of his — if Mr. Burnham were alive and should indicate to me that here was a man competent to do it, and if he went through the building and did it — I would place great weight on that. Mr. Douglas. Suppose in his lifetime they estimated, in the plans and specifications, the cost of that building at 40 cents, and should do so now after a lapse of two years, would that have some weight with you? Col. Judson. Everything that related to the matter would have some weight with me. Mr. Douglas. With reference to the appraisement of this prop- erty Mr. Redfield (interposing). Will you pardon me, Mr. Douglas, before you leave this subject ? Mr. Douglas. Yes, certainly. Mr. Redfield. Col. Judson, suppose a case, which is an actual fact, of an office building in which the tenant upon the ground floor, a large bank, had erected fixtures and put in vaults at a large expense, but finding, through a consolidation or for other reasons, that that location was no longer desirable, and withdrawing before the lease terminated, and finding that no other banking company could at the time be had as a tenant, so that those vaults and fixtures had to be removed- before a new tenant was available, would they or would they not in such a case become an actual" loss instead of an addition to the value ? Col. Judson. I should think they would. I should think part of this expenditure of $75,000 was destructive. INVESTIGATION OF INSURANCE COMPANIES. 137 Mr. Douglas. Mr. Reporter, would you mind reading that question ? I understood Mr. Redfield to say that was an actual condition. The last preceding question propounded by Mr. Redfield was read by the reporter. Mr. Douglas. I understand that is only a hypothetical question ? Mr. Redfield. No. Mr. Douglas. You state all those to be the facts? Mr. Redfield. They have been facts. I stated that it was an actual case. Mr. Douglas. Do you mean to say in some other case other than the particular one here? Mr. Redfield. I am not referring to this building. I am referring to the question of taking into account as a matter of positive value that which may or may not have a merely contingent value, and assuming that to be a real asset which may or may not prove to be so as time passes. Mr. Douglas. May I ask one other question ? Are you through, Mr. Redfield ? Mr. Redfield. Certainly. Mr. Douglas. Suppose the institution in question has a lease, a pending lease for a period of 20 years, and it is an institution in fine financial standing, do you not think that would remove the possi- bility of depreciation ? Col. Judson. It depends on the terms of the lease. I have been told by Mr. Kalbfus that he was told by you — but it would be much better for you to put that lease in evidence, I should think — that if the United States Trust Co. stays in there for 10 years and then leaves, the company has to pay the United States Trust Co. one-half of the cost of these improvements that you speak of. Presumably then, your building earns the other half during the first 10 years of the occupancy of this bank by giving them a cheaper rent, and I understand it is provided in the lease that the rent shall be less dur- ing the first 10 years than during the subsequent ones; but that is hearsay, and I think you should introduce the lease to get it much more clearly in the record. Mr. Redfield. Col. Judson, I will say for the record, that the case I spoke of was a case where there was a long-term lease, and business conditions became such that it was profitable to abandon the lease, even paying the rent after the place was vacant. Mr. Douglas. Do you know this rent increases every year for 20 years ? Col. Judsox. No; not every year. I understand it is on some slid- ing scale. Mr. Douglas. We will not waste the time of the committee talking about a hypothesis when the lease can be had. In reference to this appraisal of this property, I want to ask this pointed question, if Mr. Stellwagen did not request you to appoint appraisers and have this reappraisement made of this Southern Building? Col. Judson. No, he did not. He left the remedy to me, or the sug- gestion of a remedy to me. He pointed out the evil condition. He made no suggestion as to how it should be corrected. Mr. Douglas. He did say he thought there ought to be a reap- praisement ? 138 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. No; he did not say he thought there ought to be a reappraisement except as you might infer that he criticized the appraisement that had been made which showed an increase of value of nearly half a million dollars in two days. He criticized that, but he did not suggest any remedy at all. Mr. Douglas. He did not suggest any remedy at all ? Col. Judson. No ; I remember no suggestion on his part of a remedy. Mr. Douglas. You suggested as the appraisers you wanted Mr. William D. Hoover and Mr. Doyle, of Fisher & Co. ? Col. Judson. Yes; my reason for suggesting anybody being that I did not wish to leave it to the superintendent of insurance to select them. I did not think his selection before had been very fortunate, and I wanted therefore to take out of his hands the selection of them. As to the particular ones, I selected Mr. Doyle because I believe he is the most expert man in the District of Columbia on real estate mat- ters. I picked Mr. Hoover because I know him as one of the men of the highest standing in the town, who is acquainted with such mat- ters — president of the National Trust Co. My idea was that they would select a third, who would probably be a builder, but I have had no conversation with them as to who they should select. I do not think I have seen Mr. Doyle since I made that motion. Mr. Douglas. Did you not insist that these two particular men should be selected Col. Judson. My motion Mr. Douglas (interrupting). Pardon me a moment until I finish the question. From December 5 to December 17, and would not consent to anybody else ? Col. Judson. There was never any proposition made to me of any others at all. I would have been very willing to consider the sub- stitution of other names. Mr. Douglas. Did you suggest at the meeting of the Board of Commissioners that other names might be selected ? Col. Judson. T do not know that I did ; but no one else suggested it. Mr. Douglas. You insisted those two men should be selected ? Col. Judson. No; I made no insistence that. those two men should be selected. My insistence was rather a proposition that there should be an extra board to assess, and they should take the com- pounding of the values, the average of the values made by the assessors and by this independent board. I would have been very ready, and am now, to appoint any other board. I do not think we could get a better board than that. Mr. Douglas. You first made this motion on the 5th, did you not? Col. Judson. On the 5th; yes. Mr. Douglas. And you repeated this motion and named these very gentlemen on the 17th and sent it down from your sick bed to Capt. Brooke, did you not ? Col. Judson. No; I did not. My secretary telephoned me some- thing about it. I was sick in bed. I think he asked me whether it was desirable to have that done still, and I said I thought it was, and Capt. Brooke — presumably he was acting commissioner — on his own judgment coincided with my expression of opinion to my secretary over the telephone, and he made the motion and Gen. Johnston thought it was all right, and he approved it. Mr. Douglas. You knew and now know Mr. Hoover quite well? INVESTIGATION OP INSTTKANCE COMPANIES. 139 Col. Judson. I knew Mr. Hoover quite well. Mr. Douglas. Where do you live ? Col. Judson. We both live in the Brighton Hotel. Mr. Douglas. The Brighton apartment house, -up on California Street? Col. Judson. Yes; I will say that I have known Mr. Hoover ever since I have been here, because for a long time he was a member of the school board, and I was associated with him in that way. We have gone together to look at sites for school buildings. Mr. Douglas. Did you not talk to him Col. Judson (interrupting). I came to place great reliance on his opinion in the matter of sites for shcoolhouses, for example. Mr. Douglas. Did you ever ask him, before you suggested his name, what he thought was the value of this property — at the apartment house one morning at breakfast ? Col. Judson. No; I do not think I did. I had this conversation with him, but I do not think it was until after I had made the motion that he should be appointed. Mr. Douglas. Do you not know — let me refresh your memory — that before you ever suggested his name to the board of commission- ers — you asked him at breakfast one morning at the Brighton apart- ment house what he thought the value of this land- was, and he told you $20 to $22 a foot ? Col. Judson. I do not think that ever occurred. Mr. Douglas. Do you deny it? Col. Judson. I say I do not think it ever occurred. I was going to tell you something that you might want to draw out, and perhaps I should not volunteer any matter — it might be of assistance to you — that is along that line. If you wish me to ? Mr. Douglas. You may make any statement you want. Col. Judson. Mr. Hoover did tell me that Mr. Darneille had been to him, and my understanding is that it was before he appointed Messrs. Hensey and Lipscomb to be his associates, and he asked Mr. Hoover what he thought the building was worth, and Mr. Hoover told him, but what he told him I do not know, and Mr. Darneille then said, "Well, I don't want you; you are too low." Mr. Douglas. When did you hear that? Col. Judson. Mr. Stellwagen told me that, and Mr. Hoover con- firmed it when I asked him about it, although he said he was not sure — Mr. Stellwagen's impression was that it was before these other men were picked. Mr. Hoover was not sure. Mr. Douglas. In your conversation with Mr. Stellwagen about who these men should be Col. Judson (interrupting). I had no conversation with him about who they should be. Mr. Douglas. You said on yesterday you did about Mr. Doyle. Col. Judson. On yesterday? Mr. Douglas. Yes. Col. Judson. I asked him, after the insurance company had reported that they would not pay for this appraisement. I asked Mr. Stell- wagen to ascertain whether or not Mr. Doyle would serve gratis in performing this service. That is the only conversation I have had with him about Doyle. 140 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Under what circumstances did Mr. Stellwagen tell you, before you picked these men, of this conversation between Darneille and Hoover ? Col. Judson. He did not tell me before. That was after. Mr. Douglas. You said just a moment ago you thought it was before you picked these men. Col. Judson. No, I do not think so. Mr. Douglas. You take that back, do you ? Col. Judson. My impression is now that it was after. I am quite sure it was after, but I am not dead sure. Mr. Douglas. Will you state to this committee that that conver- sation with him about Hoover was after you had picked these men ? Col. Judson. I think it was after; yes. Mr. Douglas. About what time was it? Col. Judson. I do not remember. Mr. Douglas. Where was it? Col. Judson. I do not remember where it was. It might have been in my office or might have been as late as 10 days after the Mr. Douglas (interrupting). How many conversations on this general subject have you nad with Mr. Stellwagen from December 3 down to this meeting this morning ? Col. Judson. I have had a good many. Mr. Douglas. How many ? Col. Judson. I do not remember. Mr. Douglas. About how many ? Col. Judson. I would not be surprised if it was 10. Mr. Douglas. Where? Col. Judson. Frequently at my office; generally at my office. However, I have stopped to see him at his office also. I nave not seen him elsewhere. Mr. Douglas. You have seen him at the Union Trust Building in his office ? Col. Judson. Yes; I saw him there this morning. Mr. Douglas. I will ask you this question now: Did you ever consult with him or did he ever express an opinion as to the desirability or eligibility of W. D. Hoover and Mr. Doyle for these appraisers ? Col. Judson. Not certainly until recently; not before I made the motion as to either one of them. Mr. Douglas. Can you enlighten Col. Judson (interposing). That was purely my own initiative to select these two men. Mr. Douglas. Can you enlighten this committee as to why and under what circumstances Mr. Stellwagen told you about the con- versation between Mr. Darneille and himself, in which Darneille said Hoover was too low an appraiser ? Col. Judson. I can not recall any circumstances at all connected with it. He told me that. Mr. Douglas. You do not know where it was ? Col. Judson. I think it was in my office. Mr. Douglas. You think it was in your office ? Col. Judson. I think it was. Mr. Douglas. Am I correct in the understanding that you said you did not send from your sick bed a renewal of this motion on December 17 ? INVESTIGATION OF INSURANCE COMPANIES. 141 Col. Judson. No; I sent no renewal of the motion, and I suggest that Mr. Lee would be more competent than I to testify about that. Mr. Lee is my secretary. I remember he called me up about it. Mr. Douglas. Let me read from your testimony of yesterday, and see whether or not you did not make that statement : On December 17, 1912, I was sick in bed, but I communicated through my secre- tary with Capt. Brooke, who was the acting commissioner during my sickness, and made this motion. I move that there be a revaluation Col. Judson. That should be corrected. It should say he made this motion. Mr. Douglas. Did you not suggest to him that he make that identical motion ? Col. Judson. I did, but my recollection is that it was a counter suggestion telephoned to me by Mr. Brooke. As I say, I had a fever of 103, and I am not very certain about what this was, but my understanding is that there was some other motion that was proposed to be made, and I suggested, or I assented, to this partic- ular motion as being a good thing, in my judgment. Mr. Douglas. You assented to this particular motion? Col. Judson. Well, not assented to it in a legal sense, but my judgment coincided with it, that that would be a good motion. Mr. Douglas. Was not this the very motion you made on Decem- ber 5, 12 days before that? Col. Judson. Substantially. No ; not that very motion, but sub- stantially so. Mr. Douglas. Naming the same two appraisers. Col. Judson. I think that what was telephoned to me was a sug- gestion that the motion should include a direction to the superin- tendent of insurance to use this board's estimate that had been roposed in my original motion in arriving at the value of the uilding. Mr. Douglas. That was the one made on December 5 ? Col. Judson. And I suggested it might be enough for the informa- tion of the commissioners to have this board appointed and make a valuation of the building. Mr. Douglas. Were you willing to name anybody else other than these two gentlemen ? Col. Judson. I would have been quite willing. Mr. Douglas. Can you suggest some one now that you think would be as competent to act as those two gentlemen to value this property? Col. Judson. I would say John Joy Edson. I would be willing to substitute him for Mr. Hoover. Mr. Douglas. He is the president of the Washington Loan & Trust Co. ? Col. Judson. He is the president of the Washington Loan & Trust Co. Mr. Douglas. Have you ever talked to him about it? Col. Judson. No; I never had a word to say to him about it. Mr. Douglas. You have not ? Col. Judson. No; I never opened the subject to him. Mr. Douglas. Whom would you substitute for Mr. Doyle? Col. Judson. I do not know. I would have some difficulty and would have to take advice, but I would be willing to take advice on that, if the question were to substitute some one for him. I might 142 INVESTIGATION OF INSURANCE COMPANIES. say this, that the District has utilized Mr. Doyle very often as an expert in various cases, and he is the one that we naturally rely upon. We find him verj- excellent and believe he is the best. Mr. Douglas. "He is a chronic witness for the District in condemna- tion proceedings '( Col. Judson. He is a chronic witness for the District hi condemna- tion proceedings, if you choose to call him so. He is the District's expert. Mr. Douglas. And he invariably depressed the value of property, when you come to condemn for Government purposes? C<>1.~ Judson. I do not think he depresses it. I think he gets it correctlv. Mr. Douglas. You did consult with Mr. Stellwagen about having his man, Mi. Dovle, did you not? Col. Judson. No; I do not think so; not before I made the motion. Afterwards I asked Mr. Stellwagen whether he thought Mr. Doyle would serve without pay, as a public service. Mr. Douglas. Did you ask him between the first motion on Decem- ber 5, and the second motion on December 17 ? Col. Judson. Probably. Mr. Douglas. And you asked him if he would serve without com- pensation i. Col. Judson. Yes. Mr. Douglas. And he said he would? Col. Judson. And he said he thought he would. Mr. Douglas. And you stated yesterday that you did not know that Mr. Stellwagen is president of the Fisher company ? Col. Judson. No; I could not swear he was, because I had a sort of hazy recollection that Mr. Gale might have been president. I knew he was connected with it. Mr. Douglas. So much for this question of valuation. Let me ask you if you are an expert in insurance matters, Colonel? Col. Judson. No; I am not. I know more about it now than I did a couple of months ago, but I do not consider myself an expert. Mr. Douglas. This analysis about which so much has been said was made by you, was it not ? Col. Judson. That was made by me. Mr. George. You mean the analysis of the Southern Building? Mr. Douglas. No; the analysis headed "In partial explanation of certain action." Col. Judson. It was made by me, but I read it substantially the same as it is there to Mr. Carusi and to Judge Gould and the actuary, or statistician, or whatever he was, that was up there with them. Mr. Douglas. What I would like to know is whether it was made by you ? Col. Judson. And they had no fault to find with it. Mr. Douglas. I am not asking about that. Do you mean to say that Judge Gould and Mr. Carusi had no fault to find with this ? Col. Judson. I did not say they said they had no fault to find with it. I said they did find no fault. They were there for the purpose of discussing this situation, and when I read that they were silent as to the matter and made no complaint of it. Mr. Douglas. Now, Col. Judson, do you mean to say that Judge Gould and Air. Carusi and this actuary came to see you about this INVESTIGATION OP INSURANCE COMPANIES. 143 -matter and found no fault with the figures and facts stated in this statement ? Col. Judson. In that particular statement ? Mr. Douglas. Yes, sir. Col. Judson. I do not think they found any fault with it. Mr. Douglas. Do you not know whether they did or not ? Col. Judson. Well, I say I am quite positive they did not. Mr. Douglas. Did they not challenge the correctness of almost every figure in that statement ? Col. Judson. I do not think so. Mr. Douglas. Did not Mr. Carusi offer you, in the presence of Judge Gould and the actuary, that if } r ou would let his actuary do so he would satisfy you that you were grossly in error about your deduc- tions in this matter ? Col. Judson. I do not remember that. Mr. Douglas. Well, do you say they did not do it ? Col. Judson. I say I do not remember it. Mr. Douglas. Did you get up the facts and figures and make these deductions alone, and therefore without any assistance of anyone ? Col. Judson. Yes. Mr. Douglas. Do you know anything about the keeping of books of accounts ? Col. Judson. I think I might modify that statement, and I may say that I think in one respect they did object, when I come to think of it; they said that a certain amount of these assets would have gone over to the reserve against premiums. If I can have that statement, I can refer to that. That you could account for a certain amount of the loss of those reserves by the fact that there was an increased liability for unearned premiums, and some part of the assets had to be carried in that way, and I asked the actuary or statistician who was there whether that was a large sum, and he said no. I said, "Was it in excess of $20,000?" And he said he did not think it was. That is my recollection of the only criticism they made of it, and I inserted that in here. Mr. Douglas. I want to ask you now, before we go into this state- ment further, if you got any assistance in this matter at all of getting your deductions and figures for this statement ? Col. Judson. Well, no; I should not say that I did. Mr. Curry was with me and I had the report before me, and we went over the figures. But I had not written that yet or made those deductions. Mr. Douglas. Was there anybody else there ? Col. Judson. Mr. Ingham. When he was there we discussed some- what the figures. I sent down the report once to the auditor of the District, too. Mr. Douglas. Did you call in to your assistance, advice, or eluci- dation any bank bookkeepers ? Col. Judson. No; but I did this: I went over this statement of the commissioner of insurance with Mr. Hoover as to these figures. He is an expert in those matters, and he said he thought that was a very correct analysis. Mr. Douglas. Did you go over that with Air. Stellwagen '( Col. Judson. I do not think I did. Mr. Douglas. Do you not know you did ? Col. Judson. I showed it to him afterwards. 144 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Will you swear you did not? Will you make this statement, Colonel, that you did not show this statement and go over it with Mr. Stellwagen before it was passed and had become a part of the records of the District Commissioners ? Col. Judson. I will not swear to that, but I will swear to this: That he is not the author of a change or word in it. Mr. Douglas. I did not ask you that. Col. Judson. And that he made no suggestion of any change in it. Mr. Douglas. Did he have a chance to do it? Col. Judson. I do not know; he could have suggested one if he wanted to. Mr. Douglas. He must have seen it, then. Col. Judson. Yes; he must have seen it. Mr. Douglas. You said a while ago you did not know whether he did or not. Col. Judson. I do not know for sure that he saw it before it was passed, but I think he did, just as Mr. Carusi did before it was passed. Mr. Douglas. Mr. Stellwagen is in a little different relation to this company than Mr. Carusi, I should imagine. Col. Judson. Yes. Mr. Douglas. You went over this statement Col. Judson (interposing). No; I did not go over it with Mr. Stell- wagen. I may have shown it to him, but he made no suggestion. Mr. Douglas. For what purpose did you show it to him? Col. Judson. One purpose was that if there was anything wrong I would like to have had his suggestion, but he made none. Mr. Douglas. Is Mr. Stellwagen an expert insurance man ? Col. Judson. I do not know whether he is or not, but he is an expert in accounting, certainly. Mr. Douglas. An expert in, accounting? Col. Judson. And perhaps in insurance. Mr. Douglas. You do know that he is an expert in insurance mat- ters along certain lines ? Col. Judson. No; I do not know whether he is or not. Mr. Douglas. As a matter of fact, Mr. Judson, is not this the fact, that Mr. Stellwagen's firm of Fisher & Co. do a very large insurance brokerage business ? Col. Judson. I know they do an insurance business; but how much, I do not know. Mr. Douglas. You know it is a large one, do you not? Col. Judson. I do not know anything about it. Mr. Douglas. Do you not know, also, that the Commercial Fire Insurance Co. cut rates and created a great deal of criticism* by local fire insurance companies here, especially with reference to the bro- kerage commissions on the sale of insurance ? Col. Judson. Well, I have heard that. Mr. Douglas. You know that, do you not ? Col. Judson. Well, I do not know it; but I have heard it and do not doubt that it is true. Mr. Douglas. Did not Mr. Stellwagen say to you that these people were cutthroat people, in substance — I am not using his language — and were cutting out all insurance commissions ? Col. Judson. I do not think ho did. I do not think I learned that from him at all. INVESTIGATION OF INSURANCE COMPANIES. 145 Mr. Douglas. You do not think you learned that from him at all? Col. Judson. No; I think his side of it came from the many inqui- ries he received as a banker as to the value of this stock that was being sold. Mr. Douglas. And in those 10 or 12 conversations that you had with him on this subject he never for one moment referred to the cut rates of the Commercial Fire Insurance Co. ? Col. Judson. I do not know whether he did or not. I heard that from different sources. Mr. Douglas. Will you say that you can not remember that Mr. Stellwagen did that or not ? Col. Judson. I say I can not remember whether he did that or not. Mr. Douglas. But you did show this statement to Mr. Stellwagen before .- Col. Judson (interposing). I think I did; but I am not dead sure, I think probably I did, because I had it for two or three days before the board adopted it in substantial form. Mr. Douglas. And you did it for the purpose of getting his advice about it, did you ? Col. Judson. Well, I assume I showed it to him so that if there was something wrong about it he would say so; otherwise not. He made no suggestion as to any change in it or anything of the kind. He handed it back to me. I do not remember that he commented on it at all. Mr. Douglas. You do not think his interest in insurance commis- sions and brokerage, where the Commercial Fire Insurance Co. was cutting them all out, had any influence on his mind at all in bringing this matter so actively to your attention ? Col. Judson. Well, I am sure I do not know. Mr. Douglas. You do not? Col. Judson. I regard him as a very high-minded public-spirited citizen, who would desire to clean up' business in the city of Wash- ington; whether he had any other motive I do not know. Mr. Douglas. Are you an expert bookkeeper, Colonel ? Col. Judson. Well, no; I can not say that I am. Mr. Douglas. You do know this about bookkeeping: That the bookkeeping of insurance companies is radically different from the bookkeeping of banks and of other kinds of bookkeeping ? Col. Judson. Well, the principles of all bookkeeping are more or less the same, and I am pretty good at figures, so I feel I understand the statement thoroughly. Mr. Douglas. And you stand by this statement here, do you ? Col. Judson. Yes; that is the way it seems to me to be. Mr. Douglas. Did you make any reference whatever in this state- ment to the money set apart by them for the insurance reserve ? Col. Judson. Yes. Mr. Douglas. You did? Col. Judson. Yes. Mr. Douglas. Look at it and see if you did. Col. Judson. About the sixth line from the bottom of the copy that I have here it says-: A small part of this difference is due, of course, to increased liability for unearned premiums. 146 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Did you say anything about the insurance reserve fund in this statement anywhere ? Col. Judson. I just read it to you. Mr. Douglas. When did you first know what an insurance reserve fund was ; when did you find that out ? Col. Judson. I could not tell you that. Mr. Douglas. Did you not get the information from Mr. Carusi and Judge Gould and the actuary, and state at that time that you never heard of an insurance reserve fund before ? Col. Judson. No; but I did get this information from them with reference to the insurance reserve; that was that the premium, when it came in was not sufficient to put into the fund, and consti- tute the necessary addition to the insurance reserve, but that some of the assets of the company, the surplus, for example, had to be added to that to make it up, because of the fact that there was a large commission that came out of the first year's premium, so that there was a legitimate drawing upon the surplus in addition to the premium that was j>aid to build up the insurance reserve. Mr. Douglas. 1 ou did know that there was an insurance reserve before that time ? Col. Judson. Of course. Mr. Douglas. And you deny you made the statement to them that you never heard of it until they told you about it ? Col. Judson. I can not imagine that I told them that, because it was not true. I had general information. Mr. Douglas. I want to see what you, meant by this and what deductions are to be drawn from this statement. I am quoting now from your own statement. You refer first to the commission paid for the sale of stock, 156,000. The surplus, then, with the reservations above stated, should apparently have been, on October 31, something like $160,514.66, this without any increase in the book value of real estate as set forth in the report of November 8, 1912, to the amount of $226,715, as below described. As a matter of fact, omitting such increase by adjustment in book value of real estate, the report of the superintendent of insurance as a result of his examination of October 31, 1912, shows a surplus of $2,723.49. The difference between $160,514.66 and $2,723.49 is $157,791.07. Col. Judson. Now read the next sentence. Mr. Douglas. Yes. [Reading:] A small part of this difference is due, of course, to the increased liability for unearned premiums. Col. Judson. That is about as well as I am able to analyze the statement of the superintendent of insurance. Mr. Douglas. Do you not know, and were you not informed, before you caused this matter to be publicly recorded, that 155,000 of that $160,000 had been placed to the reserve fund, which is really an asset of the company ? Col. Judson. No ; I think that the only sum mentioned was some- thing like $20,000. It might have been entered. Mr. Douglas. Did not Judge Gould and Mr. Carusi and the actuary all tell you, when they were together with you, that that part of that $160,000 was $55,000, and had gone to the reserve? Col. Judson. No. The only figures that I remember were the esti- mate of $20,000 as possibly the amount that was added in that way. Mr. Douglas. You make that as a positive statement, do you ? INVESTIGATION" OP INSUKANCE COMPANIES. 147 Col. Judson. That is my recollection of the matter. Mr. Douglas. And you call that a small part ? Col. Judson. Well, it is one-eighth — that is a small part; about one-eighth; and then there was a further remark by Mr. Carusi, that the company during the year had lost a good deal ot money, about $50,000. That may be said to be a criticism of these figures, because they show the amount lost to be more than that. Mr. Douglas. You say, "Incidentally it may be said that the total payment to policy holders for fire loss was $145,000. In other words, it appears that there would probably have been a diminution of the surplus over what one might have expected to find therein, even if the company had not been required to pay a single fire loss." Did you mean that — a diminution apart from any fire loss? Col . Judson. Well, apparently so. Is not that the way you figure it ? Mr. Douglas. No. You say, "Even if the company had not been required to pay a single fire loss" there would have been a diminution of surplus, and I put this question to you now, so as to dispose of it afterwards: If there had been no diminutior of the com- pany's fund by fire losses, would their surplus not have been $160,000 plus the two thousand seven hundred and odd dollars, instead of still further reducing it, but diminishing it, if there had been no fire loss ? Col. Judson. It appears that the surplus diminished about $157,000. You can not account for that by saying that the fire losses have caused it, because the fire losses were only $145,000. Mr. Douglas. Was there not $19,000 of unpaid fire losses, which would make $164,000 ? Col. Judson. I beg pardon ? Mr. Douglas. There was an unpaid fire loss of $19,000 added to the $145,000, was there not? Col. Judson. This does not go into that. That makes it all the worse for the company, does it not ? Mr. Douglas. That makes it all the worse for the company. Then you stand by that sentence, do you? I want to know whether or not you do, and I will read it again: In other words it appears that there would probably have been a diminution of the surplus over what one might have expected to find therein , even if the company had not been required to pay a single fire loss. Col. Judson. Yes; that looks to me so. There is a diminution of $177,000 and $145,000 was the fire loss. This I read to Mr. Carusi, and he had every opportunity to combat it. I did not understand he combated that statement. Mr. Douglas. Do you say he did not then offer to explain through his actuary every item on the books of the Commercial Fire Insurance Co., and begged you not to make so misleading a statement to the public as this ? Col. Judson. No; I do not remember anything of that kind. Mr. Douglas. And he did not do that in the presence of Judge Gould and the actuary ? Col. Judson. I do not remember that he did it. Mr. Douglas. Would you not know whether he did or not ? Col. Judson. I know Mr. Douglas (interposing). You say he did not? Col. Judson. I say I do not remember that he did. 148 INVESTIGATION OF INSUBANCE COMPANIES. Mr. Douglas. This is a very vital thing to these companies, and 1 imagine you would remember what took place. Col. Judson. I am searching my memory, but I do not remember that. Mr. Douglas. Let me ask in this connection whether these gen- tlemen did not entreat you to give them a private hearing there, so that the publicity incident to an investigation here would not bring down upon them the injury that would inevitably follow ? Col. Judson. My thought was Mr. Douglas. Answer my question, if you please. Col. Judson. My thought was that their being there at that time was the interview that was wanted. Mr. Douglas. Do you constitute the whole Board of Commissioners ? Col. Judson. No; and so far as I was concerned I had an open mind in the matter and was willing to learn. Mr. Douglas. You are not in charge of this department, except in so far as you put yourself in charge of it ? ( ol. Judson. I have one-third charge. Mr. Douglas. One-third charge ? Col. Judson. Yes. Mr. Douglas. I understood Gen. Johnston to say the insurance de- partment of the District was under the immediate Col. Judson (interposing). That is by our own arrangement. Mr. Douglas. That was the arrangement you had made ? Col. Judson. No; under the arrangement we had made Mr. Ku- dolph is a committee of one that attends to that matter immediately. Mr. Douglas. He had primary charge of the insurance department ? Col. Judson. In that sense. Mr. Douglas. Did Judge Gould and Mr. Carusi ask you for such a hearing and such an investigation by the board of commissioners as would enable you to get all the facts ? Col. Judson. I do not think they did. There was a letter from- Mr. Wynne that I saw. ' Mr. Douglas. You saw it; did you read it? Col. Judson. Oh, yes; I read it. Mr. Douglas. Did you answer it ? Col. Judson. I did not answer it. It was addressed to Mr. Ru- dolph. And I will say that there was another gentleman, whose name I can not recall at this minute, and whom I know to be a very fine man, believed to be, came to me and asked me, perhaps not in the interest of these insurance companies, but perhaps in the interest of business in Washington, to do the same thing. That is, he said things were very bad, and that statement showed it. Mr. Douglas. Who was the gentleman who did that? Col. Judson. I am trying to recall him. It was Mr. Nesbit. Mr. Douglas. He came to you and asked you to do that ? Col. Judson. And said it would be a pity to do anything in this case, to have any investigation, or anything; but rather to get the companies to change their boards of directors and their business managements and their promotion schemes, and everything, and run along; that they could do good business and be good companies. Mr. Douglas. Did you heed that advice or suggestion? Col. Judson. I considered it, but I rejected it. INVESTIGATION OF INSURANCE COMPANIES. 149 Mr. Douglas. Let us go on. I will ask you now, before moving on to the next subject, so that we will have no doubt about it, or no misunderstanding between us — did not Judge Gould and Mr. Carusi, one the vice president and the other the general counsel of both of these companies, request you to arrange so that this investigation could be thorough and could be had by and under the direction of the commissioners to whatever extent you might want to have it, but to avoid the publicity of it, so as to avoid unfair injury to them. Did not they ask you to bring that to the attention of the board, and to have it done if you could ? Col. Judson. I do not remember that they did; no. Mr. Douglas. Do you deny it ? Col. Judson. I deny I remember it. There was a conversation that lasted several hours, and whether that was proposed or not I do not remember. Mr. Douglas. That would be a very vital part of the conversation if it took place. Col. Judson. But that did not appeal to me as being anything that was up in the conversation. I do not remember it. Mr. Douglas. Was a letter of Gen. "Wynne, which was read to the committee on yesterday, dated December 7, read before the Board of Commissioners ? Col. Judson. It was not read before the board, but.Mr. Rudolph sent the original, or a copy of it. Mr. Douglas. Did the board take any action on that letter ? Col. Judson. The board never considered it in board session. Mr. Douglas. Did you ever consider it outside of board session with Gen. Johnston ? Col. Judson. No. I never gave any very serious consideration to it. Mr. Douglas. You gave no very serious consideration to it ? Col. Judson. I never considered it for any length of time as being a possible solution of this matter. Mr. Douglas. You had the power — that is, the Board of Com- missioners had the power — to look into this matter in any way it wanted, as thoroughly and as completely as they might want, did they not ? Col. Judson. We think so ; and we think that is what we have done. We have taken steps now, concurrently with the committee. Our insurance department is investigating. Mr. Douglas. With all the publicity that is inevitably attendant upon it; that is right, is it not 1 Col. Judson. Yes. Mr. Douglas. What you wanted, Col. Judson, was it not, what you really wanted, was publicity here ? Col. Judson. I believe that publicity is the remedy for a good many evils. Mr. Douglas. If you were the Comptroller of the Currency Col. Judson (interposing). In the sense that I wish publicity to injure any individual, no; because I have no acquaintance with any of these gentlemen except a very pleasant acquaintance with Judge Gould and one or two others. I have nothing against any indi- vidual whatever of these companies. 71391— No. 2—12 3 150 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. You will pardon me, but I have not asked you a thing about that. Col. Judson. I am volunteering it. Mr. Douglas. We will save time Col. Judsox. If there is no objection, I will continue to volunteer. Mr. Douglas. If you will answer my questions, we may save your time and perhaps save the time of the committee. I asked you this, if publicity was not the thing that Col. Judson was after? Col. Judsox. As I understand it Mr. Douglas. Can you answer that question "yes" or "no"? Col. Judsox. I would rather not answer it "yes" or "no," if you will permit me. I would say that, as I understand the insurance laws in the District of Columbia, the only remedy we have for con- ditions that are evil in some respects is publicity. The insurance commissioner's report is a public document. That is to say, the law apprehends that publicity will be secured for the operation of insurance companies by means of this report. I did not think that the publicity that was given to this report by your company was in the public interest, because I thought it would deceive the public. I thought the public, therefore, was entitled to have the facts placed before it. Mr. Douglas. You thought they had no right to publish the official report of your superintendent of insurance ? Col. Judsox. I criticized the report, too; you know. Mr. Douglas. I am asking if you thought it was not right to pub- lish the official report of the superintendent of insurance ? Col. Judson. I suppose they had that right. Mr. Douglas. Assuming there was no collusion and no corruption? Col. Judson. I think they had the right to do that. Mr. Douglas. You do ? Col. Judson. Oh, yes. Mr. Douglas. We are talking about publicity. Col. Judson. Yes. Mr. Douglas. You wrote out this explanation, or this speech of yours ? Col. Judson. Yes. Mr. Douglas. Beginning it, "in partial explanation" ? Col. Judson. Not a speech, no. Mr. Douglas. Let us call it an explanation. Col. Judson. Yes; a partial explanation. Mr. Douglas. You wrote it out? Col. Judson. Yes. Mr. Douglas. You wrote it out for the press, did you not ? Col. Judson. No. I wrote it out, primarily, because — although I apprehended that it might find its way into the press. Mr. Douglas. You apprehended it ? Col. Judson. I apprehended it. I wrote it out originally so that when Gen. Johnston returned he would have a very brief statement of why these motions had been made by me. Mr. Douglas. In other words, you would explain it to Gen. Johnston ? Col. Judson. I also read it to Mr. Rudolph as an argument for his joining me in this matter. Later I made a motion that, with a few INVESTIGATION OF INSUKANCE COMPANIES. 151 minor changes of expression in it, was adopted by board action and filed with the secretary of the board. Mr. Douglas. You apprehended it might get to the press ? Col. Judson. Yes; I apprehended it might get to the press. Mr. Douglas. Did you apprehend then you would ask the press to publish it ? Col. Judson. I do not think so. Mr. Douglas. Will you answer that question "yes" or "no" ? Col. Judson. I do not remember whether I apprehended I would ask them to publish it or not. Mr. Douglas. Did you ask the press to publish it ? Col. Judson. I do not think I ever asked them. Mr. Douglas. You do not think? How many times are you going to say you "do not think" ? Col. Judson.- Whenever that is a proper answer. Mr. Douglas. Do you not know whether you did or not ? Col. Judson. I can recall asking no member of the press to publish it, although I apprehended that they would when it got into the sec- retary's office . Mr. Douglas. Did you not take this statement yourself, with some others about which I will interrogate you later, to the Star and ask them to publish it ? Col. Judson. Oh, no. Mr. Douglas. Did not you give it to a reporter of the Star and ask him to have it published ? Col. Judson. WeH, now, I do not think I asked anybody to publish it. No, I do not think I asked anybody to publish it. Mr. Douglas. You do not think so ? Col. Judson. No. Mr. Douglas. And as intelligent a man as you are with this thing being so important, you can not remember whether you did or not ? Col. Judson. I say, I do not think I did. Mr. Douglas. You do not think you did ? Col. Judson. Of course, I can not remember I did when I do not think I did. Mr. Douglas. Did you not have three or four carbon copies of this motion made? Col. Judson. Yes. Mr. Douglas. At the time it was put upon the file Col. Judson. Yes. Mr. Douglas. For the purposes of the press ? Col. Judson. That is what I apprehended, that it would find its way into the press and be published. Mr. Douglas. And you thought it was proper to apprehend it would be published ? Col. Judson. Yes. Mr. Douglas. You think it was proper for you to furnish copies of it to the press ? Col. Judson. No; I thought it was proper that the board should give out this to anyone that came. It was a matter of public informa- tion that the public should have, and my purpose was in making the motion that it be given to the secretary of the board and that he should give it to afl comers, so to speak. My thought was that it would get publicity. 152 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. The newspapers, all of them, refused to publish it, did they not ? Col. Judson. They did not publish it. Well, one of them did. I think the Post published the most of it. Mr. Douglas. Give me the date of the paper. Col. Judson. I could not give it. Mr. Douglas. Approximately the date. Col. Judson. I do not know that I could approximate it. Mr. Douglas. Come within a week of it, if you please. Col. Judson. I only know it was published about a week or 10 days ago. Mr. Douglas. Col. Judson, do you not know that not one word of this was published- Col. Judson. Oh, no. Mr. Douglas. By any of the press except and until after you had brought it_to the attention of Congress, and had a bill introduced for that purpose ? Col. Judson. It might have been after that. I do not remember about that. That might have been. Mr. Douglas. As a matter of fact, is it not true, Col. Judson, that when you failed to get these charges of yours, which we hope to be able to show are utterly unfounded — when you failed to get these charges published in the newspapers, that you then resorted to the Elan of having Congress take it up, because you then knew it would e a case of enforced publicity ? Col. Judson. The fact that the operations of this company Mr. Douglas (interposing) . Pardon me. I want an answer to my question. Mr. Stenographer, will you please read it? You can answer this question any way you want, and then explain it. The last preceding question was repeated by the stenographer as above recorded. Col. Judson. That is not absolutely correct. Of course, I appre- hended that it would be a matter of publicity. Mr. Douglas. You wanted it, did you not? Col. Judson. I thought it ought to be. I was very glad it came out in the resolution on the floor, and now in this committee. I am very glad of it, yes. Mr. Douglas. Who wrote the resolution? Col. Judson. The resolution for the investigation? Mr. Douglas. Yes, sir. Col. Judson. I am sure I do not know. Mr. Douglas. Is that the only thing you have not done in this whole proceeding, to write the resolution? Do you know who did write it? Col. Judson. Oh, no; I do not know who wrote it. Mr. Douglas. Who wrote the letter that Gen. Johnston sent to the chairman of the committee; who dictated that letter ? He said he found it on his desk; how it got there, he did not know. I ask you if you wrote it; if you dictated it? Col. Judson. I certainly am responsible for that letter. Mr. Douglas. Did you dictate that letter, Colonel ? Col. Judson. I dictated it, for the most part. INVESTIGATION OF INSUEANCE COMPANIES. 153 Mr. Douglas. For the most part? Col. Judson. Yes. Mr. Douglas. What part of it did you not dictate ? Col. Judson. I had sought the advice of Mr. Redfield, or he had volunteered it. I do not know which, because there was an inter- mediary, perhaps. He had come to my office and looked into this matter. It was his opinion that it should be referred to a committee of Congress, and I dictated this resolution, and I think he interpo- lated and dictated a few words. Mr. Douglas. You mean the resolution ? Col. Judson. The resolution. Mr. Douglas. And the letter, too? Col. Judson. And perhaps the letter. Mr. Douglas. You said, a while ago, you did not know anything about the resolution. Mr. Redfield. Excuse me. I think there is a misunderstanding between these gentlemen. > hat the colonel is testifying to has nothing to do with the resolution. Col. Judson. Not the resolution adopted by Congress. Mr. Douglas. You mean the resolution by the board ? Col. Judson. No; I mean the letter that sent the matter up here. Mr. Douglas. You used the term "resolution." Col. Judson. I was thinking there was a resolution, or a motion in the board, for the commissioners to send it up. Mr. Douglas. This letter dated December 13 — you dictated every word of it, did you not? Col. Judson. No; I do not think I did dictate every word of it. Mr. Douglas. Point out what you did not dictate in that letter. Col. Judson. I should make a guess that I dictated down to about the last two or three lines [indicating]. Mr. Douglas. The last two or three lines. Col. Judson. And Mr. Redfield suggested something, and the stenographer took it down, and I adopted it as my own. Mr. Douglas. Who took down those last lines? Col. Judson. My stenographer. Mr. Douglas. The last two or three lines are — That the further action then contemplated should be made under the direction ot either the House or Senate committee of Congress. Is that the part you did not dictate ? Col. Judson. I think that is the part. Mr. Douglas. Who dictated that? Col. Judson. I say Mr. Redfield. Mr. Douglas. Mr. Redfield did that? Col. Judson. Yes. Mr. Douglas. And you adopted it as your own ? Col. Judson. Yes. Mr. Douglas. And then you put that letteron Gen. Johnston's desk? Col. Judson. No; I did not put it there. Mr. Douglas. You caused it to be placed there ? Col. Judson. Let me see; maybe I can recollect whether he came in or not. ■ Mr. Douglas. General Johnston testified yesterday he found it on his desk. 154 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. My recollection of it is — and the facts are easily ascertainable — that I telephoned over for Mr. Rudolph and Gen. Johnston to come over to my room if they would kindly, and placed this before them, and that Mr. Rudolph did not agree to it, but that Gen. Johnston did. That is my recollection. Mr. Douglas. As a matter of fact, before going on that, you dictated this letter, or you adopted this letter; then Gen. Johnston signed it. I will ask you if you meant by this letter to convey the idea to Mr. Johnson, chairman of this committee, that Mr. Carusi, the general counsel of the fire insurance companies, had requested congressional investigation into the affairs of this company? Did you intend to convey that idea by the quotation you have here ? Col. Judson. Let me see it. Mr. George. Before he answers, I would like to have that question repeated. Mr. Douglas. Repeat the question, Mr. Stenographer. The pending question, as above recorded, was repeated by the stenographer. Mr. Douglas. By the quotation at the end of the letter, I mean. Col. Judson. If you wdl observe, this letter merely sends up to the committee certain information. It does not request them to take any further action, except in the following words: "That the further action then contemplated" — by Mr. Carusi apparently — "should be made under the direction of either the House or Senate committee of Congress." It does not say what action. Mr. Douglas. But Mr. Carusi had said nothing about any further action being contemplated at all. You used those words and applied his quotation to them, did you not ? Col. Judson. I think that is very vague. We sent this matter to the congressional committee for it to do what it liked with it. Mr. Douglas. Why did you use at the end of that letter a quota- tion from Mr. Carusi's letter entirely separate and divorced from the subject matter of the letter itself ? Col. Judson. It was not divorced from the subject matter at all. That was a very fair reference to that letter. Mr. Douglas. Was not Mr. Carusi's letter, from which you took that quotation, confined Col. Judson. It was sent up too. Mr. Douglas. Will you let me finish the question ? Was not his letter confined to the subject of the appraisement of the Southern Building ? Col. Judson. Yes; and we transmitted the letter up, so it was equally evident just what that letter was. Mr. Douglas. They asked no congressional investigation of this matter, did they ? Col. Judson. Then it was equally apparent to the committee what they did ask, because we sent the letter. Mr. Douglas. I ask the question if they ever requested of you any congressional investigation, Dy letter or otherwise ? Col. Judson. No; they requested a congressional appraisement of that building, and I can not see that there is much difference between the two, because they are so inseparable that one involves the other. INVESTIGATION OF INSURANCE COMPANIES. 155 Mr. Douglas. We will see about that. I want to ask one other question about this matter. You transmitted to Mr. Johnson, the chairman of this committee, certain correspondence between the commissioners and the insurance companies, did you not ? Col. Judson. Yes. Mr. Douglas. Will you tell me why you left out of the letter you transmitted — why you suppressed the letter of Gen. Wynne on that subject? Col. Judson. It was a matter of no importance, I think, whether that was sent up or not. Mr. Douglas. A matter of no importance? Col. Judson. Those two were put in as specimens of the corre- spondence that we had with them, and we did not care to burden the record with all the correspondence. Mr. Douglas. You do not think a series of complaints and charges made by Gen. Wynne in detail, and the particular one that was in his letter of December 7, in which he asked that you make an investi- gation free from publicity by the District Commissioners, was suffi- ciently important to be transmitted to Mr. Johnson, the chairman of this committee? Col. Judson. Not as long as we rejected that suggestion. Mr. Douglas. This statement that you handed out and from which I have just read refers exclusively to the Commercial Fire Insurance Co., does it not ? Col. Judson. I handed out ? You mean in the sense of adopting it ? Mr. Douglas. To the press" and to the public. Col. Judson. I did not say I handed it out to the press, but it became a public document in the hands of the secretary, and it was very reasonable to apprehend the press would get it. Mr. Douglas. I do not think, Colonel, you and I need split words when you said you had four copies of this made for the press. Col. Judson. Yes; I had them made with the idea they would be used by the press. Mr. Douglas. And you handed it out to the press ? Do not let us waste words on that. Col. Judson. I do not think I handed it out. Mr. Douglas. Let us say you did not hand it out. Does this statement refer to the Commercial Fire Insurance Co. alone or to the First National and also to the Commercial ? Col. Judson. There is only one reference there to the First Na- tional, I think, and that is Mr. Douglas (interposing) . At the end of it ? Col. Judson. At the end of it there, yes, which refers to the First National as being in partnership with the Commercial. Mr. Douglas. You knew nothing wrong about the First National did you ? Col. Judson. I know nothing wrong about the First National now. Mr. Douglas. Nothing now? Col. Judson. Nothing now. I have not looked into its business in any way. Mr. Douglas. Do you not know that the First National is in first- class condition both as to capital stock and its surplus ? Col. Judson. I really know nothing about it. 156 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. It does not interest you at all ? Col. Judson. It might, but I have not had time to look into it. Mr. Douglas. Will you tell this committee why you not only assented to but invited and insisted that the New York insurance department should come here and examine the First National Fire Insurance Co ? Col. Judson. That is rather a long story. Mr. Douglas. Make it as short as you can, but give it to us. Col. Judson. My understanding of this whole situation is this, that these gentlemen came down here from Syracuse, N. Y., where they had been operating in selling stock in a protective holding corpora- tion, or protective fire insurance company; that reports of the State of New York had been such — and I have heard the activities of the post office had been such that they had come down here Mr. Douglas (interposing). Will you pardon me one moment if I interrupt? Have I asked anything about the protective association? Col. Judson. No; but you asked a question, and this is all involved in it. Mr. Douglas. One moment. Will the stenographer please turn and read m3 T question, because I think I have a right to an answer that is responsive. The stenographer then read the pending question, as follows: Will you tell this committee why you not only assented to but invited and in- sisted that the New York insurance department should come here and examine, the First National Fire Insurance Co.? > Mr. Douglas. I am asking you about the First National. Col. Judson. I do not think that was my motion. It was to examine one or both — the First National and the Commercial Co. They are both being exploited by the same men. The stock is being sold by the same men. The Commercial is the one which has been long in operation. The First National is one which has hardly begun to operate. In my judgment, what happens to a company under the guidance of these gentlemen can best be ascertained by studying what happens to the Commercial, because it has been in operation and the other one has not. I do not think it is as signifi- cant, therefore, to study the First National as to study the Commer- cial. Mr. Douglas. Let us hold ourselves down to one thing at a time. Do you say now you did not make a motion to examine both of these companies ? Col. Judson. I think I said "one or both." Mr. Douglas. Do you? Let me read and refresh your memory: Understanding that the insurance department of the State of New York has' re- quested cooperation or consent of the insurance department of the District of Colum- bia necessary to examine into the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, one or both^^r Col. Judson. That is correct. i Mr. Douglas (continuing) : I move that the insurance department of the State of New York be advised that such consent is granted, and that such cooperation as it is practicable for the insur- ance department of the District of Columbia to render will be freely accorded in the making of such examination as it may desire, etc. INVESTIGATION OF INSUKANCE COMPANIES. 157 That motion included the examination of both of them, did it not ? Col. Judson. No; it says "one or both." It speaks for itself. I is very plain. It says "one or both." Mr. Douglas. Did you have any right or any authority, legally or morally, to invite or consent to an examination of the Commercial Fire Insurance Co. by the superintendent of insurance of the State of New York ? Col. Judson. I think so. Mr. Douglas. What ? Give us chapter and verse for your author- ity, legal or moral, for doing it. Col. Judson. The commissioners are the superiors of thg,. commis- sioner of insurance. He operates under their general direction. It is a matter of comity between the insurance departments of different jurisdictions that when the insurance department of one jurisdiction wishes to inspect a company in another jurisdiction, that the authori- ties of that jurisdiction are given such assistance as is necessary in enabling them to make an examination. That is my understandiug. Mr. Douglas. That is only where the insurance company of your home jurisdiction — let us say the District of Columbia — makes appli- cation to be allowed to do business in the State that seeks to make the examination; is not that right? Col. Judson. Presumably so. Mr. Douglas. "Presumably." rhy should you use the word "presumably" ? Do you not know that? Col. Judson. Because I can not conceive that the State insurance department would have the habit of investigating companies not applicants to come into the State, so that case would never arise. Mr. Douglas. v\"e will see whether it has arisen or not. I ask you now to tell this committee whether or not the Commercial Fire In- surance Co. had made any application to the superintendent of in- surance of New York for a license to do business in that State. Col. Judson. I could not answer that question except in this way, to say that there was a letter introduced in evidence yesterday from the superintendent of insurance of the State of New York to Mr. Ingham, sending 50 interrogatories with reference to the Commercial Fire Insurance Co. Mr. Douglas. I beg you pardon; will you find it and point it out? You are dealing with the good name of these companies, and you put on your lips the name of the Commercial Fire Insurance Co. just now, when every one of these questions was directed, and you must know it, to the First National alone. Col. Judson. I would like to refresh my mind. Mr. Douglas. I think it would be better for you to refresh your memory before you make a statement like that in public. Col. Judson. I will withdraw it very cheerfully if I am wrong; if it is the First National. I am not sure which company is mentioned. I had had in mind that it was the other, but I find that I am wrong, and that this relates to the First National. Mr. Douglas. Look at the interrogatories and see whether or not they are not confined to the First National. Col. Judson. That is correct. It appears "First National." Mr. Douglas. These interrogatories were answered and trans- mitted ? 158 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. So far as I know; the only evidence I have that the Commercial Fire Insurance Co. was going to apply for admission to the State of New York, or had the matter under consideration, or that it was up there — I did not see any application for either of them to do business there. I was relying on the statement of Mr. Curry, that this statement as to the Commercial Fire Insurance Co. was prepared hastily, with a view to its being taken to New York on a night train. Mr. Douglas. Again you are in error and mixing things. Was not that the statement of the First National instead of the Commercial? Col. Judsox. I did not so understand it, because the paper we had before us when we were talking was a statement with reference to the Commercial. Mr. Douglas. You just assumed that the Commercial was involved, and you assumed that the Commercial was going to applv for admis- sion to New York, and upon that assumption you not only assented, but you invited and insisted that the New York department should come down here and examine both of these companies. Col. Judsox. No; I did not. Read that motion. That is a motion. Mr. Douglas. I have read it. Col. Judson. What does it say — one or both? Mr. Douglas. Listen to this one. Here is your own, signed by "Lieutenant Colonel of Engineers, Col. Judson," December 9: Unless, in pursuance of my motion of December 6, 1912, the insurance department of New York be invited to examine into the books and accounts of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. of the United States, and unless that department accepts this invitation, I am constrained to move that the commissioners declare the office of superintendent of insurance of the District of Columbia vacant and proceed to seek and appoint to that office the best man that can be found to accept the position. Did you not want to discharge Mr. Ingham because he would not join you in an invitation to the superintendent of insurance of the State of New York to examine both the Commercial Fire Insurance Co. and the First National Fire Insurance Co. ? Col. Judson. That is a question of internal administration. Mr. Douglas. That is a question of reading the English language, if you please. Interpret that any other way if you can. Col. Judson. I am not trying to interpret that. I am talking about it from a public point of view. My theory of it was that Mr. Ingham's report on the Commercial Fire Insurance Co. had demonstrated that he was not just the man to have at the head of the department, in an emergency which I con- ceived to exist. I was willing to have him stay on. I did not think the public interests would suffer if the State of New York, which I understand has a very competent insurance department, had a man down here at the time going over these companies in conjunction with Mr. Ingham. Mr. Douglas. I have asked you many times, and I will ask you only one time more, if you had any right either to invite or to accept or to grant a request from the fire insurance department of New York to examine the Commercial Fire Insurance Co. ? Did you have any right to do that ? Col. Judson. I conceive we had a right to cooperate with them. Mr. Douglas. Did you have a right to grant your consent to examine the books of the Commercial Fire Insurance Co. without the INVESTIGATION OP INSUKANCE COMPANIES. 159 consent of the Commercial Fire Insurance Co. when it was not an applicant for doing business in the State of New York ? Col. Judson. I can not answer that question. I do not know. That is a legal question. Mr. Douglas. You do not know ? Col. Judson. No. Mr. Douglas. But you do know, as a sensible man, that the State of New York would have no right to delve into the affairs of the Commercial Fire Insurance Co., a local concern here, when it was not knocking at its door for admission to do business at all ? Do you not know that as a business man, a sensible man ? Col. Judson. I knew the State of New York would not waste any money sending men down here to examine a company Mr. Douglas (interposing). "Waste any money? Do you not know yourself that those examinations are made at the expense of the fire insurance companies and cost from three to four thousand dollars every time made ? Col. Judson. Yes; I imagine they could not. Mr. Douglas. You imagine what % Col. Judson. I imagine they could not send a man down here to investigate the company if they were not applicants. Mr. Douglas. You do admit that you didT nevertheless insist that they come down and were very much disappointed that they did not come? Col. Judson. Did I insist ? Where -did I say I insisted ? Mr. Douglas. You said so yesterday. I do not know whether it is so or'not. Col. Judson. I insisted that Mr. Ingham should be let out. Mr. Douglas. You said yesterday in the presence of every member of this committee that you, through Mr. Eedfield, or some one sent word to know whether or not they were going to come, and were very much disappointed that they did not come. Col. Judson. That was in response to a resolution that asked them to come down to examine one or both. Mr. Douglas. That is, giving permission to examine both ? Col. Judson. So far as we were concerned we did give them consent to examine both. Mr. Douglas. And you are trying. to grasp Col. Judson (interposing). My proposition was that we ask them to come down and examine one or both. Mr. Douglas. And when you gave your consent to examine one or both, you admit here to this committee that you transgressed your authority, do you not ? Col. Judson. No; I do not admit that. Mr. Douglas. Do you deny it ? Col. Judson. Sure. I do not know whether we transgressed our authority or not. I do not think so. Mr. Douglas. We will not go further into that phase of it. You said yesterday, and you repeated it with some emphasis this morning, something which, if true, would cast some aspersions and would some- what besmirch these companies, or the First National, when you re- ferred to three or four bags of mail being seized by the Post Office Department. 160 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. I did not express it in that way. I think I said that Mr. Ingham told me that with reference to this matter the Post Office Department had several bags of stuff. I do not know what he meant, whether it was evidence they had collected or not. Mr. Douglas. You thought, in narrating that conversation, it bore upon this investigation, did you not ? Col. Judson. I was repeating what Mr. Ingham had said. Mr. Douglas. What Mr. Ingham had said ? Col. Judson. Yes, I was repeating what Mr. Ingham had said. Mr. Douglas. You repeated things you thought this committee ought to know ? Col. Judson. Yes. Mr. Douglas. Did you know then and do you not know now that the bags of mail seized did not belong either to the First National or the Commercial Fire Insurance Co., but belonged to the National As- surance Co., of which Mr. Ellis is counsel? Col. Judson. No. Mr. Douglas. Did not Mr. Ingham tell you that ? Col. Judson. I do not remember that he did, because we were talk- ing about these two companies, especially the Commercial Co. Mr. Douglas. Have you any positive memory on the subject — any positive recollection on the subject? Col. Judson. I have no recollection at all that he said they be- longed to any other company than that under consideration. Mr. Douglas. Let me ask you this — and if you do not know, I will have you make some drafts upon your own knowledge: Did you not know that Wade II. Ellis, the man you referred to yesterday, is not and never has been counsel for the First National or Commercial Fire Insurance Co., but is counsel for an assurance company in the process of being organized, called the National Assurance Company? Col. Judson. I have since learned that. Mr. Douglas. Did you know it yesterday ? Col. Judson. Yes; and I have since come to think that Mr. Ingham was not very frank in his conversation with me, and that in order to show how hostile he was to these gentlemen when they came down here he had really spoken of what had occurred in connection with some other company as if it had occurred in connection with these. Mr. 'Douglas. You knew that before yesterday, did you not? Col. Judson. I have suspected it, perhaps, since yesterday in thinking over my testimony. Mr. Douglas. Did you know it before yesterday ? Col. Judson. Did I know what ? I do not know it now. I merely suspect it. Mr. Douglas. Did you suspect it before yesterday ? Col. Judson. I do not know that I did, because I have not had occasion to recite before what Mr. Ingham told me; but when I recited it yesterday and recalled what he had told me, and in thinking about it afterwards in the light of further knowledge which I had, I thought that he was not very frank. Mr. Douglas. And yet you handed that data to this commitibee without explanation ? Col. Judson. When I handed it . ? Mr. Douglas (interrupting). Pardon me a moment. When yoti handed that data to this committee without explanation yesterday, INVESTIGATION OF INSUBANCE COMPANIES. 161 for the purpose of leaving them under the impression that the seizure of this mail by the Post Office Department was part of the mail of the First National Fire Insurance Co. ? Col. Judson. No; when I handed it to the committee yesterday I was speaking of the thing from an entirely different standpoint, merely what Mr. Ingham told me ; what was my recollection of what he told me. He, also, is under investigation, and I was not thinking of any ulterior consequences to anybody, but trying to recall what Mr. Ingham had said. Mr. Douglas. Now, Mr. Judson, I have only a few more ques- tions Col. Judson. I will say this, that I think now there is a possibility that Mr. Ingham was referring to some other company, and I misun- derstood him. However, I do not think that is so; I think there is always a possibility of misunderstandings It never occurred to me until this moment that we might have been talking at cross-purposes. Mr. Douglas. Do you remember the evening you had these copies made of this statement of yours for the press ? Col. Judson. I beg your pardon. Mr. Douglas. Do you remember what date of the month it was you had these four copies made for the press ? Col. Judson. I never had them made for the press. Mr. Douglas. Whom did you have them made for ? Col. Judson. What do you mean? Do you mean the copies that were given to the secretary of the board for such use as anyone wished to make of them, if they came and got them ? Mr. Douglas. Why would you use such a general expression as that? Don't you know that in the use of vague language like that you mean the four copies for the four daily papers of Washington. Col. Judson. I rather expected they would get them. Mr. Douglas. You rather expected they would get them. Col. Judson. Yes; I rather expected they would. I thought' it a matter of great public interest, and I thought they would get them and publish them. Yes; I apprehended that. Mr. Douglas. Did Mr. Steilwagen agree with you that they should be published ? Col. Judson. I do not recall that he did. Mr. Douglas. Do you deny it ? Col. Judson. Well, I do not deny it, but I do not recall it. Mr. Douglas. Is this another case of where you do not think so, or are you not positive about that ? Col. Judson. Well, I have had a good many conversations with Mr. Steilwagen, and I do not recall. You want the facts, don't you ? I do not recall that he advised its publication; no. Mr. Douglas. Let me see if I can recall the particular occasion to you. On the afternoon of the 12th or 13th, approximately that date, do you remember that Mr. Steilwagen was in your office about the time the afternoon papers were due to be out, and waited with you to see the afternoon papers with the expose in it, and that you and Steilwagen took the papers and spread them out on the table, looking for this exposure of this proposition ? Col. Judson. I do not remember that. It might have occurred. Mr. Douglas. You would remember it if it had occurred ? You do not deny it ? 162 INVESTIGATION OF IXSUKANCE COMPANIES. Col. Judson. Xo; I would not necessarily remember that he was there at the time the afternoon papers came out. Mr. Douglas. Do you say again you do not think so, or do you know it did not happen ? Col. Judson. I have no recollection of it. Mr. Douglas. You have no recollection of it? Col. Judsox. No; it might have occurred, and it might not. Mr. Douglas. Let me ask you another question, then. Do you remember about the time this matter came out through this congres- sional investigation and was published in the newspapers, that the people of Washington were waiting for the appointment of the chair- man of the inaugural committee ? Mr. George. Excuse me — of what ? Mr. Douglas. Of the inaugural committee. Col. Judsox. Yes. Mr. Douglas. Would you mind telling us whether or not you were opposed to the appointment of Eldridge E. Jordan, president of the United States Trust Co., and Robert N. Harper, president of the District National Bank? Col. Judson. I Mr. Douglas. You can answer that question yes or no, or refuse, if you please. Col. Judsox. I know I can. I can also answer you otherwise, per- haps, if you will permit me. It is a matter I have not the slightest interest in whatever, who is chairman of the inaugural committee, whether Mr. Harper or Mr. Jordan or anybody else. Mr. Douglas. I notice you used the words "I have not." Did you have before the appointment ? Col. Judson. No; I never really cared anything' about who was chairman of the inaugural committee, in the least. Mr. Douglas. Did you ever express any preference for that posi- tion? Col. Judson. I am sure I never expressed a preference for anybody whatever. Mr. Douglas. You have expressed a very decided opposition to Mr. Eldridge E. Jordan for this position, have you not ? Col. Judson. Not as originating with me; no. Mr. Douglas. You mean as borrowed from some one else? Col. Judson. As borrowed from some one else; I transmitted Mr. Douglas (interposing). Was that borrowed from Mr. Stell- wagen, too ? Col. Judson. I transmitted the objection of some one else to a third party. Mr. Douglas. Mr. Stellwagen? Col. Judson. Being fully indifferent myself as to what happened. Mr. Douglas. I say Mr. Stellwagen ? Col. Judson. Yes. Mr. Douglas. You were opposed to Mr. Harper, too, were you not? Col. Judson. No ; I had no care whatever whether Mr. Harper was appointed or not. Mr. Douglas. Did you not think at the time you prepared this copy of these papers that you say were for the press — that had happened just before the appointment of the chairman of the inaugural com- mittee, had it not ? INVESTIGATION OF INSUKANCE COMPANIES. 163 Col. Judson. I had no- Mr. Douglas. Answer my question. Did it not happen just before the appointment of the chairman of the inaugural committee? Col. Judson. Oh, some little time before. Mr. Douglas. A few days? Col. Judson. Yes. Mr. Douglas. Did you not believe at that time, and did you not state to half a dozen people, that Mr. Jordan was one of the directors of these insurance companies ? Col. Judson. I say I transmitted that information to one or two other gentlemen. Mr. Douglas. What information ? Col. Judson. That came to me, that he was a director, or had been, in one of these companies. Mr. Douglas. And was not the publication of this matter sprung- Col. Judson (interposing) . It had nothing whatever to do with it. Mr. Douglas. Pardon me; and timed so that it would have the effect Col. Judson (interposing) . Absolutely not. Mr. Douglas. That you wanted it to have ? Col. Judson. Not so far as I am concerned. Now, I can not answer for others, but I sprung it as fast as I could when I ascertained the facts, without relation to anyone, and if you or anyone else had been one of the directors, or Mr. Jordan had not been and Mr. Harper had not been, or if Mr. Stellwagen had been, I would have taken the same action. Mr. Douglas. You stated to a number of people that Jordan was one of the directors of this company that you thought was conducting an illegal and improper business; you stated that to several people, did you not ? Col. Judson. I probably stated to several people he had been a director. Mr. Douglas. And you ascertained that there was not any author- ity in that statement at all? Col. Judson. No; he had been a director. Mr. Douglas. Not since July, 1912, had he ? Col. Judson. Not since July, 1912. Mr. Douglas. And therefore, when the expos^ came about or when the publication came out, it was found that Jordan had not been con- nected with either institution in six months. Col. Judson. Well, I knew that at the time. Mr. Douglas. Why did you state it to other people, then ? Col. Judson. Because, when I was talking to them, as a matter of gossip, but of no personal interest to me, I did not know when he had severed his connection. Mr. Douglas. So you handed that around about Mr. Jordan being on the board of directors ? Col. Judson. I handed that around only on request. Mr. Douglas. On the request of Mr. Stellwagen; is that right? Col. Judson. Originally. Mr. Douglas. Anybody else after that ? Col. Judson. The gentleman to whom Mr. Stellwagen Mr. Douglas (interposing) . Who ? 164 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. Mr. Burleson. Mr. Douglas. Who ? Col. Judson. Mr. Burleson, of Texas. I do not remember even whether I told Mr. Burleson of Mr. Stellwagen's request, or whether Mr. Stellwagen told Mr. Burleson in my presence, but it was in my presence that he told Mr. Burleson this, and I think Mr. Burleson took very little interest in it, except to transmit the information, and say he had this information but he had no personal interest in it whatever. Mr. Burleson did not care who was chairman. I have heard him say so many times, but I believe he did just repeat what Mr. Stellwagen had told him, because he thought that ought to be told. Mr. Douglas. I have nothing further to ask the witness. Col. Judson. I would say that Mr. Jordan is personally a friend of mine, and I have no desire to injure him. Mr. Douglas. You say you are a personal friend of Mr. Jordan ? Col. Judson. I know him; yes. Mr. Douglas. I ask you if you are a personal friend of Mr. Jordan? Col. Judson. I know him; yes. Mr. Douglas. I ask you if you are a personal friend of Mr. Jordan? Col. Judson. I know him quite well. Mr. Douglas. That is not an answer to my question. Col. Judson. I should say yes. I do not mean a bosom friend, you understand; certainly an acquaintance. Mr, Douglas. You do not mean a true friend ? Col. Judson. What? Mr. Douglas. You do not mean you are a true friend? Col. Judson. 1 do not care to go into an essay on friendship. Mr. Redfield. Col. Judson, wdl you introduce that into the testis mony at this point and read it [handing letter to the witness] ? Col. Judson. I was telephoned, if I may tell this in my own way, to by Mr. Redfield soon after we had sent up to the committee these papers we did send, and he said it was rumored that my activity in this matter was in the interest of Mr. Jordan, presumably because Mr. Harper, a candidate — he did not say this, but that is what I thought — because Mr. Harper was a director in this company, and Mr. Jordan was not, although he had been; that my activity might result from a desire to serve Mr. Jordan, and that he had also heard that I had been to New York recently, within a week or two, in an endeavor to get Mr. Jordan appointed to this position. I told him that I had not been to New York for six months, so far as I could remember, that I was taking no personal part in anything of that kind, and I did not care who was appointed chairman of the inaugural committee. I may say that I heard later, as I heard this morning, that my activity was due to a desire to injure Mr. Jordan. That would seem to leave it to you to take your choice, whether it was to injure him or to benefit him. It was not f&r either purpose, but on account of Mr. Redfield's telephone -message, I wrote this letter to the chairman of the District Committee. [Reading:] Dear Sir: In connection with the papers which were sent you this morning in the matter of the Commercial Fire Insurance Co., I have to assure you that there is not the remotest connection between the commissioners' anxiety to have any thing wrong in relation to insurance matters in the District corrected, and the personal interest of any individual whatsoever in any position of trust of prominence. The sole purpose INVESTIGATION OF INSUKANCE COMPANIES. 165 of the Board of Commissioners in laying this matter before you is to have thorough inquiry made into certain business procedure which seems to justify examination. Yours, very respectfully, W. V. JUDSON, Lieutenant Colonel of Engineers, United States Army, Engineer Commissioner, District of Columbia. Mr. Easby-Smith. What is the date of that letter? Col. Judson. December 13. Mr. Easbt-Smith. December 13 ? Col. Judson. Yes. Mr. Redfield. Col. Judson, do you recall calling upon me at my apartments in the Highlands on Monday, December 9? And if so, state fully what occurred. Col. Judson. That was the first visit that I paid, was it not, Mr. Redfield, for I was there for a short time a few days later ? Mr. Redfield. The only visit that you made of your own motion. Col. Judson. Yes; the only visit of my own motion. I asked Mr. Redfield if he would not write to the superintendent of insurance of the State of New York requesting him to accept promptly any invita- tion he might have from us, from the commissioners, to send a man to examine into the Commercial Fire Insurance Co., or the First National Fire Insurance Co. of the United States, one or both. I explained to Mr. Redfield very briefly, and I can hardly remember now how completely, the situation in regard to these companies, as I understood it to be. Mr. Redfield said he would write the letter, and I telephoned him the next day, or met him casually at the Capitol, when I was up there in the Senate Chamber, and I asked him if he had written the letter, and he said he had. Mr. Redfield. Do you recall Mr. Easbt-Smith. Is December 5 the date you are referring to? Mr. Redfield. December 9. Do you recall my sending for you to come to my apartments on the morning of Thursday, December 12; and did you do so ? Col. Judson. I think that was the morning I called at your apart- ments the second time. Mr. Redfield. On that occasion did you accompany me to your office? Col. Judson. I did. Mr. Redfield. And did we there, at my suggestion, ask Judson C. Welliver, of the Times, to come ? Col. Judson. I think he was out in the outer office, and you sug- gested that he come on in. Mr. Redfield. And I suggested also that Mr. Stellwagen be sent for. Col. Judson. Yes. Mr. Redfield. And he came ? Col. Judson. He came. Mr. Redfield. Did he remain long ? Col. Judson. Well, I do not think he remained very long; no. I can not remember how long it was. Mr. Redfield. Not as long as the others ? Col. Judson. No; I think not. Mr. Redfield. Did I tell you on that occasion that on the previous evening I had met a gentleman connected with the Star on my way 71391— No. 2—12 4 166 INVESTIGATION* OF INSURANCE COMPANIES. home, who had told me that some of the statement which has been put in evidence here had been set up in type in the Star office, and that after it was set up in type Mr. Carusi had gone to the office of the Star and had threatened them with an immediate libel suit if they printed any part of it ? Col. Judsox. I think vou told me. that then or later. Mr. Redfield. And did I tell you at that time, that, for that rea- son, and because the Star had had some expense in similar matters recently, they had withheld publication? Col. Judson. Yes, sir. Mr. Redfield. And did I say to you that I had then understood that the same action and the same threat had been made by Mr. Carusi to every one of the four newspapers in Washington? Col. Judson. Yes, sir. Mr. Redfield. And do you recall as a fact that Judson C. Wel- liver then and there confirmed the statement that the same threat had been made Col. Judson (interposing). Yes. Mr. Redfield. In his absence in his office ? Col. Judson. Yes. Mr. Redfield. And the publication was suspended in his office because of the threat ? Col. Judson. That is my recollection. Mr. Redfield. Do you remember my saying to you something to this effect, that not only was a libel suit threatened in case this matter was published by any of the papers in Washington, but that while Mr. Carusi recognized that language used upon the floor of the House was inviolate he did threaten that if, in printing what took place upon the floor of the House the papers varied from it in any way which could be interpreted to be libelous he would in such case also bring a libel suit against these papers ? Col. Judson. Yes. Mr. Redfield. Do you remember my coming back to call upon you late that same afternoon at your office ? Col. Judson. Yes, sir. Mr. Redfield. Did I not tell you then and there that I had heard that you were a strong advocate of the choice of Mr. Jordan for chair- man of the inaugural committee? Col. Judson. Yes sir. Mr. Redfield. That I had been informed that you had visited New York in his behalf ? Col. Judson. Yes, sir. Mr. Redfield. Did I or did I not say to you that the committee would require, or, in my judgment, they ought to have the most em- phatic assurance from you that in no way, shape, or manner, direct or indirect, was this proposed insurance investigation to have any bear- ing upon the fortunes of any individual for any purpose or for any office in any way 1 Col. Judson. Yes, sir. Mr. Redfield. Did I make that very clear to you ? Col. Judson. Yes, sir. Mr. Redfield. And did you, at my suggestion that it would be proper to put that point of view in writing, then and there write to the chairman of this committee, the letter that has just been read? INVESTIGATION OF INSUBANCE COMPANIES. 167 Col. Judson. I did. Mr. Redfield. And looking again at that letter, I will ask you to look at the final four lines. Col. Judson. Yes, sir. Mr. Redfield. Is it not a fact, that in order to make assurance doubly sure, and saying to you so, I myself dictated those four lines 1 Col. Judson. Yes, sir; asking me if it expressed the fact. Mr. Redfield. If it expressed the fact ? Col. Judson. I said it did and signed it. Mr. Redfield. Did you not, in the interview of that morning, point out particularly to me that Mr. Jordan was no longer connected with these companies and had not been for some months ? Col. Judson. I think I did, because we talked the whole matter over, and that was my knowledge — that he had severed his con- nection with the company. Mr. Redfield. Do you remember my calling your attention to the fact that the name of Mr. William H. Ingersoll, of New York, occurred on one of the letters of the First National Fire Insurance Co., solicit- ing subscriptions to its stock ? Col. Judson. Yes, sir; and you said you knew him to be a very fine man. Mr. Redfield. That is correct. And do you remember my being told there at once that Mr. Ingersoll had withdrawn from his con- nection with this company ? Col. Judson. Some one told you that, but I can not remember who it was. It was in my presence, however — perhaps Mr. Stellwagen. Mr. Redfield. Do you remember that it was stated by Mr. Stell- wagen that every bank in Washington was receiving from 6 to 10 inquiries daily from the persons to whom one or both of these com- panies had written asking for stock subscriptions, as to whether their standing and credit were good ? Col. Judson. Yes. Mr. Redfield. Do you remember my asking, in your presence, whether Mr. Stellwagen was willing to tell the committee all that he knew of this whole matter 1 Col. Judson. Yes, sir. Mr. Redfield. Do you remember the answer that he made, and, if so, state it. Col. Judson. He replied that he was willing to tell all he knew, but he thought he ought not to be singled out, and that other bankers, and all alike, should be brought in to testify as to what they know also. Mr. Redfield. Did he not also say that he did not care to appear as representing his own interest alone, but that if all the other responsi- ble bankers of Washington were willing to appear, he would appear with them ? Col. Judson. Yes, sir. Mr. Redfield. Is not that the fact ? Col. Judson. Yes, sir. Mr. Redfield. I insert, as a part of the record, at this point, the report on the examination of the Protective Holding Corporation and the Protective Fire Insurance Co., of Syracuse, N. Y., of the State of New York insurance department, as of July 30, 1909, and also the report of the examination of the Protective Corporation, the 168 INVESTIGATION OF INSURANCE COMPANIES. Protective Holding Corporation, and the Protective Fire Insurance Co., of Syracuse, N. Y., dated February 14, 1911, of the insurance department of the State of New York. Report on the Examination of the Protective Holding Corporation and the Protective Fire Insurance Co., Syracuse, N. Y. State of New York, Insurance Department, New York, September 20, 1910. Hon. William H. Hotchkiss, Superintendent of Insurance, Albany, N. Y. Sir: Acting under instructions contained in your appointment No. 2427, dated July 9, 1910, and annexed herewith, I have made an examination of the Protective Holding Corporation, of Syracuse, N. Y. This corporation is engaged in selling its stock for the purpose of providing the capital and surplus of the Protective Fire Insurance Co., a domestic corporation organized under the provisions of the insurance law. The history of the Protective Holding Corporation may be divided into two periods: From November, 1909, to May, 1910, the first period of its existence, the corporation under the management of Ira A. Manning, pursued the usual method of selling stock through the medium of sales agents. This method has proven costly to the corpora- tion, and in May, 1910, it has, under the direction of Wightman & Dudley, adopted a plan of selling its stock to the public by mail. This examination was made as of July 31, 1910, and the following financial statement shows the condition of the company on the said date: SUBSCRIPTION ACCOUNT. Amount subscribed for capital $106, 750. 00 Amount subscribed for surplus 106, 750. 00 Total subscriptions $213, 500. 00 Cash actually received for subscriptions 66, 504. 29 Transferred from Government Securities Co 4, 872. 00 Notes on hand 45, 196. 00 Installments not yet paid 96, 927. 71 Total 213, 500. 00 ACTUAL cash income. Cash received from subscribers 66, 504. 29 Interest 65. 86 66, 570. 15 ACTUAL CASH DISBURSEMENTS. Advertising 28. 44 Commissions 22, 610. 20 Discounts 14. 00 Exchange 30.22 Postage 37.12 Printing 4,621.52 Salaries 7,998.52 Miscellaneous 3, 219. 65 38, 559. 67 Balance 28,010.48 Invested as follows: Deposits in banks and trust companies 26, 263. 08 Accounts receivable 1,576.40 Furniture and fixtures 171. 00 28,010.48 INVESTIGATION OF INSUBANCE COMPANIES. 169 BILLS PAYABLE. Due to Kobert R. Tuttle $571.00 Due to Ira A. Manning 2, 700. 00 Due to Wightman & Dudley 929. 00 Due to T. P. Graehling 211. 33 4, 411. 33 PROFIT AND LOSS ACCOUNT. Expense account 38, 559. 67 Government Securities Co 4, 872. 00 Bills payable 4,411.33 47, 843. 00 HISTORY AND ORGANIZATION. This corporation was organized under the provisions of the business corporation law of this State on November 13, 1909. The purposes for which it has been formed are stated in the certificate of incorpora- tion, herewith annexed as Exhibit A, to be as follows: To act as agent of corporations, firms, and individuals; to examine, inspect, andaudit books of account; to transact a general real estate and brokerage business; to purchase, hold, sell, mortgage, and lease real property; to purchase, manufacture, invest, trade, and deal in merchandise and property of every kind and description; to purchase, acquire, hold, and dispose of the stocks, bonds, and other evidences of indebtedness of any corporation, domestic or foreign, and to issue in exchange therefor its stocks, bonds, or other obligations. The authorized capital stock is $400,000^ divided into 40,000 shares of the par value of $10 each. The principal office is located at Syracuse, N. Y., and the three original incorporators are named in the certificate of incorporation as the directors for the first year. Their names and amount of shares of the capital stock held by each are as follows: Shares. William N. Titcomb, Syracuse, N. Y 5 Prank S. Thompson, Syracuse, N. Y 1 Henry O. Freeman, Syracuse, N. Y 1 At the first meeting of the board of directors, held at Syracuse on November 22, 1909, William M. Titcomb, an employee in the office of the Robert R. Tuttle Under- writing Agency, was elected as president and Frank S . Thompson as secretary and treas- urer of the corporation. The following three important resolutions were adopted by the board: First. That the subscribers for the stock of the Government Securities Co., a New York corporation, having its principal office at Syracuse, N. Y., upon surrender to the Protective Holding Corporation of their subscription agreement with the Govern- ment Securities Co. shall be credited with the amount of the payments made by them to the Government Securities Co. upon their subscription agreement with the Protec- tive Holding Corporation, and upon payment of any balance due, the stock of the Protective Holding Corporation shall be issued and delivered to such subscribers. Second. Authorizing the officers to enter into a contract with the Tuttle Under- writing Agency, a corporation, having its principal office at Syracuse, N. Y., for underwriting the business of any and all fire insurance companies, which the Pro- tective Holding Corporation will from time to time control. Third. Authorizing the officers to enter into a contract with Ira A. Manning to act as the general manager in the sale of the company's stock. At a special meeting held by the board of directors on November 23, 1909, William N. Titcomb resigned as president, Prank S. Thompson resigned as secretary and treasurer, and the following officers were elected: Robert R. Tuttle, president; Ed- ward I. Rice, vice president; Ira A. Manning, second vice president; William H. Horton, secretary; Jacob B. Sehl, treasurer. The number of directors was increased from 3 to 33 and the board divided into three classes, the first class to serve for a term of one year, the second class for a term of two years, and the third class for a term of three years, and the terms of their succes- sors fixed for a period of three years, thereby enabling one-third of the board to retire at the end of each year. 170 INVESTIGATION OF INSUEANCE COMPANIES. On January 18, 1910, Jacob B. Sehl resigned as treasurer, and Lucius C. Leonard was elected to succeed him at a salary of $100 per month. On January 28, 1910, the board of directors authorized the officers to execute a contract with Richard Wightman and F. Seymour Dudley, well known advertising and mail order specialists, for the pur- pose of selling the stock of the corporation to the public through the mails on the installment plan. On April 12, 1910, an amendment to the by-laws was adopted, to the effect that the salaries of officers in the Holding Corporation and in the insurance companies to be controlled by the corporation shall not exceed 5 per cent of the net premium income. On April 27, 1910, the executive committee increased the treasurer's salary from $100 to $200 per month. On July 12, 1910, the board of directors reduced the treasurer's salary from $200 to $100 per month. Lucius G. Leonard resigned the office of treasurer and Leonard H. Grosbeck was elected to succeed him. The following directors also tendered their resignations: L. G. Leonard, Edward I. Rice, A. R. Grant, SI. Crouse Klock, O. B. Herrick. Following are the names and addresses of the officers and directors of the corpora- tion: Robert R. Tuttle, president, Syracuse, N. Y.; Frederick S. Dudley, vice presi- dent, 439 Fifth Avenue, New York; Leonard H. Grosbeck, treasurer, Syracuse, N. Y.; William H. Horton, Secretary, Syracuse, N. Y.; William N. Titcomb, assistant sec- retary, Syracuse, N. Y.; Byron F. Burdick, Syracuse, N. Y.; S. H. Jalonack, Syracuse, N. Y.; Clarence W. Darling, Syracuse, N. Y.; Charles C. Barrett, Syracuse, N. Y.; Josiah B. Fairlamb, Svracuse, N. Y.; Edward S. Gaylord, Syracuse, N. Y.; Henry 0. Freeman, Syracuse, N. Y.; D. Robert Croly, Syracuse, N. Y.; Virgil H. Clymer, Syracuse, N. Y.; Norman E. Mack, Buffalo, N. Y.; E. A. Grant, Cleveland, Ohio; William H. Ingersoll, 45 William Street, New York; Frederick P. Hall, Jamestown, N. Y.; L. H. Kurtzman, Buffalo, N. Y.; William Simon, Buffalo, N. Y.; James E. Kelly, Ogdensburg, N. Y.; A. K. Hoag, Orchard Park, N. Y.; T. J. Thron, Phila- delphia, Pa.; J. E. Sperry, Munsville, N. Y.; Henry E. Hiler, Brockport, N. Y. GOVERNMENT SECURITIES CO. Pursuant to the authority of the resolution of the board of directors hereinbefore referred to, the subscribers to the stock of the Government Securities Co. were credited on the books of the Protective Holding Corporation with the amount of their pay- ments to the Securities Co. aggregating the sum of $4,872. A list of these subscribers and the amount of their respective payments is herewith annexed as Exhibit B. It appears that the Government Securities Co. under the management of Lyndon D. Wood, of Syracuse, N. Y., was engaged at one time in the effort to provide the capital for the organization of the Protective Fire Insurance Co. Owing to the absence of Mr. Wood from Syracuse it was not possible to obtain the full details of the operations of the Government Securities Co., but the information gathered from various sources indicates that this company, after expending the greater part of moneys received from subscriptions to its stock for the purpose of financing the above-named fire insurance company, abandoned the project and the subscribers were given the privilege to transfer their subscriptions and their equities from the Government Securities Co. to the Protective Holding Corporation. The item of $4,872 appearing as a ledger account of the Protective Holding Corpo- ration represents in effect a commission equal to 33J per cent paid by the later cor- poration to the Government Securities Co. for the privilege of assuming and trans- ferring the subscriptions amounting to about $14,000 from the Securities Co. to the Holding Corporation. Several of the subscribers now appear on the list of directors of the Holding Corpo- ration, and Ira A. Manning, who was actively engaged in the promotion plans of the Securities Co., has been appointed as the general manager of the Holding Corporation. CONTRACT WITH IRA A. MANNING. A copy of the contract with Ira A. Manning is annexed herewith as Exhibit C. The principal provisions of this contract are as follows: The company proposed to act as a holding corporation for insurance companies and to sell its stock for the purpose of investing the proceeds in fire, casualty, marine, life, surety, bank, or trust companies and to increase its capital stock from time to time until all above insurance companies are organized in accordance with the plan out- lined in the official prospectus of the company and employ Manning for a period of 15 years as its general manager and sales agent for the sale of all the capital stock. The compensation to be $5,200 per annum and a commission of 2 per cent on all sales made INVESTIGATION 03? INSTJBANCE COMPANIES. 171 through agents, either on a cash basis or installment plan, the company to pay the salaries and commissions of stock salesmen engaged and appointed by Manning. This contract was modified on January 28, 1910, when Manning waived 1| per cent of his commission on all sales made through the agency of Wightman & Dudley, with whom the corporation executed an agency contract dated January 28, .1910. A copy of the same is annexed hereto as Exhibit D. The contract with Manning was in force until August 9, 1910. Owing to dissensions between him and Wightman & Dudley as to methods pursued in the sale of the company's stock, Manning resigned on the above-named date as general manager and director of the corporation. In order to cancel his contract and obtain a release the corporation agreed to pay him the sum of $2,700. CONTRACT WITH WIGHTMAN & DUDLEY. Following are the principal provisions of the contract with "Wightman & Dudley: - The corporation agrees to increase its capital stock up to the amount of 250,000 shares and authorizes Wightman & Dudley to sell such shares of its capital stock to sub- scribers at $20 per share, $10 of which shall be applied for capital and $10 for surplus. The plan of selling the stock consists of advertising and circularization through mail, all expenses of printing, literature, and stationery to be paid for by the corporation; Subscriptions are payable in 10 equal installments, 10 per cent payable in cash at the time of subscription and 10 per cent monthly thereafter. Wightman & Dudley receive a commission of 12J per cent on the gross amount of all subscriptions secured either directly by Wightman & Dudley or received through the mails from subscribers as a result of advertising and circularization. Upon the payment of the first installment a commission of 10 per cent on the gross amount of the subscription, or the equivalent of the sum paid in by the subscriber, becomes due and payable to Wightman & Dudley, and the balance of the commission becomes due upon the payment of the second installment by the subscriber. In addition to the above Wightman & Dudley receive a commission of 2J per cent on all sales made by the corporation direct or through the medium of other agents, except on 500 shares of the stock reserved by the corporation for each of its directors. • - In case of an increase in the price of the stock from $20 to $25 per share Wightman & Dudley will receive an additional commission of $2.50 per share. It will be noted that the manner provided for the payment of commissions in effect turns over the entire amount of the first installment to Wightman & Dudley, and the corporation receives nothing either for capital or surplus until the second installment is paid by the subscriber. Should a subscriber make one payment and discontinue thereafter, the payment made by him necessarily becomes forfeited, since the entire amount paid by him has been paid as a commission to the agents who were instru- mental in obtaining the subscription. In this respect it may be noted that the ratio of lapses prior to May 1, 1910, was equal to 9.5 per cent of the total amount of the subscription. According to the records of Wightman & Dudley the lapse ratio on the subscriptions secured since May 1, 1910, has been reduced to 2.4 per cent. Since the completion of this investigation the corporation executed a new agency contract with the firm of Tuttle, Wightman & Dudley, hereafter referred to. CONTRACT WITH TUTTLE UNDERWRITING AGENCY. A copy of the agreement between this corporation and the Tuttle Underwriting Agency is annexed herewith as Exhibit E. Robert R. Tuttle is president of the Protective Holding Corporation and is also presi- dent of the Tuttle Underwriting Agency. The contract between the two corporations contains the following provisions: The Holding Corporation agrees to devote the proceeds of the sale of its capital stock and all future increases thereof until the sum of $5,000,000 shall have been secured for the capital and surplus of a fire insurance company, said company to have a paid-in capital of $2,500,000 and a paid-in surplus of $2,500,000, or in the purchase of the controlling interests in existing fire insurance companies, and that the aggregate of its investments in the fire insurance business shall be at least $5,000,000. The Holding Corporation further agrees to procure contracts between each of the fire insurance companies that it will control and the Tuttle Underwriting Agency, appointing the latter as the sole underwriting manager for each fire insurance company for a period of 15 years for the United States and Canada, and that the contract shall be as per the attached copy, which is made part of the agreement. This form of the underwriting contract gives the Tuttle Underwriting Agency full power and authority as general manager and the sole and exclusive right to write fire 172 INVESTIGATION OF INSURANCE COMPANIES. insurance in the above territory; to accept or reject or reinsure risks; to receive moneys for premiums and indorse checks drawn in the name of the company; to appoint and remove general and local agents, and to adjust and pay losses. The com- pensation of the general manager is stated at 35 per cent of the gross premiums written, the general manager to pay all expenses of conducting the business, including com- missions, expenses of adjusting losses, local boards, clerk hire, policy forms, etc. The salaries of officers, the taxes, insurance department fees and maps are to be paid by the company. In addition to the commission of 35 per cent, the general manager will receive a commission of 10 per cent on the net profits of the business written, said net profits to be determined in a manner provided for in the contract. The contract may be terminated by either party for any gross violation of its con- ditions upon 90 days' notice, and in the event of its termination the company shall pay as full compensation to the general manager, and in lieu of any other damages, 60 per cent of the gross sum which said general manager has expended during the entire operation of the contract. This contract would seem to be open to criticism for the reason that the insurance company for a period of 15 years delegates all of its powers, affecting the conduct of its business to another corporation, the principal officer of which acts in the dual capacity of president for the holding corporation and the underwriting agency. Furthermore, the rate of commissions, the contingent profits, the mode and manner provided for the termination of the contract on the whole appear to be more favorable and advantageous to the underwriting agency than to the insurance company. In fact, it is difficult to conceive of any special advantage aside from the services of the underwriting agency to be derived by the insurance company as a result of the con- tract. Generally speaking, the contract on the whole appears to have been devised for the special use and the benefit of the underwriting agency. Since the completion of this investigation the corporation in order to avoid the criticism contained herein executed a new contract hereafter referred to. PROSPECTUS. The first official prospectus of the Protective Holding Corporation issued under the direction of its general manager, Ira A. Manning, outlines an ambitious scheme looking toward the organization, ownership, and control of a fire insurance company, a casualty insurance company, a life insurance company, a marine insurance company, and a surety company, the Holding Corporation to control such companies by owning 51 per cent or more of their capital stock. The first work of the Holding Corporation is stated to be the organization of the Protective Fire Insurance Co. of Syracuse, N. Y., by the sale of $2,500,000 of stock of the Holding Corporation at $20 per share, S10 to be applied for the capital and $10 for the surplus of the insurance company, and after the organization of the fire company, the Holding Corporation will proceed to organize the various insurance companies named herein, until the Protective Holding Corporation will dominate insurance com- panies which together will write "everything in insurance." If is further proposed that the Protective Fire Insurance Co. shall have a paid-in capital of $2,500,000 and a paid-in surplus of §2,500,000, thus making it one of the four largest capitalized fire insurance companies in the world. A paragraph on page 11 of the prospectus is devoted to a description of the under- Writing agency of Robert R. Turtle, of Syracuse, N. Y., and the value of his experience as an underwriter to the Protective Fire Insurance Co. On page 15 the statement is made that "every agent will be proud to represent the Protective with its $2,500,000 capital and 82,500,000 net surplus." Subscriptions are offered to the public on the basis of 10 monthly installments, 20 per cent down and 80 per cent payable in one year, but "payment may be made in full for the convenience of subscribers," and 300 shares is the limit allowed to any one subscriber. With the appearance of Wightman A Dudley on the field of operations, a pamphlet was issued entitled The Men, the Business, the Profits. In the paragraph entitled "The men" the names of 21 directors and their business connections are given in detail. Six of the directors named have since resigned. Mr. L. H. Groesbeck, treasurer and director of the corporation, is named therein as a former deputy superintendent of insurance of New York. An examination of the records of the insurance department at Albany shows that Mr. Groesbeck was at one time a clerk in the department and at no time occupied the position of deputy super- intendent. This error has been corrected in the new prospectus of the corporation, issued since the completion of thi? investigation. INVESTIGATION OF INSURANCE COMPANIES. 173 On page 12 of the pamphlet appears th? statement that 71 per cent is the average net earnings of 28 New York State fire insurance companies for the year 1909. The names of these companies, the capital stock, net earnings, and percentage of profits for 1909 are given on page 13. The net earnings quoted include dividends paid, increase in surplus through gams in underwriting, and increase in the market value of investments. In the new prospectus issued by the corporation, 29 per cent is given as the average yearly net earnings on the capital of 28 New York State fire insurance companies for the last 10 years. The average net earnings of these companies for 1909 are given as 87 per cent and the division shown between profits from underwriting and profits from investments. On page 14 is given an outline of the Protective Fire Insurance Co., and the state- ment is made that it will begin operations with a paid-in capital of $400,000, and a paid-in surplus of $400,000. This capital and surplus, totaling $800,000, will be provided by the sale gf 40,000 shares of the capital stock of the Protective Holding Corporation at $20 per share, $10 of which is capital, and $10 is surplus. It is pro- posed to increase the capital and surplus until it reaches $5,000,000, making it one of the six largest and strongest companies in America. Subscriptions are offered on the installment plan, 10 per cent payable in cash and balance in nine equal monthly payments. The Trust & Deposit Co. of Syracuse, N. Y.. is named as the registrar and transfer agent and the statement is made that the'assets of the registrar are $11,700,000, and that every share of stock will be countersigned by the Trust & Deposit Co., thereby conveying to the mind of the subscriber an added sense of security. The function of the Trust & Deposit Co. is limited to the registry of stock, thereby preventing an overissue of the same, and for this service it receives a compensation of $200 per annum. In view of the expenditures incurred by the Holding Corporation in the sale of its stock, it is difficult to conceive in what manner it will obtain a capita] of S400.000 and surplus of $400,000 from the sale of 40,000 shares of stock at $20 per share. The first official prospectus, which is no longer in use, contained all the earmarks of the pro- fessional promoter engaged in a stock-selling scheme rather than in the organization of an insurance company upon conservative lines. The statements in such prospectus and in the pamphlet regarding the sale of stock are misleading in that they convey the impression to the reader that the entire amount paid in by the subscriber will be applied to and form the paid-in capital and the paid-in surplus of the insurance company. In this respect the promoters misrepresented actual conditions, as they ignored the expenses of organization and the cost of promotion to be paid from the moneys received from subscribers. To meet the ciiticism contained herein, the statement regarding the paid-in cap- ital and paid-in surplus of the fire insurance company has been modified in the new prospectus to read as follows: "The Protective Fire Insurance Co. will begin operations with a paid-in capital of $400,000, and a paid-in surplus of $400,000, less the necessary organization expenses, which include the establishment of the company's agencies for the writing of fire insurance." ANALYSIS OF FINANCIAL STATEMENT. The subscription account, amounting to the sum of $213,500, is divided into four parts: First. Payments made in cash on account. Second. Tiansfers from Government Securities Co. pursuant to the resolution herein referred to. Third. Notes given for balance due, payable one year from date. Fourth. Installment of subscriptions not yet paid. As this corporation assumed the liabilities of the Government Securities Co. to its subscribers to the extent of $4,872 without receiving any money consideration for the same, this item represents a loss and has been charged to the profit and loss account in the foregoing financial statement. Out of a total cash income received by this corporation, amounting to $66,504.29, it has disbursed and incurred expenditures amounting to $42,971, or an equivalent of 64J per cent of the total cash income. If the item of $4,872 assumed by this corporation is to be included in this compari- son, the ratio of expenditures to receipts will be equal to 67 per cent. On the basis of the subscription account, the profit and loss account representing expendituies made and incurred is equal to 22.4 per cent of the entire subscription account. Up to August 1, 1910, a total of 10,675 shares have been subscribed for, represent- ing a gross subscription of $213,500, of which amount $106,750 is to be applied for 174 INVESTIGATION OF INSUBANCE COMPANIES. the capital and $106,750 for trie surplus of the Protective Fire Insurance Co. As compared with the profit and loss account shown herein, the corporation has already expended and incurred the sum of $47,843 or an equivalent of 44.81 per cent of the gross amount subscribed for the surplus of the fire insurance company. As compared with cash receipts, the corporation expended and incurred the entire sum paid in by subscribers for the surplus and has encroached to the extent of 34 per cent on the amount paid in for the capital of the fire insurance company. The total number of shares paid for and issued to August 1 amounts to 1,240, indi- cating a total sum fully paid in for capital and surplus amounting to $24,800, and partial payments amounting to 846, 576.29. No stock has been issued as a bonus to organizers, promoters, or directors of the corporation, and no provision for such issue appears in the records of the corporation, SALARIES OP OFFICERS AND EMPLOYEES, Following are the salaries of officers and employees: Ira A. Manning, general manager (contract terminated Aug. 9). per annum. . $5, 200. 00 Robert R. Tuttle, president and manager per month. . 150. 00 L. H. Groesback, treasurer do 100. 00 T. F. Graehling, sales agent do.... 208.33 Office employees do 135. 00 CHANGES IN AGENCY CONTRACTS. Since the completion of this investigation the Holding Corporation notified this department that it will cancel the existing contracts between the corporation, the firm of Wightman & Dudley, and the Tuttle Underwriting Agency. In place of these contracts, the corporation has substituted an agreement, to become effective October 1, 1910, with the firm of Tuttle, Wightman & Dudley, and has submitted a copy of the agreement to the department. The principal provisions of this agreement are as follows: The firm is to have the sole and exclusive right to sell the stock of the corporation at not less than $20 per share, $10 of which is to be for capital and $10 premium to provide for a surplus and for organization and preliminary expenses. The stock is to be sold either for all cash or in 10 monthly installments and the compensation is to be 5 per cent of the total subscription, payable when the first cash payment is made by the subscriber. In addition to the said commission, the corporation will pay all expenses incurred in the sale of the stock, not exceeding 10 per cent of the gross amount of the subscriptions. The method adopted in selling the stock will enable the firm to appoint fire insur- ance agents from the subscribers, thereby deveolping an agency force for the fire insurance company. During each six months, beginning with September 1, 1910, the corporation will have available for sale 12,500 shares of stock, and will invest the net proceeds in the fire insurance business. No commissions will be paid on subscriptions from directors, aggregating $330,000, and the contract may be terminated at the option of the corporation on 60 days' notice, if the firm fails to obtain during each six months subscriptions aggregating the sum of $250,000. Sales of stock are limited to 500 shares to any one subscriber; all literature must be submitted for the approval of the corporation, and the contract is personal in nature and not assignable. The corporation also agrees to procure a fire insurance underwriting contract be- tween each fire insurance company it will control and the firm of Tuttle, Wightman & Dudley. The form of the proposed underwriting contract is annexed to and made part of this agreement. The proposed underwriting contract provides for the appointment of the firm of Tuttle, Wightman & Dudley as sole managing underwriters of the Protective Fire Underwriting Co. for a period of one year, with power to issue and cancel policies, reinsure risks, adjust losses, appoint or remove local and general agents, and determine their commissions, which shall not exceed 32J per cent. The company agrees to provide all necessary supplies and equipment for the con- duct of the business and to pay to the underwriters a commission of 2 per cent on the gross premiums written each year and an additional commission of 10 per cent on the net profits of each year. In determining said net profits, the losses incurred and an agreed expense of 38 ner cent shall be deducted from the net premiums written during the year. INVESTIGATION OP INSUKANCE COMPANIES. 175 In the States of New York, New Jersey, and Pennsylvania, where Bobert R. Tut- tle, one of the copartners in the above firm,has been conducting for a number of years a general underwriting agency, the business of the company may be handled by the underwriters directly through their own agency at a commission of 32J per cent plus the overriding and contingent commissions above named. The underwriters agree to appoint at least 200 agents per annum, the premiums from each agent to average $500 per annum. COMPARISON OP OLD AND NEW CONTRACTS. From a comparison of the old and new contracts it is evident that the firm of Wight- man & Dudley, advertising and mail-order specialists, have combined forces with the Tuttle Underwriting Agency, and have formed a copartnership for the purpose of selling the stock in the Holding Corporation, promoting fire insurance companies, and of conducting the underwriting business of such companies under a form of con- tract outlined herein. All the copartners in the firm are officers and directors of the Protective Holding Corporation. STOCK-SELLING CONTRACT. Under the old contract the stock-selling agents received a commission of 12 per cent, and the cost of printed matter was paid by the company. Under the new contract the company will pay a commission of 5 per cent and all expenses incurred in the sale of stock not exceeding 10 per cent. It is to be noted, however, that this arrangement does not limit the promotion of expenses to 15 per cent of the gross subscriptions, since the salaries of officers, home office employees, and home office expenses are not included within the above limitation. UNDERWRITING CONTRACT. The old form provided for a term of 15 years. The new form provides for a term of 1 year if the contract is executed with the Protective Fire Insurance Co. ; if exe- cuted with any other insurance company, it will be for a period of 15 years, and the Protective Holding Corporation agrees to vote all of its shares, representing the con- trolling interest, for the acceptance of the underwriting contract. The old form provided for a flat commission of 35 per cent and a contingent of 10 per cent on the ne„ profits of the business written, the expenses of conducting the business to be paid by the underwriters, excepting salaries of officers, taxes, insurance department fees, and maps. Under the new form the company will pay the commissions to local agents not exceeding 32 J per cent and all expenses of conducting the business. The under- writers will receive an overriding commission of 2 per cent and a contingent of 10 per cent on the net profits. In the States of New York, New Jersey, and Pennsylvania the underwriters will receive a fla„ commission of 32J per cent, an overriding of 2 per cent, and a contingent of 10 per cent, the company providing supplies and equipment. Under the new form of contract, the directors of the fire insurance company will have authority to cancel unprofitable agency contracts and to cancel policies in dis- tricts where the losses exceed 60 per cent of the net premiums. SUMMARY. This corporation has been engaged for a period of eight months in securing sub- scriptions to its capital stock for the purpose of financing the Protective Fire Insurance Co. of Syracuse, N. Y., and now possesses cash assets amounting to $26,263.08 and sub- scription notes amounting to $45,196. In addition, there are unpaid installments to be collected on account of subscription agreements amounting to $96,927.71. These results have been accomplished by the corporation at a cost of $47,843 to its subscribers. Realizing that the method of selling stock by means of personal inter- views has been costly, the management, on May 1, 1910, adopted the plan of selling the stock to the public by mail. This plan, inaugurated by the agency of Messrs. Wightman & Dudley, has resulted in a reduction of the total expense of selling the stock to about 15 per cent of the gross amount of subscriptions. Conservatively esti- mated, the total cost to subscribers on the above basis will approximately amount to from $600,000 to $750,000 out of a total of $2,500,000 to be paid m for the surplus of the fire insurance company. 176 INVESTIGATION OF INSURANCE COMPANIES. By eliminating Ira A. Manning from its affairs, the corporation has succeeded in materially reducing the expenses incidental to the sale of stock and in effecting economies in the management of the home office of the corporation. While the prospectus of the company contained misleading information and the agency contracts were subject to the criticism of this department, it has since shown a serious and earnest purpose to reform its literature, revise its contracts, and to generally correct the abuses which existed prior to this examination. Respectfully submitted. Leon S. Senior, Examiner. State of New York, County of New York, ss: Leon S. Senior, being duly sworn, deposes and says that the foregoing report, sub- scribed by him, being an amendment of the same report subscribed and sworn to by him on the 12th day of September, 1910, is true to the best of his knowledge and belief. Leon S. Senior. Subscribed and sworn to before me this 26th day of September, 1910. [seal.] Kate P. Cahill, Notary Public, New York County. Exhibit A. CERTIFICATE OF INCORPORATION OF THE PROTECTIVE HOLDING CORPORATION. We, the undersigned, all being persons of full age, and at least two-thirds being citizens of the United States and at least one of us a resident of the State of New York, desiring to form a stock corporation, pursuant to the provisions of the Business Corporations Law of the State of New York, do hereby make, sign, acknowledge, and file this certificate for that purpose, as follows: First. The name of the proposed corporation is the Protective Holding Corporation. Second. The purposes for which it is to be formed are, to act as agent or representa- tives of corporations, firms, and individuals; to examine, inspect, and audit books of account; to report and certify the results of such examinations, inspection, and audit; to guarantee the correctness of such reports and certificates, and of any facts, particulars, knowledge, information, and data published, deposited, sold, exchanged, furnished, or otherwise disposed of by it; to transact a general real estate and brok- erage business, including the management of estates; to act as agent, broker, or attorney in fact for any persons or corporations in buying, selling, and dealing in real or personal property and any and every estate and interest therein and choses of action secured thereby, judgments resulting therefrom, and other property col- latteral thereto in making or obtaining loans upon such property; in supervising, managing, and protecting such property and loans and all interest in and claims affecting the same; to investigate and report upon the credit and financial solvency and sufficiency of borrowers and sureties upon such securities; to purchase and hold real property and any and every estate and interest collateral thereto; to improve, manage, operate, sell, mortgage, lease, and otherwise dispose of any property so acquired ; to loan upon such property and to take mortgages and assignments of mort- gages of the same; to purchase, manufacture, acquire, hold, own, mortgage, pledge, lease, sell, assign and transfer, invest, trade, deal in and with goods, wares, and mer- chandise and property of every kind and description; to purchase, sell, and deal in notes, bonds, stocks, securities, or investments of any kind; to purchase, acquire, hold, and dispose of the stocks, bonds, and other evidences of indebtedness of any corporation, domestic or foreign, and to issue in exchange therefor its stocks, bonds, or other obligations, and while owner of any such stock, bonds, securities, or other obligations to possess and exercise in respect thereto all the rights, powers, and privi- leges of individual owners thereof and to exercise any and all voting power connected therewith; to make any guaranty respecting dividends, stocks, bonds, securities, contracts, or other obligations as the same may be permitted by corporations organized under said Business Corporations Law, with full power to borrow such moneys as it may require for the purpose of its business and to transact any or all of the business which may be necessary or incident or proper to the exercise of any or all of the afore- said purposes of the corporation, providing the same be consistent with the laws under which this corporation is organized, and to do any or all of the business above mentioned and set forth, to the same extent as natural persons might or could do; to conduct any or all of its business and any one or more of the acts and things herein set forth as its purposes outside of the State of New York and in any other State or States, Territories, or dependencies of the United States, or in Canada. INVESTIGATION OF INSURANCE COMPANIES. 177 Third. The amount of the capital stock is $400,000. Fourth. The number of shares of which the capital stock shall consist is 40,000 of the par value of $10 each, and the amount of capital with which said corporation shall begin business is $500. Fifth. Its principal business office is to be located in the city of Syracuse, county of Onondaga, State of New York. Sixth. Its duration iB to be perpetual. Seventh. The number of its directors is to be three. Eighth. The names and post-office addresses of the directors for the first year are as follows: William N. Titcomb, Syracuse, N. Y.; Frank S. Thompson, Syracuse, N. Y.; Henry O. Freeman, Syracuse, N. Y. Ninth. The names and post-office addresses of the subscribers to the certificate and a statement of the number of shares of stock which each agrees to take in the corporation are as follows: Number of shares. William N. Titcomb, Syracuse, N. Y 5 Frank S. Thompson, Syracuse, N. Y 1 Henry O. Freeman, Syracuse, N. Y 1 In witness whereof we have made, signed, acknowledged, and filed this certificate in duplicate. Dated this 13th day of November, 1909. William N. Titcomb. Frank S. Thompson. Henry O. Freeman. State of New York, County of Onondaga, City of Syracuse, ss: <• On this 13th day of November, before me personally came William N. Titcomb, Frank S. Thompson, and Henry O. Freeman, to me personally known to be the per- sons described in and who made and signed the foregoing certificate, and severally duly acknowledged to me that they had made, signed, and executed the same for the uses and purposes therein set forth. Virgil H. Clymer, Notary Public, Onondaga County. Exhibit B. total paid to government securities co. William N. Titcomb $30. 00 Frank S. Thompson 6.00 Anna M. Carroll 30. 00 AllenK.Hoag 10.00 John W.Allen 30.00 Fred A. Rungueberg 30. 00 Samuel Watt 6.00 Theodore L. Rogers 20. 00 W. W. Johnson 40.00 Albert E. ReQua 40.00 D. J.Covell 2.00 John Coyne 30. 00 Leon D. Davis 100. 00 0. E. Wolcott 100. 00 JohnCadwell 700.00 H. S. Mohler 100.00 C. F. Hill&Son 60.00 Hugh Campbell 20.00 Frank S. Gaylord 30.00 Frank H.Mayer 20.00 Robert K. Grems 20.00 August H. Crown 100.00 Robert E . Sternberg 30. 00 S. H. Jalonack 40. 00 Herman F. Keller 100. 00 F. P. HaU 380. 00 Henry C. Morrell $40. 00 C. Weatherwax 20. 00 W. N. Parks 20.00 I.M.Meyer 4.00 D. W. Woodring 100.00 JohnE. Sperry 40.00 E. A.Warner 20.00 E. S. Preston 40. 00 Hope Shepard 20. 00 S. P. Adolf 400. 00 Hugh T. Burtt 40. 00 John T. Burtt 20. 00 George M. Miller 4. 00 F. M. Stage 100.00 J. E. Sperry 20. 00 Charles C . Olmstead 20. 00 W.C.Hill 6.00 Thomas O. Young 10. 00 Francis H. Slater 6. 00 B. F. Hull 40. 00 John W. Stewart 20.00 James E. Kelly 30. 00 Charles E. Haeberle 12. 00 John M. Yaeger 40. 00 A. Licursi 20.00 N. Licursi 20.00 178 INVESTIGATION OF INSURANCE COMPANIES. W. G. McClincey $10.00 F. G. Potter 20. 00 E. P. Klein 10. 00 Wilson Stevens 50. 00 D.J. Chrichton, jr 40. 00 W. S. Field 20.00 H. H. Benford 10.00 F. L. Zimmerman 50. 00 Moses F. Nelson 2.00 E. Parsons 10.00 G. C. Jordan $10. 00 W.N. Clark 4.00 S. W. Vanderbeek 20. 00 William Simon 1, 200. 00 Albert E. Reilly 100. 00 V. E. Bailey 20.00 Hugh Cunningham 10. 00 William Simon 100. 00 4, 872. 00 Exhibit C. Article of agreement entered into this 22d of November, 1909, between Ira A. Manning, or his assigns as hereinafter referred to, of New York City, hereinafter referred to as "Manning" and the Protective Holding Corporation, a corporation organized under the laws of the State of New York, with its principal office in Syracuse, N. Y., hereinafter referred to as the "company." Whereas the company has secured a charter with a capital stock of $400,000, the par value of its shares being $10 per share, and among other things proposes under its charter to act as a holding corporation for insurance companies and other companies, selling its stock for the purpose of investing the proceeds of same in a fire insurance company or companies, a casualty insurance company or companies, a marine insur- ance company or companies, a life insurance company or companies, a surety company or companies, or a bank or trust company, and agrees that, as soon as said capital stock is sold pursuant to this agreement, to immediately further increase its capital stock to a like amount and to so increase its capital stock from time to time until all the above insurance companies are organized as per the plan outlined in the official pros- pectus of the company, issued November, 1909, and in this connection is desirous of securing the services of Manning as sole sales agent to sell all of its present and future capital stock that may be sold during the term of this contract and also to secure his services as general manager of the company. Now, therefore, to all whom it may concern, be it known that the parties each in consideration of $1 by each to the other in hand paid, receipt of which is hereby acknowledged, and the covenants and conditions herein set out, have agreed as follows: First. The company agrees to sell to any and all applicants who are desirous of sub- scribing to its capital stock, such applicants having signed subscriptions for the pur- chase of stock; does hereby appoint Manning for a period of 15 years from date as its general manager, and does also hereby appoint Manning as its sole sales agent and representative for 15 years from date for the sale of all its capital stock sold during said period. Second. The company agrees that Manning shall have the sole right to sell all of its present and future capital stock through his agents, either for cash or upon install- ment contracts, which installment contracts shall provide for the payment of such stock by the subscribers in not to exceed 12 equal consecutive monthly payments, or for 20 per cent cash and the balance to be paid one year from date of the subscription by note with or without interest, and the company agrees to issue ad interim receipts promptly to the subscribers if payments are to be made on the installment plan or on what is known as note subscriptions, also to issue its certificates of stock immediately to subscribers who pay in cash, and to pay over to Manning or to his order, out of the first moneys received from the subscribers, a commission of 2 per cent of the selling price of said stock. Third. Manning agrees to use his very best efforts as sales agent for the purpose of successfully conducting said sale of stock, design and prepare all literature and adver- tising matter that he may deem necessary. Fourth. Upon Friday afternoon of each week following the date of this contract the company agrees to pay all commissions due under this contract to Manning, or to his order, and Manning agrees to accept such commissions as full remuneration for his services as sales agent. Fifth. The company agrees that a sale of stock shall be deemed to have been con- summated when the subscriber shall have made his first payment upon his stock subscription as evidenced by the terms of Ms stock subscription, and Manning shall be entitled to payment of his commission thereon. INVESTIGATION OF INSURANCE COMPANIES. 179 Sixth. The company agrees to keep full, true, and correct accounts of all moneys received by it upon the sale of the aforesaid stock and to allow Manning or his appointee to inspect from time to time said company's books relative to the sale of said stock. Seventh. All reasonable traveling expenses and other expenses incurred by Manning as general manager or sales agent while engaged in transacting business for and in the interest of the company shall be paid by the company. Eighth. Manning as sales agent shall have the sole right to engage and appoint all stock salesmen for the company and the company shall pay said stock salesmen a commission of at least 5 per cent of the selling.price of the stock. Manning may engage salesmen, however, at a larger commission than 5 per cent or upon a salary basis, but such compensation can only be determined and fixed with the consent of two members of the executive committee or with the consent of the president and first vice presi- dent in writing. Ninth. It is hereby agreed that Manning may at his pleasure assign all his rights and interest as sales agent under this contract to an existing corporation or to a company to be incorporated and known as the "Manning Sales Agency" with the consent of the company. Tenth. The said Manning agrees to act as general manager for said company for a period of 15 years from the date hereof and said company agrees to pay Manning a salary of $5,200 per year for 15 years, payable at the rate of $100 per week, for his services as general manager. The parties hereunto hereby bind themselves, their heirs, executors, administrators, successors, and assigns, respectively. In witness whereof the said parties have hereunto affixed their hands and seals in duplicate the day and year first above written. Ira A. Manning. Protective Holding Corporation. Wm. N. Titcomb, President. Frank S. Thompson, Secretary. Witness to both parties: S. W. Darling. This agreement, made this 28th day of January, 1910, between the Protective Hold- ing Corporation, a body corporate, organized under the laws of the State of New York, as party of the first part, and Ira A. Manning, of the city of Syracuse, N. Y., as party of the second part, Witnesseth, whereas the parties hereto did, on or about the 28th day of January, 1910, enter into a contract in writing by which the party of the second part agreed to become sales agent of the party of the first part, and the party of the first part agreed to pay second party 2 per cent upon the sales of all stock of said party of the first part; and Whereas the first party, upon the advice and with the consent of second party, is about to enter into a contract with Richard Wightman and F. Seymour Dudley for the sale of its stock or a portion thereof, upon which sales the party of the first pait agrees to pay to said Wightman & Dudley 12 \ per cent of the selling price; now, therefore, In consideration of $1 in hand paid each to the other, the receipt whereof is hereby acknowledged, and for other good and valuable considerations, it is agreed between the parties as follows: I. The party of the second part hereby agrees that upon all sales of stock by Wight- man & Dudley for which, under the terms of the contract made between the party of the first part and the said Wightman & Dudley, they, the said Wightman & Dudley, are to receive 12J per cent, that he, the party of the second part hereby waives any claim for commission to the extent of 1} per cent of said gross sales, and here- by agrees to receive and accept one-fourth of 1 per cent upon such gross sales in lieu of 2 per cent commission as stated in said contract. II. Party of the first part hereby releases party of the second part from any services as sales agent in so far as services relate to the sale of stock which shall be made by the said Wightman & Dudley. III. It is mutually understood that this agreement shall not affect the rights of either party as they are fixed by said contract of , 1909, except with reference to the sale of stock by Wightman & Dudley, upon whi^h they are entitled to a gross commission of 12£per cent, as provided for by the contract between the party of the first part and Wightman & Dudley bearing even date herewith. Witness the hands and seals of the parties hereto the day and year first above written. Protective Holding Corporation, By Robert R. Tuttle, President. [seal] Ira A. Manning. Approved. E. I. Rice. 180 INVESTIGATION OF INSTTKANCE COMPANIES. Exhibit D. Agreement entered into this 28th day of January, 1910, between the Protective Holding Corporation, a corporation organized and existing under and by virtue of the laws of the State of New York, by Ira A. Manning, its general manager and sales agent, hereinafter referred to as the party of the first part, and Richard Wightman and F. Seymour Dudley, of the city of New York, hereinafter referred to as the parties of the second part, Witnesseth, whereas the party of the first part now has authorized capital stock of 40,000 shares of the par value of $10 per share and it is proposed to increase such capital stock to 250,000 shares of the same par value and to sell such stock for $20 per share, $10 of which is to be applied to capital stock and $10 to surplus. Now, therefore, in consideration of $1 and other valuable considerations passing between the parties hereto, it is mutually agreed between the parties to this agreement as follows: First. The party of the first part hereby gives to the parties of the second part the right to sell the unsold capital stock of the Protective Holding Corporation and any increase thereof hereafter to be made as above stated. The parties of the second part, however, consent that the party of the first part may sell its stock directly or through others, but in the event of such sale, the parties of the second part are to receive a com- mission of 2\ per cent upon all such sales, payable out of the proceeds of the second installment paid by the subscriber. The parties of the second part hereby agree that sales may be made to the directors of the party of the first part up to the amount of $330,000, the same being a sale equivalent to $10,000 worth of stock of the par value and surplus to each of the 33 directors of said party of the first part, and for all such sales made to directors up to the amount of $330,000 par value and surplus, the parties of the second part are to receive no commission. Second. The parties of the sei unci part agree that they will on or before April 1, 1910, begin an active and aggressive campaign in the sale of said stock and agree that prior to May 1, 1910, they will secure and deliver to the party of the first part actual bona fide subscriptions f< >r such stock to the amount of at least $10,000; prior to June 1, 1910, a total of at least S30.000; prior to July 1, 1910, a total of at least $60,000; prior to August 1, 1910, a total (if at least $100,000; prior to September 1, 1910, a total of at least $150,000; prior to October 1. 1910, a total of at least $200,000, and thereafter during the life of this contract subscriptions of at least $250,000 semiannually provided the amount of stock is made available up to the amount of 250,000 shares as hereinafter agreed upon. Upon every subscription, an installment of at least 10 per cent of the total subscription price must be paid in cash or its equivalent at the time of such sub- scription and no subscription shall be considered such for any purpose until such first installment shall have been actually received by the party of the first part. In case the parties of the second part fail to secure and deliver to the parties of the first part the amounts above stated of actual bona fide subscriptions with first installment of pur- chase price actually paid within the periods above mentioned, then at the option of the party of the first part and upon its giving 60 days' notice in writing to the parties of the second part, this contract may be terminated and all future rights thereunder shall then cease and determine with regard to future business after the expiration of the 60 days' notice, but this terminating of the contract at the option of the party of the first part shall in no way affect the compensation to be paid the parties of the second part up to and including the period of 60 days after said notice m writing has been given to the parties of the second part. Third. As full compensation for such sales and certain expenses hereafter men- tioned, the party of the first part agrees to pay to the parties of the second part a com- mission of 12J per cent of the gross amount of each subscription which may either be secured directly by the parties of the second part or received through the mails direct from subscribers by either party as a result of circularization or advertising by parties of the second part; 10 per cent of such gross amount to be paid to the parties of the second part and become due when the first installment of at least 10 per cent of the subscription is actually paid and 2J per cent of such gross amount to be paid and become due when the second installment of at least 10 per cent of the subscription is actually paid. This agreement contemplates the payment of subscriprions in 10 equal monthly payments beginning with the date of subscription, but if the entire amount is paid in cash at the time of subscription then the full amount of commis- sion, viz, 12£ per cent shall be due and payable immediately. Upon all subscriptions obtained otherwise than directly by the parties of the second part or through the mails directly from the subscriber or by the party of the first part as a result of the efforts made by the parties of the second part by circularization, advertisement or otherwise- the parties of the second part shall receive a commission of 2J per cent, which shall be INVESTIGATION OP INSURANCE COMPANIES. 181 paid by the party of the first part to the parties of the second part immediately upon receipt of the subscription price, if it shall be paid in full or upon the receipt of the second installment of 10 per cent of the subscription price if said sale is made upon installments, as heretofore stated, provided, however, upon a sale to a director or directors of the party of the first part to an amount not to exceed $10,000 to any director, or $330,000 of par value and surplus to a total of 33 directors, there shall be no com- mission due or payable. And the party of the first part having delivered options for stock, which options are numbered 109 to 120, inclusive, aggregating not to exceed $25,000, it is understood that such of said options as are taken up within the next 90 days shall be deemed sales made prior to the execution of this contract and that no commissions are to be due or payable to second parties thereon. And it is further understood that any options which may be given by the party of the first part, not exceeding $25,000 in the aggregate, however, prior to the time when second parties' commissions shall begin to attach to sales as hereinafter provided, shall be deemed sales made as of the date of said options and no commission shall be due second parties thereon, provided, however, such options must be exercised within 90 days from their respective dates. In no event shall any commission be due or payable upon any sales made prior to March 1, 1910, nor in any event until second parties begin their selling campaign by circularization, advertising or otherwise, unless authorized in writing by the executive committee of the party of the first part. In case the parties mutually agree to raise the selling price of the stock above $20 per share, then and in that event the parties of the second part shall receive in addition to the compensation already fixed herein, viz, 12£ per cent an additional commission of 25 per cent of such increased price in excess of the selling price of $20 per share; one-half of said 25 per cent to be paid when the third installment is paid and the balance when the fifth installment is paid, or in event of the entire subscription being paid in cash, then such additional 25 per cent, together with said commission of 12£ per cent, shall be paid immediately. Fourth. The above commissions to be paid to the parties of the second part shall cover all expenses incurred by the parties of the second part in relation to the sale of such stock except literature, printed matter, booklets, letterheads, envelopes and stationery, the cost of which the party of the first part agrees to incur and pay, and to furnish the same in such amounts and quantity as requested by the parties of the second part without any delay. Fifth. A copy of proposed advertisements and literature shall be submitted to the executive committee of the party of the first part for its approval before they are printed and only such as meet with its approval shall be used, and when once approved no further approval shall be necessary. Sixth. The form of subscriptions, notes and receipts and the party to whom pay- ments for subscriptions shall be made, are to be hereafter mutually agreed upon. Seventh. The commission account the parties of the second part for each week, shall be paid on Friday of the succeeding week, commencing with the second Friday after the first day of April, 1910, and the books of each party in relation to all matters covered by this contract including the stock ledger and the stock transfer book of the party of the first part shall be subject to inspection by either party at all reasonable times. Eighth. No sale shall be made by the parties of the second part in excess of $6,000 par value and surplus to any one subscriber. Ninth. The party of the first part further agrees with the parties of the second part that the capital stock of the party of the first part will be increased from time to time as sales are made by the parties of the second part up to the limit of 250,000 shares par value, and that at all times the party of the first part will have available for sale by parties of the second part at least 5 per cent of the total capital authorized and to increase the amount of said capital stock from time to time as may be needed for the purpose of sale by the parties of the second part up to the aforesaid limit of 250,000 shares par value. In witness whereof the party of the first part has caused this agreement to be signed and sealed by its general manager and the parties of the second part have hereunto set their hands and seals the day and year first above written. Protective Holding Corporation, By Ira A. Manning, Sales Agent and General Manager. [seal.] Richard Wightman. [seal.] F. Seymour Dudley. Approved. Robert R. Tuttle. B. F. Burdick. 71391— No. 2—12- 182 INVESTIGATION OF INSURANCE COMPANIES. acknowledgment of corporation. State of Xew York, County of , ss: On the 3d day of February, in the year 1910, before me personally came Ira A. Manning, to me known, who, being by me duly sworn, did depose and say, that he resided in New York; that he is the vice president, general manager, and sales agent of the Protective Holding Corporation, the corporation described in and which exe- cuted the above instrument, that he knew the seal of said corporation; that the seal affixed to said instrument was such corporate seal; that it was so affixed by order of the board of directors of said corporation, and that he signed his name thereto by like order. Ira A. Manning, Vice President and General Manager. Wm. N. Titcomb, Notary Public, Onondago County, N. Y. Exhibit E. Article of agreement entered into this 22d day of November, 1909, between the Protective Holding Corporation and the Tuttle Underwriting Agency, both of Syra- cuse, N. Y. Whereas the Holding Corporation is desirous of organizing and purchasing fire insur- ance companies, and is desirous of securing the services of the Tuttle Underwriting Agency to manage the underwriting of said companies. Now, therefore, to all whom it may concern, be it known that the parties each, in consideration of $1 by each to the other in hand paid, receipt of which is hereby acknowledged, and the covenants and conditions herein set out have agreed as follows: First. The Protective Holding Corporation hereby agrees that it will devote the proceeds of the sale of its present capital stock and of the further increases in its capital stock, from time to time, until the sum of $5,000,000 shall have been secured to the organization and funding of a fire insurance company to have a capital of $2,500,000 and a paid-in surplus of $2,500,000 or in the purchase of controlling interests of an existing fire insurance company or companies, and that the aggregate of its investments in the fire insurance business shall be at least $5,000,000. Second. The Protective Holding Corporation hereby agrees that it will procure or 'cause to be procured contracts between each of the fire insurance companies it from time to time controls and the Tuttle Underwriting Agency as underwriting manager. Third. That said contracts will employ, constitute, and appoint the Tuttle Under- writing Agency as the sole underwriting manager for each fire insurance company for a period of 15 years for the United States and Dominion of Canada; and the contract shall be as per the attached copy which is hereby made a part of this agreement. In witness whereof, the parties hereto have hereunto caused these presents to be signed by their proper officers, and the seal of said corporations affixed thereto the day and year first above written. Protective Holding Corporation, By Wm. N. Titcomb, President. By Frank S. Thompson, Secretary. Tuttle Underwriting Agency, By Robert R. Tuttle, President. By Jennie T. Tuttle, Secretary. Clarence W. Darling, This agreement made and entered into the day of , 1909, by and between the of , party of the first part, and the Tuttle Underwriting Agency of Syracuse, N. Y., party of the second part, witnesseth, that for and in consideration of the sum of $1 in hand paid by second party to the first party, the receipt of which is hereby acknowledged, is agreed: First. That the company hereby employs, constitutes, and appoints the said party x>i the second part as its sole manager for a period of 15 years from the date hereof for the United States of America and the Dominion of Canada, and the company agrees to enter any State, Territory, or Province of the Dominion of Canada which it can lawfully enter for the purpose of writing business therein upon the statement of said general manager that he is prepared to write business therein. INVESTIGATION OF INSCTKANCE COMPANIES. 483 Second. The power authority, and duties of said general manager shall be as fol- lows, viz: lney shall have the sole and exclusive right to write or cause to be written insurance business for said company within said territory. They shall write and issue or caused to be issued all policies of insurance which the company is authorized to issue. I hey shall do and perform all the acts of writing, signing, indorsing, and renewing policies or contracts of insurance for the company. They shall pass upon or accept or reject all risks offered to the company during said term of management, and in consideration of such power, they hereby agree to accept no risks for the company but such as are fair, reasonable, and proper to the best of their judgment. They may reinsure risks for the company in whole or in part, as may seem to them desirable for the interest of the company, but shall not reinsure at one time more than 10 per cent of the total business of the company without first securing the consent of the majority of the directors of the company or the executive committee of the company. They shall receive all moneys for premiums and shall give all proper receipts therefor in the name of the company, and are empowered to indorse any and all checks drawn therefor in the name of the company; all funds, however, shall be deposited in banks satisfactory to the company by said Tuttle Underwriting Agency as managers, and shall give all notices of cancellation or other notices which may be necessary or proper for the business or welfare of the company. They shall have power to appoint or remove subordinate, general, and local agents for the business of the company throughout said territory and shall use their best judgment in making such appointments. They shall adjust all losses under the company's policies, either directly or by appraisers or adjusters selected by them, and shall pay said losses by check or draft out of the funds on hand, the property of the company, or in case of sufficient funds not being in their hands by draft on the company at its home office. They shall well and truly account to the company, as hereafter set forth, and shall in all respects, with due fidelity and to the best of their judgment and ability, conserve and advance the welfare and interest of the company, and do all acts and things necessary and proper to promote the same. Third. Said general managers shall render to said company detailed monthly reports of the business done by them for it on or about 30 days from the close of the month reported. Said reports shall recite the amount of business transacted during the pre- ceding month and said general managers shall pay to said company the net premiums as shown therein 90 days from the close of the month so reported — that is to say, that the premiums for the business written during, for example, the month of January, shall be paid to the company by the end of April, and so on throughout the year, but said general managers shall be entitled to deduct and retain from such remittance their compensation set forth in the following paragraph: Fourth. Said general managers shall receive as compensation for their services under this contract 35 per cent of the gross premiums written. The term "gross premiums" to include the premiums in full less return premiums and cancellations. The said general managers shall pay all expenses of conducting the business, such as commissions to agents, subagents, general agents and brokers, special agents' salaries and expenses, expense of adjusting losses, local board expenses, clerk hire, and shall provide all policies, forms, agency supplies, stationery, and shall pay telephone, telegraph, postage and expressage, and all other expenses where incurred by or for the underwriting department of the business. The company shall pay its officers' salaries, taxes, and insurance department fees, and such maps as it may buy shall be its property. And said general manager shall receive, in addition to the aforesaid compensation, a 10 per cent commission on the net profits of the business written or procured by said general managers, said net profits to be computed and determined as follows, viz: From the "gross premiums as above designated received and accounted for by the said Tuttle Underwriting Agency, each year there shall be deducted 40 per cent of such net gross premiums as an agreed expense to cover all commissions, taxes, license fees, adjustment and board expenses, supplies, and all other expenses attending the business; and all losses, provided, however, that for the purpose of arriving at a pre- liminary settlement at the end of each year, unadjusted losses may be estimated by the parties hereto, and if subsequently adjusted for a greater or less amount than esti- mated the same shall be corrected by a supplementary statement of succeeding yea»; all losses for any reason omitted in any year shall be accounted on statement of suc- ceeding year. Said contingent or profit commission to be payable on April 1st each year, and shall be computed for such 12 months ending March 1. Fifth. In the event of a rate war in any place in which the company shall be oper- ating, the result of which shall be cancellation of 25 per cent or over of the business of said company, it is understood and agreed that saia company shall not charge said general managers with return commissions on such canceled business. 184 INVESTIGATION OF INSUBANCE COMPANIES. Sixth. There Bhall be a complete and accurate audit of the accounts of said general managers with said company, made annually during the month of April by a compe- tent accountant to be designated by the company, the expense of which audit Bhall be borne equally by the company and general managers. The business done by said general managers for the company shall be open for inspection for the company by such agents or representatives as the board of directors shall select. Seventh. Said general managers shall give bond in the sum of $15,000 to the com- pany. Said bond shall be conditioned so that it will cover all funds of said company coming into the possession and control of said general managers. The expense of obtaining sureties on such bond shall be paid by said company. Said general mana- gers shall be responsible to the company for all agents' balances, whether collected by him or not. Eighth. The said general managers shall not subject the company to a larger loss by one probable fire than legal limitations permit. It is agreed that whenever the total amount of business written shall, by reason of the legal requirements of the unearned premium fund reduce the net "surplus to 10 per cent of its capital, the directors may require the general managers to limit the amount of new business to a sum which will permit the surplus to remain above 10 per cent of the capital at all times. Ninth This contract may be terminated by either party for any gross violation of its condition upon 90 days'" notice by registered mail to the party upon whom notice is served, and in the event of the termination of the contract the company shall pay as full compensation to the general managers and in lieu of any other damages 60 per cent of the gross sum which siid general managers have expended during the entire operation of the contract in the establishment of its business and agency plant. Such sum shall be ascertained by subtracting from all the expenses incurred the com- miss'ons actually paid to agents. In witness whereof the said Insurance Co. has caused these presents to be signed by its and its corporate seal affixed thereto, and the Tuttle Under- writing Agency has hereto set their signature, this .... day of , 19 . . . Witness: State op New York, Insurance Department, New York, September SI, 1910. Hon. William H. Hotchkiss, Superintendent of Insurance, Albany, N. Y. Sir: Acting under the instructions contained in your appointment No. 2428, dated July 9, 1910, and annexed herewith, I have made an examination of the Protective Fire Insurance Co. of Syracuse, N. Y. certificate of incorporation. The certificate of incorporation, a copy of which is herewith annexed as Exhibit A, was executed on May 20, 1909, and received the approval of the attorney general on June 21, 1909. The corporation is organized under the provisions of section 110, Article III, of the insurance law, for the purpose of carrying on the business of insur- ance against loss by fire, lightning, storms, earthquakes, or by any of the risks of lake, river, canal, and inland navigation and transportation, including insurance upon automobiles. The corporate powers are vested in a board of directors, consisting of 21 persons, and the incorporators, all residents of Syracuse, N. Y., are named as the directors of the corporation for the first year. The capital stock of the corporation is named at $200,000, divided into 20,000 shares of the par value of $10 each. METHOD OF OBTAINING CAPITAL AND SURPLUS. In order to secure the capital and surplus for this company the Protective Holding Corporation of Syracuse, N. Y., a corporation organized under the business corporation law of this State, is now engaged in selling its stock to the public at $20 per share, $10 of which is to be applied for the capital and $10 for the surplus of the fire insurance company. The holding corporation proposes to obtain the controlling interest in the fire insurance company, to increase the capital stock of the latter to the sum of $2,500,000, and to riro'"'de a surplus amounting to the sum of $2,500,000. INVESTIGATION OF INSURANCE COMPANIES. 185 The history, progress, and details of the plan are described at length in a separate report on the examination of the Protective Holding Corporation, dated September Up to August 1, 1910, the Holding Corporation has received subscriptions for 10,675 shares; cash payments amounting to $66,464.29; subscription notes amounting to $45,236, and has issued 1,240 shares of stock fully paid for to its subscribers. The assets owned by the Holding Corporation on the above date, available for the capital and surplus of the insurance company, consisted of cash amounting to $26,263.08, and subscription notes amounting to $45,236. In addition, there are unpaid installments to be collected on account of subscription agreements amounting to $96,927.71. 5 The cost of promotion to August 1, 1910, inclusive of disbursements made and liabilities accrued, amounts to $47,843. At a meeting of the board of directors of the Protective Holding Corporation, held at Syracuse on August 9, 1910, the following resolutions were adopted: "First. Authorizing the executive committee to enter into a contract to purchase sufficient stock of the Protective Fire Insurance Co. to obtain and retain control of that corporation. "Second. That the executive committee take such action as is necessary on the part of the corporation to arrange with the Protective Fire Insurance Co. and with Wightman & Dudley for the contract sale of a portion of the stock of the Protective Fire Insurance Co." CONTRACT WITH TUTTLE UNDERWRITING AGENCY. When organized and licensed to transact business, this insurance company will execute a contract with the Robert R. Tuttle Underwriting Agency, a corporation organized under the laws of this State and engaged in fire insurance underwriting. By the terms of this proposed contract the underwriting agency is appointed as gen- eral manager for a period of 15 years for the United States and Canada, with full power and authority to appoint and remove general and local agents, to accept or reject risks, to receive moneys for premiums, and to adjust and pay losses. The compensation of the general manager is stated to a commission of 35 per cent, the general manager to pay the expenses of conducting the business, excepting salaries of officers, taxes, insurance department fees and maps, and an additional 10 per cent to be paid from the profits of the corporation at the end of each year. The form of this contract was approved by the Holding Corporation, which will control a majority of the stock in the insurance company, and by an agreement entered into with the underwriting agency, it pledged itself to piocure the above contract from the fire insurance company. The agreement referred to was executed by Robert R. Tuttle, acting as president of the underwriting agency, and by William N. Titcomb, an employee of Robert R. Tuttle, acting as president of the Holding Corporation. Immediately after the execution of the above agreement, William N. Titcomb resigned as president of the Holding Corporation, and Robert R. Tuttle was elected in his place. At present, Robert R. Tuttle is president of the Holding Corporation and of the underwriting agency. Since the completion of this examination, the form of the underwriting contract has been modified in the following manner: 1. The firm of Tuttle, Wightman & Dudley has been substituted in place of Robert R. Tuttle Underwriting Agency. 2. The term of the contract has been changed from 15 years to 1 year. 3. The company will pay commissions to local agents, not exceeding 324 P er cent, and all expenses of conducting the business. The underwriters will receive an over- riding commission of 2 per cent, and a contingent of 10 per cent on the net profits. In the States of New York, New Jersey and Pennsylvania, the underwriters will receive a flat commission of 32J per cent, and overriding of 2 per cent and a contingent of 10 per cent, the company providing supplies and equipment. 4. The directors of the fire insurance company will have authority to cancel un- profitable agency contracts, and to cancel policies in districts where the losses exceed 60 per cent of the net premiums. PROSPECTUS. The official prospectus of the Holding Corporation and the fire insurance company names the proposed capital and surplus as $5,000,000, to be realized from the sale of stock in the Protective Holding Corporation, at $20 per share, half of which shall be applied for the capital and half for the surplus of the fire insurance company. 186 INVESTIGATION OF INSURANCE COMPANIES. The Holding Corporation will control 51 per cent or more of the stuck of I he insurance company, and will be in a position to absolutely direct and dictate the policy and management by appointing its own officers and directors on the board of (lie insurance company. The prospectus on page 12 contains the following reference to the capital and surplus of the fire insurance company: "The par value of the stock is fixed at $10 per share and $10 additional on each share is to be paid by each subscriber to form a surplus.. This method places the company upon a sound insurance basis, and is recommended by all insurance authorities. As the surplus belongs to the stockholders, it, of course, makes the stock worth that much more. We propose to * * * provide a surplus equal to the capital; thus, with no necessity of increasing the surplus, dividends will be available from the beginning." It is claimed that this prospectus has not been in use for the past eight months. In addition to the official prospectus, a pamphlet has been issued by the promoters, entitled "The men, the business, the profits," in which the average net earnings of 28 New York State fire insurance companies for 1909 are stated to have amounted to 87 per cent, and the average net earnings for the last 10 years are 29 per cent. On page 14 of the pamphlet, the following statement is made: "The Protective Fire Insurance Co. of Syracuse, N. Y., now chartered by the State of New York to conduct the general business of fire insurance, will begin operations with a paid-in capital of $400,000 and a paid-in surplus of $400,000. The capital and surplus, totaling $800,000, is now being provided by the sale of 40,000 shares of the capital stock of the Protective Holding Corporation of Syracuse, N. Y., at $20 per share, $10 of which is capital and $10 surplus." In a new pamphlet issued since the completion of this investigation, this statement has been modified to read as follows: "The Protective Fire Insurance Co. of Syracuse, N. Y., now chartered by the State of New York to conduct the general business of fire insurance, will begin operations with a pai.l-in capital of S-100,000 and a paid-in surplus of $400,000, less the necessary organization expenses, which include the establishment of the company's agencies for the writing of fire insurance." An appeal for subscriptions, entitled "Seven remembers," has been issued to business men who desire to act as local representatives of the fire insurance company, in which the inducement of an appointment as a local agent is held out to such subscribers. The subscriber is requested to mail his subscription, coupled with an application for a local fire agency, to Xu. 139 Fifth Avenue, New York, where it will receive the personal attention of Mr. Robert R. Tuttle, who appoints local agents. This applica- tion outlines the prospect of a great (ire insurance company with 10,000 stockholders, 1,000 of whom will be its agents and 9,000 property owners insured in the company. The subscription is, however, not conditioned upon the appointment of the sub- scriber as an agent of the company. Subscriptions are also solicited from United States postmasters, and a list of 95 postmasters who have subscribed for the stock of the Holding Corporation has been published and circulated through the mails. In a pamphlet entitled "Many millions sent obroad," and showing the premiums paid to foreign fire insurance companies doing business in the United States, the state- ment is made that "the business in New York State alone which the Protective can obtain assures a profit of enough to pay 7 per cent dividends on the capital stock the first year it operates. This is exclusive of the rich field outside of New York State which this company will immediately invade." It is claimed by the officers of the company that this pamphlet was prepared by one of the original promoters of the company, and is not in use by the present management. CONCLUSION. Judging from the past experience of the Holding Corporation, and from the results obtained to date of this examination, the prospect of financing a $5,000,000 fire insur- ance company would appear to be somewhat remote. In the literature heretofore issued and circulated through the mail no mention had been made of the cost of promotion- and expenses of organization. The new pamphlet issued since the completion of this investigation seeks to remedy this omission, and the methods adopted by the corporation since May, 1910, have resulted in considerably reducing the ultimate cost of financing the fire insurance company. The underwriting contract, which was originally for a term of 15 years, was modified in many respects to meet the views of this department. Respectfully submitted. Leon S. Senior, Examiner. INVESTIGATION OF INSURANCE COMPANIES. 187 State of New York, County of New York, ss.: Leon S. Senior, being duly sworn, deposes and says that the foregoing report, sub- scribed by him, being an amendment of the report subscribed and sworn to by him on the 12th day of September, 1910, is true to the best of his knowledge and belief. Leon S. Senior. Subscribed and sworn to before me this 23d day of September, 1910. [seal.] Kate F. Cahill, Notary Public, Nevj York County. Exhibit A. certificate of incorporation. We the undersigned, all being persons of full age and citizens of the United States and the State of New York, do hereby declare that it is our intention to form a cor-, poration, under and pursuant to the act of the Legislature of the State of New York passed February 17, 1909, being section 110 of Article III of chapter 28 of the Con-. solidated Laws of the State of New York, known as the insurance law, and acts supple- mental thereto and amendatory thereof, to carry on the business of making insurance on dwelling houses, stores, and all kinds of buildings and household furniture and other property against loss or damage by fire, lightning, windstorms or tornadoes, earthquakes, and upon vessels, boats, cargoes, goods, merchandise, freights, and other property against loss or damage by all or any of the risks of lake, river, canal, and inland navigation and transportation, including insurances upon automobiles, whether stationary or being operated under their own power, and to effect reinsurance of any risks taken by it; and for that purpose we do hereby adopt the following charter, to wit: Article I. The name of the corporation to be created is the Protective Fire Insurance Co. Art. II. The place of the location of its office is Syracuse, Onondaga County, N. Y. Art. III. The company is organized for the purpose of carrying on the business of making insurances on dwelling houses, stores, and all kinds of buildings and house- hold furniture and other property against loss or damage by fire, lightning, wind- storms or tornadoes, earthquakes, and upon vessels, boats, cargoes, goods, merchan- dise, freights, and other property against loss or damage by all or any of the risks of lake, river, canal, and inland navigation and transportation, including insurances upon automobiles, whether stationary or being operated under their own power, and to effect reinsurance of any risks taken by it. Art. IV. The corporate powers of the company shall be vested in and exercised by a board of directors consisting of 21 persons, a majority of whom shall be citizens of this State, and each of whom shall always be the owner in his own right of at least $500 of the stock of said company at its par value. The number of directors shall, in no case, be less than the minimum number of incorporators required under chapter 28 of the Consolidated Laws of the State of New York for the year 1909, known as the insurance law. Art. V. The following persons, a majority of whom are citizens of the State of New York, are the directors who are to manage the affairs of the company for the first year: Byron F. Burdick, Charles M. Bedell, Charles C. Barrett, William N. Titcomb, Frank S. Thompson, Alexander Longway, Eliotte A. Tuttle, Arthur B. Post, Price C. Foote,. Kendace H. Kinne, Anna H. Carroll, Flora Landre, Ella Cooper, Florence Apple- gate, Charles Ralph, Solomon H. Jalonack, Elmer E. Rust, Kathryn Gleason, Frank Purnell, Clarence W. Darling, Katherine Connolly, of Syracuse, N. Y. Art. VI. The manner of electing its directors and officers,' a majority of whom shall be citizens and residents of this State, is as follows: The directors shall be chosen by stockholders by ballot. The time of such election of directors shall be at the first annual meeting of said company, to be held at 12 o'clock on the third Tues- day of October in the year 1910, at which meeting and thereafter at each annual meeting of said company, to be held upon the same date and at the same hour in each year, said board shall again be chosen and elected to serve for one year. Said directors shall hold office, after the expiration of the term for which they may be elected, until their successors are duly elected in their stead, and directors shall be eligible for reelection. 188 INVESTIGATION OF INSURANCE COMPANIES. Art. VII. The officers of this company shall consist of a president, one or more vice presidents, and a secretary and treasurer, who, from time to time, shall be appointed by the board of directors. The time of the election of officers shall be at a meeting of the board of directors of said company, to belield as soon as conveniently may be in each year after the directors of said company are elected. The president and vice presidents shall be elected from among the members of the board of directors. Art. VIII. The manner of filling vacancies is as follows: A vacancy in the board of directors or among the officers shall be filled by the board of directors until the next annual meeting. Art. IX. The amount of capital to be employed in the transaction of business of the said company and to constitute its capital stock shall be $200,000, and the number of shares into which the same shall be divided is 20,000 of the par value of $10 each. Art. X. The fiscal year of the said company shall begin on the 1st day of January and shall end on the last day of December of each year. Art. XI. The duration of this company shall be 30 years. In witness whereof, we have hereunto set our hands and seals this 20th day of May, 1909. r.yron F. Burdick, Charles M. Bedell, Chas. C. Barrett, Win. N. Titcomb, Frank S. Thompson, Alexander Longway, Eliotte A. Tuttle, Arthur E. Post, Price 0. Foote, Kandace H. Kinne, Anna M. Carroll, Flora Landre, Ella Cooper, Florence Applegate, Chas. Ralph, Solomon H. Jalonack, Elmer E. Rust, Kathryn Gleason, Frank Purnell, Clarence \V. Darling, Katherine Connolly. State ok New York, County of Onondaga. City of Syracuse, ss: On this 16th day of June, 1909, before me personally came William N. Titcomb, Frank S. Thompson, Kandace II. Kinne, Anna M. Carroll, Flora Landre, Ella Cooper, Florence Applegate, Charles Ralph, Solomon H. Jalonack, Elmer E. Rust, Kathryn Gleason, Frank Purnell, Clarence W. Darling, and Katherine Connolly, to me known and known to me to be the individuals described in and who executed the foregoing instrument, and they severally duly acknowledged that they executed the same for the uses and purposes therein mentioned. U. D. Garfield, Commissioner of Deeds, Syracuse, N. Y. State of New York, County of Onondaga, City of Syracuse, ss: On this 17th day of June, 1909, before me personally came Byron E. Burdick, Charles M, Bedell, Chas. C. Barrett, Alexander Longway, Eliotte A. Tuttle, Arthur Post, and Price C. Foote, to me known and known to me to be the individuals described in and who executed the foregoing instrument, and they severally duly acknowledged that they executed the same for the uses and purposes therein men- tioned. U. D. Garfield, Commissioner of Deeds, Syracuse, N. Y. (County clerk's certificate attached.) State of New York, Attorney General's Office, Albany, June 21, 1909. I, Edward R. O'Malley, attorney general of the State of New York, do hereby certify that I have examined the annexed declaration of proposed charter of the Protective Fire Insurance Co. and that the same is in accordance with the require- ments of law. In witness whereof I have hereunto set my hand and affixed my official seal at the city of Albany the day and year first above written. [seal.] Edward R. O'Malley, Attorney General. State of New York, Insurance Department, Albany, March 8, 1910. I, William H. Hotchkiss, superintendent of insurance of the State of New York, do hereby certify that I have compared the annexed copy of proposed charter of the Protective Fire Insurance Co., together with attorney general's certificate of approval and proof of publication of notice of intention, with the originals on file in this department, and that the same are correct transcripts therefrom and of the whole of said originals. In witness whereof I have hereunto set my hand and affixed my official seal at the city of Albany the day and year above written. [seal.] William H. IIotchkiss, Superintendent of Insurance. INVESTIGATION OF INSUKANCE COMPANIES. 189 Report on the Examination of the Protective Corporation, Protective Holding Corporation, and Protective Fire Insurance Co., of Syracuse, State of New York, Insurance Department, ^ New York, February 14, 1911. Hon. William H. Hotchkiss, Superintendent of Insurance, Albany, N. Y. Sir: Acting under the instructions contained in your appointments Nos. 2606, 2607, and 2615, dated January 18 and 27, 1911, and annexed hereto, I have examined the condition and affairs of the Protective Corporation, the Protective Holding Corpora- tion, and the Protective Fire Insurance Co., all of Syracuse, N. Y. protective fire insurance co. In a previous report on an examination of the above company, dated September 21, 1910, I stated the facts relating to the incorporation of the company and the methods by which it was proposed to obtain the capital and surplus to enable it to transact the business of fire insurance. - The certificate of incorporation was executed on May 20, 1909, and provides for the organization of a fire insurance company with a capital stock of $200,000. No part of the authorized capital stock has been paid in cash and no further steps have been taken to complete the organization of the company or to secure the author- ity of the superintendent of insurance to transact business as required by law. Under the provisions of the stock corporation law the right to complete the organization will expire on June 22, 1911. protective holding corporation. On October 11, 1910, the directors of the above corporation adopted a resolution changing the corporate name from "Protective Holding Corporation" to "Protective Corporation." The reasons for the change of name are stated in the resolution to be as follows: "That the said name 'Protective Holding Corporation' would indicate that the said corporation's power under its charter were confined to the holding of stock or securities of another corporation or of other corporations, whereas said corporation has other and further and much broader powers under its said charter, and for the further reason that certain criticisms had been made of holding corporations, which criticisms are not applicable to this corporation, and it is desired not to call the pub- lic's attention to such criticism by the use of the word 'holding' in said corporate name." protective corporation. This corporation now operates with offices both at Syracuse and New York. It is engaged in securing the capital and surplus for the organization of the Protective Fire Insurance Co. in the manner set forth in the former report submitted to you under date of September 20, 1910, on an examination of the Protective Holding Corporation. It is selling its stock by mail through the agency of the firm of Tuttle, Wightman & Dudley, located at 439 Fifth Avenue, New York. All members of this firm are directors of the corporation. The agency contract with the said firm went into effect October 1, 1910, and a copy of the contract is herewith filed as "Exhibit A." The plan of the sale of the stock consists mainly in sending circular letters to persons whose names appear on mailing lists. These lists appear to be classified according to occupation as follows: Bank cashiers, bank directors, fire insurance agents, postmasters, property owners, lawyers^ physicians, dentists, teachers, and educators. The stock of the corporation is offered to subscribers at $20 per share, $10 of which is to be applied for the capital and $10 for the surplus of a fire insurance company to be known as the Protective Fire Insurance Co. The, subscription price is payable in cash, in part cash and in monthly installments at' the rate of 10 per cent per month, and in other ways. The agents receive a commission equal to 5 per cent of the total subscription price, payable on receipt of the first installment. The following financial statement shows the condition of the company on January 190 INVESTIGATION OF INSURANCE COMPANIES. Actual cash income. Cash received from subscribers $193, 471. 25 Interest 442. 47 Total income $193, 913. 72 Disbursements. Expense account, Syracuse office: Salaries ' $13, 974. 00 Printing 8, 285. 27 Commissions: To Wigktman & Dudley $26, 107. 00 To Tuttle, Wightman & Dudley. 4, 675. 00 To other agents 4, 848. 70 35,630.70 Postage and stationery 943. 40 Discount and exchange 155. 12 Legal fees, disbursements, and expenses 2, 353. 68 Bent 425. 00 Traveling expenses of officers and directors 2, 007. 73 Audits 740. 60 Advertising 88. 51 Miscellaneous 2, 743. 96 Taxes 1, 833. 80 Expense account. New York office: Rent 662.50 Salaries 2, 927. 23 Postage 7, 932. 15 Printing 2, 997. 97 Advertising 829. 37 Miscellaneous 2. 537. 84 69, 181. 77 17, 887. 06 Total disbursements 87, 068. Balance 106, 844. Invested as follows: Deposits in banks and trust companies 104, 477. 19 Advances to agents 1, 766. 70 Furniture and fixtures 601. 00 Total 106, 844. 89 Subscription account. Amount subscribed for capital $182, 290. 00 Amount subscribed for surplus 182, 290. 00 Total subscription $364, 580.00 Cash actually received from subscribers 193, 471. 25 Transfers from Government Securities Co 4, 872. 00 Subscription notes 54, 314. 00 Deferred installments Ill, 922. 75 Total , 364, 580. 00 This account represents subscriptions for 18,229 shares of stock. Out of the total subscription 6,093 shares have been paid in full, 3,084 shares have been paid in part by cash and part by notes, and 9,072 shares are being paid for by monthly installments. Subscription notes amounting to $32,000 are overdue; payment was refused in a number of cases and extensions granted in many others. > Includes $2,700 in payment of commissions due a former agent and for his office furniture and other supplies. INVESTIGATION OF INSURANCE COMPANIES. 191 INCOME AND DISBURSEMENTS. It is evident that a corporation like this is not entitled to full credit for deferred payments, whether they are represented by notes or by contracts. It is, therefore, impossible to reach an accurate basis indicating the percentage of its assets which has thus far been expended in promoting the enterprise. The correct percentage is some- where between 45 per cent and 23 per cent, probably much nearer the latter than the former figure. A comparison of the financial statement submitted in the report on the last exami- nation with the statement shown herein indicates that the total cash receipts for the period intervening between August 1, 1910, and January 25, 1911, amounted to $127,343.57 and the total cash disbursements to 148,509.16. The ratio of cash dis- bursements to cash receipts for the period above stated is equal to 38 per cent. The subscription account for the same period shows an increase of $151,080, representing subscriptions for 7,554 shares of capital stock. The expenses of the corporation, as compared with the subscriptions secured during the above period, are equal to 32 per cent. It is claimed by the representatives of the company that the last-mentioned per- centage is higher than that for the whole period of the company's existence, by reason of heavy expenses incident to the advertising campaign begun since August 1, 1910, and continued throughout the period since that date; the total results of which cam- paign have not yet been realized. The expectation that the cost of selling stock through the agency of Tuttle, Wight- man & Dudley would be reduced to 15 per cent has not yet been realized. The con- tract with the above firm provides for an expense not exceeding 10 per cent of the total amount of subscriptions. The expense of the New York office of the corporation from October 1, 1910, to date of this examination amounts to $17,887 and exceeds the limitation provided for by the contract by $7,617, which excess represents an accumu- lation of disbursements always incident to the beginning of an advertising campaign; this, however, does not amount to a violation of such contract. The policy of the company as to refunds was somewhat investigated. One impor- tant case, where the corporation refunded to a stock subscriber the sum of $3,000 was given particular attention. It appears from the statement of the counsel of the com- pany that this refund was made for the reason that legal questions in this case made it doubtful whether the company could recover. In a case where a refund was made to a person who had been given an agency appointment, the company insisted upon the cancellation of such appointment and the same was canceled. In a number of cases the officers refused to make a refund on the ground that the corporation had no legal right to cancel subscription agreements, and that the return of payments to sub- scribers would be inequitable to the remaining stockholders, whose interests had to be conserved. The number of refunds developed on the examination did not exceed 12. FORTUNE COLONY. On November 22, 1910, the executive committee adopted the following resolution: "Whereas the Protective Holding Corporation has negotiated and made arrange- ments with interested parties for the sale of 2,000 shares of the capital stock of this corporation through the 'Fortune Colony': Now, therefore, be it "Resolved, That this corporation reserve and set aside 2,000 shares of the capital stock of such corporation of the par value of $10 per share to be sold for $20 per share to subscribers of stock of the said Fortune Colony. "Whereas the Protective Holding Corporation is engaged in the sale of its capital stock to Messrs. Tuttle, Wightman and Dudley. "Whereas said Tuttle, Wightman and Dudley are selling part of the said company's stock under the name of the Fortune Colony, and "Whereas checks, orders and drafts are being received by said Tuttle, Wightman and Dudley from the sale of said stock payable to the Fortune Colony, and whereas it is desired that such checks, drafts, orders, etc., when so received, be deposited to the credit of the corporation in the company's depositories: Now, therefore be it "Resolved, That this corporation authorize and permit the receipt and deposit of such checks, orders, drafts, etc., so received to the company's credit and the credit of said company's account, in the Windsor Trust Co. of New York City, or such other bank or banks as this company may designate as its depositories, such checks to be indorsed with the name of the Fortune Colony payable to the Protective Holding Corporation for deposit to said company's credit." 192 INVESTIGATION OF INSUEANCE COMPANIES. Since the last examination the literature of this corporation has been supplemented by a, new pamphlet entitled "How to Build a Fortune," "Your own fortune, not somebody else's." On the inside page of this pamphlet appears the following: "The Fortune Colony of the City of New York, Richard Wightman, president, 437 Fifth Avenue, New York City." On the records of the county clerk of the City of New York, Richard Wightman is registered as transacting business under the name of ' ' Fortune Colony. ' ' There is an office in the building located at 437 Fifth Avenue, bearing an inscription on the door, "Fortune Colony, Richard Wightman, president." The opening paragraph of the pamphlet referred to herein gives the following description of the protective corporation: "It will own, control, and operate the Protective Fire Insurance Co., now charterd by the State of New York for the transaction of the business of fire insurance. The Protective's ultimate capital and surplus is set at $5,000,000. It has already estab- lished 1,700 agencies, which control an annual business of more than $200,000,000. ' ' The pamphlet consists of two parts. The first part deals with the history- of the Fortune Colony and informs the reader that the first series of membership was issued in connection with the bonds of a large real estate company, and that the second series now being issued are based on the stock of the Protective Corporation of Syracuse, N. Y. It advises that through membership in the Fortune Colony the subscriber can make a safe and profitable investment in Protective stock on easy monthly install- ments at the original and lowest price of $20 per share. The second part deals with (he Protective Fire Insurance Co. and gives the names of the directors of the Protective Corporation and is in other respects very similar to the pamphlet issued by the corporation entitled. " The Man, the Business, the Profits," referred to in the report on the previous examination. It states that the Protective Fire Insurance Co. of Syracuse, N. Y., now chartered by the State of New York to conduct the general busiress of fire insurance, will begin operations with a paid-in capital of S400.000, and a paid-in surplus of $400,000, less the necessary organization expenses, which include the establishment of the company's agencies for the writing of fire insurance. Among other things, it advises the prospective investor that he will participate in the profits of a business which is regulated by stringent laws of the State of New York and inspected and supervised by the competent heads of the insurance departments of every State where the Protective operates: that he will participate through membership in the Fortune Polony in the profits of one of the six largest-cap- italized fire insurance companies in America. In addition to this pamphlet, circular letters issued bv the Fortune Colony over the signature of Richard Wightman state that the Protective Fire Insurance Co., now char- tered by the State of New York, one of the largest fire inrurance companies in the country, whose ultimate capital and surplus is set at. $5,000,000 and whose agents now control an annual business in excess of $200,000,000, will be owned, controlled, and operated by the Protective Corporation of Syracuse. N. Y. lie further states that after negotiations and conferences covering many months, an arrangement has been entered into whereby the Protective has agreed to have set aside 2.000 shares of its capital stock of the value of £40,000 in the form of a special allotment to be taken exclusively by members of the Fortune Colony at $20 per share, payable in convenient montblv installments, and that under this arrangement only 95 Fortune Colony members may participate in this allotment, and that 50 of them, comprising group A, will receive 10 shares each: 30 of them, comprising group B, will receive 25 "shares ■each, and 15 of them, comprising group C, will receive. 50 shares each. Efforts were made to obtain the number of subscribers and the amount of stock subscribed for in ef cli group, but the information was refused by the officer in charge of the New York office of the corporation. The pamphlet and circular letter described herein convey the idea that the person who desires to become a member of Fortune Colony receives some special advantage which is not open to any other subscriber who desires to become a stockholder in the Protective Corporation. As has been stated before, all subscribers for stock, whether they have subscribed under the plan of the Fortune Colony or under any other plan, have received their subscriptions under exactly the same circumstances — that is, at the price of $20 per share payable in installments. It will be noted that according to the above-mentioned pamphlet, only 95 members may subscribe for stock of the Protective. As thus far the corporation has not refused subscriptions from anybody who was willing to pay for his stock, the limitation of the offer to 95 persons is calcu- lated to impress the prospective investor with the scarcity and value of the stock. The statement is made that not more than 95 persons have subscribed for Protective stock through the Fortune Colony. INVESTIGATION OF INSURANCE COMPANIES. 193 It is stated by Mr. Dudley that the circulation of the Fortune Colony literature was discontinued prior to January 1, 1911, and that this method of selling Protective stock will not be resumed. AGENCY PLANT. With respect to the agency plant, which, according to the literature, is now being established at the expense of the subscribers, I find that some inquirers for agency appointments receive letters describing the advantages of investment in the stock of the corporation . The only general-agency agreement executed by the corporation is the contract with the firm of Tuttle, Wightman & Dudley, referred to herein as "Exhibit A." In a pamphlet entitled "Two Boys, " and containing the portraits and biographies of Robert R. Tuttle and Richard Wightman, issued by this corporation, it is stated that the busi- ness in the office of Robert R. Tuttle & Co. exceeds $100,000,000 annually. The statement is repeatedly made in the literature and circulars of the corporation that it has established 1,700 agencies, which control an annual business exceeding $200,000,000. & These 1,700 agencies are represented by applications from, and negotiations with, a large number of local fire insurance agents, to some of whom the corporation has sold stock. The prospect of an agency appointment is in some cases dependent upon the purchase of stock. The literature of this company and of the Fortune Colony reiterates the statement that the agencies above mentioned control an annual business of over $200,000,000. It is incredible that this figure represents premiums, and it is in premiums that the gross business of a fire insurance company or agency should be expressed. It follows, therefore, that, if the statement above mentioned were expressed in terms of pre- miums, the figures used would be $2,000,000 instead of $200,000,000. REPRESENTATIONS. Throughout the literature issued by the corporation there are frequent references to the fact that the capital stock and surplus of the Protective Fire Insurance Co. "is set" at $5,000,000 and that its general agents control an annual business of over $200,000,000. As the authorized capital stock of the Protective Fire, according to its preliminary certificate filed with this department, is only $200,000, and contains no provision for a paid-up surplus, and as it has no license to transact business, has not completed its organization, has not paid in any part of its capital stock, has no general agents operating in the fire insurance business in that capacity, it is easy to perceive that these statements tend to mislead the prospective purchasers. In reply to many inquiries from subscribers, letters have been issued by the corpora- tion, stating that it is only paying $42 a month rent. This statement in regard to rent is not complete, since it only includes the rent of the Syracuse office. No mention is made of the fact that the corporation is now paying rent for a New York office, which since October 1, 1910, has amounted to $662.50. This sum is, in fact, an advance for such rental to Messrs. Tuttle, Wightman & Dudley, under the agency agreement, Exhibit A, hereto annexed, and subject to future adjustment. Letters written at various dates from October 1, 1910, invariably express the hope that the company will commence to write business within 30 or 60 days. Frequent mention is also made of the fact that one of the directors, a banker and a partner of an officer of the largest trust company in America, upon reading this department's report of the last examination, doubled his subscription. The director appears to be Henry E. Hiler, of Brockport, N. Y. The subscription referred to was made by him on October 17, 1910, in a letter which reads in part as follows: "I am sending forward subscription for my additional block of stock. Seeing that Albany has said her worst, I feel as though Wightman & Dudley are able to cope with the situation in the sale of stock." The additional stock referred to consisted of 10 shares at the subscription price of $200, payable in monthly installments. Frequent mention is made of the fact that the net assets of the corporation consist of $270,000. According to the testimony of Mr. Tuttle, there is included in this amount not only the cash assets but the unpaid installments and unpaid notes. Frequent references are made to the fact that stock is not sold through salesmen, but entirely through the mail on a commission of 5 per cent. T. F. Graehling, of Buffalo, N. Y., is employed as a salaried agent, at $2,500 per annum. So far as devel- oped on the examination, he is the only person regularly so employed. Statements are also made to the effect that the investments of a fire insurance company are prescribed and safeguarded by law and that there is no liability to stockholders of a stock fire insurance company under the laws of the State of New York. As the subscribers are not offered stock in a fire insurance company, but 194 INVESTIGATION OF INSURANCE COMPANIES. stock in a business corporation, not authorized to transact fire insurance, their invest- ments are not prescribed nor safeguarded by law. This particular argument with reference to the investments of fire insurance companies appears throughout the literature and correspondence of the company. EARNINGS OP FIRE INSURANCE COMPANIES. Statements are repeatedly made in the literature of this company to the effect that the average yearly net earnings on the capital of 28 New York fire insurance companies for the last 10 years amounted to 29 per cent, and the average net earnings of such companies, on the same basis, for the year 1909 amounted to 87 per cen(\. Statistics are given showing the net earnings and percentages of profit for the year 1909 for each of these companies. These statements are criticized for the reason that the basis of the figures — earn- ings on capital — is not the proper basis as understood by the department and fire insurance experts. The proper basis is the proprietary interest of the owners of a given company at the beginning of each year, that is, as affected by the existing liabilities and by the profits and losses, as well as the additions to and deductions from capital and surplus during the prior history of the company. The following table, which, as to the names of the companies, the capital stock, the net earnings for 1909, and the percentage of profit for 1909, is the table presented to the public by this company in its literature, includes also, in the last column, the percentage of profit on the basis of proprietary interest and not on the basis of earnings on capital, which is indicated in next to the last one. Name of company. Agricultural Albany Buffalo Gorman Commerce Commercial Union Commonwealth Continental Dutchess Empire City German Alliance German- American Germania Glens Falls Globe Col. Judson. Well, I was not asked the question. I will say this, however, that there was the evidence that I invited attention to yesterday of the commissioner of insurance of the State of New York, to Mr. Ingham, that he at least took up the business of the company while he was there with the commissioner of insurance. Mr. Easby-Smith. WTiich company ? Col. Judson. Not this company, however. I was under that im- !>ression when I testified, but I learned later, on looking over the etter, that it was the First National Insurance Co. Mr. Easby-Smith. You mean this letter of December 5 from Mr. Emmett ? Col. Judson. I think that is the one, yes. I was under the im- Sression from memory that it was the Commercial, but it is the First [ational. Mr. Easby-Smith. Did not Mr. Ingham in that first interview tell you upon what business he was in New York ? Col. Judson. I think likely he did, but I have forgotten what he said it was. Mr. Easby-Smith. I believe Mr. Curry also in that interview at- tempted to excuse his part in it by pointing out certain parts of the report which had been inserted with the purpose of relieving himself from criticism ? Col. Judson. Yes; he showed that it had been done by the direct authority of his superior. Mr. Easby-Smith. Did he do that voluntarily, or in response to some criticism that you made ? Col. Judson. I think he did it voluntarily; that is my recollection. Mr. Easby-Smith. In other words, he was damning Mr. Ingham and excusing himself in one breath ? Col. Judson. Well, if you put it that way Mr. Easby-Smith. Well, did you look upon it in that way % Col. Judson. Yes; I looked upon it in that way. Mr. Easby-Smith. Do you now recall the fact that Mr. Curry was an applicant for the position at the same time that Mr. Ingham was 'I Col. Judson. I recollected that. Mr. Easby-Smith. Do you recall that there has been personal diffi- culty, so far as feelings are concerned, between Mr. Ingham and Mr. Curry? Col. Judson. I did not know that there had been any since the appointment of Mr. Ingham, although Mr. Easby-Smith (interposing). Did it occur to you that Mr. Curry was probably trying to curry favor with you in this interview ? Col. Judson. No ; that did not occur to me, that he was trying to curry favor with me. I was only after the facts. 224 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Easby-Smith. Did you take all of his statements at their face value ? Did you believe what Curry told you ? Col. Judson. Well, I thought .probably" there was a good deal of truth in what he said ; yes. Mr. Easby-Smith. Do you believe so now > Col. Judson. I have not had any proof that what he told me was not true. Mr. Easby-Smith. What is your present attitude, Mr. Judson, toward the superintendent of insurance, concerning your belief in his integrity ? Col. Judson. Well, sir, is that, a matter of opinion you want •to ask me ? Mr. Easby-Smith. I want to know just your feeling and opinion concerning his integrity. Col. Judson. Well, sir, I am not certain as to his integrity. Mr. Easby-Smith. What makes you uncertain ? Col. Judson. A combination of things. Now, I can not help Teverting to those doubts that I had when he was appointed. How- ever, I dismissed those at one time from my mind, but they return naturally. I thought it was very significant that this examination of this company was made as of the 31st of October. It was just two days after they had acquired this building, and had an oppor- tunity, through an appraisal of that building at more than it nad cost them, to cover up the losses of the previous period. I thought that was very significant. Mr. Easby-Smith. Did you ask Mr. Ingham why he made the examination at that time ? Col. Judson. No; I did not ask him, because I did not think, if he was guilty of any wrongdoing, that he would confess it. Mr. Easby-Smith. You did not give him a chance to tell you why 1 Col. Judson. No; I did not. Mr. Easby-Smith. Suppose, Mr. Judson, he had told you that he did it because they had increased their capital stock to $200;000, and had called upon him to make an examination, which, under the law, he was compelled to make upon that increase, would you have con- sidered that? Col. Judson. Well, if he had told me that I would have said his statement disagreed with his report entirely, because that does not show that it was increased to $200,000, but to $337,060. Mr. Easby-Smith. I mean that it had been increased from $200,000 to $337,000 Col. Judson. To $337,000. Mr. Easby-Smith. Yes. If you had asked him and he had given you that response, you would not have considered it sufficient^ Col. Judson. Well, I don't know whether I would or not. I would not, without further explanation, because I do not see now why he should have been called on for an examination when it was increased to $337,000 any more than $320,000 or $300,000. Mr. Easby-Smith. Did you ask him why he had made an examina- tion of the First National ? Col. Judson. As of the same date ? Mr. Easby-Smith. Yes. Col. Judson. No ; I did not ask him why he had made an examina- tion of that company. INVESTIGATION OF INSURANCE COMPANIES. 22& Mr. Easby-Smith. That was one of the significant features of the report, and yet you did not interrogate him about it? Col. Judson. I had no idea, if the significance indicated anything wrong, that I would get any further information from him about it. Mr. Easby-Smith. Have you told us everything that you know, both of your own knowledge and what has been told to you, which might bear upon the question of Mr. Ingham's integrity ? Col. Judson. I think I have. I think I have told you every- thing — unburdened myself. Mr. Easby-Smith. Are you now prepared to cite any fact or instance besides what you have already cited, of any misconduct in office on the part of Mr. Ingham ? Col. Judson. I should say, or what I will speak of now, hardly relates to misconduct, but I think' ignoring other things, the per- functory manner in which he performed his duties, making a report whiGh was serviceable to these people who were selling stock, as I thought, with wrongful representations; at least, the perfunctory manner in which he had performed his duties, not bringing these important facts to the attention of the commissioners, not suggesting legislation, if any were necessary, to cure a situation; not bringing it to our attention at all that here was going on something that was wrong, when he was the commissioner of insurance — I thought that that demonstrated in itself, not misconduct, but unfitness. Mr. Easby-Smith. Do you charge that Mr. Ingham acted cor- ruptly in the appointment of the appraisers for this building? Col. Judson. Imake not that charge. I have told the committee what was significant about it. Mr. Easby-Smith. Do you suspect that he was corrupt in the appointment of those appraisers ? Col. Judson. I am unwilling to make that charge. I do not like to make it, because of Mr. Ingham. Mr. Easby-Smith. You need not spare him, Colonel. Tell us what you think. Col. Judson. I mean I dislike even to charge him with a suspicion on my part, but I do think there were significant things there that would be evidence of wrongdoing, but not proof by any means. Mr. Easby-Smith. In other words, you are not willing to stand before this committee and make an open, frank charge against him,, but you are willing to point out what you consider significant facts, ae> an insinuation against his' integrity % Col. Judson. Only in response to your questioning. I am obliged to answer your questions, and they expose that state of affairs. Mr. Easby-Smith. Is that the fact, that you do not make a charge, but that you suspect and point out to the committee the- significant things as the basis of your suspicion ? Col. Judson. Under your questioning, I have pointed out the things that seemed significant to me, and the committee can pass upon- them, and my opinion of them need not be of any weight at all. Mr. Easby-Smith. You pointed all these things out upon your direct examination, did you not — without my cross-questioning, did' you not * Col. Judson. Perhaps so. Mr. Easby-Smith. And' especially called the committee's atten- tion to the significance of certain facts ? 226 INVESTIGATION OP INSUKANCE COMPANIES. Col. Judson. I believe I did. Mr. Easby-Smith. Have you any charge to make that Mr. Ingham has received any favors, pecuniary or otherwise, from these com- panies, or anyone connected with them ? Col. Judson. No; I have no charge of that kind to make. Mr. Easby-Smith. Do you suspect that ? Col. Judson. I would ask the committee whether my suspicions, way down in my mind, must be revealed ? I think they are without significance in this matter. Mr. Easby-Smith. I will pass it if you are not willing to say. Have you stated recently that you had ample proof that Mr. Ingham was hand in glove with these companies, and had been for six or eight months ? Col. Judson. Hand in glove — using that expression ? Mr. Easby-Smith. Yes. Col. Judson. I do not remember using that expression. I may have said that he was at their dinner and friendly with them in recent times. Mr. Easby-Smith. To whom did you state that ? Col. Judsox. I do not remember. I say I may have said it, be- cause I know I have thought it, but to whom I have said it I do not know. Mr. Easby-Smith. Did you in connection with that state that you would produce plenty of witnesses before this committee to prove that ? Col. Judson. Oh, no; I do not think so. Mr. Easby-Smith. Are you quite sure of that? Col. Judson. Yes; I am quite sure I did not make that statement. Mr. Easby-Smith. You state that positively ? Col. Judson. Yes; I do not think I ever made any such statement as that. Mr. Easby-Smith. Have you told us everything you know reflect- ing upon Mr. Ingham's integrity or competency? Col. Judson. I am quite sure that I have. Mr. Easby-Smith. In relating the interview which you had with Mr. Ingham, you say "I asked him for an explanation, or he volun-. teered it, as to how he happened to be at the dinner." Do you recall now whether you asked for the explanation, or whether he volun- teered it? Col. Judson. I can not recall whether I asked for it or whether he volunteered it. Mr. Easby-Smith. You have stated to other persons that he was at this dinner with these people and friendly with them? Col. Judson. Well, I will tell you, it was stated to me that he was at the dinner, and I may have repeated it or I may not. I do not remember. Mr. Easby-Smith. Would you give that any significance? Do you think that that would show that he was in any manner corrupt or being favored or unduly influenced by them? Col. Judson. I would not say that was any proof of that; no. Mr. Easby-Smith. How many times, Mr. Judson, have you been the guest of Mr. Stellwagen at the Rod and Gun Club ? Col. Judson. Probably three or four times. INVESTIGATION OF INSURANCE COMPANIES. 227 Mr. Easby-Smith. How many times have you been his guest at the Willard at dinners ? Col. Judson. Well, I do not remember that I was ever his guest at the Willard at dinners. Mr. Easby-Smith. Do you feel that you are subject- Col. Judson (interposing). I have, however, been his guest at luncheon at the Raleigh, once or twice — I think, twice. Mr. Easby-Smith. Do you think that you would be subject to just criticism because you were Mr. Stellwagen's guest at the Rod and Gun Club three or four times ? Col. Judson. I think if Mr. Stellwagen was engaged in a business that was not being conducted properly that that would be a signifi- cant thing that might be alleged against me. Mr. Easby-Smith. Suppose he were interested in business ventures throughout the city and the District of Columbia, in connection with which he sought favors from the Commissioners of the District of Columbia, and obtained them, and you had been his guest on fre- quent occasions, would you consider under those circumstances that you were subject to criticism ? Col. Judson. I should say that if he had received favors in any extraordinary amount, or favors at all, that I would be very decidedly subject to criticism. Mr. Easby-Smith. Is it not a fact, and do you not know it to be a fact, that Mr. Stellwagen is one of the principal owners and promoters of the Raleigh Hotel Co. ? Col. Judson. Yes. Mr. Easby-Smith. And of the Willard Hotel Co. ? Col. Judson. Yes. Mr. Easby-Smith. Do you remember that the building regulations of the District of Columbia were amended so as to permit the Raleigh Hotel to be built higher than it could have been built under pre- existing rules ? Col. Judson. No; I remember that Congress passed an act which permitted it to be built to a greater height, and that I opposed that provision before the Senate committee I am quite sure. Mr. Easby-Smith. As a matter of fact, was there not an amend- ment to the building regulations of the District of Columbia coinci- dent with the permit granted to the Raleigh Hotel Co., and was not that amendment by the Board of Commissioners ? Col. Judson. No ; the building regulations must conform to the law, and there was a change of the law which the commissioners had recommended with a view to putting a premium upon the construc- tion of fireproof buildings. That law authorized fireproof buildings to be somewhat higher, and caused nonfireproof buildings to be some- what lower than heretofore. There were two special provisions in that act, both of which I opposed — special favors, if you please. One of them, I think, Mr. Stellwagen procured to be inserted, through his friends in the Senate, that permitted the buildings on Pennsylvania Avenue to be built higher than they would have been built under the bill which we sent up, and asked to have passed. The other was a . special provision for raising a nonfireproof building owned by Mr. Eisner a story or two, which we did not think should be permitted, but which was also embodied in that act, so that that general act con- tained two specific provisions, and those two I have described. 228 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. Now, as to whether or not Mr. Ingham volun- teered this explanation or whether you asked him for it, I will see if I can refresh your recollection. In that interview of December 5 did you not tell Mr. Ingham that you had heard and that it was com- mon report that he had been to a banquet conducted by these gen- tlemen, and had acted as toastmaster, and had gotten drunk and did not Mr. Ingham tell you that the man that told you that was a God-damned liar ? Col. Judson. Well, now, I will tell you Mr. Easby-Smith. Does that refresn.your recollection? Col. Judson. No; it did not refresh my recollection, but it may have occurred. Mr. Easby-Smith. You do not say it did not occur ? Col. Judson. No; I do not say it did not occur. Mr. Easby-Smith. And did you not after that tell him that you had heard it, but that you knew it was not true; that you had investigated it? Col. Judson. I told him that I had heard it was untrue that he had been the toastmaster. Mr. Easby-Smith. Then why did you accuse him of it ? Col. Judson. Well, I did not accuse him of it. I was talking with him, and I said it had been reported that he was toastmaster. Mr. Easby-Smith. But you knew at that time that it was not true? Col. Judson. No; I did not know which report was true, as a mat- ter of fact. I had been told both ways, but I did not know which it was. Mr. Easby-Smith. In this interview of December 5, when you saw Mr. Ingham, did you not tell him that there were three com- panies that you wanted to know about — the National Assurance Society, a Delaware company, with headquarters in the District of Columbia; the First National Insurance Co., of the District of Colum- bia; and the Commercial Fire Insurance Co. ? Col. Judson. I do not think I did. I think that I spoke about the First National and the Commercial, but he may have mentioned: the other, because we spoke of the other. I do not think I did. I was mostly interested, when I sent for him, in these two. I think he did — because our conversation lasted some little time' — speak of another company that was operating here that was just as bad as. these companies, but that it did not have its home office in the District of Columbia, nor was it doing business in the District of Columbia, and therefore he had nothing to do with it, which: state- ment I accepted. Mr. Easby-Smith. Going back a moment to the dinner proposi- tion, you said that Mr. Ingham told you he did not like to associate with these people, but he had gone there in the roie of a detective- Did he use the term "detective" ? Col. Judson, I think that is the word he used. Mr. Easby-Smith. Did he not say this to you: "I did go there, and I took my statistician, Mr. Hall, and we sat there and drank ice water instead of booze, so we would both be clear-headed and; hear anything that those fellows might have to say that we ought to know." Does that refresh your recollection ? Cok Judson. I do not recollect that, but he may have said thadu INVESTIGATION OF INSUBANCE COMPANIES. 229 Mr. Easby-Smith. Did he not tell you on that same occasion that it was necessary for him to associate with and mingle with these insurance people in order to keep tab on what was going on ? Col. Judson. That was substantially what I said in my evidence. Mr. Easby-Smith. Did he not tell you he associated with all the insurance people in the District of Columbia and made no bones about going to lunch and going riding with any of them that would take him ? Col. Judson. I do not remember that. Mr. Easby-Smith. Now, as to the matter of appraisement. You brought that up with Mr. Ingham at that interview ? Col. Judson. Yes. Mr. Easby-Smith. Did he not tell you, Col. Judson, that he did not know anything about the value of real estate; that he had sent for Mr. Hope Darneille, and told him to get Mr. Hensey and also to fet Mr. Lipscomb, but before he used Mr. Lipscomb to inquire of [orris Hacker, the building inspector, as to Mr. Lipscomb's qualifications ? Col. Judson. I do not remember it exactly that way. I remember it in this way: That he said he sent for Mr. Darneille and that he asked him to associate with him two others and that he picked out Mr. Hensey and Mr. Lipscomb. He did say something, I think, about either he or Mr. Darneille having gone to the inspector of buildings to ask Mm whether Mr. Lipscomb was a good man. Mr. Easby-Smith. Did you not verify that and find the inquiry had been made of Mr. Hacker ? Col. Judson. I do not remember whether I did or not; but I never questioned it; and I would say myself that Mr. Lipscomb is a very excellent builder. Mr. Easby-Smith. Did he not tell you that he appointed Mr. Hensey because Mr. Hensey had been frequently employed as an appraiser by his predecessor, Mr. Drake ? Col. Judson. I never heard that before, to my knowledge. Mr. Easby-Smith. You stated yesterday as a significant fact that Mr. Hensey and Mr. Lipscomb were both upon the directorate of the District National Bank. Did you know, when you made that state- ment, that Mr. Lipscomb is also a director of the Union Trust Co., Mr. Stellwagen's company ? Col. Judson. No; and I do not care whether he is or not. Mr. Easby-Smith. Do you think that changes the significance of the fact ? Col. Judson. I do not know that it does; no. Mr. Easby-Smith. Did you mean, by calling the attention of the committee to the significance of that fact, that you suspected that Mr. Ingham or Mr. Darneille had selected Mr. Hensey and Mr. Lips- comb because they were upon the same board of the same bank as Mr. Carusi and Mr. Harper, Mr. Tuttle, and others ? Col. Judson. That is a question of suspicions that might reside away back in my mind again. All I brought out was the fact, for such significance as the committee might care to attach to it. I will say this : I make no charge against Mr. Hensey or Mr. Lipscomb. So far as I know, they are estimable gentlemen. A significance might arise or lie in this direction, that being upon that board of directors there might be some little influence or bias in their minds. 71391— No. 2—12 S 230 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Easby-Smith. How about Mr. Darneille ? You have not men- tioned him. Col. Judson. Sir? Mr. Easby-Smith. How about Mr. Darneille X You have not men- tioned him. Col. Judson. I have mentioned him; oh, yes, I have mentioned him. Mr. Easby-Smith. You said you recognized Mr. Hensey and Mr. Lipscomb as honorable gentlemen and well qualified. How about Mr. Ingham's selection of Mr. Darneille? Col. Judson. No: I said I made no charge that they were other- wise. How about Mr. Darnedle? Well, what about Mr. Darneille? Mr. Easby-Smith. Did you consider him a good selection as an appraiser ? Col. Judson. I do not think that he is a man I would select myself. Mr. Easby-Smith. He was a former assessor ? Col. Judson. He was formerly assessor. Mr. Easby-Smith. And made a good record in the office ? Col. Judson. I would not say he did make the best record in the world . Mr. Easby-Smith. Do you not know his reputation is that he made a most excellent official X Col. Judson. No; I can not sa} T that. Mr. Easby-Smith. Who was your predecessor, Col. Morrow ? Col. Judson. Col. Morrow; yes. Mr. Easby-Smitii. Did he ever mention Mr. Darneille to you ? Col. Judson. I do not remember his over mentioning him. I re- member Mr. West, who was the immediate superior of Mr. Darneille — I mean to say he was that commissioner who, as a committee of one, was in charge of the assessors, as I believe, although I may be wrong. I remember him saying he was glad when Mr. Darneille resigned, be- cause he had acquired habits of intemperance which made his stay unfortunate for the District- Mr. Easby-Smith. You have no criticism, then, to make of the personnel of this appraisal board whidh appraised the building at $2,000,000. Col. Judson. Only such criticisms as I have made. Mr. Easby-Smith. Do you think Mr. Ingham could have made a better selection ? Col. Judson. Well, I should say so; yes. Mr. Easby-Smith. Do you think the fact that he did not select others than those three gentlemen tends to show either corruption or incompetency on the part of Mr. Ingham ? Col. Judson. I think it shows carelessness or incompetency, at least. Mr. Easby-Smith. In that interview of December 5 you told Mr. Ingham you wanted a reexamination of these companies, did you not? Coh Judson. Yes; that I was going to make a motion to that effect. Mr. Easby-Smith. Did not Mr. Ingham say, "Colonel, you do not have to do that. If you want an examination made, I will go at it at once." Col. Judson. Yes. Mr. Easby-Smith. And he started right then ? INVESTIGATION OF INSUKANCE COMPANIES. 231 QoI. Judson. I believe he did. Mr. Easby-Smith. Did you not at the same time comment to him upon the sale of stock by these companies and paving a large bonus for the sale of stock ? Col. Judson. Yes. Mr. Easby-Smith. And did not Mr. Ingham say Col. Judson (interposing). Perhaps not only paying a bonus, but making the representations they made in connection with the sale of stock. Mr. Easby-Smith. Did not Mr. Ingham say to you that while that might all be true, he had no jurisdiction in the matter whatever? Col. Judson. Over the sales of stock; yes. Mr. Easby-Smith. And you knew that "to be a fact? Col. Judson. Yes. Mr. Easby-Smith. You are familiar with the insurance laws of the District? Col. Judsox. I have read them over. Mr. Easby-Smith. Did not Mr. Ingham tell you on that occasion — call your attention to the fact — that under the existing law he could not revoke a license until the surplus had been wiped out and the capital stock impaired to the extent of 25 per cent ? €61. Judson. Yes. Mr. Easby-Smith. Did not he tell you this company had a surplus over and above its unimpaired capital stock, and that therefore he could do nothing ? Col. Judson. Yes. Mr. Easby-Smith. And in response to that, did not you tell him, ask him why he did not get out and advertise these companies for what they were doing ? Col. Judson. I asked him why, when in the report of the superin- tendent of insurance of the State of New York comment was made upon conditions that were similar to this, it was not made in his report, and I still feel that it should have been there. ' Mt. EAsby-Smith. Will you answer my question ? Did not you say to him, "Why don't you advertise these companies?" Col. Judson. I do not think I used that word. Of course, as a matter of fact, putting it in his report advertises it, and that is the purpose of his making a report and filing it for public use, to advertise the conditions. Mr. Easby-Smith. When Mr. Ingham told you he could not ad- vertise these companies, that he would be committing libel, and he did riot propose to lay himself open to a libel suit, did not you make the* r'esponse to him that you would be glad to be sued by such crooks ? Col. Judson. I do not remember that language. Mr. Easby-Smith. Do you say you did not say that ? Col. Judson. I say 1 have no recollection of it. Mr. Easby-Smith. What do you mean by using the term "adver- tising/' or some similar expression, to Mr. Ingham? Col. Judson. I referred to the fact that the report of the com- missioner of insurance is a public document which is used by Best's insurance agency, by all comers, who wish to know about those things, to ascertain the condition of companies, and it is in fact a provision for publicity, and I thought that he should have analyzed these conditions that were shown in that report, so that he who read ;+ ™;~^+ n^loTetgnrl thp rnnrlitirm as I saw it to be. 232 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. Did not you on that same occasion speak to Mr. Ingham about the Xew York department wishing to examine the local companies ? Col. Judson. Yes. I asked him if it was true, as Mr. Curry told me, that the Xew York department had sent a man down to examine one or both of these companies. Mr. Easby-Smith. He told you that was true, did he not '( Col. Judson. He told me that was true. Mr. Easby-Smith. And he told you why he did not grant the request, did he not? Col. Judson. In a general way. Mr. Easby-Smith. And that was what '. Col. Judson. As I remember it, that it was an infringement upon his dignity; that they should take what he told them. Mr. Easby-Smith. Did not he say to you there was comity between the superintendents or commissioners of the various States, and that they took all reports ? Col. Judson. Yes; he explained something of that nature. Mr. Easby-Smith. Do you know enough about the matter to know whether or not that is true ? Col. Judson. No; I do not know very much about it. Mr. Easby-Smith. Do you know how many insurance companies there are in the District of Columbia which do business in other States ? Col. Judson. No. Mr. Easby-Smith. Did you ever hear of the insurance department of any other State ever even requesting to examine an insurance com- pany in the District of Columbia ? Col. Judson. Those things would not come to my attention probably. Mr. Easby-Smith. You never heard of it ? Col. Judson. No; I never heard of it. Mr. Easby-Smith. And this was something entirely new to you ? Col. Judson. This was something entirely new to me. Mr. Easby-Smith. Suppose Mr. Emmett, superintendent, whose request you sought and to whom you issued an invitation, had made a speech this month at an insurance convention, in which he said that this matter of comity ought to be universally observed, would you think he was voicing a well-founded opinion ? Col. Judson. I think that it certainly would be fortunate if the insurance department of every State and of the District was of such a character that the comity could be always safely observed. Mr. Easby-Smith. Col. Judson, suppose that an insurance company in the District of Columbia were doing business in all 48 of the States, and the insurance department of each one of the 48 States should ask for the right to examine a local company here in Washington, would you be in favor of granting all of those State departments the right ? Col. Judson. No; I think not. I think I would be in favor of an opportunis policy; where a company was in very bad condition, I would be in favor of letting that examination be made; where there was anything questionable about their methods, I would be in favor of having the examination made. But if I were satisfied there was not anything questionable about its methods or its condition, I would be in favor of protecting the company from the imposition of unneces- sary expense for continual reexaminations. But I understand the INVESTIGATION OF INSUBANCB COMPANIES. 233 departments are not sending people around in any such way as that. I never heard of anyone else coming down here, and I do not see why Mr. Emmett, if he is in favor of the comity, sent a man down here to make that report. Mr. Easby-Smith. Did he send any such man ? Col. Judson. I understood from Mr. Ingham and Mr. Curry that he had. Mr. Easby-Smith. Did a man come to see you, Col. Judson, and say that the New York department wanted to examine any of these companies ? Col. Judson. A man? Mr. Easby-Smith. Yes; anybody. Col. Judson. I think Mr. Kudolph took that view. Mr. Easby-Smith. I am asking you; did anybody from New York come to you and make the request ? Col. Judson. Oh, no. Mr. Easby-Smith. Prior to your interview of December 5 with Mr. Ingham, so far as you know, had any request been made by the New York department to examine these companies ? Col. Judson. I understood that this request, to which I have been referring all the time, was prior to December 5. Mr. Easby-Smith. Which company did they want to examine ? Col. Judson. I do not know. From what I have learned since this hearing began, I imagine it was the First National. Mr. Easby-Smith. Did you enlist Mr. Redfield's efforts to aid you in inducing the New York department to request that they be permitted to examine these companies, or any one of them ? Col. Judson. No. Mr. Easby-Smith. In what respect did you ask him to interest himself in the New York examination feature ? Col. Judson. Simply that some two weeks after I understood they sent a man down there who wrote and asked them to accept an invitation which they might receive from us to send a man down for the purpose of examining one or both of those companies. Mr. Easby-Smith. Attached to your motion of December 5 for a reexamination is a list of six questions to be answered by the super- intendent of insurance. You are familiar with them, I suppose, Colonel ? Col. Judson. Yes. Mr. Easby-Smith. Were those questions prepared before or after you verbally recommended to Mr. Rudolph that Mr. Ingham be removed from office ? Col. Judson. I think they were prepared — well, I do not really know whether they were prepared before or after. Mr. Easby-Smith. Were you willing to wait until Mr. Ingham answered to those interrogatories before acting upon his removal from office ? Col. Judson. It was my thought that the answers to such interrog- atories and the ascertainment of conditions had better be in the hands and under the attention of a very high class, skillful man, whom we might secure in Mr. Ingham's place. Mr. Easby-Smith. So that, notwithstanding you had called upon the superintendent for a response to those interrogatories, you wanted to get rid of him immediately and get somebody in his place ? 234 INVESTIGATION OP INSURANCE COMPANIES. Col. Judsox. It was not so much that I wanted Mr. Ingham to get those answers as I wanted the answers obtained correctly. Mr. Easby-Smith. Mr. Judson, from the day of December 4, when Mr. Stellwagen came to you with these papers, up to the time that this resolution was introduced in the House of Representatives, you never let up a minute in your effort to remove Mr. Ingham, did you ? Col. Judson. Yes; I can not say that I prosecuted that thing. My motions to do that had been continually before the board, but I have not pressed the matter very much. I think Mr. Rudolph will say that I have not pressed it extremely, because I have had too many other things to do. Mr. Easby-Smith. Did you not, as late as December 17, introduce a motion, which is now pending upon Gen. Johnston's desk, for his removal ? Col. Judson. No; I think that resolution was made during my illness by Capt. Brooke. Mr. Easby-Smith. At your direction 't Col. Judson. Not at my direction, because I had no right to direct him to do it. Mr. Easby-Smith. You did make a motion on the 13th day of December, the day that this communication was written to this committee, for his removal, and you think there is another motion pending? Col. Judson. Wait a minute; I am mistaken. I wish to withdraw what I said about Capt. Brooke. That was a motion in an entirely different matter — to have an appraisement made of this building. There are so many motions that I get them mixed up. Mr. Easby-Smith. There is a motion still pending ? Col. Judson. There is a motion still pending; yes. Mr. Easby-Smith. Which yon made subsequent to the failure of the previous motion ? Col. Judson. Yes. Mr. Easby-Smith. And that is now pending ? Col. Judson. You remember the previous motion, the formal one that was written out and that is in evidence, was to discharge Mr. Ingham, provided the New York authorities were not invited to come down, or did not do so; so that that was a resolution that did not require to be acted upon at once. It had to be waited for; time had to go on in order to see whether the New York people would send down or not. By this time it had developed the New York people were not apparently going to send anybody down, and I had heard verbally that the company here — I do not know which one — had withdrawn its application for admission to New York, so there was no more reason for New York to send anyone down to work alone parallel lines, and therefore I renewed the motion in that unqualified way. Mr. Easby-Smith. Do you remember December 9, a few days later, you had a second interview with Mr. Ingham ? Col. Judson. A second interview with Mr. Ingham? I can not recall any second interview with Mr. Ingham. There may have been, but I do not recall. Mr. Easby-Smith. Mr. Ingham, upon your request, went imme- diately up to the Southern Building and began an investigation of these companies ? INVESTIGATION OF INSURANCE COMPANIES. 235 Col. Judson. Yes; so I believe. Mr. Easby-Smith. Do you remember the morning of December 9 you and Mr. Rudolph were discussing these matters and Mr. Ingham was sent for and came there and saw you in the presence of Com- missioner Rudolph ? Col. Judson. Yes; I do remember that now. Mr. Easby-Smith. Do you remember that interview pretty well? Col. Judson. No; right now I do not, whether because I am fagged with your cross-examination or not, I do not remember anything that did occur there. There was not anything of any importance. Mr. Easby-Smith. Do you remember that you took up in Mr. Rudolph's presence with Mr. Ingham the subjects that you had dis- cussed with Mr. Ingham alone on December 5 ? Col. Judson. Really I do not remember what we discussed at that time. I have forgotten now. I think he was sent for because I went in and asked Mr. Rudolph — fortunately Mr. Rudolph is able to testify to that conversation — whether he knew this reexamination was being made or not, and why it had not been completed, and Mr. Rudolph sent for Mr. Ingham, and, as I remember it, he said he was prosecuting the examination. That is my recollection of the inter- view. Mr. Easby-Smith. Do you not remember it was at that interview you again insisted to Mr. Ingham that he should advertise these companies and put them out of business? Col. Judson. I do not remember that; no. Mr. Easby-Smith. Did you not on that occasion, in the presence of Mr. Rudolph and Mr. Ingham, when Mr. Ingham said he could not publish what you wanted to, that it would subject him and you and everybody else to a suit for libel — did you not on that occasion use the expression that "It would be a pleasure to you to be sued by such a lot of crooks" ? Col. Judson. I do not remember. Mr. Easby-Smith. You do not deny it ? Col. Judson. I do not remember. Mr. Easby-Smith. Where did you hear this street report that the Southern Building could have been bought at any time within the last year for the amount of the trust plus the agent's commission ? Col. Judson. That was stated to me by Mr. Stellwagen to be com- mon knowledge. Mr. Easby-Smith. Do you remember talking to anybody except Mr. Burke, of Pennsylvania, Mr. Redfield, of New York, and Mr. Bur- leson, of Texas, during the pendency of this matter before the board ? Col. Judson. You mean any Members of Congress ? Mr. Easby-Smith! Yes. Col. Judson. Yes; I spoke to Mr. Oldfield about it. 1 spoke to Mr. Mann, of Illinois, about it. Mr. Easby-Smith. Were you familiar, Colonel, in any way with the work that was being done in Mr. Ingham's department of insurance ? Col. Judson. At what time? Mr. Easby-Smith. During your term of office as commissioner? Col. Judson. I knew that he was active at one time in getting some legislation, and I thought, as I said yesterday, that he was doing very well in getting some legislation that cured some evils in the insurance situation here. 236 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. Do you remember that he- Col. Judsox (interposing). I remember that in the prosecution of certain companies or people before the courts, or in resisting a mandamus or some proceeding in court, he had displayed, I thought, courage — I had heard so — courage and determination and a proper spirit. Mr. Easby-Smith. Has Mr. Ingham ever discussed with you or in your presence the necessity for additional insurance legislation for the District ? Col. Judsox. I think he did. Yes; he has. Mr. Easby-Smith. Do you remember it was due largely to the efforts of Mr. Ingham that section 653 of the District code was amended in such manner as to cure the evils which existed in indus- trial insurance in the District of Columbia ? Col. Judson. I thought he had done very well in that matter. Mr. Easby-Smith. And in the enforcement of that law you con- sidered he did excellent work ? Col. Judsox. I consider he did excellent work. Mr. Easby-Smith. What do you know about what was known as the "blue sky" law, a general insurance law which was prepared by Mr. Thomas, which was approved by the commissioners, and which was killed in the District building about a year ago? Do you remember you did want such a law passed ? Col. Judsox. I remember that, yes. I did not know it was killed in the District building. Mr. Easby-Smith. I believe it was called the "blue sky" law, because it was supposed to clear the atmosphere of evils. Col. Judson. les. Mr. Easby-Smith. Was Mr. Ingham in favor of the passage of that law ? Col. Judsox. I do not know. Mr. Easby-Smith. Do you know what influences prevented the enactment of that law ? Col. Judson. I do not. Mr. Easby-Smith. Did any individuals ever approach you in opposition to that law ? Col. Judson. I do not recall if they did. I do not recall that I ever heard anyone. Mr. Easby-Smith. Do you know, Mr. Judson, that there are now pending, in both Houses of Congress, several proposed insurance laws, which have been prepared by Mr. Ingham, with the assist- ance — not comparing the work of another department, but in con- junction with the office of the corporation counsel, with several purposes in view, one being to prevent the paying of any bonus for the sale of stock by insurance companies ? Do you know such a bill is now pending ? Col. Judson. I knew there were several pending, but I have for- gotten what they were. Mr. Easby-Smith. Do you not know there are a number pending which Mr. Ingham has been working on and endeaA r oring to have enacted ? Col. Judson. I think that is very praiseworthy. Mr. Easby-Smith. And you knew about that all the time, did you ? Col. Judson. Xo, I really did not know the details of any effort to get any further insurance legi slation. INVESTIGATION- OF INSURANCE COMPANIES. 237 Mr. Easby-Smith. Did you know, or have you any idea, how many of these general examinations of local companies Mr. Ingham has caused to be made and has assisted in making since he has been superintendent of insurance ? Col. Judson. No. Mr. Easby-Smith. Do you know how that number compares with similar examinations made during the entire term of office of his prede- cessor, Mr. Drake ? Col. Judson. No. Mr. Easby-Smith. In other words, you know practically nothing about Mr. Ingham and the conduct of his office ? Col. Judson. Very little; nothing except what I have testified to. Mr. Easby-Smith. Yesterday you testified in response to questions by the chairman of the subcommittee that you were opposed from the beginning to the appointment of Mr. Ingham. Col. Judson. I was opposed at the beginning and for some time to the appointment of Mr. Ingham. I endeavored to find a candidate that I might support who would be, in my opinion, a very high class, competent man. I was unable to do so. Mr. Easby-Smith. Being unable to propose such a name, you con- tinued to oppose Mr. Ingham ? Col. Judson. I do not remember when my efforts to get such a man ceased or when I ceased to oppose Mr. Ingham. Mr. Easby-Smith. After about four months had elapsed you either regretfully approved or failed to approve Mr. Rudolph's motion for Mr. Ingham's appointment. Is that correct ? Col. Judson. Regretfully in a sense, yes. I was regretful and am yet that we were unable to find a man of high class, such as I think we ought to have at the head of our insurance department. Mr. Easby-Smith. Your regret was not based upon your belief in Mr. Ingham's unfitness ? Col. Judson. I will say that if some other man was more fit and could be obtained, that then Mr. Ingham was unfit, yes. It is all relative. Mr. Easby-Smith. Suppose we eliminate the relation and consider Mr. Ingham as a candidate and whether or not he is fit to hold a public office of trust. Col. Judson. I do not think that you can eliminate that relation. It is all relative. It is the fittest that we want to appoint. Mr. Easby-Smith. So that if there were several men who were crooked, you would take the least crooked as the least of the evils ? Col. Judson. As I say, my doubts as to whether he was crooked or not I had subordinated to the opinion of my colleagues and to the absence of proof. Mr. Easby-Smith. When was it that Mr. Burleson suggested to you that you had better get behind Mr. Ingham ? Col. Judson. I do not remember. Mr. Easby-Smith. Mr. Drake died the 23d of July, 1910. Mr. Ingham was appointed the 18th of November, 1910. Mr. Burleson, being in Congress, was presumably away during the summer. Have you any way of fixing or approximating the time when Mr. Burleson told you you had better get behind Mr. Ingham '. Col. Judson. No; I have no way of approximating it. That was a year and a half ago, and it was not a matter I attached extreme importance to as to the details of it. 238 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. Did Mr. Burleson, in advising you to get behind, Mr. Ingham, state that Col. Jitdson (interposing). I did not say he advised me to get behind Ingham, exactly. Mr. Easby-Smith. Let me get your exact language. Col. Judsox. To acquiesce in his appointment, to make no further resistance to it. That was his advice. Mr. Easby-Smith (reading) : Mr. Burleson told me "You must not oppose Mr. Ingham any longer; you can not afford to do it," meaning not that I personally could not afford to do it, but that I could not afford to oppose him any longer because of District legislation. Did Mr. Burleson mention Senator Gallinger s name in that connection I Col. Judsox. I do not remember. Mr. Easby-Smith. Did he imply that you had better withdraw your opposition to Mr. Ingham in order to obtain Senator Gallinger's influence I Col. Judsox. I do not remember. I do not remember what he said. Mr. Easby-Smith. Or did you draw that inference yourself? Col. Judsox. I really do not remember. I think that describes it as nearly as I can. Mr. Easby-Smith. Did that have any effect upon you ? Col. Judson. It coincided with my own feeling in the matter Mr. Easby-Smith (interposing). With your own views ? Col. Judson (continuing). Which I had been coming to have. I was unable to find, as I have said, what I considered a high-class man who would accept the position, and I determined to make the best of Mr. Ingham, so far as I was concerned, and he went into office. I had a friendly feeling for him when he went in. I had dismissed entirely from my mind any doubts that there might have been therein because of the opinion of my colleagues, and because of a lack ofproof . Mr. Easby-Smith. Colonel, turning for a moment to another mat- ter concerning your right to interfere in insurance matters here, I presume you are familiar with the act of June 20, 1874, creating the offices of Commissioners of the District of Columbia ? Col. Judson. Yes; and with the subsequent act of 1878. Mr. Easby-Smith. Is there anything in the act of 1878 which ex- tends the powers conferred upon the engineer commissioner by the organic act of June 20, 1874 ? Col. Judson. Oh, yes. Mr. Easby-Smith. To what extent ? Col. Judson. The act of June 20, 1874, Eighteenth United States Statutes, page 117, provided for the appointment of three civil commissioners. Section 3 provided that the President should detail an officer from the Engineer Corps, who should have control of improvements to streets, etc., and be subject to the general super- vision of the Board of Commissioners. The act of June 11, 1878, volume 20, United States Statutes, page 103, provided for the permanent form of government to consist of two civil commissioners appointed by the President, who, with an officer of the Corps of Engineers, United States Army, "shall be Commissioners of the District of Columbia, and who, from and after INVESTIGATION OP INSURANCE COMPANIES. 239 July 1, 1878, shall exercise all the powers and authority now vested in the commissioners of said District, and shall be subject to all restrictions, limitations, and duties which are now imposed upon such commissioners." Mr. Easby-Smith. Do you remember about the time Mr. Ingham was a candidate for this appointment, you had an interview with Mr. Hopewell Darneille concerning Mr. Ingham's candidacy? Col. Judson. I do not remember, but I think it is likely. Mr. Easby-Smith. Let me see if I can refresh your recollection. Do you remember that you spoke to Mr. Darneille about Mr. Ingham and told Mr. Darneille that you- were for Mr. Ingham; that you feared that Mr. Rudolph was not for him ? Col. Judson. No; I remember no such conversation as that. Mr. Easby-Smith. You had no such conversation 1 Col. Judson. I remember none. I can not imagine I could have said it. Mr. Easby-Smith. Do you remember about a year later that Mr. Darneille was in to see you one day and asked you how his friend Ingham was getting along, and you said, "Fine; magnificent." Col. Judson. I do not remember that. I think probably it is so. There was one period when I thought he was doing fine. ■ Mr. Easby-Smith. As I understand, this has boiled down to the fact now that the only reason you have for your effort to remove Mr. Ingham from this office is that you believe the report upon the Com- mercial Fire Insurance Co., made, signed, and sworn to by his examiner and statistician, shows incompetency upon the part of Mr. Ingham l Col. Judson. Or unfitness. Mr. Easby-Smith. Incompetency or unfitness ? Col. Judson. Yes. Mr. Easby-Smith. It boils down to that one sole fact? Col. Judson. It boils down to that. Mr. Easby-Smith. In response to Mr. Johnson's question yester- day, quoting from page 230 of the record, Mr. Johnson asked you this question : How long did you oppose the appointment of Mr. Ingham to this^place? In reply you said:. I suppose I opposed it for several months. Mr Johnson. Did you evor approve it, or simply acquiesce m if. Col Judson. I do not know. I can not find the original paper. If 1 acquiesced I did so regretfully, after the matter was an accomplished fact— that is, that the other two commissioners had voted for him— if I did vote for him; but, as I say, I do not know I might have voted for him, or I might have noted it. Mr Johnson Your mind, as to vour opposition to him. underwent no change, from the time his name was first suggested for the place until after the two commissioners had voted? Col Judson. No: it underwent no change. Mr Johnson You were opposed to him from the first to the last'. Pol. Judson. I am quite sure I was opposed to him from first to last: yes, -ir. " I will ask you to state now whether or not you wrote that letter to Senator Gallinger [indicating]. Col Judson. Shall I read it m the record 1 Mr. Easby-Smith. No, sir; you may state if you wrote it. Col. Judson. Yes; doubtless I wrote it. 240 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Easby-Smith. I will read it into the record: Office of the Engineee Commissioner of the District of Columbia, Washington, September 24, 1910. Hon. J. H. Gallinger, Concord, N. B. My Dear Senator: I have your letter of September 20, 1910, referring to your indorsement of Mr. George W. Ingham for the position of superintendent of insurance. I have talked with Mr. Ingham and he makes a very favorable impression upon me. It is a very difficult problem to secure the best man for the position. I have been so busy over physical things that my judgment may not be as valuable as the judgment of some others in this matter and, of course, I will have to take advice. You know, Commissioner Rudolph will make the preliminary study of the candidates available and will nominate one of them to the board. He has not yet nominated anyone. I certainly would be very glad if Mr. Ingham should win out. Yours, very sincerely, W. V. JUDSON, Major, Corps Engineers, United States Army, Engineer Commissioner, District of Columbia. That is all, Col. Judson. Mr. Redfield. Mr. Chairman, at this point in the record I will insert the table appearing at the top of page 444 of the hearings be- fore a subcommit tee of the Committee on the District of Columbia, House of Representatives, under a resolution authorizing an inquiry into the taxation of real estate in the District of Columbia, referring, at the bottom of page 443 and in the table at the top of page 444, to the method of estimating depreciation on high-class steel construc- tion buildings, marked "First-class steel office buildings in city of Cleveland, Ohio"; and at the same time, pages 295, 296, and 297 of the same pamphlet, being the contents of a pamphlet issued by the commissioner of taxes and assessments of the State of New York, showing their methods of estimating the value upon new buildings and the depreciation and obsolescence of the same. The table and extracts referred to are as follows: The highest class steel construction buildings depreciated about two-thirds that of ordinary wall-bearing construction buildings, as follows: First-class steel office buildings. Per cent depre- ciation. 1 year... 2 years. . 3 years . . 4 years . . 5 years. . 6 years. . 7 years . . 8 years.. 9 years.. 10 years. 11 years. 12 years. 7 8 10 10 12 13 13 14 15 14 years. 15 years. 16 years. 17 years. 18 years. 19 years. 20 years. 21 years. 22 years. 23 years. 24 years. 24 years . Per cent depre- ciation. 16 16 17 18 19 n 20 20 21 21 22 22 Purdy Exhibit No. 1. factors of value of new buildings. For over 25 years the department has used factors of value of new buildings as a guide to the assessment of all buildings. These factors are based on the knowledge and experience of the deputy tax commissioners and information obtained from builders and others of the exact cost of construction. They have been constantly subject to examination and modification to meet changes in conditions. INVESTIGATION OF INSURANCE COMPANIES. 241 The factors of value of new buildings are published for the assistance of deputy tax commissioners in making assessments and to aid the commissioners to act intel- ligently upon applications for the reduction of assessments. The factors are not published to control the judgment of deputies, but to assist them in reaching well- informed conclusions. Architects usually compute the cost of. buildings by multiplying the exact num- ber of cubic feet of contents by an appropriate factor. It has been found easier for the department to ascertain the square feet of floor space of a building than the cubic feet of contents. Hence the department uses the method of computing the value of a building by multiplying the square feet of floor surface by an appropriate factor instead of the number of feet of cubical contents. If the building to be appraised 'were a loft building 6 stories high and 50 by 90 feet in area, it might be appraised by either the square-foot or the cubic-foot rule. The height of such a building from the cellar floor to the roof would be about 80 feet. The square feet of space on each floor would be 4,500; the cubical contents would be 360,000 cubic feet. At 18 cents per cubic foot the" cost of construction of the building would be $64,800. A 6-story building 50 by 90 feet in area would have 27,000 square feet of floor 'surface. If the building cost $64,800, the factor per square foot of floor space would be $2.40. Example: Cubic foot factor 18 cents — 50 by 90 equals 4,500 square feet area one floor. 4,500 by 80 equals 360,000 cubic feet contents. 360,000 by 18 cents equals $64,800 cost of building. Square foot factor $2.40 — 50 by 90 equals 4,500 square feet area one floor. 4,500 by 6 equals 27,000 square feet floor surface. 27,000 by $2.40 equals $64,800 cost of building. In computing the value of a building by the factor of value per Bquare foot of floor surface the usual and easiest rule is to make no allowance for air shafts and open spaces of such kind. In the case of a new tenement house, for example, 100 feet front by 87 feet [deep, the number of square feet per floor would, obtained by multiplying 100 by 87, give 8,700 square feet of floor space for each floor, and for six stories 52,000. As a matter of fact, such a building would have an open court, reducing the number of actual square feet by about 20 per cent. As all buildings of this kind have about the same area devoted to open spaces, it is much easier to make the computation by a proper alteration of the building factor than by computing the actual number of square feet of floor space. The building factors here presented are all based on the number of square feet computed by multiplying the extreme width by the extreme depth of a rectangular building without allowance for open spaces. As many of the types of buildings for which factors are presented have_no interior courts or air shafts, in these cases the factor is determined with reference to the actual number of square feet of floor surface. Loft buildings and factories are assumed to have no interior open spaces. If the problem presented were that of a factory, with a large open court, then the area of the court should be deducted and the actual number of square feet of floor surface computed. The factors for office buildings are computed on the theory that an office building covers all of the lot that is practicable and that all office buildings cover sub- stantially the same percentage of the lot. If a case is presented where the building does not cover substantially all of the lot, a different compulation must be made. The factors are prepared for buildings having normal height between floors for that type. Sometimes it happens that a building of a certain class has stories of extraordinary height. In such exceptional casts the- factor per square foot of floor space must be modified, and it is well to make a com- putation of the number of cubic feet of contents and compute the value of the build- ing by using appropriate factors, so as to compare the result with the result obtained by the use of the square-foot factor. This table of factors is designed to show the cost of construction of new buildings exclusive of what are called carrying charges. The fact that a builder was obliged to pay a bonus for his loan and excessive interest does not make the building-of any more value. Again, a builder may be put to extraordinary expense by the presence of rock or quicksand. The excessive cost of construction of this building does not enable the owner to obtain any more rent, and the value of the building is no greater than if it had been erected under ordinary physical conditions. 242 INVESTIGATION OF INSURANCE COMPANIES. DEPRECIATION. In assessing old buildings it is desirable to determine the factor of value because it facilitates comparison both by the deputy and by the commissioners. An old tenement house, for example, might have been valued when new at $73,000 and now be so de- preciated by age as to be worth only $52,200. If the factor which produces the value of §52,200 is SI, it appears at once that the assessed valuation has been reduced by about 30 per cent for depreciation. Example: Tenement house 100 feet front. 87 feet deep, 6 stories high. Building factor when new, $1.40. 100 by 87 equals 8,700 square feet area one floor. 8,700 by 6 equals 52.200 square feet floor surface. 52.200 by $1.40 equals $73,000, cost when new. 52.200 by Si equals $52,200, assessed value. Depreciation for age. $20,800. If the factor is not set down a computation is necessary in order to determine the amount of reduction for depreciation. Even in the case of an old and almost obso- lete wooden building it is useful to give the factor, for, if the factor is 20 cents,, it appears at once that there has be,en a large reduction lor depreciation and obsoles- cence. Changes in neighborhood conditions which render a building unsuitable for its site are often rapid in the city of Xew York, especially in the Borough of Manhattan. A building in good condition often adds practically nothing /to the land value because it is obsolete. In some sections of the city the decline in the value of buildings is due frequently very much more to obsolescence than to depreciation from age and wear and (ear. It is almost universally true that an improved parcel of real estate is never worth more than its capitalized rental value until the land alone exceeds in value this capitalized sum. For example, a dwelling house 25 feet wide is erected on land worth S20.000. and I lie house costs S:',0,000. The gross rental is sufficient to justify the expenditure. As conditions change, the land rises in value for other ustes than for dwelling houses, but the rental remains stationary. The property as a whole is worth no more than $50,000; in course of time the land is worth $40,000. Still the property as a whole is worth no more than $50,000'. The land' rises to $50,000. Now, the building adds practically nothing to the land value and should be assessed at approximately one year's rental. There are old office building's in the city from 7 to 10 stories high. The land to-day is worth much more' than When the building was erected, but the aggregate value of the property is to-day no more' than the net rental capitalized at 4 to i\ per cent. The building may be worth only 50 per cent of its original cost of construction or less than that. The increase 1 in land value adds nothing to the selling value of the property as a whole unless that increase is accompanied by an increase in the rentals which may be obtained. As a rule such increase in land value under these circumstances is not accompanied' by an increase • in rental, because tenants prefermore modern buildings. This principle is applicable' to nearly all classes of improvements, and it must always^be borne in mind that a building is worth no more than the difference between the value of the land and the aggregate value of the property. In the cases cited it has been assumed that the value of the land has risen. There are cases where the value of the land remains substantially stationary. In such cases the building depreciates and its depreciation is evidenced by the rental derived for its use. The property as a whole — land and building — is worth no more than the rental income capitalized at an appropriate rate per cent. For example, assume the erec- tion of a wooden dwelling house costing $5,000 on a lot worth $2,000. The annual rental at the time of construction is $500 a year. If the land does not rise in value the time is certain to come when the rental will decrease. If the rental has declined to $350 a year the property as a whole will generally not be worth more than $5,000. If the land is still worth $2,000 the building adds but $3,000 to the value of the land. RENTALS A GUIDE TO VALUB. As has already been pointed out rentals are generally the surest guide to value in the case of buildings depreciated by age or obaolescence when the value of the land alone does not exceed the rental capitalized at an appropriate rate. When a site is suitably improved by an adequate structure the rental is almost a.i infallible guide to its full value unless the building is of unique character constructed for a special purpose or a very costly dwelling house. In the case of all ordinary buildings erected as an income-producing property the gross rental, if fully rented, capitalized at an INVESTIGATION OF INSTJBANCE COMPANIES. 243 appropriate rate is a sure and safe guide to value. For the benefit of the commis- sioners and as a guide to the deputies as well, it is desirable that rental should be set down in all cases where practicable at the left side of the memorandum column in the field book. Lawsox Purdy, President. Charles J. McCormack, John J. Halleran. Charles T. White, Daniel S. McElroy, Edward Kaufmann, Jtjdson G. Wall, Commissioners of Taxes and Assessments. There may be extraordinary buildings of each of the following classes where these factors will not apply. As a rule in the use of these factors no allowance is made for courts and air shafts. Dwellings: 2^-story frame house, without improvements, per square foot of ground covered $2. 00-$4- 00 ■ 2A-story frame house, with improvements, per square foot of ground "covered : 3. 50-10. 00 2-family frame, attached, flat roof, per square foot floor space 1. 50- 1. 75 2-family frame, attic, detached 1. 75- 2. 75 3 or 4 story brick residence 2. 50- 4. 00 4 or 5 story brick residence 3. 00- 5. 00 2-family brick residence, 2-story 2. 00- 3. 00 High-class residences cost up to 10. 00 ******' * Hotels and apartments: 10 or 12 stories, steel construction 3. 00- 5. 00 12 to 16 stories, steel construction 4. 00- 6. 00 Small apartment hotels 3. 00 1 Old-style stone and brick 2. 00- 4. 00 Warehouses: 5 and 7 stories, store and warehouses 2. 00- 2. 50 Office buildings: 10 and 12 stories, steel construction 3. 00- 4. 00 Old-style stone and brick 2. 00- 2. 50 Loft buildings: 5 and 7 stories, old-style construction 1. 00- 1. 75 Higher than 8 stories, steel construction 2. 00- 3. 75 Department stores: Steel construction 3. 00- 4. 00 Old-style brick and stone, interior iron columns 1. 50- 2. 00 Factories: Brick and stone construction 1- 00- 2. 00 Concrete 1.00-1.75 Stable buildings and garages: Brick and stone construction ' 5 ~ '-■ "" Concrete 1.00-1.75 TESTIMONY OF MR. CUNO H. RUDOLPH, COMMISSIONER OF THE DISTRICT OF COLUMBIA. The witness was duly sworn by the chairman. Mr. Johnson. Mr. Rudolph, please state your full name. Mr. Rudolph. Cuno H. Rudolph. Mr. Johnson. You are one of the Commissioners of the District of Columbia ? Mr. Rudolph. Yes, sir; I am. Mr. Johnson. And you are president of the board ? Mr. Rudolph. Yes, sir. Mr. Johnson. You were appointed when ? Mr. Rudolph. January, 1910. 244 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Mr. Rudolph, you have been present, I believe, thus far during the present hearings ? Mr. Rudolph. I have, sir. Mr. Johnson. You are therefore familiar with the questions involved relative to the superintendent of insurance for the District of Columbia, as well as the questions relating to the three insurance companies which have been so often named ? Mr. Rudolph. Two insurance companies ? Mr. Johnson. Three concerns. Mr. Rudolph. Yes, sir. Mr. Johnson. I will request you, Air. Rudolph, to go ahead in your own way and state what you may know that is pertinent to the matters which are now before the committee for investigation. Mr. Rudolph. I will state, Mr. Chairman, that on the afternoon of Tuesday, December 3, Mr. Stelhvagen called at my office Mr. Johnson. His full name, please. Mr. Rudolph. Edward J. Stellwagen. And after preliminary re- marks about other matters which do not concern us at the present time, he said, ' ' Have you seen the statements of the Commercial and the First National Fire Insurance Cos.?" I said, "No." He said, "Then you do not know that overnight they accumulated additional assets amounting to over $200,000 ? ,? I said, "No; I do not." He said, "Well, do you know how they did it?" I said, "No; I do not know how they did it. I presume they probably raised on the books the value of the real estate they recently purchased." He said, "That is just how they did it." I thanked him for bringing the mat- ter to my attention, and told him that just as soon as Mr. Ingham, who was away for a few days, would return to town, I would imme- diately get hold of him, analyze those statements, and see what could be done. In my own mind, I framed a program something like this: I would first see whether the capital of either company would be impaired if we eliminated this unearned increment, if I may use that term, or the increased valuation put on the building. Secondly, I was going to find out whether the appraisal liad been made properly by the proper persons, and for what reason Mr. Ingham had accepted such an appraisal. The next step, I was going to convene the board, have the corporation counsel and Mr. Ingham present, and in a board session analyze that statement completely, see where we needed explanation, and map out a program that we would submit to these companies upon which lines we would permit them to continue, and, in fact, aid them to build up their business, if they went along the proper lines. The next step would be, then, of course, to call in the officers of this company and submit our findings and ask for explanations and suggest such changes as we thought desirable and have expla- nations made of a good many things that are not apparent on the face of an ordinary report. That was simply a tentative plan I had. That is all that happened on the 3d. The following day I called in Col. Judson's room to confer with him about some other matter, and when I had about gotten through Mr. Stellwagen, to whom I referred before, came in, and there was not anything said about insurance, because I left almost immediately after Mr. Stell- wagen got into the colonel's room. About an hour after that Col. Judson came to my room and told me that the situation was a very INVESTIGATION OF INSURANCE COMPANIES. 245 grave one, and that something must be done immediately. I said, I have the matter under advisement. I have a sort of program planned or mapped out, and just as soon as Mr. Ingham comes back we will all get together and thresh this thing right out." He said there was no time to lose; that Mr. Ingham should be telegraphed for. Well, I did not know just where to find Mr; Ingham, and I did not consider the situation quite so serious that the matter could not wait 24 hours longer. The following morning — the 5th of December — Mr. Ingham returned. He immediately came to my room, as word had been left for him to do. I asked him about the appraisement. He said he had secured Mr. Darneille, Mr. Hensey, and Mr. Lipscomb as a board of appraisers; that they had gone over the matter carefully, Mr Hensey . appraising the ground at a certain value, which he thought was fair, Mr. Lipscomb cubing up the building and finding the value of the building in that way, and just what Mr. Darneille did in the matter I do not know. Mr. Ingham further stated that he had, either with the approval or on the recommendation, I do not know which, of Mr. Hacker, our building inspector, selected Mr. Lipscomb. I asked him what was the precedent for having a commission of that kind, and he said that Mr. Drake had arbitrarily made such a rule in his office; that Mr. Drake insisted upon having outside people appraise buildings and the company pay the expense. The statement, ne explained to me, as usual, was made by Mr. Curry, the examiner, and Mr. Hall, the statistician, but the appraisal had been handed to him (Ingham) , and he had ordered the amount of $2,000,000, which he believed a fair valuation, to be inserted. That afternoon Mr. Robert J. Wynne called on me and said that he learned on the outside that there was some dissatisfaction among the commissioners about the appraisal of the Southern Building. Mr. Johnson. Did he say from whom he learned it ? Mr. Rudolph. No, sir; 1 think he said on the outside — that he had heard it. I said to him, "I want to say to you very frankly that while I have the utmost confidence in the gentlemen who made this appraisal, I think it is too high, and there may possibly come a time when we will want to have a new appraisal." Mr. Redfield. You said that to mm % Mr. Rudolph. Yes. He said, "I do not think we could get three better men than we had," and I again admitted their entire compe- tency to make appraisals. He said that at any time we wanted a con- ference, he hoped the commissioners would invite them, and I told him we would. That is about all of importance that transpired that afternoon as I recall it. Mr. Geokge. The afternoon of the fourth ? Mr. Rudolph. No, sir; that was the afternoon of the fifth. Mr. George. The fifth? Mr. Rudolph. Yes, sir. He departed, and an hour or two later I received a letter addressed to the Board of Commissioners, which has been put in evidence here, signed by the counsel of the insurance company. I haven't it here, but you will know the letter — the letter which was transmitted to you, Mr. Chairman. Mr. Johnson. What was the purport of it ? 71391— No. 2—12 9 246 INVESTIGATION OP INSURANCE COMPANIES. Mr. Kudolph. That if any further appraisals were to be made, the company would not permit them. [Paper handed to Mr. Rudolph by Mr. Easby-Smith.] Mr. Rudolph. It is a letter dated December 5. It is the one that winds up "We shall resist any attack made upon the appraisal" — and so forth, which was put in evidence yesterday. On the morning of the 6th, when I reached my office about 8.30, Mr. Ingham was waiting for me, and told me he had had an interview with Col. Judson the day before, and Col. Judson ordered him to immediately begin to reexamine the two companies. I told him all right, to proceed to do it. He said the men were getting ready to go up there and start the reexamination. It was after he left that I found the motion of the 5th in which Col. Judson moved that Mr. Hoover and Mr. Doyle be appointed as experts. I did not approve that motion, as it was, for the reason that Mr. Hoover, while he is one of our leading financiers and a very estimable gentleman, is not a real estate expert. Mr. Doyle I have every confidence in, but I thought he was too deeply interested in any appraisal in that part of the city. I did approve the appraisal by our board of assessors, and the balance of the motion. Col. Judson came to see me that morning of the 6th, and we sent for Mr. Ingham to ask him about this New York representa- tive who claims to have been refused permission to reexamine the companies. Mr. Ingham explained that it was not customary for another department to send a representative to go over what they had already done, and stated that when this gentleman did arrive, Mr. Ingham afforded him every facility to look over the statement, and told him to point out just what he wanted detailed information on, and Mr. Ingham would see that he got it. I think he also said that the man went up to the companys' offices, and spent several hours there, and then left for home. I upheld Mr. Ingham in his action, because to let these people come in is not only a nuisance to the companies — disrupts the course of their business, but it is a very- expensive proposition, and would be a reflection that our depart- ment was not competent. I do not admit for a moment that we have not got a good insurance department. I think the department is alert and efficient, and can be trusted to make examinations. Col. Judson and I discussed that motion — I refer to the motion of the 5th — and the result was, as I stated before, that I approved part of it and disapproved other parts. It was on the morning of the 7th that I called Col. Judson's attention to the letter from Mr. Wynne, which had come in in the meantime, wherein Mr. Wynne asked for a conference, quite a long letter, put in evidence yesterday, but Col. Judson did not feel about it as I did, and Gen. Johnston being away at the time, the matter was just held in abeyance. On the 10th we held a board meeting, at which I pre- sented my plan again for a conference with the insurance people, but both Gen. Johnston and Col. Judson did not approve of that course. Mr. Douglas. What date was that ? Mr. Rudolph. That was on the 10th. On the 11th we had another board meeting, when the document that has been referred to as the reasons or partial reasons, was discussed, and I did not approve the statement, did not give it very careful consideration. If I had read it very carefully, I would not have known really whether there was any libelous matter in it or not, but to be on the safe side, as I stated INVESTIGATION OF INSURANCE COMPANIES. 247 to my colleagues, I have kept out of court for 53 years and intend to keep out, if possible, the balance of my life. The statement, however, was adopted. Mr. Johnson. You are referring now to the statement which is alleged to have been prepared for the newspapers ? Mr. Rudolph. Yes, sir; that is the statement. Mr. Easby-Smith. Which was issued on December 1 1 ? Mr. Rudolph. It was adopted on December 11. I did suggest at the time that we had better consult the corporation counsel, but the colonel did not think that was a necessary matter. Mr. Johnson. When you say " the colonel " you mean Col. Judson ? Mr. Rudolph. Col. Judson; yes, sir. On the 13th, about noon, Col. Judson asked me to come into his room, and I there found Representative Redfield. The colonel had made a motion to call the attention of the chairmen of the District of Columbia Committees of the Senate and the House to the statement, or to the alleged request, of the counsel for the companies, and I agreed that that would be a very proper course. His motion, however, embodied also the send- ing of this Statement, and I did not think at that time it was a proper thing to send up to Congress. I so stated, and Mr. Redfield acquiesced that at that time it was not necessary to present that statement to you. Subsequently Gen. Johnston approved of sending the statement and the matter was sent up, as you got it — was sent out as you got it. On the 14th I received Col. Judson' s motion, which is in effect to declare the position of insurance superintendent vacant, and I simply noted it, which means I have seen it but do not approve it. Now, that is about aU that I have to say. I will be glad to answer any questions I can. Mr. Johnson. The main questions, Mr. Rudolph, are primarily as to Mr. Ingham's official actions, but of equal importance also are the two questions relating to the insurance companies; first, whether or not, for the purpose of swelling their assets, their building has been overvalued, and next, as to whether or not their financial condition is such as to justify the sales of their stock upon the terms upon which they have been selling it; but incidental to those main features of the investigation, several collateral things have arisen. One of them in- terjected by Col. Judson, I believe, was relative to the appointment of Mr. Ingham, and something has been said here relative to your having made a trip to New Hampshire in response to a summons from Senator Gallinger to come and discuss with him the appointment of Mr. Ingham. Will you please tell us if there is anything in that, what there is about it ? Mr. Rudolph. In July, 1910, about the 15th of July, I went on a 30-day vacation to Sunapee Lake, stopping at the Sunapee Park Lodge. Mr. Johnson. Where is that ? Mr. Rudolph. Up in New Hampshire. About the latter part of the month I had forwarded from Washington a letter from Senator Gal- linger, telling me that when the question came up of a successor to Mr. Drake he hoped that Mr. Ingham, in whom he was very much interested, a young man he had known since infancy, and had great confidence in, would be given serious consideration as Mr. Drake's suc- cessor. That was forwarded, as I say, from Washington to Sunapee 248 INVESTIGATION OF INSURANCE COMPANIES. Lake. The letter was dated Salisbury, where the Senator's summer home is. Mr. Johnson. Salisbury, N. H. 1 Mr. Rudolph. Yes. I replied to the Senator that upon my return I would take up the matter and certainly would see that Mr. Ingham was carefully considered. In reply he wrote me at Sunapee, expressing his delight that I had come to New Hampshire, and that as he was only on the other side of the mountain from Sunapee Lake he hoped some tune when I was out autoing I would stop in and see him. Probably a week after that some friends up there, who knew the Senator, and Mrs. Rudolph and myself took an auto trip over to his house and made a social call. Mr. Johnson. What distance * Mr. Rudolph. About 2S miles, I think, by pike. It was entirely a social call. We were together for probably an hour and a quarter, and there was very little opportunity to' say anything to the Senator. When I did get him alone for a moment, 1 said, "Now, I will certainly look into Ingham's case very carefully when I go back. Just from the casual acquaintance I have with him, I do not believe he is a big enough man for the job, but if he turns out to be, I will be very glad indeed to recommend his appointment to my colleagues." That is the Gallinger incident. Mr. Johnson. Did you recommend his appointment? Mr. Rudolph. Did I recommend it ? Mr. Johnson. Yes. Mr. Rudolph. Yes. Mr. Johnson. Did Senator Gallinger say to you that he was a rela- tive of his ? Mr. Rudolph. No sir. He said he was deeply interested in the young man and had known him from infancy. Mr. Johnson. Do you recall, Mr. Rudolph, whether there was opposition in the Board of Commissioners for the District of Columbia to the appointment of Mr. Ingham ? Mr. Rudolph. Col. Judson, as he has stated, was told about Mr. Ingham having accepted a sum of money in consideration of securing some one a position. I am a little hazy on that incident, but after thinking it over very deeply last night I recall that some one sum- moned a young man, and I think his name was Baldwin — I am not sure of that — to come down to the District building. For some reason we met in Gen. Johnston's office, and we quizzed him about this. Mr. Johnson. You quizzed Baldwin ? Mr. Rudolph. We quizzed Baldwin about this supposed transac- tion. Baldwin said that he had loaned Ingham some money and Ingham had not paid it back. I do not know whether he said he had not paid it back then, or whether he had not paid it back for a long time. We could not get very much satisfaction from Mr. Baldwin, as I recall this incident. Neither Col. Judson nor I are Masons, while Gen. Johnston is. I had understood in Masonry there is some way of getting something out of the other fellow if he is a Mason also, so I suggested to Gen. Johnston that he work that degree while Col. Judson and I took a walk. I believe that when we returned Gen. Johnston said, "I am satis- fied." I think that is where the thing ended. INVESTIGATION OF INSUKANCE COMPANIES. 249 Mr. Johnson. He was satisfied at to what ? Mr. Rudolph. Whether he, if I may use that term again, worked the degree, or made the sign, or what, I do not know. That was all there was to it. Mr. Johnson. You said he was satisfied ? Mr. Rudolph. Yes, sir. Mr. Johnson. I asked you as to what. I will enlarge it a little bit. Was he satisfied that Ingham had done nothing wrong, or that he had done something wrong ? Mr. Rudolph. No; he was satisfied Ingham had done nothing wrong. Mr. Johnson. Just from hearing the man himself ? Mr. Rudolph. Yes, sir. Mr. Johnson. From hearing Baldwin, I mean ? Mr. Rudolph. Yes ; from hearing Baldwin. Mr. Johnson. It has been suggested to me by Col. Judson to ask you whether or not it also developed that Mr. Ingham was a Mason ? Mr. Rudolph. Oh, yes; these two men are members of one lodge. I recall that very distinctly. Mr. Johnson. I do not see the relevancy of it, but I will comply with Col. Judson' s request. Mr. Rudolph, do you know whether or not when the vote came to be taken in the board as to giving Mr. Ingham this place that anybody opposed him, or did he get all three votes ? Mr. Rudolph. He got all three votes, but the colonel was not enthusiastic about his appointment. The reason Mr. Ingham was appointed he had 90 per cent of the insurance people of the District of Columbia behind him. It has been stated he was appointed because he was a cousin or a nephew or something of Senator Gallinger's. The fact that Senator Gallinger recommended him or that Senator Gamble, or the former chairman of the House Committee on Ap- propriations, Mr. Tawney, had recommended him had nothing to do with it. , We wanted to clean up the office, clear up the situation, and establish a more harmonious feeling between the insurance com- panies of the district and that office, which had never existed before. Therefore I was inclined to recommend Mr. Ingham because he had the very people he would come in contact with, that he would have to deal with, backing him. If he was not satisfactory to them, as the previous man had not been, then it was his own lookout, and we could change the man. Mr. Johnson. You say you have been satisfied since the appoint- ment of Mr. Ingham that he has conducted the affairs of the office well ? Mr. Rudolph. He has been an efficient and courageous officer. Mr. Johnson. You have no criticism to offer of his official career? Mr. Rudolph. He may have made errors of judgment, committed errors of judgment. I have no doubt he has, but I have been entirely satisfied with the way the office was being run. Otherwise I would have stepped in and made some changes. Mr. Redfield. Otherwise you say you would have done what? Mr. Rudolph. Otherwise I would nave stepped in and made some changes, if I had not been satisfied with the way the office was con- ducted. 250 INVESTIGATION OP INSUEANCE COMPANIES. Mr. Johnson. You spoke a moment ago, Mr. Rudolph, about one of the proposed appraisers for this fire insurance real estate, and you said you objected to his valuing property in that particular locality. What was his name ? Mr. Rudolph. Mr. Doyle. Mr. Johnson. Why did you object to his appraising property in that particular locality ? Mr. Rudolph. Because he is an employee of Fisher & Co., just across the street. I do not know that that would have any effect upon him at all, but there are plenty of other men you could get if a new appraisement really had been necessary, in my opinion. Mr. Johnson. Col. Judson suggests that I ask if you proposed any- other appraisers. Mr. Rudolph. None whatever. I did assent to our board of assessors, in whom I have every confidence Mr. Johnson. The other alternative with you was that the board of assessors go and appraise it ? Mr. Rudolph. Yes, sir. I so moved, and they immediately started on making an appraisal of the property. Mr. Johnson. Was that motion upon your part carried unani- mously ? Mr. Rudolph. That was before Gen. Johnston got back, I believe. Col. Judson. If you do not mind, may I remind Mr. Rudolph that that was my motion, and he approved it by approving a part of my motion. Mr. Rudolph. But you will also recall, Colonel, you requested me to write it out separately, and I wrote this: December 7. I move that the superintendent of insurance be directed to procure Oh, no; that is another matter. I beg your pardon. Mr. Johnson. Mr. Rudolph, are you somewhat familiar with the values of real estate in the city of Washington ? Mr. Rudolph. Xot very familiar, Mr. Chairman, because I own very little property, and have never dealt in it. Mr. Johnson. Sometimes those who own the least know best; their business ventures may be in another direction. But you have just expressed the opinion that when this matter was first called to your attention you thought that this Southern building was worth less than $2,000,000. Mr. Rudolph. Yes, sir; I had that opinion. Mr. Johnson. Please tell us what your opinion about it is. Mr. Rudolph. I gathered my information largely from the hearing before Mr. George, where Mr. Doyle appeared and placed a value of $30 a square foot upon the ground and then subsequently testified that $35 would probably be a fair price. I felt that about $35 or $40 would be a fair price at this time. Mr. Johnson. $35 to $40 per square foot? Mr. Rudolph. Yes, sir. Mr. Redfield. Commissioner Rudolph, do you regard it as a desir- able characteristic for a superintendent of insurance that he shall be satisfactory to the people he is to superintend ? Mr. Rudolph. No ; but there had been continued strife and friction between the department and the people in the city. They have some rights, and if we could get a man who was competent to take the INVESTIGATION OF INSUBANCE COMPANIES. 251 position, who was acceptable to those people, I thought it was good policy to take that man. Mr. Redfield. Is it not the very element that is now under inves- tigation, as to whether or not this particular incumbent is too satis- factory to certain insurance companies ? Mr. Rudolph. Well, he has shown his courage and ability right along; he has never wavered. Mr. Redfield. If you employed an accountant and he presented an account of affairs for which you were in a measure or indirectly responsible, but omitted, in presenting that account, so to point out to you the significance of it, as to leave you, perhaps a busy man, to understand that things were well, when as a matter of fact an analysis of it showed that things were ill, would you feel that he had done his duty? Mr. Rudolph. No; I should say not. Mr. Redfield. Have you personally examined, with attention and care, the account rendered by the insurance superintendent of the District of the condition of the Commercial Fire Insurance Co. on the 31st day of October last ? Mr. Rudolph. That was the very first step we took. I wanted to see whether the insurance department could step in. Therefore, the first thing I ascertained was whether the capital was impaired. \V ell, it was not. Mr. Redfield. You are quite sure that is so? Mr. Rudolph. You eliminate entirely the unearned increment in that building, and you still have a $2,700 surplus, which is infini- tesimal. Mr. Redfield. From what derived ? Mr. Rudolph. I do not know. It is an asset. Mr. Redfield. Should you not know ? Mr. Rudolph. It is a true asset according to the statement. Mr. Redfield. Is it not a fact that that surplus, which you speak of, I think, as infinitesimal or small, which is all the company had except for the sudden advance in their real estate, was on the face of the report itself solely derived from the premium at which the stock had been sold during the preceding 10 months? Mr. Rudolph. That is true. Mr. Redfield. That is true, is it not ? Mr. Rudolph. But the insurance company does not stand between the stockholder and the company. It stands solely between the policy holder and the company, and with what little law we have we can not make a move until the capital becomes impaired to the extent of 25 per cent. Mr. Redfield. So that, although there was a condition here which you knew from the report, whereby the company was operating at a loss, still so long as it had sufficient assets to pay its policy losses, you felt that you were not justified in stepping in to correct any situation that might exist between it and its stockholders ? Mr. Rudolph. No; I beg your pardon. We had no legal right. What I wanted was to step in and step in promptly and tell these gentlemen, "You have got to do this, that, or the other thing; if you do not do it then we will take action, and take our chances of being taken into court." 252 INVESTIGATION OF INSUEANCE COMPANIES. Mr. Redfield. How long, as a matter of fact, do you think an insurance commissioner should allow a company to go on doing business in the District at a loss, while at the same time it is advertising that it is doing business at a profit ? Mr. Rudolph. We could not stop that, Mr. Redfield. Mr. Redfield. You recognize no power in the board of commis- sioners to meet such a situation ? Mr. Rudolph. None whatever. Mr. Redfield. You could simply regret it, and let the thing go? Mr. Rudolph. No. If I had evidence enough I would go to the district attorney for the United States, or, if the sales were by mail, I would go to the Post Office Department. Mr. Redfield. Do you not recognize such a condition in the report of the insurance commissioner ? Mr. Rudolph. Yes. Mr. Redfield. And you felt that you were called upon to do whatever was practicable in the premises ? Mr. Rudolph. Yes, sir. Mr. Redfield. And what you meant to do in what was done was intended to meet that situation which you thought was a wrong one and which you thought ought not to continue ? Was that it ? Mi-. Rudolph. Precisely. Mr. Redfield. So that, so far as the efforts of your fellow com- missioners may have been concerned, in the treatment of a wrong that ought to be righted, you were with them in principle although not in the details of the practice ? Mr. Rudolph. Absolutely. Their conclusions were it was best to proceed in a certain way; mine were the opposite. Mr. Redfield. It was not any difference in what was needed to be done so much as the method by which it was to be done ? Mr. Rudolph. That is the point exactly. Mr. Redfield. And you recognized that here was something that ought to be stopped as speedily as possible? Mr. Rudolph. It ought to be corrected; yes, sir. Mr. Redfield. In view of the fact that here was in your judgment something wrong that should be corrected, do you not think it was the duty of the insurance commissioner to tell you that very plainly in his report, and not leave it to be deduced ? Mr. Rudolph. You mean put it down in black and white ? - Mr. Redfield. Yes. Mr. Rudolph. He explained that by saying he was afraid there might, be some suits to follow if he made a bold statement about the matter. Mr. Redfield. Did he say to you that here was a condition that was not right, and that he did not venture to put it in black and white ? Mr. Rudolph. No; he said that the law was insufficient, and that he had done all he could; he could not go any further. Mr. Redfield. Did he criticize in any way the methods in which these companies did business, to you ? Mr. Rudolph. No, sir. He had accepted in good faith the appraisal by the three men. Mr. Redfield. How did he come to say that was all the law there was and he could go no further ? INVESTIGATION OF INSURANCE COMPANIES. 253 Mr. Rudolph. Because we all know how meager the insurance laws are for the District. Mr. Redfield. What I meant was this: Was it at some time when the procedure of these companies was under review by you or your associates that he stated that ? Mr. Rudolph. No; there have been a number of cases. He has managed to get legislation curing some of the troubles in the past two years and has three bills pending now. At different times we have talked about the lack of proper legislation on the insurance situation. Mr. Redfield. So your judgment of the situation was this, as regards yourself and himself, that you felt here was a procedure that was mistaken or wrong, and ought to be corrected as speedily as possible, and he felt the same thing, but that he did not venture, for lack of legal authority, to put it down, as you say, in black and white, and that the difference of opinion between yourself and your associate commissioners was simply that of the method of procedure in dealing with it ? Mr. Rudolph. That is the situation. Mr. Redfield. That is the correct situation ? Mr. Rudolph. Precisely. Mr. Redfield. Thank you very much. That is all. Mr. George. Mr. Rudolph, you have jurisdiction of all assessment and taxation matters in the District of Columbia ? Mr. Rudolph. Yes, sir. Mr. George. Is it your practice, when the valuation of a piece of property arises in the District, to look at the assessment books ? Mr. Rudolph. Do you mean for the purpose of carrying it on a ledger ? Mr. George. No; to consult them as to whether or not the assessor of the District is in conformity with the information you have before you? Mr. Rudolph. I do not get that question, Mr. George. Mr. George. Is it your practice to consult the records kept by the assessor to find out whether assessments in the District are in conformity with whatever information may come before you at any time? Mr. Rudolph. Oh, yes. Mr. George. As to the value of property ? Mr. Rudolph. Yes, sir,. Mr. George. When the question of the Southern Building came before you, did you consult the records kept by the assessor? Mr. Rudolph. Not immediately, no; but I did a very short time after. Mr. George. What did you find ? Mr. Rudolph. I will have to refer to my memorandum, because there are too many figures to remember. I find that on February 2, 1910, which is nearly three years ago, the land was assessed at $14 a square foot, which indicates a true value of $21. For a long : period of years the property had been exempt on account of being occupied by the church, and when the church ceased their activities there the valuation of $12 was put on, indicating a true value of $18. That was raised, as I say, in 1910, at the last triennial assessment, to $14, or a true value of $21. The building was practically completed 254 INVESTIGATION OF INSURANCE COMPANIES. April 4, 1911, a year and a half ago. That was assessed for $550,000, indicating a true value of $825,000. Mr. Geoege. Did you subsequently consult the assessor on these values? Mr. Rudolph. Not until the motion which Col. Judson made, and which I approved, that the assessors appraise the building, did I confer with Turn about it. Mr. George. When was that ? Mr. Rudolph. That was probably the same day this motion of Col. Judson, which was approved by myself, prevailed. Mr. George. When you consulted the assessor, what happened? What did you say to him ? Mr. Rudolph. I said, "Here is a building or property that has been appraised by Hensey, Lipscomb, and Darneille at $2,000,000. We want you, with your board of assistant assessors, to appraise that as of December 5, 1 think. In other words, give us the assessor's opinion of what that ground and building were worth on December 5, 1912." Mr. George. What did you get ? Mr. Rudolph. The statements filed yesterday, something over $1,600,000. I do not recall the exact figures. Mr. George. What was the price of the land per foot ? Mr. Rudolph. I have not the details of that. It was filed here yesterday. Mr. Douglas. It was given yesterday in a letter, I think. Mr. Easby-Smith. $35 a foot. Mr. George. Did you have any discussion with the assessor about that matter at that time ? Mr. Rudolph. No. Mr. George. Did you ask any questions about this increase from $21 per square foot to $35 per square foot? Mr. Rudolph. Ho had not then expressed his opinion as to $35. II $35 is what they have down there now, that was not fixed until after they started to do the work of appraising. Mr. George. That was a 60 per cent increase ? Mr. Rudolph. Yes. Mr. George. Within what time ? Mr. Rudolph. Two years — nearly three- years. The assessment, I said, was put on in February; the triennial assessment for this par- ticular place was made the 2d day of February, 1910. Mr. George. It was made at the beginning of that period and not at the end ? Mr. Rudolph. Yes, sir. That is, the assessment on the books that can not be changed until next year. Mr. George. What is the practice of the assessor? Where does he begin his work ? He is practically three years in completing his assessment of the District of Columbia, is he not ? Mr. Rudolph. No. The assessments, you know, are made every •three years, but the men will probably view a piece of property to-day that they looked at two years ago. Mr. George. But the testimony of the assessor before this sub- committee, at which hearing you appeared a few months ago, con- tains the statement that certain parts of the District were assessed early and certain parts late. INVESTIGATION OE INSURANCE COMPANIES. 255 Mr. Kudolph. Yes. Mr. George. He said that they made assessment of the business district last of all. Mr. Rudolph. Yes, because the changes there are greater and occur with greater frequency. Mr. George. And this assessment of $14 per square foot on a valuation of $21 was made two years before the appraisal of the 5th of December ? Mr. Rudolph. It was made more than two years. It was made on February 2. To be very exact, it was made two years and ten months ago. Mr. George. How do you account yourself for this great differ- ence of 60 per cent in the assessment valuation and in the appraisal valuation made by the assessor ? Mr. Rudolph. The sales and prices that are asked for property in that vicinity seem to indicate that is about a fair price. Mr. George. But the information upon which this appraisal was based, was obtained when by the assessor ? Mr. Rudolph. This last appraisal of December 5 ? Mr. George. Yes, the information on which he made his new ap- praisal. Mr. Rudolph. They were ordered to go out and get all the in- formation they could and return an appraisal. Mr. George. At that time ? Mr. Rudolph. As of December 5. Mr. George. To go out then and get their information? Mr. Rudolph. Yes, sir. This was a special piece of work for them. Mr. George. This information was not in the office ? Mr. Rudolph. No. Mr. George. The assessor testified before this special committee a few months ago that it was his practice to have that kind of informa- tion in the office. Mr. Rudolph. It is desirable, but whether they had any particular information about this particular lot I do not know. Mr. George. That is very important, is it not ? Mr. Rudolph. No; I do not think so. They went out to get it, and it is of record there now. Mr. George. But you are getting very great differences between the valuations made by the same man or the same men, and now you are confronted with the fact there is a great dispute in the com- munity as to the value of certain property. Mr. Rudolph. There always will be that, you know ? Mr. George. But the assessor says he has a scientific assessing machine down there. Mr. Rudolph. I have not seen that. Mr. George. He says he has all the data that is necessary, and he has repeated it since he testified before this committee. Mr. Rudolph. He gets all the data that the limited force at his command will permit him to get, but he has not got all by any means. Mr. George. How did he get this new information upon which he made this ? Mr. Rudolph. I do not know. Mr. George. Did you ever talk to him about that ? Mr. Rudolph. No. 256 INVESTIGATION OP INSTJEANCE COMPANIES. Mr. George. Did he get any from Mr. Stellwagen ? Mr. Rudolph. I do not know. Mr. George. Or from Mr. Doyle ? Mr. Rudolph. I do not know. Mr. George. What is the rule governing this department of the District government over which you have jurisdiction? Do the assessors or the assistant assessors have communication with the real- estate buyers and sellers and get their information from them ? Mr. Rudolph. Largely. Mr. George. Do they get any from sales ? Mr. Rudolph. Oh, yes; every sale that we can get onto is card indexed and followed up. Mr. George. And from what sources did they get this information ? Mr. Rudolph. About this particular parcel? Mr. George. Yes; about the Southern Building property. Mr. Rudolph. No; I do not. Col. Judson. There is a map. Mr. Rudolph. What kind of a map ? Col. Judson. There is a map in connection with this report showing the sales. The map produced at this point by Col. Judson and Mr. Rudolph is here shown. Mr. George. What map have you before you ? Mr. Rudolph. I think it is a copy of yours, Mr. George. Mr. George. Did you get this from the assessor ? Mr. Rudolph. I got one from them. I do not know whether you got mine or whether the other one. The one I just handed you looked like mine. Mr. George. Just for the purpose of identification, I will ask what is that map you have in your hand ? Mr. Rudolph. This is a map that gives the northeast and south- east corners of Fifteenth and H Streets NW., with a record of sales made there and in that vicinity. Mr. George. At what time were those sales made ? Mr. Rudolph. The lot just east of the Southern Building was ■sold February, 1911, for $137,500, or $18.58 per square foot. Mr. Douglas. When was that? Mr. Rudolph. February, 1911. Mr. Johnson. Can you tell me just how that information was obtained ? Mr. Rudolph. The assessor furnished that. I do not know. Mr. Johnson. Do you know whether a nominal consideration was recited or a real consideration recited in that deed ? Mr. Rudolph. When they mention figures like this, they have the real consideration. Mr. Johnson. How do they get it ? Mr. Rudolph. By having the record clerk, as we call him, call upon the owners and purchasers, or the real estate agents, and drawing it out from them, if they can. Mr. Johnson. What they are willing to tell? Mr. Rudolph. Yes, sir; we get all the information we can from any source that is possible. We get it from the courts and the office of the recorder of deeds and the probate office. § i \ i $ N ^ M 4 fs. ^<5<~ ^ ^ :^ * au * yxasfj> 9/S/ ^ N ^ i d i INVESTIGATION OF INSUEANCE COMPANIES. 257 Mr. Johnson. If they wished to misrepresent it they could 'do so ? Mr. Rudolph. He would verify any statement that seemed doubtful. Mr. Johnson. You would verify it ? How would you verify it ? Mr. Rudolph. By getting other evidence on it. Mr. Johnson. What other evidence would he get ? Mr. Rudolph. He would go to the buyer and aks him what he paid for the property, and the neighbors would probably be able to verify it. Mr. Johnson. The neighbors would be able to verify it? Mr. Rudolph. Or the real estate agent. Mr. Johnson. How would they know? Mr. Rudolph. In a residential neighborhood they generally talk about what a bargain they got and what price they paid. Mr. Johnson. And it would be common rumor instead of an authen- ticated record as to what they got? Mr. Rudolph. I should not say it would be common rumor only.. It would be more than that. . Such evidence as he would get would present a safe basis for taxation. Mr. Geoege. On this map, Mr. Rudolph, I see the Southern Build- ing Co. bought this lot in May. 1909, for $500,000, or $22.51 per square foot. Mr. Rudolph. Yes, sir. Mr. Geoege. The assessment does not seem to be $22.51 per square foot. Mr. Rudolph. The assessment was $21 that time. Mr. Geoege. But this was made later. Mr. Rudolph. This was in May, 1909. Mr. Geoege. The assessment was later than this? Mr. Rudolph. Yes, sir; that is true. Mr. Geoege. How do you account for that ? Mr. Rudolph. I do not know, Mr. George. I presume the assessor will be asked to come here, and he can explain that a good deal better than I can. Mr. Geoege. I want to find out what your point of view is about, this? Mr. Rudolph. I have not any. Mr. Geoege. Here is the Woodward Building, opposite ? Mr. Rudolph. Yes, sir. Mr. Geoege. On this map the ground appears to have been sold for $550,000 in October, 1910, at $27.21 per square foot. Mr. Rudolph. Yes, sir. Mr. Geoege. What was the assessment there ? Mr. Rudolph. That is square 222, lot 21. That is assessed at $16, Mr. George. Mr. Geoege. That would indicate what value ? Mr. Rudolph. $24. Mr. Geoege. So that he did not seem to get any different informa- tion? Mr. Rudolph. It was common rumor at the time that the price paid for that building was excessive. Mr. Geoege. But what about the price of the ground ? Mr. Rudolph. I meant the whole outfit. Mr. Geoege. Have you entire confidence in the assessment depart- ment? INVESTIGATION OP INSURANCE COMPANIES. 257 Mr. Johnson. If they wished to misrepresent it they could 'do so ? Mr. Kudolph. He would verify any statement that seemed doubtful. Mr. Johnson. You would verify it ? How would vou verify it ? Mr. Rudolph. By getting other evidence on it. Mr. Johnson. What other evidence would he get ? Mr. Rudolph. He would go to the buyer and aks him what he paid for the property, and the neighbors would probably be able to verify it. Mr. Johnson. The neighbors would be able to verify it ? Mr. Rudolph. Or the real estate agent. Mr. Johnson. How would they know? Mr. Rudolph. In a residential neighborhood they generally talk about what a bargain they got and what price they paid. Mr. Johnson. And it would be common rumor instead of an authen- ticated record as to what they got? Mr. Rudolph. I should not say it would be common rumor only.. It would be more than that. Such evidence as he would get would present a safe basis for taxation. Mr. George. On this map, Mr. Rudolph, I see the Southern Build- ing Co. bought this lot in May. 1909, for $500,000, or $22.51 per square foot. Mr. Rudolph. Yes, sir. Mr. George. The assessment does not seem to be $22.51 per square foot. Mr. Rudolph. The assessment was $21 that time. Mr. George. But this was made later. Mr. Rudolph. This was in May, 1909. Mr. George. The assessment was later than this ? Mr. Rudolph. Yes, sir; that is true. Mr. George. How do you account for that ? Mr. Rudolph. I do not know, Mr. George. I presume the assessor will be asked to come here, and he can explain that a good deal better than I can. Mr. George. I want to find out what your point of view is about, this? Mr. Rudolph. I have not any. Mr. George. Here is the Woodward Building, opposite ? Mr. Rudolph. Yes, sir. Mr. George. On this map the ground appears to have been sold for $550,000 in October, 1910, at $27.21 per square foot. Mr. Rudolph. Yes, sir. Mr. George. What was the assessment there ? Mr. Rudolph. That is square 222, lot 21. That is assessed at $16, Mr. George. Mr. George. That would indicate what value ? Mr. Rudolph. $24. Mr. George. So that he did not seem to get any different informa- tion ? . Mr. Rudolph. It was common rumor at the time that the price paid for that building was excessive. Mr. George. But what about the price of the ground? Mr. Rudolph. I meant the whole outfit. Mr. George. Have you entire confidence in the assessment depart- ment? 258 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. Yes, sir. Mr. George. How long have you had that confidence ? Mr. Rudolph. Long before I came there as commissioner. Mr. George. You think the department can get the information as to values ? Mr. Randolph. They do. They can in many cases. Mr. George. But you said that your views were modified as to values in the neighborhood by the results of the report made by the subcommittee of the District Committee of the House ? Mr. Rudolph. Yes. Mr. George. In what way were your views changed ? Mr. Rudolph. I did not refer to a general change of views. I say I got my information about the value of property in that vicinity from the testimony of Mr. Doyle before your committee. Mr. George. You got it from the committee, then, and not from the assessor ? Mr. Rudolph. No, sir; I did not get it from the assessor. Mr. George. You got more information and more reliable informa- tion from the committee than you did from the assessor on the subject in that neighborhood ? Mr. Rudolph. The assessor's valuation agrees exactly with the testimony presented to the committee. Mr. George. Do you know anything about the predecessor of the present assessor? Mr. Rudolph. I do not know to whom you are referring. Mr. George. Mr. Darneille, I believe, was the predecessor. Mr. Rudolph. I have known Mr. Darneille for some time; yes, sir. Mr. George. You have confidence in his judgment as to real estate values ? Air. Rudolph. Well, I do not know how far my confidence would go at this time. Ho has been out of the business — out of that office for a long time. Mr. George. Did you ever hear anything about the cause of his leaving the assessor's office ? Mr. Rudolph. Yes. Mr. George. What did you hear? Mr. Rudolph. Well, the rumor around the building was that he was intemperate, and that, as the opportunity offered for him to go into the mining business, he quit the service. Mr. George. Did you ever hear that he was practically removed from the office because his assessments were too high? Mr. Rudolph. Oh, no. Mr. George. You never heard that? Mr. Rudolph. No, sir. Mr. George. You never heard that from the assessor or from any- body else ? Mr. Rudolph. No, sir; I never heard that. Mr. George. What about Mr. Doyle ? You made a statement at the beginning that I did not quite get, as to Mr. Doyle's judgment or Mr. Doyle's tendency in appraising property in that neighborhood. Mr. Rudolph. Well, he was too deeply interested personally in that neighborhood, and his judgment might be biased for that reason. I did not mean to reflect on his integrity at all or his ability. Mr. George. How would it be biased, in your judgment ? INVESTIGATION OP INSURANCE COMPANIES. 259 Mr. Rudolph. Why, he would probably feel that a lower price would be entirely fair and equitable. Mr. George. Which would be in keeping with Mr. Stellwagen's views ? Mr. Rudolph. Perhaps. Mr. George. Or his interests ? Mr. Rudolph. I do not think Mr. Stellwagen's views would have very much influence upon Mr. Doyle. Mr. Johnson. What would suggest the supposed inclination upon his part; for the purpose of reducing taxation? Mr. Rudolph. No, sir. He is the sales manager for Thomas J. Fisher & Co., who own valuable property along there. Mr. Johnson. Why would he want to keep the price down? Mr. Rudolph. He would not want to keep the price down, but he might not want to be very liberal in his appraisal. Mr. Johnson. Why ? Mr. Rudolph. Well, because if he puts a high price on one building just across the street from it, it naturally would indicate that the building he was interested in was of the same value. Mr. Johnson. Why would he not want that? Mr. Rudolph. Well, I think there is a tendency always to try to keep our taxes down instead of boosting them up. Mr. Johnson. Then, your idea is that you objected to taking him as one of the appraisers because of the opinion that you entertained that he might want to keep values down in order that taxation might be kept down ? Mr. Rudolph. Well, I did not consider him very seriously, Mr. Chairman, because there were so many other people who could be gotten. Mr. Johnson. You did not consider him very seriously for the reason that you could find somebody to whom that objection Mr. Rudolph (interrupting). Would not apply. Mr. Johnson (continuing). Could not be urged? Mr. Rudolph. Yes; ana he was already on record as valuing the Toperty from thirty to thirty-five dollars, so we knew exactly where e stood. Mr. George. What was your judgment? Was the property worth more than that ? Mr. Rudolph. About $35. Between thirty-five and forty dollars was my own personal view. Mr. George. Then, your judgment coincided with his statement? Mr. Rudolph. Well, I told you I got that information from your hearings. Mr. George. Why should you be opposed to him ? Mr. Rudolph. I am not opposed to him. Mr. George. Then why did you not think he would be a competent man for such service ? Mr. Rudolph. Because he was on record there and there are hun- dreds of other men. Mr. George. Well, but you concurred with that judgment ? Mr. Rudolph. I concurred with what judgment ? Mr. George. As to the value he put on the property ? Mr. Rudolph. Yes; it seemed reasonable to me. I do not know anything about real estate, so it would not make much difference what I thought about it. 260 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. Then you are abandoning your judgment altogether m the matter ? Mr. Rudolph. Not at all. If he had testified before your commit- tee that the property was worth a hundred dollars a foot, I would have had quite a different opinion of the gentleman. Mr. George. Then you would have a judgment in the matter? Mr. Rudolph. Yes. Mr. George. You would think that was too much ? Mr. Rudolph. Exactly. Mr. George. When Mr. Stellwagen came to you, did he say any- thing about the value of that property to you ? Mr. Rudolph. No, sir; he said nothing except what I explained to the committee here. He left me no papers, nothing whatever. He simply had that short conversation with me and went away. Mr. George. Did he say the appraisal was too high ? Mr. Rudolph. He did not even know the exact appraisal, I do not imagine, because he did not state it. Mr. George. In general terms did he give you the impression that he thought the appraisal was wrong ? Mr. Rudolph. Oh, yes. Mr. George. Too high or too low? Mr. Rudolph. Too high. Mr. George. Too high? Mr. Rudolph. Yes. , Mr. George. Did he give you any grounds? Mr. Rudolph. No, sir. Mr. George. Did he speak about the men who had made the appraisal ? Mr. Rudolph. No, sir; he knew nothing about them at that time. Mr. George. So you had no judgment to go on except your own judgment in this whole matter? You did not get any information from Mr. Stellwagen ? Mr. Rudolph. No, sir. Mr. George. Except the appraisal was too high ? Mr. Rudolph. I got the information that the companies had over night increased their assets over $200,000, and he left me with that information, and I had to dig up the balance myself. Mr. George. Did he not tell you anything about the square foot value or the cube value ? Mr. Rudolph. We did not discuss that at all. I did not know who the appraisers had been at that time, when he called my attention to it. Mr. George. Do you or not think it would be improper to have Mr. Doyle because he had business relations with Mr. Stellwagen and was a neighbor to the Southern Building ? Mr. Rudolph. Yes; especially when so many other good men could be gotten. Mr. George. Did that objection also apply to Mr. Hoover? Mr. Rudolph. No, sir; Mr. Hoover is not a real-estate man. He is a financier, and a very successful one. Mr. George. I know, but he is in the neighborhood. Mr. Rudolph. Yes. Mr. George. He makes loans, does he not, on real estate? Mr. Rudolph. Oh, yes; I imagine they do. They do a regular trust business there. INVESTIGATION OF INSURANCE COMPANIES. 261 Mr. George. Well, entirely so ? Mr. Rudolph. Yes, sir. He does not value the property on which they make loans. Mr. George. Well, do you think he would make too high a valua^ tion or too low a valuation ? Mr. Rudolph. I do not know what Mr. Hoover would do. Mr. George. Well, do you regard him as incompetent? Mr. Kudolph. No, sir; I do not; but what he would do would be entirely right, according to his own judgment. Mr. George, Well, but competent ? He loans millions, does he not, on real estate ? Mr. Rudolph. He is not competent to assess property; no. Mr. George. But he is competent to loan money on property? Mr. Rudolph. He is competent to loan money on property when his appraisal committee come to him and say, "Here is a piece of property worth $10,000, and a fellow wants four thousand on it." He is competent to say, "We will give it to him," or "We will not give it to him." Mr. George. Then you think he is only competent to lend it on somebody else's say-so ? Mr. Rudolph. Oh, they have a committee always. Mr. George. Do you think it is necessary to go outside the asses- sor's department to get at the value of property in the District of Columbia ? Mr. Rudolph. No; I think with the excellent board we have now their judgment ought to be considered. Mr. George. Well, but the excellent board you have now is the same excellent board you had before, and by your own statement you say you got information from the inquiry of a congressional committee as to values in that neighborhood, and you have modi- fied your own view as to the value of property there. Now, why did not the excellent department for assessment of taxation supply you with that information, so that you did not have to go outside? Mr. Rudolph. I did not ask them. Mr. George. Well, but the records ought to show, ought they not? Mr. Rudolph. I presume they have their records complete. Mr. George. Well, but you said you changed your own view as to the value of that property that was assessed at $14, the market value being $21 — that you changed your own view as to the value of that by the testimony that was offered before the congressional committee ? Mr. Rudolph. Yes; but nearly three years ago the property certainly. was not worth $35. Mr. George. That was not three years ago. As I understand, the assessments closed a year and a half before, so that you ought to have gotten very good information from the assessing department, if it is a good department. Do you not think so ? Mr. Rudolph. Well, I did not call for any specific information. Mr. George. No, but it ought to be on the records ? Mr. Rudolph. I presume it is, but I do not know what records they have. Mr. George. Did you ever look at the assessor's books to see what the value of this property is on the records of the assessor ? 71391^No. 2—12 10 262 INVESTIGATION OP INSURANCE COMPANIES. Mr. Rudolph. I have never looked, in this particular case. [', Mr. George. So that you get all your information about the assess- ment or the basis of Valuation from what the assessor tells you ver- bally or transmits to you in a special paper ? Mr. Rudolph. Yes, largely. Mr. George. I think I have finished, Mr. Chairman. Mr. Redfield. May I ask just a question ? Mr. Johnson. Yes. Mr. Redfield. Do you know of any property in the District of Columbia anywhere that is as large as 150 by 150 which has sold as high as $50 a square foot ? Mr. Rudolph. I do not. Mr. Redfield. Do you know of any property as large as 150 by 150 in any part of the District of Columbia which has sold as high as $45 a square foot ? Mr. Rudolph. No, sir; I am not familiar with tracts of land of that size, nor with the sales of any. Mr. Redfield. Then are you able or are you not able to say whether there has been any property in the District of Columbia or any portion of it as large as 150 feet square which has sold as high as $35 a square foot ? Mr. Rudolph. No, sir; I could not state a case. Mr. Redfield. That is, you simply do not know whether that is so or not ? Mr. Rudolph. No; I do not. Mr. Redfield. That is all. Thank you. Mr. Easby-Smith. Mr. Rudolph, when did you become com- missioner ? Mr. Rudolph. January, 1910. Mr. Easby-Smith. Ana at that time I believe you found Mr. Drake the superintendent of insurance ? Mr. Rudolph. Yes. Mr. Easby-Smith. Mr. Curry examiner and Mr. Ingham statis- tician 1 Mr. Rudolph. That is correct. Mr. Easby-Smith. Do you remember how Mr. Curry and Mr. Ingham ranked in relation to each other ? Mr. Rudolph. Well, the examiner's position seems to rank the position of the statistician. I do not know why. Mr. Easby-Smith. Both received the same salary ? Mr. Rudolph. Fifteen hundred dollars. Mr. Easby-Smith. And they both receive equal salary to-day? Mr. Rudolph. Yes; they get $1,700 now. Mr. Easby-Smith. Pending the vacancy and pending .the con- sideration of candidates to fill Mr. Drake's position, I understand there was an investigation made, conducted by Mr. Donovan, into the affairs of the insurance department. Did you know anything of that? Mr. Rudolph. Oh, yes. Mr. Easby-Smith. And you knew the contents of the testimony and of the final report ? Mr. Rudolph. I knew it at the time, because it was sent up to me. Gen. Johnston ordered the investigation, and I thought it was a very good idea. INVESTIGATION OF INSURANCE COMPANIES. 263 Mr. Easby-Smith. That showed, as I understand it, what the custom had been in the department under Mr. Drake, concerning assessments and other details of his office ? Mr. Rudolph. Yes; there was testimony to that effect. Mr. Easby-Smith. And there was a complaint against Mr. Ingham to the effect that he had accepted money for lending his influence toward obtaining a position in the District government for some man named Baldwin ? Mr. Rudolph. Yes. Mr. Easby-Smith. By whom was that complaint communicated to you ? Mr. Rudolph. I think Col. Judson told me of it first. Mr. Easby-Smith. And you brought Baldwin before you ? Mr. Rudolph. Somebody did. Mr. Easby-Smith. To refresh your recollection, was not the amount of money involved $15 ? Mr. Rudolph. I think it was. I am not sure of that — whether it was $15 or $50. Mr. Easby-Smith. Did the result of the investigation, so far as you were concerned, show that Mr. Ingham had not attempted to obtain any position for Mr. Baldwin in the Government service, District or otherwise ? Mr. Rudolph. It showed that to my mind very clearly. What we did criticize Mr. Ingham for was that he did not return this loan promptly. Mr. Easby-Smith. As promptly as he ought ? Mr. Rudolph. Yes. Mr. Easby-Smith. Did he not explain at that time that he had left the money at home with his mother and had told Baldwin to call for it and Baldwin did not go there, or something of that kind — did not call for it for a long time, or something of that sort ? fMr. Rudolph. Yes, sir; there'was something said about that. Mr. Easby-Smith. Did he not exhibit a receipt from Baldwin for the money ? Mr. Rudolph. I do not recall that. Mr. Easby-Smith. Mr. Baldwin had been employed in the local tele- phone service, had he not ? Mr. Rudolph. So I understood. Mr. Easby-Smith. And was not Mr. Ingham's effort, so far as Bald- win was concered, to have him reinstated in the telephone service ? Mr. Rudolph. That is what Mr. Ingham stated at the time, I believe. Mr. Easby-Smith. What did Baldwin say? Did he corroborate Mr. Ingham? Mr. Rudolph. I do not think he did. Just what statement he made I do not recall. Mr. Easby-Smith. So far as you were concerned, the investigation entirely satisfied you and Commissioner Johnston that there was nothing to the charge ? Mr. Rudolph. Exactly. Do you want that map in the record, Mr. George? Mr. George. Yes, in the record, please. Mr. Easby-Smith. Do you remember the morning of December 9, Monday, when Mr. Ingham appeared before you and Commissioner Judson ? 264 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. Not December 9, because I did not see Mr. Ingham after the 7th, until I saw him here yesterday. Mr. Easby-Smith. Well, then, it was the morning of the 7th that you saw him ? Mr. Rudolph. The morning of the 7th was the last morning I saw him; yes, sir. Mr. Easby-Smith. In company with Mr. Judson ? Mr. Rudolph. No ; Col. Judson was not in my room on the morning of the 7th. Mr. Easby-Smith. Do you remember an interview — let us see, now, if it was not Monday morning, the 9th — that you sent for Mr. Ingham, who was then conducting an examination up in the Southern Building ? Mr. Rudolph. No, sir; that was on the morning of the 6th. Mr. Easby-Smith. The 6th ? Mr. Rudolph. Yes. Mr. Easby-Smith. Mr. Ingham had already started upon the exam- ination in compliance with Mr. Judson's direction ? Mr. Rudolph. Yes; and he came down from the Southern Building. Mr. Easby-Smith. Do you recall the interview to this effect, that Mr. Judson again went over the question of the appraisal of the build- ing, and the selling of stock by these companies, and told Mr. Ingham that he ought to advertise them ? Mr. Rudolph. He did not use that term. Mr. Easby-Smith. What term did he use ? Mr. Rudolph. I do not know just what term he did use, but Ins argument has been right along that publicity should be given to the situation. Mr. Easby-Smith. Did Mr. Ingham on that occasion refer to the fact that he had no power under the law to control the selling of stock by these or any other insurance companies ? Mr. Rudolph. Yes. Mr. Easby-Smith. Do you remember anything that Col. Judson said about publishing or advertising the facts about these companies? Mr. Rudolph. Only in a general way, that the public should be apprised of the conditions. Mr. Easby-Smith. Do you recall that Col. Judson urged Mr. Ing- ham that he ought to publish them or advertise them, or used equiva- lent language, and that Mr. Ingham replied that he did not want to subject himself or anybody else to libel suits? Mr. Rudolph. Yes. Mr. Easby-Smith. Do you remember in response to that that Col. Judson used this phrase, or a phrase conveying the same meaning, that he would be glad to be sued by such a lot of crooks ? Mr. Rudolph. I do not remember him using that expression. What he did — the impression he left on my mir d — I do not recall the words that the colonel used, but they were that he would take his chances on being sued. Mr. Easby-Smith. Did he use the term "A lot of crooks," as applied to them ? Mr. Rudolph. I think not. Mr. Easby-Smith. Anything of that sort ? Mr. Rudolph. I think not. Mr. Easby-Smith. He did respond, as you remember it, that he would take his chances on being sued by them ? INVESTIGATION OF INSURANCE COMPANIES. 265 Mr. Rudolph. Yes; that was my understanding of it. Mr. Easby-Smith. And that was in the course of the conversation in which he was urging publicity on the part of Ingham ? Mr. Rudolph. Yes. Mr. Easbt-Smith. Do you remember, Mr. Rudolph, what was generally known as the "blue-sky law?" Mr. Rudolph. Oh, yes; very well. Mr. Easby-Smith. That was an attempt to secure new legislation for the District in order to give the insurance department greater control of insurance companies ? Mr. Rudolph. That would have been one of the effects of the law. Mr. Easby-Smith. That was based on the Kansas law, as I under- stand ? Mr. Rudolph. Yes, and on the English law. Mr. Easby-Smith. The commissioners approved that, I believe ? Mr. Rudolph. They did. Mr. Easby-Smith. Mr. Ingham was interested in having it enacted ? Mr. Rudolph. Yes. Mr. Easby-Smith. Do you know what influences, if any, were brought to bear against that law ? Mr. Rudolph. There was not any influences. When the thing became public property, a number of prominent bankers called our attention to the fact that if it passed as it was, it would put them out of business, put good concerns out of business. We then had a man come on from New York and give his views, and summoned a number of gentlemen from the city to discuss it, but we got nowhere with it then, and the matter is lying on my desk now. It will be taken up as early as possible next year again, and see if we can not get it. Mr. Easby-Smith. Who were the bankers who objected to it, Mr. Rudolph ? Mr. Rudolph. Well, I would have to refer to my records there. I do not recall them now. Mr. Munford was one. Mr. Geqrge. I did not get that name, if you please. Mr. Rudolph. I think it is E. S. Munford, and I think Mr. Parris of Crane, Parris & Co., Mr. William A. Mearns of Lewis Johnson & Co., Mr. Elmore — probably six or eight others. Mr. Easby-Smith. Mr. Rudolph, was Mr. Curry an applicant to succeed Mr. Drake at the same time Mr. Ingham was ? Mr. Rudolph. He was. Mr. Easby-Smith. Was Mr. Daniel Donovan, who made this ex- amination, an applicant ? Mr. Rudolph. No. Mr. Easby-Smith. You never beard of his being an applicant ? Mr. Rudolph. No; he had a better position. Mr. Easby-Smith. Do you know of any personal hard feeling be- tween Mr. Ingham and Mr. Curry, which has existed since that con- test between them? Mr. Rudolph. The friction was there before the contest, as you call it. I think since that time they have been getting along very nicely. Mr. Easby-Smith. Officially they get along all right ? Mr. Rudolph. Yes; officially they seemed to get along all right. Mr. Easby-Smith. You do not know anything about their per- sonal relations? 266 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. No; but they have been out of town making ex- aminations together. Mr. Easby-Smith. Do you know whether or not it is usual when they make examinations out of town for their expenses to be paid by the out-of-town people ? Mr. Rudolph. They are invariably paid by the out-of-town people. Mr. Easby-Smith. As I understand, they only make examina- tions of the outside offices of the District of Columbia companies ? Mr. Rudolph. Yes. Mr. Easby-Smith. They never go to other cities and examine the business of other companies who have their home offices in other cities ? Mr. Rudolph. No. Mr. Easby-Smith. Have you any personal knowledge as to the Eurpose of Mr. Ingham's visit to New York in the early part of Decom- er of this year ? Mr. Rudolph. He asked my consent to go to attend a convention of actuaries or what not. I know it was a convention, and I told him I had no objection to his going. Mr. Easby-Smith. I believe you stated on your direct examination that you have the utmost confidence in Mr. Ingham's integrity l Mr. Rudolph. I do. Mr. Easby-Smith. And in his ability ? Mr. Rudolph. I do. Mr. Easby-Smith. You know of nothing and have known of nothing which would militate against him as an official or as a man ? Mr. Rudolph. No. Mr. Easby-Smith. And you think he has made good in the office ? Mr. Rudolph. I do. Mr. Easby-Smith. That is all, sir. Mr. Johnson. It is now close to half past five, and I would suggest that we adjourn until to-morrow morning. Mr. Douglas. I have only a few questions, and can finish, I think, in a few minutes. Mr. Johnson. Very well. Mr. Douglas. Mr. Rudolph, as I understand it, you objected to the kind and character of the investigation that Commissioners Judson and Johnston wanted to make as to these companies ? Mr. Rudolph. There was a difference of opinion. I had one plan and the colonel had another. Mr. Douglas. You wanted to investigate and find out the facts? Mr. Rudolph. Absolutely. Mr. Douglas. You did not mean by your examination here to-day to say that you knew there was anything wrong with these compa- nies, or that you know of anything wrong about them ? Mr. Rudolph. No; I wanted to find out whether there was. Mr. Douglas. To find out ? Mr. Rudolph. Yes, sir. Mr. Douglas. You did not mean to express that view, to condemn these companies, or that there is anything wrong either with the Commercial or the First National? Mr. Rudolph. As I said before, I thought the true assets of the Commercial were infinitesirnally small. That was one proposition. INVESTIGATION OF INSURANCE COMPANIES. 267 And there were other questions that occurred to me, which I would like to have asked to have some light upon if this conference had taken place. Mr. Douglas. You had your judgment suspended as to the methods and everything else with reference to the companies ? Mr. Rudolph. As to the methods; not everything else, no; but as to the method of procedure. Mr. Douglas. But you had not formed any opinion as to these companies — whether there was anything about them to be condemned or not until you investigated ? Mr. Rudolph. I had formed some opinion, yes; but I was not ready to condemn them until I had gotten further light on the subject. Mr. Douglas. You knew from the report of the superintendent of insurance that the Commercial was a perfectly solvent company? Mr. Rudolph. I knew that the capital had not been impaired; yes. Mr. Douglas. That meant it was a solvent company. Mr. Rudolph. It does in law. Mr. Douglas. And you wanted an inquiry into the methods of selling the stock and as to whether or not what was paid for selling the stock was reasonable or unreasonable ? Mr. Rudolph. It was unreasonable, of course. That was my idea about it; but I am not saying that now because my plan did not carry, so the question was dropped. Mr. Douglas. It simply occurred to you as a preliminary opinion that perhaps they were paying too much for the sale of the stock, but your mind was open to the ascertainment of the facts about that ? Mr. Rudolph. Yes. Mr. Douglas. That is as I understand it. Mr. Rudolph. Yes. Mr. Douglas. You had absolutely nothing by way of criticism suggested as to the First National, did you ? Mr. Rudolph. Yes; in my examination I found you were paying about 28 per cent for the sale of your stock, and your contract only permitted you to pay 1\. Mr. Douglas. Suppose we can satisfy you that what was actually paid Mr. Rudolph. The statement shows that. Mr. Douglas. One moment — that the maximum amount author- ized on the statement shows it was 14 per cent. Mr. Rudolph. I beg your pardon. Mr. Douglas. Let us assume it for the purposes of the question. We will come to that matter later. What you meant to say was that if there was as much as 28 per cent paid, it was too much, in your judgment ? Mr. Rudolph. No; I meant to say in my analysis of that state- ment I figured you were paying 28 per cent for the sale of stock in the First National, whereas the contract permits you to pay 1\ and 12 per cent. Mr. Douglas. If you should ascertain the fact to be that instead of paying 28 per cent they paid 14, you would think it would be very reasonable, would you not? Mr. Rudolph. Fourteen per cent for selling the stock? Mr. Douglas. Yes. 268 INVESTIGATION OP INSURANCE COMPANIES. Mr. Rudolph. I am not a judge; I do not know whether it is reasonable or unreasonable. But I do know your contract says you shall not expend more than 7\ per cent for commissions, and \2\ per cent for expenses for the sale of stock, and your statement shows that you did spend 28 per cent. Mr. Douglas. It may be possible you may be in error on that. Mr. Rudolph. No ; the statement speaks for itself. Mr. Douglas. We will meet that situation later. But if it was half that amount you would have a very different opinion about it, would you not? Mr. Rudolph. As I said before, I do not know what it is customary to pay for the sale of stock, and I do not know whether 14 per cent would be large or small. Mr. Douglas. You have no opinion, and could form no opinion, as to whether it is large or small ? Mr. Rudolph. No; but I can form an opinion that where the con- tract permits you to spend 7\ per cent, and the statement shows 28 per cent, that that is not reasonable. Mr. Douglas. Can you show me on that statement Mr. Rudolph (interposing). I am not an insurance man, and it is a statement I have prepared myself. Mr. Douglas. I will have to take that up with you to-morrow morning, if you insist that statement shows 28 per cent. But I submit it does not show that. That was the only thing you had to suggest with reference to the First National? Mr. Rudolph. There were other questions I would have asked if I had had the opportunity. Mr. Douglas. You mean for the purpose of investigating, that is all I Mr. Rudolph. Yes, sir. Mr. Douglas. Mr. Rudolph, as I understand it, you were opposed to the publicity program of Commissioner Judson ? Mr. Rudolph. Yes; until after we had looked into it. Mr. Douglas. Until after you investigated it ? Mr. Rudolph. Yes, sir. Air. Douglas. In other words, you opposed publicity before in- vestigation and before ascertaining the facts? Mr. Rudolph. That was my position. Mr. Douglas. If you had ascertained after investigation in a proper way that there was anything wrong, then you favored publicity; you would have favored publicity? Mr. Rudolph. Unless the gentlemen would have corrected the situation. Mr. Douglas. That is what I mean. Your idea was to go into this matter and make your suggestions as to what you thought ought to be corrected? Mr. Rudolph. Yes. Mr. Douglas. If you found anything, and then to give them reasonable opportunity to correct them? Mr. Rudolph. Yes. Mr. Douglas. And if they did not correct them, then to resort to a publicity campaign yourself ? Mr. Rudolph. Exactly. INVESTIGATION OF INSUKANCE COMPANIES. 269 Mr. Douglas. It would be condemning these parties without a hearing, to publish these matters without a hearing; is that right ? Mr. Rudolph. That is right. Mr. Douglas. You differed from your fellow members on the Board of Commissioners in that one respect ? Mr. Rudolph. In that one respect ; yes, sir. Mr. Douglas. Did you attend any meeting of the board in which this matter was referred to the House or Senate, or did these gen- tlemen, Mr. Johnston and Mr. Judson, meet themselves and send this letter « Mr. Rudolph. No; the beginning of the meeting was, as I testi- fied before, that I was called to Col. Judson's room, and found Mr. Redfield present. Col. Judson moved to take the matter up with Congress. I approved taking the matter up with Congress at the time, but did not approve furnishing the statement. Mr. Douglas. You knew, I suppose, Mr. Rudolph, that to publish such a statement as that could not help but do damage to these com- panies, however innocent they might afterwards be proved to be ? Mr. Rudolph. I felt that might happen. Mr. 1 ouglas. That is all this afternoon, Mr. Chairman. Col. Judson. I would like to ask one question, whether there had not been ascertainment of the facts as of the 31st of October, and a report upon those facts by the commissioner of insurance, under date of November 8. You said you were opposed to going ahead with this matter until the facts had been ascertained. Mr. Rudolph. What I meant to say was until we had some evi- dence as to what was wrong and had mapped out some plan as to how these companies should be told to proceed. Col. Judson. But we had ascertained what their condition was on the 31st of October. Mr. Rudolph. Yes; that is what we were basing the whole thing on. Col. Judson. But we had a complete knowledge of what their condition was then and what had occurred during the preceding 10 months. Mr. Rudolph. Yes; that is true. Col. Judson. So that we were not exactly acting in the absence of information as to what the status of these companies was. That is all. Mr. Johnson. The hearing will be resumed to-morrow morning at 10 o'clock. Thereupon, at 5.25 o'clock p. m., the committee adjourned until to-morrow, Saturday, December 28, 1912, at 10 o'clock a. m. X INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 3 DECEMBEB 28, 1912 ^V WASHINGTON GOVERNMENT PRINTING OFFICE 1912 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee or the Committee on the District of Columbia, House of Representatives, Washington, D. C, December 28, 1912. The subcommittee met at 10 o'clock a. m., Hon. Ben Johnson (chairman) presiding. Also the Commissioners of the District of Columbia, Hon. Cuno H. Rudolph, Gen. John A. Johnston, and Lieut, Col. William V. Judson, United States Army, and Mr. Francis H. Stephens, assistant corporation counsel of the District of Columbia. Also George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, represent- ing the Commercial Fire Insurance Co., the First National Fire In- surance Co. of the United States, and the Washington Loan & Title Co. Also William Otis Badger, jr., attorney for Mr. Alfred M. Best. TESTIMONY OF CUNO H. RUDOLPH— Continued. Mr. Douglas. Mr. Rudolph, you stated on yesterday that you fig- ured 28 per cent paid for the sale of the stock of the First National, and that you thought that was high — that it appeared to you to be high. Mr. Rudolph. I did. Mr. Douglas. How did you arrive at that 28 per cent? Mr. Rudolph. If you will take the statement of the examination of the First National, on the fourth page, pretty well down near the bottom of the page, you will see the statement says : Of this amount $840,025 of capital and surplus has been subscribed, on which $239,407.50 has been paid, and from which we deducted $117,607.24 commis- sions and expenses. Your capital and surplus was, as I saidj eight hundred and forty thousand and odd dollars, and the commissions and expenses were one hundred and seventeen thousand and odd dollars, and that, the way I figure it, is 28 per cent of the capital. Mr. Douglas. In calculating the 28 per cent on the capital you ignore the fact there is a surplus that equaled the amount subscribed for and paid for at the same time ? Mr. Rudolph. Yes ; but the surplus does not corhe under your con- tract provision, which says " for the sale of stock." Mr. Douglas. Does not the sale of stock include the price at which the stock is sold ? 271 272 INVESTIGATION OF INSURANCE COMPANIES. Mr. Eudolph. Xo; I take it to be the par value stock. Mr. Douglas. Is it not sold at $10 a share ? Mr. Eudolph. Yes ; $5 par value. Mr. Douglas. $5 par value and $5 surplus? Mr. Eudolph. Yes. Mr. Bedfield. Pardon me a moment. The stock was sold at $10 a share for a $5 share? Mr. Eudolph. Yes, sir. Mr. Bedfield. The stock was sold, then, at 200? Mr. Eudolph. Yes. sir. I interpret this clause in the contract to mean that the sellers of this stock were entitled to as much as 20 per cent of the par value of the stock. Mr. Douglas. If you will read this contract you will change your mind about a moment after reading it. It says 20 per cent of the subscribed price of the stock. Mr. Ernoi.pii. It does not say so in this statement. I have not seen the contract. Mr. Douglas. You may see the contract if you want to. Mr. Eudolph. I do not care to detain the committee by reading it. Mr. Douglas. AVe do not care to get into a legal controversy as to what this contract means. What I do want to get clear from you is this : That the 28 per cent you arrive at by calculating or computing it upon the capital stock, exclusive of the surplus ? Mr. Eudolph. Yes, sir. Mr. Douglas. When the stock was sold for $10, being $5 for capi- tal and $5 for surplus? Mr. Eudolph. Yes, sir. Mr. Douglas. And being computed upon the basis of surplus and capital at the price at which the stock was sold, it would be 14 per cent instead of 28 per cent? Mr. Eudolph. Yes, sir ; that is correct. Mr. Douglas. I would like, Mr. Chairman, to have this contract — this is the original — between the organizers of the First National and the company itself introduced in evidence at this time and made a part of the record. I want to put upon the record the fact that especial attention is called to the provision of the contract bearing upon the question of the percentage to be paid, it being calculated upon the amount at which the stock is sold. The contract referred to is in the words and figures following, to wit: This agreement made this 5th day of January, 1912, by and between George W. Atkinson, Charles F. Carusi, Ashley M. Gould, Robert N. Harper, William H. Ingersoll, Eldridge E. Jordan, and Robert J. Wynne, organization committee of the First National Fire Insurance Co. of the United States, hereafter to be organized under the laws of the District of Columbia, party of the second part, witnesseth : Whereas the parties of the first part are desirous of organizing a fire insur- ance company under the name of The First National Fire Insurance Co. of the United States, with a cash capital of $1,000,000 and a surplus of like amount, less only the expenses of organization, said company to engage in the business of writing fire insurance in the various States and Territories of the United States. Whereas the said company can not be actually incorporated or chartered under the laws of the District of Columbia until it has a cash capital of at least $100,000 when and at which time it is the desire of the parties of the first part INVESTIGATION OF INSURANCE COMPANIES. 273 that the said company should be duly Incorporated and then commence the business of writing fire insurance in the States and Territories to which it may be admitted with said capital, said business to be carried on pending and during the further increase in the capital of said company to $1,000,000, as aforesaid ; and Whereas to carry out the purposes aforesaid it is necessary that the stock of said company should be placed upon the market, and it is deemed advisable that it should be sold at not less than $10, and it being further desired that said stock should be distributed as widely as possible throughout the United States the better to secure desirable risks for the company after its incorpora- tion and as widely extended a business as possible, it being considered that the sale of the said stock can only be successfully accomplished through an experi- enced and competent underwriting agency such as that operated by the party of the second part. Now, therefore, this agreement made by the parties of the first part on their own behalf and on behalf of the said The First National Fire Insurance Go. of the United States, which shall have the right to adopt this contract by resolu- tion of its board of directors immediately upon its organization, witnesseth : In consideration of the premises and of the mutual agreements and covenants herein contained the parties of the first part for themselves and for The First National Fire Insurance Co. of the United States when and as soon as the same shall have been chartered, hereby agree to permit, and the second party agrees to assume the sole and exclusive right to market and sell any and all issues of the capital stock of the said The First National Fire Insurance Co. of the United States up to $1,000,000 at a price to the subscribers therefor of $10 per share. Said sales may be conducted by subagents or through the mails, but in the former case the parties of the first part are to be under no responsibility to subagents, and the second party agrees that it will permit no misrepresenta- tions of fact to be made by any such agents, and if any such are made agrees to be responsible to any person or persons to whom the same may have been made for the return of subscriptions so procured, and if sales are made by the use of the mails the second party agrees that all literature, booklets, circular letters, follow-up letters, etc., shall, before being sent, be approved by the parties of the first part through a committee or their general counsel, as they may hereafter decide. Subscription contracts shall be made in the name of the first parties, and may provide for payment in full or for payment in installments; in all cases, however, said payments are to be directed to the first parties or to some bank or trust company by them designated for the receipt of said subscriptions, and in all cases interim receipts only shall be issued until such time as the entire amount of any subscription has been paid for, when, provided the com- pany is then chartered, certificates of stock are hereby agreed to be issued to the parties entitled. On Saturday of each week during the operation of this contract the second party shall submit to the first parties or some regularly appointed committee thereof a full and accurate report of all sales made during the week, and will check up with the first parties all of said sales or of prior sales upon which cash payments in whole or in part have been received by said first parties, together with a statement of expenses incurred under this contract during said week together with the vouchers therefor, and first parties agree to pay on the Wednesday following each of said Saturdays to the second party out of the moneys so received by them as aforesaid the following sum and in the following manner to wit : Upon all subscription contracts which are paid for in full or upon which an installment of at least one-fifth of the amount sub- scribed has been paid, 7J per cent of the gross amount of said sales and to reimburse said second party for the expenses incurred for which proper vouchers are rendered not to exceed 12J per cent of said sales ; and on install- ment sales on which only one-tenth of the amount subscribed has been paid, 7J per cent commission on said sales and reimbursement for expenses not to exceed 2% per cent, the balance which may be due for disbursements on ac- count of said sales to be paid in full out of the second installment received upon said 10-payment contracts, it being the intent and purpose of this agree- ment that on all subscriptions secured by the party of the second part or their agents which are paid for in full or upon which a first installment of at least 20 per cent of the amount subscribed is paid by the subscriber, the party of the second part is to receive its full commission of 11 per cent and to be reimbursed for the expenses incurred in making such sales to an amount equal to 12J per cent of the total amount of such sales, but when sales are made on the basis of monthly payments of 10 per cent, then the party of the second 274 INVESTIGATION OF INSURANCE COMPANIES. part shall receive 7J per cent commission and 2i per cent expense allowance when the first installment of 10 per cent is paid by the subscriber, and 10 per cent expense allowance when the second installment of 10 per cent is paid by the subscriber. And it is hereby further understood and agreed that at the first Saturday settlement occurring 15 days after any second payment on any 5 or 10 pay- ment subscription contract is due and unpaid, one-half of the amount paid by the first parties to the second party for commissions and reimbursements as herein provided shall be deducted in said settlement provided, however, that if and when said second payment on account of any subscription contract Is received, then the second party shall be again entitled to credit in the next settlement for the amount so deducted, withheld, or returned. It is further understood and agreed that only the actual expenses incident to the sale of said stock and not to exceed in any case more than 12J per cent of said sales, shall be borne by the said first parties, which shall profit by any reduction in this estimate of expenses, but the second party shall be the judge of the propriety and necessity of any item of expense incurred and up to the limit above mentioned, proper vouchers showing the expense to be actually incurred shall be conclusive upon the point. The party of the second part is also to collect all moneys due on account of sale of said stock and the expense of so doing shall constitute a part of said 12J per cent expense allowance. It is further understood and agreed that in the event of the failure of the party of the second part to sell at least $100,000 of the proposed capital of the First National Fire Insurance Co. of the United States so as to permit of its incorporation within one year from the date of this contract that the party of the second part, which has a contract with the Commercial Fire Insurance Co. of the District of Columbia for the sale of its stock up to $1,000,000 at a price which shall net the said Commercial Fire Insurance Co. $8 per share, will agree and does hereby agree without any additional allowance for commis- sions or expenses to cause to be issued to those who have subscribed to the stock of the First National Fire Insurance Co. of the United States and out of whose subscriptions 20 per cent has been paid for commissions and ex- penses, full-paid stock in the said Commercial Fire Insurance Co. for the SO per cent of said subscriptions remaining in the hands of the parties of the first part. It is further understood and agreed that any addition to the parties of the first part as an organization committee or any substitution of the membership thereof shall not have the effect of invalidating this contract, provided such added or substituted member shall signify his approval of the same by his signature hereto, and it is further understood and agreed that said organization committee may act in all matters relating to this contract by a subcommittee or other appropriate agency that it may by a majority of said organization com- mittee appoint. In witness whereof we have hereunto placed our hands and seals the day and year above written, this contract being executed on behalf of the parties of the first part by Charles F. Carusi, Robert N. Harper, and George W. Atkinson, as executive committee of the organization committee, parties of the first part, and on behalf of the party of the second part by its president and its secretary- treasurer under the seal of said corporation. Chakles F. Carusi, Robt. X. Harper, George TV, Atkinson, Executive Committee. TUTTLE, WlGHTMAN & DUDLEY (INC.). By Robert R. Tuttle, President. By Frederick S. Dudley, Secretary-Treas u rer. Whereas by resolution of its board of directors at a meeting held July 12, 1912, the foregoing contract was adopted by the First National Fire Insurance Co. of the United States and its officers were directed to enter into a formal contract with Turtle, Wightman & Dudley (Inc.) ; Now, therefore, it is mutually understod and agreed by the parties thereto as is by the terms of said contract provided and upon the mutual considerations therein expressed. INVESTIGATION OF INSUKANCE COMPANIES. 275 In witness whereof the First National Fire Insurance Oo. of the United States and Turtle, Wightman & Dudley (Inc.) have each caused these presents to be signed by their presidents and attested by their secretaries under the seals of the said corporations. [seal.] First National Fire Insurance Co. of the United States. By Robert J. Wynne, President. Attest : W. J. Davis, Assistant Secretary. [seal.] Tuttle, Wightman & Dudley (Inc.). By Robert R. Tuttle, President. Attest : F. S. Dudley, Secretary. Mr. Douglas. I desire also to introduce in evidence and read into the record at this time so much of the booklet of the First National Fire Insurance Co. which appears on page 10 thereof, which I will now read. It is headed in red ink as follows : where your money goes to. Before you draw your check to apply on a First National ownership you might as well know where your money goes to and what it is used for. When a man makes an investment he should do it intelligently, not blindly, but with open eyes and a clear understanding as to how his money is to be used. Well, then, here is the analysis of your investment in a First National ownership : Fifty per cent of your money goes into the permanent capital of the com- pany, all of which is invested in high-class, income-producing securities, as prescribed by law; Thirty per cent goes into the company's surplus, which surplus is a necessary and important adjunct of every going fire insurance company; And 20 per cent is put into the expense fund to provide for the actual cost of placing the 2,000 ownerships and establishing and equipping the agencies which produce the company's business. From this expense fund are paid all bills for rent, clerk hire, postage, etc., incident to organization. Under no circumstances will this expense of distributing the company's stock and estab- lishing and equipping the company's agencies exceed 20 per cent. In fact, it is likely to be much less than that — even as low as 12 per cent — and every dollar of expense saved will be put back into the surplus, which belongs to the stockholders. Mr. Douglas. That is all. Mr. Redfield. Mr. Kudolph, did the superintendent of insurance make any report to the commissioners concerning the affairs of the Commercial Fire Insurance Co. ? Mr. Rudolph. Previous to his trip to New York? Mr. Redfield. At any time. Mr. Rudolph. After his return from New York, when he was asked to explain the examination to the commissioners, he did. Mr. Redfield. After his return from New York, he did ? Mr. Rudolph. Yes, sir. Mr. Redfield. Has that report been introduced into evidence ? Mr. Rudolph. Yes, sir. Mr. Redfield. Do you refer in that connection to a communication from him, dated November 8, transmitting the document that pur- ports to be one giving the affairs of these companies, bearing that same date, and signed by Messrs. Currie and Hall ? Mr. Rudolph. The examination of the First National Fire Insur- ance Co. bears date of November 7 and is signed on this copy only by Mr. Hall, statistician. 276 INVESTIGATION OF INSURANCE COMPANIES. Mr. Kedfield. Is this [indicating] a copy of the one concerning the Commercial Fire Insurance Co.? Mr. Rudolph. It will take me some little time to compare it. Mr. Redfield. Do you believe it to be so ? Mr. Rudolph. I do; yes, sir. Mr. Redfield. I call your attention to the fact that these docu- ments are not a report of the superintendent of insurance on the con- ditions of these companies ; that there is nothing in them which in any way whatever shows that he made any report upon those companies, and that, unless there is some other document not known to this com- mittee, the only papers before it are the report made to the commis- sioner of insurance by his subordinate and transmitted by him with- out comment to the board of commissioners. Is not that the fact ? Mr. Rudolph. Yes, sir. Mr. Redfield. So that, as a matter of fact, it is not true that the superintendent of insurance has reported upon these companies? Is not that so? Mr. Rudolph. Not in writing, that I know of. Mr. Redfield. You have nothing whatever bearing the signature of the superintendent of insurance in which he himself says anything as to the condition of these companies ? Mr. Rudolph. No, sir; I have not. Mr. Redfield. All that you have is a report to him from his sub- ordinates ? Mr. Rudolph. Yes, sir. Mr. Redfield. Which he transmits with a certificate that it is a true copy of something his subordinate said to him. Is not that so? Mr. Rudolph. Yes, sir. Mr. Redfield. Is that what a superintendent of insurance is for? Mr. Rfdolph. That is part of his duty; yes, sir. Mr. Redfield. Do you regard it as an efficient administration which, instead of reporting directly himself, transmits to you without comment the report of subordinates to him? Mr. Rudolph. If there is anything that indicated comment should be made upon it in his mind, it was his duty to bring it to the atten- tion of the commissioners. Mr. Redfield. It was? Mr. Rudolph. Yes, sir. Mr. Redfield. And he should not be deterred from so doing by fears of libel suits? Mr. Rudolph. I am not prepared to answer that question, Mr. Redfield, I do not know how libelous anything he ' might say would be. Mr. Redfield. But if there was anything in the nature of a report received by him from his subordinate which was such as would nat- urally excite comment, that you think he should have himself pointed out to you ? Mr. Rudolph. Yes. Mr. Redfield. Is it not a mater of fact that a report of facts from the superintendent of insurance to his superior officers was privi- leged and could not be libelous? Mr. Rudolph. That I do not know. Mr. Redfield. Pardon me, Mr. Commissioner, is it not your duty to know ? INVESTIGATION" OF INSUKANCE COMPANIES. 277 Mr. Rudolph. I am not a lawyer, Mr. Redfield. Mr. Redfield. You have testified here that the management of this insurance department was efficient? Mr. Rudolph. Yes, sir. Mr. Redfield. I call your attention to the fact that he has made no report upon this matter himself; he has simply turned over to you papers received by him from his subordinate. Mr. Rudolph. Yes. Mr. Redfield. Which he says is a true copy of that paper. His name does not appear upon the papers in any way, shape, or manner, save so far as his statement accompanies it that it is a true copy. Nothing is said to direct your attention to any facts in it. Mr. Rudolph. No, sir. Mr. Redfield. You also testified that if there were anything in it that was of special moment it should be pointed out. Mr. Rudolph. Yes, sir. Mr. Redfield. Have you not a law department? Mr. Rudolph. Yes, sir. Mr. Redfield. And is it not competent for him if he needs legal advice to apply through you or directly to that law department and be advised? Mr. Rudolph. He can. Mr. Redfield. Can you conceive, Commissioner Rudolph, of any situation whereby the law prevents one municipal official reporting facts to his superior? Mr. Rudolph. No, sir. Mr. Redfield. This was a case where you were entitled to the facts, was it not ? Mr. RuDOLrn. Yes, sir. Mr. Redfield. As a matter of fact, he did not report them, did he? Mr. Rudolph. Not until after he was called upon. Mr. Redfield. And, as a matter of fact, he did not report this mat- ter of the 8th at all, but simply transmitted to you what some subordinate said to him. Is not that so ? Mr. Rudolph. Yes, sir. Mr. Redfield. That is the fact ? Mr. Rudolph. Yes, sir. Mr. Redfield. So you have not any statement as to the condition of these companies from the insurance commissioner himself, have you ? Mr. Rudolph. No, sir ; nothing except what is there. Mr. Redfield. And what he did here in this matter was a merely clerical thing, was it not ? Mr. Rudolph. I presume it was more than that. I imagine he analyzed the statement. However, he can testify to that. Mr. Redfield. Why do you presume that? Mr. Rudolph. I presume he would not put his name to a document unless he had. Mr. Redfield. Did he put his name to the document ? Mr. Rudolph. Not to the document itself, but to the paper that is made a part of it. Mr. Redfield. Does he not merely say it is a correct copy of some- thing he has received ? Mr. Rudolph. Yes. 278 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. And is not that a thing which an intelligent boy could do? Mr. Rudolph. Oh, yes; that part of it. Mr. Redfield. Is there anything in the mere sending of this docu- ment to you, stating it is a correct copy of something he had received, which showed either energy or intelligence ? Mr. Rudolph. It certainly showed the energy and intelligence of the man who prepared it. Mr. Redfield. We are not asking about him. I am asking about the insurance commissioner. Mr. Rudolph. I would not charge him with being lacking in intelligence in transmitting a paper in that manner. Mr. Redfield. I ask you if there is anything in what he did which shows either intelligence or energy ; and if so, what ? Mr. Rudolph. I do not know how to answer that question, Mr. Redfield. Mr. Redfield. We will let it go at that. Why was this state- ment called for ? Mr. Rudolph. Because my attention had been directed to the affairs of the company, as I testified yesterday. Mr. Redfield. And vou asked to have an examination made? Is that right ? Mr. Rudolph. Xo, sir; this examination was made prior to my attention being called to the condition. Mr. Redfield. Why was this made? Mr. Rudolph. It was made in due course of business. Mr. Redfield. Ordinary course of business? Mr. Rudolph. Yes. Mr. Redfield. Can yon say why it was made at this particular time? Mr. Rudolph. I can not. Mr. Redffeld. Commissioner Rudolph, is it not a fact that whether the valuation of the Southern Building was right or wrong it yet remains true that the half of the excess valuation put there by the appraisers on the 29th day of October was substantially all the sur- plus this Commercial Co. had ? Mr. Rudolph. Except a very small amount. Mr. Redfield. About $2,700? Mr. Rudolph. About $2,700. Mr. Redfield. It is true, is it not, that during the year they had sold some stock at a premium ? Mr. Rudolph. Yes. Mr. Redfield. That premium you have testified to be about 200 — 100 per cent premium ? Mr. Rudolph. Yes. Mr. Redfield. The sale price being at 200, a premium of 100 per cent? Mr. Rudolph. Yes, sir. Mr. Redfield. And part of it more? Mr. Rudolph. Yes, sir. Mr. Redfield. So much as was sold at $11 a share was sold at a price of 220, or 120 per cent premium ? Mr. Rudolph. Yes. INVESTIGATION- OF INSUKANCE COMPANIES. 279 Mr. Redfield. If the excess valuation of the Southern Building, whether right or wrong, was substantially all the surplus the com- pany had, how do you account for what became of the 100 per cent premium on the stock that was sold? Mr. Rudolph. I did not go into that question at all, Mr. Redfield. There was going to be either a conference or investigation, and these questions would have been brought out. Mr. Kedfield. You did not attempt to account for it? Mr. Rudolph. No. Mr. Redfield. Did you know that the company had a surplus. 10 months or a year ago, of something over $70,000 ? Mr. Rudolph. Yes, sir. Mr. Redfield. So that in someway, somehow, and somewhere a surplus of $70,000 odd, plus the premium at which the stock sold dur- ing the year, had disappeared? Mr. Rudolph. Yes, sir. Mr. Redfield. And there remained, to your knowledge, as a sur- plus only or substantially only their share of the enhanced value of the Southern Building, whether that value was right or wrong? Mr. Rudolph. Yes, sir. Mr. Redfield. That is true ? Mr. Rudolph. Yes, sir. Mr. Redfield. You knew those facts? Mr. Rudolph. I learned them after looking into it ; yes, sir. Mr. Redfield. Do you not thiuk those were facts which justified comment by the superintendent of insurance ? Mr. Rudolph. Under the law he has no right of action until the capital is impaired 25 per cent. It was not impaired; consequently he had no right of action; but I presume he was alert and wide- awake to the fact that this $2,700 would soon disappear, and at the proper time would have stepped in. Mr. -Redfield. So that, to use a hypothetical case, if wrong could be done it was not a question whether wrong was or was not being done, but a mere question of whether it was so skillfully done as not to impair the capital ; that was the limiting factor with the superin- tendent of insurance? Mr. Rudolph. I will have to beg your pardon. I did not quite fol- low you on that. Mr. Redfield. Read the question slowly, Mr. Reporter. The reporter read the pending question. Mr. Rudolph. I should say so. Mr. Redfield. So that you admit that he might know wrong was going on, but if it did not go so far as to pass the point where it impaired the capital you regarded him as helpless in the matter '. Mr. Rudolph. Practically so. Mr. Redfield. And you did not regard him even as justified in calling your attention to the fact that it was going on when he trans- mitted papers which showed it to be going on ? Mr. Rudolph. Oh, yes ; I do think he should have called my atten- tion to it at the time. Mr. Redfield. Then, was he efficient and correct in transmitting this report to you ? 280 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. He was not inefficient, but simply neglectful. Mr. Bedfield. You admit he was neglectful in not calling your attention to those facts? Mr. Rudolph. Yes, sir ; in that particular case. Mr. Redfield. Mr. Rudolph, to be entirely candid, can you imagine an intelligent and upright official — intelligent and upright — trans- mitting to his superiors this report, with what it shows, without a word of comment as to its nature for your benefit and in so doing fulfilling his duty? Mr. Rudolph. As I have said, he should have called my attention to certain facts that the statement shows. Mr. Redfield. Let us assume another hypothetical state of facts. Let it be assumed that a company which is, as a matter of fact, oper- ating at a loss Mr. Rudolph. Yes. Mr. Redfield. Purports in its communications to the public to be operating at a profit, and pays dividends out of the premiums re- ceived by it from the sales of the stock to ignorant investors, and that an insurance superintendent causes an examination to be made of that company, with knowledge of the facts, those being published in the press widely, and that report shows the company thus selling its stock and thus paying dividends, to be operating at a loss. Is it not a serious dereliction of duty on his part not to make those facts plain to his superiors? Mr. Rudolph. His not doing so was neglectful; yes, sir. Mr. Redfield. Mr. Chairman, I ask the correspondence of these two companies and of Tuttle, Wightman & Dudley, if any, with the insurance department of the State of Wisconsin, be filed with the committee and that the committee request the superintendent of 3n- surance of the State of Wisconsin to furnish to it such information as he has respecting their operations in that State, and be asked if he will send a representative of his office to testify before this com- mittee. Mr. Douglas. We will furnish copies of all the correspondence in our possession. Mr. Redfield. Mr. Rudolph, are you a candidate for reappoint- ment ? Mr. Rudolph. Yes. sir. Mr. Redfield. Does Senator Gallinger favor your reappointment? Mr. Rudolph. I presume he does, although I have no direct knowl- edge, not having seen the Senator for a year. Mr. Redfield. Have you consulted him in the matter ? Mr. Rudolph. Have I consulted him? Xo, sir. Mr. Redfield. When did you learn that Mr. Ingham had been negligent, as you have described '( Mr. Rudolph. I thought he was negligent in not pointing out the details of the statement after the examination had been made. Mr. Redfield. Did you tell him so? Mr. Rudolph. No, sir. Mr. Redfield. Why" not ? Mr. Rudolph. I may have said something to him about it ; I do not recall. Mr. Redfield. You do not know whether you told him so or not? Mr. Rudolph. We had a number of interviews after December 5. INVESTIGATION OF INSURANCE COMPANIES. 281 Mr. Redfield. Have you any friends who are stockholders in the Commerial Fire Insurance Co.? Mr. Rudolph. Have I any friends who are stockholders ? Mr. Redfield. Yes. Mr. Rudolph. I do not know whether I have or not. I know some of the officers and directors. Mr. Redfield. Have you any friends who are stockholders in the First National Fire Insurance Co.? Mr. Rudolph. I may have; I do not know who the stockholders are. I never saw a list of them. Mr. Redfield. Was any proposition ever made to you to purchase stock of either company? Mr. Rudolph. As I recall it, two gentlemen called on me — oh r probably four or five months ago — and asked me to buy stock; but I promptly told them I was not in the market for anything. Mr. Redfield. Do you know of any person who has received money payment, either one payment or continuously, to act as director for either of these companies? Mr. Rudolph. I do not. Mr. Redfield. Do you know of any person who has received stock either at a reduced price or on any special terms of any nature ? Mr. Rudolph. No, sir. Mr. Redfield. As an inducement to act as a director of these companies ? Mr. Rudolph. I do not; no. I know absolutely nothing about the circumstance of their stock selling. Mr. Redfield. Do you know why Mr. William H. Ingersoll with- drew from directorship in the First National Fire Insurance Co. ? Mr. Rudolph. I did not know he had withdrawn. Mr. Redfield. Do you know why Mr. Eldridge E. Jordan with- drew from his connection with the First National Insurance Co. ? Mr. Rudolph. I do not. Mr. Redfield. Has Mr. Ingham ever talked to you concerning the character and record of Tuttle or Dudley or Wightman, or any of them? Mr. Rudolph. Yes. Mr. Redfield. What did he say? Mr. Rudolph. It has been a good many months ago. I should say it was in the late winter, probably eight months ago, or nine months ago, when he told me that reports reaching his office about this firm were not very complimentary and he meant to keep a very sharp lookout on their proceedings here. Mr. Redfield. He meant to do so? Mr. Rudolph. Yes, sir. Mr. Redfield. Can you not tell that conversation more fully ? Mr. Rudolph. It has been too long back to remember it with great detail, Mr. Redfield. That was the sum and substance of the inter- view. Mr. Redfield. That he had received information concerning these parties ? Mr. Rudolph. Yes, sir. Mr. Redfield. Which was not complimentary to them, and he meant to keep a sharp watch? Mr. Rudolph. Yes, sir. 282 INVESTIGATION OP INSURANCE COMPANIES. Mr. Redfibld. And he rather forgot that watch when he trans- mitted a report without comment on these people, did he not ? Mr. Rudolph. I could not say. He probably would be more com- petent to testify to that than I am. Mr. Redfield. That is all. Mr. Easby-Smith. Mr. Rudolph, I presume, having charge of the insurance department, you have been familiar with the routine of that office? Mr. Rudolph. To some extent. Mr. Easby-Smith. Are you familiar enough with the manner of making examinations and reports to state whether or not the reports made by the employees of the insurance department and transmitted by the superintendent are in the usual form and contain information which those reports have been required to contain for many years heretofore ? Mr. Rudolph. I understand so. Mr. Easby-Smith. Will you state whether or not Mr. Ingham, since, he has been superintendent, has from time to time called your attention to the fact that there were many matters concerning insur- ance companies in the District of Columbia which he would like to correct, but which he had no power under the law to touch? Mr. Rudolph. Yes; that is true. Mi-. Easby-Smith. Will you state whether or not in connection with such reports to you he urged upon you the necessity of securing legislation giving him authority to do those things? Mr. Rudolph. He did. Mr. Easby-Smith. Did those complaints which he made to you include the selling of stock and paying a commission for its sale? Mr. Rudolph. Yes. Mr. Easby-Smith. Did it include the fact that the companies throughout the District had undergone great losses concerning which he could take no action? Mr. Rudolph. Yes, sir. Mr. Easby-Smith. Do you know of your own knowledge whether or not he conferred with the corporation counsel and his assistants in seeking to learn whether there was any remedy which he could apply ? Mr. Rudolph. He did. Mr. Easby-Smith. About how frequently since his appointment lias he conferred with you on such subjects? Mr. Rudolph. Oh, I should say fully 50 times. Mr. Easby-Smith. Were those 50 talks which he had with you concerning these matters — did they extend over the entire period from his appointment, a little over two years ago, to the present time? Mr. Rudolph. It was very soon after his appointment that he called my attention to the lack of authority under the law for regu- lating insurance companies. Mr. Easby-Smith. Did his reports to you and complaints to you of lack of power in his department refer to these companies alone or to other companies and other conditions ? Mr. Rudolph. These companies were not in existence — the First National was not in existence; the Commercial he did not refer to especially. INVESTIGATION OF INSUBANCE COMPANIES. 283 Mr. Easby-Smith. I believe you have testified you are familiar with the continued efforts of Mr. Ingham to secure insurance legisla- tion ? Mr. Rudolph. Yes, sir. Mr. Easby-Smith. Are you familiar with the bill introduced in the Senate by Senator Gallinger last March and entitled "A bill to provide for the regulation and incorporation of insurance compa- nies, and to regulate the transaction of insurance business in the District of Columbia"? Mr. Rudolph. I know the general purport of it. Mr. Easby-Smith. Are you familiar with the fourth section, which reads as follows : Sec. 4. That the superintendent of insurance shall not issue the certifi- cates provided for in this act to any company incorporated under this act until the capital provided for in the articles of incorporation shall be fully paid and the said company shall have satisfied the superintendent of insurance that all organization expenses are fully paid and that no part of the capital or the proceeds of the sale of stock or paid-in surplus has been used for organiza- tion purposes. Mr. Rudolph. Yes, sir. Mr. Easby-Smith. Will you state whether or not that bill was drafted at the request of and with the assistance and cooperation of Mr. Ingham ? Mr. Rudolph. Yes. Mr. Ingham and Mr. Stephens, I think, pre- pared it. Mr. Easby-Smith. As I understand, he has succeeded in getting through Congress a number of bills prepared by himself and the corporation counsel which have corrected preexisting evils? Mr. Rudolph. He has. Mr. Johnson. What is the number of that bill ? Mr. Easby-Smith. Senate bill 5812. Mr. Johnson. The present Congress ? Mr. Easby-Smith. The Sixty-second Congress, second session. Considering the fact that Mr. Ingham had repeatedly called your attention to the fact that there were existing evils, which he could not correct, that having been called to your attention, do you now still consider that Mr. Ingham was negligent in failing to again come to you about the condition of those companies ? Mr. Rudolph. I think he should have called my attention to the conditions. Mr. Easby-Smith. Reference was made to libel. Did Mr. Ingham or anybody else ever suggest to you that he could not report to you. because the reports might be libelous ? Mr. Rudolph. Oh, no. Mr. Easby-Smith. I understand that the only suggestion Mr. Ingham made concerning libel was in response to Col. Judson's repeated insistence that he should advertise and publish these people in the papers ? Mr. Rudolph. Yes, sir. It was made in that connection. Col. Judson. May I ask a question ? Mr. Easby-Smith. I will be through in a minute, Col. Judson. The superintendent, as I understand, had repeatedly called your attention to the fact that there were these existing evils, as he viewed them, in connection with numerous companies in the District of Columbia ? 284 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. Not with numerous companies. Mr. Easby-Smith. "Well, with more companies and with com- panies that long antedated the companies now under investigation? Mr. Rudolph. Yes, sir. Mr. Easby-Smith. And that he desired to remedy those evils if he could ? Mr. Rudolph. Exactly. Mr. Easby-Smith. I have finished, Col. Judson. Col. Judson. You, in replying to a question by counsel, perhaps,, did not hear clearly that question, which relates to advertisement in newspapers. I will ask to have that question read. The question was repeated by the stenographer, as follows: Mr. Easby-Smith. I understand that the only suggestion Mr. Ingham uwde concerning libel was in response to Col. Judson' s repeated insistence that he- should advertise and publish these people in the papers? Col. Judson. Was that the proposition made to Mr. Ingham— that he should advertise them in the newspapers, or that he should make comment on the facts in his report, his comment in his report constituting, with his entire report, in one sense an advertisement? Mr. Rudolph. The report, Colonel, becoming public property, would naturally have Col. Judson (interposing). Ah! But that is an entirely different question. Mr. Rudolph. Of course, I answered rather hastily to Mr. Easby- Smith. Col. JrnsoN. That is what I thought. Will you not answer Mr. Easby-Smith's question now more carefully? Mr. Rudolph. I could not without qualifying it, as I did just now. Col. Judson. Then there was no thought of Mr. Ingham advertis- ing in the newspapers? Mr. Rudolph. Oh, no. Col. Judson. No suggestion to him to advertise in the newspapers? Mr. Rudolph. Certainly not. Col. Judson. Then that was an entirely unfair question asked by counsel for the purpose of getting a false inference in the record, was it not? Mr. Douglas. I object to that question as highly improper on the part of the commissioner. Mr. Easby-Smith. Let me refresh your recollection as to the inter- view concerning which you and Col. Judson have both testified. Is it not a fact that at an interview between you and Mr. Ingham and Col. Judson, Col. Judson was insisting that Mr. Ingham should adver- tise these companies? Mr. Rudolph. He never said " advertise." Mr. Easby-Smith. What is the term he used? I believe you said he did not use that term. He was insisting that publicity should be given ? Mr. Rudolph. He insisted on publicity, because to his mind that was the only means of checking the sale of this stock. Mr. Easby-Smith. Was not the character of Mr. Judson's request for publicity such as to cause both you and Mr. Ingham to say that it might lay you open to suits for libel ? IN VESTIGATION OF INSUKANCB COMPANIES. 285 Mr. Rudolph. As I explained before, he commented in writing on Ms examination, and that document became public property, and could be copied by the newspapers if they wanted to. Mr. Easby- Smith. In the course of that conversation, did not Col. Judson, as you testified yesterday, state that he would take his chances on being sued ? Mr. Rudolph. He thought that when a case was so meritorious as the one under discussion he would take his chances on being taken into court. Mr. Easby- Smith. Did or did not this insistence for publicity by Col. Judson go further than the mere inclusion of certain statements in Mr. Ingham's report? Mr. Rudolph. No. Mr. Johnson. A few moments ago you answered a question put by Mr. Easby- Smith, in which he used the expression " advertised." I understood you, in making further answer to his question, when in- terrogated by Col. Judson, to make qualification to that answer. Do I understand you correctly, that you qualified the former statement only to the extent that you would change the word u advertise " to " to make public ? " Mr. Rudolph. Practically so ; yes, sir. Mr. Douglas. I have a few questions to ask Mr. Rudolph. Mr. Rudolph, Mr. Redfield, of the committee, examined you at some length Col. Judson (interposing). Would you further qualify it by say- ing that I did not speak to Mr. Ingham of making it public in the newspapers. Mr. Rudolph. You did not. Col. Judson. But in his report? Mr. Rudolph. Yes, sir. Mr. Douglas. But you inferred from that he would make it public on the street corners, I suppose? Mr. Rudolph. No; I did not. Mr. Johnson. If he were to make a report embodying the things just discussed, to what extent would that report become public ? Mr. Rudolph. It would be open for anyone to inspect and anyone to publish. Mr. Johnson. Would printed copies of it be made by the com- missioners ? Mr. Rudolph. No, sir. Mr. Johnson. It would only be a public record in the office, sub- ject to the inspection of anybody who might care to see it? Mr. Rudolph. Or to get copies of it. Mr. Johnson. How would they get the copies ? Mr. Rudolph. Have them typewritten. There are always a num- ber of extra copies made. Mr. Johnson. So anybody who chose could come and get a type- written copy? Mr. Rudolph. Yes, sir. It becomes a public document. Mr. Johnson. That is all. Mr. Douglas. That would be the way it would find its way into the public prints? Mr. Rudolph. Presumably so. 71391— No. 3—12 2 286 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. And easily so, if copies were made in advance, by ■way of apprehension that the press might want it ; that is true, is it not? It would in that way more easily get into the press if copies were made in advance? Mr. Rudolph. Yes. Of course, if we furnished the press with copies and they want to use it, they are at liberty to use it. Mr. Douglas. And making those copies in advance, anticipating they might want it, was simply facilitating the publicity campaign? Mr. Rudolph. There were no copies of this made. Mr. Douglas. There were copies made of that partial statement of Col. Judson's? Mr. Rudolph. I know nothing about that. Mr. Douglas. If the superintendent of insurance had made the kind of comments which Commissioner Judson wanted and they had been embodied in his report, then it would have been good reading — spicy reading for the press ; that is true ? Mr. Rudolph. Perhaps. Mr. Douglas. Perhaps? Mr. Rudolph. Yes. I do not know. Mr. Redfield. I understood you testified he made no report ? Mr. Rudolph. Yes. Mr. Douglas. My question was hypothetical, Mr. Redfield. I will come now to the question of whether or not he did, in fact, make a report. This report which I hold in my hand here is supposed to be a copy of the report of the superintendent's office to the Commis- sioners of the District of Columbia on the condition of the Commer- cial Fire Insurance Co. and one on the condition of the First Na- tional Fire. It is in form, as Mr. Redfield has suggested to you in his examination of you, of a report made by Mr. Curry and Mr. Hall to him. I will ask you if, as a matter of fact, this report in that form was not transmitted to your office, as chairman of the board of commissioners, in charge of the insurance department — transmitted to your office by Mr. Ingham as his report ? Mr. Rudolph. Yes. Mr. Douglas. Did you for one moment ever contemplate or think it was anything else until it was suggested to you this morning ? Mr. Rudolph. No. I testified that he examined the report and acquiesced in it ; otherwise, he would not have transmitted it. Mr. Douglas. I suppose, Mr. Rudolph, that you took for granted that this examination was made and the facts set forth in the report were obtained as the result of an examination by the insurance de- partment, the subordinates of Mr. Ingham, under his supervision and direction? Mr. Rudolph. Yes. Mr. Douglas. Did you ever hear, for instance, of the superintend- ent of insurance of New York, Mr. Redfield's State, ever making an examination himself ? Mr. Rudolph. I did not. Mr. Douglas. Is it not impracticable, if 'not impossible, for the superintendent of insurance himself to do the details of the work of that sort? Mr. Rudolph. It would be both. Mr. Douglas. What? Mr. Rudolph. It would be both impracticable and impossible. INVESTIGATION OF INSUBANCE COMPANIES. 287 Mr. Douglas. And, in addition to that, is not this true, Mr. Ru- dolph, as a matter of fact, that notwithstanding all that has been said in hypothetical questions here, that the facts as to the condition of these two companies — the amount of capital stock subscribed and paid in, the amount of expenses or expense money used for the pur- pose of selling stock, the amount of underwriting contracts, what it aggregated, the amount paid for the obtaining of the sale of the in- surance — that all these matters, as a matter of fact, dp appear and now appear and then appeared in the reports of the superintendent of insurance on both of these companies, the Commercial Fire and the First National? Mr. Rudolph. They appear ; yes. Mr. Douglas. And, as a matter of fact, is not this true, that all of the charges made by Commissioner Judson against these companies, and all of the so-called facts stated by him in his partial- statement publication, were gotten from these very reports of Mr. Ingham to you ? Mr. Rudolph. I do not know where Col. Judson got his infor- mation. Mr. Douglas. Did he not state on the witness stand in your presence the other day, he had gotten it from these reports? Mr. Rudolph. I did not recall that he did. Mr. Douglas. Does it not state here in this very report, where the surplus was reduced to $2,700, that $133,000 of money went to the liability account, called unearned premium account? Mr. Rudolph. Yes. Mr. Douglas. And did you not know that while that is charged as a liability, it is really money in the hands of the insurance company ? Mr. Rudolph. It is money in the hands of the insurance company ; yes. Mr. Douglas. Yes. Mr. Rudolph. But it may not be $133,000 in two months or three months. Mr. Douglas. Then it is left in there, and as the insurance ex- pired — let us say a five-year policy, where they have to put, say 90 per cent of the whole unearned premium fund to the reserve fund, in five years' time — I mean, for a five-year policy — then that is re- duced and by an automatic arrangement that fund is transferred from the reserve fund into the surplus from year to year, is that true? Mr. Rudolph. Yes ; I believe so. Mr. Douglas. And the result is if they have a large or a sub- stantially large unearned premium account, where it has gone into the reserve, that the reserve fund from year to year — 20 per cent a year comes out of the reserve fund back into 'the surplus, working automatically to the upbuilding of the surplus, is not that true ? Mr. Rudolph. I presume so. Mr. Douglas. Did you hear Col. Judson make any reference to how the surplus is built up in that automatic way from the reserve ? Mr. Rudolph. Neither Col. Judson nor myself is an insurance expert. Mr. Douglas. Col. Judson is not an insurance expert ? Mr. Rudolph. Neither am I. 288 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Something has been said here, and said over and over again, about threats of libel suits. Did you ever hear, in the most remote fashion, of the officers of the First National or the Com- mercial Fire companies threatening to sue you or Mr. Ingham for any disclosure of the condition of their books? Mr. Rudolph. Oh, no. Mr. Douglas. Never heard it hinted at, did you? Mr. Rudolph. No. Mr. Douglas. Did you ever know of either of these companies failing to give Mr. Ingham and his assistants the fullest access to their books? Mr. Rudolph. I know nothing about that ; but the statement shows that they acknowledged the courtesy of the officials of the companies. Mr. Douglas. So, so far as you know, the light of day was turned upon the entire condition of both these companies by the officers of the companies themselves? Mr. Rudolph. So far as I know, it was. Mr. Douglas. And you never heard of any threat or any sugges- tion of a threat that the superintendent of insurance could not give you the full facts in this matter? Mr. Rudolph. No. Mr. Doi (ii,.\s. You stated on yesterday that you were opposed and put yourself on record as being opposed to Col. Judson's campaign of publicity against these companies before you had ascertained the facts by your own investigation? Mr. Rudolph. I do not know that the colonel conducted any cam- paign of publicity. Mr. Douglas. Well, let us assume that, because he said he did. Mr. Rudolph. AVell. I do not want to assume something that I do not know. Mr. Douglas. Well, I am asking you a hypothetical question. I say, if he did, did you take that position with reference to Col. Jud- son's plan — I will call it " plan " — that you wanted the commission- ers in their own way to ascertain the facts, to verify any suspicions of criticism that might be made, and if they found anything they thought wrong to call it to the attention of the companies and have them correct it, if they could or would, and then, if they persisted in doing anything wrong, then you were willing that the door should be thrown wide open and the facts given to the public, and not be- fore that time? Mr. Rudolph. That was my position. Mr. Douglas. Were you in any way influenced in your position about that because of the fact that you were to be a candidate for reappointment as commissioner and you might hope to get the sup- port of Senator Gallinger. Mr. Rudolph. I am not asking anybody to vote for me, and I do not care whether anybody does vote for me or goes for me. If I can not get the reappointment as I got my original position, without going to the White House — without sending anybody there — I do not want it. Mr. Douglas. That is all. Mr. Rudolph. I owe nothing to anybody in this city. Mr. Douglas. That is all. Mr. Redfdeld. Commissioner Rudolph, are you an accountant? INVESTIGATION OF INSUBANCE COMPANIES. 289 Mr. Eudolph. No, sir. Mr. Redfield. Have you ever had any experience in insurance actuarial work? Mr. Eudolph. None whatever. Mr. Eedfield. Then do you answer from your own knowledge the questions regarding the automatic extinguishment of the unearned- premium fund? Mr. Eudolph. I presume that is the way the reserve fund would be operated. It is only a presumption on my part. I said I was not an insurance expert. Mr. Redfield. It would be subject to the qualification, would it not, that if the company were operated at a loss, either from exces- sive fire loss or from excessive expense account, in one form or an- other, it might not be there to revert? Mr. Eudolph. That is true. Mr. Eedfield. Mr. Chairman, I introduce at this point in the record a letter signed by Eobert E. Tuttle, president of the Commer- cial Fire Insurance Co., dated December 5, 1912, and I ask your at- le.ntion to the fact that it is nearly a month after the date of the report of his subordinates to the insurance superintendent, and which is addressed to Mr. Frank Fulton, of South Amboy, N. J., which I will read, if I may have your permission [reading] : My Dear Sir : The Commercial Fire Insurance Co., of Washington, D. C, now in its 22d year of uninterrupted success, with officers and directors as shown on back of the inclosed financial statement, is increasing its capital from two hundred thousand to one million dollars. You are extended an invitation to furnish part of this increased capital. In this connection we desire to say that the Commercial Fire Insurance Co. confined its operations to the District of Columbia for 20 years, and had an enviable record as a prompt payer of its losses, as a satisfactory dividend payer to its stockholders, and a very high standing commercially in this city. In view of the enormous amount of fire insurance written each year and the unusual improvement in building construction, as well as the general prosperity of the country, the company decided to extend its business and operate in other States. In consequence our directors authorized an increase in its capital from $200,000 to $1,000,000, and this advantage is being offered to the public for the purpose of securing cooperation, prestige, and influence throughout the country in behalf of the company. We have to-day something like 3,000 stockholders distributed in 48 States, over 400 of whom are bankers. The Commercial is licensed and admitted to do business in 12 States, and has 350 of the leading fire insurance agencies in the country sending us in business every day. We have declared 30 semiannual dividends and are at this time paying 12 per cent per annum. The next divi- dend will be paid on the 1st of January, 1913. The stock is selling at this time at $11 per share, but on account of the vast increase in the earnings of the company, as well as in its surplus and capital, the board of directors has decided that the price of the stock shall be raised to $12 per share on the 1st of January, 1913. I have requested my special representative to call on you and present the matter to you fully. Yours, very truly, Robert R. Tuttle, President. Mr. Eudolph, you are a man of business — a business man, are you not? Mr. Eudolph. Yes, sir. Mr. Eedfield. Now, as a man of business, what do you think of a proposition to sell stock which omits to say that the company offer- ing the stock for sale is excluded from that State in which the largest business in its line is done? 290 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. I should say it would operate against the sale of the stock. I should not want to buy any if such were the case. Mr. Redfield. Would you feel if you received the letter I have just read and then learned that the company writing that letter was not authorized to do business in the State of New York, and that that fact was omitted from the letter, and that the State of New York was the State in which the largest amount of fire insurance company business was done — I say, would you feel that a fact of radical importance as to the value of the stock had been concealed from you? Mr. Rudolph. Yes. Mr. Redfield. That is all. Mr. Douglas. Mr. Redfield, I would like to ask, if you will per- mit me, if that was a purely hypothetical question? Mr. Redfield. I put it in the form of " if." Mr. Douglas. You do not know that the Commercial Fire Insur- ance Co. has been excluded from the State of New York, do you? Mr. Rudolph. I do not. Mr. Douglas. You never heard of it being so excluded ? Mr. Rudolph. No. Mr. Douglas. That is all. Mr. George. Mr. Rudolph, last evening, before adjournment, you were asked whether there were any sales of property that you know of — property in the District in the business center, 150 by 150, at $50 a square foot Mr. Rudolph (interposing). Or at 40 or at 35, and I answered " No " to each question. Mr. George. Well. I am just asking about 50. Mr. Rudolph. Well, I answered " No," that I did not know. Mr. George. Do you know of any property of that size in the business center on the market? Mr. Rudolph. Of that size? Mr. George. Yes. Mr. Rudolph. No ; I do not. Mr. George. So that if you know of no property at all it excludes every other question as to price ? Mr. Rudolph. Exactly. Mr. George. I believe you said yesterday or the day before that you had been reading the testimony taken by the subcommittee last summer as to the value of property in the neighborhood of the Southern Building? Mr. Rudolph. Yes. Mr. George. Did vou read the testimonv of the assessor of the District ? Mr. Rudolph. I did, because I read the report of the whole hear- ing, but I do not recall just what it was in that particular connection. Mr. George. Did you read the testimony of the assessor in connec- tion with the Shoreham property ? Mr. Rudolph. Yes; I read that. There was something in there about raising the value of the building, as I recall it. Mr. George. About the McLean offer of $800,000 for the Shore- ham property? Mr. Rudolph. Yes, sir. Then you criticized, I believe, his raising the value of the building, which was an old building. INVESTIGATION OF INSURANCE COMPANIES. 291 Mr. George. Did you read the testimony of Mr. Stellwagen, of this city? Mr. Rudolph. I read the testimony, but I do not recall just what he said. It has been some time ago. I read them as soon as they were published. Mr. George. Mr. Stellwagen can be taken as a hotel authority ? Mr. Rudolph. Yes, sir; I should say so. Mr. George. Qualified to talk about hotel properties? Mr. Rudolph. I should say so. Mr. George. And he testified before the committee at that time that the Shoreham Building was practically worth nothing ; that to have a proper hotel property would require the tearing down of the present building and putting up a new one ? Mr. Rudolph. Yes. Mr. George. So that, eliminating the value of the building, this $800,000 would represent the value of the site? Mr. Rudolph. That was his-* — Mr. George (interposing). Now, that value of $800,000 would rep- resent about $50 a square foot? Mr. Rudolph. About $50 a square foot. Mr. George. For that property ? Mr. Rudolph. Yes. Mr. George. The Shoreham property, and that was made several years ago? Mr. Rudolph. Yes. Mr. George. More than three years ago ? Mr. Rudolph. I do not remember exactly. Mr. George. Did vou hear of the Dove option on that same prop- erty? Mr. Rudolph. No; I know he had a lea&d on it for a number of years, with the privilege of purchasing, but I do not know what the price is. Mr. George. $900,000, 1 have been informed. If that building is worth nothing and was worth nothing at the time of the option, $900,000 would represent something like $55 a square foot for that property, which is just opposite the Southern Building property. Mr. Rudolph. Yes, sir. Mr. George. Can you give me any information on that subject? Mr. Rudolph. I can not, Mr. George. I am not familiar at all with the situation there. Mr. George. Would you take that information to be good informa- tion on the subject? Mr. Rudolph. It depends on your sources. Mr. George. You know nothing about it yourself ? Mr. Rudolph. No; nothing at all. Mr. George. But the assessor gives the information as to the $800,000 McLean option. Mr. Rudolph. I do not know where he got his information. I think it was from Mr. George (interposing). From Mr. Mallory, he said, who does a real estate business in the District here ; and he further gave the information as to who made the offer. He testified it was Mr. McLean. 292 INVESTIGATION OF INSURANCE COMPANIES. Mr. Rudolph. I happen to know Mr. Mallory, and I am sure you can rely on anything he tells you. Mr. George. And as to the assessor, you can rely on his opinion ? Mr. Rudolph. Yes. Mr. George. So that information comes from pretty good sources? Mr. Rudolph. Yes. Mr. George. And that would make that a site worth about $50 a square foot? Mr. Rudolph. If you will count the buildings nothing ; yes. Mr- Johnson. Mr. Stephens, do you desire to ask anything? Mr. Stephens. No. Col. Judson. I would like to ask one question. -*i Mr. Johnson. Very well. Col. Judson. You testified, Mr. Rudolph, that in the presence of other members of the board — Gen. Johnston and myself — when it was under discussion what action we should take on a condition of affairs that we all recognized to be serious, you had proposed some plan. I think I had testified, although I am not sure, that I did not re- member your proposing the plan. If counsel for the other side does not mind, I will say that Gen. Johnston states that he does not remember that either, but if you have objection, that can be put in a question. I was going to ask whether this will not refresh your memory, that you said there was another way to proceed, and that I interrupted you and said : Yes; thill has been proposed to me by Mr. Charles Nesbitt. and I think it is the same plan, probably. Mr. Nesbitt— - th I said — had just been with me. or had recently been with me, and had proposed some such solution of the situation as this: That Messrs. Tuttle, Wightman & Dudley be required to abandon all connection with the company and with both com- panies and to leave the District of Columbia; that new directors should be se- cured for both of these companies; that there should be a reorganization of both of these companies, or of one of them, on a scale of lesser capitalization, so as to give them a surplus, and that in that way those two companies, under the close observance of the commissioners and of the superintendent of insurance, might work out their salvation and save, something to these stockholders who had purchased stock in the companies. And you said it was some similar plan to that that you had in mind. Mr. Rudolph. That is correct. Col. Judson. That is all. TESTIMONY OF MR. EDWARD J. STELLWAGEN. The witness was duly sworn by the chairman of the subcommittee. Mr. Johnson. Will you please give your full name ? Mr. Stellwagen. Edward J. Stellwagen. Mr. Johnson. You are a resident of the District of Columbia, Mr. Stellwagen? Mr. Stellwagen. Yes, sir. Mr. Johnson. Will you please state your business ? Mr. Stellwagen. I am president of the Union Trust Co. Mr. Johnson. Have you any other business connections? INVESTIGATION OF INSUBANCE COMPANIES. 293 Mr. Stellwagen. No other active connection. I am interested in a great many other things. Mr. Johnson. State some of them. Mr. Stellwagen. I am president of Thomas J. Fisher & Co. (Inc.) ; I am president of the Willard Hotel Co.; I am president of the Columbia Hotel Co., the owners of the Raleigh ; and I am presi- dent of the Terminal Storage Co. None of these I attend to actively except the Union Trust Co. Mr. Johnson. Mr. Stellwagen, Col. Judson has testified that you went into his office in the Municipal Building and there, for the public good, volunteered some information relative to the business methods of the fire insurance companies relative to which this in- vestigation has been instituted. Will you please, now, in your own way, recite what took place between you and Col. Judson upon the occasion of your first inter- view with him relative to these matters ? Mr. Stellwagen. I will. Shall I first state what led up to it ? Mr. Johnson. Yes, sir; just in your own way, as I suggested, taking it from the beginning and going along with it. Mr. Stellwagen. As president of the Union Trust Co., we have been the recipients, or our company has, of inquiries, for the last S or 10 months, probably, from different parts of the country, asking as to the standing of the Commercial Fire Insurance Co. and the First National Fire Insurance Co. These communications came from correspondent banks and trust companies scattered through the country. A great many verbal enquiries were made to the same effect in our office. The answer to these inquiries always had to be very general, practically to the effect that we knew very little about these companies ; that they had some very good men in their directorates. A few weeks ago I found a letter on my desk signed — it seemed to be a circular letter signed by Mr. Robert Wynne, president of the First National Fire Insur- ance Co., with the name to whom it was addressed cut out. This was a three-page letter, and in one part of it he spoke of the great success that had attended the First National ; that in one of its investments it had recently made some $220,000 odd, in connection with the Commercial Fire Insurance Co., resulting from the pur- chase of the Southern Building. About that time one of the directors Mr. Johnson (interposing). How did that letter conie upon your desk? Mr. Stellwagen. That letter was sent to me. Mr. Johnson. By whom ? Mr. Stellwagen. It was sent to me by Mr. Charles J. Bell, of the American Security & Trust Co. Mr. Johnson. Do you recall the source of the other inquiries made of you as to the standing of the Commercial Fire Insurance Co. ? Mr. Stellwagen. Onlv such inquiries as I have spoken of by letter or personal inquiries at the bank from time to time. I could not particularize as to who they were or when they were. Mr. Johnson. You can not say from whom you got letters, except this one? . . Mr. Stellwagen. Letters of inquiry as to the condition of this company ? 294 INVESTIGATION OP INSUKANCE COMPANIES. Mr. Johnson. Yes. Mr. Stellwagen. We have them in the files at the office. Mr. Johnson. How many: do you recall? Mr. Stellwagen. Probably six or eight. Mr. Johnson. You answered them just in a general way. as you have indicated? Mr. Stellwagen. In the general way I have indicated. Mr. Johnson. Proceed with your statement. Mr. Stellwagen. About the time this letter came into my posses- sion that I have referred to one of the directors of the Commercial Fire Insurance Co., who was a personal friend of mine, happened in the office, and I called his attention to this rather remarkable rise in value in a very few days. Mr. Johnson. Who was that? Mr. Stellwagen. That was Mr. William F. Roberts. Mr. Roberts said he did not approve of making assets in that way, and, after having some further conversation with him, he left. Prob- ably half an hour afterwards I had an envelope placed on my desk with a memorandum pinned to it with Mr. Roberts's initials, saying, " I will call for this in a few days.'" I opened it and found that it was this paper that has been referred to very often here, the report of Mr. Currie and some other gentleman to the superintendent of insurance. I glanced through it hurriedly and saw one item relating to the increase of value put upon the Southern Building by a com- mission of gentlemen appointed for that purpose. I did not quite think that was right, and, as this was an official communication emanating from a subordinate department of the District govern- ment, I carried it down to my friend, Col. Judson. I carried it to Col. Judson because he is not only a District commissioner, but is my close personal friend as well. I took this report to Col. Judson, and I also took the letter to him that I have referred to. I asked if he did not think it was a matter that required investigation by the District authorities. That is how the matter started, so far as I am concerned. Mr. Johnson. Will you please relate the conversation, in so far as you can, between you and Col. Judson upon that occasion? Mr. Stellwagen. I could not possibly give the conversation at this distance of time. Mr. Johnson. Could you give it in substance? Mr. Stellwagen. Xo; I do not, know that I could do tint. He took the report and seemed to have not seen it before, and I expressed to him doubt whether he had ever seen it or any of the other commis- sioners had ever seen it up to that time, and I doubt it yet Mr. Douglas. You say you doubt whether any of them had seen it up to that time? Mr. Stellwagen. I do. I doubt if any of them had ever seen it until I carried it, to them. Mr. Douglas. What is the date of that interview ? Mr. Stellwagen. I can not give the date. It was two or three weeks ago. Mr. Redfield. Mr. Stellwagen, at that interview between you and Col. Judson, of which you have just spoken, was anybody else present? INVESTIGATION OF INSURANCE COMPANIES. 295 Mr. Stellwagen. I think not at the first interview. I have no recollection of anyone else being there. Mr. Redfield. Did you have other interviews concerning this mat- ter with Col. Judson ? Mr. Stellwagen. Frequently. Mr. Redfield. Tell the committee fully and without reserve to what extent, direct or indirect, if any, this matter had anything to do with the candidacy of anyone for the chairmanship of the inaugural committee. Mr. Stellwagen. It, had absolutely nothing to do with it in the inception of it. Subsequently, when it had developed that Mr. Harper's name figured prominently in these papers as to one com- pany and Mr. Jordan's as to another, it did figure in the matter. Mr. Redfield. How? Mr. Stellwagen. To this extent, that I was personally opposed to the appointment of either of those gentlemen, and I used the fact that their names were on these insurance papers and on these adver- tisements as one of the reasons, in talking with Col. Judson and talking with Mr. Burleson, and possibly with others, why they should, in my judgment, not be appointed. There were other reasons why I also thought they should not be appointed. I do not think any man should be appointed to that position who seeks it. Mr. Redfield. Was there any discrimination on your part as be- tween these two gentlemen ? Mr. Stellwagen. I think of the two I preferred Mr. Harper. I did not care for either. Mr. Redfield. Had your suggestion that these companies should be investigated anything to do with the question of the candidacy of these men ? Mr. Stellwagen. Not the slightest, and it was never thought of. Mr. Redfield. Was there any understanding, express or implied., between you and Col. Judson Mr. Stellwagen. None whatever. Mr. Redfield (continuing). Pardon me. That this was to be in any way a makeweight as regards the candidacy of either of these two men? Mr. Stellwagen. It never was mentioned in any way until sub- sequently. Mr. Redfield. Does the committee understand that at the first interview, in which you brought this matter before it, the subject of the candidacy of these two men, or either of them, was not mentioned ? Mr., Stellwagen. It was not. Mr. Redfield. Was the fact that the investigation was asked or was expected used by you in any way whatever to affect the candidacy of these two men ? Mr. Stellwagen. I did not know an investigation, a congressional investigation, was to be had until I read it in the papers. Mr. Redfield. Have you with you a copy of the statement of the assets and liabilities of your company? Mr. Stellwagen. I have not. Mr. Redfield. Will you state to the committee what is included, as fully as you can, in the item of banking building and land, or of 296 INVESTIGATION OF INSURANCE COMPANIES. real estate, included in the statement of your companv at a valuation of $1,167,106.37? Mr. Stellwaoex. The original banking building, with the land upon which it stands, the adjoining premises, No. 1502 and No. 1504 H Street, which are part of the banking institution ; the vaults and office fixtures and various items. That statement in the record is absolutely incorrect. Mr. Redfield. What statement in the record ? Mr. Stellwaoex. The one you have just read from. Mr. Redfield. I have read from the table appearing in the middle of page 33 of the printed proceedings of this hearing, the one item at the top of the right-hand column. Mr. Stellwaoex. That gives the impression that the assessment of our property, or the value indicated by the assessment, was $976,890. where the company is carrying it on its books at $1,167,- 106.37. That is absolutely not so. Mr. Redfield. In what respect is it incorrect? Mr. Stellwaoex. That item, as I said a moment .ago, not only carries these buildings and the land, but it carries the vaults and items, which are personal property, and carries all the other personal property on the premises, and that is taxed in an entirely different way. We are required to pay, as you gentlemen well know, in lieu of personal tax. a tax of 6 per cent on the gross earnings of the company for the year, and in the case of the Union Trust Co. for the year just ending it means the very tidy sum of fifteen thousand and some hundred dollars as personal taxes on about sixty thousand and some odd dollars' worth of personalty. Air. Redfield. The committee woidd like this made perfectly clear. Do T understand you to testify that the company does, as a matter of fact, pav taxes upon the difference which appears in the two right- hand columns here, namely, the difference between the indicated true value of $976,899 and the carried-at value of $1,167,106.37? Mr. Stellwaoex. That question is a little involved. Mr. Redfield. Referring to those two figures which I have just read to you. the diffei'ence between which is approximately $190,000, I ask you if the company does, as a matter of fact, pay taxes upon that difference? Mr. Stellwaoex. The company pays taxes upon the real estate that is indicated in that statement, and that is correct. The differ- ence between the figures that you have there and the figures that apply solely to the real estate is about $67,000 in vaults and fixtures. If vou will deduct about $67,000 from that total, we pav a tax on that $67,000 of nearly $16,000 this year, and we pay a tax of 1-| per cent on the assessed value of the lands and buildings in addition to that. The difference, if you will figure it out, between what those buildings would be worth — the old building, or rather the original office building and the two old buildings taken together — is only a difference of about $127,000 between the way they figure it and the way it is carried at actual cost. And we fully and freely admit that, so far as 1502 and 1504 H Street are concerned, the assessment should be increased, and will be increased, in the next assessment when it is made, because that was made some three years ago, and we purchased the property within the year for $24 a square foot. INVESTIGATION OF INSUEANCE COMPANIES. 297 Mr. Redfield. Then there is no objection on the part of your com- pany to paying taxes, either upon real estate or personal property, for the full amount of the carried-at value shown here, if that value be established? Mr. Stellwagen. Not the slightest in the world. Mr. Redfield. How far, Mr. Stellwagen, had the element of your personal interest in real estate in a corner diagonally opposite the Southern Building an influence in this action taken by you ? Mr. Stellwagen. It had absolutely nothing to do with it. Mr. Redfield. Your company owns the diagonally opposite corner,, does it not? Mr. Stellwagen. We do. "We were the pioneers. We went into that neighborhood first and bought that property and built a rather substantial office building. We went there largely on my judgment. I should be perfectly delighted if I could add $500,000 to the assets of the Union Trust Co., feeling that it was represented by the in- creased value of that properly. As a matter of fact, it is not worth as much, from the productive standpoint, as it was before these other buildings were built. It is like overproduction in anything. If you overproduce office buildings, you destroy the value of the thing that is overproduced to a certain extent. A year ago the Union Trust Co. Building was full : every room was occupied. To-day there are 35 of them empty. Last year the Union Trust Co., in charging off $12,000 as the rent it pays for offices proper, made on that building a little over 4 per cent. This year it will make a little over 3 per cent, because of the overproduction of office rooms in that neighborhood, which has had its effect, as it does in the overproduction of anything else. Mr. Redfield. As a business proposition, Mr. Stellwagen, if it could be assumed correctly that the enhanced values of real estate there were such as to justify an increased valuation on your real estate at that point, so that you could properly carry it in your 1 banking statement as an asset at a much higher value than you now do, would it not, taking into account the taxes to be paid on the enhanced valuation, be a sound business investment to have it so increased ? Mr. Stellwagen. I should be delighted to do it. Mr. Redfield. Is it not a fact that a first-class banking institution profits more by the certain increase — that is, the sure increase — in the value of its assets, thereby enhancing its strength, and so its attrac- tiveness to business, than it loses by any taxes that can be assessed upon the property itself ? Mr. Stellwagen. Absolutely so. Mr. Redfield. I want to be very clear about that, and I am going to ask vou how long your experience in banking has been. Mr. Stellwagen. Twelve years. Mr. Redfield. As an officer, you mean? Mr. Stellwagen. As the president of the Union Trust Co. Mr. Redfield. Before that how long as a subordinate ? Mr. Stellwagen. I was never a subordinate. Mr. Redfield. Then I want to ask you this question, as a banker r Does a bank profit by the actual undervaluation of its real estate in its statement? Mr. Stellwagen. There might be two ways of looking at that. I should say it would not, though. Possibly if a bank building was 298 INVESTIGATION OF INSURANCE COMPANIES. carried at a very small figure it might give a strength to its stock that would not appear from the statements themselves. I know of one case in which that was done. I think the Bank of Washington carried their bank building at a mere nominal figure for a long time, and that is one of our strongest national banks. Mr. Eedfield. Is it not a fact that the Treasury Department looks with suspicion upon the carrying of real estate far below its actual value ? Mr. Stellwagen. I can not answer that. Mr. Eedfield. Do jou know of where banking departments have required banking institutions to mark up the value of their real estate because it was carried too low ? Mr. Stellwagen. I do not. Mr. Eedfield. What is the surplus of your company ? Mr. Stellwagen. $300,000. Mr. Eedfield. What would be the amount of taxes additional if your building were worth $400,000 more than it is ? Mr. Stellwagen. One and one-half per cent of two-thirds of $400,000. Mr. Eedfield. Which would be how much per annum? Mr. Stellwagen. I would have to take a pencil and figure that out. Mr. Eedfield. Please do so. That would be $4,000 a year, would it not ? . Mr. Stellwagen. That is quite right; $4,000 a year. Mr. Eedfield. Could your bank afford to pay $4,000 for the privi- lege of doubling its surplus by a legitimate process ? Mr. Stellwagen. We would be very glad to do it. Mr. Eedfield. As a business proposition, you would be glad to pay the additional taxes if you could really double your surplus legiti- matelv ? Mr. Stellwagen. I would. Mr. George. Mr. Stellwagen, a letter was introduced yesterday from Gen. Wynne, in which he named some of the factors against the insurance companies in question. One of the factors was called a real-estate ring. Do you know anything about a real-estate ring in the District of Columbia ? Mr. Stellwagen. I never heard of such a thing. Mr. George. You never heard of the term " real-estate ring " ? Mr. Stellwagen. I have heard the term; I have heard it used here ; but I never knew of such a thing. Mr. George. You never knew to whom it applied? Mr. Stellwagen. I did not. Mr. George. Could it apply to anybody in the District of Colum- bia that you know of? Mr. Stelewagen. It could not. Mr. George. Why could it not? Mr. Stellwagen. Simply, in my judgment, because there is no such thing as a real-estate ring in the District of Columbia. Mr. George. No community of interest, so to speak, of real-estate interests ? Mr. Stellwagen. So far as I know, there is not. Mr. George. You have for many years been at the head of Fisher & Co.? INVESTIGATION OF INSURANCE COMPANIES. 299 Mr. Stellwagen. Up to 12 years ago I was the active head, since then I have not been. Mr. George. But you are still president ? Mr. Stellwagen. I am still president ; the nominal head. Mr. George. Fisher & Co. represent a very large percentage of the propertv, or has in one way or another, in the northwest part of the District? Mr. Stellwagen. They do a very large business ; yes. Mr. George. Did you ever suspect that you were coming in for some blows in the use of that term " real-estate ring " ? Mr. Stellwagen. I knew there would be no justification for it. Mr. George. No; but did you ever suspect that anybody thought you were in it? Mr. Stellwagen. I never did until I read the testimony here, and then I imagined I was one of the people hit at. Mr. George. You do not read the newspapers of Washington? Mr. Stellwagen. Oh, yes; I do. Mr. George. You never saw anything in the newspapers about it? Mr. Stellwagen. I never saw anything about a real-estate ring. Mr. George. Coming to this Southern property, which is the preferable side of the street, the north side or the south side of H Street? Mr. Stellwagen. At that particular junction — possibly I am prejudiced, but I think our corner is the best corner. Mr. George. You have the south side? Mr. Stellwagen. Yes, sir. . Mr. George. Did you ever hear of these options that I asked about a few moments ago, when I was questioning Mr. Rudolph ? Mr. Stellwagen. I never heard of them ; no, sir. Mr. George. You never heard of the Mr. Stellwagen (interposing). Of the John E. McLean matter, you mean ? Mr. George. Of the McLean matter ; yes. Mr. Stellwagen. No. I answered that in a former investigation, you may remember. Mr. George. You heard of it then ? Mr. Stellwagen. Yes. That was the only time. It was asked at this table ; right here. Mr. George. Since that time you have heard nothing? Mr. Stellwagen. I never heard a word. Mr. George. Would you take the assessor to be pretty good author- ity in such matters if he testified under oath ? Mr. Stellwagen. That such an offer had been made ? Mr. George. That such an offer had been made. Mr. Stellwagen. I certainly would. Mr. George. So that you have it on pretty good authority, coming through this committee, in this investigation, and coming from the assessor. You take that to be pretty good authority ? Mr. Stellwagen. Certainly; sure. Mr. George. Did you ever hear of this Dove option ? Mr. Stellwagen. I have heard of it; that is all. I do not know anything about it. Mr. George. Do you put any credence in that rumor ? 300 INVESTIGATION OF INSURANCE COMPANIES. Mr. Stellwagex. Oh, yes; I imagine it is true. I understood he had a lease or privilege of purchase at some price, but I do not know what the price is. Mr. George. The information comes that it is $900,000. Mr. Stellwagex. I do not know anything about that. Mr. George. But your former testimony was that that building as it stood was worth nothing, and that any price that should be offered for that property would be really offered for the site. Mr. Stellwagex. From the standpoint of a modern hotel, yes: and that is why I testified so. Mr. George. A modern hotel ? Mr. Stellwagen. Yes. Mr. George. Or for any other use, any other proper use. business use? Mr. Stellwagex. I regard it as of very little value, and so testified. Mr. George. But the site is valuable? Mr. Stellwagex. Yes; the site is good. Mr. George. So, that if $900,000 were to be offered for that site Mr. Stellwagex. There is a vast difference between an offer and an option. Mr. George. Well, there was an option of $900,000 and an offer of $800,000. Mr. Stellwagex. That offer of $800,000, if it came from Mr. Mc- Lean, as it is indicated it did, it is probably more than anybody else would have given for it, because his property surrounds it. He owns the entire balance of the block. Mr. George. But the assessor said it came from him. Mr. Stellwagex. I say, if it came from him, and the assessor says it did, it would probably be at a higher figure than any outside man would pay for it, because Mr. McLean owns the balance of the block, and naturally would want to acquire all of it. Mr. George. Then, you think he might have offered it ? Mr. Stellwagex. Yes; surely. If Mr. Richards says he did, he evidently did offer it. Mr. George. $800,000? Mr. Stellwagex. Yes, sir. Mr. George. "Which would make about $50 a square foot ? Mr. Stellwagex. Yes, sir. I have not calculated it. I suppose that is correct. Mr. George. Nevertheless you regard the south side as preferable. The Shoreham is on the north side? Mr. Stellwagex. Yes, sir. Mr. George. Nevertheless you regard the south side as the prefer- able side ? Mr. Stellwagex*. At the junction of those streets, I regard our corner as the best corner. Mr. George. You regard a piece of land, a corner piece, of a size underneath that of the Southern Building as economical ? Mr. Stellw'agex. I do. I think the Southern Building is an admirably designed building. Mr. George. So that you regard that as an economical property, then? Mr. Stellwagen. So far as the plan is concerned. I am not speak- ing of the elevation. INVESTIGATION OF INSURANCE COMPANIES. 301 Mr. George. No ; you are talking about the site. Mr. Stellwagen. Yes; the plan that covers the ground. Mr. George. What is the assessment, if you please, on the ground of the Union Trust Co. ? Mr. Stellwagen. I can not give you that without reference to some memoranda, and I have not the memoranda with me. Mr. George. You could give the per foot value? Mr. Stellwagen. No. I could tell you what we paid for it. We paid something around $26 a foot, and my recollection is it is assessed possibly on a basis that makes about $24. I think it is a little under- assessed for what we paid for it. Mr. George. What did you pay for it? Mr. Stellwagen. Twenty-six dollars and a fraction, and I think it is assessed at a basis of about twenty-four dollars and a fraction. That is my rough recollection. Mr. George. When did you pay that price? Mr. Stellwagen. About five years ago. Mr. George. And property has advanced in that neighborhood since ? Mr. Stellwagen. Well, it has advanced in price. Mr. George. But there is no question about it ? Mr. Stellwagen. No ; there is no question about that. Mr. George. You know of sales in the neighborhood ? Mr. Stellwagen. I have heard of some sales in the neighborhood. Mr. George. But you know of a number of sales ? Mr. Stellwagen. Yes ; I know of sales to ourselves, at $24, next to us on H Street. I know of sales to the Cornwell people, which I think was' at $18 or $20 a foot, next to the Southern Building, on H Street. I know of those two. Mr. George. But the assessor believes the values have gone up very materially. Mr. Stellwagen. It may be so; but when you destroy the earning capacity of those office buildings by overproduction I do not think that is an element to make them go up. Mr. George. I am talking about ground values, not about the erec- tion of buildings. I am talking about land values. Mr. Stellwagen. You can not get the improvements off of the ground without destroying the improvements. Mr. George. But you have the Shoreham Hotel building off the ground ? Mr. Stellwagen. Yes ; but that is an old building, and it is about time for it to come off the ground. Mr. George. The law in the District of Columbia requires that real estate shall be assessed, land separately from improvements. That is our practice here 2 and you, as an old real-estate man in the District, and as a banker in the District, and a public-spirited citizen of the District, ought to know all about these things. I am assum- ing you do, Mr. Stellwagen. Mr. Stellwagen. I know something about them, but not all about them. Mr. George. Values have very greatly advanced in that neighbor- hood, have they not ? I am talking about ground values now. Mr. Stellwagen. The sales I have mentioned do not seem to indi- cate it. 71391— No. 3—12 3 302 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. But the assessor made an assessment of the Southern 'Building — that is, the board of assessors, and the assessor approved of it, apparently, and the commissioners apparently approved of it — and in their triennial assessment gave $21 a foot for the land of the Southern Building, and then, within a year and a half after that triennial assessment had closed, the board of assessors was called upon to make another appraisement, and did make another appraisement, and they appraised that land at $35 a square foot as the market price. That is an advance within a year and a half of 60 per cent. Mr. Stellwagen, I have no doubt they thought it had advanced, or they would not have done it. That does not alter my judgment. Mr. George. What is your judgment, Mr. Stellwagen? Mr. Stellwagen. My judgment is that it is worth about $30. Mr. George. That site is worth about $30 a foot? Mr. Stellwagen. Yes. There has been some enhancement. Mr. George. What advancement? Mr. Stellwagen. Say it was worth $20 or $22 some years ago when it was sold. That is quite a substantial advance. Mr. George. When was that ? Mr. Stellwagen. About two years ago. I am not sure as to when it was sold to the Southern Corporation; something over two years ago, I imagine. Mr. Douglas. Between three and four years ago. Mr. Stellwagen. As long as three or four years ago, Mr. Douglas says. Mr. George. That is an advance on the property, and to-day the assessor puts on a greater advance. Mr. Stellwagen. That is his judgment and the other is mine. Mr. George. I am just trying to get your judgment. On what do you base your judgment? Mr. Stellwagen. I suppose I should base it on actual sales that have taken place. If I could buy the ground adjoining the Union Trust Co. for $24 during the year I should think a corner ought to be worth at least $30. There ought to be that much difference. Mr. George. Do you take a very conservative view of the value of property ? Mr. Stellwagen. I do not know, I am sure, as to that. Mr. George. I understand there are two views; there is the view for sale, where property is for sale, and there is the view for taxation. Mr. Stellwagen. I have not any two views. I have one view, whether it is for sale or taxation. Mr. George. You would be willing to sell your property at the value you name here, supposing everything else, such as business, location, good name, and all that, were eliminated ? Mr. Stellwagen. Sell the Union Trust Co. Building for what we paid for it? Mr. George. Yes ; the site. Mr. Stellwagen. You mean we should say Mr. George (interposing). No; you are giving the value now. You are saying the Union Trust Co. property has advanced a little in value. Mr. Stellwagen. Yes. Mr. George. Since you purchased it. INVESTIGATION OF INSURANCE COMPANIES. 303 Mr. Stellwagen. Sure. It is worth probably $30 a foot; possibly a little more, because I think it is a better corner than the other. It is a more economical corner ; it is smaller. Mr. George. And that was assessed at what? Mr. Stellwagen. It is assessed on a basis that brings it to about $24 and something three years ago, and I presume it will be put up next time. Mr. Geoege. But within a year and a half, you know, the triennial assessment occurred, and you put $30 on it now ? Mr. Stellwagen. I think it is worth $30 a foot, Mr. George. And a little more ? Mr. Stellwagen. Yes. Mr. George. How much more? Mr. Stellwagen. Possibly $31 or $32 a square foot. Mr. George. So that if an assessment occurred to-day it would be $32? Mr. Stellwagen. That would be satisfactory to me. Mr. Douglas. That is the Union Trust Co. site you are talking about ? Mr. Stellwagen. Oh, yes; I am talking about the Union Trust Co. site. Mr. George. That is an advance, seemingly, of 334 per cent. Mr. Stellwagen. That is an advance from $26. which we paid for it, to $32, which is an advance of $6 from twenty-six, which is not 33-J per cent; it is about 20 per cent. Mr. George. What did you say the value was; twenty-six? You are assessed at $24. Mr. Stellwagen. I am speaking of what we paid for it and what we consider it worth. Mr. George. Oh, yes. Mr. Johnson. And what do you consider it worth ? Mr. Stel£wagen. About $32*. Mr. Johnson. How long has it been worth $32 ? Mr. Stellwagen. I presume the last year or so, possibly. Mr. Johnson. Was it worth that much prior to the last assess- ment ? Mr. Stellwagen. I am sure I could not say as to that. I base that valuation on what we have paid for property adjoining it in the last year. Mr. Johnson. Was it worth more than the assessed valuation at the time the last assessment was made? Mr. Stellwagen. It was. Mr. Johnson. How much more? Mr. Stellwagen. About two dollars and a fraction a foot. Mr. Johnson. You have just said your assessment will be raised at the next assessment, Mr. Stellwagen. I presume it will, it ought to be. Mr. Johnson. And you desire it raised? Mr. Stellwagen. No man ever desires his taxes raised. I do not object to it. Mr. Johnson. Did I understand you to say a while ago that you desired it raised, so that the raise would be advantageous to your trust company? 304 INVESTIGATION OF INSURANCE COMPANIES. Mr. Stellwagen. Xo, sir; I did not say any such thing. Mr. George. He did not say that. Mr. Johnson. What did you say in that connection? Mr. Stellwagex. I do not know what you are speaking about. I said, in answer, I think, to Mr. Eedfield, that if there was an enhancement in value of four or five hundred thousand dollars, I would he very glad to inform my stockholders of that fact, and let them feel it was good judgment in going up there and adding that to our assets. Mr. Uedeield. And pay the taxes ? Mr. Stellwagex. I would certainly pay the taxes under those cir- cumstances; but there has been no such raise, in my judgment. Mr. Johnson. And you think your property was undervalued $2 a foot at the last assessment? Mr. Stellwagex. Oh, slightly. That is coming pretty close to it. Mr. Johxsox. Now, how much do you think it should be raised next time? Mr. Stellwagex. To two-thirds of whatever it is estimated to be worth at that time. If it is worth $32 at that time, it ought to be assessed at $21. is it not? Something like that. Mr. Johxsox. Will you do anything this time of your own motion looking to it being raised? Mr. Stellwagen. I certainly will not. Mr. Johnson. Then you do not know what the assessor will do next time? Mr. Stellwagex. I certainly can not say. Mr. Johnson. Then when you said it would be raised Mr. Stellwagen (interposing). I said I assumed it would be raised. Mr. Johnson. In the first part of your testimony, in answer to some questions made by Mr. Redfield, I understood you to say posi- tively that it would be raised. Mr. Stellwagex. Oh, no; you certainly misunderstood me. I said it probably would be raised. Mr. Johxson. That is all. Mr. George. Mr. Stellwagen, Thomas J. Fisher & Co. are tenants of the Union Trust Co. ? Mr. Stellwagen. They are. Mr. George. As a means of getting at values, would you object to telling the committee how much floor space Thomas J. Fisher & Co. have in the Union Trust Building? Mr. Stellwagen. I could not tell you that accurately. I can make a guess at it. They have probably 20 feet by the full depth of the lot to the alley. Mr. George. And what is the rental, if that is fair ? Mr. Stellwagen. I do not remember that exactly. I think it is two hundred or two hundred and fifty dollars a month — something of that kind. Mr. George. Could you supply to the committee subsequently, when you return to your office, and in a letter to the committee show what the floor space of the Union Trust Building is ? Mr. Stellwagen. Why, certainly. Mr. George. And the rentals in that building? Mr. Stellwagen. Yes, sir; I will give you the fullest information. INVESTIGATION OF INSURANCE COMPANIES. 305 Mr. George. Could you also include in that the charge that the Union Trust Co. charges itself Mr. Stellwagen. It makes no positive charge to itself. I have as- sumed, for the sake of making the figures here, that it should charge itself with $12,000 a year for the space it occupies. I will send it to you on that basis. Mr. George. Yes; with the idea of learning what that property earns. Mr. Stellwagen. Surely. Mr. George. With the idea of getting at the value of the property. Mr. Stellwagen. Yes. Mr. George. By its earnings. Mr. Stellwagen. I will send that to you with the greatest pleasure. Mr. Geoege. I think that is all I want to ask, just at present, if you please. Mr. Redfield. Mr. Stellwagen, are you aware who holds the first mortgage on the Southern Building? Mr. Stellwagen. I am not, sir. Mr. Redfield. Do you know how the money was furnished to build the Southern Building? Mr. Stellwagen. I do not know anything about it. Mr. Redfield. Did you know that an employee of the Equitable Life Assurance Society appraised the land on which the Southern Building stands late in 1909 as worth $500,000? Mr. Stellwagen. No, sir; I did not. Mr. Redfield. Did you know that the building was estimated, from the plans and specifications, on behalf of the Equitable Life Assurance Society, for the purpose of a building loan and a mortgage, at $842,000? Mr. Stellwagen. I did not. Mr. Redfield. Did you know that the total value of the property for the purpose of placing the first mortgage was appraised for the Equitable Life Assurance Society at $1,342,000? Mr. Stellwagen. I did not. Mr. Redfield. Did you know that in the early part of 1912 the insurance department of the State of New York had an independent appraisal made, which put the land at a valuation of $777,420, and the building at $800,000, or a total appraised value of $1,577,420? Mr. Stellwagen. I did not. Mr. Redfield. Is not the fact, to your knowledge, that the Southern Building was offered about Washington for sale for some consider- able time at the indebtedness thereon, plus the agent's commission ? Mr. Stellwagen. I have heard that stated, but I have no positive knowledge or information about it. Mr. Redfield. By whom did you hear it stated ? Mr. Stellwagen. My best recollection is that Mr. Story was offer- ing it in that way. Mr. Redfield. Who is Mr. Story ? Mr. Stellwagen. He is a real estate agent in the city of Wash- ington. Mr. Redfield. What is his full name and address? Mr. Stellwagen. John P. Story, I think. Mr. Douglas. Of Story & Cobb, Connecticut Avenue. 306 INVESTIGATION OF INSURANCE COMPANIES. Mr. Caeusi. No. 1102 Connecticut Avenue. Mr. Redfield. And what did you hear about it? Mr. Stellwagen. I have heard nothing about it very much, except that that was the impression that was prevalent. Mr. Redfield. Did Mr. Story tell you so ? Mr. Stellwagen. He did not. Mr. Redfield. Who did? Mr. Stellwagen. I can not remember who told me. Mr. Redfield. Do you know who built the Southern Building? I mean the contractor. Mr. Stellwagen. I have been told that the Thompson-Starrett Co. built it. Mr. Redfield. "Where are they located? Mr. Stellwagen. I believe it is a New York concern. Mr. George. Mr. Stellwagen, I would like to call your attention to two letters that appeared on pages 45,") and 456 of the testimony taken by the Committee of the District of Columbia last year at a hearing in reference to the assessment of bank building, No. 1444 F Street NAY. Mr. Stellwagen. Fourteen hundred and forty-four? Fourteen hundred and fourteen. Mr. George. Yes; 1414. I believe you wrote the first letter. This letter was supplied to the committee by the assessor from the records of the assessor's office. Mr. Douglas. Are you referring to the letter of March 20, 1908? Mr. George. I beg your pardon. Mr. Douglas. I say, are you referring to the letter of March 20, 1908— Mr. Stellwagen 's letter ? Mr. George. Yes; the letter of March 20, 1908, on page 455. I will ask you to read that letter, if you please. Mr. Stellwagen. Mr. Stellwagen (reading) : Washington, D. C. March 20, 1008. Board of Equalization and Review, District Building, City. Gentlemen: I respectfully wish to call your attention to the excessive as- sessment, in my opinion, of both land and improvements in the block fronting on F Street, between Fourteenth and Fifteenth Streets NW, particularly the Willard Hotel property and the building formerly occupied by the Union Trust Co. While it is true that values have enhanced very substantially in the neigh- borhood of Fifteenth and H Streets NW., where our present building stands, and where you have very properly advanced the assessment nearly four times what it formerly was, it is equally true that the block on F Street, between Fourteenth and Fifteenth Streets, above referred to has substantially depre- ciated and that values there should, by the same reasoning, be reduced instead of increased. I say this not simply because our own business has left the location, but because Thomas J. Fisher & Co., William B. Hibbs & Co., Bryan & Co., the Co- lumbia Fire Insurance Co., and the branch city post office have discontinued business there. The removal of these rather important concerns has left a void not yet filled and, from our experience in seeking a new occupant for our own building, one which is not likely to be filled soon. I have positive and personal information that there is a large portion of the property on that block vacant to-day, without hoped-for tenants. Certainly this fact takes from rather than adds to its value. The conditions enumerated do not, fortunately, rest entirely upon my bare assertion, but can be seen by anyone who cares to investigate. INVESTIGATION OF INSURANCE COMPANIES. 307 In regard to the improvements, I find that the building formerly occupied by this company has been advanced some $3,000 over its last valuation. I beg to call your attention to the fact that it has been vacant since the first part of December last without a single serious inquiry being made for it. It was constructed solely with a view to occupancy by a banking institution and is not available for any other purpose. It is therefore within so limited a de- mand that it has a relatively small value in comparison with structures suit- able for general commercial uses. I think it is not fairly worth to-day over $25,000. I trust that the board will see its way clear to readjust their figures on this block. Tours, very truly, Edavabd J. Stellwagen. Mr. George. Xow, then, the letter following that — a very brief letter — from whom is that letter? Mr. Stellavagen. This is from W. F. D. Herron, assistant treasurer. Mr. George. And is addressed to whom ? Mr. Stellavagen. To me. Mr. George. At what time? Mr. Stellavagen. On the 30th of April, 1912. Mr. George. And this second letter you sent to the committee — this is the letter that you sent to the committee? Mr. Stellavagen. I do not remember sending it, but I presume I did, if you say so. I wrote it, undoubtedly. Mr. George. Yes ; but it is addressed to you. Mr. Stellavagen. Oh, this second letter? Mr. George. Yes. Mr. Stellavagen. The second letter is [reading] : Union Trust Co. of the District of Columbia, Washington, D. ('., April 30, 191:>. Mr. Edward J. Stellwagen, Washington, D. G. Deab Sib : Premises 1414 F Street X\V. were rented from Mrs. Belle I... Wyatt- Willard from February 1, 1901, for a period of 20 years, at an annual rental of $6,000 and taxes, insurance, and repairs. Very truly, yours, \V. F. D. Herron, Assistant Treasurer. Mr. George. Assistant treasurer of what? Mr. Stellavagen. Of the Union Trust Co. Mr. George. Your company? Mr. Stellwagen. Yes, sir. Mr. Johnson. Mr. Stellwagen, in any of your conversations with Col. Judson, did anybody say that Justice Gould was being com- pensated in money for the use of his name as one of the directors in either one of these insurance companies? Mr. Stellavagen. I never heard it mentioned. Mr. Johnson. You did not hear it mentioned? Mr. Stellavagen. No, sir. Mr. Johnson. Did you hear that anybody else Avas being compen- sated in money for the use of his name ? Mr. Stellwagen. I never did. Mr. Johnson. All right, sir. Mr. Redfield. Mr. Stellwagen, you have been informed that a valuation of $2,000,000 Avas put upon the Southern Building prop- erty, land and building, have you not? Mr. Stellavagen. I have been so informed. Mr. Redfield. What is your opinion of that valuation? 308 INVESTIGATION' OF INSURANCE COMPANIES. Mr. Stellwagen. I think it is excessive. Mr. Redfield. Are you prepared to say to what extent it is ex- cessive ? Mr. Stellwagen. I am not. Mr. Redfield. Is it a little bit in excess or is it much in excess ? Mr. Stellwagen. I should say it is very largely in excess. Mr. Redfield. Does that apply to the land or to the building? Mr. Stellwagen. Both. Mr. Redfield. Have you any knowledge, from observation or from information received from others, as to the character of the building itself? Mr. Stellwagen. Only such information as has come to me sec- ondhand by people who have examined the court proceeding in which the allegation is made by the Southern Building Corporation that it was poorly constructed. I know nothing of it, personally. Mr. Redfield. Is the building occupied by the Union Trust Co. in all respects a modern office building? Mr. Stellwagen. It is. Mr. Redfield. Did I understand you to testify that (here were a number of rooms vacant in that building? Mr. Stellwagen. At least 35. Mr. Redfield. And how long has that condition continued? Mr. Stellwagen. It was full about a year ago. It has lost thai many tenants in that period of time. Mr. Redfield. "Within a year. How many rooms are there iu the Union Trust Building? Mr. Stellwagen. Why. I think there are 165. That is my recol- lection. Mr. Redfield. Can you say whether or not the condition of non- rental, of which you speak, was coincident in its beginnings with the erection of the Southern Building and of the Woodward Building? Mr. Stellwagen. I am quite sure that that is the reason. I can illustrate that, if you like. The Rockefeller Fund had four rooms in our building, and they wanted eight, I think — seven or eight — adjoin- ing. We could not give them to them, because we did not have them adjoining, without disturbing other tenants, and chey went over to the Southern Building and took quarters there. The Marine Corps had several rooms in our building and they wanted to spread out and have more space, and we could not give it to them, and they wont over, and in that way we lost certain tenants. Then, of course, the natural competition for business when there is an overproduction is bound to cut the rents down, and bound to be felt by the building which was there first, and ours is the one that was there first. Mr. Redfield. Do you know to what extent, if any. nonrental con- ditions exist in the Woodward Building? Mr. SiTELLWAGEN. I do not. I have no knowledge of any of the other buildings. Mr. Redfield. Mr. Stellwagen, as a banker, you are accustomed to making loans and estimating credit for that purpose ? Mr. Stellwagen. I am. Mr. Redfield. Assume, if you please, a corporation whose only surplus or whose surplus, save an amount of $2,700, exists solely in the form of an enhanced valuation of real property immediately after the purchase of that property by it. Would you consider that con- cern such as to justify you as a banker in making loans to it? INVESTIGATION OF INSURANCE COMPANIES. 309 Mr. Stellwagen. What kind of loans? The bank that I repre- sent only makes loans on collateral. We do not make the ordinary commercial loan. That is done by the national banks. Mr. Redfteld. I understand. Would you make a loan on collateral to a concern whose surplus was in that condition ? Mr. Stellwagen. Why, if the collateral was good, I certainly would not object. Mr. Redfteld. Wholly irrespective of the character of the concern behind it? Mr. Stellwagen. It would not make any difference, if the col- lateral was good. Mr. Redfteld. Do you regard a concern as solvent that is carrying on a fire-insurance business, with its attendant risks, whose surplus is wholly made up of the enhanced value of its real estate, such en- hancement having taken place immediately after the purchase of the real estate by it ? Mr. Stellwagen. I would not know whether it was .solvent or not. Mr. Redfteld. Would you regard the existence of a surplus so made as establishing its solvency? Mr. Stellwagen. It might be perfectly solvent, and have no sur- plus, I should think, if its capital was not impaired. Mr. Redfield. So that the question as to whether it was solvent or not would not be affected by that particular matter? Mr. Stellwagen. Not in my judgment. Mr. Redfield. In a proposition for the sale of stock to investors would you regard the buyer as fully informed, if in submitting to him a statement of the company's standing, it was not made to ap- pear that its surplus had been increased within four days from $2,702, or thereabout, to something over $226,000 by the enhance- ment of its real estate in the way that has been suggested ? Mr. Stellwagen. That is rather a long question. I will have to ask the reporter to read it. Question read by the reporter, as follows : In a proposition for the sale of stock to investors would you regard the buyer as fully informed, if in submitting to him a statement of the company's stand- ' ing, it was not made to appear that its surplus bad been increased within four days from $2,702, or thereabout, to something over $226,000 by the enhance- ment of its real estate in the way that has been suggested? Mr. Stellwagen. He certainly would not have been fully in- formed. Mr. Johnson. Mr. Rudolph, do you desire to ask any questions? Mr. Rudolph. Not any. Mr. Johnson. Gen. Johnston, do you desire to ask any questions? Mr. Johnston. No. Col. Judson. I would like to ask Mr. Stellwagen one or two ques- tions along a certain line. I was called upon to testify yesterday as to our personal relations — those of Mr. Stellwagen and myself. I was asked whether I had been your guest — addressing myself now to Mr. Stellwagen — at the Blue Ridge Club on several occasions, and I said I had been. I was asked whether I had dined with you at the Willard, and I said I had not, but I had lunched with you at the Raleigh several times. I was asked whether I had caused to be changed the building regulations in order that the hotel Raleigh might be built higher than it could have been built under the build- 310 INVESTIGATION OF INSURANCE COMPANIES. ing regulations previously existing. I would like to ask the cir- cumstances which permitted you to build the Raleigh to its present height? Mr. Stellwagen. That was done by virtue of an act of Congress permitting all buildings on the the north side of Pennsylvania Avenue, between the Peace Monument and the Treasury Depart- ment, to have a height of 160 feet in lieu of 130 feet, as it had pre- viously been, and was not addressed to the Raleigh Hotel specially in any way. Since it has been passed, not only has the Raleigh been built 160 feet high, but the Munsey Building, occupied by the Times, has had two additional stories added to it to bring it up to the higher limit permitted by that act of Congress. Col. Judson. Do you remember whether that provision of law was asked for by the commissioners at my suggestion or otherwise, or whether it was added in the Senate? Mr. Stellwagen. My impression is that you opposed it. Col. Judson. Do you recall any favors which you have received at my hands, I being engineer commissioner, and if so, will you state what they are ? Mr. Stellwagen. I know of none. Col. Judson. Have you recently been developing a subdivision out in the northwest, to the west of Connecticut Avenue '( Mr. Stellwagen. I have. Col. Judson. Have you, as an incident to that, been building a large amount of street surface, grading and improving the streets? Mr. Stellwagen. We have spent, for opening streets, macadamiz- ing them, building gutters and sidewalks, and putting in sewers and planting trees, nearly a quarter of a million of dollars, and the Dis- trict of Columbia has never contributed a cent, so far as T know, except half of the cost of the sidewalk on the Connecticut Avenue front. Col. Judson. You have built a great many blocks of sidewalk? Air. Stellwagen. Dozens. Col. Judson. Almost miles? Mr. Stellwagen. Dozens of them. Col. Judson. Did you ever ask to have that done at public expense, or in part at public expense; that is, the half? Mr. Stellwagen. I never did. Col. Judson. Did you ever ask or did I ever offer to secure the macadamizing of your streets to be done at public expense? Mr. Stellwagen. Xever did. Col. Judson. One controversy which has been extensive in the District recently has been as to a raise in the water rates which came about by my suggestion. Are you aware of the fact that the controversy exists, and that I was the mover in getting the water rates raised? Mr. Stellwagen. I am not only aware of the fact, but I am further aware of the fact that I have been fighting you as energetically as I knew how in that regard, and contributing to the fund to employ the lawyers to fight the case. Col. Judson. I have taken a great deal of credit to myself, perhaps. s>nd have felt satisfied that in putting in a new system of lighting in the city of Washington I was considerably improving conditions. Do vou think so ? INVESTIGATION OF INSXJEANCE COMPANIES. 311 Mr. Stellwagen. I think it is the poorest attempt to light a city I ever saw in my life, and I have told you so a dozen times. I also said you have been the best engineer commissioner we ever had and the worst, and I have told you so to your face a dozen times. Mr. Douglas. One of the privileges of intimacy? Mr. Stellwagen. Yes, sir. Col. Judson. Have I not also told you that, notwithstanding your opinion of this lighting, it would eventually be extended up Colum- bia Road past your house? Mr. Stellwagen. Yes; and I have said I hoped you would be ordered away from here before you ever got it in. Col. Jtjdson. But I told you it was nevertheless now ordered to be done? Mr. Stellwagen. Yes ; and I made the same remark. Col. Jtjdson. And you are sincere in your opinion ? Mr. Stellwagen. I certainly am. Col. Judson. Do you think our friendship has resulted in you getting less or more from the District of Columbia ? Mr. Stellwagen. Decidedly less. Col. Judson. Has it perhaps prevented you from asking favors? Mr. Stellwagen. Possibly. Col. Judson. You have never asked any? Mr. Stellwagen. I have no recollection of asking any. Col. Judson. Have I ever volunteered any? Mr. Stellwagen. I have never known you to do it. Mr. Redfield. Has the paving and sewer work upon the streets that you have made beyond Rock Creek been kept up fully to the District standards? Mr. Stellwagen. Absolutely. It was done by the District and paid for by us, and paid for very liberally by us. They do not allow us to do it. ' We could do ^it more economically than they can, I think. Mr. Redfield. What is your opinion, Mr. Stellwagen, as a banker, of any concern that pays dividends out of the premium on stock sales when at the same time it is operating at a loss ? Mr. Stellwagen. I do not think that is good business practice. Mr. George. Mr. Stellwagen, I would like to call your attention to page 260 of the testimony taken by the Subcommittee of the Com- mittee on the District of Columbia in respect to improving the streets in Massachusetts Avenue extended. I believe Fisher & Co. handled a lot of that property ? Mr. Stellwagen. Fisher & Co. are the agents, having charge of that work, for the trustees, Mr. Charles J. Bell and Mr. Plumb, who are the trustees. Fisher & Co. look after the work, but the dis- bursements are made by the trustees and not by Fisher & Co. Mr. George. Nevertheless that applies generally to the property handled by you in the northwest. — that is, by Fisher & Co. ? Mr. Stellwagen. What applies, Mr. George? Mr. George. You were asked whether property controlled by you was improved. Mr. Stellwagen. Yes. Do you desire to ask me whether the same thing I testified to with reference to Connecticut Avenue applies to Massachusetts Avenue — because I would like to tell vou. 312 INVESTIGATION OP INSURANCE COMPANIES. Mr. Geokge. I would like to call your attention to page 200 of the testimony, where Mr. Doyle appeared. Mr. Doyle is secretary and real estate expert for Thomas J. Fisher & Co.?. Mr. Stel-lwagen. Yes, sir. Mr. George. And you recommended Mr. Doyle to the committee? Mr. Stellwagen. Yes, sir. Mr. Geokge. Will you please read that passage of testimony? Mr. Stellwagex. Where do you wish me to commence — where you have marked it? Mr. George. Yes; I will mark where to commence and where to end. Mr. Stellwagen (reading) : Mr. George. You measured it by the acre. Could you make some rough esti- mate per acre for these improvements? Mr. Doyle. At 15 cents a foot on the net area, or 30,000 net feet, the average for an acre would be $4,500. Mr. George. And that would pay for all the improvements? Mr. Doyle. That would pay for all the improvements for the net area. Mr. George. What improvements are" included in the contract price of sale of a lot to an individual? Mr. Doyle. Macadam streets, cobble or other suitable gutter, granolithic side- walks, sewer and water service in the street — mains ; and, in addition, if they ask about electric light and gas, it is simply the assurance that we get and one that they may get from the company that the service will be put in as the demand arises. We use our influence to get it in, but we can't make them put it in. Mr. George. You estimate for this Massachusetts Avenue section the average cost of improvements to you is about 15 cents a square foot? Mr. Doyle. Yes, sir. Mr. George. Do you state anything to a purchaser about the improvements of Massachusetts Avenue? Mr. Doyle. The macadam has been down there for some time. We are now laying the sidewalks. Mr. George. If a purchaser asks whether it is to be improved, made better, what do you tell him? * Mr. Doyle. That Massachusetts Avenue is to be improved? Mr. George. Yes. Mr. Doyle. The macadam itself? Mr. George. Yes. Mr. Doyle. We make no promise to them ; that will be taken care of by the District government. Mr. George. So that it is the expectation that the District government will make that improvement? Mr. Doyle. Yes. Mr. George. As a matter of fact it is expected to be improved? Mr. Doyle. Yes; it is a thoroughfare and has always been. Around it. in the other squares, we put in an 8-inch street — 6 inches rough stone, 2 inches top dressing — and by the time that will need repairing we will expect the District to take care of it, too. Mr. George. In this Massachusetts Avenue Heights region which you are handling for these owners there seems to be a park. Is that true? Mr. George. So that the buyer is paying for these improvements, and then the District comes along and does the rest ? Mr. Steuavagen. Oh, no ; that testimony simply means that Mas- sachusetts Avenue had been improved by the District. Mr. George. For that district? Mr. Stellwagen. Massachusetts Avenue was macadamized by the General Government or the District government, I do not know which, and has been improved for years. All the improving the Massachusetts Avenue Heights Syndicate is doing is adjacent to Mas- sachusetts Avenue on each side. INVESTIGATION OF INSUKANCE COMPANIES. 313 Mr. George. But even on Massachusetts Avenue, the price charged to buyers covers any improvement made there in the streets? Mr. Stellwagen. Certainly. We do not make these improvements for the fun of the thing. Col. Judson. The improvement of Massachusetts Avenue referred to there was made before I became engineer commissioner. Mr. Stellwagen. It was made many years ago. I do not know how many years ago. It has been a thoroughfare for a long time. Col. Judson. Xot as a matter of favor between you and me, at any rate? Mr. Stellwagen. I had nothing to do with it whatever. Col. Judson. Nor I. Mr. Easby-Smith. Mr. Stellwagen, Mr. Ingham being superin- tendent of insurance for the District of Columbia, you would not consider him subject to just criticism because he attended a banquet given by the underwriters of the District of Columbia, would you? Mr. Stellwagen. I should not think so. Mr. Easby-Smith. Any more than Mr. Judson is to be criticized for being your guest on various occasions? Mr. Stellwagen. Certainly not. Mr. Easby-Smith. And if that fact were used as one reason why he ought to be removed from office, you would not consider it a just or fair reason? Mr. Stellwagen. I should not consider that a reason for his re- moval. Mr. Easby-Smith. Is this letter which I show you the letter which was brought to you by Mr. Bell? I will state for your information it was introduced in evidence by Col. Judson and produced from his custody. Mr. Stellwagen. So far as I can judge, it is the same letter. Mr. Easby-Smith. That is a letter issued by the First National Fire Insurance Co., showing that Mr. Eldridge E. Jordan and Mr. Robert N. Harper and others were on the organization committee. As I understand, the report which was brought to you by Mr. Eoberts was a copy of the report of the Commercial Fire Insurance Co., the other company. Mr. Stellwagen. That is quite right. Mr. Easby-Smith. Mr. Eoberts being a director of that company ? Mr. Stellwagen. Yes, sir. Mr. Easby-Smith. And that copy and this letter were two of the papers which you took to Mr. Judson ? Mr. Stellwagen. They were the two. Mr. P]asby-Smith. I presume at the time you had the letter you supposed Mr. Jordan was on the directorate of that company ? Mr. Stellwagen. I did not look into it then, when I first took it over. Subsequently, from that heading, I did suppose he was. Mr. Easby-Smith. And later you learned that, as a matter of fact, he had resigned from this organization committee last July? Mr. Stellwagen. So I was told. Mr. Easby-Smith. Do you remember about when you received that information? Mr. Stellwagen. I can not give the exact date ; possibly a couple of weeks ago. 314 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. How long after your first interview with Mr. Judson on this question did you know of his intention and effort to have Mr. Ingham removed from office? Mr. Stellwagen. I do not know that I ever knew it. Mr. Easby-Smith. You never knew that Mr. Judson had verbally moved his removal the day after you gave him these papers? Mr. Stellwagen. I had no information about that. Mr. Easby-Smith. Nor that he subsequently made a number of motions in writing looking to his removal? Mr. Stellwagen. I have heard that since, but I had no knowledge of it at the time. Mr. Easby-Smith. I presume you did not look into the matter enough to form an opinion as to whether or not there was any negli- gence or misconduct on the part of Mr. Ingham, the superintendent of insurance? Mr. Stellwagen. I did not look into it at all. Mr. Easby-Smith. And had no opinion on it? Mr. Stellwagen. None whatever. Mr. Easby-Smith. Do you remember, Mr. Stellwagen, having some interviews with Mr. Burleson concerning Mr. Jordan and his connection with these insurance companies? Mr. Stellwagen. I do. Mr. Easby-Smith. Did Mr. Burleson convey to you the informa- tion that Mr. Ingham, the superintendent of insurance, was about to be removed from office? Mr. Stellwagen. I have no recollection of it. Mr. Easby-Smith. Did you know of Mr. Burleson or any other person conveying to Mr. McCombs information to the effect that Mr. Ingham was about to be removed from office and that an insur- ance scandal would follow ? Mr. Stellwagen. It never was told me. Mr. Easby-Smith. You were in communication with Mr. Burleson concerning Mr. Jordan? Mr. Stellwagln. Concerning the inaugural chairmanship; not Mr. Jordan in particular, but several parties. Mr. Easby-Smith. And your opposition to Mr. Jordan ? Mr. Stellwagen. Surely. Mr. Easby-Smith. In that connection discussed with Mr. Burleson Mr. Jordan's connection with this First National Fire Insurance Co.? Mr. Stellwagen. Mr. Jordan's connection with that and Mr. Harper's connection with the other one. Mr. Easby-Smith. Did you know at the time that the First Na- tional Fire Insurance Co. with which Mr. Jordan had been con- nected had never done any business here or elsewhere? Mr. Stellwagen. I did not know anything about it. Mr. Easby-Smith. Do you know now whether it has ever done any business here or elsewhere? Mr. Stellwagen. I do not. Mr. Easby-Smith. Did you ever correct the statement that Mr. Jordan was connected with this company since last July? Mr. Stellavagen. It did not have to be corrected. Mr. Burleson told me. Mr. Easby-Smith. About when did he tell you ? INVESTIGATION OP INSURANCE COMPANIES. 315 Mr. Stellwagen. I can not give the exact date; probably a couple of weeks ago. Mr. Easby-Smith. Before or since the appointment of the in- augural chairman? Mr. Stellwagen. Before the appointment. Mr. Easby-Smith. About how long before? Mr. Stellwagen. I could not tell you. Mr. Easby-Smith. Did you ever know Mr. Ingham personally, Mr. Stellwagen? Mr. Stellwagen. I would not know him if I should see him. Mr. Easby-Smith. Do you know anything of his work, of the workings of his department? Mr. Stellwagen. Not a thing about it in the world. Mr. Easby-Smith. You are, I believe, interested indirectly in some insurance companies or business? Mr. Stellwagen. The incorporation of Thomas J. Fisher & Co., of which I am president, has an insurance department. I am in- terested to that extent. Mr. Easby-Smith. Did you ever hear, in connection with that business, that Mr. Ingham's department was inefficient or incom- petent ? Mr. Stellwagen. I never had any conversation about Mr. Ing- ham with anybody. Mr. Easby-Smith. Never heard his department criticized? Mr. Stellwagen. No. Mr. Douglas. Mr. Stellwagen, do you remember how this letter got on your desk, from which the name of the party was clipped? Mr. Stellwagen. I told in my direct examination that Mr. Bell sent it to me. Mr. Douglas. I beg your pardon ; I thought you said you did not know who it came from. You said Mr. Roberts sent you a copy of the report of the super- intendent of insurance for examination ? Mr. Stellwagen. He did. Mr. Douglas. Will you give us, as nearly as you can, the date of that? Mr. Stellwagen. I can not give the date. Mr. Douglas. Could you give us approximately the date of your first interview with Mr. Judson? Mr. Stellwagen. It is two or three weeks ago. Mr. Douglas. I am anxious to get, as nearly as I can, the date, because you made the rather remarkable statement here that you thought you saw that report of the superintendent of insurance before the commissioners saw it. Mr. Stellwagen. I do not think the commissioners had seen it when I took it to Col. Judson. Mr. Douglas. You said you had reason to doubt whether any of them had seen it. Mr. Stellwagen. I still doubt it. Mr. Douglas. On what grounds, or on what facts, do you base that doubt? Mr. Stellwagen. Simply because Col. Judson seemed to express surprise when I took it to him; but the commissioners are here to answer that question for themselves. That is my judgment about it. 316 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Did you think there were no other members of the board of commissioners except Mr. Judson? Mr. Stellwagen. No; I know the other two members very pleas- antly and intimately. Mr. Douglas. And because Col. Judson had not seen the report and expressed surprise, you thought Mr. Rudolph had not seen it and Gen. Johnston had not seen it ? Air. Stellwagen. Yes; and I think so still. Mr. Douglas. On what grounds do you base that ? Mr. Stellwagen. Just on the general proposition I do not think they saw it. Mr. Douglas. You have given no reason. Mr. Stellwagen. No ; I can give no reason beyond that. Mr. Douglas. You have no other? Mr. Stellwagen. I have no other. Mr. Douglas. And your only reason for suspecting Mr. Rudolph had not seen it was because Col. Jiulson had not seen it ? Mr. Stellwagex. No; it was not a report to the commissioners. It was a report to Mr. Ingham from his subordinates. Mr. Douglas. That is not my question. I ask if your reason for suspecting that the members of the board of commissioners had not seen this report — whatever you call it — was because Col. Judson ex- pressed surprise? Mr. Stellwagen. That may have had some influence in my mind at the time. Mr. Dowlas. You went to Col. Judson first? Mr. Stellwagen. 1 did; with this report. I think I mentioned the matter to Mr. Rudolph. I am not sure whether it was before or after. Mr. Douglas. Did you not first go to Mr. Rudolph yourself before you went to Col. Judson? Mr. Stellwagen. Not with the report. I took this report directly to Col. Judson. Mr. Douglas. Did you not first go to Mr. Rudolph with this com- plaint? Mr. Stellwagen. I mentioned the fact to Mr. Rudolph that I had noted by this letter that this enhancement of value had been put in the assets. Mr. Douglas. And it somewhat excited you? Mr. Stellwagen. I did not think it was a proper thing to do, and I do not think so now. Mr. Douglas. Did it somewhat excite you? Mr. Stellwagen. Not particularly so. Mr. Douglas. It did not disturb you in the slightest degree? Mr. Stellwagen. I do not think so. Mr. Douglas. And yet you went to two members of the board of commissioners within 24 hours on the same subject ? Mr. Stellwagen. Yes. Mr. Douglas. Were you at all interested in depressing the values of real estate? Mr. Stellwagen. Not in the slightest. Mr. Douglas. Why should you be concerned personally as to whether or not the Southern Building was appraised at $45 or $35 or $30 a foot? Did it make any difference to you? INVESTIGATION OF INSURANCE COMPANIES. 317 Mr. Stellwagen. I was concerned in getting accurate informa- tion for all my correspondents when they wrote to me regarding these companies, and I went to the officials of the District of Columbia because this was a report from one of their subordinate officials. Mr. Douglas. Is that the only reason? Mr. Stellwagen. That is the reason I went to them. Mr. Douglas. The only reason? Mr. Stellwagen. That is the only reason. Mr. Douglas. You are simply concerned about six or eight people who had written to you about the condition of these two compa- nies? Mr. Stellwagen. I was concerned generally about the people who made inquiries of us. It was not confined to six or eight people. There were a great many other people who came into the building. Mr. Douglas. What really disturbed you or perturbed you, if that is a mild enough term for you, about the value of this real estate was because people inquired of you by letter and in person about the condition of these companies? Mr. Stellwagen. I was not perturbed or disturbed. I simply went there as a matter of public duty. Mr. Douglas. As a matter of public duty? Mr. Stellwagen. Yes, sir. Mr. Douglas. And you thought your duty required you to report to Col. Judson you thought the appraisement of that property was too high? Mr. Stellwagen. I did not report anything to him. I handed him this statement and told him I thought it needed looking into. Mr. Douglas. You talked to him, did you not ? Mr. Stellwagen. I certainly did. I talk to him frequently, almost every day. Mr. Douglas. You told him in your first interview that, in your judgment, this property was appraised too high ? Mr. Stellwagen. I may have done so; I have no recollection of doing so. I would have done it. Mr. Douglas. Did you not say so ? Mr. Stellwagen. I may have done so. Mr. Douglas. Your best recollection is that you did do so ? Mr. Stellwagen. My best recollection is that I did not. I may have. I would have done so, because I think so to-day. Mr. Douglas. You say you would have done so. Under what circumstances would you have done so? Mr. Stellwagen. If it came to my mind to do it, I would have done it, and I may have done so. Mr. Douglas. You are on the same cordial relations with Col. Judson now as then? Mr. Stellwagen. Absolutely cordial ; just as cordial as they were then. Mr. Douglas. So that the discourtesies and criticisms that you passed on each other a few moments ago were intended for the spectacular and the Pickwickian, or was it real ? Mr. Stellwagen. It is simply what we think of each other ; prob- ably what I have told him a number of times. Mr. Douglas. You are still on speaking terms ? Mr. Stellwagen. Oh, yes. 71391— Se-3 12 4 318 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Notwithstanding the wish, expressed on your part, that he should be sent hence without day ? Mr. Stellwagen. Yes: before he puts those lights on Columbia Road. Mr. Douglas. Did you really mean that ? Mr. Stellwagen. I think I meant it. Mr. Douglas. You think more of the presence of lights in front of your house than your friendship for Col. Judson ? Mr. Stellwagen. No; I thought his term of service was rapidly coming to a close, and I hoped it would come to a close before he got those lights there. Mr. Douglas. You mean to say you were making a virtue of necessity. He would have to go, and therefore you could say you hoped he was going speedily ; is that right ? Mr. Stellwagen. You can ^Dut it that way if you like. Mr. Douglas. You are testifying. I have not that sacred priv- ilege. I am asking you, now, did you think more of the question of lights in front of your house than you did of this friendship, this intimate friendship, you have with Col. Judson? Mr. Stellwagen. There was not anything very serious about that conversation. It was more a matter of pleasantry than anything else. Mr. Douglas. After all, this statement about wishing him to be sent was jocular? Mr. Stellwagen. To that extent, you might say it was jocular. Mr. Douglas. It was not tragedy ; it was intended as comedy ? Mr. Stellwagen. No; it was not a tragedy. Mr. Douglas. Nevertheless you still speak to Judson when you meet him on the street ? Mr. Stellwagen. Yes; we are good friends yet. Mr. Douglas. A pood enough friend of yours at this time for you to act as a go-between to bring Mr. Burleson to your office to talk about the chairmanship of the inaugural committee? Mr. Stellwagen. He never brought Mr. Burleson to my office. Mr. Douglas. I meant to his own office. Col. Judson. I wish you would be careful about saying what I testified to. Mr. Douglas. Pardon me. I will be as careful as my conscience requires and not according to any dictation from you. At his office, I will say. That is a tremendous mistake I made, and I beg the colonel's pardon. He acted as a go-between, not only as to the individual but as to the place of meeting, and he had Mr. Burleson come to his office? Mr. Stellwagen. I went to his office, and met Mr. Burleson at his office. Mr. Douglas. He was a good enough friend of yours for you to unburden yourself on this particular subject of the appraisement of the Southern Building? Mr. Stellwagen. I do not think I said a word to him about the ap- praisement of the Southern Building. Mr. Douglas. You said a moment ago you talked to him a number of times, and if you did not speak to him Mr. Stellwagen. To Mr. Burleson? Mr. Douglas. I mean to Col. Judson. Mr. Stellwagen. I thought you were talking about Mr. Burleson. INVESTIGATION OF INSUKANCE COMPANIES. 319 Mr. Douglas. I have gone back to our favorite theme, which is the question of the strained relations between you and Col. Judson. You thought enough of him and you took liberties enough with him to bring this insurance matter, the subject of these insurance companies, to his attention, did you not? Mr. Stellwagen. I did. Mr. Douglas. How long have you known Mr. Rudolph ? Mr. Stellwagen. I have known Mr. Rudolph probably 8 or 10 years. Mr. Douglas. An estimable gentleman, is he not ? Mr. Stellwagen. A very fine gentleman and a good friend of mine. Mr. Douglas. A good friend of yours? Mr. Stellwagen. Yes. Mr. Douglas. And you knew him a long time before you knew Col. Judson? Mr. Stellwagen. Yes, sir. Mr. Douglas. There are no strained relations between you and Rudolph? Mr. Stellwagen. None whatever, that I know of. Mr. Douglas. Did you know that Mr. Rudolph, as one of the board of commissioners, had charge of the insurance department of the District? Mr. Stellwagen. I did not. Mr. Douglas. Why did you not? Mr. Stellwagen. Because I do not know who has charge of the various departments of the District work. Mr. Douglas. You never knew that ? Mr. Stellwagen. I did not know it at the time; I have known it since. Mr. Douglas. You did not know you were going over Rudolph's head in going to Col. Judson about this matter f Mr. Stellwagen. I went to Mr. Rudolph first and spoke of it, and carried the report to Col. Judson. Mr. Douglas. Why did you not carry the report to Mr. Rudolph ? Mr. Stellwagen. Because I knew Mr. Judson better than I knew Mr. Rudolph. Mr. Douglas. Then, after all, there was something in the question of intimacy, when you came to deal with public affairs? Mr. Stellwagen. Yes. Mr, Douglas. How many times have you talked to Mr. Judson about this particular matter of these insurance companies and their appraisement since the 3d day of December down to the present time? Mr. Stellwagen. I could not tell you; very many times. Mr. Douglas. Ten or twelve times, do you think? Mr. Stellwagen. Possibly. Mr. Douglas. Did you give him any figures on the Southern Building ? Mr. Stellwagen. I never did. Mr. Douglas. You frequently told him it was too high ? Mr. Stellwagen. No; not frequently. Mr. Douglas. Several times you told him it was too high ? 320 INVESTIGATION OF INSURANCE COMPANIES. Mr. Stellwagen. I do not know how many times, but not fre- quently. Mr. Douglas. Did you tell him several times ? Mr. Stellwagen. I do not know whether I told him once ; I think probably I have told him. Mr. Douglas. Do you mean to say you can not remember whether you ever expressed the view to Col. Judson that this appraisement was too high ? Mr. Stellwagen. I told you at the start I thought it was too high, and told him at the start it was too high, but I did not repeat it every time I saw him. Mr. Douglas. You remember telling'him it was too high? Mr. Stellwagen. Yes; certainly. Mr. Douglas. And you told Mr. Rudolph? Mr. Stellwagen. I did. Mr. Douglas. Did you tell Mr. Rudolph it would have the effect of raising the assessment of property in that neighborhood? Mr. Stellwagen. I never said a word about raising the assess- ment to anybody ? Mr. Douglas. You did not? Mr. Stellwagen. Xo, sir. Mr. Douglas. Do you know how it happened that Mr. Hoover and Mr. Doyle were selected by Col. Judson to make this new appraisement? Mr. Stellwagen. I had nothing to do with it, and do not know anything about it, except what I have read in the papers. Mr. Douglas. He talked with you on the subject? Mr. Stellwagen. He did not. Mr. Douglas. He said nothing to you on the subject? Mr. Stellwagkx. I do not remember his ever mentioning it to me. He might have done so, but I have no recollection of it. Mr. Douglas. 'Was it not through you that he got Mr. Doyle to agree to do this work without compensation? Mr. Stellwagen. It was not. Mr. Douglas. He never mentioned it to you ? Mr. Stellwagen. He may have mentioned it, but I had no hand in the appointment or the selection. Mr. Douglas. Mr. Doyle is the real estate expert of your firm? Mr. Stellwagen. He is. Mr. Douglas. Did he advise with you from time to time as to what steps he should take, as and when he did take them, about this insur- ance matter — Col. Judson? Mr. Stellwagen. Col. Judson? Mr. Douglas. Yes. Mr. Stellwagen. He did not. Mr. Douglas. He did not ? Mr. Stellwagen. No. Mr. Douglas. Did he advise with you or read over to you this statement that he made — I call it a speech ; he called it, I do not know what. — a partial explanation that he made before the board of com- missioners, explaining his attack upon these insurance companies? Did he read it over to you ? Mr. Stellwagen. I saw after it was prepared, not before. INVESTIGATION OF INSURANCE COMPANIES. 321 Mr. Douglas. You saw it after it was prepared, before it was given out? Mr. Stellwagen. I do not know whether it had been given out or not. I think it was given out when I saw it and a copy was what I saw. Mr. Douglas. Did he not read this over to you and ask you if you had any suggestions to make, before it was ever filed ? Mr. Stellwagen. No, sir ; he did not. I never saw it until it was prepared and finished. Mr. Douglas. And used? Mr. Stellwagen. I do not know whether it was used or not. I saw a copy of it in his office. Mr. Douglas. I understand you saw it in his office after he had prepared it. You could hardly see it before. Mr. Stellwagen. I had nothing to do with its preparation. Mr. Douglas. I did not ask you that. I asked if he did not ask you about it after he prepared it. Mr. Stellwagen. He never did. Mr. Douglas. Or read it over to you ? Mr. Stellwagen. He did not. Mr. Douglas. Did you read it yourself? Mr. Stellwagen. I did. Mr. Douglas. Why did he show it to you? Mr. Stellwagen. I am sure I could not answer that. Mr. Douglas. Did you ask him to? Mr. Stellwagen. I did not. Mr. Douglas. Did you make any comment upon it? Mr. Stellwagen. No; not that I remember. Mr. Douglas. You did not say a word? Mr. Stellwagen. I can't remember what I said. Probably I said a word or two ; I presume I may have said something. Mr. Douglas. Did you know that he intended to try and have it published ? Mr. Stellwagen. I did not know anything about it. Mr. Douglas. Do you remember being with him one afternoon in his office, just after this paper had been prepared, along about the 12th or 13th of December? Mr. Stellwagen. I do. Mr. Douglas. When he and you got the afternoon papers and were looking to see what was in the papers on the subject? Mr. Stellwagen. I never did. I think the only time I saw that was one time when I met Mr. Redfield in the office of Col. Judson. That is the first time I ever saw it. Mr. Douglas. With reference to this property : You say this prop- erty is worth, in your judgment, about $30 a foot? I refer to the property on which the Southern Building stands ? Mr. Stellwagen. Yes, sir. Mr. Douglas. You would not give a bigger price for that — for the naked ground? Mr. Stellwagen. I would not. Mr. Douglas. You were reliably informed that four or five years ago Mr. McLean offered as high as $50 to $55 for the Shoreham property ? 322 INVESTIGATION OF INSURANCE COMPANIES. Mr. Stellwagen. I am told he did. I do not know anything about it except as I am told. Mr. Douglas. He is a good business man? Mr. Stellwagen. Yes. Sometimes a man pays a large price to piece out a piece of property he owns. Mr. Douglas. Hardly double the price. Mr. Stellwagen. He may have considered the building worth something. Mr. Douglas. He may have considered that added to the value? Mr. Stellwagen. Yes. Mr. Douglas. He is a pretty good judge of buildings himself? Mr. Stellwagen. Yes, sir; probably better than I am. Mr. Douglas. You do not consider the Shoreham corner any better than the Southern Building corner ? Mr. Stellwagen. I do not. Mr. Douglas. Do you think the Southern Building corner is worth as much as the Union Trust corner? Mr. Stellwagen. Quite as much. Mr. Douglas. Worth as much as the Woodward Building? Mr. Stellwagen. I did not say worth as much as the Woodward Building. Mr. Douglas. I am asking you about it. Mr. Stellwagen. I think the Woodward Building, being closer to New York Avenue and Fifteenth Street, is better than the building on the north side. Mr. Douglas. What do you consider the difference in value be- tween the corner and an inside lot, as a general proposition? Of course, it varies. Mr. Stellwagen. I do not think there is any special rule for it. Possiblv a matter of 20 per cent; maybe not so much as that. Mr. Douglas. Maybe not as much as that? Mr. Stellwagen. Possibly. Mr. Douglas. Do you not know that a corner lot ordinarily is worth 35 or 40 or 50 per cent more than an inside lot ? Mr. Stellwagen. I do not. Mr. Douglas. You do not? Mr. Stellwagen. No, sir. Mr. Douglas. Do you know of any lot that can be bought, an inside lot, on H Street between Fourteenth and Fifteenth Streets, for under $30 a foot now ? Mr. Stellwagen. I do not know whether any can be bought; I do not know of any being for sale. Mr. Douglas. You are the pioneer there? Mr. Stellwagen. Yes; the pioneer. Mr. Douglas. You are a high-class real estate man, being in busi- ness a long time before you went into the Union Trust Co., and still in it. and I imagine are pretty well posted. I ask you now again if you know of any lot that can be bought for as low as $30 a foot now on H Street between Fourteenth and Fifteenth Streets ? Mr. Stellwagen. I do not know of any lot in there, whether it is for sale or not. I have no personal knowledge of it. Mr. Douglas. Would you object to making some inquiry, to aid the committee to find out whether or not a lot can be bought in the inside INVESTIGATION OF INSURANCE COMPANIES. 323 there, between Fourteenth and Fifteenth Streets, on II Street, between now and Monday? Mr. Stellwagen. If the committee desires me to do it, I will make the inquiry. Mr. Douglas. I make the request of you simply as one of counsel in this case, to try and ascertain the fact. Mr. Stellwagen. I will do that. Mr. Douglas. Do you know of any lot that can be bought between Fifteenth Street and Vermont Avenue on H Street ? Mr. Stellwagen. I do not know of anything. Mr. Douglas. At $30 a foot ? Mr. Stellwagen. I do not know of anything for sale at any price. 1 do not know of anything for sale on that square. Mr. Douglas. All of the property in that neighborhood is pretty closelv and pretty tightly held, is it not ? Mr. Stellwagen. It is. Mr. Douglas. You share the exceedingly optimistic view of the values here that Col. Judson expressed yesterday, that he thought that nroperty would tumble down there sometime or other to $25? Mr. Stellwagen. No ; I do not think that. Mr. Douglas. Things in that neighborhood are on the upward trend, are they not? Mr. Stellwagen. I think they are already on a pretty high level in there, from the standpoint of investment returns. Mr. Douglas. What do you regard your own property as worth ? Mr. Stellwagen. About $32 a foot, and the building at about what it cost us. Mr. Douglas. How far down on Fifteenth Street does your prop- erty run? Mr. Stellwagen. I do not remember the frontage. I think it is either 150 or 160 feet. I have forgotten it. The plat will show. Mr. Douglas. I know. I have not it here. Give me an approxi- mate figure. You say it runs 160 feet down on Fifteenth Street. What is the frontage on H Street ? Mr. Stellwagen. About 50 feet, the original building. It runs back — it is in the shape of an L. The map will show it. Mr. Douglas. Do you know how many feet, approximately, you have in your property there now? Mr. Stellwagen. t think about 12,000. Mr. Douglas. That includes the new lot? Mr. Stellwagen. Oh. no: that is the old building. Mr. Douglas. In this appraisement for assessment of your prop- ertv. as I read from the figures — and I think they are trustworthy — • it is $651,266. Does that include or exclude the new lot? I suppose it excludes the new lot. Mr. Stellwagen. T think that schedule that was in the testimony yesterday includes the new property on H Street in that assessment. Mr. Douglas. I hardly think so. but I wish you would verify it. Mr. Stellwagen. I think it does. Yes; I will do that. I think, however, it is included. Mr. Douglas. How many feet in the new lot ? Mr. Stellwagen. About 50 by 100— about 5.000 feet, I should say. Mr. Douglas. When did you make your last statement to the comp- troller as to the value of your property? 324 INVESTIGATION OF INSURANCE COMPANIES. Mr. Stellwagen. On the 26th of November the statement went in. Mr. Douglas. Of this year? Mr. Stellwagen. Yes, sir. Mr. Douglas. Does that include the new lot '. Mr. Stellwagen. Yes, sir; everything is in that. Mr. Douglas. How long have you carried it at that figure? Mr. Stellwagen. The regular carving charge — that does not rep- resnt what the property is worth. It represents what we paid for it — the report we make to the Comptroller of the Currency. Mr. Douglas. Then the figure $1,157,105.37 represents what the real estate cost you? Mr. Stellwagen. Oh. no. It represents what the real estate cost us, and also includes in that figure the vaults and the office fixtures, amounting to about $66,000 or $70,000. Mr. Douglas. Just the fixtures — things that would be part of the real estate, of course? Mr. Stellwagen. Oh. no. These are personal properties that are put in there with screws that we brought from F Street, and we can take them away from there to-morrow. Mr. Douglas. But you call them fixtures, nevertheless? Mr. Stellwagen. We so designate them. Mr. Douglas. And you have, then, about 12,000 feet in the original lot and about 5,000 feet in the second lot \ Mr. Stellwagen. That is right. Mr. Douglas. And you paid what for the second lot ? Mr. Stellwagen. Twenty-four dollars and a fraction a foot. Mr. Douglas. That is an inside lot ? Mr. Stellwagen. Two inside lots, and that price included about $15,000 or $20,000 paid to Owen Owen to get rid of a long lease he had on there, but that comes out of the fees, and makes no difference. Mr. Douglas. You paid $24 or $26, did you say? Mr. Stellwagen. Twenty-four dollars and a fraction, which in- cluded that payment. Mr. Douglas. When did you make the purchase ? Mr. Stellwagen. I think about a year ago. Mr. Douglas. You carry your building at what figure? You do not carry it at any particular figure, of course — the building itself — but, I think, before Mr. George's subcommittee vou estimated the cost of that building at about $500,000 or $600,000.' Mr. Stellwagen. Five hundred and some odd thousand. Mr. Douglas. $505,000 was the figure. Mr. Stellwagen. That was the price of the Fuller Co. to build it. Mr. Douglas. What do you regard as the most valuable corners now in Washington? Just give three or four as illustrations. Mr. Stellwagen. Oh, I would think the corner of Eleventh and F, where the Woodward Building stands— the Boston House. Mr. Douglas. Eleventh and F I Mr. Stellwagen. Yes. I should think Ninth and F; the corner of Fifteenth and New York Avenue, probably, is the most valuable in the whole city. The corner of G and Fourteenth is another valuable point. Mr. Douglas. Fourteenth and G '. Mr. Stellwagen. Yes. Mr. Douglas. And what about Fourteenth and H? INVESTIGATION OP INSUBANCE COMPANIES. 325 Mr. Stellwagen. That is a very good corner. Mr. Douglas. How does that compare with your corner ? Mr. Stellwagen. Well, possibly I am prejudiced. I do not think . it is so good for my purposes. Mr. Douglas. You think the intersection of Fourteenth and H, then, is not quite so valuable as the intersection of the two streets of Fifteenth and H? Mr. Stellwagen. For the banking purpose, for which we use it, I do not think it is. Mr. Douglas. And Fourteenth and G you regard as a very valuable corner ? Mr. Stellwagen. I do. Mr. Douglas. Is that much more valuable than your corner — -Fif- teenth and H? Mr. Stellwagen. It possibly would be so considered. Mr. Douglas. How much more per foot ? Mr. Stellwagen. I could not tell you that. Mr. Douglas. As much as $10? Mr. Stellwagen. I would not know. Mr. Douglas. Sir? Mr. Stellwagen. I would not know the value of that property. Mr. Douglas. I am not asking about the value of the property. I am asking about the relative value. Mr. Stellwagen. I do not think I could answer that. Mr. Douglas. What about the corner of Fifteenth and G ? Mr. Stellwagen. Fifteenth and G? Mr. Douglas. Yes. Mr. Stellwagen. That is a. very good corner also. Mr. Douglas. How does that compare with Fourteenth and G? Mr. Stellwagen. I should imagine it was a little better. Mr. Douglas. Then, that would make it more valuable than your corner? Mr. Stellwagen. Yes. Mr. Douglas. How does it compare with Fifteenth and New York Avenue ? Mr. Stellwagen. About the same. Mr. Douglas. What would you say as compared with New York Avenue and Fourteenth Street? Mr. Stellwagen. Eelative to what? Mr. Douglas. Fifteenth and H. Mr. Stellwagen. I think Fifteenth and H is better. Mr. Douglas. You think Fifteenth and H is better and more valuable than Fourteenth and New York Avenue? Mr. Stellwagen. Yes. Mr. Douglas. And would you not think the land is more valuable? Mr. Stellwagen. That would be my judgment. Mr. Douglas. Well, what would you think would be a fair value for the Small property, on the corner of Fourteenth and G Streets? Mr. Stellwagen. That is a very small lot, and it is held, I believe, at a very high price. I do not know what it is worth. Mr. Douglas. Well, your firm na s had charge of the sale of it? Mr. Stellwagen. I have not been in the active real estate business for 12 years. Mr. Douglas, and I am not posted. 326 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Douglas. Is it worth $85 a foot? Mr. Stellavagen. I should not like to give that for it. Mr. Douglas. Would you regard a valuation at Fifteenth and G at $100 a foot as excessive ? Mr. Stellavagen. Would I regard it as excessive ? Mr. Douglas. Yes. Mr. Stellavagen. I should think it was a pretty large price. Mr. Douglas. You think that would be a pretty large price? Mr. Stellavagen. Yes. Mr. Douglas. How much more valuable is Fifteenth and New York Avenue than Fifteenth and H? Mr. Stellavagen. I could not tell you how much more. It is much more valuable, however. Mr. Douglas. You can give us some idea as to the relative value? Mr. Stellwagen. Well, it is more valuable. Mr. Douglas. But how much more? Mr. Stellwagen. I could not tell you how much more. Mr. Douglas. You certainly have some opinion on the subject? Mr. Stellwagen. Yes ; I think it is more valuable, but how much more I do not know. Mr. Douglas. Do you think it is worth twice as much ? Mr. Stellwagen. Well, it might be. Mr. Douglas. In your opinion is it worth twice as much ? Mr. Stellwagen. Well, I. do not know. I would not have any decided opinion about it. Mr. Douglas. Do you know anything about the corner on the south of New York Avenue and to the east of Fifteenth Street, known as the Nairn property, where the old George Washington Hotel stands? Mr. Stellwagen. Yes ; I know that property. Mr. Douglas. What is that property worth? Mr. Stellwagen. It is a very valuable property. Mr. Douglas. What is it worth ? Mr. Stellwagen. I should think it would be worth a hundred dol- lars a foot. Mr. Douglas. A hundred dollars a foot? Mr. Stellwagen. Yes; I should think so. Mr. Douglas. That is just one block from your property? Mr. Stellavagen. Yes. Mr. Douglas. To the south? Mr. Stellwagen. Yes; the center of all the car lines in the city, pretty nearly. Mr. Douglas. A dangerous corner there, too, is it not? Mr. Stellaa^agen. Yes; a very valuable one, too. Mr. Douglas. I was asking about the dangerousness of it at that particular moment. Mr. Stellavagen. Yes ; it is a dangerous corner. Mr. Douglas. What about our friend Hoover's corner right there to the north, is that worth $5 or $6 a foot ? Mr. Stellavagen. It is Avorth a great deal more than that. You mean their original building or AA'hat they have acquired ? Mr. Douglas. We will divorce them for the time being. Mr. Stellavagen. The corner property is a wedge-shaped piece of property, and that is pretty economical, with a large frontage. If INVESTIGATION OE INSURANCE COMPANIES. 327 the Nairn property was worth $100 that would be worth probably $75 a foot, possibly more. I do not know. Mr. Douglas. Is it not just as good as the Nairn property ? Mr. Stellwagen. No ; I do not think it is. Mr. Douglas. What is the property adjoining that, known as the Lenman Building, worth ? Mr. Stellwagen. I do not know. Mr. Douglas. That is an inside lot? Mr. Stellwagen. Yes. Mr. Douglas. Would an inside lot between Fifteenth and Four- teenth Streets on New York Avenue — an inside lot be worth as much as $40 or $45 afoot? Mr. Stellwagen. I would not think so. Mr. Douglas. You would not think so ? Mr. Stellwagen. No. Mr. Douglas. I believe you stated in this letter that you sent down to the board of assessors, which Mr. George read to you, way back in 1908, that business was rather showing a tendency to -go away from Fifteenth and F and Fourteenth and F ? Mr. Stellwagen. Showed a tendency to go away from the block between Fourteenth and Fifteenth on F at that time. It has revived a good deal since then. Mr. Douglas. It has revived some since then ? Mr. Stellwagen. Yes, sir ; a good deal. Mr. Douglas. Do you remember what is known as the Westory Building ? Mr. Stellwagen. I do. Mr. Douglas. That is the northeast intersection of those two streets — Fourteenth and F? Mr. Stellwagen. Yes. Mr. Douglas. What is that property worth, Mr. Stellwagen ? Mr. Stellwagen. It is a very small lot. It sold for about $80 a foot, I think. Mr. Douglas. Six or seven years ago ? Mr. Stellwagen. Yes ; quite a while ago. Mr. Douglas. It is worth more than that now ? Mr. Stellwagen. I do not know whether it is or not. Mr. Douglas. What is youv opinion — of course, we are speaking confidentially here — what is your opinion of the value of the Blacki- stone corner, Fourteenth and H? Mr. Stellwagen. That is a good corner. Mr. Douglas. What is it worth ? Mr. Stellwagen. I do not know what it would be worth. Mr. Douglas. About? Mr. Stellwagen. I am trying to think what it sold for. It was sold some time ago. I do not remember the exact figures. Mr. Douglas. About what do you think it is worth ? Mr. Stellwagen. I am unable to answer that. Mr. Douglas. Well, you formed a pretty good idea about these other things, and that is not very far removed — only about one block away. That is a pretty valuable corner? Mr. Stellwagen. Yes ; it is a valuable corner, and it sold within a reasonable length of time, but I do not remember what it was sold for. 328 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Is it worth as much as your property ? I think you said it was not. Mr. Stellwagex. I said not for banking purposes. For the pur- pose for which it is used, it is probably worth more than our corner. Mr. Douglas. What is the Montrose, on the opposite side, worth? Mr. Stellwagex. I could not tell you. That sold recently also. Mr. Douglas. If it sold for as much as $50 a foot, would you think that was a pretty good sale? Mr. Stellwagen. I should think so, although it is a very small piece of ground. Mr. Douglas. It would make you more hopeful about your own corner if it had sold for $51.40 a foot? Mr. Stellwagen. It is a very small chunk of ground, and they always bring a good price. Mr. Douglas. It is a pretty good chunk to bring that amount of money? Mr. Stellwagex. Yes. Mr. Douglas. Do you think it is worth $50 a foot ? Mr. Stellwagen. Probably it is, taking into consideration its size. Mr. Douglas. You regard yours as more valuable than that, be- cause you said so. Mr. Stellm t agex. " For banking purposes." Do not forget that. Mr. Douglas. Yes; I remember that. Bankers want a pretty good corner, do they not? A pretty good location— they do not want to go in a portion of the city which people are running away from, do they? Mr. Stellwagen. No. Mr. Douglas. A corner that is pretty good for a bank is pretty good for almost anything, because bankers want the cream of every- thing, do they not ? Mr. Stellwagen. Not necessarily as good as some other corner might be for mercantile business. Mr. Douglas. What do you think that property is worth on the south side of H Street and to the west of Fourteenth Street, where there is a flower store? Mr. Stellwagen. Measuring it by what we paid for the ground adjoining our building, I should not think it would be worth over $20 or $22 a foot. Mr. Douglas. That is your judgment as an experienced real estate man? Mr. Stellwagen. No ; I am not an experienced real estate man. Mr. Douglas. Well, that is your judgment as an experienced man of affairs \ Mr. Stellwagen. That is my judgment as a banker. I have not been in the real estate business for 12 years. Mr. Douglas. Well, you have not forgotten all you learned in the real estate business? Mr. Stellwagex. No; I remember some of it. Mr. Douglas. You have not had your eyes shut and your ears closed since you have been out of the real estate business? Mr. Stellwagex. No: but values change very rapidly, and 12 3 T ears is a rather long time. Mr. Douglas. Did you approach the valuation of the Southern Building with that same hazy impression of what you once knew ? INVESTIGATION OF INSURANCE COMPANIES. 329 Mr. Stellwagen. No. Mr. Douglas. Your mind is better about that? Mr. Stellwagen. Yes. I am an intimate neighbor — right across the street. Mr. Douglas. And yet when you come to another place only one block away you put a valuation on it of $20 to $22 a foot? Mr. Stellwagen. On the south side, an inside lot. Mr. Douglas. I did not say an inside lot. Mr. Stellwagen. Yes ; you did. You said where the flower store is. Mr. Douglas. Then I beg your pardon. What do you value the corner at? There is about 15 or. 20 per cent difference, you said. Mr. Stellwagen. I did not value it at all. Mr. Douglas. I want you to value it now. Mr. Stellwagen. I can not value it. Mr. Douglas. How can you value an inside lot and not value an outside lot or a corner lot ? Mr. Stellwagen. Because I bought two inside lots adjoining my building on the west of it for $24, and I think relatively that is prob- ably worth $20 or $22 a foot. Mr. Douglas. Did you not say the difference between an inside lot and a corner lot was about 20 per cent ? Mr. Stellwagen. Yes. Mr. Douglas. Then will you add 20 per cent in this case; 20 per cent added to that would be about $25, would it not? Mr. Stellwagen. Yes. Mr. Douglas. That would be your valuation of that corner — $25 a foot? Mr. Stellwagen. No ; I did not say so. It depends on the size of the lot. Mr. Douglas. Will you say now what it is ? Mr. Stellwagen. One lot is on the north side of the street and one is on the south side. Mr. Douglas. I have not moved the lot from the north to the south side. Give us your valuation of it. Mr. Stellwagen. I told you I could not value it. I told you it was recently sold, but I do not know what it was sold for. Mr. Douglas. I will suspend at this point. _ Mr. Johnson. The subcommittee will take a recess now until 2.15 o'clock p. m. Thereupon the subcommittee took a recess until 2.15 p. m. AFTER RECESS. The subcommittee met at 2.15 p. m., pursuant to the taking of recess. TESTIMONY OF EDWARD J. STELLWAGEN— Continued. Mr. Douglas. Mr. Stellwagen, do you know the property called the Herald Building, just to the south of yours on Fifteenth Street? Mr. Stellwagen. I do. Mr. Douglas. What is that property worth ? Mr. Stellwagen. Possibly $25. Mr. Douglas. Do you know the owner ? 330 INVESTIGATION OF INSURANCE COMPANIES. Mr. Stellwagen. I do not know the present owner. I know the former owners. It belonged to Mr. Hendrick and Mr. Norment. Mr. Douglas. Does it not belong to Hendrick and Norment now, or to Story and Norment? Mr. Stellwagen. I think not. I think they sold it to some lady; I do not remember who she was. Mr. Douglas. Do you not know that property at this moment is held at $40 a foot? Mr. Stellwagen. I do not. Mr. Douglas. It is not worth it ? Mr. Stellwagen. I do not know whether it is or not. Sir. Douglas. At what do you value the property owned by Swart- zell, Eheem & Hensey and Hibbs & Walker ? Mr. Stellwagen. I should say, generally, any of those inside lots are worth about $25 a foot. Mr. Douglas. That is all you think they are worth? Mr. Stellwagen. That would be my judgment. Mr. Douglas. You said before the recess hour that you had heard there was an option price to Mr. Dove on the Shoreham property. What price did you hear named ? Air. Stellwagen. I was asked whether I had heard there was an option, and I said I had heard there was one, but I do not know the price. Mr. Douglas. Of course, you do not know personally, but have you any idea what the price was? Mr. Stellwagen. I have not. Mr. Douglas. Do you know the property at Thirteenth and G — those four corners? Mr. Stellwagen. I know of it; yes. Mr. Douglas. What is a fair price for the corner property there? Mr. Stellwagen. I would not be able to answer. I am not quali- fied as a real estate expert generally. I only know about the neigh- borhood in which I am located. Mr. Douglas. Is the Montrose Hotel property, at the corner of Fourteenth and H, worth $60 a foot? Mr. Stellwagen. It was recently sold, but I do not know what it is worth. Mr. Douglas. In your judgment, is it worth $60 a foot ? Mr. Stellwagen. In my judgment, it would not be. Mr. Douglas. Is it worth $50 a foot? Mr. Stellwagen. I should think not. Mr. Douglas. Is it worth $40 a foot? Mr. Stellwagen. It depends on how far it goes from the corner. If it goes up to the alley and takes in the little stores on Fourteenth Street, the character of the improvements being taken into considera- tion, it might be worth $40. It would be a guess on my part, however. Mr. Douglas. If you could be convinced that they had been offered $50 a foot for it, would that alter your judgment? Mr. Stellwagen. I would think my judgment was not very good as to that particular locality. I do not profess it is. Mr. Douglas. Do you know the gentlemen who appraised this property ? Mr. Stellwagen. Which property? Mr. Douglas. The Southern Building. INVESTIGATION OF INSURANCE COMPANIES. 331 Mr. Stellwagen. Oh, yes. Mr. Douglas. Do you know Mr. Hensey ? Mr. Stellwagen. Yes. Mr. Douglas. And Lipscomb and Darneille ? Mr. Stellwagen. Yes. Mr. Douglas. Would you kindly tell this committee whether you think those gentlemen were capable of appraising this property fairly ? Mr. Stellwagen. I think they are entirely capable. Mr. Douglas. Men of integrity and character, are they not? Mr. Stellwagen. So far as I know, they are. Mr. Douglas. And in your opinion ? Mr. Stellwagen. In my opinion. Mr. Douglas. Mr. Hensey is a member of the firm of Swartzell, Rheem & Hensey? Mr. Stellwagen. He is. Mr. Douglas. They do a very large business in this community, do they not ? Mr. Stellwagen. They do. Mr. Douglas. And Mr. Hensey's property, or the property of his firm, is within half a block of the Southern Building, is it not? . Mr. Stellwagen. It is. Mr. Douglas. And he is affected by values or the scale of assess- ments in that neighborhood, as well anybody else ? Mr. Stellwagen. He would be. Mr. Douglas. To the extent of his property ? Mr. Stellwagen. He would be. Mr. Douglas. And he is actively engaged in real-estate business now ? ., Mr. Stellwagen. He is. Mr. Douglas. Do you know Mr. Darneille ? Mr. Stellwagen. I do. Mr. Douglas. Do you know that he is employed by several large life insurance companies to appraise property for them in this city at this time? Mr. Stellwagen. I do not know it. Mr. Douglas. In your judgment, is he capable of appraising prop- erty at a fair prio" ? Mr. Stellt agen. He was formerly asesssor of the District and ought to be capable. Mr. Douglas. In your judgment is he? Mr. Stellwagen. I imagine so. Mr. Douuglas. Mr. Lipscomb is one of the best builders in the District of Columbia, is he not? Mr. Stellwagen. He is. Mr. Douglas. A man of very high character ? Mr. Stellwagen. He is. Mr. Douglas. A member of the board of directors of the Union Trust Co. ? Mr. Stellwagen. He is. Mr. Douglas. And yet, in your judgment, these gentlemen ap- praised this property at from $200,000 to $400,000 more than it is worth ? Mr. Stellwagen. They have. 332 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. And yet you acknowledge that you are rusty on the subject of the appraisement of property at this time? Mr. Stellwagen. Except in my immediate neighborhood, where I have property and where I have made purchases. Mr. Douglas. If Mr. McLean offered $65 a front foot for the Shoreham property, you think he was off about $30 a foot ? Mr. Stellwagen. I think he did so because he owned the adjoin- ing property. Mr. Douglas. You think he would have been paying at least $25 a foot more than it was worth ? Mr. Stellwagen. If he considered the building of no value he would be paying something more than it was worth. Mr. Douglas. About $25 a foot ? Mr. Stellwagen. I could not figure it out. It would depend on how much he put on the building. Mr. Douglas. Let me help you figure it out. Assume he had the same judgment you have as to the building. Mr. Stellwagen. Yes; he would if he had had the same idea as to the building. Mr. Douglas. Mr. McLean would then be paying $25 a foot more than that property was worth? Mr. Stellwagen. If he was paying $55 a foot for it, in my judg- ment, he would be. Mr. Douglas. If there was an option price in Mr. Dove's contract accompanying his lease of $55 a foot, the parties would be off, in your judgment. $25 a foot there? Mr. Stellwagen. They would, if they had the same view of the building that I have. Mr. Douglas. After you bought your property on H Street, for which you said you paid $24 a foot, you afterwards bought the lease, did you not? Mr. Stellwagen. That was included in the $24. Mr. Douglas. That was included in the transaction ? Mr. Stellwagen. Yes. Mr. Douglas. Mr. Stellwagen, let me get one thing clear that is a little hazy in my mind now. It grows out of some questions asked by Mr. Redfield and your answers to them. I think he asked, in substance, if you were a banker or president of the United States Trust Co. would you not be delighted to have the value of your building increased so you could carry it at a larger sum and thereby increase your surplus. Mr. Stellwagen. Yes; I would be. Mr. Douglas. That surplus would in that form be more senti- mental than real, would it not ? Mr. Stellwagen. No ; not if it was real. I would not put it there unless it was a real value. Mr. Douglas. It would not enable you to lend any more money out to your customers, would it? Mr. Stellwagen. No ; I do not know that it would. Mr. Douglas. You could sit there in your office and contemplate the fact it was worth $300,000 or $400,000 more? Mr. Stellavagen. It is always better- to have large assets than small ones. INVESTIGATION OF INSUBANCE COMPANIES. 333 Mr. Douglas. It is much more important to have large assets, as you bankers say when you do not want to lend us money, in liquid form than to have them in brick, mortar, and stone. You would not pay $4,000 a year taxes just for the purpose of having that amount increased on your books, would you ? Mr. Stellwagen. I certainly would. Mr. Douglas. You would ? *"- : Mr. Stellwagen. I certainly would. Mr. Douglas. And yet, notwithstanding the fact that highly reputable men like Lipscomb and Hensey and Darneille have ap- praised this property, you not only thought it was wrong and was too high but you exercised yourself to have it changed? Were you trying to prevent your property going up so you could increase the surplus of your bank ? Mr. Stellwagen. I did not exercise myself to have it changed. I simply took the report to the commissioners and called it to their attention. Mr. Douglas. I will put it in this way: Did you make yourself active ? Mr. Stellwagen. I do not think I did. Mr. Douglas. You do not think you made yourself active by talk- ing with Col. Judson 10 or 12 different times about it, and to Mr. Rudolph? Mr. Stellwagen. I do not. Mr. Douglas. Do you know why Mr. Bell sent that letter to you? Mr. Stellwagen. I have not the slightest idea. Mr. Douglas. You were not accredited to take this matter up with the District commissioners, were you, by anybody? Mr. Stellwagen. I was not. Mr. Douglas. He just naturally turned to you to do it? Mr. Stellwagen. I am sure I could not tell you why he sent it to me. Mr. Douglas. It was just a case of greatness being thrust upon you? Mr. Stellwagen. Possibly. Mr. Douglas. Yet you knew when you were doing that you were doing something that would be against the interests of the Union Trust Co.? Mr. Stellwagen. I did not know anything of the kind. Mr. Douglas. Is not the question of value of property largely affected by the concensus of judgment of people and the opinion of people ? Mr. Stellwagen. I presume it is, and by sales that are actually made. Mr. Douglas. And you are running counter to the opinion as expressed by these gentlemen as to the value of this property? Mr. Stellwagen. Yes ; by three gentlemen. Mr. Douglas. Nice gentlemen? Mr. Stellwagen. Very. Mr. Douglas. And without being an expert in real estate values at all at that time? Mr. Stellwagen. Only as far as that particular neighborhood is concerned where our property is. 71391— No. 3—12 5 334 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Your judgment seems to have been sort of confined to those four corners. Mr. Stellwagen. Largely so. Mr. Douglas. Why did you so circumscribe your judgment as to think alone in denominations of the northwest and northeast and southwest and southeast corners of Fifteenth and H? Would not that property be affected by values elsewhere? Mr. Stellwagen. Possibly. Mr. Douglas. Would not the coming on of business from Ninth and F Streets and that general northwest direction right to you where you had been the pioneer in going to that point affect the question of values there? Mr. Stellwagen. It certainly would. Mr. Douglas. And you are not at all affected or concerned by the increased assessments by this situation? Mr. Stellwagen. Not if the value is there. Mr. Douglas. Did you have the idea of the assessment and the payment of taxes in your mind in the remotest fashion when you were talking to Col. Judson and Mr. Rudolph? Mr. Stellwagen. Not in the remotest fashion. Mr. Douglas. You were simply discharging what you conceived your duty as a public spirited citizen ? Mr. Stellwagen. To get information officially from the sources where I thought it should come. Mr. Douglas. You took it yourself, did you not? Mr. Stellwagen. I did. Mr. Douglas. You did not go after information ; you took it. Mr. Stellw agen. I took the information that this paper contained. Mr. Douglas. You were more active about it than the commission- ers themselves? Mr. Stellwagen. I seemed to have been. Mr. Douglas. And really were? Mr. Stellwagen. I hope so. Mr. Douglas. I do not know whether you used the expression or not, but it has been used here right frequently, and you may have fallen into the commendable habit yourself of referring to the " sud- den rise " in the price of this property. Mr. Stellwagen. I do net think I used that term. Mr. Douglas. You repudiate it, anyway? Mr. Stellwagen. I do not think I used that language. Mr. Douglas. You did not use it ? It has been used here. In that connection I will ask you if you are the gentleman that told Mr. Judson this property could be bought, or could have been bought at any time in the last 12 months, for the amount of the encumbrances plus real estate agents' commissions ? Mr. Stellwagen. I do not know whether I said that to him or not. That was a common rumor. Mr. Douglas. From whom did you hear it ? Mr. Stellwagen. From Mr. Story. Mr. Douglas. Did Story tell you that? Mr. Stellwagen. No. Mr. Douglas. Who told you ? Mr. Stellwagen. I heard that from rumor; and I am not sure whether I heard it from my vice president, Mr. Fleming, but it was INVESTIGATION OF. INSURANCE COMPANIES. 335 simply the result of some conversation that Mr. Story had, I think, with me, that he was offering that. He may have offered it to us ; I am not sure. Mr. Douglas. You do not mean to say Mr. Story offered that prop- erty to you at that price? Mr. Stellwagen. Not to me. Mr. Douglas. Do you know anybody to whom it was offered? Mr. Stellwagen. No. Mr. Douglas. Do you know any person by whom it was offered ? Mr. Stellwagen. Nothing beyond rumor, I tell you. Mr. Douglas. And that is a rumor that comes from sources nobody knows and goes to places where nobody knows ? Mr. Stellwagen. Mr. Story will probably be here. Mr. Douglas. Yes. I understand you never heard Mr. Story say it ? Mr. Stellwagen. No. Mr. Douglas. Did you ever hear Mr. Fleming say he heard Story say it? Mr. Stellwagen. Yes ; I think I have. Mr. Douglas. Fleming told you Story told him that? Mr. Stellwagen. I think I heard it from Mr. Fleming. Mr. Douglas. When did you hear that? Mr. Stellwagen. A month or so ago. Mr. Douglas. Hardly a month or so ago. Mr. Stellwagen. It was before this sale took place. Mr. Douglas. Do you know when this sale took place ? Mr. Stellwagen. According to the information that we have, about the 29th of October. Mr. Douglas. As a matter of fact, was it not published in the papers that you told Mr. Eedfield ? You read the papers ? Mr. Stellwagen. Yes. Mr. Douglas. Did you not see jn the papers, at least a month be- fore the 29th of October, that these gentlemen had purchased this building ? Mr. Stellwagen. Some time before. Mr. Douglas. Do you not know this was not an ordinary purchase of a piece of property, but, on the contrary, that they bought the stock of the Southern Building Corporation ? Mr. Stellwagen. I do not know anything about the details of it. Mr. Douglas. You heard that ? Mr. Stellwagen. I simply heard it. Mr. Douglas. Was it stated in the papers that they had acquired the stock of that company ? Mr. Stellwagen. Yes. Mr. Douglas. You have no idea what they paid for the stock ? Mr. Stellwagen. Not the slightest. Mr. Douglas. You do not know whether they paid 25 cents or 100 cents on the dollar ? Mr. Stellwagen. I do not know anything about it in the world. Mr. Douglas. You do not know they paid one price for some of the stock and a different price for other of the stock ? Mr. Stellwagen. I do not know anything about it. Mr. Douglas. Your reference to the acquisition of the title to the property referred to what you heard as to the formalities of a deed 336 INVESTIGATION OF INSURANCE COMPANIES. and of the dissolution of the Southern Building Corporation on or about the 29th of October I Mr. Stellwagen. That is the date I understood they acquired title. Mr. Douglas. Did you not tell Mr. Judson that, using the expres- sion yourself, that there had been a rise over night by that statement of three or four hundred thousand dollars? Mr. Stellwagen. I do not think I ever made use of that expression. Mr. Douglas. Or anything tantamount to that ? Mr. Stellwagen. I do not think so. Mr. Douglas. That is all. Mr. Eedeield. Mr. Stellwagen, have you a copy of the report of the superintendent of insurance dated November 8? Mr. Stellwagen. I have not. Mr. Eedfield. I hand you a copy and ask you to set down some figures; and as 1 read them to you from another copy of the report, I ask you to please verify them and see if I read them to you cor- rectly. On the first page of the report of the superintendent of insurance you find, do you not. a series of items called " income"? Mr. Stellwagen. I do. Mr. Redfield. And you find beneath that a series of items called "disbursements." do you not? Mr. Stellwagen. I do. Mr. Redfield. Kindly turn over to the second page. You will find at the end of the first paragraph the balance after disburse- ments, stated as $739,987.00. Mr. Stellwagen. I do. Mr. Redfield. And under the. heading " ledger assets " you find the same total of ledger assets. $739,987.90, do you not? Mr. Stellwagen. I do. Mr. Redfield. Then you find certain additions of nonledger assets and certain deductions of assets not admitted, and a total of $743,- 706.69, do you not ? Mr. Stellwagen. I do. Mr. Redfield. Then at the bottom of the paragraph called "'lia- bilities "' you find the same total of $743,706.69, do you not? Mr. Stellwagen. I do. Mr. Redfield. I ask you these questions to lead up this one: Do you not find that the totals show that the account is balanced; that is, the difference between income and disbursements of $739,987.90 is balanced by the total of ledger assets of $739,987.90, is it not? Mr. Stellwagen. It seems to be so stated. Mr. Redfield. And the " total admitted assets " of $743,706.69 is balanced by the total liabilities including capital stock and surplus? Mr. Stellwagen. It seems to be so stated. Mr. Redfield. So the account seems to be a balanced account; unless it is forced, it is a balanced account, is it not? Mr. Stellwagen. It looks that way, sir. Mr. Redfield. I want to call your attention to some details of that account and ask you to set down these figures. Referring to the first page under the item of " income," you find "total premiums," $188,080.12. Mr. Stellwagen. Total premiums, $188,080.12. Mr. REDFiELb. Kindly set that down by itself. Have you that? INVESTIGATION OF INSURANCE COMPANIES. 337 Mr. Stellwagen. I have. Mr. Redfield. Beneath that you find an item "interest on mort- gage loans," $5,965.91, do you not? Mr. Stellwagen. I do. Mr. Redfield. Please set that down. Mr. Stellwagen. I have done so. Mr. Redfield. Beneath that you find an item, "Interest on bonds, $2,868.39," do you not? Mr. Stellwagen. I do. Mr. Redfield. Have you set that down? Mr. Stellwagen. I have. Mr. Redfield. Then an item, " Interest from all other sources, $269.52"? Mr. Stellwagen. I do. Mr. Redfield. Kindly set that down. Mr. Stellwagen. I have done so. Mr. Redfield. The next item is " Premium on sale of stock." We will leave that aside for the moment. The item below that is " Com- missions on mortgage loans, $146.75." Mr. Stellwagen. It is. Mr. Redfield. Please set that down. Mr. Stellwagen. Yes, sir. Mr. Redfield. Will you be kind enough to add up the five items you have set down and tell me what they total. Mr. Stellwagen. $197,330.69. Mr. Redfield. Look carefully at that statement of the insurance commissioner, Mr. Stellwagen, and tell me if the five items which thus total $197,330.69 do not include every item of income the com- pany received with the exception of premium on sale of stock arid the increase by adjustment in the value of real estate? Mr. Stellwagen. It seems to be all that is given in this schedule. Mr. Redfield. Look again. I want you to be sure. Is there any other item of income that this company has other than the five, which amount to $197,330.69, except the premium on sale of stock and the increase by adjustment in the book value of real estate? Mr. Stellwagen. Premium on the sale of stock, $144,441 ; increase by adjustment in book value of real estate, $226,715. Mr. Redfield. Those are the only items besides the five which total $197,330.69, are they not? Mr. Stellwagen. They are. Mr. Redfield. Then the company according to this statement had only this income that year, namely, the five items, which totaled $197,330.69, the premium on the sale of stock, and the increase by adjustment of the book value of real estate, is that so ? Mr. Stellwagen. It would be so according to this statement. Mr. Redfield. Will you kindly turn to the items under the head of " Disbursements," and compare the statement as I read it to you, to see if I read it correctly : " Net amount paid to policy holders for losses, $145,090.57." Mr. Stellwagen. That is right, sir. Mr. Redfield. Will vou please set that down at the right, $145,090.57. Is that correct? Mr. Stellwagen. Yes. sir: that is correct. 338 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Redfield. Do vou next find an item entitled " Expenses of ad- justment and settlement of losses, $3,175.39"? Mr. Stellwagen. I do. Mr. Redfield. Will you please set that down, also. Do you next find an item entitled " Commissions or brokerage, $65,156.58"? Mr. Stellwagen. I do. Mr. Redfield. Will you please set that down, also? Will you kindly add together the three last items taken from "disbursements" and give me their total? Mr. Stellwagen. $213,322.54. Mr. Redfield. Now. Mr. Stellwagen, I ask you to note upon the statement the three items I have just given you, amounting to $213,- 422.54, and tell me if they are not all matters which have to do with the insurance business of the company, namely, the payment of losses to policy holders, the expenses of adjustment and settlement of losses, and commissions and brokerage? Mr. Stellwagen. It is so stated in this statement. Mr. Redfield. And the total of that is what ? Mr. Stellwagen. $213,322.54. Mr. Redfield. Will you be kind enough to take the sum you found before, of $197,330.69. from the latter sum of $213,422.54, and tell me the result? Mr. Stellwagen. $15,991.85. Mr. Redfield. Make sure you have it correctly. Mr. Stellwagen. I suppose I am being checked. That is correct. Mr. Redfield. $213,422? Mr. Stellwagen. $213,322. Mr. Eedfield. Make sure that addition is right. Mr. Stellwagen. That is a mistake. Mr. Redfield. It should be $422 ? Mr. Stellwagen. Yes. Mr. Redfield. What is your net difference? Mr. Stellwagen. One moment. Yes ; $422. That would make a difference— $15,091.85. Mr. Redfield. Is it not $10,091.85 ? Mr. Stellwagen. Yes; $16,091.85. Mr. Redfield. So that it is true, Mr. Stellwagen, as you have cal- culated it, that the total income of this company, without the pre- mium on the sale of its stock and without the increase by adjustment in the value of real estate, was insufficient to pay its policy losses, its commissions and brokerage, and its expenses of adjustments and set- tlements, by $16,091.85 ; is not that so ? Mr. Stellwagen. That would seem to be so, by this statement. Mr. Redfield. Is it not so as you figure it ? Mr. Stellwagen. It is. Mr. Redfield. So that, as a matter of fact, when this company had used all its income except the premium on sale of stock and the in- crease in the value of its real estate, it was short of enough money during the year to pay its losses, its commissions and brokerage, and its expenses of adjustment, and so forth, by the amount you have found, $16,091.85 ; is not that so ? Mr. Stellwagen. It seems to be so. Mr. Redfield. You so calculate it, do you ? Mr. Stellwagen. I do, from these figures. INVESTIGATION OP INSURANCE COMPANIES. 339 Mr. Redfield. I call your attention to the fact that the only source of income left, according to the statement, from which any other payment could be made was the premium on sale of stock or the increase in value of real estate. Is not that so ? Mr. Stellwagen. It is set forth here in that way. Mr. Redfield. That is the way it appears? Mr. Stellwagen. Yes. Mr. Redfield. So that the item of salaries, fees, and other charges of officers, amounting to $13,051, had to be paid out of the income received from the premium on the sale of stock ; is it not so ? There was no other source left, was there ? Mr. Stellwagen. That would seem to be so. Mr. Redfield. So that the item of " Paid to stockholders for in- terest or dividends " had to be paid out of premiums on the sale of stock, did it not? Mr. Stellwagen. If they had nothing left but that, everything had to be paid out of it. Mr. Redfield. Everything had to be paid out of that. As a mat- ter of fact, unless it was taken from the premium received upon the sale of stock, there was nothing to pay dividends with, nothing with which to pay salaries and fees or the officers, and an insufficient amount to pay the fire losses, the commissions or brokerage, and the expenses of adjustment; is not that so? Mr. Stellwagen. It would seem so from this statement. Mr. Redfield. That is what the statement shows, is it not? Mr. Stellwagen. As far as I can see, it does. Mr. Redfield. I ask you to examine with great care the items of " disbursements " and find, if you can, any transfer in those items of any sum of money to an insurance reserve or anything which looks like that. Read it carefully, please, and do not make any mistake. Mr. Stellwagen. The disbursements on the second page do you refer to? Mr. Redfield. Read them all, Mr. -Stellwagen, and see if you find anything which shows any transfer of money during this year from any source to an insurance reserve. Mr. Stellwagen. I do not find anything so stated. Mr. Redfield. You find nothing of that kind. So that, as a mat- ter of fact, the company had to use the money which was paid into it by stockholders in the shape of premiums upon stock to pay its dividends, to pay its salaries, and a large number of its other ex- penses, because its entire premium income was more than used up, together with the interest it received from other sources, in paying its losses and the expenses incidental thereto. You so find? Mr. Stellwagen. If these figures are correct, it would look that way. Mr. Redfield. The report shows that result, does it not? Mr. Stellwagen. It seems to. Mr. Redfield. That is all. Mr. Caeusi. In the absence of Mr. Douglas I would like to ask a few questions. Mr. Stellwagen, are you skilled to any extent at all in insurance accountancy ? Mr. Stellwagen. I am not. 340 INVESTIGATION OF INSURANCE COMPANIES. Mr. Caeusi. You are skilled, I take it, in a general way, in bank- ing accounts? Mr. Stellwagen. Generally so; yes. Mr. Caetjsi. Do you know or have you not heard that there are very radical differences between the prescribed modes of stating accounts in insurance companies and in banking and other ordinary financial institutions? Mr. Stellwagen. I am not an accountant, and have never given the matter any consideration. I do not know anything about it. Mr. Caeusi. You can not, then, state to the committee, on your own responsibility, that the deductions which you have just been led to make represent correctly the condition of the insurance compa- nies ? Mr. Stellwagen. I can only say they seem to be the deductions from those figures as I see them. That is all I know about it. Mr. Caeusi. But you are not yourself skilled in insurance ac- countancy, and can not state of your own knowledge that the deduc- tions which you have just made there with the pencil correctly repre- sent the situation of the insurance companies ? Mr. Stellwagen. I can only state it as I have stated it, as coming from this report. Mr. Caeusi. That is all. Mr. Redfield. You understand addition and subtraction, do j'ou not? Mr. Stellwagen. I hope so. Mr. Redfield. That is all. Mr. Johnson. Mr. Rudolph, do you desire to ask any questions? Mr. Rudolph. Not any. The Chairman. Do you, Mr. Stephens? Mr. Stephens. No, sir. Mr. Geoege. Mr. Stellwagen, is the Thomas J. Fisher Co. inter- ested in the insurance business in any way? Mr. Stellwagen. Yes, sir : they have an insurance department. Mr. Geoege. Could these companies under question be regarded as rivals in any way? Mr. Stellwagen. I should think not. Mr. Geoege. Has the business of Thomas J. Fisher & Co. — the in- surance business of that firm — increased or decreased during the last five years? Mr. Stellwagen. I should think it had remained probably sta- tionary. It is merely an incident to the real estate business. Mr. Geoege. But it is in the field? Mr. Stellwagen. It is a department of their business; not a very important one, however. Mr. Geoege. Fire insurance I Mr. Stellwagen. Yes. Mr. Geoege. And it is in the field '. Mr. Stellwagen. Oh, yes. Mr. Geoege. So that you might, as president of Thomas J. Fisher & Co., be looking at this insurance business in the Southern Build ing through the eyes of a rival ? Mr. Stellwagen. I might be. but I was not. Mr. George. But you are in the same business? INVESTIGATION OF INSURANCE COMPANIES. 341 Mr. Stellwagen. Fisher & Co. do the same business; they do, yes, sir. Mr. George. I would like to ask you something else: Will you please look at this [handing to the witness a pamphlet]. What is that which I have handed to you, Mr. Stellwagen, if you please? Mr. Stellwagen. It is the " Story of Massachusetts Avenue Heights." Mr. George. Did you ever see that book before ? Mr. Stellwagen. I have seen it; yes. Mr. George. What do you know about that book ? Mr. Stellwagen. I do not know a thing about it. I have never read it, never looked at it, except to see the outside of it. Mr. George. Had Thomas J. Fisher & Co. anything to do with the issuance of that book ? Mr. Stellwagen. Oh, yes; that was prepared in their sales de- partment, of which Mr. Doyle is the head. I have no more to do with it than you have. I do not attend to that business. Mr. George. But you are president of the corporation which issued the book. Mr. Stellwagen. I am the nominal president. The business is conducted under the direction of the vice president. Mr. George. And it has been doing business with that little book? Mr. Stellwagen. It has. Mr. George. It has been selling property in the District of Co- lumbia on the strength of the statements in that book ? Mr. Stellwagen. I presume so. I do not know what the state- ments in the book are, but I presume so. It is issued for that pur- pose. Mr. George. On page 23 of this book I find this paragraph : Real estate, the basis of all solid wealth, offers a wonderful profit in Washington. It never can shrink in value unless the Nation shrinks. It is not like stocks and bonds and other securities. In 1903, according to Moody's Magazine, the stocks of this country dropped $3,000,000,000; in 1907 they shrank $7,000,000,000; in 1910, last year, they went off $950,000,000. During the past 30 years, according to the Manufacturers' Record of Baltimore, the value of Washington real estate never halted, but increased from $200,000,000 to $1,210,000,000. Do you know anything about that statement, published in this book? Mr. Stellwagen. I never saw it before; never heard of it before. But I think it is a pretty good statement for a real estate house selling ground. Mr. George. Do you think it is a pretty proper statement ? Mr. Stellwagen. I do. Mr. George. And you think it is a reliable statement? . Mr. Stellwagen. It must be reliable if it came from Fisher & Co, Mr. George. And you stand by it? Mr. Stellwagen. I do. Mr. George. That real estate increased in 30 years from $200,- 000,000 to $1,210,000,000? Mr. Stellwagen. I assume the figures are right. I do not know anything about that end of it. I imagine they were taken from statistics. Mr. George. And you would say, out of your experience, it is probably right? 342 INVESTIGATION OF INSUBANCE COMPANIES. Mr. Stellwagen. It is undoubtedly right, if it is stated in one of their publications. Mr. George. I will read something else, which perhaps you have not read yet. Mr. Stellwagen. Possibly. Mr. George. And that is a report of a special committee of the District Committee on this subject of valuations in the District: TJie real property in the District of Columbia is assessed at $414,000,000 below its true value; the true value being $744,000,000, while the assessment is only $330,000,000. That is to say, the assessment of real property in the District of Columbia is $330,000,000 — that is, the last triennial assessment — and by the statement in this publication, which was issued by the house of which you are the president, Thomas J. Fisher & Co., and which you say is reliable, it is four times more. Mr. Stellwagen'. Now, what is the question you want, to ask me? Mr. George. I want to ask you merely if you will stand by the figures — $1.210,000,000 — as the present value of real estate in the District of Columbia? Mr. Stellwagen. I stand by those figures against the figures of the committee. Mr. George. That is all. Mr. Eedfield. Do you know what the Manufacturers' Record, of Baltimore, is? Air. Stellwagen. I do not. Mr. Eedfield. Do you know whether it is a real-estate paper or not? Mr. Stellwagen. I really do not. Mr. Redfield. You do not know, as a matter of fact, that it is an industrial paper, pure and simple? Mr. Stellwagen. Xo; I know nothing about it. Mr. Redfield. Do you not know it is just what its name implies, a manufacturers' paper?- Mr. Stellwagen. I never heard of it until it was mentioned a moment ago. Mr. Redfield. That is all. Mr. George. Did you read the testimony taken by the committee? Mr. Stellwagen. I read some of it. Mr. George. Did yon read it with reference to this quotation Mr. Stellwagen. No. Mr. George. Which was published? Mr. Stellwagen. No. Mr. George. Do you remember that in the testimony was informa- tion as to where the Manufacturers' Record got its information about the $1,210,000,000 being the value of real estate in the District of Columbia at this time? Mr. Stellwagen. No; I did not read it and never heard it; I never heard this statement until you read it. Mr. George. The committee took the trouble to write to the Manu- facturers' Record for its authority Mr. Stellwagen. Yes. Mr. George. And learned that its authority was a forthcoming bul- letin of the Census Bureau. So that, you and the Census Bureau INVESTIGATION OF INSUKANCE COMPANIES. 343 seem to agree upon this subject as to the present value of real estate in the District of Columbia, which is four times the assessed value appearing in the triennial assessment, made by the board, of assessors of the District. Mr. Easby-Smith. Mr. Stellwagen, I just want to ask you one question with relation to the last question which Mr. Douglas asked you. I read to you from the testimony of Col. Judson, which he gave yesterday. It is at page 5 of the record of December 27 : Mr. Douglas. At the time Mr. Stellwagen came to see you he also talked with you more particularly about the appraisement of the Southern Building, did he not? Col. Judson. I would not say more particularly. He dwelt, rather, I should say, or equally he dwelt, upon the very bad showing made as to the business of the company during the year. He dwelt upon the appraisal feature also. Mr. Douglas. Did he say he thought it was appraised too high? Col. Judson. He said it was a very remarkable thing that in two days it had jumped $250,000. Does that refresh your recollection now as to whether you did say that to Col. Judson ? Mr. Stellwagen. Which part of it? Mr. Easby-Smith. That it was a very remarkable thing that the property had jumped in two days $250,000. Mr. Stellwagen. That part of it probably was said. The other part of it may have been said. I have no recollection of it. Mr. Douglas. I have just two questions. You think it is remark- able or significant that the price should jump that way in two days, according to the language which has been read by Mr. Easby-Smith? Mr. Stellwagen. I do. Mr. Douglas. You sometimes jump your own property in that way, do you not? Mr. Stellwagen. Never, that I know of. Mr. Douglas. Do you remember jumping your property in Chevy Chase, in one of the subdivisions, from 5 to 1,0 cents overnight? Mr. Stellwagen. I do not. Mr. Douglas. You deny it? Mr. Stellwagen. I do not. It might have been done through some schedules of marking up the property at some certain date. That is speculative property. Mr. Douglas. But the schedule or the marking up of the property at a certain date would not affect the fact that you changed your selling price from 5 to 10 cents overnight ? Mr. Stellwagen. I have stated before a number of times here that I am not actively in the real-estate business : but I do know that they will advertise that lots will be sold at such-and-such a price until such-and-such a date, when the price will be advanced, just as they do sometimes in selling stock. Mr. Douglas. You very seldom, though, double the price over- night? Mr. Stellwagen. Well, it may be doubled, but not doubled over- night. Mr. Douglas. Suppose your people, to whom you have given such a fine certificate of character awhile ago— Fisher & Co. — suppose they did that? Mr. Stellwagen. I have no doubt they do do it. 344 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. "Would it be any more remarkable in the case of the Southern Building than in that case ? Mr. Stellwagen. If they had announced a year before that tho Southern Building was going to increase in value at a certain time^ and if they controlled the situation so they could do it, it might have been done without criticism. When you sell vacant land for specula- tive purposes, the first comers have the advantage of selection and price, and it is not unusual to say that it is going to be advanced later. That is often done. Mr. Douglas. The Southern Building people did not announce to you that they were going to increase the value ? Mr. Stellwagen. No; they did not have to announce anything to me. I think there is a great deal of difference in announcing that in July lots in a certain subdivision are going to be advanced in price over the price paid by people who buy now than in advancing them in price in July overnight, as you say. Mr. Douglas. Well, that is what was done in your case. Mr. Stellwagen. That may be so. Mr. Douglas. At Chevy Chase. Mr. Stellwagen. That may be so. Mr. Douglas. But there is nothing remarkable in that case? Mr. Stellwagen. I presume not. I guess they were worth it. Mr. Douglas. But you presume it was very remarkable in the case of the increase in the Southern Building? Mr. Stellwagen. I do. Mr. Douglas. Mr. George asked you the question if these people were not competitors of yours — the Commercial Fire Insurance Co. ? The Southern Building people themselves were competitors of yours as to the building? Mr. Stellwagen. They certainly were. Mr. Douglas. And the Commercial Fire Insurance people, who bought the Southern Building, became doubly your competitors when they became the owners of the building, as well as the owners of the fire insurance company? Mr. Stellwagen. In a limited way ; to the extent that I stated ; yes. Mr. Douglas. In that way? Mr. Stellwagen. Surely. Mr. Douglas. Your firm of Fisher & Co. do a very large insurance brokerage business, do they not? Mr. Stellwagen. They do not. Mr. Douglas. Did they not a year ago ? . Mr. Stellwagen. No ; it is merely an incident to the business, and not a very large part of it. Mr. Douglas. You do a considerable volume of business ? Mr. Stellwagen. They do some business. Mr. Douglas. And the money you make out of insurance, of course, is brokerage commissions? Mr. Stellwagen. Surely. Mr. Douglas. The Commercial Fire Insurance Co., some time be- fore this, abolished agents' commissions, did they not? Mr. Stellwagen. I do not know a thing about it. I never heard a thing about it. Never heard it. Mr. Douglas. Never heard of the cut-rate proposition? INVESTIGATION OF INSURANCE COMPANIES. 345 Mr. Stellwagen. Not as far as the Commercial Fire Insurance Co. is concerned. Mr. Douglas. You never heard that the Commercial Fire Insur- ance Co. had cut agents' commissions entirely out ? Mr. Stellwagen. I never heard it. Mr. Douglas. And advertised that as going to the purchaser of insurance ? Mr. Stellwagen. I never heard it. . Mr. Douglas. You never heard of that at all ? Mr. Stellwagen. No. Mr. Douglas. Notwithstanding the fact that it was published over and over again in every paper? Mr. Stellwagen. I never saw it and never heard of it. Mr. Douglas. You never heard of it until this moment ? Mr. Stellwagen. No. Mr. Douglas. That is all. Mr. Johnson. Now, gentlemen, we are about to adjourn for the day. Are you through with Mr. Stellwagen? Mr. Douglas. Yes, sir ; we are through with him. At 3.20 o'clock p. m., the subcommittee still being in session, Mr. George moved that the committee adjourn. This motion was sec- onded by Mr. Eedfield and was voted for by Messrs. George, Red- field, and Johnson, they being the only three members of the sub- committee who were present. Mr. George made a motion that the hearing be resumed at 10 o'clock on the morning of Monday, Decem- ber 30, 1912, and this motion was seconded by Mr. Redfield and voted for by the three said members of the subcommittee, and the chairman thereupon announced that the subcommittee stood ad- journed until Monday morning, December 30, 1912, at 10 o'clock. X INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 4 DECEMBER 30, 1932 WASHINGTON GOVERNMENT PRINTING OFFICE 1912 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, Washington, D. C, December 30, 1912. The subcommittee -met at 10 o'clock, a. m., Hon. Ben Johnson (chairman) presiding. There were present the Commissioners of the District of Colum- bia — Hon. Cuno H. Rudolph, Gen. John A. Johnston, and Lieut. Col. William V- Judson, United States Army— and Mr. Francis H. Stephens, assistant corporation counsel of the District of Columbia. Also George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, represent- ing the Commercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. Also William Otis Badger, jr., attorney for Mr. Alfred M. Best. TESTIMONY OF HENRY L. WEST. The witness was duly sworn by the chairman. Mr. Johnson. Mr. West, will you please state your full name? Mr. West. Henry L. West; residence, the Octavia, Washing- ton, D. C. Mr. Johnson. Mr. West, were you one of the Commissioners for the District of Columbia at one time? Mr. West. I was. Mr. Johnson. When were you appointed ? Mr. West. In 1902, and served until 1909, as nearly as I can recol- lect; about seven years. Mr. Johnson. During at least part of your service as commis- sioner, Mr. Hopewell Darneille was assessor for the District of Columbia ? Mr. West. He was assessor. Mr. Johnson. When Col. Judson was upon the witness stand, Mr. West, the following questions were put to him, to which he made the following replies. I will read those to you just as the record shows them, and then ask you about them. The questions were pro- pounded by Mr. Easby-Smith : How about Mr. Darneille? You have not mentioned him. Col. Judson. Sir? Mr. Easby-Smith. How about Mr. Darneille? You have not mentioned him. Col. Judson. I have mentioned him; oh, yes; I have mentioned him. Mr. Easby-Smith. You said you recognized Mr. Hensey and Mr. Lipscomb as honorable gentlemen and well qualified. How about Mr. Ingham's selection of Mr. Darneille? 347 348 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. No ; I said I made no charge that they were otherwise. How about Mr. Darueille? Well, what about Mr. Darneille? Mr. Easby-Smith. Did you consider him a good selection as au appraiser? Col. Judson. I do not think that he is a man I would select myself. Mr. Easby-Smith. He was a former assessor. Col. Judson. He was formerly assessor. Mr. Easby-Smith. And made a good record in the office. Col. Judson. I 'would not say he did urn be the best record in the world. Mr. Easby-Smith. Do you not know his reputation is that he made a most excellent official? Col. Judson. No; I can not say that. Mr. Easby.-Smith. Who was your predecessor; Col. Morrow? Col. Judson. Col. Morrow; yes. Col. Judson. I would like to correct that, if I may, at this time. Col. Cosby was my immediate predecessor, but he held the office only for several months. Maj. Morrow, as he was at that time, was the predecessor of Col. Cosby. Mr. Johnson. Then the next question by Mr. Easby-Smith was: Mr. Easby-Smith. Did he ever mention Mr. Darneille to you? Col. Judson. I do not remember his ever mentioning him. I remember Mr. West, who was the immediate superior of Mr. Darneille; I mean to say he was that commissioner who, as a committee of one. was in charge of the as- sessors, as I believe, although I may be wrong. I remember him saying he was glad when Mr. Darneille resigned, because he had acquired habits of intemperance which made his stay unfortunate for the District. Mr. Easby-Smith. You have no criticism, then, to make of the personnel of this appraisal board which appraised the building at $2,000,000? Col. Judson. Only such criticisms as I have made. Mr. Easby-Smith. Do you think Mr. Ingham could have made a better selection? Col. Judson. Well, I should say so; yes. As to that statement made by Col. Judson relative to what you said of Mr. Darneille, have you anything to say? Mr. West. I dislike very much to have any question of veracity between Col. Judson and myself, but I have no recollection of ever saying that ; and it was not true that Mr. Darneille was in any way urged out of the District government on account of anything he did. Mr. Darneille came to me one morning as an absolute surprise and said that he had certain business engagements which he thought could best be managed by giving his personal attention to them, and that he was going to tender his resignation. His resignation was not the result of any coercion or even suggestion. The- first the commis- sioners knew that he intended resigning was when I informed them of that fact. I would not say now I was glad that Mr. Darneille resigned. The fact is that when he severed his connection with the District government he received voluntarily from Commissioner Macfarland, Commissioner Biddle, and from myself letters which indicated the sincerest regret on the part of the commissioner that he had chosen to leave the service. Mr. Macfarland's letter began: I deeply regret that Ave are to lose you from the District government, because you have been of such value in its operations. Col. Biddle, in his letter, said : The almost daily association of five years has been very pleasant and I shall miss you very much. Col. Jttdson. Will you read the whole letter? I have never seen the letters, but I think they should be put in. Mr. West. I was going to put them in the record. INVESTIGATION OP INSURANCE COMPANIES. 349 Mr. Douglas. Give the date too. Mr. Johnson. Begin with the date and read the entire letter. Mr. West (reading) : COMMISSIONERS OF THE DlSTKICT OF COLUMBIA, Washington, October 8, 1906. My Deab Ms. Darneille: I deeply regret that we are to lose you from the District government, because you have been of such value in its operations. Your service has not been limited to the administration of one office only, but has always been profitable to other offices and the whole District government. You have done particular pieces of work which were of great importance to it. There is much work done in the District government which is not recorded in annual reports or in any other public way, but which is vital to its success, and you have done your full share of this kind of work. Your loyalty to the District and fidelity in all its interests are best appreciated by those who, like myself have been behind the scenes. For six years I have observe:! closely what you have been doing, and I can truthfully say that no one has done more with his opportunities to serve the District .government than yourself. The •present state of the work in your charge is the best evidence of the way in which you have carried it on. Personally, I shall miss you very much. I must congratulate you. however, upon the prospect of a larger return for your efforts than is ever possible in the service of the public, and I wish you all success in your new field. Sincerely, yours, Henry B. F. Maqfarland. H. H. Darneille, Esq. Office of the Engineer Commissioner of the District of Columbia, Washington, October 9, 1906. My Dear Mr. Darneille : It is a matter of great regret to me, as a District official, to lose your services as assessor of the District of Columbia. There is, of course, no question affecting the citizens of the District as gen- erally as that of taxation. Absolute impartiality and justice must be shown to all. A thorough acquaintance with all the conditions affecting property, knowledge of laws, good sense and judgment — these and many other qualities are needed for the difficult position of assessor. I have always been impressed with your possession of these qualities and the able and firm way you have carried on the work of the assessor's office. The numerous reports and recom- mendations made to the commissioners have always been clear, precise, and well considered. Your signature has always carried the greatest weight, and our confidence in your knowledge and judgment has always been justified. As to our personal relations, they are too well known to us both to make it necessary to dwell upon them. The almost daily association for five years has been very pleasant, and I shall miss you very much. I congratulate you on the prospects which seem certainly before you and wish you prosperity and happiness. John Biddle, Major, Corps of Engineers, U. S. A., Engineer Commissioner, D. C. Mr. Hopewell H. Darneille. Executive Office, Commissioners of the District of Columbia, Washington, October 6, 1906. H. H. Darneille, Esq., Assessor, D. C. Dear Sir : It is with sincere regret that I have to-day approved your resigna- tion as assessor, to take effect on December 31, 1906. In thus acknowledging the severance of your connection with the government of the District of Columbia, I desire to take occasion to place upon record my sincere and hearty appreciation of the manner in which you have conducted the business of your office. Entering into the service of the District government 20 years ago, in a humble position, you have, by your own energy, ability, and fidelity, risen to one of the most important and arduous positions in the admin- istration of municipal affairs. During my term as commissioner I have had 350 INVESTIGATION OF INSURANCE COMPANIES. occasion to become intimately acquainted with your thorough knowledge of all matters relating to taxation, and, having relied implicitly upon your various recommendations, have never had occasion to regret this confidence. In conclusion I desire to express personally my best wishes for your future success, and hope that the opportunities for your material advancement which have led to your resignation will be abundantly realized. Very truly, yours, Henry L. West. Mr. Johnson. Mr. West, were you sincere when vou wrote that letter? Mr. West. I was absolutely sincere when I wrote that letter. Mr. Johnson. You have just replied to a question by saying you have no recollection of saying that you were " glad when Mr. Dar- neille resigned because he had acquired habits of intemperance which made his stay unfortunate for the District." You say you have no recollection of having said that. I would like for you to say, if you can, without equivocation, whether you did say it or not. Mr. West. I have no recollection. I would say absolutely I never said it. I have no recollection whatever of having uttered any such thing, not only to Col. Judson, but to any other person, living or dead. Mr. Johnson. Entertaining the sincere opinion as expressed in that letter, could you have said to Col. Judson what has been attributed to you in this hearing? Mr. West. I could not. Mr. Johnson. Then, if I correctly understand you, your reply is that you did not make that statement to Col. Judson. Mr. West. As I say, I regret very much to have a question of veracity arise between Col. Judson and myself, but I say I did not say it. Mr. Johnson. You say you did not say it ? Mr. West. Yes, sir. Mr. Johnson. That is your answer ? Mr. West. I never could have said it. Mr. Johnson. Do you mean by that it was impossible for you to have said it? You say you never could have said it. Mr. West. I should say that is certainly the inference to be drawn. Mr. Johnson. Impossible, because you entertained no such opin- ion? Mr. West. I entertained no such opinion. Col. Judson. Mr. West, we were colleagues for about how long? Mr. West. I could not say ; I do not remember. Col. Judson. About a year, was it ? Mr. West. Probably for a year. But that I would not know now. Col. Judson. And we were very frequently together? Mr. West. Yes, sir. Col. Judson. For example, you first took me as your guest to the Blue Eidge Club? Mr. West. I did. Col. Judson. And perhaps Mr. Stellwagen was there? Mr. West. I do not remember; possibly. I think probably I also took you once to a Gridiron dinner. Coi. Judson. Yes; once to a Gridiron dinner. Then we often lunched together, and we were very intimately associated. During that time, of course, we did have many conversations about various things, some things in the way of gossip and some in the way of more serious official business. Is that correct ? INVESTIGATION OF INSURANCE COMPANIES. 351 Mr. West. We had many conversations together, I suppose. Col. Jtjdson. You can not remember all of those conversations, of course ? Mr. West. No. Col. Jtjdson. At the time we went to the Blue Eidge Club was Mr. Stellwagen your friend and you his friend? Mr. West. Yes, sir. Col. Jtjdson. Are you now friends? Mr. West. To the best of my knowledge and belief. Col. Jtjdson. When you left the District service, resigning as com- missioner, what position did you take? Mr. West. Business manager of the Washington Herald. Col. Jtjdson. Was Mr. Stellwagen interested in the Herald ? Mr. West. He was. Col. Jtjdson. Who was editor of the Herald? Mr. West. Mr. Bone? Col. Jtjdson. Some time after you became the business manager of the paper was there any controversy between the stockholders of the company leading to a change in its personnel ? Mr. West. There was. Col. Jtjdson. In that controversy was Mr. Stellwagen interested? Was Mr. Stellwagen a friend and supporter of Mr. Scott Bone? Mr. West. I think he was. Col. Jtjdson. Were you acting in the interest of Mr. Scott Bone in this controversy? Mr. West. I can not understand exactly what you mean. Col. Jtjdson. There was a controversy as to who should be the editor of the paper, was there not ? Mr. West. Never any controversy as to who should be editor of the paper. Col. Jtjdson. Did not Mr. Scott Bone leave the paper ? Mr. West. Do you want me to go into the details of the Washing- ton Herald Corporation? Col. Jtjdson. If you please. Mr. West. Is that under investigation? Mr. Johnson. Is it pertinent to this inquiry? Col. Jtjdson. I think so. There are a great many things that I think are not under investigation that have been testified about here. Mr. Easby-Smith. I do not think that is pertinent at all. Col. Jtjdson. I wish to develop the fact that Mr. Stellwagen and Mr. West, who were absolutely friends, became enemies, if possible. Mr. West. That is not true. Mr. Easbt-Smith. That has nothing to do, I submit, with the testimony of this witness. Mr. West. That is absurd. Col. Jtjdson. I will abandon that if the committee desire. Mr. Johnson. The committee does not desire you to abandon it if it is going to throw any light on the subject. Col. Jtjdson. The committee can judge for itself. Mr. Johnson. As to whether Mr. Stellwagen and Mr. West are friends or otherwise, thus far in advance the committee does not see how that will throw any light on the subject. Neither does it see it from the statement you have just made. Col. Jtjdson. I will abandon that line of inquiry. 352 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Col. Judson, please understand the committee not only does not desire but will not at any time during this investiga- tion give you the privilege of asking any question that you desire that is not at all pertinent to this subject. You are a man of very decided ability. Col. Judson (interposing). Thank you, sir. Mr. Johnson. I say that unhesitatingly. I wish you would keep out of the inquiry, as well as you can, remote collateral things; but as for things that are necessary to the development of this situation, just turn yourself loose and go ahead. Col. Jidson. I will explain that there seems to have been a ques- tion of veracity raised between Mr. "West and myself. I do not wish to develop anything that might tend to influence his mind consciously or unconsciously so he might be in a hostile attitude toward me be- cause I happen to be associated in this testimony very closely with Mr. Stellwagen. We seem to be occupying much the same position. However. I am entirely willing to abandon that question. Mr. Johnson. I do not understand any question of veracity has arisen between Mr. Stellwagen and Mr. Darneille. or as between Mr. Stellwagen and Mr. West, either. I'pon the contrary, if I recall the testimony correctly, Mr. Stellwagen spoke in a very complimentary way of Mr. Darneille. Col. Joxson. Exactly. Then, as I say, I am quite willing to abandon that line of inquiry. Mr. Johnson. Abandon it, however, with your own idea that it is not strictly pertinent to the matters now under investigation. Col. Jidson. It seems to me it is pertinent. Mr. Johnson. Go ahead ; I do not want to cut you out in any way. Col. JrnsoN. Nevertheless, I will abandon it. Mr. West. Mr. Chairman, I want to disabuse your mind and the minds of the committee from any possibility that there is any rela- tion between Mr. Stellwagen and myself which, so far as I know, is not perfectly friendly, and I bear testimony now to Mr. Stellwagen's standing in this community as a man of high integrity, a man for whom I have a high regard, and I have no feeling toward him or toward any other man that would lead me to state any testimony based upon personal prejudice. I have tried to state the circum- stances under which Mr. Darneille resigned his office. He was not dismissed for insobriety. His insobriety had nothing to do with his going out of office. He was a valued official, and what was said in the letters by the three commissioners was felt by them, and I think it is very unjust to drag into this investigation the personal relations between two men such as Mr. Stellwagen and myself and the interior operations of a corporation which has nothing to do with this in- vestigation. I desire myself to go on record to that extent. Col. Judson. You said just now that Mr. Darneille's insobriety had nothing to do with his leaving the District service. Mr. West. Not the slightest. Col. Judson. You regarded it as perfectly proper that one who possessed the quality of insobriety should remain assessor of the District of Columbia, did you? Mr. West. Mr. Darneille was a good assessor. Mr. Darneille was in some degree — if we are going into the question of personal charac- ter, if Mr. Darneille is under investigation here, I would say that he INVESTIGATION OF INSURANCE COMPANIES. 353 was occasionally absent from the office, but only occasionally; and when he was in office he was attentive to his duties ; he was perfectly honest, to the best of my knowledge and belief, and he was a good official. Col. Judson. Do you regard it, then, as no objection to one holding the position of assessor that he should be of intemperate habits ? Mr. West. I do not say he was of intemperate habits. Col. Judson. Do you say he was not of intemperate habits? Mr. West. I say, occasionally he was absent from the office. Col. Judson. To the best of your knowledge and belief was he of intemperate habits ? Mr. West. That depends altogether upon what construction you put upon that sentence. The man was unfortunate at some times. Col. Judson. Will you say he was not of intemperate habits? Mr. West. He was occasionally absent from the office on account of intemperance, but occasionally and only occasionally. Col. Judson. Was he intemperate in public places ? Did you hear or believe he was intemperate in public places ? Mr. West. Sever to my knowledge. Col. Judson. Did you believe he was? He was your subordinate, was he not? Mr. West. He was my subordinate. Col. Judson. And it was your business to know as to his habits, was it not ? Mr. West. Yes, sir. Col. Judson. And you were conversant with the fact he was of in- temperate habits \ Mr. West. I would not put it that way at all. Col. Judson. How would you put it ? Mr. West. I say he was occasionally absent from the office on ac- count of intemperance, if you want to put it that way. Col. Judson. We want to put it the way it was, do we not? Mr. West. That is true. Col. Judson. And you found it of no embarrassment at all to have as assessor of the District of Columbia a man of intemperate habits ? Mr. West. There are men whose good qualities and whose value in certain places are more than offset by failings they may have in that direction. Col. Judson. So you found that no embarrassment to you ? Mr. West. I do not know whether you run your office on the high plane which you are now attempting to lay down for others. Col. Judson. Do you know that I do not? Mr. West. I do not know how you run your office. Col. Judson. Let me ask you this question: If you do recollect and did testify that you recollected the conversation to which I have testified, if you did recollect it and so stated, would you not place yourself in an embarrassing position by reason of the letter which you have read into the record ? Mr. West. I stand by that letter which I have read into the record. Col. Judson. Will you please answer my question ? Mr. West. But I have already stated Col. Judson. It is susceptible of an answer " yes " or " no." Mr. West. You mean you want me to say 354 INVESTIGATION OP INSUBANCE COMPANIES. Col. Judson (interposing). Do you want me to repeat the ques- tion? I will ask the stenographer to read it to you. Mr. West. That it would put me in an embarrassing situation? Col. Judson. Let the stenographer read the question. The question was repeated by the reporter, as follows : Let me ask you this question : If you do recollect and did testify that you recollected the conversation to which I have testified, if you did recollect it and so stated, would you not place yourself in an embarrassing position by reason of the letter which you have read into the record.' Mr. West. Of course it would be inconsistent. Col. Judson. And embarrassing somewhat? Mr. West. Yes; and embarrassing somewhat. Col. Judson. What was the new field to which Mr. Darneille went when he resigned his position? Mr. West. He had some interests in Mexico. Col. Judson. Were you interested with him? Mr. West. In a very small degree. Col. Judson. Therefore, when he went into this new field, in which you were interested with him, it was natural that you should sup- port him, he looking out Mr. West. I had no financial interest, I want to say. I had never put one penny of money into his propositions. Col. Judson. Did you go down there with him to look into it? Mr. West. I did. Col. Judson. What interest did you have, then, in that Mexican business ? Mr. West. I had an interest. Col. Judson. Pecuniary interest? Mr. West. No, sir. Col. Judson. Did you not have any stock? Mr. West. I had, I think, something like three shares. Col. Judson. Were you a director of the company? Mr. West. No, sir — I think I was at that time; I resigned after- wards. Col. Judson. You went down with Mr. Darneille to Mexico to look into the business? Mr. West. I did. Col. Judson. You were associated with him in that business? Mr. West. Yes, sir. Col. Judson. On account of which he left the District service? Mr. West. Yes, sir. Col. Judson. And it would be very useful to him in that new busi- ness, in which you were associated with him, to have vouchers from his previous employers, would it not? Mr. West. That letter was never written with any such idea, Col. Judson. Col. Judson. I never said it was. Mr. West. You intimated it. Col. Judson. I will let it go at that. I think I have no further questions to ask. Mr. Johnson. Mr. West, again the question of your sincerity in writing that letter has been called in question. After a discussion of the matter between you and Col. Judson, are you willing to again state that you were sincere in what you said in that letter? INVESTIGATION OP INSUEANCE COMPANIES. 355 Mr. West. I was sincerely sorry to see Mr. Darneille go. He was a good official, and there is no more reason to question the sincerity of my letter than there is to question the sincerity of Mr. Macfar- land's letter or of Col. Biddle's letter. Mr. Johnson. You did not write that letter, then, as a matter of policy ? Mr. West. I did not. I wrote it because the man deserved it for the 20 years' service he had rendered the District government. Mr. Johnson. And then you repeat that you did not say to Col. Judson that you were glad to get rid of Mr. Darneille because of his intemperance ? Mr. West. I do. Col. Judson. I will say I did not quite say he was glad to get rid of Mr. Darneille. Mr. Johnson. I was using the substance of it; but I will repeat to you Col. Judson's exact language and then ask you if you said that to him or not. I was endeavoring to make it broader, with the view to establishing, if possible, that you had said even the sub- stance of that to Col. Judson; but, as he objects to it, I will quote his exact words to you, as follows : I remember him — That is, Mr. West- saying he was glad when Mr. Darneille resigned, because he had acquired habits of intemperance, which made his stay unfortunate for the District. Col. Jtidson. I -would like to ask one more question : Whether Mr. West regarded it as absolutely impossible that during our very many conversations, intimate and otherwise, serious and otherwise, to which he has testified, he might not, having in mind only one feature of Mr. Darneille's resignation and one feature of his em- ployment — that is, that he was intemperate, which of course you regretted — whether you might not have been making a partial state- ment, which you might have expanded considerably and which you might not have expanded considerably, when you said that, as he was of such intemperate habits, it was really a relief from embar- rassment when he resigned? Mr. West. I have no recollection of ever having any feeling of any relief when he resigned. I probably had a great many conversa- tions with you. Col. Judson. Did you ever have any conversation with me having relation to Mr. Darneille's resignation? Mr. West. I have no recollection of any conversation with you in which Mr. Darneille's name was mentioned. Col. Judson. But it would be impossible for you to recollect, would it not, among all the conversations we had, that his name never was mentioned ? Mr. West. I can only repeat, I have no recollection of ever men- tioning Mr. Darneille to you or talking of Mr. Darneille to you. Col. Judson. But still you can not deny that you may have talked about him with me? Mr. West. I can not absolutely deny that I may have talked about him, but my mind is absolutely blank as to any reference of his name 356 INVESTIGATION OF INSURANCE COMPANIES. to you, any more than I can not deny that we talked about the weather, about G rover Cleveland, or somebody else. Col. Judsox. Are you absolutely sure you never mentioned to me his habits of intemperance? Mr. West. I have no recollection of talking about such habits. Col. Judsox. You do not recollect that you did not discuss it? Mr. West. Xo; I can not say I did not discuss them, but I have no recollection whatever of discussing him with you. Somebody else may have done so. but I have no recollection of doing it. Col. Judson. Let me ask one other question: Who asked you to come here and testify? Mr. West. Mr. Darneille telephoned my house that you had brought my name into this controversy. Col. Judsox. What did he say I had said? Mr. West. He said, as near as I can recollect, that you said that he had been gotten rid of in the District government on account of being intemperate, as near as I re6ollect. Col. Judsox. And you told him you would come down and testify that that was not the truth ? Mr. West. I did. Col. Judsox. To the best of your knowledge and belief? Mr. West. I did, promptly. I regretted having been brought into the matter. Col. Judsox. You did not come here, then, with the view of deny- ing the conversation to the effect that I testified, but rather to deny- ing that he had been dismissed, as you just told me over there in the presence of Mr. Rudolph — you came to deny that he had been dis- missed for intemperance? Mr. West. I not only came to deny that, but when he told me that you had brought my name into this investigation by crediting me with some remark alleged to have been made in private conversation with you, I turned around to Mrs. West, if that is evidence, and said, " I can not remember ever having mentioned Mr. Darneille's name to Col. Judson." I said it on the spur of the moment, as I turned away from the telephone, and I repeat it now. Col. Judsox. But you did say to me just a few moments ago, in ihe presence of Mr. Rudolph, that you regretted to have a question of veracity raised between us ; but that you were prepared to deny that Mr. Darneille had been dismissed for intemperance? Mr. West. Certainly. I was prepared to deny that. Col. Judsox. That is all. Mr. West. Because that was not true. Mr. Darneille. Mr. Chairman, I would like to ask one question. As I was assessor some years before Col. Judson came in there, why was my name brought into a discussion between Col. Judson and Mr. West? Mr. Johnson. To whom do you put the question? Mr. Darneille. I put it to Col. Judson. Col. Judson. I am not on the stand. Mr. Darneille. Either one. Years after I had gone out why should I be discussed between them ? As to intemperance, if I was intemperate six years ago, I am not to-day; and I was a capable official. INVESTIGATION OF INSURANCE COMPANIES. 357 TESTIMONY OF CHARLES J. BELL. The witness was sworn by the chairman. Mr. Johnson. Please give your full name to the stenographer, and your residence. Mr. Bell. Charles J. Bell, 1327 Connecticut Avenue. Mr. Johnson. Mr. Stellwagen when upon the stand before this committee made some statement to the effect that you had discussed with him the financial statements of the insurance companies, one or the other, that are now being inquired about Will you please, in your own way, tell what took place between you and Mr. Stellwagen or what information you may have relative to the moral or financial standing of any of these three insurance concerns that we now have before us? Mr. Bell. Mr. Chairman, I have had quite a number of conversa- tions with Mr. Stellwagen, and with quite a number of other people. Mr. Johnson. Relative to these matters? Mr. Bell. Relative to these insurance companies. Mr. Johnson. Did you call the attention of Mr. Stellwagen to a statement made by one of these companies by taking to him some let- ters or literature. Mr. Bell. No. I would like to explain that letter. Mr. Johnson. That is what I would be glad to have you do. Mr. Bell. I have had several conversations with Mr. Stellwagen. I should think, beginning last April or May. I had been investi- gating, for my own purposes, these two insurance companies. I had a number of conversations with Mr. Stellwagen from time to time as to what sort of reply he, as president of the Union Trust C»-. was sending to letters which he had received from all over the country containing inquiries as to the standing of these companies. A gen- tleman handed me that circular letter; I think it was from the First National, but I am not certain which one it was. I happened ju^t at that time to be sending something else up to Mr. Stellwagen, and I wrote a memorandum on that letter, of rather a jocular nature — I am willing to state what it was, if the committee desires to know — that here was an opportunity to get rich quick. I sent it up to Mr. Stellwagen, not with any intention of its being used as the basis of an investigation cr ever reaching the commissioners. In fact, two or three days after that I asked Mr. Stellwagen for the letter, and that was the first time I knew it had been sent down cr handed to the engineer commissioner. Mr. Johnson. Then, the memorandum placed upon this letter by you was not for the purpose of ascertaining what Mr. Stellwagen was writing to his correspondents, but rather giving your own opinion ? Mr. Bell. Exactly. Mr. Johnson. Go ahead, Mr. Bell, and tell the next step that yon took. Mr. Bell. I have taken no step. Mr. Johnson. The next step you heard of, then, as being taken by Mr. Stellwagen. You were about to tell it when I interrupted you. 358 INVESTIGATION OP INSURANCE COMPANIES. Mr. Bell. Mr. Stellwagen, as I understand, handed the letter to Mr. Judson, and informed me that he had done so. Mr. Johnson. Had you had some of these letters previous to that time making inquiries? Mr. Bell. Quite a number. Mr. Johnson. Beginning, you say, as far back as April? Mr. Bell. I should say it was some time last spring. I would like to say, Mr. Chairman, that the companies I represent are very large insurers of property. We carry some fourteen or fifteen millions of dollars of insurance. We have an insurance department which is supposed to examine into and keep track of the insurance companies through whom we insure. I think I would be perfectly safe in say- ing that we have several hundred insurance companies, or policies in several hundred insurance companies, and about once a year we get a special report on the companies, scattered all over the country. I have no means of following them, except through getting agency reports. We have been in the habit of employing — I think the name is — the Best Insurance Record to give us information, and I read from time to time rather uncomplimentary statements with regard to these companies, and therefore thought it was my duty Mr. Johnson. You read those in the Best journal? Mr. Bell. Yes ; in Best's. I therefore thought it was my duty to look into it a little on my own account, which I did. I have, from time to time, talked the matter over with Mr. Stellwagen, and with quite a number of other gentlemen in the banking and insurance business. Mr. Johnson. How many millions of dollars did you say you are carrying in insurance for clients of yours ? Mr. Bell. If you will allow me to use a memorandum made this morning — thinking that question might come up Mr. Johnson. It would not have come up except for your own statement. Mr. Bell. About fourteen millions; about fourteen millions in a hundred and fifty different companies. Mr. Johnson. Is all that property in the District of Columbia? Mr. Bell. It might be. If you include Chevy Chase as in the District of Columbia, I would say yes. Mr. Johnson. In the main it is in the District of Columbia ? Mr. Bell. Yes; practically all. Mr. Johnson. What kind of property is it? Mr. Bell. All kinds. This is on property on which we have mortgages and property which we control as trustees and executors of estates. Mr. Johnson. Is it on buildings? Mr. Bell. It is on buildings. Mr. Johnson. Is it also on personal property included in the buildings ? Mr. Bell. Very rarely. Mr. Johnson. Very rarely? Mr. Bell. Yes. If we are executors of an estate and the residence of the owner comes into our possession, we see that the furniture in the house is insured. Mr. Johnson. A very small portion of it, then, is on personal property ? INVESTIGATION OF INSURANCE COMPANIES. 359 Mr. Bell. Very small. Mr. Johnson. Fourteen millions, did vou say Mr. Bell. A little over fourteen millions. Mr. Johnson. $14,000,000 is represented by insurance upon the houses, nearly all of which are situated in the District of Columbia ? Mr. Bell. Houses and buildings. Mr. Johnson. What is the difference? Mr. Bell. Office buildings. Mr. Johnson. They are houses, are they not ? Mr. Bell. And apartment houses. Mr. Johnson. They are houses, however. Mr. Bell. There is a distinction between an office building and a house. I live in a house, and I work in an office building. Mr. Johnson. Well, we have a distinction without very much of a difference, however. The object of my inquiry was to know just how much of this was upon houses and buildings and how much was upon the furniture contained therein. You say that a very small portion, or almost nothing, is upon the furniture. Mr. Bell. Yes, sir. Mr. Johnson. Mr. Bell, the committee is anxious to arrive at a cor- rect conclusion as to whether or not either or both of these insurance companies is carrying as assets that which may not be legitimately an asset. As a business man of large affairs, will you please diagnose the statement of either one or both of these companies, and criticize it adversely, so that the committee may have the benefit Mr. Bell (interposing) . Well, I had rather not, Mr. Chairman. Mr. Johnson (continuing). Of your judgment as to whether or not they have an asset which is not a legitimate asset or a valuable asset? Mr. Bell. I would rather not do so. Mr. Johnson. The committee would prefer that you do so, for the reason that you have already denominated or spoken of one of them as a " get-rich-quick " concern. Mr. Bell. No ; I did not. I only said that was a memorandum I sent up to Mr. Stellwagen. I would like to explain Mr. Johnson. Yes, sir. Mr. Bell (continuing). That it showed — this letter; I wish it were here — I have forgotten now exactly the words of it, but it showed they had lately purchased a building, on the 29th of October, I think the date was shown, and had revalued it on the 31st of October at an advance of four or five hundred thousand dollars. That seemed to me a very quick way of becoming rich. Mr. Johnson. Now, Mr. Bell, I take it for granted that you mean to imply that the increased valuation, or appraisement, rather, of that building was not strictly a legitimate one. If you entertain the opinion that the building is not worth $2,000,000 — that the property is not worth $2,000,000, as it has been recently appraised, please give us the theory upon which; you arrived at the conclusion that it was not worth that sum of money. Mr. Bell. Because the report which I had read of the superintend- ent of insurance stated that they had purchased the building on the 29th of October for one million five hundred and forty-odd thousand dollars, and I see no reason why a building should be valued at more 360 INVESTIGATION OP INSURANCE COMPANIES. than its cost two days later. I think the worth of a thing is what you pay for it. Mr. Johnson. You go upon the theory, then, that a man should never buy a thing for less than its worth ? Mr. Bell. Oh, if he can, it is a very good thing to do, but I had -been myself asked to become a purchaser of that building not very many months before that. Mr. Johnson. At what price, please? We are anxious, to get at it all. Mr. Bell. I can not recall the price. Mr. Johnson. Who asked you to purchase it. Mr. Bell. It think it was Mr. E. C. Brainerd. a real estate agent. Mr. Douglas. Asked you to buy it ? Mr. Bell. Suggested that I do so. He did not ask me. Mr. Johnson. Did he set a price? Was he authorized to sell it? Mr. Bell. I do not know. Mr. Johnson. Then you do not know whether it was offered to you for sale or not? Mr. Bell. Why, he suggested it could be purchased for. some price, which I should judge was approximately a million or a million four hundred and fifty thousand dollars. Mr. Johnson. You do not know his opportunities for knowing? Mr. Bell. I do not. Mr. Johnson. And you are not advised whether or not it was in hands for sale? Mr. Bell. I am not. Mr. Johnson. Do you think the building worth $2,000,000? Mr. Bell. Well, I am not an expert in real estate values. Mr. Johnson. Yes; but, Mr. Bell, you are regarded as Mr. Bell ( interposing) . Well, I do not. Mr. Johnson (continuing). As a man of very large affairs in Washington, and the committee would be guided to some extent by your opinion as to Mr. Bell (interposing). I do not. Mr. Johnson. You do not what? Mr. Bell. I do not consider it worth $2,000,000. I think if Mr. Darneille will recollect he came to me sometime ago and asked me to put a value on that building. Mr. Johnson. Who did? Mr. Bell. Mr. Darneille; and I do not remember the conversation very closely, but I gave him my idea of what it was worth. Mr. Johnson. And what did you say it was worth? Mr. Bell. My recollection is somewhere about a million four hun- dred thousand dollars. Mr. Johnson. And how did you arrive at those figures? Mr. Bell. Wall, I put the value of the land at from thirty to thirty- five dollars a foot. Mr. Johnson. Which would you put it at, thirty or thirty-five dollars a foot? Mr. Bell. Well, after hearing the testimony here on Saturday I would put it up to thirty-five. Mr. Johnson. Would you put it beyond that? INVESTIGATION OP INSURANCE COMPANIES. 361 Mr. Bell. I would not. Mr. Johnson. Well, upon whose testimony would you increase your idea as to its value up to $35 ? Mr. Bell. Upon whose testimony? Mr. Johnson. Yes. You said you heard some testimony here Mr. Bell (interposing). Well, I heard the testimony in regard to the value of various corners around in that location, which all seemed to me to Jbe rather high. Mr. Johnson. But you, nevertheless, became convinced that that property is worth $35 a foot? Mr. Bell. Yes; I should say it was. Mr. Johnson. You did not entertain that opinion before coming here Saturday? Mr. Bell. I did not. Mr. Johnson. Is it your opinion that the adjacent property to this building is also worth more than you thought it was until Saturday ? Mr. Bell. Well, I can not say I am convinced that it is. Mr. Johnson. I did not ask you about being convinced. I asked if it was your opinion. Mr. Bell. Yes ; some of the property, if the statements made were correct. Mr. Johnson. Well, you do not doubt them ? Mr. Bell. I doubt their absolute correctness ; yes. Mr. Johnson. Whose statement do you doubt ? Mr. Bell. Well, I doubt very much the statement that offers had been made for other property at very large figures. Mr. Johnson. You do not think those offers were made? Mr. Bell. Why, I do not know whether they were or not. Mr. Johnson. Then you do not doubt it? Mr. Bell. Well, I have doubts in my own mind. Mr. Johnson. You have doubts in your own mind? Mr. Bell. Yes. Mr. Johnson. Why do you doubt it? Mr. Bell. Because I know of other properties and have been told of other properties which have been sold at much less per foot. Take this very property of the Southern Building ? my recollection is that the church which owned that property sold it at something like $20 a foot or under. , Mr. Johnson. From whom did you get. that information? Mr. Bell. Well, we were consulted by Father Lee when the sale was made. Mr. Johnson. Did he tell you they were selling it at $20 a foot? Mr. Bell. Mr. Chairman, it has been several years ago, and I can not recollect the exact figures. Mr. Johnson. But you were taking them as an illustration Mr. Bell (interposing). It was approximately $20 a foot. Mr. Johnson (continuing). As to why you would give more credence to that statement than you would to another rumor you had heard as to a large offer for the Shoreham Hotel, I suppose you had in mind? Mr. Bell. Yes. 71391— No. 4—12 2 362 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Now, you do not give fuli credence to the rumor which was mentioned here Saturday as to what had been offered for the Shoreham Hotel? Mr. Bell. I do not. Mr. Johnson. And you do not know how you got that rumor? Mr. Bell. I do not. Mr. Johnson. You do give full credence, however, to a rumor that the church property brought $20 a foot when you do not know from Tvhom you got that rumor? Mr. Bell. Well, it was not a rumor at all. Mr. Johnson. What was it? Mr. Bell. I say, I can not remember the exact figure. The trans- action came through our office. Mr. Johnson. Then, why do you say $20 per foot? Mr. Bell. It was approximately $20 per foot. I shall be very glad to look up the figures. I had no special interest in retaining them in my memory. I have a good many other things to think of; but it was approximately that figure. If I am incorrect, I shall be very glad to get the exact data and submit it- Mr. Johnson. Would the real value of the church property at the time it was sold several years ago be a criterion by whicli to determine the value of that property now ? Mr. Bell. No. Mr. Johnson. Or of adjacent property either? Mr. Bell. No; property has increased in value. Mr. Johnson. What per cent? Mr. Bell. I should think at least 50 per cent. Mr. Johnson. Mr. Bell, have you, as a business man, analyzed the statement recently issued by the Commercial Fire Insurance Co., which is now being inquired into? Mr. Bell. Yes. Mr. Johnson. I would be glad if you would take it and tell us Tvhat is in it that does not meet with your approval as a business man. Give us the items. We want to get at it. Mr. Bell. Well, the fundamental thing that does not strike me -as being proper for an insurance Company is to carry as an asset an equity in a building subject to one or more mortgages, amounting to $1,300,000, especially when this company has an undivided one- half interest. » Mr. Johnson. Well, that is one thing. Now, please give us an- other, Mr. Bell. Mr. Bell. Well, the report, as I read it, shows that the company for the 10 months, I think it was, ending some time in November, lost considerable money. Mr. Johnson. Read the last statement he made. The answer was read by the reporter, as follows : Well, the report, as I read it, shows that the company for the 10 months, I think it was, ending some time in November, lost considerable money. Mr. Johnson. How much money, Mr. Bell, does the report show they lost during that time. Col. Jtjdson. May I invite Mr. Bell's attention to this Mr. Johnson. Yes. INVESTIGATION OF INSURANCE COMPANIES. 363 Col. Judson. This shows that from the beginning of that period- Mr. Douglas. I object to Col. Judson testifying repeatedly when a witness goes' upon the stand. Col. Judson. I was going .to make a question out of it. Mr. Bell. May I have that last question read ? The question was read by the reporter, as follows : Mr. Johnson. How much money, Mr. Bell, does the report show they lost during that time? Mr. Bell. As I read the report, they ran behind during this period of time, including the $28,000 of dividends paid to their stock- holders — they ran behind about $109,000 or about $80,000, outside of that item. Mr. Johnson. Please select the items in the statement, and demon- strate that to the committee. Mr. Bell. I assure you, gentlemen, that I do not want to appear as an expert. Mr. Johnson. Before answering that question, Mr. Bell, please state for the benefit of those men who may read the hearings what your occupation is. Mr. Bell. I am a banker. Mr. Johnson. With what institution are you connected? Mr. Bell. The American Security & Trust Co. Mr. Johnson. Are you an officer in that company ? Mr. Bell. I am president. Mr. Johnson. How long have you been president ? Mr. Bell. Since 1893. Mr. Johnson. What is the capital stock of that institution? Mr. Bell. Three million. Mr. Johnson. What is the surplus ? Mr. Bell. Two million. Mr. Johnson. Have you other moneys to handle besides those $5,000,000? Mr. Bell. Why, our deposits we handle. Mr. Johnson. What are the deposits? Mr. Bell. Somewhere between eight and nine million dollars. Mr. Johnson. I think that qualifies you, Mr. Bell, to Mr. Bell (interposing). I am afraid it is not a question of qualification. Mr. Johnson (continuing). To testify concerning the financial statement of a small institution like this. We shall be very glad indeed to hear from you in answer to the question I have just put. Mr. Bell. I would rather answer questions, rather than to volun- teer information. Mr. Johnson. The stenographer will please read the question put by me before asking his occupation. The question was read by the stenographer, as follows : Please select the items in the statement and demonstrate that to the com- mittee. Mr. Bell. Well, I took from the statement of November 8 — if that was the date— I want to make certain that this is the same one that 1 got a copy of. 364 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Yes, sir; be certain of that. Mr. Bell. It apparently is the same, but I could not swear that it was, without examining every figure. Mr. Johnson. But with the examination that you have made, you see no difference between the two? Mr. Bell. None. Col. Judson. There is the original [handing paper to Mr. John- son]. Mr. Johnson. Col. Judson produces the original Thanding paper to Mr. Bell]. Col. Judson. I do not mean the original report, but the one that is in evidence ; the one that was put in evidence. Mr. Johnson. All right. Please make your anaylsis of it from that. Mr. Bell. This is the one I have probably seen. Mr. Johnson. Yes ; the one you have in your right hand ? Mr. Bell. Yes. Mr. Johnson. That is the one that is in evidence and with which we have been dealing all the time. Mr. Bell. Well, I took the income received by the company, which apparently was as follows: Net premiums received $188,080.18 Interest on investments 8,103.82 Commission on mortgage loans 146. 75 That, apparently, was the total income as shown by this report. Then I took, on the other side, the charges against that incomle. The first item was: Net losses on policies $145,090.57 Net losses on policies, accrued but unpaid 21, 132. 74 In regard to that item, I can not say whether those losses oc- curred during that year or not. There is nothing to show that they had or bad not occurred. Expenses of adjustment $3,175.39 Commissions to agents 65,156.58 Salaries, fees, etc 13,051.64 Rent 1, 155. 00 Advertising 2, 469. 79 Printing and stationery 2,014.58 Postage 977. 22 Legal expenses 105. 75 State taxes 1, 144. 17 Licenses and fees 3,636.05 Insurance department licenses and fees, that is. Then there is an- other item of — Licenses, fees and taxes $1,238.30 Sundries, which were a number of small items under the heads of " Miscellaneous," " Notary fees," "Janitor," etc., $2,624.01. Accrued taxes and interest on real estate $11, 850. 66 Loss on sale of ledger assets 1,715.00 Paid to stockholders for interest or dividends 28. 632. 60 Making total expenses 305,170.05 And leaving an apparent loss of 108, 839. 30 Mr. Johnson. In what length of time? Mr. Bell. I presume this was for the — -I do not know where I got the information, but it was for under one year. INVESTIGATION OF INSURANCE COMPANIES. 365 Mr. Johnson. Did you get the information it was under'one year before you sent your memorandum over to Mr. Stellwagen or since? Mr. Bell. I do not think I ever sent this memorandum to Mr. Stellwagen. Mr. Johnson. Not this memorandum, but you sent one to him? Mr. Bell. You mean the letter ? Mr. Johnson. Yes; upon which you made a memorandum. Mr. Bell. THis was since, because I had not seen that. Mr. Johnson. That is what I am asking, whether you sent it be- fore or since. Mr. Bell. It was Mr. Stellwagen who handed me a copy, I pre- sume, of this, and I took it home with me that night and studied it up. Mr. Johnson. After studying it you reached the conclusion that in less than a year they had lost $108,000? Mr. Bell. I think the losses were probably greater than that. Mr. Johnson. How much greater? Mr. Bell. I can not tell. I gave them credit for receiving $188,000 of premiums for policies all of a duration of one year. If those poli- cies ran for one to five years naturally the amount of income which should be taken into the account for the one year should be only the proportion that the premiums bore to the number of years they ran. Mr. Johnson. In arriving at the conclusion that they had lost $108,000 in less than a year you had before you that statement only ? Mr. Bell. At that time ; yes, sir. Mr. Johnson. And you arrived at that conclusion at that time? Mr. Bell. At that time. Mr. Johnson. That they had lost $108,000? Mr. Bell. Yes. Mr. Johnson. You had no previous statement before you when you arrived at that conclusion ? Mr. Bell. I had read the statements of the Commercial — previous statements. Mr. Johnson. And carried them jn mind? Mr. Bell. No ; I was dealing only with the figures I found in that report. Mr. Johnson. What figures that you found in this report did you carry in mind as having been in a former report ? Mr. Bell. I have looked those figures over so often since that I can not recollect what I carried in my mind. Mr. Johnson. Should not that impress them upon your memory more and more? Mr. Bell. No ; because I was examining the profit and loss account for the one year. I had not any reason for it. Mr. Johnson. "Were you not compelled to have before you a state- ment for the previous year for the purpose of getting at that? Mr. Bell. No. Mr. Johnson. This statement is ample without that? Mr. Bell. Yes. Mr. Johnson. And it is your judgment now that in the period of less than" a vear, when they made this statement, they had lost $108,000? Mr. Bell. When you take into account the fact that they had paid out $28,000 in the way of dividends or interest. 366 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. And it is, then, your judgment, Mr. Bell, that the concern was losing money ? Mr. Bell. Yes. Mr. Johnson. And, if losing money, were not justified in declar- ing a dividend? Mr. Bell. I do not know whether they declared a dividend. Mr. Johnson. You do not know? Mr. Bell. It says here, " Paid as interest or dividend." I could not exactly understand what that item was. Mr. Johnson. You do not know yet? Mr. Bell. On Saturday I think I heard somebody state about a 12 per cent dividend. Whether they had declared that I do not know. Mr. Johnson. Is it your opinion, since studying this report, giving that opinion as a man of large business affairs, that they were justi- fied in declaring that dividend, or any other, if in this time of less than a year they had been losing money? Mr. Bell. If my premises are correct, they were not justified in paying a dividend. Mr. Johnson. And that is one of your criticisms of the statement as to their financial condition as well as to carrying real estate at more than it was worth ? Mr. Bell. Yes. Mr. Johnson. And it is your opinion that carrying the property at something like $500,000 or $600,000 is more than it is worth? Mr. Bell. That is my opinion. I go further than that— that I do not think the undivided half interest in an equity in the property is a good security for policy holders in an insurance company. Mr. Johnson. Is it not also a fact that real estate, being carried by a fire insurance company, is not the best asset, because it is not so available for immediate cash payments for losses? Mr. Bell. I should say so, unless other assets were very large and the real estate was only a small proportion of the whole. Mr. Johnson. In this instance, is it not true that the real estate is the greater portion of their assets? Mr. Bell. It is quite a large proportion. Mr. Johnson. About what per cent is it? Mr. Bell. As I read the report, the total assets claimed by the Commercial Co. at that time were about $550,000. I am wrong in that. They were considerably over that, putting the building in at the increased price. I put the building in at the exact amount which they claimed to have paid for it. Mr. Johnson. What is that? Mr. Bell. $133,285. Mr. Johnson. Mr. Bell, please give us as nearly as you can ap- proximate it fairly under these hurried conditions the per cent ol their capital and surplus as represented by this increased value upon their real estate. Mr. Bell. They carry their real estate at $331,000 out of total ledger assets of $739,000, so it is somewhere in the neighborhood of 44 or 45 per cent. Mr. Johnson. Mr. George, do you desire to ask the witness any questions ? Mr. George. Yes. INVESTIGATION OF INSURANCE COMPANIES. 367 Mr. Pell, you are a large lender of money on real estate ? Mr. Bell. Yes. Mr. George. And you are not a large purchaser of real estate? Mr. Bell. No; I am not. Mr. George. Do you not think that your mind is inclined to take the minimum value of real estate ? Mr. Bell. No ; I do not think so. Mr. George. Your business being to lend on real estate ? Mr. Bell. I admit I take a conservative view of the value of real estate. Mr. George. And that you are inclined to think of the value ot real estate as a matter of security ? Mr. Bell. Very liable to. Mr. George. So that the tendency of your mind would be to min- imize the value? Mr. Bell. To be conservative in valuation. Mr. George. It would be a forced sale price that you would have in mind? Mr. Bell. In lending money ? Mr. George. Yes; in lending money. Mr. Bell. Not in valuing real estate. It might be in lending money. Mr. George. On real estate? Mr. Bell. Yes. Mr. George. And that your mind is inclined to take that general view of real estate when you put a value on real estate ? Mr. Bell. No ; I can not say that. Mr. George. But you have to do that in your business. Mr. Bell. When I am making loans that is an entirely different thing. You are asking me generally as to my valuation of real estate. Mr. George. Yes ; but daily when you are lending money Mr. Bell (interposing). I would take a very conservative view. Mr. George (continuing). You take a very conservative view, that view being based upon what could be gotten for that- real estate in case of a forced sale ? Mr. Bell. We have a Valuation committee, to whom all our loans are submitted. Mr. George. Is not that your practice? Mr. Bell. That is our practice undoubtedly — to be conservative in- lending money. It is a very good practice, too. Mr. George. I should like to ask you upon what basis you would capitalize a property or a piece of real estate yielding a net rental of $55,000? Mr. Bell. It would depend a good deal on the character of tha- real estate. Mr. George. The Shoreham property. Mr. Bell. Yielding net? Mr. George. Yes. Mr. Bell. I should put it on a 4J per cent basis. Mr. George. What would be the capital value of real estate yield- ing $55,000? Mr. Bell. It would be over a million dollars. 368 INVESTIGATION OP INSURANCE COMPANIES. Mr. George. So that you would then value the Shoreham property at a million dollars? Mr. Bell. I know nothing about the Shoreham property. Mr. George. You apply that principle? Mr. Bell. I do not know that that is the rental at all. When you speak of net rental I presume you mean after the payment of taxes, insurance, repairs, and depreciation? Mr. George. Yes, of course. Mr. Bell. Then I should say the property was worth that capi- talized at 4r| per cent. Mr. George. Just across the street from the Shoreham is another property, the Union Trust property, and Mr. Stellwagen testified, just at this hearing, that he had that capitalized on a basis of 3 per cent. Mr. Bell. It seems to me a very low basis. I would like to state that if you take the business section of the city of Washington and capitalize the property on the basis of rents received, on my theory that real estate should yield as much as the other good investment Mr. George (interposing). You mean net rents? Mr. Bell. Net rents. I think you would find they are all selling at above the value. Mr. Stellwagen may be correct in stating that property has reached such a high figure, as I know it has, that it does not yield a return of 4J per cent or 5 per cent on the money. Mr. Geoiwe. The New Willard yields $120,000 net rental. What valuation would you put on that property? Mr. Bell. I should put a very much more conservative value on that property now that the New Arlington is to be built. Mr. George. What rate would you put on that? Would you capitalize on 4r| per cent ? Mr. Bell. I would not. I should hate to be the owner of it on that basis. I would rather have the money. Mr. George. On F Street, next to the New Willard, there is a $6,000 rental. What rate would you put on that building? Mr. Bell. Tell me the character of the building. Mr. George. There is a banking building there. Mr. Bell. Do you mean the old International ? Mr. George. Yes; it was formerly occupied by the Union Trust. Mr. Bell. I should say that was riot a very good character of prop- erty to own from a revenue point of view. I think any property which requires a special tenant and only one class of people can occupy it is not good property to own, just as I look at our own building. Mr. George. What rate would you put there ? Mr. Bell. I am not an expert; I am not sufficiently versed in these matters to suddenly answer a question of that sort. Col. Judson. Mr. Belh may I ask you to look at this report of the superintendent of insurance for 1911, and on page 371 note what was the net surplus of the Commercial Fire Insurance Co. on De- cember 31. 1911? Mr. Bell. The amount given here is $72,423.26. Col. Jtjdson. So that the Commercial Fire Insurance Co. had a surplus 10 months prior to the date of this report which you have been discussing earlier in your testimony of $72,000 odd ? Mr. Bell. It is so stated here. , INVESTIGATION OF INSURANCE COMPANIES. 369 Col. Judson. Will you look at the report of the superintendent of insurance and under the head of "Income" note what was the pre- mium on sale of stock ? Mr. Bell. $144,441. Col. Judson. Will you set down and add together the amount of that surplus from the report of 1911 and this amount of premium paid on sale of stock and state what the result is ? Mr. Bell. $216,864.26. Col. Judson. Will you now refer to the next page of the report of the superintendent of insurance and set down what is stated in very nearly the last line — the third line from the last — to be the surplus over liabilities, $229,438.49, and will you please deduct from that an item which appears under the head of "Income" on the preceding page, " Increase by adjustment in book value of real estate, $226,715." What is the result ? Mr. Bell. $2,723.49. Col. Judson. That last amount read by you is the surplus of this company as shown by this report, surplus over all liabilities, if this increase in the book value of its real estate, which occurred in two days, were not included; is that correct? Mr. Bell. It would so seem. Col. Judson. With reference to the previous sum of $216,864.26, will you state again how that sum is made up — of what items ? Mr. Bell. I took the surplus as shown on December 31, 1911, amounting to $72,423.26, and added to that an item under the head of "Premium on sale of stock," $144,441, making a total of $216,864.26. Col. Judson. When stock is sold at a premium what is ordinarily the fair thing to do in a business that is properly conducted with the premium on the sale of stock ? Where will most of that premium on the sale of stock go — where should most of it go? Mr. Bell. To surplus. Col. Judson. What would be a fair deduction from that $144,000 for commissions on the sale of stock? Mr. Bell. What would be a fair deduction ? Col. Judson. What would be a fair amount for them to take out of $144,000 before they add this premium on the sale of stock to surplus? What would be a fair amount to take out of it and deduct from it for the expense of marketing the stock ? Mr. Bell. For who to take out? Col. Judson. For the company to take out. Mr. Bell. Why should they take any out? Col. Judson. You do not think they should take any out ? Mr. Bell. I do not see why. I do not exactly understand the question. They received $144,000 for premium on stock sale, and got the $144,000, I presume. Col. Judson. You think that should go to surplus ? Mr. Bell. I should say so. Col. Judson. Then, in your opinion, the surplus, if there had been no loss during the year, should have been how much at the end of the 10 months' period? Mr. Bell. $216,864.26. Col. Judson. What was the surplus in fact, if this real estate trans- action, which had nothing to do with the other operations of he com- pany, were not considered? 370 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bell. Apparently $2,723.49. Col. Judson. Will you set that down under the former sum and make a subtraction? Then, considering this statement in another way, about what was the loss of the company during the 10 months' period ? Mr. Bell. From these figures as you now give them ? Col. Judson. Yes. If I did not give them to you correctly, please invite attention to it. Mr. Bell. They are apparently correct, but I do not like to give an offhand opinion, taking the matter up in an entirely different way than before. Col. Judson. Still, it appears to you that if they should have paid nothing for selling the stock and if there was no other deduction proper from that premium on sale of stock — it appears to you that the surplus should have been the sum of the former surplus and the amount received from premium on sale of stock? Mr. Bell. Yes. Col. Judson. And that the surplus was in fact, at the end of 10 months, except for this real estate transaction, only two thousand ?even hundred and odd dollars? Mr. Bell. That is correct. Col. Judsox. Then, looking at it from this jtoint of view, and I will permit you to qualify it later with other questions, it would appear that the loss -was approximately the difference between what you would expect to find in the surplus — $216,000 — and what you actually find in the surplus — two thousand seven hundred and odd dollars? Mr. Bell. Yes. Col. Judson. Or $214,140? Mr. Bell. To be accounted for in some way. Col. Judson. Which would be accounted for in some way. Appa- rently there is that much less in the surplus than you would expect to find there? Mr. Bell. Yes. There may be ways of accounting for it that I know nothing of. Col. Judson. Yes. One way to account for it, for example, would be by deducting from that what was expended for the sale of this stock. How much was that? Mr. Bell. " Commissions and expense on sale of stock, $56,349.70." Col. Judson. Suppose you deduct that, or does it not seem to you it would be fair to deduct something, if there is a legitimate expense for the sale of stock, from the amount received for sale of stock? Mr. Bell. Yes. Col. Judson. Before it is turned in to the company? Mr. Bell. Yes. Col. Judson. So, suppose you deduct that from this amount of $216,140.67 and see what the result is? Mr. Bell. The amount is $160,514.56. Col. Judson. So, assuming that they did not pay too much for the sale of stock, then some such sum as that should be found in the surplus ? Mr. Bell. Apparently. Col. Judson. At the end of the 10-months' period, or on October 31, 1912. You think that the amount of $56,349.70 was excessive to INVESTIGATION OF INSURANCE COMPANIES. 371 pay for the sale of $137,000 worth of stock, which it appears from the statement was the amount sold during the 10 months? Mr. Bell. I know nothing of the conditions under which it was sold. It would apparently be a very large commission to pay. Col. Judson. There may be some other amount, with which you are not familiar, to deduct from that sum of $160,000, might there not? That is to say, some amount which should be carried over to the reinsurance reserve perhaps? You do not dispute that there may be some such amount ? Mr. Bell. Oh, undoubtedly. Col. Judson. But otherwise you know of no way to account for these losses, except that the company was doing a very losing business and doing it in a more expensive manner ; is that correct ? Mr. Bell. That is correct. *Col. Judson. In view of the fact that this company had lost in the 10-months' period something like the difference between $160,514.56 and $2,723.24, less a small amount which would go to the reinsurance reserve, does it appear to you the resolution passed by the board of directors of the company on the 11th of November correctly stated the conditions ? May I ask you to read it ? Mr. Bell (reading) : Whereas a ready market has been found for the sale of Commercial stock at $11 per share, on account of the large volume of business being transacted by this company, resulting In a large addition to its agency plant and pre- mium income; and Whereas the capital and surplus of the company have been recently materially increased, and the company has earned for its stockholders a large sum of money in addition to paying the regular 12 per cent dividends, thereby in- creasing the amount of surplus on band, as well as the actual value of the stock : Now therefore be it Resolved, That on and after the payment of tbe semiannual dividend payable January 1, 1913, no more of the capital stock of this company shall be sold for less than $12 per share. Paul Grove, Secretary Commercial Fire Insurance Go. Col. Judson. If the board of directors of the Commercial I*ire Insurance Co. on the 11th day of November passed this resolution and that resolution were printed and used in connection with other litera- ture for the sale of stock, would you consider that false pretenses were being made as to the value of this stock which was for sale? Mr. Bell. I would rather not answer that question. Col. Judson. I must ask you, Mr. Bell, to answer it; whether or not it seems to you, as a business man, who is conversant with such thing, that would be a false pretense, in a conversational, colloquial use of the term. Is it a false pretense? Mr. Douglas. You do not mean to use it in the criminal sense ? Col. Judson. No; I am not asking him because he is not a lawyer, but in the moral sense and in the colloquial sense, in a business sense. Mr. Bell. Will you give me the question? Col. Judson. Whether stock which was being sold on representa- tions printed in literature which included this resolution, whether false pretenses were not being made in connection with the same of that stock when this resolution was included in the literature. Mr. Bell. Yes; I should say there were. Col. Judson. That will do. 372 INVESTIGATION OP INSUEANCE COMPANIES. Mr. Johnson. You say that when the church people sold this property you were advised with concerning the sale by Father Lee, who represented the church people? Mr. Bell. Yes. Mr. Johnson. He advised with you for the purpose of aiding him in the sale of it and getting what it was worth ? Mr. Bell. He asked my advice with regard to the sale of it. Mr. Johnson. And you advised him to sell it? Mr. Bell. I advised him to sell it. Mr. Johnson. At the price which he obtained? Mr. Bell. At that price; yes. Mr. Johnson. That was about $20. Mr. Bell. That is my recollection. Mr. Johnson. That was in 1909, was it not, that it was sold? Mr. Bell. It was a few years ago. I can not recollect. I did not know this question was coming up. Mr. Johnson. Twenty-two thousand five hundred feet of it at $20 a foot would be $450,000, would it not? Mr. Bell. I think he got less than that. I think it was under that amount that he received for it. Mr. Douglas. $18 a foot? Mr. Bell. Yes; it may have been $18 a foot. I think it was ap- proximately $410,000 in money. Mr. Johnson. And at $35 a foot the money would now be some- thing like $787,000? Mr. Bell. I should say that was a very big price for it. Mr. Johnson. So, then, you have three ways of looking at it: That perhaps $35 a foot is too much; next, that the church people sold it too low ; or that it has advanced these several hundred thou- sand dollars in the meantime? Mr. Bell. I think that all property in that immediate neighbor- hood has advanced in the last three years. Mr. Johnson. Then if this property brought its full value at $18 a foot in 1909 and is now worth $35 a foot, it has nearly doubled in value in that time, provided the value of it was gotten by Father Lee when he sold it? Mr. Bell. That would apparently be so. Mr. Johnson. And it was your opinion at the time that he got its full value and you- advised him to sell it ? Mr. Bell. Conditions surrounding the sale of real estate might make it advisable to sell at one figure or to hold for a higher figure. As I recollect the matter now the church people were very anxious to complete their building up on Rhode Island Avenue, and had borrowed money, I think, on this very property, although I am not certain about that. Mr. Johnson. From whom had they borrowed? Mr. Bell. I could not tell you. Mr. Johnson. You do not know how much they had borrowed? Mr. Bell. I do not. Father Lee was anxious to complete the church. He had had one or two offers before that for the property, which I had advised him not to accept. Mr. Johnson. What were those offers? Mr. Bell. I could not tell you now, but they were under that price. Mr. Johnson. Under what price? INVESTIGATION OF INSURANCE COMPANIES. 373 Mr. Bell. Under $400,000. I remember the figures, but not the amount per square foot. Mr. Johnson. Who was the real estate agent that had that for sale, do you recall ? Mr. Bell. No ; I do not. You mean who was representing Father Lee? Mr. Johnson. Yes. Mr. Bell. No ; I do not know. Mr. Johnson. Do you know who was representing the purchasers ? Mr. Bell. I do not. Mr. Johnson. You may take him, gentlemen. Mr. Caeusi. Mr. Bell, what is the date of the resolution that has been criticized concerning the sale of stock? Mr. Bell. This statement makes the resolution as of November 11, 1912. Mr. Caeusi. And how long previously to that was the report of the insurance commissioner from which you have figured ? Mr. Bell. I think that was about November 8, as I recollect it. Mr. Caeusi. November 2, was it not? Mr. Bell. November 8, 1912. Apparently three days before the resolution. Mr. Caeusi. Referring to the superintendent's report, does he not include the increase in the value of real property under the head of income ? I have not a copy of it here, so I do not recall. Mr. Bell. The report under the head of income is increased by ad- justment in book value of real estate. Mr. Caeusi. So that it was under the head of income that the profit, if there was one, on the purchase of the Southern Building was included in his report? Mr. Bell. Yes. Mr. Caeusi. Do you know, Mr. Bell, that the examinations which are made by insurance departments are made in a manner and upon blanks which have been prescribed by the Association of State Super- intendents of Insurance, that they have a uniform mode of stating the accounts? Mr. Bell. No ; I do not know that. Mr. Caeusi. You do not know, do you, that all of the receipts of an insurance company, including any appreciation in assets, real or per- sonal, are catalogued under the title of " income "? Mr. Bell. No; I do not. Mr. Caeusi. I understand yon to say you do not know, one way or the other? Mr. Bell. No. Mr. Caeusi. Whether that is so? Mr. Bell. I do not know. I am not familiar with insurance ac- counting. Mr. Caeusi. Assuming that that is the uniform and proper mode in the case of insurance companies of stating their income, and assum- ing that the increase in value of the real estate is a real increase, tben does not the report of the superintendent of insurance show that the company, on the whole, had made a large sum of money during the period covered by the examination? Mr. Bell. Calling that as part of their money made ? Mr. Caeusi. Yes; exactly. 374 INVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. So that if the appreciation in the real property was a real appreciation, the board of directors were not guilty of fraudu- lent misrepresentations in that resolution, to which your attention has been directed by Col Judson ? Mr. Bell (reading) : And whereas the capital and surplus of the company have been recently materially increased, and the company has earned for its stockholders a large sum of money in addition to paying the regular 12 per cent dividends, thereby increasing the amount of surplus on hand, as well as the actual value of the stock— I should say that was not a true statement. Mr. Carusi. In what particular? Mr. Bell. Because I can not figure, that they earned any money for their stockholders. I may be wrong in my figures. Mr. Carusi. I simply want to get our minds down to as near one point as possible. I understand your criticism is now narrowed down to the point as to whether the use of the word "earned" is a proper use of the word in connection with an appreciation in the value of the securities* of the company. Mr. Bell. I should say it was not a proper designation. Mr. Carusi. Now, Mr. Bell, you stated, I think, that one reason you could not consider that the Southern Building was worth the figure at which it was carried was because it had so recently been purchased for a very much smaller figure. Do you know whether, as a matter of fact, the Southern Building was purchased in the ordinary real estate transaction sense of the word? Mr. Bell. I know nothing of how it was purchased. Mr. Carusi. You have not heard Mr. Bell. Oh, I have heard a good many things about it. Mr. Carusi. You are not required here to confine your statements to matters within your personal knowledge. We have been depart- ing from that quite broadly. Mr. Bell. If I were to repeat all I had heard, it might take a very long time to get through with it. Mr. Carsui. Did you not assume, however, in making the state- ment that' the price at which the building had so recently been bought was one of the reasons you could not believe it was worth the price at which it was appraised? Mr. Bell. That was one of the reasons especially Mr. Carusi (interposing). So that your opinion was predicated upon the purchase in the ordinary real estate sense of the word, was it not? Mr. Bell. It was predicated upon two points: That it agreed pretty well with what had been my idea of the value of the property when Mr. Darneille spoke to me about it. That was before the pur- chase was known. Those two figures agreed in my own mind pretty closely. My impression is that I put the property as being worth about $30 a foot. Mr. Carusi. That is not exactly an answer to my question, Mr. Bell. Perhaps I did not make it clear. You stated to the committee, substantially, as I recall it, that the fact that this property had been purchased on the 29th of October at one figure was one of the reasons at least, in your mind, why you did not believe it could have suddenly increased in value? INVESTIGATION OF INSURANCE COMPANIES. 375 Mr. Bell. That is correct. Mr. Carusi. And when you used the word " purchased " I asked you if you did not use it in the sense of an ordinary real-estate transaction, whereby the fee and property is bought and paid for directly. Mr. Bell. Yes. I know nothing of the methods by which it was purchased. Mr. Carusi. You do not know as to whether in this case the title was indirectly acquired as the result of the purchase of the capital stock of the Southern Building Corporation ? Mr. Bell. I do not. Mr. Carusi. From different persons at different prices? Mr. Bell. I do not. Mr. Carusi. Now, Mr. Bell, have you any real acquaintance with insurance accountancy, as distinguished from the ordinary accounting employed by banking and other financial institutions? Mr. Bell. The technical accounting? Mr. Carusi. Yes. Mr. Bell. Only in a very general way. Mr. Carusi. You did a calculation yourself, before Col. Judson carried you over a different route, whereby you arrived roughlv at a loss of $108,000, predicated upon the elimination of any profit in the purchase of this ground ; is not that correct ? Mr. Bell. That is correct ; yes. Mr. Carusi. One of the items that you employed in that calcula- tion was an item of something over $11,000 reserved for taxes. Do you know what taxes they were ? Mr. Bell. I do not; no. It said " accrued taxes." Mr. Carusi. Yes. Mr. Bell. And accrued taxes mean taxes that have accrued at that time. Mr. Carusi. Yes. Now, if you should learn that those accrued taxes were taxes that had accrued on the Southern Building, which had just been purchased, do you not think that if you eliminate any profit on the building that you should eliminate that item which went into the purchase of it ? Mr. Bell. Well, I do riot see, then, if that is simply part of the purchase money why it appeared here at all in a statement of profit and loss. Mr. Carusi. Might it not be that that is the only place where it could be put, under the technical methods of accountancy required in insurance statements ? Mr. Bell. Well, that I know nothing about. Mr. Carusi. Well, you would not call a dividend paid to stock- holdersj whether rightly or wrongly, a loss, would you ? Mr. Bell. No. Mr. Carusi. There is an item of $28,000, 1 think, roughly, there. Mr. Bell. Well, I specially pointed that out; that the apparent loss was $108,839, taking into account $28,632. Leaving that out, it would be a little over $80,000. Mr. Carusi. A little over $80,000. And if from that you should again deduct $11,000, carried as an expense, but which was a part of the purchase price of this building, you would reduce the apparent loss still further, would you not ? 376 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bell. Undoubtedly. Mr. Caeusi. To what point? . Mr. Bell. To about $69,000. Mr. Carusi. To about $69,000. You were here, Mr. Bell, when Mr. Stellwagen was figuring the amount of the loss, being carried along the route that has been already mentioned. You recall his figures were $141,000, or thereabouts? Mr. Bell. No ; I do not. Mr. Carusi. The way you have figured it to-day, unaided, and the way you have been figuring, which you stated, I believe, before you came to the committee room, was about $69,000? Mr. Bell. I think the loss is very much greater, Mr. Carusi, be- cause I gave them credit for the entire amount received for premiums, regardless of the fact of whether they were one, two. three, four, or five years. Mr. Carusi. Exactly. You made no allowance, then, for what is known as the reinsurance reserve ? Mr. Bell. No. If that were made it would make the loss very much greater. Mr. Carusi. Did you make any allowance for the reinsurance re- serve in the mode of calculation that you adopted at the suggestion of Col. Judson, as lowering the amount that he arrived at? Mr. Bell. No ; I do not think that came in at all in his figures. Mr. Carusi. You do know, in a general way, do you not, Mr. Bell, that in the case of an insurance company there are two separate funds — separate as a matter of bookkeeping, one known as the sur- plus and the other known as the reinsurance reserve ? Mr. Bell. Yes. Mr. Carusi. And you do know, do you not, as a general proposi- tion, that the larger amount of term business that a company writes the greater the drain on the surplus in favor of the reinsurance reserve ? Mr. Bell. Yes. Mr. Carusi. You also know, do you not, that the reinsurance reserve, even though it be made up to a considerable extent from money contributed by the surplus, is carried only as a liability? Mr. Bell. Yes; I understand that is the practice or, rather, the requirement of the different States. Mr. Carusi. So that it will not be practical, will it, Mr. Bell, for you to state with any degree of confidence that the figures that you nave arrived at, either as you arrived at them unaided in your first calculation or as you arrived at them with the help of Col. Judson, do accurately state the condition of this company at any time? Mr. Bell. I think the figures, as I prepared them for my own use, were tolerably accurate. Mr. Carusi. That is to say, that the $69,000 loss is tolerably accurate ? Mr. Bell. Yes. It exceeded $69,000. Mr. Carusi. There is quite a difference between $69,000 and the amount arrived at by the calculation Col. Judson has asked you to make of $141,000. Mr. Bell. Well, I should be very glad to go over those figures at some other time. I could not possibly do it now. INVESTIGATION OF INSURANCE COMPANIES. 377 Mr. Caeusi. You would arrive at the same result if you employed the same method. Mr. Bell. Yes; but I might not, you know, looking at it from another point of view ; it might be different. Mr. Caeusi. The problem has been done several times, so the fault is not in your mathematics at all, Mr. Bell. Now, with respect to the payment of dividends, you are principally familiar, are you not with the payment of dividends in the case of financial institu- tions, with banks, and trust companies? Mr. Bell. Yes. But I have been a director in insurance com- panies and an unfortunate stockholder in one that was wiped out in one night — capital, surplus, and everything else. Mr. Caeusi. Is it not a fact that in the case of banks — national banks and trust companies in this District, which, I believe, are under the same general provisions of law, that you may only pay a dividend out of the earnings for the previous six months ? Mr. Bell. I know of nothing in the trust-company act which would prevent that. Mr. Caeusi. It would at least be very unusual for either a trust company Mr. Bell (interposing). Very. Mr. Caeusi (continuing). Or national bank to draw upon its sur- plus, would it not, to pay dividends ? Mr. Bell. Quite unusual. Mr. Caeusi. Do you or do you not know whether it is usual or unusual in the case of fire insurance companies to pay dividends out of surplus ? Mr. Bell. I could not say whether it was or not. I presume that any large commercial company, having a large surplus, would be quite justified in dividing it up from time to time. Mr. Caeusi. Well, let me ask you this ; it will probably help you to answer that question : There are, are there not, but three funds in an insurance company — a fire insurance company — one the capital, one the surplus, and one the reserve? The dividend may not be paid, of course, from capital ; it may not be paid from the reserve, because that is a liability ; it is a special fund required by law to be set aside ? Mr. Bell. Yes. Mr. Caeusi. It must 3 therefore, if paid at all, be paid from the surplus. Do you know, from the reading of the reports of these many insurance companies that you carry your insurance in— I think you said some 150 of them, that you keep up generally on the litera- ture relating to them — do you know whether it is usual or unusual for fire insurance companies to pay the regular dividend out of the surplus, quite irrespective of whether there has been an underwriting profit for the preceding six months, in case of a semiannual dividend ? Mr. Bell. I presume that if the company had large investments which yielded a very large revenue they would be perfectly justified in paying dividends out of the income from those investments. Mr. Caeusi. Then, if the dividends were paid out of the income from the investments it would not deplete the surplus, would it? Mr. Bell. Well, I understood from you that the fire insurance com- panies were obliged to put all income and show it in surplus; that they had no what we would call profit and loss account. 71391— No. 4—12 3 378 INVESTIGATION OP INSURANCE COMPANIES. Mr. Carusi. That is the idea, exactly. Mr. Bell. Therefore if they paid a dividend it would deplete the surplus. Mr. Cartjsi. That is true; there would be a moment when the in- come would flow through the surplus account back into the dividend account. Mr. Bell. Yes. Mr. Cartjsi. But I mean separating those items in your own mind for a moment and applying the income from investments just as it came fresh from the investments, without going on the books of the company at all, to the payment of a dividend; I am asking you whether or not that has not frequently been done, even when the result of the underwriting of the company was a considerable reduc- tion in the surplus? That is simply another way of stating the same question. Mr. Bell. Well, as I understand it, you asked me whether a com- pany would not be justified in paying • Mr. Cartjsi (interposing) . I did not ask you that, sir. I asked you what, from your information — from reading the reports relating to this large number of fire insurance companies — what the custom with them was; what they usually did in the way of paying dividends, irrespective of an underwriting loss over any particular period. Mr. Bell. Why, if their income, after allowing for their under- writing loss, still shows a surplus applicable to dividends, I assume they would pay it. Mr. Cartjsi. I am supposing a case, however, where the income does not. Mr. Bell. I should say they should not pay dividends. Mr. Cartjsi. Now, something has been said about the proportion of the real estate holdings of these two companies, or of either of them, to the amount of the total assets. I wish to call your attention to the fact that the same report which you had in your hand, on a later page of it, under the head of " Unadmitted assets," I think, refers to the large amount of subscribed capital and surplus. Mr. Bell. Where does that occur, Mr. Carusi? Mr. Carusi. Well, I have not a copy of it here. That is my recol- lection of it. Mr. Easbt-Smith. It is in the narrative part of the report. Mr. Carusi. It is in the narrative portion of the report — real estate mortgage bonds, bonds cash. Then down there at the end of the report — oh, this is the First National here. Mr. Bell. I see nothing of that sort here. Mr. Douglas. Here is the Commercial [indicating]. Mr. Carusi. Where is the Commercial? Mr. Easbt-Smith. Eight in that same place. Mr. Douglas. Yes ; right in that same place. Mr. Carusi. I find, Mr. Bell, that I was mistaken, apparently, about that — that in the particular one you have, relating to the Com- mercial, there was no reference to subscribed capital and surplus. Mr. Bell. That is the only one I received. Mr. Carusi. But I can put the question in this way: The First National Fire Insurance Co. is also a half owner of this property, and, in addition to the actual capital and surplus for which the company has taken credit under its charter, there is a subscribed INVESTIGATION OF INSUEANCE COMPANIES. 379 capital and surplus mentioned by the superintendent of insurance, of a total of $1,700,000, at the date of that report. Do you not think in estimating the amount of real estate which a company might safely carry, its subscribed capital and surplus might be taken into con- sideration, and not merely actual capital and surplus that is fully paid? Mr. Bell. That would not alter my statement, that the amount of real estate owned by the company was out of all proportion to the capital stock, for this reason: While these companies put down their real estate at $350,000, in round figures, as a matter of fact they assumed a liability, each of them, of $650,000, and therefore, if the statement was put down as a banker would put it down, it would show real estate on one side of a million dollars, and show bills payable on the other side, of $650,000. Mr. Caeusi. But is there not a distinction, Mr. Bell, between pur- chasing property subject to a lien and assuming the obligation of a lien ? Is that not well known to you as an operator in real estate ? Mr. Bell. Yes; but that is not the statement of the commissioner of insurance as I have read it. Mr. Caeusi. What does he say — that they assumed ? Mr. Bell. He said, " assumes." Mr. Caeusi. Of course you have to take it for granted that that is correct? Mr. Bell. I take it for granted they did assume it; but I would like to verify that. Mr. Caeusi. That would have been a very unbusinesslike thing for them to have done unless they were obliged to do it ? Mr. Bell. It says here — The records of the company show that this company, in conjunction with the First National Fire Insurance Co. of the United States, purchased the Southern Building, located at the northeast corner of Fifteenth and H NW., in this city, on October 29 last, for the sum of $246,570, and assumed two mortgage indebt- ednesses on same amounting to $1,300,000, share and share alike. Mr. Caeusi. That is an error, but as the question was predicated upon the report, I will not question you further about that. You were asked your opinion concerning the propriety of paying a com- mission upon the sale of stock of a company, and I simply want to ask whether you have ever had any experience in the organization of a company which was organized upon what is commonly known as the popular subscription plan, the distribution of a large number of small holdings. Mr. Bell. I have not, and would be very careful not to have. Mr. Caeusi. You do not know what would be or would not be the usual expense of marketing stock in that manner ? Mr. Bell. No ; I do not know. Mr. Douglas. Mr. Chairman, I would like to interrogate the wit- ness along certain other lines. Mr. Johnson. Go ahead, sir. Mr. Douglas. With reference to using the rather harsh term Col. Judson said he wanted you to use in a moral sense, about false pre- tenses in paying these dividends and making this representation, I would like to ask, in the first place, if you know any of the gentlemen on the board of directors of the Commercial Fire Insurance Co. ? 380 INVESTIGATION OF LNSUKANCE COMPANIES. Mr. Bell. I know quite a number of them. Mr. Douglas. Do you know Judge Atkinson ? Mr. Bell. No. Mr. Douglas. You know of him ? Mr. Bell. Yes. Mr. Douglas. He is of the Court of Claims ? Mr. Bell. Yes. Mr. Douglas. And a gentleman who stands very high in the com- munity, does he not? Mr. Bell. Very high. Mr. Douglas. I suppose you know quite well Mr. Justice Gould, of the Supreme Court of the District of Columbia ? Mr. Bell. Yes. Mr. Douglas. Is he, in your judgment, a man of integrity and ability ? Mr. Bell. Yes. Mr. Douglas. He is regarded, is he not, as one of the ablest of our judges of the Supreme Court of the District of Columbia? Mr. Bell. I should say so. Mr. Douglas. You have never heard his integrity in any way questioned ? Mr. Bell. Never. Mr. Douglas. You do not yourself question it, do you? Mr. Bell. Not in the slightest. Mr. Douglas. I suppose you have known for some years General Wynne, of that board? Mr. Bell. Very slightly. Mr. Douglas. You knew him to be First Assistant Postmaster Gen- eral for years ? Mr. Bell. Yes. Mr. Douglas. And afterwards Postmaster General of the United States under President Eoosevelt? Mr. Bell. Yes. Mr. Douglas. You also knew him to be consul general to London under that administration? Mr. Bell. Yes. Mr. Douglas. What have you to say as to your opinion, if you care to give it, with reference to his integrity and capacity? Mr. Bell. I think he is a man of sterling integrity. Mr. Douglas. Did you really mean to charge, at the suggestion of Col. Judson, that these gentlemen had been guilty of false pretenses? Mr. Bell. I do not think they have knowingly been guilty of it, but I do not think they know what they are doing. Mr. Douglas. Do you think you know more about insurance com- panies than they? Mr. Bell. I think so ; probably. Mr. Douglas. You are an expert in insurance matters? Mr. Bell. No ; nor do I imagine they are. Mr. Douglas. Are you dealing here in your imagination or with facts or your judgment ? Mr. Bell. With my judgment. Mr. Douglas. What do you know about what Justice Gould knows about insurance matters? INVESTIGATION OF INSURANCE COMPANIES. 381 Mr. Bell. He may know. I do not know. I only judge the facts and figures as they have come to me in these reports. , I have had no conversation with any of those gentlemen. Mr. Douglas. You do not know anything about whether these gen- tlemen are expert in insurance matters or not, do you? Mr. Bell. No; I do not know of my own knowledge. Mr. Douglas. Would you imagine, if I may use that term, that these gentlemen paid this dividend in July without some investiga- tion into the morale of it as well as the legal side of the situation ? Mr. Bell. I can not say what investigation they made or whether they had the facts and figures before them. Mr. Douglas. You would think, I suppose, that they did have the facts and figures before them if they were actively engaged in the handling and management of these insurance companies, would you not? Mr. Bell. If they were actively engaged in the management, they ought to have, but boards of directors, as a rule, do not take part in the active management. Mr. Douglas. And you are basing your judgment in this matter, Mr. Bell, upon such hurried deductions as you have been enabled to make from the report of the superintendent of insurance, though you do not claim to be an expert accountant in insurance bookkeeping at all? Mr. Bell. I do not claim that. Mr. Douglas. You do not claim it? Mr. Bell. No» Mr. Douglas. And there were all sorts of opportunities for errors, although the deductions were honestly 'made? Mr. Bell. Undoubtedly. Mr. Douglas. And you are basing these criticisms upon the as- sumption Mr. Bell (interposing). That I am correct. Mr. Douglas. That you are correct ? Mr. Bell. Yes ; as I believe I am. Mr. Douglas. I have no doubt you believe you are correct. Would you say that, even though you knew that the dividends paid did not impair the capital stock and did not exhaust its surplus ? Mr. Bell. I do not think the question of impairing the capital stock enters into it at all. My criticism was of the language used in the resolution which, I was told by Col. Judson, has been issued to the public. I do not know that it has. Mr. Douglas. Col. Judson has told a great many things, but I am not going to take what he tells as the basis of my examination. Mr. Bell. I am only answering the questions as they are put. Whether these are facts I do not know and I do not profess to know. Mr. Douglas. So all you are citicizing is the representations in the resolution. You do not criticize the substantive fact or the con- duct as to the substantive fact of paying a dividend if it was wholly paid out of a surplus and did not impair the capital stock and did not destroy the surplus. Mr. Bell. They would have a perfect right to do so. Mr. Douglas. So on the question of representations made, as read to you by Col. Judson, as I understand, you are basing that upon the 382 INVESTIGATION OP INSURANCE COMPANIES. assumption that their opinion as to the increase in the earnings of the company was not justified because the real estate increase, in your judgment, was not justified? Mr. Bell. That was one reason. Mr. Douglas. That is the principal reason, I would imagine? Mr. Bell. No ; and that as to the earnings of the company ; instead of making a profit, they were losing money; and they are not the only ones, either. Mr. Douglas. Would you mind discussing with me a moment about this little word " earnings " about which you know so much and I know so little? Mr. Bell. I will be very glad to. Mr. Douglas. Suppose, as a matter of fact, this property did in- crease in value, which seems to have offended so many distinguished men in the District of Columbia, if it did Mr. Bell." It did not offend me. Mr. Douglas. Suppose it did increase in value, would you not, as a business man, consider that should go to income as a part of the earnings of the Commercial Fire Insurance Co. ? Mr. Bell. I should not. Mr. Douglas. "What would it be? Mr. Bell. They would undoubtedly, if it actually increased in value, have a right to add it to their surplus fund, but not to consider it as earnings of the company as we look at the word " earnings." Mr. Douglas. How is a surplus made up ? Mr. Bell. It may be made up in a number of ways. It may be made up by being paid in — a paid-in surplus — paid in originally when the stock was sold. Mr. Douglas. This would not be that kind of an earning? Mr. Bell. No. Mr. Douglas. Would not that be an earning? Mr. Bell. I should not say this would be an earning. Mr. Douglas. What is it? Mr. Bell. It is an appreciation of value. Mr. Douglas. An appreciation of value as a result of the operation of the affairs of the company, was it not? Mr. Bell. No; I do not think you can say that the Commercial Fire Insurance Co.'s operations made the increase in value of that property. Mr. Dot t glas. It is the duty of the board of directors and the active officials of the Commercial Fire Insurance Co. to handle the funds of the company in a safe and, if possible, in a profitable way 1 Mr. Bell. I should say so. Mr. Douglas. Suppose the Commercial Fire Insurance Co. should have bought a thousand, shares of American Security & Trust Co. stock at $300 a share — I am giving an arbitrary figure. Mr. Bell. That is rather high. Mr. Douglas. I would rather put it high in the case of your com- pany, anyway. Suppose it is $300 a share, Mr. Bell ; and suppose for some reason or other that stock goes up in price within six months or within three months or within two months or within one month or within one week to $400 a share; what would the Commercial Fire Insur- ance Co. do with that profit of $100 a share ? INVESTIGATION OF INSURANCE COMPANIES. 383 Mr. Bell. They have not made a profit if they did not sell the stock. If they sold the stock, they would be quite justified in taking it into their surplus account. Mr. Douglas. Do you mean to say, if the American Security & Trust Co. should buy Pennsylvania Eailroad stock or United States Government bonds, or anything else, it is your bounden duty to carry those assets on your books at what they cost ? Mr. Bell. We do; yes. Mr. Douglas. What? Mr. Bell. We do. Mr. Douglas. Always? Mr. Bell. Always. Mr. Douglas. Never any change in that? Mr. Bell. We never add any value. If they depreciate in value Ave charge off depreciation. Mr. Douglas. You must be very lonely and isolated in that posi- tion in this and every other community, are you not ? Mr. Bell. I do not think so; not among bankers. I may be among insurance companies. Mr. Douglas. We are talking about bankers. Mr. Bell. I do not think I am. Mr. Douglas. We will test that a little later. Mr. Bell. I will be glad to do so. Mr. Douglas. Do you mean to say, Mr. Bell, that if you have bonds of a railroad company or any other organization or any other corporation you are compelled, in your judgment, to carry those bonds at exactly what they cost you? Mr. Bell. I did not say we were compelled to do it. I told you what we did. Mr. Douglas. Why do you do it? Mr. Bell. Because I think it is proper banking. Mr. Douglas. Would it be improper banking to carry them at their real value? Mr. Bell. I think it would be very improper banking. Mr. Douglas. As to all kinds of property? Mr. Bell. To show that as earnings? Mr. Douglas. As to all kinds of property. I am not talking about earnings. I am asking you about how you carry it on your books, and you say you carry these things on your books at just what they cost you? Mr. Bell. Yes. Mr. Douglas. Whatever the asset may be, real or personal ; is that right? Mr. Bell. No; we carry, for example, our real estate at less than it cost us. We have charged off $29,000 to cover depreciation. Mr. Douglas. I am not taking your particular company. I am talking about the custom. Mr. Bell. I do not know what you are asking. You can ask Mr. Hoover about his bank, and Mr. Stellwagen about his, and I will answer about mine. Mr. Douglas. I am going to ask you about his. Mr. Bell. I do not know anything about it. Mr. Douglas. I will find out whether you do or not. Mr. Bell. You are at perfect liberty to find out. 384 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. You said just now — and I want to hold you to that statement — that you know about the bankers in this community. Mr. Bell. I said about the American Security & Trust Co. Mr. Douglas. Do you not remember you rather facetiously said you knew about the banks, but did not know what insurance compa- nies did? Mr. Bell. I do. I do not say all bankers do what they should. Mr. Douglas. You are not going to put the American Security & Trust Co. in the solitary position of being the only one ? Mr. Bell. Absolutely not. Mr. Douglas. Do you mean to say banks do not? You said awhile ago that all bankers acted the way you do; that is to say, the way the American Security & Trust Co. does, namely, carry their assets at what they cost. Mr. Bell. If you will allow me, I will state it is the practice of several banks here I know, if they buy bonds at a premium, to charge the premium right off to profit and loss and only carry the bonds at par. Mr. Douglas. That is right, is it not? Mr. Bell. That is absolutely right. Therefore they carry them at less than they cost. Mr. Douglas. Let us consider the bankers' proposition for a mo- ment. Mr. Bell. I will be very glad to ; I am familiar with that. Mr. Douglas. You acknowledged you are not familiar with the subject we have been talking about all morning — insurance? Mr. Bell. Not to the extent I am with banking. I do not profess to be. Mr. Doiclas. Suppose a banking institution in this town buys a piece of property, whether it is real property or personal property, do you mean to convey the idea to this committee that it is the duty of that bank to carry it at what it cost without regard to what it is worth ? Mr. Bell. I do not say it is the duty of the bank to do so. Mr. Douglas. Do you say banks generally do it? Mr. Bell. I should say they generally do. Mr. Douglas. They do? Mr. Bell. I should say so. Mr. Douglas. As to personal property and real property, both? Mr. Bell. I should say that is the general rule. There are other bankers here who could- correct me if I am wrong, but I should say that is the general rule. Mr. Douglas. Bankers do not innate at all as to any property, even to the extent of its value, in carrying it on their books ? Mr. Bell". I should say not. If they sell securities they undoubtedly would take credit for the difference in price which they paid and at which they sold. Mr. Douglas. Is that so as to real estate with trust companies and banks in this town? Mr. Bell. Trust companies do not buy any real estate unless they have to take it in under foreclosure. Mr. Douglas. Is that so? Mr. Bell. Yes. Mr. Douglas. You did not secure yours by foreclosure? INVESTIGATION OF INSUKANCE COMPANIES. 385 Mr. Bell. I mean to say outside of their bank buildings. I will be very glad to give figures on our bank building if you want them. We have reduced the value. Mr. Douglas. There is no possible attack on the American Se- curity & Trust Co. here? I am asking about the general custom, because there has been an attack upon very reputable gentlemen in con- nection with that dividend, and in connection with the statement here that there were increased earnings of this company because there was increased profit in this building. You yourself have made an attack upon that. Mr. Bell. I have not meant to make an attack upon the gentlemen at all. Mr. Douglas. You said that if this Southern Building was bought by these people, and if they should ascertain the fact by competent appraisement that that building was worth more than they paid for it, they had no right to claim they had earned a profit by the trans- action. Mr. Bell. I go a little further, if you want me to give my true opinion. Mr. Douglas. I thought you were giving that all along ? Mr. Bell. No ; I am trying to give you a little further information of why I think so. I do not believe a half interest in a property subject to a mortgage, which they admit themselves is nearly 70 per cent of the value they put on the property, is a proper asset for any insurance company to hold. Mr. Douglas. I have no doubt you think that. Mr. Bell. And I will give as a further reason for that, if the Commercial Fire Insurance Co. should, through unfortunate losses made in the business — and they all make them — be wiped out and the creditors then should come down, they would probably have to sell that building and have to get a partition and have the property of another insurance company dragged into the losses which they might make, and therefore I think a half interest, if these state- ments are correct, an undivided one-half interest in a small equity in a building, is not a proper asset for those gentlemen, with all their eminent respectability and integrity. I think it is purely a matter of judgment, and I do not for one moment question the integrity of any of these gentlemen, and I do not desire to be put in the attitude of so doing. I think they have made a very decided error of judgment. Mr. Douglas. That is all very interesting, and I expect to interro- gate you about that phase of the matter later. But I was not asking you about it. I was asking about this question of earnings. Assum- ing they had a right to buy real estate, you admit they have a right to whatever profit there may be or whatever increment there may be in it, do you not ? Mr. Bell. When they sell ? Mr. Douglas. Whether they sell or not. Mr. Bell. How are you to fix the increment? I can get three gentlemen to-morrow, reputable experts, so called, in real estate, who will value any building and any lot you choose to pick out Mr. Douglas (interposing). At any price? Mr. Bell. No. Their values, given in good faith, will vary from 25 per cent to 50 per cent. I will guarantee I can get men who will 386 INVESTIGATION OF INSUKANCE COMPANIES. honestly give me their opinion that my corner — I will take that — is worth anywhere from $40 to $75 a foot, and they will all be honest in. their opinions. Then if I were to declare a dividend on the sup- position that that property is worth $75 a foot because three gentle- men said so, I should think I was not acting properly toward my stockholders. Mr. Douglas. There is nothing of that sort here. This dividend was declared in July. Mr. Bell. I know nothing about that. Mr. Douglas. I call your attention to that now for fear some mis- understanding might arise. The dividend was declared in July and the property was acquired in October. Mr. Bell. This has nothing to do with the dividend. You asked the question whether I do not think they would be justified Mr. Douglas (interposing). Mr. Bell, I do not want to tax your patience or that of the committee, but this seems to me to be a matter of some importance. Col. Judson has asked you to sit in judgment upon these gentlemen. Mr. Bell. I regret very much to be put in that attitude. Mr. Douglas. I am not trying to bring you into any false posi- tion in criticising these gentlemen. Mr. Bell. I am not criticising the integrity of these gentlemen. Mr. Douglas. He had you use the expression, with reference to Judge Atkinson and with reference to Mr. Wynne and Judge Gould and Mr. Carnsi and all these other gentlemen, that they had been guilty of " false pretenses." That is the position Col. Juason placed you in this morning. I know you do not mean it, and I intend to in- terrogate you with reference to it : Whereas the capital and surplus of the company have been recently mate- rially increased, and the company has earned for its stockholders a large sum of money, in addition to paying the regular 12 per cent dividend, thereby increas- ing the amount of surplus on hand, etc. Suppose these gentlemen, in the writing and passage of that reso- lution, had in mind the appraisement of this building and entertained the honest opinion that this property was worth what the appraisers said it was worth, could you for one moment characterize their con- duct in passing this resolution and using this language as " false pretenses " under any circumstances ? Mr. Bell. No ; I should say those gentlemen were very negligent. Mr. Douglas. In believing the appraisers to be right? Mr. Bell. In taking that as being a revenue of the company, and so stating in the resolution. Mr. Douglas. And adding materially to its assets. You think they were wrong in that ? Mr. Bell. I do not believe they did add materially to their assets. Mr. Douglas. Assuming they did add to them, assuming this value was there, assuming you are wrong in this instance, as you were when you advised Father Lee to sell this property — ■ — Mr. Bell (interposing). I do not think I was wrong. Mr. Douglas. We will see in a moment about that. Assuming you were wrong in your judgment and they were right, assuming that the increment was there, that the real value was there, could they not honestly make this statement here and not subject themselves to INVESTIGATION OF INSURANCE COMPANIES. 387 even the criticism of Col. Judson in characterizing it as false pre- tenses ? Do you not think that is correct ? Mr. Bell. I decline to answer. Mr. Douglas. Upon what ground do you decline to answer ? Mr. Bell. Because I do not care to express an opinion Mr. Douglas. You have expressed the opinion, under cross- examination of Col. Judson, that there was a false pretense here. Do you adhere to that, in the face of the fact Mr. Bell (interposing). I do not believe any of those gentlemen would be guilty of false pretenses. Mr. Douglas. You do not? Mr. Bell. I do not. Mr. Douglas. You think Col. Judson was wrong in seeking to put those words into your mouth, do you not, Mr. Bell ? Mr. Bell. As referring to the gentlemen you have named ? Mr. Douglas. Yes. Mr. Bell. I do. Mr. Douglas. I inform you now that those gentlemen are on the board, and it was those gentlemen whom Col. Judson was seeking to have you thus criticize. Now I will move on. Suppose this property had been appraised by Mr. Stellwagen, by Mr. Glover, by Mr. Hoover, and by Mr. Bell, as being really and truly worth $2,000,000, would not those gentle- men have a right to feel their insurance company was stronger after they had bought the Southern Building than before, that its assets were more valuable and its operations were more profitable ? Would they not have a right to assume that ? Mr. Bell. They might assume it; I do not know. It would be very foolish. Mr. Douglas. Would not they have the right to assume it, under the circumstances I have detailed to you? Mr. Bell. That they would have the right to assume Mr. Douglas (interposing). That the company was stronger? Mr. Bell. If you leave my name out. Mr. Douglas. I will leave' out your name and name the other gentlemen as three conservative men. They would have the right to feel the company was stronger, that its assets were more valuable, and its operations more profitable, after they had acquired the Southern Building, with the increased value, as testified to by Mr. Hoover and Mr. Glover and Mr. Stellwagen? Mr. Bell. I do not think they should think so. Mr. Douglas. They would have a right to' think it ? Mr. Bell. I do not think they should ; no. Mr. Douglas. They would not have a right to think it was more valuable ? Mr. Bell. I do not think so. Mr. Douglas. Let me ask you this question: Suppose you bought a house and lot for $25,000 and to-morrow morning a man, clothed in his right senses, a sane man, should come and offer you $50,000 for it, $25,000 profit; would you not feel that you were a little stronger financially than you were the day before ? • Mr. Bell. Oh, yes; if somebody offered me that money. But if some one came in and told me that my property, for which I had paid $25,000 was really worth $40,000 I should wait until I got the $40,000. 388 INVESTIGATION - OP INSURANCE COMPANIES. Mr. Douglas. That would be somewhat affected by your judgment of his judgment, would it not? Mr. Bell. To a great extent. Mr. Douglas. So, after all, this thing, when boiled down, is a ques- tion of judgment as to the value of the Southern Building? Mr. Bell. It is; exactly. Mr. Douglas. If these gentlemen who did appraise it exercised bad judgment, why. then ; it is one thing; if they exercised good judg- ment, it is another thing, is it not? That is correct, is it not? Mr. Bell. That is undoubtedly correct. Mr. Douglas. Let us come down now to the question of the ap- praisers here. Do you know these gentlemen who appraised this building ? Mr. Bell. I know them slightly; yes. Mr. Douglas. You know Mr. Hensey? Mr. Bell. Yes. Mr. Douglas. Of the firm of Schwartzell, Rheem & Hensey? Mr. Bell. Yes. Mr. Douglas. He is a competent real estate man, is he not ? Mr. Bell. Yes. Mr. Douglas. You would have some confidence in his judgment, would you not ? Mr. Bell. Yes. Mi-. Douglas. Let us take Mr. Lipscomb, now : Do you know a more reputable, high-class builder in this town than Mr. Lipscomb? Mr. Bell. Xo. Mr. Douglas. A man of integrity, personally? Mr. Bell. Undoubtedly. Mr. Douglas. And Mr. Darneille was a competent assessor while he assessed property for the District, was he not? Mr. Bell. I think so. Mr. Douglas. But, nevertheless, you think these gentlemen ap- praised this property about a half million dollars beyond its value? Mr. Bell. I do. Mr. Douglas. In appraising property where it has improvements upon it, of course, you take into account not only the land, but the buildings ? Mr. Bell. Undoubtedly. Mr. Douglas. In forming your opinion, then, that the property was worth $1,400,000, did you take into account the size of the build- ing? Mr. Bell. Yes; generally. Mr. Douglas. What is its size, Mr. Bell ? Mr. Bell. It covers some 11,000 feet of ground, I think. Mr. Douglas. How much? Mr. Bell. I think about 11,000 feet. Mr. Douglas. You based your value, of course, to some extent, upon the size of the building? Mr. Bell. Which value, now, are you speaking of? Mr. Douglas. I am talking about the Southern Building, of course. The valuation you have placed upon it was $1,400,000. Mr. Bell. I took the value of the land, which I should put gener- ally at $30 a foot, and added to that what I understood to be the cost ■of the building. I may be wrong in that. INVESTIGATION OF INSURANCE COMPANIES. 389 Mr. Douglas. You understood the building covered an area of about 11,000 feet? Mr. Bell. I do not remember the number of feet. Mr. Douglas. You said 11,000 feet a moment ago. Why did you say that? Mr. Bell. I was simply trying to remember. Oh, no; I am very decidedly off on that. Mr. Douglas. It is just exactly one-half the size of the building. Mr. Bell. Yes. Mr. Douglas. Which covers 22,200 feet. Mr. Bell. Twenty-two thousand feet. Mr. Douglas. Have you ever been in the Southern Building? Mr. Bell. Yes. Mr. Douglas. How many times? Mr. Bell. Two or three times. Mr. Douglas. What floor did you go upon ? Mr. Bell. I really could not tell you. I took an elevator once— a long time ago — went up in the building and walked down. Mr. Douglas. Walked on where — out on the roof? Mr. Bell. Oh, no ; I walked down. Mr. Douglas. I beg pardon; I did not catch the word. That is all you know about this building? Mr. Bell. That is practically all. Mr. Douglas. Have you any idea what it would cost per cubic foot to build this building? Mr. Bell. I have not. Mr. Douglas. Have you any idea how many cubic feet are in the building? Mr. Bell. I have not. Mr. Douglas. Can you come within 1,000,000 cubic feet of it? Mr. Bell. I have not tried. Mr. Douglas. Will you try ? Mr. Bell. I will not. Mr. Douglas. You will not? Mr. Bell. No. Mr. Douglas. You think, without knowing the multiplicands or the multiplier, you can ascertain this sum? Mr. Bell. Ascertain which sum ? Mr; Douglas. The sum of the value of this building. What do you put this building at, Mr. Bell ? Mr. Bell. I put the Mr. Douglas (interposing). The ground at $30 a foot? Mr. Bell. And I understand the building cost in the neighbor* hood of $800,000. Mr. Douglas. And you put the building at that ? Mr. Bell. At approximately that. Mr. Douglas. Without having any reliable information as to what it cost? Mr. Bell. I have seen it in some of the statements of the Southern Building. Mr. Douglas. Supposing that this building cost $907,000, what would you say then ? Mr. Bell. I should say it should be put down at $907,000. Mr. Douglas. Do you know when this building was completed? 3.90 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bell. I could not say ; no. Mr. Douglas. Approximately, Mr. Bell? Mr. Bell. I should say about two years ago. Mr. Douglas. Would you say a building like that, in Washington, could be put up as cheaply now as it could two years ago ? Mr. Bell. I should think so. Mr. Douglas. Do you know anything about the relative cost of steel and material generally used in buildings now as compared with two years ago? Mr. Bell. I think steel is higher. Mr. Douglas. And so with all building materials and labor ; is not that right? Mr. Bell. No ; I do not know that. Mr. Douglas. Suppose Mr. Lipscomb should say there would be a difference of at least between $45,000 and $50,000 in the increased cost of steel and other building materials in this building now as com- pared with two years ago, would you accept his judgment? Mr. Bell. I should. Mr. Douglas. So if this building cost $907,000 two years ago, and if Mr. Lipscomb says it would take $50,000 more now than then, it would carry the cost of the building to $957,000, would it not? Mr. Bell. If these statements are correct. Mr. Douglas. Have you any idea what is the proper cost for the building of a structure per cubic foot? Could you say? Mr. Bell. They vary. It depends entirely on the character of the building. Mr. Douglas. They vary from thirty to fifty-odd cents? Mr. Bell. From 25 to 45 cents a cubic foot. Mr. Douglas. Do you think about 35 to 40 cents would be an ex- cessive charge on this building? Mr. Bell. I con Id not answer that. Mr. Douglas. What would be your judgment? Mr. Bell. I should think around 30 cents a cubic foot. Mr. Douglas. Without having any idea as to the character of mate- rials or the thickness of walls, and so forth ? Mr. Bell. I say, you are trying to make me say things that I do not want to say. Mr. Douglas. I could not possibly do that, Mr. Bell. Mr. Bell. I think you are trying pretty hard. Mr. Douglas. You are saying exactly what I thought you would say, and what you ought to say. You have testified to the value of this building, without having any idea of what is in it or over it. Coming to the cost of the land itself, Mr. George asked you if you did not take a rather pessimistic view ; that is not the word he used, but rather an excessively conservative view of the value of real estate, because of your habit of looking upon real estate from the standpoint of the lender of money, which I thought was a pertinent inquiry. You said, in a way, yes. I will ask you when Father Lee came to you to counsel with you about the sale of this property, in 1909, if you did not counsel him to sell that property at $18 a foot? Mr. Bell. No ; I can not say that I did. Mr. Douglas. He took your advice? Mr. Bell. I do not think he did. I think he told me he had made the sale at that price. INVESTIGATION OF INSURANCE COMPANIES. 391 Mr. Douglas. I understood you to tell the chairman of this com- mittee that he advised with you about the sale. Mr. Bell. He had talked with me about the sale a number of times. I can not recollect whether he consulted me just before or just after he had closed the sale. Mr. Douglas. He would hardly consult with you after the sale, would he? Mr. Bell. Yes; because he took a mortgage for a very large amount of the purchase price, and asked my judgment as to the ad- visability of taking that. Mr. Douglas. Did not he advise with you before he sold as to what price he would sell at? Mr. Bell. That I could not say, Mr. Douglas. He had talked to me about it a number of times. Mr. Douglas. You told him, did you not, that $18 was a reasonable price for the property ? Mr. Bell. I do not know that I told him that. Mr. Douglas. Was that a reasonable price for it ? Mr. Bell. At that time? Mr. Douglas. Yes. Mr. Bell. It was rather a low price. Mr. Douglas. Did you not tell him it was a proper price and advise him to accept it? Mr. Bell. I could not say I did that. Mr. Douglas. You do not say you did not ? Mr. Bell. I do not say that I did not. I could not tell you. Mr. Douglas. You are now putting that property at $30 a foot? Mr. Bell. I should say it was worth that. Mr. Douglas. Why did you say, at the commencement of your examination, that you now put it at $30, after hearing the testimony on Saturday? Mr. Bell. Because a number of gentlemen stated that offers of a much higher price than I had known of had been made for adjoining properties, or properties in that same neighborhood. That being so, I should raise the value of that corner. Mr. Douglas. To $35 a foot?' Mr. Bell. And consider it a more valuable corner. Mr. Douglas. So if it is worth $35 a foot now, and was worth $18 a foot three years ago, it has practically increased in value 100 per cent in three years ? Mr. Bell. Yes. Mr. Douglas. As it turned out it would have been a very profit- able transaction for Father Lee to have held this property ? Mr. Bell. Oh, no. I think, if you have had experience in real estate, you know that increase in value comes through repeated sales. It is very rare that the value of property goes up without inter- mediate sales taking place. Mr. Douglas. There was but one here L was there? There was only one link between Father Lee and the Commercial Fire In- surance Co.? Mr. Bell. I think there were two. I thought a syndicate bought it and transferred it at a profit to the Southern Building Corporation. Mr. Douglas. Your impression is that there were two ? Mr. Bell. I had the impression that there were two ; yes. 392 INVESTIGATION- OF INSURANCE COMPANIES. Mr. Douglas. Do you know of any property around there — do you know of any corner to the east of Vermont Avenue and to the south of H Street as far east as Seventh Street that can be bought for $30 a foot? Mr. Bell. I do not know, really. I never looked into the question. Mr. Douglas. You have expressed your opinion about the value of this property and you put it down to $30 a foot. I want to know if you know of any corner in that section that can be bought for that price. Mr. Bell. At $30 a foot? Mr. Douglas. Yes. Mr. Bell. I could not answer that question at all. Mr. Douglas. Is there anything peculiar about this corner that would make it so low in price as you see it? It is a valuable corner, is it not? Mr. Bell. Undoubtedly. Mr. Douglas. It is splendidly proportioned as to the number of feet — that is to say, 148 by 150. It is a fine shape for an office building? Mr. Bell. Yes. Mr. Douglas. Is there not a 20-foot, brick-paved alley that almost amounts to a street that runs all the way from Fifteenth to Four- teenth Street right immediately to the north ? Mr. Bell. There is an alley ; I do not know what size. Mr. Douglas. You know it is quite a large alley ? Mr. Bell. Yes. Mr. Douglas. That adds considerably to the value of the property, does it not? Mr. Bell. That adds to it, undoubtedly. Mr. Douglas. I ask you now if you know of any inside lot on H Street, between Fourteenth Street and Vermont Avenue, that can be bought for less than $30 a foot. Mr. Bell. I know absolutety nothing about it. I have made no attempt to buy any property in there. Mr. Douglas. You do not know anything about it; have you ever heard of any? This development is within a block of your trust company. Have you ever heard of any within the last month that could be bought at any price under $30 a foot ? Mr. Bell. No. I do not know of any for sale at $30 or $40, either. Mr. Douglas. This corner is a pretty valuable corner, is it not? Mr. Bell. Undoubtedly. Mr. Douglas. And is going to be pretty much of a center for the city ? Mr. Bell. Yes. Mr. Douglas. It is just one block from the American Security & Trust Co.? Mr. Bell. That adds to its value. Mr. Douglas. That is the very reason I was coming to it now. Would you mind telling us at what you value your land there at the corner of New York Avenue and Fifteenth Street ? Mr. Bell. I should say our land was worth $50 a foot; perhaps $60 a foot. Mr. Douglas. What is our friend Hoover's land worth, across the street. INVESTIGATION OF INSUKANCE COMPANIES. 393 Mr. Bell. That is less land. I presume it is worth a little more. Mr. Douglas. How much would vou say ? Mr. Bell. It is worth $60 or $75 a foot. Mr. Douglas. Any more than that ? Mr. Bell. It might be. Mr. Douglas. Is it worth as much as $80 a foot ? Mr. Bell. It is extremely difficult to place a value on any lot. Mr. Douglas. But you did not have much difficulty in placing a value on the Southern "Building. Mr. Bell. No ; I placed that on what I believed was the sale price. Mr. Douglas. That is what I Avant you to do with the others. Mr. Bell. The others have not been sold. Mr. Douglas. But' the sale there, you say, is at a figure without regard to what they think it is worth. I want to know what you think Mr. Hoover's corner is worth. Mr. Bell. I should say it is worth $75 a foot, sixty or seventy-five dollars a foot. Mr. Douglas. What is the George Washington property, at the other corner, across the street to the south, worth — the old George Washington Hotel ? Mr. Bell. I think that is a very valuable corner. Mr. Douglas. How much would you think that is worth ? Mr. Bell. How much do you take in? I valued the corner prop- erty, not all the property they own along New York Avenue. I was valuing the little wedge piece there. Mr. Douglas. You were valuing the' original National Savings & Trust Co. Building? Mr. Bell. Yes. Mr. Douglas. You did not mean to value the Lenman Building in there ? Mr. Bell. No ; I do not think that is worth $20 a foot. Mr. Douglas. What? Mr. Bell. I should not think it is worth over $20 or $25 a foot, the Lenman property. I do not know anything about it. Mr. Douglas. Only $20 a foot for the Lenman Building property ? Mr. Bell. It might be $25 ; I do not know.. Mr. Douglas. Do you not think you have dropped into your pessi- mistic rut again? Mr. Bell. I may have. Mr. Douglas. Mr. Hoover is a pretty good business man ? Mr. Bell. I do not know what they paid for it. Mr. Douglas. Suppose they paid' $22 or $23 or $25 a foot five years ago; that would alter your judgment somewhat? Mr. Bell. I do not think there has been so much increase in value along that part of New York Avenue as there has been on the other. Mr. Douglas. Would you think the Lenman Building worth as much or more per foot, being an inside building, than the Southern Building ? Mr. Bell. I should think the Southern Building, being on the corner, was mere valuable. Mr. Douglas. Do yon think it is $5 or $10 a foot more valuable than the Lenman Building? Mr. Bell. I should say so. 71391— No. 4—12 i 394 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. If you became satisfied that the Lenman Building was being held by these gentlemen at $40 a foot, would that alter your judgment as to its being worth only $20? Mr. Bell. I did not say $20. I rather put that at $25. Mr. Douglas. We will let you put it at $25. Mr. Bell. No; I do not know that. Mr. Douglas. What about the corner of New York Avenue and Fourteenth Street? Is that a valuable corner? Mr. Bell. That is quite a valuable corner. Mr. Douglas. You have something to do with the estate of the gentleman who owned the Oxford Hotel ? Mr. Bell. We are trustees of that estate. Mr. Douglas. The Oxford Hotel corner is the northwest corner of Fourteenth and New York Avenue. Is that worth $75 a foot? Mr. Bell. Taking the property as a whole ? Mr. Douglas. No; just the Oxford Hotel building. Mr. Bell. I should sav it was worth from $50 to $75 a foot. Mr. Douglas. From $50 to $75 a foot? Mr. Bell. Just the corner portion. Not the whole property. I do not know about that. Mr. Douglas. What would you say about the corner also owned by the Walsh estate, at Fourteenth and H — the southwest corner? That is worth $50 or $60 a foot, is it not? Mr. Bell. Sir? Mr. Douglas. That is worth $50 or $60 a foot, is it not? Mr. Bell. I really could not say. Mr. Douglas. Sir? Mr. Bell. I could not say. Mr. Douglas. Is the Blackistone corner worth $50 a foot? Mr. Bell. I should not pay that for it. Mr. Douglas. Is the Montrose Building or lot worth $50 a foot? Mr. Bell. I should not think so. Mr. Douglas. You said you were largely affected by actual sales? Mr. Bell. Yes. Mr. Douglas. Suppose you were reliably informed, and you were satisfied, that that property sold in the last seven or eight months for $50.48 a foot, cash Mr. Bell. Cash? Mr. Douglas. Yes. Mr. Bell. Did it? Mr. Douglas. It did. Mr. Bell. That surprises me. I did not know it. Mr. Douglas. And would you put that other corner across there to the southeast of that intersection as low as our friend Stellwagen, who put it at $25 a foot ? Mr. Bell. Which lot is that ? Mr. Douglas. The lot to the southeast of the intersection of Four- teenth and H. There is a flower store either on the corner or close to the corner; directly across from the Blackistone corner and oppo- site the Montrose; the east side of Fourteenth Street and the south side of H. Mr. Bell. What is the size of that lot? A corner lot of 20,000 square feet or a corner lot of 5,000 square feet would vary, in my opinion, very much in value. INVESTIGATION OF INSURANCE COMPANIES. 395 Mr. Douglas. Let us take it any way you want. What is that property worth there ? Say 50 feet front by 100 feet deep. Mr. Bell. On the corner of Fourteenth and H? Mr. Douglas. Yes ; on the corner of Fourteenth and H — the south- east intersection. Mr. Bell. I should think $30 or $40 a foot. Mr. Douglas. $40 a foot? Mr. Bell. Thirty or forty. Mr. Johnson. Mr. Douglas, it is 1 o'clock. Mr. Douglas. Yes ; I will suspend. Mr. Johnson. Mr. Bell, Mr. Douglas not being through with you and Col. Judson desiring to ask you some questions, I will have to ask you to come back. Mr. Bell. All right, sir. Mr. Johnson. I think it very well, gentlemen, that we meet at 2 o'clock to-day and adjourn at 3, and at 3 o'clock we will adjourn until 10 o'clock on the morning of the 2d of January. Whereupon, at 1.03 o'clock p. m., a recess was taken until 2 o'clock p. m. AFTER RECESS. The subcommittee met pursuant to the taking of recess at 2 o'clock p. m. TESTIMONY OF MR. CHARLES J. BELL— Continued. Mr. Johnson. You might go ahead, Mr. Easby-Smith. Mr. Easby-Smith. Mr. Douglas said he had a few more ques- tions. Mr. Douglas. Yes; just two or three more questions. Mr. Bell, have you heard of any offer for the George Washington property — the Nairn property — down there in the last year? Mr. Bell. No; I have not. Mr. Douglas. What did you say your opinion was as to the value of that property? Mr. Bell. I should put it at fifty or sixty dollars a foot. Mr. Douglas. You do not know of an offer as high as $100 a foot for that property? Mr. Bell. I do not. Mr. Douglas. You do not? Mr. Bell. I do not mean to say there has not been one. I do not know of it. Mr. Douglas. And $50 a foot Mr. Bell (interposing). Fifty or sixty dollars, I should say. Mr. Douglas. Fifty or sixty dollars? Mr. Bell. Yes. Mr. Douglas. And that is an illustration of your scale of prices on property in that region of the city — fifty or sixty dollars a foot for the George Washington and Nairn property, on the corner of Fifteenth and New York Avenue? Mr. Bell. Yes. Mr. Douglas. Mr. Bell, did you state why you sent that letter to Mr. Stellwagen that you did send with reference to these insurance companies? 396 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bell. I think so. Mr. Douglas. What was your reason for sending it to him? Mr. Bell. Why, I will go back a little. I do not know that I went into it fully, as I had to think it over why I did. Some months ago Mr. Stellwagen and myself were discussing general business — bank- ing business — in the city of Washington, and he told me he had quite a large number of vacancies in his building, and that it was much more difficult to make money now than it was to make it a few years ago, in which I thoroughly agreed with him; that the per- centage of profit was very much smaller, and you had to do it on a larger volume of business. That letter was lying in front of me on my desk, and I do not remember — I had something else to send up to Mr. Stellwagen — and I picked that up and just wrote a jocular memorandum on it, " Here is an opportunity to make money rapidly." Mr. Douglas. And he took that letter, which you meant as a joke, took it as something serious, and used it? Mr. Bell. T do not know how he took it. He used it. Mr. Douglas. You heard him say yesterday he used it? Mr. Bell. Oh, yes. he did. Mr. Douglas. And Col. Judson said he used it? Mr. Bell. I so understood. Mr. Douglas. Did Mr. Stellwagen give you a copy of the report of the Commercial Fire Insurance Co. in the same jocular vein? Mr. Bell. No ; I do not think he did. Mr. Doiglas. Did he ask you to examine it? Mr. Bell. I could not say whether he asked me to — yes ; he asked me to read it. Mr. Douglas. And you thought, after you looked into that state- ment of the Commercial Fire Insurance Co., that it, at least, needed explanation, did you not? Mr. Bell. I did ; yes. Mr. Douglas. Can you state to the committee any reason why you did not call upon the gentlemen whom you had known for years on that board before you expressed your opinion ? Mr. Bell. I do not know who are on the board of the Commercial Fire. Who are they? Mr. Douglas. Did you not know that Gen. Wynne was on that board ? Mr. Bell. I had an idea he was ; yes. Mr. Douglas. You knew Judge Gould was on the board, did you not ? Mr. Bell. I should not have thought of going to those gentlemen for an explanation. Mr. Douglas. You should not have thought of going to them for an explanation ? Mr. Bell. No. Mr. Douglas. You could not imagine that they might have had an explanation ? Mr. Bell. I was not calling for one. Mr. Douglas. You said a moment ago it needed explanation. Mr. Bell. I think it needs explanation now that it has come to be public. I had not the faintest idea that my handing that letter to Mr. Stellwagen would ever reach anyone else. In fact, two or three days after that, when I saw Mr. Stellwagen, I asked him to return it INVESTIGATION OF INSURANCE COMPANIES. 397 to me, and that is the first time I knew it was in the hands of the commissioners. Mr. Douglas. Who clipped out of it the name of the American Security & Trust Co. ? Mr. Bell. The name of the American Security & Trust Co. was not clipped out of it. Mr. Douglas. That letter was not addressed to you ? Mr. Bell. No ; it was not. Mr. Douglas. How did you get possession of it ? Mr. Bell. It was handed to me by a gentleman. Mr. Douglas. By whom? Mr. Bell. By Mr. Thorn. Mr. Douglas. Mr. who? Mr. Bell. Mr. Thom, our vice president. Mr. Douglas. Where did he get it? Mr. Bell. I do not know. Mr. Douglas. Was the name clipped out of it when you got it ? Mr. Bell. Yes, sir. Mr. Douglas. Do you know why it was. Mr. Bell. I presume whoever clipped it out, did not want his name connected with it. Mr. Douglas. Somebody in Washington ? Mr. Bell. I do not know. Mr. Douglas. How many local fire insurance companies are there in Washington? Mr. Bell. Well, there is the German- American, the Potomac, the Franklin, the Arlington, the Commercial Mr. Douglas. The Corcoran. Mr. Bell. The First National, and then, I understand, there is the National Assurance Co. I do not know anything about it. I do not think it does any business. Mr. Douglas. With what banking institutions do those local fire insurance companies do business here? Mr. Bell. Well, I do not know. Mr. Douglas. What ones of them do business with the American Security & Trust Co.? Mr. Bell. None that I know of. Mr. Douglas. What is the relation between the Arlington and the Biggs National Bank ? Mr. Bell. You will have to ask the Biggs National Bank. I do not know. Mr. Douglas. You do not know yourself? Mr. Bell. I do not. When I say I do not know, I do not believe there is any relation. Mr. Douglas. There might possibly be a relation in the nature of a depositor and depository? Mr. Bell. Very likely. I should like to be related to them all in that way. We may possibly have such an account, but I do not know it. Mr. Douglas. I suppose you knew of the complaint here among the local fire insurance people about the Commercial cutting rates, did you not? . Mr. Bell. No; I think the great complaint I heard was against the foreign companies, not against the Commercial. 398 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Douglas. You knew the Commercial had cut rates ? Mr. Bell. I did not. Mr. Douglas. You did not know they had cut commissions to agents entirely out? Mr. Bell. I did not. I heard that here on Saturday. Mr. Douglas. For the benefit of policy holders ? Mr. Bell. No ; I did not. Mr. Douglas. That is all. Mr. Easby-Smith. Mr. Bell, I understood you to state early in your examination that your criticism of the conditions, as revealed by this report, were founded upon the report itself and the facts and figures contained in the report? Mr. Bell. That is not my only criticism of the methods of the company. Of course, I may have had my ideas about other things contained in the report. Mr. Easby- Smith. You stated that the first thing that attracted your attention was that the report showed an equity in that Southern Bulding property carried as an asset ; that that was one of your criti- cisms; that is, that they carried in conjunction with another insurance company one-half of the equity in that building as an asset? Mr. Bell. I think it is a poor asset. Mr. Easby- Smith. Yes. Mr. Bell. I did not criticize them for carrying it, because, of course, they had to carry it. Mr. Easbt-Smith. And vou learned that fact from the report itself? Mr. Bell. I learned that fact, I imagine, from the report itself, or from — as I recollect it, there was some explanation under the head of real estate. Mr. Easby-Smith. Contained in the report? Mr. Bell. That is my recollection. Mr. Easby-Smith. And another criticism was that the report showed that the company in the preceding 10 months had lost a large amount of money? Mr. Bell. I do not know whether the report showed that. My figures, based on the report, appeared to show that. Mr. Easby-Smith. Yes. And that was verified by reference to the preceding report of the commissioner of insurance Mr. Bell. I did not Mr. Easby-Smith (interposing). You learned that afterwards? Mr. Bell. I learned that just now. Mr. Easby-Smith. Now, those things were apparent upon the face of the report, were they not ? Mr. Bell. What things? Mr. Easby-Smith. The things which you criticized ? Mr. Bell. Yes. Mr. Easby-Smith. Have you learned any facts concerning these companies which are to be criticized which do not appear in this report of the superintendent of insurance under date of November 8? Mr. Bell. I have heard a great many things — a great many criti- cisms of the companies. Mr. Easby-Smith. I was speaking of facts. What I am trying to get at is this, as to whether or not, in your opinion, Mr. Ingham, the INVESTIGATION OF INSURANCE COMPANIES. 399 superintendent of insurance, is to be criticized for not putting in this report the facts as they existed. Mr. Bell. I do not know what the law calls for in a report at all. I do not criticize Mr. Ingham at all. Mr. Easbt-Smith. Now, I will repeat the question so that you will understand my purpose. Have you learned any facts concerning the conduct of business by this company which is not deducible from the report itself? Mr. Bell. No. I mean by " facts,"' facts from my own knowledge, and not simply what has been current gossip on the street. Mr. Easby-Smith. If you will refer to the report, please, Mr. Bell — according to this report Mr. Bell (interposing). I do not know what this is [exhibiting paper] . Col. Jtjdson. I will lend you this one. That is the original [hand- ing paper to Mr. Bell]. Mr. Easbt-Smith. According to this report the total ledger assets amount to $739,987.90. Mr. Bell. Yes. Mr. Easby-Smith. There are some non-ledger assets added, making the gross asssets $745,047.71. Mr. Bell. Yes. Mr. Easby-Smith. From which is deducted the book value of bonds over the market value of $1,341.02, leaving total assets, as ad- mitted by the insurance department, of $743,706.69. Now, suppose, Mr. Bell, we take the difference between the value of the equity in the real estate as carried upon the books of the Commercial, $331,922.06, and deduct from that the price which that equity cost the Commercial, namely, $123,285, which will make a difference of $208,637.06. Are you following these items ? Mr. Bell. I am trying to. Mr. Easby-Smith. I do not ask you to follow the subtraction. Suppose we take that $208,637.06, which is the increment, if there be an increment, between the cost price and the price of the property as carried upon the books of the company ; let us eliminate that entire $208,000 and subtract it from the surplus of $566,745.99, and it will leave Col. Jtjdson (interposing) . A surplus as regards policy holders. Mr. Easby-Smith. Yes; a surplus as regards policy holders of $358,108.93. Col. Judson. And how much as regards Mr. Easby-Smith (interposing). Mr. Judson, you may take the witness when I get through. Col. Jtjdson. very well. Mr. Easby-Smith. I am following my own line of thought now. We have, then, surplus as regards policy holders after having elimi- nated this entire increment of $358,108.93. Now, suppose we deduct from that the capital stock of $337,307.50, and we have a net surplus of $20,801. Those being the facts, and the law governing the super- intendent of insurance in the District of Columbia permitting him to cancel a license only after the dissipation of the entire surplus and impairment of the capital stock 25 per cent, in your opinion, that being the law, was there any act which the superintendent of insur- 400 INVESTIGATION OF INSURANCE COMPANIES. ance could have taken upon that state of affairs, even eliminating the supposed increment in the value of the building? Mr. Bell. As you have stated it. I should say not. I do not think, though, that the statement as it is prepared will give the public an idea of the condition of the companj'. You say book value of real- estate equity $350,000 less balance of purchase money due, $18,000. I think it would be a reasonable supposition of anyone receiving that that the total amount they owed on that building was $18,000; that the total value of the building Mr. Easby-Smith (interposing). Well, Mr. Bell, does not the first paragraph of the narrative portion of that report, headed "Assets " and subheaded " Real estate," shows the exact transaction, so far as the superintendent of insurance is concerned? Mr. Bell. Oh, yes; undoubtedly. Mr. Easby-Smith. "Well, that is all I am interested in. Mr. Bell. I was only criticizing the published statement of the company. Mr. Easby-Smith. Mr. Bell, I think you have stated that you are acquainted with Mr. Hensey. Mr. Darneille, and Mr. Lipscomb, both as to their integrity and as to their ability in appraising real estate and buildings. I think you have stated that already. Mr. Bell. Yes. Mr. Easby-Smith. That you have confidence both in their ability and in their integrity? Mr. Bell. Absolutely in both. Mr. Easby-Smith. Do you consider that the superintendent of insurance is in any manner to be criticized for appointing those three gentlemen as appraisers of this property, he himself not pre- tending to have any knowledge Avhatever of real estate values, and it being his duty to secure a fair appraisal? Mr. Bell. That is a very leading question. Mr. Easby-Smitii. Yes. Mr. Bell. You want an answer, I presume? Mr. Easby-Smith. Yes, sir. Mr. Bell. I think I should have chosen gentlemen who were not connected with a financial institution of which the president of one of these companies is president. Mr. Easby-Smith. Do you refer to Mr. Darneille in that respect? Mr. Bell. No. Mr. Easby-Smith. Do you refer to Mr. Hensey and Mr. Lips- comb? Mr. Bell. I do not want to impute any improper motive. I think it would have been wiser if he had gone to gentlemen entirely apart from any connection, directly or indirectly, with the companies. That was simply an error of judgment and not of intent. Mr. Easby-Smith. Are you aware of the fact Mr. Lipscomb is a director of the Union Trust Co. as well as of the District National Bank? Mr. Bell. I so heard when I was here Saturday. Mr. Easby-Smith. The only suggestion of criticism you have is because Mr. Ingham selected Mr. Hensey and Mr. Lipscomb, they being on the directorate of the District National Bank? Mr. Bell. That is the only criticism I should make. I should not make that if vou had not asked the direct Question. INVESTIGATION OF INSUEANCE COMPANIES. 401 Mr. Easby-Smith. And if Mr. Ingham were ignorant of that fact, would you consider he was still subject to criticism? Mr. Bell. No.'* Mr. Easby-Smith. When did you first hear, Mr. Bell, that Mr. Ingham was to be dismissed from his office as superintendent of in- surance ? Mr. Bell. I never heard it. Mr. Easby-Smith. When did you first hear that Col. Judson was moving to remove him from his office ? Mr. Bell. I do not remember the date. Mr. Stellwagen, I think, fave me — I do not know about removing him from office but Mr. tellwagen told me Col. Judson was starting an insurance investiga- tion. I do not remember him saying anything about Mr. Ingham being removed from office. Mr. Easby-Smith. What did he say about Mr. Ingham's removal from office? Mr. Bell. I do not remember him saying anything about it. He may have. I did not know Mr. Ingham. Mr. Easby-Smith. Leaving out his name, when did you first hear that Col. Judson was moving to remove from office the superintendent of insurance ? Did you hear that first from Mr. Stellwagen ? Mr. Bell. I do not think Mr. Stellwagen told me that. He told me within two or three days after I handed him that letter. It was certainly within, I should say, two or three days that he told me that Col. Judson had started or was starting an insurance investigation. Mr. Easby-Smith. Did he tell you in that connection a bomb was going to be exploded concerning these insurance companies? Mr. Bell. He did not. Mr. Easby-Smith. Who was present besides Mr. Stellwagen at the time Mr. Stellwagen gave you this information ? Mr. Bell. No one that I remember. Mr. Easby-Smith. Did you talk to Mr. Burleson at all about this matter? Mr. Bell. No. Mr. Easby-Smith. Were you present at any time when Mr. Burle- son was present and this matter was discussed ? Mr. Bell. I have not seen Mr. Burleson or talked with Mr. Burle- son for a year or more. Mr. Easby-Smith. Have you no manner now of saying positively whether or not you heard Mr. Stellwagen or others say that the superintendent of insurance was to be removed from office ? Mr. Bell. Oh, yes ; I think I have heard it repeated on the streets that lie was being investigated — heard that over and over again. Mr. Easby-Smith. You only heard that on the streets, as street rumors ? Mr. Bell. I have heard it from gentlemen that are insurance agents who talked to me on the subject. Mr. Easby-Smith. And no information of that sort from Mr. Stell- wagen ? Mr. Bell. It is quite possible; but, if so, it would have made no more impression on me than if it came from anyone else. Mr. Easby-Smith. That is all, sir. Col. Judson. Mr. Bell, do you think this report of the superinten- dent of insurance, dated November 8, 1912, is subject to criticism for 402 INVESTIGATION OF INSURANCE COMPANIES. any reason, or that it is an entirely proper report; showing proper courage, intelligence, and efficiency on the part of the superintendent of insurance ? Mr. Bell. I understand that the report was made in accordance with the law. If that is so I do not see why he should be criticized. 1 criticize the form of the report. It is not the form in which I should get it up. Col. Judson. The appraisal was made at the instance of the super- intendent of insurance, was it not? Mr. Easby-Smith. If Mr. Bell knows. Col. Judson. If he knows. Mr. Bell. I only know from reading what I read here. Col. Judson. The report so states ? Mr. Bell. It states that it was. Mr. Easby-Smith. The appraisal was made at the instance of the superintendent of insurance. Mr. Bell. This is addressed, or I presume it is: Appraisement was made of this property by your order. All of the papers connected with the purchase of the building have been submitted to and ap- proved by you. I presume that is by Mr. Ingham. Col. Judson. Then do you think, taking all together the action of the superintendent of insurance in the matter of this report and the appraisement that preceded it 'and its embodiment in this report, it being, of course, the duty of the superintendent of insurance to formulate such report as would inform the public, that this report is in every respect beyond criticism or that, or in the same direction, do you think it is an entirely proper report, showing proper courage, intelligence, and efficiency on the part of the superintendent of insurance ? Mr. Easby-Smith. Assuming that it was his duty to formulate such report as to give information to the public? Col. Judson. Yes. Mr. Bell. I do not consider it was proper or efficient. Mr. Easby-Smith. In what respect was it not proper or efficient — in what details? Mr. Bell. I can only go back to the fact that I do not think the undivided one-half interest in a property is a proper asset for anyone to pass upon. Mr. Easby-Smith. Suppose the superintendent of insurance, through his examiner and statistician, finds that that is one of their assets; that his examiner and statistician include in the tabulated statement of the figures the value of that property as found by ap- praisers appointed by him in the usual manner; that the report, in addition to that, sets up in narrative form the facts relating to the purchase, showing that the equity cost $246,570; that mortgages of $1,300,000 were assumed; and that the companies carried the equity at $700,000, is there any concealment of facts or is there any fact that the superintendent of insurance ought to have stated in this report which he did not state? Mr. Bell. I think very decidedly that he should have put in the total value of the building, the one-half interest at $1,000,000, and should have shown $650,000 on the other side. Mr. Easby-Smith. What $650,000? . INVESTIGATION OP INSTJKANCE COMPANIES. 403 Mr. Bell. The one-half of $1,300,000 which they say in the report these companies assumed. Mr. Easbt-Smith. In other words, you think he should have car- ried as an asset $1,000,000 and carried as a liability $650,000? Is that what you mean? Mr. Bell. $650,000 plus the unpaid $18,000. Mr. Easbt-Smith. Plus the $18,000? Mr. Bell. Yes; I should say so. Mr. Easbt-Smith. In fact, is not that apparent upon the face of this report? Did you not learn it by a mere glance at this report — that that was the fact? Mr. Bell. No; I did not. I did not read the memorandum at- tached here. Mr. Easbt-Smith. It is not attached ; it is an integral part of the report, being a narrative immediately following the tabulated state- ment. Mr. Bell. You asked me what happened when I read it. I took up the figures and studied the figures, and could not understand them at all in the beginning. Mr. Easbt-Smith. Then did you go to the narrative part of the report ? Mr. Bell. Yes. Mr. Easbt-Smith. And upon reading that you did understand exactly what the situation was? Mr. Bell. Yes. Mr. Easbt-Smith. Then we have disposed of that. In what other respect is the report lacking in information to the public or to any- one else? The payment of dividends is apparent upon the face of the report? Mr. Bell. Yes. Mr. Easbt-Smith. The losses as figured by you are apparent on the face of the report, if there were losses? Will you point out any other item which ought to have been included in that report and which is not included in it clearly and specifically ? Mr. Bell. I do not know whether there are any other items that ought or ought not to be included. I can not say there are any other items. Mr. Easbt-Smith. Then have you any fact upon which to base the answer which you gave to Col. Judson that this report is to be criticized ? Mr. Bell. If I gave the impression that the report, as far as the commissioner of insurance was concerned, was to be criticized, I did not mean that. Mr. Easby-Smith. That is all I am interested in. Mr. Bell. I mean the form of the report. Mr. Easbt-Smith. In other words, your criticism, if you have any, is directed against what is apparently, according to your calculation, the condition of the company, and is not directed against either the form, substance, or contents of the commissioner's report? Mr. Bell. I had no criticism to make of that. Mr. Easbt-Smith. That is all, sir. Col. Judson. Near the end of the last page of figures of that report we find the expression, " Total admitted assets, $743,706.69." What is 404 INVESTIGATION OF INSURANCE COMPANIES. the force of that word "' admitted " 1 What does it mean ? Admitted by whom, do you think ? Mr. Bell. As I understand, the insurance companies — 1 may be wrong in this — for example, the increased value or increased premium on securities which they might own would be an asset, but it would not be an admitted asset. I think that is a technical term. Col. Judson. It means admitted, does it not, by the superintendent of insurance, who has gone over and appraised the real estate, investi- gated the mortgage loans, counted the cash in the company's office, looked over the books to see what the agents' balance was, and so on, and finally arrived at the total admitted assets? It means those ad- mitted for the purpose of this examination by the superintendent of insurance? Mr. Bell. I presume so ; I do not know. Col. Jtjdson. Included in those admitted assets, admitted by the superintendent of insurance, of $743,000 and more, is the item, is it not, of $226,000 odd, which is stated to be the increase in the book value of that real estate? Mr. Bell. Yes. Col. Judson. Would vou, if you were superintendent of insurance, regard this $743,000, which includes that $226,000, as the admitted assets of the company ? Do I make myself plain, Mr. Bell ? Mr. Bell. I think so. As I have repeatedly said, I do not think it is a proper asset to be admitted. Col. Judson. And therefore you would not admit it as an asset? Mr. Bell. I would not. Col. Judson. If you were superintendent of insurance, the total admitted assets, which are very important in this statement, would have appeared very differently, would they not? Mr. Bell. If my construction is correct. Col. Judson. Do you know what the piece of land immediately opposite the Southern Building sold for when the Washington Uni- versity sold it to Mr. Woodward? Mr. Bell. The price per foot? Col. Judson. Yes. Mr. Bell. I do not. Col. Judson. You do not know what the total price was for the property ? Mr. Bell. Xo. I am very poor at recollecting figures. Mr. Johnson. May I ask just there if they were not compelled to sell; if they were not in financial trouble and compelled to sell and sell immediately? Mr. Bell. I understood they were very anxious to make the sale. Mr. Johnson. And that was a forced sale and not a voluntary sale? Mr. Bell. I do not know. Mr. Johnson. And the time limited ! Mr. Bell. I do not know. Col. Judson. But Mr. Woodward, who purchased it, was a member of the board of governors, or whatever the governing body is called, of the university, was he not, and a man of wealth? Mr. Bell. I think he was ; yes. Col. Judson. And a man of wealth who presumably would have taken off their hands at no less than it was worth? INVESTIGATION OF INSUEANCE COMPANIES. 405 Mr. Bell. Yes. Mr. Johnson. Did he buy? Mr. Bell. Yes. Mr. Johnson. Was he both buyer and seller? Mr. Bell. I think he took it off the hands of the university. It was always reported he did it to help them out of their financial difficulties. Col. Judson. Where two companies, as in this case, own an equity in a building which is very heavily mortgaged, if one of the com- panies should fail it would be necessary that the building should b» sold at forced sale, would it not ? Mr. Bell. If each owned, as I understand, an undivided one-half interest, under partition proceedings, I presume. These lawyers can tell that better than I can. Col. Judson. But in a presumable case, it would have to be so ? Mr. Bell. I presume so. Col. Judson, Or if either one of these companies was required to realize upon that asset for any other purpose, even if it had not failed, it would be necessary to sell because there could not be a partition except through sale of a building of that kind very well. Do you know of any test as to the value of a piece of property so good as the sale of the property after it has been a long time exposed to sale? Mr. Bell. That would be my way of valuing the property. Col. Jttdson. Then if a piece of property had been for sale for a year and finally at the end of that year, was sold for a certain price, anyone having had the privilege of buying it during that preceding year, you would regard the actual sale under those conditions as de- termining, better than in any other possible way it could be deter- mined, the value of that property, would you not ? Mr. Bell. Absolutely. Col. Judson. It would be absolute folly to say there was any other test to compare with it, would it not ? Mr. Douglas. I object to this constant effort upon" the part of Col. Judson to testify under the form of asking questions of the witness. Col. Judson. I will discontinue. Mr. Johnson. Mr. Judson has continually done that, and we have asked him over and over again not to do it. Col. Judson. I am not expert as a lawyer. Mr. Johnson. Perhaps, Col. Judson considers himself as much under oath when testifying indirectly as when testifying directly? _ Col. Judson. I do not so consider myself, although I consider my information— no ; I would not consider myself under oath in asking questions; of course not; certainly not any more than Mr. Douglas does. Mr. Johnson. You have been a witness and sworn, but Mr. Douglas has not been, and your questions have pretty generally not been in the nature of questions, but in the nature of a statement to which the witness was asked to assent. Col. Judson. I think no more so than Mr. Douglas's questions. Mr. Johnson. Mr. Douglas has not been a witness, and he is recognized here as an attorney for the companies to bring out one side of the matter only, and not for bringing out the whole truth. 406 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. You will pardon me for adding this, but I am here cross-examining witnesses who have been brought here to testify against these companies. It is a, b, c that I have the right to ask leading questions. Col. Judson. I am not expert at asking questions. Mr. Douglas. I think you are capable of asking the kind of ques- tions that are highly objectionable. I serve notice on you now that every time you do it I am going to object to it stronger and stronger, because it is not fair. Col. Judson. I think I have asked all the questions of Mr. Bell that I wish to ask. Mr. Easby-Smith. I have just one question, then, Mr. Bell. You have stated that if you were superintendent of insurance you would not include the equity in that building as an asset. What would you do with it? Col. Judson. I object to that question, not because it is improper in form, but in substance. He testified to no such thing. Mr. Easby-Smith. He testified, in response to your question, whether or not, if he were superintendent of insurance, he would admit an equity in the building as one of the admitted assets. Col. Judson. That increase in the price of real estate overnight? Mr. Easby-Smith. Let us read your question and see. The stenographer read the question, as follows : Col. Judson. Would you, If you were superintendent of insurance, regard this $743,000, which includes that $226,000, as the admitted assets of the com- pany? Do I make myself plain, Mr. Bell? Mr. Bell. I think so. As I have repeatedly said, I do not think it is a proper asset to be admitted. Col. Jtjdson. And therefore you would not admit it as an asset? Mr. Bell. I would not. Mr. Easby-Smith. What would you do with it? Mr. Bell. What would I do with it ? Mr. Easby-Smith. Yes. Mr. Bell. I should decline to pass that as being a proper asset. Mr. Easby-Smith. Notwithstanding that, in accordance with the law and custom, you had appointed three independent appraisers to appraise that real estate, and had received their appraisement in good faith? Mr. Bell. I must premise my answer by taking it for granted that the superintendent of insurance knew that the property had been bought on a given date at one price and the company was adding a half million to it in two days. I do not care who made the appraise- ment ; I should not admit it as an asset. Mr. Easby-Smith. That is all. Mr. Carusi. I have just one question. Mr. Bell, the term "ad- mitted asset " is one of some significance. Do you know by whom the asset is to be admitted in the use of that expression ? Mr. Bell. I could only tell you that it is a term which I have seen in reports of a great many insurance companies, in different States, and I presume it was admitted by the superintendent of insurance under the law, under some law. Mr. Caeusi. Under the law. In other words, do you not know— or, perhaps, you do not know; but does it not occur to you— that the term " admitted asset " means such an asset as the law requires that INVESTIGATION OP INSUBANCE COMPANIES. 407 the superintendent of insurance shall list as an asset, so that the pub- lic may be informed, and so that he may be informed as to whether (hat company has the capital and the surplus and the reinsurance re- serve which is required by law, and as to which he has no discretion whatever in admitting or excluding it ? Mr. Bell. Let me ask you, because I am not familiar with the law, do I understand from you that the insurance superintendent each year must send out and get a value of the real estate owned by the company, and that whatever value is put upon it by the appraisers he must put into his report ? Mr. Caeusi. No. Mr. Easbt-Smith. I can state that under the law he must have an appraisal made whenever the company acquires property. Col. Judson. Can you give me a reference to that law ? Mr. Easbt-Smith. It is the custom. Col. Jttdson. It is not the law, then. Mr. Easby-Smith. Yes ; it is the law. Col. Jttdson. Will you point out where it is ; will you produce the law at the next meeting ? Mr. Easby-Smith. Excuse me. It is the law, inasmuch as it has been the unvarying custom in the office of the superintendent of in- surance of the District of Columbia since the establishment of that office, and that is law. Col. Judson. That is the law ? Mr. Easby-Smith. Yes, sir. Col. Jtjdson. Will you produce a reference to the law ? Mr. Easby-Smith. I produce the authority right now; that is the authority for the law. It is official custom. Col. Judson. I thought you said it was the law. Mr. Easby-Smith. If you will ask Mr. Stephens, your adviser, he will tell you it is the law, being the official custom. He is right behind you. Col. Judson. I do not care. I thought you were going to show us the law. Mr. Easby-Smith. I have done it already. The universal official custom of the office of the superintendent of insurance. Col. Judson. I beg your pardon, but what is the law ; what is this you have established as the law? Mr. Easby-Smith. If the committee please, I have stated what it is. Col. Judson. Very well. Mr. Caeusi. Just one further question, Mr. Bell. To establish an analogy between the admission of assets by an insurance department and by the Comptroller of the Currency, for instance, are there not cer- tain heads in the report that he requires you to make as to your con- dition, in which you list such assets as are called for by that state- ment, and such only? For instance, may you include in your report to the comptroller some value which you may put upon the good will that the American Security & Trust Co. has established during a long period of existence here? Mr. Bell. I should think not. Mr. Caeusi. You are confined to a statement of certain specific assets which you have, are you not ? Mr. Bell 1 . Yes. 408 INVESTIGATION OP INSURANCE COMPANIES. Mr, Caeusi. And those are admitted by him ? Mr. Bell. Yes. Mr. Cakusi. In the official statement of your condition as a finan- cial institution? Mr. Bell. Yes. Col. Judson. Admitted by him? Mr. Caeusi. Admitted by him and required by law to be admitted by l.iai. Is not that so, Mr. Bell? Mr. Bell. Required by the law to be admitted by him — I" do not know. I would naturally suppose so. Col. Judson. Whereas in the bank it is admitted by him, as Mr. Carusi says — him meaning the Comptroller of the Currency — in this case it is admitted by him — him meaning the superintendent of in- surance — you would think by analogy Mr. Douglas (interposing). Pardon me one moment. I object to that question. Col. Judson. You are correct ; I am getting away. Mr. Douglas. The attorney for the prosecution is utterly incapable of asking anything else than an unfair question, unless he does not know how to do it. No question could be more offensive and viola- tive of the rule than that, and I again protest against it. Mr. Johnson. Mr. Bell, we have just spoken of the property now known as the Woodward property, which was formerly the George Washington University property, immediately south and just across the street from the Southern Building. Did I understand you cor- lectly a few moments ago that that sold at a very low price to Mr. Woodward ? Mr. Bell. I do not remember the price at all. My general im- pression is that Mr. Woodward took it at a very fair price in order to help the university out, instead of getting it at a low price. Mr. Johnson. The stenographer who has just retired has the. notes relative to that; but I understood you, quite clearly, to say it was taken by Mr. Woodward at a very low price. Mr. Bell. Xo; I have always understood Mr. Woodward gave rather above the market price to the university, in order to help it out of its financial difficulties, and that he gave more for it than they could have got elsewhere. The property had been in the market for sale for some time. Mr. Johnson. In hearing he took it in order to get the university out of financial difficulties^ did you hear that the management of the institution had gotten into financial difficulties to the extent that, after a congressional hearing, there were some necessary retirements from the board of management? Mr. Bell. In a general way, I so understood. Mr. Johnson. That is all. Col. Judson. I would like to ask one more question. I will ask you to formulate this question for me, Mr. Douglas. I will put it to you, and then you can formulate it, so that we can get at the facts. Mr. Douglas. I am not answering questions. Col. Judson. On page 81 of the hearings on the first day there i* printed a circular signed by the Commercial Fire Insurance Co., Eobert Tuttle, and I would like to read that circular to you. Is there any objection so far? I am going to ask a question with refer- ence to it. INVESTIGATION OF INSURANCE COMPANIES. 409 Mr. Douglas. We will wait until you finish the question, and then we will tell you whether there is any objection. Col. Judson (reading) : Commercial Fire Insurance Co. of the District of Columbia, Washington, D. 0., December 17, WL2. To Commercial stockholders: Following our custom of keeping our stockholders fully informed of all matters concerning this company and its progress, we now remind you that during the month of October your company, in connection with another large fire insurance company, bought the Southern Building. After the purchase was concluded the building was officially appraised by competent and disinterested appraisers appointed by the insurance department of the District of Columbia at a figure which showed a profit of over $200,000 to your company. There has been pending in Congress for some time an investigation of alleged discrimination by the local tax office in favor of large property owners who own buildings in the financial section. The effect of the appraisal of the Southern Building at a higher figure than the tax office assessed it over a year ago created protests among other prop- erty owners and taxpayers in the financial part of the city, who are interested in keeping their assessments and taxes down. An official of the local District government tried to force a new and lower appraisal of the Southern Building, but this the companies declined to agree to, and insisted that the whole matter be investigated by Congress. This is now about to be done under a resolution introduced in the House. The result will be that the value of our home office building will be estab- lished directly by Congress and that the other property owners who own prop- erty in this vicinity will probably have to pay their just proportion of the District of Columbia taxes. We inclose herewith a financial statement showing the result of the official examination of your company as of October 31, since which time the total subscribed capital and surplus has been very substantially increased. We also inclose a reprint of an advertisement of the Southern Building which recently appeared in all the Washington papers. I have several questions to ask with reference to that. Where they state, or where Mr. Tuttle states, " We inclose herewith a finan- cial statement showing the result of the official examination of your company as of October 31," do you judge that what was inclosed was the financial statement — — Mr. Douglas. Why do you not ask him what was inclosed ? Col. Judson (continuing). From this report, or that statement supplemented by the verbiage that followed it ? Perhaps you could not answer that question. That was not the question I had most in mind. Mr. Bell. I certainly could not. Col. Judson. You would have to venture a guess as to what would be meant in this report by the financial statement? Mr. Bell. Will you read the quotation which refers to the report? Col. Judson (reading) : We inclose herewith a financial statement showing the result of the official examination of your company as of October 31. How much of this is the financial statement? Mr. Bell. That, I understand, is the statement of the insurance commissioner. That has nothing to do with the financial statement. Col. Judson. It says, " financial statement showing the result of the official examination of your company as of October 31." What part of this is the financial statement? 71391— No. 4— 12— _5 410 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bell. I should say the whole report was the financial state- ment. Col. Judson. You suppose, therefore, they would have sent the whole matter. May I ask the committee if they will obtain a copy of the financial statement as it was sent out, inclosed with this cir- cular ? Mr. Johnson. If those who sent it out or those who received it will furnish it, we will be very glad to have it. Mr. Douglas. We will furnish it. Mr. Caeusi. We will be very glad to do so. Col. Judson. That is more satisfactory than to endeavor to get it from Mr. Bell. Mr. Bell. Much. Col. Judson. I read another part from this circular : The effect of the appraisal of the Southern Building at a higher figure than the tax office assessed it over a year ago created protests among other property owners and taxpayers in the financial part of the city who are interested in keeping their assessments and taxes down. That refers, it seems to me, to a general state of mind and a gen- eral protest in the financial district. Mr. Carusi. Are you asking me ? Mr. Douglas. He is testifying. Col. Judson. I am waiting for an objection. I looked at you so I would catch the objection quicker. Do you know of any such protest or of any such motive? Mr. Bell. I have never heard of it. Mr. Judson. That is all. Mr. Johnson. Are you all through now with Mr. Bell? If so, you are excused, Mr. Bell. The Chairman. It is now nearly 3 o'clock, the time fixed for ad- journment, and I suggest that we adjourn. Mr. Douglas. The time for adjournment was fixed at my request. I have succeeded in postponing my appointment until latex in the afternoon, and I am willing to go on if it is desired. STATEMENT OF CHARLES C. GLOVER. The witness was sworn by the chairman. Mr. Johnson. Please give the stenographer your full name and occupation. Mr. Glover. Charles C. Glover, president Eiggs National Bank, of Washington. Mr. Johnson. Mr. Glover, I am free to confess I do not know for what exact purpose you have been asked to come before the com- mittee. Mr. Redfield before leaving, and also when he knew he would not be present, gave me four names to ask to come before the committee, Mr. Stellwagen, yourself, Mr. Bell, and Mr. Hoover. I have taken it for granted it was presumed you had some knowledge that would be of value to the committee relative to the financial standing of these companies, as to whether it was good or bad, in your opinion, as a business man ; and also as to whether or not their property, the Southern Building, had been overvalued for the pur- pose of being carried as an asset. Just in your own way, will you please state what you may know relative to either of those subjects? INVESTIGATION OF INSUKANOB COMPANIES. 411 Mr. Glover. Literally, nothing. I have no knowledge except what I have heard testified to before this committee. Mr. Johnson. You have no knowledge, Mr. Glover, as to whether $2,000,000 is too high a valuation to be placed upon the Southern Building? Have you, as a man of large affairs in the District of Columbia, dealing much in real estate, an opinion as to the value of that building ? Mr. Glover. Oh, yes. Mr. Johnson. Please let us have the benefit of your knowledge. Mr. Glover. The building, or at least the ground on which the building stands, was offered very freely about Washington for a long time at about $18 per square foot. It was intimated at times it could be bought probably for a little less. Mr. Johnson. When was that ? Mr. Glover. This was about four or five years ago, probably six years. It was ultimately sold, as I have been informed, at about $18 per square foot. This was some three years ago. Since the sale of that property a vast improvement has taken place in all the property surrounding it. The George Washington University sold their prop- erty to Mr. Woodward for $550,000. Mr. Johnson. How much a foot, do you know ? Mr. Glover. In the neighborhood, I think, of $25 per square foot. I think there were 20,000 square feet in that tract. This evidently was only the value of the ground, because the very large buildings upon it were torn down and the very handsome Woodward Building is the result. I would say that that property had increased in value to at least $30 a square foot, probably something more. Mr. Johnson. Which are you speaking of? Mr. Glover. I am speaking now of the building you first asked me about — the Southern Building. Mr. Johnson. And your opinion is that it is now worth $30 a square foot? Mr. Glover. In that neighborhood. Mr. Johnson. What is your opinion as to the value of the Wood- ward property just to the south of it? Mr. Glover. I should not consider that as being less valuable, probably more valuable, for the reason that it is nearer the center of business, and the real center of business in the District of Columbia is about New York Avenue and Fifteenth Street. Mr. Johnson. What would you fix that at now — that is, the Wood- ward Building— per square foot ? Mr. Glover. About $35 per square foot. If both of these pieces of ground were vacant at this present moment I do not believe vou could get either $30 or $35 for the one or the other. But the magnificent improvements that have taken place in that property have very materially enhanced the value of all property in that neighborhood. Mr. Johnson. You say it was four or five years ago that the old church property there sold for $18 a square foot? Mr. Glover. It was offered for $18. No ; I think it was only two or three years ago it was sold for about $18 a square foot, at" least that was the information conveyed to me. Mr. Johnson. And since that time it has been gradually advanc- ing, until now you would unhesitatingly say it was worth $30 ? 412 INVESTIGATION OF INSTJKANCE COMPANIES. Mr. Glover. I would not hesitate to say $30 would be a fair valuation for it. Mr. Johnson. How long ago was the Woodward property sold ? Mr. Glover. About four years ago. Mr. Johnson. About four vears ago? Are vou not mistaken as to that? Mr. Glover. I think I am mistaken. Mr, Johnson. That building is hardly completed now. Mr. Glover. Yes; it is not over two years ago that the property was sold. Mr. Douglas. About two years ago. Mr. Glover. About two years ago. Mr. Johnson. At that time, you say, from your recollection, it brought about $25 a foot? Mr. Glover. I think there are 20,000 square feet in the lot, and it brought $550,000. Mr. Johnson. How does the Southern Building real estate com- pare with that immediately west of it in value, the Shoreham Hotel property ? Which is the more valuable ? Mr. Glover. A northwest corner in Washington is generally con- sidered more valuable than a northeast corner. It would depend somewhat upon the size of the lots. Mr. Johnson. I am speaking now of the Shoreham Hotel property. Mr. Glover. It is a very valuable corner; equally as valuable as the Southern Building. Mr. Johnson. Not more so? Mr. Glover. I would say more so, for it is somewhat smaller in dimensions and yet equally available for business purposes. Mr. Johnson. Except for being smaller, it is no more valuable? Mr. Glover. I think not. Mr. George. Mr. Glover, do you remember the price paid by the Government for the lot on Pennsylvania Avenue in the same square as Riggs Bank? Mr. Glover. You mean the old Freedman's Saving Bank property? Mr. George. I do not know what it was. Mr. Glover. It is the vacant property there ? Mr. George. Yes ; that vacant property. Mr. Glover. Yes ; it was offered to me at $175,000. Mr. George. And sold to the Government for what price? Mr. Glover. It sold to the Government for $225,000. That $50,000 was owing to the fact that it was to go to some of the poor souls who had deposited money in that bank and lost it. It was part of the assets of the Freedman's Savings, Banking & Trust Co. Mr. George. How many years ago was that? Mr. Glover. Oh, that must have been about 1878 or 1879. It was a long while ago. Mr. George. The purchase, I am talking about. Mr. Glover. I am speaking about the purchase. It was a very long time back. Mr. George. It was purchased by the Government for $250,000? Mr. Glover. $225,000. Mr. George. What is the size of the lot? Mr. Glover. It is a very large lot ; I could not tell you. Mr: George. An economical lot? INVESTIGATION OF INSURANCE COMPANIES. 413 Mr. Glover. Yes ; it would be an economical lot. It runs back to an alley ; it has a large frontage on Fifteenth Street and a very large frontage on Pennsylvania Avenue. Mr. George. Do you remember the square-foot price ? Mr. Glover. I do not ; but I can tell you what I paid for the land upon which my present banking house stands. Mr. George. Yes. Mr. Glover. And that was an inside lot. I paid $140,000 for about 7,000 square feet or a little less ; something over $20 per square foot. Mr. George. Over $20 a square foot? Mr. Glover. Yes ; over $20 a square foot. Mr. George. When was that ? Mr. Douglas. That was the Government site ? Mr. George. No. Mr. Glover. No ; the Riggs National Bank site. I think that was in 1896 or 1897. Mr. George. Has that property appreciated sensibly ? Mr. Glover. It has been very materially increased in the assessed value. Mr. George. But the market value? Mr. Glover. I do not know ; I paid very little attention to it. Mr. George. You do not mean to say property is going up in that neighborhood and that not going up ? Mr. Glover. I think it much more valuable now than when I purchased it. It is now assessed at $148,500. Mr. George. What percentage of the market value is it assessed at, would you say? Mr. Glover. I should say that was pretty nearly the market value. Mr. George. You mean that is two-thirds of the market value? Mr. Glover. Precisely; yes. Mr. George. What about this Shoreham Hotel property? The rental is $55,000. What would you say would be a fair capitalization of that property? Mr. Glover. I regard the building as forming a very material part of the value of the property. Mr. George. You heard Mr. Stellwagen testify Mr. Glover. I happen to know at the present time they are spend- ing about $155,000 in improving that building, and they would not spend so large a sum if they regarded the building as valueless. I think Mr. Morton, the last tenant who vacated it, spent something like $225,000 or $250,000, and that was not very many years ago. You can hardly say a building of that character is not of value. Mr. George. So that you would differ from Mr. Stellwagen in that regard ? Mr. Glover. Anyone who may have testified along the lines in- dicated. Mr. George. At what would you capitalize the whole property, with a rental of $55,000, and that is net, too? Mr. Glover. I do not remember the number of square feet. Mr. George. Fourteen thousand square feet. Mr. Glover. I would certainly value it not less than $35 per square foot. Mr. George. Not less than $35? Mr. Glover. No. The property is worth about $800,000. 414 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. I am talking about the land. Mr. Glover. I know; but the whole property is worth from $800,000 to $900,000. Mr. George. From $800,000 to $900,000? Mr. Glover. Yes. It would yield a good income upon that invest- ment. I think real estate should pay nearer 6 per cent than 44 and 5. Mr. George. Then you differ from Mr. Bell, who thought about 4$ per cent, and from Mr. Stellwagen? Mr. Glover. I want no property that will only yield such an income, with all the worries, troubles, and harrassments of keeping it rented. Mr. Stellwagen has already testified there are 35 vacant rooms in his house. The income is too uncertain. I would want a very nearly fixed income of 6 per cent on any real estate I owned to fix a value upon the property. Mr. George. Do you regard yourself as a conservative man in respect to valuing property in the District of Columbia? Mr. Glover. I do not know. I have been lending money on property since 1873. Mr. George. How do you regard property when you view it? Do you regard it from the viewpoint of the man who sells property or who buys property or pays taxes on property ? What is your view- point of the value ? Mr. Glover. It is the viewpoint of the man who lends money on property. Mr. George. That is a very conservative view, is it not? Mr. Glover. Rather. Mr. George. So that your valuation of a piece of property would be from the lender's viewpoint? Mr. Glover. It would, largely. Mr. George. And another man who is accustomed to buy property would probably have a very materially different viewpoint? Mr. Glover. I think that is very likely. Mr. George. Consequently your valuation of this Southern Build- ing, land and improvements, might be very sensibly lower than another man's, who is accustomed to buy property in the District? Mr. Glover. I would look at the whole question from the stand- point of the return that I should get upon the money, if I purchased the property and erected a building thereon. Mr. Bell. Might I ask, Mr. George, if I could correct that? I think I said, in regard to the income from real estate — the question, as I recollect, which was put to me was "What would you consider a fair return on business property ? " and I put it at 44. to 5 per cent net after all expenses, depreciation, and everything included. Mr. George. I thought you said 44 per cent for the Shoreham property. Mr. Bell. I do not think the question — it may have been put on the Shoreham. Mr. George. I think you will find as the testimony appears it was 4J per cent on the Shoreham property. Mr. Bell. Well, I was thinking of business property, and not especially the Shoreham. Mr. George. The question was as to the Shoreham property. i Mr. Bell. Then I would like to go on the stand and correct it. because I do not consider hotel property at 44 to 5 per cent a good investment. INVESTIGATION OF INStTBANCE COMPANIES. 415 Mr. George. According to your estimate, that made something over a million dollars for the property. Mr. Bell. Yes ; but I was not thinking of the Shoreham property at that time, because I think it should yield a larger return, just as I think an apartment house should yield even a larger return. I was thinking of business property in general. Mr. Geoege. And you would like to change your view? Mr. Bell. Yes; I would like to change my statement to that extent. Mr. Geoege. Has the testimony of Mr. Glover modified your view on that? Mr. Bell. Not at all; but I was just reminded it was hotel property. Mr. George. The Shoreham Hotel, I said. Mr. Bell. Well, I was thinking of office buildings and general business property. I was not thinking of hotel property, pure and simple. Mr. Douglas. I want to ask Mr. Glover only a few questions. I believe you just stated you would put the Shoreham Hotel at be- tween $800,000 and $900,000? Mr. Glovee. I did. Mr. Douglas. That is over $60 a foot ? Mr. Glover. Including the building. Mr. Douglas. Yes ; in order to make that building habitable at all Mr. Dove had to expend $165,000 upon it, according to your state- ment just now ? Mr. Glovee. That is what I have understood him to say he was expending. Mr, Douglas. Before Mr. Dove took hold of it, it was a very poor structure, was it not, Mr. Glover ? Mr. Glover. It was not in very good condition, but a great deal of money had been expended in its original construction, and a very large sum has been expended upon it since. Mr. Douglas. That, is years and years ago ? Mr. Glover. Some years ago ; yes. Mr. Douglas. It had reached a point where it was no longer adapted to hotel uses in the section of the citv where it happened to be built? Mr. Glover. They are modernizing it, I understand. Mr. Douglas. I believe you said your property — the Biggs Bank — is assessed at $148,000, which, on the two-thirds basis, would make it $212,000 valuation. How many feet are there in your lot, Mr. Glover ? Mr. Glover. A little less than 7,000. Mr. Douglas. A little less than 7,000 ? Mr. Glover. Yes. Mr. Douglas. How much is that a foot; can you tell me approxi- mately ? Mr. Glover. A little over $20 per square foot. It is assessed for $148,500. Mr. Douglas. And you are paying taxes on the basis of about $20 a square foot on that property? Mr. Glover. At that assessment it is considerably over $20 per square foot. 416 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. How much over? Mr. Glogee. Well, there are about 7,000 feet, and it, is assessed at $148,500 and the improvements at $80,000. Mr. Douglas. How is that ? Mr. Glovee. And the improvements at $80,000. Mr. Douglas. Besides that? Mr. Glovee. Yes. Mr. Douglas. I believe you stated a moment ago that Fifteenth and New York Avenue is the center of the city, in your judgment? Mr. Glovee. Yes. Mr. Douglas. What do you think that land on which the Eiggs Bank stands is actually worth? Mr. Gloves. I purchased that some few years ago Mr. Douglas. You mean some 18 or 20 years ago? Mr. Glovee. Not so long ago. Mr. Douglas. 1896? Mr. Glovee. No. Mr. Douglas. I am speaking of the Riggs Bank. Mr. Glovee. Oh, the Riggs Bank? Mr. Douglas. Yes. Mr. Glovee. You are correct about that. Mr. Douglas. You paid $20 a square foot for it, then? Mr. Glovee. Yes; I paid $20 a square foot for it at that time, because it was absolutely necessary I should have it, but I considered I paid a very high price for it. Mr. Douglas. It was necessary for you to have it because it was then promising at least to be the center of the town, and has since been demonstrated to be so ; is that right ? Mr. Glovee. The reason for the purchase was because I could not make a satisfactory arrangement with the gentleman who owned the corner property. Mr. Douglas. Well, what is it worth now, Mr. Glover? Mr. Glovee. I think it is worth about what it is assessed at Mr, Douglas. Is it not worth $50 a foot now ? Mr. Glovee. No ; I do not think so. I do not think you could put any building on there that would return an income upon any such sum of money. Mr. Douglas. What do you regard as a fair valuation on the corner — I mean the land — where the American Security & Trust Co. building stands? Mr. Gi-oveb. I was going to say I purchased that a few years ago for $300,000. Mr. Douglas. How many years ago ? Mr. Glovee. Mr. Bell, can you tell me ? Mr. Bell. 1905. Mr. Glovee. Yes, 1905. Mr. Douglas. That would be how much a square foot? Mr. Glovee. About $40 a square foot. Mr. Douglas. In 1905? Mr. Glovee. Yes. Mr. Douglas. Is it not worth $75 a square foot now ? Mr. Glovee. It is worth very much more than I paid for it. Mr. Douglas. Well, is it not worth $75 a foot now ? INVESTIGATION OF INSURANCE COMPANIES. 417 Mr. Glover. Well, it is worth somewhere between $50 and $60 a square foot. Probably it might be, if anybody was — if anyone was extremely anxious to establish a business there. Mr. Douglas. Is not the American Security & Trust Co. corner as valuable as the one on the southeast known as the George Washington Hotel? Mr. Glover. Oh, you are speaking of the Nairn corner ? Mr. Douglas. Yes. Mr. Glover. No; it is not so valuable. Mr. Douglas. What is the difference in value between those two? Mr. Glover. I think that is one of the most valuable corners in the District of Columbia. Mr. Douglas. What is it worth ? Mr. Glover. Somewhere in the neighborhood of $80 per square foot. Mr. Douglas. Do you not know it is worth $100 a square foot ? Mr. Glover. If it were vacant property and any trust company or banking house was exceedingly anxious to have the site, it probably would be worth a hundred dollars a foot. Mr. Douglas. Do you know there has been an offer of a hundred dollars for it? Mr. Glover. No ; I am not aware of that fact. Mr. Douglas. Do you know how many square feet are in it? Mr. Glover. Forty-odd hundred, my memory is. Mr. Douglas. What do you regard as the value of the other corner owned by the National Savings & Trust ? Mr. Glover. That is another of the most valuable corners in Wash- ington. Mr. Douglas. Do you consider it worth a hundred dollars a square foot? Mr. Glover. It is worth probably $80 a square foot. Mr. Douglas. $80 a square foot? Mr. Glover. Yes: and if very much needed — if I wanted to estab- lish a banking house or trust company I would not hesitate to pay a hundred dollars a square foot for it. Mr. Douglas. What is the Lenman property worth, adjoining it? Mr. Glover. That is a very different proposition. Those are deeper lots, and are inside lots. Mr. Douglas. What do you put the Lcninan property at? Mr. Glover. About $25. Mr. Douglas. How much? Mr. Glover. About $25 per square foot. Mr. Douglas. About $25 per square foot? Mr. Glover. Yes. Mr. Douglas. Would the fact that they paid practically that five years ago for it affect your judgment at all? Mr. Glover. No ; I think that is about the value of the property to-day. Mr. Douglas. That is because it is inside property ? Mr. Glover. Because it is inside property; and 'the lot is pretty deep. Mr. Douglas. How much do you think the existence or presence of the 20-foot paved alley that runs entirely through from Fifteenth 418 INVESTIGATION OF INSURANCE COMPANIES. Street to Fourteenth Street, to the north of the Southern Building- how much do you think that adds to the value of that property ? Mr. Glover. Oh, for light and ventilation there, it adds very mate- rially to the value of it. Mr. Douglas. It almost performs the functions of a street, does it not? Mr. Glover. Very nearly. Mr. Douglas. The Shoreham has no such advantage as that ? Mr. Glover. I think not. I think they go back to — I do not recol- lect whether there is an alley in the rear of that property or not. Mr. Douglas. There is no alley in the rear of the Woodwari Building? Mr. Glover. No. Mr. Douglas. I will ask you what you regard as the value of the Blackistone corner, Fourteenth and IT? Mr. Glover. It was sold a short time ago, and I think the price was $125,000. Mr. Douglas. Sold when? Mr. Glover. Sold by Gordon Cummings, I think. I do not know who the purchaser was, but my impression is that was about the price paid for it at that time. Whether it has changed since .then or rat I do not know. Mr. Douglas. But you do not know when or at what price at thnt time, do you ? Mr. Glover. I am very sure it was about the price I stated. Mr. Douglas. What— $25? Mr. Glover. $125,000. Mr. Douglas. I mean per foot. Mr. Glover. I do not know how much per foot. It is not a very large lot. I think it has a frontage of about 26, 27, or 28 feet. Mr. Douglas. I want to ask if you did not say to one of the parties interested in that property within the last 12 months — advise him to refuse to put that property on the market at $60 a foot, stating it would in a year or two years be worth $100 a foot. Mr. Glover. I do not remember any such statement as that, but if I owned that property I would hold on to it. Mr. Douglas. You would hold on to it? Mr. Glover. Yes. Mr. Douglas. Do you agree, with Mr. Stellwagen that the property on the southeast corner there is worth $25 a foot ? Mr. Glover. The southeast corner of what? Mr. Douglas. Fourteenth and H? Mr. Glover. Oh, I think that property is worth more than that. It must be taken in connection with the whole property — the Walsh tract. Mr. Douglas. How much would you say it is worth a foot? Mr. Glover. Well, it is worth probably $30 a square foot. Mr. Douglas. You say thirty, Mr. Bell says forty, and Mr. Stell- wagen twenty-five. Mr. Glover. Well, it is worth from thirty to thirty-five dollars per square foot. Mr. Douglas. What is the Montrose worth? Mr. Glover. I bought for Mr. Walsh the lot just next to the corner some four, five, or six years ago, and I paid for that lot — I can not INVESTIGATION OF INSURANCE COMPANIES. 419 remember just the dimensions of it, but it is an easy matter with your plat book to ascertain — and I paid $60,000 for it. Mr. Douglas. Which lot is that ? Mr. Glover. The one immediately adjoining the corner you are speaking of. Mr. Douglas. The Willard corner? Mr. Glover. Yes ; I bought from Mr. Willard for Mr. Walsh the lot immediately adjoining. . Mr. Dottglas. Do you remember what was the price per foot ? Mr. Glover. I do not remember. Your plat book will show the number of square feet. The price paid was $60,000. Mr. Douglas. Mr. Glover, would you think $50 an excessive price for the Montrose property — the northeast corner there? Mr. Glover. It is a very advantageous piece of property. Mr. Douglas. Do you know of any lot between Vermont Avenue and Fourteenth Street on H that could be bought under $30 a foot? Mr. Glover. Not at the present time. I do not know of any prop- erty for sale there. Mr. Douglas. You do not know of any lot on H Street between Vermont Avenue and Fourteenth that can be bought under $30 a foot? Mr. Glover. No. That property has recently changed hands, and the people who purchased it are improving it or occupying it. Mr. Douglas. Do you know what the present corporation paid for the site of the New Arlington Hotel? Mr. Glover. I have heard, but I do not remember. Mr, Douglas. Will you let me see if I can refresh your recollec- tion ? Did they not pay $24 a foot for 50,000 feet of ground? Mr. Glover. My understanding is the price was somewhere in the neighborhood of $1,300,000. I do not know what that would make per square foot. Mr. Douglas. The greater part of that ground is on I Street, and' is not nearly so valuable on that street ? Mr. Glover. Not nearly so valuable. Mr. George. What is the size of that lot? Mr. Douglas. Fifty thousand square feet, at $24 a foot. When was that sold to the new hotel company ? Mr. Glover. Very recently ; within a year or so. Mr. Douglas. Around $1,300,000, you say? Mr. Glover. Yes; I heard that stated. Mr. Douglas. Do you not know it is a fact that they negotiated to secure a loan, I believe from the Equitable, of $800,000 just on the 1 naked ground ? Mr. Glover. I have understood that was true. Mr. Douglas. And that property is west of the Southern Buildimr by a block? e Mr. Glover. Yes. Mr. Douglas. And on the far side or west side of Vermont Ave- nue? That is right, is it not? Mr. Glover. It is. Mr. Douglas. And really in a block that is composed, with the- exception of the hotel, entirely of residences? Mr. Glover. There is one church on the corner. Mr. Douglas. . And except the church? 420- INVESTIGATION OP INSURANCE COMPANIES. Mr. Glover. Yes. Mr. Douglas. Do you not know that under the New York law in- surance companies can not lend on property in excess of 50 per cent of its value? Mr. Glover. I do not. I have no knowledge on that subject. Mr. Douglas. That is all. Mr. Johnson. Mr. Glover, do you desire to make any other state- ment ? Mr. Glover. I would like you to indulge me for a moment in con- nection with a matter that has had some inquiry made in connection with the value of the property known as Massachusetts Avenue Heights. I would like to state very briefly my connection with that property. In 1906, desiring to bring the Potomac Park and the Kock Greek Park together — that is, assuming that the Zoological Park is a part of Rock Creek Park — -I got an option on 100 acres of this property for the sum of $420,000. In 1907 I caused to be introduced into the Senate and House a bill looking to the purchase of this property at the option named, but with $3,000 added by the Commissioners of the District of Columbia for expenses that might be incurred in acquiring it. Mr. Johnson. Who introduced those measures? Mr. Glover. A Member of the House and a Member of the Senate. Mr. Johnson. Do you recall whom? Mr. Glover. I do not at the present moment. I am not sure that the commissioners did not ask for the introduction of this bill. I took the bill to the then Commissioners of the District of Columbia and they thoroughly approved of the scheme. My option was for two years, and for two sessions of Congress this property was offered at the price named — $420,000. Mr. Johnson. How was the property described? Was there any particular name for it? Mr. Glover. Yes; it was the property lying between Connecticut Avenue and Massachusetts Avenue bridges, and ran out to the Protestant Episcopal Cathedral Foundation. There were also 3£ acres south of the Massachusetts Avenue Bridge. It was my inten- tion to continue down Rock Creek until these parks were finally joined. As the panic had created a very extremely critical and serious condition in the money market Mr. Johnson. Which panic? Mr. Glover. The panic .of 1907, which ran well into 1908 and 1909. I endeavored to have this option renewed for another year, having failed within the two years to cause the passage of this bill. After much difficulty I succeeded in having it continued for another year, in writing. A short time ago somebody told me that I had better get the Congressional Record of 1909, of March 3; that I would probably find therein the cause of what I have been told has frequently occurred — a defense of my character by my friends before members of the House committees. Mr. Judson has told me that frequently he has had to defend me. Mr. Johnson. In this committee? Mr. Glover. In this committee, no ; other committees of the House, and dating three years back. INVESTIGATION OF INSURANCE COMPANIES. 421 I read this record for the first time about a wek ago, and I find, Mr. Chairman, this statement by Mr. Andrus, of New York. Mr. George. What is the date of that ? Mr. Glovek. March 3, 1909 ; and I am reading from page 3877 of the Congressional Eecord. There is a good deal more of it, but I just want to read this statement, because it bears directly on what I have to say : Mr. Nobbis. Mr. Speaker, I yield five minutes to the gentleman from New York [Mr. Andrus]. [Applause.] Mr. Andrus. Mr. Speaker, the work of a session of Congress apparently is never completed untii we have some little discussion in regard to an appropria- tion for the purchase of land in Rock Creek Park. My time is rather limited, but at the outset I want to state how I stand on parks. I am in favor of parks, as I am in favor of public schools, in favor of churches ; churches to grow a better moral influence in the community, churches so that the children may acquire an education, and parks where the children can play and grow bone and muscle and nerve to help them bear the heavy burdens of life that will follow. I would like to give you just a hasty resume^ of this matter for four years. On March 27, 1906, Senate bill 5289 called for $600,000. On the 27th of March a Senator wrote to the president of the District Commissioners asking certain information, and among the information asked for I find this. I read from his report. It is calendar No. 2811, near the bottom of the third page: " The price named in the bill, $600,000, for about 437,000 square feet of land, or about $1.37 a square foot, is in excess of the estimated value of the land by the board of assessors, their value being $230,000." Mr. Speaker, I have had some experience, having bought a few lots during my life, and I found the assessor's value, as a rule, a pretty good criterion on which to act. On March 30, 1906, evidently a conscience was pricked, and a bill, H. R. 5102, was introduced for $550,000— $50,000 less. On February 16, 1907, conferees of the House and the Senate came to an agreement of $475,000, but it was not satisfactory to the House Committee on Public Buildings and Grounds, and the matter was dropped with the expiration of the Fifty-ninth Congress. The thing took on new life, and on January 27, 1908, the bill S. 4441 — which I have here — was reported for $423,000, a gradual coming down. That bill went directly to one of the appropriation committees, and on May 26 last, under a suspension of the rules, it was defeated by a vote of 57 for and 164 against. Mr. Norris. That was this same bill? Mr. Andrus. This same bill that is brought up to-day. Now, what have the Government and the people lost in these three years? We are talking now about $423,000, as against $600,000 three years ago, a saving to some one of $177,000. The interest on $600,000 for three years at 2 per cent is $36,000. It makes a total of $213,000. It may be a small sum in this House, but, Mr. Chairman, there are 10,000 boys in my district who would be exceedingly happy if in a legitimate way they could make that money in three years. [Applause.] I want to now read what Mr. Sims, of Tennessee, has to say on the same subject: Mr. Norbis. I yield five minutes to the gentleman from Tennessee, Mr. Sims. Mr. Sims. Mr. Speaker, when this identical bill, without the change of a letter, was voted on by yeas and nays in this House on the 26th day of May last, 164 noes were recorded as against 57 ayes. How many gentlemen are going to change, and what reason are you going to give for your flop in so short a time? Now, there will be a yea-and-nay vote at this time on this bill, and you will have to explain some day why you changed in so short a time, without any new evidence or any new reason given for the change. There is no option on this land at this time. I will read from a statement made by Mr. Charles Glover in the hearing before the Committee on Appropriations last year, before this bill was voted on in May last. " The Chairman. How is it, Mr. Glover, with respect to the 88 or 98 acres ; would it be possible for you to have the option renewed another year? 422 INVESTIGATION OF INSTJBANCE COMPANIES. " Mr. Gloveb. Xo, sir ; that is out of the question, Mr. Tawney. They have assessed this ground at $7,500 an acre. The assessment has gone up tre- mendously. "Mr. Fitzgerald. The assessed valuation of it? " Mr. Glover. Yes ; they have put it up enormously, and justly so. It Is n pretty fine piece of ground. Bell told me the other day that they hardly knew what to do about this thing. " The Chairman. You think it would be impossible to renew the option? " Mr. Glover. Absolutely. " The Chairman. When will the option expire? " Now listen " Mr. Glover. With this session of Congress." I succeeded, after many conferences and much difficulty, and owing to the fact that the panic had made it almost impossible to borrow on that character of real estate, in securing an option for another year. This is the debate at the end of that last year that this property was offered to the Government of the United States. Mr. Sims continued as follows: Thiit wrs the last session Mr. Glover said this option expired. When has it been renewed? If he told the truth then, and I do not question his veracity, there is no option on that land at this time. I was told by as good a Member as there is in this House that another Member, who is a Member now, is interested in one of the syndicates mentioned by Mr. Glover, in one of these pieces of land. Are you going to be influenced into enacting such legislation as this under svspension of the rules? Mr. Clayton. May I ask the gentleman a question? Mr. Sims. Certainly. Mr. Clayton. Do you think it is fair to the membership of this House to make that statement without naming the man or at least giving the authority? Mr. Sims. The gentleman who told me is in his seat on the floor of the House at this moment, and he can tell the name of the Member if he so desires. Mr. Clayton. On which side of the Chamber? Mr. Sims. On the other side of the Chamber. Mr. Clayton. What is the color of his hair? Mr. Rims. Oh, his hair is all right. Mr. Campbell. I think that if the gentleman has any information upon that subject he ought to name the man. Mr. Sims. The gentleman who told me is present, and he will tell you that a Member of this House is now or was, interested in one of these pieces of land, and has used his personal influence heretofore to pass this bill. Mr. Clayton. I insist that the gentleman from Tennessee ought to give the name of the Member from whom he obtained that information. Mr. Sims. Oh, he is now in the Chamber. Mr. Clayton. I want to hear all the information and I insist that he furnish the name. Give us the name. Mr. Sims. The gentleman who told me is on the floor of the House; he can give it. Mr. Clayton. Name him. Mr. Sims. I will not name him. He is here and hears what I say. Will giving the name tend to prove anything except this : That whenever people in this District have land they can not sell to anybody else they try to sell it to the Government before it goes up? They started in on this tract at $600,000 and now they have got it down to $435,000. Of course, the gentleman from Ohio, Mr. Burton, and the other gentlemen who have spoken in behalf of this bill, did not know that any Member of the House was interested in any of this land. Mr. Chairman, the statement that I offered that property to the Congress of the United States at $600,000; that I was pricked by conscience and reduced the sum to $550.000 ; that it was embodied in any bill by my authority at $475,000, or, as Mr. Sims says, it is now before this House at $435,000 is an absolute and unqualified falsehood. I never offered the property save at the one single price of $420,000 INVESTIGATION OF INSURANCE COMPANIES. 423 plus the $3,000 added by the Commissioners of the District of Columbia. As that charge stands, I can well understand why Maj. Judson has had to defend my character before some Members of the House. It leaves me, instead of being a public-spirited citizen, a man with an option on a piece of property at $420,000 endeavoring to palm it off on the Government of the United States at $600,000. I do not believe, Mr. Chairman, that these gentlemen intended to make an untrue statement, but the bill was before them. Here is the identical bill, and the last clause of that bill says that the price of that land was $423,000. It was one of the most valuable pieces of property that could, under any conceivable circumstances, have been bought by the Government of the United States, beautiful in its magnificent woodland and its splendid springs, and with the pieces of property already owned by the Government of the United States it would have given about 4,000 feet front from Eock Creek to Thirty-fourth Street on that magnificent avenue. This property to-day is selling somewhere from about two to four millions of dollars. It is selling from 60 to 75 to 90 cents, or nearly a dollar, per square foot. And I think very much more than that is asked for some of it. It was one of those mistakes which can never be rectified. It has already been laid out in streets and a large sum expended in its improvement. But it is rather an unfair advantage to take of a man who can not get before the House of Representatives to make a statement that could so easily be disproved by the gentleman who refers to the very bill itself, that calls for not $600,000 or $435,000 or $550,000 or any other sum, but the exact sum that I offered this property to the Government at all three of the sessions that it was before the Congress of the United States; and as to my having any interest either in this or in the Rock Creek Park, the bill for which I not only caused to be introduced into the House of Representatives and into the Senate of the United States, but I caused the passage of that bill, adding about 1,200 acres to the parking system of the District of Columbia, having first, at the in- stance of Mr. Henderson, the then chairman of the Appropriations Committee Mr. Johkson. What Mr. Henderson? Mr. Glover. David B. Henderson. There was a bill introduced just before I caused to be introduced the Rock Creek Park bill, in- troduced into both Houses of Congress, to establish a zoological park. This bill was rather an unfortunate bill. It seemed to have very few friends. Mr. Henderson asked me to go over to the Senate and have that bill passed by the Senate, and that he would endeavor to add the entire Rock Creek Park project to the bill as an amendment. I went to Senator Edmunds, Senator Sherman, to Senator Allison, and several others of the very first men in the Senate. That bill was promptly taken from the committee and passed. When I endeavored to have the bill amended in the House I was met by great opposition from the Regents of the Smithsonian Institution. I went to see Prof. Langley, went over it with him, and he said he had no authority to permit any amendment to the zoological bill. I asked him who had; he said the Regents. I asked him if he would call a meeting of the Board of Regents, which he did, and after about two hours' 424 INVESTIGATION OF INSURANCE COMPANIES. conference they agreed to permit Mr. Henderson to make this amend- ment. It was defeated by a few votes ; but I had arranged with Mr. Henderson that in the event of the failure of the Rock Creek Park bill he would take up the zoological park as a very small matter, involving only an expenditure of $200,000, and he would ask for the passage of that bill. This was done, and the zoological park bill cut the property that I wanted to take in the original Rock Creek Park bill just about in half. I intended to begin at Florida Avenue and go to very near the District line. I then went back to the Congress of the United States, reducing the sum that I had originally asked for to $1,200,000, for a large part, taking up the entire Rock Creek Valley. After almost in- credible labor in this matter, I succeeded in causing the bill to be passed by both the House and the Senate. A number of disgruntled property owners began an attack on me then for having an interest in that proposition. I never owned a foot of ground inside or outside of Rock Creek Park — not at any time long before and until years after the park had been established; I had no interest remotely, directly, or in any shape or form. The origin of this bill was in this wise: I was in the habit of riding several times a week with George Bancroft, the historian, whose executor I was; with Randall Gibson, Senator from Louisiana, who also named me as one of his executors; and with Spofford, the Librarian of Congress. We would very often see some magnificent grove of trees cut down and some wretched, misfit subdivision put in its place. We often discussed the possibility of a park taking in this magnificent country. A little later, out riding with another group of gentlemen, friends of mine, on a Thanksgiving Day, in 1888, I stopped in the midst of this magnificent region, and" there we entered into a solemn resolve that we would never cease working until the Rock Creek Park was an accomplished fact. The result is you have the Rock Creek and Zoological Parks. At an earlier period, in 1880, I asked a couple of my then friends to meet me at my house to discuss the possibility of the reclamation of the Potomac Flats. We were to determine upon some plan both for the reclamation of the flats and the waterworks extension. We determined that the best method and the one that would give the least opposition, was to put the whole matter in the hands of the Engineer Corps of the Army, and to ask for an appropriation. After this first meeting I called about 40 of the best known citizens of Washington to my house. We formed two committees of 20 each, and within about 90 days after the beginning of this effort to purify that portion of the city — for Washington was said to be the most malarial city probably on the continent — we succeeded in get- ting an appropriation of $400,000 to begin the reclamation of the flats and $1,500,000 to complete the waterworks extension. The river flats plans were jplaced in the hands of Gen. Hines, who most admirably performed his duties, and the extension of the water- works was placed in the hands of Col. Lydecker, who was not so for- tunate. The flats were gradually reclaimed. Some 700 acres were taken out of the bottom of the river. A great danger attached to this territory. INVESTIGATION OF INSURANCE COMPANIES. 425 In 1896 I caused to be introduced a bill about 10 lines long, that I took to Senator Allison and asked him to add to some one of the appropriation bills. It was a bill to this effect, declaratory only, carrying no appropriation, " That the reclaimed flats, together with the tidal reservoirs be, and the same are hereby, declared to be a national park to be called the Riverside Park." Two eld friends of mine objected to the name, and their calling attention to the fact that this bill was on an appropriation bill caused a point of order to be made in the House, and it was knocked off. I had it introduced as an independent measure the next year, and if you will look at the debates along about the same period that this took place, in 1897, you will find that it was passed with the greatest possible difficulty. It went to the President of the United States, and certain railroad interests endeavored to prevent Mr. Cleveland, who was then Presi- dent of the United States, from signing this bill. I went over by appointment about six days before Mr. Cleveland was to leave office, and his private secretary whispered something to me as I went in, but I did not catch it. The bill had been sent to him only a day or two before. It had come within the 10-day limit. As I was about to take my leave I said to Mr. Cleveland, " Mr. President, it is a source of great gratification to me to know that this great territory south of the White House is to forever remain a national park." He wheeled around, and he said, " Glover, why was not the proposition of Mr. Pitney the proper solution of that question? " I refer to the present Justice of the Supreme Court. I said, " Mr. President, that does not solve it. What we want is the influence of the people of this District and of the people of the United States to prevent the possibility of that property getting into the hands of railroads, or for any other purposes." There were many rather questionable titles. Mr. Cleveland signed that bill on the 3d day of March, 1897, just a few hours before his term expired. That is the history of the reclamation of the flats and, very briefly, the history of the Rock Creek Park. I was not accused of having profited in any shape or form by the reclamation of the flats, but I have been accused of practically every- thing. I was accused of making a million and a half dollars out of the Rock Creek Park scheme that only cost $1,200,000. And then it was reduced and reduced, until finally somebody had heard that somebody else had said I had made $50,000. As a matter of fact, I never owned a foot of ground inside or outside of Rock Creek Park ; I never had any arrangement by which a dollar of money could be paid to me under any conceivable circumstances. I have never been placed in a position where I would act as the agent of any living man. Mr. Chairman, I am greatly obliged to you for vour permission to make this statement that I may clear up some of the yellow- journal attacks upon me, and a good many of the people here in Washington, who do not know and who do not believe that I ever had anything to do with the acquisition of these magnificent parks for the District of Columbia. Mr. Johnson. Do you know how many persons did own the 1,200 acres, I think it was ? How many acres were there ? Mr. Glover. I think there were over 200 property owners. The whole thing was settled through the courts. 426 INVESTIGATION OP INSURANCE COMPANIES Mr. Johnson. Do you know whether practically every one of them made a considerable amount of money out of his holdings? In other words, that each one of them received for his holdings considerably more than it was worth on the market? Mr. Glover. There is not a«question of doubt that they received vastly more than the property was worth, and there is where the attacks were made upon me. I endeavored in every possible way to secure this property at an absolutely fair valuation for the Govern- ment, and the result was that through the press and through other means I had the most vicious attacks made upon me. Mr. Johnson. Mr. Glover, have you ever heard the statement or rumor that has been going the rounds for some time that when the commissioners, who were to acquire that property, met they doubled the assessed value of each tract of land composing the park and added it up, and found that it would not consume the million two hundred thousand dollars appropriated for the purchase ; that then they con- tinued to add and add until the $1,200,000 was taken, and that in that way they got to 600 per cent over and above this first assessed value of the property ? Mr. Glover. I do not know what the assessed value of the property was, but I know it was taken at vastly more than its real value. I want to say just a word with respect to the gradual absorption of that $1,200,000. Five of probably the most thoroughly honorable men that could be found within the limits of this country of ours were selected by the President of the United States. Two of them were named in the original bill, the Chief of Engineers, Gen. Casey, and the engineer commissioner of the District of Columbia. The other three were added at my request by the President of the United States. They notified me there was a considerable balance after having paid all of the property owners for the property taken up to that time; that they would like very much to acquire an additional piece on either side of the creek, running up to a certain point where a dam could be put across the creek. I went to the President of the United States with this argument and explained to him exactly the situation — the President was Mr. Harrison — and he signed this bill. Later along they found that an additional sum could be used, and I again went to the President of the United States. This last purchase carried the Eock Creek Park to the District line, along the line of the creek and on both sides of it. That is the history of the final disposition of it. But it is a long story ; to go through the whole of it would take a vast deal of time. I only wanted to make a statement so far as my connection with it was concerned. Any statement that I ever appeared before the Con- gress of the United States or any committee or anyone else as the paid employee of syndicates or anyone else is an absolute and unqualified untruth. I never had occasion in my life to act for others than myself. Mr. Bell here is one of the representatives of the Thompson syndi- cate, from whom I obtained an option on 88 acres. I obtained an option on 10 other acres belonging to the defunct Waggaman estate. It was then in the hands of a receiver. Mr. Bell will tell you that it was at the rate of $4,000 per acre, and that the question of a commis- sion or any payment of any- kind. _sha»e. or description never entered INVESTIGATION OF INSUEANCE COMPANIES. 427 into it. I would not have appeared before the Congress of the United States for the entire $420,000. Mr. Bell. I do not think it is necessary for me to make any state- ment or to corroborate anything that Mr. Glover has said. It is ab- solutely and unqualifiedly true. Pie never did receive and never will receive and never would ask for any commission. Mr. Glover. I am no man's agent. Mr. Belt, (continuing). On this land or on any other land. He took that matter up piirely as a public-spirited citizen, to try and increase the park area. I am personally very glad that the option we gave Mr. Glover expired, because the property is worth a good deal more now than the price that was offered. Mr. Johnson. Mr. Glover, another little inquiry for information. You were evidently familiar with the contents of the bills to acquire Rock Creek Park. Was there a provision in that bill requiring or providing for the assessment of benefits upon the adjacent property? Mr. Glover. I think not. Not in the original bill. I am not pre- pared to say. It was very materially altered and amended* before it finally passed Congress. I can give you a copy of the original bill as I caused it to be introduced in both Houses. Mr. Johnson. I have understood, without having read the act, that this provision was in it, and that these commissioners finally ad- journed, not sine die, but adjourned, contemplating under that ad- journment the future meeting, and, while 20 years have rolled around, that they have never met and assessed those benefits. Can you en- lighten us in any way as to that? Mr. Glover. I believe there was some question of that kind, Mr. Chairman, but it is so long since this Mr. Johnson. And that that very property now is subject to an assessment for those benefits, but that, notwithstanding the lapse of 20 years, it has never been done. Do you think there is something in that? Mr. Glover. Well, I do not think the acquisition of the park added a dollar to the value of the surrounding properties. The only im- provement that comes by reason of the establishment of a park is the opening up and grading and paving of the streets that will be most material. Then the park becomes a valuable adjunct to the value of the property. Mr. Johnson. If I have been correctly advised the assessment of benefits was to be made upon the adjoining property not only be- cause of the acquisition of that property for a park, but upon the improvements made to the park. Mr. Glover. Well, there were no improvements made for over 20 years. It lay there almost a dead letter, and no streets were opened around it or through it. Capt. Beach, one of the engineer commis- sioners, was the first man that attempted to open a street there, and he did it through the medium of a chain gang. Mr. Johnson. In what year was it acquired ? Mr. Glover. 1891, I think. Mr. Johnson. Well, then, improvements have been made there further back ; it did not lie idle, then, 20 years ? Mr. Glover. No; not quite 20 years, but for a great number of years; there was scarcely any appropriation more than a very small sum to take care of it. Mr. Chairman, I own a good deal of property 428 INVESTIGATION OF INSURANCE COMPANIES. at the present time along the line of Sixteenth Street — a number of triangles Mr. Johnson. Which side of Sixteenth Street ? Mr. Glover. On the west side. Mr. Johnson. How far out ? Mr. Glover. Out beyond Blagden Avenue and the reservoir. Almost all of the ground beyond that point belong to me. My recol- lection is that probably 15 years after the establishment of that park I purchased that ground at less than it was condemned for at the time of its attempted acquisition by the Government. At any rate, the price was so great that the commissioners determined to drop these triangles out and acquire them at some later period. I began some few years ago to purchase a number of those tracts Mr. Johnson. How long ago? Mr. Glover. Well, I think the first tract, probably, was 11 or 12 years ago — 10 years ago. One or two tracts along after that, prob- ably a year or so, and up to within 5 or 6 years, I have purchased something like. I think, about 4,000 feet front on Sixteenth Street, and I did that with the hope that the Government would make Six- teenth Street ultimately the boundary line — the western line— the eastern — the western boundary line of Rock Creek Park. Mr. Johnson. The eastern boundary line? Mr. Glover. What did you say? Mr. Johnson. I say the eastern boundary line? Mr. Glover. Yes; the eastern boundary line. I bought one of these tracts at $1,500 per acre; I bought another at $1,100 per acre; I bought another one at $1,000 an acre, but I had to buy 25 or 30 acres on the east side of' Sixteenth Street in order to acquire this property, which was offered to me for $2,500 an acre. Then I bought another tract for about $2,500 an acre, and still another one for $1,800 an acre. I went to the Commissioners of the District of Columbia and authorized them to embody all of this property in a. bill, and I offered it to the Government of the United States at less than it actually cost me. I offered the land purchased at $1,500 an acre at that price; the ground purchased at $1,100 and $2,500 at about $1,800 per acre ; and the ground that I had purchased at $1,800 an acre I put in at that price. I happened to be present in the com- mittee room one morning about this very park about which we have been speaking, when I heard rather a severe criticism that I was not doing what the commissioners had, to some extent, said — that is, offering this at a reasonable price, and that I was asking rather an unreasonable price for it. I think there were something like 27 acres of ground for which I would have received about $41,000 or $42,000. I made the statement to some of those gentlemen at the time that the price I asked was about one-third of the actual value of the property; that I would not sell this land to any private indi- vidual for $5,000 an acre. This was only three years ago, or a little over, and since then the cheapest property that I purchased there— the ground for which I paid $1,100 and $1,000 — I have been selling at the rate of 25 cents per square foot, or nearly $11,000 an acre. The judgment of a great many men who have charge of matters con- nected with the District of Columbia is not always of the wisest type. It is the greatest misfortune in the world that that 4,000 feet frontage, or nearly so, of the land that I took was not taken off of my hands INVESTIGATION OF INSURANCE COMPANIES. 429 at actually less than it cost me, but the man who gives his time, who is public spirited, is generally accused of almost every crime in the calendar, and rarely ever gets any credit along any conceivable line. Mr. Johnson. You have said it has been necessary for Col. Judson to defend you before Members of the House. Do you know what Members it has been necessary to defend you before? Mr. Glover. Mr. Judson has more than once told me he has taken a good deal of his time, gentlemen, with a statement such as this. Mr. Johnson. Did he say who they were? Mr. Gloveh. No; he did not; but they are Members of an older date than, I think, any of the members of this committee. Col. Judson. I am not sure but what Mr. George was one. I am not sure but that I spoke to you along that line. Mr. George. Along, what line? Col. Judson. Of Mr. Glover's offers to the District, and the rumors that were in circulation in the House that he had a great profit in it for himself. You may have forgotten it, but I think I have spoken with you about it. Mr. George. Well, why do you use the word " defend " ? Col. Judson. Because of the charges that Mr. Glover has been talking about. Mr. George. Charges made where? . Col. Judson. Oh, on the street and in the House. He has been reading charges that were made on the floor of the House. Mr. George. Did I make any charges? Col. Judson. I beg your pardon. Mr. George. Did I make any charges? Col. Judson. Oh, no; I did not mean that you had made a charge, but I thought I had explained these matters to you when we were speaking of that property or Mr. Glover's activities in real estate here. I am not sure that I have spoken with you about it, but I seem to recall that I have, at one time, when we were out in a machine, going to Occoquan — that we talked about Mr. Glover's activities in real estate. Mr. Glover. If this statement, made in the columns of the Con- gressional Record, were true, then I need defense along every line. If I had an option on this property at $420,000, and I was endeavor- ing to foist it upon the Government of the United States for $600,000, I can express no surprise that a great many Members of the House should have absolutely no faith in me ; but the statement, as I have before said, is absolutely untrue. Mr. George. Mr. Glover, before you go, I would like to call you attention to section 6 of that act — that Rock Creek Park act — which reads : That the commission having ascertained the cost of the land, including ex- penses, shall assess such proportion of such cost and expenses upon the land, lots, and blocks situated in the District of Columbia, specially benefited by reason of the location and improvement of said park, as nearly as may be in propor- tion to the benefits resulting to such real estate. Did anything ever come of that clause of the act ? Mr. Glover. Mr- George, I think that that commission determined practically that there were no benefits by reason of the condemna- tion of this property. Mr. Johnson. Did they ever make any official return to that effect? 430 INVESTIGATION OF INSTJEANCE COMPANIES. Mr. Glover. That I can not say. I am almost sure, because I knew them all well. They are men of the highest possible character and standing. I will name them for you, if you care to know — Air. H. V. Boynton, Mr. R. Ross Perry, one of the most prominent attorneys in the District of Columbia, Gen. Casey, and I do not remember Col. Judson. John M. Wilson? Mr. Glover. No; it was Prof. Langley, of the Smithsonian In- stitution. Mr. Johnson. If they have a duty there to be performed, they can yet do it, because I understand the record shows their adjourn- ment was not a sine die adjournment, but simply one for the occa- sion. It has just been suggested by Col. Judson that they are all dead. Mr. Glover. No, sir; Mr. Perry is living. Mr. Johnson. But even so, the commission could be convened and could carry out the purport of the bill. Mr. Glover. Mr. Perry could give you the fullest information upon the points on which you wish to be informed. I hope Mr. George's suggestion will not be carried out, however, as I own quite a little patch of land out there. Mr. Johnson. We rather hope that it will. Mr. George. How much land do you own in that neighborhood, Mr. Glover? Mr. Glover. Oh, I think about 45 or 50 acres; probably a little more. Mr. George. Oh, well ; that is not very much for you, is it ? Mr. Glover. Oh, yes. Mr. Johnson. How much is it worth now? Mr. Glover. Oh, I do not know. I think that very land which I offered three or four years ago, is assessed for four or five thousand dollars an acre, which would indicate it is worth one-third more than that. Col. Judson. What multiple is that of what you offered it for ? Mr. Glover. I offered it for less— for $1,500 and $1,800. Col. Judson. It is assessed for how much per acre now? Mr. Glover. One tract is assessed for $4,000 per acre or more, and all of it has been increased in value, but a year or a year and a half hence, when it is reassessed, I think Mr. George will be gratified at the increased assessment of that property. Mr. George. Well, if it gets its real value. Mr. Glover. I never ob]ect to it getting its real value. Mr. George. But Bock Creek Park was bought at a very small price — the price paid was eight times the assessment. Mr. Glover. Yes. Mr. Johnson. Did you say Rock Creek Park was purchased at a very small price ? Mr. George. No ; a very large price. Col. Judson. I may say that shows how improved the assessments are recently. Mr. George. I have not found it so. Mr. Glover. I think about 1,600 acres was acquired in the Kock Creek Park proceeding, beginning at the north of the Zoo and run- ning to the boundary line, for the sum of about $1,200,000, and this $1,200,000 includes a very material deduction for expenses and so on, INVESTIGATION OF INSURANCE COMPANIES. 431 so the land cost a great deal less than that — the actual cost of the land Mr. George (interposing). Just to get those figures into the rec- ord, the Government bought 1,605 acres and a fraction Mr. Glover. Yes, -costing Mr. George. And the sum paid was 1,125,215, and the assessment was $133,334, so that the Government paid 8.06 times the assessed value of the property. Mr. Glover. Property was not' looked on as very valuable out in that section. Mr. George. A good deal of it is not now. Mr. Glover. How is that ? Mr. George. A good deal of it is not so regarded by the assessor now. Mr. Glover. No. Mr. George. But it sells reasonably well. Mr. Johnson. The committee will now adjourn until 10 o'clock Thursday. Whereupon, at 4.15 p. m., the committee adjourned until 10 o'clock a. m. Thursday, January 2, 1913. X INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 5 JANUARY 2, 1913 m WASHINGTON GOVERNMENT PRINTING OFFICE 1913 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, Washington, D. C, January 2, 1913. The subcommittee met at 10 o'clock a. m., Hon. Ben Johnson (chairman) presiding. There were present the Commissioners of the District of Colum- bia — Hon. Cuno H. Rudolph, Gen. John A. Johnston, and Lieut. Col. William V. Judson, United States Army — and Mr. Francis H. Stephens, assistant corporation counsel of the District of Columbia. Also, George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also, Messrs. Charles A. Douglas and Charles F. Carusi, repre- senting the Commercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. Also, William Otis Badger, jr., attorney for Mr. Alfred M. Best. TESTIMONY OF HON. J. H. GALLINGER, A SENATOR FROM THE STATE OF NEW HAMPSHIRE. The witness was duly sworn by the chairman of the subcommittee. Mr. Johnson. Senator Gallinger, you are advised as to the object of this inquiry, and the committee will be glad to have you make such statement as you desire relative to it. You may make that statement in your own way. Senator Gallinger. Mr. Chairman, it is a matter of regret to me that anything has occurred during this inquiry that has made it necessary for me to take even a single moment of the time of this committee, composed, as it is, of very busy men. But certain matters developed, particularly in the testimony of Engineer Commissioner Judson, in which my name was, as I have thought, unnecessarily dragged in, and my name seems to punctuate the hearings to a very considerable extent from that time until now. I felt it a duty to myself, as well as to others, to make a brief statement as to the matter that was discussed. I will venture, as a preliminary, to say, Mr. Chairman, that when I came to the Senate almost 22 years ago I made two requests of the committee having in charge the assignment of the Senators to the committees, and those requests were that I should not be put on the Committee on Claims or the Committee on the District of Columbia. My wish was gratified as to the former, but as to the latter I was somewhat surprised, when the lists were submitted, that I was named as a member of the Committee on the District of Columbia. 4X1 434 INVESTIGATION OF INSURANCE COMPANIES. I expected to retire from that committee in a short time, but I be- came interested in the question of the hospitals, the eleemosynary institutions, the schools, and other matters connected with the capital and I really felt after a little that it was my duty to remain on the committee and to do what I could for the city of AVashington. I have remained on the committee from that time until the present. When Senator MacMillan died, 9 or 10 years ago, I believe, having been chairman of the committee for a considerable length of time, I, being the ranking member, was promoted to the chairmanship, and I have remained there in that capacity during those 9 or 10 years. For several years past — I have forgotten how many — I have also served as chairman of the subcommittee of the Committee on Appro- priations having in charge the District of Columbia appropriation bill ; so that I have been in close touch with District matters, and I really had supposed, Mr. Chairman, until I read some recent testi- mony, that my associates and myself had done something toward the growth and beautification of the city of Washington ; but I am some- what in doubt about that now; possibly we have not accomplished much. I know very little about and could not qualify as an expert on either insurance matters or real-estate values, certainly not on the latter. I have some knowledge of insurance matters derived from legislative experience at home and from the interest I have had in getting for Washington a better insurance department than we form- erly had. Until 1901 the assessor of the District of Columbia had charge of insurance matters in this District, and you can imagine that, with the multifarious duties of that official, there was not very much done either in the line of development or of legislative action. In 1901— and I had something to do with it — a law was enacted creating the insurance department, to become effective the succeeding year, 1902. It was rather a crude enactment, and the laws relating to insurance in this District were very far behind those of many of the States. Mr. Thomas E. Drake, of Ohio, was selected as superintendent of insurance, and he served in that capacity until his death in July, 1910. Now, Mr. Chairman, I will not criticize the conduct of the department under Mr. Drake. He is now dead. I did criticize it in hearings before the subcommittee of the Committee on Appropria- tions of the Senate, which can be found in the printed hearings. The department, as I viewed it, was not well conducted, and it is only necessary for me to say that there are two missing annual reports of the department. They were never printed. Mr. Drake, undoubtedly acting as he thought wisely, expended the contingent fund, which was voted for the printing of his report and other matters of that {kind, in making addresses, as he said, representing the President of the United States at that time, in favor of the enactment of a code of laws for the District, which was to be, as he said, the model for the country. Those reports, as I say, were not printed by Mr. Drake, and have not been printed since. When Mr. Drake died the question of his successor naturally came up. So far as I knew there were only two candidates for the place, if they could be called candidates. The commissioners had said to me on more than one occasion that they wanted to observe the doc- INVESTIGATION OF INSURANCE COMPANIES. 435 trine or the principle of promotion in the District offices, and I was given to understand that, unless there was some impossible condi- tion, when there was a vacancy some good man from some office in the District would be promoted to fill that vacancy. Mr. Ingham, statistician of the department, and Mr. Curry, examiner of the de- partment, were the two men who were considered, as I understood it, and I think Mr. Donovan^ an employee of some other office under the District government, was likewise more or less considered, and possibly others; I do not know as to that. Now, Mr. Chairman, I want to state with entire frankness my relation to the employment of Mr. Ingham and I want to state my relationship to Mr. Ingham. It could have been ascertained by anybody by inquiring of me, and it was not necessary for the witnesses to say that they understood he was my nephew or my near nephew, or, as one said, my uncle. I could have given that information. In fact, I think my good friend the chairman of the board is a little in error when he says I did not state the relationship of Mr. Ingham to him when we had a very pleasant little conversation on my porch at my farm in the town of Salisbury. Mr. Ingham is my second cousin, and I hope that is not to his discredit ; I am sure it is not to mine. I have yet to be persuaded that it is an offense in any respect for a man to be willing to indorse a relative, if he believes that relative is a good man. I think if we should go into that there might be some interesting developments in Washington in that direction. I met Mr. Ingham first in Huron, S. Dak., where I was, in a moment of mental aberration, engaged in a political campaign. I had heard of his mother previously to that living in Lawrence^ Mass. I had been told that she was my cousin, and I had reason to believe she was, for the reason that she bore the same name as my mother, and when this young man met me at the station and said his mother was living there, and would like to see me, I went around to the house and found she had just been bereaved, her husband having died, leaving her with this young man and three beautiful young girls. The young man was in a bank. Naturally, I became interested in them. I saw them but a moment — at least an hour, perhaps — had luncheon with them, and went to the hotel, held my meeting, and left on an early train. I heard nothing further from them for a good while, when I learned they were in Providence, E. I., where this young man's aunt lived, and had induced them to come there. The young man found a place in a manufacturing establishment. I vis- ited them there. Subsequent to that^ but I can not give the dates at all, and without any action on my part, they came to Washington. The young man obtained a position in a railroad office here, which he filled, I understand, very acceptably. After a time, and without any suggestion from me, he obtained a position in the office of the register of deeds under Mr. Dent, in this city. He remained there a few months, giving good service as I was told, and then was transferred, not because of any suggestion of mine whatever, to the office of the superintendent of insurance, and became the statistician, whatever that may mean. He remained there for about eight years— seven or eight years— when Mr. Drake's death occurred. I understood or had reason to know that these two young men in the office were each aspirants for the place, and I had 436 INVESTIGATION OF INSURANCE COMPANIES. fully persuaded myself that Mr. Ingham was the better qualified man. I talked a great deal with him about insurance during those seven or eight years, and I found him to be extremely intelligent and I thought, all things considered, that he would probably be the best man for the place. I did what I am not much in the habit of doing because I am not an office broker, as everybody will certify who knows anything about me. I think I wrote a letter to the board. I am not so sure about that, but I think I did, saying that I would be pleased if, after a careful examination of the qualifications of Mr. Ingham, he should get this appointment. I then wrote a letter un- questionably to two of the commissioners, an individual letter, and it will be noted that in the letter I wrote Col. Judson it bears date September 20, while Mr. Drake's death occurred in July, so that I had not been tumultuous in my advocacy of this appointment, had not hurried very much about it. Two months had intervened. I have not seen the letter, but I have no doubt it was a courteous letter, a proper letter, and you have Mr. Judson's reply; you have incor- porated it in your proceedings. In that letter he stated that this matter was in the hands of Commissioner Eudolph, who seems to have been deposed, however, in some way, from having charge of this department which was assigned to him by his associate com- missioners. Col. Judson replied, as I have stated, that while this was in the hands of Commissioner Rudolph, he, as I recall, hoped to have an opportunity to vote for Mr. Ingham, whom he considered qualified for the place. I do not quote the language exactly. I wrote Mr. Rudolph a letter. I was at my home in New Hamp- shire when Mr. Drake died, and was not in close touch with District matters. I may or may not have had the privilege of reading a Washington paper. Sometimes I have them in the summer time, and sometimes I do not. That letter followed Mr. Rudolph to New Hampshire. I had no knowledge of Mr. Rudolph's intention to come to New Hampshire to spend Ins summer vacation. It was a most sensible thing for him to do, because we welcome everybody there and give them good air, and good food, and a good time. I was sur- prised to get a letter from Mr. Rudolph from Sunapee Lake, saying he was there on his vacation, and I think he went on to say he would endeavor to see me while he was there ; I will not be positive about that. At any rate I wrote Mr. Rudolph that it was just 25 miles across Sunapee Lake to Salisbury and I would like him to come over and see what kind of a farmer I was. I was delighted to have a call from Mr. Rudolph and his charming wife. A well-known citizen of Washington and his wife, and the wife of a well-known physician of Washington, all of whom were friends of mine and had been for many years, came over. I think they spent an hour, probably, in the village, called first upon a gentleman who lived next door to me, a Washingtonian, and spent 15 minutes, I should judge, and then came over to my house, and I think I gave them a little ginger ale to drink; I am not sure. That is the only thing I keep on tap at my farm. I took them down through a lane I am -very proud of, and let them look on Kearsage Mountain, and then came up and we sat on my porch, and I chatted with Rudolph a few minutes, and this matter came up- Mr. Rudolph frankly stated to me he did not think he could appoint Mr. Ingham, and then and there I threw up my hands and made up my mind there was nothing fnrthpr tn rlr. *hnnt ^ A«s^Mr. Chair- INVESTIGATION OF INSURANCE COMPANIES. 437 man, from that time until the appointment was made, I did nothing whatever about it. I did receive a letter shortly after that time from a friend of Mr. Ingham's here in Washington, and I will quote the substance of it for what it is worth. He wrote me that Col. Judson had invited him to his office, had told him the contents of the letter he had written to me — I extract this from the letter itself — and ex- pressed the hope that Ingham might be appointed, adding that his only fear was that Commissioner Rudolph, under whose supervision the appointment came, would not bring up Ingham's name, so that he, Judson, might have an opportunity to approve the same. In that letter the further statement was made that Judson said he was thoroughly impressed with the ability of Ingham to fill the place, adding that he (Ingham) was the logical candidate. Mr. Chairman, that is all I know about it. No one on this earth was more surprised than I was when I learned that Mr. Ingham had received the ap- pointment as superintendent of insurance. From the attitude that Commissioner Rudolph took in the brief conversation I had with him I did not expect that he would approve of the appointment, and I knew that unless he did of course the appointment would not be made. I notice, Mr. Chairman, that in Col. Judson's testimony — and it is most extraordinary in some respects ; it was the greatest possible surprise to me, because I have been on terms of the warmest friend- ship with all of the Commissioners of the District of Columbia who have served during the 21 years I have been a member of this com- mittee; they have been most delightful gentlemen in that capacity, and none more delightful than the engineer commissioners. I recall Capt. Beach and Maj. Morrow with a great deal of pleasure as men who attended strictly to their own duties and who never came to the committee with a request that was not courteously received and, if possible, complied with. So I say the attitude that Col. Judson has taken in this matter, when I was entirely unaware that there was any feeling on his part, or any necessity for dragging me into the matter in the way he has, was one of absolute arid almost inexpressible surprise. I was about to say that I noticed in his testimony that he said I knew for months that he was opposed to Ingham. It is incon- ceivable to me that he could have made such a statement, particularly under oath, if he was under oath. How could I have known it ? I was in New Hampshire, in a little country village, trying to restore my health, as I had been in the habit of doing for a great many years, and Mr. Drake's death occurred in July. I wrote Col. Judson in September and received his reply, which indicated entire friendliness toward Mr. Ingham and rather a desire that he should receive the appointment. Now, how could I have known for months previous to that time that he was opposed to Mr. Ingham? That is all I need say about that. It is absolutely incapable of explanation from Col. Judson's point of view, and I am generous enough to believe that he has suffered a lapse of memory that possibly may be restored to him before the hearing closes. I hope it will, because he ought not to put me in that attitude ; it is not fair. You will recall that Col. Judson said, "I certainly would be very glad if Mr. Ingham should win out," in the letter of September 24, in answer to my letter of Septem- ber 20. And Mr. Drake's death occurred on the 20th day of July- am I right? Mr. EASBT-^riTH. Tm^WSTni - J**^ 438 INVESTIGATION OF INSTJKANCE COMPANIES. Senator Gallinger. So that this was two months after Mr. Drake's death, and it was the only communication I had had with Col. Jud- son. So I could not have known what his attitude was, if he had a feeling of hostility toward Mr. Ingham, whom he hoped, on the 24th of September, would win out. Then there was another remarkable statement that Col. Judson made, and which had he not made I would not have been here, because I am not in the habit of chasing down misrepresentations or criticisms. I have been subject to the usual criticisms in the District of Colum- bia of men who come here from different States of the Union and give their services, as you men are giving your services, to the District of Columbia, without your constituents giving you any credit for the work you do here, and the Lord knows that in my home they have given me very little credit for the work, which I have done here. We are accustomed to criticism and accustomed to misrepresenta- tions, and, as a rule, we pay very little attention to them; cer- tainly I pay very little attention to them. I have been criticized for things I have done and for things I have not done by cer- tain individuals and certain newspapers in Washington, but it has not troubled me, because I have been conscious of the fact that I have been trying to do my duty. This observation on the part of Col. Judson," to which I will advert, is what brought me here more particularly, and it is this : He quotes Mr. Burleson, of the House, who is chairman of the subcommittee of the Committee on Appro- priations on the District of Columbia appropriation bill, and with whom I have conferred every year as conferees on that bill, for some time past. Mr. Burleson and I have had a good many sharp contro- versies, always good natured, over the District of Columbia appro- priation bill. I have always taken a very broad view of what we should do, if we continued under what is called the organic act- living up to it — what we should do for the District of Columbia. I bave believed in very liberal appropriations. I have had a great pride to see this city what I have often said it ought to be, the most beautiful city in the world, and which I think it soon will be if it is not to-day. Hence I have been in favor of liberal appropriations for the schools. I have been in favor of liberal appropriations for the improvement of streets, for sewerage, for the hospitals, and for everything that tended to make a great city and a beautiful city. Mr. Burleson, on the other hand, has been what is known as an econ- omist. He has controverted many of the appropriations, has opposed many of the appropriations, because they were too large in his opin- ion. The House passes a bill. It comes to the Senate, and we have been in the habit of adding a great many amendments to it, increas.- ing the appropriations, and we have fought it out. And, as you gentlemen know, we always compromise. We have to do so in all matters of legislation. We have reached amicable conclusions, not satisfactory to me, not satisfactory to Mr. Burleson, but we have always been able to make a full report from the conference commit- tee; we have never made a partial report. We have agreed, gone back to the two Houses and, after more or less debate in your House- very little in ours — the conference reports have been agreed to, which has been very gratifying to both Mr. Burleson and myself. So I was profoundly surprised when I learned that Col. Judson made it appear that Mr. Burleson had made a r emark- n ot to ray INVESTIGATION OF INSUEANCE COMPANIES. 439 credit, but quite the contrary, and that remark, as I read it in the hearings, where Mr. Burleson said to Col. Judson, " You can not afford to do it." That is, you can not afford not to appoint Ingham, you can not afford to oppose him, meaning not, as Col. Judson con- tinues in his testimony, " that I personally could not afford to do it, but that I could not afford to oppose him any longer because of Dis- trict legislation." Now, Mr. Chairman, that has but one meaning; it can not have any other meaning, and that meaning is that unless Col. Judson appointed Mr. Ingham I would put myself in the attitude of opposi- tion to legislation that the commissioners desired. Well, I think I need hardly comment upon that, because it is so utterly senseless and so utterly unfair that it ought never to have been spoken by any man. It ought never to have been spoken by any man, because my record does not warrant it, but quite the contrary. I have been de- sirous of pleasing the commissioners, I have been desirous of acceding to every reasonable demand they could make, so far as appropriations for the District of Columbia are concerned; and having done that, Mr. Burleson can not cite an instance in which I have ever shown any disposition other than a friendly disposition and a disposition to reach amicable conclusions. So that, if that was said by Mr. Burleson, Mr. Burleson did me a very great injustice, and I am sure he will be very glad to correct it if his attention is called to it ; but I do not believe he could have said it. I do not think I am wrong in saying that Mr. Burleson was out of the city at the time Mr. Drake died — at his home — and that he did not return here until just before the meeting of Congress in Decem- ber. I have a reason for saying that which is satisfactory to myself, and yet I say I may be wrong about it. I think, however, I am right. So he could not very well, during that time, have made this observation to Col. Judson, and if he did it could have only been looking to the future — to some District of Columbia appropriation bill; and my attitude in former conferences with Mr. Burleson and his associates could not possibly have justified any such observation as that. So I put that down as a dream on the part of Col. Judson or a mistaken statement on the part of Mr. Burleson; one or the other. I think I might explain it — that remark on the part of Col. Jud- son — in a semiprofessional way. Col. Judson is a very ambitious, able, and a most aggressive man. With his associates he has agreed to an assignment of positions. I will pass this pamphlet over to the committee, if you have not a copy of it, showing the assignment of duties for the several commissioners, and among other things, I see that in this pamphlet Mr. Eudolph is given jurisdiction over the superintendent of insurance. Col. Judson has a long list of assign- ments which must test the capacity of any man to properly fulfill. But Col. Judson is not quite willing to perform his duties ; he wants to perform the duties, or part of the duties, of his associates. And so that restless spirit of his leads him to overreach sometimes, I think. This is the first time I ever have criticized Col. Judson in' my life! In thinking the matter over, I recalled the fact that a certain promi- nent citizen of the District said to me not long ago, " Col. Judson is a very able man, but his mind is so queerly constituted that no one but Infinite Wisdom can "understand it." Now, I do not know 440 INVESTIGATION OP INSURANCE COMPANIES. whether that is so or not. I think he is a little difficult to under- stand at times ; but, whether it is so or not, I have come to the con- clusion that his restless spirit, after he has attended to his affairs as commissioner, leads him to interfere with the business of prettv much everybody else in the District of Columbia. Col. Judson is "a martinet. He is a military man. He is a dominant man. He likes to control affairs and men. and, I think, I would not transgress the proprieties if I said that I think he is something of a marplot, as some military men are. And so he reaches out and takes control of things which perhaps he might well leave alone. Now. because of this restless activity of Col. Judson, this great desire of his to control things, he sometimes gets the dendrite of the brain a little twisted. That is a rather unusual word, " dendrite," but it was one I learned a great many years ago in a medical college, and if you will take a medical dictionary you will find out what it means. I say that he gets the dendrite of his brain a little mixed, so that he does not see things straight, nor think along straight lines, nor act on straight lines. Mr. Johnson. What does " dendrite" mean? Mr. Gallingee. Well, I will give you the definition exactly. This is from Dunglison's Medical Dictionary: A dendrite is a dendron, and a dendron is a branched and tree-shaped proto- plasmic process from a nerve cell — a neurodendron. In other words, it is a little tree-shaped projection in the brain which has a good deal to do with correct thinking. I think Col. Jud- son's dendrites, or dendrons, if you please to call them so. when he reaches out and undertakes to take control of more things than he onsrht to control, get a little twisted, and he does not see things in a straight line. That is my judgment about it. And that is illustrated by the fact that, while Commissioner Rudolph has charge of the superintendent of insurance, Col. Judson seems to have taken it upon himself to run that office. Xow, think of what Col. Judson did. Here is a young man who was supporting his widowed mother and supporting a wife and a child. He had made an honorable record. He had made mistakes, no doubt — and only heavens knows who has not made mistakes; I do not know. And yet this entire investigation was precipitated with- out the Commissioners of the District of Columbia saying a single word to that young man concerning it. Col. Judson went to the ex- tent of writing a resolution, which he asked his associates to pass, to depose this young man from his position. Why, they do not do that in the departments in Washington with reference to a watchman. The man who sits at the door of one of our departments has a right to be heard and has a right to present his side of the case. But Col. Judson proposed to take this young man, with his widowed mother dependent upon him, and his own family dependent upon him, and throw him out of his office without an opportunity to say a word in his own defense. It is a most extraordinary procedure, the most ex- traordinary procedure that has come under my observation, and 1 do not think it can be too severely condemned. If the young m aI1 ought to be driven out from the office, let it be done decently and in order, and let him have an opportunity to be heard in his own de- fense and give his side of the case before such drastic action is taken. INVESTIGATION OF INSURANCE COMPANIES. 441 It is greatly to the credit of Col. Judson's associate commissioners that they refused to pass that resolution which would have been, to my mind, a wicked thing. I might animadvert more severely than I have done upon the course Col. Judson has pursued in this matter regarding myself, but I will refrain from doing it. I have always undertaken, always striven, to take care of myself, and I know that, so far as this in- vestigation is concerned, my record will be such that I will have no occasion to feel ashamed of it. I have had very much to do with Mr. Ingham during the time he has been superintendent of insurance. On my motion a resolu- tion was passed on the 20th of February, 1909, giving the Commis- sioners of the District of Columbia— I think I will read it : In the Senate of thi United States, February 20, 1909. Resolved, That the Committee on the District of Columbia be, and hereby is,. authorized and directed, by subcommittee or otherwise, to examine into all matters relating to the District of Columbia and to report from time to time to the Senate the result thereof; and for this purpose they are authorized to sit, by subcommittee or otherwise, during the recesses or sessions of the Senate, to send for persons and papers, to administer oaths, and to employ such assist- ance as may be necessary, the expense to be paid from the contingent fund of the Senate upon vouchers to be approved by the Committee to Audit and Con- trol the Contingent Expenses of the Senate. Attest : Charles G. Bennett, Secretary. On the 9th of February, 1911, in the Sixty-first Congress, first session, that authority was continued, and is continued to the present time. Mr. George. What was the date of the original ? Mr. Gallinger. February 20, 1909. Now, under the terms of that resolution, I have not thought it was necessary — I have been_too busy to do it, for one thing, because I have been a reasonably busy man — I have not made investigations in public, but I have kept in touch with the different departments of the District of Columbia and the office of superintendent of insurance, or the department of insurance. The department of insurance has been one of the departments I paid rather particular attention to, and I have consulted with Mr. Ingham very many times. I have agreed with him that our laws were very imperfect and that we ought to have more legislation. But you gentlemen know it is not an easy matter to get a bill of any kind through Congress. But we have passed, I think, two or three bills. How many, Mr. Ingham? Mr. Ingham. Three. Mr. Gallinger. There is one now pending in the House that I suggested to Mr. Ingham, and I wish he may get it through the House, and then I will try to take care of it in the Senate. And we have discussed various other phases of the insurance problem, with the view of getting Mr. Ingham to accomplish certain results which I thought were very desirable, particularly regarding these assess- ment associations, which I thought were not properly safeguarded in this District. I have said to him more than once, " Now do not do anything rash; consult the corporation counsel or one of his assistants before taking any action that might be considered drastic or unwarranted on your -part, or which might bring you into the- 442 INVESTIGATION OF INSUKANCE COMPANIES. courts ; consult with the official whose duty it is to advise in such matters." I have talked with Mr. Stephens about it, and I under- stand that Mr. Stephens, as the first assistant corporation counsel has been Mr. Ingham's adviser. So that in every step in this matter my purpose has been, and my desire has been, to have this office well administered ; and I want to say to you gentlemen, and I say it in entire sincerity, that, knowing this young man as I do know him, if he had been an absolute stranger to me so far as blood relationship is concerned, I should have extended to him just the same helping hand that I have extended in the past, and if it be a crime, if it be a wrong for a man in public life to approve the conduct of a relative— a distant relative — to advise his appointment to an office that the man feels he is competent to fill, believing, as I do, that he fills the Jefifersonian standard of honesty, efficiency, and ability, I then have been guilty of something that perhaps I ought not to have done, But had there been no relationship whatever between us, I should have clone exactly what I have done in regard to Mr. Ingham, and, as I am always anxious to lend a helping hand to any young man who has the burdens upon him that this young man has, so far as taking care of his loved ones is concerned, I should have done the same thing for any young man that I had the same good opinion of; and I have nothing to regret or to apologize for in that regard. Now, Mr. Chairman, that is about all I have to say. I will repeat what I said in the beginning — that I regret that I had to come here at all, and would not have come had it not been for the remark that was attributed to Mr. Burleson, which I trust he did not make, but which if he did make I hope I have sufficiently explained to justify myself in the matter. Mi'.' Johnson. Mr. George, do you desire to ask him any ques- tions? Mr. George. Not at this time, Mr. Chairman. Mr. Johnson. Mr. Prouty? Mr. Prouty. No. Mr. Johnson. Mr. Redfield? Mr. Redfield. Yes; I would like to ask the Senator a few ques- tions. Senator Gallinger, were you ever an owner of stock in the Fraille Mining Co. ? Senator Gallinger. I was; yes. Mr. Redfield. Were you ever an owner of stock in the Darneille Mining Co. ? Senator Gallinger. I will say that if that matter is to be gone into — I can not see the relevancy of it — but if it is to be gone into, ] think I can explain that in just about two words. Mr. Redfield. I think I will ask you to answer my questions. Senator Gallinger. Very well; I will answer them, and I ™ answer " yes." Mr. Redfield. You were an owner of stock in both the Fraille Mining Co. and the Darneille Mining Co. ? . , Senator Gallinger. I think so ; and that matter has been exploited once before in New Hampshire, without any result. , , Mr. Redfield. Did you visit the mines that these companies owned in Mexico? Senator Gallinger. I did. INVESTIGATION OF INSTJEANCE COMPANIES. 443 Mr. Redfield. In company with Mr. West and Mr. Darneille ? Senator GallInger. I did. Mr. Redfield. Were your expenses paid by the companies on that occasion ? Senator Gallingee. Partially so. Mr. Redfield. To what extent? Senator Gallingee. To the extent of a railroad ticket. Mr. Redfield. Your railroad fare was paid? Senator Gallingee. Yes, sir. Mr. Redfield. Did you examine the properties said to be owned by these mining companies ? Senator Gallingee. A portion of them. Mr. Redfield. Were you at any time a director of either of these companies ? Senator Gallingee. I think that my name was used in that capac- ity, but I requested that it should not be, and it was dropped. Mr. Redfield. What ever became of the business done by those two mining companies? Senator Gallingee. Why, I do not know, Mr. Redfield. I will say this, that I invested a little money in the stock I held. I went to Mexico and satisfied myself that if there was money enough — that if money enough could be secured that there was a chance to develop those mines to a paying extent, but I saw no chance of that money being raised, and I so reported to everybody, and I surrendered my stock, did not permit my name to be used in connection with the companies, and have nothing whatever to do with them. Mr. Redfield. Were you not given some stock in one of those com- panies ? Senator Gallingee. I had a certificate of stock handed to me, which I handed back. Mr. Redfield. How came you to go to Mexico with Mr. Darneille? Senator Gallinger. Why, you might as well ask me why I went to Europe once. Mr. Redfield. Well, why did you go to Mexico? Senator Gallingee. I went to look at the mines. Mr. Redfield. Mr. Darneille invited you to go? Senator Gallingee. Mr. Darneille invited me to go ; yes, sir. Mr. Redfield. Former Commissioner West went with you on one occasion, did he not? Senator Gallingee. Yes, he did ; on the occasion, not one occasion. Mr. Redfield. Did you go twice to Mexico? Senator Gallingee. I did not. Mr. Redfield. Then, your party, when you visited those two mines, comprised former Commissioner West and Mr. Darneille ? Senator Gallinger. So far as the Washington end of it was con- cerned; yes. One or two gentlemen connected with the mines in Mexico joined us. I have forgotten their names. Mr. Redfield. Did you assist in any way in the selling of the stock in one or both of these companies after your return? Senator Gallingee. Not one single share did I sell or advise any living man to buy. Mr. Redfield. While you were in Mexico you visited other mines besides these two, did you not? Senator Gallingee. I did not. 444 INVESTIGATION OF INSURANCE COMPANIES. Mr. Eedfield. Did you not visits Senator Gallingee. Oh, I beg your pardon : a mine in Parral — - Mr. Eedfield. The Capuzaya mine ? Senator Gallixgee. I do not know the name of it. Mr. Eedfield. Who was your host on that occasion? Senator Gallinger. "Where I Mr. Eedfield. At the mine in the State of Parral ? Senator Gallinger. I did not have any. Mr. Eedfield. "Were you not the guest of Eugene Davis? Senator Gallingee. I was not. Mr. Eedfield. Did you meet Mr. Davis? Senator Gallixgee. I did. Mr. Eedfield. You had no interest in that mine? Senator Gallinger. Absolutely nothing, beyond the fact that these same gentlemen had an interest, as I understood it, in a mine adjoin- ing — a mine owned by a man by the name of Alvarado. Mr. Eedfield. Did you not go to see this mine in the State of Parral because Mr. Darneille expected to or was considering becom- ing interested in it and asked your counsel in the matter? Senator Gallixgee. Mr. Darneille would not be likely to ask my counsel, because I knew no more about mining than I did about ballooning, and he knew that. Mr. Eedfield. How long were you there with this party of three! Senator Gallinger. Oh, a few days. Mr. Eedfield. You mean by that how many ? Senator Gallixger, I can not say. I think we were gone probably a couple of weeks from the time we left Washington. I would not be positive at all about it. Mr. Eedfield.. And when you got back, Senator, did you make any statement, either verbal or written, in regard to these mines? Senator Gallinger. I did not. Mr. Eedfield. So that, so far as you were concerned, your visit to them had no result at all ? Senator Gallixgee. Did not have any result, so far as I was con- cerned, except to satisfy me that there was not anything in the proposition. Mr. Eedfield. You were satisfied when you got back that there was nothing in the proposition? Senator Gallinger. That was my judgment Mr. Eedfield (interposing). And Senator Gallinger (continuing). Unless a very considerable amount of money could be raised, which I did not think could be raised, to develop the mines. Mr. Eedfield. And did Mr. Darneille know that that was your view ? Senator Gallinger. I presume so. Mr. Eedfield. Did you tell him? Senator Gallingee. Well, I am not so positive about that. I think I did. Mr. Eedfield. \ow, is it not, a fact that after your return the stock of those companies was offered for sale, and in fact was sold here in Washington? Senator Gallingee. I do not know whether it was or not, sir. INVESTIGATION OF INSURANCE COMPANIES. 445 Mr. Eedfield. Do you know whether or not certain of the subordi- nate public officials of the District were invited to buy that stock ? Senator Gallingee. I do not know that. Mr. Eedfield. And did so buy it? Senator Gallingee. I do not know that. Mr. Eedfield. Do you know whether Commissioner West was interested in this matter? Senator Gallingee. I understood he was. Mr. Eedfield. Did you not know that he was a stockholder ? Senator Gallingee. I presume so. Mr. Eedfield. And that he was a director? Senator Gallingee. I think I understood that. Mr. Eedfield. And you went with him because he was a director, did you not? Senator Gallingee. Not at all. Mr. Eedfield. Why did you go with him ? Senator Gallingee. Why, Mr. Eedfield, there is nothing in this matter. I at that time needed relaxation. I had met with a be- reavement that was very serious to me, and this opportunity occurred to go to Mexico, a country that I had often thought I would like to visit, and I went. Mr. Darneille was under some obligations to me which I do not wish to state, because it is not necessary; and, so far as finances are concerned, I certainly owe Mr. Darneille nothing; and this invitation was extended, I accepted it, not expecting to make 1 a fortune, but hoping that there was something in this proposition, and, if so, a legitimate investment could not be questioned by any- body. I went there ; I did not think there was anything in it unless a large amount of money could be raised. I came back and have not given the matter any serious thought from that day to this. Mr. Eedfield. Did you become a director of the company before you saw the property ? Senator Gallingee. I did not. Mr. Eedfield. Then it was after you saw the property that you became a director? Senator Gallingee. After I saw the property, I think my name was used as a director. Mr. Eedfield. For how long, sir? Senator Gallingee. I do not know ; but a very short time. Mr. Eedfield. Do you mean by that weeks or months ? Senator Gallingee. Well, I do not know how that may be. Mr. Eedfield. You do not know how long your name was used as a director? Senator Gallingee. I do not; no, sir. Mr. Eedfield. But did I not understand you to testify that you were down there and satisfied yourself that the properties were" no good unless a large sum of money could be raised Senator Gallingee. Unless money could be raised, and there were those who said money could be raised, but I doubted it very much. Mr. Eedfield. You thought that the proposition was no good unless money could be raised, and you doubted that money could be raised for it, and yet you allowed your name to be used as a director for a period which you do not recall? Senator Gallingee. My name was used a while in that capacity, and I requested that it be dropped.. 446 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. You requested it? Senator Gallinger. Yes. Mr. Redfield. Well, why? Senator Gallinger. Well, why ? I think my interrogator could answer the question himself. I did not care to be connected with the proposition, because I thought it was not going to be a success. Mr. Redfield. Well, was it a matter of courtesy or a favor to Mr. Darneille that you allowed your name to be used as a director of a company which, I understand you to have testified, was of doubtful result unless a large sum of money was raised? Senator Gallinger. I do not think that is quite a fair way to put it. Mr. Redfield. I want to get the exact relations between yourself and Mr. Darneille as fully as possible. I think the committee are entitled to them. He is one of the parties interested in this investi- gation. Senator Gallinger. I do not think this committee is entitled to go into my private affairs at all. I think the questions are irrelevant, if not impertinent. Mr. Redfield. The committee will point out, Mr. Chairman, to Senator Gallinger, that Mr. Darneille was the appraiser of the prop- erty purchased by one of these insurance companies, and was one of the three appraisers who, within four days after it was purchased, enhanced its value by a very large sum of money : that there have already been put in the record statements strongly indorsing Mr, Darneille as a public servant, and that there is in the record, con- tradicted, a statement concerning his habits, which reflected upon him, but which, as I say, is contradicted. The relations of Mr. Darneille to everybody who is a party to this investigation are relevant and very important. Senator Gallinger. Well, I will venture to make this suggestion to you, Mr. Redfield, that if you can connect me in any way with the appointment of Mr. Darneille as one of the appraisers of that prop- erty, it would be proper and legitimate, but to go into business matters, the presumption being that I, being of age, could take care of my own business affairs — I have not been very successful, I will say in that regard — I think has nothing whatever to do with thfi matter. I will add that I have known Mr. Darneille a great many years. I knew him when he was assessor of the District of Colum- bia ; when he was discharging his duties, as I understood, with great fidelity ; when he had jurisdiction over insurance affairs for the Dis- trict of Columbia, and he has been my friend, and I hope is my friend now. I see very little of him, and I have never asked a favor from Mr. Darneille in my life — never in my life. Now, if it J 5 desired to go into private matters, perhaps I could give Mr. Red- field a cue that would lead him along some other channels where I have made bad investments, but I do not believe the committee care to hear it. Mr. Redfield. You would prefer, Senator Gallinger, that this particular portion of the inquiry close here, so far as you are con- cerned ? Senator Gallinger. I beg your pardon? INVESTIGATION OF INSURANCE COMPANIES. 447 Mr. Redfield. Would you prefer that this particular portion of the inquiry close here ? Senator Gallingee. Oh, I have no option in the matter, at all. I am here under oath. I have no right Mr. Redfield (interposing). What was the capitalization of these two mining companies? Senator Gallingee. I positively do not know. Mr. Redfield. How much of their stock did you hold ? Senator Gallingee. How much did I hold ? Mr. Redfield. Yes. Senator Gallingee. Well, to go into that, I would have to go back and talk about another investment I made, that had something to do with this particular investment, and that I do not care to do. I think I had at one time probably a certificate of 50 shares. I am not so sure about that. Mr. Redfield. Of which? Senator Gallingee. Well, I can not tell you now of which mine, but I think it was of a mine where they had a stamp mill in process when I was there, the name of which I will ask Mr. Darneille. What was the name of that mine ? Mr. Daeneille. The Veta Madre. Senator Gallingee. The Veta Madre ; I think it was in that. Mr. Redfield. That was neither one of the two I mentioned to you. Senator Gallingee. Well, I think they were all connected. Mr. Redfield. Do you wish the committee to understand that you do not remember, Senator, either what the extent of your interest was or the length of time you served as a director in one or either of those companies ? Senator Gallingee. That is precisely what I wish to be understood to say. Mr. Redfield. You spoke of former conferences with Mr. Burleson and his associates in connection with the two District committees of the House and Senate Senator Gallingee (interposing). I meant to say, if I said "con- ferences " — I meant action as conferees on the part of the two Houses;, not private conferences. Mr. Redfield. Had those been frequent in the past? Senator Gallingee. Why, I can not recall, but I should think that for, perhaps, four years ; perhaps one of the commissioners might re- call it. I have forgotten now how long I have been a member of the Committee on Appropriations of the Senate. I do not keep those matters very clearly in my mind, but in the adjustment of the dif- ferent subcommittees, without any suggestion on my part, and very likely because I was chairman of the Committee on the District of Columbia, I was assigned to the subcommittee on the District of Co- lumbia appropriation bill, and I should say, offhand, that that was five or six years ago. Mr. Redfield. Senator, as a matter of fact, Mr. Burleson has been chairman of the subcommittee only during the present Congress has he not ? Senator Gallingee. I think two years. I think I have had two conferences at least with Mr. Burleson. I know I have. 71391— No. 5—13 2 448 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. But only during the present Congress ? Senator Gallinger. Possibly only during the present Congress. The former chairman of the subcommittee was the gentleman from Michigan, Mr. Gardner. Mr. Redfield. So. as a matter of fact, the conferences that had been held prior to two years back were conferences in which Mr, Burleson was in the minority? Senator Gallinger. He was in the minority ; yes. Mr. Redfield. Of the House committee ? Senator Gallinger. Yes ; that is correct. Mr. Redfield. Now, Senator, as you look back at your Mexican experience, do you not think that those were some of the things that might as well have been left alone ? Senator Gallingee. Oh. well, I am not going to answer questions of that kind. Mr. Redfield. You volunteered that statement about Col. Judson. Senator Gallinger. Well, Col. Judson can probably take care of himself. He is a pretty competent man. Mr. Redfield. When you became a director, as you testified, of a company in which you say you do not know how much stock you had, whose capital you do not recall, and in which you remained for a time which you do not remember, was that a case where the optic nerve became mixed so you did not see straight? Senator Gallinger. I will let the Senator consult his medical friends and work it out for himself, because the gentleman evidently is here as Col. Judson's attorney. Mr. Redfield. I will say to the Senator that, not being a lawyer or an attorney, I really do not understand the language used by the gentleman. You regard a report made by Mr. Ingham, after the experience he has had in the insurance department, as a trustworthy statement? Senator Gallinger. I have no knowledge of it; I have not read it. Mr. Redfield. Would you give credence to a report transmitted by him as his official statement ? Senator Gallinger. Knowing Mr. Ingham as I do, I would trust anything that I have, except my honor, into his hands. I believe he would act with absolute fairness and integrity. Now, whether he has done so or not is for this committee to determine. Mr. Redfield. Then, I ask you whether you would give credence to an official report of his ? Senator Gallinger. I would give credence to the extent of believ- ing that Mr. Ingham was entirely honest in the matter. Mr. Redfield. But you would still reserve your right to question the details of the report? Senator Gallinger. I would, as I would that of any living man. Mr. Redfield. Well, how does that comport with the high opinion of Mr. Ingham's intelligence ? Senator Gallinger. Well, I suppose Mr. Ingham would not set himself up, nor would I set him up, as being a man superior to other men. I say that any living man may make a mistake. I have made mistakes. I had a man once serving me in a matter, and he was an entirely honest and honorable man, but he made a mistake in some figures that made some considerable trouble before we got them straightened out. INVESTIGATION OP INSUBANCE COMPANIES. 449 Mr. Redfield. You spoke of your knowledge of insurance, Sena- tor. Will you give the committee more details of that knowledge, please ? Senator Gallinger. Oh, I do not set myself up as an expert at all on insurance. Mr. Redfield. Then you were— — Senator Gallinger (interposing). I acted as chairman of the com- mittee on insurance of the Legislature of New Hampshire a great many years ago. I kept in touch with the insurance department of my State, but that is a very limited experience; and, then, the fur- ther opportunity I had was because of my relation to the department in the District of Columbia; but it is meager, and I do not lay any stress upon it at all. Mr. Redfield. You testified that you said more than once to Mr. Ingham, " Do not do anything rash." Senator Gallinger. Yes. Mr. Redfield. Why was it necessary to so advise him ? Senator Gallinger. Simply because there was a very sharp contro- versy, and it extended during Mr. Drake's administration, between a class of companies here which I would denominate, to use a phrase somewhat common in my own State, " snide " companies, but they had friends and they had money and they were in the habit of going to the courts, and Mr. Ingham wanted to get rid of those companies or to put them on a basis where they would do business fairly and honorably. I knew Mr. Ingham was up against that, and I told him to proceed cautiously. I think it was good advice — and to take the advice of the office of the corporation counsel Mr. Redfield. I was going to ask you — you told him to take the advice of the corporation counsel? Senator Gallinger. I certainly did. Mr. Redfield. You think that was a wise thing to do ? Senator Gallinger. Why not? Mr. Redfield. Do you know why he did not do it in the present case? Senator Gallinger. I have no knowledge of that. Mr. Redfield. You think it would have been a wise thing for him to do to consult the corporation counsel in the matter concerned in his report or the report transmitted by him on these companies ? Senator Gallinger. I do not know about that. I do not know what questions are involved in that report. I have not read it — have not had time to read it — and I do not suppose the corporation coun- sel would have been very good authority on land values any more than I would. Mr. Redfield. The question, Senator Gallinger, may take a rather different form. Suppose, for example, a question arose as to what a report showed, as to certain representations being made by com- panies in this District, and their legal effect ; do you not think in case a report of that nature had been transmitted to him it would have been proper to consult the corporation counsel ? Senator Gallinger. I should frankly say there certainly could not have been any impropriety in making such inquiry, and I assume Mr. Ingham was satisfied his ground was tenable and that he under- stood the business that was devolved upon him to perform. I do not know that. 450 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. You have not examined into the details of the re- port? Senator Gallinoee. I have not, Mr. Redfield. Mr. Redfield. And you do not express before the committee any opinion, either, as to the substance of that report ? Senator Gallingee. Absolutely no opinion whatever. I would add that during my somewhat prolonged residence in Washington covering a period of 28 years, I have seen these land values jump fabulously, and for a long time before the Southern Building was constructed I had my eye on that corner, not with an idea of pur- chase, but thinking it was the most desirable corner lot in the city of Washington for business purposes. Whether they have a fictitious value on that corner or not I do not know. I think I agree with Mr. George in some criticisms he has made that on the large properties in the District of Columbia there are very great undervaluations, but T do not know it as a fact. I have simply absorbed it. Mr. Redfield. But as to the other features of the report pre- sented by Mr. Ingham which have nothing to do with land values, have you noticed those? Senator Gallixgeb. I am as ignorant as any man possibly could be on that. Mr. Redfield. That is all. Senator Gallixgeb. Am I discharged, Mr. Chairman. Mr. Johnson. Just a moment, please. Senator, if I understand you correctly, you are here to-day for the purpose of disclaiming that you, in your official capacity, have been improperly influenced by the appointment of Mr. Ingham, not- withstanding Col. Judson admits that he acquiesced in that ap- pointment for the purpose of influencing you? Senator Gallingee. Would the chairman kindly reread that question ? Mr. Johnson. If I understand you correctly, you were here to-day for the purpose of disclaiming that you, in your official capacity, have been improperly influenced by the appointment of Mr. Ingham, notwithstanding Col. Judson admits that he acquiesced in that ap- pointment for the purpose of influencing you? Senator Gallingee. Mr. Chairman, I disclaim absolutely and totally any influence, any improper influence, being exerted upon me from any quarter. I know of none. I equally disclaim any purpose on my part to improperly influence any man officially or otherwise in the District of Columbia. It is perhaps not modest in me to say that I have tried to hold a steady hand here as between the conflicting interests, all the time, wondering why on earth I was doing the work, and which I am delighted to know I will soon be relieved from doing. I think my record will stand the test fairly well. Am I dismissed, Mr. Chairman? Mr. Easby-Smith. I should like to ask one or two questions, if the chairman please. Senator Gallingee. Mr. Easby-Smith, I have not much time. I am called upon to preside over the Senate to-day. Mr. Easbt-Smith. I have just one or two questions, Senator. Have you at any time had any trouble with Col. Judson which could have led him to assume a hostile attitude toward you? Investigation of insurance companies. 451 Senator Gallinger. I do not recall anything except Col. Judson and I have had a little difference of opinion in reference to the public utilities bill. I put a great deal of work into that bill, coming on from my home in New Hampshire at one time and spending some time here, con- ferring with the commissioners and the corporation counsel and representatives of the utilities, and framed a bill that seemed to be a good one. The commissioners agreed to it, the corporation counsel agreed to it, everybody agreed to it, and after I reported it Col. Judson wrote into the bill a section that I think never would have been agreed to in our conferences and had the bill introduced in the House in that way. I remember talking pretty plainly to Col. Judson. I think, to use a term of the streets, I remarked to him that he had " doubled-crossed '" me on the public utilities bill. I think I said that ; if I did not I meant it. I do not know that Col. Judson cared a rap about that. I hope he did not, because it was merely a little sharp passage at arms that we had in my committee room about that matter. I know of nothing else. Mr. Easby-Smith. About how long ago was that, Senator? Senator Gallinger. It was, I think, before the adjournment of Congress last summer, but T am not quite sure. I think it was shortly before. Mr. Easby-Smith. From the time Mr. Ingham was appointed statistician in the office of the superintendent of insurance to the present time, has any complaint ever reached you from the commis- sioners as to his conduct in office ? Senator Gallinger. Not a word. Mr. Easby-Smith. At the hearings before your committee or be- fore, your subcommittee or in any communications made to you per- sonally have the commissioners or any representative of the com- missioners made any statement detrimental to Mr. Ingham? Senator Gallinger. Not a word. In the consideration of the Dis- trict of Columbia appropriation bill the House has hearings — very intelligent hearings — and the bill comes to the Senate and the com- missioners ask to be heard by our subcommittee. Sometimes I thought it was unnecessary, in view of the exhaustive hearings that the House had, but we have always granted their request. Every item of that bill has been gone over, and among others the item relat- ing to the insurance department. No suggestion has ever been made by anyone that the department was not well conducted. Mr. Easby-Smith. Did Mr. Ingham ever seek your influence for any person other than himself? - Senator Gallinger. Absolutely not. Mr. Easby-Smith. Did you ever hear that Mr. Ingham was at- tempting to trade -upon his supposed influence with you ? Senator Gallinger. Somebody wrote me or sent me a newspaper, I do not know which, in which there was an allegation that Mr. Ingham had sought to get somebody appointed to some position, and I wrote to Mr. Ingham — I think I have that letter somewhere, or possibly Mr. Ingham has the letter — calling attention to that and warning him against it, and saying he must not do it. I understand that the place was not under the District government at all, but in an outside business concern. 452 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. Is that [indicating] the letter which you refer to as having written to Mr. Ingham ? Senator Gallinger (after examining letter). This letter was writ- ten by my own hand, and I suppose it was during the recess of Con- gress, when I sometimes attend to my own correspondence and give my stenographers a vacation, which I do not get. May I read it? Mr. Easby-Smith. If you will, Senator. Senator Gallinger. I had not seen it ; but I recall the fact I did write such a letter. The letter is dated Concord, N. H., October 27, 1910: Mi Dear He. Ingham : It has come to my knowledge that you are being charged with active efforts to secure positions for persons in the government of the District. It seems to me that if you had been engaged in work of that kind, I would have known something of it, and nothing of the kind has come to my attention. I ought to have added there " except a letter from somebody, whom I can not recall, relating to this matter." What I meant to say was that if he had been in the habit of doing it in previous months or years I would have known something about it. Mr. Easby-Smith. Was' the letter written about the time you wrote this letter — the letter which you received referring to this matter ? Senator Gallinger. Yes; just about that time. It is unfortunate — I added — that such false stories are being put in circulation, but I feel sure thaj the commissioners will not believe them. I sincerely hope that you may receive the appointment of superintendent of insurance. That was October 27, and he was appointed in November. I did write such a letter as that. That letter was written by me. Mr. Easby-Smith. You referred in your direct statement to a letter which you received during the time that Mr. Ingham was a candidate for the position, telling you that Col. Judson was favor- able toward Ingham's appointment, but that the writer feared Com- missioner Rudolph was not favorable. Senator Gallinger. Yes. Mr. Easby-Smith. Do you mind telling from whom you received that letter? Senator Gallinger. It was from Mr. Darneille. Mr. Easby-Smith. Do vou know Mr. Charles C. Glover, of this city? Senator Gallinger. I know him in a general way. Mr. Easby-Smith. Has he appeared frequently before your com- mittee or subcommittee? Senator Gallinger. He has been there in advocacy of certain projects involving the purchase of land. Mr. Easby-Smith. As a witness before this committee, at its last session, he testified that Mr. Judson had told him that he had to defend him from time to time against aspersions against his char- acter made to committees, subcommittees, Members of Congress, etc. INVESTIGATION OF INSURANCE COMPANIES. 453 Will you state whether or not Col. Judson has ever had occasion to defend Mr. Glover to you ? Senator Gallinger. It never happened, either in our committee hearings or outside. Mr. Easby-Smith. "Will you state what attitude Col. Judson as- sumed toward Mr. Glover in his conversations with you ? Senator Gallinger. I do not recall that matter with sufficient dis : tinctness to make a statement about it. I pay little attention to what people of Washington say about each other. I have kept pretty busy trying to pacify them in matters of legislation. Mr. Easby-Smith. That is all. Mr. Redfield. A letter has been mentioned, I think, from Mr. Darneille to you? Senator Gallinger. Yes, sir. Mr. Redfield. I ask that that be made in its entirety a portion of the record. Senator Gallinger. I do not think I have it. Mr. Easby-Smith. I will put that in the record. Senator Gallinger. I would be pleased to have it become a part of the record. Mr. Redfeeld. What was the section which you said Col. Judson introduced into the public-utilities bill? Senator Gallinger. It was the last section of the so-called Old- field bill, which never was discussed in any of our conferences, and those conferences covered a great man}' meetings. Mr. Redfield. What does that section provide ? Senator Gallinger. It is not clear enough in my mind now to make a statement about it. Mr. ■ Redfield. Are you prepared to criticize the section itself adversely? Senator Gallinger. What I meant to say was this — and I am en- tirely frank about it — that in my judgment the Senate passed as good a public-utilities bill as any State of the American Union has to-day, and that includes my own State, where we have a very drastic public- utilities bill. My judgment was that if the House amended it and it came back to conference, very likely we would have a controversy that would defeat the bill. I will add here that very recently Col. Judson wrote me a letter inclosing another batch of amendments that he proposes to the bill, among others an amendment taking care of this so-called merger Ishey are talking about here. I wrote Col. Judson a very sharp reply — I have not a copy of my reply to him, nor have I a copy of his letter — in which I said that if he intended to defeat the public-utili- ties bill, I thought he was pursuing just the right course. That if legislation was necessary relating to some merger that was in con- templation, I thought Congress could take care of that in a separate bill ; that I thought we should get the public-utilities bill through as it was. Now, I want to read just a word, and I will be done. I have clipped a paragraph from the Star, I think of last evening, from the report of the commissioners which has just been submitted, I think, to Congress, or it is in process of reaching Congress : The insurance department — Say the commissioners — 454 INVESTIGATION OF INSURANCE COMPANIES. lias been diligent, and has examined all the local companies reporting to it. A number of amendment* which the superintendent of insurance has recom- mended have contributed to a more satisfactory discharge of the duties of this office. The department earned $90,000 during the last fiscal year, with an expenditure of less than one-eighth of that amount. I submit that as a pretty high tribute to this department, and a very remarkable tribute to the superintendent of insurance on the part of the commissioners. May I now be discharged. Mr. Chairman ? Mr. Johnson. Yes. Mr. (tallinoer. I thank you, gentlemen, for your courtesy. TESTIMONY OF WILLIAM D. HOOVER. The witness was duly sworn by the chairman. Mr. Johnson. Mr. Eedfield, will you please interrogate the witness ? Mr. Redfield. Mr. Hoover, what is your business? Mr. HoovEii. I am president of the National Savings & Trust Co. Mr. Redfield. Will you kindly state to the committee briefly, in your own language, what your business experience had been up to the time you became president and how long you have been president? Mr. HoovEit, Prior to that I was connected with the company in the capacity of attorney and trust officer. Prior to that I was con- nected with one or two of the title insurance companies here— with one of them for a long series of years, perhaps 18 years, serving in practically all capacities with reference to the examination of titles to real estate. Mr. Redfield. Did thai experience in the title companies bring you into contact with real estate conditions in this District? Mr. Hoover. To a very large degree ; yes, sir. Mr. Eedfield. Has your institution, or has any of its officers, re- ceived letters of inquiry as to the Commercial Fire Insurance Co, or the First National Fire Insurance Co.? Mr. Hoover. We received n few inquiries a number of months ago, During the past six months. I should say, we have had no inquiries that I recall. Mr. Redfield. What did you do with those you received? Mr. Hoover. I usually answered those personally and in this way: That the board of directors was composed of a number of well-known Washington business men, but that, so far as we knew, the companies had not been doing business to any great extent, and usually telling them that we were sorry we could not give them more definite infor- mation, which we did not have at hand. Mr. Redfield. Were you asked to act as an appraiser of the South- ern Building ? Mr. Hoover. I was. Mr. Redfield. By whom? Mr. Hoover. I was asked, in the first instance, by Mr. Darneille. • Mr. Redfield. Will you give the full circumstances in detail of that request ? • 1 1 Mr. Hoover. Mr. Darneille came to me and asked me if I would appraise the Southern Building for him. I told him that I would do so. He then asked me my judgment as to the value of the ground. INVESTIGATION OF INSURANCE COMPANIES. 455 I told him I thought it was worth in the neighborhood of $25 a foot. He said, " You are much too low." u Well," I said, " I assume that my appraisement would not be satisfactory to you." He said, " No." I said, " Well, Mr. Darneille, what is it you are after — a high ap- praisement? " " Yes; that is what I want," he said. I said, " Have you any ? " He replied, " Yes ; I have appraisements running from $35 to $50 a foot." " Then," I said, '• you do not want mine." He said, " No ; I do not," and he went out of my office. I heard nothing further about it for perhaps a fortnight or three weeks, when one day Col. Judson asked me what my judgment was as to the value of the Southern Building. I told him what I thought. •' Well,*' he said, " it has been appraised at $2,000,000." I said, " In my judgment that is altogether too high." I then asked him who made the appraisements. He said, " Mr. Hensey, Mr. Darneille, and a builder," whose name escapes me now. Mr. Douglas. Mr. Lipscomb. Mr. Hoover. Mr. Lipscomb. Then I said, "That probably ex- plains the circumstance of Mr. Darneille's request to me to appraise the bulding." Then I related to Col. Judson the conversation I had had with Mr. Darneille. Col. Judson asked me then if I was willing to appraise the building for the District. I told him I would not object to doing it. About a week or 10 days after that I received a letter asking me, in connection with Mr. Doyle and one other to be chosen by the two of us, to appraise the building or the property. We have not done that, for the reason that on the day I received the letter I went out of the city, and when I came back the Christmas holidays were on, and we have done nothing with respect to ap- praising it jointly. That is my connection with the matter, Mr. Eedfield. Mr. Eedfield. Does your institution make loans upon real estate? Mr. Hoover. It does. Mr. Eedfield. In the District of Columbia? Mr. Hoover. In the District of Columbia, not outside. Mr. Redfield. Do you individually make loans upon real estate? Mr. Hoover. Personally? Mr. Eedfield. Yes. Mr. Hoover. I do not. Mr. Eedfield. Does your supervision of the loans made by your institution lead you to personally inquire into the facts I Mr. Hoover. It does in all cases. Mr. Eedfield. Have you, therefore, kept in active touch with the real estate values and conditions in the District up to the present lime? Mr. Hoover. I think I have done so. I have endeavored to do so. Mr. Eedfield. Continuously for how long? Mr. Hoover. Well, for a matter of at least 10 years now. Mr. Eedfield. Have you had any experience in fire insurance, Mr. Hoover? Mr. Hoover. Absolutely none. Mr. Eedfield. Is your bank required to carry a reserve, by law ? Mr. Hoover. It is not. That, I might say, is required of national banks. Under the act incorporating trust companies no reserve is necessary, but they all do carry a large reserve, as a matter of fact. Mr. Eedfield. They do, as a matter of fact, carry a large reserve? Mr. Hoover. Yes. 456 INVESTIGATION OF INSURANCE COMPANIES. Mr. Eedfield. Now, that reserve has as a reason for its existence the fact, has it not, that any institution of the kind is subject to unexpected demands or may become so subject? Mr. Hoover. Yes, sir. Mr. Eedfield. Is there any essential difference, in the fact, so far as your experience enables you to judge, between fire insurance companies and banking institutions in this respect — that both are alike subject to unexpected demands, and both, for that reason, maintain a reserve i Mr. Hoover. I can see no difference between them, and I should say that both are subject to those demands — unexpected, perhaps. Mr. Eedfield. And both maintain a reserve? Mr. Hoover. Yes, sir. Mr. Eedfield. Now. as to the nature of that reserve, Mr. Hoover, is it not the custom, so far as your experience enables you to say, itmongst banks to have that reserve in liquid form ? Mr. Hoover. Yes, sir. Mr. Eedfield. And readily converted? Mr. Hoover. Ye*. Mr. Eedfield. Is it not a well known business fact that a reserve which is not in liquid form may in time of emergency turn out not to be a reserve at all? Mr. Hoover. That is true. Mr. Eedfield. In the sense that it may not be available? Mr. Hoover. Yes. sir. Mr. Eedfield. Would you consider it a sound position for a bank- ing institution if its reserve were held in the form of real estate? Mr. Hoover. I should not. Mr. Eedfield. As a business proposition, whether it relates to a fire insurance company or a bank, is it, in your opinion, a sound position for the reserve or the surplus of any business institution, subject to sudden and unexpected demands, to have its reserve in the form of real estate ? Mr. Hoover. Xo. sir. Mr. Eedfield. Mr. Hoover. I want to ask you a hypothetical ques- tion. Let it be assumed that an institution desires to increase its capital stock; that at the time it is so increasing its capital stock it is, as a matter of fact, losing money; that despite the fact it is losing money it represents itself as prosperous and offers its stock at a pre- mium because of that prosperity, do or do not the circumstances I have described to you create a case of obtaining money under false pretenses ? Mr. Hoover. I should say. Mr. Eedfield, that it would be practi- cally what you have said. I can not conceive of any other word that would describe the situation better than what you have called it. Mr. Eedfield. Suppose. Mr. Hoover, that you received a letter offering you the stock of a corporation and prospectuses describing that corporation as prosperous : that, as a matter of fact, you f°™^ upon investigation that the corporation was losing money instead of earning it. and that, as a matter of fact, it was excluded from doing business in the State where the largest business in its line was done, and had been described as fraudulent by the officers of another State, from which it was also excluded, would you in such a case consider that the representations madp to vou were deceptive? INVESTIGATION OF INSURANCE COMPANIES. 457 Mr. Hoover. I should. Mr. Johnson. Mr. Hoover, you say that Mr. Darneille in substance sought from you your opinion as to the value of the Southern Build- ing property, really with the view of having you say that the prop- erty was worth $2,000,000? Mr. Hoover. That, perhaps, might be gathered as the result of my conversation with him. Mr. Johnson. I was asking you for the general summing up of your conversation. Mr. Hooveh. That is what I gathered as the result of my con- versation with Mr. Darneille. At the time he came to me he did not say the purpose for which he wanted the appraisement nor did I ask him ; nor did I know until two or three weeks later, when, as I say, Col. Judson spoke to me about it. Mr. Johnson. But because you expressed the opinion that you did not think it was worth $2,000,000 he said he did not wish your serv- ices? Mr. Hoover. Yes, sir. Mr. Johnson. Upon the other hand, when Col. Judson talked with you he did wish to have you appointed as an appraiser after knowing your views and knowing that you would not appraise the property at such a high figure? Mr. Hoover. I take it to be, so, Mr. Chairmnn. Mr. Johnson. So, in the first instance, Mr. Darneille did not wish your services because he knew your opinion, before you were ap- pointed as appraiser, and Col. Judson did wish your services as ap- praiser because he knew your opinion also before you were appointed? Mr. Hoover. Yes, sir. Mr. Johnson. It would seem, then, that there was a clash between the two, one seeking a higher appraisement and the other seeking a lower appraisement. Mr. Hoover. I would not say that Col. Judson's idea was to seek a particularly low appraisement. It was to seek what I took to be the actual appraisement according to the opinion of people whom he supposed were capable of judging. Mr. Johnson. And he sought your appointment as appraiser after he knew your views? Mr. Hoover. Yes, sir. Mr. Johnson. And not before? Mr. Hoover. That is correct. Mr. George. Do your trust companies lend money on real estate ? Mr. Hoover. Yes. Mr. George. Much money on real estate? Mr. Hoover. Quite a large amount, Mr. George; yes. We are carrying now about three and one-half million dollars of loans on real estate. Mr. George. And you regard yourself as a careful banker? Mr. Hoover. I think so, Mr. George. Mr. Johnson. I omitted to ask you one question and that was this : Please tell the committee just what you think the Southern Building worth. I mean the real estate and the house. Mr. Hoover. My judgment as to the real estate is that it is worth $30 a foot. My judgment as to the improvements is that they are worth in the neighborhood of $800,000, at the outside. 458 INVESTIGATION OF INSURANCE COMPANIES. Mr. Prouty. How many feet are there? Mr. Hoover. Twenty-two thousand two hundred and twelve. Mr. George. I understood you to say a little earlier in your testi- mony that you put a valuation of $25 a square foot on the land of the Southern Building. Mr. Hoover. Excuse me. At the time Mr. Darneille asked me about it I had given it absolutely no attention, and simply put that value on as the value without giving it very careful thought. I am frank to say now, Mr. George, that I do regard the property as worth in the neighborhood of $30 a square foot, and not more. Mr. George. What has caused your change of view? Mr. Hoover. Simply careful attention to it and some inquiry with respect to the value of land in the immediate neighborhood, different from what I had thought it to be at the time I spoke to Mr. Darneille. Mr. George. You have made inquiries about sales in the neighbor- hood? Mr. Hoover. Generally about sales and the prices at which prop- erty is held in the neighborhood. Mr. George. You find very high prices, do you not, in the neigh- borhood ? Mr. Hoover. Some; yes. Mr. George. Could you name any? Mr. Hoover. I can name, if it will assist what I have to say, two sales with which I have been connected in the immediate neighbor- hood. Mr. George. I should like any information you have. Mr. Hoover. Two years ago, at the time I was one of the trustees of George Washington University, which owned the corner immedi- atelv opposite the Southern Building, where the Woodward Building now is, we sold it for $550,000. That made the price $27.20 a foot. Last spring, a year and a half ago now, we sold the northwest cor- ner — that is, the company of which I am president, as trustee— the northwest corner of Fourteenth and H Streets, where Blackistone's flower store now is, for $135,000, which makes $34.50— about— a square foot. Now, those sales I know about. Mr. Douglas. At what price did you say? Mr. Hoover. Per foot or the total? Mr. Douglas. Per foot. Mr. Hoover. $34.50 per square foot, or in that neighborhood. Mr. George. Do you know of any other sales in the neighborhood! Mr. Hoover. I only know in a general way of the sales of the two properties next to the Union Trust, which were made two or three years ago, as Mr. Stellwagen testified, at $24 per square foot. I understand that Mr. Wilkens and his brother purchased west of the Union Trust Building at about $26 a foot. Mr. Douglas. That has been how long ago — two years? Mr. Hoover. About two years ago ; yes. Mr. George. Has there been no advance in two years ? Mr. Hoover. Some advance; yes. Mr. George. How much? Mr. Hoover. I see no reason for saying there has been more than an average advance of $5 a foot through that section. Mr. George. Would you say that of corner lots or of inside lots. Mr. Hoover. I should unhesitatingly say it of corner lots and, 1 think, of inside lots ; yes. INVESTIGATION OP INSURANCE COMPANIES. 459 Mr. George. What is the relationship in values between corner lots and inside lots, in your judgment? Mr. Hoover. Absolutely varying. I should say in some instances as much as~50 per cent, and running down, under peculiar conditions, to nothing. If I may explain that further, I think, for instance, the Woodward^ Building, opposite the Southern Building, would be worth from three to five dollars a foot more than where the Southern Building is. Then the inside lots, running from the Woodward Building to New York Avenue, I would say are valued almost as much as the corner, for the reason that as you approach the corner of Fifteenth and New York Avenue the land gets very much more valuable. That is the extreme from the variance of 50 per cent. There are instances, I would say, where property on the corner is worth 50 per cent more than inside lots. Mr.. George. Would you say the corner which your company occupies is more valuable than the Southern Building corner ? Mr. Hoover. Yes, sir. Mr. George. How much more valuable? Mr. Hoover. I should say at least two and one-half times as valuable? Mr. George. So the land you occupy per foot is two and one-half times the value of the Southern Building corner ? Mr. Hoover. I should say so. It is, is possibly you may not know, a very small lot in comparison with the lot on which the Southern Building stands. Our lot fronts 65 feet on New York Avenue and 130 feet on Fifteenth Street, and runs back diagonally to a width of about 12 feet in the rear to an alley. So every foot is available for the purposes for which it is used. Mr. George. The value of your corner would be what ? Mr. Hoover. I would say $75 a square foot? Mr. George. And the assessment is what? Mr. Hoover. $33. Mr. George. Did you ever bring that to the attention of the as- sessor ? Mr. Hoover. I had no occasion to. Sometime ago one of the as- sessors came to me. Mr. George. Which one? Mr. Hoover. Mr. Kalbfus. He said, " Mr. Hoover, your property is assessed too low." Mr. George. What did he mean — your building ? Mr. Hoover. No ; he meant per square foot, I think. He possibly meant both. I reluctantly agreed with him, and after that our assess- ment was raised to what it is now. Mr. George. When was that? Mr. Hoover. I would say in the neighborhood of two years ago, or possibly a little bit less. Mr. George. That was before the recent triennial assessment ? Mr. Hoover. Yes ; it was before that. Mr. George. A year before? Mr. Hoover. I hardly think it was a year. I should say a few months. I think they were getting ready to change the assessment for this last triennial assessment. Mr. George. What was the result of the assessment ? Mr. Hoover. An increase. 460 INVESTIGATION OF INSUBANCE COMPANIES. Mr. George. How much of an increase? Mr. Hoover. I have really forgotten. Mr. George. I presume from 25, perhaps, to 33, but I could not say positively, because I do not remember the figures before. Mr. George. But the assessment as it stands is what percentage of the true value? Mr. Hoover. Well, figuring the ground at $75 a foot, I should say that the assessment is — well, it is in the neighborhood of 40 per cent perhaps, under what it should be as to that particular piece. Mr. George. Forty per cent of its market value? Mr. Hoover. I figure that. I am figuring in my head. I am not trying to give accurate figures. Mr. George. It figures out 44 per cent, T think. Mr. Hoover. Somewhere in that neighborhood. Mr. George. Do you think that is a fair assessment? That is not a fair assessment, is it? Mr. Hoover. Well, as a general proposition, I should say not. Of course, it is an embarrassing position for me to be in. Mr. George. I mean under the law? Mr. Hoover. Yes. Mr. George. As the law is administered, what do you understand the percentage to be under the law? Mr. Hoover. Two-thirds. Mr. George. Yes. And 44 per cent is not two-thirds? Mr. Hoover. No. Mr. George. Mr. Hoover, I asked you before about your company lending money on real estate, and I understood you to say that you lend a great deal of money on real estate. Mr. Hoover. Yes, sir. Mr. George. What is your view of the value of real estate when you are about to lend money on it? Mr. Hoover. When we are about to lend money we take, as far as we can, a fair, conservative view of the property. Mr. George. What do you mean by a fair, conservative view! Mr. Hoover. Well, what we regard it to be fairly worth. Mr. Berger. Mr. Chairman, I understand, the gentleman from New York. Mr. George, had an investigation of his own on this line— I mean, as to the assessment. What has this to do with the insurance investigation? Mr. Johnson. You can put your question to anybody else that you choose. Mr. Berger. Well, just to you, Mr. Chairman. Mr. Johnson. The three main questions now being inquired into are, first, the official conduct of the inspector of insurance; second, as to whether or not the Southern Building has been properly valued; and third, as to the statements and general business management of the insurance companies. Mr. Berger. Well, now, Mr. Chairman Mr. Johnson (interposing) . In the beginning it was suggested by one member of the committee and acquiesced in by the others that the rules of evidence as applied by the courts should not be adhered to, but that the investigation should take a wide range, so as to give every opportunity to get at the official doings of the inspector of insurance, and also that the committee might arrive at the value of INVESTIGATION OF INSTJKANCE COMPANIES. 461 the property— might reach an opinion for themselves as to the value of the property, and also that the committee might ascertain for itself, in so far as it was able, the real financial condition of the insurance companies. Helping the committee in that respect is an expert accountant, who is now at work. Mr. Bergee. Now, Mr. Chairman, I thoroughly sympathize with Mr. George's purpose to get at the real estate values in this District, and I also — I am quite convinced that as a general rule they are underassessed, especially in the business district, but I do not see in what way the investigation can possibly be helped — I mean our special investigation — by going into the comparative values of one corner or the other, or of the corner to the center of the block, and so forth. That is something I fail to understand. Now, as I say, 1 am in sympathy with the single-tax idea and with Mr. George and all that, but we have a certain duty to perform and we should per- form it — I mean, in this investigation. Mr. Johnson. I would say, Mr. Berger, that I am not in sympathy with the single-tax idea at all. The questi in which you now bring up is not one of single tax. The question is as to how much information Mr. George is seeking as to the value of surrounding property, with a view of ascertaining the value of this piece of property. Now, in so far as the chairman of the committee is concerned, his attitude is this, that no member of the committee thus far objecting to any ques- tion which has been put, he is not now to decide whether the inquiry is a proper one or not. If Mr. Berger will object to the question, the chairman will submit to the whole committee as to whether or not it should be answered. Mr. Berger. Now, Mr. Chairman, since you have gone on on these lines from the beginning, I shall not object. The investigation has gone on on the same lines, has it, Mr. Chairman ? Mr. Johnson. From the beginning; yes. Mr. Berger. Then I shall not object to it. Mr. Johnson. I wish to assure you, Mr. Berger, that if you should object, the chairman of the committee will lay the question before the committee as a whole for its determination. Mr. Berger. I thank you, Mr. Chairman. I shall not object, if that is the case. Mr. Johnson. Mr. George, you may proceed now. Mr. George. I will ask the stenographer to read the last question. Question and answer read by the reporter. Mr. Hoover. We take what we believe, in the minds of our execu- tive committee or the majority of them, to be the ordinary salable value of the property at private sale. Mr. George. It is usually at forced sale, is it not ? Mr. Hoover. I was going to go further into the matter Mr. George. Yes. Mr. Hoover. Then we consider the question of the property with reference to the amount we are asked to lend upon it, and give care- ful consideration to the question whether, in event the loan is not paid, the property, at forced sale, would bring enough margin to pay the loan, with all costs; so that we really give the question of the value two considerations. Mr. George. And that is your customary point of view ? 462 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoover. Yes. Mr. George. And you would view property in the neighborhood as to the value from that point of view ? Mr. Hoover. Yes. Mr. George. So that that may be the point of view from which you viewed the Southern Building property all along? Mr. Hoover. You mean with respect to a forced sale? Mr. George. From your customary banker's point of view ; you are a conservative man in the banking business, lending money on real estate ? Mr. Hoover. Yes, sir. Mr. George. And when you are asked as to the value of a certain piece of property in your neighborhood you are likely to view it from that point of view — of the conservative banker? Mr. Hoover. I would not say that, Mr. George, with respect to our particular neighborhood, because T am an optimtist with respect to that neighborhood, and I am liable tc fix a very, very fair value to the property, not low. Mr. George. Not low ? Mr. Hoover. No. Mr. George. Higher than other bankers in the neighborhood? Mr. Hoover. I do not know as to that. I would not like to say. Mr. George. Higher than Mr. Glover, for instance? Mr. Hoover. Higher than Mr. Glover? Mr. George. Yes. Mr. Hoover. I very seldom discuss real estate values with any other banker, and so I do not really know their points of view. Mr. George. You remember what Mr. Glover valued that property at — the square- foot value? Mr. Hoover. I was not here. Mr. George, at the time. I had been excused as a witness, and I did not hear what his testimony was. Mr. George. Well, have you consulted Mr. Stellwagen in the mat- ter, as to the value of that property ? Mr. Hoover. You mean the Southern Building? Mr. George. Yes. Mr. Hoover. I think perhaps I have spoken to him about it, just as I have since this investigation has been on, with Mr. Bell or with Mr. Glover. We were all sitting together in that other room, I remember, and we may have discussed it then. I think probably we did. Mr. George. Mr. Bell said he would put a very low valuation on it; that he regarded all real estate from a very conservative point of view ; that he would regard that particular property from that point of view. What I am trying to get at is whether or not you would regard that propertv in that same way ? Mr. Hoover. I would not admit that, Mr. George, that I would value it that way. I value it from the standpoint of what I believe to be the reasonable market value of the property. Mr. George. What would be the reasonable market value, in your opinion? Mr. Hoover. $30 a foot. Mr. George. You have changed your view since a short time ago, when you put $25 a foot on it ? INVESTIGATION OF INSURANCE COMPANIES. 463 Mr. Hoover. No; but, as I explained a while ago, I had not given the matter any serious consideration. Now I have gone into it. Mr. George. Now you have? Mr. Hoover. Yes ; I am willing to say that, in my judgment, the corner is worth $30 a foot, but not more. Mr. George. You think the value of your own property has ap- preciated in late years ? Mr. Hoover. Yes. Mr. George. Has there been any change ■ in the value of your building there? Mr. Hoover. Nothing at all in the way of change in the value of the building, that I know of. You mean with respect to improve- ments made in it? Mr. George. Well, with respect to — have you made any change in the valuation you have reported to the Comptroller of the Treasury * Mr. Hoover. It has been practically the same since the company was organized, 22 years ago nearly, when the property was put in at an enormously high value — very much larger than it should have been put in. Mr. George. The land and improvements ? Mr. Hoover. The land and improvements. Mr. George. The whole of the real estate? Mr. Hoover. The whole of the real estate. Mr. George. Why was that property put in in that way ? Mr. Hoover. I am unable to say, Mr. George. I think possibly that the gentlemen who incorporated the company as a trust com- pany persuaded the then comptroller to regard it as worth that, in order that they might not be compelled to put more cash into the corporation. Now, that is the only explanation I can give. With that, however, the present management is not concerned, because there are none there now who were there then. Mr. George. The two insurance companies coming before the com- mittee are accused of inflating the valueof their property, and I want to ask you whether you think there was any inflation of the value of your property? Mr. Hoover. At the time the company was incorporated, I should say unhesitatingly, yes. Mr. George. What about the vaults, Mr. Hoover, that your com- pany has at the corner of Fifteenth and New York Avenue? Mr. Hoover. There is an ordinary safe-deposit vault. There is one immediately below it, of practically-the same size and character, and then under the entire building, there is the ordinary vault in which trunks and other things of similar character are stored. Mr. George. Are those vaults in the building ? Mr. Hoover. Yes ; they are in the building — under the building. Mr. George. Out under the sidewalk? Mr. Hoover. That is an open space under the sidewalk, but not in the nature of a vault at all. Mr. George. Does that sidewalk belong to your property, or does it belong to the public? Mr. Hoover. I have no means at hand at present with which to answer that question, Mr. George. I am frank to say I do not know, except that permission was given to use the space under the sidewalk. 71391— No. 5—13 3 464 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. Do these vaults go with the real estate or are they separate ? Mr. Hoovee. Oh, no. You mean with respect to the value fixed on them? Mr. George. Yes. Mr. Hoover. I should judge not. Mr. George. Do you include the vaults in the value of the real estate ? Mr. Hoover. No; separately. Mr. George. But a vault does go with the real estate ? Mr. Hoover. Yes ; but in our statement we separate the value put upon the real estate from that put upon the vaults and fixtures. Mr. George. Why do you do that? Vaults are permanent things there? You would not take them out and use them anywhere else? Mr. Hoover. No ; we would not. It is simply the way in which the eompany was incorporated 22 years ago. We have seen no occasion to change it. Mr. George. Do you regard vaults as real estate or as personal property ? Mr. Hoover. In the light of being fixtures which could not be re- moved without damage to the freehold, I should say they are part of the real estate, but if they could be removed without damage to the freehold, I should say they were personal property. Mr. George. But ordinarily you would regard them as real estate and not personal property? Mr. Hoover. You could regard them as part of the real estate, I should say. Mr. George. As real estate, are they assessed? Mr. Hoover. Well, I really do not know, Mr. George. I assume — Mr. George (interposing). What value would you put upon those vaults ? Mr. Hoover. The value as set out, and as it has been set out con- tinuously for years, is $106,000. Mr. George. That is your own valuation ? Mr. Hoover. That is the valuation which has come down to the present management from the former managements. Mr. Geoege. Carried on your books as the money value? Mr. Hoover. Yes. Mr. George. $106,000. Mr. Hoover. Yes. Mr. George. That is all, Mr. Chairman. Mr. Easby-Smith. Shall I proceed, Mr. Chairman? Mr. Johnson. If you please. Mr. Easby-Smith. Mr. Hoover, do you carry in mind the value which you included in your last return to the Comptroller of the Cur- lencv of your real estate and fixtures ? Is it correctly set out at page 33 as $765,000 ? Mr. Hoover. That includes the vaults and the fixtures, which are carried in a separate account, Mr. Smith. Mr. Easby-Smith. At $106,000? Mr. Hoover. Yes; $106,000. The value of the real estate is given as $659,000. Mr. Easby-Smith. $659,000? Mr. Hoover. Yes. INVESTIGATION OF INSURANCE COMPANIES. 465 Mr. Easby-Smith. And upon that real estate you pay taxes on an assessment of $284,000, which would indicate a true value of $427,000 ? Mr. Hoover. Those are the figures, as I remember them. Mr. Easby-Smith. What do you consider the true value of your real estate— $659,000? Mr. Hoover. I think it can be shown to be that, Mr. Smith. Mr. Easby-Smith. Do I understand that that value has been car- ried upon the books of the Comptroller of the Treasury for 22 years both as to the real estate and the vaults ? Mr. Hoover. Yes, sir. Mr. Easby-Smith. You have made no change in your return to the Comptroller of the Treasury in the last 22 years ? Mr. Hoover. Only charging off a very small amount as against the vault and fixture account and a small amount against the real estate. Mr. Easby-Smith. Do you know what your property cost the com- pany — your corporation — 22 years ago? Mr. Hoover. Well, in view of the fact that it was put in as part of the assets of the company I assume that it cost the management the amount at which it was carried. Other than that I do not know. Mr. Easby-Smith. How long has the present management been in control — the management that you referred to as the " present man- agement " ? Mr. Hoover. I have been president of the company for four years. My predecessor was president for about eight or nine years, I should say. Mr. Easby-Smith. Was your predecessor controlled by, or did he act in harmony with, the same interests by whom you now hold office as president. Mr. Hoover. He did. Mr. Easby-Smith. In other words, you would include his service in your expression of " the present management " ? Mr. Hoover. I think it would be safe and proper to do so. Mr. Easby-Smith. So that the present management has been in control for 12 or 13 years ? Mr. Hoover. Yes. Mr. Easby-Smith. When the present management came into con- trol, was anything done toward correcting on the books of the Comp- troller of the Currency the exorbitant price or value of that property ? Mr. Hoover. Nothing. Mr. Easby-Smith. As I understand, Mr. Hoover, Mr. Darneille came to you and talked to you about the valuation of the Southern Building, and in the course of the conversation told you he had sev- eral appraisements running from $35 to $40 a foot. Mr. Hoover. $35 to $50 a foot. Mr. Easby-Smith. And upon seeking an appraisal from you, you told him you thought it was worth $25 ? Mr. Hoover. I said in the neighborhood of $25. Mr. Easby-Smith. Do you recollect Mr. Darneille explaining that he had come to you at the suggestion of Mr. Hensey ? Mr. Hoover. I do not recall that, Mr. Easby-Smith; it is possible that he did. Mr. Easby- Smith. You do not of- course mean by your testimony, to the effect that you were asked by Mr. Darneille to appraise the building, that Mr. Darneille invited you to act as one of the three appraisers ? 466 INVESTIGATION OP INSUBANCE COMPANIES. Mr. Hoover. He asked me if I would appraise the building for him. That was his question. Mr. Easby-Smith. Then and there giving him the value, or stat- ing your opinion as to its value? Mr. Hoover. In view of the fact that he asked me afterwards what I thought the property was worth, I presumed he wanted me to give him my idea of the value then, and perhaps put it in writing later. That is my judgment about it. Mr. Easby- Smith. What I want to know is whether you intended to convey, by what you said, the impression that Mr. Darneille was seeking you as one of the appraisers, and abandoned the idea of seek- ing you after he learned your opinion of the value. In other words, did he ask you to act as one of the board of three appraisers, or did he ask your opinion as to the value of the property? Mr. Hoover. As was stated a moment ago, he asked me if I would appraise the Southern Building for him. He said nothing, however, as to whether he wanted me to act as one of three or any number of appraisers. Mr. Easby- Smith. And in the same conversation he told you that you were, too low, that he had other appraisements running from $35 to $50 per foot? ^ Mr. Hoover. Yes, sir. Mr. Easby- Smith. Do you remember, in that same conversation, whether Mr. Darneille asked your opinion as to the value of the Woodward Building on the southeast corner? Mr. Hoover. No, sir. Mr. Easby- Smith. You have no recollection of that? Mr. Hoover. I have no recollection of that. Mr. Easby-Smith. Would it refresh your recollection, and is it not a fact that he did ask you and you told him that you thought that it was worth about $27 a foot ? Mr. Hoover. I do not recall mentioning the Woodward Building to him at all, Mr. Easby-Smith. Mr. Easby-Smith. Did you not tell him, if you recall — my pur- pose is just to ask these questions to refresh your recollection and perhaps bring it back to your mind — and did you not discuss it, and in that discussion tell him the Woodward Building site was more valuable per square foot than the Southern Building site? Mr. Hoover. I do not remember telling him that, but, as a matter of judgment, I think so, Mr. Easby-Smith. Mr. Easby-Smith. Do you remember whether or not, in the early part of the conversation, you told him you thought the Southern Building property was worth about $22 per square foot? Mr. Hoover. No, sir. Mr. Easby-Smith. The only figure mentioned by you was $25 ? Mr. Hoover. About $25 is the way I put it. Mr. Easby-Smith. And since you have given more careful atten- tion to the matter your judgment now is that it is worth $30 per foot? Mr. Hoover. Yes, sir. Mr. Easby-Smith. If you gave it still more careful attention and study do you think you would have an opinion that it is of greater value ? Mr. Hoover. I do not. INVESTIGATION OP INSURANCE COMPANIES. 467 Mr. Easby-Smith. Is your judgment in the matter affected at all by the fact that the assessors of the District of Columbia recently appraised the Southern Building property as being worth $35 per foot ? Mr. Hoover. That would not affect my judgment at all, Mr. Easby- Smith. Mr. Easby-Smith. I believe, Mr. Hoover, that you have not con- sidered yourself or offered yourself heretofore as an expert in real estate values? Mr. Hoover. I never have done so, Mr. Easby-Smith. Mr. Easby-Smith. You know Mr. Darneille very well, do you not? Mr. Hoover. Oh, yes ; I have known him for years. Mr. Easby-Smith. And have every confidence in his integrity? Mr. Hoover. I have. Mr. Easby-Smith. And truthfulness? Mr. Hoover. Every confidence. Mr. Easby-Smith. And his ability as an appraiser of real estate? Mr. Hoover. I should think he ought to be well qualified. Mr. Easby-Smith. You know Mr. Hensey and Mr. Lipscomb, I presume ? Mr. Hoover. Very well ; each of them. Mr. Easby-Smith. And have every confidence in their integrity? Mr. Hoover. Yes, sir. Mr. Easby-Smith. And their ability? Mr. Hoover. Yes, sir. Mr. Easby-Smith. That is all, Mr. Chairman. Mr. Douglas. Mr. Hoover, we have heard a great deal in this investigation about appraising property for the purpose of determin- ing its value, etc. I will ask if you do not know that it is a very usual thing in the District of Columbia for fire insurance companies to have their property appraised so they may ascertain at what figure they should carry it in their statements. Mr. Hoover. 1 really do not know, but I should imagine it a very fair and proper thing to do. Mr. Douglas. Is it not the only way by which you can ascertain the true value, or even approximately the true value, of the property of an insurance company or any other corporation ? Mr. Hoover. I should say so ; yes. Mr. • Douglas. Is it not true that there have been a great many appraisements here, some under general law and others under special enactments of Congress ; for instance, an appraisement has been made, has it not, of the Washington Gas Light Co.'s property — -real prop- erty, personal property, and everything else? Mr. Hoover. I think there has been such an appraisement. Mr. Douglas. And do you not know, Mr. Hoover, that the Comp- troller of the Currency has, in a great many instances, required appraisements to be made of the property of banking institutions in the District, of Columbia in order that he might ascertain what would be the proper figure at which it should be carried ? Mr. Hoover. I have not heard of any such instances, Mr. Douglas. Mr. Douglas. Let me see if I can refresh your memory. Do you not know that that has occurred with reference to the banking house known as the Union Savings Bank? Mr. Hoover. I.dM not Jsnow it. 468 IXVESTIGATIOX OF INSURANCE COMPANIES. Mr. Douglas. You did not know it happened with reference to the United States Savings Bank at Fourteenth and U Streets by the comptroller? Mr. Hoover. I did not. Mr. Dox t glas. You do admit that it is the usual and proper thing to do, and the proper way to ascertain the value of property— to have fair and impartial appraisements by competent men? Mr. Hoover. I think that is the only waj\ Mr. Douglas. The only way? Mr. Hoover. Yes. Mr. Douglas. And once it has been properly and fairly ascer- tained, then the property should be carried at the figure suggested by the appraisement ? That is right, is it not ? Mr. Hoover. Certainly, for the time; yes. Mr. Douglas. And as long as the appraisement correctly expresses the value of the property ? Mr. Hoover. Yes, sir. Mr. Douglas. And if a fire insurance company or any other cor- poration should have its property fairly appraised and should carry it at a figure other than the appraisement, if the appraisement be fair, it would be misrepresenting the state of its assets, would it not, if it should carry it at any figure other than the figure at which it had been fairly and properly appraised? Mr. Hoover. I should think so. Mr. Douglas. The statement of any institution which does not correctly state and express the real value of its assets does not cor- rectly inform its stockholders or the public, does it? Mr. Hoover. No. Mr. Douglas. That is true, is it not? Mr. Hoover. Yes. Mr. Douglas. There are quite a number of fire insurance com- panies in the District of Columbia, are there not, Mr. Hoover? Mr. Hoover. Yes, sir. Mr. Douglas. Are you familiar at all with the Arlington Fire Insurance Co.? Mr. Hoover. Only by name. I know nothing of its affairs. Mr. Douglas. With what banking institution is the Arlington Fire Insurance Co. affiliated? Mr. Hoover. I have no knowledge? Mr. Douglas. You have no knowledge? Mr. Hoover. The Arlington Fire Insurance Co.? Mr. Douglas. Yes. Mr. Hoover. Absolutely none. All I know is this, that up to a very recent time Mr. Brown, president of the Farmers & Mechanics Bank, of Georgetown, was president of the Arlington Fire Insur- ance Co. Mr. Douglas. Do you know who is president now? Mr. Hoover. I am* of the opinion it is Mr. Herbert A. Guild. Mr. Douglas. Do you not know it is Mr. Johnson, a director and former vice president of the Riggs National Bank? Mr. Hoover. I do not. . , Mr. Douglas. It is adjoining the Riggs National Bank, is it not! Mr. Hoover. Yes. . Mr. Douglas. They have a comparative ly new_ hjlilding there . Mr. Hoover. Yes. INVESTIGATION OF INSUBANCE COMPANIES. 469 Mr. Douglas. And they adjusted their architecture to that of the "Riggs National Bank building? Mr. Hoover. Yes; I remember that. Mr. Douglas. I will ask if you do not know that property was appraised less than a year and a half ago, or about a year ago, for the purpose of enabling the Arlington Fire Insurance Co. to deter- mine on what basis it should carry its assets in its statement? Mr. Hoover. I really did not know it. Mr. Douglas. You did not know that the Arlington Fire Insur- ance Co. had its property appraised less than a year and a half ago ? the land itself at over $60 per foot — land that cost them less than $20? Did you not know that? Mr. Hoover. I really did not. Mr. Douglas. And did you not know that land was appraised and the buildings appraised by two of the three appraisers of the South- ern Building for these fire insurance companies, to wit, Messrs. Dar- neille and Hensey? Mr. Hoover. I did not know it. Mr. Douglas. You did not know that? Mr. Hoover. No, sir. Mr. Douglas. If that property of the Arlington Fire Insurance Co. is worth $60 a foot, Mr. Hoover, what is the land of the Riggs Bank worth? Mr. Hoover. I do not think the land is worth $60 a foot. Mr. Douglas. I am asking a hypothetical question. Mr. Hoover. I should say the value of the Riggs should be equal, or perhaps two or three dollars more, being nearer the corner. Mr. Douglas. Would you question an appraisement and the ac- curacy and good judgment of an appraisement made by Messrs. Hensev and Darneille and Mr. E. H. Daniels, formerly of Willige, Gibbs& Daniels? Mr. Hoover. I certainly would not question it further than to this extent to which it did not concur with my own judgment, and then simply as a personal matter, but in all other respects I should not question it. Mr. Douglas. The judgment of other men would have some in- fluence upon your judgment, would it not? Mr. Hoover. Yes, sir. Mr. Douglas. Has the judgment of these three gentlemen who have testified before in this matter, Messrs. Bell, Stellwagen, and Glover, had any influence upon your judgment as to the value of the Southern Building property ? Mr. Hoover. Absolutely none. Mr. Douglas. Do you suppose, Mr. Hoover, if you gentlemen had written down on a slip of paper, without knowledge as to what each one of you were going to write, your idea of the value of the South- ern Building property, that the remarkable coincidence would hav« happened that all four of you would have expressed it at exactly the same figure ? Mr. Hoover. I would not say for the other gentlemen, Mr. Doug- las; but I say in all frankness that if I had put a figure down it would have been $30, without reference to anybody. Mr. Douglas. It would depend upon when you put it down? Mr. Hoover. Within the pa st week or two. 4*70 INVESTIGATION OP INSUBANCE COMPANIES. Mr. Douglas. How many times — pardon me for making this kind of an inquiry — have you conferred with Mr. Stellwagen as to the value of this property ? Mr. Hoover. I should say possibly once or twice. Mr. Douglas. When was the last time you saw Mr. Stellwagen! Mr. Hoover. The day he was on the stand here, which I think was last Saturday. Mr. Douglas. Have you talked to him since ? Mr. Hoover. No ; I have not seen him since. Mr. Douglas. You did not talk to him yesterday ? Mr. Hoover. No ; I have not seen him. _ Mr. Douglas. Mr. Stellwagen has very positive views about this bituation generally, to } T our knowledge, has he not? Mr. Hoover. I certainly judge so, from his testimony. Mr. Douglas. Have you not judged that he has very decided prejudices against this Southern Building and the SoutheriTBuild- ing site and some of the occupants of the Southern Building? I want your frank opinion as to that. Has he not very decided prej- udices from two or three different points of view ? Mr. Hoover. I regard Mr. Stellwagen a man of strong feelings, and with respect to your question I am not entirely in a position to answer, Mr. Douglas. Mr. Douglas. You know he has pretty strong prejudices against his competitor across the street, do you not? Mr. Hoover. I have understood so. Mr. Douglas. And you know he is now and has had for some time very strong feelings about these fire insurance companies, from what he has said to you, do you not ? Mr. Hoover. More from his testimony. We have not discussed that. Mr. Douglas. It was perfectly obvious to you in his testimony, was it? Mr. Hoover. Yes. I heard, of course, what he said. Mr. Douglas. You say, Mr. Hoover, that you regard the property at your corner worth about two and one-half times what it is at Fifteenth and H ? Mr. Hoover. Yes, sir. Mr. Douglas. What do you regard as a fair valuation for the American Security & Trust Co. corner? Mr. Hoover. Per foot? Mr. Douglas. Yes. Mr. Hoover. About $60. Mr. Douglas. Not more than that ? Mr. Hoover. I do not Mr. Douglas. Is it not as valuable as your corner ? Mr. Hoover. I think not. I think, Mr. Douglas, that an element of value in our building, which the other does not have is, first, the smaller lot ; second, the right to go up higher. We have the right to build 130 feet, while the American Security's height is prescribed by the height of the Treasury cornice, and that, in my judgment, addi to the value of our corner. Mr. Douglas. Does that same right that you have attach to the property known as the Nairn property, on the other corner? Mr. Hoover. I think not. Mr. Douglas. What is that property worth? INVESTIGATION OF INSURANCE COMPANIES. 471 Mr. Hoover. I regard that as the most valuable corner in Wash- ington. I would place a value on that of at least $90 a foot. Mr. Douglas. Do you not know they have declined a proposition of $100 a foot? Mr. Hoover. I know they have not, because the company of which I am president is trustee of it and owns it as trustee. Mr. Douglas. You value that at $90 a foot ? Mr. Hoover. Yes, sir. Mr. Douglas. How many feet are there in your own property, the National Savings & Trust ? Mr. Hoover. Forty-five hundred and some. I have it in my pocket, if you wish it exact. Mr. Douglas. Give me the exact figures, please. Mr. Hoover. Four thousand five hundred and thirty-nine square feet. Mr. Douglas. You are carrying that real estate now, according to your statement to the comptroller, at $659,000? Mr. Hoover. Yes, sir. Mr. Douglas. Will you calculate one moment, for the benefit of the committee, at what figure you are carrying that, assuming you have 4,539 square feet of ground. Mr. Hoover. At $75 a foot. Understand, we must take into con- sideration the value of the improvements separately from this valua- tion of $75 a foot. JMr. Douglas. What is the value you put on the improvements? Mr. Hoover. I put the value of the improvements at the cost plus the increased cost of construction as of this date. Mr. Douglas. Plus the increased cost of construction as to this date? Mr. Hoover. Yes, sir. Mr. Douglas. What figure is that ? Mr. Hoover. From 40 to 50 per cent. Mr. Douglas. Of what? Of $659,000? Mr. Hoover. No. Mr. Douglas. Do you not know at what figure you are carrying the building? Mr. Hoover. Yes ; but you have not asked me that. The building originally cost $217,000. Mr. Douglas. Was not that the building and the grounds, too. Mr. Hoover. No, sir; that was the actual cost of the building. Mr. Douglas. Would you mind telling me what was the original cost of that lot. Mr. Hoover. I do not know. Mr. Douglas. Can not you approximate it Mr. Hoover. No; I can not, because at the time this company was organized the improvement was on the land, and I do not know at what price it was purchased by the old savings bank, from which this company was formed. Mr. Douglas. It originally cost $217,000? Mr. Hoover. To build the building ; yes. Mr. Douglas. You are still carrying it at that figure ? Mr. Hoover. Yes, sir. I will say we are carrying it at the figure at which it was originally put in. Mr. Douglas. $217,000? 472 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoover. No; it was put in at more than that. Mr. Douglas. Do yon mean to say the building was put into your statement to the comptroller at more than its cost? Mr. Hoover. The building and ground were put in at $600,000 odd originally. Mr. Douglas. And the building cost $217,000, and $659,000 was the amount of real estate which contains the improvement; and substracting the cost of the building from it. you were then carrv- ing your ground at $442,000. Is that right? Mr. Hoover. No. Mr. Douglas. I would like you to figure it out. Mr. Hoover. I will figure it out for you. I say the building is regarded as worth 50 per cent more than it was when it was con- structed, considering the increased cost of construction as of this date. That gives a value of $325,000 for that building. Mr. Douglas. So, according to you, your building, instead of depreciating on the obsolescence principle of Col. Judson's theory by which the Southern Building depreciates $16,000 per annum, your building 22 vears old, is appreciating all the time. Is that right ? Mr. Hoover. My judgment is that our building is worth to-day what, it was for our purposes when it was constructed. If you are going to replace that building, you have to replace it at an additional cost of 50 per cent over the original cost. That is where the value is. Mr. Douglas. You do not share that view which Col. Judson has been expressing and repeating over and over again here — that you should take off 2 per cent of the income of the Southern Building for depreciation, amounting to $16,000? Col. Judson. I object to that question. That is not what I asked at all. I object, not because it is leading, as you objected to my lead- ing questions, but because it is intended to get something false into the record. Mr. Douglas. I denounce that as absolutely false, and knowingly false. I am making no effort to get anything into this record that is false. This gentleman who is now objecting made the statement— and I appeal to the chairman of this committee if he did not— that 2 per cent of the value of the building should be charged off per annum. Col. Juoson. Let me hear your question read. Mr. Douglas. I am addressing myself to the chairman and mem- bers of the committee. He made the point that $16,000 should be charged off from the income of this building in order that he might bring it down to show it was costing the owners of this building two or three thousand dollars of loss to own it. Col. Judson. May he read the question? Mr. Douglas. I am now making a statement to the committee. This question is perfectly fair and perfectly proper, and there is absolutely no justification for the intimation made here that there is anything unfair in the question. . , Mr. Redfield. Mr. Chairman, I think, in justice to the witness, the original statement purported to be quoted by counsel should be ex- amined to see if it is accurately quoted. INVESTIGATION OF INSURANCE COMPANIES. 473 Mr. Johnson. I agree with you, Mr. Kedfielcl, that that would have been far better, if Col. Judson himself had asked that that be done instead of breaking into the hearing out of time. Col. Judson. I apologize, Mr. Chairman. You are quite right. Mr. Johnson. It has occurred very frequently as we have passed along. Mr. Douglas. I will save the time of the committee while this is being investigated by asking another question. I am asking my friend Mr. Easby-Smith to find out what was said by Col. Judson on direct examination. In order to save the time of the committee I will withdraw that question for the time being and ask it in another form. Mr. Rediteld. I think it would be fair also, Mr. Counsel, not to conceal from the witness the fact that there have been made a por- tion of the record the obsolescence rules of the city of New York and the depreciation rules of the city of Cleveland in valuing prop- erty. Mr. Douglas. With all respect to Mr. Redfield, Mr. Chairman, it seems to me I am well within my rights as counsel in asking these questions in any form that the committee would deem proper, and I do not understand, what Mr. Redfield refers to in suggesting that something is about to be concealed from the witness. In the first place, I have not concealed nor do I intend to conceal anything, but I can not state in the form of one question all that might be asked of this witness. In the next place, I apprehend that a gentle- man so intelligent and so distinguished as Mr. Hoover, and so repu- table as I know him to be, does not need any information from me or anyone else as to tables on the subject of obsolescence or anything else. I am asking him a plain question now, and I wish the com- mittee to permit me to proceed with the cross-examination along that line. I am asking a plain question now on the subject of depreciation and what should be charged off, if anything, for that purpose. Mr. Beegee. I object, Mr. Chairman, to Members of the House Mr. Johnson (interposing). The chairman of this committee was about to say, when those things were being indulged in, that the committee would stand adjourned for a few minutes and not take any part in them, but let those who wish to indulge in that kind of thing seek their own remedy. Mr. Douglas. Mr. Chairman, I tender to this committee my hum- blest apologies for using the language I did. My language was un- parliamentary, and I shall not transgress in the future. I simply, by way of palliation and excuse for my resentment, now call the committee's attention to the first transgressor, who has trans- gressed many times before that transgression. He said I was trying to bring into this record false statements and to make false impres- sions. I simply indulged in the ordinary resentment that I think one gentleman would feel toward another who would make that kind of a charge, but I now apologize to each and every member of the committee for having been guilty of an unparliamentary act. Col. Judson. Mr. Chairman, if I may apologize to the committee, and also to Mr. Douglas, I would like to do so. However, I think it is true that his question was to the following effect : That when Col. Judson testified that 2 per cent of the income of the building — and then he proceede ^!,.. , ,J[ dicLnot sa testify, but 2 per cent of the value 474 INVESTIGATION OF IXSUBANCE COMPANIES. of the building, as Mr. Douglas will probably remember at this time and will note that his question was founded upon a false inference' but I do not charge that he was intentionally getting anything false into the record. I am sure that both understand the matter now. Mr. Johnson. Proceed, Mr. Douglas. Mr. Douglas. I asked you to change the word " income " to the word '" cost " or " value." That is what I had in my mind at the time, as shown by the expression " $16,000." I will change the ques- tion again. Mr. Hoover, do you regard it as fair in estimating the income of a building, or in arriving at. its value, to charge off, as in the instance of the Southern Building, 2 per cent of the cost or value of the build- ing to depreciation per annum ? Mr. Hoover. It might be the better way of doing it, Mr. Douglas, in order to be on the safe side as to income — proper and conservative income — but I think it is not ordinarily done. Mr. Johnson. Mr. Douglas, it is 1 o clock now, and the committee desires to take a recess for lunch. Immediately upon the taking of this recess, the whole subcommittee now being present, we will coun- sel among ourselves as to what time we will meet every day and just exactly at what hours we will recess and adjourn, so that everybody may know just when to come and when he may reasonably expect to be permitted to go. It has been suggested by Mr. Redfield that we recess until 2.15. If that meets the pleasure of the committee, we will recess until 2.15. Mr. Douglas. Mr. Chairman, may I make the request, so that it can be considered by the committee at its meeting, whatever may be your regular hours, that yon might do me the kindness and extend to me the indulgence so that to-morrow you will adjourn at 3 o'clock. I want to make the trip about which I was talking to you the other day. Mr. Johnson. To Philadelphia ? Mr. Douglas. Yes: to Philadelphia. Mr. Johnson. It has just been suggested that to-morrow we will hear Mr. Best, who is coming from some considerable distance to appear before the committee, and if it is possible we would like to hear him continuously until he has finished. Mr. Douglas. I think, Mr. Chairman Mr. Johnson (interposing). Xow, just what conflict there would be between your contemplated visit to Philadelphia and hearing him we can not now say. Mr. Douglas. I would like to ask if you can not arrange to examine Mr. Best on Saturday? Mr. Johnson. I suggest, Mr. Douglas, that it has already been ar- ranged to have Mr. Best here, and we would like to get through with him. if possible, to-morrow. Mr. Douglas. I was under the impression, Mr. Chairman, that the order of testimony was to be this way : That we would proceed with the real estate end of it, put all the witnesses on the stand with refer- ence to that, and then take up the insurance end of it later. Mr. Johnson. Tha was tentative. Mr. Douglas. Rather than to sandwich Mr. Best into the midst of an inquiry as absorbing and as important as this one is now, it seems to me to examine Mr. Best now and then go along for a week or 10 INVESTIGATION OF INSUBANCE COMPANIES. 475 days taking further testimony on the question of real estate values would not aid in clarifying the issues here at all. I think it ought to be postponed. Now, if there be any reason why Mr. Best should be sandwiched in at this time, I think, as counsel for the insurance companies, I should be informed, so that I can address myself to that particular question by way of suggestion, at least. I can not imagine why it should be done now. Mr. Johnson. It seems, Mr. Douglas, to be the sense of the com- mittee to pursue the first intention fo the committee and to hear Mr. Best to-morrow. Mr. Beeger. Mr. Chairman, I would suggest we have him here from 10 to 3, and that possibly would satisfy Mr. Douglas. Mr. Douglas. I appreciate that, Mr. Berger. Mr. Caeusi. Mr. Chairman, I apprehend that Mr. Best will prob- ably be one, if not the most important, of the adverse witnesses on the insurance end of this investigation, and I am sure the committee will afford us the fullest opportunity of cross-examination, so that it is not likely that he could finish between 10 and 3, and once his testi- mony is commenced, I understand that he will remain at the disposi- tion of the committee until we have thoroughly completed our exami- nation. Mr. Johnson. Yes, sir. There is going to be no disposition upon .the part of the committee, I am sure, to limit a full investigation of the matter from both viewpoints. The subcommittee is now in recess until 2.15. Thereupon the subcommittee took a recess until 2.15 p. m. AFTER RECESS. The subcommittee met, pursuant to the taking of recess, at 2.15 o'clock p. m. TESTIMONY OF MR. WILLIAM D. HOOVER— Continued. Mr. Douglas. Mr. Hoover, I do not remember exactly the last ques- tion asked, but I remember the subject of cross-examination at the hour of recess. It was the subject of the price at which you are car- rying the real estate of the National Savings & Trust Co. I believe you stated that $659,000 is the price at which the ground and building is carried ? Mr. Hoovee. Yes, sir. Mr. Douglas. And that the building cost 22 or 23 years ago — how many years ago since that building was put up ? Mr. Hoover.' I should think 25 years ago, practically that. Mr. Douglas. That $217,000 was the cost? Mr. Hoovee. Yes, sir. Mr. Douglas. Assuming for the purposes of the discussion that that building is worth as much to-day as it was 25 years ago, and deduct- ing that amount from the $659,000, it puts your ground at about $440,000, does it not ? That is right, is it not ? Mr. Hoover. That, I think, is about the figure ; yes. Mr. Douglas. And you have 4,539 feet of ground, which would be a fraction over $100 per square foot ? 476 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Hoover. In that neighborhood. Mr. Douglas. And you think it is worth $75 a square foot ? Mr. Hoover. Yes. Mr. Douglas. Assuming that I am right as to the method of dis- posing of the building, in your judgment would you then be car- rying that ground for an inflated value to the extent of $25 per foot? Mr. Hoover. If we were carrying the ground without reference to the cost of the building at $100 a foot, I should say so; yes. Mr. Douglas. And if you are carrying the ground with reference to the cost of the building at $217,000, you then would be carrying it over $100 per foot? Mr. Hoover. Yes. Mr. Douglas. Would that be an excessive figure for you to cam- that in your statement? Mr. Hoover. I think it is more than the ground is worth; yes. Mr. Douglas. Do you regard that as an inflation of that asset? Mr. Hoover. I should regard it as a value not warranted by the actual conditions. Mr. Douglas. Not warranted ? Mr. Hoover. Yes. Mr. Douglas. And yet your institution has carried it for a period of 22 years ? Mr. Hoover. Yes. Mr. Douglas. At what price or what figure was that ground carried just prior to 22 years ago, when you say this inflation took place? Mr. Hoover. I do not know, Mr. Douglas. That was carried at that time by the National Savings Bank, which was the prede- cessor Mr. Douglas (interposing). At what price? Mr. Hoover. I do not know. I have never seen the books of that bank. Mr. Douglas. Will you ascertain that and report it to the com- mittee to-morrow, say? Mr. Hoover. Yes, sfr. May I do so by letter or do you wish me to come back? Mr. Douglas. Either way. I think by letter will be sufficient, unless the committee desires to recall you. Mr. Hoover. All right. Mr. Douglas. You say the building is more valuable now than then? Mr. Hoover. Under peculiar circumstances, yes; and these are the circumstances: We are contemplating an addition to the building. In connection with that we have had an architect examine carefully into the building. His report is that the building is as good as it was at the time it was erected ; that it can be used to the extent to which it covers the ground now in connection with this new building. Therefore, in connection with the improvements which we contem- plate, we feel that that building is worth to-day what it would cost to reconstruct to-day. That is my reason for putting the value at what I have. Mr. Douglas. Do you not intend to practically tear that building down? INVESTIGATION OF INSURANCE COMPANIES. 477 Mr. Hoover. No, sir. Mr. Douglas. You intend to largely and radically remodel it, do 3'ou not? Mr. Hoover. Yes, sir. Mr. Douglas. Can you tell the committee how many cubic feet there are in that building ? Mr. Hoover. I do not know. Mr. Douglas. Can you not approximate it? Mr. Hoover. I might by going into some figures. I really do not know the height of it, so that I could not without Mr. Douglas (interposing). Do you not know how many stories there are? Mr. Hoover. Yes ; I know there are five stories. Mr. Douglas. In the Southern Building there are nine stories, are there not? Mr. Hoover. Yes. Mr. Douglas. What is the height of your ceilings ? Mr. Hoover. I think the banking department is about 22 feet. As to the other ceilings, I do not know. Mr. Douglas. It is an old building? Mr. Hoover. Twenty-five years old. Mr. Douglas. Not a fireproof building? Mr. Hoover. Absolutely, as far as it could be made. Mr. Douglas. Would you regard that as a fireproof building in the modern interpretation of that term? Mr. Hoover. We regard it so nearly fireproof that we carry prac- tically no fire insurance on it. Mr. Douglas. You regard it as " so nearly fireproof " ? Mr. Hoover. So nearly fireproof; yes, sir. Mr. Douglas. It covers the entire lot? Mr. Hoover. Yes, sir. Mr. Douglas. So there are 4^539 feet of area of ground that it covers ? Mr. Hoover. Yes. Mr. Douglas. And five stories? Mr. Hoover. Yes. Mr. Douglas. And it is purely a brick building? Mr. Hoover. Brick and steel I should say — steel girders. Mr. Douglas. I was referring to the material other than steel. Mr. Hoover. Oh, yes. Mr. Douglas. Do you know what ground the Southern Building covers ? Mr. Hoover. Twenty-two thousand two hundred and twelve square feet is the area of the lot, and, taking out that entrance you have there, I presume it would • Mr. Douglas (interposing). The Southern Building covers, then, in area about five times what the National Savings & Trust Co. building covers, does it not? Mr. Hoover. Yes. Mr. Douglas. Do you say now the National Savings & Trust Building is worth more than $217,000? Mr. Hoover. I say that for our purposes, in connection with these contemplated improvements, it is as good as any new building we could put upon it. 478 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Do you say now, Mr. Hoover, it is worth $200,000? Mr. Hoover. I think so. Mr. Douglas. You think so? Mr. Hoover. Yes. Mr. Douglas. You do not think it is worth any more than that? Mr. Hoover. I would not say that. I say for our purposes it is worth more. Mr. Douglas. Tell the committee What you think it is actually worth now. Mr. Hoover. For our purposes it is as good as any new building of the same size that could be put on the lot. Mr. Douglas. Any new building, without regard to how you would shape it up or what would be the style of architecture or character of materials used? It is just as good as a new building on the same lot? Mr. Hoover. For our purposes; yes; absolutely. Mr. Douglas. At what do you value it— $200,000? Mr. Hoover. Yes. Mr. Douglas. The building? Mr. Hoover. You mean in connection with what we are going to do? Mr. Douglas. Take it for any purpose. Generally speaking, is that building worth in excess of $200,000 to-day for you or anybody else? Mr. Hoover. I have just answerd that by saying for our purposes it is worth what it would cost to reconstruct it to-day. Mr. Douglas. What do you say it would cost to reconstruct it? Mr. Hoover. If it cost $217,000 25 years ago and building material and labor have increased to an extent to make it cost 50 per cent more, I should say it would be that. Mr. Douglas. "Would be what ? Fifty per cent more ? Mr. Hoover. Yes. Mr. Douglas. Say, $300,000 in round numbers? Mr. Hoover. Yes. Mr. Douglas. This building covers 4,539 square feet of ground. Mr. Hoover. Yes. Mr. Douglas. And only five stories high? Mr. Hoover. Yes. Mr. Douglas. And is built of brick ? Mr. Hoover. Yes. Mr. Douglas. And is worth, in your judgment, $300,000? Mr. Hoover. For our purposes; yes. Mr. Douglas. And, in your judgment, it could not be rebuilt for less money than that? Mr. Hoover. I judge not. Mr. Douglas. Yet you can not approximate the number of cubic feet in that building? Mr. Hoover. I could approximate it by figuring for some little time. Mr. Douglas. Will it take more than two or three minutes to do it? Mr. Hoover. I judge it would. Mr. Douglas. Can you give us any idea ? I want something upon which to base a comparison. INVESTIGATION OF INSUKANCE COMPANIES. 479 Mr. Hoover. I would prefer to go into that computation after getting the height of the building, and I will hand it to you to- morrow. Mr. Douglas. I will ask you, in a letter to the chairman of the committee to-morrow morning, if you will send us the number of cubic feet in that building. Mr. Hoover. I will do so. Mr. Douglas. And the figure at which the building was carried by the National Savings Bank before it was converted into the National Savings & Trust Co. 22 years ago. Mr. Hoover. Yes, sir. Mr. Douglas. Assuming that — but I can not assume it, because 1 do not know. You have no idea how many cubic feet there are in it? Mr. Hoover. Absolutely not the slightest. I have never had oc- casion to examine it. Mr. Douglas. As much as five hundred thousand? Mr. Hoover. I would not say. Mr. Douglas. You put the Southern Building at $800,000? Mr. Hoover. Yes, sir. Mr. Douglas. That is two and one-half times as much or a little over two and one-half times as much as the Southern Building covers in area. Assuming the construction to be about the same, for the purposes of my question, so far as the ground itself is concerned, there is a little over five times as much ground, and it is nearly twice the number of stories high, is it not ? Mr. Hoover. You say there are nine stories? Mr. Douglas. Nine as compared with five. Mr. Hoover. Yes; nearly twice. Mr. Douglas. That would run the Southern Building in area, tak- ing the floor space into consideration, in the neighborhood of from nine to ten times as many cubic feet as your building, would it not? Mr. Hoover. Probably. Mr. Douglas. Nine to ten times as much as your building? Mr. Hoover. Yes. Mr. Douglas. Assuming that the character of construction is as good in the Southern Building as in your building, that would make the Southern Building stand on the basis of cost at this time to re- construct $1,300,000, would it not? Mr. Hoover. Assuming Mr. Douglas (interposing). I want you to assume it for the time being. Mr. Hoover. Assuming the construction is the same ; yes. Mr. Douglas. I mean $2,700,000. Mr. Hoover. Yes. Mr. Douglas. Nine times $300,000 would be $2,700,000? Mr. Hoover. Yes. Mr. Douglas. Assuming that the Southern Building, Mr. Hoover, is only worth half as much per cubic foot as your building, and cov- ering an area, so far as floor space in cubic feet is concerned, nine times as much as yours, which undoubtedly will measure out — I want you to furnish that information to-morrow morning — that would then make the Southern Building, on the basis of your calculation as to your building, $1,350,000. 71391— No. 5—13 i 480 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoover. Assuming the construction to be the same. Mr. Douglas. Assuming the construction of the Southern Building as to character of material and everything — steel and brick and mOrtar and everything of that sort — was only half as good as yours and therefore cost half as much as yours, would not that make the Southern Building, on the basis of the valuation you put on your building, $1,350,000? J Mr. Hoover. In answer to that, I decline to assume that the South- ern Building is worth Mr. Douglas (interposing). Half as m'uch? Mr. Hoover. Half as much ; yes, sir. Mr. Douglas. You say it is not? Mr. Hoover. I say I decline to assume it. Mr. Douglas. I am asking you now if it is not half as good ? Mr. Hoover. I do not know. Mr. Douglas. Have you not undertaken to advise this committee what it is worth? Mr. Hoover. I will advise the committee what it is worth from a cross bill filed by you in the Supreme Court. Mr. Douglas. Have you read that cross bill? Mr. Hoover. I have read it. Mr. Douglas. Have you figured out from that cross bill that that building did cost the Southern Building Corporation $907,000? Mr. Hoover. No, sir ; I could not make that out. Mr. Douglas. You could not make that out? Mr. Hoover. No, sir. Mr. Douglas. Do you not know that the price of $670,000 was the limited price to the Thompson & Starrett concern and excluded over $225,000 of other items? Did you know that? Mr. Hoover. I did not. Mr. Douglas. And the bill does not refer, does it, to anything more than the contractual relations between the Thompson & Starrett Co, and the Southern Building Corporation under their original con- tract? Mr. Hoover. That is all. Mr. Douglas. You knew, then, you only had partial information! Mr. Hoover. No ; I did not know that. Mr. Douglas. You knew the architect's fees were not included in that, did you not? Mr. Hoover. Yes ; I knew that. Mr. Douglas. You knew that the sum spent by the United States Trust Co. was not included, did you not? Mr. Hoover. Yes. Mr. Douglas. You knew all the various improvements and changes made by the Southern Building Corporation since the Thompson & Starrett contract was entered into were not included of necessity? Mr. Hoover. I did not know that there are any, so I, of course, did not know. Mr. Douglas. If you are in error, then, in assuming that $675,000 or $685,000 covered the cost of the building, then you are in error as to your present estimate as to the cost of the building, are you not? Mr. Hoover. I would not admit that, Mr. Douglas. INVESTIGATION" OF INSURANCE COMPANIES. 481 Mr. Douglas. Have you made any independent estimate as to the cost of this building, or do you base it wholly upon the partial figures you found in that cross bill ? Mr. Hoover. I base it upon the figures I found in that cross bill, plus the supposed architect's fees, plus anything else which might have been put in by the Southern Building Co. for the United States Trust Co. Mr. Douglas. Without knowing what that anything else might be, without having any idea whether it was $100,000 or $200,000 ? Do you think that is a fair way to pass upon the value of these people's property ? I ask if that is a fair way to treat the property of other people ? Do you think that is fair treatment of this matter, without having the data or material even approximately within $100,000? Do you think that is a fair way to arrive at the value of this build- ing? Mr. Hoover. Considering what is in the record, I do, Mr. Douglas. Mr. Douglas. And I will ask you now if you can come within $100,000 of the additional cost of that building — I mean in addition to the Thompson- Starrett contract? Can you come within $100,000 of it by any data in your possession ? Mr. Hoover. Not in my possession ; no. Mr. Douglas. You think that is sufficiently approximate to enable you to fairly testify on this subject? Mr. Hoover. I have testified to approximately $100,000 more than the record shows the building to have cost, and if the Thompson & Starrett Co. completed the building, as I think the record shows, I can not imagine that more than $100,000 would go into that building. Mr. Douglas. You can not? Mr. Hoover. No. Mr. Douglas. You can imagine how a great deal of money might be spent in a building covering 22,000 odd feet of ground, nine stories high, can you not? Mr. Hoover. Yes. Mr. Douglas. Can you come within $25,000 of what the United States Trust Co. spent on that building in permanent parts of the building? Mr. Hoover. For its own purposes? Mr. Douglas. I mean as parts and parcels of the building itself. Mr. Hoover. No, sir. Mr. Douglas. You can not do that? Mr. Hoover. No, sir. Mr. Douglas: Have you any idea on earth of what the Southern Building Corporation did in the reconstruction of the ninth floor for the Commerce Court ? " Mr. Hoover. No. Mr. Douglas. You have no idea ? Mr. Hoover. No. Mr. Douglas. You have no idea what it expended in reconstructing its floors or in excavating for the cellar or the basement or anything of that sort, have you ? Mr. Hoover. No. Mr. Douglas. Have you any idea of the number of cubic feet in this building? 482 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoover. No, sir. Mr. Douglas. Have you any idea what is the proper price to be paid per cubic foot for a structure of that sort? Mr. Hoover. No, sir. Mr. Douglas. Have you any idea whether it should be 40 or 45 or 50 cents a cubic foot ? Mr. Hoover. I hardly think it should be any of those, Mr. Douglas. Mr. Douglas. Any of those ? Mr. Hoover. No. Mr. Douglas. Have you had any experience in building yourself? Mr. Hoover. No, sir. Mr. Douglas. If you had William P. Lipscomb, the builder, called in to the National Savings & Trust Co., and he were asked by you to give you an idea what it would cost to reproduce the National Savings & Trust Co. Building as it stands now, would you accept, without question, his judgment and base your calculations on that? Mr. Hoover. I should be perfectly willing to accept his judgment in connection with one or two others whom I might want to consult. Mr. DoroLAS. Suppose there was nobody else to consult, do you know a better builder in Washington than Mr. Lipscomb? Mr. Hoover. I do not. Mr. Douglas. Do you know of a fairer or more honest man than Mr. Lipscomb? Mr. Hoover. No, sir. Mr. Douglas. Is he not a conservative man ? Mr. Hoover. I judge that he is. Mr. Douglas. If he should tell you, Mr. Hoover, that this building, to reproduce now, putting it at a low figure, which he says was a low figure, of 35 cents, would cost $946,000 to build, and there was to be added to that 5 per cent for the increased cost of steel and other material in the building now as compared with two years ago, making $46,000 additional, and therefore running it up to practically $1,000,000, would you not be very much shaken in your own judgment pitted against his as to what that building is now worth ? Mr. Hoover. To build it properly; yes. To build it as is alleged in the cross bill the Thompson & Starrett Co. built it, I should feel perhaps he was a little bit high with respect to the present building. Mr. Douglas. That only involved, if you will permit me to inform you for the purpose of my question, $25,000. The very most you would do would be to knock off of the estimate $25,000, as the South- ern Building Corporation claimed should be done? Mr. Hoover. Not at all. The record shows there are many defects in that building. Mr. Douglas. All estimated at $25,000, if you please. Mr. Hoover. $30,000 I think is the damage claimed. Mr. Douglas. Put it at $30,000. Then you would accept Mr. Lipscomb's figures certainly and place them above your own, not being a builder and not having examined this building. You would accept them, perhaps subtracting the $30,000 in controversy between the Thompson & Starrett Co. and the Southern Building Corpora- tion. Suppose you further found out from the cross bill^that the Southern Building Corporation had done the things and had ex- pended the money that Thompson & Starrett should have done and should have expended, you therefore would have to admit that, would INVESTIGATION OF INSURANCE COMPANIES. 483 you not ? If you found, in addition to what the Southern Building Corporation paid Thompson & Starrett on their contract, they had expended that amount of money, you would not deduct it at all, would you? Mr. Hoover. No; perhaps not. Mr. Douglas. Mr. Hoover, have you ever been in the Southern Building? Mr. Hoover. Not except on the first floor. Mr. Douglas. On the first floor ? Mr. Hoover. Yes. Mr. Douglas. Even if you were an experienced and skilled builder in determining what you would charge per cubic foot, you would have taken into account the character of material, the thickness of the walls, the heaviness or strength of the steel, and everything of that sort, would you not ? Mr. Hoover. Yes. Mr. Douglas. You would also, for instance, if there were marble wainscoting up 3 or 4 or 5 feet in the corridors, figure that as enter- ing into the computation, would you not? Mr. Hoover. Yes ; I think so. Mr. Douglas. And the absence of it would enter into the computa- tion, would it not? Mr. Hoover. Yes ; I think so. Mr. Douglas. Then, in addition to that, if you should be in- formed — and I want, to ask you now if you have ever been informed about it — that the Southern Building Corporation expended over $20,000 in extra size and strength of steel, and constructed its plumb- ing, and everything of that sort, with the view to putting two addi- tional stories, a tenth and an eleventh story on that building Mr. Hoover (interposing). I have not — I beg your pardon; you had not finished. Mr. Douglas. That would add this $20,000 to your estimate, would it not? Mr. Hoover. It might. Mr. Douglas. It might? Would it not? Sure; you can not escape it. Mr. Hoover. Escape what, Mr. Douglas ? I would like to have that question again. Mr. Douglas. Suppose this company in building this building had, as to- the size of its piping for uses of water and for sewerage, things of that sort, had gotten the size and strength for an 11-story build- ing instead of a 9-story building, and used steel girders and beams, and all the steel construction of such a character — had increased its size at a cost to itself of a sum in excess of $20,000 — would that not add to the present cost of reconstructing or reproducing that building ? Mr. Hoover. Yes; but I should like to know whether this was a part of the original contract? Mr. Douglas. If you will permit me to say it for the purpose of this question, I will inform you it was not. It was additional entirely. Mr. Hoover. All right. 484 INVESTIGATION OP INSURANCE COMPANIES. Mr. Douglas. Then that would be added still to the sum you allow. So then you do know that Mr. Lipscomb did appraise this building, do you not? Mr. Hoover. Oh, yes. Mr. Douglas. And you do admit that there is not a better man in this town, as to character, experience, or equipment, to do that kind of work, than Mr. Lipscomb ? Mr. Hoover. I think that is true. Mr. Douglas. With reference to the land itself, Mr. Hoover, do you think that this building and this ground is as good as the Shore- ham Hotel property? Mr. Hoover. I think about the same. Mr. Douglas. Do you agree with Mr. Bell that business property, especially large properties that yield 4 and 4| per cent, could and should be conservatively capitalized on that basis, so as to ascertain the conservative value of the building? Mr. Hoover. I think, Mr. Douglas, it depends entirely upon the character of the business conducted. I think that a real mercantile business, or a business per se, should be capitalized at about 5 per cent. I think if you get away from that Mr. Douglas. Let us take it on office buildings ; that is the best way. Mr Hoover. Very well. Mr. Douglas. What is the average return on an office building in Washington ? Mr. Hoover. I would say you could not capitalize an office build- ing at under 6 per cent — possibly 7 per cent. Mr. Douglas. Do you know of an office building in Washington that pays that much? Mr. Hoover. I am not speaking of returns. I mean to capitalize the income. Mr. Douglas. What I want you to do is this : Taking the ordinary price of property, the prevailing prices for business property Mr. Hoover (interposing). Yes. Mr. Douglas. Do you agree with Mr. Bell in his statement, made the other day, that taking the prevailing price at which business properties are sold, they should yield as much as 3 per cent? Mr. Hoover. Some ; that is true. Mr. Douglas. Would they average over 4, taking the prices at which they are bought and sold ? Do they average over 4 in average yield? Mr. Hoover. Do you mean the ordinary business property ? Mr. Douglas. The ordinary business property, whether it is an establishment like Dulin & Martin's, a department store, or any other office building, or what not. Don't you know that it is a fact that in Washington business property, for the varied uses to which it is put, will not yield in excess of 3 to 3-| per cent, computed on the prices at which they are held and bought and sold ? Mr. Hoover. No ; I would not admit that, Mr. Douglas, from my knowledge. Mr. Douglas. What would you say ? Would they yield 4 per cent? Mr. Hoover. Yes; they will yield probably 4| per cent. Mr. Douglas. Four and a half per cent ? Mr. Hoover. Yes. INVESTIGATION OF INSURANCE COMPANIES. 485 Mr. Douglas. Let us take that as the maximum- Mr. Hoover. I do not admit that to be the maximum. I will say 5. Mr. Douglas. But you just said 4£ per cent. Mr. Hoover. I said 4J per cent. Mr. Douglas. Then, will you name Mr. Hoover (interposing). I have said, plainly enough for the committee and you to hear, Mr. Douglas, that my judgment is that business property should bring in 5 per cent. Mr. Douglas. Have I made myself plain? I have asked you a question you have not yet answered. Mr. Hoover. What is it? Mr. Douglas. If you can name me any office building or general business property that yields 5 to 6 per cent. Mr. Hoover. I said 5 per cent. Mr. Douglas. Well, 5 per cent. Mr. Hoover. I can probably give you a list of properties under our control, business properties, that will probably yield 5 per cent. Mr. Douglas. Will the properties under your control average 5 per cent? Mr. Hoover. I do not know. Mr. Douglas. Will they average about 4£ per cent ? Mr. Hoover. I think so. Mr. Douglas. About 4J.? Mr. Hoover. At least. Mr. Douglas. Will they be in excess of that ? Mr. Hoover. I am inclined to think so. Mr. Douglas. Let us take it at 4J. per cent, then. If the Southern Building, so large -a building as that — and we have to consider the size of an investment, do we not, in determining what kind of yield should be expected ? Mr. Hoover. Yes. Mr. Douglas. From small properties you expect larger percentages in returns ? Mr. Hoover. Yes. Mr. Douglas. If this building should yield $90,000 upon the basis of its actual rent roll now, with from 7 to 10 per cent of the building vacant, it would actually yield net now $90,000. That is 4r|> per cent on $2,000,000, is it? Mr. Hoover. Yes. Mr. Douglas. That would be ty per cent of $2,000,000 ? Mr. Hoover. Yes. Mr. Douglas. If it should yield net $80,000, that is 4 per cent upon $2,000,000 ? Mr. Hoover. Yes. Mr. Douglas. You do take into account, do you not, the income- producing qualities of a building? Mr. Hoover. Oh, yes. Mr. Douglas. Do you take into account in valuing property build- ings and grounds, all, what is called the potentialities, probable in- crease, etc.? Mr. Hoover. Yes. Mr. Douglas. You do admit that property in that neighborhood is going up very rapidly in value ? Mr. Hoover. It is going up ; yes. 486 INVESTIGATION OP INSURANCE COMPANIES. Mr. Douglas. It is going up rapidly in value, is it not? Mr. Hoover. I should probably admit that. Mr. Dot class. You also admit that if this building has all the equipment, as to the size and strength of its steel and everything else, to add two more stories to it, that is an element to be considered too, is it not? Mr. Hoover. Yes. Mr. Douglas. If they had built this building with no eye to the future, and could not put two more stories upon it, that would put a limitation upon this building which would be right serious, would it not ? Mr. Hoover. It is a large building as it is, Mr. Douglas. Mr. Douglas, It is a large building, and as you see it is practically filled — 93 per cent. Mr. Hoover. I appreciate that. Mr. Douclas. You know they have a fine class of tenants in that building, as a rule ? Mr. Hoover. I have no doubt of it. Mr. DoKiLAs. And the building of other structures farther out than this is of very great value, adds to the potential value of the property, does it not ? Mr. Hoover. Unquestionably. Mr. Dot clas. Mr. Hoover, what valuation would you put upon what is known as the old Chamberlain Hotel corner, at I and Fif- teenth Streets? Mr. Hoover. As to the square- foot value? Mr. Doi'glas. Yes, sir. Mr. Hoover. Not over $20. Mr. Douglas. Not over $20? Mr. Hoover. No, sir. Mr. Douglas. You therefore put the Southern Building at least at $10 a foot more than that? Mr. Hoover. Yes. Mr. Dor«u\8. If the Chamberlain corner is worth $30, then you would put this at $40, would you not ? Mr. Hoover. No, sir. Mr. Douglas. Do you agree with Mr. Stellwagen that Fourteenth and H Streets is not as valuable as Fifteenth and H Streets? Mr. Hoover. Not as valuable? Mr. Douglas. Yes. Mr. Hoover. I regard it as more valuable. Mr. Douglas. How much more? As much as three or four dollars a foot ? Mr. Hoover. Oh, ten. Mr. Douglas. $10 a foot? Mr. Hoover. Yes, sir. Mr. Douglas. So, if the corners of Fourteenth and H Streets are worth a given figure, then Fifteenth and H Streets is worth $10 less. Mr. Hoover. Yes. Mr. Douglas. I believe you said you sold the Blackistone corner two and a half years ago? Mr. Hoover. One and a half years ago. Mr. Douglas. One and a half years ago ? Mr. Hoover. Yes. INVESTIGATION OF INSURANCE COMPANIES. 487 Mr. Douglas. At what? Mr. Hoover. $34.20 a square foot, Mr. Douglas. $34.20 per square foot? Mr. Hoovek. Yes. Mr. Douglas. If you should be informed, and reliably informed,, that the present owners of that property withdrew it from the market at $60 a foot, that would furnish some evidence, would it not, that that figure was approximately the present value of it ? Mr. Hoover. No; it would not. Mr. Douglas. It would not ? Mr. Hoover. No, sir. Mr. Douglas. Suppose you" were informed that they refused $55 a foot, and then ran the price up to $60, and withdrew it, would that shake your judgment, or rather, would not that incline you to the view that it was worth $55 a foot ? Mr. Hoover. If they had been offered $55 a foot, I should say yes. Mr. Douglas. That would fix the value, would it not? Mr. Hoover. Surely. Mr. Douglas. If the Willard people, who own the southeast corner at that intersection, had refused $80 a foot for that property, what effect would that have upon your pessimistic view of the Southern Building property ? Mr. Hoover. I would hardly denominate it that ; it is not a pessi- mistic view. Mr. Douglas. Well, we will say your view; I will strike out the word " pessimistic." Mr. Hoover. I should say that that offer is out of all proportion to the actual value of the property. Mr. Douglas. But still it helps to fix the price of the property, does it not? Mr. Hoover. Yes; that is true. Mr. Douglas. If the Montrose was sold at $50 a foot, that would put the Southern Building, according to your scale of prices, at $40 afoot? Mr. Hoover. Do I understand the Montrose Mr. Douglas (interposing). Sold for $50.46 a foot, and the build- ing accounted nothing. During the present month, I will inform you for the purpose of this question, the building will be torn down and an office building put up. If the Montrose is worth and actually brought $50.46 a foot cash, that would then put the Southern Building at $40 ? Mr. Hoover. Yes, sir. I would like to say, in connection with that, Mr. Douglas, it might be a question of ascertaining the reason for that sign in the Montrose Building, if the improvements are to be torn down. I noticed day before yesterday this sign in the window, that the stores on the first floor are for rent, and that alterations will be made to suit tenants. Now, of course, you know better than I do Mr. Douglas. That is simply hypothesis, but we will see whether or not we can establish that later. Mr. Hoover. That' is the reason I would say the improvements must have a value. Mr. Douglas. We will assume that for the purposes of the discus- sion, and see later what the proof establishes. 488 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoovek. Yes. Mr. Douglas. Would you regard the lot on which the Wilkins Building stands to be as valuable as the Southern Building lot? Mr. Hoover. Not quite. Mr. Douglas. You say property has increased in that neighbor- hood five and six dollars per foot per annum? Mr. Hoover. I should think so, in the last year or two. Mr. Douglas. They paid $27.50 for that ground, did thev not? Mr. Hoover. I think it was $26. Mr. Douglas. Well, we will put it at $26. They bought it two years ago, did they not? Mr. Hoover. About that. Mr. Douglas. And adding $5 per annum would bring that prop- erty up to $36 a foot ? Mr. Hoover. My judgment was not that it had increased $5 per annum. I said it had increased $5. Mr. Douglas. Five dollars in all? Mr. Hoover. Yes. Mr. Douglas. Then that would put it at $31 a foot? Mr. Hoover. Yes. Mr. Douglas. Do you not think you are a little unfair to the Southern Building, then, to put the Wilkins Building at $1 a foot more than the Southern Building corner? Mr. Hoover. It is certainly not my purpose to be unfair. Mr. Douglas. I understand that. No one would acquit you of that more readily than I would ; no one on earth. Mr. Hoover. I did not mean to say my judgment is absolutely ac- curate. I have simply given what I believe to be my judgment of the value of that building. Mr. Douglas. There is not the slightest question as to that. Mr. Hoover. I feel with respect to the Fifteenth Street front of the Southern Building that it is not as valuable, perhaps, as the south side of H Street between Fifteenth and Sixteenth Streets. We have to treat it as an entirety. Mr. Douglas. The south side is really closer to the sanctuary, is that right? I do not mean your bank; I mean Mr. Glover's bank when I say that. Mr. Hoover. I appreciate that. Mr. Douglas. Now, Mr. Hoover, are you acquainted with the Ar- lington Hotel property? Mr. Hoover. Yes, sir. Mr. Douglas. How long have you been acquainted with it? Mr. Hoover. For 10 years. Mr. Douglas. Ten years? Mr. Hoover. Yes, sir. Mr. Douglas. In what capacity have you been connected with it? Mr. Hoover. Our company and Mr. Woodbury Blair have been the trustees of that property for seven or eight years, or up to the time it was closed. Mr. Douglas. You and Mr. Woodbury Blair? Mr. Hoover. Yes. Mr. Douglas. Was it for sale before the present hotel company bought it? Mr. Hoover. Yes, sir. INVESTIGATION OF INSURANCE COMPANIES. 489 Mr. Douglas. At what price? Mr. Hoover. It was sold Mr. Douglas. I did not ask at what price it was sold. Mr. Hoover. I understand. It was offered at several different prices, Mr. Douglas ; at several different times. We had it running from $1,100,000 to $1,750,000. Mr. Douglas. I mean per square foot. At what did you have it for sale, say, four years ago? Mr. Hoover. We never had a per square foot value on it; but I should say that four or five years ago we had a value of about what it sold for. I can give you the square foot price at which it was sold. Mr. Douglas. I wish you would. Mr. Hoover. About $24.50. Mr. Douglas. $24.50? Mr. Hoover. Yes. Mr. Douglas. How much of that site is on I Street? Plow many square feet are on I Street? Mr. Hoover. I should think about possibly one- third of it; maybe a little less. Mr. Douglas. What is the total area of that lot ? Mr. Hoover. About 58,000 feet. Mr. Douglas. Of course, the most valuable part of it would be the part at the intersection of H Street and Vermont Avenue ? Mr. Hoover. Yes, sir. Mr. Douglas. And the property on I Street, separated from that, would not bring over $6 or $8 a foot, would it ? Mr. Hoover. Not very much, if anything. Mr. Douglas. So, in making our calculation, we can assume that is about a fair price for the I Street part of the property ? Mr. Hoover. Yes. Mr. Douglas. If it should eventuate in making a calculation here that the property at Vermont Avenue and H Street, running out enough to take in what would be the size of the Southern Building, which would not be quite half of the whole lot and is the most valuable, if it should develop that in order to reach a fair price for the balance of the property, it would put this at $35 a foot, which you really got for the corner, 22,000 feet of it, how much would that put up the Southern Building beyond that figure ? Mr. Hoover. Mr. Douglas, I want to go into that to some slight extent by saying that the site of the Arlington Hotel is one that is national in character. It has been known for generations as the hotel of Washington up to the time the New Willard was built ; and so that has placed on it a value which the property ordinarily, in my judgment, would not have. Mr. Douglas. In other words, it is a very fine site for a hotel ? Mr. Hoover. I think it is the best site in Washington. Mr. Douglas. Is it any better site for a hotel than the Southern Building corner is for an office building ? Mr. Hoover. I should say so. Mr. Douglas. You should say so? Mr. Hoover. I think it is, Mr. Douglas. Mr. Douglas. Is there a site in Washington that surpasses the Southern Building site for an office building ? If so, point it out. 490 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoovek. I would point out the Colorado Building; I would point out the Riggs Building; I would point out a possible office building on our corner. Mr. Douglas. On your corner? Mr. Hoover. Yes, sir. Mr. Douglas. You have no idea of going out of business, so we had better leave yours out. Do you mean to say that the Colorado Building is a better site for an office building than the Southern Building site ? Mr. Hoover. I think it is, Mr. Douglas. Mr. Douglas. The size of the Southern Building is admirable, 148 by 150? Mr. Hoover. Yes, sir. Mr. Douglas. The other is about 125 by 100? Mr. Hoover. I presume so. I have forgotten the exact figures. Mr. Douglas. The Southern Building has to the north of it n paved alley, 20 feet wide, running through from Fifteenth Street to Fourteenth Street. It practically puts, for the purpose of light, ventilation, view, etc., three streets on three sides of the lot. Is that so with either the Riggs Building or the Colorado Building, or even on your own corner? Mr. Hoover. As to light, no; but as to location I think it is a fact that the Colorado Building is where there are probably six or eight times as many people passing, and the same is true with respect to the Riggs Building, and that offsets any question of light and air. Mr. Douglas. Suppose you should find out that the Southern Building has a larger percentage of its rooms rented than the Colo- rado Building, assuming its tenants are as good a class of people, and it is nearly twice trie size, that would look very much like the public did not quite agree with you as to the desirability of that site, would it not? Mr. Hoover. Mr. Douglas, I should like to see some other gentle- man besides yourself who will not agree with me in the statement that the Colorado Building is in a better location than the Southern Building. Mr. Douglas. There is an old saying : " All things come to him who waits." Mr. Hoover. Very well. Mr. Douglas. How much do you, value the ground on which the Colorado Building stands? Mr. Hoover. I should say it was worth $50 a foot, Mr. Douglas. What do you value the Commercial Bank Building, across the street from it ? Mr. Hoover. At least sixty. Mr. Douglas. Have you not. within 48 hours, stated you thought it was worth $80? Mr. Hoover. No, sir. Mr. Douglas. Did not you go in the Commercial Bank on Saturday morning and have a talk with Mr. Clapham, the president of the bank, and did you not ask Mr. Clapham what value he placed on that corner, and he told you $100 a foot? Mr. Hoover. I do not recall that he told me that, Mr. Douglas; it is possible. I will say this about my having gone in there: I did go in and I spoke to him about it. I asked him if there_had.. been any INVESTIGATION OF INSURANCE COMPANIES. 491 appraisement made of his corner, and I think he told me that there had been none. Then he told me that some friend of his had stepped in and said he had the best corner in Washington and that it was worth a hundred dollars a foot. Mr. Douglas. Did you not tell him you thought that was a little too high ? Mr. Hoover. If I did not, I should have ; I think it is too high. Mr. Douglas. Did you not say a conservative value was $80 a foot? Mr. Hoover. I do not think so. Mr. Douglas. Do you not agree with Mr. Stellwagen that Four- teenth Street and New York Avenue is not as valuable as Fifteenth and H Streets? Mr. Hoover. Fourteenth and New York Avenue — which corner, Mr. Douglas? Mr. Douglas. All four corners — the intersection. Mr. Hoover. I regard it as more valuable than Fifteenth and H Streets. Mr. Douglas. How much more valuable? Mr. Hoover. I would put the Bond Building at $50. Mr. Douglas. The Bond Building at $50? Mr. Hoover. Yes, sir. Mr. Douglas. T want to find out whether or not you gentlemen are all affected by the point of view, as suggested by Mr. George, whether . or not you are not scaling everything down from force of habit, I want to know now if you are basing your valuation of the Southern Building at $30 on the same general scale that you have, for instance, when you name the Bond Building as property worth $50 a foot. Mr. Hoover. Yes ; I think it is worth that. Mr. Douglas. Of course you think it is worth that, but do you not think it is worth $25 a foot more ? Mr. Hoover. I really do not. Mr. Douglas. You do not? Mr. Hoover. No, sir. Mr. Douglas. What do you think the Lenman Building is worth ? Mr. Hoover. The Lenman Building was bought in 1905. Mr. Douglas. Yes; I know something about that. Mr. Hoover. I know you do. Mr. Douglas. I was with you in that litigation. Mr. Hoover. You were our counsel. It is $20 a foot ; that is what it cost us. Mr. Douglas. Five years ago ? Mr. Hoover. Seven years ago. We have been endeavoring to dis- pose of one-half of the Lenman Building at $44.40 a foot, in order to produce from that one-half what the whole building cost us. Mr. Douglas. In other words, you want 100 per cent on the in- vestment ? Mr. Hoover. Yes, sir. Mr. Douglas. You think that property has gone up 100 per cent? Mr. Hoover. I regret to say I think not, because we were unable to sell it that figure, Mr. Douglas. Mr. Douglas. Have you not had an offer of $135,000 for the east half of that property in the last six months ? Mr. Hoover. Yes, sir ; it was in February, I think. Mr. Douglas. How much is that a foot, Mr. Hoover ? 492 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoover. $30. Mr. Douglas. $30? Mr. Hoover. Yes. Mr. Douglas. And you think inside lots on New York Avenue be- tween Fifteenth and Fourteenth are worth more than the corner lot or the four corners at Fifteenth and H? Mr. Hoover. I should say that any portion of the Lenman Build- ing per square foot is worth more than the corner of Fifteenth and H : yes, sir. Mr. Douglas. You do not agree, then, with Mr. Stellwagen in saying it is not worth as much. Mr. Hoover. I do not agree with him. Mr. Douglas. Xow, Mr. Hoover, so much for your valuation of this property. You will permit me to say in disposing of it that it goes without saying, so far as I am concerned, that of course what you say I accept as fair; and, believing every word you say, these questions have been asked you to test the correctness of your judg- ment. Mr. Hoover. I appreciate what you say, Mr. Douglas, and be- lieve it. Mr. Douglas. Now, Mr. Hoover, coming back to this building of your (iwn, would you mind telling us how that valuation was changed from two hundred to seven hundred thousand dollars? Mr. Hoover. You mean when the company was organized? Mr. Douglas. Yes ; I do not understand it. Mr. Hoover. I am perfectly frank to tell you, Mr. Douglas, that I do not understand it fully myself. I only know that when I went with the company some 11 years ago, the only adverse comment upon the condition of the company was the large value at which the prop- erty was carried, and all I know about it is what I testified to a while ago, that when the company was organized the gentlemen who had organized it were able to persuade the comptroller that the value was there. Mr. Douglas. They increased it about $500,000? Mr. Hoover. I presume they did. Mr. Douglas. Without any increase in property holdings or any- thing of that sort? Mr. Hoover. Yes. Mr. Douglas. To use a favorite expression in this case, it was done " over night," too, was it not ? Mr. Hoover. I presume it was. Mr. Douglas. Do you know who did it ? Mr. Hoover. I really do not. , . Mr. Douglas. Do you know any of the gentlemen involved in it? Mr. Hoover. I can very readily find out, perhaps, Mr. Douglas. Mr. Douglas. Can you not tell me some of them, without taking time to look at the records ? Mr. Hoover. I might tell you Mr. Glover ; I might tell you— these are the people whom I think were interested Mr. Douglas. Yes. Mr. Hoover. I am not absolutely certain. Mr. James M. Johnston. Mr. Douglas. He is president of the Arlington Fire Insurance Co.! Mr. Hoover. Yes, sir; I thought Mr. Gill was, as I told you a while ago. INVESTIGATION OF INSURANCE COMPANIES. 493 Mr. Douglas. Yes; Mr. Johnston. Mr. Hoover. And the then directors of the company, most of whom are dead. Mr. Douglas. And I suppose, Mr. Hoover, this was done in order to get a million-dollar trust company, was it not? Mr. Hoover. I think so. Mr. Douglas. And that avoided the necessity of having paid in the increment of $500,000, which was added to the value of the property ? Mr. Hoover. Yes ; I think so. _ Mr. Douglas. Do you remember who the comptroller was at that time? Mr. Hoover. I do not. Mr. Douglas. You do not? Mr. Hoover. No. Mr. Douglas. You were not connected with the company then ? Mr. Hoover. No, sir. Mr. Douglas. There has been no change made in that appraise- ment since that time? Mr. Hoover. No, sir; except, as I said a while ago, the charging off of some small amounts. Mr. Douglas. Which were not appreciable? Mr. Hoover. No, sir. Mr. Douglas. So I suppose you do not criticise, then, an appraise- ment of a piece of property owned by a trust company or a banking institution or anyone else, where the appraisement is a fair one, and you do not criticize the managers of a corporation that carry that property at its appraised value, do you ? Mr. Hoover. I would not hesitate to criticize what my predecessors did in our company. Mr. Douglas. I did not ask you about that. Mr. Hoover. Oh, I beg your pardon. Mr. Douglas. I would not ask you to do that. I am only asking you, as a general proposition, for the purpose of finding out your attitude. Mr. Hoover. Yes. Mr. Douglas. As to whether or not you think any corporation would be properly subject to criticism if they would have their real estate appraised, and then carry it at that appraisement, if the ap- praisement be a fair one and made by honest and upright people ? Mr. Hoover. I think it would be perfectly proper for them to do it. Mr. Douglas. You see nothing improper in the conduct of the Commercial Fire Insurance Co. or the First National, or in the con- duct of the superintendent of insurance in appraising this property ? Mr. Hoover. Absolutely nothing, sir. Mr. Douglas. And they would be entitled to carry it, I understand from you, in your judgment, at its appraised price, if that be a fair one, and made by honest and capable people, without any regard whatsoever to what the property may have cost them in the purchase of it ; is that right ? Mr. Hoover. I think it would be perfectly proper for them to do it, if they had, as you say, fair appraisements, and carried it according to those appraisements. 494 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. In other words, in the slang of the street, if they should find a diamond they would not be expected to sell it for a pebble, would they I Mr. Hoover. Xo. sir. Mr. Douglas. So this statement or allegation or charge or sugges- tion of values overnight does not appeal to you, if the value be there? Mr. Hoover. Xo: if the value is there I think it is perfectly legiti- mate. Mr. Douglas. And the question as to whether they bought it on the ^9th day of October and appraised it on the 31st day of October or whether they bought it months before that time, or whether they bought it by the acquisition of stock, would not enter into the ques- tion one way or the other in determining whether or not this appraise- ment was fair and made by competent people? Mr. Hoover. Xo. sir. Mr. Douglas. Xow, Mr. Hoover, with reference to that apprase- ment. I think a wrong impression was created at the commencement of your testimony, which, I think, you corrected when Mr. Easby- Smith had you under cross-examination — that is, with reference to whether or not you had been asked to appraise this property. You did not mean to convey the impression that you were asked by Mr. Darneille to be one of the three appraisers formerly appointed by him for that purpose, did you? Mr. Hoover. Mr. Douglas, my connection with it was as I stated in respon-e to Mr. Smith's questions. Mr. Douglas. You were simply asked your opinion of it? Mr. Hoover. Asked me if I would appraise the property. That is the way the conversation began. Mr. Do i glas. In other words, he wanted to get your opinion about the property? ' Mr. Hoover. Yes. Mr. Douglas. And he asked you about other property at the same time, did he not? Mr. Hoover. Possibly. I have forgotten. Mr. Douglas. Do you know when that was? Mr. Hoover. I imagine it was six or seven weeks ago, Mr. Douglas. Mr. Douglas. Six or seven weeks ago? Mr. Hoover. I should say so. Mr. Douglas. And did you not know, as a matter of fact, that at that time the appraisers had already been appointed, and that Al. Hensey was one of them? Mr. Hoover. I really did not know. Mr. Douglas. You did not know? Mr. Hoover. Xo, sir. Mr. Douglas. Y'ou do not know that Mr. Hensey suggested to Mr. Darneille to get your opinion about it? Mr. Hoover. I do not. Mr. Douglas. So it was only in that way that your opinion was asked for by Mr. Darneille? He told you he thought your value was too low ? Mr. Hoover. Yes. Mr. Douglas. And you then told him $25 a foot? Mr. Hoover. About that; yes, sir. INVESTIGATION OF INSURANCE COMPANIES. 495 Mr. Douglas. Do you remember where you were when you first told Col. Judson that this property was worth twenty or twenty-five dollars a foot? Mr. Hoover. I do not think I ever told him those figures, Mr. Douglas. Mr. Douglas. You did not put it that way? Mr. Hoover. I should say at the Brighton. Mr. Douglas. At the Brighton? Mr. Hoover. Yes. Mr. Douglas. Do you not remember he came to your table at the Brighton one morning at breakfast and asked you what you thought was the value of that property, and you said twenty or twenty-five dollars a foot? Mr. Hoover. I do not recall that particular circumstance, Mr. Douglas. As a matter of fact, Col. Judson and myself sit within 2-J or 3 feet of each other in the cafe, where we get our meals at the Brighton, and we are continually conversing — a large part of the time — about some business matter. Mr. Douglas. Go ahead. Mr. Hoover. Now, whether Col. Judson spoke to me at the table or in the smoking room after a meal, I do not know. Mr. Douglas. How long before Mr. Darneille talked to you was it that you had this conversation with him? Mr. Hoover. With whom? Mr. Douglas. Mr. Judson. Mr. Hoover. It was perhaps two or three weeks after Mr. Dar- neille had seen me. Mr. Douglas. And how long before you were asked to act as an appraiser in this matter? Mr. Hoover. Possibly 10 days. Mr. Douglas. And you told Col. Judson $25 a foot was about right ? Mr. Hoover. I do not remember what I told him. I may have told him $30. Mr. Douglas. You told him what you thought? Mr. Hoover. Yes; I told him what I thought. Mr. Douglas. And that was from twenty-five to thirty dollars a foot? Mr. Hoover. Yes. Mr. Douglas. Did Col. Judson tell you that he thought that ap- praisement of this building was too high? Mr. Hoover. No; he asked me my judgment of the value of the building, and I gave it to him, and he said the appraisement as given in a statement I have here is $2,000,000, and I presume he asked my judgment as to that, and V I probably told him it was too high. Mr. Douglas. And he did not tell you for some days after that that he wanted you to be an appraiser? Mr. Hoover. I do not remember whether it was at that time or a few days afterwards. Mr. Douglas. You said about 10 days. Mr. Hoover. It might have been ; I have forgotten. 71391— No. 5—13 5 496 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Did he ask you to act without compensation in the matter ? Mr. Hoover. Without compensation? Mr. Douglas. Yes. Mr. Hoover. Oh, yes. He did not say anything about compensa- tion, and the thought of compensation did not enter my head, Mr. Douglas. Mr. Douglas. The thought of compensation did not enter your head? Mr. Hoover. No. Mr. Douglas. Did he suggest to you that he wanted Mr. Doyle as one of the appraisers ? Mr. Hoover. He may have mentioned his name. I do not recall. Mr. Douglas. Mr. Doyle has been used as a Government witness in condemnation proceedings pretty steadily for the last quarter of a century, has he not? Mr. Hoover. So I learned the other day, I think, Mr. Douglas. I really did not know. Mr. Douglas. Did you ever know of a condemnation case where Mr. Doyle did not appear as a star witness ? Mr. Hoover. I have had no connection with condemnation cases, so I do not know. Mr. Dougt.as. A question was asked you by Mr. Eedfield, of the committee, with reference to the conduct of the affairs of these com- panies, in which the expression was used, " obtaining money under false pretenses." In a way and to an extent you apparently or seem- ingly gave your assent to that. I want now, on your account, on account of these companies, on account of the committee and the com- munity, to have you state just what you did mean in your own lan- guage, and if you based it upon facts, I want you to state the facts; if you based it upon an hypothesis or a series of hypotheses, I want you to state it, so that no misunderstanding can hereafter arise with reference to your position about it. Mr. Hoover. The question which came to me from Mr. Eedfield was a hypothetical question, of whether in the light of certain things certain interpretations could be put upon those things. That was the question which I answered. I would not be understood as mean- ing that I would accuse any of the gentlemen connected with these companies, most of whom I know, of obtaining money under false pretenses, or attempting to do it. Mr. Douglas. You expressed no opinion and meant to express no opinion involving either commendation or condemnation of these companies, or either of them, did you? Mr. Hoover. No, sir. Mr. Douglas. You did not? Mr. Hoover. No, sir. Mr. Douglas. Mr. Hoover, have you any knowledge whatever of the details of the operations and the conduct of these companies, so as to enable you to form any opinion whatsoever about them, except the character of the men involved ? Mr. Hoover. None at all, Mr. Douglas. Mr. Douglas. And so far as the character of the gentlemen— «< far as concerns the individuals — everything there would argue in favor of good faith instead of bad faith, would it not? INVESTIGATION OF INSURANCE COMPANIES. 497 Mr. Hoover. I have a very high opinion of the gentlemen whom I know. Mr. Douglas. I would like to ask you, Mr. Hoover, if you do not object to answering the question, from your knowledge of the men on that board — or, rather, on the boards of those two companies — would you think them capable of doing a dishonest thing or obtaining money or goods under false pretenses? Mr. Hoover. I should think not, Mr. Douglas. Mr. Douglas. You think they are incapable of doing that? Mr. Hoover. Yes. Mr. Douglas. This involves our mutual friend, Judge Gould ? Mr. Hoover. Yes. Mr. Douglas. And Judge Atkinson? Mr. Hoover. Yes. Mr. Douglas. And Gen. Wynne? Mr. Hoover. Yes. Mr. Douglas. And Mr. Carusi? Mr. Hoover. Yes. Mr. Douglas. And Eobert N. Harper? Mr. Hoover. Yes. Mr. Douglas. And a number of others? Mr. Hoover. Yes. Mr. Douglas. Do you know our friend Mr. John W. Childress, who has been in this room sometimes? Mr. Hoover. Very well, and most favorably. Mr. Douglas. Most favorably? Mr. Hoover. Yes, sir. Mr. Douglas. He is one of the commissioners appointed by the Government to condemn these squares lying between the Capitol and the> Union Station? • Mr. Hoover. I believe so. Mr. Douglas. Involving millions of dollars of the Government's property and funds? Mr. Hoover. Yes, sir. Mr. Douglas. I say, Mr. Childress is one of the three commis- sioners. Mr. Hoover. Yes. Mr. Douglas. Who are the other two? Mr. Hoover. Mr. Dulaney. Mr. Douglas. Rozier Dulaney and Sam Ross? Mr. Hoover. Yes. Mr. Douglas. Of course, if you were asked the question as to whether of not certain things, if done — whether or not, in your judg- ment, they would constitute larceny, you would say it was larceny or burglary or robbery, as the case might be, but you only intended to answer the question in a hypothetical way? Mr. Hoover. Yes. Mr. Douglas. Assuming, for the purpose of the question, that the facts were right? Mr. Hoover. Yes. Mr. Douglas. Now, I do not remember all of the hypotheses or all the elements of the hypothetical question, but one involved the 498 INVESTIGATION OF INSUEANCE COMPANIES. statement or the assumption, for the purposes of the question, that the Commercial Fire Insurance Co. had been excluded from the State. of New York. I want to ask you if you have ever heard from anyone that the Commercial Fire Insurance Co. had been excluded from doing business in the State of New York. Mr. Hoover. I never did. Mr. Douglas. You never did? Mr. Hoover. No, sir. Mr. Douglas. Now, let me see that resolution, will you Mr. Carusi? I want to call your attention — suppose the board of directors of the Commercial Fire Insurance Co. should on, say, the 15th of Decem- ber, more than a month and a half after this appraisement was made, should pass a resolution setting forth in substance that the company had earned large profits in its operations, and upon that assumption had, therefore, decided to increase the selling price of the stock from $11 to $12 — I would like to ask you if, in your judg- ment, they would not have been, as good-faith individuals as well as men of intelligence, entirely justified in making that statement, if it was made subsequent in point of time to an appraisement of the building that had been made by such men as Lipscomb, Hensey, and Darneille? In other words, if you had been on that board and looking at the proposition backward, seeing it as a past event, and you had taken part in the purchase of the Southern Building, and there had been an appraisement made under the auspices of the superintendent of insurance, and the men selected to make that ap- praisement were fair and capable men, and men of integrity, and that appraisement had put that profit in the transaction for the two companies at, say $225,000 each, would you not have felt entirely justified in saying that you had a profit in the building if you had that kind of basis or foundation for it? Mr. Hoover. I should feel absolutely, as you suggest, justified in doing it, if I divorced my own idea of value from the appraisement. Mr. Douglas. Yes. Now, let us take that. Mr. Hoover. Yes. Mr. Douglas. Suppose your own idea of the appraisement had coincided with that of the committee of appraisers; then you would have felt entirely justified, would you not, in voting for the passage «f that, resolution ? Mr. Hoover. I should. Mr. Douglas. Let us go one step further. I will ask you this: If it is not true that the board of directors not only had the right to so state it, but that they had a duty incumbent upon them to inform their stockholders of the exact condition of the company, which would involve an appreciation as well as a depreciation of the assets; is that not true ? Mr. Hoover. I should think so. Mr. Douglas. Do you remember whether or not Mr. Hyde was the Comptroller of the Currency at the time of that transaction? Mr. Hoover. Mr. Hyde? Mr. Douglas. Yes. Mr. Hoover. I do not think we ever had a comptroller of that name, Mr. Douglas. Mr. Douglas. You do not remember who was the comptroller at that time? INVESTIGATION OF INSUBANCE COMPANIES. 499 Mr. Hoover. I really do not. That was 10 years before I went with the company and I have never looked back that far. Mr. Douglas. That is all, Mr. Chairman. Mr. Johnson. Mr. Hoover, you have said that you were some- what — prehaps that you were largely — influenced in determining your value of the Southern Building by having read the cross bill to which you have referred. Mr. Hoover. Yes. Mr. Johnson. When did you see that cross bill ? Mr. Hoover. I think about a week ago, Mr. Chairman. Mr. Johnson. Who gave it to you ? Mr. Hoover. I went to the court and read it. Mr. Johnson. Who called your attention to it? Mr. Hoover. Commissioner Judson. Mr. Johnson. Who? Mr. Hoover. Commissioner Judson. Mr. Johnson. Did he say why he was inviting your attention to that? Mr. Hoover. It simply arose in a general conversation with respect to the value of the building and the ground. I am inclined to think he called my attention to that bill after he had asked me, or the com- missioners had asked me, to act as one of the appraisers of the property. Mr. Johnson. It was in that connection that he invited your atten- tion to that cross bill ? Mr. Hoover. Yes. Mr. Redfield. Mr. Hoover, what do you know of the record of Eobert R. Turtle, president of the Commercial Fire Insurance Co. Mr. Hoover. Absolutely nothing, sir. Mr. Redfield. Then, in speaking of the gentlemen who operate this Commercial Fire Insurance Co. in the highest terms, did you mean to include Mr. Turtle, from personal knowledge ? Mr. Hoover. I meant to include those gentlemen whom I know, and I thought I had stated it that way. Mr. Redfield. Do you know Mr. Richard Wightman ? Mr. Hoover. No, sir. Mr. Redfield. Have you been acquainted with the record and character of Mr. Frederick S. Dudley ? Mr. Hoover. Not in the slightest degree, sir. Mr. Redfield. You are aware that Mr. Turtle is president of the Commercial Fire Insurance Co. ? Mr. Hoover. Yes. Mr. Redfield. And that Mr. Dudley is advertised as the treasurer of the First National Fire Insurance Co. ? Mr. Hoover. I think so, although I am not sure of that. Mr. Redfield. As to those parties, you express no opinion? Mr. Hoover. Absolutely none, because I do not know anything about them, sir. Mr. Redfield. That is all. Mr. Prottty. Mr. Hoover, has this property that you have de- scribed as the Southern property changed hands more than once in the last 8 or 10 years ? 500 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hoover. About four years ago, I think, it was sold by St. Matthew's Church to some gentlemen, who afterwards conveyed it, I think, to the Southern Building Corporation. Mr. Prouty. Do you know at what value the exchange was made at that time? Mr. Hoover. Only what has been told to me in general terms. I have no positive knowledge upon the subject. Mr. Prouty. Do you know what these companies that are involved here paid for this property? Mr. Hoover. I really do not know. I have been told they paid about $500,000 for the ground, but whether that is so or not I do not know. Mr. Protjty. How long ago did they buy it ? Mr. Hoover. Oh, I should think practically three years ago. Mr. Prouty. These insurance companies? Mr. Hoover. No ; the building corporation. Mr. Prouty. I mean the present companies. Mr. Hoover. Oh, I think they bought it the latter part of October. Is that right, Mr. Douglas? Mr. Douglas. How is that ? Mr. Hoover. The present owners bought it about the latter part of October? Mr. Douglas. They began acquiring the stock as early as the first part of September. Mr. Prouty. Do you know what they paid for it? Mr. Hoover. I do not, sir. Mr. Prouty. In determining the value in your own mind you did not take into consideration what they paid for it? Mr. Hoover. I had no means of ascertaining that, nor did I try. Mr. Prouty. What is the value that you placed upon the property in the aggregate? Mr. Hoover. Why, I think it figures about $1,466,000; practically a million and a half. Mr. Prouty. You are pasing up on the moral phase of it. Let me ask you whether or not you think it would be a fair transaction by a company that was doing business with the general public to buy a property for, say, $1,400,000, and in a few days after that to put it into their assets as earned assets at some $600,000 or some $500,000 more? Mr. Hoover. I think it would only be fair in the event they' had made such an advantageous purchase as to justly entitle them to do it. Mr. Prouty. Do you think an insurance company in doing business should take into consideration in the operation of its business the profits from speculation in real estate? Mr. Hoover. If they had bought it so ridiculously low as to make it morally right for them to do it, I think there might be no par- ticular objection to it ; but I should not want to do it, I think, if it were just based upon some appraisements which may or may not be actually correct. But that brings in a question of ethics, and I do not know that I am capable of Mr. Prouty (interposing): You do not want to pass on that? Mr. Hoover. I would rather not have to pass on that. Mr. Prouty. That is all, Mr. Chairman. INVESTIGATION OF INSURANCE COMPANIES. 501 Mr. Johnson. Mr. Hoover, you may be excused, with the thanks of the committee. Mr. Rediteld. Mr. Chairman, I request that the leases or verified copies of the leases of the Southern Building, in all its parts, be filed with the committee by the Commercial Fire Insurance Co. and the First National Fire Insurance Co. Mr. Caeusi. Yes, sir; those which we have we will be glad to file. I am not sure that all of those leases are in the possession of the com- panies. They are a matter of record, however. Mr. Redeield. As to those of which you have not the actual docu- ments or have not certified copies, will you furnish a statement? Mr. Caeusi. As to the amount of rental, the term, etc. ; yes. Mr. Redjteld. That is simply that the committee may know in de- tail just what the leases are, the respective properties covered by each lease, and their terms. Mr. George. Will it be possible to include in that the floor space ? Mr. Red-field. Certainly. Mr. Caeusi. I was going to suggest that the expert accountants, who are going over this whole thing, can probably make up a state- ment to the committee in more satisfactory form. Mr. Redfield. We would like to have it separately from their re- port. Mr. Douglas. Mr. Chairman, pardon me for making this sugges- tion, but in the very nature of the case, the owners of this building would not want, unless it becomes essential for the purpose of ascer- taining the facts, to have the terms of their leases and the names of their tenants and the length of the terms of the leases all made a matter of public record. It could not help but result in injury to them, and I would like to follow up the suggestion of my friend, Mr. Carusi, that when the expert accountants have gone over that and have summarized the rents and ascertained them in the aggregate in that way, without giving the names of the tenants, that ought to be sufficient. I submit that to the committee for its consideration. Mr. Redfield. The request for the leases is withdrawn for the present. Mr. Johnson. Gentlemen, thus far in the investigation the wit- nesses who have taken the stand have been brought here upon initia- tive of the committee. Day before yesterday some witnesses were subpoenaed upon the request of the attorneys in the case. The com- mittee will now hear those in the order in which the attorneys may wish to introduce them. Mr. Easby- Smith. I will ask Mr. Nichol to take the stand, Mr. Chairman. TESTIMONY OF MR. GRAHAM B. NICHOL. The witness was duly sworn by the chairman. Mr. Easby-Smith. What is your full name, Mr. Nichol? Mr. Nichol. Graham B. Nichol. Mr. Easby-Smith. What is your occupation? Mr. Nichol. Reporter for the Washington Times. Mr. Easby-Smith. How long have you been so employed ? Mr. Nichol. About five years. 502 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. Are you at present assigned to duty at the Municipal Building? Mr. Xichol. Yes, sir. Mr. Easby-Smith. For how long have you been so assigned? Mr. Xichol.^ Ever since I have been with the Times. Mr. Easby-Smith. Five years? Mr. Xichol. I was with the Herald for awhile. I have been with the Times about four years. Mr. Easby-Smith. You know all the present commissioners, I as- sume? Mr. Xichol. Yes, sir. Mr. Easby-Smith. I show you a statement which is printed at page 12 of the printed record of these hearings as a statement issued by the Commissioners of the District of Columbia on December 11 1912. I ask you to examine that briefly and state whether or not you saw a copy of that on the 11th of December. Mr. Xichol. Yes, sir. " Mr. Easby-Smith. "Where and about what time of day, Mr. Nichol? Mr. Xichol. In the anteroom of Commissioner Judson's office at about 2 o'clock in the afternoon. Mr. Easby-Smith. Who were present when you first saw that? Mr. Xichol. Commissioner Judson; Mr. Martin, of the Star, a Star reporter; Air. Lee, Commissioner Judson's secretary; Dr. Tin- dall, secretary of the Board of Commissioners; and myself. A col- ored messenger was there also. Mr. Easby-Smith. Do you know where the copy was made that was given to you? Mr. Xichol. It was typewritten by clerks of the engineer's office. Mr. Easby-Smith. You mean in Col. Judson's office? Mr. Xichol. Xo, sir. Mr. Easby-Smith. Clerks in the engineer department? Mr. Xichol. Yes, sir. Mr. Easby-Smith. "Which comes under the supervision of Col. Judson ? Mr. Xichol. Yes, sir. Mr. Easby-Smith. Prior to receiving that, about 2 o'clock, was any information given to you concerning its proposed issue to the press ? Mr. Xichol. Yes, sir. Mr. Easby-Smith. What was the first that was said to you and by whom? Mr. Xichol. About quarter past 1, Mr. Lee, secretary to Commis- sioner Judson. came into the pressroom and said that at 2 o'clock a statement would be given out in the office of Commissioner Judsoc. Mr. Easby-Smith. "Who was in the pressroom at the time besides yourself, if anyone? Mr. Xichol. Mr. Martin. Mr. Easby-Smith. Anyone else? Mr. Xichol. That is all. Mr. Easby-Smith. What time was the statement made that it would be issued? Mr. Xichol. That was about quarter past 1, and he said the state- ment would be issued about 2 o'clock. INVESTIGATION" OF INSURANCE COMPANIES. 503 Mr. Easby-Smith. Was anything said with reference to publica- tion in the afternoon newspapers ? Mr. Nichol. By whom? Mr. Easby-Smith. By any of the three of you, you or Mr. Martin or Mr. Lee. Mr. Nichol. I said that would be too late for me, and I immedi- ately got up and went to the office of Commissioner Judson. Mr. Easby-Smith. Whom did you see there ? Mr. Nichol. Commissioner Judson. Mr. Easby-Smith. What did you say to him ? Mr. Nichol. He was busily engaged in writing, and I said, " There is to be a statement given out ? " He said, " Yes. What will be the latest hour at which you can get it in the paper? " or something to that effect. I said I would have to have it almost immediately — not later than 1.30, and certainly not later than a quarter of 2. I asked him what it was. He said, " I haven't time now to tell you. I am trying to get the statement out as soon as possible." Mr. Easby-Smith. Were any directions given by him or anyone else about hurrying the statement up ? Mr. Nichol. I do not know as to that. I did not hear any direc- tions given. Mr. Easby-Smith. Later, I understand, the statement was handed to you? Mr. Nichol. Yes, sir. Mr. Easby-Smith. From whom do you usually obtain statements which are issued to the press as coming from the board of commis- sioners — from the secretary, Dr. Tindall, or from the commissioners themselves? Mr. Nichol. Sometimes we get them from the secretary and some- times from the commissioners themselves. Mr. Easby-Smith. What, if anything, was done in your presence concerning notification of the morning newspapers as to this state- ment? Mr. Nichol. Mr. Lee called up the city editors of the Post and Herald and told them a statement would be given out at 2 o'clock. Mr. Easby-Smith. In whose presence did he do that? Mr. Nichol. In my presence. I do not remember whether Mr. Martin was in the room or not. I think not. Mr. Easby-Smith. Was Mr. Judson there ? Mr. Nichol. No, sir. Mr. Easby-Smith. Was that before or after you received your copy ? Mr. Nichol. That was before I received the copy. Mr. Easby-Smith. As I understand, the statement was not pub- lished? Mr. Nichol. No, sir. Mr. Easby-Smith. Mr. Chairman, that is all I have to ask the witness. Mr. Redfield. Do you know why the statement was not published ? Mr. Nichol. No, sir. Mr. Bedfield. Have you never heard ? Mr. Nichol. I never heard from anyone who had authority to publish it or to leave it out of the papers, as to why it was not pub- lished; no, sir. 504 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Rediteld. You said your paper is the Times ? Mr. Nichol. Yes, sir ; an afternoon paper. Mr. Redfield. Did Jud Welliver never ask you about it ? Mr. Nichol. No, sir. Mr. Redfield. You do not know why it was not published? Mr. Nichol. No, sir. Mr. Redfield. You sent it in? Mr. Nichol. I sent it in, and my responsibility ended there. Mr. Johnson. You may be excused, Mr. Nichol. Mr. Easby-Smith. If the committee please, I have just received by messenger from Senator Gallinger a copy of the letter which he was asked to put in the record — the letter from Mr. Darneille to himself. Mr. Johnson. It may be incorporated in the record at this point. The letter in question is in the words and figures following, to wit: Washington, September 27, 1910. Hon. J. H. Gallinger, Concord, N. H. JIy Deab Senator : Things are looking a little brighter for my friend Ingham than when I last saw you. Maj. Judson, engineer commissioner, District of Columbia, sent for me the other day and informed me that he had writtea a letter to you expressing the hope that Ingham might be appointed. He further stated that his only fear was that Mr. Rudolph, under whose supervision the appointment came, would not bring Ingham's name in so that he might have the opportunity to approve the same. He is thoroughly impressed with the ability of Ingham to fill the place and says he is the logical candidate for the same. Trusting that all are well with you, I am, yours, very truly, H. H. DARNEILMS. TESTIMONY OF MR. JOHN L. MARTIN. The witness was duly sworn by the chairman. Mr. Easby-Smith. Will you state your name to the committee? Mr. Martin. John L. Martin. Mr. Easby-Smith. I believe you are in the newspaper business? Mr. Martin. Yes, sir. Mr. Easby-Smith. For what paper? Mr. Martin. The Evening Star. Mr. Easby-Smith. How long have you been a reporter for the Star? Mr. Martin. I think since about May, 1911: probably a little over a year and a half. Mr. Easby-Smith. Are you detailed for work at the Municipal Building ? Mr. Martin. I am. Mr. Easby-Smith. For how long have you been so detailed? Sir. Martin. About a year and a half. Mr. Easby-Smith. Were you there on the afternoon of December 11, last month? Mr. Martin. Yes. Mr. Easby-Smith. I show you a copy of a statement which is printed at page 12 of the record in this case, and ask you if on December 11 last you saw a copy of that statement? Mr. Martin. It appears to be the same statement. Mr. Easby-Smith. From whom did you receive it, Mr. Martin? Mr. Marten. From Dr. Tindall, secretary of the board of com- missioners. ■ INVESTIGATION OF INSURANCE COMPANIES. 505 Mr. Easby-Smith. Who was present when you received it? Mr. Martin. Mr. Nichol, of the Times; Mr. Lee, secretary to Com- missioner Judson; and it is my recollection that Commissioners Rudolph and Johnston were also in the room, but I am not certain about them. Mr. Easby-Smith. What room was it? Mr. Martin. It was the anteroom of Col. Judson's office. Mr. Easby-Smith. Had you heard anything about the proposed issuing of this statement before vou got it ? Mr. Martin. Only about a half hour before. Mr. Easby-Smith. What did you hear, and from whom? Mr. Martin. Mr. Lee, Col. Judson's secretary, came to the press room along about 1.30, possibly not quite that late, and stated there was to be a statement or story given out from Col Judson's office. I went around there immediately to see what it was. Mr. Easby-Smith. What was said about the hour that it was to be issued ? Mr. Martin. I do not recall whether Mr. Lee said anything about the hour. Mr. Easby-Smith. How late could you have used it in the Star that afternoon? Mr. Martin. Possibly as late as 2 o'clock. Mr. .Easby-Smith. Did you make any statement to Mr. Lee, Col. Judson, or anyone else as to how late you could use it? Mr. Martin. I told Col. Judson 2 o'clock would be the latest I could use it. Mr. Easby-Smith. What did he say in response to that? Mr. Martin. He said he did not know whether he could get it out in that time or not. Mr. Easby-Smith. Did he give any directions or instructions for the hurrying of it? Mr. Martin. He told me if I would leave the room he would try to hurry through with it and see if he could get it out by 2 o'clock. Mr. Easby-Smith. Did you hear any message sent to any of the other newspapers to send for this statement? Mr. Martin. I do not recall any. Mr. Easby-Smith. That is all I care to ask of the witness, Mr. Chairman. Mr. Redfield. The story was not printed, was it? Mr. Martin. It was not printed in the Star. Mr. Redfield. You sent it over to the Star, did you ? Mr. Martin. I sent it over to the Star. Mr. Redfield. Did you alter it in any way when you got it? Mr. Martin. No. I wrote a lead for the story and pasted up the copy. Mr. Redfield. Did you not alter the language in any detail ? Mr. Martin. Not at all. The lead was my language, but I sent the copy over exactly as it was given to me. Mr. Redfield. Tell the committee as fully as you know what hap- pened to this story of yours after that. Mr. Martin. I do not know what happened after that. It was sent over to the office, and that relieved me of it. Mr. Redfield. It did not appear in the paper that evening, did it? Mr. Martin. It did not appear that evening. 506 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Do you know why ? Mr. Martin. I do not know why. Mr. Redfield. "Were you not told ? Mr. Martin. I was not told. Mr. Redfield. Did you not inquire ? Mr. Martin. I heard some talk in the office there that the story had been sent up and gotten ready, or at least Mr. Easby-Smith (interposing). Just a moment. If the com- mittee please, I submit that this record has been filled with hearsay testimony of the most objectionable character. If Mr. Redfield has any facts bearing upon this matter which are susceptible of proof by witnesses that can be called by this committee, I submit they should be called, and that this witness should not be required to put more of this double hearsay testimony into this record. I think we will save time and trouble if we will adhere, to that extent, to the ordi- nary rules of evidence. I think it is absolutely immaterial whether this witness heard it or not, and if it is immaterial whether he heard it. then we ought not to have what he heard, except from the mouths of the witnesses who said it. Mr. Redfield. Mr. Chairman, this committee is not bound by the legal rules of evidence. This is the case of an inquiry, and I insist that the witness tell all he knows or has heard. Repeat the question, Mr. Stenographer. The Stenographer (reading) : Mr. Redmeld. Did yon not inquire? Mr. Martin. I heard some talk in the office there that the story hud been sent up and gotten ready, or at least Mr. Redfield. Go on, please. Mr. Martin. Or at least some effort made to get it ready. I do not know whether it was all set up in type or not. I went over to the office a good deal later, and I remember saying to Maj. Cook, who is city editor of the Star, or rather commenting Mr. Easby-Smith (interposing). May it please the committee, may I have a ruling upon my objection? Mr. Johnson. The committee has been canvassed, and it has been decided to permit the witness to answer the question. Mr. Martin. I just simply remarked to Maj. Cook that I noticed the story had not appeared, and he shook his head, or something. It is my recollection that Mr. Lyon, of the Star, came in about that time, or it may have been next morning — I do not recall — and said that they would not use the story for the present, or something to that effect; but I am not even sure of that. I do not recall making any oher inquiries about that. Mr. Redfield. Did Maj. Cook make any explanation to you as to why the story was not printed? Mr. Martin. I do not recall that he made any explanation outside of just what he said. He did not make any explanation that I recall at all. He simply shook his head. Mi". Redfield. Did you hear from him or anyone else of a visit from Mr. Carusi to that office in the afternoon ? Mr. Martin. I heard of a visit of Mr. Carusi to the office. I do not recall whether it was the same afternoon or not. Mr. Redfield. Did you hear what Mr. Carusi said ; and if so, what was it? INVESTIGATION OF INSURANCE COMPANIES. 507 Mr. Martin. I heard that he made a visit there and made some statement to Mr. Lyon, but I do not recall now just what it was he said. I believe Mr. Lyon told me. Mr. Redfield. Did not Mr. Lyon tell you Mr. Carusi had threat- ened a libel suit if that were printed ? Mr. Martin. I do not recall that he told me anything of that sort. Mr. Redfield. Did you hear that? Mr. Martin. I did not even hear that; that is, I did not hear him threaten a libel suit against the Star. Mr. Redfield. What did you hear? Mr. Martin. It is my recollection that Mr. Lyon said that Mr. CarUsi said that that statement as given out was libelous,' or something to that effect. That is my recollection of it. Mr. Redfield. And that that had taken place on the afternoon of the day when you sent the story over ? Mr. Martin. It must have taken place that afternoon, now that I think of it. Mr. Redfield. Did you hear how Mr. Carusi learned of it so quickly ? Mr. Martin. No, sir. Mr. Redfield. Mr. Lyon did not tell you ? Mr. Martin. No, sir. Mr. Redfield. Have you told the committee all that Mr. Cook and Mr. Lyon said to you on this subject, or said in your presence to any- one else ? Mr. Martin. That is about all I recall. I was not particularly in- terested in it at the time ; I do not recall anything else particularly that was said. Mr. Redfield. That is all. Mr. Easby- Smith. As long as we are getting hearsay testimony, Mr. Martin, will you state whether or not you heard in this connec- tion at all that Col. Judson had been to see Mr. Noyes, of the Star, in an effort to have that article published ? Mr. Martin. I think I- heard something to that effect, but I do not know where or from whom. Mr. Easby- Smith. That is all. Mr. Carusi. Just one question. Is it not the practice of the Even- ing Star, before it publishes new items, and especially in cases where Ihe character of the item may reflect upon the persons mentioned, to advise with them over the telephone or in some other manner in order that the facts may be verified ? Mr. Martin. It is always the custom. Mr. Johnson. You may be excused. Have you any other wit- nesses ? Mr. Easby- Smith. No other witness, Mr. Chairman. Mr. Redfield. Mr. Douglas, I think a request was made the other clay that your company — and when I say " company " I mean both companies, together with Tuttle, Wightman & Dudley — furnish to the committee all correspondence with the insurance department of the State of Wisconsin. Has that been supplied ? Mr. Carusi. It has not been supplied as yet. Mr. Redfield. But you have it in mind ? Mr. Carusi. We have it in mind, and we have certified copies of all the court records of the State to offer. 508 INVESTIGATION OF INSURANCE COMPANIES. Mr. Kedfield. Let me ask, Mr. Chairman, that the two companies and Tuttle, Wightman & Dudley (Inc.) supply to the committee all correspondence of all kinds relating to their business with the State insurance department of the State of Missouri. Mr. Caeusi. That will be done. Mr. Redfield. And also that to-morrow morning, when the com- mittee meets at 10 o'clock, you bring copies, not in duplicate, but specimens of- all circular letters, pamphlets, and circulars, and ad- vertising literature of every nature, whether issued by one company or the other, or by Tuttle, Wightman & Dudley, from the inception of all of their enterprises, and have it here to-morrow morning. Mr. Cartjsi. I will have to ask you to be a little more specific in regard to the third enterprise. Mr. Redfield. Tuttle, Wightman & Dudley. Mr. Carttsi. They are not an insurance company. Mr. Redfield. I know; but so far as they may have issued any circulars or literature, I would like to have that. Of course, if they have issued none there will be none to bring. Mr. Carusi. Any literature issued by the First National, the Com- mercial, or issued by anybody, will be furnished. Mr. Johnson. The committee is adjourned until 10 o'clock to- morrow morning. Thereupon, at 4.05 o'clock p. m., the committee adjourned until to-morrow, Friday, January 3, 1913, at 10 o'clock a. m. /. INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 6 JANUARY 3, 1913 WASHINGTON GOVERNMENT PRINTING OFFICE 3913 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee or the Committee on the District of Columbia, House oe Representatives, Washington, D. C, January 3, 1913. The subcommittee met at 10 o'clock a. m., pursuant to the adjourn- ment of yesterday. Present : Hon. Ben Johnson (chairman) , Hon. Henry George, jr., Hon. Solomon F. Prouty, Hon. William C. Redfield, and Hon. Victor L. Berger. Also Mr. Francis H. Stephens, assistant corporation counsel of the District of Columbia. Also George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, represent- ing the Commercial Fire Insurance Co., the First National Fire In- surance Co. of the United States, and the "Washington Loan & Title Co. Also Mr. Alfred- M. Best and his counsel, Mr. William Otis Badger, jr. Mr. Johnson. We will call Mr. Best. Mr. Carusi. If the committee please, we have some documentary evidence to submit. Mr. Johnson. What is it ? Mr. Carusi. There is quite a lot of it. Mr. Johnson. Put it in such a way that the stenographer may get p record of it. Mr. Carusi. The first thing that I wish to offer in evidence is in rebuttal of a statement made by Mr. Stellwagen to the general effect that he never heard of a real-estate ring in the District of Columbia. For that purpose, and that purpose only, and as being legally relevant to the credibility of his testimony, I wish to offer in evidence an article which appeared in Pearson's Magazine, in the issue of Novem- ber, 1909, entitled " The Plunderers of Washington," by Robert Wick- liffe Wooley. The portion I wish to read for the record appears on page 628 of that issue of the magazine ; and is as follows — .— Mr. Prouty. Did you call the attention of the witness to this article in the cross-examination of him ? Mr. Carusi. I did not cross-examine the witness, and I do not believe his attention was called to it. 509 510 INVESTIGATION OF INSURANCE COMPANIES. Mr. Prov/ty. Would it not be competent to show he has knowledge of the article? Mr. Cartjsi. The testimony I have reference to Avas elicited by a question of Mr. George, of the committee, and appears on page 298 of Volume Xo. 3 of these hearings, as follows: Mr. Geobge. Mr. Stellwagen. a letter was introduced yesterday from Gen. "Wynne, in which he named some of the factors against the insurance companies ' in question. One of the factors was called a real-estate ring. Do you know anything about a real-estate ring in the District of Columbia? Mr. Stellwagen. I never heard of such a thing. Mr. Geobge. Yon never heard of the term " real estate ring " ? Mr. Stellwagen. I have heard the term; I have heard it used here, but I never knew of such a thing. Mr. George. Tou never knew to whom it applied? Mr. Stellwagen. I did not. Mr. George. Could it apply to anybody in the District of Columbia that you know of? Mr. Stellwagen. It could not. Mr. George. Why could it not? Mr. Stellwagen. Simply, in my judgment, because there is no such thing as a real estate ring in the District of Columbia. Mr. George. Xo community of interest, so to speak, of real estate interests? Mi-. Stellwagen. So far as I know, there is not. Am I to be permitted to proceed to read this portion of the article? Mr. Johnson. To read that article is going to consume a great deal of time that has been set aside for the hearing of a witness who has come a considerable distance, and for my part I would rather hear it later and let the witness go on at this time. Mr. Carusi. I had some other documentary evidence to offer also, Mr. Johnson. As to whether it should be inserted in the record at this particular point, or later, to my mind is not so material. I think it would be better to hear the witness now, and we can come back to this later. Mr. Cartjsi. I will take less time with the other documentary evi- dence I wish to offer. Mr. Protjtt. Why could not it all be laid aside for the present? Mr. Carusi. I think for this reason : This is the first witness, so far as I know, who will probably go into what might be called the insurance feature of this investigation. We have been on matters only remotely connected with that end up to the present time. I have here some court records and other documents, some of which were called for by the committee, and I think, for the information of this witness and the committee, in listening to his testimony, that this would be the logical time to have them in the record. I will not consume any unnecessary time in offering it. Mr. Redfteld. Mr. Carusi, why do you say the insurance end has not been gone into ? As a matter of fact the report of the insurance superintendent has been analyzed by several witnesses ; it has been a subject of constant discussion, and has taken nearly, if not quite, as much time as any other single subject. It seems to me, if you will pardon me, the thing to do is to hear this witness, who has come here for that purpose, and to hear him immediately. Then, if you have any facts you wish to present, they will be given the fullest possible consideration later. Mr. Carusi. In making the statement that the insurance en ^° a ^ not been fully gone into, I did not perhaps state it so happily. What INVESTIGATION" OF INSITBANCE COMPANIES. 511 I meant by that term was that no person who professed a compe- tency to testify concerning insurance matters had, up to the present time, gone upon the stand. The witnesses have been bankers and the District Commissioners. In approaching the distinctly insurance end of the matter through an insurance expert, I desired that the record should contain at this point some documentary evidence of the things that he will probably be called upon to testify to. Mr. Chairman, before you rule upon this matter, after consultation with my associates, I desire to state that I will withdraw the offer of this evidence at this time, inasmuch as in offering it I may want to call thfc attention of the committee to certain specific portions of it, and it would perhaps consume more time than you would care to give to it at present. TESTIMONY OF ALFRED M. BEST. The witness was duly sworn by the chairman of the subcommittee. Mr. Johnson. Mr. Redfield, will you please interrogate the wit- ness? Mr. Redfield. Mr. Best, what is vour full name and address? Mr. Best. Alfred M. Best ; 100 William Street, New York City. Mr. Redfield. What is your business? Mr. Best. I am the president of the Alfred M. Best Co. (Inc.), which investigates and makes reports upon insurance companies. Mr. Eedfield. Will you state to the committee what your experi- ence has been in connection with the fire insurance business? Mr. Best. I have been in or connected with the fire insurance busi- ness for about 21 years, of which 15 years have been devoted to my present business. Mr. Redfield. Are you familiar with the methods of managing fire insurance companies? Mr. Best. Broadly, yes. Mr. Redfield. And with the science of underwriting? Mr. Best. Not in all of its phases. Mr. Redfield. I mean as regards fire insurance. Mr. Best. I would not consider myself an expert as to rates for various classes of hazard; as to the broader aspects of the underwrit- ing profession, I think I could qualify as an expert. Mr. Redfield. Are you familiar with insurance accounts and the methods of reporting? Mr. Best. Yes. Mr. Redfield. Does your business bring you into contact with in- surance departments of the different States? Mr. Best. It does. Mr. Redfield. Are you consulted by the insurance departments of the several States? Mr. Best. Very frequently. Mr. Redfield. Are the reports and the information furnished by you used by the insurance departments of the different States? Mr. Best. Yes. Mr. Redfield. Habitually so used? Mr. Best. Yes. 512 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfikld. Will you state to the committee, in your own lan- guage, illustrating your statement by any documents that you mav have available, your whole knowledge of the doings, record, history and affairs of Tuttle, Wightman & Dudley, or of either of them, or of them as individuals or as an incorporated company, in such trans- actions as you may have knowledge of in the State of New York before the purchase of the Commercial Fire Insurance Co., and then such knowledge as you may have of the Commercial Fire Insurance Co., of the First National Insurance Co. of the United States, and of Tuttle, Dudley & Wightman (Inc.), of their relation to you and to other parties of whom you have knowledge, their relation to the insurance department of the State of New York and to the insurance departments of other States, of which you have knowledge, putting into your statement the documents that will illustrate same as it develops, stating it in your own way as a continued account? The committee will feel at liberty, of course, now and then, to in- terrupt you perhaps. Mr. Best. I may have to refer back to the question, as it is rather a long one. Mr. Kedfield. The question amounts in substance to this : Tell th« story from beginning to end in your own way. Mr. Best. I first knew of Mr. Tuttle in connection with a large general agency for fire insurance companies which he operated from Syracuse for a number of years. It is not my business to investigate individuals connected with the insurance business, except as they may be officials of the insurance companies which are under my investiga- tion. Consequently I made no particular inquiry concerning Mr. Tuttle, and my knowledge of his business was general, such as would naturally come to me because of my contact with a great many insur- ance men. I did not know either Mr. Wightman or Mr. Dudley in connection with insurance matters until they joined forces with Mr. Tuttle in connection with the Syracuse enterprise, out of which the present Commercial Fire Insurance Co. ownership has grown. Beginning at the beginning, I recall that a Mr. Linden D. Wood, an attorney, conceived the idea of organizing a fire insurance company at Syracuse and organized an institution which, I think, he called the Government Securities Co. But it did not make much progress, and if my recollection serves me correctly he abandoned it, turning over what subscriptions he had secured to the Protective Holding Corpo- ration, which was a New York business corporation formed by Mr. Tuttle and his associates for the purpose of raising funds with which to organize a whole series of insurance companies, one to write fire. another life, another casualty insurance, another marine insurance. At first Messrs. Wightman & Dudley were not, as I recall it, con- nected with Mr. Tuttle. but were connected with a man named Iras L. Manning. Manning was a professional promoter, formerly located at Philadelphia, where he had organized some trust company and where afterwards he was identified for a short time with the early work of organizing a fire insurance company. Mr. Manning came in for a good deal of criticism, and after a few months — I think possibly 8 or 10 months — he dropped out, and Messrs. Dudley & Wightman became more active. I am not positive that they were not INVESTIGATION OF INSURANCE COMPANIES. 513 all in the enterprise from the beginning, but that was my under- standing of it. Manning's plan had been to sell stock of these companies through solicitors. Messrs. Wightman & Dudley were familiar with mail- order campaigns and they undertook to sell the stock by means of circularizing lists of names through the mails. This work progressed ; some stock was sold, and finally, under the authority of a then new law, the insurance department went in and made an examination of the Protective Holding Corporation. And, I recollect, when I was here last week two reports of examinations of the Protective by the New York insurance department were put in evidence. During all of this time my company received occasionally inquiries concerning the affairs of these companies, because among our sub- scribers are prominent business houses all over the United States. Some of them, no doubt, received these circulars, and for that reason wanted to know something about the companies. But we were not able to obtain very much information of a definite character — that is, just how much stock had been sold, how much had been paid on account of subscriptions, what the expense had been. But all of this was brought out by the report of the examination by the New York insurance department. At first the printed matter stated that the corporation was to be a very large one — I think it was to have $5,000,000 of capital and surplus, equally divided — but the stock, apparently, did not sell very fast, and finally, instead of organizing as had been planned at first, the Protective Fire Insurance Co. under the laws of New York State, I began to hear of negotiations with various small fire insur- ance companies in different parts of the country and that Mr. Tuttle and his associates were looking toward the purchase of the control of some such company with the funds which had been obtained through the sale of stock of this Protective corporation, and these negotiations finally culminated in the purchase of the Commercial Fire Insurance Co.. of this District. It was after that that we first began receiving inquiries as to the First National. These were very numerous and came from all over the United States. Apparently the circularizing had been done on a very large scale, and I have since been informed by Mr. Dudley that it was done on a very large scale; that something like 700,000 circulars were addressed to as many names in an effort to obtain subscriptions; and out of that number approximately 70,000 inquiries were received, and out of the 70,000 inquiries some 2,500, in round numbers, subscriptions were obtained. This made it necessary for us to make closer inquiries, and in the early part of 1912 — I think in January — I was visited in my office by a Mr. Bentley — I do not recall the rest of his name ; I have known him casually for a number of years — who handed me a card showing that he was a special agent of the Commercial Fire Insurance Co. Bentley asked me what I thought of the company and the way the stock was being sold. Mr. Johnson. What is Bentley's first name? Mr. Best. I can not recall. Mr. Johnson. Edward? Mr. Best. I think it was Edward. One of the Mr. Cartjsi. L. B. Bentley. 514 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. L. B. Bentley? Mr. Caettsi. Yes, sir. Mr. Johnson. He is not the man I thought he was. Mr. Best. I told Bentley that it seemed to me the company and the First National, too, were very much open to criticism because of the nature of the statements which were made in the printed mat- ter in the effort to obtain subscriptions ; that some of the statements seemed to me to be inaccurate and others were half statements, so that the whole impression conveyed was an erroneous one. He asked that I write him a letter, as special agent of the company, setting forth those views, and I did so. That letter I can not produce, be- cause it was called for some months ago by Inspector Ashe, of the New York post office, along with some other documents which I had in my possession; and when I called upon Mr. Ashe recently for the return of those papers he could not find them in his files and he had gone away on a vacation and no one else could locate them. Mr. Redfield. I will ask counsel for the companies to furnish us the original letter, or a copy of it, to which Mr. Best refers. Mr. Carusi. This letter, I think you said, is one you wrote to Mr. Bentley, is it not? Mr. Best. But a copy was afterwards furnished to Mr. Tuttle, as I recall it. Mr. Douglas. If we have it, we will be glad to furnish it. Mr. Best. There ensued quite a long correspondence, in which Mr. Carusi joined, and the company took offense at some of the state- ments which I had made, and notified me in writing that they would hold me responsible for any criticisms which were not legitimate criticisms that I should make in my paper ; but nothing came of all that correspondence in the way of developing accurate information- definite information as to just how much stock had been sold, and just what it was costing to sell it, and those were the facts that it was absolutely necessary for our clients to have, if they were to pass in- telligently on whether or not they wanted to buy that stock, and since the First National had not at that time transacted any insurance busi- ness, the only interest which inquirers could have in it was either with a view to purchasing stock or with a view to becoming an agent of the company when it completed its organization. Mr. Redfield. Mr. Best, do you wish the committee to gather that in this correspondence to which you have referred you asked the company for certain definite information? Mr. Best. That is correct. Mr. Redfield. Did the company reply to you that they would fur- nish that information? Mr. Best. They either replied that they would not or did not re- ply at all. I do not recall after this lapse of time which it was. At any rate I did not get the information. That was the main point. Now, there is a gentleman in New York, Mr. Thomas Tileston, who is a very old personal friend of mine, and who is in the insurance business, and who is desirous of establishing himself, not only as a broker in New York City, but as an agent of fire insurance com- panies. Mr. Tileston throughout the early months of 1912 had nu- merous talks with me concerning these companies. He had been in INVESTIGATION OP INSURANCE COMPANIES. 515 negotiation with them with the object of securing their representa- tion in New York, when they were licensed there. I had gathered the impression from the fact that these gentlemen would not answer these, as it seemed to me, entirely legitimate inquiries, that the entire scheme was a promotion scheme ; that it was not the desire to build up an in- surance company, but simply to sell some stock and make profits by doing so. This was — this impression in the case of the First National was strengthened by the fact that in its printed matter it was stated that not exceeding 20 per cent of the funds collected could be used for expenses, and as it was intended to raise $1,000,000 of capital and $1,000,000 of surplus, it was apparent that they had the contractual right to expend $400,000 in organizing the company. This I con- sidered very excessive and unnecessary and improper, and. as I say, this impression was strengthened because of the — because of my failure to get any definite information from these gentlemen concern- ing their enterprise. Now, getting back to these conversations with Mr. Tileston Mr. Eedjteld (interposing). "Were the inquiries that you addressed to them such as you had addressed to others? In other words, were they the usual inquiries? Mr. Best. They were the usual inquiries; in general, of just the character which I have described, simply an attempt to find out what was being done, my theory being that no one should ask anyone else to buy stock in his enterprise unless he gives them full infor- mation, and I felt that full information was not being given in this case. Mr. Tileston had met Messrs. Tuttle, Wightman. and Dud- ley, and the others associated as members of the organization com- mittee of the First National very frequently, and I have great con- fidence in Mr. Tileston's integrity and judgment also, and he assured me repeatedly that this was not a scheme to make money and then abandon the companies to any fate that might follow; that although the contract permitted the expenditure of 20 per cent of the money collected, the actual expenditures were a great deal less ; and he finally, in the month of July, asked me if I would go to Washington with him, meet these gentlemen, and talk the whole matter over with them. I replied that it was useless to do this unless I could be assured that my questions would be answered; that I had already asked in simple questions for just the information necessary, and I had not been able to obtain it. Mr. Tileston told me that he was assured by Mr. Tuttle and his associates that any questions I might ask — any reasonable questions — would be answered ; so we visited the office of the com- pany — my recollection is it was on thelast day of July, 1912 — and spent the day there making inquiries and looking over their methods of selling their stock, and so on. That was the first time that I had ever met any of these gentlemen, so far as I now recall. We went over — particularly Mr. Tuttle and myself — the whole range of the infor- mation that I felt should be furnished. Some of it Mr. Tuttle stated could not be furnished at that time, but it would be furnished a little later. I asked, I recall, in the case of the — I have that letter [pro- ducing paper from file]. I asked in a letter dated August 1. 1012 Mr. Eedpield (interposing). Will you read the letter? 516 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best (continuing). The following questions: First National Fire Insurance, Southern Building, Washington, D. C. Gentlemen : Confirming the writer's conversation fit your office yesterday we wish to say that our understanding of the facts concerning your incorpora- tion are as follows: That you are incorporated under the laws of Congress regulating the organi- zation of corporations in the District of Columbia. That the date of incorporation was July 15, 1912. That you have 15 directors. That your charter calls for 15 directors, and that the S members of your organization committee, whose names appear in the booklet entitled "To the 2,000 owners," were elected directors, together with John Lewis Smith, assistant United States attorney. That the following officers were elected: President, Hon. J. Wynne— That was an error — first vice president, Hon. Ashley M. Gould; second vice president, Robert N. Harper; assistant secretary, \V. J. Davis (formerly secretary of the organization committee). That your authorized capital is $1,000,000, and that you have authority to begin business when $250,000 capital is paid in. We understand that the contract between your company and Tnttle, Wight- man & Dudley (Inc.), regarding the sale of stock allows the latter 7i per ceut commission upon the total amount collected, plus the actual expense of selling the stock, which, however, is limited to 12} per cent, so that the total organiza- tion cost can not exceed 20 per cent, and that you will prepare for us, as soon as practicable, a memorandum showing the total amount of capital and surplus subscribed, the total amount paid in, and the exact amount of expense incurred in selling the stock. We shall be glad also to receive from you, at your convenience, a copy of the articles of incorporation, the by-laws, and the Turtle, Wightman & Dudley con- tract — the last to be considered confidential. Wo understand further that no subscription has been accepted for more than $1,000. and that many of the subscriptions are for $250 only. In the case of the Commercial, my letter of the same date was as follows: Mr. Robert R. Tuttle, Vice President Commercial Fire Insurance Co., Southern Building, Washington, D. G. Dear Sir : Confirming our conversation at your office yesterday, I write to ask that you favor us as soon as possible with a detailed financial statement as of June 30, 1912, with a memorandum of the amount of capital subscribed and in process of collection. Please also confirm your statement to the writer concerning the limitation of the expense of selling this stock and of the terms of the general agency contract of the company with Messrs. Tuttle, Wightman & Dudley (Inc.). We shall also be glad to receive the statement which you have requested from the liquidator of the Protective Corporation showing the total amount of money paid in by the stockholders of that company and its disposition, together with an official statement of the terms upon which stock of the Commercial Fire Insur- ance Co. was issued to the stockholders of the " Protective " in place of their holdings in the latter corporation. Should these be given to the stenographers? Mr. Eemteld. No objection. They have been read into the record. Mr. Johnson. The stenographer wants them. Mr. Best. In my talk with Mr. Tuttle in his office on the 31st day of July I told him that it was very far from my desire to say anything in my reports concerning either of these companies which was either inaccurate or. while accurate, leaving a wrong impression or which was in any way unfair, and that I thought the only honorable course INVESTIGATION OF INSUEANCE COMPANIES. 517 for the promoters of the company to pursue was to give full informa- tion as to the then condition of these companies, and in the case of the Commercial, of its transactions, for I will state that at that time I had seen some figures which indicated that the Commercial was then -losing money very fast. I felt, further, that in the case of the Com- mercial, it being the outgrowth of the " Protective " corporation, which was formerly called the " Protective Holding Corporation," that in order to have a continuous statement showing whether or not the affairs intrusted to Tuttle, Wightman & Dudley had been prop- erlv handled, every prospective stockholder was entitled to a definite dollar-and-cents statement, not only of the money collected and dis- bursed in selling stock of the Commercial, but the same information concerning this corporation which had gone before it — the Protective. It was promised me then that all of this information would be fur- nished. I told Mr. Tuttle that inasmuch as the New York insurance depart- ment was on record in an official report to the effect that the expenses of the Protective Corporation were very excessive, and as Mr. Tuttle informed me that over the whole of its existence the expenses were not as great as shown in that report of the New York department, we should have something very definite and official bearing on that point, and he promised to obtain that statement for me from the liquidator of the Protective Corporation. But it has never been furnished. Mr. Tuttle afterwards wrote me and said that he could not get it. The statement as of June 30 of the Commercial was never furnished, nor was the memorandum of its income and dis- bursements. When I talked with these gentlemen here at the end of July I changed my opinion of the two enterprises to this extent: That whereas before I had looked upon the whole scheme as simply a pro- moters' proposition, I now felt that Mr. Wynne and these other gentlemen who were going into this thing really wanted to build up a permanent institution, but I stated to them that in my judgment some of their methods would have to be changed if they were to suc- ceed, and I said to them also Mr. Easby-Smith (interposing) . May I ask one question ? Mr. Best. Yes. Mr. Easby-Smitii. To whom did you say that? Mr. Best. What was that? Mr. Easby-Smith. To whom did you make that statement that you have just repeated? Mr. Best. Nearly all of this conversation was with Mr. Tuttle. I also talked at some length — at less length — with Mr. Dudley, and still at less length with Mr. Wightman. Mr. Redfield. Before you proceed — you used the word a moment ago, " Now." You are speaking, in using the word " now," as of July 31? Mr. Best. As of July 31. I said to them that I did not think it was worth while for us to discuss the propriety of the statements which had been made in order to sell the stock of the companies. That statement, as I recall, was made to Mr. Carusi and Mr. Dudley while I stood by Mr. Dudley's desk in their office, and Mr. Wightman was sitting at his desk near by. I think I said to them that no kind of talk could convince me that 518 INVESTIGATION OF INSUKANCE COMPANIES. my position on that particular point was wrong, and it was perfectly apparent that they considered that the statements that they had made were legitimate, and I could not convince them. But I said this, as regards my own policy in reporting on these companies hereafter, in view of the fact that you now offer to give me the information which was previously refused, or, at any rate, denied, and in view of the further fact that a very large amount of subscriptions had been secured at what they claimed — Messrs. Tuttle, Wightman & Dud- ley — was a very moderate expense, I was willing to make no further comment in my reports for the time being on the misrepresentations, as I deemed them to be, in the promotion literature, pending the furnishing of all this other information and the carrying out of those various reforms, if I may use that term, which we discussed. That was the policy which I followed in my own publications. From month to month I reported the bare facts of the incorporation of the First National, and so on, but I made efforts to get this infor- mation which I spoke of a short time ago, always without success. Mr. Eedfield. Mr. Best, let me get that clear in my own mind, In the first instance, respecting the Commercial, certain information was denied, or at least was not received. Then, upon the 31st of July, further information was specifically asked for by you and was definitely promised? Mr. Best. That is correct. Mr. Eedfield. And thereafter you made continued efforts to get the information thus promised? Mr. Best. That is correct. Mr. Eedfield. And did not get it? Mr. Best. Not all of it ; some of it was furnished. I was furnished a copy of the articles of incorporation and of the by-laws of the First National, and I think a copy of the stock-selling contract be- tween the First National and Tuttle, Wightman & Dudley, Incor- porated, but I never was able to obtain the statement as of June 30 of the Commercial or the information that showed whether the affairs of the Commercial and of the Protective had been handled correctly or in a manner open to criticism. In September I did receive a memorandum showing the amount of subscriptions which had been secured for the First National and the amount which had been paid in on them and the organization expenses to that point, and I recall that during the interview in their office here and in another interview in New York I spoke of the fact that I thought it was bad practice for the promoters to take the entire allowance that was coming to them out of the first pay- ments made on this stock ; that it ought to be a proportionate part of each payment, so that all of the first payment and possibly part of the second payment made by each subscriber should not be immedi- ately used up for expenses. Mr. Eedfield. Did you find from the figures furnished you that the promotion expenses were taken all out of the first payments to this concern? Mr. Best. I so found, and Mr. Dudley had very frankly stated that that was the case when I asked him that question at his office. Mr. Eedfield. So that they got theirs out of the first money that came in ? INVESTIGATION OF INSURANCE COMPANIES. 519 Mr. Best. Yes. They said, however, and in fairness the record should show that they stated, and that their contract required them to refund to the company a proportionate amount if any subscriber failed to complete his payments. The matter rested in about that position until some time in Octo- ber, I believe it was, when Mr. Carusi, Mr. Tuttle, and Mr. Dudley came to New York, and were joined by Mr. Tileston, and all four, with one of my men in the office, went with me to have luncheon and talked some of these matters over. I stated in the conversation at that luncheon Mr. Eedfield. Who Avas there, Mr. Best? Mr. Best. Mr. Tuttle, Mr. Dudley, Mr. Carusi, Mr. Tileston, and myself, and one of the men from my office. Mr. Douglas. What was the date of that, Mr. Best ? Mr. Best. I do not believe I can fix the day. Mr. Douglas. Approximately? Mr. Best. Approximately, I should say the middle of October. I may be wrong. It might have been earlier. I think you might be able to fix the time, however, from the fa,ct Mr. Douglas. That is all I want, approximate. Mr. Best (continuing). It was just about the time that the South- ern Building purchase was being consummated, because they in- formed me of it at that time. I said to them that with the amount of money which they had been able to have subscribed for the First National and the Commercial there was an opportunity to make the companies successful and creditable institutions, but that I felt there were two or three things they would have to do before they could secure the confidence of the insuring public and the buyers of insurance. The first was to change the general agency contract. Mr. Eedeield. Between the companies and Tuttle, Wightman & Dudley? Mr. Best. Between the companies and Tuttle, Wightman & Dud- ley (Inc.). For the reason that any plan of compensation of the officials of a fire insurance company which makes their earnings contingent upon volume alone is an extremely dangerous contract, and even though they were to operate the company in a very economical and proper manner, under such a contract they would get the benefit of the adverse criticism, which the plan itself would invite, and it would be a handicap for the company. The second thing was a commission of 1\ per cent on $2,000,000 was altogether excessive compensation for a year's work in selling this stock through the mail, and that, while I recognized that was a matter of opinion, I felt certain that it would be so viewed by in- surance departments generally and by insurance men generally, and that they ought to turn back enough of that money into the treasury to limit the cost of promotion, including the expenses, which were, you will remember, in excess of this 7£ per cent — that was for their compensation, clear of expenses — which would make the entire ex- pense not more than 10 per cent. I told them that from numerous conversations with the insurance officials of different States I felt sure there could be no criticism whatever of a 10 per cent expense account. 520 INVESTIGATION OF INSURANCE COMPANIES. Mr. Eedfield. Which should include compensation? Mr. Best. To include compensation. However, for my own part I had grave doubts of the economic wisdom of organizing a fire insurance company costing even as much as 10 per cent of the total proceeds of the stock sold at double par, and I doubt it yet. Then I also referred to a man who was in the employ of the Com- mercial, in charge, as I understood it, of the selling of stock. This man had been connected with a number of very unsavory promo- tion schemes in the insurance business. He had had trouble years before down South with companies which he represented as agent, and in general, I felt certain that his connection with the company in any capacity which gave him authority of any kind would reflect upon the institution, and I might add that I was strengthened in that opinion by an episode in which I was directly involved in con- nection with the selling of the stock of the Commercial. -V man who was employed by the Commercial went into an agency in Maryland and asked the gentlemen who ran that agency to buy some of the stock. They told him that they never took an agency or did anything in connection with a company which was unknown to them until they had my report and found that I unqualifiedly ap- proved of the company. So they pulled down my report on the Commercial and read my criticism of the promotion documents and told them that they would not buy any stock. This man then told them that the reason why that report was unfavorable was that I had come to the office and demanded payment of a thousand dollars for a good report, and that had been refused, and hence the bad report; that it was the easiest thing in the world to get a good re- port, but these gentlemen felt it would be moral obliquity on their part to yield to my extortion. I put that right up to Mr. Tuttle in a perfectly friendly way, be- cause no statement of that kind could hurt me a bit, and I felt no heat about it, Mr. Tuttle promptly replied that he was very much surprised that such a statement should have been made, and if I wanted the man discharged they would discharge him immediately. I wrote back, after thinking it over, and told them no; that he probably had had such a lesson from the unpleasantness which had followed that remark of his that he would get so much excitement— for he was in a state of mind over it — before we got through that he would never do it again, and if he was a good stock salesman it was up to him, and at any rate I would not recommend his dismissal. I merely mention it as indicating the kind of people that are at- tracted by a sales manager of the type that I have in mind. He was employed here. I told him that I thought he ought to let him out. So there was the question of the excessive fee for organizing the companies and the plan for operating the companies under the gen- eral agency contract, and finally the sort of man they had selling their stock, because a man of that character is bound to make mis- representations. Mr. Redfield. These were the three points which you urged at this luncheon ? Mr. Best. At this luncheon in New York. Mr. Protjtt. May I ask you a question? Mr. Best. Yes, sir. INVESTIGATION OF INSURANCE COMPANIES. 521 Mr. Peouty. This 12$ per cent — was that intended to cover com- missions to agents who sold stock? Mr. Best. Well, there were none in the case of the First National. You see everything was sold through the mails. They never em- ployed any stock salesmen. The entire sale campaign was carried on through circulars. Mr. Peouty. What was this man selling? Mr. Best. He was selling stock of the Commercial. For some rea- son, which I have never been able to fathom, they apparently could not sell stock of the Commercial through the mail. They did sell stock of the First National through the mail. They found, in the case of the Commercial, that it went very slowly, and they could not get rid of it, and they then resorted to the other plan, which they themselves considered less desirable, to sell the stock through com- missioned agents. Mr. Peouty. Was there' a contract between Turtle, Dudley & Wightman and the company ? Mr. Best. There was a contract between Tuttle, Wightman & Dud- ley and the Commercial similar, I think, in its general terms to the other, except that it provided merely that the total cost of selling the stock should not exceed 20 per cent. Mr. Tuttle informed me at the time I visited the office in July that they were not making any money out of that contract, that it was costing more than 20 per cent to sell the stock, although it was being sold at 220 per cent of the par value — either 200 or 220 per cent. It is $5 at par, and was being sold, I think, at from $10 to $11 per share. Mr. Redfield. To get it clear, Tuttle, Dudley & Wightman (Inc.) had a contract with each of these two insurance companies to sell stock for each of them ; is not that so ? Mr. Best. That is correct. Mr. Redfield. And, in addition to that, they had a contract for placing the insurance business of the Commercial Co.; is not that so? Mr. Best. Yes ; and were to have a similar contract with the First National. Mr. Redfield. So that there were four contracts? Mr. Best. That is correct. Mr. Redfield. Four contracts which Tuttle, Dudley & Wightman held, two with each company, and they were to place the stock for both and the insurance business for both? Mr. Best. That is correct. Going back to this luncheon in New York, Mr. Carusi seemed very much interested in what I said about the general- agency contract, and Mr. Tuttle, too. He said to me if I would write him a letter stat- ing what, in my opinion, was the ideal manner of compensating the people who had charge of the underwriting of a fire insurance com- pany he would take up that question with the directors of the com- pany and see if some modification could not be secured which would make the contract above criticism. At the time he made some sug- gestions of changes, but they all were subject to the same criticism, that volume as such would determine the amount of money that gen- eral agents could make. But he said perhaps we could be simply officers of the company and be compensated by a commission on the amount, of business done. I said, " That is simply beating the devil 522 INVESTIGATION OF INSUKANCE COMPANIES. around the stump." The fact would remain that the more business von write, the more money 3'ou would make ; and it would be a bad arrangement. As to the amount of compensation which they were receiving, they would not agree that it was excessive — this $150,000 fee for organiz- ing the company — and they said. "Anyway, we have by our skillful management of the affairs of these companies made a very large profit for them ; and we will tell you in confidence what that is, be- cause we do not want it to come out yet." So, then, they outlined to me the fact they had bought the South- ern Building for about $1,550,000, and they said they considered it was- worth about $2,100,000. and that there would be no difficulty in getting expert appraisers whose word would be taken without ques- tion to place a value of $2,000,000 on the property, and that dividing this between two companies would result in enabling the First Na- tional to begin business with more surplus than the stockholders had contributed, and they felt if that were done, then no one would criticize them for receiving $150,000 for their own work. Well. I said I hoped that was so; that they had made that, profit; that it, sounded almost too good to be true. But I wanted to caution them that, the same thing had been done a great many times in the insurance business — this matter of buying a piece of property and marking it up so as to swell the surplus — and it was looked upon with suspicion; that this particular deal, if legitimate, would have to be handled in such a way that, it would stand the most microscopic examination ; that practically every State into which they desired to enter for business would go into it; they would be unwilling to accept the word of the appraisers of the companies. That was about all of the conversation on that occasion. We had a good deal of correspondence back and forth at the time during all of these several months, and I was very particular during all of the time to preserve an entirely neutral attitude. I was simply waiting to see which way the cat would jump. They had promised to do certain things, and I felt that if they did them I would be able to make a fairly good report, but, if they did not do them, then I was going to drag in all this old story about the promo- tion literature, because I would feel that they had not acted in good faith with me. Matters ran along until the reports of these two examinations came along made by the Insurance Department of the District of Colum- bia. They were gone over by the gentleman in my office who does those things. Then he brought them in to me, and I said, ''What comment did the commissioner make on this whole transaction on the companies? " " Why," he said, " there is not any comment; it is practically nothing but an audit of the books." I said, " Did not he go into the question of the way the stock had been sold and the expenses of selling it. and so on ? " Mr. George. Do you mean Mr. Ingham? Mr. Best. Yes. He said, " No." I said, " Work out the underwriting results of the Commercial." For when I gave a very cursory examination to the figures it was apparent that the Commercial had been running at a tremendous loss. When I sav " tremendous loss," I do not mean in INVESTIGATION OF INSURANCE COMPANIES. 523 dollars and cents as insurance companies go, but tremendous in pror portion to tHe volume of its business. So those figures were worked out in the way which is customary in testing the success or failure of insurance company operations, and he handed me the memoranda which was introduced in evidence here last week. Mr. Redi'ield. That showed what? Mr. Best. That showed that although the business of the company was new business, which ought to show a very small lo^s ratio, the loss ratio was abnormally high, very high indeed; that the expenses were very heavy, aside from the expense of selling any stock; that as in the case of all companies which are increasing their business rapidly, the underwriting liabilities showed an increase ; and that, to recapitulate, the excess of disbursements for losses and expenses over the amount of premiums on policies which had been issued, added to the increase of the company's undischarged liabilities, mainly on unearned premium fund, and added again to the expenses of selling the stock, showed that the company had run behind about $197,000 in 10 months. As I have stated, in reviewing the report of the examination, which is a matter of routine business with us, in my paper, this I stated was an extremely bad showing for the premium income was only $188,000. Mr. Eedfield. So that the company, according to your calculation, had actually run behind more than its total premium income? Mr. Best. Yes. Mr. Eedfield. Mr. Best, before you proceed, I ask if the method, of calculation you applied to this company differed in any way whatever from that which you apply to other insurance companies ? Mr. Best. No. It was the customary method, and at the time I felt that, bad as it was, it did not quite show the facts, because the loss ratio was so abnormal, so very high, that it was doubtful whether the amount that had been charged among the liabilities for unearned premiums, which is, speaking roughly, intended merely to be drawn upon as time passes to pay the losses under the policies on which the premiums had already been collected by the company, it was a matter of doubt in my mind whether that reserve would be any- where near adequate to liquidate that business, to pay the losses that came along during the remainder of the terms for which those policies had been issued. However, I did not care to go into that. I simply used the figures just as we would calculate them for any other company. Now, as to my own attitude on the question of the valuation of the building, in the review of the District insurance commissioner's re- port, which I printed in my monthly paper, dated the 16th of December, I went into considerable detail, using a statement fur- nished by the company through this Mr. Tileston that I spoke of. He brought it in to me and told me it was the same statement that had been furnished to the insurance department of the State of New York. I did not say in that article what would have been a perfectly legitimate criticism of that transaction, which is that the assets of a fire insurance company must be liquid if it is to be in a safe position. We might get a Baltimore fire or a San Francisc© 71391— No. 6—13 2 524 INVESTIGATION OF INSUEANCE COMPANIES. fire any time, and the company that has assets which are tied up mav find itself in a very serious position, although it may show a solvent condition on the face of the statement. In this particular matter it seemed to me that the size of the prop erty was all out of proportion to the total volume of assets, and I felt quite sure in my own mmd, without going into the matter at all that a piece of property as large as that would not be sold ordinarily with any great ease, and from that point of view it was a mistake of judgment for them to buy the property, irrespective of whether it was worth $2,000,000 or $1,600,000 or anything else. I spoke of this matter of the disproportion between the value of the building and the volume of the companv's assets in the review which I just mentioned, but not the other matter. Mr. Redfield. I think that review has not been made a part of the record. Can you furnish it to the committee ? Mr. Best. Yes; I can do that. Mr. Redfteld. And put it in the record at this point. Mr. Best. Very well. Mr. Redfield. Does it relate to both companies ? Mr. Best. It relates to both companies. The article concerning the Commercial Fire Insurance Co. is on pages 115 and 116, and the article concerning the First National is on pages 118, 119, and 120. The articles referred to are as follows : Commercial Fire Insurance Co., Washington, D. C. After this report had been prepared and this issue was about to go to press, we learned of the adoption of a resolution in the House by Congressman Ben Johnson, of Kentucky, chairman of the Committee on the District of Columbia, Instructing that committee to investigate the conduct, management, history, records, and affairs of this company, the First National Fire Insurance Co., of Washington, D. C, and the corporation of Tuttle, Wightman & Dudley (Inc.). It is also reported that an investigation will be made of the office of the super- intendent of insurance of the District of Columbia and its relations to the three companies mentioned. The companies have retained Actuary S. H. Wolfe, of this city, to make a full examination of their affairs. Below will be found the report of an examination of this company made by the insurance department of the District of Columbia. The statement in the report shows the condition of the company as of October 31, 1912, and credits the company with a surplus of $229,438.49 on that date. This includes a claimed profit of $226,715 through the purchase of a piece of real estate which was recently acquired jointly by this company and the First National Fire Insurance Go., of Washington, D. C, referred to below ; and without this gain the surplus of the company would have been less than $3,000, despite the very large amount collected as premium on new stock sold. The company's loss ratio has been abnormally high and its expenses have been heavy. From December 31, 1911, to October 31, 1912, the company wrote net premiums of $188,080.12 and paid losses of $145,090.57. Its capital was increased by $137,307.50, and $144,441 was received as premium on the stock sold. The expenses of management amounted to $98,968.71, and $56,349.70 was paid for commission and expense on sale of capital stock, and in spite of its unfavorable loss experience and heavy expenses, the company paid $28,632.60 in dividends to stockholders. The company states that the high loss ratio is due to the business reinsured by it in 1911, and this is no doubt true to some extent ; but the company sus- tained for the first 10 months of 1912 an underwriting loss of $141,816, taking into account the variation in the liabilities; and this is an extremely baa It claims that since October 31 it has collected additional capital and snT ^ s sufficient to show a substantial surplus at the present time, even tnougn no profit is allowed on the realty purchase. INVESTIGATION OF INSURANCE COMPANIES. 525 The report is as follows : »«■- n™ ttt t Washington, D. C, November 8, 1912. Mr. Geobge W. Ingham, Superintendent of Insurance, District of Columbia. «. D ? AR , SlR: / u L suant t0 y° ur order No - 85. we have made an examination of the books and affairs of the Commercial Fire Insurance Co., of the District of Columbia, as of October 31, 1912. The financial status of the company on said date was as follows : CAPITAL STOCK. Amount of capital paid up in cash _ $337 307 50 Amount of ledger assets Dec. 31, 1911 364,950 29 Increase of paid-up capital during the year 137) 307] 50 502, 257. 79 INCOME. Gross premiums $276, 881. 57 Deduct reinsurance 16,535.29 Deduct return premiums 72,266.16 Total premiums 188, 080. 12 Interest on mortgage loans 5, 965. 91 Interest on bonds 2, 868] 39 Interest from all other sources ' 269] 52 Premium on sale of stock 144, 441] 00 Commission on mortgage loans ' 146. 75 Increase, by adjustment, in book value of real estate 226, 715. 00 Total income 568, 486. 69 DISBURSEMENTS. Gross amount paid policy holders for losses $148, 942. 63 Deduct salvage 70.00 Deduct reinsurance 3, 782. 06 Net amount paid policy holders for losses 145, 090. 57 Expenses of adjustment and settlement of losses 3, 175. 39 Commissions or brokerage 65, 156. 56 Salaries, fees, and all other charges of officers, directors, and home office employees 13, 051. 64 Rent 1, 155. 00 Advertising 2, 469. 79 Printing and stationery 2, 014. 58 Postage, telegrams, telephone, and express 977. 22 Legal expenses 105. 75 Furniture and fixtures 1,499.48 Maps, including corrections 720. 75 State taxes on premiums 1,144.17 Insurance department licenses and fees 3, 636. 05 All other licenses, fees, and taxes 1, 238. 30 Commission and expense on sale of stock 56, 349. 70 Janitor 2. 00 Car fare 38. 00 Notary fees 251.90 Water and ice 61.64 Toilet supplies 7. 50 Newspapers 86. 00 Miscellaneous 2, 176. 97 Paid stockholders for interest or dividends 28, 632. 60 Loss on sale or maturity of ledger assets— bonds 1, 715. 00 Total disbursements 330, 756.68 Balance -_- 739, 987. 90 526 INVESTIGATION OP INSURANCE COMPANIES. LEDGER ASSETS. Book value of real estate (equity) $350,000.00 Less balance of purchase money due X8 07?! 94 Mortgage loans, first liens _ $ 2?£'?™ m Book value of bonds '_ _ " iJeKain? Cash in company's office ~ 5 783 SO Deposited in bank not on interest "__ !__!_ 1 9 '97i >i i u i AiJii.nf^ T "T'^n .d use our INVESTIGATION OF INSURANCE COMPANIES. 567 report to check up the work of the agent or broker, to make sure that the insurance is good ; second, fire insurance agents and brokers, who use them to keep track of what is going on in the insurance business and to make sure that they do not furnish policies which are of doubtful value; third, insurance companies use them in their own home office. Any company that wants these reports and wants to subscribe $10, $15, or $20 per annum is at liberty to do so. That is the extent of our financial dealings with them. Fourth, bankers, trust companies — the large ones — pretty generally use these reports. Mr. George. How many subscribers have you? Mr. Best. It is well up in the thousands, a question I would rather not answer definitely. Mr. Redfield. You say well up in the thousands ? Mr. Best. Yes. Mr. Redfield. Several thousand? Mr. Best. A good many thousand. Mr. George. Are there any rival publications? Mr. Best. Practically none. There are a great many insurance publications, but they are on the other side of the fence — supported primarily by advertisements which are given to them by the insur- ance companies, and frankly representing the insurance companies' interests — whereas we look at all these things from the other angle, from that of the purchaser of the policy, whether we furnish that report to him direct or through him to an agent or broker. That is our point of view. Mr. Redfield. You are in no sense a representative, then, of any insuring interests? Mr. Best. Oh, no; not in the least. Mr. Redfield. Does the Spectator stand well among insurance pub- lications ? Mr. Best. The Spectator Co. publishes a large line of statistical works which are considered very complete and reliable, but at the same time the Spectator is supported by the companies in the same way. It primarily gets its support from the advertising contracts rather than from the sale of its publications and subscriptions. Mr. Redfield. But you would regard the figures published by them reliable ? Mr. Best. Fairly reliable. Mr. Johnson. The committee will take a recess until 2.15. Whereupon, at "*2.55 p. m., the committee took a recess until 2.15 o'clock p. m. AFTER RECESS. The committee met at 2.15 o'clock p. m., pursuant to the taking of recess. TESTIMONY OF ME. ALFRED M. BEST— Continued. Mr. Redfield. Mr. Best, are you or are any members of your family interested in any insurance company as owners? Mr. Best. No. Mr. Redfield. Have you anv direct or indirect interest in any in- surance company or organization other than your own business ? Mr. Best. None. ■668 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Do you own any real estate in Washington? Mr. Best. None. Mr. Redfield. Or does any member of your family own any real estate in Washington? Mr. Best. No. Mr. Redfield. Yon come before this committee under its subpoena, ■do you not? Mr. Best. I do. Mr. Redfield. And other than your traveling expenses do you re- ceive any compensation whatever for your appearance before this committee ? Mr. Best. None whatever. Mr. Redfield. Either from this committee or from any other source ? Mr. Best. Neither from this committee nor from any other source. Mr. Redfield. What was said to you by Mr. Tuttle respecting your suggesting an agent for New England for one of these companies? Mr. Best. I received a letter from Mr. Tuttle, and I think he spoke to me about it also on one or the other of the meetings to which I testified this morning, asking if I could suggest some one to act as general agent for the companies in New England. Mr. Redfield. Was that at or about, the time that your brother made application to this company for some information? Mr. Best. About that same time. Mr. Redfield. Were you invited to a dinner given on or about September 12 by the Commercial Fire Insurance Co. or the First National Fire Insurance Co. of the United States or both of them? Mr. Best. Yes. Mr. Redfield. Did you go? Mr. Best. No. Mr. Redfield. Were you invited to be the guest of Mr. Wynne at a Gridiron dinner in last December? Mr. Best. Yes. Mr. Redfield. Did you go ? Mr. Best. No. Mr. Redfield. Will you kindly refer, Mr. Best, to No. 1 of the hearings, and to pages 46 and 47, being the report of the insur- ance commissioner of the District of Columbia. I call your attention to the statements of income and disbursements, which appear on page 47, and I ask you whether on the statement of losses which there appears, is is not the fact that if this company had not had the premium on its stock it would have lacked funds sufficient to carry it through the year, despite the increased value of the Southern Building ? Mr. Best. Let me consult the figures, please. [After consulting document.] There is no doubt that the actual disbursements for losses and for expenses, including the expense of selling the stock, separately listed, were very greatly in excess of the normal income of the company from premiums and interest, on its investments. Without footing the items accurately the income, leaving out the premium on stock sold and the increase by adjustment in book value of real estate, is under $200,000, while the disbursements were $330,756.58. These are actual disbursements, not increases of liabilities, an d itj s apparent INVESTIGATION OF INSURANCE COMPANIES. 569 that the company had to draw from some source approximately $130,000 more than its normal income in order to meet these expenses and losses. Mr. Eedfield. So that even if the Southern Building were cor- rectly valued at the amount of $2,000,000, at which it is here taken, the company, had it not had these receipts from premiums over the par value of its stock, would have lacked money to carry itself through the 10 months. Is that not so ? Mr. Best. It would have had to realize, either by the sale of some other investments or by obtaining the money somewhere else, that sum of $130,000. Mr. Redfield. Did it have other investments sufficient to realize that sum? Mr. Best. Basing the answer on this statement of assets — yes. They had some mortgage loans and bonds which could have been sold so as to produce the income, but it would have been necessary to convert some of their assets into cash in order to meet their current expenditures. Mr. Redfield. What, in your judgment, is the effect, as shown by this statement, of the 10 months' business, of having so large a sum locked up in a nonliquid asset like the Southern Building? Mr. Best. I would say, as I said this morning, that the investment is too large, in view of the comparatively limited other resources of the company. I have felt, in reviewing statements of insurance com- panies, that within reason all of the assets should be liquid, easily convertible into cash; that there should be no items carried as assets, on the credit of which the company would obtain business, which would greatly depreciate in the event of a forced sale. Mr. Redfield. Do you recall the law of the State of New York on the subject of the extent to which life insurance companies are per- mitted to invest in real estate ? Mr. Easbt-Smith. Mr. Chairman, I submit that the law of the State of New York is immaterial in a hearing concerning a company engaged in business in the District of Columbia. Mr. Best. May I answer? Mr. Redfield. I would say, Mr. Chairman, that the law of the' State of New York, of which I speak, was the result of the investigation of the life insurance companies, and of the conditions discovered thereby. That represents the standard set by the greatest insurance State in the Union as to the proper conduct of insurance companies, and in that respect, and as setting such a standard, it is a fair matter to have put in this record as a basis of comparison. Mr. Johnson. The committee has been canvassed and a majority are in favor of having the question answered. Mr. Best. The law as regards life insurance companies in the State of New York is that they may invest only in such an amount of real estate as is necessary for home office purposes — a reasonable amount for their home office use. Mr. Redfield. So that the point of view taken by that State, aris- ing from its experience, that the investment of a very large propor- tion of their assets in real estate is undesirable, in substance ? Mr. Best. That is evidently the theory of the legislation. Mr. Redfield. Mr. Best, have you ever heard, in your knowledge of insurance, of a process called " reserve working back into surplus " ? 570 INVESTIGATION OF INSURANCE COMPANIES. Mi". Best. Not as such — not in those terms. I assume that what would be meant would be that in the early years of an insurance com- pany's experience a great deal of money is added every year to the unearned premium liability. If the business is profitable, in the course of time the company will begin to realize a profit, that profit arising at the point where the reserve on policies expiring is as great as or greater than the reserve which is added to that fund — "fund" is not correct, but the term which will serve — by the issuance of new policies. Of course it all depends on whether the business is profit- able or not. Mr. Redfield. But if the business is running at a loss is there any such process? Mr. Best. Xo. Mr. Redfield. Will you look at the element of disbursements, on page 47. and tell me if in the items of disbursements which total $330,756..">8, there is any item which is not a real disbursement; if, I mean, there is any item which is only an apparent disbursement in the shape of something set aside for a reserve? Mr. Best. Xo such item. Mr. Redfield. Those sums, then, represented by the $330,756.58 were actually paid out? Mr. Best. Actually paid out. Mr. Redfield. Upon the other side there was received what sum from premiums and all other sources except the premium on the sale of stock and increased value in real estate? Mr. Best. $197,330.69. Mr, Redfield. Is the amount of income sufficient to pay the three first items of disbursement, unless you use the premiums from the sale of stock I Mr. Bkst. Xo. The first three items, namely, payments for losses, expenses of adjustment in settlement of losses, and commissions and brokerage, amount to $213,422.54, as against $197,330.69 of income. Mr. Redfield. So, Mr. Best, is it not true that if this stock had been sold at par and the building had been for any reason not quickly convertible into money this company, to meet its actual disburse- ments in those 10 months, would have had to go into the hands of a receiver ? Mr. Best. I want to make certain that I understand the question, as it is an important one. [The pending question was repeated by the reporter as above recorded.] The figures which I have just given show that the actual disbursements exceeded the income, with the exception of the premium on stock and the increase by adjustment of the book value of the real estate, by over $130,000. Mr. Prottty. Mr. Best, just at that point, in making those figures do you not include the commission they paid on the sale of this stock? Mr. Best. That is true. Mr. Peouty. Ought that not to be fairly deducted, Mr. Best ? Mr. Best. I was going to mention it in my reply. The excess of disbursements is over $130,000. The figures which were introduced ra evidence when I was here before showed an increase of liabilities also. If I find those figures, I can give the exact amount. Those figures appear on page 212 of the record, and they show an entire loss on the 10 months' business, excluding: the expense of ^sell- ing the new stock, amounting to $141,816, made up in paxfc of the INVESTIGATION OF INSURANCE COMPANIES. 571 excess of payments for losses and underwriting expenses over pre- miums and in part by the increase of the liabilities of the company! in connection with the business taken on during that period, the latter increase amounting to $85,836. The surplus of the company at the beginning of the year was, as I recall it, about $70,000, was it not? Mr. Redfield. $72,000. Mr. Best. It follows, without this increase in adjustment and with- out the premium on the sale of stock, the surplus would have been wiped out, and there would have been, if that happened, an impair- ment of capital of about $70,000 at the end of October, even though there had been no money spent in selling this additional stock. If that item is taken into account, then the impairment of capital would have been about $126,000. Does that answer the question ? Mr. Redfield. Then, in view of the facts you have just cited, I will ask you to read that advertisement of the company which I hand to you, which is as of January 1, 1913. Mr. Best. The advertisement reads [reading] : Happy new year. The Commercial Fire Insurance Co. wishes its present and prospective policy holders a happy and a prosperous new year. May they be as prosperous as the Commercial itself, in spite of the unjustifiable attacks, and as happy as its officers and directors are in the consciousness of having built up a large and successful fire insurance company. The company's annual statement, verified by the leading actuaries of the United States, will be pub- lished within a few days showing splendid increases over its last statement of October 31. Robert R. Tattle, President. Mr. Redfield. In view of the figures you have cited, is that state- ment as to a prosperous and successful company true ? Mr. Best. No. Mr. Redfield. Have you in making these figures used the ordi- nary and usual methods of calculating in the fire insurance business, or have you in some way departed from the ordinary and usual method ? Mr. Best. This is the ordinary method. Mr. Redfield. Is there any way known to insurance accountants whereby these figures can be made legitimately to show a substan- tially different result? Mr. Best. There is some difference of opinion as to the proper' method of computing underwriting profits and losses. In some cases expert insurance men may maintain that the average amount of the unearned premium liability should be ascertained for the period under review and interest on that amount at the average rate earned by the company should be put down as a credit to the under- writing transactions, upon the theory that if the company were not doing an insurance business it would not have on hand this money representing the unearned portion of the premiums paid to it, and consequently would not earn that money. Personally I think that is perhaps a correct view, but it is a re- finement which is not as a rule used in making calculations of this sort. This method has been used by my company for a good many years. Our practice is to make these calculations every year for every company and forward the slip — just such a slip as was intro- duced in evidence here— to each company, with the request that they 71391— No. 6—13 5 572 INVESTIGATION' OF INSURANCE COMPANIES. check it and advise us whether or not the result which we secure is correct. In 90 per cent of the companies the slip comes back si. You are entirely sure about that? Mr. Best. Oh, yes; quite sure. Mr. Redfield. Did your investigation into the affairs of this com- pany take into account the profits made in the sale of the real estate to the Southern Building Co. ? Mr. Best. No. Mr. Redfield. Did you investigate at all to what extent the values upon the real estate of these companies represent profits to promoters interested in those companies? Mr. Best. No; I have not investigated that side of it at all. This investigation came on just about the time we received the informa- tion, and I was waiting for the investigation to develop. Mr. Redfield. Did you investigate the question as to whether, and, if so, to what extent, any of the stock of this company had been given away, of either of these companies ? Mr. Best. I recall in the interview at the company's office at the end of July asking whether any of the members of the organization committee were deriving a profit from the promotion of the com- pany, and I was then told — I think by Mr. Carusi — that none of them received any such profit; and, if I am not mistaken, I afterwards received a letter from Mr. Carusi in which he made that same state- ment. That is the only inquiry. Mr. Redfield. Did you investigate whether, and, if so, to what extent, any of the directors of the company received compensation, either in the form of a salary, or payment, or stock as a gift, or stock at a low price, for the use of their names as directors? Mr. Best. No. The printed matter of both companies stated re- peatedly that every stockholder was treated alike; that there were no favorites. I did not make any special inquiry along those lines. Mr. Redfield. Did your examination cover the question whether risks written for a term of years were, as a matter of fact, entered upon the books as one-year insurance in the calculation of unearned- premium reserve? Mr. Best. No. Mr. Redfield. Did you investigate to what extent the item of assets called agents' balances were overdue? Mr. Best. In the statement filed by all insurance companies at the end of each year they are supposed to include no overdue : balances. INVESTIGATION OF INSURANCE COMPANIES. 573 Mr. Redfield. Did you look into the question whether any were so included or not? • Mr. Best. I did not. I assumed that that sworn statement was correct. Mr. Kedfield. Do you know who holds the first mortgage upon this Southern Building property ? Mr. Best. I have been informed that the Equitable Life has the mortgage. Mr. Kedfield. The Equitable Life Assurance Society of New York? Mr. Best. The Equitable Life Assurance Society of New York. Mr. Redfield. Is the Commercial Fire Insurance Co., as a matter of fact, licensed to do business in the State of New York ? Mr. Best. No; it is not. Mr. Redfield. Is it licensed to do business in the State of Massa- chusetts ? Mr. Best. I could not answer positively, but I think not. Mr. Redfield. Is it licensed to do business in the State of Maine? Mr. Best. Of that I have no knowledge. Mr. Redfield. Is it licensed to do business in the State of Mis- souri ? Mr. Best. There again it is a matter which I could not answer without reference to records. Mr. Redfield. Is it licensed to do business in the State of Wis- consin? Mr. Best. No. I know that. Mr. Redfield. Have you ever heard of any litigation begun by this company in connection with the insurance officials in the State of Wisconsin ? Mr. Best. Yes. I had correspondence with the insurance com- misioner of the State of Wisconsin at the time that my reports of March, 1912, were published. He informed me that an action had been begun against him by the company, charging libel. Mr. Redfield. v Who was it that informed you so ? Mr. Best. The insurance commissioner of Wisconsin. Mr. Redfield. That action had been begun against him ? Mr. Best. Yes. Mr. Redfield. By the Commercial Fire Insurance Co. charging libel? Mr. Best. I have the letter which he wrote me. Mr. Redfield. Will you read it, please. Mr. Best. Shall I read this letter? Mr. Redfield. If you please. Mr. Best (reading) : State of Wisconsin, Office of Commissioner of Insurance, Madison, January 30, 191Z. Mr. Redfield. What date? Mr. Best. January 30, 1912. It was earlier than I thought. [Reading :] Alfred M. Best, President Alfred M. Best Co., 100 William Street, New York, N. Y. Dear Sir: Your letter of the 25th instant in regard to printed matter used by the Commercial Fire Insurance Co., of Washington, D. C., in obtaining sub- scriptions for stock n-° *mTh ™»n™-™/i 574 INVESTIGATION OF INSURANCE COMPANIES. The history of our controversy with that company, briefly, is that our Mr. Anderson went to Washington last July and made an examination of the com- pany, on its application for admission, and learned of the ownership of nearly all the stock by the Protective Corporation of New York, of which Robert R. Tuttle was then president. Robert R. Tuttle was also then the vice president and active manager of the insurance company. We also learn that Robert R. Tuttle was soliciting the sale of stock in the insurance company in this State. Our Mr. Anderson made a report to the department in which he incorporated the two printed reports of examination by the New York department of the Protective Holding Corporation and the Protective Corporation, and made the following recommendation : " In view of the foregoing, together with other evidence among which I may mention two pamphlets marked Exhibits A and B, submitted herewith, it appears that the Commercial Fire Insurance Co. has been purchased for the sake of furnishing a shield for a stock jobbing scheme, and I therefore recom- mend that license be refused." The company were advised of this action on August 17, 1911. A copy of the report was sent to the Insurance Press, New York City, and published in its issue of August 23, 1911. Sooa afterwards the company, through its attorneys here in Wisconsin, threatened to bring action to compel the issue of their license. No such action or proceeding has, however, been begun. About November 7 the insurance company instituted a personal action for libel against George E. Beedle. deputy commissioner; L. A. Anderson, actuary, and myself, claiming damages in the sum of $50,000. The complaint sets out the report of Mr. Anderson in full and alleges a malicious publication by the defendants. We have answered, setting up the facts in regard to the transaction as above indicated, a copy of which answer is inclosed herewith. We expect to have an examination of Mr. Tuttle in this action, which we are entitled to under the statute. You are, of course, familiar with the report of the New York department of its examination of the Protective Corporation and the Protective Holding Cor- poration of July 30, 1910, and February 14, 1911. The operation of these com- panies was also written up by C. M. Keys in the September, 1911, number of the World's Work. A list of the stockholders of the Commercial Fire of June, 1911, is herewith inclosed. I believe you will find that Mr. Tuttle has been attempting to exchange stock of the Commercial Fire for stock of the Protective Corporation, and that an application to dissolve the Protective Corporation was made at Albany in October, 1911. I trust the foregoing will be of some service to you, and will be pleased to give you any other information I can. I am interested in knowing what printed matter they are now getting out and, if you have extra copies of any matter mentioned in your letter, would very much appreciate having a copy of same. I do not believe there can be too much publicity given to operations of this kind. Very truly, yours, Herman L. Ekebn, Commissioner. Mr. Redfield. Have you any knowledge as to whether that suit. for libel has been pressed to trial ? Mr. Best. I have not. I never heard that it had been. Mr. Redfield. I offer, as part of the record in this proceeding, the following extract from page 252 of the Spectator, of May 23, 1912, which I will read. [Reading :] COMMERCIAL FIRE INSURANCE SUES WISCONSIN COMMISSION. Madison, May 20. The complaint in the case of the Commercial Fire, of Washington, D. 0.. agains 1 insurance commission: J. L. Ekeon, deputy commissioner; George E. Beedle and Actuary L. A. Anderson, of the Wisconsin department, was filed in the Dane County circuit court here Saturday. After an examination by Mr. Anderson, the company was refused admission to write policies of insur- ance in Wisconsin. INVESTIGATION OF INSURANCE COMPANIES. 575 The company sets forth that the defendants were responsible for the publica- tion of an article in an eastern insurance journal, which it alleges had a tendency to injure its good name. The company sues for $50,000 damages. That is subject, of course, to any correction that may arise on examining the paper. I would also make a portion of the record at this point the follow- ing extract from the bulletin of the Maine insurance department, dated April 26, 1912. [Reading :] Information has reached this department that circulars are being mailed to citizens of this State for the purpose of obtaining purchasers of stock in the First National Insurance Co., of Washington, D. C. This company is in process of organization and the insurance superintendent of the District of Columbia advises us that his department has no supervision over the company until it begins to assume risks and transact a regular insurance business. From such information as we have we advise the citizens of this State against investing in the stock of this company. And also the following extract from page 10 of the American Agency Bulletin, of May, 1912, questions and answers. [Reading:] Question. A client of this office is considering subscribing to the stock of the First National Fire Insurance Co., of Washington, D. C, which is now being promoted. We would be pleased if you could forward us any information you have in regard to the enterprise. Answer. Several of the promoters of the First National Fire Insurance are also directors of the Commercial Fire, of Washington, D. C. Robert B. Tuttle, of Syracuse, N. Y., is vice president of the Commercial Fire. Mr. Tuttle was at one time engaged in the promotion of the Protective Fire, of Syracuse, which was not launched. He was also connected with the Protective Holding Corpora- tion, which was the subject of a special report by the New York insurance department. Best Insurance News, New York, March issue, gives a report on the First National and Commercial Fire. The promoters of the First National claim that it will do business of over $1,000,000 in premiums the first year. The interests of the concern in New York City seem to be in the hands of Tuttle, Wightman & Dudley, who are general agents of the Commercial Fire. Mr. Wightman, of this firm, is an advertising man and is handling the advertising for the First National, making forceful appeals throughout the country by means of advertisements for subscriptions to its capital stock. It is apparent from the advertisements that the company is being " promoted," and in view of the reports received we can not advise subscriptions to the capital stock. Recent efforts along the line of promoting companies has not always been successful to the stockholders although netting considerable profit to the promoters. The insurance department of Maine has issued a report in regard to the com- pany, stating that it is not at present subject to any supervision by the insur- ance department of the District of Columbia, and advises the citizens of the State against investing in the stock of the company. Mr. Best, have you any other correspondence with the insurance department of any State which bears upon these companies, or either of them? Mr. Best. I do not recall any off-hand. [At this point Mr. Best examined some papers which he held in his hand.] It is possible that I have such correspondence, which is filed in the folders of the different State departments, rather than in the folders of these two companies, and it is quite possible also that my office might have had correspondence of which I have no personal knowledge. [At this point there was considerable testimony by the Witness Best, and colloquy among counsel and members of the committee, which was finally ordered to be stricken physically from the record.] Mr. Carusi. Mr. Chairman, I would like to know now as to whether everything will not be regarded as jrelevant in rebuttal which ad- 576 INVESTIGATION OF INSURANCE COMPANIES. dresses itself to evidence that has been introduced into the record against us, without regard to whether at the time the evidence was introduced against us it was properly relevant or not ? For instance there have been, just preceding these letters which have been stricken from the record, a number of newspaper clippings, editorials, letters from commissioners of insurance to Mr. Best, incompetent under anv rules of evidence, but as for days things of that kind have been going into the record we certainly expect that we shall have the right to controvert and to show the incorrectness of those statements. Mr. Beeger. Of course, Mr. Chairman, turn about is fair play. Mr. Johnson. I think Air. Berger very tersely expressed my view on the subject. Mr. Prouty. Well, I would like to put some limitations even upon that. I would not want one article in a newspaper disproved by furnishing another article from another newspaper. Mr. Cardsi. No; I think that would be going too far. Mr. Prouty. If there is anything that attacks the veracity of an article that has been introduced by competent testimony, I would be willing to sit and listen to it, but I would not want to listen to another article that took up the other side of it. I was not here when some of it was introduced. What I should think would be a fair guide would be, for instance, now, if you started to introduce some evidence to contradict something that this committee would all say they would not consider; on the other side, you would not need to take any time in disproving that. I might as well announce to you now that there is more than half of what has gone into the record that will never be considered by me in determining this matter. I am not speaking for anyone else, but I can announce that safely now. Mr. Berger. That is my view. Mr. Johnson. Mr. Stephens, do you desire to ask the witness any- thing? Mr. Stephens. No, Mr. Chairman. The Chairman. Mr. Stephens represents the commissioners. He is corporation counsel for the District of Columbia. Mr. Douglas, do you desire to ask any questions? Mr. Douglas. Mr. Carusi will cross-examine this witness. Mr. Johnson. Just one moment. Mr. Prouty. I want to ask one or two questions. The Chairman. Judge Prouty. Mr. Prouty. Mr. Best, I wish you would turn to page 47, contain- ing the report of the insurance commissioner. As I am not really familiar with insurance matters myself, I want to ask you two or three questions about it. Turning to the top of page 47, under the head of " Income, gross premiums $276,881.57." Do you understand that to include gross premiums for business written for a term of two, three, or five years? Mr. Best. Regardless of the period. Mr. Prouty. That was the entire premium income? Mr. Best. That was the amount of premium on all policies issued. Mr. Prouty. Then, deduct reinsurance? Mr. Best. Yes. Mr. Prouty. Where they reinsure with some other company? Mr. Best. Yes. INVESTIGATION OF INSURANCE COMPANIES. 577 Mr. Prouty. Then deduct returned premiums. Is that canceled policies? Mr. Best.' Yes. Mr. Prouty. Then is there any provision here whatever for liability beyond the year period in the income? Mr. Best. That appears not in the statement of income or dis- bursements, but in the schedule of liabilities. Mr. Prquty. Under what item? Mr. Best. On page 48 you will find unearned premiums of $136,260.92. That represents the amount which the company might be called upon to pay back if every policy were canceled. Roughly, that is the meaning of the item. The schedule of income and dis- bursements takes account practically of cash transactions. Not en L tirely so, for the premiums are all premiums on policies written, whether they have been actually collected or not, whereas disburse- ments are actual disbursements in cash. } Mr. Prouty. Then, in determining the question of whether it is a paying or losing concern, do not the figures all appear on page 47 — rather the balance sheet? Mr. Best. No; for the reason that it is necessary to take into ac- count not only the amount disbursed for losses and for expenses, but also for any increase of the undischarged liabilities of the company in connection with the business for which it has received credit in this premium item. Mr. Protjty. What I was getting at, I notice that their unearned premium is $136,260.92 — — Mr. Best (interposing). Yes. Mr. Protjty (continuing) . While their total premiums Mr. Best. Yes. Mr. Protjty. Their actual available assets from premiums for that year would only be the difference between $188,000 and $136,000? Mr. Best. No ; not quite. You see, the company at the beginning of the year had already an unearned premium liability in its state- ment. Therefore, in computing the underwriting results you would not charge the entire amount of $136,000. Mr. Protjty. But we have not anything here from which we can get those exact facts. Mr. Best. Yes ; it was testified to, I believe. Mr. Protjty. I had some difficulty in harmonizing your figures. That is what I was getting at. Mr. Best. Yes, sir. If you will give me a moment, sir, I can find the facts for you in the record. On page 212 of the record. Judge Prouty. Mr. Prouty. Yes ; that is the one I was examining. Mr. Best. You will find the figures show that the increase of the underwriting liabilities during that 10 months' period was $85,836. I have not looked at it to see whether the unpaid losses are included ; but if they are, it is in that item. Unearned losses are undoubtedly in that item. If there was an increase in any expenses, it would be in that item. The liabilities at the end of 1911, which were arrived at by that $85,000 item, were taken from my own publication for 1912, if I remember correctly. Mr. Prouty. Yes ; that harmonizes. I had some trouble with those figures. 578 INVESTIGATION* OF INSURANCE COMPANIES. Mr. Berger. You have had a great deal of experience in the insur- ance business, especially fire insurance. business? Mr. Best. Yes, sir. Mr. Bergee. Is it not a fact that the profits of fire insurance com- panies are abnormally large in some of them ? Mr. Best. There are some of the larger companies which make very substantial profits on their underwriting business. I would not say that they are abnormally large over a period of years, or in pro- portion to the amount which the stockholders have at risk. I could give you actual figures, if you like, of the large establishments, from my publication here. Mr. Berger. I understood, Mr. Best, that some of the companies in Milwaukee are making tremendous profits. Mr. Best. If you care for the figures I can state them precisely. Mr. Berger. Take, for instance, the Milwaukee Mechanics', or the Concordia. Mr. Best. I have here a volume of my own called " Best's Key Eatings," which gives the figures. The Concordia, in the five years ending with December, 1911, shows an underwriting loss for the entire period. Mr. Berger. Loss? Mr. Best. Yes. Mr. Berger. How much? Mr. Best. Of $10,808. Mr. Berger. And the other ? Mr. Best. It is nominal. It was merely a break even. The Mil- waukee Mechanics, on the contrary, made profits. I am speaking now, sir, of purely underwriting transactions, regardless of their in- vestment income. They made a profit three years, and lost two years; in 1910 and 1911 they lost money ; the result for the five-year period being a profit of $201,315. This is computed on exactly the same basis as has been referred to here in testimony, which represented 2J per cent of the total premiums turned over for that period. Mr. Berger. You said, Mr. Best, that at least 200 new insurance companies had been organized during the last six years. Mr. Best. Yes, sir. Mr. Berger. Does that not show that there is a demand for insur- ance companies ? Mr. Best. No, sir. There was no reason or excuse for the organi- zation of so many companies. The great majority of them were life insurance companies, and they sprang up following the investigation of 1905 and 1906 in New York City, when the big New York com- panies were more or less discredited, and promoters all over the country seized the opportunity to get out and sell the stock of these companies. They managed to get about $50,000,000 invested in these concerns in the last six years. Mr. Berger. Then, you said that they have all had a loss of surplus in the first three years. Why not give them the credit for the amount ? Mr. Best. Quite true. They should be given that credit, but even on that basis I am compelled to say that the showing is bad. I do not recall offhand any other company which on an equal volume of business showed as heavy a loss. INVESTIGATION OF INSURANCE COMPANIES. 579 Mr. Berger. You said, Mr. Best, that the ratio of their business, or, rather, of their loss, was abnormally high, but I did not hear you state what the ratio was. Mr. Best. It was about 75 per cent; upward of 75 per cent, the actual loss of payments. Mr. Berger. Seventy -five per cent? Mr. Best. Over 75 per cent. Mr. Berger. That is immense. What do you consider the normal ratio ? Mr. Best. It fluctuates all the way from 45 per cent to 55 per cent on the average of all companies, according to the premiums written. Mr. Berger. I was not here at the beginning of the investigation. I just got in yesterday. So you will excuse me. I heard it stated that the Commercial Insurance Co. paid a 12 per cent dividend. How was this paid if the company did not make any profits? Was it paid out of the stock, or how was it paid — this 12 per cent ? Mr. Best. Of course I can not say what it was paid out of. It was paid out of their funds in hand ; but I could say in reply, how- ever, that unless they had had that premium on stock that they sold they could not have paid any dividends. It was really a return of part of the money that had been collected. Mr. Berger. Then, if that is the case, taking the two statements together, the loss of 75 per cent on the one hand and a dividend of 12 per cent on the other, was not this a deliberate attempt to swindle, to use a plain English word, in your opinion ? Mr. Best. I consider it was absolutely unjustified and decidedly misleading to anyone who was asked to buy stock. The dividends were not earned and should not have been paid. Mr. Berger. One more question. You said the average losses will run from 45 per cent to 55 per cent of the premium money; will they? Mr. Best. Yes. Mr. Berger. That is the average every year? Mr. Best. Yes. Mr. Berger. And therefore you think it would be well to require the insurance companies to have their funds in liquid shape, so as to be able to pay these losses all the time? Is that the idea? Is that your reason ? Mr. Best. What I had in mind was the business is a very hazardous business; conflagrations are likely to occur at any time, calling for the converting of large amounts of assets into cash. For instance, I recall the president of the Springfield Fire & Marine Insurance Co. telling me that after the San Francisco fire he sold a million dollars of securities because he knew there would be large losses to be met. Mr. Berger. How could they invest their securities, then? You say, for instance, this building tied up too much money. Undoubt- edly it did. Now, how would you advise an insurance company to invest their money profitably ? Mr. Best. That is covered very fully by the laws of the various States. Mr. Berger. But as a general thing. I know what it is covered by. Mr. Best. The most liquid of' all, of course, are listed bonds or stocks, preferably -bonds. Bank stocks are very good and they make money out of them, too. 580 INVESTIGATION OF INSUBANCE COMPANIES. Mr. Berger. Are those the safest investments ? Mr. Best. Well, there are bonds and bonds — good bonds. Xext there are mortgage loans on real estate, which are very stable; there is no fluctuations, and for that reason the}' are desirable. They are not so liquid as securities that can be sold on the stock exchange. Finally Ave get clown to real estate, which is not at all liquid. Mr. Berger. Did you call the attention of the insurance depart- ment to those companies, Mr. Best — our insurance department in the District of Columbia? Mr. Best. No, sir; I think not. Mr. Berger. You did not? Mr. Carusi. Mr. Best, you referred a number of times to examina- tions that you had made of these companies. What do you mean by an examination of them? Mr. Best. Investigation would be the better word. Mr. Carusi. What investigation did you ever make of either of them? Mr. Best. We addressed to the companies the inquiries which, if answered, would give us the information which we needed to make a complete report — the items which were necessary to a proper un- derstanding of the condition and the transactions of the companies— and we secured what information we could from other sources as to the methods of the companies, and both as to underwriting and the sale of stock. That is all. I never made any examination of the books of the companies. Mr. Carusi. What were the other sources that you referred to? Mr. Best. As to the stock sales it was not necessary to make any investigation, for great quantities of this printed matter was sent back to me by people who received it. The companies' files will show our inquiries, however, concerning the methods. We endeavored to get from them an official statement of just what was being done. Mr. Carusi. Then, do I understand that the extent of your inves- tigation into these companies consisted in a request for information which was refused or withheld from you ? Mr. Best. No ; that would not be a fair reply. We endeavored in every possible way to get any information bearing upon the method of the companies from the insurance officials and persons, solicitors of stock, and so on. Mr. Carusi. What insurance officials did you request information from concerning the underwriting operations of the company? Mr. Best. None whatever as to underwriting; none of them knew it. . . , Mr. Carusi. You answered a hypothetical question, 1 tnmK, dv stating that upon the report of the superintendent of insurance or the condition of the company as of October 31, that its capital was or would have been impaired sufficiently to require a receiver to oe appointed. Is that correct? ,, Mr. Best. The question was asked whether the company wouiu have been obliged to go into the hands of a receiver if it had noi had the income from premium on stock sold and if there had M™ no increase in the value of the building. I did not attempt to an- swer that statement, because I did not know whether it w° ul fl d ",™ gone into the hands of a receiver or not. I instead gave the figure, which showed that the company had rim b£hind.i»-«*r actual du INVESTIGATION OF INSUBANCE COMPANIES. 581 ness for those 10 months $141,000, and that, as its surplus was only about $70,000 at the beginning of the period, the fair assumption is that without income from some other source than those which I mentioned the capital must have been impaired. Mr. Cahusi. Did that $141,000 include commissions on the sale of stock? Mr. Best. Xo ; including that I gave the figure as about $197,000 actual loss on the 10 months' business. Mr. Carusi. Do you think it fair to include in any estimate as a loss of a company money which never came into the hands of the company, such as the amount deducted from the contribution to th? capital and surplus for commissions on the sale of stock ? Mr. Best. I do not believe I follow your question. Mr. Carusi. I say, can you fairly, for any basis of calculation, treat commissions paid on the sale of stock, and which commissions never came into the possession of the company, therefor, as having been lost by the company ? Mr. Best. Well, the company is its stockholders in the last analysis, and the expenses, whatever they may be, whether they were paid out under ^this underwriting contract or whether never received by the company, I am not informed as to which method was followed. Certainly that is an expense of the company during that period, and most certainly it ought to be included. Mr. Carusi. But you could not appoint a receiver for stockholders of a company because of the insolvency brought about by adding to its fire losses the amount deducted from the sale of its capital stock. Mr. Best. I endeavored to make that perfectly clear in my testi- mony that if we were to exclude on the one hand income from the sale of stock we should include on the other hand disbursements for the sale of stock. Mr. Cartjsi. Did you take into consideration in your calculation the item of $11,000 reserved for taxes? Mr. Best. Yes. Mr. Carusi. You excluded that, you say ? Mr. Best. No. Mr. Carusi. You included it? Mr. Best. I left it in ; yes. Mr. Carusi. Did you know that that item represented accrued but unpaid taxes on the Southern Building ? Mr. Best. I assumed so ; yes. Mr. Carusi. Do you not think it would be fair for you to exclude from the assets of the insurance company the equity of the Southern Building, that you should exclude from its liabilities an item which grew out of that purchase? Mr. Best. That is one of the items which I had in mind in reply- ing to Mr. Redfield's question as to whether any other treatment of the statement could produce any material change. It is a question whether that item should be left out or not. We have habitually in our own calculations, which have not been ques- tioned by other companies, taken into account all increase of taxes. It is not, however, strictly an underwriting loss, that particular $11,000 item, or whatever it is. Mr. Carusi. You take into account taxes on the premiums paid, not taxes on real estate ? 582 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. All of them. For taxes on real estate it does not make a great deal of difference, however, because there are so few com- panies which own real estate, comparatively speaking. For strict accuracy I would say that it should be taken out. Mr. Carusi. Should be taken out? Mr. Best. Should be taken out; yes. Mr. Carusi. So that you would reduce the amount of loss as cal- culated by you by that amount? Mr. Best. That is to say, $11,850.66, accrued taxes and interest on real estate. Mr. Carusi. Yes. Mr. Best. Yep; that might be done. Mr. Carusi. You had figured that on the underwriting loss until 3 called your attention to it, had you not? Mr. Best. I left it in ; yes. That is my custom. Mr. Carusi. You stated, Mr. Best, a few moments ago that the loss ratio of this company as revealed by that examination was un- usually high? Mr. Best. Yes. Mr. Carusi. That examination covers a period of 10 months only, does it not? Mr. Best. True. Mr. Carusi. Is it not a fact that generally the profits or losses of fire insurance companies are shown upon the basis of the 12 months' business ? Mr. Best. Yes. Mr. Carusi. Is it not true that the earlier months of the year are what are commonly called " hot " months in fire insurance? Mr. Best. The earliest months and the latest months. November and December are apt to be rather hot months. Mr. Carusi. I am asking you about the earliest months, Mr. Best. Mr. Best. True. Mr. Carusi. And your answer is " Yes"? Mr. Best. Yes; as to both the earliest and latest months. Mr. Cartist. Have you any information with respect to the early months of this present year in comparison with a similar period for the last few vears as showing the losses to have been exceptionally high? Mr. Best. Yes. The losses this year, I am informed by numerous underwriters, were abnormally high during the first two or three months — two months particularly — and then during the summer they were almost correspondingly abnormally low. Mr. Douglas. You mean 1912? Mr. Best. 1912 ; yes. I beg pardon. Mr. Carusi. For your information and as a basis for further questions, I will ask you to read this clipping from the Journal of Commerce concerning fire losses for the early months of 1912. Mr. Best. Do you want me to read the whole clipping? Mr. Carusi. Yes ; if you please. Mr. Best (reading) : THE JUNE FIRE LOSS. The fire loss of the United States and Canada for the month of June, as com- piled from the carefully kept records of the Journal of Commerce and Commer- cial Bulletin, shows a total of $16,103,450, as compared with $20,691,950 in June, INVESTIGATION OP INSURANCE COMPANIES. 583 1911, which was unusually heavy, and with $13,183,600 in June, 1910, which was about a normal record for the six months of the year. The losses for the first half of this year reach a total of $134,417,750, as compared with $129,691,750' for the first six months of 1911 and $99,228,850 for the same time in 1910. The following table gives a comparison of the losses by fire during the first half of 1912 with the figures for the same months in 1910 and 1911, together with th& losses for the balance of those years: Mr. Beegee. It went up how many? Mr. Best. $20,000,000. Mr. Berger. $20,000,000? Mr. Best. From 15 to 35 ; yes. The first two months were the worst in our history. Mr. Beegee. And that is in spite of our prosperity ? Mr. Best. Yes. [Beading:] January February March April i. May June Total, 6 months July August September October November December Total for year... 1910 $15,175,400 15,489,350 18,465,500 18,091,800 18,823,200 13,183,600 99,228,850 26,847,900 21,570,550 11,700,000 37,188,300 16,407,000 21,528,000 234,470,600 $21,922,450 16,415,000 31,569,800 17,670,550 21,422,000 20,691,950 129,691,750 25,301,150 12,662,650 11, 333. 250 13,945,000 18, 680, 600 22.722,850 234,337,250 $35,653,450, 28, 601, 650 16,650,850' 16,394,400 21,013,95a 16,103,450 134,417,75ft There were no less than 271 fires during the month of June which caused losses of $10,000 or over in each instance. A detailed list of these fires appears on the insurance page, this issue, but classified ac- cording to their destructiveness they show the following comparison ; Estimated loss. No. of fires-. $10,000 to $20,000 98. $20,000 to $30,000 60 $30,000 to $50,000 28 $50,000 to $75,000 33 $75,000 to $100,000 9- $100,000 to $200,000 32 $200,000 and over 11 Total 271 Of the 11 fires credited with having caused a loss of $200,000 or over, the more important ones were these : Adrian, Mich., automobile factory $350,000 Albany, N. Y., plating works and other 215, 000 Detroit,,Mich., plumbers' supply factory 250, 000 Bayonne, N. J., lumber yard and other 250, 000 Chicoutimi, Quebec, various 1, 200, 000 Eay, Ariz., business section of town 500, 000- Saskatoon, Saskatchewan, department store 500,000 Mr. Cartjsi. I do not care about the balance of that being read % unless the committee cares to hear it. Mr. Best. The rest rather reviews the other figures. Mr. Douglas. Let him finish it. 584 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. The committee will be very glad to dispense with it. Mr. Best (reading) : It will be seen from the comparative table that the first half of 1912 shows about $5,000,(i00 more loss than for the same period of 1911 and $35000000 more than for the first half of 1910. It is clear that unless the fires nre'iinumi ally light during the remainder of 1912 the fire underwriters will have i bad year. Mr. Caeusi. Before stating my questions, predicated upon that statement, I will ask you first whether or not the Journal of Com- merce is not a standard publication ? Mr. Best. These figures are standard. Mr. Carusi. I will ask you whether or not any considerable num- ber of fire insurance companies suspended the midyear dividend on account of the six months of exceptional fire losses there ? Mr. Best. I did not hear of it. Mr. Carusi. Do you know as a matter of general information as to whether or not fire insurance companies generally, having once established a dividend rate, do not suspend the midyear dividend on account of the underwriting experience of the first six months of the year? Mr. Best. You mean as a matter of common procedure that it frequently happens? Mr. Carcsi. That is, it is very generally done by fire insurance companies that show an underwriting loss on the first six months' business ? Mr. Best. It is quite possible that the first six months would be likely to show a loss not only for the reasons you have cited but also because there is an abnormal amount of expense for taxes and so on in the first few months of the year. But I have never heard of established companies being called upon to pass a midyear dividend any considerable number of times. Mr. Carusi. They could not pay the midyear dividend out of the earnings of the previous six months if they had been operating at an underwriting loss for that period, could they? Mr. Best. Well, they might have other earnings — investment earn- ings. Any earnings are perfectly legitimate to be used for dividends. Mr. Carusi. That is true, but not an answer to my question. Mr. Best. Then I did not understand it. Mr. Cartjsi. I asked you whether they could pay the mid-year divi- dend out of an underwriting profit on business of the previous six months for which the dividend was declared. Mr. Best. Any answer is necessarily guesswork. But thinking over the figures which are furnished to me in the middle of each year by nearly all of the insurance companies — they make a practice of doing that for me — I should say that in nine cases out of ten they are able to show an increased surplus besides paying the dividend. Whether that would be due to underwriting profits or to earnings on investments I would not be able to say without studying the figures. If what you want, Mr. Carusi, is whether the profits are larger in the last half of the year than in the first of the year Mr. Carusi (interposing) . No. What I want, Mr. Best, is that you answer my question. I will ask the stenographer to repeat my nrst question to you. INVESTIGATION OF INSURANCE COMPANIES. 58.5 The stenographer read as follows: I asked you whether they could pay the mid-year dividend out of an under- writing profit on business of the previous six months for which the dividend was declared? Mr. Best. Were you referring to the Commercial- Mr. Cartjsi. No. I had reference to my first question, and I will restate it and endeavor to make it clearer. I want to ask you whether, as a matter of general information, you do not know that quite irrespective of whether a fire insurance com- pany has or has not earned its money on its underwriting during the first six months of the year it is not the almost invariable custom to pay in the mid year the established dividend that the company has been paying ? Mr. Best. It undoubtedly would do so, provided always that the general condition of the company justified it ; but certainly no well- managed company would pay a substantial mid-year dividend if its business was peculiarly unprofitable during the preceding six months. Mr. Cartjsi. What do you mean by " peculiarly unprofitable " ? Mr. Best. I mean that in a real good year a fire insurance company may make 10 per cent underwriting profit on their turnover, or their premium income. If they ran during the first six months with no profit, so that the last half would have to show 20 per cent in order to get a 10 per cent average, they might still feel, if their earnings from other sources were sufficient to justify paying dividends. If, on the contrary, they had a loss ratio of 75 or 100 per cent of their premiums, I should say the tendency would be to pass the dividend. Mr. Cartjsi. Do you not know that many fire insurance companies, the names of which I can furnish you later in this cross-examination,, of good standing have paid not only mid-year dividends, but paid dividends both in June and January, although the entire year showed an underwriting loss? Mr. Best. Not companies in good standing as I would view them. Mr. Cartjsi. What would you say of the Hartford Fire Insurance Co. as a company in good standing ? Mr. Best. It is a company in very good standing. Mr. Cartjsi. I will interrogate you just for a moment about that company. I hand you the Fire Insurance Pocket Index, published by the Spectator Co. I think you have already stated the figures furnished by that company are standard and reliable figures. Mr. Best. That is so. Mr. Cartjsi. I will ask you to turn to the record of the Hartford Fire Insurance Co. for the last 10 years. Mr. Best. Yes, sir. Mr. Cartjsi. To page 28. Mr. Best. All right. Mr. Cartjsi. I will ask you to read the figures for 1905 and then for 1906. Mr. Best. All of them? Mr. Cartjsi. Yes. Mr. Best. Do you want me to read for each item the two years together, for comparison, or read right across ? Mr. Cartjsi. No; I want you to read right across. Give all the figures for 1905, and then kindly give the figures for 1906. 586 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. Very well. [Reading:] 1905. Cash capital. $1,250,000; total assets, $18,061,927; total liabilities, except capital. $11,687,107 ; reserve for reinsurance, $10,123,278 ; surplus over capital and liabilities, $5,124,820. Net premiums, $12,936,113; total income, $13,454,S14; total expenditures. $11,081,119; losses paid, $6,208,552; cash dividends actually paid, $573,203- expenses, $4.299,364 ; losses incurred, $6,356,842. Losses incurred to premiums' 49.1 per cent ; expenses to premiums, 33.2 per cent. Net premiums, §12,936.113; total income, $13,454,814; total expenditures, except capital. $14,266,676; reserve for reinsurance, $10,978,283; surplus over capital and liabilities, $2,783,254. Net premiums, $13,981,228; total income, $17,576,692; total expenditures, $18,895,608; losses paid, $13,515,021; cash dividends actually paid $437,500; ex- penses, $4,943,087 ; losses incurred, $13,535,856. Losses incurred to premiums. 96.7 per cent; expenses to premiums, 35.3 per cent. Mr. Cabusi. Mr. Best, referring again to the figures before you now for an analysis of them, the San Francisco fire occurred in the spring of 1906, did it not? Mr. Best. April 18 to April 21, 1906. Mr. Carusi. Do not those figures for the Hartford Insurance Co. show for 1906 a 96.7 per cent loss ratio and a 35.3 expense ratio? Mr. Best. Yes. Mr. Carusi. Making a total of 132 per cent on a premium business of approximately $14,000,000? Mr. Best. That is right. Mr. Carusi. Whereas the company had a capital of $1,250,000? Mr. Best. In 1905. Mr. Carusi. And a net surplus of $5,000,000 ? Is it not a fact that after that 132 per cent loss, and notwithstanding that 132 per cent loss on $14,000,000 of premium income, that the company paid an increased dividend, a dividend, and at the same time sold — what is the amount of difference between the two capitals? Mr. Best. $750,000. Mr. Carusi. And at the same time sold $750,000 capital stock at a premium of 500 per cent to the purchaser? Mr. Best. Four hundred per cent. You will say it had a loss of 132 per cent. Do you mean a combined loss and expense ratio of 132 per cent? Mr. Carusi. Yes. Underwriting loss. Mr. Best. Yes; that was the amount. The company paid in 1905 $573,203 for dividends, and the following year, 1906, $437,500, in spite of the fact that it had lost many millions of dollars during that year. Mr. Carusi. And sold, did it not, $750,000 additional capital stock? Mr. Best. At 500 per cent. Mr. Carusi. At 500 per cent premium? Mr. Best. Yes. Mr. Carusi. I will ask you without reading the figures this time into the record and thus taking up the time or the committee if you will look just immediately below the Hartford Co., at the Hawkeye, of Des Moines, and analyze for the committee in the same way the figures for 1909 and 1910. Mr. Best. In 1909 the company's loss ratio was 60.6 per cent; in 1910 it was 99.9 per cent. In 1909 its expense ratio was 49.5 per cent and in 1910 it was 53.6 per cent. INVESTIGATION OF INSURANCE COMPANIES. 587 The company in 1909 paid a dividend of $30,000, its capital being $100,000, and in 1910 it paid a dividend of $71,985. its capital then being $200,000. ' Do you wish anything further? Mr. Cartjsi. I think not. Mr. Best, you were subpoenaed here as a witness? Mr. Best. Yes. Mr. Cahtjsi. Was that the first invitation to be present here as a witness you received? Mr. Best. No. Mr. Cartjsi. Will you kindly state just how you came to be a wit- ness here? Mr. Best. I was invited to come and testify by Mr. Bedfield, who has been a personal friend for a great many years. He came to me and asked me for some information. I gave it to him, and he asked me to come and testify as to those facts. Mr. Carusi. I understood you to testify that your journal is unique among the fire insurance publications in that you accept no paid advertising of any kind? Mr. Best. From insurance companies. Mr. Carusi. From insurance companies? Mr. Best. Yes. Mr. Carusi. And that you never write complimentary articles for money ? Mr. Best. Absolutely so. Mr. Carusi. There are, of course, in the case of the journals which are conducted for profit and which do carry advertisements, some temptation to speak favorably of the advertisers for pecuniary rea- sons ? Mr. Best. I think that might fairly be stated. Mr. Carusi. Is it possible that there might be a pecuniary profit in the journal conducted upon altogether different lines, in that the criticisms made of new companies and of different companies would help to market it ? Mr. Best. That is conceivable; yes. Mr. Carusi. Conceivable. Is it not a fact that you, in addition to supplying your subscribers, sell at times a large number of your journals or papers in bulk to persons who are interested in using the reports ? Mr. Best. I should say offhand that it would not occur once a year, if as often. It has occurred, but I am opposed to it, and my policy is to turn down orders of that kind. Mr. Carusi. Is it true or is it untrue that you have sold as many as a thousand and five thousand copies to one company in bulk? I refer more particularly to the Home Fire, of New York. Mr. Best. No. I think that possibly you may have heard of a transaction back about 13 or 14 years ago, about which I will give you the facts, if you want them. Mr. Carust. Well, I think you are entitled to state them, Mr. Best, in view of my question. Mr. Best. Very well. When this business of mine was first estab- lished, nearly 15 years ago, my problem was to bring the work to the attention of the people from whom I desired subscriptions. I went to the Home Insurance Co., and I went to half a dozen others of the 71391— No. 6—13 6 588 INVESTIGATION OF INSURANCE COMPANIES. leading companies. I showed them what I proposed lo do, and I suggested that they take— I think it amounted one year to as many as thirty-six hundred copies of my annual -s olume, at an extremely low price ; I think I gave them to them for 75 cents a piece, and that 1 was quite glad to do, because of the fact that they were circulated with the compliments of these companies, which was in itself nil indorsement of good faith, and I got the advertising benefit as my profit. That was done for two or three years and then discontinued The arrangement with the Home was kept up for a little longer, because they had been particularly interested in the work which I was doina. in a perfectly legitimate way, and I should say about perhaps six or eight years ago it was discontinued entirely," and since that time neither my books nor my papers have been sold in bulk. Mr. Cakusi. You used the expression, Mr. Best, if I recall it cor- rectly, if the Commercial Fire Insurance Co. did not give you, or if you did not get the information which you wanted, that you would drag in the Protective? Mr. Best. I never testified to anything of the kind. Mr. Carusi. Mr. Caiu si. Those are your exact words. Mr. Berger. Drag in what? Mr. Carusi. Drag in the Protective Corporation. Mr. Best. I would like to have that testimony read to me. Mr. Cari si. "Well, if the stenographer can locate it, I would be glad to have him do so. Mr. Dovolas. That is exactly right. I wrote it down :it the lime. Mr. Best. 1 certainly have no recollection of testifying to anything of the kind — remotely resembling that. Mr. Carusi. I will ask the stenographer to see if he can locate it. Mr. Easby-Smith. My notes say, " I waited to see which way the cat jumped; if it went one way, all right, and if it went the other way I would drag in the Protective." Mr. Best. Oh. yes; I remember that very well. Mr. Carusi. What did you mean by you would drag it in? Mr. Best. I had previously testified that I had stated to the gentle- men who were operating the companies that if those changes which I thought were essential to their success were made in good faith that I would not feel it was proper for me to refer in reports published after that time to those misrepresentations as I then and now view them in their printed matter used in the promotion of the companies, but that if the reforms I thought ought to be made were not made then in those reports I would mention the Protective and the promotion litera- ture of this particular company as well. Mr. Carusi. Mr. Best, except as creating some suspicion in the mind of the person who would read a reference to the Protective, what had the Protective Corporation, or what has it now, logically, to do with the conduct of either of these companies that are under investigation ? Mr. Best. I look upon the Protective — the history of the Protec- tive — as an essential part of the matter which should be covered in a report to the Commercial or the First National, because the Com- mercial — the ownership of the Commercial — was the direct out- growth of the earlier promotion and because the same people are operating these companies to-day; simply a change of corporate titles, but, to my mind, there is a continuity all the way along. INVESTIGATION OF INSURANCE COMPANIES. 589 Mr. Carusi. Let me see if I can help you to state that, because I would like the committee to know just what the connection is. Is it not the idea that you mean to express that there was something- discreditable to Messrs. Tuttle, Wightinan, and Dudley in the Pro- tective Corporation and that that discredit has followed them, or ought to follow them, into a new insurance enterprise and injure the new company; is that the idea? Mr. Best. The criticisms which are applicable to the promotion of the Commercial, the sale of stock of the Commercial as such, and of the First National are — and exactly the same criticisms were applicable to the methods which were followed by the Protective; all of that is covered in the report of the examination by the Now York department. To that extent, and no further, I think that the history of the earlier corporation may properly be considered as a legitimate part of a report upon the present one. Mr. Carusi. Let me ask you whether you knew anything about Tuttle, Wightman & Dudley as an association prior to the publica- tion by the New York Insurance Department of the first of its pam- phlets on the Protective Corporation? Mr. Best. 1909 — it is several years ago, but my recollection is pretty clear we had had inquiries and had endeavored to secure in- formation before that was published. We had not made any special inquiry into any of their affairs until this Protective proposition came up. Mr. Carusi. Do you recall, without consulting the record, or if you wish to do so, the documents are in the record, that these re- ports of the New York insurance department on the Protective Cor- poration consist of a report by a person by the name of Senior, one of the examiners of the New York insurance department, to the superintendent of the department ? Mr. Best. Yes; Mr. Senior made the examination. I recall that. Mr. Carusi. And his examination and report of it to his official superior have been printed and are known as the report upon the Protective Corporation; is that not true? Mr. Best. Yes. Mr. Carusi. Those are the same two documents, are they not, which were referred to by the examiner for the Wisconsin depart- ment, as his reasons for refusing to license the Commercial Fire Insurance Co. ? Mr. Best. Yes. Mr. Carusi. Those two documents are the source of your informa- tion concerning Messrs. Tuttle, Wightman & Dudley, and their oper- ations in Syracuse, are they not ? Mr. Best. They are the only source of definite information as to what was done in the way of selling stock and cost of selling it which I have. Mr. Carusi. Exactly. Did you make any independent investiga- tion in the serious sense of the word " investigation," for yourself, into the facts relating to the Protective Corporation ? Mr. Best. No. Mr. Carusi. Is it not a fact, Mr. Best, that every criticism or nearly every serious criticism that you made concerning the Pro- tective Corporation or its method's, was based upon the statements of Mr. Senior as to his; conclusions ? 590 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. Not at all. They were based upon the figures which ilr. Senior took from the books of the company. Mr. Carusi. I am not confining myself to figures now. Most of the criticism that has been referred to has been criticism of litera- ture, criticism of methods. Mr. Best. Oh, as to the Mr. Carusi (interposing). Have you any independent knowledge of the methods or of the literature ? Mr. Best. As to the literature; yes. "We had the pamphlets. They came back to us just as these pamphlets concerning the First National and the Commercial came back to us. Any criticism I made of the promotion literature is based on the literature itself, but any criti- cism of the expense of selling the stock was based upon figures which were contained in the New York department's report. Mr. Cabusi. Then, if your criticisms of the literature and those of Mr. Senior, the examiner for the New York insurance department should appear to be very nearly identical, that is a coincidence, is it? Mr. Best. Coincidence. I think almost anyone would draw the same conclusions. Mr. Carusi. Well, that i.s yet to be seen. You know, do you not, that the Supreme Court of the State of New York in a proceeding in which all of the stockholders of the Protective Corporation were parties and in which the State of New York was represented by the Attorney General, passed an order dissolving the Protective Cor- poration? Mr. Best. I have been so informed by Mr. Tuttle. Mr. Carusi. Have you never examined the referee's report con- cerning the history and facts and circumstances and figures relating to that company? Mr. Best. I have not. Mr. Carusi. Do you not know or were you not told that that re- port had been made and filed in the latter part of the year 1911 and the decree entered in the latter part of 1911 ? Mr. Best. Yes. Mr. Carusi. You did not examine the referee's report nor the order of the court confirming it, even before your article of March ir> in your journal? Mr. Best. No. Mr. Carusi. Attacking these companies? I think this might be an appropriate time, if the committee please, to offer in evidence the certified copy of the report of the referee appointed by the Supreme Court of the' State of New York in which there are findings of fact, including something concerning the history of the organization of this Protective Corporation ; a statement as to the amount of stock that was issued and what it was sold for; of the assets of the com- pany at the time of dissolution, and I wish particularly to call atten- tion to one statement which occurs in the referee's report, to the effect rhat the cost, .of the selling of the stock of that company, which was admittedly large, was largely the result of the wide publication of the first Senior report at the instance of the New York insurance department. I wilLalsp offer, .though I haven't it at this moment here— it was omitted . from tjie papers we brought— the order of the court con- INVESTIGATION OF INSURANCE COMPANIES. 591 •firming in all particulars the referee's report and ordering the disso- lution. I will ask that that be inserted in the record at this point. Supreme court, Onondaga County. In the matter of the application for voluntary dissolution of the Protective Corporation. I, Donard F. McLennan, the referee herein, duly appointed by an order made at a special term of this court held by Hon. Irving R. Devendorf, a jus- tice thereof at Herkimer, N. Y., on the 9th day of September, 1911, having taken the proofs of the parties and heard the arguments of counsel, and after due deliberation thereon do make the following findings and report thereon : FINDINGS OF FACT. First. — That the persons who signed the petition herein were a majority of all the directors of The Protective Corporation, and that notice of this proceed- ing was duly served and published as required by said order. Second. — That The Protective Holding Corporation was duly incorporated by a certificate filed in the office of the secretary of state at Albany, X. Y.. on November 15, 1909, and a duplicate of said certificate filed in Onondaga County clerk's office on November 16, 1909, authorizing a capital stock of $400,000, represented by 40,000 shares of the par value of $10 each for the transaction of practically all the kinds of business that may be carried ou by corporations and having specific authority iu its certificate of incorporation to use its assets in the purchase of the stock of other corporations, having its principal office in Syracuse, Onondaga County, N. Y., and that the name of said corpora- tion was thereafter, pursuant to an order of this court made tit a special term ' thereof held at the city of Syracuse, N. Y., on November 5, 1910. before Hon. William S. Andrews, changed to The Protective Corporation, under which name it has, since its compliance with the terms of said order, conducted its business. Third. — That said corporation has heretofore issued 13.004 shares of fully paid up stock at double par and there are 666 shares of stock subscribed for at double par for which $9,594 has been paid, leaving the sum of $3. 720 remaining unpaid on said 666 shares of said capital stock so subscribed for at double par. Schedule A, hereunto annexed, contains all the names of the holders of paid shares of stock fully paid up at double par. as appears by the records of said ^corporation, and Schedule B, hereto annexed, contains a like list of the sub- scribers for said 666 shares of said capital stock not fully paid, together with the amounts paid thereon. Fourth. — That at the annual meeting of the stockholders of the said The Pro- tective Corporation held at Syracuse, X. Y., on January 10. 1911, a resolution was passed unanimously authorizing its directors or the executive committee of said corporation to purchase a fire insurance company, or a controlling in- terest therein; that 80 per cent of the stockholders of said corporation were present in person or by proxy and voted in favor of said resolution. Fifth. — That pursuant to said resolution there were bought 19,227 shar-es of the capital stock of the Commercial Fire Insurance Co. of the District of Co- lumbia, a corporaion doing business in the city of Washington, D. C, and in- corporated under the laws of the District of Columbia, at the price of $7.75 per share of the par value of $5 each. Trat 20,000 shares of said capital stock had then been issued and were out- standing. That its total authorized capital is $1,000,000. Sixth!— That $35,000 of said purchase price was raised by discounting a promissory note of The Protective Corporation with the District National Bank, of Washington. D. C. ; that no part of said note has been paid except the sum of $10,000 paid thereon and there is now owing and unpaid on said note the sum of $25,000. Seventh. — That thereafter and on or about the 10th day of June. 1911, The Protective Corporation bought .".000 shares of the capital stock of the Com- mercial Fire Insurance Co. of the par value of $5 each at the agreed price of $8 per share, amounting to the sum of $40,000, which it paid therefor. That said 5,000 shares was a new issue of the capital stock of the Commercial Fire In- surance Co., making the total issue of its capital stock $125,000. 592 INVESTIGATION OF INSURANCE COMPANIES. Eighth. — That the entire property of The Protective Corporation cousUtrd of the following assets on December 2. 1911 : Office furniture $300.00 Cash in Syracuse office 15.(0 ("ash on deposit in District National Bank at Washington, D. C 11.012.31! 19.227 shares Commercial Fire Insurance stock, actual cost 1 r>."5, 97S, 57 1.845 shares Commercial Fire Insurance Co. stock, at $8 per share-. 14, too. on Cash from sale of 1.755 shares of said stock sold at $8 per share 14, 040. on 1.400 shares of said stock under contract of sale at $8 per share upon which $2,040 has been paid and is held as a separate fund until the whole selling price is paid 11,200.00 Total assets 205.305.03 Ninth. — That the liabilities of The Protective Corporation on December 2, 1911, were as follows: Balance due on note held by District National Bank $25,000.00 Due Turtle. Wightman & Dudley 128. tin Due Robert R. Tuttle 150.00 Due John Wilcox on compromise agreement 65.00 Due L. May Spencer on compromise agreement 145.78 Due Charles E. Love on compromise agreement 415.80 Due Sarah J. Cavana on compromise agreement 265.78 Office expenses; telephone, telegraph bills, etc 50.00 Total 26,220.36 That there are no other debts of said corporation outstanding except current interest charges and expenses. Tenth. — That said four compromise agreements mentioned in the last-above findings are arranged upon terms which are advantageous to The Protective Corporation and its stockholders, and I believe should be ratified and authorized by the court. Eleventh. — That said Commercial Fire Insurance Co. of the District of Co- lumbia is a well-organized fire insurance corporation, economically managed l.y able and experienced officers in accordance with the laws of the District of Columbia, and has good business methods, earning an income which authorizes an 8 per cent annual dividend and promises even larger returns as its capital (•hall be increased. That it has recently made very advantageous business con- nections: it has a net surplus of $:}5,38(>, besides unadmitted assets of large value, consisting of agencies, profits in its reinsurance reserve, and renewal 1'olicy advantages, 'which makes its capital stock worth more than its book value or value for purposes of liquidation, and the shares of said stock are worth at least the sum at which they are carried on the books of the Protec- tive Corporation. Twelfth.— That the annual expense of taxation, office rent, office expenses, and officers' salaries incident to the maintaining of The Protective Corporation amounts to about $8,000, which is nearly 6 per cent per annum upon the par value of its fully paid-up capital stock of $136,040; that widely advertised criticism of the early management of this corporation has made the cost of procuring further sales of its capital stock, at the price heretofore required, prohibitive, and further efforts to sell the stock of this corporation will result in a waste of its assets. That because practically the entire assets of this cor- poration consist of the capital stock of the Commercial Fire Insurance Co. 01 the District of Columbia no benefit can accrue to its stockholders from the con- tinuance of The Protective Corporation; that the interest of the stockholders will be promoted by the dissolution of The Protective Corporation and a mt>- tribution of its assets and stockholdings to its stockholders in proportion to me respective shares of each in The Protective Corporation. Thirteenth.— That 970 holders of fully paid stock of The Protective Corpoia- tion, owning 12 347 shares of its stock, have consented to the dissolution of The Protective Corporation and have requested that their pro rata snaus of its assets be allotted to them in stock of the Commercial Fire Insn }* n " Co. of the District of Columbia by the director or directors who suotua ^ authorized bv the court to carry out such dissolution and transfer. J- m '' persons, who' have paid $:;.:i()0, equivalent to 165 shares in The Protect iw 1 poratiou have filed with (lie corporation like consents. That only three sr ' * INVESTIGATION OF INSURANCE COMPANIES. 593 holders owning shares have appeared in the hearings before the referee in this proceeding pursuant to the order to show cause, in person or by attorney, and each of their said attorneys have in substance conceded upon the hearing that the best interests of The Protective Corporation stockholders will be served by the proposed dissolution and distribution of the stock of the Com- mercial Fire Insurance Co. to the stockholders of The Protective Corporation. Fourteenth.— That Virgil H. Clyiner, one of the petitioner's attorneys, has rendered services and will necessarily render services hereafter in this pro- ceeding in connection with the dissolution of The Protective Corporation and for which he should be allowed to the amount and of the value of $2,500, no part of which has been paid, except the sum of $1,000 paid thereon. That Charles F. Carusi, of Washington, D. C. has rendered services and counsel in these proceedings and will render further services in connection with such pro- ceedings, for which he should be allowed the sum of .$1,500, $1,000 of which has been paid. That Louis L. Waters has acted as counsel for petitioner's attorneys herein and has rendered services and will hereafter render services for which he should be allowed of the value of $750, upon which has been paid the sum of $200. Fifteenth. — That Shire & Jellinek, attorneys, of Buffalo, N. Y., have filed iu the clerk's office of Onondaga County a notice of appearance on behalf of Louis S. Kurtzman, a stockholder; that no other persons have filed such notice of appearance; that upon the hearing before me herein appeared Nottingham & Nottingham and Martin H. Knapp. attorneys for D. T. Blair, a stockholder owning 100 shares of the capital stock of this corporation ; that George B. Russell, esq., appeared as attorney for the Joseph S. Cottman estate, holding 25 shares of said capital stock, and Messrs. Jenney & Byrne appeared for William Simon, a stockholder owning 505 shares of said capital stock. Sixteenth. — That Edward S. Gaylord is the treasurer of The Protective f'ornoration and a director thereof. He is familiar with all of its book ac- counts, assets, and obligations ; he is an expert accountant, experienced in bank- ing, and is well qualified to caury out such order of distribution as may be made herein, and the distribution of assets of this corporation could be most efficiently and economically made by him under the order of the court. Seventeenth. — That The Protective Corporation is a going concern ; that during the progress of those proceedings consents of stockholders to the pro- posed distribution have been coming into the office of said company day by day : that the installment sales of the Commercial Insurance Co. stock held by it under contract of sale are being completed daily, thus increasing the amount of cash on deposit in the District National Bank, at Washington. D. C, to the credit of this company, and the remainder of the 1.400 shares mentioned in the eighth finding of fact will be changed into cash within a brief period and said $25,000 note retired. I find as CONCLUSIONS OF LAW. First — That The Protective Corporation is solvent; that its continued exist- ence can be of no benefit to its stockholders; that its organization and offices can not be maintained without a loss to them ; that it would be for the best interests of the stockholders of The Protective Corporation that said company be dissolved by a decree of this court and a distribution of its assets made by one of its directors, under the direction of the court. Second — That the assets and capital stock held by The Protective Corpo- ration remaining after the payment of its debts, current expenses to the date of dissolution, including any amount necessary to pay on account of lease, the expenses of this proceeding, and the allowances herein found, should be dis- tributed pro rata and in the proportion that the stock held by the respective stockholders of The Protective Corporation is to the entire issued and out- standing capital stock of said corporation, including in the estimate of issued and outstanding stock the amounts of stock to be issued to installment sub- scribers whose rights have not been forfeited, and that installment subscribers for said capital stock whose rights have not been lapsed by their default in payment of installments upon such distribution be entitled to share in pro- portion to the amount paid by them, respectively. That to the holders of shares of The Protective Corporation and the in- stallment subscribers whose subscriptions have not lapsed or been forfeited, who shall have assented thereto, be given such proportionate share or shares of the capital stock of the Commercial Fire Insurance Co. and cash as they shall be entitled to receive. 594 INVESTIGATION OF INSUKANCE COMPANIES. That such shares of said Commercial Fire Insurance Co. stock as slmll be a portioned to those stockholders and those installment subscribers whose rights have not been forfeited and who shall not have assented to such distribution be sold in five-share lots and with the right to purchase in multiples of five i such sale be divided and paid to them according to their respective shares and holdings, together with their respective proportionate shares of the cash and other assets of The Protective Corporation. I do further recommend and report that the 1.400 shares of Commercial Fire Insurance Co. stock under contract of sale upon which $2,040 has been paid be closed out immediately. This will produce a fund of $14,200, which, added to the $14,040 already received from the sale of 1.7."." shares, will retire the J?2."),000 note of this corporation and leave an excess of over $3,000, which, added to the $11 012.36 on deposit in the District National Bank, at Washington, D. C, to the credit of this corporation, together with the proceeds of the sale of its office furniture (which I recommend should be sold), will give a fund of about $14,500 available for the payment of claims, current expenses, and the costs of these proceedings, besides the semiannual dividend which may he declared upon the Commercial stock to be divided among The Protective Co. stockholders. I further recommend that in my opinion the rule of forfeiture of payments made by the subscribers for The Protective stock should not be rigidly enforced; that no forfeiture should be declared. or enforced as to subscribers whose days of grace for installment payments had not run before those pro- ceedings were instituted and who have offered to pay since those- proceedings were instituted and prior to this date, and that such subscribers be permitted to share in proportion to the payments actually made by them. I further recommend that the attorneys for D. T. Blair, William Simon, and the Joseph S. Cottman estate, having requested an allowance, be allowed the sum of $200 each ; that in accordance with the findings of fact herein counsel for The Protective Corporation should be paid the allowances found in said findings of fact to be reasonable; that the liquidating director be allowed for his services as such the sum of $100 plus a per diem of $15 a day for each day actually occupied in said liquidation, in lieu of receiver's fees, the said liqui- dating director havng assented to this arrangement and it being agreeable to the other directors of The Protective Corporation. Filed with this report are the minutes of the proceedings and evidence takiai before me and the exhibits filed or copies of said exhibits, all of which are respectfully submitted. Donald F. McLkunan, jtrfcrrr. Dated, December 12. 1911. (Indorsed:) Herkimer County special term. Herkimer, N. Y., December 23, 1011. Bead on motion and ordered filed in Onondaga County clerk's office. A. C. Dingman. deputy clerk of Herkimer County. Filed December in, 1011. State of Xi;\v York, Onoiitlaf/a ('outfit Clerk's Office, s«: I. James C. Butler, clerk of said county, and of the supreme aud county courts therein, which are courts of lecord. do hereby certify that I have com- pared the foregoing copy of a referee's report, exclusive of schedules, with the original thereof filed, now remaining on file in this office, and that the same is a correct transcript of said original, and of the whole thereof, and of the in- dorsement thereon. In witness whereof, I have hereunto set my hand and affixed the seal of said county and courts at the city of Syracuse, this 13th day of May. 1912. [seal.] James C. Butler, &<>t. Mr. Caeusi. Now. to take up another line, Mr. Best, fer a few moments; something has been said about the Commercial Vm In- surance Co. either having been refused admission into New "iork. <«' not having pressed for admission into New York. Is it not your understanding there exists in the New York department a rutin? which requires not only that the statutory minimum capital oi INVESTIGATION OF INSUHANCE COMPANIES. 595 $200,000 shall exist, but there shall be a surplus of 50 per cent of the amount of the capital ? Mr. Best. There is such a ruling. It is not law, but it is a ruling. Mr. Caeusi. So, that if the Commercial Fire Insurance Co. was unable, due to the fire losses in the early part of 1912, or for any other reason, to comply with that ruling, it would have been useless to have applied- Mr. Best. Entirely so. Mr. Caeusi (continuing). To the New York department. Leaving out the question, Mr. Best, as to the mode of organizing a fire insur- ance company, whether by mail or by stock salesmen, or by half a dozen of us getting together and putting up a certain amount of money, large or small, in proportion to our means, are you in favor of the organization of fire insurance companies, or opposed to it ? Mr. Best. It is rather a broad question. On Avhat grounds ? Eco- nomic grounds? Mr. Caeusi. I want to get the mental attitude which you bring to bear in your criticisms of the literature and methods of the organiza- tion of an insurance company. Mr. Best. I think I can give that very easily. Viewing the matter solely as a question of exact economics, I very much doubt the wisdom of organizing small fire insurance companies at all, for the reason that every year it becomes more and more difficult even for old com- panies which are small to make any profit. I am not in the smallest degree opposed to the formation of new companies, but I do think that the organization of new companies should be discouraged unless they are well furnished, first, with capital and surplus, and second, with competent underwriting skill. Mr. Caeusi. As to furnishing them with capital and surplus, Mr. Best, first of all, what do you call a small company as contradis- tinguished fjom a large company? Mr. Best. I should say as industrial conditions are to-day that a company of less than a million dollars capital and surplus is a small company, and even a million dollars of capital and surplus is not as much as it ought to have. Mr. Caeum You mean a million of each? Mr. Best. No ; a million between the two. Mr. Caeusi. At least five hundred thousand? Mr. Best. At least $500,000 capital and $500,000 surplus. Mr. Caeusi. To organize such a company as that with a minimum of a million dollars capital and surplus, unless it is to be done by the wide distribution of its stock in small lots, it would be prohibitive of any but very rich men organizing a company, would it not ? Mr. Best. Of course. Mr. Caeusi. It would take $200,000 apiece from five of us, for in- stance, if we were going to organize, without any expense, the small- est company that you think is justified in being organized. Mr. Best. Quite true. Mr. Caeusi. If the company is going to be organized by any but such, favored persons it would be necessary to distribute its stock among a large number of persons, would it not? Mr. Best. May I qualify the answer slightly? Mr. Caeusi. Certainly. 596 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. All right. I do not believe there is any medium in your question between your suggestion of 5 men putting up $200,000 apiece and organizing a company that has 2,000 stockholders, each holding a very small amount of stock. Mr. Carusi. Oh, yes; you might have 50 men. Mr. Best. There might be 50 and there might be 100. Mr. Caeusi. With $20,000? Mr. Best. That is the idea. What I mean is I would not want to appear to say that it is impossible to organize a company except by a very small group getting together or by selling the stock by mail or salesmen. Mr. Carusi. Is it not a fact, however, that if you do increase the number of your stockholders and the wide distribution of your stock that you increase the expense of organizing your company ? Mr. Best. Undoubtedly. Mr. Cartjsi. The Association of State Superintendents of Insur- ance have several times had something to say, have they not, on the subject of expenses of organizing companies? Mr. Best. Twice. I believe. Mr. Cartjsi. The first time they fixed the extreme limit at 5 per cent, did they not ? Mr. Best. That is true. Mr. Cartjsi. And later on the}' conceded 10 ? Mr. Best. That is it. Mr. Carusi. As a permissible sum? Mr. Best. I am certain of the first item, but of the second I am not so certain. Mr. Carusi. In your judgment. Have you not heard at a still later meeting the limit was raised to 15 per cent? Mr. Best. I never heard of it until a few days ago, when Mr. Herbert Wolf called me up on the telephone and asked me whether that action had been taken, and I told him if it had I had not heard of it. Mr. Carusi. Is it not, of course, an apparent fact that every new company, be it large or be it small, that enters into the field com- peting for business adds to competition, and to that extent has a tendency to give the people insurance at a lower rate ? Mr. Best. Theoretically that is true. Mr. Carusi. Theoretically? Mr. Best. Practically : the effect of one company or more, if it was a small concern, would not be appreciable. Mr. Carusi. Weil, if we would add together enough of these small companies the total would be appreciable, would it not? Mr. Best. Certainly. , Mr. Carusi. How appreciable it would be would depend on how large the company was and how much business it could get? Mr. Best. That is true. , . . Mr. Carusi. Do you know, as a well-informed man on the sufijeci of fire insurance, that it is a settled policy on the part of the large fire insurance companies which belong to what people call the *>re Insurance Trust to discourage the organization of new fire i nsura , , r companies or the increase in capitalization of the older and smaller companies ? INVESTIGATION OF INSUHANCE COMPANIES. 597 Mr. Best. I do not know it. I can give you one illustration of a company formed in recent years where a great percentage of the stock was taken up by the officials of other existing companies, if you care to have it. Mr. Caeusi. We will take it for granted that there is such a case. Mr. Best. Yes; the Standard, of Hartford, was organized in just that way ; every big insurance man in Hartford took a sliee of that stock. Mr. Caettsi. That company was to do a reinsurance business prin- cipally, was it not? Mr. Best. No ; a direct business. Mr. Caeusi. As a matter of general information, do you not know, or have you not frequently heard it stated, that some of the insur- ance departments in States where the Insurance Trust is particularly strong have a consistently unfavorable attitude toward the organiza- tion of new companies ? Mr. Best. No ; I do not think that that is so. Mr. Bebgeb. Mr. Best, is there an Insurance Trust in the fire insurance business? Mr. Best. I have not had an opportunity to say whether it is true or not. I do not believe it. Mr. Caeusi. I was coming to that. Is it not a fact that in your own city of New York the rates which must be charged by all fire insurance companies to the citizens of that city are fixed by a board? Mr. Best. That is true. Mr. Caeusi. Is it a further fact .that no company can exist in the city of New York that does not subscribe to the regulations of that board? Mr. Best. I should say that that is also true. Mr. Caeusi. Is it not a fact that any company which does not so subscribe can in effect be ruined or driven out of New York City ( Mr. Best. New York City ; yes. I will grant you that. Mr. Caeusi. You have heard of the eastern conference, have vou not, Mr. Best ? Mr. Best. Yes. Mr. Caeusi. "Will you tell in just a few words the committee just what it is ? Mr. Best. It is an association of insurance companies who have banded themselves together with the object of establishing such rules and rates as will enable them to handle their business at a profit, if the fire losses will let them. Mr. Caeusi. Have you ever heard of the '" separation rule ''? Mr. Best. Yes, sir. Mr. Caeusi. Which is one of the weapons employed by the eastern conference. Will you explain to the committee what that is? Mr. Best. The "separation rule " is that an agent must represent companies that are in the conference or out of it ; he is not permitted to represent half and half. Mr. Caeusi. That is to say, if a nonboard company should secure the services of a general agent who has four or five companies in his agency and objection was made by any of the companies in the conference or the separation rule were put into force, that agent 598 INVESTIGATION OF INSURANCE COMPANIES. would be told to throw that nonboard company out or lose all of his other companies? Is not that true? Mr. Best. That is probably true. Mr. Carusi. Now. Mr. Best, you have just stated to the committee that you have heard that there was a fire insurance trust, but did not believe that there was one. How would you define a fire insur- ance trust? Mr. Best. I would define any kind of a trust as an organization either a single concern or a closely knit association of other concerns' which was so strong as to dominate any line of commercial activity; and in that sense I do not believe that there exists an insurance trust. I can say for the information of the committee that I was told within a short time by the president of the Continental Insur- ance Co., one of the most prosperous companies that we have, that immediately following the San Francisco conflagration Mr. J. P. Morgan and several other large financiers approached him with the idea of organizing a company which would have been in fact an insurance trust. They suggested that they organize a company with $50,000,000 of capital and surplus. It never got beyond the sugges- tion stage, for Mr. Evans informed them that an insurance trust was an impossibility; that earnings of insurance companies must come through business absolutely from agents, and no company could control or dominate the business; and I think that that is a fact. Mr. Carusi. Is there not a western union which corresponds to the eastern conference? Mr. Best. There is. Mr. Carusi. And in addition to that there is a Pacific — what is it called? Mr. Best. The Board of Fire Underwriters of the Pacific Coast. Mr. Carusi. Is it not a fact, Mr. Best, that the controlling or dominating factors in each of these so-called unions or conferences pre the same heavily capitalized companies? Mr. Best. Necessarily so. Mr. Carusi. And a few of the very heavily capitalized English companies? Mr. Best. Well, the membership is a good deal broader than that. This eastern union has been talked of for years, but it is really only within the last year or 18 months that they have been able to pet together sufficiently to make it in any degree effective. Mr. Carusi. You spoke of the Continental Fire Insurance Co. being approached by Mr. Morgan to go into a Fire Insurance Trust. Mr. Best. It was just talk. Mr. Carusi. Is the Continental a board company or nonboard com- pany ? Mr. Best. Sometimes one and sometimes the other. Mr. Carusi. Whichever it pleases? Mr. Best. Whichever it pleases. Whichever it thinks will make the most money for it. Mr. Carusi/ Do you not know, Mr. Best, that Mr. Robert It. 1 ut- ile, so often mentioned in these proceedings, was, during the ly yea" or more that he conducted the large general agency from Syracuse for the States of New York and Pennsylvania, always during that period what is known as a nonboard man ? INVESTIGATION OF INSURANCE COMPANIES. 599 Mr. Best. That is true by report. I do not know to my own knowl- edge. Mr. Cakusi. Would not that fact, in your mind, account for a good deal of hostility to any new enterprise that he might be con- nected with in the way of fire insurance companies ? Mr. Best. It might. I do not believe it would have any particular weight. Mr. Geoege. Mr. Carusi, will you please ask him what a nonboard company is? Mr. Carusi, I will, sir. What is a nonboard company, Mr. Best? Mr. Best. A nonboard company is one which operates in any given territory without obtaining membership in whatever organiza- tion of underwriters exists in the territory for the purpose of fixing rates of commissions to be paid and other methods of practice. These organizations exist all over the country. There is an effort to pre- vent cutthroat competition. Mr. Beeger. Mr. Best, you stated that the Continental was some- times a board company and sometimes a nonboard company. How do you explain that? Mr. Best. Well, in one section of the country its agent might be a member of the board and in another section of the country he might not. Mr. Beeger. Is not there an agreement between the companies that the agents are to be members of the board everywhere? You said it was an agreement that brought this about. Mr. Best. I won't put myself on record finally and absolutely as to the Continental on that point. I know that up to, within a short time the company was noted for being one of the largest companies that stayed out of the board. It is a member of the board in New York City. Mr. Bedeield. Does not the question of board or nonboard also take into account such matters as fire protection and standard com- panies and efficient risks and quality of risks, building codes, and so on? Mr. Best. Yes. I do not think that is universally true. Mr. Berger. In Milwaukee it is? Mr. Besi. In Milwaukee; yes. Mr. Carusi. Mr. Best, do not the board companies fix for members of the board the rates which shall be paid by the insurer except in those few States where the rate-making power has been established by the State itself? Mr. Best. In general, that is true. Mr. Caeusi. Is it not a fact that within a few months one of the daily newspapers of New York has charged the existence of a fire- insurance trust with its headquarters in New York and Hartford ? Mr. Best. Yes. I talked that all over with the editor of the paper. He has changed his mind. Mr. Carusi. He changed his mind after he published the article, did he? 'Mr. Best. After he published the article. Mr. Carusi. Well, you have been a very good friend, then, to the insurance trust. 600 INVESTIGATION OF INSTJBANCE COMPANIES. What proportion of your subscribers do you think, Mr. Best, in the way of insurance companies, belong to the so-called trust? More than half of them ? Mr. Best. More than half of those who are subscribers to my reports ? } Mr. Cart-si. Yes; more than half of the companies which sub- scribe ? Mr. Best. All guesswork. Mr. Carvst. All guesswork? Mr. Best. I should say so. The great bulk of the companies are members of these organizations. Mr. Carusi. You stated, Mr. Best, that you had demanded, or had requested, which is perhaps nearer your statement — that you had re- quested certain information, and that it had been withheld from you. Yon do not claim any official character, do you. in the insurance world ? Mr. Best. None whatever. Mr. Carusi. And a company would have a right to withhold any information from you that did not appear in the published reports, would it not? Mr. Best. Certainly. Mr. Carusi. And you testified, I believe, that the Commercial Fire Insurance Co. did withhold information from you? Mr. Best. It was not furnished. Mr. Carusi. It was not furnished. I now show you a letter which I will ask you to read for the record under date of August 1T>, 1912. This is a carbon copy, but I take it you received the original. Mr. Best. Yes; I recall receiving a letter of which this purports to be a copy. " Mr. Carusi. Will you be good enough to read that letter for the information of the committee? Mr. Best (reading) : August jr.. J9J2. Alfred JI. Best Co., 100 William Street, \ev: Yuri; X. Y. Gentlemen : Replying to your favor of August 1, following your visit to this office on July 31. we beg to give you herewith a complete answer to each ques- tion asked and such other information as occurs to us that may or may not be of interest to you. Our financial statement, as of June 30, 19J2, is as follows: ASSETS. LIABILITIES. Loans, mortgages $153, 400. CO Capital stock $277,710.09 Bonds 107,339/17 Fire loss payable 2,290.94 Certificate of deposit 28,365.05 Fire loss unadjusted 23,903.92 Interest due and accrued- 5.762.19 Reinsurance reserve 100,118.92 Agents' balances 34,935.22 Reserve for taxes 1,500.00 Cash in bank and office__ 64, 095. 30 Due T. W. D. for commis- sions and expenses — stock sales 635 -°|! Surplus 47,736.1' 453,896.93 453, 896. !« On that date — June 30 — our subscribed capital amounted to approximately $340,000; to-day the subscribed capital is approximately $400,000 and ourpaio-u capital to-day is $296,000, the balance being in process of collection. We are also meeting with larger sales of stock than earlier in the season. For every INVESTIGATION OF INSUEANCE COMPANIES. 601 dollar of capital stock subscribed there is $1.10 subscribed to the surplus item. The par value of our stock is $5 and it is selling at $11 per share. The Commercial's authorized capital is $1,000,000, which point we hope to reach by the end of this year. The Commercial stock is being sold by salesmen who are carefully instructed at this office, and it has been our earnest effort to select only such men as can be relied upon not to make misstatements. The outside limitations of expense of selling Commercial stock is 20 per cent, and while it has cost that in the past we believe from the rapidity with which it is now selling the expense will be materially increased. The underwriting contract for fire insurance business is with Tuttle, Wight- man & Dudley (Inc.), and provides for a 35 per cent commission and a 10 per cent contingent on the net profits, said Tuttle, Wightman & Dudley (Inc.) to pay all expenses. This, I believe you will agree, is the lowest possible com- mission upon which a satisfactory business can be produced. In passing I will state that of my own knowledge Tuttle, Wightman & Dudley (Inc.) have not profited anything by this contract, although they hope to in time to come. I have been unable to obtain information from the former Protective Cor- poration and can only state that after the organization expenses of the Protec- tive, the legal expenses, including its voluntary dissolution, and all other expenses had been paid, the stockholders received Commercial and took for their Protective stock in the ratio of 75 per cent of the amount they had paid in, in addition to which a small cash distribution was made to the Protective stockholders at the time the assets were finally liquidated, and that the invest- ment made by the Protective stockholders now nets them in Commercial stock 4J per cent per annum. I beg to remain, very truly, yours, , President. P. S. Tuttle, Wightman & Dudley (Inc.) have voluntarily waived any com- mission on business in the District of Columbia, and yet are vigorously pushing for business here, and the conservative expectation is that the company will write $25,000 per annum in the District of Columbia free of any commission cost. The company also has 2,500 stockholders and arrangements have been made for the writing of their insurance at a nominal commission expense. Mr. Caeusi. You said this morning, Mr. Best, repeating, I believe, some interviews you have had with the officers of the company, that you considered that underwriting contract a dangerous contract. Mr. Best. Yes. Mr. Carusi. You do not consider the amount of commissions paid unreasonable, do you ? Mr. Best. No. Mr. Caeusi. Did you, in one of your recent issues, state you con- sidered that was a reasonable contract for the company to have entered into? Mr. Best. As to commissions; yes. Mr. Caeusi. Did you limit your statement to commissions? If I can find a reference to it, I will show it to you. Mr. Best. Was it in my own paper ? Mr. Caeusi. Yes. Mr. Best. Then I probably can find it. Mr. Johnson. Will it be convenient for you to stop at this point ? Mr. Carusi. Yes, sir. Mr. Johnson. The committee then will stand adjourned until to- morrow morning at 10 o'clock. Thereupon, at 4.55 o'clock p. m., the committee adjourned until to- morrow, Saturday, January 4, 1913, at 10 o'clock a. m. INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 7 JANUARY 4, 1913 WASHINGTON- GOVERNMENT PRINTING OEEIOE 1913 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA, Subcommittee or the Committee on the District of Columbia, House or Representatives, Washington, D. ft, January 4, 1913. The subcommitte met at 10 o'clock a. m., pursuant to the adjourn- ment of yesterday, Hon. Ben Johnson, chairman, presiding. Also Mr. Francis H. Stephens, assistant corporation counsel of the •District of Columbia. Also George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, representing the Commerical Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. TESTIMONY OF MR. ALFRED M. BEST— Continued. Mr. Carusi. Do you know the professional standing of S. H. and L. J. Wolf * Mr. Best. Yes, sir. Mr. Carusi. It is very high, is it not 1 Mr. Best. Yes; very high. Mr. Carusi. They are expert insurance accountants and actuaries, are they not ? Mr. Best. Yes, sir. ' Mr. Carusi. Do you think that this committee could properly accept with confidence statements made by one of these gentlemen under oath as a witness ? Mr. Best. I should certainly think so. Mr. Carusi. I believe you said you would like to get back to New York this evening % Mr. Best. If it is entirely convenient. Mr. Carusi. I want to try to finish the cross-examination in as brief a time as possible to save the committee's time and to accom- modate you and Mr. Wolf, who wants to get back to New York, and I will ask you to cooperate with me by answering my questions, if you understand them, just as rapidly as you can, and as to anything that is put in evidence, to put it in rapidly. With respect to C. Sumner Best's connection with the Commercial Fire Insurance Co., which was brought out by a member of the com- mittee yesterday, I would like to ask you if your brother is not connected in some manner with your publication. Mr. Best. In no way whatever, except Mr. Carusi. Does he not do the reportorial work for it on the coast « em 604 INVESTIGATION OF INSTJKANCE COMPANIES. Mr. Best. He acts as my Seattle correspondent. Mr. Cakusi. You keep in very close touch with him ? Mr. Best. Oh, yes, in that way. Mr. Caeusi. I hand you a letter and ask you if that is not your signature; and if you identify it, I will ask you to put the whole letter in evidence, but to read only the last paragraph, unless you care to read the whole letter, giving the date of the letter. , Mr. Best. Yes; this is my letter. You wish to read the last para- graph? Mr. Caeusi. Unless you wish to read the whole letter. Mr. Best. The rest of it is not germane to the inquiry. Mr. Caeusi. I do not think it is. Mr. Best. The last paragraph is : I am writing a line to my brother telling him of my visit at your office, and that I shall shortly have out new reports on both the Commercial and First National, based upon much more complete information than 1 ever had before. This letter is dated August 3, 1902, addressed to Mr. Kobert E. Tuttle, vice president, Commercial Fire Insurance Co. The complete letter, of which the last paragraph was read, is as follows : Alfred M. Best Co. (Inc.), New York, August 3, 19U. Mr. Robert K. Tuttle, Vice President Commercial Fire Insurance Co., Washington, D. C. Dear Mr. Tuttle: I have yours of the 1st, inclosing copy of a letter received by you from my brother, and your reply. What he said about Schively, the Insurance Commissioner of Washington, is not one bit too strong, I have personal knowledge of many cases where he ias held up insurance companies, and he should have been impeached and thrown out of office at the time of his trial. The only reason he was not was that many of the members of the legislature wer« not at all anxious to antagonize him, for fear he might retaliate by exposing some of their own actions. Things have been pretty raw in Washington for some time past, but they are getting better. I am writing a line to my brother, telling him of my visit at your office, and that I shall shortly have out new reports on both the Commercial and First National, based upon much more complete information than I ever had before. Yours, very truly, A. M. Best, President. Mr. Caeusi. Do you recall that at the time you wrote that letter you were informed in a general way that the Commercial had shared in the heavy losses that the first six months of the present year had shown for other companies? Mr. Best. I recall that in the interview at the office of the com- pany on July 31 Mr. Tuttle stated that the business had not been as profitable as he could wish. He did not give me any definite figures. Mr. Caeusi. You made the statement yesterday that you were going to wait to see how the cat would jump. I did not understand what you meant by that. Will you explain that ? Mr. Best. I have twice endeavored to explain it, and I will try again. I had requested certain information concerning these two companies which I felt was essential to the preparation of a complete and intelligent report. The information had been promised. Some of it had been furnished, and some of the remainder, which was very important, had not been furnished. I was waiting to see whether this additional information would be placed in my hands. It was impos- sible for me to determine, until I received that information, just what my report would be in the future. INVESTIGATION OF INSURANCE COMPANIES. 605 Mr. Caeusi. Will you produce now, if you have it, the letter addressed by you to Bank Examiner Hann ? Mr. Best. 1 have the letter. Mr. Carusi. I will ask you to read that letter for the record, as it is not in the record. Mr. Best. The entire letter? Mr. Carusi. Your letter to Mr. Hann, if you please. Mr. George. Just a moment. Does not this appear somewhere in the record ? Mr. Carusi. It was stricken out by the committee yesterday. Mr. Best (reading): August 30, 1912. Mr. Samuel M. Hann, National Bank Examiner, Baltimore, Md. Dear Sir: Returning to my office after a 10 days' absence I found your letter of August 19 concerning the Commercial Fire Insurance Co., of Washington, D. 0., acknowledged by our Mr. Holton on August 22. You say that you have read the report upon the Commercial Fire printed by us in Best's Insurance News, and assume that you refer to the article printed in the issue of March 15, 1912. It is true that the writer visited the offices of this company at the request of an intimate personal friend here who plans to represent it and its sister company, the First National Fire Insurance Co., in the city of New York when the companies reach the point where they can qualify for admission to this State. My friend talked with me concerning the people back of the two companies and assured me that he had confidence in their good faith. He stated that they had come to the conclusion that their attitude of refusing to furnish us information in response to our inquiries was wrong and that if I would go with bim to the office of the company its officers would answer any questions which I might ask. Since this was all that we have been urging upon the company, I gladly consented to visit its office, which I did, and a considerable amount of information was furnished arid additional infor- mation promised at an early date. I had an opportunity of meeting those most active in the management of the company and am frank to say that my opinion of the enterprise was much improved by this personal contact; but I certainly made no statement that we would retract our adverse criticism, nor did I then or at any other time admit having been "misled and deceived," 'to quote Mr. Harper. I told these gentlemen very frankly that in my judgment the statements made in the printed matter used to sell this stock are misleading, particularly when they are addressed to persons unfamiliar with insurance affairs, and that the company and those operating it are open to censure for making use of these statements. They insisted that every statement made is true, and, as far as they go, that is correct. The trouble is that they do not go far enough. They tell only half of the facts, and the suppression of the remainder creates an erroneous impression. At the same time these gentlemen seem to feel that they are not properly subject to censure for these statements upon either business or ethical grounds. I stated that it would be useless to argue this point, but my own opinion was final and that it was evident that they could not properly accept it. Their position was explained in an inter- esting manner by Mr. Richard Wightman, one of the active promoters of the two companies, in this way: "If you wanted to sell a man an automobile and convince him that yours was the best one to buy, would you feel that it was necessary when he was ready to hand you his check to say, 'now before you actually buy this car I want to remind you that tires and gasoline and general up-keep run into a large amount of money, and that no matter how careful you are you may run down some one and be sued for heavy dam- ages,' and so on, dwelling upon the undesirable features of automobile ownership." I replied that the parallel was not a fair one, for all these matters were of common knowledge, whereas the average business man knows nothing about fire insurance statistics or methods, and that the only fair way to present the proposition for the purchase of fire insurance stock would be to give both sides of the question and then let the man buy or not, after he had a full knowledge of what he was about. I am now working personally upon a revision of our confidential reports upon the Commercial Fire Insurance Co. and the First National Fire Insurance Co., but it is doubtful whether this will be completed before the middle of September, at which time I am promised considerable additional information. 606 . INVESTIGATION OF INSURANCE COMPANIES. I have tried to give you a clear understanding of the situation. There is no ques- tion that the promoters of these two companies have interested in them a number of very substantial and reputable people; they have Bold a lot of stock so far and are continuing to do so, and I gather the impression that they really want to build up these two companies into permanent and useful institutions. I think that in order to do this they must make Borne changes in their plans and methods, and I thought when I wrote my article last March, and still think, that their stock selling printed matter is decidely open to censure. That is an expression of opinion in which you may or may not be interested. Please consider this letter confidential, and if I can serve you any further in this or any other investigation, which you may be making into the affairs of insurance companies of any class, I shall be happy to do so. Yours, very truly, , President. Mr. Carusi. What is the date of that letter ? Mr. Best. August 30. Mr. Carusi. Between August 30 and December 3, 1912, did you keep in touch with your brother to any extent ? Mr. Best. I could not tell to what extent, without consulting the files. There were undoubtedly letters passing back and forth. Mr. Carusi. You knew he was a candidate for representation of these two companies upon the Pacific coast, did j r ou not ? Mr. Best, l es ; that is, in the State of Washington, I understood it. Mr. Carusi. And that he would naturally advise with you as to the character of company he would put the public in, would he not? Mr. Best. Certainly. Mi-. Carusi. I hand you this letter, dated December 3, 1912, and ask you if that is your brother's signature ? Mr. Best. It is. Mr. Carusi. I will ask you to read the letter. I will say, with the committee's permission, that if Mr. Best cares to edit that letter as he goes along, leaving out the irrelevant references. I am quite satisfied to have him do so. Mr. Best. I fear I would not be competent to pass upon what is relevant and what is not; I never saw the letter before. [Keading:] Charles S. Best & Co., Seattle, December S, 191$. Mr. Robert R. Tuttle, President Commercial Fire Insurance Co., Wa hington, D. C. My Dear Mr. Tuttle: Your telegram of yesterday arrived in due course and I sent you a night letter as follows: , • "Jefferson have no general agent in Washington. Represented by Associated Underwriters (Inc.), Frisco. I will be glad to represent both your companies in all Northwest territory. Please await my letter giving details before making arrange- ments. My eastern trip delayed by important litigation in Spokane trial now set for December 10." This should have reached you by now. Since my return from the southern trip in September I have been expecting from week to week to go East, but have been detained hereon account of some important litigation of the Dubuque Fire & Marine Insurance Co. This arose out of a fraudu- lent claim having been made upon the company for water damage to a grocery stock in January last, and the proofs filed by the assured were so grossly incorrect and he had sworn falsely to so many different things that we decided to deny liability on the grounds of fraud, which had invalidated the policy. The case has been set for trial several times and almays postponed at the request of the plaintiff, but I am now informed that the court has set December 10 for the final argument. I have been very much interested in this case, and it was impracticable for me to go East until ISreESTIGATIOH OF INSURANCE COMPANIES. 607 it was finally disposed of. I am satisfied we can nonsuit the plaintiff, and in that case I intend to turn the matter over to the prosecuting attorney and have both the assured and the person who aided him in making up his fraudulent proof prosecuted under our criminal statute. I have also been very busy this fall in defeating the present insurance commissioner, who is notoriously crooked and incompetent, and have succeeded in electing by a large majority a very capable and thoroughly upright man, Senator H. 0. Fishback. He will take charge of the office in January, 1913, next, and I will act largely as his advisor on all problems pertaining to insurance and the enforcement of insurance law. I was urged very strongly to run for the office myself, but declined to do so, as I did not wish to mix up in politics. I have worked hard for five years to bring about the change which has now taken place and naturally I feel quite gratified at the outcome of the election. I will be very glad to take the representation for all of the Northwest territory of both the Commercial and the First National, and I know I can do more for you than anyone on the coast. I have connections throughout British Columbia whereby I can place the companies immediately and secure you a very excellent class of business. Your companies will be given first place in my agency and the business will receive the same careful supervision that you would give it at the home office. Your inter- ests would be my interests and I would strive at all times to build up the companies on a sound, conservative basis, as I have always maintained that quality and not quantity of business is the thing that pays in the long run, and I have never yet given a company a risk that I personally would not have accepted had I been an officer of the company. I would be willing to take the companies either on a general agency basis along lines outlined in the contract herewith inclosed, or, if you prefer to operate this ter- ritory as a branch-office agency, to take the companies on a moderate salary and a contingent on the profits. A number of companies seem to prefer the latter method of doing business, and either proposition will be agreeable to me, as I want you to feel always that I am one of the official household and striving, as you are, to make a great success of both companies. A great many of the large class "A" buildings in this city are insured on a three- year basis and the insurance runs out shortly after the first of the year. The owners of these structures have promised me all of the insurance I can possibly write because of the work I have done for them in cleaning up insurance conditions here, and there- fore I am particularly anxious to get the companies out here at an early date, so that I may be able to put them in on all of this class "A" business. If you will entertain this proposition favorably I will arrange to go East by the middle of this month and conclude negotiations with you, or it might be better, as you have never been to the coast, to come here to Seattle and see for yourself just what the conditions are. Coming right through from Washington you can make the trip inside of five days, so that it would not necessitate your being away from the home office any great length of time. I am confident that it will be to your advantage to make me your representative on the coast, as my standing here is such that pur- chasers of insurance will accept policies of any company that bears my signature. Trusting I may have an early and favorable reply, and wishing you all success, I am. Very sincerely, yours, C. Sumner Best. Mr. Redfield. Mr. Chairman, yesterday a letter was read by the witness from Mr. Hann to him, and his reply to Mr. Hann was also read. Later both were excluded. Now, counsel for the insurance company has put in the reply, and I ask that the original letter from Mr. Hann to Mr. Best be made a portion of the record at this time. Mr. Douglas. I think, Mr. Chairman, that is a perfectly fair thing to do, to let that letter go in. We have no objection to it going in. Mr. Carusi. I have no objection. I simply did not offer it because I did not see any particular relevancy. Mr. Eedfield. I presume it will be satisfactory to let that letter go in without reading, as it was read aloud yesterday. 608 INVESTIGATION OP INSURANCE COMPANIES. The letter referred to is as follows : Treasury Department, Office of Comptroller of the Currency Baltimore, Md., August 19, 1912. Messrs. Alfred M. Best Co. (Inc.), New York City, N.' Y. Gentlemen : I have read very carefully an article in your paper on the Commercial Fire Insurance Co. of Washington, D. C. Your paper has a large circulation in Wash- ington, and this article, of course, has had wide publicity. Mr. E. N. Harper of "Washington, who is largely interested in this company, advised me that you made a visit to Washington during the past week and went into the affairs of the Commercial Fire Insurance Co. very carefully. Mr. Harper further states, in the next issue of your paper, you will retract your adverse criticism relating to the Commercial Fire Insurance Co.; he states you admit having been misled and deceived, and that in your coming article you will make a full retraction. Will you kindly advise me if the above statements of Mr. Harper are true, and if, after having circulated the article in which you outline the methods employed in promoting the Commercial Fire Insurance Co., you are now willing to retract the statements in your article? Awaiting an early reply, I am, yours, very truly, Saml. M. Hann, Examiner, August 22, 1912. Mr. Saml. M. Hann, National Bank Examiner, Baltimore, Md. Dear Sir: We duly received yours of the 19th instant, and have held same for Mr. Best's personal attention and reply. He is at present out of the city, but will be in the office early next week, at which time your letter will receive his attention. Very truly, yours, Mr. Carusi. Going back to the Protective Corporation, which is properly subject to investigation by this committee under the terms of the resolution which provides that the history of Tuttle, Wightman & Dudley shall be inquired into, I want to ask you whether there has not been, since the decision of the Supreme Court of the State of New York dissolving that corporation, a complete divorce between the Protective Corporation and either of these two insurance companies here ? Mr. Best. There is no doubt that there is no corporate connection nor contractual Mr. Caktjsi. As leading up to questions I will ask you, I will now state for your information that the Protective Corporation was dis- solved upon the petition of its stockholders, in number approximately a thousand, of whom over 900 consented upon the record to the dis- solution for the reasons stated in the petition, and of whom some, including one of the largest stockholders, appeared by counsel; that there were hearings before a referee at which the various counsel for stockholders were present, at which the State of New York was present in the person of an assistant attorney general assigned to that case by the attorney general; that the referee's examination *• ent into the condition and the history and all facts pertinent or relevant to the corporation; that the result of the referee's report was, as shown by the report, that all parties in interest, those represented by their various attorneys, finally agreed to the order of dissolution; that the mode of dissolution was the appointment of a liquidating director. The assets of the corporation consisted almost entirely or shares of the capital stock of the Commercial Fire Insurance Co. INVESTIGATION OF INSURANCE COMPANIES. 609 This capital stock had been purchased by the Protective Corporation through its proper officers with the funds which the Protective Cor- poration had raised by popular subscription, for the ostensible pur- pose of either organizing or purchasing some existing fire insurance company. The mode of liquidation consisted in distributing in kind the assets of the Protective Corporation pro rata among its stock- holders, including in that designation those who had not completed their subscriptions but had acquired a sort of equitable interest pro rata in the assets on account of what they already had paid in at the date of dissolution. There was some money, and that was distributed pro rata also by the liquidating directors. So that the net result of that operation was that the Protective Corporation ceased to exist in law and in fact, and its thousand stockholders became stockholders in the Commercial Fire Insurance Co., and compose now a considera- ble part of the entire body of stockholders. Now, I want to ask you Mr. Pkotjty (interposing). Will vou let me ask a question or two there? Mr. Cakusi. Yes; certainly. Mr. Peouty. What did this company pay originally for this Com- mercial stock? Mr. Carusi. These facts that I now answer you will be brought out in evidence, so that they can be verified hereafter. They bought the stock of the Commercial Fire Insurance Co. for just about or a trifle over its book value; that is to say, for about $7.75 per share, no com- missions being paid anyone in making the purchase. As part of the transaction, I believe that in order to get all of the stock the Pro- tective had to borrow some money by pledging a portion of it. That is one of the details of the transaction. Mr. Peouty. At what price was this turned over to these stock- holders that were taken in the new company for their interest in the old company ? Mr. Caeusi. It was turned over at exactly the price it was pur- chased. Mr. Peouty. The real question I have got in my mind is, Was there any loss to the stockholders ? Mr. Caeusi. Of the Protective Corporation? Mr.- Peouty. Yes. Mr. Caeusi. There was ; and that is shown by the referee's report. Mr. Peouty. That has not been read, so I did not know. Mr. Johnson. It has been inserted in the record. Mr. Caeusi. Yes; it has been inserted in the record in full. The expense to the Protective stockholders of the organization was very high. Mr. Peouty. About how high? About what per cent ? Mr. Caeusi. I think it was — I can find out. In the first senior report — that is to say, the first report made by the New York Insur- ance department's examiner, which was estimated between 23 and 40, I think, between 23. and 24 per cent — the referee found, in reporting upon the expense of organizing that company that the expense had, to a considerable extent, been increased by the fact that during the formative period, the unfavorable report of the New York insurance department had been given very wide publicity, and that this had greatly increased the expense of collecting upon the sub- 610 INVESTIGATION OF INSURANCE COMPANIES. scriptions already made, and of securing new subscriptions, which would have lowered the expense ratio. Mr. Redfield. Did you say "during the formative period"? Mr. Carusi. The formative — that is to say, while the organization was being carried on; before it had resulted in an organized companv Mr. George. Was that from November, 1909, to May, 1910? ' ' Mr. Redfield. That is my question. Mr. Cartjsi. I could not tell you without referring Mr. George (interposing). Well, in the history of the case, as presented to the Superintendent of Insurance Hotchkiss, it speaks of two periods; that the case may be divided into two periods, and speaks of those inclusive dates as embracing the first period. Mr. Carusi. Yes. Mr. Douglas. That is right. That is correct. Mr. Cakusi. That is correct, and I intend to bring that out. I will read the whole record later to the committee, and all of these facts that I have now been stating will be made the subject of testimony under oath by persons who know them at first hand. My information, of course, is purely hearsay. Mr. Redfield. My query, which was followed up by Mr. George, was to develop whether when you use the words "formative period" you were referring to the first or the second of the two periods men- tioned on page 168. To my mind this is, subject to correction, the apparent history; that this company had a period of operation from November, 1909, to May, 1910, and another period of operation commencing in May, 1910, the conclusion of which does not appear. The date of the first report is September 20, 1910, and the second report is February 14, 1911, the latter being 18 months after the beginning of the first period and the former being 10 months or nearly so — a little over a year afterwards. Mr. Carusi. I think I now have your question. I will be glad to answer it. When I used the expression "formative period" Iliad in mind the entire period of the existence of that company up until the time it purchased the Commercial Fire Insurance Co. Mr. George. You make no division of the time, such as is made here in this Mr. Carvsi (interposing). I make no division of the time, because my understanding is — and I think there will be evidence on that point — that the campaign of publicity against this company con- tinued uninterrupted from the first Senior report until the dissolution. Mr. Redfield. But, Mr. Carusi, the company had been running 10 months before the first report was issued. You do not argue that the report affected the company during the 10 months before it came out ? Mr. Carusi. Xo; and I am very much obliged to you, Mr. Redfield, for calling my attention to that, as I wish to comment upon what you have termed the first period, before the first report. Mr. Redfield. Is it not a fact. that it was during those 10 months that the heavy expense occurred to which objection was made by the Xew York department? Mr. Carusi. I think undoubtedly that was the case— undoubtedly; and, in that connection I will now, in order to put it in evidence just at this point— I will ask Mr. Best if he will read the concluding— have you a copy of the report ? INVESTIGATION OF INSURANCE COMPANIES. 611 Mr. Douglas. Show him the paragraph. Mr. Carusi. Yes. Mr. Redfield. It begins at page 168 and runs to 197, or a little after 197. Mr. Best. I have it. Mr. Carusi. I ask you, Mr. Best, to kindly read to the committee page 175 of the second volume of the printed reports of this hearing, the paragraphs under the title "Summary." Mr. Redpield. Is it necessary to put this all in the record again, or would it be satisfactory to you to say that the witness reads from pages so and so ? Mr. Carusi. Well, inasmuch as I am going to predicate some fur- ther questions upon it, I had rather that it should be called directly to the attention of the committee. Mr. Best (reading from p. 175 of the printed record) ; This corporation has been engaged for a period of eight months in securing subscrip- tions to its capital stock for the purpose of financing the Protective Fire Insurance Co. of Syracuse, N. Y., and now possesses cash assets amounting to $26,263.08, and sub- scription notes amounting to $45,196. In addition, there are unpaid installments to be collected on account of subscription agreements amounting to $96,927.71. These results have been accomplished by the corporation at a cost of $47,843 to its subscribers. Realizing that the method of selling stock by means of personal inter- views has been costly, the management on May 1, 1910, adopted the plan of selling the stock to the public by mail. This plan, inaugurated by the agency of Messrs. Wightman & Dudley, has resulted in a reduction of the total expense of selling the stock to about 15 per cent of the gross amount of subscriptions. Conservatively esti- mated, the total cost of subscribers on the above basis will approximately amount to from $600,000 to $750,000 out of a total cost of $2,500,000 to be paid in for the surplus of the fire insurance company. Mr. Carusi. There is another paragraph; a short one on page 176. Mr. Best (reading from p. 176 of the printed record) : By eliminating Ira A. Manning from its affairs the corporation has succeeded in. materially reducing the expenses incidental to the sale of stock and in effecting economies in the management at the home office of the corporation. While the prospectus of the company contains misleading information and the agency contracts were subject to the criticism of this department, it has since shown a serious and earnest purpose to reform its literature, revise its contracts, and to gen- erally correct the abuses which existed prior to this examination. Mr. Carusi. Do you know, or did you ever hear, that the occasion for the first examination by the New York Insurance Department was an invitation by Mr. Tuttle, president of that corporation, that the insurance department make an examination — assist him in effect- ing a change in the management of that company ? Mr. Best. I did not. Mr. Carusi. Do you know or not know whether Mr. Tuttle ever made a dollar out of the sale of the stock of the Protective Corpo- ration ? Mr. Best. I do not. Mr. Carusi. You are very familiar with the first Senior report, are you not? Mr. Best. Fairly so. Mr. Carusi. Speaking generally, and trying to boil this matter down to some definite issue, are not the criticisms of that depart- ment, as contained in that report, of two general kinds, one, expense of organization, and the other alleged misstatements in the literature,? Mr. Best. That would be a fair statement, I think. 612 INVESTIGATION OF INSURANCE COMPAQ liSS. Mr. Caeusi. In your criticisms of the Commercial Fire Insurance Co. and of the First National Fire Insurance Co. do they not fall within the same two general classifications ? Mr. Best. Yes ; with the addition of criticism of the underwriting contract. Mr. Caeusi. Your criticism as to the underwriting contract has been rather an expression of opinion, I think you stated, as to the best way to conduct a fire insurance company ? Mr. Best. Yes. Mr. Caeusi. But the criticisms — the serious criticisms — are of an unjustifiable expense, as I understand it, in the promotion of these companies and misstatements in the literature ? Mr. Best. Rather, I should say, the most serious criticisms are of the promotion literature, the fee to be paid to the organizers for their services, and the results of the company — the results of the under- writing. Mr. Kedfield. You mean the losses upon the business ? Mr. Best, The losses on the business during the early months of 1912. Mr. Caeusi. You never made any published criticisms of the losses of the company, did you, until your report that is just out? Mr. Best. I could not get the information until that was out. Mr. Caeusi. All your criticisms — and you will admit they have been very numerous during the past year of these two companies- were directed, were they not, to the alleged misleading character of the literature and the cost of organization ? Mr. Best. I do not think they were very numerous, but such as they were, they were mainly on those two points. Mr. Caeusi. On those two points. Mr. Best. But also, I think you will find, I dwelt somewhat on the underwriting contract. Mr. Caeusi. Do you make a distinction between organization expenses and the amount of money that is made by those who organize the company ? Mr. Best. Yes. I testified to that yesterday, that the fee was so large, amounting, if the full amount of stock was sold, to $150,000 for approximately a year's work clear of all expense to the promoters, they could very well afford to turn back a sufficient portion of that to bring the entire cost, including their fee, to 10 per cent. Mr. Caeusi. Yes. Well, if they had taken five years to secure $1,700,000 of subscriptions, or $2,000,000, would you then have thought that the amount paid was reasonable ? Mr. Best. I think my criticism then would have been of a different character. Mr. Caeusi. Well, what would it have been then? _ Mr. Best. I would have said that if their methods were not suffi- ciently efficient to accomplish the organization within a very much shorter period, it was not worth while to organize the company at all. Mr. Caeusi. Is it not an advantage to the stockholders, assuming that it is going to cost them the same amount of money whether the organization is made quickly or made slowly, that it should be done quickly ? 1 Mr. Best. Yes ; undoubtedly. INVESTIGATION OF INSURANCE COMPANIES. 613 Mr. Caeusi. If 1\ per cent commission is a reasonable commission, does it become any the less reasonable because it is earned by rapid and successful work % Mr. Best. There is an apparent contradiction in the testimony, of course. Mr. Caeusi. Yes; I think so. Mr. Best. But what I meant to state was that in addition to the criticism of the amount of expense, I would have added the other. Of course, it stands out more — it is more striking when the $150,000 fee is earned in a very short time. Mr. Eedfield. Mr. Carusi, have you finished that particular phase ? Mr. Caeusi. Not quite, sir. It has been developed, Mr. Best, that the criticisms of the Protective and the criticisms of the Commercial and the First National are of the same general character. Mr. Best. In the main. Mr. Carusi. Organization expenses being unjustifiable and mis- statements innocently made or otherwise in the literature of the company % Mr. Best. That is true. . , Mr. Caeusi. Yes. Now, I ask you as a fair-minded man how this committee, with the literature of these two companies in its hands, so that the committee may read the literature and may pass judicially upon the question as to whether any of its statenemts are calculated to deceive or not — I ask you what light the Protective Corporation can give this committee, and why it is dragged in % Mr. Best. I answered an almost exactly similar question yester- day, in saying that to my mind there is such a perfect continuity from the Protective Corporation to the Commercial, the gentlemen operating the Commercial being exactly the same group of men who operated the other institution, that since any reporter has to base his statements, as to the character and ability of persons on whom he reports, upon their past performances, it becomes necessary to include reference to the earlier activities, just as we might go back far beyond that. Mr. Caeusi. I am not asking you, though, this time, Mr. Best, what justification you have for, dragging in the Protective, because I can understand that as a reporter it might be desirable to state everything that you know from the birth to the death of the company; but I am asking you what light it can give this committee to pass upon the literature of these companies, that the literature of some other com- pany has been criticized by you or the New York insurance depart- ment. Mr. Best. Mr. Carusi, I can not tell what effect it might have on the minds of the committee; I can only state my own conclusions. It would seem to me it is for them to decide whether it would aid them, just as much as it is for me to decide. Mr. Caeusi. Is it not this: That perhaps if Tuttle, Wightman & Dudley had demonstrated in the case of the Protective Corporation that they indulged in misleading statements to the public, that that is some proof that the statements that they have made in connection with these two companies are misleading. Is that the theory ? Mr. Best. May I hear that again? I want to make certain I understand it. [The reporter repeated the question as above re- 614 INVESTIGATION OF INSURANCE COMPANIES. corded.] Not necessarily. I think that each group of statements could be considered on its own merits. Mr. Carusi. Could be considered on its own merits ? Mr. Best. On its own merits ; yes. Mr. Carusi. Do you know that the groups, as you have called them, are the same, or have you any reason to believe that the group responsible for the literature that has been used in the case of these two companies is the same group that is responsible for the literature used by the Protective Corporation ? Mr. Best. I know that the stock-sellingcampaign of the Protective was in charge of Messrs. Wightman and Dudley, and that the stock- selling campaign of the Commercial and the First National has been in charge of Tuttle, Wightman & Dudley (Inc.). I have no personal knowledge that the stockholders of that corporation or its directors or its officers are the gentlemen whose names appear in the title. I simply have assumed that such is the case from the familiarity which they showed in all its affairs in talking to me. Mr. Carusi. You do know, and have for some time known, have you not, Mr. Best, that the literature of the First National, for instance, the booklet, while it was written by Mr. Wightman, who is an adver- tising man and not an insurance man, was carefully scrutinized and edited by members of the organization committee of the First National Fire Insurance Co. ? Mr. Best. You yourself so informed me; yes. Mr. Carusi. Some time ago ? Mr. Best. Yes; in the interview of July 31. Mr. Carusi. You knew also, did you not, that that booklet had been taken over to the Post Office Department and an informal consultation had concerning it ? Mr. Best. You so informed me on the same occasion. Mr. Carusi. Tuttle, Wightman & Dudley then can not very well be said to be solely responsible for the booklet, can they ? Mr. Best. Under that statement of facts, no. Mr. Carusi. Did not I also inform you, perhaps at the same inter- view, that that booklet had been carefully edited by a committee consisting of Justice Atkinson, Mr. Robert N. Harper and myself? Mr. Best. You did. I recall that I commented on the fact that their lack of familiarity with insurance affairs would not make their editing worth very much. • Mr. Carusi. Their supposed lack of familiarity. Mr. Best. Yes. I accept the correction. Mr. Carusi. You did not know, did you, that Judge Atkinson had been connected with the Insurance Company of West Virginia for a great many years ? Mr. Best. No, I did not know that. Mr. Carusi. You did not know, did you, that Mr. Harper had been a director of the Commercial Fire Insurance Co. for a number of years prior to its purchase by the Protective Corporation? Mr. Best. Yes, I think I did know that. Mr. Carusi. You never included in any of your referenees to the Protective Corporation the commendatory portion of that first Senior report, did you ? Mr. Best. I can refer to my comments on it if you wish, and see just what I did say. INVESTIGATION OF INSURANCE COMPANIES. 615 Mr. Douglas. He asked you if you remember. Mr. Carusi. I simply asked if you remembered. Mr. Best. I do not remember. I presume I did. It is my custom to give the good with the bad. Mr. Carusi. If you did and you at leisure can find it I will be glad to have you offer it in the record. Mr. Tuttle, so far as you know, had nothing to do with the preparar tion of the literature of the Protective Corporation, did he ? Mr. Best. I do not know who was personally responsible. I sim- ply know who were engineering the sale of stock. Mr. Carusi. Does not that report, the very portion of it that you have read, show that Messrs. Wightman and Dudley were selling the stock by mail from their offices in New York City ? Mr. Best. Yes; it does. Mr. Carusi. And that Mr. Tuttle was living in Syracuse, N. Y. ? Mr. Best. Yes; it does. Mr. Carusi. What did Mr. Tuttle, so far as you know, ever have to do with the selling of stock of the Protective, either through the mails or in any other manner ? Mr. Best. My understanding of the matter is that when this enter- prise was first thought of, the plan of organizing the protective hold- ing corporation and through it the Protective' Fire Insurance Co. and other insurance companies, it was a joint plan of Ira A. Manning and Mr. Tuttle. If I am in error I would be glad to be corrected. Mr. Carusi. Go ahead. Mr. Best. That is my recollection 'of what Mr. Manning told me one day in my office. Mr. Carusi. What part was Mr. Tuttle to play in this joint plan of organization ? Mr. Best. Well, they were both to get the stock placed as rapidly as they could, and then Mr. Tuttle was to manage the companies— the fir% companies. Mr. Carusi. Mr. Tuttle was to be the fire-insurance man of the prop- osition, was he not ? Mr. Best. Yes. Mr. Carusi. And Mr. Manning was to be the promotor of the company ? Mr. Best. Primarily that was the general division of their duties. Mr. Carusi. Do you know that Mr. Tuttle secured about $50,000 of subscriptions to that company from his fire agents and friends, and that he never received one dollar's commission ? Mr. Best. No; I do not know that. Mr. Carusi: You never made a very careful investigation, did you, yourself, of, the facts and circumstances relating to the Protective Corporation ? Mr. Best. It is some years ago. I can not recall. That is one of a great many institutions that have come under review. Mr. Carusi. It is only about three years ago, is it not ? Mc. Best. Yes; but in that time I may have looked up hundreds of those concerns. I can tell — if it is worth while, I can refer to my files. Mr. Carusi. Did not you state substantially yesterday — I do not pretend to quote your exact language ever — but did you not substan- tially state yesterday that your attention was first directed to the 616 INVESTIGATION OF INSURANCE COMPANIES. Protective bj T this New York insurance report, and that you got your information from it. except that you got the literature itself, which you criticized ? Mr. Best. I think that I testified, rather, that I first heard of it through literature being sent back to me by subscribers who had received it, just as in the case of these more recent companies. I know that we had made investigations prior to the publication of that report. Mr. Carusi. Mr. Best, apart from the discredit which has been sought to be put upon Mr. Tuttle through his connection with the Protective Corporation, what do you know to his discredit that he can be charged with? Mr. Best. I do not know anything to his discredit personally. Mr. Carusi. Did not he have an averagely good reputation as an underwriter in Syracuse for many years ? Mr. Best. Yes, he had a reputation of making money for his companies and running a successful agency. Mr. Carusi. In spite of the fact he was a nonboard man? Mr. Best. In spite of the fact. Mr. Carusi. He kept his reputation for 15 years? Mr. Best. His competitors were quite ready to acknowledge that. Mr. Carusi. Apart from their connection with the Protective Corporation and with these two companies, what do you know to the discredit of either Mr. Wightman or Mr. Dudley ? Mr. Best. Personally, nothing. I have received reports from other agencies, to which I would not like even to refer, because I do not know whether they are correct or incorrect. I have not had an opportunity to ascertain. Mr. Carusi. Reading that Senior report, does it not appear, espe- cially from the conclusion of it, that the New York insurance depart- ment rather commends Messrs. Tuttle and Wightman and Dudley than condemns them for their connection with that company? # Mr. Best. The examiner evidently makes a distinction between their actions and those of the earlier management, when Mr. Manning was very active. I know that that was the attitude of the depart- ment; that an improvement had been made for which they desired to give credit. They felt at the time that some criticism had to be made anyway, was deserved, but they wanted to give credit for the improve- ment which had been made. I am familiar with that, because the department consulted me in connection with that new law under which that examination and a lot of others were made: I gave them a list of all the promotions in the State, so they could go after them all. Mr. Carusi. You mean to have the committee infer that the examination of the Protective Corporation was the result of your initiative ? Mr. Best. Oh, no; the New York department sent a representative to my office one day and asked for a list of all insurance organizations and all concerns allied with insurance which were then in process of organization which were offering stocks. There was quite a number, and they asked permission to go over my files, and I gave them the list and I gave them the files, and then they went ahead and did what they thought was required. I had nothing whatever to do with sug- gesting it. INVESTIGATION OF INSURANCE COMPANIES. 617 Mr. Cartjsi. Your association with the New York fire insurance department is very close, is it not ? Mr. Best. And with a great many others. Mr. Cartjsi. Is it not a fact that you got most of the information out of which your list was compiled from the New York fire insurance department? . Mr. Best. Oh, no. Are you referring to these particular com- panies, or in general ? Mr. Cartjsi. No; in general. Mr. Best. Oh, no; it is not by any means true. Mr. Cartjsi. Does not that department get, by exchange, reports and other information from most of the other departments in the country? Mr. Best. I assume they do. I have no knowledge whether they do or not. Mr. Cartjsi. You could get there almost all official information of any kind, could you not ? Mr. Best. No; I doubt that. I could, no doubt, secure the official printed State reports, but I have those myself; I would not have any occasion to go there for them. Mr. Cartjsi. Do you know that this first Senior report, as well as the second one, was sent by the New York State department to the insurance departments of every State in the United States ? Mr. Best. No; I. do not know that. I do not know whether it is true or not. Mr. Cartjsi. How do you suppose the Wisconsin department had these pamphlets ? Mr. Best. I suppose they wrote to the New York department for them, and got them. Mr. Cartjsi. Who told them about them ? Mr. Best. That I could not say. Mr. Cartjsi. Your publication referring to the Protective Mr. Best. Possibly mine, or others. It was quite generally com- mented upon at the time. Mr. Berger. Mr. Best, is it not a fact that the Wisconsin insurance department under Mr. Aker is one of the most efficient in the coun- try, and that they look out for that ? Mr. Best. Yes; the department is doing very good work. Mr. Berger. Very efficient ? Mr. Best. A good, efficient department, more efficient now than it has been on occasions in the past. Mr. Cartjsi. I have finished that line of inquiry, Mr. Redfield, if you care to question the witness. Mr. Redfield. Thank you. Reference was made in the cross-examination, Mr. Best, to a fee of $150,000 for placing the stock. That fee was in the case of each company, was it not ? Mr. Best. Yes. Well, the contracts did say, I believe, although I have never had in my possession a copy of the contract for selling the stock of the Commercial. I was furnished a copy of the First National contract. Mr. Redfield. Will you or one of your associates furnish for the record a copy? 71391— No. 7—13—2 618 INVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. Thej' will be furnished. Mr. Redfield. Also a copy of the contract with Tuttle, Wightman & Dudley for placing this insurance. 1 Mr. Carusi. All of those will be furnished. Mr. Best. I referred in that statement to the .First National only. Mr. Redfield. But it is a fact that 7\ per cent for placing the stock would mean, if the stock of both of these companies were placed on that basis, a fee of $300,000 ? Mr. Best. Always assuming that the expenses of selling the stock could be kept within the limit of 20 per cent, including the 1\ per cent fee. Mr. Redfield. And if the expenses overran 20 per cent it would have to be deducted from this payment ? \ Mr. Carusi. It would have to be deducted. Mr. Redfield. As a matter of fact, they did not overrun the 26 per cent % Mr. Best. In the oase of the First National the expenses, in con- feast with other promotions, have been really quite moderate. In the case of the Commercial I have no information other than this report of the examination of the company by the District departr ment, which shows that the whole 20 per cent has been spent, and I have been informed by Mr. Tuttle that they have spent more than that. Mr. Redfield. When you say the expenses have been quite mod- date, you mean the expenses in addition to the fee ? Mr. Best. In the report the item is lumped; commissions and ex- penses of stock sales, so much. Mr. Redfield. To which report do you refer? Mr. Best. I am referring now to the commissioner's report on the examination of the Commercial. Mr. Redfield. In the case of the First National, where you speak of the expenses being quite moderate, do you mean the expenses, in addition to the fee of 1\ per cent? Mr. Best. The expenses, including the fee of 7J per cent, are con- siderably less than those of a number of other promotions which have been floated in recent years. I think, in fairness, that should be stated in the record. The statement made to me is that the entire cost will run about 14 per cent of the entire capital and surplus. Mr. Carusi. Or less. 1 Mr. Redfield. Do you still think that that is more than it should be? Mr. Best. I do. _ Mr. George. Mr. Best, you testified with relation to some kind of printed matter issued by one of these companies being submitted to the Post Office Department? Mr. Carusi. That was a statement of counsel, I think, Mr. George. Mr. Douglas. You asked him if he knew? Mr. Carusi. I asked him did he know it or had he not been in- formed that it had been done. He said he had been so informed. Mr. George. Before the committee passes that I would like to know something about that. What was that ? Mr. Carusi. That was done by Gen. Wynne, who will take the stand. My own understanding is that it was the First National booklet. INVESTIGATION OF INSURANCE COMPANIES. 619 Mr. Douglas. That is the one. Mr. George. That will be brought out ? Mr. Carusi. That will be brought out in its fullest detail. Mr. Redfield. Mr. Best, you spoke of 700,000 circulars having been sent out of the First National? Mr. Best. Yes. Mr. Redfield. Is it not a fact that with each of those circulars there was inclosed a stamped postal card ? Mr. Best. I was so informed by Mr. Dudley, and all cards which were sent back to me had postage stamps on them. Mr. Redfield. So the committee would be correct in understand- ing that an expense of $21,000 for postage was incurred? Mr. Best. On that particular lot of circulars; yes. Mr. Carusi. Mr. Best, you made a statement that I would Like to have cleared up, that in the case of the Commercial you understood it had cost more than 20 per cent. You mean that it had cost the company more than 20 per cent ? Mr. Best. It cost Tuttle, Wightman & Dudley more than 20 per cent. Mr. Carusi. By cost did you include commission, or was the cost to them over any commissions ? Mr. Best. I understand from Mr. Tuttle's statement to me that the expenses without any profit to them exceeded the contract allowance, and that they had to stand the difference. Mr. Carusi. You introduced a letter yesterday in evidence, and you made the statement at the time of its introduction that it was addressed to a tailor. Do you recall that ? Mr. Best. I do not recall that particular letter. Oh, a tailor ? Mr. Carusi. Yes; a man who makes clothes. Mr. Best. Yes. Mr. George. He gave the name and said a tailor. Mr. Carusi. He gave the name and then said this man was a tailor. I want to know what your idea was in making that comment, that he was a tailor. Mr. Best. Simply to indicate that the circulars were sent out pretty broadly and came back to me from all sorts of sources. That was all. There was no reflection intended. Mr. Carusi. Was it not your purpose in injecting that comment to have the committee infer that it was to the poorer and more ignorant class of people Mr. Best (interposing). No. Mr. Carusi (continuing). That these circulars had been addressed? Mr. Best. Oh, no. I was informed, if you want it in the record, by Mr. Dudley that the method followed was to take from the Dun rating book all names rated at $10,000 or more. I understood, also, that there were some special lists of professional men included. Mr. Carusi. I will ask you to look at that letter and state what it is, and as it is very short, to read it [handing to the witness a letter]. Mr. Johnson. Is that the letter in question ? Mr. Carusi. No, sir; but it is a letter I would like to have him read. 620 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best (reading) : Boyd's City Dispatch, New York, June 29, 191t Messrs. Tuttlb, Wightman & Dudley (Inc.), Southern Building, Washington, D. C. (Attention, Frederick S. Dudley, secretary-treasurer.) Dear Slrs: The orders which we have just completed for you, to the number of 657,594, represented: Responsible attorneys 28, 569 Bank cashiers and secretaries of trust companies 27' 261 Responsible residents estimated to be worth from $5,000 to $100,000 60l' 764 Total 657, 594 We received, all told, 701,095 envelopes. We now have on hand blanks to the amount of 34,082. Awaiting your further favors, we remain, Yours, very truly, Boyd's City Dispatch, Superintendent's Office. Mr. Redfield. To which company does this relate? Mr. Caeusi. This is the First National. I will say for your infor- mation and that of the other members of the committee, that the stock of the Commercial is not sold through the mails, or what is known as the mail-order plan; it has been sold by the solicitation of individual stock salesmen, who go around and see people and inter- view them. I think Mr. Best, you stated that you had been informed an addi- tional list of bank presidents had been used, did you not ? Mr. Best. Yes, I have a recollection of such a statement. Mr. Carusi. Did Mr. Dudley also inform you that out of the sup- plemental list of bank presidents 209 had subscribed to the stock of the National Fire Insurance Co. ? Mr. Best. I do not recall. He mentioned that a number of them had subscribed, but I do not recall any particular number. Mr. Cabttsi. Judging from the list, the character of the list, that has been mentioned, do you not think that outside of the insurance men themselves the class of people to whom this literature was ad- dressed are about as capable of analyzing a business proposition as any class that could be found ? Mr. Best. Any general business proposition, I should say cer- tainly. Mr. Caeusi. They would be as competent to pass upon an insur- ance proposition, would they not, as would anybody except insur- ance agents and experts like yourself ? Mr. Best. I should think so. Mr. Carusi. You said yesterday, Mr. Best, in reply to some hypothetical questions that were very skillfully propounded, that a condition might have existed in the case of the Commercial Fire Insurance Co. where even a receiver would have to be appointed for it ? Mr. Best. No. Mr. Carusi. Did you not ? Mr. Best. No; I beg your pardon; I refused to testify that a receiver would be appointed. I did not think so. Mr. Carusi. Without in any manner desiring to fence with you, Mr. Best, I want you to tell this committee whether or not from your examination of the report of the superintendent of insurance, omitting INVESTIGATION OF INSURANCE COMPANIES. 621 the Southern Building deal entirely, whether or not the Commercial Fire Insurance Co. does not appear to have been entirely solvent ? Mr. Best. It was entirely solvent at the time of the examination, omitting the increase of valuation of the Southern Building. Mr. Carusi. It had a surplus, had it not, according to calculations which you have either made or have heard made here in this or the other committee room of some $2,700 in the surplus ? Mr. Best. That is correct. Mr. Cartjsi. To which should be added, if you eliminate the Southern Building, some $11,000 of taxes on the building? Mr. Best. That is quite fair. Mr. Carusi. Making something around $13,000 or $14,000 of surplus ? Mr. Best. That is right. Mr. Carusi. I will go into this more fully a little later, but right upon this point you know that the reinsurance reserve of that com- pany had been built up considerably during that period ? Mr. Best. Yes, very much. Mr. Carusi. And that must necessarily have depleted the sur- plus? Mr. Best. To some extent. Mr. Carusi. You do not know to what extent ? Mr. Best. I could not tell. I merely know what would have been a fair average. Mr. Carusi. Would you be surprised to learn that the extent was over $55,000? Mr. Best. No; because the figures themselves showed the amount of the increase. , Mr. Carusi. A little later, but I mention it now in this connection, I am going to take you over a portion of this ground, with the view of establishing the fact that the reinsurance reserve of $136,000 is only technically a liability to its full extent. I give you notice now of that. Mr. Prouty. If you will permit me, I would like to ask a question just at this point. I am a little bit confused. If you will take out of the assets of the company the amount that was received from the sale of stock, with this additional surplus amounting to $144,441, would the company then have sufficient money to pay its liabilities ? Mr. Best. No. If that premium on the stock sold had not been received, and if money had not been received from some other source and not shown by the statement, the company could not have shown a surplus on October 31. That is evident, for the amount of premium Was $144,441, while the surplus, eliminating the gain from the building, Was less than $3,000. At the same time, in fairness, it should be remembered, if we elimi- nate from income the premium on the stock sold, we ought to eliminate from disbursements the expense of the selling of the stock. Mr. Prouty. If you eliminate both what would be the result ? Mr. Best. The same result; the company would have been impaired. Mr. Prouty. The capital stock would have been impaired, would it not ? Mr. Best. Always eliminating the increase of value on the building. Mr. Carusi. How could the company, if it had not received this sum from the sale of stock, have written the volume of business that 622 INVESTIGATION OF INSURANCE COMPANIES. it wrote, at an expense of over $90,000, to get the business on the books of the company ? Mr. Best. That is pure speculation. They might not have written that business, irrespective of increase of capital. Presumably the increase would have the effect of enabling them to get more business but to what extent I could not tell. Mr. Caetjsi. Could it have written the business if it had had no surplus to carry into its reinsurance reserve? I mean, assume the company proceeds upon ordinary methods of procedure in conducting its affairs. Mr. Best. It could not if the fact was known to the public. If the fact was not known it could do business on the latest published state- ment, which showed $70,000 surplus. Mr. Carttsi. The fact would be known pretty soon, would it not? Mr. Best. Oh, yes; it would come out. Mr. Carttsi. It would come out ? Mr. Best. Oh, yes. Mr. Carusi. And it would have to come out pretty soon? Mr. Best. Oh, yes. Mr. Carusi. Our companies are examined once in every year in the District, and not once in three years ? Mr Best. Yes. Mr. Carusi. That business»that was put on the books of the com- pany cost the company over $90,000 to put on the books. And yet the premiums that cost $90,000 to put on the books you carry as a liability against the company because they are not earned yet. Is that not true ? Mr. Best. That is quite correct. Mr. Carusi. That is the usual departmental method? Mr. Best. It is the method prescribed by law. Mr. Carusi. Bj- law where? Mr. Best. Everywhere, if I understand the question. Mr. Carusi. It is not the law, I may tell you, in the District. Mr. Best. I am not familiar with the law in this District. It ought to be. Mr. Carusi. So that your answer to Judge Prouty's hypothetical question has to carry with it another hypothesis, an hypothesis upon an hypothesis, that if the stock was not sold and the proceeds did not go into the surplus, the company would still have gone on and written the same volume of business that it did write with the stock in the surplus; is not that correct ? Mr. Best. It would have had to write this additional business and to pay these identical expenses and losses to have reached this identical condition. Mr. Carusi. Was it not practically an impossible situation you were testifying about ? Mr. Best. No, I do not think it is. The statement of the company as of December 31, 1911, showed a substantial surplus of about $70,000. The statement which was put out by the company, as of the 30th of June, if I remember rightly, showed a fair surplus. I have it here printed. The business of the company was done on tne credit of those statements. If the public had no knowledge that tne condition of the company was unsound or that the business was INVESTIGATION OF INSUEANCE COMPANIES. 628 unprofitable, they would keep right on giving it business. That is the very information I tried to get. Mr. Caeusi. The third hypothesis, that we have to pile on the other two, in order to give any value to the impairment of the capital of the company, suggested in your answer, is that for some purpose, which I will ask you to explin after this question, if this company had not been selling stock and did not take in the proceeds from the sale of stock to go into its surplus it would nevertheless in the hope that it would not be caught for a year, put a very large volume of business on its books and thus impair its capital ? Mr. Best. I do not know whether the management would do that or not. You asked me whether it could be done, and I answered yes. Mr. Caeusi. Of course it could be done. Mr. Best. Yes. Mr. Caeusi. Anything can be done. Mr. Best. It would be very unwise. Mr. Caeusi. What motive would the management of those com- panies have for doing anything of the kind ? Mr. Best. I could not imagine any motive. Mr. Caeusi. No conceivable reason for doing anything of that sort? Mr. Best. It would be reckless in the extreme. Mr. Caeusi. What advantage would the company get out of it to compensate for the recklessness ? Mr. Best. None. Mr. Peoutt. Will you let me ask one question there ? Mr. Caeusi. Certainly. Mr. Peouty. If you take this company as not having engaged at all in the increase of its capital stock, and had merely made up a statement based entirely upon its operations during that year, what would have the result shown as to its condition ? Mr. Best. The results of the business are in evidence — an under-r writing loss for the 10 months of $141,000 odd. Mr. Peouty. -Do you leave out of that the expenses that were incident to the selling of this stock ? Mr. Best. Entirely. I take into account the insurance expenses, the losses paid, the increase of the undischarged liabilities, including this unearned premium fund, and they exceed the premium income of the company tor that period. Mr. Peouty. Do you not include in that the $1 1 ,000 ; does not thai enter into it ? Mr. Best. Yes; that $11,000 for taxes is included there. If you deduct that it leaves about $130,000. Mr. Peouty. Those are my figures as I got them. Mr. Best. $130,000 would be the net loss on that basis. The company had a surplus at the beginning of the year of $70,000, and as against this $130,000 underwriting loss we must credit the company with the normal income from its investments, and if they paid dividends those would have to be taken out. I do not recall whether they did or not. Mr. Peouty. They paid 26 dividends ? Mr. Best. Yes. Mr. Caeusi. I will ask you, Mr. Best, if you can lay your hands upon it conveniently, to take out your issue of March 15. 624 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. That was put in evidence yesterday, and I have not a copy with me. Mr. Redfield. I have one here which I will loan to you, Mr. Carusi. Mr. Carusi. Do you find it? Mr. Best. No. Mr. Carusi. You can use this copy, or I can use it and save your voice by reading it myself. In this issue of March 15, 1912, you report upon the Commercial Fire Insurance Co. of Washington D. C, page 177. Under the subtitle "Its stock-selling methods- threatens us with a suit for libel," you enumerate four particularly grievous offenses on the part of this company against fair statements in its literature, and in asking these questions of you now I am going to read your indictment of the particular misrepresentation, and then try to develop for the benefit of the committee whether you were entirely justified in your criticism or not, leaving it, of course, for the committee to decide. Under the numeral 1 is the following: Great stress is laid upon the past history of the Commercial Fire, which has Been in business for 22 years, operating very conservatively in the District of Columbia only. It is represented that this is a fair indication of what may be expected from the com- pany hereafter, and, in fact, it is stated that the company has been able to pay 6 per cent dividends while operating in a territory only 10 miles square, and that the divi- dends will increase in the proportion of the extension of the business into a larger territory. The fact is, of course, that the record of the Commercial Fire, operating only in the District of Columbia, and under other ownership, is no more a criterion o! what may be expected from it in the future under entirely different control and operating on an entirely different underwriting plan than would be the record of another company, and that the rapid extension of the Company's business is more likely to result in losses than in profits, judging by the records of other companies of moderate size which have attempted in recent years to branch out in the same way. Now, I wish to have your assistance in analyzing this alleged mis- representation or this concealment of something that ought to have been stated. You know what the record of the Commercial Fire Insurance Co. for twenty some years had been, do you not? Mr. Best. Generally speaking, yes. Mr. Carusi. It was organized with a cash capital of $100,000. It operated in the District of Columbia during the years when the rates were good, as well as the last few years, when they were low, and at the end of 20 years of growth they still had the $100,000 and $36,000 surplus after paying 6 per cent dividends for 15 of those years. Do you think that that record was one which would be calculated to deceive an investor in the stock of the Commercial as to its being at least kept up with under the new management ? Mr. Best. I considered the whole reference deceptive, for the reasons set forth there. Mr. Carusi. What I want is an analysis. We know your opinion, Mr. Best. Mr. Best. Yes. Mr. Carusi. It is expressed here, but we want to analyze it and see whether the committee agrees with it. , . Mr. Best. Well, I also stated the reason for the opinion; that it is a company which has been operating on a basis so utterly different from the basis which it proposes to operate upon hereafter Mr. Carusi (interposing). Now, one moment, just at that point— and if I interrupt you, it is simply that we may work this out together INVESTIGATION OF INSURANCE COMPANIES. 625 Mr. Best. All right, sir. Mr. Carusi. What do you mean by "upon an entirely different basis?" Mr. Best. I mean that the attempt by a small company to get out into a larger field, all over the United States, and endeavor to secure business in competition with the hundreds of other companies is a very different matter from the attempt to operate successfully in a very small home district. Mr. Carusi. '''ere these stockholders whose attention was called to the Commercial invited to go into a small company that was going to operate in many different States ? Were they not invited to go into a large company, which they were asked to help make large by purchasing its stock? Mr. Best. Yes; they were invited to go into a small company, which it was hoped would become large. Mr. Carusi. They were invited, were they not, to go into a million dollar company Mr. Best (interposing). No. Mr. Carusi (continuing). Now in process of being organized, by increasing a small company to a big one ; was that not the invitation ? Mr. Best. No ; they were invited to buy stock in a small company, which it was planned to increase to a large company. Mr. Carusi. Is there any substantial difference between what I have stated and what you have stated ? Mr. Best. In my mind, yes. Mr. Redfield. Mr. Carusi, were not certain directors brought from the old Commercial Co. because they protested against its pay- ing dividends ? Mr. Carusi. I am not under oath, but I would make the same reply if I were, that to the best of my recollection that was not the case. Mr. Redfield. Are you very certain ? Mr. Carusi. To the best of my knowledge. Now, Mr. Best, would not a large company — one that was becoming large by the sale of its stock — have as good or better chance to make money in a broader field than a company confined to the District of Columbia, with a 10 cents rate Mr. Best (interposing) . Yes. Mr. Carusi (continuing). That prevails here. Mr. Best. Undoubtedly. Mr. Carusi. Yes. \ Mr. Best. Always assuming proper underwriting management. Mr. Carusi. Yes, of course, we assume proper underwriting manage- ment. You said something here about a different underwriting plan. You have in mind, then, the fact that under the Tuttle, Wightman & Dudley incorporated management the underwriting was done on a commission basis and that it had been done over the counter of the company before ? Mr. Best. Not only that ; I had more in mind the expansion into this larger field. Mr. Carusi. You knew, did you not, at the time of writing this criticism that the Commercial was doing an outside business before Tuttle, Wightman & Dudley (Inc.) became the underwriters ? 626 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. Not to amount to anything. Mr. Cakusi. Do you mean you did not know it to amount to any- thing, or that they were not doing it to amount to anything ? Mr. Best. I mean the business was of very moderate amount. Mr. Carusi. Didyou not know, as a matter of general information that the John A. Kelly Co., of New York, had the Commercial, the Potomac, the Franklin, and the Arlington in its underwriting agency? Mr. Best. I knew that they represented a number of District com- panies. Mr. Carusi. And that he was putting reinsurance upon the books of the Commerical ? Mr. Best. I do not quite get the drift of the question. Mr. Carusi. Well, as I understand it, the Commerical was not entered into New York. Mr. Best. Oh, no. Mr. Carusi. But he was able to put New York risks upon the books of the Commerical Mr. Best (interposing). Yes. Mr. Carusi (continuing). In an indirect way. Did you not know at the time you wrote this criticism that the Kelly contract was a less favorable contract to the Commercial Fire Insurance Co. than the Tuttle, Wightman & Dudley (Inc.) contract? Mr. Best. I did not know it positively. I assumed it to be so. Mr. Carusi. You knew it was a 37£ per cent and 10 per cent con- tingent to Kelly? Mr. Best. That was my understanding. Mr. Carusi. And the company to pay all expenses? Mr. Best. All home office expenses; yes, that was my under- standing. Not based on documentary evidence, however. I did not have it. Mr. Carusi. Yes. Now, No. 2 of your criticisms is as follows: Keference is repeatedly made to the alleged enormous profits of fire insurance com- panies; and in support of these allegations the prospectus quotes the earnings in 1910, an exceptionally profitable year, of all American companies having a million dollars capital or more. The deception here is that the capital alone does not represent the real investment of the stockholders of those companies. The entire surplus, as well ae the capital, is at the hazard of the business, and is likely to be greatly depleted or wiped out by a conflagration at any time. Therefore earnings can honestly be com- pared only with the combined capital and surplus. The actual return even in the exceptionally profitable year 1910 was moderate in proportion to the real investment of the stockholders of the companies quoted, particularly in view of the hazards of the business. Now, I will ask you to help me analyze this a little. The profits that were being talked about in 1 91 were the profits of 22 companies, with a rapital of $1,000,000 or more; is it not so? Mr. Best. Yes. Mr. Carusi. I think you stated the other day in your testimony that unless a company could have a million dollars' capital it ought to go out of business, did you ? Mr. Best. I said that I considered any company with less than a million dollars of combined capital and surplus a small company. Mr. Carusi. Yes. Mr. Best. With small chances of success. INVESTIGATION OF INSURANCE COMPANIES. 627 Mr. Caeusi. You recall, do you not, in this letter here which was seeking to sell stock in the Commercial, the prospective stockholder was told that he was going into a million-dollar company ? Mr. Best. Yes; that is so. Mr. Caeusi. If the efforts to arrive at that point were successful. Were there more than 22 million-dollar companies at the time that literature was published ? Mr. Best. I could not say offhand. Mr. Caeusi. You do not charge that that list omitted any million- dollar company on account of a bad showing or a reduction in the average, do you ? Mr. Best. No. I assume it was fairly made up and complete. Mr. Caeusi. Yes; and from the Spectator Co.'s data? Mr. Best. Yes; I think it was so stated in the printed matter. Mr. Caeusi. It could have .been verified, at any rate ? Mr. Best. I did not take the trouble to. I assumed the Spectator's figures were correct. Mr. Caeusi. Did you verify your statement that, in taking the figures for 1910, those responsible for the prospectus had picked out an exceptionally profitable year ? Mr. Best. I did not say they had. I said 1910 was a very profit- able year. Mr. Caeusi. Was it more profitable to those 22 million-dollar companies than 1911 ? Mr. Best. There, again, I could not answer without making calculations. Mr. Caeusi. Was it more profitable than 1909 or 1908? Mr. Best. I should say that 1910 was a better year than 1911. I am speaking very broadly now. Mr. Caeusi. Did you figure it out ? Mr. Best. Oh, no. Mr. CAEUSi.^At the time you made this criticism ? Mr. Best. No. Mr. Caeusi. Now, of course, it would consume too much time to have the witness now — and we would not have the data, perhaps — to make that calculation. I make this suggestion, as this is one of the most serious charges against the' company, that after the witness is excused, if he desires to submit the figures for 1908, 1909, and 1911, in a letter to the committee, that the letter will be accepted as if he had made the statement, here under oath. Mr. Geoege. As to the business of the 122,000,000 companies? Mr. Caeusi. Yes. I want to show, in other words, if he will assist me in that respect, that 1910 was the least profitable year of those four that I have mentioned, for these companies, estimating the profits in the way that they were estimated here. Mr. Johnson. Do I understand you correctly that that statement may go in the record if the witness so desires it ? Mr. Best. It is immaterial to me. , Mr. Caeusi. I would like to have him asked to do it. Mr. Redfield. Will you furnish that ? Mr. Douglas. We can furnish it ourselves; if he does not care to doit. Mr. Caeusi. Yes. Mr. Best. I will be very glad to furnish it, if you want it. 628 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. You will do so ? Mr. Best. Yes. I might say to the committee that following the year 1906, in which the insurance companies were called upon to pay out about $225,000,000 for losses incurred in the San Francisco con- flagration, rates were advanced very generally in an effort to get back part of that loss, and 1907 was the most profitable year for a great many years. From that time on, the underwriting profits have steadily decreased. The rates are falling and expenses are keeping stationary, and the percentage of profit on the underwriting trans- actions of all companies has steadily decreased. In 1909 there were exceptional profits — if I remember correctly it was in 1909 — through the advance of securities; and the basis of this comparison is simply to take the increase of surplus and add to it the dividends paid without undertaking to ascertain from what source the profit was made. If I might make the suggestion, it might be that a table prepared by the New York insurance department be submitted instead, as show- ing that. They have a table which shows the expenses of underwrit- ing and expenses for all companies. They publish it each year, and it can be readily furnished. Mr. Carusi. I would not care, if I have the right to be heard, to have any such statement take the place of the sanctity of an oath of this witness. Mr. Redfield. It is proper, however, Mr. Carusi, that this com- mittee look at this thing from the point of view, at least, of an ordinary business man, who would never think of substituting one kind of statement for the other. It is proper for the committee to have before it both statements in order that not only part of the truth may be known, but the whole truth, and therefore, I ask the witness to furnish at the same time that the other statement is made, the state- ment issued by the New York State insurance department showing the facts that are suggested, and furthermore, I give notice now that as I have intended to do for some time, I shall call upon the Spectator Co., of New York, to furnish a statement prepared by them, pub- lished on the 30th of March, 1911, in their paper. Mr. Prouty. 1911 or 1912? Mr. Redfield. 1911, giving the fire underwriting profits and losses throughout a decade of 60 millionaire companies. I shall write for that on behalf of the committee with the chairman's permission to-day, and make it a portion of the record. Mr. Carusi. Do those take in the foreign companies, those 60? Mr. Redfield. I am giving you the title of the article for your information, as you have kindly done once or twice yourself. The title of the statement is ' ' Fire underwriting profits and losses in a de- cade of 60 millionaire companies, 1911. Published by the Spectator Co., New York, in the Spectator of March 30, 1911." Mr. Douglas. March 30, 1911 ? Mr. Carusi. Yes, March 30, 1911. Mr. Berger. Mr. Best, did you make use of the table of the New York department when you made this statement, or did you have it in mind ? . Mr. Best. No; I simply made the statement from my general knowledge of conditions. I was not comparing 1910 with 1909 or with 1908 when I made that statement. The whole period had been INVESTIGATION OP INSURANCE COMPANIES. 629 one of exceptional prosperity for ' insurance companies. I simply felt it was not a representative year. Mr. Carusi. You knew, of course, Mr. Best, when you made this statement, that all of your subscribers would read these criticisms upon this company, involving, as those criticisms must, the gentle- men connected with these companies, and yet, in speaking of the allegations of the prospectus quoting earnings, you said, "An excep- tionally profitable year." I ask you in ah fairness, now, if that comment or statement by you could have had any other meaning than that the people who got up that prospectus had picked that out because it would make a better showing than any of the other years that they could have used? Mr. Best. Not any other year. I certainly intended to indicate that they had selected a year the figures of which would show their argument — prove their particular argument. Mr. Carusi. And yet you did not verify as to whether in com- parison with either the two years which preceded 1910 or the year which followed it, it was not an exceptionally profitable year ? Mr. Best. I have already testified I did not have those particular years in mind. I did not think that any special investigation was necessary, for my general knowledge of the business made it per- fectly clear to me that it was an exceptional year. Mr. Carusi. You were willing, with your general knowledge of the business, and without verifying it, to make a statement which prac- tically imputed fraud to the people who" got this prospectus out? Mr. Best. I do not know that it imputed fraud. I stated that in my judgment it was a misleading representation, and I had ample knowledge, without verifying a figure, that 1910 was an exceptional year, so far as the profits of insurance companies went. It is my business to know that. Mr. Carusi. Compared with what year ? Mr. Best. Well, I had in mind going back a decade. Mr. Carusi. To the year of the San Francisco fire ? Mr. Best. Oh, not at all. That would be as unfair as the other comparison, or even of 1904, which was the year of the Baltimore conflagration; but I have been in the business for 20 years, and I was looking back over that period, and I knew that this was the one big period of prosperity in insurance. Mr. Carusi. Some of those companies were not in existence 20 years ago, were they? Mr. Best. I could not say offhand, but I should say that nearly all of them must have been, all of the big companies. I do not recall the list offhand, Mr. Carusi. Mr. Carusi. Do you not know that this list of 22 million-dollar companies was the same list that was prepared and circulated by the Protective Corporation and was criticized by the insurance depart- ment of New York in the same way that you criticized it in this connection ? Mr. Best. I might have known it, but I do not recall that I did. Mr. Carusi. And it was prepared in' 1910, was it not, and first used in 1910? Mr. Best. You are speaking of this one I have used here ? Mr. Carusi. I am speaking of this tabulation of earnings ih the year 1910. I ask you if you do not know of your own knowledge that the table was prepared in the year 1910. 630 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. It could not have been. How could they have tabu- lated the earnings of 1910 in 1910 ? Mr. Cabusi. 1911. I correct that. 1911. Mr. Best. I do not know that, no. Mr. Carusi. Leaving that question Mr. Bedfield. Mr. Carusi, may I just ask if you and your asso- ciates will admit the correctness of the Spectator's figures in the statement that has been mentioned as being published by them ? Mr. Carusi. Well, I concede that the figures the Spectator gives are entitled to credit. Mr. Johnson. The question is whether counsel will admit that they are correct, for the purpose of comparison. Mr. Carusi. Oh, yes; certainly. Mr. Johnson. We do not want to put the table in issue. Mr. Carusi. I assume that those tables are all correct. I call your attention, Mr. Best, to the criticism itself that you make of this table. You say that the use of that table is misleading. You admit that the figures are correct, or at least you do not deny that they are correct, do you ? Mr. Best. No ; I assume that they are correct. Mr. Carusi. But the misleading element consists in the fact that dividends are computed on capital stock, whereas you say they should be computed on, or at least the person should be informed as to what the rate would be on all of the capital of the company ? Is not that your criticism ? Mr. Best. There was no reference to dividends; earnings, I assume, is what you mean. Mr. Carusi. Well, earnings; yes. Mr. Best. That the earnings were compared with capital alone* whereas my contention was they should be compared with the real proprietary interest of the stockholder. Mr. Carusi. Let us take the booklet which has the table in it, on pages 26 and 27. Passing the question as to whether this was an exceptionally profit- able year that was picked out designedly to deceive anyone, on page 26 are the figures 40.9 per cent, then follows this statement: This is the average net earnings from all sources for 1910 on the capital stock of 22 American fire insurance companies capitalized at $1,000,000 or more. Now, pausing there, I ask you, Mr. Best, if it is possible, by any use of the English language, to state more clearly to the reader of average common sense that the earnings are from all sources, not merely underwriting, not merely investments, not merely interest on the unearned premium reserve, not merely appreciation in assets, but all sources, and that 40.9 per cent is figured on the capital stock? Mr. Best. The statement could not be made more clear. Mr. Carusi. You know, do you not, that neither earnings nor divi- dends are ever figured in percentages on any other basis than on the capital stock ? Mr. B^st. I can not answer as to earnings; as to dividends, cer- tainly they are always paid on the par of the capital. Mr. Carusi. Do you deny that that is so as to earnings ? Mr. Best. Why, I do not know whether it is or not. It is a pretty broad question. INVESTIGATION OF 4NSURANCE COMPANIES. 631 Mr. Carusi. In any of your publications can you point to a single instance where you have used a percentage method of demonstrating either the earnings or dividends of a company that you have not used the capital stock as the basis and as alone the basis ? Mr. Best. I can not recall any publication where a percentage basis was used at all as regards the entire earnings. The only publi- cation which we make regularly is of the underwriting earnings, and in that case we show the percentage of the earnings to premiums, without regard to capital. Mr. Carusi. Well, we are not speaking of underwriting earnings. Is it possible to calculate earnings on a fluctuating capital which varies from day to day and month to month ? Must it not always be calculated upon the fixed capital stock of the company ? Mr. Best. Of course. Mr. Carusi. Now, I take the next statement : Of this amount 23.3 per cent was paid in the form of cash dividends, and the balance of the net earnings went to increase the surplus of these companies. Do you deny the correctness of that statement ? Mr. Best. No. Mr. Carusi. "And this surplus also belongs to the stockholders." Do you deny that statement to be true? Mr. Best. No. ; Mr. Carusi. "Some people may think that 1910 was an excep- tional year in the matter of profits." Mr. Best. I have not got that in my book. Mr. Carusi. Is not that in your booklet ? Mr. Best. No, sir. Mr. Carusi. Well, this was a later one, after that issue came out, probably. Mr. Best. This is the one on which I based my comment. Mr. Carusi. Well, if that was not in, I won't ask you about it. Is this in it ? We don't want to bother you with figures, but just take a look at the page opposite. They were compiled from the report pf the Spectator Co., of 135 William Street, New York City, which company is the recognized authority on insurance statistics in the United States. Mr. Best. That is there. Mr. Carusi. Yes ; that is there ; and if we had said one of the rec- ognized authorities, you would admit the entire truth of the state- ment? Mr. Best. Absolutely correct as it stands. Mr. Carusi. Now, on page 27 : One year's net earnings in fire insurance realized by 22 American companies whidh. have a capital of $1,000,000 or more. , That is right opposite this "40.9 per cent," isn't it? Mr. Best. Yes. Mr, Carusi. With, the explanation that the earnings were from all sources and were estimated on the capital stock basis ? Mr. Best. True. Mr. Carusi. Right opposite in the same color ink. Then follows this list of dividends paid and surplus accumulated ? Mr. Best. Yes. It does not show the surplus accumulated. It shows the dividends paid, 632 INVESTIGATION OF INSURANCE COMPANIES. Mr. Caeusi. "Dividends paid and surplus accumulated." Mr. Best. Oh, yes. That is not what it says here. It says, "Net earnings in 1910," the same thing just a distinction in language. Mr. Carusi. Then follows the statement as to how that 40.9 was arrived at ? Mr. Best. Yes. Mr. Caeusi. So that anybody could do the arithmetical problem and see that it was correct, assuming that the Spectator's figures were correct. "The balance of these earnings went to increase the net surplus of these various companies, which surplus is owned by the stockholders." You have already admitted the truth of that statement. Mr. Best. That is here. Mr. Caeusi. I now call your attention to the last paragraph on page 27, which deals with this table under discussion in which again the sources of these profits, of these earnings are given. They include " Earnings from underwriting and earnings from investments, interest, and appreciation." Mr. Best. Yes; that is correct. Mr. Caeusi : Do you well see how the reader could have been told more clearly as to just what was meant by those figures and those earnings than was done by this pamphlet ? Mr. Best. I do not. This is one of the statements which I had in mind when I testified yesterday that as far as it went it was absolutely correct, but in my judgment it did not go far enough. Mr. Caeusi. Well, now, I remember that. Now, now much further ought it have gone ? Suppose vou were editing it, what would you add? , Mr. Best. I think I would have added a column in this table which would have showed the net surplus of these various companies, so that anyone f aniiliar with business affairs might have seen the relation between the earnings and the total value of the stockholders' in- vestment in these particular stocks. Mr. Redfield. Could he not also have seen what proportion of the earnings came from the actual transaction of the business itself, Mr. Best, and what proportion of them came from accumulated invest- ments ? Mr. Best. That would have made it still clearer. My point was only that it should not be made to appear as the uninformed reader might assume from these figures, that the stock, for instance, of the Home Insurance Co., which is roughly on a 4£ per cent basis, though it pays 30 per cent dividends, was earning 40.9 per cent per annum for its owners. That is all — the beginning and the end of my criti- cism. I never questioned the accuracy of the figures themselves. Mr. Caeusi. Is it a fact, Mr. Best, that in the case of most of these companies mentioned here, that this very large surplus that we ought to have told the prospective stock purchaser about, even though it would have a bearish tendency upon his purchasing our stock, that this surplus was just an accumulation of the earnings of those com- panies ? Mr. Best. Very largely so, over a long period of years. Mr. Caeusi. It might have been even more pursuasive if we had put in the column of surplus and said to them not only have they earned this amount on their capital stock and on their surplus but INVESTIGATION OF INSURANCE COMPANIES. 633 this enormous surplus represents what it has earned in the past. In other words, you would make it a little more optimistic than we did, would you not ? Mr. Best. Possibly; but be that as it may, it would be a fair state- ment, and, moreover, you wpuld have to certify that all of that sur- plus represents accumulated earnings. Mr. Carusi. Perhaps not all. Mr. Best. A very considerable portion of it in some cases, as in the case of the firemen's fund, which is mentioned here; the whole of it represents money paid in by the stockholders after the San Francisco fire. The company was wiped off the earth. Mr. W°lfe. What basis w^s it paid in on, Mr. Best ? Mr. Best. A very high basis; more than it was worth. Mr- Wplfe. Did not mQs£ of it come from the loans which they discounted ? Mi\ Best. Not most of it; no. Mr. Wolfe. A portion of it ? Mr. Best. Yes; I am told a considerable part. Mr. Carusi. Well, we will leave that. Now, as the third numbered criticism, whicl/ you preface by saying a willful and discreditable misrepresentation is a reference to the trade profit earned in the last six months of 1911. The prospectus reads as jollows : During these six months, also, the company earned a trade profit of $39,454, which was at She annual rate of B2 per cent on its capital stock of $125,QQ0. Trade profit is explained later in the prospectus as what is left from the premium income after losses and expenses have been paid. The use of this phraseology shows that .the writer of the pamphlet understood fully that the statement regarding trade profit was in essence untrue, because of the suppression of the fact that increase of unearned premium liability must be deducted from the trade profit, if any, in order tp arrive at a true result of the busi- ness. A parallel deception would be the submission by a merchant asking credjt of a statement of his jncqme from sales and disbursements for purchases made and the suppression of the fact that there liad been a' very large increase in the bills and accounts payable, because goods had been purchased aula sold (the sales appearing in the income), though they had not been paid for. Now, with respect to that, let us analyze that accusation. Is there any difference, Mr. Best, between a trade profit and an underwriting profit ? Mr. Best. Certainly. Mr. Carusi. Where did this word trade profit come from ? Mr. Best. It has been in use for a great many years. I do not know where it originated. Mr. Carusi. Do not you have the credit of originating that ? Mr. Best. Oh, no. It was used, I guess, before I was born. Mr. Carusi. Now, let us see what these two terms mean. Trade profit means, as I understand it, what you get left if you take your entire premium income and deduct from it the losses that you paid during that period and the expenses of the business during that period. Mr. Best. The expenses paid, yes-. That is correct. Mr. Carusi. That is the trade profit, isn't it ? Mr. Best. Yes. 71391— No. 7— 13 3 634 INVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. Now, the underwriting profit is something entirely different, isn't it ? Mr. Best. Entirely different. Mr. Carusi. In the case of underwriting profit you do not take the premiums that you put on the books. You only take so much of the premiums as you have earned during the year, do you not ? Mr. Best. That is correct; yes, sir. Mr. Carusi. And from that you deduct the entire expense richt at once, because it has been paid in advance of getting those pre- miums earned and unearned upon the books of your company? Mr. Best. That is correct. Mr. Carusi. And there is no other factor, is there, in estimating the underwriting results or losses ? Mr. Best. The losses — the losses and expenses are taken on the incurred basis. . Mr. Carusi. Let me state this again, because I think it might help to clear things for the committee, and also for me, for I have a hazy idea of it. In estimating the underwriting profit or the underwriting loss, you ignore the question as to when the risk was put on the books, whether it was two years ago or one year ago or this year. You simply take, do you not, the total earned premiums, those which have been earned during the year, the current year; you subtract from those the losses without respect as to whether the loss is on business put on the books of the company that year or business put on the books of the com- pany five years ago ? Is that true ? Mr. Best. That is true. Mr. Carusi. And you also take the expenses without reference to whether the expense is an earned premium or an unearned premium, which you do not consider in the calculation at all ? Is not that so ? Mr. Best. That is correct, though I think it possibly might be put in a simpler form. Mr. Carusi. I am going to call your attention in a moment to the way it has been put by you, which I do not think could be improved on. It is in the preface of your bound volume. First I want to ask you, was not the statement as to the trade profit correct ? Mr. Berger. Will you excuse me a moment ? I am neither a lawyer nor an insurance man, and I want to get this correctly in my mind. I know some Greek, but this was not even Greek to me. Will you kindly repeat that, because I did not get it clearly, "iou will have to excuse me. Mr. Carusi. Perhaps Mr. Best could make a better explanation, but I will attempt it. „ Mr. Berger. I Want to know about those two terms, " trade pront and "underwriting profit." Mr. Carusi. As I was asked first, and I like to show my knowledge on these subjects, I will endeavor to make the explanation first. Mr. Best. I yield to the gentleman from the District of Columbia. Mr. Carusi. The trade profit or loss is the balance that would be shown, either of profit or loss, by making a calculation as foll0 ]f B Take the entire premiums that have been put upon the books oi tne company for the year. The company has written, we will MJi $100,000 in premiums. We will say that it cost $40,000 in commis- INVESTIGATION OJF INSUKANOE COMPANIES. 635 sions to agents and expenses to do that business. It also cost $50,000 to pay the losses that occurred during the year. Mr. Prouty. On the policies written during that year ? Mr. Carusi. No. Even that is not as accurate as it might be, because it ignores these factors that when the losses occurred on what business it was on. They take that $40,000 and $50,000 of expenses and losses, add them together, and deduct from $100,000, and say there is a trade profit of $10,000. That $10,000 that is left actually remains in the treasury of the company. If we ignore this factor of unearned premium liability we would say, roughly speaking, that upon these operations the company had quit $10,000 ahead of where it was when it began. That is one way of estimating. The departments have a different method. Mr. Johnson. What departments? Mr. Cartjsi. Practically all departments. I will bring that out in Mr. Best's testimony. Mr. George. Do they style that thing "trade profit" ? Mr. Carusi. No; they do not call it trade profit. They estimate the underwriting profits or the underwriting loss. That is done in this way: If $100,000 of premiums have been put upon the books during the course of the year and only $50,000 have run off, so that you can say that that much has been actually earned -wjithout any possibility of a return premium, then they will give you credit for $50,000 of earned premiums, and they will deduct from the earned Eremium all the losses you have paid in the year, whether on that usiness or business you wrote the year before or the year before that ; and in addition to that they will also deduct the entire expense of getting that $100,000 worth of premiums of which only $50,000 has been earned. Mr. Berger. Which seems to be the fairer method 1 Mr. Carusi. I do not think either of them is scientific or accurate, but perhaps it is the only practical way because the condition of an insurance company changes every hour ; with every policy that comes in there is a new liability on the one side and a new premium on the other. Mr. Berger. I think I understand it. I do not know whether I could pass an examination on it or not, but I think I understand it. Mr. Carusi. Mr. Best can perhaps shed further light. Mr. Johnson. We would be glad to have you define those two terms, Mr. Best. Mr. Best. If I might give some figures, possibly it might help to make the matter clearer to members of the committee. Let us assume a fire insurance company is beginning business on the 1st day of January, and that it writes in each month of the fol- lowing year an equal amount of premiums, say $10,000 in premiums. At the end of January the company will have earned on the $10,000 of premiums in that month roughly half a month's premiums; that is to say, the policies that were written on the last day of the month will balance those written on the first .day of the month. The result will be, on the average, at the end of the first month one-half of a month's premium will have been earned. And the company, as it must meet all losses occurring during the following 1 1 months on that policy, which we will assume to be written always for one year, to 636 INVESTIGATION OF INSURANCE COMPANIES. make the matter simpler, must reserve the balance of the premium to pay those losses. Xt the end of February it has written $20,000 in permiums. It has earned a month and a half on the January business and half a month on the February business. That continues all during the year, until at the end of the year roughly the December business balances the January business, and so on until we meet in the middle of the year and approximating one year's business, 50 per cent of the volume of the premiums written will have been earned by the company. Mr. Johnson. You say at the end of February it wouldhave earned one and a half months on the January business ? Mr. Best. Yes ; at the end of January it would have earned half a month on January business, assuming always the business comes in in equal amount each day, and at the end of February on the identical business it will have earned a full month in the month of February. Mr. Beegek. Did not you say yesterday that certain months of the year were hot months, and that the losses were greater for certain months ? Mr. Best. Yes; the early months and usually November and De- cember are fairly hot. Mr. Bekger. Would that not give a false compilation, then, accord- ing to your statement ? Mr. Best. To a certain extent, yes; although it averages up pretty fairly. Taking still under consideration this company that we are consid- ering, at the end of the year it will have written $120,000 of premiums, on which it will have earned approximately $60,000 if the policies are all one-year policies. If they are for longer periods it will have earned less. Consequently it is required by law to reserve for unearned premiums a larger percentage to the initial premium col- lected. The company then out of that $120,000 must contrive, if possible, to pay the expense, which, as Mr. Carusi correctly stated, is based upon the whole sum, and therefore to that extent works against the company in the calculation; also the losses actually paid, and then out of the balance it hopes to have enough to set aside this $60,000 unearned premium fund. This is not practically possible. I can explain how that is very simply. If the average loss ratio is 50 per cent on business which has been running for some years, so that the amount put on the books of the company about balances the amount running off, expiring, and at the end of the year the com- pany says, "We have taken in so much for premiums and paid out so much for losses," the one item is 50 per cent of the other. This new company, particularly that first year, should have a loss ratio of not more than 25 per cent on the actual loss of premiums, including those unpaid at the end of the year. That is the exact equivalent of 50 per cent ratio when the business has been run on, so that out of this $120,000 of premiums the company, we will say, has disbursed 25 per cent, or $30,000 for losses, and we will say 40 per cent for expenses, or $48,000. That is a total of $78,000, and deducting those items from the $120>000 of premiums, we have $42,000 left. , The company is then required to charge itself in its liabilities witn $60,000 as the unearned portion of these premiums originally wntten, INVESTIGATION OF INSURANCE COMPANIES. 637 and the difference between $42,000 left over out of the premium in- come and the $60,000 it is required to charge as liabilities, but must be obtained from some other source; In the case of a well-managed company, dividends are usually ignored for the first few yearsy so that the company can accumulate the Interest earnings against this deficit in the premium income, as contrasted with reserve and loss payments and expense payments. It is a fact that all new companies, must show a depreciation of sur- plus during the first few years, and that must be taken into account in considering these figures of the Commercial, showing its results for the past 10 months, for while it is an old company, its business is nearly all new business and it is ahndst in the position of a new company. Do I make it clear ? Mr. Redfielb. I think so. Mr. Behger. As far as I am concerned, it is clear. Mr. Prouty. Where they write term insurance, the discrepancy would be still greater ? Mr. Best. Still greater, yes; because the commissions paid on the premiums are larger, the expenses are heavier. On the other hand, the amount collected from tne premium itself is larger. Mr. Prouty. The per cent charged opposite its liabilities would be greater ? Mr. Best. Yes; but at the same time it has actually received, not one-year premiums, but two, three, or a five year premium, so that broadly speaking it is as reasonable and accurate a basis as can be found. Mr. Prouty. For instance, if there was a premium for five years and only one month of it turned in, it would be a much less per cent than it would be if paid for a year and for the same amount of money ? Mr. Best. Yes. In actual practice in making up the company's statement they do not take into account when during the year any particular policy was issued. They simply classify them by the term lor which they are issued, as one year, two years, three years, and so on. At the end of the year they set aside an arbitrary percentage of premiums remaining in force, or policies outstanding, on each of those groups, the percentage being fixed by law, and intended as nearly as may be to represent the pro rata unearned premium. It would be assumed, for instance, there would be some policies which would only run one day, while others would run practically a year, and they would offset each other. Mr. Carusi. What I am particularly interested in just at this point is the characterization of the use of the words " trade profits" in this literature as being a willful and discreditable misrepresentation. Assuming now that trade profit means what we both are agreed it does mean, that was not an untrue statement in itself, was it ? Mr. Best. Not in itself. Mr. Carusi. No. It was only untrue, you think, because we did not deduct from the trade profit the unearned premium liability. Mr. Best. And any other liabilities in connection with the business, any undischarged liabilities in connection with the business. Mr. Carusi. That is the one you speak of here, "because of the suppression of the fact that the increase of unearned premium lia- bility must be deducted from the trade profit, if any" ? 638 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. Yes. Mr. Cartjsi. If we had in that calculation deducted the increase of unearned premium, we would not have had a trade profit left would we ; we would have had an underwriting profit ? Mr. Best. May I hear that question again. Mr. Cartjsi. We stated that the trade profit was so much. Now you say that that was a willful and discreditable misrepresentation) because we did not deduct from the trade profit as stated the unearned premium liability. Mr. Best. That is true. Mr. Cartjsi. My question to you is if we had deducted the unearned premium liability would we have had any trade profit left ? Mr. Best. No; you would be dealing then with underwriting profits. Mr. Cartjsi. Exactly. So that that criticism then is not that we discreditably suppressed something, but that we stated our trade profits instead of stating our underwriting profit. Is not that it? Mr. Best. No; the criticism is that the use of the term "trade profit" instead of "underwriting profit," which is the only true basis, was in itself discreditable. Mr. Cartjsi. Who says it is the only true basis ? Mr. Best. It is the basis which is accepted by all underwriters all over the United States. Mr. Cartjsi. It is the basis which you use, is it not ? Mr. Best. Not at all; it is the basis universally accepted. Mr. Cartjsi. Is it the basis used by the Spectator Co. ? Mr. Best. I could not tell. I am speaking now of underwriters. Mr. Johnson. When you said "not at all" did you mean you did not use that basis ? Mr. Best. I understood the question to mean it was simply a method of mine rather than one which is in general use. Mr. Johnson. He asked you if you used it, and you said "not at all." Mr. Best. I said no; I meant to indicate it was not my own private method of estimating these profits. Mr. Johnson. You do use it ? Mr. Best. Yes, but it is not my method; it is a general method. Mr. Redfield. It is a general method which is used by all insurance departments ? Mr. Best. Yes, sir; it is the method adopted by insurance depart- ments. Mr. Cartjsi. By all insurance departments ? Mr. Best. Yes. Mr. Cartjsi. I ask you to look at the Pocket Index published by the Spectator Co., and see how they state the operations of the corn- Mr. Best. They do not show the underwriting profits or losses at all. ' Mr. Cartjsi. They do show the trade profit, do they not? Mr. Best. Not as such. Mr. Cartjsi. It can be worked out from their figures ? Mr. Best. Yes. Mr. Cartjsi. But the underwriting profit and loss could not be f Mr. Best. It can be within bounds. They show the increase oi INVESTIGATION OF INSURANCE COMPANIES. 639 Mr. Carusi. Do you wish to modify your statement, then, which you made a moment' ago that all insurance people use the method that you use ? Mr. Best. I did not make that statement. I said it was, the method universally used by underwriters and by the insurance departments, I did not say by all insurance people, Mr. Carusi. By underwriters ; what dp you mean by underwriters ? Mr. Best. I mean to say the people who operate fire insurance companies. Mr. Carusi. How do you know that to be true ? Mr. Best. I know it to be true because I submit every year to all the insurance companies in the United States my calculation of the result of their transactions for that year, and that the companies write to me stating that those figures are correct and truly represent their results. (&>< Mr. Carusi. In other words, what you submit to them is nothing more or less than the departmental method of stating the operations of a company ? Mr. Best. It is a method which is followed by the insurance com- panies themselves, irrespective of what the departments require. The large companies have been for years in the habit of exchanging their own results privately among themselves, and it is on almost exactly this basis. It is on a basis which by another, method arrives at the same result. Mr. Carusi. What companies have this method of exchange ? Do you mean some few large companies you know of in New York City ? Mr. Best. All over the country. I have been told by officials of companies in Hartford and Springfield and New York, and elsewhere, that that is the basis on which they exchange, and they send me often when they return my own calculations a copy of the exchange slip as well. Mr. Carusi. Those companies to which you refer now are those in the board, as you call it ; or the trust, as I call it ^ Mr. Best. All these I am speaking of are leading companies, yes; but it is not confined to them. Mr. Carusi. Let me ask you this question, if they are not the old and rich companies that have got a standing, a level balance of business, so that the trade profit and underwriting profit are prac- tically identical ? Mr. Best. No. The first part of your question I answer yes. The companies that I have in mind are the leading companies, the ones which have a large business and a rather stable income which does not fluctuate greatly from year to year, but there are a very- few of them whose income is so nearly stationary that the trade profit and the underwriting profit would be even approximately the same. Mr. Carusi. Let me ask you this: Suppose over a five-year period, because that is about as long as any policy is written for, a company's preimum income was the same every year for the five years. At the end of that period would not the underwriting profit and trade profit exactly coincide ? Mr. Best. Yes. Mr. Carusi. Is it not a fact that in those large and rich companies that they are very near a level of premium income over a period of years ? 640 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. No; it is not so, as this booklet would show to you. Mr. Cakusi. You do not mean to say there is toy such fluctua- tion in the premium income of those big companies as there would be in a young company which was entering new States and growing up; would you ? Mr. Best. Oh, no. Mr. Carusi (continuing). And trying to increase its' premium income ? Mr. Best. Your idea being to show that the increase of tinder- writing liabilities would be less in the case of an old established 6om- pany than in the case of a new company, which is rapidly expanding its business ? Mr. Carusi. No. The purpose of my question, which I will dis- close to you, is to have you make the admission that in the case of si young company which is rapidly increasing its premium income 1 the difference between the underwriting profit and the trade profit is at one extreme, and that in the case of the large, old established com- panies, doing very nearly the same amount of premium business year after year that the trade profit and the underwriting profit are another extreme and are nearly coinciding. Mr. Best. That is true. Mr. Carusi. Is not that a true statement? Mr. Best. That is true; yes. Mr. Redfield. Mr. Carusi, will you explain why under those cir- cumstances you use for the purpose of floating a new company the statistics of 20 old ones 'I Mr. Carusi. Why, that is the class we hoped to get in. Mr. Redfield. You mean hop6d to by and by ? Mr. Carusi. Yes; we hoped to by and by. Mr. Redfield. But did you make that clear in your statement here that these facts do not apply to the early days of your company, but are a future thing ? If so, where is it ? Mr. Carusi. Well, I think that is si matter in the discretion of the reader. Mr. Redfield. It seems to me if this statement of yours is correct— and I assume it to be so — that a very essential fact which you just pointed out is entirely absent from this. Mr. Carusi. That would be a matter of argument, I think. Now, the last of the numbered criticisms concerning this company's stock- selling methods addresses itself to the following statement. I read exactly what you say [reading] : 4. The actual results of the company's business, entailing a considerable under- Writing loss, are shown above. Yet in its prospectus it says, "The yea* 1911 has been a remarkable year in the history of the Commereial. The record of progress is one which has seldom if ever been equaled by any fire insurance company '; and, in the fare of these conditions, we find the following statement: . ,. "It is confidently expected that the Commercial stock will increase in value fully 50 per cent during 1912." The statement referred to there is that the year 1911 was a remark- able year in the history of the Commercial. You do not know whether it was or whether it was not, do you ? Mr. Best. I would assume that what was intended there was to indicate that it was a remarkable year for the stockholders— remark- ably profitable year. I considered the. entire statement together, INVESTIGATION Of INSURANCE COMPANIES. 641 the suggestion that the stock would increase 50 per cent during the year 1912. Mr. Caeusi. Well, that was stated as a confident expectation on the" |>art of the person who wrote that pamphlet. Mi. Best; Overconfident. ,, Mr. Caeusi. You would not claim that was a misrepresentation of fact, would you ? Mr. Best. YeS? I think I would. I can not imagine as to how it could possibly have increased in value 50 per cent. Mr. Caeusi. I do not want to be technical, but, of course, you must know, Mr. Best, when people talk about what they exf>ect is going to happen no lawyer and I submit that no layman can say that that is a misstatement unless he can show that it was made without any belief iri it by the person who made it at the time it was made. So that I find some difficulty, I am frank to confess, in cross-examining you about this fourth criticism of alleged misstatements, because they are not statements of fact at all, and it would simply be a ques- tion as to whether whoever made the statements made them in good faith or hot and believed them to be reasonably true. Now, those are the four criticisms, Mr. Best, and I want to' ask you — those are the four numbered criticisms — and I want to ask you if at the time you wrote this article you were not in a veiry hostile frame qf mind to this company ? Mr. Best. Do you 1 mean to such an extent that I would be biased against it ? Mr. Caeusi. Well, I did not ask you that. I asked you if you were not feeling very hostile to the company ? Mr. Best. I answer no. Mr. Caeusi. The fact that you had been threatened with a libel suit did not ruffle your serenity in the least ? Mr. Best. Not a particle. It happens too often. Mr. Caeusi. It does happen often ? Mr. Best. It does. Mr. Caeusi. Do you make statements of that kind commonly in your paper ? Mr. Best. Oh, we criticize companies very commonly; yes. Mr. Caeusi. .Now, then, in the other portion of this — it is too long for me to go through it word by word and attempt to analyze any justification you may have had for those criticisms — but on page ISO of the same issue, relating to the First National, you come out there very strongly and say: Here is one absolute falsehood in the prospectus. Not a mere suppression of the truth, but an absolute falsehood. la speaking of the course of profits, it says, "out of these premium moneys are also paid fire losses experienced by the company and the current expenses of the business. After the sum of these two items is deducted from' the premium income the balance belongs to the stockholders, and to no one else." The people back of this enterprise Knew very well the nature of the unearned premium liability of a fire insurance com- pany, and they know from their own experience with the Commercial that, particularly in the early years of a fire insurance company, a very considerable part of the premium left over after paying current losses and expenses belongs to the policy holders. Now, let us take that statement. You made that statement under oath here, or, rather, in your examination here, I think, yesterday 642 INVESTIGATION OF INSURANCE COMPANIES. that — you said that it did not belong — that that fund did not belong to the stockholders; it belonged to the policy holders? Mr. Best. Yes. Mr. Carusi. Now, do you really mean that any one dollar of the assets belongs in any sense of the word to anybody but its stock- holders ? Mr. Best. Technically, of course the statement would notbecorrect. Mr. Carusi. Whose statement would not be correct? Mr. Best. My statement. Taking it as a question of law, the assets of a fire insurance company belong to it. This statement, however, is false in indicating that after the company gets through with paying the current losses and expenses, everything that is left is its profit — it is there — belongs to the stockholders. Mr. Carusi. Well, what right have you to say that this company indicated anything of that kind ? Mr. Best. The phraseology. Mr. Carusi. Now let me read you Mr. Best (interposing). What page is that, Mr. Carusi? Mr. Carusi. This is page 11 of the booklet; and have you the same issue that I have? Mr. Best. I do not know; I will see. Mr. Carusi. Well, we will see as we read it. [Reading:] Where your profits come from. The profit on your investment comes from the premium moneys paid to the First National by its policy holders and from interest on the company's approved securities. Out of these premium moneys are also paid the fire losses experienced by the company and current expenses of the business. After the sum of these two items is deducted from the premium income, the balance belongs to the stockholders and to no one else. Some of that balance goes into the reinsurance reserve fund — Is that in your book? Mr. Best. That is there. Mr. Carusi. Well, it is not in your article ? Mr. Best. Xo. Mr. Carusi (continuing reading) : some of it into the surplus to increase the company's financial solidity and bueiness standing, and the rest of it is paid to the owners of the First National in the form of cash dividends on their investment. And then it says that it is the policy of the company to pay such dividends on January 5 and July 5 of each calendar year. Why did you omit this statement here, that some of the balance goes into the reinsurance reserve ? Mr. Best. The other statement is an absolutely positive statement. Mr. Carusi. Is it any more positive than the other ? Mr. Best. It certainly is. [Reading:] Out of these premium moneys are also paid fire losses experienced by the company and the current expenses of the business. After the sum of these two items is deducted from the premium income the balance belongs to the stockholders and to no one else. It seems to me, Mr. Carusi, that what follows simply nullifies your previous statement — contradicts it flatly. Mr. Carusi. Just excuse me, Mr. Best. Is it not your charge in this article that you have published concerning this company that it has been guilty of an absolute falsehood in telling prospective stockholders Mr. Best (interposing). Yes. INVESTIGATION OF INSURANCE COMPANIES. 643 Mr. Carusi (continuing). That what was left after losses and expenses were paid went into the pockets of the stockholders, and that they made no allowance and no explanation of it going into an unearned .premium fund; is not that what you told them by this article of yours ? , . Mr. Best. No; I say that that particular statement is untrue. Now, if you want me to define what I consider an untruth I will give you the definition. Mr. Carusi. No, sir; I have no interest in that definition. I would like to know how you could pick out half of an entire paragraph and charge that the statements in it were a falsehood, when your very criticism is met by the very next sentence, that follows in that para- graph on that page, and which you omit. Did you get my question? Mr. Best. I do not believe I did. Will you read it? Question read by the reporter, as follows : Mr. Carusi. No, sir; I have no interest in that definition. I would like to know how you could pick out half of an entire paragraph and charge that the statements in it were a falsehood, when your very criticism is met by the very next sentence, that follows in that paragraph on that page, and which you omit. Did you get my question? Mr. Best. The two statements simply contradict each other. The second does not in any way, in my judgment, excuse the first. Mr. Carusi. Well, we will let it stay at that. Mr. Best, do you want this committee to understand that if you or anybody else were trying to organize a fire insurance company whether by the use of the mails or by salesmen, that you would dwell in your literature on the conflagration hazard, that you have spoken about once or twice ? Mr. Best. I want the committee to understand that if I were inviting anybody to invest money in any enterprise, I would give him all the information I had concerning the business that I was asking ,him to engage in. Mr. Carusi. Is that intended as an answer to my question ? Mr. Best. It is. Mr. Carusi. Do you consider that the so-called conflagration haz- ard is one of those facts that it would be unfair to omit to mention in a prospectus for the sale of stock in a fire insurance company ? Mr. Best. My standards may be higher • than some others, but I would certainly think that it should be mentioned. Mr. Carusi. I gather from your present statement and from your published criticisms that you think the prospectus of a fire insurance company ought to be written something like an obituary notice ? Mr. Best. Oh, not necessarily. Mr. Redeield. You think both should tell the truth, do you not ? Mr. Best. Quite so. Mr. Protjty. If he is dead, it should be mentioned? Mr. Best. I beg your pardon. Mr. Prouty. If he is dead, it should be mentioned ? Mr. Best. It should be mentioned, I think. Mr. Douglas. After death the truth can be told. Mr. Carusi. Would you have on your advertising literature or your folders if you were admitted in 5 or 6 or 7 or 8 or 10 or 11 States — would you have the legend "not admitted to the State of New York" printed conspicuously upon it somewhere? Mr. Best. Oh, no; I do not think it is necessary to go to such a length as that. 644 INVESTIGATION OF INSURANCE COMPANIES. Mr. Caeusi. You do not go quite that far. Now, there are two possible ways, I think you agreed with me, yesterday, of organizing a company on a popular basis and over wide territory. One is by stock salesmen and the other is by a mail campaign; is not that so! Mr. Best. Yes. Mr. Caeusi. And which of those two is the least likely to Contain any misrepresentation ? Mr. Best. I should say unquestionably a mail campaign. Mr. Caeusi. Because there the statements are in black and white, ready to come up and confront you most anywhere ? Mr. Best. Anywhere. Mr. Caeusi. Yes. Whereas the stock salesman who has an inter- view with you in your private office, his word, after it is uttered, may fly away forever and no record of it be made? Mr. Best. Just like the man that I testified about yesterday* Mr. Caeusi. Yes. I do not want to get any of your trade secrets at all, but who are your Washington subscribers generally here ? Mr. Best. I could not tell you. We have some of the larger busi- ness houses here — quite a number of them, I think. I think possibly some of the banks and some of the insurance agencies. It is not a large list in the District. Mr. Caeusi. It is not a large list? Mr. Best. Not a large list. I do not know how big it is. I do not have anything to do with that. Mr. Caeusi. Well, have you not supplied these critical articles of Jours on these companies to anyhody but your regular subscribers ere in Washington ? Mr. Best. I think not. It might be that some one here would write to the office and ask for a copy of some particular issue of our paper; and if we have it, it would be sold to them. Mr. Caeusi. You never send them down in bulk to be distributed around to insurance agencies ? Mr. Best. Oh, no. Mr. Caeusi. And banks and trust companies here in Washington? Mr. Best. No. Mr. Caeusi. Carrying out that same thought, you do sometimes sell in bulk, do you not, even now ? Mr. Best. Once in a long while; yes. Mr. Caeusi. In this present week did not the Queen Insurance" Co. buy about a thousand dollars of your goods ? Mr. Best. No. Mr. Caeusi.. It did not? Mr. Best. No. Mr. Douglas. Day before yesterday? Mr. Carusi. That is this week. Mr. Best. Not in the last month or the last year. Mr. Caeusi. I will ask you specifically whether on Thursday, the very day you came down here, whether before you left, the Queen had not bought a thousand dollars of your reports ? Mr. Best. Absolutely no. Mr. Caeusi. Nor any other large company ? Mr. Best. No. Mr. Caeusi. It was testified here, Mr. Best, by one of the nonexpert witnesses that this reinsurance reserve in a bank is pretty much toe INVESTIGATION OF INSURANCE COMPANIES. 645 same sort of thing — not the reinsurance reserve, but that there is a similarity between a bank's reserve and the insurance company's reserve. Now, you know all about an insurance company's reserve. Do you know enough about a bank's reserve to tell the committee whether there is in fact any similarity whatever between the two ? Mr. Best. No; I would not undertake to pass on that. Mr. Carusi. You know, do you not, that the reserve of a bank, and more particularly of a national bank, is a part of the deposits — a per- centage of the deposits which the law requires shall be maintained either in cash, there being a cash reserve, or shall be maintained in some very liquid form, such as New York exchange, deposits in a bank jn a reserve city, as it is called, that being about 25 per cent, I think, for cities like Washington? That reserve means that a part of the deposits are to be set aside. To whom do the deposits belong in a national bank ? Mr. Best. You mean technically or Mr. Carusi (interposing). No; I mean any kind of way. To whom do the deposits belong? Mr. Best. I should say they belong to the depositors. Mr. Carusi. Yes. You do not insist, do you, that the unearned premium reserve belongs to the policyholders in any such sense of the word ? Mr. Best. I think it is very similar, as a matter of fact. Mr. Carusi. Well, just on that, is it not a fact that the only interest that a policyholder has in any fire insurance company is either to get his Joss paid or, if he has his policy returned, to get 'a rebate of whajfe he paid for it; is not that all he is entitled to ? Mr. Best. That is all he is entitled to. Mr. Carusi. He has not one dollar's worth of proprietary interest in any of the assets of the company, has he ? Mr. Best. Not proprietary, no. Mr. Carusi. In case of dissolution of the company he would be entitled to be a preferred creditor over other creditors to the extent of so much of its premium as had been earned ; is not that so ? Mr. Best. I do not know whether he would be a preferred creditor; he would be a creditor. Mr. Carusi. Don't you know that he would be a preferred creditor ? Mr. Best. I do not know it. Mr. Carusi. Does the committee desire to adjourn ? Mr. Johnson Yes. We will take a recess now until 2.15. Whereupon, at 1^.52 o'clock p. m., the subcommittee took a recess until 2.15 o'clock p. m. AFTER RE.CESS. The subcommittee met at 2.15 o'clock p. m., pursuant to the taking of recess. TESTIMONY OF ALFRED M. BEST— Continued. Mr. Johnson. You may continue the examination, Mr Carusi. Mr. Carusi. Mr. Best, when we left off we were discussing, I think, the similarity or dissimilarity between the reserve maintained by a bank and the reserve maintained by an insurance company. I have one or two further questions to ask you along that line. 646 INVESTIGATION OF INSURANCE COMPANIES. Have you any knowledge or information as to what kind of invest- ments the reserve of a bank must be kept in ? Mr. Best. Very general. My understanding has been that the reserve you mention must be in cash. Mr. Carusi. Yes; it must not be invested at all. Mr. Best. It must not be invested at all. Mr. Carusi. Do you know of any State which specifically prescribes how the reserve of a fire insurance company must be invested ? Mr. Best. Xot as such. Mr. Carusi. Explain your qualification. Mr. Best, I mean to say that the laws specify in what classes of securities and in what other ways the general funds of a company shall be invested, but not referring specifically to the portion which represents the reserve. Mr. Carusi. Yes. And real estate is not prohibited, is it? Mr. Best. No. Mr. Carusi. By the laws of any State that you know of ? Mr. Best. No. Mr. Carusi. Do you know of the law of any State which requires the reserve of a fire insurance company to be kept in what are called liquid assets ? Mr. Best. No. Mr. Carusi. Not other than you have answered ? Mr. Best. No. Mr. Carusi. Do you know of the law of any State which prevents an insurance company from investing all or any part of its reserve, or, so far as that goes, of its entire assets, in real estate ? Mr. Best. You are speaking now of fire insurance companies ? Mr. Carusi. Yes; fire insurance companies. Mr. Best. No. Mr. Carusi. You were asked, on your direct examination, con- cerning the provision of what was stated to be the model law which had been passed by New York for life insurance companies ? Mr. Best. Yes. Mr. Carusi. Does that law confine itself entirely to fife insurance companies, or does the act that was mentioned cover other kinds of companies ? Mr. Best. I had in mind only the laws relating to life insurance. Mr. Carusi. But pardon me, my question is, and it is frankly one for information, because I do not know of it, Is this model law of New York one for insurance companies of various characters ? Mr. Best. No ; this had to do only with life insurance, this par- ticular provision I am speaking of. Mr. Carusi. There is no law in New York, so far as you know, is there, prescribing the character of investments for fire insurance companies ? Mr. Best. Oh, yes ; I understand that there is such a law. Mr. Carusi. Does it exclude real estate as an investment ? Mr. Best. No. Mr. Carusi. It does not ? Mr. Best. It specifically includes it, if I am not mistaken. Mr. Carusi. Something was said by you concerning the ratio between the assets of a fire insurance company and the amount of real estate which it ought to hold. That is correct, is it not ? INVESTIGATION OF INSURANCE COMPANIES. 647 Mr. Best. Yes. P Mr. Carusi. If I remember, you stated in that connection that one of the disadvantages of having — I think you said the reserve^ invested in real estate was that if a conflagration should occur in New York the reserve would not be available to meet the demands of the policy holders. Mr. Best. My recollection of the testimony is that we did not refer specifically to the reserve; we were simply speaking of the desira- bility of having the assets as a whole in reasonably liquid form. Mr. Cabusi. Very well. Then the desirability of having the assets as a whole in liquid form was partly influenced by what you said con- cerning the conflagration in New York, was it not ? Mr. Best. A conflagration anywhere. Mr. Carusi. As you stated. Mr. Best. Yes, a conflagration anywhere. Mr. Cabusi. Well, do you think that there is the same likelihood of a serious conflagration in the District of Columbia, for instance, that there would be in the congested portions of New York or Boston ? Mr. Best. Oh, no. Mr. Carusi. It is well known, is it not, among fire insurance men that there is practically no conflagration hazard, in the technical sense, here in Washington ? Mr. Best. It is so considered, I should say. Mr. Cabusi. So considered. Might not the question, then, of the proper ratio of real estate holdings to assets depend somewhat upon thelocal conditions ? Mr. Best. Not so much as upon the territory from which the busi- ness of the company was drawn; the premium income. Mr. Cabusi. Well, suppose none of the premium income was drawn from New York or from Massachusetts. That would greatly reduce the chance of heavy conflagration loss, wouldn't it ? Mr. Best. Yes. I suppose you mean the question to include all cities in which there would be a large conflagration hazard. Mr. Cabusi. Well, I did not exactly mean that. I had the Com- mercial in mind, which is not operating in Boston and not operating in New York, but whose real estate holdings are under criticism. The conflagration hazard for that company would be much less, would it not « Mr. Best. I can scarcely answer the question without knowing more definitely where the business comes from. For instance, Chicago has a bad conflagration hazard. Mr. Cabusi. Wherever it comes from, Mr. Best, if we eliminate Boston and New York we eliminate a very potent factor in the con- flagration hazard, do we not ? Mr. Best. Oh, yes; that is true. Mr. Cabusi. It is not altogether uncommon, is it, for fire insurance companies to hold considerable real estate ? Mr. Best. No. Mr. Carusi. I am going to ask you whether you know, in the case of these companies that I mention to you, as a matter of general information — these companies, I believe, have all been reported upon by you — that the National Union, in this city, has assets of $182,000, in round numbers, and carries real estate appraised at $175,000 ? 648 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. I must have had knowledge of it. I do not question it Mr. Caeusi. That can be verified from the Spectator Year Book of 1912, page 127. And also from one of your reports. Also the Arlington, another Washington company, which has assets of $370,000 and real estate $214,000, the same book, page 222- the Corcoran, another Washington company, with assets of $260,000 and real estate of $7.0,000; the Firemen's, with assets of $3 15,00.0 and real estate of $75,0.00. Taking a New York company, the Hannibal. That is a company of high standing, is it not ? Mr. Best. Hjgb, but not the highest. Mr. Caeusi. That is one of the companies in the so-called trust is it not ? Mr. Best. A member of the New York board, do you mean; the exchange ? Mr. Caeusi. You can put it that way. Mr. Best. It is; yes. Mr. Caeusi. Do you not know — and if you do not I can hand Eou the Spectator, page 86 — that the assets of that company are sted at $4,818,000 and that it carries real estate to the appraised value of $1,130,000? Mr. Best. Yes ; I know that. Mr. Caeusi. You know that. Now, there are one or two more I would like to ask you about. The Virginia State, an old company of Richmond, you probably know about. Mr. Best. Yes. Mr. Caeusi. Its assets are $519,041 and real estate $135,250. Mr. Best. Yes ; that is about right. Mr. Caeusi. That is 26 per cent. Mr. Best. Yes. Mr. Caeusi. The State Insurance Co. of Des Moines, Iowa, $421,840 assets with real estate $160,017, which is 38 per cent. The Royal, of England, is one of the great foreign companies, is it not ? Mr. Best. Yes. Mr. Caeusi. That is also in what you call the board ? Mr. Best. It is. Mr. Caeusi. Do you not know that of its assets amounting to $11,840,202, that its real estate is $4,140,902 — about 35 per cent? Mr. Best. That is about right, but those are the assets of the United States branch only. That particular company has assets of about $100,000,000. Mr. Berger. What is that ? Air. Best. I say, those are the assets of the United States branch. The company has, in all, assets of about $100,000,000. Mr. Caeusi. Do you know what its real estate holdings in all amount to ? Mr. Best. Not offhand. I know they own a great deal of real estate. Mr. Caeusi. Both in this country and England? Mr. Best. Yes; and in other countries as well. Mr. Caeusi. Taking up still another line, Mr. Best, for a few minutes, will you explain to the committee very briefly what is the origin of the uniform blanks in accordance with which now all insur- INVESTIGATION OF INSURANCE COMPANIES. 649 ance departments secure the information that they wish concerning the condition of a company under examination ? Mr. Best. The uniform blanks are known as the convention statement forms, and their form is fixed by a committee of the National Convention of Insurance Commissioners, a body that meets once a year, of which the insurance commissioners for the various States make up the membership. They discuss all so.ts of subjects which have to do with the welfare of the business. Mr. Cartjsi. And all insurance departments use these standard blanks, do they not ? Mr. Best. Yes. Mr. Cartjsi. Is it not a fact that there are recognized to be two general divisions of the operations of a fire insurance company, one classified as the underwriting operations and the other as the bank- ing operations ? Mr. Best. That is the general division. Mr. Cartjsi. Is it not a fact that the banking operations include interest on investments and any appreciation in the value of its holdings of securities ? Mr. Best. Yes. Mr. Cartjsi. Upon the standard blank forms — in case you want to refer to it I have one of the standard blank forms Mr. Best. I would like to, thank you. Mr. Cartjsi. Upon the standard blank forms would not any appre- ciation in the value of securities, of real estate holdings, be classified under the head of income ? Mr. Best. Yes. Mr. Cartjsi. If you do not remember you can look at the blanks. Mr. Best. I want to make perfectly sure. Mr. Wolfe (handing volume to witness). Down at the bottom there. Mr. Best. Yes, it would. Mr. Cartjsi. In estimating the total earnings of a fire insurance company, would not any profits resulting from the banking opera- tions be properly included ? Mr. Best. May I hear the first part of the question again ? Mr. Cartjsi. In estimating the total earnings of a fire insurance company, would not any profits resulting from the banking opera- tions be properly included? Mr. Best. Of course. Mr. Cartjsi. Are not the earnings of a fire insurance company arrived at by adding to the items classified upon the standard blanks under the head of "income," and deducting therefrom the expenses of operation and so much of the premium income as has not yet been earned ? If you would like to have that read more slowly, the stenographer will read it. Mr. Best. Yes. [The pending question was read by the stenog- rapher.! In using the word "expenses " you mean to say all disburse- ments, including losses? Mr. Cartjsi. Yes. , Mr. Best. That would be almost correct. There might be some other items of liabilities that would have to be adjusted. 71391— No. 7— 13 4 650 INVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. What I want is the general proposition that the way you get at the net earnings^ is to take the items on these standard blanks under the head of "income," and deduct from your income your expenses, by which I mean generally all of your disbursements, and making, of course, a proper allowance for the unearned premium liability. Mr. Best. That is true. But, as I say, there might be some other small items that would need adjustment. Mr. Carusi. Yes. Well, I did not attach any importance to that qualification. Now, then, would the balance you get in that way represent either the net earnings or the net losses of the company ? Mr. Best. Yes. Mr. Carusi. I will ask you to take the resolution of December 6, 1912, that you referred to in your direct examination. Mr. Best. Resolution of the directors of the Commercial ? Mr. Carusi. Yes. Mr. Prouty. What date did you say ? Mr. Carusi. December 6. Mr. Prouty. I was looking at November 11. Mr. Carusi. The one I refer to, however, is on page 42, and it is printed there under the head of " Extracts from resolution passed by the board of directors November 11, 1912." Mr. Best. Yes. Mr. Carusi. Now, if the net earnings are to be arrived at in the manner in which you have testified, and as a result of classifications which are made upon the standard blanks of the insurance depart- ments, I want to ask you whether the statement is not true that is contained in the second "Whereas" clause of that resolution, pro- vided that the increase in the value of the real estate does show a sub- stantial profit for the company, notwithstanding any other losses it may have had, and I will ask you to read that second "Whereas." Mr. Best (reading) : Whereas the capital and surplus of the company have been recently materially increased, and the company has earned for its stockholders a large sum of money in addition to paying the regular 12 per cent dividend, thereby increasing the amount of surplus on hand, as well as the actual value of the stock. Mr. Carusi. That is what I wanted you to read. Mr. Best. Yes; that is correct. The item of the increase in the value of the building is included in the items of income. If the item is legitimate, it is an earning in that sense. Mr. Carusi. You said yesterday, if I remember your testimony, and I only attempt to give you the substance of it, that that word "earned" was in your mind controlled by the context in which it appeared, and if I remember rightly you stated that from the context it appeared to your mind that "earned" meant earned by the under- writing operations of the company. Is that a correct statement of your testimony yesterday ? Mr. Best. That is my recollection. Mr. Carusi. Now, I wish to call your attention to the fact that the first "Whereas" clause of that resolution speaks of the large volume of business being transacted by the company. Mr. Best. Yes. INVESTIGATION OP INSURANCE COMPANIES. 651 Mr. Carusi. That meant underwriting, did it not ? Mr. Best. Yes. Mr. Carusi. And the fact that there was a large addition to its agency plan ? Mr. Best. Yes. Mr. Carusi. And that there had been a large increase in the premium income of the company? Mr. Best. All that is indicated. Mr. Carusi. Yes. Whereas in the second clause, the one in which this word "earned" appears, the recital refers specifically to increase in capital and surplus of the company, does it not ? Mr. Best. You mean that the word "earned" is used only in con- nection with capital and surplus ? Mr. Carusi. No; that is not what I ask you. My exact question is this, that the paragraph in which the word "earned" occurs is a par- agraph which says nothing about the underwriting operations of the company at all, but says — Whereas the capital and surplus of the company have been recently materially increased and the company has earned for its stockholders. Is that so ? Mr. Best. Yes. Mr. Carusi. Now, I want to ask you whether the context, instead of giving the impression that you testified to yesterday, would not rather give the impression that "earnings" was used in connection with an increase of the capital and surplus? Or, I will put it in another way: vi hat is the context for the word "earned" ? Is it the paragraph that the word is not used in or is it the paragraph that it is used m ? Mr. Best. I read it with the belief that two separate things were in the mind of the person drafting the sentence, for the reason that the conjunction is used: Whereas the capital and surplus of the company have been recently materially increased — And that seems to me to be complete — and the company has earned for its stockholders a large sum of money in addition to paying the regular 12 per cent dividends. It did not occur to me that the two were inseparable; rather that there were two thoughts there, and by "earnings" I assumed myself, in reading it, that the company was referring to the results from business, general business. Mr. Carusi. The earnings would have gone into surplus, would they not ? Mr. Best. Yes. Mr. Carusi. Of course the increase in capital and surplus men- tioned must have carried with it to the mind of any stockholder, actual or prospective, that the way the capital had been increased was by the sale of additional capital stock ? Mr. Best. Undoubtedly- Mr. Carusi. And the way that the surplus had been increase;! was by the net premium paid on his stock and by some other operations of the company ? Mr. Best. Yes; both. 652 IXVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. Can you state, Mr, Best, as an expert, what the aver- age rate of income is that a well-conducted fire insurance company could expect from its banking operations ? Mr. Best. That is a little difficult. The investments of the most conservative companies are in such classes of securities that the rate earned is not very large. Mr. Carusi. Not over 4 per cent, is it, generally? Mr. Best. Yes; I think it would run better than 4 per cent. Mr. Carusi. Four and a half per cent, may be ? Mr. Best. Yes; more than that. It might be considerably up- ward of 5 per cent. I am speaking without refreshing my memory. Mr. Carusi. Most of the investments are what we would call high- grade bonds, are they not ? Mr. Best. Yes. Mr. Carusi. These big, rich companies? Mr. Best. But in the case of most of the large ones there are stocks as well of banks and other institutions which improve the average rate. Mr. Carusi. You mean the stocks which are subscribed to at the time the bank is organized, or that they buy afterwards ? Mr. Best. Well, either one or the other. Mr. Carusi. If they bought them afterwards they would have to buy them on about a 4 per cent basis, would they not? Mr. Best. Presumably. Mr. Carusi. Do you know as a matter of general information, as an inusrance expert, about what a fire insurance company can expect to net out of their real estate holdings ? Mr. Best. The real estate as a whole is not particularly produc- tive. I could give actual figures if it is desired concerning real estate earnings of life insurance companies, because I analyzed those par- ticularly in my publication, but I do not analyze the real estate earnings of the fire insurance companies. Mr. Carusi. If you could give just a general result, I would be glad to have it. I do not care about going into specific figures. Mr. Best. I can give four or five companies, if you like. Mr. Carusi. Can you give the average instead of picking out any particular company? Mr. Best. I should say roughly that real estate as a rule does not net much in excess of 3 per cent. Mr. Carusi. Coming back now again to some technical matters which you can throw fight upon better than anybody else probably, is it not a fact that the unearned premium reserve is figured in insurance solely as a liability? Mr. Best. Yes. Mr. Carusi. And we have already seen the entire expense is charged up at once in the expense? Mr. Best. Yes. Mr. Carusi. A fact not brought out, however, is this : Is it not a fact that the averagely good business upon the books of an averagely well conducted fire insurance company, and represented by the unearned premium fund, has a profit in it for the company? Mr. Best. An ultimate profit. . . Mr. Carusi. I will carry my question further; a profit which is commonly estimated by insurance men to be from 35 to 50 per cent of the amount of the fund ? INVESTIGATION OF INSURANCE COMPANIES. 653 Mr. Best. Bather the lower figure would be nearer correct, although there have been instances where companies have reinsured their business in bulk and have received a discount on account of the unearned premium liability, running up to 50 per cent. It is very- rare, however, and it is nearer 30 or 35. Mr. Carusi. So then that although this unearned premium reserve is classified by an insurance department examination solely as a liability, as getting at the real condition of the company and its assets, 35 per cent of that might be treated as available assets belong- ing to the stockholders ? Mr. Best. That would be true if the business showed a profit. Mr. Carusi. Yes; I assumed that. Mr. Best. Yes. If the business of the company for the preceding few years had shown a profit, the value of the reserve to the company in the event of its retiring from business and reinsuiing, would be measured by the profit it had been earning. If it had not been earn- ing a profit it could not be reinsured at a profit, and if it had been earning a profit it could realize as high as 50 per cent of that amount. Mr. Carusi. You mentioned a moment ago a company that got as much as 50 per cent. You referred, did you, to the Illinois Insurance Co., or what is it ? Mr. Best. The Insurance Co. of the State of Illinois. Mr. Carusi. Yes. Do you refer to the Insurance Co. of the State of Illinois ? Mr. Best. No; I had another company in mind. But I am informed, how credibly I do not know, that in that particular reinsurance transaction the company got a commission of over 50 per cent. Mr. Carusi. Got a commission of over 50 per cent ? Mr. Best. Yes. Mr. Carusi. Do you know what company paid it ? Mr. Best. Yes. Mr. Carusi. The Hanover ? Mr. Best. Yes. Mr. Carusi. One of the companies in the board ? Mr. Best. One of the good ones, but not the best. Mr. Carusi. But one of the companies in the board. Now, the Illinois company was not in the board, was it ? Mr. Best. In the Western Union ? I do not recall. I think not. Mr. Carusi. One of the advantages of the purchase of that company would be to get rid of a company not in the board, and all of its agency plant, and so forth, gradually into a board company's control, would it not ? Mr. Best. I do not think so. It is very difficult for a board com- pany to make use of business for the purpose of securing the renewal of the business that has been written through nonboard journals, when the company taking the business is a board company. Mr. Carusi. You would assume, I take it, from your previous answer to me, that if 35 per cent is paid where the business is good, as demonstrated by the previous year's losses, that 50 per cent would be paid where it was exceptionally good ? Mr. Best. Yes; provided the company taking the business knew what it was about. Mr. Carusi. Well, the Hanover generally knows its way about, does it not ? 654 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. In this particular transaction it certainly did not. If the committee please, I will say that an officer of another large company informed me the business was offered to it at 25 per cent commission and it declined; that is, it was offered to it, and it offered to pay 25 per cent commission, but no more. It was generally believed the commission paid in that transaction was too high. There was some, other reason that actuated the company. Mr. Carusi. I want to ask you now, ]\Ir. Best, if it is not a fact that this very business of the Insurance Co. of the State of Illinois which was purchased at 50 per cent, had shown for the previous years a loss to premium ratio of 162.9 per cent? Mr. Best. My figure is a little different, but it is very high. I have it 170.4 per cent. Mr. Carusi. That will do just as well. Mr. Best. I happen to know the entire details of that business, and the reason the price was paid for it, if the committee cares to hear it. Mr. Redfiei.d. Please tell us. Mr. Best. The business of the company in some States was very unprofitable. In Illinois and some other States it had a very profit- able business, but it was not sufficiently large to make the entire business profitable. Any company taking it over would do it with the idea, if possible, of getting hold of the desirable business, and letting the rest run off. In this case even on that basis the opinion seemed to be the commission paid was too high. Mr. Carusi. "Why would a company that was doing a profitable business want to reinsure its business? Is it not generally because the business proves to be unprofitable either in whole or in a particu- lar territory that it disposes of its unearned premium? Mr. Best. That is usually the reason. Mr. Carusi. It does not sell for 35 per cent, does it? Mr. Best. No. Mr. Carusi. Going back to the Commercial just for a moment, and as to the profitable or unprofitable character of its business, you have stated here this morning that losses are deducted from premiums without regard to when the particular business that the loss results from was put on the books. Mr. Best. Quite true. Mr. Carusi. Do you know that before Tuttle, Wightman & Dudley incorporated the Commercial the John H. Kelly Co. had it? Mr. Best. Yes. • Mr. Carusi. Do you know that although that contract was can- celed that the business it put upon the books was not canceled? Mr. Best. I did not know that. Mr. Carusi. You do not know how much of the losses that occurred in 1912 were attributable to what might be called the Kelly contract? Mr. Best. No. Mr. Carusi. The losses of the Franklin and Potomac were pretty heavy, were they not ? Mr. Best. Excessive. Mr. Carusi. The John Kelly Co. put that business upon their books, did they not ? Mr. Best. I so understand; yes. INVESTIGATION OF INSURANCE COMPANIES. 655 Mr. Carusi. You do not know what the loss ratio is of the business that Tuttle, Wightman & Dudley (Inc.) put upon the books of the Commercial, do you ? Mr. Best. No. I simply have the figures showing the entire business. Mr. Carusi. That could be ascertained from the books, of course, could it not ? Mr. Best. Presumably; yes. Mr. Carusi. By expert accountants ? Mr. Best. Oh, yes. Mr. Carusi. Do you know that the Commercial Fire Insurance Co. had started an industrial branch here in Washington ? Mr. Best. I have a vague recollection of that being mentioned to me when I was here in July. Mr. Carusi. You know, do you not, that business of that kind is always an expense for at least a year ? Mr. Best. Yes. Mr. Carusi. No profit can be realized — it is all outgo ? Mr. Best. Yes. Mr. Carusi. The Home Fire Insurance Co. of New York, which you testified, I believe, was one of the companies that helped give you a start in business, is in the board, I believe, is i. not 1 Mr. Best. Yes. Mr. Carusi. That had a very important industrial business here in Washington, did it not ? • Mr. Best. I do not know about Washington. I know it has in some other cities — Baltimore, for one. Mr. Carusi. Do you not know that Mr. Holton was the manager in Washington for a number of years of the Home Fire's industrial branch here ? Mr. Best. I think I did. They have a department they call the L. & 0., little and often business. I recollect having been informed they did take a little of it here. Mr. Prouty. What is the nature of it ? Mr. Carusi. I know very little about it, but I understand in a gen- eral way it gives poor people small policies on household goods and lets them pay for it a little bit each month, or maybe it is each week, instead of being obliged to pay the whole premium in advance. Mr. Berger. Like industrial life insurance ? Mr. Carusi. Yes; the same thing, sir. Mr. Best. The rate is higher, and it is profitable in spite of the high expense. Mr. Carusi. On account of the rate being higher ? Mr. Best. Yes. Mr. Carusi. Do you know that since the establishment of the in- dustrial branch of the Commercial that Mr. Holton, formerly of the Home, has been in charge of building up that branch of the comapny's business ? Mr. Best. No; I do not know that. I am interested to know it, however. Mr. Carusi. Did you know the Commercial Fire not only cut the rate, if you choose to call it that, of fire insurance on dwellings and on Household goods, but that its industrial business was given to the 656 INVESTIGATION OF INSURANCE COMPANIES. poorer people of this city at a cheaper rate than the Home had been giving it to them ? Mr. Best. Xo; I had no knowledge on the subject at all. Mr. Carttsi. V hat do 3-ou consider to be a normal loss ratio for a big company that is perfectlj- well established ? Mr. Best. It will range anywhere from 45 to 60 per cent. Mr. Carusi. What would you consider a normal ratio for a small compan} r that is fighting its way ? Mr. Best. I should say ranging from 3 to 5 per cent higher than the large company would show. Mr. Carusi. Would not the fact that it had to go into new terri- tory, go into the best agencies that it could get into without being immediately separated from them again, would not that fact tend to make the loss ratio higher? Mr. Best. I do not see why it should make the loss ratio higher. Mr. Carusi. Do you not think that the old established general agencies that have a number of the big board companies can control, as a rule the better class of risks ? Mr. Best. Yes; to a large extent. Mr. Carusi. And the new company has to take pretty much what it can get ? Mr. Best. Yes; that is true. Mr. Carusi. Until in the course of time it builds up its organiza- tion and clientele ? Mr. Best. Yes. Mr. Carusi. That is correct, is it not? Mr. Best. Yes. Mr. Carusi. With respect to the expense ratio, what is normal for a big company? Mr. Best. The larger companies are able to keep the expense ratio down to about 34 per cent, although some of them, even some of the best managed companies, run much higher than that, nearer 40 per cent. Mr. Carusi. My question I now see does not bring out what I wanted to bring out, for this reason: The expense ratio always includes the operating expenses, salaries, etc., does it not, of the company ? Mr. Best. Yes. Mr. Carusi. And of course when you get up into millions of dollars of premiums income, then even princely salaries become trivial, as a matter of ratio ? Mr. Best. True. Mr. Carusi. Whereas they might materially increase the ratio if based on a very small or much smaller premium income ? Mr. Best. Certainly. Mr. Carusi. What I had in mind about the expense, rather, was the expense outside of the actual getting of business. Would not that be much greater for a new company, fighting its way into new territory, than for an old established company? Mr. Best. Yes. New companies frequently have to pay much higher commissions in order to get the business. Mr. Carusi. In order to get any desirable business at all they have to bid for it by commissions that they are willing to pay ? Mr. Best. That is true. INVESTIGATION OF INSURANCE COMPANIES. 657 Mr. Carusi. What are the reinsurance requirements of New York ? Mr. Best. On one-year business, 50 per cent of the premiums in force. Mr. Carusi. And for two years ? Mr. Best. On two-year, three-year, four-year, and five-year busi- ness, other fractions, which may be approximately a pro rata. Mr. Carusi. Ten per cent more each year, is it not, over the 50 ? Mr. Best. Yes ; that is the idea. Mr. Carusi. Ninety per cent at the end of five years ; 80 per cent for the four-year policy; 70 per cent for the three-year policy; 60 per cent for the two-year policy; and 50 per cent for the one-year policy? Mr. Best. That is my recollection. Well, those are not quite right — 75 per cent, I think it is, on two-year; 83 i on three-year. Mr. Carusi. The company writing a five-year policy, for instance, that would pay 35 per cent of the premium to get the policy, and then have to put 90 per cent of the entire premium into a reserve, would show an underwriting loss, would it not ? Mr. Best. Yes ; it would show a loss on that particular policy, even if there were no losses, Mr. Carusi. Yes; and to some degree that would work automati- cally with all of the policies upon which a reserve is required ? Mr. Best. Yes. Mr. Carusi. Being less in the case of a one-year policy than a longer policy ? Mr. Best. That is true. Mr. Carusi. What are the reserve requirements of England, do you know ? Mr. Best. I think there are no legal requirements. It is optional with the companies. They reserve, as a rule, somewhere around from 35 to 40 per cent. Mr. Carusi. An average of 40 per cent on all classes of policies, without reference to the date of expiration ; is that correct ? Mr. Best. Yes; roughly, that would be about correct. Mr. Carusi. That is also the law of a number of western States, is it not — Iowa and Nebraska ? Mr. Best. Iowa and Nebraska, and I think Kansas permit a lower basis of reserve than all the other States. Mr. Carusi. And they do not require it to be more because the policy is a longer policy ? Mr. Best. I think that is a mistake. My impression is that the fractions increase from year to year, but there is about the same dif- ference, but I am not certain of that, there are so few companies affected by it. Mr. Carusi. The effect of these very high reserve requirements is to make it very difficult, if not almost impossible for a small company to compete with the very large and rich companies; is that not so? Mr. Best. It adds to their hardships. There is no doubt about that. Mr. Carusi. They must automatically stop writing business when they get to a very small relative amount of business, or they must by some outside means increase their surplus ; is that not true ? Mr. Best. Yes; that would be true. Mr. Carusi. And how can they increase their surplus by any out- side means except by the sale of capital stock at a premium? 658 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. Either that or by contributions to surplus account by the stockholders. Mr. Carusi. By existing stockholders; yes. Is it not a fact that a law was recently passed in the State of New York requiring that any company that organized should sell its stock at a premium? Mr. Best. I do not know whether that bill was enacted or not. It was proposed. Mr. Carusi. The insurance department of the State of New York has almost unlimited power to admit or exclude any company it pleases, has it not ? Mr. Best. Yes ; the superintendent of insurance has very wide dis- cretionary powers. Mr. Carusi. He can not be mandamused ? Mr. Best. Not unless it can be shown that his action is so groasly unfair that anyone could be convinced that it was so. Mr. Carusi. So that he can admit or exclude practically at his will any company that he pleases ? Mr. Best. Practically so. Mr. Carusi. For good reasons or no reasons at all, if he pleases. Mr. Best. Any reason or none. Mr. Carusi. Now, one of the reasons for excluding a fire insurance company from New York State would be excessive organization expenses, would it not ? Mr. Best. Yes; I think the department has made a feature of that in connection with all recent applications for admission. By "recent" I mean within the last few years. Mr. Carusi. Yes. Well, let us see just how far that statement is borne out by some facts which I will call to your attention. First of all, do you remember the organization of the New Jersey Fire Insur- ance Co., of Newark? Mr. Best. Yes. Mr. Carusi. By Mr. Hudson ? Mr. Best. Yes. Mr. Carusi. And the fact that he used 12 per cent? Mr. Best. Yes. Mr. Carusi (continuing). Of the total amount subscribed, and your commendation of that organization, and admission that that was not an excessive organization expense, considering the distribu- tion of the stock widely over the State of New Jersey ? Mr. Best. Yes. In that particular case I felt that that was reasonable. Mr. Carusi. You do not think 14, then, would be unreasonable for distributing stock all over the United States ? Mr. Best. I have already testified that I think that the expenses of the First National, to which you are now referring, were much lower than the average of promotions of this kind; and, personally, I still think that it is not sound economics to organize at that expense, but as compared with the other companies organized in the same way you have no apologies to make as to expenses. Mr. Carusi. All right. Now, take up the Commercial, with the 20 per cent expense. Of course, the fact, if it be a fact, that the gentle- men who were engaged in selling the stock did not make any money out of it does not affect the question as to whether that is too much or too little, does it ? INVESTIGATION OF INSURANCE COMPANIES. 659 Mr. Best. No. Mr. Carusi. Is it not much more expensive to sell stock by stock salesmen than through the mails? Mr. Best. It would appear to be, from the facts before us. Mr. Carusi. Yes. Mr. Best. I have no personal knowledge, of course. Mr. Carusi. This First National promotion is about the only really big and successful one that has ever been conducted through the mails, is it not, so far as you know ? , Mr. Best. So far as I know; yes. Mr. Carusi. Do you know what the expense of organizing the Sterling Fire Insurance Co. of Indiana was ? Mr. Best. I can refresh my memory and tell you exactly. Mr. Carusi. Yes, sir. Your News, page 9; your issue of May 15, 1912. Mr. Best. I have not that copy here, but my impression was that — ■ my recollection is that it was albout 40 per cent. Mr. Carusi. The Sterling Fire was admitted to do business in the State of New York, was it not, Mr. Best ? Mr. Best. Yes. There was a very considerable change in manage- ment, however, before that was permitted. That is, the people who were responsible for the very high expenses were eliminated. Mr. Carusi. No change in the underwriting management, was there ? Mr. Best. Not in the underwriting management, no. Mr. Carusi. Do you know what the expense of organization was of the Detroit National Fire Insurance Co. ? Mr. Best. No. That was another very expensive promotion. Mr. Carusi. Thirty-four per cent ? Mr. Best. If I said so in my article, that is correct. Mr. Carusi. I may say that I got this information from your reports. Mr. Best. Well, then, it is correct. Mr. Carusi. I can give you the reference, if you desire it. That company is admitted to the State of New York, is it not ? Mr. Best. I do not recall, I believe so. Mr. Carusi. Within the last two months ? Mr. Best. I do not recall whether it was or not. Mr. Carusi. Do you know anything about the Vulcan Fire Insur- ance Co. that was recently organized on the Pacific coast ? Mr. Best. Of Oakland? Mr. Carusi. The Vulcan ? Mr. Best. Yes. Mr. Carusi. With an expense ratio of 45 per cent ? Mr. Best. Very high. There was a great row over that. Mr. Carusi. Yes. Mr. Best. Change of management. Mr. Redfield. You say the management was changed ? Mr. Best. Yes.; the management was changed there, too. Mr. George. Did you say there was a row over it ? Mr. Best. Yes; the stockholders objected to it very much when they found out what had happened. Mr. Redfield. Was there any difficulty in the Detroit company? Mr. Best. No;T think not, except the stockholders. 660 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Any other ? Mr. Best. No; I do not recall it. Mr. Carusi. Do you know the organization expenses of the South- western Surety Co. of Texas ? Air. Best. It is very difficult for me to remember all these figures. Mr. Carusi. Well, I understand it would be, unless you looked at your reports. Mr. Best. Yes. Mr. Carusi. It was in excess of 25 per cent ? Mr. Best. Yes. Mr. Carusi. Was that company admitted to the State of New- York « Mr. Best. Yes. Mr. Carusi. Very recently ? Mr. Best. Yes. Mr. Carusi. Was there any stockholders' row about that? Mr. Best. Xo. Mr. Carusi. Any special examination by the State of New York into the affairs of that company before it was admitted ? Mr. Best. I do not know. Mr. Carusi. Do you know whether it was admitted from New York or from Albany ? Mr. Best. That I could not tell you. I want to give you nothing except the things I know. Mr. Carusi. Yes. Mr. Best. I have heard lots of talk about that particular transac- tion. Mr. Carusi. Exactly. Mr. Best. But I do not know anything about it. Mr. Carusi. Now, do you know concerning some other recently organized companies that I will ask you about — there are three com- panies which have just been organized, or are in process of organiza- tion, in Kentucky. Mr. Best. Yes. Mr. Carusi. The United American of Kentucky, the Henry Clay Fire Insurance Co. of Kentucky, and the Great Southern Fire Insur- ance Co. of Kentucky. Now, do you know, as one well informed upon insurance matters, that the United American cost 30 per cent to organize, the Henry Clay over 20 per cent, and the Great Southern 25 per cent ? Mr. Best. I know that all of them were expensive — had heavy organization expenses — but, as I have testified before, I can not remember the figures of all of them. Mr. Carusi. Well, you do know, do you not, that the gentlemen connected with each, or perhaps all of these companies, were men or the very highest standing in the State of Kentucky ? Mr. Best. Not all of them. Mr. Carusi. Well, I said many of them. Mr. Best. Yes; many of them. Mr. Carusi. I do not know who they all were, and I do not sup- pose you do. Mr. Best. No. Mr. Berger. Are any of these companies cooperative insurance companies — any of them — or are they just stock companies? INVESTIGATION OP INSUEANCE COMPANIES. 661 Mr. Carusi. All stock companies. Mr. Best. All stock companies. Mr. Beegee. Promoted companies ? Mr. Best. Yes; stock sold through salesmen who went about from one man to another and got the subscriptions in that way. Mr. Carusi. You have already alluded to the organization known as the Association of State Superintendents. One of their com- mittees formulated these blanks. Is it not a fact that they have a committee known as the joint committee on examinations ? Mr. Best. Yes. Mr. Carusi. And is it not understood that where a company is doing business in more than one State, and it is deemed advisable in the public interest that there should be an examination by some- body, in addition to the home superintendent, that the matters, under the rules of that organization should be taken up with this joint committee ? Mr. Best. Yes. Mr. Carusi. Which arranges to make an official examination ? Mr. Best. Yes. Mr. Carusi. That is accepted by all of the States ? Mr. Best. It is not binding upon them, but it is accepted as a matter of practice. Mr. Carusi. That is the general understanding ? Mr. Best. Yes, as a matter of practice, it is accepted. Mr. Carusi. It is not in line with precedent is it, so far as you know, that jnstead of employing that mode of having an additional examination that the department of one state sends its own exam- iners into another jurisdiction to examine a company ? Mr. Best. Well, it is often done. I recall one instance just recently where the New York department sent an examiner all the way to Arizona to investigate the Arizona Fire Insurance Co. on its application. Mr. Carusi. You do not know whether that was at the request or with, the consent of the Arizona department, do you ? Mr. Best. Yes, I know all about it. Oh, as to the department ? I thought you were going to say as to the company. Mr. Carusi. No; as to the department. Mr. Best. No, I do not know about that. I assume it was. My knowledge of the facts is that the manager of the company, who is an old acquaintance of mine, wrote to me and said he wanted to apply for admission to New York, and asked me to see some one in the department and get the necessary blanks for him, simply a matter of friendship, and I did it, and he asked the New York department to come out there and examine them, and it was done. Mr. Carusi. Have they an insurance department in Arizona ? Mr. Best. Yes ; so called, at least. Mr. Carusi. For your information, as the basis for two or three further questions I will tell you that the refusal or failure of these companies to be examined by the New York insurance department is one of the factors that has resulted in your being on the witness stand to-day. It has been stated here also that New York is one of the treat insurance States, and the implication is that its insurance epartment is especially vigilant, and competent. Now, I want to ask you just one or two questions. Do you know, or I will put it this 662 INVESTIGATION OF INSURANCE COMPANIES. way, is it not a fact that the great Armstrong investigation into the condition of life insurance companies in New York was Drought on by a family row, and that the New York insurance department had nothing to do with bringing on that investigation ? Mr. Berger. "What do you mean by a family row, Mr. Carusi? A row between Mr. Hyde and his nephew, or how ? Mr. Carusi. I think I did have that in mind, Mr. Berger, as being the trouble that started the avalanche. Mr. Berger. A row between Mr. Hyde and his uncle, or whoever it was ? Mr. Best. I should say in reply to your question that the internal disturbances in the Equitable Life Assurance Society were the begin- ning of the whole affair. Mr. Carusi. The inquiry was not the result of investigations by the New York insurance department or any official report it made upon the condition of those companies, was it ? Mr. Best. No. Mr. Carusi. Nor upon their initiative ? Mr. Best. No. Mr. Carusi. It has been stated here that insurance companies in Washington are all examined at least once a year, there not being many of them, nor the} r not being very large. I think you stated that they examine companies in New York about once in every three years ? Mr. Best. There has not been, until very recently, any rule. There was the notable case of the Phenix of Brooklyn, which was not examined for the best part of 20 years. Mr. Redfield. I did not catch that. Mr. Best. I say there was the notable case of the Phenix of Brook- lyn, which was not examined by the New York department for nearly 20 years. Mr. Redfield. Until when ? Mr. Best. Until within two years, when it was found that the affairs of the company were in very bad condition, and there was a complete change of management. Mr. George. I have been going on the assumption that they had to be examined periodically. Mr. Best. So far as I know, there is not even now in the New York laws a direct provision that it shall be done, at least within certain fixed periods. It is so in Connecticut, and so in a good many other States. Mr. George. What is the nature of those fixed periods ? Mr. Best. In Connecticut, I think, three years. Mr. George. And in New York? Mr. Redfield. There is no fixed period. Mr. Carusi. The Phenix was a board company, was it not ? Mr. Best. Oh, yes. Mr. Redfield. In more than one sense. Mr. Carusi. Was there anything in the report of the insurance department of 1910 which showed why the Phenix had not been examined for nearly 20 years ? Mr. Best. Not to my knowledge. Mr. Carusi. Well, I will show you the report, and ask you if you can find any reason why it was not examined for 20 years. This is the official report [handing book to Mr. Best]. INVESTIGATION OP INSURANCE COMPANIES. 663 Mr. Best. It may be there without my having noted it. Mr. Carusi. See if you can not find that over three-quarters of a million dollars had been loaned by that company to officials of the New York State insurance department, from the commissioner down. Mr. Best. This is part of the report of the examination of the Phenix Insurance Co. by the New York department, under Superin- tendent Hotchkiss. I want to find the date of it, so as to get it m the record. Dated May 24, 1910. Mr. George. What datel Mr. Best. May 24, 1910. On pages 951 to 958 I find a schedule of loans made by the company on collateral security running back as far as 1893, and I find 25 loans to James F. Pierce, superintendent of insurance. And 5 loans to Robert H. Hunter, first deputy superintendent of insurance; and 3 loans to William H. Buckley, deputy superintendent of insurance; and 13 loans to Isaac Vanderpoel, chief examiner. Does that answer that question, Mr. Carusi ? , Mr. Carusi. Oh, yes. Mr. Redpield. At what date, Mr. Best, were these loans ? Mr. Best. The loans to Pierce began on July 28, 1893, and ran on to January 28, 1902. Mr. Redfield. 1902 ? The last one was in 1902. Now, will you give us the same inclusive dates as to the other loans ? Mr. Best. The loan to Hunter ranged from April 15, 1901, to June 30, 1904, those to Buckley from February 16, 1900, to January 29, 1901, and those to Vanderpoel from May 25, 1899, to June 30, 1904. Mr. Redfield. Now, will you tell me when Gov. Hughes was elected governor of the State of New York ? Mr. Best. He was elected in 1906. Mr. Redfield. Do you recall whether, under Gov. Hughes's admin- istration, there was a reconstruction of the insurance department of the State of New York ? Mr. Best. Yes, there was. Mr. Redfield. Is any inference to be drawn from the insurance department as it was prior to 1904 and as to its efficiency to-day? Mr. Best. I do not think so. Mr. Carusi. Mr. Appleton, the chief deputy, has been with that department for many years, has he not ? Mr. Best. Yes. Mr. Carusi. He, however, is not one in the persons who appears to have borrowed money from that company ? Mr. Best. No. Mr. Prouty. Mr. Carusi, what is the purpose of introducing this testimony? I do not understand it. Mr. Carusi. It is on account of what preceded your presence here, Judge, concerning the refusal of these companies and of the local superintendent of insurance to permit a separate and special exami- nation of these companies by representatives of the New York insur- ance department, about anything which tends to throw light upon what has gone before. Mr. Prouty. If they could borrow money of you they could be admitted ; is that the idea ? 664 INVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. Well, as it has been said frequently, we have not been adhering in the past very closely to strict court procedure. If we had been I should not have offered that evidence. Mr. Redfield. What do you wish the committee to deduce from the fact that prior to 1904 certain men admittedly committed wrong in the insurance department of the State of New York ? Mr. Carusi. Welt, my answer to that question, Mr. Redfield, would be that it might tend to show that the refusal, or, rather, not the refusal to admit this company, because -it has not applied as yet, but that the damage which has been done to this company ana to these gentlemen, which is traced back to the New York insurance department's reports and all of the hearsay that has been introduced concerning these gentlemen, which originated from that Senior report are not to be judged as conclusive upon these companies or upon their character. Mr. Berger. In other words, you seek to discredit the New York insurance department ? Mr. Carusi. Well," in so far as it seeks to discredit us. It takes two to make any kind of a fight, as I understand it, and we are engaging in the kind of fighting that we have had forced upon us. Mr. Best, you stated that there was no need of any additional companies — "I think that the existing companies can take care of the business" — did you not, yesterday? Mr. Best. I do not recall that I stated it just in that way, but that is my opinion. Mr. Carusi. What I want to ask you in that connection is this: I do not want you to read this at all, but simply to use it to refresh you mind. The Journal of Commerce contains a statement here: SEEKING OUTSIDE INSURANCE — ILLINOIS RISKS GOING TO NONADMITTED COMPANIES. Springfield, III., December 5. Affidavits for the following risks have been filed in compliance with the surplus- line law. Then there is a great big long list. Now, does not that mean, so far as Illinois is concerned, for instance, that there are not enough fire insurance companies licensed in Illinois to take care of the fire insurance business in that State ? Mr. Best. That is true. Mr. Carusi. Do not these same things appear almost daily con- cerning other States which have that law allowing the affidavit ? Mr. Best. Not as frequently as almost daily, but they have often appeared in New York and Mr. Carusi (interposing). So that all would tend to show that there is a need for more fire-insurance companies, would it not ? Mr. Best. It is not at all conclusive. The great bulk of the busi- ness can easily be cared for by the existing companies who complain that their income is falling off, particularly during this year — that the premium income is falling off rather than increasing. There are iso- lated risks which require so much insurance, or they are in such con- gested areas that it is difficult to get a sufficient amount of insurance in licensed companies. Mr. Carusi. I am very nearly through, Mr. Best. I know you are not sorry for that. I will just ask you to take that pocket index again INVESTIGATION OF INSURANCE COMPANIES. 665 and follow me, turning to the Commercial for the last 10 years, over one or two questions. Mr. Best. Yes, sir. Mr. Carusi. In 1905 you find, do you not, there that the expense ratio of the Commercial was 72 per cent, and in 1906 it was 86 per cent, and in 1907 it was 79 per cent, and in 1908 it was 79 per cent, and in 1909 it was 78 per cent, and in 1910 it was 50 per cent ? Mr. Best. That is correct. Mr. Carusi. And in 1911, the first year that Tuttle, Wightman & Dudley had the underwriting arrangement with the Commercial, you find the expense ratio is 47 per cent, do you not ? Mr. Best. That is correct. Mr. Carusi. Going back to the year 1904, the Commercial Fire Insurance Co. had a 63 per cent loss ratio ? Mr. Best. Yes. Mr. Carusi. A 56J per cent expense ratio ? Mr. Best. Yes. Mr. Carusi. That is, its losses and expenses then gave a ratio of 1194 per cent? ■ Mr. Best. That is correct. Mr. Carusi. What dividend did that company pay that year? Mr. Best. 16,000. Mr. Carusi. 6 per cent on Mr. Best (interposing). Six per cent on $100,000 capital. Mr. Carusi. On $100,000 ? Take the year 1909, the loss ratio was 57.7 per cent. Mr. Best. Yes. Mr. Carusi. Its expense ratio was 78.9 per cent? Mr. Best. Yes. Mr. Carusi. That made a combined expense and loss ratio of 136 and a fraction, did it not ? Mr. Best. Yes. Mr. Carusi. What dividend was paid in that year ? Mr. Best. Six per cent on $100,000. Mr. Carusi. It kept right on paying the same dividend, did it not ? In 1904 the combined loss and expense ratio was 119 per cent, was it not? Mr. Best. Yes. Mr. Carusi. And there was a decrease in the company's surplus from the preceding year ? Mr. Best. Yes. Mr. Carusi. And it paid the regular 6 per cent dividend ? Mr. Best. Yes. Mr. Carusi. Selling the stock at double par and paying a 12 per cent dividend on the capital stock, what is the dividend to the invest- ment? Mr. Best. Six per cent. Mr. Carusi. Six per cent. If the stock sold at $1 1 it would be 5 and something? Mr. Best. Five and a fraction. Mr. Carusi. At the time the Commercial was paying a 6 per cent dividend you had, I believe, a surplus of about what, on the average ? 71391— No. 7—13 5 666 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. Well, it was $28,945 at the end of 1905, and it increased to $36,301 at the end of 1908, and at the end of 1909 was $35,579. Mr. Carusi. Somewhere in the neighborhood of $35,000, you sav? Mr. Best. About $35,000. Mr. Cakusi. The entire assets of the company consisted of about $135,000 during that period? Mr. Best. About $150,000. Mr. Redfield. Do I understand, Mr. Best, one of these years paid a dividend when it had a loss ratio of 133 per cent ? Mr. Best. Yes. Mr. Redfield. Is that what you refer to, Mr. Carusi, in your circular here, as a record of honor and achievement ? Mr. Carusi. Well, sir, I did not write that circular; but if I had, it is a record of the success of the company, and not of its loss in any particular year. Now, the last question I have to ask you, Mr. Best, is concerning your own experience as an expert. Has your experience been confined entirely to, or your knowledge been derived entirely from, the critical work that you have done in getting out your reports ? Mr. Best. You mean through the conduct of my present business? Mr. Carusi. Yes. Mr. Best. No. My first insurance experience was as a clerk in a fire insurance company's office. I was afterwards employed by a fire insurance broker, and went back again to the original company. From there I went to the Spectator Co. I was connected with the Spectator Co. for two years. After that, about 17 years ago, I organized this business. Mr. Berger. What kind of work did you do when you were with the Spectator ?. Mr. Best. I worked in part on their statistical publications^ in Eart I wrote for the paper itself, and in part I went out and solicited usiness, advertisements, and sale of their publications. Mr. Carusi. Have you any interest at the present time, or have you had any interest recently, in the business of Douglass Bros. & Fol- som, 123 William Street? Mr. Best. Not now or at any other time, directly or indirectly. Mr. Carusi. Did you not at one time recently have a contract with the Scranton Fire Insurance Co. and Mr. Ralph Folsom, by which you were to take some active part in the management of that fire in- surance company ? Mr. Best. Never at any time. Mr. Carusi. There never was any such contract ? Mr. Best. Never at any time. I might say to you that this man Folsom who is mentioned is a man whom I have known from the time that he was a child, and that he occupies his present position on my recommendation and indorse- ment, and that for that reason there seems to have gotten abroad an impression that I have an interest in that business, but I never had at any time, a direct or indirect interest. Mr. Carusi. There never was any contract between the Scranton Fire Insurance Co. and Ralph Folsom and yourself ? Mr. Best. Never. There was, I think, between Folsom and the company. I believe he represented them at one time. INVESTIGATION OF INSURANCE COMPANIES. 667 Mi 1 . Carusi. Did your name appear in that contract as an inter- ested party ? Mr. Best. Not to my knowledge. Mr. Caeusi. You would have been sure to know it if it had, would you not? Mr. Best. I think I would have been likely to know it. Mr. Carusi. Yes. I think that is all. JEtna Insurance Co Agricultural Alliance American, New Jersey ; — American, Pennsylvania American Central. Do Do..... Arlington, District of Columbia J Do Atlanta Home Austin, Texas Do Buffalo Commercial Buffalo German CMtraMtytional Colonial Assurance Co Commercial Union, New York Commonwealth, Texas Concordia . Connecticut Fire Delaware Do, Do Equitable Fire, South Carolina Equitable, Rhode Island Equitable F. & M Do Farmers, Iowa Fire Association Franklin Fire, Philadelphia Georgia Home Do Do... German Fire, Baltimore German Fire, Indiana Do German Fire, Pittsburgh German Fire, West Virginia German Alliance German- American German-American Fire, Baltimore German-American, Pennsylvania. . Germania Girard Glens Falls. ....,....'. '. '_ ". ........ .. Hanover... Hartford \. Home, New York . .'.'.".'.'.'.'.'.'.I'.'.'.'.. Insurance Co., North America Insurance Co., State of Illinois Lumber Mercantile F. & M. '. '. '. . .' . ." .' .' ." .' . . . . . " [an Commercial anF.&M Year. 1906 1906 1906 1906 1904 1911 1906 1904 1908 1907 1911 1910 1909 1908 1906 1911 1907 1906 1910 1906 1906 1910 1906 1904 1907 1910 1906 1904 1909 1906 1906 1904 1910 1909 1908 1904 1911 1908 1908 1911 1906 1906 1904 1904 1906 1906 1906 1906 1906 1906 1906 1910 1908 1904 1909 1906 Paid-up capital. $4,000,000 500,000 500,000 600,000 500,000 2,000,000 2,000,000 1,000,000 100,000 100,000 200,000 210,000 200,000 200,000 200,000 400,000 200,000 200,000 230,000 300,000 1,000,000 400,000 400,000 702, 875 120,000 400,000 400,000 400,000 200,000 750,000 400,000 400,000 300, 000 300,000 300,000 500,000 100, 000 100,000 300,000 200,000 400,000 1, 500, 000 200,000 100,000 1, 000, 000 500,000 200,000 1,000,000 2,000,000 3,000,000 3,000,000 300,000 200, 000 400,000 400,000 400,000. incurred andex- Ijaid dur- ing year cited, being percent- age of net pre- miums received during that year. 120.3 136.7 246.9 120.7 109.2 101.4 145.6 100.4 103.7 120.4 117.2 106.0 101.5 105.9 126.8 143.4 107.4 105.9 103.3 108.3 149.9 101.1 154.1 114.7 101.4 102.1 125.6 109.9 103.7 131. 225.7 109.9 110.1 102.0 102.3 627.9 103.7 103.1 106.5 102.3 118.7 112.6 366.1 146.1 155.3 187.5 138.6 146.5 132.0 103.8 128.8 219.9 107.1 108.8 108.6 161.6 Divi- dends paid dur- ing that year. Percent- age of such divi- dends to capital. $772,000 50,000 20,000 108,010 15,000 260,000 156,518 120,000 16,000 16,000 14,000 20,000 20,000 16,000 40,000 12,000 14,000 14,000 23,000 8,000 103,111 60,000 24,600 14,058 7,174 24,000 16,000 28,000 15,000 213,032 40,000 79,430 22,500 30,000 30,000 25,000 9,500 9,500 36,000 24,000 48,000 450, 000 10,804 8,000 150,000 60,000 180,000 40,000 437,500 600, 000 360, 030 36,000 20,000 32,000 15,000 24,000 19.3 10 4 18 3 13 7.8 12 16 16 7 9.5 10 8 20 3 7 7 10 2.7 10.3 15 6 2 6 6 4 7 7.5 28 10 19.8 7.5 10 10 5 9.5 9.5 12 12 12 30 5.4 8 15 12 90 4 21.8 20 12.1 12 10 8 3.7 6 Decrease of surplus during year cited. Percent- age bf such de- crease in surplus to capital. $2,569,939 479,466 286,742 966,949 132, 261 37,373 404,778 60,321 596 4,493 1,138 132 2,403 384 164,413 50,978 35,677 49,245 12,392 88,785 834,513, 42,131* 50,664 32,181 8,363 36,325 183,153 9,230 2,034 81,731 681,571 119,898 34,526 6,668 43,340 755,595 12, 618 14,893 72,475 22,621 169,715 1,312,249 145,342 42,030 1,794,728 232,556 708,011 33,226 2,341,566 1,312,146 2,454,597 53, 758 18, 287 50,375 21,001 92,872 668 INVESTIGATION OF INSURANCE COMPANIES. Milwaukee Mechanics Do Minneapolis F. & M Nassau Fire National, Ohio Do ' National Fire Do National Union Fire Newark Do Niagara Fire Northern North River Northwestern F. & M Northwestern National Orient Pennsylvania Fire . Peoples National PhOBnix, Connecticut Pittsburg Fire Do , Potomac Providence, Washington Queen Do Reliance Do Security, Now Haven Springfield F.&M St.FaulF.&M State Insurance Co., Nebraska. Stuyvesant Teutonia Fire, Pittsburgh Teutonia,**. O Underwriters Fire United American Do United Firemens '...-... Do United States Fire Virginia State Do Do Westchester Fire Western, Pennsylvania Williamsburg City Year. Paid-up capital. 1906 1904 1906 1906 1910 1909 1906 1904 1906 1910 1903 1906 1904 1906 1908 1906 1906 1906 1911 1900 1908 1903 1904 1906 1906 1904 1911 1904 1906 1906 1906 1911 1906 1911 1906 1903 1909 1908 1906 1904 1904 1911 1910 1909 1906 1904 1906 $500,000 200,000 200,000 200,000 100,000 100,000 1,000,000 1,000,000 750,000 250,000 250,000 750,000 350,000 350,000 300,000 1,000,000 500,000 750,000 1,000,000 2,000,000 100,000 100,000 200,000 500,000 1,000,000 1,000,000 400,000 300,000 500,000 2,000,000 500,000 200,000 200,000 200,000 250,000 10,000 100,000 100,000 400,000 300,000 250,000 200,000 200,000 200,000 300,000 300,000 250,000 Ratio of losses incurred and ex- penses paid dur- ing year Divi- cited, dends being paid dur- percent- ing that age of vear. net pre- miums received during that year. 194.0 $40,000 103.8 90,000 108.0 15,700 100.2 20,000 128.0 0,000 113.4 6,000 130.8 80,000 101.6 120,000 183.7 30,000 103.4 32,052 100.3 24,862 146.7 50,060 129.6 6,400 108.2 32,636 127.8 22,500 112.0 90,000 143.5 50,000 181.1 100,000 207.4 50,000 115.3 223,000 ' 121.0 16,000 100.3 16,000 2,332.6 12,000 126.1 25,000 115.4 100,000 104.3 600,000 104.6 40,000 114.1 18,000 124.1 20,000 111.7 200,000 112.0 50,000 124.2 12,000 108.7 12,000 102.1 40,000 122.6 975 136.2 600 103.7 5,000 310.3 5,000 139.6 30,000 111.9 30,000 116.5 7,500 125.3 91,625 106.0 103,879 110.7 11,980 110.1 90,000 103.4 18,000 156.4 75,000 Percent- age of such divi- dends to capital. Decrease of surplus during year cited s 45 7.8 10 6 6 8 12 4 12 10 6.5 1.8 9.3 7.6 9 10 13.3 5 11.1 16 16 6 5 10 60 10 6 4 10 10 20 5 5 7.5 10 3 45 51.9 5.9 30 $903,423 182,754 69,150 122,781 8,543 1,033 1,085,863 152,031 38,796 3,960 454 790,204 85,802 216,371 22,658 104,484 537,167 1,601,831 107,352 117,617 15,569 11,933 168,838 513,132 889,171 761,339 77,564 76,126 10,346 843,144 577,697 41,781 84,167 55,940 33,048 1,474 902 741 148,840 34,303 58,945 2,127 11,623 40,790 668,128 2,556 727,999 Percent- age of such de- crease in surplus to capital. 36 60 8.5 1 108 15.2 5 1.5 .2 106.3 2B ' 66 7 10.4 107 219 10.7 56 16.5 12 84 76 19 26 2 42 116 20.8 42 27.6 W 14 .9 .7 35 11 23 1 6.8 20 290 The attached list is of 31 companies who paid dividends in 1911 and at the same time depleted their surplus. These companies are shown by A. M. Best in his book, dated 1912, to have conducted their business during 1911 with an underwriting loss. INVESTIGATION- OF INSTJKANCE COMPANIES. 669 one companies showing loss in underwriting in 1911 who paid dividends. [Total shows per cent (to capital) of such decrease and dividends paid.) Per cent under- writing loss, 1911 ^pre- miums), as shown in "Best's Insur- ance Report, 1912." Amount o( capital. Divi- dends paid, 1911. Per cent dividends paid (to capital). Decrease in sur- plus, 1911. Per cent (to cap- ital). Total per cent (to capital) of de- crease in surplus dividends paid. Arlington, District of Columbia AHJSfia Home Buffalo Commercial Central National Gitfeens, Missouri Cfty of New York Commerce, Albany Commonwealth, New York Delaware Empire City Firemens, New Jersey Franklin, Pennsylvania Franklin, District of Columbia. German -American, Pennsyl- vania German, Pittsburgh Hanover, New York gnmhpldt - ■■■•■ International, New York Iflwaukee Mechanics National F. & M., New Jersey. National, Hartford '. . Seojlesj National Phoenix Pittsburg Piro Potomac, District of Columbia. Reliance State of Nebraska .:.._. Teutonia, Pennsylvania Union 1 , Bu flalo Virginia State Wffliaftsburg City. 42.4 S100.000 13. S 200,000 11.2 200,000 40.2 400,000 1.8 '200,000 15.7 500,000 1.6 200,000 12.4 500,000 6.5 400,000 4.8 400,000 6 1,000,000 2.6 500,000 11.1 250,000 3 200,000 7 300,000 2. a 1,000,000 10.4 300,000 5.3 200,000 4 1,000,000 a. 6 100,000 3.2 1.000,000 62 1,000,000 .4 2,000,000 X 200,000 28.4 200,000 9.1 400,000 11.7- 200,000 10.5 200,000 9.5 200.000 12. S 200,000 2.3 250,000 $16,000 14,000 20,000 12,000 24,000 50,000 20,000 50,000 60,000 36,000 200,000 59,997 17,117 28,000 36,000 195,000 44,000 20.000 422. 555 10,000 200,000 50,000 372,401 30,720 12,000 40,000 12,000 40,000 12.000 91,625 50,000 16 7 10 3 12 10 10 10 15 12 7 14 12 19.5 14.6 10 42.2 10 20 5 18.6 15 10 fi 20 6 45. S 20 S4,012 1,138 31,985 50,978 4,116 99,274 It, 504 104,176 68,964 25,506 38,070 763 45,682 1,485 712 105,667 59,676 79, 166 178,946 21,527 15,723 f07,352 257, 141 24,249 44,599 77,564 41, 781 64,700 641 2,127 3,090 4 .56 16 12.75 2 20 5.7 20.8 17.2 6.37 3.8 .15 18.25 .7 .27 10.6 19.9 38. 6 17.9 21.5 1.6 10.7 12. S 12 22 19.4 20.8 32.3 .3 1.06 1.24 20 7.56 26 15.75 14 30 15.7 30.8 32.2 15.37 23.8 12.15 25.25 14.7 12.27 30.1 34.5 48.6 60.1 31.5 21.6 15.7 31.4 27 28 29.4 26.8 52.3 6.3 46.86 21.24 Mr. Redfield. Mr. Best, have you ever had any financial relations with fire insurance companies other than those to which you have testified ? Mr. Best. It might be well, to have the record clear, to make this Statement : It is the fixed policy of my company to take no compensation from insurance companies other than their fees for subscribing to my re- port, $10 or $15 or $20 a year, just as any other firm or individual or corporation may subscribe. The business has been running for about 15 years, and during that time on two occasions we have sold publications in considerable numbers. The first was following the San Francisco conflagration. We sent a man to San Francisco, we gathered a great deal of infor- mation through the mails, and at the end of about a year's work we Published a report setting forth the adjustments which were made by each of the 244 companies which were involved. After that publi- cation had actually been issued and distributed certain of the larger insurance companies, which settled their losses very liberally, appre- ciated that it would be a very desirable thing to put that information in the hands of the business houses in this country, and we made them certain very low prices for the pamphlets, and they bought 670 INVESTIGATION OF INSURANCE COMPANIES. them, lots of them. I think the total circulation from all sources was about 150,000 copies, and of those ]* should say fully 100 000 were sold in bulk to these insurance companies. There was no profit to us in the transaction. The expenses were greater than the return. Mr. Berger. It was a special issue, was it not ? , Mr. Best. It was a special report, a pamphlet about the size of the one you have in your hands there. I testified yesterday to the plan which I adopted for introducing my fire insurance reports, the large green annual volume, when the business was first established. With those exceptions we have never had any relations with the fire insurance companies until very recently some of the companies became interested in a publication which we have been issuing for the last five or six years, in which insurance companies are rated by number and letter, following the plan of the mercantile agencies. This book is one which, irrespective of the size of the company, states our judgment of — first, its financial responsibility; second, its reputa- tion for paying losses, its general reputation; third, the conserva- tism and ability of the management; and, finally, as a separate thing, the record made by the company in settling its San Francisco claims. As I say, the publication has been issued for the last five or six years. This particular transaction did not come up for discussion until within the last three months. This book came to the attention of several of the leading insurance company executives, and they asked me whether I would be willing to supply them a large edition of the books for distribution among the prominent business men of this country, and banks and trust companies. I told them that I would do this on one condition only, which was that it should be a general movement, in which a large number of companies should join; that they should all be convinced that it was a wise thing to do, and that I should derive no profit; that the books be furnished at the mechanical cost. Such an arrange- ment was agreed to, and it will be carried out; it has not yet been, but I want to be absolutely light on the record here when I say I am independent of the insurance companies. I want that statement to be in the record. Mr. Redfield. Mr. Best, a letter has been read, and if I recall it correctly it was addressed to Mr. Tuttle from your brother. Will you kindly complete that transaction by describing to the committee the rest of it ? Mr. Best. Of course I have no control over my brother. He is an independent individual and he runs his own affairs. He does con- sult me as to the propriety or wisdom of representing insurance com- panies, and he consulted me with regard to these two companies. I told him just what I have testified to, and that some information had been furnished and other information promised but not furnished; that if all of the promises made were carried out the companies would be substantial companies, which he could represent with credit to him- self. That is about all there was to my connection with it. Appar- ently he, without waiting for my advice, has gone rather further than I had any knowledge of, judging by this letter introduced to-day. INVESTIGATION OF INSURANCE COMPANIES. 671 Mr. Redfield. You have described to the committee the methods of selling the stock of the First National Insurance Co. of the United States. Will you describe as briefly as you can the methods of selling stock employed by the Commercial Fire Insurance Co. ? Mr. Best. The Commercial Fire Insurance Co. sold its stock not through a mail-order campaign but through salesmen. In the issue of my monthly publication, which is already in evidence, of March 15, 1912, there is an article which reviewed the advertising matter of the Commercial, just as in the same issue I reviewed the same documents issued by the First National. Mr. Redfield. Does that contain a substantially complete state- ment, from your point of view ? Mr. Best. Yes; it is the same statement concerning which I was cross-examined by Mr. Carusi. Mr. Redfield. Mr. Chairman, the Commercial Co. has kindly fur- nished to the committee, on its request, a complete set of their adver- tising literature, which is evidence in the case, and I presume it ought to form a part of the record in the case. That is for the committee to decide. It is here, is it not, Mr. Carusi ? Mr. Best. This is it [indicating an envelope of papers]. Mr. Carusi. That was handed to Mr. Best on yesterday. Mr. Redfield. What is now in the record is the advertising litera- ture of the First National, and this to which I now refer is similar literature of the Commercial. If there is no objection I would ask that it be made a part of the record. Mr. Carusi. There is no objection on the part of the company. The advertising literature above referred to, issued by the Com- mercial Fire Insurance Co. and supplied to the committee by Mr. Carusi, is as follows : Application for Appointment as Advisory Director. -, of , hereby make application for appointment as an advisory director of the Commercial Fire Insurance Co. of the District of Columbia, Washington, D. C, agreeing, if appointed, to give the said company the benefit of my knowledge and information regarding the desirability or undesirability of any risks that may be written by said company through its agent in my territory; that I will promptly return lists of policy holders which may be sent me from time to time, with my report thereon, together with such other information as may be essential in carry- ing out the terms of the certificate of appointment. This application is based upon the condition that I shall receive such compensation for services rendered as shall be fully set forth in the certificate of appointment. I agree that such appointment, and all compensation therefor, shall cease and terminate in event that I tailor refuse to carry out all the provisions contained herein and in such certificate of appointment. I further agree that the appointment herein applied for and the remuneration to be paid. for services as an advisory director are not to be construed as forming any part of the consideration of the purchase price paid for stock of the Commercial Fire Insurance Co. This application is submitted and this agreement entered into with the full knowl- edge of the contents of the certificate of appointment, specimen copy of which I have examined. Dated and signed at this day of 191 — - Witness — ■ . 672 INVESTIGATION OF INSUKANCE COMPANIES. Stock Reservation, for present stockholders only — not transferable. , 1912. Having subscribed for — shares of stock of the Commercial Fire Insurance Co., of Washington, D. C, and desiring the privilege of increasing my holdings later i hereby apply for the reservation, until the day of next, of additional shares, without advance in price — namely, at the present price of $11 per share. It is understood that this reservation does not bind me to take these shares unless I shall elect to do so; but that this reservation, when accepted by the Commercial Fire Insurance Co., binds the company to deliver the above shares if I desire to take advantage of this reservation within the time specified. Name Street and number - Post office ■ Witness Accepted For the Commercial Fire Insurance Co. The company will not accept a stock reservation for a longer period than 90 days from the date of subscription. Financial Statement of the Commercial Fire Insurance Co. of Washington, D. C. Operating since 1890 under the laws of Congress for the District of Columbia. Capital, Jan. 1, 1912 $200, 000. 00 Surplus to policy holders 276, 801. 36 Assets 367, 872. 74 Authorized capital (now being subscribed) 1, 000, 000. 00 This financial statement is published in two chapters. Chapter 1 deals with the record of the Commercial for the past 21 years; chapter 2 deals with the record of the Commercial for the last seven months of 1911. The first chapter explains why the Commercial is a successful company; the second chapter is a record of remarkable progress along conservative but aggressive lines. Read both chapters. The Commercial Fire Insurance Co. is directly and solely responsible for the state- ments contained in this, the company's financial statement. Chapter 1. why the commercial is a successful company. The solidity and success of a fire insurance company are determined by the per* sonality of the men who control its affairs. Certain men have the ability to produce certain results; to make the tide of profit rise to its greatest height; to conduct the enterprise with dignity and honor, keeping the mutual interests of stockholder and patron always in view. Success in the business of fire insurance is always based on the personal character and business history of the men themselves — the men who create, manage, and push the enterprise. If the men are right, the business is right; it en- dures, serves a good purpose in the commonwealth, and pays. Every word in the above paragraph has been proven true in the case of the Com- mercial Fire Insurance Co. of Washington, D. C. The Commercial was chartered under the laws of Congress in 1890, 22 years ago, with a cash capital of $100,000. On June 12, 1911, the cash capital was increased to $125,000, and on December 30, 1911, to $200,000. Up to July 1, 1911, the Commercial had received $331,201.72 ui premiums, had paid $123,837.42 in fire losses, and had paid $78,000 in cash dividends to stockholders. In addition to these dividends it had accumulated a cash surplus of $46,954.21, which is the property of the stockholders. These earnings were made while the Commercial was confining its business to the District of Columbia, a terri- tory which is only 10 miles square. It is now rapidly extending its business through- out the United States. , For 14 years the Commercial has been paying its stockholders 6 per cent casn dividends, at the same time accumulating a substantial surplus which is owned by INVESTIGATION OF INSURANCE COMPANIES. 673 the stockholders. On July 1, 1911, the dividend rate was increased to 8 per cent and on January 1, 1912, to 12 per cent. During the month of May, 1911, the Commercial began to extend its business throughout the United States. Since that time its volume of business has increased over 400 per cent; truly a wonderful growth, which will enable the Commercial to pay larger dividends to its stockholders and at the same time substantially increase the company's surplus. By this it will be seen that the Commercial Fire Insurance Co., of Washington, D. C, is a right institution, founded and managed by right men ; the kind of men able to command continued success for the institution with which they are connected. Each of these men is an investor in the stock of the company; each is committed to its interests and progress; each is a conspicuous success in his own line of business. Therefore, we print right here, at the beginning, the names of these officers and trustees and their busmess connections, in order that you may immediately know the men who are responsible for the character and growth of the Commercial Fire Insurance Co. THE MEN. (Trustees Commercial Fire Insurance Co.) Hon. Geo. W. Atkinson, justice United States Court of Claims; former governor of West Virginia. Charles F. Carusi, dean National University Law School; general counsel District National Bank. John W. Childress, real estate. Allen C. Clark, secretary Equitable Life Insurance Co.; director National Capital Bank. Frederick S. Dudley, second vice president Commercial Fire Insurance Co. Hon. Ashley M. Gould, justice Supreme Court District of Columbia. Paul F. Grove, secretary Commercial Fire Insurance Co. Robert N. Harper, president District National Bank; former president Washington Chamber of Commerce. Win. H. Ingersoll, of Robt. H. Ingersoll & Bro., watch manufacturers. W. F. Roberts, president W. F. Roberts Co. Robert R. Tuttle, president Commercial Fire Insurance Co.; director District National Bank. John Lewis Smith, Assistant United States District Attorney. Martin Wiegand, manufacturer. Richard Wightman, advertising. Hon. Robert J. Wynne, first vice president Washington and Southern Bank; former Postmaster General of the United States. These men — these trustees — are themselves an ample guaranty that the interests of every stockholder of the Commercial Fire Insurance Co. will be looked after with scrupulous fidelity, and that the dividends on their holdings will be as large as is con- sistent with honorable dealing and wise business policy. Chapter 2. a record of remarkable progress. The year 1911 was a remarkable year in the history of the Commercial. The record of progress is one which has seldom, if ever, been equaled by any fire insurance com- pany. During the last seven months of 1911, when the Commercial began to extend ite business throughout the United States, it doubled its capital, doubled its assets, doubled its cash dividends to stockholders, and quadrupled its premium income. On January 1, 1912, the Commercial took official credit for a full-paid cash capital of $200,000, a largely increased reinsurance reserve, and a very substantial net sur- plus, which was indeed a schedule of notable achievement. COMMERCIAL STOCK ADVANCES IN VALUE. Now, this increased financial strength, increased business, and increased dividends all tend to enhance the value of Commercial stock. Further progress will enhance its value still more, and to further progress, along conservative but aggressive lines, the management is devotedly committed. It is confidently expected that Commer- cial' stock will continue to experience a marked increase in value. This result will be achieved by continued additions to the company's capital and busmess. 674 INVESTIGATION OF INSURANCE COMPANIES. WHY THE COMMERCIAL IS BEING MADE A MILLION-DOLLAR COMPANY. There are only about half enough fire insurance companies in the United States to provide the fire insurance which the United States demands. Property values increase faster than good domestic fire insurance increases. That is why this country is sending about $100,000,000 annually to foreign companies in the form of fire pre- miums. That is why the Commercial finds it so easy to get business. That is why the Commercial is being built into a big company — in order that it may take more of the business which is now knocking at its doors. Law and prudence provide that a little company can only do a little business, but a big company may do a big business. So the Commercial is being rapidly made a million-dollar company. No million-dollar fire company has ever failed. Every million-dollar company has been permanent and successful and has made large money for its stockholders. NEW FIELDS ENTERED. The business of the Commercial throughout its entire history has been confined to the District of Columbia until May, 1911. At that time the Commercial began to extend its business throughout the United States; and now 12 States have been legally entered, and agencies therein established which are producing a remarkable volume of business of the highest quality. PREMIUM INCOME INCREASED 480 PER CENT. During the last six months of 1911 the Commercial received, on approved risks, a premium income of $119,539. During the corresponding period of 1910 the com- pany's total premium income was $24,450. Therefore, the premium income for the last six months of 1911 increased 480 per cent oyer the last six months of 1910. On this increased volume of business for the last six months of 1911 the company's loss ratio has been approximately 25 per cent. The average loss ratio of the million-dollar companies (to which class the Commercial aspires) is 45 per cent, which means that the Commercial is 20 per cent below the average. So we are doing mighty well, and it will show in our profits. LARGE TRADE PROFIT EARNED. During these same six months the Commercial's expense ratio decreased 12 per cent. Here, too, is profit for the stockholders. During these six months, also, the company earned a trade profit of $39,454, which was at the annual rate of 32 per cent on its capital stock of $125,000. INCREASE IN CAPITAL, INCREASE IN SURPLUS TO POLICY HOLDERS, INCREASE IN ASSETS. For the first six months of 1911 the Commercial had a capital of $100,000. For the last six months of 1911 it had a capital of $125,000. On January 1, 1912, it had a full-paid cash capital of $200,000, a surplus to policy holders of $276,801, a rein- surance reserve of $81,449, and assets of $367,872. During the last part of the year 1911 a large amount of the authorized increase in the Commercial's capital stock was sold to property owners throughout the country on monthly installments. As soon as these monthly installment contracts expire and the money is all collected, there will be a further addition to the Commercial's capital. So we are going to build right along, sure and steady, until we get our million; and when that figure of cash capital is reached you may expect the Com- mercial to make the average net profit made by all other American million-dollar companies. AND — FINALLY. And now, be finally reminded that the Commercial now has a cash capital of $200,000, an authorized capital of $1,000,000, and subscriptions to Commercial stock are pouring in from all sections of the country, from old friends and new. Commercial Fire Insurance Co. ABRIDGED DICTIONARY OF INSURANCE TERMS USED IN THIS STATEMENT. Capital stock: The amount of money invested in safe securities, as prescribed_ by law, and kept intact and unimpaired as a basis of the company's business operation. Surplus to stockholders: The sum of the company's capital and net surplus, wnicn is back of the policies issued, and serves as an additional protection to the policy INVESTIGATION OF INSURANCE COMPANIES. 675 holders. The current losses themselves are paid out of the premium income, after a certain amount of that income has been put into what is known as the reinsurance reserve, which is a separate matter. Lose ratio: The percentage of premium moneys received which is paid out in current fire losses. Expense ratio: The percentage of premium moneys received which goes to pay the cost of business management and commissions to agents. Trade profit: Trade profit is what is left from the premium income after losses and expenses have been paid. OFFICERS COMMERCIAL FIRE INSURANCE CO. Robert R. Tuttle, president; Ashley M. Gould, first vice president; Frederick S . Dudley, second vice president; Charles F. Carusi, general counsel; Paul F. Grove, secretary; John McKee, assistant secretary. Ten Items of Progress as Reported May 15, 1912, Concerning the Commercial Fire Insurance Co., Southern Building, Washington, D. C. Item No. 1. Increased capital. — For 21 years — from 1890 to 1911 — the Commercial operated with a paid-in capital stock of $100,000. During 1911 the cash capital of the company was increased to $200,000. The Commercial's authorized capital is now $1,000;000— which is being subscribed from day to day by property owners and rated business men throughout the country. The gradual building of the capital of this company to the million-dollar figure is a matter of interest to all the company's stockholders, who are naturally interested in the financial prestige of the Commercial. Insure your property interests in a growing company. Item No. 2. Increased assets. — A fire insurance company is known by the assets it keeps; and where a company's assets increase from year to year, that company is a growing company, a strengthening company, a successful company, and commands the respect of those who are familiar with financial matters. At the end of 1910 the assets of the Commercial Fire were $167,525; at the end of 1911 the company's assets were $367,468. This represents one year's growth in the history of this company. Insure in the Commercial. Item No. 3. Increased premium income. — A fire insurance company lives and grows out of its premium income. There are other sources of growth, but they are inci- dental. This premium income is the money which the policyholders pay the com- pany for protecting their property against loss by fire. The recent growth in the premium income of the Commercial is a matter of considerable interest in insurance circles, for the company has received premiums for the first quarter of 1912 amounting to a 500 per cent increase over the corresponding quarter of 1911. Watch the Com- mercial grow, and while you are watching it — insure in it. Item No. 4. Increased territory. — For 21 years, from 1890 to 1911, the business^ of the Commercial was confined solely to the District of Columbia, a territory covering about 10 square miles. Within this limited field the Commercial succeeded, and built up its resources to a creditable figure; the record of the company for these 21 years of restricted operation was a record of honor and achievement. Then the policy of expansion was adopted, and with splended results. Since January 1, 1911, the Commercial has legally entered and is now operating successfully in 10 States. These StateB are as follows: New Jersey, Pennsylvania, Ohio, Michigan, Missouri, Virginia, WeBt Virginia, Maryland, Georgia, Alabama; and other States will be entered as fast as expedient, until the entire country is covered. See that your fire policy is written by the Commercial. Item No. 5. Increased agency force. — The agency force of the Commercial is growing by leaps and bounds. Alert fire insurance men in the 10 States where the company now operates are applying for agencies. The company's increasing strength and its faithful dealing with policyholders are .attracting the attention of the best class of insurance men. At least one new agency is being created every day. The Com- mercial is now represented by 350 established fire agencies, which are turning in business every month. This agency force is not only an increasing one, it is efficient, persistent, loyal. Commercial fire rates are worth inquiring about. Item No. 6. Increased dividends.- — If a fire insurance company is geared to serve its policy holders well, it is perfectly (isar that it will also serve its stockholders well. In these days, in which value is quickly recognized and appreciated, real service and financial' success go hand in hand. Therefore, as the Commercial has pleased its Missing Page Missing Page 678 INVESTIGATION OF INSURANCE COMPANIES. this largely by the daily reports received from the agents, aided by his experience plus the information he can get from surveys, inspections, and maps. The moet important tool that the underwriter has is the insurance map. It shows him the con- struction of the building, every opening in the walls, all the exposures and the occu- pancy not only of the risk itself, but of the adjacent building. These insurance maps are expensive, but they have to be because every building in the city is shown on them and a great deal of work is required by experts in getting the material for these maps. Later we shall need and have to get more of these maps as we extend our operations. In conclusion permit me to say that I believe the stockholders of the Commerical have reason to congratulate themselves upon the continued progress and bright prospects of our company. Robert R. Tuttle, President. Commercial Fire Insurance Co. [Home office, Southern Building, Washington, D. C] Full paid capital Jan. 1, 1911 $100, 000 Full paid capital Jan. 1, 1912 200,000 Full paid capital July 1, 1912 275,000 Subscribed capital July 1, 1912 340, 000 Assets July 1, 1912 442,842 Authorized capital (now being subscribed) 1,000,000 Commercial Stock Advances to $12 pee Share. To Take Effect after Pay- ment of January Dividend. [Extract from resolution passed by the board of directors November 11, 1012.] Whereas a ready market has been found for the sale of Commercial stock at $11 per share on account of the large volume of business being transacted by this company, resulting in a large addition to its agency plant and premium income; and Whereas tie capital and surplus of the company have been recently materially in- creased and the company has earned for its stockholders a large sum of money, in addition to paying the regular 12 per cent dividends, thereby increasing the amount of surplus on hand as well as the actual value of the stock: Now, therefore, be it Resolved, That on and after the payment of the semiannual dividend payable January 1, 1913, no more of the capital stock of this company shall be sold for less than $12 per share. [seal] • (Signed) Paul F. Grove, Secretary Commercial Fire Insurance Co. List of some of the bonds owned by the Commercial Fire Insurance Co., of ton, D. C. Market value. City of Atlanta school bonds Chicago, Burlington & Quincy B. R. Co., Illinois division mortgage City of Richmond public improvement, series 1 St. Paul, Minneapolis & Manitoba Ry. Co., consolidated mortgage . Southern Pacific It. E. Co., first refunding mortgage American Telephone & Telegraph Co., collateral trust, 4 per cent The Delaware & Hudson Co., first and refunding mortgage Chicago, Milwaukee & St. Paul Ry. Co., general mortgage Chicago, Burlington & Quincy R. R. Co., general mortgage Chesapeake & Ohio Ry. Co., general mortgage City of New York, corporate stock The Pennsylvania Co Central Railroad of New Jersey, general mortgage City of Seattle, park bonds $10,000 10,000 11,000 5,000 5,000 5,000 5,000 5,000 5,000 10,000 10,000 10,000 5,000 10,000 110,520.40 8,837.60 10,905.00 5,306.25 4,756.25 4,600.00 4,956.29 4,956.25 4,956.25 10,212.50 10,800.00 10,400.00 6,142.50 10,162.50 106,000 107,511.65 The above is the class of bonds being purchased by Commercial Fire Insurance Co., which should show our stockholders that we are carefully selecting the securities bought from time to time. INVESTIGATION OF INSURANCE COMPANIES. 67$ Shares Cash subscription. SUBSCKIPTION TO STOCK OF THE COMMERCIAL FlRE INSURANCE Co. Date To the Commercial Fire Insurance Co., Washington, D. C: I, the undersigned, hereby subscribe for shares of the present issue of the capi- tal stock of the Commercial Fire Insurance Co. of the District of Columbia, Washing- ton, D. 0., full paid and nonassessable, at $11 per share (par $5, net balance surplus). I inclose herewith my check for $- in full payment of said subscription with the understanding that you are to issue to me, and send by registered mail, a certificate for the above-named number of shares of Commercial stock, full paid and nonassessable. This subscription is made upon statements of fact contained solely in the literature of the company, and for which the company is itself responsible. Name Title or occupation (Please write full name plainly.) Street and number City or Town Witness State (AH payments to be made by check only to the order of the District National Bank of Washington, D. C.) Receipt for Full Paid Subscription Stock of the Commercial Fire Insurance Co., Washington, D. C. I . Received of dollars, in full payment of shares of the present issue of capital stock of the Commercial Fire Insurance Co. at $11 per share (par $5, net balance surplus). (For the Commercial Fire Insurance Co.) Date Shares Installment subscription. Subscription to Stock of the Commercial Fire Insurance Co. Date To the Commercial Fire Insurance Co., Washington, D. C: 1, the undersigned, hereby subscribe for shares of the present issue of the capital stock of the Commercial Fire Insurance Co. of the District of Columbia, Wash- ington, D. C, for which I agree to pay $11 per share (par $5, net balance surplus), amounting to $ . I inclose herewith as my first payment, $ (20 per cent of my subscription) and I agree to pay the balance in four equal instalments, monthly from date. • When my final payment is made please issue to me, and send by registered mail, a certificate for the above number of shares of Commercial stock, full paid and non- This subscription is made upon statements of fact contained solely in the literature of this company, and for which the company is itself responsible. Name (Please write full name plainly.) Street and number Title or occupation City or town Witness State (AH payments to be made by check only to the order of the District National Bank of Washington, D. C.).. Receipt for Instalment Subscription to Stock of the Commercial Fire Insur- ance Co., Washington, D. C. Received of dollars, as first payment on shares of the present issue of capital stock of the Commercial Fire Insurance Co. , at $11 per share (par $5, net balance surplus) ; the balance, $ — , to be paid in four equal instalments of $ each, monthly from date. _ (For the Commercial Fire Insurance Co.) Date . . §80 INVESTIGATION OF INSURANCE COMPANIES. United States of America. Commercial Fire Insurance Co. op the District of Columbia. certificate of appointment. Advisory director. Whereas it is the intention of the Commercial Fire Insurance Co. to select an advisory director in for the purpose of securing from said advisory director information regarding the moral hazard of its policy holders in said locality; Now, therefore, in consideration of his application therefor, on the faith of which this appointment is made and which application is made a part of this contract, , of , State of , is hereby appointed as such advisory director and agrees to the following articles in relation to such appointment: Article I. No person shall be eligible to act as advisory director who has not at the time of this appointment and who does not continuously have a personal financial interest in the success of the company as a stockholder of at least 100 shares of the capital stock. Art. II. He shall promptly furnish to the company, when requested so to do, such information at his command regarding the moral hazard of any policy holder of the Commercial Fire Insurance Co. which would enable the said company to intelligently pass upon the acceptance or declination of such fire insurance offered to or already accepted by said company. Art. III. Failure to comply with the conditions contained herein shall terminate this agreement, and all further payment or remuneration herein provided shall be discontinued. Art. IV. To compensate party herein named for services rendered, there shall be paid to him on every 31st day of December a sum amounting to 2 per cent of the net premiums received by the Commercial Fire Insurance Co. -from the above-mentioned locality. Art. V. The advisory director agrees to inform the company should it come to Ms knowledge that the company's agent in his locality is not properly conducting the company's affairs or to inform such company if the agent's financial or moral standing becomes changed. Art. VI. This certificate having been issued without any consideration except the good will, assistance, and favorable influence of the person herein named, is purely a service contract and can not be assigned nor transferred. In witness whereof these presents have been signed by the managing underwriters of the Commercial Fire Insurance Co., in the city of Washington, D. 0., this day of , 191... i Managing Underwriters. Spur, a Magazine of Onwardness. (Vol.1. July 15, 1912. No. 10.) [Published now and then by Tuttle, Wightman & Dudley (Inc.), managing underwriters for the United States Commercial Fire Insurance Co., Washington, D. C.J There can be no separation between the interests of the seller and the intereBts of the buyer; they are identical. Through all the years mutualities are the vitals of the business which endures. the annual election of directors and officers. At the annual neeting of the stockholders of the Commercial Fire Insurance Co., held at the home office, in Washington, D. C, June 14, 1912, the following directors were elected: Hon. George W. Atkinson, justice United States Court of Claims, former governor of West Virginia; Charles F. Carusi, dean National University Law School, general counsel District National Bank; John W. Childress, real estate; Allen C. Clark, secretary Equitable Life Insurance Co., director National Capital Bank; Frederick S. Dudley, insurance; Hon. Ashley M. Gould, justice Supreme Court Dis- trict of Columbia; Paul M. Grove, secretary Commercial Fire Insurance Co.; Robert N Harper, president District National Bank, former president Washington Chamber of Commerce; William H. Ingersoll, of Robert H. Ingersoll & Bro., watch manufac- turers; W. F. Roberts, president W. F. Roberts Co.; John Lewis Smith, assistant INVESTIGATION OP INSURANCE COMPANIES. 681 United States district attorney; Robert R. Tuttle, president Commercial Fire Insur- ance Co., director District National Bank; Martin Wiegand, manufacturer; Richard Wightman, advertising; Hon. Robert J. Wynne, first vice president Washington and Southern Bank, former Postmaster General of the United States. At a subsequent meeting of the directors, held on the same date, the following offi- cers were elected: Robert R. Tuttle, president; Hon. Ashley M, Gould, first vice president; Frederick S. Dudley, second vice president; Charles F. Carusi, general counsel; Robert N. Harper, chairman finance committee; Paul F. Grove, secretary; John McKee, assistant secretary. The Commercial is now the largest and best-known fire insurance company in the District of Columbia. Its board of directors is composed of business and professional men of local and national reputation and standing, who are capable of managing the company's interests with sane aggression and wise conservatism. THE LIFE IN THE TASK. The forecast as well as the history of every life is written in the work to which that life is devoted. If there should be in the high places such things as watching angels, doubtless their eyes are chiefly bent on the movements of human hands amid the tasks which come between the dawn and night of each new day. ROBERT R. TUTTLE, PRESIDENT. Robert R. Tuttle, the new president of the Commercial Fire Insurance Co., was born in 1868. His entire life has been spent in the business of fire insurance, in which he has achieved national fame as an expert underwriter and manager of agents. For IS years he was at the head of the firm of Robert R. Tuttle & Co., a general fire agency managing the business of several large companies in the Eastern States. This agency grew to be double the size in the number of agents and amount of premiums of any similar general agency in the same territory. Mr. Tuttle directed a carefully selected force of 1,000 agents, and under his skilled direction they produced business of excep- tional quality and permanence. The business of his office amounted to more that one-half million dollars annually in premiums. Early in 1911 Mr. Tuttle was elected vice president of the Commercial Fire Insurance Co., and began to make the upbuild- ing of the company his life work. On June 14 ; 1912, he was elected president, and the directors are sure that his capable supervision of the company's interests will continue to show a large and rapid extension of Commercial business. During his connection with the Commercial Mr. Tuttle has built up an efficient agency organiza- tion, consisting of more than 350 local and general agents, by whom he is held in high esteem. LETTERS FROM STOCKHOLDERS. On the next few pages of Spur you will find some letters from Commercial stock- holders. They make" interesting reading. They show the esteem and confidence which is felt toward the Commercial by its stockholders; they show keen appreciation of the cash dividends which the company pays regularly to those who are fortunate enough to own stock in it; and they show that enthusiastic spirit of cooperation on the part of the stockholders which is largely responsible for the company's success. We have received literally hundreds of these letters, but can reprint only a few. Gur stockholders have recently sent in thousands of names of property owners who have property to insure, and who may also invest in Commercial stock. For this coopera- tion the officers of the company are duly grateful. LETTERS FROM STOCKHOLDERS. Gentlemen: I am in receipt of your letter inclosing check for the dividend due me on my stock in the Commercial. I will do all I can to promote the interests of the company, for I have faith in its business management. ' Franklin B. Lewis. Counselor at Law, Mount Holly, N. J. Gentlemen: I am in receipt of your check covering my share of the semiannual dividend of 6 per cent declared July 1, 1912, which is at the rate of 12 per cent per annum. I wish to thank you for the excellent showing you are making, and predict that within a year the Commercial will be earning from 20 per cent to 30 per cent per annum. Standard Lime & Stone Co., W. A. Titus-, F&ndduLac, Wis. 71391— No. 7—13 8 682 INVESTIGATION OF INSURANCE COMPANIES. Gentlemen : I hereby acknowledge the receipt of your check in payment of the last half of 12 per cent dividend on my stock in the commercial, and am pleased with the progress of the company. The rapid increase of business and the avidity which is shown in subscriptions to the increased capital stock of the company are surely hopeful signs. As one of the first subscribers to the stock in this city, I feel I can safely recommend-the stock as an investment. Below 1 give you names of some of our citizens who might consider investing. All are well known here. Alexis Cope, Ohio State University, Columbus, Ohio. Gentlemen: Your check, covering the thirtieth semiannual dividend, was received and I desire to thank you. The company has made a very good impression on me and I shall influence some business for your agent at Mechanicsburg, Pa. Moreover, all the policies I have expiring in stock companies shall be renewed in the Commercial. Wilson N. Miller, Shiremanstown, Pa. Gentlemen : I beg to acknowledge receipt of dividend check. It is gratifying to know that my investment is bringing such good results. I should imagine that the prospects are getting better and that the return will be greater as the field grows larger. Feed A. Davis, President Firemen's Association, State of New York. Gentlemen: Your communication of July 5, containing semiannual check, is received. I am indeed very much pleased, and to show in a measure my appreciation and good will, I will send you the names of some near-by firms who are possible pros- pects as Commercial stockholders. With greatest good wishes. Mrs. Flora E. Bassett, P. M., Walton, N. J. Gentlemen: I take pleasure in acknowledging receipt of check No. 7886 covering my share of the Commercial's thirtieth dividend. Kindly accept my thanks for same. Inclosed you will find a list of names of 10 persons, all of whom I would be glad to see in this company as stockholders. A. M. Wiggins, Succasunna, N. J. Gentlemen: I have the pleasure of acknowledging the receipt of your check No. 7972, which you have issued to my order to cover the portion due me of the Com- mercial's thirtieth dividend. In thanking you for this inclosure I beg, gentlemen, that you will accept my sincere good wishes. - Yours, very truly, Solon Menos, Washington, D. C, Envoy Extraordinary and Minister Plenipotentiary of Haiti to the United States of America. Gentlemen: I have received yours of July 5 inclosing check for dividend on my stock, for which kindly accept thanks. I am very much pleased to hear the com- pany is progressing so rapidly. Inclosed please find my check as third payment on 25 additional shares of Com- mercial stock. I also inclose a list of 10 names of local property owners who should become inter- ested in the Commercial. William J. Kay, Morristown, N. J. Gentlemen: Your favor of July 5 with inclosure of check, covering the Commer- cial's thirtieth dividend, has been duly received, and for this please accept my thanks. I note that you are making a very large expansion in your company's business toward the $2,000,000 mark, which I nope will soon be completely realized. J. F. Chevalier & Co., Lumber Manufacturers, Boston, Mass. JAMES ALLEN SAYS. "He who has not learned how to be gentle, forgiving, loving, and happy, has learned very little, great though his book learning and profound though his acquaintance with Scripture may be; for it is in the process of Decoming gentle, pure, and happy COMPANIES. 683 that deep, real, enduring lessons of life are learned. Unbroken sweetness in the face of outward antagonism is the infallible indication of a self-conquered soul, the witness of wisdom, and the proof of the possession of truth." INVESTING HBPEATEDLT. On June 25, 1912, Mr. A. P. McCoombs, president of the First National Bank, of Havre de Grace, Md., bought 100 shares of Commercial stock. On July 2 he recon- sidered the matter and took 200 shares instead of the 100. It almost looks as if Mr. McCoombs did this by way of preparation for a safe and sane celebration on July 4. This is not an isolated instance either; hundreds of wise investors buy Commercial stock over and over again, adding to their holdings just as often as they can. COMING IN BY COMMUNITIES. Just a little bit ago J. D. Shaffer sold Commercial stock to 7 people in Aurora, 111., and to 29 people in Elgin, 111.; and L. C. Pascault sold Commercial stock to 57 indi- vidual investors in Williamsport, Pa. It looks almost like a friends and neighbors proposition, doesn't it? We like to see subscriptions coming that way — by com- munities. COMMERCIAL STOCK — $11. The Commercial is now the largest fire insurance company in the District of Colum- bia. Its active business operations extend to 11 States, in which 350 general agencies and local agencies have been established. From these agencies a steady and increas- ing flow of desirable business is coming and the company's resources show a marked gain from month to month. While the company's operations are at present confined to 11 States, its name and fame are known throughout the entire 48 States of the Union, for in each one of those 48 States the company has stockholders and friends who regularly receive cash benefits from their association with the company. The market price of Commercial stock is now $11 per share. It will not stay at that figure. The company's stock is bound to increase in value with the growth of the company's business and the price of the stock will be proportionately advanced from time to time. In view of these impending advances we earnestly advise Commercial, stockholders to increase their holdings while shares may be obtained at $11 each. Subscriptions now being received are much larger than they used to be. In many instances a stock- holder who originally subscribed for 25 shares, has increased his holdings to 100; and those who in the first place took 100 shares have doubled and trebled their subscrip- tions. It only takes $1,100 to get 100 shares of Commercial stock at the present time. Dividends and the increase in the value of the stock itself make this a wise invest- ment — also a rare one. COMMERCIAL FIRE INSURANCE CO. HOME OFFICE, SOUTHERN BUILDING, WASHINGTON, D. C. Pull-paid capital January 1, 1911 $100, 000 Full-paid capital January 1, 1912 200, 000 Full-paid capital July 1, 1912 275, 000 Subscribed capital July 1, 1912 340, 000 Assets July 1, 1912 442, 842 Authorized capital (now being subscribed) 1, 000, 000 Vol.1. August 15, 1912. No. 11. The greatest life is never the life that stretches itself upon cushioned couches, but the one which chooses the place of battle and reels under the blows of flying fists and gathers itself amid pain and dizziness and gives back more blows than it takes till it stands weary and panting, perhaps, but justified to itself and to the world by a clean and couraged victory. THE USE OP A DAT. Each new sun is a sign in the heavens to be up and at it. At what? Lifel The big work of man is neither masonry, manufacturing, nor merchandising. It is life itselL Incidentally, there are bricks to be laid, wood to be shaped, and goods to be sold; but 684 INVESTIGATION OF INSURANCE COMPANIES. thess are only jots and tittles in the scheme of individual existence. The main thing is life itself. Life well wrought is a fabric which commands the gaze of all dis- cerning eyes, the responsiveness of all neighboring hearts. Life bungled is a producer of ceaseless shame. An appreciation of life itself lies at the base of all clean and con- structive endeavor. If a man is living well his bricks are laid plumb, his facto'ry fights friction and waste, his goods are full weight and wrapped well for the market. In the weaving of a life every day counts for good or ill. The loom is never still, the shuttles are always hurtling, and the pattern assuming form. Sixteen hours thoughtfully devoted to life — its purpose, spirit, and principles — will kill any bogy of discourage- ment or despair. And it brings no distraction from the incidental task. During the proper portion of that same 16 hours bricks may still be laid, wheels turned, or goodB pushed over the counter. A day is a wonderful thing and should be dealt with as a unit — as a little section of life not terrifying in itself, not too big to be handled easily and well. So, take your day and pack it with the best living you can muster. Blessed is he who at sunset can look back upon kindly and industrious hours. HANDS ACROSS THE LAND. We have all heard a good deal about the twentieth century idea of cooperation as applied to business. The practical working of that idea is really quite rare. Here and there you find it, but not everywhere. A fine illustration of the prac- ticability and power of cooperation is right now seen in the upbuilding of the Com- mercial Fire Insurance Co. The Commercial, instead of being owned by a little group of capitalists, according to the usual custom, is owned by about 2,000 indi- viduals, all of whom receive good dividends on their investment, and many of whom insure their property in the Commercial. These people seem to delight in referring to the company "as "our company." We see this phrase every day in letters which come to the home office. This sense of proprietorship on the part of such a large body of people scattered through the 48 States is a most wholesome influence in the growth of the company. With 2,000 people, each saying occasion- ally to his neighbor, "I have some stock in the Commercial Fire Insurance Co. of Washington, and it's an all right company," or "We've just taken out some fire insurance in a company down in Washington which Mary and I have got a little stock in," is it any wonder that the Commercial is making new friends every day? Why, within the last three weeks these people who own the Commercial have actu- ally sat down and written out and sent in the names of 4,000 other people whom they would like to see added to the company's list of stockholders. Talk about cooperation in the upbuilding of business. Isn't it strikingly exemplified right here in the Commercial? TEN YEARS' GROWTH OP GLOBE & RUTGERS. Probably every stockholder of the Commercial knows that the company from the year 1890 to 1911 confined its business to the District of Columbia; also, that since the beginning of 1911 the company has been admitted to do business in 11 States, which means that a policy ot expansion has been adopted and a proportionate increase in business is being experienced. The benefit of this same policy of expansion, taken in connection with good business management, is shown in the growth during the last 10 years of the Globe & Rutgers Fire Insurance Co. of New York, whose capital is $400,000. Up to 1902 the Globe & Rutgers operated within New York City. In 1902 it began to branch out and do a general business, the volume of which has increased largely during the last 10 years and with the following results: In 1902 the book value of the Globe & Rutgers stock was $150 per share; in 1912 it had increased to $754.75. In 1902 the company's assets were $1,410,102; in 1912 they had increased to $6,331,707. In 1902 the company's reserves amounted to $601,859; in 1912 they had increased to $2,619,039. In 1902 the company's surplus was $203,105; in 1912 it had increased to $2,619,039. In 1902 the company's premium income was $1,091,228; in 1912 it had increased to $3,681,307. . In 1902 the dividends to stockholders were at the rate of 3 per cent; in 1912 this dividend rate increased to 40 per cent. It is hoped and expected that the Commercial Fire Insurance Co. of Washington, through the adoption of a similar policy of expansion, WL U repeat the history of tins New York company. REPORTING GRATIFYING PROGRESS. The "magazine of onwardness," published by Messrs. Tuttle, Wightman & Dud- ley (Inc.), managing underwriters of the Commercial Fire Insurance Co., of Wash- ington, D. C, for the United States, under the catchy title of Spur, presents con- vincing proof of the steady progress made by that company, and that the interests of the company and its policyholders are identical. Its July 15 issue also contains a complete list and portraits of each of the officers and directors of the company, and a sketch of President Robert R. Tuttle since his connection with the company. In a more recent report this able executive also informed the board of directors that the subscribed capital of the Commercial Fire is $325,468, of which $255,982 has been paid up in full, and that the remaining $69,486 is fast being paid in on the monthly installment plan. Also that the stock is now readily selling at $11 per share. — Reprinted from Views, leading insurance journal published in the District of Columbia. A COMMERCIAL STOCKHOLDER WRITES TO ITS ABOUT "SPUR." Spur magazine, in featuring the Commercial, appears to be on the main rather than on the "spur" track. The sales of Commercial stock evidently did not commence with a "spur"-t and then retire among the has-beens. Your agents seem to be "spur"-red on to continuous success. None of us will "spur"-n the good results now being achieved by the Commercial. The company rings true and is not "spur"- ious.— 0. B. Purington. BUSINESS. Business may be broadly defined as any transaction or calling which involves the passing of money from one place to another. Thus, the tunneling of the rivers, classified as engineering, is business; the manipulation of other people's money for personal gain is a certain sort of business; politics, thinly veiled by the avowed motive of public service, is business; the exchange of toil for wage is business; to multiply wheat grains till the thrasher wheezes with his task is business; the putting of a work of invention or art upon the block for bread's sake is business. Trade is every- where; everything is trade; and every human being garbed in flesh is dependent upon, or in some degree related to, the endless shift of stuffs in the mart universal. To relate one self justly to some particular phase of this vast and necessary scheme of barter is the primal task which is set for us — the task which forms the base of worthy life and availing industry. THE COMMERCIAL'S YOUNGEST STOCKHOLDER. ■ The youngest person owning stock in the Commercial Fire Insurance Co. is Henry Carl Hagemann, 208 North Ninth Street, Reading, Pa. He is even too young to read this paragraph, being only 6 months old. His father is also a Commercial stock- holder and evidently decided that it would be a pretty good thing if his infant son could own some Commercial stock and watch its growth in value as the years pass. COMPLAINT AND ASPIRATION. There are two sorts of discontent. The first of these is named "Complaint." It is a miserable and cankerous state of mind which expresses itself in peevish desire to get away from our natural lot in life, to flee from the doing of near-by tasks, to leave our own acre for someone else to till, and go and try to find some other acre which we think will be pleasanter and easier, to evade conditions instead of dealing with them. The world's weaklings are all discontented in this particular way. They curse the rising sun and spill their sourness along the highways. The second form of discon- tent bears a sweeter name — ' 'Aspiration . " 1 1 has no moan in it, no belittling of to-day 's opportunity, no infidelity to difficult duty, no hankering to run away from the plow. It is constant and constructive. It does not knock down; it builds up. It breeds growth and onwardness. It is a spur in the flank and a star in the sky. Its passion is to be and become. It is always after more — more power, more efficiency. It makes a man dissatisfied, not with what he has, but what he is — with himself; he does not like himself very well because he is sure that he can be better; he bans stagnancy of char- acter and moves the deeps of his being in a steady flow toward the great sea of usefulness and truth. He belongs to the vital company of whom it has been said : ' ' They go from strength to strength; every one of them appeareth before God." 686 INVESTIGATION OF INSURANCE COMPANIES. TALE OF A STAMP. I'm a stamp — a postage stamp — A two cent'er! Dont' want to brag, But I was never Licked, Except once; By a gentleman too; He put me on an envelope — Perfumed, pink, square; I've been stuck on it Ever since. He dropped us — Through a slot in a dark box; But we were rescued. A mail clerk hit me an awful Smash with a hammer; It left my face black and blue. Then I went on a long Journey. When we arrived — The pink envelope and I — We were presented , To a perfect love Of a girl. Say, she's a dream! Well, she mutilated The pink envelope and me With a hair pin; Then she read inside. I never saw a girl blush So beautifully! Say, she kissed me — Oh, you little godlets! We— The pink envelope and I — Are now nestling snugly In her bosom; We can hear her heart throb; When it goes fastest She takes us out And kisses me. Oh say This is great! I'm glad I'm a stamp. — Quoted. Tom Johnson said: "The man who is worthy of being a leader of men will never complain of the stu- pidity of his helpers, of the ingratitude of mankind, nor of the inappreciation of the public." AND NOW THE OFFICE BOY. All of the officers and directors of the Commercial of course own stock in the company and also many of the heads of departments and other employees, but the other, day the writer of this paragraph went into the president's office and saw a most interesting thing going on. President Tuttle sat at his desk, and beside him stood one of the office boys, bending over the desk with a pen in his hand. It seems that the office boy had caught the spirit of progress and thrift that is all around the home office of the Com- mercial and had decided to invest some of his earnings in Commercial stock, so Presi- dent Tuttle was instructing him how to fill out the subscription blank. The lad made his payment in a businesslike fashion and returned to his job . He is one of our young- est stockholders and had been "tipped off" by daily contact with the business that Commercial stock is a good "buy." INVESTIGATION OF INSURANCE COMPANIES. 687 AND THE LANDLADY WAS LTJCKY. Bill had a billboard and a board bill. The board bill bored Bill, so Bill sold the billboard to pay his board bill. After Bill sold his billboard to pay his board bill the board bill no longer bored Bill. — Quoted. LETTERS FROM STOCKHOLDERS. Gentlemen. I beg to acknowledge the receipt of your favor of the 5th instant with check inclosed for dividend on stock standing in my name, for which accept my thanks. I am pleased to see that our company is progressing and trust it may have a successful future. James C. Coleman, Petit Realty Co., Newark, N. J. Gentlemen: I am in receipt of check covering dividend on 100 shares of stock as stated. I inclose you a few names of good men who will prove desirable as Commercial stockholders. I do not see why the company should not become large and prosperous. I shall be happy to aid in that result at all times. Bowdoin S. Parker, Collector of the. City of Boston, 21 City Hall, Boston, Mass. Gentelmen: I am in receipt of my thirtieth dividend, which is very satisfactory to me, and hope the Commercial's growth will continue to be steady and healthy. Harvey Short, Troy Grove, III. Gentlemen: Please accept my thanks for the dividend which was received to-day. | I appreciate my little investment with the Commercial and regret that it is not larger. If Wishing the company continued success, I remain I Very truly, yours, -Ward M. Jones, Ames, Iowa. Gentlemen: I have received the dividend and feel satisfied that I have a good investment. I hope the Commercial will continue to grow and prosper. James A. Cox, Pottsdam, N. Y. * Gentlemen: I have received my dividend and am much pleased with same, as it. was larger than I expected. Thanks. I had an offer for my shares but did not take it and am glad now that I did not. Josie I. Coleman, Tehuacana, Tex. Gentlemen: I hereby acknowledge the receipt of my July dividend and wish to thank you for the promptness the officers of your company have shown. Albert Naegelin, Cashier The Basco Bank, Basco, III. Gentlemen: I have received my semiannual dividend check, which is at the rate of 12 per cent per annum. This is an excellent showing. I wish you success. Bernard Tonnar, Grace, Miss. Gentlemen: Tour dividend check received. I am much pleased that the Com- mercial is doing so well, with excellent prospects of becoming a great national com- pany. George L. Kelley, Knox City, Mo. Gentlemen: I beg to acknowledge receipt of your letter of the 5th inclosing divi- dend check on my shares of stock in your company. I am certainly glad to know the Commercial is extending its business and that its prospects of further success are very flattering indeed. I am inclosing a list of names of pepole who are all first-class men and perfectly reliable. Lyman T. Land, President Farmers' Bank of Higginsville, Higginsville, Mo. 688 INVESTIGATION OF INSURANCE COMPANIES. Gentlemen: I am in receipt of your letter inclosing check for the thirtieth semi- annual dividend, for which please accept my thanks. I have been giving your representative, Mr. Underwood, the names of various parties whom I think it would be desirable for him to see with the idea of subscribing to stock in your company. F. L. O'Leary, Treasurer Wabash Railroad Co., St. Louis, Mo. Gentlemen: Your favor received with check and I am pleased with the progress of the Commercial. I only wish I had invested with you the $400 that I put into another company from which, as yet, I have received no dividends. G. T. Wiltsie, Prairie, Ala. Gentlemen: I am in receipt of your check representing my Commercial dividend. I wish to offer my thanks for same and at the same time express my hearty appreciation of the manner in which the affairs of the companv are handled. I do not hesitate to say that all my transactions with the Commercial have been along good business lines. Inclosed you will find a list of names of people who would make desirable stockholders. C. W. Fisher, Harrisburg, Pa. Gentlemen: Your favor inclosing check in payment of dividend No. 30 received, for which accept thanks. The Commercial is evidently progressing finely. J. A. Jeffrey, President Jeffrey Manufacturing Co., Columbus, Ohio. Gentlemen: I hereby acknowledge my dividend check and wish to express my pleasure in the rapid and sure progress that the company is making. I very much appreciate the carefulness and good management of those in charge of the Commercial, and believe that it will realize a continued and steady increase of prosperity, with the establishment of strong agencies in the important cities of every State in the Union. With best wishes for your uninterrupted growth, I remain, Very truly, yours, Laura F. Baker, Slocum, R. I. HURRAH FOR READING! There has just been a nice little happening down in Reading, Pa. The Commercial agency there is in the hands of Mr. Walter M. Tyson, who sends the company a lot of high-grade fire insurance business because the best people in Reading sort o' look up to Tyson and know very well that he would not represent any company which wasn't a good one. Also the Commercial has some stockholders down in Reading, as well as policyholders. The other day we sent Mr. H. L. Hopper, one of our stock salesmen, to Reading to call on some of these stockholders and see how they were feeling about the Commercial. Perhaps Mr. Tyson, our fire agent, went around with Mr. Hopper and introduced him; anyway, 16 of those old stockholders gave Mr. Hopper new sub- subscriptions for Commercial stock amounting 'way up into the thousands. We think this is fine. It gives us a lot of satisfaction to know that while the Commercial is making new friends every day, the very best and quickest market for Commercial stock is among the people who already own it. Yes; there was considerable signi- ficance to what Mr. Hopper and Mr. Tyson did the other day with those 16 old stock- holders who knew already about the Commercial by experience. And, incidentally, hurrah for Reading! It's a strong Commercial town. SPECIAL TO STOCKHOLDERS. While the present status of the Commercial is gratifying alike to its officers and stockholders, the real issue — the everyday issue — is the company's upbuilding. The bigger the company is, the more money it is likely to make for its stockholders. If the Commercial, with its present half million of assets, can make the money it is now making, it is reasonable to suppose that when it has quadrupled in size and gamed two millions of assets, the dividends to stockholders will be proportionately increased. This being true, every present stockholder who is in a position to secure more stock, thereby increasing the capital and surplus of the company, will advance his own interests and increase his own income by doing just that thing. Many Commercial stockholders are already increasing their holdings and all others : should, do so if they can possibly arrange it. The present price of f 11 per share is a temporary one. The time to buy is now, before another advance takes place. INVESTIGATION OF INSURANCE COMPANIES. 689 • With this number of Spur a subscription blank is inclosed. If you have any idle dollars, use that subscription blank and add to your holdings of Commercial stock. You can do it on easy monthly installments or pay all cash if you so prefer. For the general good of the company, and the individual good of the stockholder, we believe this suggestion will meet with wide and prompt acceptance. Volume 2. October 15, 1912. No. 1. Advertising is the art of getting business ideas into the human consciousness. The first thing to do with an advertisement is to get it read. The second thing to do with it is to get it answered. If it isn't read it will never be answered — not in a million years. A NEW DEPARTMENT. A few months ago our president, Mr. Tuttle, and our secretary, Mr. Grove, held a conference which resulted in the organization of an automobile department for our company. Through this department a systematic circularization and canvas is being made of all the automobile owners in the District of Columbia. From the start, applications for this class of insurance, which protects the assured's automobile from loss by fire while anywhere in the United States or Canada, came in in such numbers that the policy writing department of the Commercial has had to work overtime. About two weeks ago the secretary found it necessary to provide -a separate office to take care of the business, and opened one on the first floor of the Southern Building, right at the junction of the two main corridors, a most attractive home for this depart- ment. A corps of competent young men were selected as solicitors, and the results obtained through this medium alone have been really remarkable. The company's secretary says that this getting after the automobile business also puts the company in touch with men of property and a great amount of the very best class of insurance is thereby obtained, and it looks as though the company's premium receipts in the District of Columbia will be trebled at a comparatively small additional expense. QUEER CLAIMS. In common with other fire insurance companies the Commercial is called upon from time to time to pass upon claims which are either unique or amusing. Three instances of queer claims are as follows: We had insured the contents of a restaurant. One evening, during some kind of a fracas in the place, somebody threw a cuspidor against a mirror and smashed it to smithereens. The proprietor of the restaurant wanted the Commercial to pay for the broken mirror because the cuspidor had been "fired " through it. He said he believed his policy was a fire insurance policy and that he ought to be indemnified. His claim was not allowed. Over in Pennsylvania we have a policy holder upon whose dwelling we issued a policy of insurance. One day during a severe thunderstorm his horse was killed in the field by lightning, and the man promptly put in his claim for compensation for the loss of the horse. It was rather difficult for us to see how the horse was either a part of the dwelling or its furniture, though the man argued otherwise. This claim was not allowed. One of the society women of Washington went one night to a theater gowned elabor- ately and wearing an evening hat trimmed with two ostrich plumes, when she came home from the theater she attempted to light the gas with a wax taper before removing her hat. She lit the gas all right, but she also lit the plumes upon her hat, and the hat was literally burned up on her head before she could find her hatpins. The hat cost $50. She had a policy with the Commercial which covered wearing apparel, and the company paid the entire amount of this claim. NEW ADVISORY DIRECTORS. The following well-known men, stockholders in the Commercial, have recently been appointed advisory directors of the company: Walter H. Barney, Providence, R- 1., attorney for the Standard Oil Co. and the Western Union Telegraph Co. ; August H. Hoffman, St. Louis, Mo., president Northwestern Bank; George G. Mann, Ann 690 INVESTIGATION OF INSURANCE COMPANIES. Arbor, Mich., vice president American Savings Bank; S. F. Hauck, Mechanicsburg Pa., president Second National Bank; Thomas Irwin, Atlantic City, N. J., vice president Union National Bank. REINVESTING HIS DIVIDENDS. The Commercial has a stockholder up in Caribou, Me.; his name is John P. Don- worth. The other day we got several remittances from him, all in one envelope, in payment for Commercial stock. One of them was a check drawn on J. P. Morgan & Co. by the First National Bank of Cuba, in payment of a dividend on an investment of his, and two other remittances were dividends which he had received from the Baltimore Electric Co. and the Draper Co. of Hopedale, Mass. In other words, Mr. Donworth used his recent dividend checks from other institutions to buy Commercial stock with. If you have got any dividends which will be due you in the next few months from other investments, it would be a good plan to switch them into the Commercial. MORE ABOUT COOPERATION. The genius of the Commercial, the main reason for its success and growth, is the fact that it has more than 2,000 stockholders who are "rooting" for the company in the communities in which they live. In support of this fact we desire to print a letter from one of our stockholders which is typical of hundreds received at the home office of the Commercial. The letter is from Mr. Frank Wiegand, of Irvington, N. J. "Commercial Fire Insurance Co., " Washington, D. C. "Gentlemen: Inclosed find checkfor$300 inpaymentfor insurance stock. I have two insurance policies coming due in October which I would like to turn over to the Commercial and make them read as one policy for $5,000. As Irvington is a fast- growing town, it would seem there is lots of business to be had here." WASHINGTON PATRONAGE. While the business operations of the Commercial now extend to 12 States, the company is not neglecting its opportunity to write fire insurance in its home city. The Washington department of the Commercial is writing an average of 20 policies a day, and that average is being steadily lifted by new local patronage. THE TOILER KING. The gist of the advancement of the individual lies largely in fundamental fidelity to small things. This is only another way of saying that character, like murder, "will out." The tale of what a man is is told by what a man does. Every task is a housetop from which is proclaimed the real fiber of the man who is at the task. There can be no prolonged deception as to what a man is — it will eventually show in what he is doing. Art is not a matter solely of marble and painting and literature. Art is in all good toil, and all good toilers are artists. He who grasps this thought and works it out in his occupation or business has got at the kernel of success. Life for him is transformed from drudgery into adventure. Thrills are everywhere. He is sanely drunk with the wine of exhilarant endeavor and abnormally capable of fine achievement. His compensation is in the work itself, though incidentally he gete bigger money for what he is doing because he is doing it superlatively well. For the brow of every good workman there is a crown, invisible, perhaps, to the eye of the casual world, but the workman himself knows that the crown is there. He is con- scious of his kingship. If he be a carpenter the swing of his hammer is a regal motion. If he be a bookkeeper his pen is a scepter. If he be an employer his dealings with his help are royally wise and kind. To this concept of life and toil any man who has intelligence, conscience, and clean ambition may lift himself . No one can do it for him. Always and always it is "up to him," and gods and men are patiently wondering what he is going to do about it. PRACTICAL DREAMERS. The lot of the dreamer has always been hard. From the beginning it has been the habit of certain hands to fling sharp missiles at the man who builds castles in the air. The earth is peopled with the sons of Jacob who hail every Joseph with the gibe, INVESTIGATION OF INSURANCE COMPANIES. 691 "Behold this dreamer cometh! " The rich man who rides to-day in his private Pull- man is the son of an unbeliever who chuckled in contempt of the idea that steam could be harnessed and made to draw. But concept and creation are two immortals who never tire, whose work is never finished. Occasionally they pause, perhaps, and for one merry moment watch the slow eyes of doubt blink and blink at what has been wrought; then they go at it again. The scroll of tranquil and universal fame is written across and across with the names of those who cried hail to the dream. Moses, Socrates, Marcus Aurelius, Angelo, Newton, Fulton, Lincoln — these men caught the gleam and turned it to noble account with faith and energy which ceased not at their alleged death. Dreamers all, they stopped not with mere dreaming, but made their dreams into deeds which will live forever in the memory and weal of mankind. THE REAL IMMORTALITY. Everyone wants to win. The passion for victory burns like a fire in every life, a fire which kindles, flashes, leaps, waxes, wanes, smolders, dies, and then with singular immortality rises from its gray and bitter ashes and becomes again a fire. This is the proof of the divinity of man. It is the God in him which will not down. Numbed by ignorance, delayed by error, hungry with bread about, athirst in the midst of springs, stung by the nettles of his folly, wounded sore by the darts of effect shot from the bows of his own causes, man stumbles on toward the ever-receding but ever- blessed goal of symmetry and perfection. The worth of it all and the hope of it all lies in the fact that he stumbles on; however little he may get or hold, however bare his brow may be of visible laurels, this capacity for progress is the stamp of man's essential greatness and the promise of his ultimate victory over those foes of his life whose function is seemingly to hinder and stab and damn. CHANCE FOR ALL. The boss has favorites, they say; That fact I won't deny. His favorites work hard all day; They are,the ones who try. The boss has favorites, of course. The man who saves him loss, The man who hustles like a horse, Both stand well with the boss. The boss has favorites, no doubt; And hard work is the test. You can be numbered in, old scout, With those the boss likes best. POISE — DIRECTION — IMPACT. Behold the hawk with his unreasoned ways, and yet adept in what he wills to do. Two hundred feet above the glassy waters of the lake he hangs, as if suspended from the sky's blue dome by an invisible wire. Beneath him, in the sheening shallows, a trout lies under the lee of a great stone. The human eye would toil to see that trout, but to the eye of the poised hawk he lies clear against the sandy shoal. And then — the invisible wire breaks. Straight down the hawk drops, as if he were lead instead of flesh and feathers. In another instant, out of the spray of the resultant splash he rises, winging now, and in his lowered talons, as he flieB toward the feast bough of the dead oak in the swamp, you catch the gleam of silver. Three things in that fine feat appeal to me and make me wise. The names of these three things are poise, direction, impact; the patient hovering, the accurate descent, the timely seizure. I would not be a hawk, but rather a man with a hawk's ways — calm in the hunt for legitimate prey, direct in approach when once that prey is sighted, and powerful to take when the moment for taking has come. In the battle of life no flustered soul can win; no wavering advance will make the foemen ours; no indecisive attack will avail . So to the hawk I give my thanks for what he taught me, and in my business will use it as often as I rightly may. INEVITABLE. There can be no separation between the interests of the seller and the interests o fte buyer; they are identical. Through all the years mutualities are the vitals of the business which endures. 692 INVESTIGATION OF INSURANCE COMPANIES. APPRECIATION. The new issue of Spur is some book. It has increased my speed. P. A. G., Harrisburg, Pa. Spur contains some mighty interesting reading. I want to keep getting it right along. G. W. H., Philadelphia, Pa. The history of the Commercial, as given in the last number of Spur, ought to carry a good deal of weight with prospective investors in leading them to right conclusions concerning the company's stability. 0. B. P., Hartford, Conn. I am very grateful to you for sending Spur to me. The magazine contains a fund of valuable information and inspiration. J. W. N., Mount Vernon, N. Y. Gentlemen: Yesterday your representative, Mr. George G. Hynson, called on me and I contracted with him for an additional 100 shares of Commercial stock. To-day he came to see me again and I took 450 shares more and handed him my check. Hoping this will be satisfactory, I remain, very truly, yours, Albert S. Laber, Paterson Reed & Harness Co., Paterson, N. J. letters from stockholders. July 10, 1912. Gentlemen: It affords me pleasure to acknowledge receipt of my 12 per cent divi- dend. Your company is living up to the promises made me by your agent. I assure you of my cooperation. Dr. F. C. Rodgers, St. Louis, Mo. July 3, 1912. Gentlemen: I thank you sincerely for the dividend check just received, and I sin- cerely hope that the business will grow so rapidly that you will be able to send divi- dends often every year. Inclosed herewith you will find a list of the names of 10 property owners in Richmond, Va., who are men of such character that I would be glad to have them identified with our company. With kindest regards and best wishes, I remain, Yours, very truly, F. P. McConnell, President Manchester National Bank, Richmond, Va. July 5, 1912. Gentlemen : Yours received inclosing check for semiannual dividend on the share of stock in your company in my name. For, this I thank you. I hope you will before long make the million dollar or two million dollar mark. C. F. Chelf, Culpeper, Va. July 8, 1 9 12. Gentlemen : I was pleased with the dividend check and am surprised at the amount- Sarah E. Relph, Bennett, N. Y. July 10, 1912. Gentlemen: I have received your favor containing check for July dividend. In- closed find list of names of property holders who may possibly like to invest in Com- mercial stock. With best wishes for your success. Sincerely, yours, F. J. Schmidlin, Seven Mile, Oho. July 6, 1912. Gentlemen: I have received the dividend check and thank you very much. I am glad to hear that the company is progressing. I also inclose a list of 10 names of people who are property owners and who might interest themselves in the company. Cornelia W. Wood, Postmaster, Locust Valley, N. Y. INVESTIGATION OF INSURANCE COMPANIES. 693 July 17, 1912. Gentlemen: I beg to acknowledge the receipt of your favor inclosing dividend. I send you herewith the names of 10 property owners, and should be very glad to see them connected with our company as stockholders. I am very glad to note the progress of the Commercial. W. E. Marsh, Concordia Fire Insurance Co. of Milwaukee, Wilwaukee, Wis. July 9, 1912. Gentlemen: Yours containing dividend check duly received. Thanks for same. Wishing you the best of success for our mutual good, I remain, Yours, very truly, E. ,T. Perrin, Putnam, Conn. July 2, 1912. Gentlemen: It gives me great pleasure to acknowledge the receipt of your favor, inclosing check for dividend on my stock for the first half of 1912. Inclosed you will find names and addresses of men whom I am sure will be acceptable stockholders, all being men of prominence and wealth in their respective communities. Thank- ing you for check and wishing for the company yet greater success, I remain, Yours, very truly, Joseph R. Gibson, Navy Department, Washington, D. C. July 5, 1912. Gentlemen : I am in receipt of my second dividend from your company and thank you for the same. I have been an earnest seeker for some place to lodge a few spare dollars which will work for me while I wait, and I am fully satisfied that 1 have found it in the Commercial. I shall lose no opportunity in recommending our company, as I believe its foundation is made of good timber. Fred W. Oren, Winter Haven, Fla. July 9, 1912. Gentlemen: I am to-day in receipt of dividend check No. 30, amounting to 12 per cent per annum, which is indeed very gratifying, and I am well pleased with my investment. Curt Bergmann, Postmaster, Tecumseh, Kans. July 6, 1912. Gentlemen: Many thinks for nice dividend on my stock. I am more than pleased with my investment. A. D. Kirkpatrick, BeachJCity, Ky. July 8, 1912. Gentlemen: I am in receipt of your favor inclosing check in payment of semi- annual dividend on my stock in your company. This return upon my investment is very gratifying and your method of placing stock, it seems to me, should promote the growth of the company. With best wishes for your continued success, I am. Very truly, yours, William F. Johnson, Attorney, at Law, Snow Hill, Md. July 13, 1912. Gentlemen: I beg to acknowledge receipt of your letter inclosing dividend check for period ending July 1. I am well pleased with the investment. Wishing you the utmost success, I am, Respectfully, yours, W. A. Childress, Appleton, III. July 15„ 1912. Gentlemen: Your letter inclosing check for thirtieth dividend received. I am pfeaged to not? the substantial progress being made- by your company and that it is now, on a,^ per cent dividend basis. E. A. Smith, Cairo, III. 694 INVESTIGATION OF INSURANCE COMPANIES. July 16, 1912. Gentlemen: Your letter inclosing the check for dividend received. We are glad to'acknowledge the receipt of same and to express our appreciation of the progress of the company. Mrs. Ella M. Marshall, Illinois State Board of Agriculture, Metropolis, III. A WAYSIDE REVERIE. The past? Well, what of the past I say — Poor outworn thing; can I mend it, pray? Do tears avail for the misspent days? Will pining straighten the crooked ways? Must yesterday's heartbreak last for ay, And yesterday's mist hide the sun to-day? Nay, life is life, and the farer's toll Is a hopeful heart as the hours unroll. The path ascends; each winding rood Blooms at the touch of a blithesome mood. I will hold that the best is a bit beyond And drink a toast from the lily's frond — A toast in dew to the day that's done, And one to the better day begun. — Quoted. COMMERCIAL FIRE INSURANCE CO. HOME OFFICE, SOUTHERN BUILDING, WASHING- TON, D. C Full paid capital January 1, 1911 $100, 000 Full-paid capital January 1, 1912 200, 000 Full-paid capital October 1, 1912 312, 000 Subscribed capital October 1, 1912 . : . 488, 000 Assets October 1, 1912 506, 000 Authorized capital (now being subscribed) 1,000,000 Vol. 2. November 15, 1912. No. 2. Since you got the last number of Spur there have been some important doings: The Commercial has acquired a valuable home office property of its own. The assets of the company have been increased by $286,000. The board of directors has advanced the price of Commercial stock from $11 to $12 per share, this advance to take effect January 1, 1913. THE SOUTHERN BUILDING, RECENTLY ACQUIRED AS THE HOME OFFICE PROPERTY OP THE COMMERCIAL FIRE INSURANCE CO. On October 29, 1912, the Commercial Fire Insurance Co., in joint connection with another large financial institution of Washington, acquired title to the Southern Building, in which the company's home office has been located since the completion of the structure, in 1911. The financial interests of every Commercial stockholder are directly conserved by this important transaction. >i Located in the best business center of Washington, at the corner of Fifteenth and H Streets, one block distant from the United States Treasury, and one block from the new $6,000,000 Arlington Hotel, now in process of erection, the Southern Building is the finest equipped office building in the South. It is also the largest, the most popular, and most successful office building in the National Capital. Its space is 93 per cent rented and produces a rental revenue of approximately $150,000 per annum. The top floor of the Southern Building is occupied by the United States Court of Commerce, and a considerable portion of the ground floor is leased to the United Sta,tes Trust Co., one of the great financial institutions of Washington, with resources of $8,000,000. The eighth floor is almost entirely given over to the home office needs of the Commercial Fire Insurance Co. and the First National Fire Insurance Oo.— the two leading fire insurance companies of the District of Columbia. The tenants of the Southern Building are served by four electric high-speed, ele- vators of modern design. The more than 400 offices are specially lighted, and ail INVESTIGATION OF INSURANCE COMPANIES. 695 the rooms are outside rooms, insuring perfect ventilation. The architects, the well- known firm of D. H. Burnham & Co., of Chicago, have achieved perfection in the three prime essentials of a metropolitan office building, namely, light, ventilation, and sanitation. Each office has a lavatory, hot and cold water, and is lighted with electricity. On each floor toilets for the accommodation of the tenants and patrons of the building are provided. A private rest room for women, equipped for use in case of health emergencies, has also been provided and is maintained under careful supervision. Several Government departments occupy portions of the Southern Building, whose architecture and equipment are ranked high among the interesting sights of Wash- ington, which municipality has justly gained the fame of being the most beautiful city in the United States. COMMERCIAL STOCK ADVANCES TO $12 PER SHAKE, TO TAKE EFFECT AFTER PAYMENT OF JANUARY DIVIDEND. [Extract from resolution passed by the board of directors Nov. 11, 1912.] Whereas a ready market has been found for the sale of Commercial stock at $11 per share on account of the large volume of business being transacted by this company, resulting in a large addition to its agency plant and premium income; and Whereas the capital and surplus of the company have been recently materially increased, and the company has earned for its stockholders a large sum of money, in addition to paying the regular 12 per cent dividends, thereby increasing the amount of surplus on hand as well as the actual value of the stock: Now, therefore, be it Resolved, That on and after the payment of the semiannual dividend payable January 1, 1913, no more of the capital stock of this company shall be sold for less than $12 per share. [seal.] (Signed) Paul F. Grove, Secretary Commercial Fire Insurance Co. THE MAN IN THE LITTLE NICHE. It is commonly supposed that the great work of the world is done by the world's noted men — its captains, inventors, teachers, and financiers. Not so. It bulks too large to be the work of the few, and so is distributed in small stents among the hands of the many. The low-waged man, being the rsal producer, is the real king. When lie stays at home traffic and transportation are paralyzed. The manufacturer may direct the tilting of oil cans over the driving shafts of his machines, but he can not tilt them himself. When all his Joes and Jims quit work he is a manufacturer no longer, but just a flustered person owning an idle plant. A publisher may print a hundred thousand copies of a newspaper, but they will be worthless in five hours if they are not scattered among the people by the grimy hands of newsboys stationed along the thoroughfares. Thus,' the worker in the obscure sphere, is supreme. He is not tolerated, but needed. He has a right to move among his tasks with dignity and assurance. His prime responsibility is to himself — to fill his little niche as a man should fill it, to do his work with skill and honor; not as a drudge, but as a faithful servant of the interests of mankind. This is at once his duty and his gain, for his real pay is not in the Saturday envelope, but in the doing of the task itself — the spirit of the doing and the method of it. These, being right, lift him from the level of the tyro to the level of the artist. He becomes an accomplished man, badged, within if not without, with the insignia of the only rank worth striving for — the insignia of worthy achievement. COMMERCIAL ITEMS. The presidential election seemed to have no effect upon the sales of Commercial stock. The company trudged along through the campaign increasing its capital, sur- plus, and assets with sturdy determination. Even election day itself, Tuesday, November 5, was a remarkable day in the stock-sales department. The Surveyor — that sprightly New York publication— hands a bouquet to Spur in the following words: "Spur is the name of a little house periodical issued by the Commercial Fire, of Washington. Whoever it may be who writes the things in it is some writer; and this is no carp." Then follows two extended quotations from our last number. The largest sale of Commercial stock in the history of the company was made the latterpart of October. It consisted of 5,000 shares taken by two Pennsylvania bankers, and, at $11 per share, the transaction aggregated $55,000. 696 INVESTIGATION OP INSURANCE COMPANIES. Commercial premiums received from the District of Columbia for the month of October were nearly half as much as the total premiums received during the entire year 1911 from the same territory. This increase is at the ratio of approximately 800 per cent and is due largely to the efforts of the new local department established on the ground floor of the Southern Building in the month of September, 1912. Mr. William S. Quinter is in charge of this department and is ably aided by an alert force' of competent salesmen. THIS MAGAZINE. The circulation of Spur is increasing and now exceeds that of many another insur- ance journal, This number of the magazine is not any fatter than the previous numbers, but Spur manages to keep sufficiently fed and paid for without any adver- tising, solicitation, or trimming. Spur thinks its own thoughts and says them in its own way. It is not committed to any particular creed or political party, but feels somehow that the world is getting on pretty well and that the new administration at the National Capital will be conducted in the interests of all the people and for the advancement of good business throughout the country. HIS WAY. He came up smiling — used to say, He made his fortune that-a-way. He had hard luck a-plenty, too, But settled down and fought her through. And every time he got a jolt He jist took on a tighter holt — Slipped back some when he tried to climb, But came up smilin' every time. OTHER PROMTS. Let no Commercial stockholder think for a minute that his only profit consists in the regular dividends which he receives from time to time on the shares which he owns. In addition to these dividends there is a constant accretion to the value of the stock itself because of the Commercial's persistent progress. The company is nearly five times as big as it was two years ago; and the bigger it gets, the more its stock is worth. The larger a company is, the more business it can do and the ulti- mate worth of its shares is governed only in part by the dividends it payB. For in- stance: If a company's stock doubles in value by a legitimate and safe increase in the volume of its business, that doubled value is practically a 100 per cent dividend. Watch out for some such experience with your holdings in the Commercial Fire, and get more stock, if you can, while the price is where it is now— $11 per share. THE NEXT DIVIDEND. We are approaching another dividend date, January 1, 1913. All new subscribers to Commercial stock who become stockholders of record prior to December 28, 1912, will participate in this dividend in the same amount as the old stockholders do. If you want to confer a real favor upon some friend of yours who has some idle money which ought not to be idle, just tip him off to this approaching dividend and see that he gets some of his money into Commercial stock at once. TRIUMPH OVER ENVIRONMENT. There is a purpose in circumstance. Nothing in our lives is for naught. All things which have been given us, even our chains, are meant for our making — meant for the working out of our goodly destiny. Bunyan in prison, apparently cursed by sunless hours of solitude and loneliness, was a greater Bunyan than if he had been free to roam afield. The walls which shut his body in could not confine his soul; it escaped them and went out into all the world to lift to higher levels the hope and vision of mankind. The log cabin in which Lincoln was born lent its ruggedness and simplicity to the man himself, and has become a shrine which men approach with reverent feet as to some holy place which love and truth have glorified. The hard lot is ever the school in which greatness is taught, and the best scholars are those who perceive the purpose of difficulty and do not grow bitter as they grapple with it. The very genius of pro- gressive living consists in a capacity to appreciate the day and what the day holds, to find in all seasons and events a divine conspiracy to refine the soul and make it a INVESTIGATION OP INSUEANCE COMPANIES. 697 greater soul; to hail hardship with grim gladness and bless the hills which must be climbed; to look with kindly eyes upon every human thing; to accept with compla- cence the small circle of opportunity until it has been shown that we are worthy to move in a wider one. Along no other path may we come to our best and largest estate of being and serving. The letters from stockholders printed on the next four pages relate to the Com- mercial's thirtieth dividend, which was paid in July of the present year. These letters express the satisfaction and good will which is felt by our entire constituency of stockholders. The Commercial's thirty-first cash dividend is payable to stock- holders on or before January 5, 1913. LETTERS FROM STOCKHOLDERS. Gentlemen: Have received the dividend. Thanks. I am director and president of the above bank, own considerable property here, have a $500,000 block in Chicago, with large orange groves and other interests in Riverside, Cal., and elsewhere. Am president of board of trade and a dozen other things. Yours, very truly, F. T. Pember, President Farmers' National Bank, Granville, N. Y. Gentlemen: Check received on thirtieth dividend. Many thanks. Will be glad when you open business in Kentucky, as I want to place my insurance with the Commercial. J. H. Taylor, M. D., Promdence, Ky. Gentlemen: I have just received a check for the semiannual dividend. Thanks. I am pleased with my investment in the Commercial. Francis A. Stark, Whitestown, Ind. Gentlemen: I have received you letter inclosing check and want to thank you for same. I am sending you herewith a list of 10 names of people who would make desirable stockholders. Joseph G. Schuler, Wilkes-Barre, Pa. Gentlemen: I am in receipt of your favor inclosing dividend check, for which please accept my thanks. I am very much pleased with the progress the Commercial is making. J. D. Bashore, D. D. S., Shippensburg, Pa. Gentlemen: Thank you for the dividend check, for which I inclose receipt. Please rest assured that I will help the company whenever I can, as I have every confidence in the company and wish it continued success. I think you have a very faithful agent in our town, and am always glad when he has something fine to tell- me about the Commercial. Mary A. C. Uhler, Meadowbank, P.a. Gentlemen: Yours to hand with dividend check, for which please accept my thanks. I congratulate you on the good management and progress your company is Thomas W. Shields, Frankford, W. _Va. Gentlemen: Your check for July 1 dividend received. Please accept my thanks and appreciation. H. L. Fox, Walkm, Va. 1 Gentlemen: Your July 1 dividend check is received and is very satisfactory. C. W. Bowtell, Fori Edward, N. Y. Gentlemen: I beg to acknowledge the receipt of your esteemed favor of the 5th, inclosing check for the thirtieth semiannual dividend, for which please accept my thanks. I congratulate you upon the showing made by the company, which . C. [Result of examination by insurance department pf the District of Columbia on Oct. 31, 1812.) ASSETS. BeaLe^tete (including 'home office building) -$331, -922. 06 Mortgageioans (first Hens) '. '...'.". 215','750. ,00 Cash in banks and office IS, 756. 61 Agents' balances, not over 90 days past due 56, 968. 21 Accrued interest on bonds and mortgages 5, 059. 81 Bonds (market value) : Cjity ,of Atlanta sjc^qqj bpnds. ... .. #10, 0,00 City of Richmond public improvements 10, .450 American Telephone & Telegraph Cq^, jDolonial Trust 4, 475 City of New York (corporation stock) 10, 550 Sy,qf Seattle park bonds 10, 0Q0 Cjfopf Ashevijtle, N. C., water .works, extension and im- provement. 9, .4 50 State of New York canal improvement 50, 750 ... Virginia Railway & Power Co., first and refunding mort- gages 9, 575 '■ 115,25.0.00 Total admitted, assets 743, 706. 69 1IABILITIES. Capital stock 337, 307. 5,0 Losses not yet due $6, 216.38 losses not adjusted 21, 1$2.!74 Reserve for taxes.not due 1,,50O.,0O Accrued taxes and interest, qn real, estate 11, 8E)0.,66 Total liabilities for losses and taxes 40,699. 78 Reserve for unexpired premiums 136, 260. 92 Netfljwphis over .all liabilities • 229, 438. 49 Total 743, 706. 69 By adding to the admitted assets of the company, $306,000 subscribed capital and surplus as of November 11, 1912, not yet fully paid and not admitted, ;tqtal .assets would amount to $1,047,706*69. 700 INVESTIGATION OF INSUKANCE COMPANIES. Officers. — Robert R. Tuttle, president; Hon. Ashley M. Gould, vice president; Frederick S. Dudley, second vice president; Paul F. Grove, secretary; John McKee, assistant secretary; Charles F. Carusi, general counsel. Directors. — Hon. Geo. \V. Atkinson, justice United States Court of ClaimB, former Governor of West Virginia ; Charles F. Carusi, dean National University Law School; general counsel District National Bank; John W. Childress, real estate; Allen C. Clark, secretary Equitable Life Insurance Co., director National Capital Bank; Hon. Fred T. Dubois, former United States Senator from Idaho; Frederick S. Dudley, treasurer First National Fire Insurance Co. of the United States; Hon. Ashley M. Gould, justice Supreme Court District of Columbia, vice president First National Fire Insurance Co. of the United States; Paul F. Grove, secretary Commercial Fire In- surance Co.; Robert N. Harper,' president District National Bank, former president Washington Chamber of Commerce; W. F. Roberts, president W. F. Roberts Co.; Robert R. Tuttle, president Commercial Fire Insurance Co., vice president First National Fire Insurance Co. of the United States; John Lewis Smith, Assistant United States District Attorney; Martin Wiegand, manufacturer; Richard Wightman, advertising; Hon. Robert J. Wynne, president First National Fire Insurance Co. of the United States, firet vice president Washington and Southern Bank, former Post- master General of the United States. Stock Reservation for Present Stockholders Only — Not Transferable. , 1912. Having subscribed for shares of stock of the Commercial Fire Insurance Co., of Washington, D. C., and desiring the privilege of increasing my holdings. later, I hereby apply for the reservation, until the day of next, of additional shares, without advance in price — namely, at the present price of $11 per share. It is understood that this reservation does not bind me to take these shares unless I shall elect to do so; but that this reservation, when accepted by the Commercial Fire Insurance Co., binds the company to deliver the above shares if I desire to take advantage of this reservation within the time specified. Witness Name ■ Accepted Street and number - For the Commercial Fire Insurance Co. Post office The company will not accept a stock reservation for a longer period than 90 days from the date of subscription. Partial List of Bankers in the United States Whose Opinions Are Sought Every Day as to Investments, Who Own Stock in the Commercial Fire Insurance Co. Alabama: L. A. Nolan, cashier, Nolan Bank, Alexander City. Arizona: E. Ganz, president, National Bank of Arizona, Phoenix. J. W. Smith, cashier, Bank of Northern Arizona, Snowflake. A i*W 'i n s'i s * Col. F. P. McConnell, cashier, First State Bank of Bonanza, Bonanza. California: Chas. R. Bradley, cashier, Crown City Savings Bank, Pasadena. Albert Mercer, cashier, Crown City National Bank, Pasadena. Leo H. Martin, assistant cashier, Carver National Bank, St. Helena. Ralph Moore, president, Bank of Spreckles, Spreckles. Fred B. Wadsworth, president, Siskiyou County Bank, Yreka. Colorado: Samuel R. Clark, cashier First National Bank, Eads. Wendell P. Ella, vice president Mesa County National Bank, Grand Junction. Claude R. SimmB, cashier Pierce State Bank, Pierce. Connecticut: Fred W. Hall, cashier Pequonnock National Bank, Bridgeport. Alfred Spencer, jr., president Aetna National Bank, Hartford. Wm. H. Murphy, vice president First National Bank, Harrington. INVESTIGATION OF INSUKANCE COMPANIES. 701 Florida: J. H. Prescott, vice president First National Bank, Pernandina. John T. Sawyer, treasurer Tropical Building & Investment Co., Key West., Georgia: Chas. W. Fowler, cashier Odessa Bank, Odessadale. J. B. Hodges, cashier Farmers' & Merchants' Bank, Logansville. W. J. Walker, president Citizen's Bank, Silvania. Frank Jorgenson, cashier Bank of White, White. Idaho: John I. Monks, president First State Bank, Bonners Ferry. Illinois: Wm. N. Budd, assistant cashier, Belt Bros. & Co., Creal Springs. A. A. Dugger, president Citizen's Bank, Creal Springs. Albert Nargelin, cashier Basco Bank, Basco. Chas. D. Rounds, president State Bank, West Pullman. A. J. Schoenecke, vice president First National Bank, Downers Grove. A. B. Woodworth, president First National Bank, Robinson. Indiana: E. Boetticher, vice president Evansville Trust & Savings Co., Evansville. Chas. F. Halliday, cashier .Parker Banking Co., Parker. Wm. L. Morey, vice president Citizen's Bank, Clinton. E. S. Rice, president First National Bank, Logansport. W. C. Smith, cashier Montmorenci State Bank, Montmorenci. Iowa: W. P. Miller, vice president First National Bank, Aurelia. Matthew Richmond, vice president State Bank, Armstrong. C. M. Trumbauer, cashier, First National Bank, Williams. M. Weisbrod, president, Fenton State Bank, Fenton. Wm. Musser, vice president Iowa City State Bank, Iowa City. Kansas: J. F. Angle, cashier, National Bank, Belleville. Henry J. Hills, president Trego State Bank, Wakeeney. J. M. Roher, president People's National Bank, Paola. Anton Diabolt, jr., vice president Piqua State Bank, Piqua. E. 6. Clark, assistant cashier, Union State Bank, Shady Bend. Kentucky: Roy Leslie Bishop, cashier Bank of Lowes, Lowes. T. W. Blakey, president Planters' Bank & Trust Co., Hopkinsville. A. M. J. Cochran, vice president Bank of Maysville, Maysville. Wm. Golding, vice president First National Bank, Williamsburg. Richard A. Shellman, president Two States Bank, Stephensport. Geo. H. Nunn, cashier Blackford Bank, Blackford. C. E. Nail, cashier McHenry Deposit Bank, McHenry. W. A. Pugh, vice president First National Bank of London, Pittsburg. R. A. Johnson, president Citizen's Bank, Somerset. Louisiana: Walter K. Amacher, cashier Kentwood Bank, Kentwood. H. H. Howell, cashier Capital City Bank, Baton Rouge. Travis Oliver, cashier Central Savings Bank'& Trust Co., Monroe. Louis F. St. Julian, assistant cashier, Bank of Broussard, Broussard. Maine: Geo. M. Currier, vice president People's National Bank, Farmington. John P. Donworth, vice president Aroostook Trust & Banking Co., Caribou. N. P. Eveleth, cashier Ocean National Bank, Kennebunk. Chas. H. Hubbard, assistant cashier Bangor Savings Bank, Bangor. Chas. A. Moody, president First National Bank, Biddeford. Maryland: W. Lake Robinson, vice president Farmers & Merchants National Bank, Cam- bridge. Robert B. Dixon, president Easton National Bank of Maryland, Easton. Leroy A. McCardell, assistant cashier Frederick Co. National Bank, Frederick. R. C. McCandish, vice president and treasurer Peninsula Trust Co., Salisbury. W. F. Johnson, president First National Bank of Berlin, Snow Hill. C. M. Purnell, president Deposit & Savings Bank, Snow Hill. Lowell. Geo. M. Harrigan, president Lowell Trust Co., Lowell. Frank P. McGrilly, assistant cashier Lowell Trust Co., 702 INVESTIGATION OF INSTJEANCE COMPANIES. Michigan: Chas. L. Bartlett, president Flint Clearing House Commission, Flint. Wm. R. Hubbard, vice president National Bank, Flint. Wm. A. Paterson, Union Trust & Savings Bank, Flint. Allan M. Stearns, vice president Michigan National Bank, Kalamaztfo. Robert J. Whaley, president Citizens Commercial & Savings Bank, Flint. Geo. J. Mann, vice president German American Savings Bank, Ann Arbor. A. B. Chase, cashier Bank of Covert, Covert. M. Davison, cashier Union Trust & Savings Co. Bank, Flint. Alva Bonesteel, cashier Pompeii State Bank, Pompeii. Minnesota: David Burton, president First National Bank, Wheaton. Martin A. Lukken, cashier Bank of Elbow Lake, Elbow Lake. L. W. Sherman, vice president First National Bank, Minneapolis. Albert Berg, president Security State Bank, Spooner. Mississippi: G..W. Stigler, vice president Bank of Cruger, Lexington. R. P. Turner, cashier Bank of Tutwiler, Tutwiler. Missouri: James A. Fleming, vice president La Monte Bank, La Monte. Clarence Terry, cashier La Monte Bank, La Monte. Jefferson D. Hammet, president J. H. Hammel Banking Co., Hontsville. Arnold C. Hoefner, vice president Bank of New Melle, New Melle. Lyman T. Land, president Farmer's Bank, Higginsville. Geo. P. Shoptaugh, president Farmer's & Merchant's Bank, Elmo. E. J. Vance, president Valley Park Trust Co., Valley Park. Aug. H. Hoffman, president Northwestern Bank of St. Louis, St. Louis. Montana: Cecil E. Copeland, cashier Lewiston State Bank, Lewiston. J. B. Featherman, president Drummond State Bank, Drummond. Nebraska: D. P. Cropsey, president First National Bank, Fairbury. L. W. Goodrich, vice president Goodrich Bros. Banking Co., Fairbury. Chas. E. Smith, Secretary and treasurer Farmer's Tiust Co., Beatrice. New Hampshire: Jerry Abbott, cashier Woodsville National Bank, Woodsville. J. B. Edgerly, cashier Farmington National Bank, Farmington. Chas. T. McNally, 'president Coos National Bank, Groveton. New Jersey: F. R. Austin, president Tuckerton Bank, Tuckerton. Alwyn Ball, jr., president Rutherford Trust Co., Rutherford. Thompson Irwin, president Union National Bank, Atlantic City. J. A. Lebkuecher, vice president Union National Bank, Newark. M. D. Hayward, president Farmer's & Merchant's Bank, Boonton. Peter G. Zabriski, vice president Fast National Bank, Ridgewood. Christian F. Cuth, vice president Jefferson Trust Co., Hoboken. New Mexico: Oscar Rodemann, assistant cashier Bank of Magdalena, Magdalena. New York: Douglas Conklin, president Bank of Huntington, Huntington. James V. Crawford, president Frontier National Bank, Morristown. Theodore EHxman, president Corinth National Bank, Corinth. Chas. H. Carlock, president Phelps National Bank, Phelps. Arthur W. Gregory, cashier Frontier National Bank, Morristown. Dr. James D. Fuller, vice president North Creek National Bank, North Creek. Henry Hahn, vice president People's Bank, Haverstraw. Frederick P. Hall, vice president Union Trust Co., Jamestown. TheOddre H. Hicks, cashier First National Bank, Highland Falls. Henry F. Hiler, cashier State Bank of Commerce, Brookport. James E. Kelly, treasurer St. Lawrence County Savings Bank, Ogdensburg. F. T. Pember, president Farmers' National Bank, Granville. Wm. J. Richardson, president Citizens' National Bank, Wellsville. Nelson H. Richtmyer, vice president National Bank of Ooxsackie, Coxsactae. J. F. Schoellkopf, vice president Central National Bank and vice president Commonwealth Trust Co., Buffalo. Frank M. Stage, president Wickware National Bank, Akron. Fred T. Tremble, assistant cashier Adirondack National Bank, Saranac Lake. INVESTIGATION OF INSUKANCE COMPANIES. 703 New Yotk — Continued. D. L. Tuttle, vice president Citizens' National Bank, Springfield, Buffalo. Wm. H. Walbridge, assistant cashier First National Bank, Hornell. Frank W. Bender, president Farmers & Merchants' Bank, Fort Plains. E. R. Redhead, president Citizens' National Bank, Fulton. Richard Van Siclon, assistant cashier First National Bank, Jamaica. M. Callanan, vice president Keesevil'le National Bank, Keeseville. North Carolina: John H. Harrison, president Bank of Littleton, Littleton. D. E. Woodley, cashier Bank of Creswell, Creswell. Ohio: William J. Becker, cashier Hamilton Dime Savings Bank Co., Hamilton. Samuel D. Chambers, vice president National Bank of Delphos, Deljphos. Alfred M. Cohen, president Peoples Bank, Savings & Trust Co., Cincinnati. Jacob E. Deeter, president First National Bank, Bradford. 11. R. Pell, vice president Orangevil'le Savings Bank Co., Orangeville. Isaac H. Good, president Ashland Bank & Savings Co., Ashland. Abraham fiansberger, president National Bank, Baltimore. Herbert H. H'eniing, cashier Ohio Valley Bank Co., Gallipol-is. J. C. Hill, president Savings Deposit Bank & Trust Co., Blyria. Frank E. Hosterman, cashier Citizens National Bank, Springfield. C. E. Hyman, president Farmers Citizens Bank Co., Payne. J. A. Jeffrey, vice president Commercial National Bank, Columbus. Frank J. Schmedlin, president Farmers National Bank, Seven Mile. Ferdinand F. Smith, vice president Farmers & Merchants National Bank, MjMerb- burg. J. R. Vernon, vice president First National Bank, Salem. E. R. Weachter, president First National Bank, Mount Washington. John S. Walden, vice president Coolville National Bank, CooWille. F. H. Wolfram, vice president First National Bank, Lowell. F. E. Hayward, president Ashland Bank & Savings Co., Ironton. M. B. Talmage, president National Bank of Morrow County, Mount Gilead. Harry Crooks, cashier' Waterford Commercial & Savings Bank, Waterford'. Oklahoma: R L. Cares, cashier Bank of Grant, Grant. Merton A. Crooks, president Farmers & Merchants Bank, Kildare. S. D. Nelson, cashier Farmers State Bank, Oowlington. Thos F. Woodward, president First National Bank, Anadarko. Oregon: John S. Schenck, president First National Bank, The DalleB. Pennsylvania: C. A. Agnew, cashier First National Bank, Sharpsville. Lewis H. Bailey, vice* president Tioga County Savings & Trust Co., Welisb^ro. M. A. Cherse, treasurer Berks County Trust Co., Reading. John Eckert, vice president First National Bank, Albion. J. W. Fawcett, vice president MeKeesport Title & Treat Co., MeKeeBjpaijfe. Homer H. Andrews, cashier Clyiner National Bank, Orymer. C. C. Farren, assistant cashier Rural Valley National Bank, Rural Valley. James A. Dale, president York County National Bank, Yoi*k. A. W. Symser, vice president Western National Bank, York. John Zeller, president Western National Bank, York. Joseph A. Gault, president Farmers' National Bank, Kittanning. William H. Gregg, assistant cashier First National Bank, California. Fred Groff, vice president First National Bank, Berlin. William M. Hoerner, president Allison Hill Trust Co., Harrisburg. P. J. Horan, president Fidelity Deposit & District Co., Dunmore. C. C. Leader, president Guarantee Trust & Safe Deposit, Shamokin. Charles P. Lukens, vice president Parkersburg National Bank, Parkersbusg. John S. Reed, vice president First National Bank, Faetoryvdlle. J. D. Reeser, vice president First National Bank, Dushore. E. G. Seller, vice president Guarantee Trust & Safe Deposit, Shamokin. Robert M. Trollinger, president Rural Valley National Bank, Rural VaBey. William H. Warner, cashier First National Bank, Montrose. William A. Wilcox, secretary Seranton Trust Co., Scranton. Isaac Hildebrand, president Codorus National Bank, Oodorus. E. F. Torry, cashier Honesdale National Bank, Honesdafe. C. 0. Armstrong, vice president First National Bank, Milford. 704 INVESTIGATION OP INSURANCE COMPANIES. Pennsylvania — Continued . B. T. Fulton, cashier First National Bank, Stoyestown. D. A. Sloatman, cashier First National Bank, Williamsport. Frank E. Coover, cashier New Cumberland National Bank, New Cumberland. South Carolina: R. S. Martin, cashier Citizen's Bank, Blacksville. The Commercial Trust Co., Spartanburg. William R. Parks, cashier Bank of Parksville, Parksville. South Dakota: Arthur B. Cahalan, cashier First National Bank, Miller, Charles B. Williams, president Marvin State Bank, Marvin. Tennessee: G. F. Lockmiller, president Athens Bank & Trust Co., Athens. Walter B. McLean, vice president Germania Savings Bank & Trust Co., Memphis. Texas: H. Ambert, vice president Jno. Schuhmaker State Bank Lagrange, Ruthersville. Dudley T. Blair, cashier First National Bank, Oakville. Samuel P. Stockton, president State Bank of Barksdale, Barksdale. John R. Westbrook, vice president First National Bank, Deport. Harry Myer, vice president Home National Bank, Baird. S. L. Boatwrightj president First National Bank, Bryan. J. A. Allen, cashier First National Bank, Canadian. W. M. Martin, assistant cashier Commercial Bank of Mason, Mason. C. G. Gustavus, cashier Texas City National Bank, Texas City. Utah: Daniel 0. Larson, cashier Bank of Moroni, Moroni. Thomas Nichols, vice president Jordan Valley Bank, Riverton. Vermont: Herman W. Allen, vice president Merchant's National Bank, Burlington. Henry R. Cutler, president Barton Savings Bank & Trust Co., Barton. Charles W. Whitcomb, cashier National Black River Bank, Proctorsville. A. E. Watson, president White River Savings Bank, Hartford. Virginia: D. A. Overbey, president National Bank of Danville, Danville. W. P. Pancoast, president Purcellville National Bank, Purcellville. Samuel H. Price, president Redford County Bank, Montvale. Ernest L. Robey, president National Bank of Hemdon, Herndon. William E. Waters, cashier Melfa Banking Co., Melfa. F. P. Pulley, president Bank of Sussex & Surry, Ivor. J. W. Perry, president Citizen's Bank, Norfolk. William T. Tyler, cashier Northern Neck State Bank, Warsaw. Col. F. P. McConnell, Manchester National Bank, Richmond. R. Fulton Powell, Cape Charles. Washington: Fred W. Anderson, cashier Lincoln County State Bank, Davenport. Charles A. Wallace, private banker, Republic. Robert R. White, president State Bank of Sumner, Sumner. S. A. Rossier, cashier Bank of Bickleton, Bickleton. A. King_sley Norton, cashier Bank of Kettle Falls, Kettle Falls. West Virginia: W. L. Burruss, cashier Ansted National Bank, Ansted. Andrew Edmiston, vice president National Exchange Bank, Weston. Fenton H. Miller, cashier Bank of Gauley, Gauley. Louis R. Sweetland, president Lincoln National Bank, Hamlin. Hugh F. Smith, cashier Monongahela Bank, Fairmont. George B. Waggoner, cashier The People's Bank, Jane Lew. R. L. Bailey, cashier Bank of Keystone, Keystone. Wisconsin: E. M. Grant, president Federal Savings & Trust Co., Morgantown. Radvin J. Bestull, cashier Bank of Scandinavia, Scandinavia. H. E. Bohri, cashier First State Bank, Fountain City. E. R. Herron, vice president First National Bank, Fond du Lac. Martin Bretl, vice president Bank of Algoma, Algoma. Harvey B. Crane, vice president State Bank of Owen. H. Schmidt, president State Bank of Marathon, Milwaukee. C. R. Carpenter, cashier Commercial & Savings Bank, Racine. Wyoming: ^ Otto Arnold, assistant cashier First National Bank, Evanston. INVESTIGATION OP INSUBANCE COMPANIES. 705 The general public is not fully informed as to how much money a successful fire insurance company makes, but on the next two pages of this folder you will find some figures concerning the earnings of 22 representative American companies, capi- talized at $1,000,000 or more. They are rather interesting figures. These companies have earned fortunes for their owners and are keeping it up year after year. It is a pretty good plan to have a hand in the business of fire insur- ance — from the stockholder's side. The Commercial Fire Insurance Co. affords you a limited and rare opportunity to do this. But it is also a passing opportunity — you will have to be spry. 41 T^fV Per Cent. This is the average net earnings from all sources for 1911 on the capital stock of 22 representative American fire insurance companies capitalized at $1,000,000 or more. Of this amount 22.27 per cent was paid in the form of cash dividends, and the balance of the net earnings went to increase the surplus of these companies. And this surplus also belongs to the stockholders. We don't want to bother you with figures, but just take a look at the page opposite. They were compiled from the report of the Spectator Co., of 135 William Street, New York City, which company is the recognized authority on insurance statistics in the United States. One year's net earnings in fire insurance realized by t2 representative American companie which have a capital of $1,000,000 or more. DIVIDENDS PAID AND SURPLUS ACCUMULATED IN 1911. Name of company. Capital stock. Net earn- ings in 1911. Per cent profit in 1911. $5,000,000 1,000,000 1,000,000 1,000,000 2,000,000 1,500,000 1,000,000 2,000,000 1,000,000 2,000,000 3,000,000 4, 000, 000 1, 000, 000 1,000,000 1,000,000 1,200,000 1,000,000 1,000,000 2,000,000 1,000,000 1,000,000 2,000,000 $1,410,178 572, 204 496,199 282,970 1,936,328 375,080 161,930 1, 453, 263 409,392 1,595,740 2,273,927 1,039,921 243, 609 184, 367 141,233 196, 174 624,071 238,098 115,260 649, 674 384,496 428,427 28.2 57.2 49.6 28.3 96.8 27.0 16.2 72.7 Germania 40.9 79.8 75.6 26.0 24.4 18.4 14.1 16.3 62.4 23.8 57.6 65.0 Security ./ 38.4 Springfield 21.4 Total 36,700,000 15,212,541 41.45 Divide the net earnings, $15,212,541, by the combined capital, $36,700,000, and you get 41.45 per cent average net earnings of these 22 companies, whose stockholders received average cash dividends of 22.27 per cent for the year 1911. The balance of these earnings went to increase the net surplus of these various companies, which surplus is owned by the stockholders. The sources of these aggregate profits include earnings from underwriting, and earnings from investments, interest, and appreciation. HOW FIRE INSURANCE COMPANIES GHOW. Stock in a successful fire insurance company increases in value rapidly. Twenty- two representative million-dollar American fire insurance companies, whose com- bined stock is $36,700,000, increased their assets $71,708,716 in four years— from 1907 toipu, ' ' ' 706 INVESTIGATION OF INSURANCE COMPANIES. Below is a statement showing the capital stock and the increase in assets for the past four years of each of these companies. The figures are taken from the reports of the insurance departments of the various States and can be verified by reference to any of the insurance publications. Name of company. Aetna American Boston Connecticut Fire Continental Fire-mans Fund Firemens German American German ia. Hartford Home Insurance Co. of North America. . Milwaukee -Mechanics National, Hartford.. National Ben Franklin New Hampshire Niagara Northwestern National Phoenix, Hartford Queen Insurance Co. of America. . Security Springfield TotaL 36,700,000 169,513,096 261,221,812 Capital stock. 000,000 000,000 000,000 000,000 000,000 jlIO, 001) 000,000 000,000 000,000 000,000 000,000 000,000 000,000 000,000 000,000 200,000 000,000 000,000 000,000 000,000 000,000 000,000 1907. $14,884,569 7,230,738 4,804,569 5,817,423 16,399,452 5,938,099 4,701,068 13,508,038 5,185,650 18,832,806 20,862,697 11,268,104 S, 773,583 7,453,965 2,360,627 4,500,404 4,326,789 4,533,883 7,965,453 6,884,560 2,075,660 7,204,959 122,017,390 9,344,435 6,467,539 7,521,311 25,.576,57« 1911. 6,375,62* 20,851,396 6,852,646, 25,449,839 32,146,565 16,953,774 4,519,725 11,837„,740 3,215,161 8,725,809. 6,736,192 6,193,795 11,404,034 9,558,099 3,916,120 10,407,848 Increase in 57,182,821 2,113,697 1,662,970 1,703,888 9,177,127 2.711,498 •17674,666 6,843,85; 1,666,996 iW 8,686,670 1,746,142 *s8s 1,225,405 2,409,403 1,659,912 3,439,181 2,673,539 1,840,460 71J08,716 In addition* to increasing their assets over $71,000,000 in the past four years, these same 22 million-dollar companies paid to their stockholders $26,859,298 in cash dividends and $1,250,000 in stock dividends, making a total of $28,109,298 dividends to stockholders in the years 1908, 1909, 1910, and 1911. The Commercial Fire Insurance Co. is now being made a million-dollar company, and as such it can reasonably expect to do as well for its stockholders as the average of the 22 million-dollar companies herein cited are doing. Now is the time to secure stock in the Commercial while it is $11 per share — instead of $20 or $30 — and share in the increased earnings and profits. Affords Larger Opportunities — Additional Capital of National Fibi Will Permit of Extension Along Profitable Lines. In last week's issue of the Eastern Underwirter we noted the decision of the stock- holders of the National Fire of Hartford to double the capital of the company, making the figure $2,000,000. Discussing the highly important move, Judge James Nichols, president of the National Fire, said: "The increase doubles the capital stock of the company. It will issue at a rate of $225 a share to stockholders of record on April 8, 1912, payments for the new issue to be made on the following basis: $25 a share on May 15, $100 a share on July 5, and $100 a share on Octoher 5, which will make full payment for the new issue. Full payment can be made on July 5, and all shares so paid will participate in the October dividend. On full payments on October 5, the shares will participate in the January dividend. The company will accept prepayments on the new issue, and will pay 6 per cent interest on all such payments until the payments are due." President Nichols said that the action was entirely voluntary on the part of the directors, and was taken to give the company the advantage of the rating such a capitalization would give it, and for business purposes that are obvious. The income from the assets of the company for the year ended January 1, 1912, amounted to over $400,000, or 40 per cent on the capital stock, which has been paying 20 per cent dividends. With the increase- in capital and surplus it is figured that the income from the assets will be more than enough to pay 20 per cent dividends on the $2,000,000 of capital, and it has been said that the purposes of the company w to continue to pay dividends at the rate of 20 per cent a year. This increase will give the company a net surplus over capital and other liabilities of over $3,750,000, not including $300,000 special reserve for all contingent liabilities. INVESTIGATION OF INSUBANCE COMPANIES. 707 The statement of the company for January 1, 1912, was as follows: Capital Btock, $1,()O8}0OO; reserve for reinsurance, ,$7,212,863.55; reserve for unpaid losses, $544,600.66; reserve for taxes and other liabilities, $150,000; special reserve for all contingent liabilities, $300,000; net surplus over capital and other liabilities, $2,630,276.06; total, $11,837,740.27, the stock of the company is held almost entirely in this State, and is always in good demands having sold relatively higher than any other fire insurance company's stock iii this city, the high price forecasting Monday's action by the directors. There have been practically no transactions in the stock recently, as little, if any, has been offered for sale. It is said that about $500 a share would have been paid Monday. This figures out in this way: One share costing $500 permits subscribing for a new share at $225, a total cost of $725 for the two shares, or $362.50 a share, at which price it would yield an income of over 5i per cent. The officers of the company are: President, Judge James Nichols; vice president, B. A. Smith; tfecretlary, '©eerge S. frybm; assistant secretary, Charles S. Langdon; treasurer, Fred B. Seymour; directors, Judge James Nichols, John R. Buck, Mmtmy C. Judd, Francis T. Maxwell, Charles H. Bftscoe, Ralph H. Ensign, Lucius A. Bar- bour, Fred S. James, Charles Cheney, H. A. Smith, George H. Burt, F. F. Small. — (From the Eastern Underwriter, Apr. 18, 1912.) Soger's Drug Store, Lebanon, Pa., July 6, 19 IS. COMMERCIAL FlKE INSURANCE Co., Wa hington, D. C. GBtfTMEMtor: Another dividend check at the 12 per cent rate received, glad to own stah stock, wish I could afford to -have much more of it. Inclosed find check for pay- ment on allotment, as per interim receipt inclosed. Yeurs Very truly, Charles E. Boger. Standard Lime & Stone Co., Fond du Lac, Wis., July 8, 1912. Mr. Robert R. Tuttle, Pre ident Commercial Fire Insurance Co., Wa hington, D. C. Dear SiR: I am in receipt of your check covering my share of the semiannual divfotend of 6 per cent declared July 1, 1912, which is at fee rate of 12 per cent per atBirrn.. I wish to thank you for the excellent Showing yon are making at the present time and predict that Within a year the Commercial will be earning from 20 to 30 per cent per amrurh. I shall be glad when you are ready to enter Wisconsin and write fire insurance in this State. Yours Very truly, W. A. Titus. The Jeffrey Manufacturing Co., Columbus, Ohio,, July 9, 191$. Mr. Robert R. Tuttle, Pre ident Commercial Fire Insurance Co., Wa'hington, D. C. Beak Sir: Your two letters of the 5th inst., inclosing one check of $6 each, total $12, in payment dividend No. 30 received, and for which accept thanks. The com- pany is evidently progressing finely. I will forward blank containing names later. Yours truly, J. A. Jeffrey. Paterson Reed & Harness Co., Paterson, N. J., July 29, 1912. Mr. Robert R. Tuttle, President Commercial Fire Insurance Co., Washington, D. C. Dear Sir: The. substantial progress of the Commercial under your management is very gratifying. I am pleased with the 12 per cent dividend paid me this year, and can rea6*ily see that this stock will be worth $25 a share within two years, if the company continues to increase its business at the rate it has in the past two years. I am inclosing my third subscription to a block of stock in the company with check Please forward stock certificate in accordance with the subscription, and oblige. Yours, truly, Albert S. Laber. 708 INVESTIGATION OF INSURANCE COMPANIES. Charles F. Koster, Real Estate and Insurance, Weehawken, N. J., July 27, 1912. Commercial Fire Insurance Co., Washington, D. C. Gentlemen: I am in receipt of your check for July semiannual dividend, which to a stockholder is gratifying. Having been a company man for 26 years, I know, that with good and conservative management of a company, there's money in it. You are pursuing these lines, and if kept up the result will be more gratifying to the stockholders as well as to the policyholders. Wishing success to the company and its management, I am, Yours, very truly, Chas. F. Kostee. (Mr Koster was for many years secretary of the Phoenix Fire Insurance Co. of Brooklyn, N. Y.) Mount Vernon on the Potomac, Fair/ax County, Va., July 9, 1912. Mr. Robert R. Tittle, President Commercial Fire Insurance Co., Washington, D. C. Dear Sib: Your favor of the 5th instant inclosing check covering my share of the thirtieth semiannual dividend, declared by your company July 1, 1912, has been received. Please accept my thanks for same. It is very gratifying to know that the business of the Commercial Fire Insurance Go. is being conducted along conservative, as well as aggressive lines. Under such methods we can look for nothing but success. Yours, very truly, Jas. Young. J. F. Chevalier & Co., Boston, Mass., July 8, 1912. Robert R. Tuttle, President Commercial Fire Insurance Co., Washington, D. C. Gentlemen : Your favor of July 5 with inclosure of thirtieth dividend on stock of Commercial Fire Insurance Co. duly received, and for which please accept my thanks. I note that you are making a very large expansion in your company's business toward the $2,000,000 mark, which I hope will soon be completely realized. I have given you a few names of people whom I think you might interest. Yours, very truly, J. F. Chevalier. G. F. Sanborn Co., Fond du Lac, Wis., July 8, 1912. Robert R. Tuttle, President Commercial Fire Insurance Co., Washington, D. C. Dear Sir: I am pleased to acknowledge receipt of your favor of the 5th instant inclosing dividend check for $18, as follows: Edwin R. Herren, $6; Anna Y. Her- ren, two, $12; Edith M. Herren, $6, for which please accept thanks. I am also inclosing a list of 10 property owners whom I can recommend as being desirable stockholders. Your Mr. Beard made a very thorough canvass of this city and undoubtedly has seen all of these parties, although a few follow-up letters may be of advantage. Yours, truly, E. R. Herren. (Mr. Herren is vice president First National Bank, of Fond du Lac, Wis.) William F. Johnson, Attorney at Law, Snow Hill, Md., July 9, 1912. Commercial Fire Insurance Co., Washington, D. C. Dear Sirs: I am in receipt of your favor of the 5th instant inclosing check for $22.50 in payment of semiannual dividend on my stock in your company. • This return upon my investment is very gratifying, and your method of placing stock, it seems to me, should promote the growth of the company. As for myself, INVESTIGATION OF INSURANCE COMPANIES. 709 1 should you place an agency here, I would take special pains to divert business to it. I am inclosing list of names, as requested. With best wishes for your continued success, I am, Yours, very truly, William F. Johnson. Firemen's Association, State of New York, July 6, 1910. Commercial Fire Insurance Co., Washington, D. C. Gentlemen: I beg to acknowledge the receipt of dividend check No. 30. It is gratifying to know that my investment is bringing such good results. I should imagine that the prospects are getting better, and that the return will be greater as- the field grows larger. Respectfully, Fred A. Davis. Navy Department, Bureau of Supplies and Accounts, Washington, D. C, July 8, 1912. Commercial Fire Insurance Co., Washington, D. C. Gentlemen: It gives me great pleasure to acknowledge receipt of your favor of the 5th instant, inclosing check for dividend on my stock for first half of year 1912. Inclosed you will find names and addresses of men who I am sure will be acceptable stockholders, all being men of prominence and wealth in their respective commu- nities. Thanking you for check, and wishing for the company yet greater success, I remain^ Yours, truly, Jos. R. Gibson, Washington, D. C. The National Capital Bank op Washington, Washington, D. C, August 29, 1912. Mr. G. G. Hynson, Core the Normandy, Thirty-sixth and Chestnut Streets, Philadelphia, Pa. My Dear Mr. Hynson: Replying to your inquiry of August 27 in regard to the Commercial Fire Insurance Co., you are informed that the management of this com- pany is in the hands of good people. For a number of years they have paid 6 per cent dividends on a capital of $100,000. Recently they decided to increase their capital to $1,000,000 and extend their business toinclude the whole of the United States instead of one city, as they had done here- tofore. Nearly $200,000 of additional capital has been taken, and we understand that they have been very successful in placing it throughout the country. Their record in the past has been excellent, but of course you will understand that the future of the company is something no one can predict, and we would not care under the circumstances to advise you either to purchase or refrain from purchasing. There is nothing to be said against those who are actively in control of the business, and we believe that they will use' every honorable means in their power to make the investment a profitable one. Yours, very truly, H. H. McKee, Cashier. D. R. Swift, Real Estate, Lake Charles, La., July. 11, 1912. Commercial Fire Insurance Co., Washington, D. C. Gentlemen: Your favor of the 5th instant received with dividend check No. 838 for $2.40 inclosed in payment of semiannual dividend of 6 per cent, for which please accept thanks. I note with considerable pleasure your remarks concerning the progress of the com- pany. It seems very flattering indeed, and the officers and directors are to be con- gratulated upon their success up to this time. We hope ere long you will see fit to add Louisiana to the list of States in which you Me doing business. While I am not an insurance man, I understand that Louisiana is a very profitable State in which to write fire insurance. With best wishes for your continued success, I am, yours, very truly, D. R. Swift. 710 INVESTIGATION OF INSURANCE COMPANIES. The Hbmingsen Co., Grant, Mich., July ts, Wit. Hon. Robert R. Tuttle, President Commercial Fire Insurance Co., Washington, D. C. Dear Sir: Your valued letter of July 5 received, with check 111.25, dividend No. 30, and thank you very much for same. The progress of the Commercial Fire Insurance Co. is better than I expected. We all know it. takes time to build up large cooperative company. I have np. douht tfaitf this company in two or three years will give its stockholders a much larger dividend. ©tb/ir large companies pay dividends as high as 30 to 40per cent, and I see no reason why the Commercial in time should pot do as well. The property owners ouatat to avail themselves of the opportunity of becoming stockholders in a company with such, a good prospect for success. Yours, very truly, Jens Hjeminsskn. Illinois State Board of Agriculture, Metropolis, July 10, 1911. Dear Sir: Your letter inclosing the check for the dividend reoeived. ffl$ #re glad to acknowledge receipt of the same and tp express our appreciation of the progress of the company. Sincerely, Jfes. iEl*.A "M. MARS? al Bowdoin S. Parker, Counselor at Law, MQjst&ttj Mass., Iyijj.8, fflt. Robert R. Tuttle, Esq., President Commercial Fire Insurance Co. My Dear Sir: I am in due receipt of check for $30 for dividend on 100 shares of stock as stated. I inclose you a few names of good men, as requested. I -do not see why the company ahould not become large and prosperous. I shall be happy to aid to that result at all times. Very truly, yours, BownpiN.S. Pab&eb. The Union Trust and Sayings Bank, Flint, Mich,., Julys, 191%. Commercial Fire Insurance Co,, Washington, D. C. Gentlemen: It is with|great pleasure that I acknowledge receipt of my .Julyidivi- dend. It gives me great sat'sfaction to know that you are so prompt, and as astpok- holder to hear the words.of praise spoken in favor of your. company. I ho.pe dt«will always be that. Yours, respectfully, M. Davison, GaMef- i Walter R. Hudson, Counsellor at I*a,w, Paterson, JT. /., Jujy:$,191i. ■Commercial Fire Insurance Co., Washington,..!) . Q Dear Sirs: Received dividend on.stock to-day and I am forwarding you the names of five persons, who, doubtless, would be interested in your proppsition, and in visit- ing -them you may refer te me. Yeurs, truly, W. R. Hudson. Ocean National Bank, Kennebunk, Me., July 8, 191t. Commercial Insurance Co., Washington, D. C. , Gentlemen: I beg te ackncwledge with thanks receipt of dividend check,:$10<50. I note with pleasure the extension of the business and, hope-to learn, sooniOf. entry T. S. Hodson, Jr., Esq., 828 Broad Street, Newark, N. J. Dear Sir: In reply to your favor of the 6th instant, we advise that the par value of this company's stock is $100 per share, the capital is $1,000,000, and surplus at January 1 last about $4,700,000. There has never been a public sale of this stock, and we do not know where any stock could be bought. Yours, very truly, N. S. Bartow, Secretary. T. S. H. On January 1, 1912, the book value of "Queen" stock was $437.80 per share. E. P. F. T. S..H. That last sale was just book value. January 1, 1912, their shares were worth $540.12 each. E. P. F. T. S. H0D80N, Jr., Broker, Newark, N. J., May 2, 1912. German-American Insurance Co., New York City. Dear Sirs: Will you kindly advise me the par value, book value, and the price of the last sale of which you have knowledge of any of the stock of your company, and also state the name and address of any person who has any of this stock for sale, and greatly ablige. Yours, very truly, T. S. Hodson, Jr. New York, May S, 1912. T. S. Hodson, Jr., Esq., 828 Broad Street, Newark, N. J. Dear Sir: The par value of the stock is $100 per share. You can figure the book value from our last annual published statement, a copy of which is inclosed herewith. The last sale that we know of was at $540 per share. PosBibly if you communicate with Mr. J. Fitzhugh Jones, of 35 Wall Street, this city, he can obtain some stock for you. Very truly, yours, E. M. Cragau, Assistant Secretary. T. S. H. They would be glad to get it at $500. The book value is $754.76 on each $100 share. E. P. F. T. S. Hodson, jr., Broker, Newark, N. J., May 2, 1912. Globe & Rutgers Fire Insurance Co., New York City. Dear Sirs: Will you kindly advise me the par value, book value, and the price of the last sale of which you have knowledge of any of the stock of your company and also state the name and address of any person who has any of this stock for sale, and greatly oblige. Yours, very truly, T. S. Hodson, jr. Par value, $100. Last sale, $500. Would like to know also any person having any f0rsale ' G.&B. INVESTIGATION OP INSTJEANOE COMPANIES. 717 The Pennsylvania Fiee Insurance Co., Philadelphia, May 7, 1912. Mr. T. S. Hodson, jr., 828 Broad Street, Newark, N. J. In re stock of the Pennsylvania Fire Insurance Co. Dear Sir: Replying to your favor of the 6th instant, relative to the stock of this corporation, beg to advise as follows: Par value, $100; book value, $398.66; last sale, $400.25. We do not have in our possession the name of any person wishing to dispose of this stock, and would refer you to Messrs. Barns & Loflin, auctioneers, 147 South Fourth Street, this city, where most of the said stock is sold. Yours, very truly, W. Gardner Crowell, Secretary. Fire Association op Philadelphia, Philadelphia, May 8, 1912. Mr. T. S. Hodson, Jr., 828 Broad Street, Newark, N. J. Dear Sm: In reply to your inquiry of 2d instant, beg to advise you that the par value of stock of this association is $50. The last sold at $360.25. We know of no person who has any stock for sale, but sales are usually made at public auction, through Barnes & Lofland, of this city. Very truly, yours, M. G. Garrioues, Secretary. T. S. H. That last sale of "Fire Association" stock was at a larger figure than their book value. Their statement of January 1, 1912, shows a book value of $217 per share. E. P. F. Niagara Fire Insurance Co., New York, May 7, 1912. Mr. T. S. Hodson, Jr., 828 Broad Street, Newark, N. J. Dear Snt: Replying to your favor of the 6th instant, would say that the book value of our stock on January 1 last was 347£. The last sale of which we have knowledge was at 325, which, at $50 per share par value, would mean $162.50 per share. I think I know where you might be able to obtain 100 shares of this stock at the price named. Last year our dividends were 20 per cent and 5 per cent extra, or 25 per cent for the year. If you can use the stock at the price named, I shall be glad to open up further negotiations with you. Yours, very truly, Geo. C. Howe. T. S. H. Book value of "German Alliance" was $300 per share January 1, 1912. E. P. F. T. S. Hodson, Jr., Broker, Newark, N. J., May 2, 1912. German Alliance Insurance Co., New York City. Dear Sirs: Will you kindly advise me the par value, book value, and the price of the last sale of which you have knowledge of any of the stock of your company, and also state the name and address of any person who has any of this stock for sale, and greatly oblige Yours, very truly, T. S. Hodson, Jr. New York, May 3, 1912. Mr. T. S. Hodson, 828 Broad Street, New York. Dear Sir: The par value of the stock is $100 per share. You can find the book value from the inclosed copy of our last published annual statement as of Januay 1, 1912. We do not keep a record of the sale prices of German Alliance stock; they are *> infrequent that we are unable to recall the last sale price. We know of no one who to any of the stock for sale. Very truly, yours, E. M. Cragen, Assistant Secretary. 718 INVESTIGATION OF INSTJKANCE COMPANIES. German Fire Insurance Co., New York, May 7, 1912. Mr. T. S. Hodson, Jr., 828 Broad Street, Newark, N. J. ._ Dear Sir: We beg to acknowledge receipt of your favor of the 2d instant, making inquiry regarding the value of this company's stock. In reply would say that the book value is 328 per cent, and the last sale was at 315 thenar value being $50 per share. We do not know of anyone desiring to dispose of any shares at the present time; should, however, we hear of any to be had, we will be pleased to communicate with you! Yours, truly, Gtjstav Kehr, Secretary. Hanover Fire Insurance Co., New York, May 6, 1912. Mr. T. S. Hodson, Jr., ' 828 Broad Street, Newark, N. J. Dear Sir: Your letter of 2d instant is received, and we reply that the par value of this company's stock is $50; book value, about 218 per cent. The last sale known to us was at 210 per cent. I do not know of anyone at the moment who has any of the stock for sale. Yours, very truly, R. Emory Warfield, President. Washington Chamber of Commerce, October 6, 1911. Mr. J. W. Jackman, Topsfield, Mass. My Dear Sir: In answering your recent inquiry concerning the Commercial Fire Insurance Co., it gives me pleasure to state that the Commercial is a long-established company and regarded as one of the best fire companies in the District of Columbia. The board of directors is made up of strong business men of honorable record and the management is alert and progressive. The company's business is being rapidly expanded, and I am reliably informed that its plans for the increase of its capital to a million dollars are being successfully carried forward. Very truly, yours, Thos. Grant, Secretary. Fisher Bros., Plumbing and Tinning, Harrisburg, Pa., July 10, 191%. Commercial Fire Insurance Co., Washington, D. C. Gentlemen: I am in receipt of your check representing the thirtieth semiannual dividend due on stock July 1. I wish to offer my thanks for same, and at the same time express my hearty appre- ciation of the manner in which the affairs of the company are handled. As I nave but a short acquaintance with the company, yet I do not hesitate to say that all the transactions have been along good business lines. Inclosed you will find a list of names which would make desirable stockholders. Yours, very truly, C W. Fisher. Barney & Lee, Attorneys and Counsellors at Law, Providence, R. I., June 11, 1912. Warren S. Fisher, Esq., Providence, R. I. Dear Sir: You are authorized to state to anyone whom you approach concerning the Commercial Fire Insurance Co. that I have subscribed for stock in that company and accepted the position as an advisory director in it, after a careful investigation of the company's standing and financial affairs. Very truly, yours, Walter H. Barney. INVESTIGATION OF INSURANCE COMPANIES. 719 Geo. M. Peck Co., Dry Goods, Carpets, and Upholstery, Elgin, III, February 10, 1912. Robert R. Ttjttle, Via President Commercial Fire Insurance Co., Washington, D. C. Dear Sm: Your report showing the extraordinary gain you have made in the Com- mercial makes me feel that the stock of said company, now paying good dividends, must be very valuable in time. I congratulate you, as an officer, on the splendid results shown, and inclose my sub- scription for 145 additional shares ($1,450); also my check. I already hold 145 shares besides these. Respectfully, yours, George M. Peck. Elgin Butter Tub Co. (Inc.), Elgin, 111., May 2, 1912. Mr. Thomas McBride, Elgin, 111. Dear Sir: This will introduce to you Mr. James D. Shaffer, representing the Com- mercial Fire Insurance Co., of Washington, D. C W« have subscribed for some of the stock. Mr. Shaffer courts the closest investi- gation and scrutiny into the affairs of his company, and we believe him conscientious in what he represents. At any rate, he is not afraid to come back and stand his grounds wherever he has sold stock. Henry has met him and thought favorable of his proposition. Please let this introduction apply to Mr. Mosedale. Yours, truly, Edward Schmidt. Cairo, III., July 11,1912. Mr. Robt. R. Tuttle, President Commercial Fire Insurance Co., Washington, D. C. Dear Sir: Your two letters of the 5th (to E. A. Smith and Egbert A. Smith), inclosing checks on District National Bank, No. 7689 and 7692, for $6 and $12, being dividend No. 30, Commercial Fire Insurance Co. I am pleased to note the substantial progress being made by your company and that it is now on a 12 per cent dividend basis. When your company is represented in Cairo I see no reason why it should not receive a portion of the business here. I am returning blank, properly filled in with the names of 10 property owners, as requested. Yours, truly, E. A. Smith, President Cairo National Bank. Walker Manufacturing & Supply Co., Detroit, Mich., May 29, 1912. Commercial Fire Insurance Co., Washington, D. C. Gentlemen: I beg to acknowledge receipt of yours of the 27th. It may please you to learn that I have given Mr. Anger a subscription for 100 shares of stock and an op- tion on 200 more. I shall also be pleased to give your company some of our insurance on policies ex- piring shortly. Shall I send these direct to you or will you handle them through your agent here? Thanking you for your communication and hoping to be connected with your com- pany for a long time, I beg to remain, with very kindest regards, Yours, very truly, John Walker. Mr. Caeusi. There are two things that I would like to have put in the record, without reading, and I would like to have them come in just after my cross-examination of Mr. Best. It is tabulated information. If I may be permitted to do so, I would simply ask Mr. Best whether these companies mentioned here 720 INVESTIGATION OF INSURANCE COMPANIES. are not insurance companies in good standing, taking the list as a whole [handing to the witness a statement] ? Mr. Best. Yes; these are all reputable companies. They are of all grades of financial responsibility and success in their operations. Mr. Oakusi. I will ask you to look at this smaller list [handing to the witness a statement]. Mr. Best. The same comments would apply to this list. Mr. Cakusi. Mr. Chairman, will you direct the stenographers to insert the two lists which the witness has just been interrogated upon, at the end of my cross-examination of him, as they pertain to matters that were gone over in the cross-examination. Mr. Johnson. Very well, that will be done. Mr. Redfield. Mr. Douglas, can you furnish to the committee the prospectus of the Southern Building Corporation ? Mr. Douglas. I will try. I have not seen one in years. I think perhaps I can get one, and I will do so if it is possible. Mr. Redfield. I ask you to do it if you can. I offer for the record the statement of the trustees of the Commer- cial Fire Insurance Co. and the stockholders of that company, dated Washington, February 10, 1911, giving the details of the offer of Robert R. Tuttle for the sale of the company's stock to him. Commercial Fire Insurance Co., 525 Eleventh Street NW., Washington, D. C, February 10, 1911. To tlie stockholders of the Commercial Fire Insurance Co. of the District of Columbia: The undersigned, board of trustees of this company, have received from Robert R. Tuttle, of Syracuse, N. Y , an offer to purchase all, or at least a sufficient number, of the shares of this company, as will give him a majority holding, for the sum of $7.75 per share, payable in cash, and have entered into an arrangement with him contem- plating the consummation of such purchase. This arrangement was entered into after serious deliberation by your trustees, taking into consideration the present status of the fire insurance business, the low rates at which insurance is now written, the risk of the business, and the prospects of the com- pany for future business and profits. The price offered is, in the judgment of your trus- tees, far in excess of the present book value of the stock of the company, especially in the light of the fact that such book value is at the risk of the business and may be materially reduced by losses within the next few years. The arrangement provides that Mr. Tuttle shall ; on or before February 11, 1911, deposit at the District National Bank, to the credit of Robert N. Harper and W. S. • Hoge, trustees, the sum of $20,000 as a guaranty of the consummation of his offer; that all stockholders who may elect to accept the offer shall deposit their certificates of shares, duly indorsed, at said bank with the trustees on or before February 20, 1911, and if by that date no less than a majority of the shares of the company have been so deposited, Mr. Tuttle shall, no later than March 2, 1911, deposit with Messrs. Harper and Hoge, trustees, such additional sum as will, with the deposit of $20,000, be suffi- cient to take up the shares so deposited, at the rate of $7.75 per share. Thereupon the said trustees shall deliver to Mr. Tuttle the certificates of shares deposited, and distribute among the depositing shareholders the purchase money at the rate of $7.75 per share, less the sum of 3 cents per share to be paid for counsel fees and services in the matter of the sale, insuring to the shareholders $7.72 per share net for their stock. It is further provided that in the event Mr. Tuttle fails to make the additional deposit as required, that the contract shall be terminated, and the trustees are required and directed to return to the depositing shareholders their several certificates of shares with the sum of $1 per share for every share deposited by them as aforesaid, less the sum of 3 cents per share to be paid for counsel fees and services; this sum to be paid out of the $20,000 deposited as a guaranty of good faith, in which event the stockholders would receive back their certificates of shares and in addition 97 cents in cash for each share. Your trustees recommend that you avail yourself of this proposition and d <*P 081t your shares with Messrs. Harper and Hoge at the District National Bank on or before INVESTIGATION OF INSUBANCE COMPANIES. 721 February 20, 1911, receiving therefor from them a, proper receipt. No shares deposited after the date aforesaid wiH be protected by the agreement. JSFrom a canvass of the large shareholders it is certain that at least a majorjjty of the stock will be so deposited. Should you desire any further information it will be furnished by Messrs. Harper, Hoge, or Leon Tobriner, attorney for the company. Very respectfully, W. E. Abbott, Charles Jacobsen, Lotjis Behrens, J. Miller Kenton, Francis A.Bmtndon, Edward Matthews, William K. Ellis, Maurice Otterbaok, Robt. N. Harber, Leon Tobriner, W. S. Hoge, Jos. A. Berberich, Job Barnard, Frank T. Rawlings, Jas. M. Hoge, Trustees. Mr. Easby-Smith. As I understand it, in conducting your insur- ance news, your purpose is to give your subscribers and readers the best obtainable information concerning insurance companies ? Mr. Best. Yes, sir. Mr. Easby-Smith. In conducting that paper do you conduct it as a theorist or as a practical man of affairs ? Mr. Best. I give all the facts that I can and my own conclusions from them. Mr. Easby-Smith. Do you base those conclusions on what is or what might have been ? Mr. Best. I do not believe I follow your question, sir. Mr. Easby-Smith. You do not understand it ? Mr. Best. Mo. Mr. Easby-Smith. I believe you said you were familiar with New York laws concerning life insurance companies and fire insurance companies ? Mr. Best. Fairly so. I have an attorney who advises me on all those points. Mr. Easby-Smith. When did the present law go into effect ? Mr. Best. It has been modified for some time. Mr. Easby-Smith. You stated yesterday the law regarding life insurance companies in the State of New York is that they may invest in such an amount of real estate as is necessary for home office purposes, or a reasonable amount for their home office use. When did that become effective ? Mr. Best. I think that has been the law for a number of years. Mr. Easby-Smith. When did the Equitable Building in New York burn ? Mr. Best. Early in 1912. Mr. Easby-Smith. Who owned it at the time it burned ? Mr. Best. The Equitable Life Assurance Society. Mr. Easby-Smith. The whole building ? Mr. Best. Yes. Mr. Easby-Smith. How much of it did they occupy for office purposes ? y Mr. Best. That I could not tell. Mr. Easby-Smith. Do you know what they have done with it since ? Mr. Best. With the building? Mr. Easby-Smith. Yes; with the ground; the property; the real 722 INVESTIGATION OF INSURANCE COMPANIES. Mr. Best. They sold it recently. Mr. Easby-Smith. To whom did they sell it ? Mr. Best. By newspaper reports, to a syndicate. Mr. Easby-Smith. A holding corporation ? Mr. Best. Yes. Mr. Easby-Smith. Holding for whom ? Mr. Best. Individual investors. Mr. Easby-Smith. Who advanced the money to this holding cor- poration to buy it ? Mr. Best. That I could not tell. Mr. Easby-Smith. Who made any loans on the property, if you know? Mr. Best. I understand the Equitable is to make a large loan. Mr. Easby-Smith. Did you ever hear of the New York insurance department criticising the Equitable for continuing to own that property after the passage of the law you quoted ? Mr. Best. No. Mr. Easby-Smith. Did you ever hear of the managers of the New York insurance department making any investigation concerning the conduct of the Equitable Life Assurance Society in beating the devil around the bush by lending money to a holding corporation to pur- chase its own property ? Mr. Best. I never heard it suggested until now. Mr. Easby-Smith. I thought you just said you had read that in the newspapers ? Mr. Best. What, that the Equitable had beaten the devil around the bush ? Mr. Easby-Smith. We will put it in other language. I believe you stated that you had heard this property was transferred to a holding corporation and that the Equitable had loaned it money? Mr. Best. Yes. Mr. Easby-Smith. You have heard that ? Mr. Best. Yes. Mr. Easby-Smith. Did you ever comment on that in your News ? Mr. Best. No. \ Mr. Easby-Smith. Why ? Mr. Best. I did not consider it material. Mr. Easby-Smith. Did you ever hear of the New York insurance department questioning that ? , Mr. Best. No; I did not. Mr. Easby-Smith. You do not think it is a matter that ought to be looked into ? Mr. Best. I can see no reason why it should. Mr. Redfield. Mr. Easby-Smith, as one of the directors of the Equitable, I should be very glad to answer those questions in full, if they were addressed to me. Mr. Easby-Smith. If the committee please, I am trying to test the accuracy, the correctness, and the value of the testimony of this witness. What do you mean by insolvency, Mr. Best ? Mr. Best. When liabilities exceed assets. Mr. Easby-Smith. That is the only idea you have in your mind as to what is meant by insolvency ? INVESTIGATION OF INSURANCE COMPANIES. 723 Mr. Best. You are speaking of an insurance company, I assume. Mr. Easby-Smith. Of an insurance company. Mr. Best. It means that its capital is impaired. Mr. Beegee. A little louder, if you please. I am very much inter- ested in what you say. Mr. Best. Yes. I understand an insurance company is insolvent when its liabilities exceed its assets. Mr. Easby-Smith. Are you familiar with the laws of the District of Columbia with relation to insurance ? Mr. Best. No. Mr. Easby-Smith. Do you know anything about them ? Mr. Best. No. Mr. Easby-Smith. You attempted, I believe, yesterday to answer a question put to yon, a hypothetical question, on your direct exami- nation, put by Mr. Kedfield, as to what facts would be necessary to put one of these companies into the hands of a receiver. Do you pretend to answer that question now ? Mr. Best. I did not at that time. Mr. Easby-Smith. You did not pretend to answer it at that time ? Mr. Best. No, because of my unfamiliarity with the laws of the District. Mr. Easby-Smith. I will ask you again, Mr. Best, if you were going to report upon the present condition of the Commercial Fire Insurance Co., would you report upon what is or what might have been under certain hypothetical contingencies ? Mr. Best. I would probably report the actual condition of the company, and comment upon any phases of the showing that seemed to me to require it. Mr. Easby-Smith. You still do not answer the question. Mr. Best. It would seem -to me that is what you may have in mind, when you say what might have been. Mr. Easby-Smith. You answered quite frankly and freely, without hesitation, yesterday many questions put to you as to what would be the condition of the company if so and so had happened, or if so and so had not happened. Mr.. Best. Yes. Mr. Easby-Smith. You did answer them frankly and freely 1 Mr. Best. I endeavored to. Mr. Easby-Smith. I will ask you again, in the reporting upon the condition of such a company, would you base your report on what you found to be the actual facts or what might have been if certain facts did not exist. Mr. Best. It is an exceedingly difficult question to answer. I should say that I would base any reports on any company upon the actual conditions as I found them. Mr. Easby-Smith. Do you know anything about the value of the Southern Building in this city ? Mr. Best. No; except what I have'heard here. Mr. Easby-Smith. Have you any opinion as to whether the Com- mercial Fire Insurance Co. is solvent or insolvent? Mr. Best. Yes. My opinion is it is solvent. Mr. Easby-Smith. You stated that in your opinion the real estate assets held by this company is bad because it is not liquid ; it is too 724 INVESTIGATION OF INSURANCE COMPANIES. large a real estate property to hold in proportion to the capital and assets of the company? Mr. Best. Yes. Mr. Easby-Smith. You gave as a reason that a conflagration such as the San Francisco or Baltimore conflagration might wipe it out? Mr. Best. I was speaking of companies in general. Mr. Easbt-Smith. Yes. But you made the reference to this company, however, did you not, and used your general reference as an illustration of your statement with regard to this real estate asset ? Mr. Best. Yes; that is true. Mr. Easby-Smith. Do you know how many companies in this city were wiped out of existence by the Baltimore fire ? Mr. Best. One, I think. Mr. Easby-Smith. What was its condition ae to solvency before it was wiped out ? Mr. Best. My best recollection is that it had a capital of $200,000 and a surplus of somewhere near the same amount. Mr. Easby-Smith. What was the name of the company ? Mr. Best. I think it was the old Potomac. Mr. Easby-Smith. How much of its assets were invested in real estate ? Mr. Best. I can not recall at this date. Mr. Easby-Smith. Do you think the amount of real estate in which its assets were invested had anything to do with whether or not it was wiped out ? Mr. Best. I have no opinion. Mr. Easby-Smith. You have no opinion? Mr. Best. Not recalling the figures. Mr. Easby-Smith. Suppose that 50 per cent of its capital — in other words, its entire surplus — had been invested in real estate, would that have had any effect in putting it out of existence, by reason of the Baltimore fire ? Mr. Best. My recollection, going back eight years, is that the loss of the company was large enough to put it out of business, no matter what sort of assets it had. Mr. Easby-Smith. I believe you stated in your examination that you think a fire insurance company selling stock ought to call atten- tion to the danger of its asssets being wiped out by a conflagration. Did I correctly understand you ? Mr. Best. Yes ; that is correct. Mr. Easby-Smith. Do you think the organizers and promoters of a national bank ought to call the attention of prospective stock buyers to the fact that a run on the bank might put it out of business ? Mr. Best. I can not see any parallel. Mr. Easby-Smith. You can not see any parallel at all theoretically between a run on a bank and a conflagration as affecting a fire insur- ance company? Mr. Best. No; because the "one must be brought on by misman- agement, and the other is an act of God. Mr. Easby-Smith. Did you never hear, in your business experience, of a run on a banking institution which was caused other than by the mismanagement of the directors and managing officers ? Mr. Best. I do not at the moment recall any such. INVESTIGATION OF INSURANCE COMPANIES. 725 Mr. Easby-Smith. You have not had much business experience then in financial affairs. Mr. Best. I have never been a director of a bank. Mr. Easby-Smith. Did you ever read or hear about banks and financial institutions ? Mr. Best. Oh, I have heard there are such institutions in existence. Mr. Easby-Smith. You are appearing here jrankly as an expert witness in insurance matters and called by Mr. Redfield for this committee. Mr. Best. Yes. Mr. Easby-Smith. What do you understand by expert testimony ? Mr. Best. Testimony based upon accurate knowledge of the sub- jects inquired into. Mr. Easby-Smith. Is there no other element there ? Mr. Best. I should think that would be about all. Mr. Easby-Smith. How about the correctness of the process of reasoning which precedes the formation of the opinion ? Mr. Best. I do not see that that has any bearing on whether a man is an expert or not; I do not know. Mr. Easby-Smith. Suppose I asked you whether or not you con- sidered it as a pretty correct and full definition of expert testimony, and a fair one, that expert testimony is the process of opinion based upon either real or hypothetical facts arrived at after a correct pro- cess of reasoning ? Mr. Best. That would seem to me to be a very fair definition. Mr. Easby-Smith. Then if any of the facts stated as facts are not accurate, that would entirely destroy the value of the opinion? Mr. Best. It might impair or destroy it. Mr. Easby-Smith. Which would it ? Mr. Best. It depends on the degree of inaccuracy. Mr. Easby-Smith. So that it would be a question of degree ? Mr. Best. I should think so. Mr. Easby-Smith. As to whether the testimony was worth any- thing ? Mr. Best. I should think so. Mr. Easby-Smith. Suppose any facts which ought to be considered were omitted; granting mat the facts so far as they went were accu- rate, but there were certain other facts which were omitted, would not that also affect the value of the opinion and of the testimony ? Mr. Best. Yes. Mr. Easby-Smith. You do not pretend to have an accurate knowl- edge of all the facts concerning which you have expressed opinions before this committee, do you 1 Mr. Best. I have been careful to express no opinions unless I felt I had sufficient knowledge to fully justify them. At this point a question propounded to Mr. Best by Mr. Easby- Smith was objectea to by Messrs. Prouty and Redfield, of the com- mittee, and after brief discussion with regard thereto tine said ques- tion was ordered by the committee to be physically stricken fpom the record. Mr. Redfield. I have no further questions to ask him. Mr. Johnson. Gentlemen, you are all through with Mr. Best, are yoti ? 726 INVESTIGATION" OF INSURANCE COMPANIES. Mr. Douglas. Yes. Mr. Johnson. Mr. Best, you may be excused. Mr. Best. Thank you. Mr. Redfield. Mr. Walter C. English. STATEMENT OF WAITER C. ENGLISH. The witness was duly sworn by the chairman of the subcommittee. Mr. Redfield. Mr. English, what is your business ? Mr. English. I am a lawyer. Mr. Redfeeld. And your office is in the city of Washington ? Mr. English. It is. Mr. Redfield. Did you, during the month of March or April last, call at the office of the Commercial Fire Insurance Co. and there see Mr. Carusi ? Mr. English. Some time last spring, I can not give the exact month, I called at the office of the First National. It was not then the First National. It was not yet named, and by one of the gentle- men there I was referred to Mr. Carusi regarding some information that I had been requested to obtain Mr. Redfield (interposing) . Will you state as fully as you can, in detail, what occurred ? Mr. English. I called to see Mr. Carusi and he gave me certain of the information and then we talked on other subjects regarding the Commercial and its last statement and I called his attention to and asked him to explain to me what did not appear — something I could not understand in the statement. I had heard that they were advertising that they had made a little money, or that they had made money during the year 1911, and I did not exactly see how they had. I pointed out the fact that on January 1, 1911, 1 think it was, the Commercial had a surplus of appoximately $35,000; that during that year they had taken in as premiums on their stock about $90,000, of which approximately $30,000 had been paid out in com- missions, and $60,000 passed to surplus ; that their present surplus — that is, as of December 31, 1911 — was, in round numbers, $72,000. I asked him that considering that they had taken in that $60,000 during the year, that their surplus would consequently have been, in round numbers, about $12,000, which deducted from the $35,000, of the previous year's surplus, would appear to me to be a loss of about $23,000, in place of a gain. I am giving all these figures absolutely from memory. I did not expect to be called here, and I am a little at — I can not give the figures exactly — I have not refreshed my recollection at all in regard to this. Mr. Redfield. Yes, according to the best of your recollection, you called Mr. Carusi's attention to the fact that so far as you could see from the figures given by the company, that instead of earning money, they had lost money in that year — the calendar year of 1911 ? Mr. English. It so appeared to me. Mr. Redfield. To the extent of about $23,000 ? Mr. English. In round numbers that is my present recollection. Mr. Redfield. Did you ask Mr. Carusi to explain that fact to you ? Mr. English. I asked him to explain it, and he did not seem to understand it, and said he would take it up with one of the officials of the company and perhaps would let me know later on. INVESTIGATION OF INSTJBANCE COMPANIES. 727 Mr. Redfield. Did you ever hear ? Mr. English. No, I never heard from him further. Mr. Redfield. That is all. Mr. Douglas. We have no questions of the witness. Mr. Johnson. Then the committee stands adjourned until Monday morning at 10 o'clcock. Whereupon, at 4.10 p. m. on the 4th of January, 1913, the com- mittee adjourned until Monday, January 6, 1913, at 10 o'clock a. m. INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 8 JANUARY 6, 1913 ^ ^r WASHINGTON GOVERNMENT PRINTING OFFICE 1913 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, Washington, D. C, January 6, 1913. The subcommittee met at 10 o'clock a. m., pursuant to the ad- journment, Hon. Ben Johnson (chairman) presiding. Present, in addition to the members of the committee, Francis H. Stephens, assistant corporation counsel of the District of Columbia ; Cfeorge H. Ingham, Esq., superintendent of insurance of the Dis- trict of Columbia, and his counsel Mr. J. S. Easby-Smith. Also, Messrs. Charles A. Douglas and Charles F. Carusi, representing the Commercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. Mr. Johnson. Mr. Lyon, will you be sworn, please. STATEMENT OF MR. GIDEON A. LYON, JR. The witness was duly sworn by the chairman of the subcommittee. Mr. Johnson. Mr. Lyon, please state your name, address, and occupation ? Mr. Lyon. Gideon A. Lyon, jr. ; house address, 1727 Third Street, NE., Washington, and I am the associate editor of the Evening Star. Mr. Johnson. Mr. Lyon, there has been some testimony before the committee relative to the expression of certain publications. The committee would be glad to have you cite in your own way what took place between you and Mr. Carusi on the lith of December last, relative to a publication which was contemplated being made in the Star. Mr. Lton. It will be necessary to go back Mr. Johnson. Just tell the story in your own way. Mr. Lton. My first knowledge that there was anything about to happen regarding the insurance companies involved in this investi- gation came casually at luncheon one day from one whom I can not now recollect. It was in the course of general conversation. It was on that same day that, going back to the desk of the city editor, out of precaution, to make sure that we had the news, I stopped and asked if there was anything being done relative to that matter. He said that a statement was being prepared, and was on its way then to the office, or soon was coming Mr. Johnson. To the Star office? Mr. Lton. To the Star office, which covered the matter. I can not recollect whether he then knew what action had been taken by the 729 730 INVESTIGATION OF INSURANCE COMPANIES. commissioners. I do not remember exactly what hour of the day it was that the statement came. Generally Mr. Johnson. To what statement do you refer? Mr. Lyon. The statement of the commissioners which accom- panied the story of the action of the commissioners. Mr. Johnson. That was a typewritten statement? Mr.- Lyon. Yes. Before it reached the office, however, a tele- phone message, as I recollect it, came from our Mr. Martin, our re- porter at the District Building, saying that, in his judgment, the statement was of a dangerous character — dangerous from the point of view of the law of libel. Mr. Douglas. Who was it said that? Mr. Lyon. I think it was our reporter, Mr. Martin, giving his own personal opinion. Every reporter is supposed to keep his eye open for such quality in the news he handles, and if it occurs to him that a matter is of libelous character, it is his first duty to mark it in the copy, or to telephone, or otherwise put the office on warn- ing; so that before the statement reached there there was an opinion — a judgment had reached the office to the effect that the matter was possibly of a libelous nature. Later — quite late in the day — just within an hour before going to press, I think it must have been about 2 o'clock, the statement reached the office in typewritten form. It was immediately submitted to me, and by me to Mr. Noyes, the editor in chief of the paper, but there was no time to examine it fully. Meanwhile, the office had communicated — this is my understand- ing; not my personal knowledge — the office had communicated with the representatives of the two companies involved in the commis- sioners' action Mr. Johnson. The two insurance companies? Mr. Lyon. The two insurance companies, in order that they might be given the opportunity to make a statement accompanying the commissioners' statement, that being the practice of the Star in all cases where the integrity of individuals or corporations is involved. I understand that Mr. Dudley, of the insurance company, came to the Star office and waited for the appearance of the statement. Later, I understand he communicated with Mr. Carusi, and at about the time the statement arrived, Mr. Carusi arrived at the office, and he and Mr. Dudley, from that time on, were representatives of the in- surance companies at our office. The statement being recognized by us — by Mr. Noyes and myself — immediately as possibly libelous, the only question that was in our minds then, before any communica- tion was had with the insurance companies' representatives, was whether it could be safely used in any form. We agreed that it could only be used in its full form if accompanied by a statement by some one directly representative of the insurance companies, it being our understanding of the law of libel that if this statement of the commissioners were submitted to the representatives of the insurance companies and they permitted its publication along with a statement by them, that, as we say, took the curse off, and would permit us to print it. As soon as possible the statement was sub- mitted to Mr. Carusi and Mr. Dudley, who immediately declined to make any statement, on the ground that they had no time to ex- amine the commissioners' prepared statement, and no time to pre- INVESTIGATION OP INSURANCE COMPANIES. 731 pare a statement of their own. That automatically settled the ques- tion of using the statement of the commissioners, because we had decided only to use it on the condition that the companies' repre- sentatives would accompany it with an explanation or a statement of their own. So that as soon as Mr. Carusi and Mr. Dudley declined to make a statement accompanying it, the matter was settled so far as we were concerned. Then came the possibility of using what we call the " lead," or the introductory paragraph, which carried briefly a statement of the commissioners' action ordering a reexamination of the two insurance companies. That would not have been, strictly speaking, libelous, in our judgment. Mr. Noyes, though, recognized the possibility of the great unfairness of printing such a statement, affecting the integrity of a financial institution, being singled out — one or two of them being singled out from all others of the District, and cited as being put under the grill of reexamination. I do not recollect exactly whether it was Mr. Carusi or Mr. Dudley who suggested it, but the comparison was suggested in the course of the conversations that went on, with interruptions back and forth — the suggestion was made that this was comparable to a citation of a national bank, by name, out of all other national banks of the com- munity as being under reexamination or special examination by the Comptroller of the Currency. The fact could be published without involving the newspaper in an action for libel ; but it would undoubt- edly cause a run on the bank, and in the same way it was recognized that to publish without explanation a statement that a particular insurance company or two particular insurance companies had, been selected for reexamination by the District Commissioners, or their agent, would subject those companies to suspicion and possibly heavy financial loss, particularly in view of the fact that this was all before the fact, so to speak, recognized that this was only an examination out of which the companies might come unscathed ; so in all the cir- cumstances Mr. Noyes, the editor of the paper, concluded in consul- tation with myself — it is difficult to say who made the suggestion — that we would not print anything about the matter. That is about the story of the incident. Mr. Johnson. Mr. Kedfield, do you care to interrogate the wit- ness? Mr. Kedfield. Did not Mr. Carusi tell you in any way that if the statement were printed he would bring an action against the Star for libel? Mr. Lyon. My recollection is that Mr. Carusi, on being presented with the statement, declined to accompany it by a statement of his own and made the remark, I think, to Mr. Dudley — I was in the group — " If this is printed, we shall have to hold some one account- able. The commissioners are not financially responsible; and it would be necessary, if this were published, to hold the newspapers printing it responsible." That may not be an exact reproduction of his words, but I think a reproduction of his idea. Mr. Kedfield. Is that all that was said on that subject at any part of the interview ? Mr. Lyon. Yes, sir. Mr. Redfield (continuing) . To you or in your hearing ? Mr. Lyon. Yes, sir; all that I recollect. 732 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Referring now to the caption, which you distinguish from the statement, was there anything said as to a libel suit in that connection ? Mr. Lyon. You mean the lead, as we call it? Mr. Redfield. Yes. Mr. Lyox. No; nothing. Mr. Redfield. That is all. Mr. Douglas. We have no questions. Mr. Johnson. Mr. Berger, do you wish to ask any questions? Air. Berger. No ; I have no questions. Air. Johnson. Mr. George? Mr. George. No, sir. Mr. Johnson. Mr. Prouty? Mr. Prouty. No. Mr. Johnson. Mr. Stephens? Mr. Stephens. No, Mr. Chairman. Mr. Johnson. Mr. Judson, do you wish to ask anything? Col. Judson. No. Mr. Johnson. The witness may be excused. Mr. Lyox. Is this a permanent excuse, because I am leaving the country to-morrow. Mr. Johnson. Yes. Air. Redfield. That is why we called you. STATEMENT OF MR. JAMES M. BAKER. The witness was duly sworn by the chairman of the subcommittee. Air. Johnson. Mr. Baker, please give to the stenographers your name, residence, and occupation? Air. Baker. James M. Baker, Washington, D. C. ; I am assistant librarian of the Senate. Mr. Johnson. Mr. Baker, if you have had any business connection with what is now known as the Southern Building, at the corner of Fifteenth and H, relative to its acquirement, cost, and value, please state it in your own way to the committee. Air. Baker. I' was elected treasurer in the early part of 1910, I think, as my recollection — either January or February or March — the first of the year; I was reelected in 1911, and not elected in 1912. You want me to state as to the cost of the building or Air. Johnson (interposing). Yes. My question was as to its cost, acquirement, and value. Mr. Baker. Well, I could only state as to my recollection as to the cost of it. The first mortgage was $800,000, and the second and third mortgages aggregated $700,000. Mr. Johnson. In speaking of the value, we would like for you also to tell, if you know, the value both of the real estate and the building that is upon it. taking them separately and then together, if you. choose. [After a brief informal conference with Mr. Redfield.] Mr. Baker, Mr. Redfield will interrogate you. Mr. Redfield. Tell the committee, Mr. Baker, the whole story of the transaction, as you know it, from the beginning of the Southern Commercial Congress or from the purchase of the St. Matthews Church property, through its various phases, which ended in the con- INVESTIGATION OF INSURANCE COMPANIES. 733 struction of the Southern Building, and its sale to the Commercial Fire Insurance Co. Mri Baker. Well, I do not know anything about its sale to the Commercial Fire Insurance Co. I was out of it. ' Mr. Redfield. Well, tell all you know, in the fullest detail you can. Mr. Johnson. That is what I have asked him to do. Mr. Redfield. That is the idea. Mr. Baker. Well, the property was bought, my recollection is, by Mr. John M. Parker, of New Orleans, Mr. Charles Hall Davis, as trustees for the Southern Commercial Congress. Mri Redfield. You say the property was bought; you mean • Mr. Baker (interposing): I mean the ground of the St. Matthew's Church. I do not remember exactly, but my recollection is it cost $410',000. Mr. Redfield. Do -you recall the foot price? Mr: Baker. No; I really do not. It was either seventeen dollars or seventeen and a half ; somewhere along there. I have forgotten. Mr. Redfield. From whom was it bought? Mr. Baker. From St. Matthew's Church. Mr. Berger. How many years ago? ,Mr. Baker. The early part of 1909. The records will show that. Mr. Redfield.- Are you sure it was bought from St. Matthew's Church? Mr. Baker. Well, I am not positive about that. Somebody took an option, on it before Mr. Parker and Mr. Davis had it, but I do riot remember who took the option. I was not in it then, and there- fore I do not know. Mr. Redfield. All right, go on. Mr. Baker. I do not know anything about the transaction before I 1 became treasurer. I was invited into it after it was organized as the Southern Building Corporation. Mr. Meek was the first treasurer, and I was not. Mr. Redfield. Go ahead and tell the story as you know it. Mr. Baker. I was invited into it, to participate in it, and was elected treasurer, as I stated, in 1910. My recollection is that my connection with it began about a year after the property was taken over from the church people. I do not know whose name it was in. The first mortgage was $800,000. The second and third mortgages aggregated $700,000, which made a total indebtedness of a million fivehundred thousand dollars. To that was added stock that was sold for cash. My recollection is that none of it was sold under par. Th'at aggregated, my recollection is, about $40,000. I would not want to be more exact than that. I think it might have been 36,000, to be accurate, but it was not over 40, which would make the total indebtedness, the outstanding money indebtedness, a million five hundred and forty thousand dollars. The bonds were sold — well, before I* get to that, there was a clause in the contract with the Thompson-Sterrett ' people-^ — Mr. Johnson (interposing). Who were the builders? Mr. Baker. The Thompson-Sterrett people, who were the buil- ders, that provided for a cancellation of the second mortgage bonds, provided the building did not exceed a certain cost. I do not remember now what that was. 734 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Could you provide the committee with a copy of that contract? Mr. Baker. No, sir; I haven't it. The records are all with the Southern Building Corporation papers, wherever they are. I have no 'papers. They were all left with them. What was the last ques- tion? What did I state last there? The answer w.as read by the reporter. Mr. Baker. Those bonds were put in escrow into the United States Trust Co. My recollection is indistinct as to the exact amount, but something like $125,000 of thdse bonds were put in escrow. I may be wrong about that, because I have not had the figures before me in 8 or 10 months; but when the building was finished, at the last meeting of the board that I attended, which was some time in 1912, before the annual election, as I think probably the records will show, it was in April — I am not sure as to that date — it was before the annual election of last year. Whilst I was nominally treasurer, I had not been acting as such since the January preceding, therefore J took occasion to look over the records at that time to see what the exact condition was. I do not know whether the suit which was filed by Thompson & Sterrett against the corporation had been filed at that time or not, but it was something like $20,000 involved in that My recollection is that if the Thompson- Sterrett people established their claim it would leave approximately $90,000 of those bond? to be canceled — of the second-mortgage bonds. That would have brought the outstanding indebtedness down to fourteen hundred and ten, to which you add the cash that was de- rived from the stock that was sold, which would make it about Mr. Johnson (interposing). By fourteen hundred and ten you mean one million four hundred and ten thousand? Mr. Baker. A million four hundred and ten thousand, and to that amount you add $40,000, approximately, derived from the sale of the stock, which would make it $1,450,000. That is my recollection as to the indebtedness when my connection was severed with it. The corporation received in cash from the proceeds of those bonds and the sale of the stock $1,275,000. At the annual election of the Southern Building Corporation last year, the last meeting — let me go back a moment. At the meeting of the board that I attended my recollection is it was stated there that with the exception of this controversy with the Thompson-Sterrett Co. the conditions of the company were in a satisfactory shape, but they had to borrow enough money to meet. their maturing interest obligations, which was something like $2,500 or $3,000, is. my recol- lection. I have not attended the meetings since, and that is all I know about it, as to my recollection — I mean as to the bonds and in- debtedness. These are matters of record. The builders and archi- tects took about $75,000 of bonds. The Southern Building Corpora- tion received in cash from the Equitable and the first loan and the bonds approximately $1,275,000. Mr. Johnson. Mr. Berger, do you desire to ask the witness any questions ? Mr. Berger. No, sir. Mr. Johnson. Mr. Eedfield? INVESTIGATION- OF INSURANCE COMPANIES. 735 Mr. Redfield. Yes, sir. What was the first office you held in the Southern Building Corpo- ration, Mr. Baker? Mr. Baker. I do not remember to have held any other than treas- urer. If I did, I do not recall it. Mr. Redfield. Does your name not appear in the charter, signed May 21, 1909, and filed on that day in Alexandria, Va. ? Mr. Baker. What date ? Mr. Eedfield. The charter was signed May 21, 1909, and filed on that day at Alexandria, Va., in liber 6 of incorporations, in the re- corder of deeds' office, and approved by the corporation commission of Virginia at Richmond on May 24, 1909, as the secretary of the corporation ? • Mr. Baker. I do not remember it if it does. I guess it is true. As I said, I do not remember. That is probably correct. I did not become officially active until I became the treasurer. I do not remem- ber. Mr. Redi"ield. I would like to offer this in evidence, Mr. Chairman. Mr. Douglas. I would like to know the purpose of the offer of this paper in evidence. I do not understand, myself, what bearing it can have upon the issues here. I would like to state, with the committee'^ permission Mr. Johnson (interposing) . As a general principle, a witness in- troduced by the committee can not be contradicted by the committee. In so far as I see the materiality of this, it would tend to contradict him. Mr. Douglas. My objection is that there is nothing material in it. Mr. Redfield. I have not stated the purpose in submitting it. Mr. Douglas. Even if it is offered for that purpose, it is purely a collateral matter, and the witness can not be contradicted on a col- lateral matter. Mr. Chairman, if you will permit me Mr. Baker (interposing). My recollection is, Mr. Chairman, that Mr. Paul Dulany was the secretary, but I may be mistaken. I do not remember to have ever qualified as secretary. Mr. Douglas. You were never secretary of the company, in my recollection. Mr. Johnson. The question was not as to whether or not you had qualified as secretary. The question was as to whether or not your name appears at Alexandria of record there as secretary of the in- corporation. Mr. Baker, I do not remember. That is all I can say as to that. Mr. Redfield. Do you know who the officers and directors of the Southern Building Corporation were under this first charter ? ! Mr. Douglas. One moment. The issue might as well be made here and now. On behalf of these insurance companies, the purchasers of this building, I want to make clear the position that we take here on behalf of the two fire insurance companies, present owners .of this building, . Our position is that the widest sort of latitude should be permitted in inquiring into any phase of the inquiry that might throw light upon the present value of the building and grounds, and beyond that is delving and probing into the private affairs of other corporations not at all interested in this inquiry. We will produce any papers that this committee may want that will throw any distinct and positive light upon any phase of this 736 INVESTIGATION OF INSUBANCE COMPANIES. matter. For instance, we will show exactly and precisely what this land cost, the original purchasers of it, who sold it to the Southern Building Corporation ; we will show to the committee, in the most comprehensive fashion, that this land cost $18 a foot, as Mr. Baker has said, on the 1st or 2d day of January, 1909, aggregating $410,000. We intend to show you that the syndicate that bought this property after the Southern Building Corporation had made an unsuccessful attempt to buy it subsequently sold it to the Southern Building Cor- poration for $525,000, as I remember it, at $23 or $25 a foot— I think it was $25 a foot — about a year after the original acquisition of it by them. Mr. Chairman, I am very anxious to have yourself and Mr. Redfield hear this statement. Mr. Redfield. Go ahead; we hear you. Mr. Douglas. We will show by the records that this property was sold by the syndicate to the Southern Building Corporation some time in the year 1909 at, I think, $25 a foot, aggregating $512,000, 1 for the land. We will show you, further, that the Southern Building Corporation, as thus organized — I do not remember who the tem- porary officers were, secretary or anybody else— but we will show that they proceeded to build this building on this land, costing $525,000 for the land, between two and three years ago — about three years ago — and then we will put in evidence all the data, and we will fling wide open the books of the Southern Building Corporation as to the cost of this building. We will furnish you an itemized state- ment as to that, and I will say now that the actuary that you have upon the books of the Commercial Fire and the First National Fire — we extend to the committee, through him, the right to examine into all those things Mr. Redfield (interposing). Why do you object to our question- ing upon these matters if you are going to do all that? Mr. Douglas. I object to it on this ground, Mr. Redfield, wholly. If you are going into each and every side issue and collateral mat- ter that could be suggested here, this committee might be in session for nine months; that is, if you intend to drag into the investigation the private affairs of other corporations and other individuals, and not allow them any opportunity to defend themselves. Mr. Redfield. Mr. Douglas, the resolution directs this committee to investigate the conduct, management, history, records, and affairs of the Commercial Fire Insurance Co., the First National Fire In- surace Co., and the office of the superintendent of insurance — Tuttle, Wightman & Dudley, together with their associates, representa- tives, and agents. Mr. Douglas. Yes, sir; that is all right. Mr. Redfield. The purpose of this inquiry this morning is to investigate the history of some of their associates, representatives, and agents, leading up to the transaction of the increase in value of the Southern Building within a few days after its purchase for something over $400,000. Mr. Douglas. Now, Mr. Chairman, that is the crux of this whole matter, the scope of this inquiry, as is stated by Mr. Redfield ; but, will all due respect to him, I submit that he has misinterpreted " together with the associates, representatives, and agents." That is, the associates, representatives, and agents of the fire insurance com- panies and Tuttle, Wightman & Dudley. In no sense— and I now INVESTIGATION OF INSURANCE COMPANIES. 737 throw down the challenge — in no sense are the Southern Building Corporation and the Richmond Realty C6rporation, which has bought some of these bonds, the agents, representatives, or associates of these insurance companies, nor have they been at any time in the past; and to go into the private affairs of corporations buying those securities, now holding and owning those securities, is to lay bare the private affairs of corporations, and I submit, with all deference to this committee 5 that that is beyond its limits, and beyond its scope^ and beyond its right. Any question that can be asked that will throw light upon the question, either of the cost of the land or cost of tha building, or the present value of them, taken singly or collectively, is well within the limits of this inquiry, and perfectly germane to the subject ; but be- yond that it is dragging into the affairs of this investigation the private affairs of other people, and I think their rights ought to be respected, and will be respected, by this committee. Mr. Eedfield. May I speak? Mr. Johnson. Yes. Mr. Eedfield. Mr. Douglas, you appear as one of the officers of the Southern Building Corporation, in what is alleged to be its original charter. Mr. Carusi is alleged to have been one of the spe- cial committee acting as counsel of the Commercial Fire Insurance Co. in the purchase of this building from the Southern Building Corporation, of which you were a director ? Mr. Douglas. Yes, sir. Mr. Redfield. This committee desires to show in detail the whole transaction in which you and Mr. Carusi were associated, you on behalf of the Commercial Fire Insurance Co. now — and he also on their behalf now — and he in the purchase of this building from the corporation, of which you were a director then; and you yourself were a director in another corporation which purchased the build- ingfrom parties with whom it is important to know who were asso- ciated. We intend to know, or ought to know, in my judgment, the whole transaction, from its beginning, who are the parties in it, what profits have been made, whether certain stockholders were forced to sell at 25 cents on the dollar, whether others by knowing the inside facts sold for 50 cents on the dollar, and whether those securing that were not themselves in a measure defrauded. These things may not be true; we hope they are not; but we ought to know them all, and ( if I can do it, I am going to find it out. Mr. Douglas. All right, Mr. Redfield. Now, Mr, Chairman, I make this statement here now : that the sug- gestions of Mr. Redfield, unless they are backed up by the facts in this case, were, to say the least,- an improvident statement. This com- mittee is not sitting as a court of equity and a court of conscience to try quarrels that may grow out of the conscientious differences of opinion or any differences of opinion between the stockholders of tie Southern Building Corporation and the corporation itself. If we start an inquiry of that sort there will absolutely be no limit to this. I wonder if anybody could sit here quietly and without protest and hear any suggestions made of besmirching anybody without ask- ] ng leave of this committee to have the same leewav and the same 738 INVESTIGATION OF INSURANCE COMPANIES. unlimited right to be heard in defense of the charge against them, or the suggestion or a hint against them. This committee has nothing whatever to do, I submit, with whether or not one stockholder sold at 25 cents and is satisfied, another one at 50 cents and is satisfied, another one, having private information and knowing more, perhaps, than some one else, at a higher figure. But all that is absolutely without foundation in fact, and I say here now, as to the suggestion made by Mr. Redfield here, that I challenge him to prove it, and say that he ought to produce the facts to support that allegation or retract it. At no time did the counsel here now appearing for the fire insur- ance company ever appear for the Southern Building Corporation in any sale of this property. These gentlemen bought this property by buying the stock of this corporation, and I will say for the benefit of the gentleman from New York, a member of this committee, that my stock was sold at the lowest price, as low as anybody's stock in the whole corporation ; that that was simply a stock transaction between these gentlemen and", with the exception of Mr. Carusi, most of them were not even personal acquaintances of mine. So I submit this, Mr. Chairman : That this is a matter that should be determined now by this committee, as to the extent to which this inquiry is to be carried on. Are you to sit here as a committee for the purpose of settling the quarrels and personal differences between the stockholders of the Southern Building Corporation ? If you are, why, then, fling your doors wide open and constitute yourselves a court of conscience, a court of equity, with all the parties before you, concerning the private quarrels of each and every stockholder, num- bering up into 100. And, then, are you going to hear one party and one suggestion without hearing them all? And if you hear them all, I say, in the name of Heaven, where will the inquiry stop and what would be the limit of it? We can sit here, I suppose, if this committee has time to do it and you feel that you have the jurisdic- tion and the right to inquire here ; but when it is all done and said, Mr. Chairman — I submit this to you for your earnest and sincere consideration — suppose you find that 25 per cent or 50 per cent of the stockholders oi the Southern Building Corporation were bought out too cheap; suppose you conclude that somebody had been m> posed upon ; what is your remedy for it ? Have you anything to do with it? Ought it to be received by this committee, and will it throw any light whatever upon the cost of this construction or upon the value of this ground ? Has the Commercial Fire Insurance Co. and the First National Fire Insurance Co. anything whatsoever to do with that ? Will it tell you whether the land is worth $45 a foot or $50 a foot? If it will nottell you whether it is worth $45 or $50 a foot, then is it not wholly without the limits of a reasonable amount of latitude here? Will it throw any light whatsoever upon the subject matter of this inquiry? Suppose the suggestion made by Mr. Bedfield, Mr. Chairman, be true — and I hope he will state the ground of it in justice to people who are not here — that some of the people having inside facts got $50 a share for their stock and others got $25 a share for their stock. If he does establish it, step by step, in the most indubitable fashion, then has he accomplished his purpose, assuming the purpose to be to ascertain the value of this property to the end that this committee INVESTIGATION OF INSURANCE COMPANIES. 739 may be aided in determining the subject matter here, which is whether or not this property has been fairly, honestly, and correctly ap- praised? Everybody admits that these insurance companies had a right to buy the property. Everybody admits that they had a right to carry it on their books at what it was worth. Everybody admits that there is nothing unusual in the appraisement of the property of an insur- ance company within the confines of the District of Columbia. Therefore, if that be so, then the subject matter of the inquiry, first, for this committee, as we understand it, is this : Whether or not the appraisement was honest, and, secondly, whether or not it fairly apprizes the public of the fair value of the property. If it does, then I submit to this committee that these insurance companies are en- titled to go hence without day with your commendation, not with your condemnation, as to that item. I submit, further, Mr. Chairman and gentlemen of this committee, that the only other thing is whether or not in the wide range of in- vestigation into their affairs, as to whether or not these companies deserve your commendation or your condemnation in your report to the House of Representatives, as to whether or not other people might not deserve condemnation for thus prematurely and improperly and unwisely dragging these financial institutions into the limelight of an investigation, and with all the suggestions and insinuations attach- ing to that. Those are the two things, Mr. Chairman and gentlemen of this committee, that it seems to us are embraced within the scope of this resolution — that and nothing more. And even if you bring into the investigation here the private affairs of a struggling corporation, the Southern Building Corporation — and I think every stockholder will bear me out in it— if you throw all the light of day on it, fling wide open the doors, there will be no suggestion of wrong upon any man ; it will be simply the history of an organization trying to build a building which it was unable to build, trying to finance an institution beyond its length, beyond its breadth, and beyond its strength. That was all there was to it. We will show that gentlemen sold out — and among other gentle- men, the gentleman who is now addressing you — sold out their hold- ings in this corporation and parted with something for which they bad a positive affection, but utterly unable to finance so large an institution, and sold it out because they were weary of the struggle, of the effort to carry it forward. That had nothing to do' with the investigation by this committee. I submit now, with all ,due respect and deference to Mr. Redfield, that the private affairs o'f the gentlemen connected with the Southern Building Corporation and what they did at this particular stage or. that, two and three years ago, is a matter of no interest to you, is a matter of no concern to you. It is business that is private, that does not belong to this committee, and I therefore submit respectfully and most earnestly that this committee seriously consider how far this investigation is to go, into the affairs of how many private people are you to probe; that if you do probe into them, I ask you now, How long will this committee sit? And I ask you, when you do do it, Will you not — and -I know you will — allow every man whose reputa- 740 INVESTIGATION OF INSURANCE COMPANIES. tion has been touched with the weight of a feather or touched with the contaminating suggestion of a slanderer, to be heard in this court of general jurisdiction? Will you allow one man to suggest, for instance, that another man has been discharged from the office of assessor because he was intem- perate and allow that record to stand uncontradicted and unan- swered and say, ' ; Mr. Darneille, you can go without day, but the stain and touch is upon you "? This must be stopped at some point or other unless the rights of private individuals as to their private property and private trans- actions shall be thrown open to criticism. There must be some limit to the extent to which this probe will go. I say now, as one of counsel for the Commercial Fire Insurance Co., we object to it, be- cause they are matters and concerns with which we have nothing to do. It is keeping these insurance companies here under the strain and tension of an investigation that has now lasted well into two weeks; it is injuring' them every day with the stockholders, with the policy holders, with the public, and everybody else. And we want the inquiry of this thing to end. We want this probe to be concluded as soon as we can ascertain all the facts. We want to hear all the facts that bear upon them and that are well within the scope of the inquiry, all of them, but no more than that ; so that we can have at your hands, if we are entitled to it, your commendation, gentlemen of the committee, at the earliest possible moment. I have thus trespassed upon your patience because I feel that I am right in the position I take and in the attitude I take. We are here to throw light upon the Southern Building Corporation and as to the cost of that land, as to the cost of the building, as to each and every article, and as to the connection, if you please, of Mr. Carusi and Mr. Harper. Any insinuation here thrown out that Mr. Carusi and Mr. Harper bought this property at one price and sold it at another to the Commercial Fire Insurance Co. and, the First National Fire In- surance Co., not because it is germane to the issue, but in justice. to them, we will fling the doors wide open there and everywhere else that will cast any light upon the issue. I beg the committee to hold down this investigation to the sub- ject matter of the inquiries outlined in this resolution. Get all the light upon that subject that you can, but beyond that let alone the affairs, if you please, of private individuals in no way concerned here. Mr. Redfield. Mr. Douglas, the First National Fire Insurance Co. carries upon its books as an asset $25,000 worth of the bonds of the Southern Building Corporation. You have yourself, in your ques- tion, pointed out that the architect's fees, which were paid in bonds, so the committee are informed • Mr. Douglas (interposing). In part. ' Mr. Redfield. Yes ; in part — was a part of the value of the build- ing. This committee have a right to know at what price the Southern Building Co.'s stock was sold,' at what price its bonds were sold, what the actual cash value represented in this building was. The com- mittee have a right to know the history of the men who at this time are associated with this insurance company, and were at that time associated with the Southern Building Corporation, in order to INVESTIGATION OF INSURANCE COMPANIES. 741 throw light upon the transactions, and to determine whether it has been or has not been a continuing series of transactions of a similar character, whether good or bad. Mr. Douglas. Had in behalf of whom? .., .Mr. Redfield. In behalf of the persons now associated with the Commercial Fire Insurance Co. in any capacity. Mr. Douglas. Do I correctly understand the scope of this reso- lution, as you have interpreted it, is that you have the right to go into the private transactions and private character of everybody that at any time was ever connected with the Southern Building Cor- poration ? i Mr. Redfield. The question as to what the committee has the right to do is not for me to say. Mr. Douglas. I was ashing for your interpretation, so that I might understand your position. Mr. Redfield. Mr. Douglas, this is my statement, made with en- tire frankness and intended courtesy : Two series of transactions of a somewhat similar form coalesce with the Commercial Fire Insurance Co. One series of those trans- actions begins in Syracuse, X. Y., where an adverse report is made by the State insurance department concerning the operations of cer- tain parties, who later transfer their activities to Washington and there are charged by some people with having continued the same transactions, or similar transactions, to which the State of New York objected. On the other side, certain transactions in real estate began in Washington. They developed through various stages, and end with ,a most unusual increase in value of certain properties with which the same parties have been connected from the beginning. These parties interested in the real estate transaction and the parties interested in the insurance transaction coalesce and appear in the gentlemen representing in part the insurance companies and the gentlemen with whom they have contracts. The thing this committee wants to know is, is this a continuity Mr. Douglas (interposing). From the start? Mr. Redfield (continuing). From the start of both plans, of the same kind^ and in what has it resulted ? Mr. Douglas. Mr. Chairman, if you will pardon me for trespass- ing once more, the suggestion — of course, it would not be proper to characterize it as a misstatement — of going back to Syracuse and put- ting upon Mr. Tuttle the reprehensible transactions of Mr. Manning, and as to which Mr. Tuttle was in fact acquitted by the superin- tendent of insurance, and as to which he was commended instead of being condemned, and to undertake to carry this investigation to the point of projecting into the whole situation the conduct of this man, for instance, when he was promoting the Protective Holding Cor- poration, and then to hold Tuttle responsible for it — for the firm of Tuttle, Wightman & Dudley had not been misinformed — and to come on down and hold my friends, Mr. Carusi, and Judge Gould, and Judge Atkinson, and Mr. Harper, and all of them, responsible for whatever criticisms might be put upon Mr. Tuttle becausehe was the successor in office of Mr. Manning, seems to me carrying the whole limit of the inquiry very, much beyond anything that even suggests fair play. 742 INVESTIGATION OF INSURANCE COMPANIES. Then the idea that three or four years ago some gentleman — I think as highly reputable as anybody in this city or in this room — undertook to buy this land from the St. Matthews Church before Tuttle, Wightman & Dudley were ever heard of, before the First National Fire Insurance Co. was ever dreamed of or anybody ever thought it would be formed, and then to suggest there was an or- ganized connection between the gentlemen at this end and the gen- tlemen at the other end — those at Syracuse and those here in Wash- ington and Eichmond coming together as if by common design — is amazing in its utter and complete unfairness. Mr. Redfield. At what price, Mr. Baker, did you sell your stock? Mr. Johnson. I think it will be well for the last question put to Mr. Baker and his answer thereto to be read, so we will see where we are after the colloquy which we have just heard. The Stenographer (reading) : Mr. Redfield. Do you know who the officers and directors of the Southern Building Corporation were under its first charter? Mr. Johnson. Has the witness answered? The Stenographer. No, sir. Mr. Johnson. The witness may answer. Mr. Baker. I do not recall. Mr. Johnson. You may continue, Mr. Redfield. Mr. Redfield. Mr. Baker, were you a stockholder in the Southern Building Corporation? Mr. Baker. Yes, sir. Mr. Redfield. Did you buy your stock? Mr. Baker. No. Mr. Douglas. Pardon me, I object to that. I submit, with all respect, that this is a matter of no interest and no business of this committee to ask Mr. Baker whether he paid $1 for his stock or $50, or lost $100 or made $200 a share. This committee has no right, under the scope of this resolution, to make any inquiry into the de- tails of the Southern Building Corporation affairs. I say now, gentlemen, and I say it because it is my duty to say it, that if all these matters are to be gone into, I am going to ask of the committee the right to go into them to the end that nobody's reputation is besmirched here. There is no ground to go into this. There is no fact to justify it. If this inquiry is gone into now as to the cost of Mr. Baker's stock in this building corporation, I serve notice I shall undertake, so far as you will permit me, to go into it all. It embraces a period of time of three years of struggle, in which men not only sweat perspiration, but they sweat blood, and all of it must be gone into. Mr. Johnson. Will the stenographer read the question once more that the committee may be informed? Mr. Douglas. Pardon me, Mr. Chairman. I was going to state that which is very important, that if there is any idea thrown out here that the Commercial Fire Insurance Co. 's, directors or officers or those of the First National Fire Insurance Co.' had any connection with this matter at all, and did not view the purchase of this build- ing at; arm's length, I want to state for the record now that not a single solitary stockholder or a single solitary director or a single solitary one of the officers of either one of these corporations — the Commercial Fire Insurance Co. or the First National Fire Insurance IMTESHGATION OF INSTJBANOE COMPANIES. 743 Co.— had any interest whatsoever in the Southern Building Compora- tion when these negotiations began. We dealt with them at arm's length. Mr. Johnson. The stenographer will please read the question. The Stenographer (reading) : Did you buy your stock? Mr. Johnson. Will the members of the committee' please retire with me? Thereupon the members of the committee retired from the hearing room. The committee later returned to the hearing room and the hearing proceeded. Mn Johnson. Gentlemen, the committee has had a general con- ference among the members of the committee relative to the subjects which were under discussion when the committee retired for confer- ence, and we have unanimously reached the conclusion that the investigation has perhaps gone into most too broad a field ; that in the future we shall endeavor not to branch out any further than we have ; but we have also reached the conclusion that one of the matters — one of the important matters to be inquired into in this investigation is the value of the Southern Building, and we have concluded, as I said, unanimously, to go into the question of determining the value of that building ; as to whether any of its transactions- were simply paper transactions or whether they were real; and we have now reached the conclusion to permit the witness to answer the question which was just put to him relative to how he acquired his stock in the building, and then that we will hear such matters as seem to the committee to help us determine whether any part of the price paid for the building, which seems to be to a certain extent a criterion as to its value — as to whether those transaction were real or fictitious. Therefore the witness may answer the question just put to him. by Mr. Redfield. Mr. Baker. What was the question ? Mr. Johnson. The stenographer will read the question. [Question read by the reporter as follows :] Did you buy your stock? Mr. Baker. Well, now, Mr. Chairman Mr. Prouty. Read the question. I did not hear it. [Question read by the reporter as follows :] Did you buy your stock? Mr. Johnson. Did you buy your stock. Mr. Proutt. Did you buy your stock. Mr. Baker. Now, Mr. Chairman, before answering that question, and to answer it accurately and intelligently and to make the proper explanation as to how I acquired it, I ought to be able to have access to the records, because I am speaking from memory, and I could not answer it accurately from memory in justice to myself nor in justice to the committee nor in justice to the corporation. I can give you what my recollection is, but I really ought to have the records of the Southern Building Corporation if I am to be asked so important a question as that, so that the answer might be accurate. 71391— No. 8—13 2 744 INVESTIGATION OF INSURANCE COMPANIES. Mi-. John sox. Then, if it meets with the approval of the rest of the committee. I would suggest that after we are through Mr. Baker (interposing). The records of the Southern Building Corporation will answer that question and show how my stock was issued to me and to all the other gentlemen involved in the Southern Building Corporation. Mr. Johnson. The committee was going upon the presumption that you knew just how you got your stock, hut if — — Mr. Baker (interposing). Well, I do know how I got it. I can answer that, but there ought to be fuller explanation made in simple justice to myself and to the Southern Building Corporation as 1 to how that bonus stock was issued. My recollection is that it started out as a stock corporation and was afterwards — the formation of the company had to be changed, and the stock was made, by virtue of a vote of the stockholders, subject to the first mortgage and, the bonds. But I am not positive about that. I did not pay any money for the stock. There was a hundred thousand dollars' worth of stools voted to certain gentlemen, who organized the corporation and who were in it and who did the work, of which number I was one. j Mr. Redfield. Who were the others, Mr. Baker? Mr. Baker. Mr. R. H. McNeill, Mr. A . E. L. Leckie, Mr. Charles A. Douglas, and James M. Baker. That is all. Mr. Johnson. That is yourself? Mr. Baker. That is myself; and, let me see; there was somebody else. Mr. Douglas. May I suggest Mr. Meek? Mr. Baker. Mr. Meek. That stock was afterwards divided up into six parts, if I remember correctly, and — just a moment, right there. I did not expect to be questioned, Mr. Chairman, on these questions, therefore I have not thought anything about this stook. transaction, and therefore my memory is indistinct. Mr. Johnson. Just a minute, Mr. Baker? Mr. Baker. Yes, sir. Mr. Johnson. You interrupted me in the middle of a statement; which I was endeavoring to make. Mr. Baker. Yes. Mr. Johnson (continuing). Which was to the effect that if you] needed to refresh your memory before testifying further Mr. Baker (interposing). Yes. „ Mr. Johnson (continuing). That the committee would give youl an opportunity to do so; that you might examine such books and I papers as were necessary to fully refresh your memory, and when I your memory had been 'refreshed, then to come back • Mr. Baker (interposing). Yes; I see. Mr. Johnson (continuing). At some future time and finish. 1 Mr. Baker. Yes ; I could do that and give you what information you want. It is all in the records of the Southern Building Cor- ■ poration. , Mr. Johnson. But as to such other questions as the committee may desire to ask you upon this occasion, concerning which your I memory does not need refreshing, perhaps you can testify further. Mr. Redfield. Mr. Baker, do you know wha,t the original capitali- zation of the compan}' was. or do you prefer to refer to the records i for that? INVESTIGATION OP INSUEANCE COMPANIES. 745 Mr. Baker. I really do not recall now, for this reason. There were several plans suggested at the outset, and some of them were not con- sidered feasible, and they were changed. I do not remember. Mr. Redfield. Can you state to the committee what the amount of bonds issued was, and their character, by the Southern Building Cor- poration, and what the amount of stock issued was, and its character ? Mr. Baked. I think I have answered that in my former statement — in my first statement. Mr. Redfield. I did not understand you to include the stock. Mr. Bailee. I included the stock that was sold, and for which money was derived. Mr. Redfield. But you did not include the $100,000 which you say was voted to certain gentlemen for services ? Mr. Baker. No, sir. The preferred stock was $300,000 and the common stock was $200,000. Mr. Redfield. Then, is this — do I understand this to be a correct statement of the capitalization of this company; that bonds were issued, secured by a second mortgage, for the amout of $275,000; that bonds were issued, secured by a third mortgage, for $325,000, making a total of $600,000 in bonds; that there was preferred stock of $300,000 and common stock of $200,000, making a total .capitalization of $1,100,000. Is that correct? Mr. Douglas. That leaves out the first mortgage. Mr. Baker. How much do you make — how much would that make ? Your question added the eight hundred thousand Mr. Redfield (interposing) . That would make, with the eight hun- dred thousand first mortgage, $1,900,000. Mr. Baker. Well, as a matter of fact, the records show, as I stated in my former testimony, that the second and third mortgages amounted to $1,500,000, but that the contract provided for a cancel- lation of approximately $90,000. Your statement of it is correct, if you will add the cancellation that contract called for on the $90,000 of the second-mortgage bonds. * Mr. Redfield. So that, deducting the $90,000 of second-mortgage bonds, you say — — • Mr. Baker (interposing). Yes, sir. Mr. Redfield (continuing). That would reduce the issue of the second-mortgage bonds to $185,000 instead of Mr. Baker (interposing) . No, sir. Mr. Redfield (continuing). Instead of $275,000? Mr. Baker. No, sir. Mr. Redfield. Well, state yourself, if you please Mr. Baker (interposing) . Just a moment, please. Mr. Redfield (continuing). Let me finish my question, please, Mr. Baker. Mr. Baker. Yes, sir. I beg your pardon. ' 'Mr. Redfield. State yourself, if you please, giving the deduction in any way that you think right, what the actual bond issues and stock issues of the company were. Mr. Baker. The bond issues and stock issues of the company were $2,000,000. "■■ Mr. Redfield. I mean in detail, if you please— second, third; pre- ferred, etc. v ■ i ', 746 INVESTIGATION OP INSURANCE COMPANIES. Mr. Baker. I am going to segregate it, to make the total. Eight hundred thousand dollars was the first trust; $375,000 of second- mortgage bonds ; $325,000 of third-mortgage bonds; $300,000 of pre- ferred stock ; and $200,000 of common stock. That makes $2,000,000. Of that issue of $375,000 of second-mortgage bonds there is a contro- versy, as I said a moment ago, that has not been determined ; that is in litigation. Mr. Redfield. As to what? Mr. Baker. As to whether or not — with the Thompson-Starrett people. I could not Mr. Redfield (interposing). As to what amount? Mr. Baker. Well, as I stated in my former testimony — former statement, my recollection is that if the Thompson-Starrett people establish their contention as to their claims, that it would leave about $90,000 of bonds to be canceled, which would bring the mortgage indebtedness of the Southern Building Corporation down to fourteen hundred and ten — $1,410,000, but that is assuming that they have to settle with the Thompson-Starrett people. Mr. Redfield. And to that extent would reduce the total capitaliza- tion to $1,910,000? Mr. Baker. Yes, sir. Mr. Redfield. Now, what is the substance of this controversy? I do not care for the details, if you please, Mr. Baker ; but what is the substance of this controversy with the Thompson-Starrett Co. which affects $90,000? Mr. Baker. Well, that I really do not know. Mr. Redfield. What is it about? Mr. Baker. Well, I have never seen the bill. It was brought after I severed my connection with the company. I have never seen it; I only know by hearsay, and therefore, I am not competent to testify Mr. Redfield. Mr. Baker, the $800,000 was advanced by the Equi- table Life, was it not? Mr. Baker. Yes, sir. Mr. Redfield. Did they, to your knowledge, make an appraisal of the building, as a basis for that loan ? Mr. Baker. They made an appraisal of the ground. Mr. Redfield. Did they make an estimated valuation of the build- ing from the drawings? Mr. Baker. I do not recall about that. I imagine they did, but I could not testify. Mr. Redfield. Who negotiated that transaction on behalf of the Southern Building Corporation ? Mr. Baker. Mr. Douglas and Mr. R. H. McNeill. Mr. Redfield. The second-mortgage bonds bore what rate of interest? Mr. Baker. Six per cent. Mr. Redfield. And the third-mortgage bonds bore what rate of interest? Mr. Baker. Six per cent. Mr. Redfield. Was interest paid upon those bonds when it came due? Mr. Baker. So long as I was treasurer, it was. . Mr. Redfield. At what rate were those bonds issued ? INVESTIGATION OF INSURANCE COMPANIES. 747 Mr. Baker. You mean what money was realized for the benefit of the corporation by the sale of those bonds ? Mr. Redfield. Yes. Take the second-mortgage bonds, first; at what price were they sold ? What money was received for them ? Mr. Bakek. Well, I would have to have access to the records to be specific. I could give you a general Mr. Redfield (interposing). Were they sold below par? Mr. Bailee. Oh, yes, sir. The first 200,000 were sold at 75, and the Mr. Bedfield (interposing). And the rest? Mr. Baker. Just a moment. My recollection is that the Southern Building Corporation received $350,000; $200,000 for the first— $150,000 for the first sale of the second-mortgage bonds of $200,000, and $200,000 for the $325,000. Mr. Bedfield. Of third-mortgage Mr. Baker (interposing). Of third-mortgage bonds. That is my recollection. I think it is accurate, but I would like to confirm that by the record. Mr. Bedfield. Well, does that mean that for a total of $700,000 face value in bonds they received $400,000 ? Mr. Bakek. That is right ; yes, sir. Now, to that you add the pro- ceeds of the bonds that the builder and architect took Mr. Bedfield (interposing). One moment; let me Mr. Baker (interposing). And you get the cash derived from the sale of the bonds, into the treasury of the Southern Building Corpo- ration, and then if you will add to that the cash received from the stock, you will get all of the cash that the Southern Building Corpo- ration had in its treasury. Mr. Redfield. I am just about to try and do that, Mr. Baker. Do I understand that this $400,000 which was realized for 700,000 par value of bonds was actually paid in money ? Mr. Baker. Let me hear that question again. Mr. Redfield. Do I understand that the $400,000 which was re- ceived by the Southern Building Corporation for $700,000 of bonds was actually paid in cash ? Mr. Baker. Every bond that was sold, turned over, was paid for in cash, except the ones that the builders and the architects took. , Mr. Bedfield. What proportion of that $400,000 did the builders take? Mr. Baker. I think — my recollection is about seventy-five thou- sand. You can make — I would have to examine the record to see. Approximately about seventy-five thousand. Let me see a minute, sir. Just a second. Now, 1 can answer it in this way. There were $200,000 worth of the second-mortgage bonds sold to the Richmond Realty Corporation for $150,000, which was paid for in cash. Mr. Redfield. Will you read that to me, Mr. Stenographer? Answer read by the reporter. Mr. Baker. $325,000 of the third mortgage bonds were sold to the Richmond Realty Corporation for $200,000 in cash. Now, my recollection is that this was a cash transaction. I would nave to refer to the books to see, because it has been six or eight months since I have had any official connection there. Now, that 748 INVESTIGATION OF INSURANCE COMPANIES. would leave $75,000 worth of bonds to make up that $600,000 of bonds of second Mr. Redfield (interposing). And third? Mr. Baker. And third; yes, sir. Mr. Redfield. Those seventy-five thousand were taken by whom ? Mr. Baker. They were distributed to the builders and architects at par ; not at the price that was derived from the sale to the Rich- mond Realty Corporation. Mr. Redfield. That accounts for the entire Mr. Baker (interposing). That gives you the entire amount of money derived from the sale of the bonds and loaned .by the Equi- table Life Assurance Co. The only other item that you want to add to that is the Mr. Redfield (interposing). Just a moment, Mr. Baker, please; just a moment. Let us get this perfectly clear. You have testi- fied Mr. Baker (interposing). Yes, sir. Mr. Redfield. That there were $375,000 par value of seconds; there were $325,000 of thirds. Mr. Baker. Yes. Mr. Redfield. Making a total of $700,000 par? Mr. Baker. Yes. Mr. Redfield. Now, you have accounted for the sale of two hun- dred thousand seconds at $150,000? Mr. Baker. Yes, sir. Mr. Redfield. To the Richmond Realty Corporation; and you have accounted for the sale of three hundred and twenty-five thou- sand of thirds to the same parties for $200,000 ? Mr. Baker. Yes, sir. Mr. Redfield. And you have accounted for seventy-five thousand par to the builders and architects? Mr. Baker. Yes. sir. Mr. Redfield. Xmv, those three sums added together are but $(500,000. Mr. Baker. Well, there is a hundred thousand in escrow at the United States Trust Co., as I stated before. Mr. Redfield. Yes; I want to get it now. „y • Mr. Baker. Yes. All right, sir. Mr. Redfield. F<>r what purpose are they in escrow? Mr. B vker. As I stated in my former testimony, the contract with the builders had a clause in it that provided for the cancellation of second-mortgage bonds. Mr. Redfield. Are they to provide for that clause in the contract ? Mr. Baker. Yes, sir. Mr. Redfield. That is all I want. Mr. Baker (supplementing answer). And put in escrow for that purpose. Mr. Redfield. You have accounted for the Mr. Baker (interposing). I would like to say this: I am not posi- tive about this $75,000. I will tell you whv. Mv recollection is there is $110,000 in escrow. If there is. it would not leave but $65,000' to the builders. Mr. Redfield. Will you account for the $300,000 in preferred stock, if you can. INVESTIGATION OF INSURANCE COMPANIES. 749 Mr. Baker. As I stated a moment ago, before making a statement to the committee that would be intelligent it would be necessary for me to examine the records, for this reason: My recollection is we started out to build a building with a stock issue, and $100,000 of this $300,000 was given to the gentleman whom I have already named. Mr. Redfield. That was preferred stock that was given to the gen- tlemen ? Mr. Bakeh. And a certain amount of common stock went with it. Mr. Redfield. How much? Mr. Baker. I do not remember. Mr. Redfield. You do not know what ratio? Mr. Bakeh. No, sir; I do not. The balance of the stock Mr. Redfield (interposing). Just a minute, please. So that the five gentlemen did receive $100,000 out of the $300,000 preferred and a portion — you do not know certainly how much — of the $200,000 common? Mr. Baker. Yes, sir ; but I do not remember what proportion. Mr. Redfield. That was given to them for what reason ? Mr. Baker. It was given to them for the services that they had rendered, and for the difference in the cost price, because we con- bidered the ground was worth $510,000 instead of $410,000. Mr. Redfield. I did not hear the answer; read it, Mr. Stenog- rapher. The Stenographer (reading) : It was given to them for services that they had rendered Mr. Baker (interposing). Strike out the " services." This $100,000 was paid to them for the difference between the cost of the ground at $410,000 and the price at which it was put in by the people who held title to it, $510,000. That is my recollection. Mr. Redfield. Do you mean this was their profit on the sale? Mr. Baker. Yes, sir. Mr. Redfield. So the parties who received this $100,000 in pre- ferred stock, with a bonus in common stock, received it as vendors upon the property to themselves or to a corporation in which they were interested ? Is that so ? Mr. Baker. What is the question? Let me have that again. The stenographer read the pending question. Mr. Redfield. Change the question to read, instead of saying " re- ceived it themselves, " to say, " to a corporation in which they were interested." Read the question again and let Mr. Baker understand it fully. The Stenographer (reading) : So that the parties who received this $100,000 in preferred stock, with a bonus in common stock, received it as vendors upon the property to a cor- poration in which they were interested. Mr. Baker. I would like to look at the records of the company be- fore answering that question. Mr. Redfield. Will you look at the records and answer that question? Mr. Baker. Yes, sir ; I will. Mr. Redfield. It is a fact, Mr. Baker, that the five gentlemen who received this did have an option on the St. Matthews property, is it not! 750 investigation of insurance companies. Mr. Baker. No, sir ; you are mistaken there. Mr. Redfield. What was their direct connection with that prop- erty ? How did they come to be interested in it ? Mr. Baker. How is that ? Mr. Redfield. What was their direct or indirect connection with the property before it came into the hands of the Southern Building Corporation ? Mr. Baker. Who do you mean by '' their " ? Mr. Redfield. The five gentlemen you have named. There was a sixth, whom you have not mentioned. Was that Mr. Alexander McNeill? Mr. Baker. No, sir ; I will look that up and answer that as soon as I can refresh my memory. Mr. Redfield. Read the question, Mr. Stenographer. The Stenographer (reading) : What was their direct or indirect connection with the property before it came into the hands of the Southern Building Corporation? Mr. Baker. I can not answer that accurately without going to the record. My recollection is that none of the gentlemen — my recollec- tion is that Mr. Leckie and Mr. McNeill had the option on the St. Matthews property originally; but the record will show that. Mr. Redfield. And they were two of these six ? Mr. Baker. Yes, sir. Mr. Redfield. And they received the stock along with yourself and Mr. Douglas and the other gentlemen you have named ? Mr. Baker. Yes, sir; that is right. Mr. Redfield. You do not know how much bonus they got of common stock with the preferred, do you ? Mr. Baker. I do not recall that. The rest of the preferred stock and the common stock went as a bonus to these mortgages. That is how it was distributed. Mr. Redfield. I was going to ask that. Then the rest of the common stock and the preferred stock was all issued as bonuses with the mortgages? Mr. Baker. Not all of it. Mr. Redfield. How much was not so issued ? Mr. Baker. As I stated this morning in mv testimony, approx- imately $40,000. I think. The record will show'that. Mr. Redfield. You mean approximately $40,000 was sold for cash? Mr. Baker. Yes, sir. Mr. Redfield. Let me get the figures straight. Kindly follow me, Mr. Baker. Mr. Baker. Yes. sir. Mr. Redfield. $300,000 preferred and $200,000 common were the total issues? Mr. Baker. Yes, sir. Mr. Redfield. Of the preferred, $100,000 went to these six gen- tlemen ? Mr. Baker. Yes. Mr. Redfield. Leaving net $200,000 of preferred to account for? Mr. Baker. Yes. Mr. Redfield. Of the $200,000 common— let me ask first, was it part of this $200,000 that was sold for cash? Is that the $40,000 of preferred you mentioned? INVESTIGATION OF INSURANCE COMPANIES. 751 Mr. Baker. Yes, sir. Mr. Redfield. Then approximately $40,000 of this $200,000 pre- ferred which remained was sold for cash, leaving now $160,000 to account for? Mr. Baker. Yes, sir. Mr. Redfield. That $L60,000 preferred, together with $200,000 of common, was given as a bonus with the bonds which you have above testified were sold? Mr. Baker. Yes, sir. Mr. Redfield. So the only amount of the stock which was actually sold for cash out of the $500,000 issued was $40,000 ? Mr. Baker. Approximately. Mr. Redfield. And the balance of $460,000. went as a bonus, either •to the six gentlemen mentioned or to the people that bought $525,000 worth of bonds for $350,000. Is that right? Mr. Baker. That is correct. Mr. Redfield. Is that right? Mr. Baker. Yes, sir. Mr. Redfield. Thank you, very much. Mr. Baker, you were not one of those who bought any of this $40,000 worth of preferred stock for money, were you ? Mr. Baker. No, sir — I do not remember. I think there was a small portion, probably two or three thousand dollars, that I paid some cash lor. I do not remember now what the exact amount was. Mr. Redfield. Do you hold any of that stock now ? Mr. Baker. No, sir. Mr. Redfield. At what price did you sell it? Mr. Baker. That brings me back to your recapitulation right there and refreshes my memory about the matter. In your recapitulation there of that stock you stated in your figures that all but $40,000 of it went as a bonus to the purchasers of the bonds, did you not ? Mr. Redfield. I understood you to say so. Mr. Baker. I was just going to say that that refreshed my memory about a matter that did not occur to me when I answered that ques- tion. Mr. Redfield. State it in your own wav. Mr. Baker. There was $100,000 of stock issued to the five men. Mr. Redfield. Preferred stock? Mr. Baker. Yes; preferred; and some common stock as a bonus. There was $25,000 additional stock Mr. Johnson (interposing) . Common or preferred ? Mr. Baker. Preferred stock, with some common stock that was voted to Mr. Douglas and Mr. Karrick and Mr. McNeill and myself for certain services that we had rendered in financing the matter and raising money and indorsing notes and putting up collaterals and things like that — attending to the business of the corporation. We had put up our own collaterals. Mr. Redfield. It was not intended as a Mr. Baker (interposing). It was not paid for; no money was derived from it. Mr. Redfield. So we will alter our calculation in that way ? Mr. Baker. Yes, sir ; that makes it complete. Mr. Redfield. I will recapitulate it in order to get the record clear. Mr. Baker. Yes, sir. 752 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. So that there was issued to the gentlemen named a total of $125,000 of preferred stock? Mr. Baker. Not to the same live men. Mr. Redfield. Oh, no; but $100,000 to one group and $25,000 to another group ? Mr. Baker. Yes, sir. Mr. Redfield. These groups as you have described them? Mr. Baker. Yes. Mr. Redfield^ Making a total of $1-25.000 of preferred? Mr. Baker. Yes, sir. Mr. Redfiei.iv And leaving $175,000 preferred? Mr. Baker. Yes. Mr. Redfield. Out of which was to be taken the $40,000 sold for cash ? Mi. Baker. That is right. Mr. Redfield. Leaving $135,000 preferred, which, with the $200,- 000 common, went as a bonus to the bond buyers ? Mr. Doi-olas. "With $200,000 common, did' von say? Mr. Baker. Not $200,000 common. You 'say that $100,000 and $120,000 and *a certain percentage of common went, but I do not know what it was. Mr. Redfield. With the balance of common left after the bonus stock was given to these gentlemen? Mr. Baker. That is right. Mr. Redfield. I will ask you now at what price you sold your stock ? Mr. Baker. That brought me back, as I said, or reminded me that 1 had more than my pro rata share of the $100,000. I had something like $25,000 of preferred, and I sold it at 25. Mr. Redfield. Why did you sell at 25, and under what circum- stances. Mr. Baker; and when, please? Mr. Baker. I was trying to recall. As treasurer of the Southern Building Corporation I had had some differences with Mr. Sands and the Richmond Realty Corporation, and I thought it justified me in getting out, so I was not reelected treasurer. I had subscribed for $10,000 worth of second mortgage bonds and paid cash for them at 75. Mr. Redfield. That is, as a part of the Richmond deal? Mr. Baker. That is right; yes, sir. Those differences led me to the conclusion that I ought to get out of the building corporation. I sold my bonds — or at least I did not sell them, but I turned the bonds in to the Richmond Realty Corporation before I had these differences and took stock in the Richmond Realty Corporation. Mr. Redfield. On what basis did you do that? Mr. Baker. On the basis on which I paid for them. Mr. Redfield. Seventy-five? Mr. Baker. Yes, sir. It was a straight business transaction. Then I had the Richmond Realty Corporation stock, and when I had these differences I sold my Richmond Realty Corporation stock and got out of the Richmond Realty Corporation and resigned from the board of directors of the Southern Building Corporation, and I took the other stock I had and turned it into mv lock box and went off fishing. Mr. Redfield. Did you sell your stodt in the Southern Building Corporation at 25 ? INVESTIGATION OF INSURANCE COMPANIES. 753 Mr. Baker. I was in South Carolina fishing, and my brother tele- graphed me and asked me if I would take 25 cents for it, and I tele- graphed him yes, to sell it and deliver it. Mr. Redfield. That was the preferred stock? Mr. Baker. Yes, sir ; and the other went with it. Mr. Redfield. So that you actually gave away the common stock and got nothing for that ? Mr. Baker.' Yes, sir. Mr. Redfield. And sold your preferred at 25 ? Mr. Baker. That is right. Mr. Redfield. Will you calculate what the value of these securities was if you assume the bonds on the basis of 75, the price at which you sold them, and if you estimate the preferred stock at 25, the price at which you sold it, and the common stock at nothing, the price at which you gave it away? There were $700,000 of bonds, were there not, total par value ? Mr. Baker. Let me state it my way, if you please. Mr. Redfield. I wish you would. Mr. Baker. I have already stated that the money derived from the sale of these bonds and from the sale of stock aggregated ap- proximately $1,275,000. Mr-. Redfield. Does that include the $S00,000 ? Mr. Baker. Certainly. Mr. Redfield. Then I was simply getting at it in another way. Mr. Baker. I do not follow you exactly. Mr. Redfield. I will try to do it both ways, if you do not mind. Mr. Baker. All right, sir. Mr. Redfield. Then, your statement is the total amount of money received of every kind from all sources that went into that property was $1,200,000 ? Mr. Baker. Sure. Mr. Redfield. Substantially? Mr. Baker. How is that ? Mr. Redfield. Read the question, Mr. Stenographer. The stenographer (reading) : Then your statement is that the total ttniovut of money received of every kind from all sources teat went into that property was $1,200,000? Mr. Baker. $1,275,000. Mr. Redfield. Do you mind analyzing that a little bit with me ? Mr. Bakee. All right, sir. Mr. Redfield. You got $800,000 from the Equitable Life in actual cash, did you not ! Mr. Baker. Yes, sir. Mr. Prouty. Was there any discount or any premium on that? Mr. Baker. No, sir; not that I know of; I do not recall any. The records will show if there was, but I think not. Mr. Redfield. Then there were $700,000 par value of bonds, of which you sold your proportion at 75 cents on the dollar. What would that make the total value of bonds worth ? Mr. Baker. I do not catch your idea. Mr. Redfield. I am trying, Mr. Baker, frankly, to utilize your sales as a rough method of calculating the value of these securities ? Mr. Baker. My dear sir 754 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield (interposing). Pardon me. Without regard, for the moment, to what money the corporation received for them, to which you have already testified. Mr. Baker. That had nothing to do with it. Mr. Redfield. Precisely so. But if you will just answer my ques- tions as I ask them and do nothing else, I think it will come out clearly. Mr. Baker. All right, go ahead. Mr. Redfield. There were $700,000 of bonds of par value issued? Mr. Baker. First and second mortgages. Mr. Douglas. First, second, and third mortgages ? Mr. Baker. Yes; first, second, and third; thank you. Mr. Redfield. If those were valued at the price at which you sold, what would their value be? It would be $525,000, would it not? Mr. Baker. Yes, sir; I anticipate what you want. The $325,000 were not sold for 75. Mr. Redfield. I did not say they were. As I told you a moment ago, if you will confine yourself to answering my questions, you will come out all right. Mr. Baker. I beg your pardon. Mr. Redfield. There was $300,000 of preferred stock, total issue, was there not? Mr. Baker. Yes, sir. Mr. Redfield. And of which you sold your portion at 25 cents on the dollar? Mr. Baker. Yes, sir. Mr. Redfield. If the $300,000 were valued at 25 cents on the dollar, that would make it worth $75,000, would it not? Mr. Baker. Make what worth? Mr. Redfield. The preferred stock, if it were valued at 25 cents on the dollar. Mr. Baker. Yes, sir. Mr. Redfield. The common stock you gave away ? Mr. Baker. Yes, sir. Mr. Redfield. On that basis it was worth nothing at all. Taking, as the valuation of the securities of the company, the price at which you yourself sold, the result would be that the total issue of bonds would, on that basis, be worth $525,000, the total stock issue would, on that basis, be worth $75,000, to which must be added Mr. Baker (interposing). One moment. Let me get that down. State that again, please. Mr. Redfield. Read the question, ' Mr. Stenographer. [The stenographer read the pending question.] Mr. Baker. No, sir ; that is not correct, for this reason Mr. Redfield (interposing). Now, Mr. Baker Mr. Baker (interposing). Just a moment; let me answer that question. You put it at $700,000, when I have already said there were $100,000 of bonds in escrow, and you can not get $525,000 out of that. Mr. Redfield. You do not have my question. Mr. Baker. Then I beg your pardon. Mr. Redfield. I am going to ask you to confine yourself closely to my question. Mr. Baker. Very well. INVESTIGATION OF INSURANCE COMPANIES. 755 Mr. Eedfield. And leave the results for further questions. Mr. Baker. All right. Mr. Eedfield. There were issued a total of $700,000 of bonds, were there not ? Mr. Baker. $700,000; yes, sir; of which $100,000 Mr. Eedfield (interposing). For the moment, leave out those in escrow. Mr. Baker. All right. Mr. Eedfield. There was a total issue of $700,000 ? Mr. Baker. Yes, sir. Mr. Eedfield. If that $700,000 were to be valued at the price at which you sold, what would the total $700,000 be worth ? Mr. Baker. The figures you gave. Mr. Eedfield. $525,000? , Mr. Baker. .Yes, sir ; if you do that. Mr. Eedfteld. I said "if." Mr. Baker. Yes, sir. Mr. Eedfield. If the total preferred, stock issue of $300,000 was to be valued at the price at which you sold yours, what would that be worth ? Mr. Baker. $75,000. Mr. Eedfield. So that if you count the $800,000 as received in full, and if you measure the balance by what you sold it, the total money received by the corporation from all sources would be worth or have a value of $1,400,000, would it not? Mr. Douglas. Eead that question, Mr. Stenographer. Mr. Baker. I would like to have that, too. [The stenographer read the pending question.] Mr. Douglas. Pardon me, Mr. Eedfield, explain what you mean by the "measure of the balance at what you sold at." Mr. Eedfield. I will strike the question out. There is a mistake in it as the stenographer reads it. So that if you reckon the $800,000 as received in full and you value the other securities issued by the company at the price at which you yourself sold them, the total would be $1,400,000, would it not? Mr. Baker. Just a moment, please. I beg your pardon, Mr. Red- field, but I really do not catch the deduction you make there, for the reason— will you suggest to me how you arrive at that ? Mr. Eedfield. Will you answer certain detail questions now ? Mr. Baker. Yes, sir. Mr. Eedfield. The $800,000 was received on the first mortgage, was it not? Mr. Baker. Yes, sir. Mr. Eedfield. Please put that down. Mr. Baker. Yes, sir. Mr. Eedfield. There were issued $700,000 of second and third mortgage bonds total? Mr. Baker. Yes, sir. Mr. Eedfield. And you sold your share of them at 75 ? Mr. Baker. Yes, sir. That would be $525,000, but that was not what they were all sold for. Mr. Redfield. I have not raised the question of what they were sold for. Will you be kind enough to simply answer what I ask you and not break in in that way ? 756 INVESTIGATION OF INSURANCE COMPANIES. Mr. Baker. All right. Mr. Redfield. The $700,000, if they were worth what you sold yours for. were worth $52.>,000, were they not* Mr. Baker. Yes, sir. Mr. Rfjjfielj). There were issued $300,000 of preferred stock ? Mr. Baker. Yes, sir. Mr. Redfield. You say you sold your share at 25 cenls on the dollar? Mr. Baker. Yes. sir. Mr. Redfielh. "What would the whole issue be worth on the price at which you sold? Mr. Baker. Based on your question? Mr. Redfield. Yes. Mr. Baker. $600,000. Mr. Redfield. Oh, no. Mr. Baker. $525,000 and $75,000 and $800,000 would be $1,400,000. Mr. Redfield. Please strike out that answer as not responsive. Mr. Douglas. I object to that ; I object to striking out the answer. Mr. Redfield. Leave it in, by all means. Mr. Baker. I do not catch clearly what you mean. Mr. Redfield. If you will listen, you will catch it. Mr. Baker. We have disposed of the question of the $525,000 of bonds. I am now talking about the preferred stock exclusively. There was $300,000 of that issued, was there not ? Mr. Uedfield. You sold you share at 25, did you not? Mr. Baker. Yes, sir. Mr. Redfield. At what value would the whole $300,000 be worth at the price at which $ou sold? Mr. Baker. $75,000. Mr. Redfield. Please add the $800,000 and the $525,000 and the $75,000 together and tell me the result. Mr. Baker. $1,400,000. Mr. Redfield. That is what the securities of the company would be worth at the price at which you actually sold yours, plus the $800,000 you received from the Equitable Life ? Mr. Baker. Yes; on that basis. Mr. Redfield. On that basis, precisely. It has taken a great while to get that. You testified, Mr. Baker, the company only received $1,275,000, approximately. That makes a difference of $125,000 be- tween what the company got, as you testify, and what its securities were worth at the price at which you sold. How do you account for the $125,000 difference? Mr. Baker. You have made a calculation assuming that all the stock was sold at twenty-five when some of it was sold at less than twenty -five and some of it at more. I do not know what it all sold at. Mr. Redfield. Exactly so. It has taken a great while to get there. How much of it sold at less than twenty-five ? Mr. Baker. That I do not know. Mr. Redfield. How many bonds sold for less than seventy-five? Mr. Baker. You can make a calculation there; $325,000 worth of third-mortgage bonds producing $200,000 shows what they derived. • Mr. Redfield. Then, as a matter of fact, it is true that certain of this stock was turned in for less than twenty-five cents on the dollar and a certain amount of bonds sold for less than seventy-five? INVESTIGATION OF INSURANCE COMPANIES. 757 Mr. Bakee. I will testify as to the bonds, but not the stock, be- cause I do not know. I will testify that on $825,000 of third-mort- gage bonds they realized $200,000. Mr. Redfield. Exactly. So that although at the valuation of 75 for the bonds and 25 for the stock, plus the Equitable Life's mort- gage, the company would have received en that basis $1,400,000; as a matter of fact, some of the securities sold for so much less that it did receive only approximately $1,275,000? Mr. Bakek. Mr. Redfield, if you will pardon me, I do not think that the statement you have made there as to my testimony, as to what the corporation received in cash from the sale of its securities, as $1,275,000, is correct. The record ought not to show that, based upon a hypothetical sale of securities at $1,400,000, you ask me how I could explain that difference. You could make it any other price. It is misleading. I do not care to be put in that attitude. Mr. Redfield. The purpose was not to mislead you. Mr. Bakee. You see what I mean? Mr. Redfield. I see. The purpose was not to mislead you. The purpose, I will state very frankly, was this Mr. Baker. I stated very frankly where the money came from. Mr. Redfield. You did. Mr. Baker. I stated from what sources and all sources it came into the treasury of the Southern Building Corporation. Mr. Redfield. You did, Mr. Baker. The purpose was this Mr. Baker (interposing). I want the record to show what your purpose was. Mr. Redfield. The purpose was this: It turned out that these stocks and bonds had an actual value, when it came to a sale, such as you have put upon it, which is very much below par, and was the lowest. Mr. Baker. Yes. Mr. Redfield. Yet it also transpires that the actual value to the company of the proceeds of these same securities was less than that, eren. Mr. Bakee. I see what you mean now; yes. In other words, you could take any other price and ask a hypothetical question and make it any amount you wish. Mr. Redfield. Mr. Baker, some parties got more than 25 for their stock, did they not ? Mr. Bakee.' That I ,could not say. Mr. Redfield. Do you not know ? Mr. Baker. I do not, Mr. Redfield ; not of my own knowledge. Mr. Redfield. Do you not know, as a matter of fact, that certain parties came here and investigated the affairs of the company and found that the stock was worth more than 25 and insisted on getting 50 and got it ? ; Mr. Bakee. I do hot know that of my own knowledge. Mr. Eedfield. You do not? Mr. Bakee. I do not. I was not here. Mr. Redfield. What do you know about it? Mr.'BAKEE. I only know what I have heard. I do not know any- thing about it;. I .^as out of the city. My stock was sold when I wag out 6f the c'ity. ' I was not here. 758 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Mr. Baker, would you have sold your stocks and bonds at the price at which you did sell them if you believed or had any reason to think that building was worth $2,000,000? Mr. Bakeb. What is that question ? Mr. Redfield. Read it, Mr. Stenographer. The stenographer read the pending question. Mr. Baker. My answer to that is this: If I- believed it I would not have sold it; no, sir. I will answer that question that way. Mr. Phoutt. Mr. Baker, I want to see if I have these figures an- alyzed correctly. Mr. Baker. Yes, sir. Mr. Peouty. The company received $800,000 net for a loan which they made with the Equitable Life Insurance Co., did they not? Mr. Bakeb. That is correct. Mr. Proutt. They received $150,000 net for the second-mortgage bonds that thev sold ? Mr. Baker. '$200,000 of those bonds. Mr. Peouty. You said the third in your testimony. Mr. Baker. I said they received $150,000 for $260,000 worth. Mr. Prouty. I do not care what they sold; I want to see how much money they got. Mr. Baker. That is right ; they got that much money. Mr. Prouty. That is, they received $150,000 in net money for the second bonds? Mr. Baker. Yes, sir; that is right. Mr. Peouty. They sold $325,000 of thirds for $200,000? Mr. Baker. In money; yes, sir. Mr. Prouty. They sold certain preferred stock for which they netted substantially $40,000? Mr. Baker. That is right. Mr. Prouty. They took $75,000 of the second-mortgage bonds, or substantially that amount, and turned them over to the architects? Mr. Baker. About $65,000 or $75,000; yes. sir. Putting it at $65,000 and taking the $110,000— if I am correct as to those that are in escrow — would make it balance exactly. Seventy-five is correct, and $110,000 and $65,000 would make it. Mr. Prouty. If you figure this at 75 cents, it would make $56,250 as the equivalent in cash that was turned over to the architect. Mr. Baker. That would not be accurate, for this' reason, that the architect or contractor received either $65,000 or $75,000, and they took those at par. Your question says at 75. Mr. Prouty. But in figuring they probably figured them at 75. Mr. Baker. I do not know ; they took them from us at par. Mr. Prouty. Assuming they were worth just as much to them as to these other parties, that would make $56,250 equivalent in cash. Mr. Baker. If your figures are correct ; yes, sir. Mr. Prouty. Adding those together makes $1,246,250? Mr. Baker. Yes, sir. Mr. Douglas. The bonds were taken at par. Mr. Baker. That makes all of these calculations appear erro- neously. When you take a hypothetical basis that way to make these calculations, as if these stocks and bonds were sold and taken on that basis, it changes the total of what was really in the treasury. INVESTIGATION OF INSURANCE COMPANIES. 759 .Mr. Prouty. I realize that, but I am assuming, for the purpose of what I am trying to get at — I want to find out what the actual money was that went into this building. Mr. Baker. I stated it in the first instance. Mr. Prouty. I want to get it a little bit differently to see if I am correct. I am assuming these bonds were only really worth 75 cents on the dollar, because the rest of them sold at that. Mr. Baker. If you assume that, then the total that I gave would not correspond with that difference. Mr. Prouty. There is just a slight difference. Out of that money that was thus received they paid $510,000 for this land, did they not? Is that correct? Mr. Baker. That I could not testify. Mr. Prouty. I thought vou said the land was put in at $510,000? Mr. Baker. It was. It 'was put in at $510,000 and cost $410,000. Mr. Prouty. Was it not paid for out of these proceeds ? Mr. Baker. Oh. sure ; but you said $210,000. Mr. Prouty. I said $510,000. Mr. Baker. Yes. sir; that is correct. Mr. Prouty. That would leave some $736,250 to go mto the build- ing? ■ Mr. Baker. I do not follow you there. Just a moment. [After calculating.] What is the question? The stenographer read the pending question. Mr. Prouty. Assuming that the total cash assets received by this company from all these sources of sales and loans was $1,246,250, and they paid out of that $510,000 for the land, it would leave the sum of $736,250 that went into the building. Mr. Baker. Your figures are not correct in accordance with the facts. Mr. Prouty. Tell me where they are not correct. Mr. Baker. You have derived revenue there from the sale of the bonds at 75, when as a matter of fact the building corporation re- ceived par for them — that went to the builders and architects — and it' will not make a balance when you take this testimony and figure it up in that way. Mr. Prouty. It will not figure according to your balance ? Mr. Baker. It must do it to be correct ; yes. Mr. Prouty. I think you recognized the proposition that if you pay a man Mr. Baker (interposing) . I did not catch what you were after. Mr. Prouty. I think you recognize the business proposition that if you pay a man for doing something in securities that are not worth par you do not pay him that much cash. That is what I am trying to convey to you. Mr. Baker. If you do that, then you have to open up this whole question of the value of these bonds and take the contract and recast the whole thing. You admit that? Mr. Prouty. No; I do not. Let us go over this again. I do not want to confuse you. Mr, Baker. I am confused by it, for the reason that the figures you produce by your results do not correspond with the facts of the building corporation. 71391— No. 8—13 3 760 INVESTIGATION OF IXsH'RA-NCE COMPANIES. Mr. Prouty. But the difference is this, and it is apparent on the face of it, that you figure that these $75,000 of bonds that you have turned over were worth $75,000 to these men. Mr. Baker. I see your point. I see what you mean now. Mr. Protjty. They Avould not be worth any more to them than any- body else, would they? Mr. Baker. I understand what you mean now. If you deduct the difference between the 75 and what the architects and builders took, and take it at 75, then you get your result. Mr. Prouty. That leads to the next question. Were there any other moneys from any other source represented in the construction of that building or the purchase of that land? Mr. Baker. Xot unless it was done — not while I was there; not while I was treasurer. Mr. Prouty. Was not the building completed while you were there? Mr. Baker. It was turned over to the building corporation before I left there. Mr. Prouty-. Were there any floating debts? Mr. Baker. This controversy with the builders regarding that $20,000. Mr. Prouty. Outside of that, I mean. Mr. Baker. Not that I know of : not that I recollect. Mr. Prouty. If I understand you correctly, this land was turned over to this corporation at $100,000 more than it cost the parties that turned it over. Mr. Baker. That is right. Mr. Prouty. So. if you would deduct that, then there only went into this building and into this land $1,146,250? Mr. Baker. No, sir; that is wrong. You can not get that result. Their stock is beyond the mortgages, and you have put the stock before the mortgages there. Mr. Prouty. Mr. Baker, let us see if we understand each other. Mr. Baker. All right. Mr. Prouty. The property, as it now stands, by your figures, cost in cash values, assuming the land was cash, only $1,246,250. Mr. Baker. How is that? Mr. Prouty. $1,246,250. Mr. Baker. Do you arrive at that by taking the bonds that went to the builders and architects at 75 ? Mr. Prouty. Yes. Mr. Baker. That is correct. Mr. Prouty. You say that out of that amount came $510,000 to pay for the land ? Mr. Baker. No ; I did not say that. Mr. Prouty. How was this land paid for. Mr. Baker. It was paid for out of the $800,000 and $350,000 and the other money, but there was not any £100,000 of stock issued there. ^ Mr. Prouty. I said there was $510,000 of this money went to the payment for the land. ^ J Mr. Baker. Let us get back to your total. Putting the stock at 75 to the builders and architects, vour total is how much ? Mr. Prouty. $1,246,250. Mr. Baker. That is approximately correct. INVESTIGATION OF INSURANCE COMPANIES. 761 Mr. Protjty. That is absolutely correct. Mr. Baker. Yes. sir; based on the figures which you gave it is correct;, yes, sir. ■ ■...:,..■ Mr. Proutt. Out of this $1,246,250 there was $510,000 paid for the. land, was there not? Mr. Baker. No, sir. , Mr. Brouty. What was it paid out of? Mr. Baker. $410,000 was paid for the land. Mr. Redfield. Plus $100,000 of stock? Mr. Baker. Yes, sir; of stock. There was only $40,000 of money derived from stock that went into the construction of the building and the land. Mr. Redfield. Then T should have deducted $410,000 instead of $510,000...; Mr. Baker. Yes, sir ; that is right. Mi\ Redfield. Then that would make the actual money that Avent into the building $836,250, assuming on the 75 per cent basis. Mr. Baker. That is right, exactly. Mr. Berger. How much? Mr. Proutt. $836,250. Mr. Baker. Yes ; I catch your point. I really did not see it before. ; Mr. Redfteld. Mr. Baker, did you receive a circular from a con- cern called Story & Cobb or from John T. Story, jr., or a letter from them in regard to your stock ? Mr. Baker. No, sir. SJr. Eedfield. Did not the architect get some cash ? Mr. Baker. I do not remember. I think he did, but the records would show that. If he did he got it out of the amounts I have stated it was derived from. He did not get it from amy other source. I think he did get some cash, but I am not sure. Mr. Redfield. Did you ever hear of an attempt to gather together as much of this stock as possible at 25 or 50 until a sufficient amount was had to wind up the Southern Building Corporation ? ;■■■ Mr. Baker. I never did. ■Mr. Redfteld. Were any of the five parties who received the fl.00,000 in cash or the parties who received the $25,000 in stock, -also parties in the Richmond Realty Corporation ? ? ; Mr.. Baker. Some of them were and some of them were not. I Mr. Redfield. Who were? Mr. Baker. The Washington people that were originally in the Richmond Realty Corporation were Mr. Douglas, Mr. McNeill, Mr. Carrick,' and myself. I do not know whether Mr. Carrick was in it or not. I do not remember about him. Mr. Leckie was not. Mr. Leckie had ;sold his stock in the Southern Building Corporation to Mr. McNeill before I left there as treasurer. j.Mr. Redfield. What was the function of the Richmond Realty ppyporation in this connection? What did they do? Mr, Baker. The Richmond Realty Corporation was a holding company of the bonds and stocks of , the Southern Building Corpora- tion. We had a corporation organized under the laws of Virginia nnr] had .some .assets other than these, and it became a holding com- Wnr for the Southern Building Corporation, and through its stock foldings of the Southern Building Corporation that went with the 762 INVESTIGATION OF INSURANCE COMPANIES. bonds that the}- purchased they controlled the Southern Building Corporation. Mr. Redfield. They controlled the Southern Building Corpora- tion? Mr. Baker. Xot absolutely; they did not have 51 per cent of it entirely . Mr. Redfield. "Well, these gentlemen who were associated in the Richmond Realty Corporation, together with these gentlemen as individuals, did not they control the Southern Building Corporation? ■ Mr. Baker. Oh, yes ; yes, sir. Mr. Berger. Mr. Chairman, I just want to ask two questions that I am not clear on. Mr. Johnson. Help yourself. Mr. Berger. Mr. Baker, vou said that the total sum invested in the building was $835,000. Mr. Baker. No : I did not say that. Mr. Berger. Why, you admitted it to Judge Prouty. Mr. Prouty. $83*6,000. Mr. Berger. $836,000. Mr. Baker. Xo. I want to say this right now Mr. Berger (interposing). Well, according to the calculation brought out. Mr. Baker. Based upon his hypothesis. Mr. Berger. Based upon the $75,000 on the bonds which the archi- tects accepted : is that right? Mr. Baker. Let me explain this : You put a hypothetical basis here for this calculation, that may not correspond to what the records show, the records of the Building Corporation. Mr. Proutt. I presume the books show that. Mr. Berger. Based On this $836,000, then? Mr. Baker. Yes, sir. Mr. Berger. All right, $836,000. The land cost $410,000? Mr. Baker. That is right. Mr. Berger. $410,000. Am I correct? Mr. Baker. Yes. Mr. Berger. So the total sum invested in the Southern Building is, therefore, $836,000, plus $410,000. Mr. Baker. That is what I said. Mr. Berger. Or a total of $1,245,000. Is that correct? Mr. Baker. Approximately. Mr. Berger. Approximately? Mr. Baker. Yes. Mr. Berger. Is that correct— $1,246,000? Mr. Protjtt. You leave out a few cents. Mr. Berger. That is what I want to calculate; that is. the total sum invested in the Southern Building — $1,246,000. Mr. Berger. That is what I want to calculate; that is the total amount invested. I said it was in answer to his question, when you figure it out that way. I stated that $1,275,000 was the total cost. Mr. Berger. That is your statement? Mr. Baker. Yes, sir. Mr. Berger. According to your estimate the total cost was $1,275,000? Mr. Baker. That is right. INVESTIGATION OF INSURANCE COMPANIES. ^63 Mr. Bekgee. That would figure in the architects Mr. Baker (interposing). Bonds at par. Mr. Beeoer. All right. We will state, then, $1,275,000. Mr. Johnson. At the instance of Mr. Redfield, Capt. Schneider has been subpoenaed to appear here ; and, also at the instance of Mr. Redfield, I may say to Capt. Schneider — I do not know him when I see h^m— that he will not be called as a witness ; that he is finally permitted to leave. We will now take a recess until 2.15. Whereupon, at 1.15 o'clock p. m., a recess was taken until 2.15 o'clock p. m. AFTER RECESS. The subcommittee met at 2.15 o'clock p. m., pursuant to the taking of recess. TESTIMONY OF JAMES M. BAKER— Continued. Mr. Johnson. Mr. Douglas, you may take the witness. Mr. Douglas. Mr. Baker, let me ask you, as prefacing this cross- examination, if you ever knew or ever heard that any stockholder or director or officer or agent or representative of the Commercial Fire Insurance Co. or the First National Fire Insurance Co. had any stock or interest or holding, direct or indirect, in the Southern Building Corporation, or the Eichmond Realty Corporation, before the purchase of this property ? Mr. Baker. Never. I never heard of it. Mr. Douglas. You had no suspicion and, so far as you know, no reason to suspect that these gentlemen had any interest whatever in either of those corporations? Mr. Baker. I know of none. Mr. Douglas. You never heard of any ? Mr. Baker. No. No, sir. Mr. Douglas. Mr. Baker, you stated at the outset of your ex- amination that much of the details of this matter had passed out of your mind, had been crowded out by other things. I will ask you, to see if I can refresh your memory, about one or two of these mat- ters. Do you not remember that the gentlemen who first took an option on this property, Monsignor Lee, of the St. Matthew's Catholic Church, that it was first sold by them to the Southern Commercial Congress for $510,000, or $25 a foot? Mr. Baker. I think I so stated in my testimony. Mr. Douglas. There was some confusion with reference to this and the Southern Building Corporation. I will ask you if, as a matter of fact, the Southern Commercial Congress was not the purchaser of fee property from the syndicate ? Mr. Baker. I so stated; yes. Mr. Douglas. Do you remember, Mr. Baker, that these gentlemen who sold this property to the Southern Commercial Congress took a written agreement in the nature of a mortgage for the difference between the price they paid and the price at which they sold ? Mr. Baker. The answer to that question would be I think so, but the record would show. That was what I wanted — to refresh mv 764 INVESTIGATION OF INSURANCE COMPANIES. recollection — :ind that is the question that Mr. Redfield asked me. and I wanted to be positive about, but I think that is so. Mr. Douglas. I think I can refresh your memory about it. Mr. Baker. I think that is true, because I have none of these papers, and I have not seen one of them in eight months. Mr. Douglas. And do you not remember, Mr. Baker, that the Southern Commercial Congress paid in round numbers $50,000 on account of the purchase price of the property? Mr. Baker. Yes. Mr. Douglas. $50,000 or $60,000 ? Mr. Baker. $50,000 or $60,000. Mr. Douglas. Between $50,000 or $60,000, and that the balance. which was the difference between the $510,000 and the $110,000, they gave their obligation to pay that money, at certain stated fixed times, and was there not a provision in the agreement that if the holders of it saw proper to record the paper as a mortgage they could do so, constituting a third mortgage on the property? Mr. Baker. Well, I think I had the agreement, but I do not know what was in it. I think probably that is true. Mr. Douglas. I mean that is the substance of it. Mr. Baker. Yes ; I think that is true. Mr. Douglas. The Southern Commercial Congress, you will re^ member, then found itself unable to finance the project and could not continue to make the payments on account of the purchase price as scheduled in their agreement with the syndicate. Mr. Baker. I stated that in my testimony. Mr. Douglas. And do you not remember, Mr. Baker, that that be- ing the case, a new corporation was organized, called the South- ern Building Corporation, and that it then became the purchaser, taking over the rights of the Southern Commercial Congress, us well as of the syndicate, at the same price? Mr. Baker. That was true. I do not know the exact terms of if, but I remember Mr. Douglas (interposing). You remember thev took it at the same price. $510,000? Mr. Baker. Yes; $510,000. Mr. Douglas. Do you not remember. Mr. Baker, that the gentleman who held that agreement from the Southern Commercial Congress, which constituted a third mortgage on the property, subject to out- standing mortgages of $300,000. 1 think, then agreed, in order to help out the formation of the new corporation, to convert their obligation on this property for $110,000 into stock? Mr. Baker. Well, I think you are correct as to that, and that answers Mr. Redfield's question. I did not want to answer that question until I could get the record. My recollection is that is true, but T have not the record to be absolutely sure of all the details, but I think that is true. Mr. Douglas. I understand you desire to qualify and think very properly so. So then the fact is, Mr. Baker, that the gentlemen who got the $100,000 of stock in the Southern Building Corporation got it by the surrender and cancellation of their obligation against this property for $100,000, and it was subject only to the existing mortgages against the property, then aggregating $300,000? Is not that aj proximately correct? INVESTIGATION OF INSURANCE COMPANIES. 765 Mr. Baker. Yes; I think it is. Mr. Douglas. I will ask you this, Mr. Baker: Did not you ;md I and a few others — who have many times had occasion -to regret — surrender a perfectly good obligation for the $100,000 of stock in the Southern Building Corporation? Mr. Baker. I did, most assuredly. Mr. Douglas. And that is the very stock that you got 25 cents on the dollar for ? Mr. Baker. I took the position that as we had put up a certain amount of money there that if that ground was worth the $510,000, which we all contended it was, that we should have had compensation for it instead of stock — should have taken bonds for it. Mr. Douglas. Is not this true, Mr. Baker, that that very obliga- tion Mr. Baker (interposing). The reason, however, was the reason that it was not done — as treasurer we had had a great deal of diffi- culty in financing the Southern Building Corporation, and it was absolutely essential, as I recall, to put the stock beyond the bond'-;. Mr. Douglas. "We will come to the bonds in a moment. That obligation of $100,000 that you and your associates converted into the stock of the Southern Building Corporation at par — you took vour stock at par. did you not, Mr. Baker, in satisfaction of that $100,000? Mr. Baker. Yes, sir. Mr. Douglas. And then there were two mortgages against the property — one held by the Fidelity Mutual, of Philadelphia, for $160,000- — Mr. Baker (interposing). Of New Jersey. Mr. Douglas. Of New Jersey ; that is right. And the other, origi- nally $190,000, had been cut down by between $50,000 and $60,000 to about $130,000. Mr. Baker. I do not remember those details. The record will show that; will show what the transaction was. I do not recall the amounts. Mr. Douglas. At any rate, Mr. Baker, you remember this, that the money that the Southern Commercial Congress had paid — be- tween $50,000 and $60,000 — was behind the obligation to you and your associates for $100,000, because they were the purchasers ? Mr. Baker. Will you restate that question ? Mr. Douglas. You remember this, that this syndicate sold this property to the Southern Commercial Congress ? Mr. Baker. Yes, sir. Mr. Douglas. And took the obligation of John M. Parker and others for the balance of the purchase price and paid $50,000 or $60,000 on account of it, and then were unable to carry through the project? Mr. Bakek. I so stated it: Mr. Douglas. That is just a preface to what I am going to ask you. Mr. Baker. I did not state the amount because I do not know the amount. . Mr. Douglas. Then these gentlemen took from the Southern Com- mercial Congress the obligation of $100,000 to which I referred, which contained a clause — the contract of which I will introduce. Mr. Chairman, to-morrow morning — giving them the right to record 766 INVESTIGATION OF INSURANCE COMPANIES. it as a mortgage against the property. You remember that, gener- ally? Mr. Bakee. I do not remember the details. That was a legal matter. Mr. Douglas. You remember the existence of the contract ? Mr. Baker. I say I know — I could not testify. Mr. Douglas, as to the contents of those, because they are matters of record, and I know that it was taken over from the Commercial Congress. Mr. Douglas. You do remember the existence of a written agree ment ? Mr. Baker. Yes; I remember that, because I have a copy of it somewhere. Mr. Douglas. Containing the obligation on the part of the South- ern Congress to pay that amount of money, but as to the details yon do not remember. Mr. Baker. Yes. I had a copy of that, but I do not remember what was in it. Mr. Douglas. Mr. Baker, at that time, when this Southern Build- ing Corporation was organized, do you not remember that the stock issue was very different from what it is now ? Mr. Baker. I stated that I would have to have the records to show. Mr. Douglas. I am going to refresh your memory. I know you will recall it. Do you not remember that when the Southern Build- ing Corporation was first organized they had capital stock of $1,200,000— $(500,000 preferred and $600,000 common? Mr. Baker. That was in the prospectus. Mr. Douglas. I have the prospectus here, which I will show you in a moment. And when they decided to finance it differently, by putting these mortgages on the property, that the stock issue was cut down from $1,200,000 to $500,000. Do you remember that? Mr. Baker. That is true. That constituted the 3 and 2. Mr. Douglas. Reducing the preferred from 6 to 3 and the common from 6 to 2 ; that is correct, is it not ? Mr. Baker. That is true. I know it was reduced down to 5 — 3 and 2 ; 3 of preferred and 2 of common ; I have always carried that in my mind. Mr. Douglas. And the only promotion stock you know anything about, Mr. Baker, as I understand it, is the $125,000 preferred that was issued to the four or five gentlemen who organized and pushed the company into existence ? Mr. Baker. That was always my understanding, that that $125,000 was for services that had been performed, as I stated this morning in my direct testimony. That is the reason I did not answer Mr. Red- field's first question this morning, because the records show the trans- fer of this property from the Commercial Congress to the Southern Building Corporation. I wanted to look at the records to make that statement absolutely clear. I had copies' of all those papers as treas- urer, but I left them, of course, with the records of the Southern Building Corporation. Mr. Douglas. Mr. Baker, I suppose you can answer this question without any reference to any notes — I have no doubt it is burnt into your memory: I will ask you if this not true, that the gentlemen who tried to develop and finance this corporation worked unusually INVESTIGATION OF INSUBANCE COMPANIES. 767 hard by day and by night to make that corporation a success? You remember that do you not — including yourself ? Mr. Baker. I do not think there is any question about that, Mr. Douglas. Mr. Douglas. Do you not remember, Mr. Baker, that at the time of the sale of the $200,000 of second-mortgage bonds that that was made absolutely and imperatively necessary at that particular time that it should be done, otherwise the corporation would have gone into bankruptcy ? Mr. Baker. That is true. Mr. Douglas. Is it not true that the corporation had obligations in various banks, in Bichmond and in Washington, that were, some of them, overdue and others maturing, and do vou not remember that the bank examiner required that the existing obligations of the Southern Building Corporation should be taken out of the various banks here and at once ? Do you not remember that ? Mr. Baker. Yes, sir. Those bonds were sold at 75 on account of the exigencies in which the Southern Corporation found itself. Mr. Douglas. Do you remember that you, leading many others, made every possible effort to sell those securities, or, rather, to finance that company on a better and more advantageous basis that that? Mr. Baker. I did. Mr. Douglas. You at that time had indorsed various notes in the United States Trust Co. and the United States Savings Bank, and I think also in Bichmond, and in some instances put up your own personal securities to help finance the company. Mr. Baker. I so stated. Mr. Douglas. Do you not remember the rest of us — Mr. Carusi and the rest of us — did the same thing ? Mr. Baker. Yes, sir ; I did. Mr. Douglas. You remember that the original issue, the maximum issue of second mortgage bonds, was $450,000, as a maximum that could be issued under certain circumstances ? Mr. Baker. Authorized. Mr. Douglas. Yes, sir. And that the Thompson-Starrett con- tract provided for the automatic scaling down of those bonds, de- pendent upon the outcome of the venture ? Mr. Baker. I so stated in my direct testimony — that the contract had a clause in it which required that the bonds should be canceled on a scaling schedule. Mr. Douglas. And that is the reason why the $100,000 of bonds in the United States Trust Co. in escrow were put up ? Mr. Baker. Yes, sir. Mr. Douglas. So as to enable the Thompson-Starrett Co. to en- force the retirement of so much of the bonds as might be necessary to carry out the provisions of that contract ? Mr. Baker. Yes, sir. Mr. Douglas. That is why they were put up ? Mr. Baker. Yes, sir ; I so stated. Mr. Douglas. I thought you had, but T mentioned it so there would be no doubt as to what was meant. Mr. Baker, do you not remember also that the third-mortgage bonds were issued because we found it utterly impossible, because of the limitations in the 768 INVESTIGATION OF INSURANCE COMPANIES. issue of the second-mortgage bond*, to issue the third-mortgage bonds, because Ave could not issue the balance of the second mortgage? Mr. Baker. That is true. Mr. Douglas. That is why there was a third mortgage put on this property instead of a first and second? Mr. Baker. It was. I made an effort to get the Thompson-Star- rett people to modify that contract, which they would not do. Mr. Douglas. Do you not also remember. Mr. Baker, that before the second and third mortgage bonds were issued and sold at the price that was named, I mean the price ultimately paid, that this proportion was submitted to the stockholders of the Southern Build- ing Corporation? Mr. Baker. The records of the corporation will show that. Mr. Douglas. T say. do you not have some independent recollec- tion of that ? Mr. Baker. Yes; I remember that. Mr. Douglas. I will state now, Mr. Chairman, that I shall pro- duce here to-morrow morning the book containing the minutes of the stockholders' meetings and of the bord of directors' meetings of this corporation from its birth to its death, and also the stock book showing to whom the stock was issued and when it was issued; and we will want those books offered in evidence and printed with the balance of the testimony, so much of them as the committee may deem proper and right. I will also state that the books of the cor- poration, as to each and all of the transactions of the company, will be thrown wide open to the committee to-morrow morning, so they can go into everything they deem necessary and proper. Xow, Mr. Baker, I suppose you remember generally that before this building was sold and before you and I and the rest of us parted with our stock in this corporation that differences of various kinds, developing from various causes, had been brought about, and that there was not complete harmony and cooperation in the hand- ling of the corporation. You remember that ? Mr. Baker. Yes, sir. Mr. Douglas. Which made it the more difficult to finance it? Mr. Baker. Yes. Mr. Douglas. You have been asked to point out the various liens on this property and the amounts that the Southern Building Cor- poration realized from the sale of its several securities. Mr. Baker. Yes. Mr. Douglas. I think Judge Prouty asked you a certain question which would show that, taking the securities at what the company realized from them and deducting from the sum total of the cash thus received, the building would stand the company the figure of about $835,000? Mr. Baker. That was assuming the basis upon his own calcula- tions. I did not care to be put in the attitude of testifying as to that being a fact, which I do not know. Mr. Douglas. I think the judge's figures were based upon a cor- rect hypothesis. They seem to be; and therefore I will proceed upon that assumption. Assuming that the company received from the Equitable $800,000, and that it received from these various sources the amounts, of money you have named on second and third mortgage, and assuming that deducting from that the actual amount INVESTIGATION OF INSURANCE COMPANIES. 769 it paid for the land, $410,000— deducting from that the $100,000 issue of stock, would leave about $836,000 as the cost of the building — and I want to ask you this, Mr. Baker : Did not the Southern Build- ing Corporation put a good deal more money into that structure than what appears to have been put into it on the surface? Let me re- count a few things to you. Do you not remember that the purchase price of the property itself had been reduced — I mean the $410.000 — by the payment by the Southern Commercial Congress of the sum of between $50,000 'and $60,000— the exact amount we will get to- morrow ? You remember they had paid that on account of the pur- chase price of the lot, had they not? ilr. Baker. Yes; they had paid that on account of the purchase price of the lot. But I do not quite see your point there, for this reas< n — my recollection is that that is true, but my recollection was that that money that they paid was part of the cash paid for pre- ferred stock. Am I correct? Mr. Douglas. No ; oh, no. Far in excess of that. Mr. Baker. I woidd have to look at the record. Mr. Douglas. Let us first begin with the $510,000 for the Southern Building Corporation. They had paid in $110;000. and the $110,000. you remember, was the amount of that agreement; paid that much preferred stock to you and your associates? Mr. 1 Baker. Yes ; I know it was $110,000, which was reduced to $100,000. Mr. Douglas. Do you not remember that the Southern Commercial Congress, which had practically no assets at all, and would have lost its money if the obligations against it had been enforced, that the Southern Building Corporation nevertheless issued to it of its pre- ferred stock for the amount of money, share for share, that they had actually paid in, about $50,000 ? Mr. Baker. My understanding and recollection about it, Mr. Doug- las, is this: That they did issue preferred stock, and that that was the stock that I had added to the mortgages of $1,400,000. I would have to examine the records to see if I am correct, but that is my recollection about it. Mr. Douglas. I assumed the contrary for the purposes of illustra- tion, and I think you will find it is so. Mr. Baker. Well, probably so. Mr. Douglas. This much is true ; you will probably remember, Mr. Baker, that the Southern Commercial Congress had paid around fe>0»000 that had been applied on account of the purchase of the lot. do you not? Mr. Baker. How is that ? Mr. Douglas. You will remember the Southern Commercial Con- gress had paid around $50,000, had- given that in part payment of the purchase price on the lot ? Mr. Baker. I so stated, and, as I say, I thought that the preferred 'tock that was issued was for that. Mr. Douglas. The Southern Commercial Congress got preferred stock in the building corporation for that money, did it not ? Mr. Baker. That is what I testified. Mr. Douglas. That is in addition to the $40,000 to which von refer? 770 INVESTIGATION OF INSURANCE COMPANIES. Mr. Baker. That is the point exactly, and I do not- Mr. Douglas (interposing). I want you to assume it. because we will come to the proof of that later. Mr. Baker. All right. Mr. Douglas. Assuming that to be $50,000, for which the Southern Commercial Congress issued its preferred stock, that, added to the $110,000 of the original syndicate, would be $160,000 of the purchase price paid in that way, if I am correct in my assumption of the premises ? Mr. Baker. If you will pardon me, Mr. Douglas, I do not want to be put in the attitude of refusing to answer your question, but the difficulty is this : That you should produce the records of the Southern Building Corporation so I can see what these transactions are, and not permit me to try to testify from memory about those things. I may be wrong on this point. I judge from your question there that you think, and I think the records show that the $50,000 paid by the Southern Commercial Congress on that land was in addition to tho $40,000 that I have spoken of as stock. The records will show that, and my recollection is that whatever was paid then by the Southern Commercial Congress, preferred stock was issued for it. Mr. Douglas. Preferred stock was issued? Mr. Baker. Now. if I am wrong, the record will show that, and I do not want to testify on that particular point until I can see the record. Mr. Douglas. You were treasurer of the building corporation cer- tainly during the period of the construction of the building? Mr. Baker. Since I left the building here, I had some memoranda in my desk — I wrote to the secretary of the corporation, before I quit the corporation, and asked him the date, and I was elected in Feb- ruary, 1910, and I was treasurer until the annual meeting of the stockholders Mr. Douglas (interposing). In 1912? Mr. Baker. In 1912. Mr. Douglas. Well, now, Mr. Baker, you will remember, do you not, that during the period of construction, that you had to pay in- terest upon the Equitable's mortgage? Mr. Baker. Yes. Mr. Douglas. And it was paid? Mr. Baked. Yes ; that was paid out of the moneys we had. Mr. Douglas. And that would have to be added to the actual as- certained price of the Thompson- Starrett Co., would it not? Mr. Baker. How is that? Mr. Douglas. That would have to be added to the actual price of the — of the actual cost of the portion that the Thompson-Starrett Co. constructed, would it not ? I mean to say that money did not go to the Thompson-Starrett Co. ? Mr. Baker. Well Mr. Douglas. Interest on the Equitable mortgage ? Mr. Baker. Well, of course, interest was paid, but the interest was paid out of the $800,000 and the proceeds of the bonds and the proceeds of the sale of the stock. There was no other money to pay interest out of. INVESTIGATION OP INSUKANCE COMPANIES. 771 Mr. Douglas. I am not asking at this particular time about where the money came from. I am trying to show what the Southern Building Corporation actually paid out. Mr. Baker. They did not pay out anv more than I have testified to. did they? Mr. Douglas. No ; they did not steal any. Mr. Baker. No; nobody has accused them of doing that. Mr. Douglas. They had to get the money from some source, and I am endeavoring Mr. Baker (interposing). Yes. Mr. Douglas. First of all, it had to pay what was due the Thomp- son-Starrett Co. under its contract, did it not ? Mr. Baker. Yes. Mr. Douglas. And you will remember all that they claim of that amount that was not paid was the fourteen and odd thousand dol- lars, for which they filed this mechanic's lien ? Mr. Baker. I thought it was twenty. I was not sure. Mr. Douglas. No; it is fourteen and odd thousand dollars; and they had to pay, besides the Thompson-Starrett contract, the interest of the Equitable mortgage during the period of construction ; is not that true? Mr. Baker. Yes, sir ; they paid all interest charges. Mr. Douglas. They had to pay the inspector's fees or the Equi- table's representative? Mr. Baker. Most assuredly. Mr. Douglas. About $3,000? Mr. Baker. Yes, sir. , Mr. Douglas. And they had to pay on that building for the sewage Connections about $3,000 ? Mr. Baker. Yes, sir. • Mr. Douglas. You remember generally? Mr. Baker. Yes, sir. Mr. Douglas. Mr. Baker, you remember, generally, that improve- ments that were part and parcel of this building were made there by the United States Trust Co. that we did not actually pay for out of the treasury of the Southern Building Corporation, do you not? Mr. Baker. What is that? I did not catch it. Mr. Douglas. You remember that there were large improvements put upon this building by the United States Trust Co. that did not come out of the treasury of the Southern Building Corporation, amounting to about $75,000? Mr. Baker. I did not know it amounted to that. I know that the United States Trust Co. had a contract with the building corporation that provided a scale of rental, beginning with $8,000. I am speaking from memory. Mr. Douglas. Yes. Mr. Baker. And if you have those books here, they will show for themselves; and ultimately $12,500, but my recollection is it would bring the rental of the trust company, however, to $10,000 a year. Mr. Douglas. On an average? Mr. Baker. On an average for the 10 years, and they contemplated putting in about $40,000 worth of improvements there, which they 772 INVESTIGATION OF INSURANCE COMPANIES. were going to pay for. because the Southern Building Corporation did not have the money to put them in, and taking that as a liasis, and at 5 per cent, the trust company — as I was interested in the tni^t company at the time — would pay $12,500 on an average for rental of their quarters. That was my recollection about it. If they spout $75,000, why, I do not know it.' Mr. Douglas. Whatever they spent, it was not paid — whatever may be the contract, it was not paid out by the Southern Building Corporation, was it ? Mr. Baker. Xo; it was not paid out by the Southern Building Corporation, because the Southern Building Corporation let them have the quarters at a cheaper rental, because they let them have the money. Mr. Douglas. Yes. Mr. Bakei!. Because they put up the money. Mr. Douglas. In other words, they put up the money to help im- prove the building and the Southern Building Corporation rented the quarters at a less rate than it otherwise would have rented them? Mr. Baker. Why. certainly; that was the understanding; that was the incentive for the trust company to take those quarters, to get the rental down and to put up the money to make those improvements. I never knew what they were. Mr. Douolas. Instead of charging, for instance, twelve or fifteen thousand dollars for the quarters, they rented them for a period of 10 years, on an average of $10,000 a year? Mr. Baker. That is my recollection. Mr. Douglas. Upon the understanding that the United States Trust Co. should make those improvements on that building. That is right, is it not? Mr. Baker. Yes; to make the improvements. I do not know whether the contract limited them or not. My recollection is that they were limited to $50,000, but I may be mistaken as to that. Mr. Redfield. Mr. Baker, was there any feature in that contract that, if at the end of 10 years the United States Trust Co. moved out, one-half of what they had spent for improvements had to be paid back to them? ' Mr. Baker. Yes; there was a clause Mr. Douglas (interposing). Yes; I was coming to that. Mr. Baker. There was a clause in there providing for a certain percentage. I think it was 50 per cent, but I am not positive. Mr. Douglas. Fifty per cent at the end of the first 10 years and 25 per cent at the end of the second 10 years, if they should remain there as a tenant? Mr. Baker. Well. I do not remember. There was a clause in there to protect the corporation so they would be the owners of the fixtures as a banking room. Mr. Douglas. You do know, do you not, Mr. Baker, that very considerable sums of money were spent by the Southern Building Corporation outside of the Thompson-Sterrett contract in making ■■ arious improvements and changes in that building, at its own c< st, . do you not? Mr. Baker. At its own cost? Mr. Douglas. Yes. I mean over and above the contract price ot the Thompson-Sterrett people? INVESTIGATION OF INSURANCE COMPANIES. 773 Mr. Baker. Well, the Thompson-Sterrett people rendered a bill to the Southern Building Corporation which was a question of con- siderable negotiations between the corporation and the Thompson- Sterrett people about extras, but it was— I do not know what the amount of it was. Mr. Douglas. You do not know the amount of it ? Mr. Baker. I know that the steel that was put in there was an extra charge — that was the largest item in it — in order to carry the two additional stories. It was something like $17,000, if I remember correctly. Mr. Douglas. Over and above the Thompson-Sterrett contract price % Mr. Baker. Yes ; that was what the contract provided for ; it had a clause in it that provided for all extras, and that was one of the things that gave us considerable trouble. Mr. Douglas. You remember, do you not, when the Commerce Court complained about the big pipes that were in the ninth story, and that is after the Thompson-Sterrett people were out, that the Southern Building Corporation employed Cornell & Co., plumbers, to change that and make additions, which amounted to nearly $3,000? Do you not remember that ? 1 Mr. Baker. I know that those changes were made, and it was $2,500 or $3,000 that was paid. Mr. Douglas. Do vou remember the extra bill of the Hammett Fireproofing Co. for $2,500 ? Mr. Baker. I do not recall that. I do the other. Mr. Douglas. Mr. Baker, I suppose you remember that during the time you were treasurer of the company, that the entire net in- come of the building — that is to say, after paying taxes and opera- tion cost-— that the company used its rentals, its rent money, to help Complete its obligations with reference to the building of this build- ing? You know that generally, do you not? Mr. Baker. It did. in a way; but, Mr. Douglas, to be precise, I would not want — the books will show that. Mr. Douglas. I have not asked you to be precise. I just asked you generally. Mr. Baker. I know they took some of the rents to pay interest on some of the notes that were due, and they took the rents to pay the taxes. Mr. Douglas. In other words, Mr. Baker- Mr. Baker (interposing). You see, I left there— — Mr. Douglas (interposing). Yes; I am not asking you about last year. Mr. Baker. I left there in 1912. Mr. Douglas. Yes. Mr. Baker. And the taxes became due on June 30, T believe. Mr. Douglas. Yes. Mr. Baker. And I was not treasurer. My recollection is that the statement of. the account about that time was behind $l;i,000. to about $25,000 or $30,000. Mr: Douglas. Yes. Mr. Baker. And they contemplated borrowing money to pay the taxes and interest on the bonds, which had been paid prior to that. 774 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Now. Judge Prouty, will you give me — do you remember, Judge, just the total figures you made as to this building? The data you had was about $1,246,000. was it ? Mr. Baker. That was made on the stock that went to the Mr. Peoutt. $1:246.250. Mr. Douglas. Yes. Xow. that is the amount of money, so far as you know, that the Southern Building Corporation realized from all sources? Mr. Baker. How is that ? Mr. Douglas. That would be about what you think Mr. Baker (interposing). No; I did not state that. Mr. Douglas. Your figure is $1,275,000? Mr. Bakee. Yes. I stated that his figures were slightly wrong, if you will pardon me. Judge Prouty. You took 75. It should have been 65, Mr. Douglas. Let us assume that and go on. Let us assume it to be $1,275,000. If the improvements made by the United States Trust Co. would aggregate $75,000 and the corporation expended in the pay- ment of its various other obligations incident to the building of this building, say. as much as $100,000 more — and I am not using that hypothesis, but sav $100,000 more — that would be what? Add $75,000 to the $1,275,000 for just a minute, Mr. Baker, will you? I want to fall into the good habit of Mr. Redfield. That would make $1,350,000? Add to $1,275,000, $75,000 for the United States Trust Co.'s improvements- Mr. Baker. Well . Mr. Douglas. Will you add to that a hundred thousand dollars, expended in this building from rents? See what that would amount to. Air. Baker. That is $1,450,000, is it not? Mr. Bakee. That is what it totals — your figures. Mr. Douglas. $1,425,000. Has any question asked you taken into consideration the possibility that they expended money and con- tracted debts which they had not paid, amounting to fifty or seventy- five thousand dollars at the time of this sale to the Commercial Fire Insurance Co.? Did you take that into account in estimating how much money they had expended ? Mr. Baker. No, sir. Mr. Douglas. You did not? Mr. Baker. I stated at the outset in my testimony yesterday that this question of the adjustment of the United States Trust Co. and any other matters happened after I left there, and I do not know anything about those expenditures, and had nothing to do with that phase of it. I knew about them, at the inception — what the agree- ment was. as you know, at the beginning. Mr. Douglas. All I meant to ask was that in stating the total amount of money that the company had received, you did not take into account what should be added to that, the amount it had re- ceived in the shape of loans, money borrowed, and money paid back? Mr. Baker. No. I do not care' to testify, Mr. Douglas, either as to that, or as to Judge Prouty's question, because it was based upon a sale of the stock and of the bonds at the cash price. As a matter of fact, thev were not turned in at that. The Thompson-Sterrett people and the other people took them at par, and I was simply testifying INVESTIGATION OF INSUBANCE COMPANIES. 775 us treasurer, as to what the building cost, and where the money came from to pay for it. Of course, anything that has been spent since I left there was a matter I do not know about. Mr. Douglas. Yes. As there are so many matters connected with this particular development, Mr. Chairman, which I think would re- quire my attention here in Washington to-night, I am perfectly willing to go on, and still further postpone my trip, on another phase of- this case. I would like to know from the committee what papers they would like to have from the Southern Building Corporation, or from the fire insurance companies, that might throw the light you want on this transaction. I am going to offer in evidence to-morrow morning the book containing the minutes of the stockholders' meet- ings from the inception of the corporation to its end, and of all the meetings of the boards of directors, and the stock books showing to whom and when and what number of shares were issued to the var- ious parties. Since this matter has been gone into at all, I think it is due everybody it should be gone into so that all the light may be thrown upon the entire transaction that is possible. Mr. Redfield. I think we might like to have, Mr. Chairman, the correspondence between ;. Mr. Peoutt (interposing). While you are looking that up, I would i suggest that, if I were calling for evidence, I would like to hava the deed from the church people to the first syndicate. Mr. Douglas. You want the deed from the church to its grantee ' as I understand ? Mr. Johnson. It recites a consideration of $10. Mr. Peoutt. Well, that would be of no use to me. Mr. Douglas. It will give you the date. I thought perhaps you wanted it for that purpose. Mr. Peoutt. No. It is the practice here not to have your deeds recite a correct consideration? Mr. Douglas. Yes, sir. Mr. Johnson. Ninety-five per cent of the deeds recite a considera- tion of $10. Mr. Douglas. Yes ; fully that. Mr. Redfield. I would like to have the correspondence between John P. Story, jr., or Story & Cobb Mr. Douglas. Mr. Redfield, did you finish ? Mr. Redfield. No ; but the chairman suggested, and you may have heard him, that we might add a list of the papers we need and we will supply that. It is the correspondence between Story and Story & Cobb and the stockholders of the Southern Building Corporation, together with any circulars they may have issued at that time, which we will ask for. Mr. Baker. Have you finished with me? Mr. Douglas. If you haven't them, of course we will get them from him. It occurred to me possibly they were matters of which you ■night have copies. Mr. Caeusi. We dealt directly with Mr. Story. Mr. Baker. Mr. Chairman, I would like to make just this state- Went in regard to a remark that was made in reference to the building corporation. Mr. Douglas asked me a question about it, but I would «ke to amplify it. 71391— Xo. 8—13 i 776 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. I suggest that Mr. Baker be allowed to amplify whatever it is. Mr. Baker. Something has been said here in reference to the Southern Building Corporation and its connection with the fire insur- ance company prior to the purchase of this building. So far as T know there were never any transactions between the two, and no one in the Southern Building Corporation, so far as I knew, had any connection with either one of the fire insurance companies. I would like to have that go into the record in view of the statement that was made this morning that there seemed to be— that the two were linked together in some way. Mr. Berger. You misunderstood that. Mr. Baker. Well, I so understood. Mr. Douglas. That is the way I understood it. Mr. Johnson. You are entitled to put in any explanation of the testimony you have given, which you may desire to make. Mr. Baker. I simplv want the record to show what the facts are. That is all. Mr. Johnson. Well, anything you say will go in the record. Mr. Baker. There is one other matter, and that is this : There was something said here about the stock not being sold for its actual value — I mean the preferred stock of the Southern Building Cor- poration, i Mr. Johnson. You mean its par value? Mr. Baker. Yes; its par value, and some intimation that 25 was not enough for it. In justice to myself, as treasurer of the Southern Building Corporation, and in justice to the Washington stockholders — with all of whom I conferred very freely about thisi matter at various times — we have endeavored several times to refi- nance the Southern Building Corporation, thereby allowing those! who put actual cash into the stock to get par and accrued interest 1 for their stock, and then the price was to be fixed upon the other stock at a stated price. There was never any effort on the part ofi the Southern Building Corporation, and I want to state that em- phatically as treasurer, while I was there to have the stock of those; who paid par for it sold for less than par. Mr. Douglas. You mean redeemed — taken over for less than par? Mr. Baker. Yes, sir. Mr. Douglas. Mr. Baker, have you not been informed since that: that their stock was taken over and paid par for ? Mr. Baker. No ; that I have not heard. I have heard to the con- r trary, Mr. Douglas, but I do not know it to be a fact. There was no one of the stockholders of the Southern Building Corporation; that ever had any idea of ever disposing of the preferred part of, their holdings at less than par to the men who put their money into it until it reached the Bichmond end of it, and when they secured con- trol of the Southern Building Corporation several of us became^ minority holders, became minority men, and of course that is thej reason I took what I could get for my stock. t Mr. Douglas. There is just one other thing I would like to go into, the record before the committee adjourns. Do you not know that the interest on the third mortgage fell due in October, and on the ( second mortgage in November, and on first mortgage in December? INVESTIGATION OP INSUBANCE COMPANIES. 777 Mr. Baker. I do not recall, but I know they fell due at different dates. Mr. Douglas. About what time, on all these encumbrances? Mr. Baker. I want to make this statement, Mr. Chairman, in order to have it go into the record that the men, so far as I was concerned as treasurer, never contemplated that people who put their money in there, so long as I had anything to do with it, would not be pro- tected. That is all I have to say. Mr. Johnson. Mr. Baker, you will, please, between now and to- morrow morning, if you can, refresh your memory as much as pos- sible, -so that you may be prepared to testify more directly to some matters than you have done to-day, in the event your testimony is desired. Mr. Baker. I see. May I ask this : Will not these contracts them- selves answer all of the questions that you would ask me ? Mr. Johnson. They may or they may not. The truthfulness of the contracts Mr. Baker (interposing). I see. Mr. Johnson (continuing). May come into question. Mr. Baker. Oh, I shall be glad to testify to that. There is no question about that, I do not think. Mr. Johnson. We have been permitting people to testify as to the contents of papers, and to their version of papers, and the papers themselves would speak for. themselves, in most instances, and in some instances they might require explanation. Mr. Baker. I could only give you my construction of it. Mr. Johnson. Well, we may not ask you for that. Mr. Baker. Very well. Then you would like for me to report here in the morning ? Mr. Johnson. Yes; and in the meantime I suggest that you re- fresh your memory upon the things about which you have been asked Mr. Baker (interposing). The only question Mr. Johnson (interposing). And concerning which you said you could not answer because of a need to refresh your memory. Mr. Baker. I see. Well, I have answered all of them except one that Mr. Redfield asked me, in reference to how that stock was issued. Mr. Redfield, have I not answered them all except that one ? Mr. Redfield. Well, I can not say as to that, because I have not charged my mind with it, knowing it would go upon the record. Mr. Baker. I see. Mr. Douglas. Mr. Chairman, will you kindly give us, then, some idea about the witnesses to-morrow, so we will know when we may 'put our witnesses on the stand? Mr. Johnson. Mr. Douglas, a conference among the members of the committee is desirable for the purpose of determining just what witnesses will be called to-morrow. Not knowing ourselves we can not advise you, but we are of the opinion now that we will have witnesses enough to take up to-morrow, without your bringing your own witnesses. Mr. Douglas. I have some from a distance and I am anxious to have as much notice as possible. 778 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Yes; and we are anxious to let you know as early as possible. Mr. Douglas. Then had we better be ready to go forward with our testimony, say, about Wednesday? Mr. Redfield. I doubt it. Mr. George. Who are being called for to-morrow, Mr. Chairman? Mr. Johnson. We are going to go into executive session in a few moments and determine whom we will call after Mr. Baker. The committee stands adjourned until 10 o'clock to-morrow morning. Whereupon at 3.10 p. m. the committee adjourned until 10 o'clock a. m. January 7, 1913. INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 9 JANUARY 7, 1913 WASHINGTON GOVERNMENT PRINTING OFFICE INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, Washington, D. 0., January 7, 1913. The subcommittee met at 10 o'clock a. m., pursuant to the adjourn- ment, Hon. Ben Johnson (chairman) presiding. Present, in addition to the members of the committee: Francis H. Stephens, assistant corporation counsel of the District of Columbia ; George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby- Smith. Also Messrs. Charles A. Douglas and Charles F. Carusi, representing the Com- mercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. STATEMENT OF ME. JAMES M. BAKER— Continued. Mr. Douglas. I will ask you to look over this paper, Mr. Baker [handing paper to witness] . Have you got the original of it there ? Mr. Baker. Yes ; I have it. Mr. Douglas. You have already examined it, then? Mr. Baker. Yes. Mr. Douglas. That is all right, then. Mr. Baker. I stated yesterday that all of the papers were with the Southern Building Corporation, but upon investigation last night in my files I found one or two, and I found the original. Mr. Johnson. And what is the original paper to which you now refer ? Mr. Baker. This is an agreement between John M. Parker, of the city of New Orleans, and Charles Hall Davis, of the city of Peters- burg, Va., and Robert H. McNeill and A. E. L. Leckie, of Wash- ington. Mr. Johnson. Read it please, sir. Mr. Douglas. That is, you want it read into the record ? Mr. Johnson. Yes. Mr. Baker (reading) : Memorandum of agreement between John M. Parker, of the city of New Orleans, State of Louisiana, and Charles Hall Davis, of the city of 'Petersburg, State of Virginia, trustees, as hereinafter more fully set out, parties of the first part, and Robert H. McNeill and A. B. L. Leckie, of the city of Washing- ton, District of Columbia, acting for themselves and their associates, parties of the second part, witnesseth : Whereas the said John M. Parker and Charles Hall Davis, acting for and on behalf of the Southern Commercial Congress, an unincorporated voluntary association, or for such trustees as might be appointed, or for such incorporated company as might thereafter be organized under the auspices of the Southern 779 780 INVESTIGATION OF INSURANCE COMPANIES. Commercial Congress for the purpose of acquiring and holding or developing the real estate hereinafter described, did on the 11th day of January, 19011, pay over to the said parties of the second part the sum of $5,000 for an option on the property hereinafter described, said option to be exercised on or before February 1, 1909; and Whereas on the 30th day of January, 1909, the said Parker and Davis, act- ing as such trustees, did enter into an agreement with the said parties of the second part for the purchase of the property known as the St. Matthews Church property, located on the northeast corner of H and Fifteenth Streets NW, in the city of Washington, D. C, and hereinafter more fully described, and did agree to pay for the said property the sum of $10,000 on or before February 10, 1909, and the sum of $35,000 on or before February 25, 1909, and to pay the balance of the purchase price of the same on or before the 1st day of November, 1909 ; and Whereas the said Parker and Davis, as such trustees, did on the 10th day of February make the said payment of $10,000, and did on the 25th day of Feb- ruary, 1909, make the said payment of $35,000 on account of the purchase price of the said property as set out in the said agreement; and Whereas the said parties of the second part have on this date in pursuance of said agreement made and executed a deed for the said property to the said John M. Parker and Charles Hall Davis, by which said deed the said property is conveyed to the said parties subject to the payment of two separate trusts existing on the said property, one for the sum of $160,000, due on Noevmber 1, 1909, and one for the sum of $190,000, likewise due on November 1, 1909, which said two trusts the said Parker and Davis, as such trustees, have expressly assumed ; and Whereas the property so conveyed to the said Parker and Davis, as trustees, is more fully described in the said deed as follows: "Having a frontage on the north side of H Street, running from a point where said H Street is crossed by Fifteenth Street, in an easterly direction 148 feet and 1 inch to the line of a parcel of real estate belonging to the estate of the late Judge Strong, and from said point on H Street extending in a northerly direction 150 feet to an alley and with said alley 148 feet and 1 inch to a point where said alley runs into Fifteenth Street, and thence down Fifteenth Street in a southerly direction 150 feet to the point of begin- ning, containing a total of 22,212 square feet, and being the land on which the old St. Matthews Catholic Church stands, and also on which stands two store buildings occupied respectively by Mrs. Ash and the Willett-Reinicke Co. (Inc.) ; and Whereas the said property fronts 150 feet on Fifteenth Street and 148 feet and 1 inch on H Street, and contains in the aggregate 22,212 square feet, for which the said Parker and Davis, trustees, as above set out, have agreed to pay the sum of $23 per square foot, aggregating the total sum of $510,876 for the said property, which said sum is subject to the credit of $50,000 already paid as above set out; and Whereas under the terms of the said agreement of January 30, 1909, above referred to, there is still due to the said parties of the second part, after credit- ing the said sum of $50,000 already paid, and after crediting the amount of the two trusts of $160,000 and $190,000, respectively, which have been assumed by the said Parker and Davis, as trustees, a balance of $110,876; and Whereas it is mutually desired by the parties hereto to fix the time for the payment of the said balance and to secure the payment of the same ; Now, therefore, in consideration of the premises it is agreed as follows : First. The parties of the first part, in consideration of the fact that the parties of the second part do not require from them at this time a special trust to be created on the said property to secure the payment of the $110,876 above referred to, covenant and agree individually and as trustees that they will not, except by and with the written consent of the parties of the second part sell, dispose of, or in any manner encumber the said property other than it is' now encumbered until the entire balance of $110,876 due to the parties of tie second part shall have been fully paid. Second. The parties of the first part, in consideration of the fact that no trust is required by the parties of the second part to be created on the said property to secure the said unpaid balance, and in consideration of the _fact that their cestui que trust contemplates raising the money to pay for and de- velop the said property by subscriptions from various parties which will be paid over to said cestui que trust from time to time, agree t hat payments on ac- count of the said unpaid balan>*i . i i| i "», ' riTTTTT^a «ahall be made to INVESTIGATION OF INSURANCE COMPANIES. 781 the parties of the second part as follows : On all collections made from and after this date for the Southern Commercial Congress and placed to its credit in the United States Trust Co., of Washington, D. C, as depository, 75 pel- cent to be applied on account of said unpaid balance due to the parties of the second part. Said collections made for the account of the said Southern Com- mercial Congress to be allowed to accumulate from the 1st of each month, and payments on account of said unpaid balance to be made on the 1st day of April, 1909, and on the 1st of each and every month thereafter until the full unpaid balance shall have been paid, it being, however, distinctly agreed that the balance of said debt shall become due and payable on or before November 1, 1909. On all such payments the said parties of the second part agree that in con- sideration of the fact that the balance now due for the purchase price of the said property represented by the two trusts, aggregating $350,000, as above set cut, and represented by the $110,876 due to them, is all payable on the 1st of November, 1909, without interest, agree that on all payments made prior to said 1st day of November, 1909, interest shall be allowed to the parties of the first part at the rate of 4 per cent per annum from the date of the payment of each amount the said 1st day of November, 1909, and that such allowances of interest shall be accounted for and settled for in the final settlement of the amounts due by the parties of the first part to the parties of the second part. And the said parties of the second part further agree that, in consideration of the fact that the two trusts of $160,000 and $190,000, respectively, which are assumed by the parties of the first part, bear interest from date at the rate set forth in the said trust, and in consideration of the fact that the said parties of the first part are not required under their contract to make any further pay- ments on the said property until the 1st day of November, 1909, and in conse- quence that they should not be required to pay the interest on the said trust that at the time that final settlement of the $110,876, due under this contract is made, there shall be an allowance and an adjustment to the parties of the first part of the interest to become due on the said two trusts above referred to as on the 1st day of November, 1909. The parties of the first part, in consideration of the fact that the parties of the second part do not now require the creation of any trust on the said prop- erty to secure the said balance of $110,786, further agree that if the said balance of $110,786 shall not have been fully paid to the parties of the second part on or before October 1, 1909, that they, the parties of the first part will, on written demand of the said second parties at any time between October 1, 1909, and November 1, 1909, execute their note as trustees as above set out, payable November 1, 1909, and will give a deed of trust on said property to secure such note representing the unpaid balance of the said $110,876, so that the said deed of trust will constitute a lien on the said property next after the deed of trust which now secures the payment of the $190,000 as hereinbefore referred to. That the parties of the first part, in consideration of the fact that possession of the property is delivered to them at this time instead of being deferred to November 1, 1909, as might have been done under the terms of the agreement above referred to, hereby agree that the parties of the second part shall receive all rents derived from the lease or leases of the buildings on the said property other than the church proper during the period between the date of the con- veyance to the parties of the first part and November 1, 1909, and the parties of the first part further agree to pay the taxes on the said property from and after the'25th of February, 1909, the date of the conveyance to them. • The parties of the first part further agree, promise, and bind themselves as such trustees for the said Southern Commercial Congress to the payment of the said sum of $110,786 as above set out. In testimony whereof and as an evidence of their acceptance of the terms and conditions set forth above, the parties of the first and second parts have hereto set their hands and seals in duplicate this the 25th day of February, 1909. [seal.] Charles Hall Davis, Trustee. [seal.] John M. Parker, Trustee, By Charles Hall Davis, His attorney in fact. [seal.] R. H. McNeill. [seal.] A. E. L. Leckie. 782 INVESTIGATION OF INSURANCE COMPANIES. Mr. Johnson. Have you added up the different sums therein recited as making up the consideration, in order to see what the total is? Mr. Baker. I did not find this until about 10 minutes before I came over here this morning. I had to go to the bank and look into the vault there, where I had some private papers, and that is the original. Mr. Johnson. Very well, sir. We can add that up afterwards and see. Mr. Baker. I have here a letter from McNeill and Leckie, ad- dressed to me, dated June "4, 1909, which reads as follows: Washington, D. C, June 4, 1909. James M. Baker, Esq., Washington, D. G. Dear Sir : Upon the adoption of the resolution now in the hands of Mr. Dula- ney, the secretary of the Southern Building Corporation, and the issuance to the syndicate of the $100,000 of stock in accordance with the contract made and entered into by and between T. Franklin Schneider, for himself and his asso- ciates, and Charles A. Douglas, for himself and associates, dated the 21st day of May, 1009, and the delivery of said stock to you, you are authorized, em- powered, and directed to enter cancellation, satisfaction, and discharge upon the contract entered into by and between ourselves and John M. Parker and Charles Hall Davis on the 25th day of February, 1909, and to enter said can- cellation upon the contract itself and to deliver the same to T. Franklin Schneider. Yours, truly, B. H. McNeill. A. E. L. Leckie. This letter was filed with this [indicating the contract just pre- viously read]. Now, Mr. Chairman, if Mr. Redfield will permit me, he asked me yesterday if I appeared on the corporation papers of the Southern Building Corporation as secretary, at Alexandria, and I said I did not know. I have no recollection of ever having acted as secretary of the Southern Building Corporation, and upon investigation I find that it was so filed there. I did not qualify as secretary, but Mr. Paul Dulaney qualified, and there [indicating] is a list of the first direct- ors, of which I was not one, showing that my recollection was correct about it, although I was not sure of it at that time. I never quali- fied as secretary. Mr. Redfield. This is the prospectus? Mr. Baker. Yes. Mr. Redfield. That is the one I asked for ? Mr. Baker. Yes. Mr. Redfield. This has not been made part of the record. I think it should be. The " prospectus " referred to is in the words and figures follow- ing, to wit: Prospectus of Southern Building to be Erected on Northeast Corner of Fifteenth and H Streets N\V.. Washington, D. C. [Southern Building Corporation. Capital stock, $1,200,000— $600,000 preferred and $600,000 common, fully paid and nonassessable. Shares, $100 each.] Directors : James L. Karrick, Charles A. Douglas, S. W. Meek, B. H. McNeill, and Paul Dulaney. Temporary' office : 1320 New York Avenue XW, Washington, D. C. Architects. D. H. Burnham & Co., Chicago, 111. Builders, Thompson-Starrett Co., New York. INVESTIGATION OF INSUKANCE COMPANIES. 783 CONSTRUCTION PLAN. Area of lot, 150 feet by 148 feet square feet— 22, 200 Less area of court F do 3, 200 HEIGHT OF BUILDING. Basement floor to grade feet— 15 First story do 16 Eight stories, 10 feet each do 80 Thickness of floors do 14 Total 125 Cubic feet 2, 375, 000 Add court, 3,200 square feet by 50 feet cubic feet— 160, 000 Add vault area do 70, 000 Pent houses and attic do 45, 000 Total cubic contents 2, 650, 000 Price per cubic foot, at 40 cents $1, 060, 000 Add taxes while building $8, 000 Add interest while building 60, 000 ■ Add legal fees 5, 000 Add architects' fees for preparing plans and specifications and supervising work 60, 000 Changes to suit tenants, heating building until occupied, inci- dentals, etc 37, 000 170, 000 Total 1, 230, 000 PROJECT. Value of land $570, 000 Cost of building and carrying charges 1, 230, 000 Total 1, 800, 000 FINANCE. First-mortgage 5 per cent bonds, 5-year $800,000 Second-mortgage 6 per cent bonds, 5-year 400,000 Preferred stock 600, 000 Common stock 600, 000 ANNUAL INCOME. Basement $7, 500 First story— 28, 600 Eight floors, each containing 13,500 square feet, 108,000 square feet, at $1.40 151, 200 Roof garden 7,500 Total 194, 800 ANNUAL EXPENSES. Taxes $16,000 Interest, first mortgage 40, 000 Interest, second mortgage 24, 000 Running building 30, 000 110, 000 Net income 84, 800 Dividend, 6 per cent on preferred stock 36,000 Sinking fund and dividend on common stock 58,000 784 INVESTIGATION OP INSURANCE COMPANIES. PROSPECTUS. For basement and one-story bank and office building to be erected on north- east corner of Fifteenth and H Streets XW., Washington, D. C. The Southern Building Corporation, organized under the laws of Virginia, owns what is known as the " St. Matthew's Church property," at the corner of H and Fifteenth Streets, with a frontage of 14S.1 feet on H Street and 150 feet on Fifteenth Street, to an alley 20 feet wide. The cost of the ground and completed building will be about $1,800,000. It is the purpose of the company to erect on this site a building of the most modern type, to be called the " Southern Building," at a cost of about $1,230,000, and for this purpose the property Will be mortgaged. The capital stock of the company is as follows: $600,000 of preferred and $600,000 of common — all full paid and nonassessable. To the subscribers of each two shares of preferred stock will be issued, as a bonus, one share of the common stock. The following construction and financial plan has been carefully and con- servo tively worked out by competent and experienced architects, and approved by a building corporation of the widest experience and highest standing : In the preceding statement the value of the real estate owned by the corpo- ration is placed at $570,000, or $26 per square foot. In the opinion of the lead- ing authorities in Washington on real-estate values, this ground is now actually worth from $30 to $35 per square foot upon a conservative valuation, or from $100,000 to $200,000 more than estimated : and in the opinion of these expert authorities this ground alone, within a few years, will advance in value to at least $1,000,000. It is true always that an increase in value of real estate necessarily advances the value of the rental spaces in the buildings upon it, thus increasing the value of the stock and dividend payments. Every well-informed business man in Washington realizes that this pro- proposed building will occupy the most valuable piece of unimproved land in Washington. Its location is within one square of the Treasury Department, and within the city's financial and growing business center, and in the imme- diate district now known as Washington's " Wall Street." The Southern Building will be equal to any in location, and superior to any in appointments and arrangement. Every office in the building will have out- side light and air. Four high-speed electric elevators will serve the tenants of the building, and the corporation expects to do everything necessary to appeal to that class of tenants who appreciate and desire all modern office comforts and conveniences, thus assuring a sufficient patronage of desirable tenants to keep the building full at all times at remunerative rates. During the first six months it is possible that some loss of revenue may re- sult from vacancies, but after that period the foregoing conservative estimate of revenue should be maintained. Those desiring to subscribe for the stock of the corporation should call on James L. Karrick, president, 1320 New York Avenue, or Robert H. McNeill, vice president, Colorado Building. Mr. Bakee. You will notice in the list of directors there who they were. There is a good deal of extraneous matter in there. You will notice by reference to that statement there that the sec- ond mortgage bonds of the Southern Building Corporation, as pro- vided there — that is, as intended to be provided — were $400,000, and the preferred and common stock was $600,000 each. That was after- wards changed, when it became necessary to issue the third mortgage, the preferred and common stock was reduced, the common from $600j000 to $200,000 and the preferred from $600,000 to $300,000, and the third mortgage was provided for. That prospectus, however, was one of the first and was very mate- rially changed as to the finances as they now exist. Mr. Redfield. Have you a copy of the later ones ? Mr. Baker. Well, there were none published later, except as stated in my testimony, that I have ever seen. You asked me yesterday to INVESTIGATION OP INSURANCE COMPANIES. 785 give you the holdings of the Richmond Realty Corporation of the stock of the Southern Building Association. The Richmond Realty Corporation held $129,000 of the preferred stock and $105,000 of the common stock of the Southern Building Corporation. I could not answer that question yesterday when you asked me. Mr. Redfield. Mr. Baker, will you please give the committee a history of the Richmond Realty Corporation, as you know it? Mr. Baker. You mean beginning with its organization ? Mr. Redfield. Beginning with the beginning, if you know the facts, tell the story of the Richmond Realty Corporation. Mr. Baker. I was just thinking — just pardon me a moment. I had some other figures here that you asked me about. I do not know whether that is it or not. I have a copy of a letter here Mr. Redfield (interposing). Wait a minute, Mr. Baker. Does it relate to the affairs of the Richmond Realty Corporation ? Mr. Baker. It states what the Richmond Realty Corporation is and what they proposed to do with the Southern Building Corpora- tion. ' Mr. Redfield. Do you produce this, then, in answer to my question to give the history of the Richmond Realty Corporation ? Mr. Baker. As far as I know it; yes. Mr. Douglas. What is that? Mr. Baker. This is a copy of a letter that Mr. Sands wrote to you, a copy of which he sent to me. It simply gives the history here of the Eichmond Realty Corporation, and how they proposed to handle the bonds — what they were proposing to do with the bonds. Mr. Douglas. Was that one that was finally adopted, or was it one that was abandoned ? Mr. Baker. It was one that was carried out. [Reading:] March 28. 1911. Mr. Chas. A. Douglas, Colorado Building, Washington, D. O. Dear Mr. Douglas: We had quite a long conference yesterday and decided upon a general plan which seems to meet the situation. It was agreed that the Kichmond Realty Corporation would purchase as many of the second-mortgage bonds with the stock bonus which was given with them as possible and issue its preferred 6 per cent stock for same to holders at the price which the holders paid for the bonds, viz, $75 for each $100 bond and the slock. The Richmond Realty Corporation will then sell enough of its common stock at par to put it in condition to purchase $325,000 of the third-mortgage bonds and $50,000 of the preferred stock and $30,000 of the common stock of the Southern Building Corporation, and pay therefor $200,000 cash. There is outstanding $26,000 of the stock of the Richmond Realty Corporation which is represented by first-class assets, and that stock will remain as common stock. The Richmond Realty Corporation has had several years of successful ex- perience, and it seems very much to advantage to use it as a holding company rather than to organize a new company for the purpose. Our idea is to make a call of 25 per cent upon the subscribers to the stock of the Richmond Realty Corporation and to make the balance of the subscriptions callable at the option of the board, but not oftener than 25 per cent each six months. In the meantime, the Richmond Realty Corporation will have good assets and can borrow what money is necessary for it to meet its obligations, and we hope it will not be necessary to call more than 25 per cent. Now, as to the organization of the Southern Building Corporation and the Richmond Realty Corporation, it is understood and agreed that the Richmond Realty Corporation and J. M. Baker. C. H. Douglas, R. H. McNeill, and such others as are willing to do so, will deposit their stock with a trustee and form 786 INVESTIGATION OF INSURANCE COMPANIES. a voting trust composed of J. M. Baker, R. H. McNeill, C. A. Douglas, 0. J. Sands, E. G. Gunn, Warner Moore, and A. L. Hawse, and that these same gentle- men will he the directors of the Southern Building Corporation. It is also uuderstood that the directors of the Richmond Realty Corporation be composed of men chosen from the following list : A. L. Hawse, Warner Moore, Thomas Gresham, J. O. Scott, W. C. Schmidt, H. D. Eichelberger, J. R. Paschall. C. Boice. It seems to be the judgment of the gentlemen here that the most economical management of the building corporation would be to elect a president, who would have the general oversight of the business and who would approve all vouchers for the payment of money, and whose salary and expenses would not exceed $1,500 per annum. A treasurer, who would also render such general assistance and oversight of the property as is possible and to be responsible for all matters in connec- tion with financial interests of tie company, at a salary not exceeding $1,200 per annum. A secretary and clerk, who would have permanent offices in the building, to be competent to make contracts and collect rents and be the active business man of the corporation, whose salary, with clerk, should not exceed $2,400 per annum. In addition to this, we would have to have a superintendent to manage all the labor and have charge of the mechanical part of the enterprise, and be competent to repair machinery and generally look after the physical opera- tions, and such a man should be employed for $1,800 per annum. This would make a total expense of $6,900, and over and above this, it seems to us that the labor necessary would consist of men and women at laborer's pay. These are the terms and conditions under which we expect to ask subscrip- tions for the stock of the Richmond Realty Corporation, and we have decided that they are reasonable and strong from a business standpoint, and we feel that they will appeal to investors, and that under this system of financial and physical management we can look forward- with confidence to a most successful outcome of our investment in the securities of these companies. The necessary papers are being prepared and same will be forwarded you for subscriptions at once. Wry truly, yours. , President. This letter was signed by Mr. O. J. Sands and a copy of it was sent to me as treasurer. That gives the history of the Kichmond Realty Corporation. Mr. Redfield. You read from the copy? Mr. Baker. Yes, sir. Mr. Redfield. Are there any further facts relating to the history of the Richmond Realty Corporation that you have in mind ? Mr. Baker. Nothing more than this. This was the basis upon which they took over. All of the Washington people subscribed for the Richmond Realty Corporation stock under these terms, turned in their bonds at cost — 75 — and took stock in the Richmond Realty Corporation. Mr. Redfield. You among them 1 Mr. Baker. Yes, sir. And the pooling agreement referred to here was made part of the minutes of the Richmond Realty Corporation, but after they had got the stock in their hands they never would execute the pooling agreement. I know that. Mr. Redfield. They never did execute it ? Mr. Baker. No; they never did execute it. They would not execute it. Mr. Redfield. Why not? Mr. Baker. Well, it was a modus operandi by which they wanted to get control of the Southern Building Corporation, pure and simple. Mr. Redfield. Did they so get control of it? INVESTIGATION OP INSURANCE COMPANIES. 787 Mr. Baker. They got 234 shares of the preferred and common stock and they made the "Washington stockholders minority stock- holders after we had turned in these assets. That was the point that I wanted to bring out. They got control by virtue of this proceeding and then refused to execute the agreement. Mr. Redfield. You said they got 234 shares, Mr. Baker, of the preferred stock Mr. Baker (interrupting) . Common, I said. Mr. Redfield (continuing). You mean 234 of the total shares? Mr. Baker. I mean 129 of the preferred and 105 of the common. Mr. Redfield. What was the par value of those shares? Mr. Baker. They went with the bonds. They were bonus. They were par. Mr. Redfield. You mean 2,340 shares? Mr. Baker. Yes, sir; $234,000; yes, sir; thereby giving them con- trol of the Southern Building Corporation. They did not carry out a single clause of this agreement under which these securities were turned in to them. Mr. Rediteld. So, that as a matter of fact, you wish us to under- stand that the Richmond Realty Corporation got control, under this agreement, of the property of the Southern Building Corpora- tion, and then failed to carry out, or, as a matter of fact, has not carried out, the other articles of the agreement entered into between the two companies? Mr. Baker. I so state that. Mr. Redfield. As a matter of fact, do you know that the agree- ment outlined in this letter was ever formally entered into between the two companies? Mr. Baker. I do not catch that question. Mr. Redfield. Read the question. The question was read by the reporter. Mr. Baker. You mean the pooling agreement? Mr. Douglas. He asks whether it was a written agreement. Mr. Baker. That is why I wanted to separate the two. Mr. Redfield. Mr. Baker, we are asking you for information. Mr. Baker. I beg your pardon. I do not understand your ques- tion, whether you refer to the pooling agreement, or whether you refer to the terms of this letter. Mr. Redfield. Are there two? Mr. Baker. Only one. Mr. Redfield. Then why do you distinguish between them, if there is but one ? Mr. Baker. I understood you to have in your mind that there were two by this letter. Mr. Redfield. I asked you whether the agreement, or agreements, one or more, outlined in that letter, were ever formally entered into between the companies. Mr. Baker. I stated a moment ago that the pooling agreement was prepared and spread upon the minutes of the Richmond Realty Corporation, but they never would execute it. After they had got- ten the stock, issued the stock to us, and took our bonds, they re- fused to 788 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield (interposing)'. Then was this the state of affairs, that without the existence of any written agreement, the stockholders of the Southern Building Corporation turned over their stock to the Richmond Realty Corporation, which latter company, having pos- session of the stock, then declined to execute the written agreement? Mr. Baker. Yes, sir. Mr. Redfield. That is the situation? Mr. Bakek. Yes, sir. Mr. Redfield. How did these stockholders of the Southern Build- ing Corporation come to give up their property without any written agreement ? Mr. Baker. Well, as I just stated, this letter was written to Mr. Douglas and submitted to the AYashington stockholders, and all other agreements for the payment of notes and moneys made with Mr. Sands had been carried out, and we had every reason to expect he would carry out that one. I did. I only speak for myself. Mr. Redfield. You were one of the men who surrendered your stock in the Southern Building Corporation and took the Rich- mond Mr. Baker (interposing). No, sir. I surrendered my bonds. I paid $7,500 for $10,000 worth of bonds. That is, I subscribed for $20,000 worth of the Richmond Realty Corporation stock— $10,000 additional — and paid for it, and thereby became a stockholder in the Richmond Realty Corporation stock for $20,000 at par. Mr. Redfield. Half of which had been paid for in bonds at seventy-five, and the other half in cash? Mr. Baker. No; I paid $12,500 cash and turned the bonds in at ^7,500. Mi'. Redfield. I still do not find it clear in my mind, Mr. Baker, why the stockholders of the Southern Building Corporation gave up their stock without an equivalent for it. Mr. Baker. They did not give up their stock — the stockholders of the Southern Mr. Redfield (interposing). Or the bonds, I mean — one or the other or both — their securities. Mr. Baker. The bonus stock that went with the bonds went with the bonds of the Richmond Realty Corporation, as I said, at cost price — I do not understand your question. Mr. Redfield. The question I want to get at is this: You have testified that in the absence of any formal contract between the two companies, the Washington security holders of the Southern Build- ing Corporation surrendered them to the Richmond Realty Cor- poration and took the securities of the latter in return, and that thereafter the elements in a certain agreement which had been ar- ranged for, but which had not been formally concluded, were not carried out by the Richmond Realty Corporation, and that there- after in some way we infer the stockholders or security holders of the Southern Building Corporation Mr. Baker (interposing). Those named. Mr. Redfield. Those named — the Washington stockholders— got the little end of the transaction in some way ? Mr. Baker. Yes. Mr. Redfield. "That is your answer — yes? INVESTIGATION OF INSURANCE COMPANIES. 789 Mr. Baker. Yes. Mr. Redfield. Why did the Washington security holders give up ? Who asked them to? What was the inducement? Mr. Baker. Well, I only state for myself when I make this answer. Mr. Redfield. Why did you give up ? Mr. Baker. Let me have that letter, please. Letter dated March 29, 1911, handed to witness. I want to get the date. This letter is dated March 29, 1911. Mr. Redfield. You refer to the letter you have just read ? Mr. Baker. Yes, sir. This pooling agreement was prepared and sent to Washington and was signed by Mr. Douglas and myself. Mr. Redfield. One moment, before you enter into the pooling agreement referred to- Mr. Baker (interposing). Was prepared Mr. Redfield (interposing.) Please wait until I ask the question. The pooling agreement referred to in that letter you just read you say was sent to Washington and was signed by Mr. Douglas and by you ? Mr. Baker. Yes, sir. Mr. Redfield. Thank you. Now go on. Mr. Baker. The matter was delayed for some reason, I did not know whether intentionally or otherwise, but it looks now as though it was intentionally. I was on the board of the Richmond Realty Corporation under this plan, and I went down there to examine the records Mr. Redfield (interposing). Of that company? Mr. Baker. Yes, sir — and found Mr. Douglas was with me — and we went together— — Mr. Redfield (interposing). You do not mean you found Mr. Douglas was with you? Mr. Baker. No ; I say we went down together. Mr. Redfield. Mr. Douglas and you went there together? Mr. Baker. Yes. We went down there, and we asked for the records, and this pooling agreement was a part of the minutes, where they had agreed to agree to it in their meeting formally. We were not at that meeting. We were in Washington. It stood that way until along in the fall of 1911, possibly Novem- ber or December, I do not remember now, and I began to ask Mr. Sands why he was not going to execute it. Mr. Redfield. Mr. Sands? Mr. Baker. Oliver J. Sands is the president of the American Na- tional Bank, and he was the man who wrote this letter. Mr. Redfield. And what was he as regards the Richmond Realty Corporation ? Mr. Baker. Well, he was the whole thing, when it came to the actions of it. Mr. Redfield. Was he an officer of the Richmond Realty Corpo- ration? Mr. Baker. He was a member of the board and on the executive committee, and influentially controlled it. Mr. Redfield. Proceed. 790 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bakee. And I used my best persuasion to get them to execute that agreement and I failed, and that led to my speaking out my mind, to tell them what I thought about it. Mr. Redfield. Tell whom? Mr. Baker. To tell Mr. Sands. Mr. Redfield. Who else? Mr. Baker. And the members of the executive committee of the Eichmond Realty Corporation, who were responsible for the non- carrying out of that agreement. Mr. Redfield. Who were those Mr. Baker. A. L. Hawse, E. G. Gunn, and Warner Moore. Mr. Redfield. And what did you tell them? Mr. Baker. I simply said to them that it was undoubtedly their intention not to carry out that agreement, and so far as I was con- cerned I wanted to get out of the Richmond Realty Corporation, that they might have my stock at what I paid for it and 6 per cent interest, that I did not intend to be associated with anybody any longer who would not carry out that agreement. Mr. Redfield. What was the loss, if any, to you and to other stockholders, arising from the failure to enter into that agreement? Mr. Baker. I could not state as to what loss there was to other stockholders, for this reason. I can only state what was the loss to me. Mr. Redfield. I do not mean, Mr. Baker, by the question, to have you determine in dollars and cents the amount of the loss, but what was the nature of the loss? In what respect — if I may change the question — were the security holders of the Southern Building Corporation injured by the failure on the part of the Richmond Realty Corporation to enter into this agreement, after securing the stock from the security holders of the Southern Building Corporation? Mr. Baker. Ask that again, please. I want to answer it accurately. Please read that again. The question was read by the reporter. Mr. Baker. It was always the intention of the Washington stock- holders, Mr. Douglas and myself and Mr. McNeill and Mr. James L. Carrick, who were parties to this agreement, to provide and protect the stockholders in the Southern Building Corporation who paid money and par for their stock. If this pooling agreement had been executed they would have been protected and the holders of the Washington stock would have been protected. In other words, they would not have had to take 25 cents ; they could have stood together and probably have gotten more. It would have affected them in that way, naturally. That is my judgment about it. That is what I had in mind and what Mr. Douglas at the time had in mind. Mr. Redfield. Then, is this a correct statement, that in the ex- pectation of an agreement to be entered into between the two com- panies the security holders in Washington of the Southern Build- ing Corporation gave up their securities and received nothing in return? Mr. Baker. I did not state that. Mr. Redfield. I ask you if that is a correct statement. Mr. Baker. State it again, please. INVESTIGATION OP INSXJEANCE COMPANIES. 791 The question was read by the reporter. Mr. Baker. No, sir ; that is not correct. Mr. Eedfield. Tell the committee, in the fewest words you can, Mr. Baker, what wrong was done these Washington security holders, and how, if any. Mr. Baker. I can only state, in reply to that question, what wrong I considered I received at their hands. I can not state as to the others, because some of the other Washington holders did not have bonds, but I did. Mr. Eedfield. Mr. Baker, without filling up the record with ex- planation, why do you not simply tell Mr. Baker (interposing) . I can not tell things that I do not know, Mr. Eedfield. Mr. Eedfield. I have not asked you to do so. Tell what you do know without explaining that you can not tell what you do not know. Mr. Baker. Very well. Ask your other question. Mr. Eedfield. Eead the question again. The Stenographer (reading) : Tell the committee, in the fewest words you cau, Mr. Baker, what wrong was done these Washington security holders, and how, if any. Mr. Baker. I have already answered that question by saying that I have had Mr. Eedfield (interposing). Now Mr. Baker, pardon me. It is not necessary for you to say for the record again that you have already answered that question, nor is it necessary for you to make any explanation. Please answer it as simply as you can and clearly. Now repeat the question again. I am not trying in any way to get you into any difficulty, but to get a terse, condensed statement of simple fact, without explanation as to your relation to it. Mr. Baker. I have already stated. Mr. Eedfield. It is not clear, and that is what I am trying to make clear. Now, will you kindly read the question? The Eeporter (reading) : Tell the committee, in the fewest words you can, Mr. Baker, what wrong was done these Washington security holders, and how, if any. Mr. Eedfield. Now, that is a simple question. Mr. Baker. I just stated that I turned my bonds in to the Eich- mond Eealty Corporation at cost, when if they were paid at par, that I had 25 bonds — $10,000 worth. I was injured to that extent, and tried to get an adjustment without a suit, which I did not get, and I finally decided that if they would take my stock off of my hands I would get out rather than have a lawsuit. I can not explain it any further than that. The other stockholders must answer for themselves. I can not answer for them. There was a loss of $2,500 there, as the difference between what I paid for the bonds, and turned them in at par. Mr. Eedfield. That is all. Mr. Johnson. Immediately upon your going upon the stand this morning you produced the original contract between John M. Par- ker, Charles Hall Davis upon the one part, and Eobert H. McNeill 792 INVESTIGATION OF INSURANCE COMPANIES. and A. E. L. Leckie, parties of the second part, to convey the old church property at the corner of Fifteenth and H Streets, in the city of Washington, to John M. Parker and Charles Hall Davis, as trustees, did you not ? Mr. Baker. Yes, sir! Mr. Johnson. From whom did Robert H. McNeill and A. E. L. Leckie, acting for themselves and associates; purchase this property? Mr. Prottty. That does not appear in the contract, Mr. Baker. Mr. Baker. I could not testify as to that. I would have to go to the records. Mr. Johnson. You do not know? Mr. Baker. I do not know whose name it was in. It was bought for the St. Matthew's Church, but I do not know whether the title went, to anybody between them and Parker or not. I am not sure. Mr. Johnson. Do yon know who were the associates of Robert H. McNeill and E. and A. E. L. Leckie in this transaction? If you know any other names ? Mr. Baker. I think that I was one of them and Mr. Douglas. Mr. John sun. Do you know? You think you were. Do you know for sure? Mr. Baker. I am not positive. I do not know just what time I came into it I do not remember. Mr. Johnson. Go ahead and give as best you can the names Mr. Baker (interposing). I will not say about Mr. Douglas. I think he Mr. Johnson (continuing). Well, wait a minute. Read as far as I have gone please. The Reporter (reading) : Go ahead and give as best you can the names Mr. Johnson. Who were the associates of Mr. McNeill and Mr. Leckie in this transaction? Mr. Baker. I do not recall. I do not know positively that, 1 was. I came into it after that, but I do not know. I do not recall that, Mr. Johnson. Mr. Johnson. You have the original contract before you, have you not ? Mr. Baker. Yes, sir. Mr. Johnson. Please take it and look on the first page under the first '' Whereas " and answer whether or not it was part of the con- sideration that the $5,000 which was deposited for the option was to be paid finally upon the purchase price of the property. Mr. Baker. You mean beginning at the center of the paragraph? Mr. Johnson. Yes ; the first " Whereas," nearly down toward the middle of the page, you will see the $5,000 there. Mr. Baker. That says $10,000 Mr. Johnson (interposing) . Well then, this is not a copy of that. But I am not quite sure that it does not say $10,000. It is on your paper. Let me see. The witness handed the original contract to Mr. Johnson. Mr. Johnson (returning original contract to witness). Is that [indicating] $5,000 or $10,000? Mr. Baker. That is five thousand. INVESTIGATION OP INSUKANCE COMPANIES. 793 Mr. Johnson. Then mine is a copy of yours. Mr. Baker. Yes, sir. Mr. Johnson. That $5,000, as shown by the paper which you now have in hand, was ultimately paid upon the property as part of the purchase price? If you will read also on the same page, you will see where $35,000 and $10,000 and the $5,000, about which we are now speaking, made $50,000. Mr. Baker. Yes, sir. Mr. Johnson. Therefore the $5,000, of which I am now asking you, was paid upon the purchase price of the property ? Mr. Baker. I presume it was. I would have to look at the books to see that, but I presume it was ; yes, sir. Mr. Johnson. What books would you have to look at to see ? Mr. Baker. I would have to look at the records of the Mr. Johnson (interposing) . Does not this paper show for itself ? Mr. Baker. Yes, sir ; it shows for itself. Mr. Johnson. Then you do not have to look at the books ? Mr. Baker. I should say that it went there. Mr. Johnson. Please put down on a piece of paper there that this $5,000 went toward paying for the property. Go below, on the same page of the paper which you still have in your hand, and see if it does not recite the further consideration of $10,000, too. Is that true ? Mr. Baker. I do not know whether it is or not, sir. Mr. Johnson. Does your paper say that it is or not ? Mr. Baker. It says they agreed to pay the sum of $10,000 on or before February 10, 1909. Mr. Johnson. Then the paper does say that the $10,000 was paid upon the purchase price? Mr. Baker. It says it was to be paid. Mr. Johnson. Well, go ahead. On the next line, after the $10,000, we find that $35,000 was to be paid, do we not ? Mr. Baker. Yes, sir. Mr. Johnson. That makes $50,000, does it not? Mr. Baker. Yes, sir. Mr. Johnson. Now, turn over to page 2 of the paper which you still have in hand. Mr. Baker. Yes, sir. Mr. Johnson. And under the head of the fourth "Whereas," do you not find it stated in the paper that there was an existing trust upon the property for two sums, $160,000 and $190,000 ? Mr. Baker. Yes, sir. Mr. Johnson. Now add the $160,000 and the $190,000 and the $50,000 together and announce the result, please — the total. Mr. Baker. The $160,000 and $190,000 make $350,000, to which, if you add the former $50,000, makes $400,000. Mr. Johnson. Makes $400,000? Mr. Baker. Yes, sir. Mr. Johnson. Now, turn over to page 3, and do we not find this language? — The parties of the first part, in consideration of the fact that the parties of the second part do not require from them at this time a special trust to be created on the said property to secure the payment of the $110,876 above 71391— No. 9—13 2 794 INVESTIGATION OP INSURANCE COMPANIES. referred to, covenant and agree, individually and as trustees, that they will not, except by and with the written consent of the parties of the second'part, sell, dispose of, or in any manner encumber the said property other than it is now encumbered, until the entire balance of $110,S7ti due to the parties of the sec- ond part shall have been fully paid. Now, is it not true that the contract, which you now have in hand, sets out what the $50,000 was for? Mr. Baker. Yes, sir ; I think it does. Yes, sir. Mr. Johnson. And that it further sets out that the $160,000 and $190,000 were trusts then existing upon the property ? Mr. Baker. Yes, sir. Mr. Johnson. Please tell us, if you can, what that $110,876 represented. Mr. Baker. That $110,876 represented the difference in the price that — between. The property was sold to Parker & Davis. Just a moment. Let me see whether he has signed that. This agreement answers it. It says: The parties of the first part further agree, promise, and bind themselves, as trustees for the Southern Commercial Congress, to the payment of such sum of $110.S70, as above set out Mr. Johnson. Read the question again, please. The Reporter (reading) : And that it further sets out that the $160,000 and the $190,000 were trusts then existing upon the property. Now, please tell us, if you can, what that $110,S7G represented '.' Mr. Baker. That amount, under your former question here, $400,000 — there was some accrued interest prior that made it $410,000. and this $110,000 made it $510,876— was the difference in the cost of the land to Parker & Hall Davis to the Southern Com- mercial Congress, as stated in here. Mr. Redfield. You mean, Mr. Baker, that that was the profit the syndicate made? " Mr. Baker. That was the price at which they took it over, and there was stock issued for that. That is the fact. Mr. Johnson. Read Mr. Redfield's question again, and see if you can not answer it more directly. The question was read. Mr. Baker. That was the difference in the price in which it was deeded from McNeill and Leckie — it represented the difference in the cost of the land from R. H. McNeill and A. Leckie. Mr. Johnson. Read the question again. See if you can answer it more directly. The Reporter (reading) : You mean, Mr. Baker, that that was the profit the syndicate made? Mr. Baker. Yes, sir; the stock was issued for that amount — not for that amount' exactly, because there were some computations of interest in there. Mr. Johnson. Nobody has said anything to you thus far about stock or interest. The stenographer will please read the question again, and see if you can answer it more directly. The Reporter (reading) : INVESTIGATION OP INSURANCE COMPANIES. 795 You mean, Mr. Baker, that that was the profit the syndicate made? Mr. Baker. Just a moment, Mr. Johnson. Let me think a mo- ment. I am trying to May I look at this contract [referring to contract read in evidence] ? Now read your question. The Keporter (reading) : You mean, Mr. Baker, that that was the profit the syndicate made? Mr. Baker. I am not positive about that. I think that is it. Mr. Johnson. Who gets that $110,876? Mr. Baker. That amount of $110,876? Nobody ever got that amount. That was cut down to $100,000, reduced by mutual consent- to $100,000. Mr. Johnson. Who got the $100,000? Mr. Baker. The five men I named yesterday. Mr. Johnson. Name them again. Mr. Baker. Mr. B. H. McNeill, Mr. A. E. Leckie, Mr. Charles A. Douglas, and James M. Baker. They did not get it all. After- wards Mr. James L. Carrick and Mr. S. W. Meek got some of it. Mr. Johnson. Got some of it ? Mr. Baker. Yes, sir ; they put up some money. I do not remember how much. Mr. George. So there were seven men in all? Mr. Baker. Yes, sir. Mr. George. Five originally and two subsequently? Mr. Baker. Yes, sir. Mr. Johnson. They then realized from the sale of the property $100,000 more than they originally paid the church people for it? Mr. Baker. Yes, sir ; at that time. Yes, sir ; that is right. Mr. Prouty. The result of this examination shows then substan- tially that McNeill and Leckie paid $400,000 to the church people for this property ? Mr. Baker. Yes, sir; that is right. The record shows that. Mr. Douglas. May I ask a question? Mr. Johnson.. Yes. Mr. Douglas. To clear up this whole matter, as I see it, Mr. Baker, this propertv was bought from Monsignor Lee, of St. Matthew's Church, for $18 a foot, amounting to $410,000? Mr. Baker. Yes, sir. Mr. Douglas. And sold to the Southern Commercial Congress at $23 a foot, amounting to $510,000? Mr. Baker. Yes, sir. Mr. Douglas. That $50,000 they paid was applied on the purchase price to the church ? Mr. Baker. I so stated. Mr. Douglas. And the $110,000 also, you say? Mr. Baker. Yes, sir. Mr. Douglas. The $50,000 was paid on account of the purchase price of the property to the church, and the $100,000 that repre- sented the difference between the purchase price that McNeill and his associates paid and the purchase price they got or were to get was taken in preferred stock of the Southern Building Corporation, was it not? Mr. Baker. That is true. Mr. Douglas. Preferred and common stock ? 796 INVESTIGATION OF INSURANCE COMPANIES. Mr. Baker. $100,000, and not, $110,000. Mr. Douglas. And that was out of the capital stock of $1,200,000, $600,000 preferred and $600,000 of common? Mr. Baker. Yes. Mr. Douglas. And that is the stock that you and the rest of us got 25 cents on the dollar for in the ultimate sale of the property? Mr. Baker. That is true. Mr. Johnson. And which did not cost you anything ? Mr. Douglas. Except the profit in the transaction. Mr. Baker. How is that? Mr. Johnson. And which did not cost you originally anything. Mr. Baker. Yes; it cost me something. I would have to look that up. Mr. Johnson. You have stated several times that it did, and you have stated several times that it did not, cost you anything. Which is correct ? Mr. Baker. Just a moment, Mr. Chairman. Before the Southern Building Corporation was organized, I had subscribed $1,000 to the Southern Commercial Congress, and they fell down, and literally it cost me something, but practically a very nominal sum ; I think $1,500 would cover it. Mr. Douglas. Mr. Baker, one more question and I am through. That represented, did it not, about two years' pretty hard work? Mr. Baker. I received $5,500 net for what I did in the Southern Building Corporation. That is what I got out of it. Mr. Douglas. For about two years' work? Mr. Baker. Yes, sir. I would not do it again for $10,000. Mr. Johnson. This hundred thousand dollars profit in the pur- chase and sale of this piece of real estate was not gotten by these seven men in money, but they were given stock to that extent in the Southern Building Corporation, were they not? Mr. Baker. Yes, sir. Mr. Proutt. Just one question, again, Mr. Baker. Mr. Douglas either confused me or you. He spoke of this $410,000 that 'was paid for the property. My figures indicate $400,000. Mr. Baker. Those are Mr. Johnson's figures. Mr. Proutt. You said $410,000. Mr. Johnson. Those additions make $410,000. Mr. Proutt. There was> some interest, he says, that made those figures. Mr. Baker. Yes ; there was some interest to be added in there. Mr. Proutt. This $50,000 applied on the purchase, and $160,000, and $190,000, make $400,000. Mr. Douglas. As a matter of fact, the price paid to the church was $18 a foot, which gives a total of in that neighborhood. Mr. Johnson. AH these questions have been necessitated because the contract does not state the total consideration as a total, but makes it up of several different items. These items, when added together, make $400,000. Mr. Baker. On the face of them, they do ; but the addition ot the interest brings them to $410,000. Mr. Proutt. Interest on what? Mr. Baker. Interest on these amounts named in there, to the church. INVESTIGATION OF INSUKANCE COMPANIES. 797 Mr. Prouty. I believe I will do a little bit of examining myself and see if I can get this straight. What was this $160,000? Mr. Baker. That was a trust on the property that the church had on it. Mr. Prouty. That is one they had given ? Mr. Baker. Yes; and it carried interest; and when this contract was given Mr. Prouty (interposing). I will get all of it if you will just answer my questions. I understand how easy it is to answer more than you are asked, but I want to get down to 12 cents a dozen for This $160,000 was a mortgage on the church it had put on there before it was conveyed? Mr. Baker. I presume so. I do not know that. You asked what I know about it. I presume so. Mr. Prouty. The $190,000 was one that was payable to them? Mr. Baker. I do not know. It was a trust against it. I do not know anything except what is stated there. Mr. Prouty. I thought you were quite familiar with all these transactions. Mr. Baker. Yes, sir. Mr. Prouty. I can read this contract myself. Mr. Baker. I wanted to explain it to you in my own way, so I thought you would understand it. Mr. Prouty. You have mixed up that question of interest, and that is the very question I am getting at. Mr. Baker. All right; go ahead. Mr. Prouty. With reference to this $190,000, you do not know whether that was payable to the church or not ? Mr. Baker. I really do not. I did not examine the records. It was a trust on the property. Mr. Prouty. Have you no idea to whom it was ? Mr. Baker. One of them was to the life insurance company in New Jersey. Mr. Prouty. That would be the $160,000, probably, would it not ? Mr. Baker. That is a guess. I do not know. I want to tell all I know about it. Mr. Prouty. I understand that. Mr. Douglas. Let me tell you the exact facts about it. The $160,000 trust is held by the New Jersey Life Insurance Co., and the church negotiated a loan on the property for $190,000 and used the money in partially building its present structure on Rhode Island Avenue, so that actually places the mortgage on the property of $190,000. I do not know who held it. Mr. Prouty. That is giving the facts I wanted to elicit. Mr. Baker. My recollection is, but I would not want to state Sositively, that the American Security & Trust Co. had something to o with it, and they probably held one of the papers, but I do not know which one it was. I am not positive about that. Mr. Prouty. These contracts clearly indicate that Davis and Parker were only assuming the principal of $190,00 and $160,000, and fiot assuming any interest, because they clearly only put that much into it. 798 INVESTIGATION OF INSURANCE COMPANIES. Mr. Baker. The date of the settlement there is November 1, is it not? Mr Prottty. I do not know. . Mr Bakee. I will make a statement that will clear it up tor you. Mr" Protjtt. We are only interested in one question, and that is, What was the cost of that property when McNeill and this other man bought it from the church? What did they pay for it? That is all I am interested in. •■ . Mr. Baker. They paid what they showed, with some accrued in- terest My recollection is it was $409,800 and some odd dollars, if you want me to give it to you from recollection There were interest charges in there that ran it up to so near $410,000 that in order to carry it in our mind we fixed it at $410,000. Mr. Prottty. That is all I want to know. Mr Baker. I want to make just one statement to the committee and to you, Judge. You asked me yesterday if there had been any commissions paid for any of these loans and I said there had been none. Upon reflection, in the first $200,000 sale-of the $200,000 mortgage bonds— there was a small commission of $2,500 paid. 1 just wanted to make the record straight. Mr. Redfielo. That was paid to whom ? Mr Baker. To Mr. O. J. Sands. I had stated yesterday, in reply to Judo-e Prouty's question, that there had been no commissions paid. Mr. Johnson. Have you now said how much he got? Mr. Baker. Yes, sir; I stated $2,500. I wanted to correct that. Mr Prouty. That would take that much off from what actually t'C Yefsif I would like to state further, while I am on the stand in regard to it, that there were no salaries paid to the officers of the Southern Building Corporation until after the building had been completed; not a dollar that I know of, except to the ^M^Eedfield. Is the Richmond Realty Corporation still in exist- ence ? Mr Baker. Yes, sir. . .... Mr. Redfield. Is the Southern Building Corporation still in ex- ' S Mr 6 Baker. That I do not know. I understood that it had been liquidated ; I am not sure. . . Mr Cartjsi. It has been dissolved, but it continues, under the law of Virginia, for all purposes of litigation and liquidation, for two years, I think. Mr. George. And then was it dissolved « Mr. Cartjsi. Yes; I have the certificate here. It was about a month after the deed to these companies. Mr. Redfield. That is, during the latter part of 1912? Mr. Cartjsi. During the latter part of 1912 ; yes. Mr. Douglas 1 . It was November, I am sure. Mr. Baker. Mr. Chairman, I can be excused? Mr. Johnson. You may be excused. (Witness excused.) Mr Carusi. Mr. Chairman, I have here this morning the deed as per your letter addressed to the Commercial Fire Insurance Co., and INVESTIGATION OP INSUKANCE COMPANIES. 799 the certificate of title. We do not have abstracts of the title, here in this District. There is an abstract which was furnished , the Equita- ble, but I have not got it. Mr. Douglas. We wish to offer in evidence at this time the minute book containing the minutes of the stockholders and directors meet- ings of the corporation from the time of its formation down to the present time. I do not know whether the committee wants these minutes written into the record and printed or not ; but they are here, so they may be either referred to by members of the committee or printed, as you may determine. Mr. Johnson. If you will be good enough to leave them with the committee, so that we may look them over, we will determine whether to insert them in the record or not. Of course, they are very voluminous. Mr. Redfield. I suggest that you make a statement for the record of what the books and papers are which are proffered now. Mr. Douglas. We offer in evidence volume 1 of the minutes of the ^stockholders and of the directors of the Southern Building Corpora- tion. We also offer what I will call volume No. 2, which is a continuation of the minutes of the stockholders and of the directors of the South- ern Building Corporation. In whose custody will these books be placed ? Mr. Johnson. With the clerk of the committee, please. Mr. Douglas. I will turn them over to him now. I now offer in evidence the stubs containing the record and his- tory of the issuance of stock of the corporation. There are four vol- umes of these stubs, so there can be any reference made to them to trace the history of any stock which may have been issued, and the cancellation of the stock, for the convenience of the committee. I will make this suggestion, that instead of leaving these stock stubs here, burdensome and cumbersome to handle, that the statement of the history of the stock transactions prepared, I am informed, to date, by the accountants selected by the committee and acquiesced in by the accountant of the Commercial Fire Insurance Co., who testi- fied with reference to this matter in New York, might be furnished to the committee and spread upon the record, because it is agreed to by the accountants selected by you gentlemen as well as the account- ants selected by the Commercial Fire Insurance Co. This statement contains the history of these stock transactions. Then these books can be returned to the company, to be held subject to call of the com- mittee at any time. Mr. Johnson. You mean just the stub book? Mr. Douglas. Yes. Mr. Johnson. Yes ; we have no use for these, especially now. Mr. Douglas. We will furnish them, and then hold these stubs subject to call of the committee at any time. Mr. Johnson. Yes ; that may be done. Will you be sworn, Mr. Ashf ord ? TESTIMONY OF MR. SNOWDEN ASHFORD. The witness was duly sworn by the chairman. Mr. Johnson. Please give to the committee your full name. 800 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashford. Snowden Ashford. Mr. Johnson. Also give us your residence, together with your occupation, please. Mr. Ashford. 918 Seventeenth Street, "Washington, D. C. ; munici- pal architect. Mr. Johnson. Mr. Redfield, will you please interrogate the witness? Mr. Redfield. Mr. Ashford, how long have you been municipal architect of the District of Columbia? Mr. Ashford. I have been municipal architect about three years. Mr. Redfield. Prior to that, what was your title ? Mr. Ashford. Prior to that I was inspector of buildings. Mr. Redfield. And how long has your continuous service been with the District ? Mr. Ashford. Nearly 18 years. Mr. Redfield. Have you in charge the supervision of the erection and construction of the public buildings in the District of Columbia? Mr. Ashford. Yes, sir. Mr. Redfield, Do you design those buildings? Mr. Ashford. Yes, sir. Mr. Redfield. And you supervise their construction throughout?; Mr. Ashford, Yes, sir. Mr. Redfield. Do you enter into estimates as to their costs ? Mr. Ashford. Yes, sir. Mr. Redfield. Has your experience in construction of buildings and supervising their cost been a continuous one for some years? Mr. Ashford. Yes, sir ; ever since 1895. Mr. Redfield. Is it true that you have a number of buildings always under your supervision? Mr. Ashford. Yes, sir; anywhere from 5 to 15. Mr. Redfield. And are some of these buildings of a fireproof nature ? Mr. Ashford. Those erected in the last three or four years have been. Mr. Redfield. And are you practically as well as theoretically fa- miliar with the construction of those buildings? Mr. Ashford. Yes, sir. Mr. Redfield. Can you tell the committee what the cubic- foot cost is now of constructing a modern fireproof high-school building, or building of a similar character, for public use? Mr. Ashford. Yes, sir. I have figured up the cubic cost of the school buildings and other District buildings since 1897 and have a table showing the cost of all the District buildings built since 1897 up to the present time. Mr. Redfield. You have that table with you? Mr. Ashford. Yes, sir, Mr. Redfield. What does it show? Mr. Ashford. That table, shows that in 1897 the school buildings cost — and at that time they were not fireproof — 6.9 per cubic foot, 5.8 cents, 6.5 cents, and the highest was 7.9 cents per cubic foot. Mr. Redfield. What building was that ? Mr. Ashford. That was the Hayes School, No. 107, at Fifth and K Streets. Mr. Redfield. Proceed. INVESTIGATION OF INSUKANCE COMPANIES. 801 Mr. Ashford. In 1898 the cost advanced, and the highest building for that year was the Western High School, which cost 11.5 cents per cubic foot. Mr. George. Was that due to the change in price of materials put in the building? Mr. Ashford. Yes, sir; that was due to advance in the cost of material. Mr. Douglas. What year was that? Mr. Ashford. 189.8. Mr. Redfield. That was a fireproof building? Mr. Ashford. No, sir; that is not fireproof. Mr. Redfield. What was the next year ? Mr. Ashford. In 1899 the Hubbard School cost 12.3 cents, still another advance in the cost of material. In 1900 the Birney School cost 12 cents per cubic foot, and the Takoma Park 12.5 per cubic foot. Mr. Redfield. And the next year? Mr. Ashford. The Takoma Park School, I might say before leav- ing that, is in a suburb, some distance from the source of supplies, and cost a little more on account of that. The location sometimes affects the cost. Mr. Redfield. Because of the hauling charge? Mr. Ashford. Yes, sir. In 1901 the school building at the Industrial Home School cost 12.5 cents per cubic foot. That is on the Tenallytown Road, about a mile from Georgetown. In 1902 the fireproof buildings began to be constructed, and the McKinley Manual Training School cost 23.3 cents per cubic foot. Mr. Douglas. What year was that? Mr. Ashford. That is 1902. That was 23.3 cents per cubic foot. That is a first-class fireproof building. Mr. Redfield. Steel-frame structure? Mr. Ashford. No; masonry walls, but fireproof floors and roof construction. I have brought a photograph of it for your inspec- tion. They have tile floors and a tile roof. Mr. Redfield. This was a wall-bearing building? Mr. Ashford. Yes. Mr. Redfield. With brick partitions? Mr. Ashford. With brick partitions — brick and terra-cotta par- titions. Mr. Redfield. As a matter of fact, as a constructor of buildings, can you state whether that method of construction is or is not more costly for labor than the steel-frame construction ? Mr. Ashford. Yes, sir. The outer walls of that building would cost more than those of a steel-frame building. There is considerable stone, as you will see, in the outer walls. Mr. Redfield. Proceed. Mr. Ashford. That same year, 1902, the Armstrong Manual Train- ing School was constructed for 20.7 cents per cubic foot. That is a similar building to the McKinlev, but the floors in that case were con- crete instead of tile. Mr. Redfield. The next year? Mr. Ashford. The next year. There were no school buildings erected in that year, but the chemical-engine house cost 13.3 cents per cubic foot. 802 ISVESTIGATIOX OF INSUBANCE COMPANIES. In 1904 the French Manual Training School — that is, the B. B. French School, which is the name of it — cost 15.4 cents per cubic foot. Mr. Douglas. That is the same j'ear? Mr. Ashfoed, That is 1904. That is only partially fireproof. It is fully fireproof up to the main floor. Above that it is ordinary con- struction. Mr. George. Did the fireproofing part of it increase the cost? Mr. Ashfoed. Yes, sir ; that increased the cost slightly in the first story and basement. Mr. Redfield. Give the next year. Mr. Ashfoed. The next year, 1905, the Gage School cost 12.3 cents per cubic foot. Mr. Redfield. Not fireproof? Mr. Ashfoed. Xot fireproof ; only fireproofed over the heating ap- paratus. just a space about as large as this room. Mr. Redffeld. The next year? Mr. Ashfoed. In 1906 the Henry T. Blow cost 12.2 cents per cubic foot. Mr. Redfield. Xot a fireproof building? Mr. Ashford. No, sir; not fireproof. Mr. Ivedfiei.d. The following year? Mr. Asiifohd. 1907, the Hyde School, in Georgetown, cost 12.6 cents per cubic foot. Mr. Redfield. That was not fireproof? Mr. Ashfoed. No; only over the heating apparatus. Mr. Redfield. And the following year? Mr, Ashfoed. In 1908 another addition or extension was built to the McKinley, on the other street, costing 26 cents per cubic foot. That is thoroughly fireproof. In 11109 a second addition was built to the McKinley, costing 30.5 per cubic foot. That was a small contract, amounting to $53,800, and in building the addition considerable work in the former build- ing had to be replaced in order to accommodate the addition. Mr. Redfield. So that the cost which you have given of 30.5 cents does not actually represent the cubic-feet capacity of that structure, but some additional work? Mr. Ashford. That had to be explained in a footnote. Mr. George. Additional work on the former structure ? Mr. Ashford. On the former structure; yes, sir. In 1910 the Monroe School cost 16.2 cents, partially fireproof. The Eaton School, at Cleveland Park, fireproof to the roof, up to the roof beams, cost 17.46 cents per cubic foot. The Lovejoy, fireproof to the roof, cost 18,1 cents per cubic foot. The Western High School, fireproofed in its northwest wing, cost 19.2 cents per- cubic foot. Mr. Redfield. And the next year ? Mr. Ashfoed. In the next year a third extension was built to the McKinley School, costing 23.35 cents per cubic cubic foot. Mr. Redfield. What was the cubic capacity of that ? Mr. Ashfoed. That was 662.361 feet. Mr. Redfield. And was fireproof? Mr. Ashfoed. Yes. sir; that is the portion you see there in that photograph [indicating]. Mr. Redfield. That is the building shown in this photograph? Mr. Ashfoed. Yes, sir. INVESTIGATION OF INSURANCE COMPANIES. 803 Mr. Redfield. And that cost how much a cubic foot ? Mr. Ashford. That cost 23.35 cents per cubic foot. Mr. Redfield. And was its construction steel frame ? Mr. Ashford. Only the floor construction and a portion of the interior. It is a wall-bearing structure. Mr. Redfield. Will you give the exact location of that school? Mr. Ashford. That is at Ninth and Rhode Island Avenue. The portion you see there in the photograph is on Rhode Island Avenue. Mr. Redfield. Northwest? Mr. Ashford. Northwest. Mr. George. You say this is a wall-bearing building ? Mr. Ashford. Yes, sir. Mr. George. Is there considerable difference between the steel- beam building and the wall-bearing building ? Mr. Ashford. Yes, sir. A wall-bearing building requires very thick walls. The walls of that building, as I recall, are 3 feet thick in the basement, 26 inches in the first story, and 22 inches in the sec- ond and third stories. Mr. Redfield. What would they be in a steel-frame structure? Mr. Ashford. In a steel-frame structure they would be from 18 to 13 inches thick. Mr. Redfield. That means a corresponding reduction in the amount of masonry work to be done ? Mr. Ashford. Yes. Mr. Redfield. Plus the cost of constructing so much of the steel frame as is outside of the floor beams ? Mr. Ashford. Yes, sir. Mr. Redfield. Is that so ? % Mr. Ashford. Yes, sir. Mr. George. The point I am trying to make is whether the thick walls cost more than the steel beams. Mr. Ashford. Oh, yes, sir ; very much more. Mr. George. And steel columns? Mr. Ashfoed. Very much more ; yes, sir. Mr. Johnson. Is that character of construction better than the steel? Mr. Ashford. Yes, sir ; it is more lasting ; it is more durable. Of course there is a discussion as to the life of steel structure. There is quite a difference in engineering as to the permanency of the steel frame, but the" walls of this building are practically indestructible. They will last for all time. Mr. Redfield. Give 1912 now. Mr. Ashford. In 1912 we built the James Ormond Wilson Normal School, a building containing 1,403,048 cubic feet, and costing 17.49 cents per cubic foot. Mr. Redfield. Is that a fireproof building? Mr. Ashford. That is fireproof up to the roof. Mr. Redfield. When you say "fireproof up to the roof" just exactly what do you mean ? Mr. Ashford. We put the metallic ceiling over the upper story, and then use wooden rafters. Mr. Redfield. For the roof ? Mr. Ashford. Yes, sir. Mr. Redfield. And what outside coverings ? 804 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashford. Slate or tin. Mr. Redfield. The roof is fireproof on the exterior ? Mr. Ashford. Yes, sir. Mr. Redfield. But is supported on a series of wooden rafters? Mr. Ashford. Yes, sir. Mr. George. But notwithstanding, has steel ceilings? Mr. Ashford. Yes. Mr. Redfield. Below the rafters? Mr. Ashford. Below the ceiling joists — and metal laths and hard plaster, adamant plaster, so the ceiling of the upper story is prac- tically fire resisting. Mr. George. But not fireproof? Mr. Ashford. But not fireproof, because the steel work is not protected. In the other portions of the building the steel work is all surrounded by a nonconducting material. Mr. Redfield. Have you any buildings under construction now, and if so, at what cubic-foot cost as to fireproof buildings ? Mr. Ashford. Yes, sir ; we have the colored normal school now un- der construction, at a cost of 16.14 cents per cubic foot. Mr. Redfield. Is that a wall-bearing building ? Mr. Ashford. Yes, sir. Mr. Redfield. With steel beams — floor beams? Mr. Ashford. Yes, sir. Mr. Redfield. For the purpose of getting these different methods of construction correctly upon the record, I will state them and see if the distinction is clear. The wall-bearing building, which is a fireproof building, is a build- ing in whie£ the floors have steel or iron beams, but the weight of the building is carried by the walls ? Mr. Ashford. Yes, sir. Mr. Redfield. Is that correct \ Mr. Ashford. That is right. Mr. Redfield. The steel-frame building is a building which differs from that in that not only are the floor beams of steel or iron, but the vertical columns are also steel or iron, so the weight is carried by the frame of the building and not the wall. Is that correct ? Mr. Ashford. Yes, sir ; exactly. Mr. Redfield. In the buildings you have referred to as fireproof up to the roof, they are wall-bearing buildings with steel floor beams or iron beams until the top story is reached, where, as you have de- scribed it, there is a fire-resisting ceiling and a roof which has wooden rafters and a slate exterior? Mr. Ashford. Yes, sir. Mr. Redfield. Is that correct ? Mr. Ashford. Yes, sir — slate or tin ; in some instances it is tin. Mr. Redfield. It is true, Mr. Ashford, that some building mate- rials have advanced in price in recent years? Is not that so? Mr. Ashford. Yes, sir. Mr. Redfield. It is also true, is it not, that some others. have not advanced in price. Mr. Ashford. Yes, sir. Mr. Redfield. It is true, is it not, that some can be bought for less than heretofore? Mr. Ashford. Yes, sir. INVESTIGATION OF INSUBANCE COMPANIES. 805 Mr. Redfield. As an expert in designing and constructing build- ings, I will ask you to tell the committee whether it is or is not true that a fireproof building can be built as cheaply or nearly as cheaply to-day as last year or the year before or the year before that. Mr. Ashfoed. Yes, sir ; it is my opinion that it could. I do not believe there would be an advance of over 1 per cent. Mr. Kedfieij>. Be a little specific. The price of steel has ad- vanced, has it not? Mr. Ashfoed. The price of steel has advanced slightly. Mr. Redfield. Can you say how much it has advanced ? Mr. Ashfoed. Yes, sir. In June, 1910, the base price of steel was about $31.90. ' Mr. Redfield. Per gross ton? Mr. Ashfoed. Yes, sir. Mr. Redfield. Per ton of 2,240 pounds? Mr. Ashfoed. Yes, sir. In September, 1912, it was $32.90. Mr. Douglas. How is that now? $21.90 was in 1910? Mr. Redfield. $31.90. Mr. Ashfoed. Yes; $31.90 in the spring of 1910. Mr. Redfield. What is the next one? Mr. Ashfoed. In the fall of 1912 it was $32.90. I estimate that it costs about the same to assemble and erect as it did before, because wages have not advanced. I estimate that it costs about $4 a ton for fabrication, about $1 per ton for hauling, about $1 per ton for painting, and between $9 and $10 per ton for erecting, making the steel in the buildings cost about $50 a ton. Mr. Redfield. So that the advance in the price of steel between 1910 and 1912 represents $1 for every 2,240 pounds ; is that so ? Mr. Ashfoed. Yes, sir; that is right. Mr. Redfield. Mr. Ashford, you are familiar with the method of erecting a steel-frame structure, are you not? Mr. Ashfoed. Yes, sir. Mr. Redfield. Is it not a fact that these steel- frame structures are fitted together at the works where they are fabricated, so that when they come to be put into the building they go together, number by number, and fit? Mr. Ashfoed. Yes, sir. Mr. Redfield. And they are erected by cranes, are they not? Mr. Ashfoed. Yes, sir. Mr. Redfield. Is it not a fact that those cranes have always a large excess capacity for the weight they are called upon to lift ? Mr. Ashfoed. Yes; except in very exceptional cases, the columns that are lifted by those cranes are very light compared with the capacity of the crane. Mr. Redfield. Would a difference of 500 pounds, or even 1,000 pounds, in the weight of a column or truss affect the cost of erection materially? Mr. Ashfoed. No, sir. Mr. Redfield. Not at all? Mr. Ashfoed. No, sir. Mr. Redfield. A crane that would be taken to lift a 5-ton column would lift a 6-ton column without change? Mr. Ashfoed. Yes, sir. 806 INVESTIGATION OF INSURANCE COMPANIES. Mr. Kedfield. With the same number of men and in the same time? Is it not so? Mr. Ashfokd. Yes, sir. Mr. Kedfield. And being fitted together, they would go into place as readily, would they not? Mr. Ashfoed. Yes, sir. Mr. Redfield. So the mere increase in the weight of the steel, in the thickness of the steel plates out of which the girders are made sufficient to enable a nine-story building to carry two stories more would not materially affect its' construction cost, except for the dif- ference in the weight of the steel itself? Is not that so? Mr. Ashfoed. Yes, sir; the cost of the steel itself. Mr. Redfield. So far as the erection of the building is concerned, the difference in putting it up would not be material ? Mr Ashford. No, sir. We find that it is the practice here to esti- mate the cost of erection at between $9 and $10 a ton— the cost of labor of the erection. . Mr Redfield. So that if we increase the thickness of the plate in a girder to carry an additional weight, the punching and shearing and the riveting" of that girder are done in the same machine? Mr. Ashfoed. Yes, sir. . . , Mr. Redfield. The erection of the heavier girder is done by the same cranes and by the same number of men and at the same speed? Mr. Ashford. Yes, sir. . . Mr Redfield. And the mere difference in weight of the structure does not affect its cost materially beyond the $1 per ton increase in price plus what you must pay for the greater number of pounds ot steel that you have? Mr. Ashfoed. Yes, sir. Mr. Redfield. Is not that true ? Mr. Ashford. Yes, sir. . „ Mr Redfield. Will you tell the committee, in your own way, ot any interyiew you may have had with Mr. Darneille respecting the appraisal of the Southern Building by you? Mr Ashford. Yes, sir. I can not fix the date very closely, but it was sometime last summer. Mr. Darneille has been and is still a close personal friend, and it has been customary for him to stop in to see me whenever he was in the District Building. Sometime, I think last August Mr. Douglas (interposing). You mean ot 1912? Mr. Ashfoed. Last August; yes, sir. He stopped in and asked me what I thought the value ot the Southern building was. I told him I had not been in touch with the construction of the building or had not been building inspector tor several years, and I did not know and had never formed any idea. He said, "Could you find out for me? " He did not tell me why he wished it or what it was for, and I did not ask him what it was for He said the building was of certain dimensions, and he gave me 'the dimensions of the building. I figured it up and my recollec- tion is I placed it at 28 cents a cubic foot. I had had experience with a ffood many of the apartment houses and other fireproof buildings, and I know that the/ can be built around 21 and 22 cents a cubic foot. This building was a little more elaborate, and 1 put it at zo INVESTIGATION OF INSUKANCE COMPANIES. 807 cents a cubic foot. I figured it out for him, and my recollection is that on the dimensions which he gave me it came to about $700,000. Then he came in to see me a second time, and I went over to the building inspector's office and got the permit for the building, and I figured it out from the permit dimensions, the dimensions given in the building inspector's office, and put it at 28 cents a foot, and it came to $682,080. I gave him that as my estimate of the cost of the building. Mr. Redfield. What did he say ? Mr. Ashford. He did not say anything. -My recollection is that he took the pencil memorandum, but what he wanted it for I did not know and did not ask him. I saw him again Mr. Douglas. When was the second time you saw him? I did not get the date. What was the date of the second time you saw him ? Mr. Ashford. A short while after the first, within a week of the first. Then I saw him again about 10 days or two week ago. He came in and asked me if I remembered having made this calculation for him, and I told him I did. He told me that he had made inquiries on either the same day or the next day in the building inspector's office about the value of the building. He did not tell me until these last 10 days why he had asked me for this valuation. Then I knew what he wanted it for. Mr. Redfield. Did he express any opinion to you as to whether the valuation you gave him was low or high or correct ? Mr. Ashford. I do not recall his making any statement as to my valuation. I have an indistinct recollection that he told me that somebody else valued it higher, but I do not recall any remarks as to mine. Mr. Redfield. Do you know whether he used the valuation you gave him or not ? Mr. Ashford. No, sir; I do not know what he did with it. I did not know at the time what use he was to make of it. Mr. Redfield. Does Mr. Darneille know whether you are familiar with the cost of building construction in the District ? Mr. Ashford. Yes, sir ; I think that is probably why he questioned me on the subject. Mr. Redfield. He knows you have charge of a large number of public buildings in this city ? Mr. Ashford. Yes sir. Mr. Redfield. You and he were fellow employees in the District government for a long time, were you not? Mr. Ashford. Yes, sir; we were rather close friends for a num- ber of years. Mr. Redfield. You knew him when he was assessor? Mr. Ashford. Yes, sir. Mr. Redfield. And he knew what was the nature of your duties? Mr. Ashford. Yes, sir. Mr. Redfield. How many buildings have you had under your supervision in this District, Mr. Ashford ? Mr. Ashford. I think over 70 school buildings and as many other buildings— about 146 buildings. Mr. Redfield. And among them the District Building? 808 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashford. No, sir ; I was not in charge of the District Building. That was under Maj. Harding, now at Panama. Mr. Redfield. And you are familiar with this construction ? Mr. Ashford. Yes, sir. He consulted frequently with me on the subject. Mr. Redfield. And Mr. Darneille knew in a general way this was your relation to the building work in the District ? Mr. Ashford. Yes, sir. At this point Mr. Redfield asked a question, to which objection was made by Mr. Easby-Smith and Mr. Douglas, and to which ensued some little colloquy ; and which, after consultation with the members of the committee, the chairman directed to be expunged from the record. Mr. Redfield, That is all I desire to ask, Mr. Chairman. Mr. Proutt. Are you familiar, in a general way, with the con- struction of what is known as the Southern Building? Mr. Ashford. I could hardly say I am, Judge. The only occasion I had to examine the workmanship of that building was about the time they were putting in the Commerce Court in the upper story. I did, at that time, notice some of the materials of the building. They were making some alterations there to install this court, and I noticed the brickwork and the terra-cotta work and the general appearance of the work at that time. Mr. Proutt. Are you familiar with the cost of such construction as that building is? We will say, the present cost of construction? Mr. Ashford. Only by my familiarity with these other buildings of similar character. During my incumbency as building inspector I had to pass on the plans of thousands of buildings of that kind. Mr. Proutt. Well, now, from any source or regardless of how your information was obtained, do you consider yourself competent to pass upon the question as to what would be the cost of such construction now? Mr. Ashford. Yes, Judge, I do. I would like to show you here an estimate sheet that we have to get up on each of our buildings. There is the estimate sheet, showing in detail the cost of the branches of the work [handing paper to Mr. Prouty]. Mr. Proutt. Well, now, assuming that you have qualified for the answer, what could such a building as the Southern Building is be constructed for at the present time ? Mr. Ashiord. I think it could be constructed for 28 cents a cubic foot. Mr. Proutt. Does it appear in the record how many feet there are in this building? Mr. Douglas. I think there are 2,650,000 feet. That has not ap- peared in the record. Mr. George. Two million and what ? Mr. Douglas. Two million six hundred and fifty thousand. Mr. Proutt. Assuming the figures as they appear in the record, as to the number of cubic feet there are in this building, what would be the present cost of construction of a building like the Southern Building in controversy in this hearing? Mr. Ashford. Well, at that rate, it would make it about $700,000. INVESTIGATION OF INSURANCE COMPANIES. 809 Mr. Bedfield. Do you mean on the original dimensions or on the corrected dimensions? Mr. Ashford. On the dimensions that the judge refers to, as 2,650,000 feet. I made it 2,436,000 feet. Mr. Kedfield. And on that basis, your cost would be what? Mr. Ashford. On that basis my cost would have been $682,080. Mr. George. Mr. Ashford, does the law permit you to have any private practice in your profession outside of the Municipal Build- ing — outside of your- public office ? Mr. Ashford. Yes, sir. There is no law to prevent it; but, as a matter of fact, I have discouraged it myself. There is no law to pre- vent it. At the time I was appointed that question arose in connec- tion with one of the other applicants for the office, who wished to retain his private practice and also to hold the office of municipal architect. The engineer commissioner at that time made the re- mark that the office of the municipal architect must be the principal office, and if he had spare time outside of that he might take some out- side work, but I have never taken any outside work. Mr. George. Your idea is that the man who holds that office ought to be devoting himself entirely to the work of the municipality ? Mr. Ashford. Partially, and then I think it is unethical. I do not think it is square to my professional brethren. Mr. George. Yes. Mr. Ashford, will you please say what your official salary is? Mr. Ashford.. $3,600. Mr. George. That is all. Mr. Douglas. Mr. Ashford, in giving the figures as to the cost per cubic foot of a steel building, of course, you do not in that computa- tion add anything for architect's fees or builder's profits, or any- thing of that sort ? Mr. Ashford. No, sir. Mr. Douglas. Have you made any examination of the Southern Building so that you could make an estimate as to its cost of con- struction ? Mr. Ashford. I have never made an examination since that one occasion when they were preparing the upper story there for the Commerce Court. - Mr. Douglas. Then you made no examination for any such pur- pose as this ? Mr. Ashford. Oh, no, sir. How I happened at that time to make the examination, I was invited there to see some modern contrivance for ventilation that they place at the windows — a local arrangement for ventilation. Mr. Douglas. You did not go anywhere else except to the ninth floor, of course ? Mr. Ashford. Went right up to that floor ; yes. Mr. Douglas. You went right up to that floor, and came right down in the elevator? Mr. Ashford. Yes, sir; but I have been through the hallways of the building. Mr. Douglas. But only through the hallways by the elevator; that is all you have seen ? 71391— No. 9—13 3 810 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashfoed. Oh, no ; I have been through the hallways in going to see people there on business. Sir. Douglas. How many tons of steel do you calculate there are in that building? Mr. Ashfoed. Whv, I estimated about 1.400 tons of steel. Mr. Douglas. 1,400 tons of steel? Mr. Ashfoed. Yes. Mr. Douglas. Have you estimated or can you estimate how many extra tons of steel it took to prepare it for . the two additional stories ? Mr. Ashfoed. Why, I could estimate it but Mr. Douglas. You have not done it? Mr. Ashfoed. No, sir. Mr. Douglas. Would $20,000 worth of steel approximate it ? Mr. Ashfoed. Oh, yes, sir ; more than approximate it. Mr. Douglas. More? ;;» Mr. Ashfoed. Yes, sir. Mr. Douglas. Are you certain about that ? Mr. Ashfoed. Oh, yes ; I feel certain of that. Mr. Douglas. Well, how much would you say? Mr. Ashford. Well, of course, to make a detailed estimate of that building would take some time. Mr. Douglas. Yes. Mr. Ashfoed. And that I have never undertaken — never at- tempted, but I calculate that the entire steelwork in the building would only cost about $75,000. Mr. Douglas. About $75,000? Mr. Ashfoed. Yes, sir. Mr. Douglas. You think any steel in excess of $10,000, then, for the extra steelwork, would be too much, would it? Mr. Ashfoed. I think that $10,000 would be ample. Mr. Douglas. Would be ample? Mr. Ashfoed. That is simply an impression. Mr. Redfeeld. You simply refer to the extra steel in the two addi- tional stories? Mr. Douglas. Yes; the extra steel that is in the building now. About $10,000 would be outside figures ? Mr. Ashfoed. Yes; I think so. Mr. Douglas. What makes the difference in the cost per cubic foot of office buildings? Why do they vary so much? Mr. Ashfoed. You mean between one office building and another office building? Mr. Douglas. Yes; comparing one office building with another. Mr. Ashfoed. It is in the character of the material, the nature of the workmanship ; especially the finish — interior finish of the build- ing. Mr. Douglas. Have you ever designed, as an architect, any office building at all? Mr. Ashfoed. No, sir. Mr. Douglas. You never did? Mr. Ashfoed. No, sir. Mr. Douglas. You never superintended the construction of one in your life, did you? INVESTIGATION OF INSUKANCE COMPANIES. 811 Mr. Ashford. No, sir. ' Mr. Douglas. Do you know what the Hibbs Building cost per cubic foot? Mr. Ashford. Yes ; I think I have that right here. Mr. Douglas. Have you got a book giving the cost per cubic foot of all the different office buildings in Washington there ? Mr. Ashford. Of several I have; yes. Mr. Douglas. -Well, let us see what ones you have. Mr. George. I did not hear your answer. Mr. Douglas. He said he had several. ■ Mr. Ashford. I got that for — one time for the comparison of the cost of the public buildings. Mr, George. Are these official reports you are handling ? Mr. Ashford. Yes ; these are reports of the engineer department. Mr. Douglas. Perhaps you can give it from memory. Mr. Ashford. My recollection is it was 53 cents. I got that from Mr. Desibour, the architect. Mr. Douglas. Do you know what the Union Trust Building cost per cubic foot? Mr. Ashford. No; I do not recall. Mr. Douglas. Have you Mr. Ashford (interposing). No ; I haven't got that. The two office buildings I have are the Century Building, down here by Judiciary Square Mr. Douglas (interposing). That is a concrete building? Mr. Ashford. That is a concrete building. Mr. Douglas. When was that built? Mr. Ashford. That was built about 1898 or 1899, somewhere around there. Mr. Douglas. Have you got the cost of that ? Mr. Ashford. Yes, sir; that was 19 cents. Mr. Douglas. That is a concrete structure? Mr. Ashford. Yes; concrete construction. Mr. Douglas. It is a very small building, is it not ? Mr. Ashford. No; it is not very small. Mr. Douglas. I mean it is relatively a small building. Mr. Ashford. Yes ; relatively. Mr. Douglas. You say those are the only office buildings you have— the Hibbs Building and the Century Building? Mr. Ashford. Mr. Desibour gives the cost of the Hibbs Building at 52 cents. Mr. Douglas. Fifty-two cents? Mr. Ashford. Yes. Mr. Desibour also gives an office building Costing 33 cents. Mr. Douglas. What one is that? Mr. Ashford. That is not designated. Mr. Douglas. Sir? \ Mr. Ashford. He does not designate it. Mr. Kedfield. What does he say about it, Mr. Ashford ? Mr. Ashford. Mr. J. H. Desibour submitted figures on a bank building, the cost of which was 52 cents per cubic foot; on an office building, the cost of which was 33 cents per cubic foot, and on a hos- pital costing 18£ cents per cubic foot. 812 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Well, now, about the Century Building, I want to ask you one question, Mr. Ashford. That building was molded with liquid or green concrete into the place where it was put, was it not? Mr. Ashford. Yes. Mr. Douglas. And was cheap construction? Mr. Ashfokd. No, sir. Mr. Douglas. It was not ? Mr. Ashford. Oh, no, sir. Mr. Redfield. Reenforced construction, is it not ? Mr. Ashford. Yes; that was the Ransom system of twisted steel and concrete construction. Mr. Douglas. That was built about 1898? Mr. Ashford. Yes, sir; along there. Mr. Douglas. And it is reenforced concrete ? Mr. Ashford. Yes; it is a monolith building; all concrete, with steel rods ; floors, partitions, and everything but the front is of con- crete. Mr. Redfield. Those steel rods are specially made for that purpose, are they not? Mr. Ashford. Yes; twisted rods. Mr. George. Are they expensive? Mr. Ashford. Yes, sir. Mr. Douglas. The cost of construction is very much higher now than it was in 1898, .is it not? Mr. Ashford. Oh, yes, sir. Mr. Douglas. 'Well, now, in making your estimate of 28 cents per cubic foot, did you take into account the character of the material used? How much marble and how much concrete, how much tiling and everything of that sort, or do you know anything about that? Mr. Ashford. Yes, sir; I took that into account- Mr. Douglas. In a very general way, did you not ? Mr. Ashford. Yes; in a very general way. Mr. Douglas. In a very general way? Mr. Ashford. Yes. Mr. Douglas. You did not make any estimate of the cost of the Southern Building that you would recommend any friend of yours to enter into a contract to build on that basis, did you ? If you were a builder, you would require considerable persuasion to undertake a contract to construct it at 28 cents a foot? Mr. Ashfoed. No; I would not hesitate a moment. Mr. Douglas. You would not hesitate a moment to do that? Mr. Ashford. No. Mr. Douglas. And is not that because you are not a builder and do not know what you are talking about ? Mr. Ashford. Oh, no. Mr. Douglas. Are you a practical builder, Mr. Ashford? Mr. Ashford. No; I am not a practical builder. Mr. Douglas. Have you had any practical experience, at all along that line? Mr. Ashford. I am not a builder. I have had practical experience in the construction of buildings. Mr. Douglas. But you have had no experience as an architect or as a builder in figuring on office buildings? INVESTIGATION OF INSURANCE COMPANIES. 813 Mr. Ashfoed. Not with office buildings; no. Mr. Douglas. In giving the figures you have given here, of course, you mean that 28 cents n ould be the actual cost of the building itself, leaving out all other considerations? For instance, you do not take into account carrying charges and taxes and interest and extras and those sort of things, do you? Mr. Ashfoed. No, sir. Mr. Douglas. You do not? Mr. Ashford. No, sir. I take that as the contract cost of the building. , Mr. Douglas. As the contract price? Mr. Ashfoed. Yes. Mr. Douglas. So, according to that calculation, around $700,000 is about the cost which you think would be involved in the construc- tion of the Southern Building, just taking the actual material and actual labor, and counting no other things in addition to that ? Mr. Ashfoed. The contract cost. Mr. Douglas. The contract cost? Mr. Ashfoed. Yes ; including builder's profit. Mr. Douglas. Including builder's profit; but it does not include the architect's fee? Mr. Ashfoed. No. Mr. Douglas. It does not include architect's fees or carrying ■charges or taxes, extras, or things of that sort. You just take the building from the plans and specifications as they have in the build- ing inspector's office? Mr. Ashfoed. Yes, sir. Mr. Douglas. As originally filed there ? Mr. Ashfoed. Yes. Mr. Douglas. And those figures do not include any such charges as those to which I have referred — extras and so forth? Mi'. Ashfoed. No ; my figures were based upon the plans and speci- fication as on file. Mr. Douglas. And your estimate does not include the United States Trust Co. changes or anything else in the building ? Mr. Ashford. No, sir. Mr. Douglas. Putting in new stokers or changing pipes or those kind of things in the ninth floor, which were, according to the original plan and put there by the Thompson-Starrett Co.? Your estimate does not include anything of that sort ? Mr. Ashford. No, sir ; it does not include changes. Mr. Douglas. Now, referring to the wall-bearing buildings, as they have been described, that is very good construction for 2, 3, or 4 stories, but it could not be used for the construction of buildings 9, 10, or 15 stories, could it, without making the wall very thick ? Mr. Ashford. It could be used Mr. Douglas (interposing). But it is not desirable or practicable now? Mr. Ashford. No, sir ; not desirable. It takes up too much room. Mr. Douglas. Too much room? Mr. Ashfoed. Yes. Mr. Douglas. That interview you had with Mr. Darnielle, was it not in August, 1911. instead of 1912 ? A year from last August ? In 814 INVESTIGATION OF INSURANCE COMPANIES. other words, was not the time when he appraised, this building con- siderably over a year ago, for the Equitable Life Society? Mr. Ashford. As I say, I really do not know what he appraised it for. Mr. Douglas. But might it not have been in the year 1911, instead of last August? Mr. Ashford. Yes ; it may have been, the first interview. Mr. Douglas. Did you not tell Mr. Darneille he could safely put that building at $825,000? Did you not give him that identical figure— $825,000? Mr. Ashford. Well, when I first figured it, I figured it on Mr. Darneille's figures to me, on the size of the building. Then I figured it again from the permit, and the two figures did not agree. Mr. Douglas. You mean he gave you a different number of cubic feet? Mr. Ashford. No ; he gave the proper dimensions Mr. Douglas (interposing). Yes. Mr. Ashford (continuing). In the first instance, but he did not take out for the light shafts and the light courts. I had to go to the permit and take out over 400,000 feet in those light shafts and light courts, so that my first figure and my second figure do not agree. Mr. Douglas. Well, I asked you if you did not tell him in one or the other of those two interviews that he could safely put that build- ing at $825,000? Mr. Ashford. Probably I did, when he gave me the dimensions. Mr. Douglas. And did he not also tell you at the time that he was appraising that building for the Equitable Life Assurance Society? Mr. Ashford. No, sir. Mr. Douglas. He did not? Mr. Ashford. No, sir. Mr. George. I would like to ask how you get 28 cents a cubic foot for the Southern Building, and you read from those records that the Hibbs Building cost 52 cents, and another authority said 53 cents a cubic foot? What is the difference between these two buildings, that there should be such a radical difference in the price — the cost? Mr. Ashford. Well, the Hibbs Building, in my opinion, is a much higher-class building. It has a marble front, much more expensive work. The Southern Building is terra cotta, and there is quite a repetition of detail. There is very little special work in the front of that building. Mr. George. Is it a difference of front then? Mr. Ashford. A difference of exterior. Mr. George. A difference of exterior in the two buildings ? Mr. Ashford. Yes, sir ; and then the interior finish of the Hibbs Building is far superior to that of the Southern Building, in my opinion. Mr. George. Your judgment is then that 52 or 53 cents would be the proper cost price of the Hibbs Building, and that the Southern Building ought to cost no more than 28 cents a cubic foot ? Mr. Ashford. Yes, sir. Now, that figure of 52 cents for the Hibbs Building I accepted from the architect. I have not figured that myself. I did not put that price on there. I accepted his figure for INVESTIGATION OF INSUBANCE COMPANIES. 815 comparison with these District buildings, and that is his figure. I have never figured it — never estimated the value of the Hibbs Building. Mr. George. Just to have the record correct, I would ask you to say — to describe the location of the Hibbs Building. Mr. Ashford. Yes, sir. The Hibbs Building is on Fifteenth Street, the east side, between New York Avenue and H Street. Mr. George. It is in the next block to the Southern Building? Mr. Ashford. Yes, sir. Mr. Eedfield. The Hibbs Building, as compared with the South- em Building, is quite small, is it not ? Mr. Ashford. Yes, sir; much smaller. Mr. Eedfield. And, is it not a fact, Mr. Ashford, therefore, that the increased cost of the front and of such fittings must, therefore, be distributed over a smaller number of cubic feet ? Mr. Ashford. Certainly. Mr. Eedfield. And, therefore, make a disproportionate price per cubic foot? Mr. Ashford. Yes, sir. Mr. Eedfield. So that if the Hibbs Building were extended back so as to have a larger cubic capacity, the rate per cubic foot of cost would go down, even with this expensive front, is not that so ? Mr. Ashford. Yes, sir. Mr. George. That is to say, it is on an interior lot? Mr. Ashford. Yes, sir; an interior lot. Mr. George. Whereas the other building is on two streets, at the intersection ? Mr. Ashford. Yes, sir; but while it is on an interior lot, it is finished on all four sides. Mr. Douglas. On all four sides? Mr. Ashford. Yes. Mr. Douglas. "With marble, you mean ? Mr. Ashford. Xo, sir ; not marble. I say it is finished. The copper cornice is carried around. The roof is similar all around — in other words, it is a finished building all around. Mr. Eedfield. It is of unusually expensive construction? Mr. Ashford. Very heavy copper cornice and copper crustings and ornately carved marble front. Mr. Eedfield. Let us look at that question a little. Has the Southern Building a copper cornice? Mr. Ashford. Terra cotta. Mr. Eedfield. Terra cotta? Mr. Ashford. Yes. I think it has a copper crusting above, but it is terra cotta. Mr. Eedfield. The Hibbs Building has a copper cornice all around, on four sides ? Mr. Ashford. Yes, sir. Mr. Eedfield. What is sheet copper worth a pound ? Mr. Ashford. Well, it is pretty high just now. Mr. Eedfield. Twenty-five cents a pound or more before it is molded, is it not? Mr. Ashford. Thirty cents now, I think. Mr. Eedfield. Twenty-five to thirty cents before it is formed into 816 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashford. Yes. Mr. Redfield. So that a copper cornice, if you took it down, would be worth as waste material somewhere about 30 cents a pound? Mr. Ashford. Yes, sir. Mr. Redfield. It, has a standard market value ? Mr. Ashford. Yes. sir; a standard value. Mr. Redfield. And could be turned into money at any time at that price? Mr. Ashford. Yes. We have had great trouble with regard to the down spouts on the schools. Mr. Redfield. They steal them? Mr. Ashford. Yes. sir. Mr, Redfield. And copper is not subject to corrosion from the weather, is it? Mr. Ashford. Xo. Mr. Redfield. Coming back to your visit to the ninth floor of the Southern Building, when the Commerce Court changes were being made, what did you see being done there? Mr. Asuford. They had cut out some of the walls apparently for a screen or partition and that exposed the brickwork. The plastering had been cut through and exposed the brickwork and the back of the terra cotta. One of the terra-cotta belt courses extends right through that story and it, exposed the brickwork and the back of the terra cotta. Mr. Redfield. "Was that work such as when it was completed it would add to the actual value of the building? Mr. Ashford. The materials they were putting in seemed to be very good material, but I never saw the room after it was completed. Mr. Redfield. So far as the work you saw was concerned, was that work such as would, when it was completed, add to the value of the building ? Mr. Ashford. Well, only temporarily, I should say, Mr. Redfield. The way they Avere fixing that room would render it unprofitable except for that particular purpose. Mr. Redfield. So that if they should lose that tenant there would be an expense to get another one, which would more or less do away with that outlay? Mr. Ashford. Yes ; undo the former work. Mr. Redfield. So that could you testify that the work you saw there being done was work which added to the value of that building, as an asset to an insurance company ? Mr. Ashford. No, sir; I would not say it was a permanent ad- vantage. It was only a temporary advantage. Mr. Redfield. Something to secure and keep a tenant? Mr. Ashford. Yes, sir. Mr. Redfield. If possible? Mr. Ashford. Yes, sir. Mr. Redfield. Noav, Mr. Ashford, is it not the fact that up to and within approximately 20 years, and perhaps less, all buildings in this country and others were wall-bearing construction? Mr. Ashord. Yes, sir. Mr. Redfield. And is it not a fact that there were many buildings built of 8 and 10 stories and even more that were of wall-bearing construction ? INVESTIGATION OP INSURANQE COMPANIES. 817 Mr. Ashfoed. Yes, sir. Mr. Redfield. Is it not a fact, for- example, that the old Equitable Life Building, in New York, was an eight-story building of wall- bearing construction ? Mr. Ashfoed. Yes. Mr. Redmeld. And that every building in every great city of American 20 years ago, no matter how high, was wall-bearing con- struction ; is not that so ? Mr. Ashfoed. Yes, sir. Mr. Redfield. Now, coming back to the question of the contract cost, do you not know that it is the habit of contractors to include interest on their investment in the cost of the work they are doing? Mr. Ashfoed. Oh, yes, sir ; the builder's interest ; yes, sir ; certainly. Mr. Redfield. He would starve to death otherwise? Mr. Ashfoed. Certainly. Mr. Redfield. A contractor who is going to execute a building contract that takes six or eight months figures interest on the invest- ment he must make in advance, up to the time he gets his return ; is that not so ? Mr. Ashfoed. Of course. Mr. Redfield. Then, is it not also true that the money under the loans made, from which such contractors are paid, is money advanced in installments ? Mr. Ashfoed. Yes, sir. Mr. Redfield. The whole of it is not handed out at the beginning ? Mr. Ashfoed. Not usually. Mr. Redfield. The last of it is only handed out at the end of the work; is that not true? Mr. Ashfoed. Yes, sir. Mr. Redfield. And is it not customary to reserve a percentage until after the work is completed ? Mr. Ashfoed. Yes ; 10 per cent. Mr. Redfield. So, as a matter of fact, you can not figure interest on the cost during the whole time the contract is in process of exe- cution? Mr. Ashfoed. No, sir ; not on the total amount ; no, sir. Mr. Redfield. I think that is all. Mr. Douglas. Mr. Ashf ord, Mr. Redfield asked you about whether you thought that improvement would add to or subtract from the value of that building. Had you given any thought at all to that •question — to that matter before he asked you about it? Mr. Ashfoed. No, sir. Mr. Douglas. Well, do you think you can, in the twinkling of an eye, answer a question of that importance, and give an opinion worth anything ? • Mr. Ashford. Well, I give it for what it is worth, Mr. Douglas. Mr. Douglas. Yes. You do not put it above par, do you ? Mr. Ashfoed. No, sir. Mr. Douglas. Have you ever seen the room since it was com- pleted? Mr. Ashfoed. No, sir. .Mr. Douglas'. Would you be surprised if I told you that over !plO,000 worth of mahogany finish was in that room, as part and 818 INVESTIGATION OP INSURANCE COMPANIES. parcel of the building now, put there by the Commerce Court? xbid would that not change your mind as to whether or not that would add to the building by being there ? Mr. Ashford. I acknowledged it had been added to for this par. ticular purpose. Mr. Douglas. I suppose you would agree with me that room could be used for some purpose. It is not a very large room. Mr. Ashford. It is a pretty big room , c Mr. Douglas (interposing) . Is it any larger Mr. Redfield. Now, one moment. What were you going to say? Mr. Ashford. I was going to say it is fully twice the size of this room. Mr. Douglas. Twice the size of this room ? Mr. Ashford. Yes. Mr. Douglas. And do you not know that on every floor of that building there is a corresponding room, corresponding in size with this room, and that the only difference between the Commerce Court room and the other rooms is that its roof is lifted up with a skylight on it and the ceiling is made twice as high, but that it is the same size room as the corresponding rooms on all other floors; do you not know that i Mr. xVshford. Xo; I do not know that. Mr. Douglas. Suppose, then, that we assume, now, that there is a corresponding room, every whit as large, on every other floor, and that the only difference between the Commerce Court room and the other rooms is as to the ceiling, which is lifted up to the height of two stories in the case of the Commerce Court room, so it will oe practi- cally double the height ; would you say this building had been added to or subtracted from in value by lifting up that particular ceiling, the room corresponding in size with the other rooms I Would you think it added to or subtracted from the value of that building ? Mr. Ashford. I do not think Mr. Douglas. As an architect, I ask you that question. Mr. Ashford. I do not think it is permanently improved. I think it is improved for that specific purpose. Mr. George. Let me understand that. Do you mean to say that the chamber of the Commerce Court is a double story high? Mr. Douglas. Yes; it is a double story high over that particular chamber of the Commerce Court. The roof is lifted up practically another story, and then has a skylight over it. I will ask you this question concerning the room on that floor corresponding to the typi- cal rooms on the other floors of the same building in the same posi- tion : Sow, I ask you as an architect if that does not add to the value of that building by having that constructed there, no matter what they use the rooms for? Mr. Ashford. Wei], I thought not, Mr. Douglas, for this reason: I worked on the plans of the Sun Building on F Street, where the American National Bank now is, and the great mistake we made at that time — that has been 20 years ago, and that is a wall-bearing building, 110 feet high — the great mistake we made, we made the rooms too large, and they have been ever since trying to rearrange their partitions in order' to get the rooms to a commercial size for ordinarv use. Mr. Douglas. Do you think that is responsiveJftjaay inquiry? INVESTIGATION OF INSURANCE COMPANIES. 819 Mr. Ashford. I think so. I think this room is valuable for the purposes it is used for now, but I think it would be too valuable for the ordinary tenant. Mr. Douglas. Let me ask you this now, as an architect: Suppose you wanted to cut that room up into three different rooms, would it not be so that all three or four of those rooms would be both lighted and ventilated from the skylight in addition to what they might have from the windows, which the other rooms on the other floors would not have ? Does not that make it more easily susceptible of division than the rooms below ? Mr. Ashford. No; that has some objections. The roof lighting has some objections as an office room — decided objections. Mr. Douglas. If that Commerce Court chamber were cut up into several rooms, would it not be more desirable for tenants with a sky- light and a good high ceiling than the rooms on the lower floors, where there are but two windows to the entire size of the room? Does not the limited number of windows in a room limit your capacity to cut the room up into a number of rooms ? Mr. Ashford. Well, you would have to have outside windows, regardless of the skylight. Mr. Douglas. Well, I will shorten this inquiry in this way : I will ask you again, as an architect, if you can say that to lift up that roof where the Commerce Court chamber is so as to make it two stories in the ceiling and to give it ventilation and light by skylight, whether that adds to or subtracts from the value of that building ? Mr. Ashford. Well, of course, it adds the cost .of that work. Whether it adds to the advantages of the building is another propo- sition. I think it adds temporarily to the value of the building. I do not think it is a permanent improvement. Mr. Douglas. You think it makes no difference then ? Mr. Ashford. No, sir; I do not think it is a permanent improve- . ment. Mr. Redfield. Mr. Ashford, have you heard that the Commerce Court has failed of an appropriation to continue ? Mr. Ashford. I have seen something of that kind in the papers, Mr. Redfield. Mr. Douglas. Mr. Ashford, I have one other question I want to ask you. I want to know if you mean to express the opinion here as an architect that the Hibbs Building cost practically twice as much per cubic foot as the Southern Building. Mr. Ashford. No, sir. I submit those figures as the figures of Mr. Desibour, the architect. Mr. Douglas. Well, you do not doubt their correctness, do you? Mr. Ashford. Sir? Mr. Douglas. I say, you do not doubt their correctness ? Mr. Ashford. I have no reason to doubt it. Mr. Douglas. You have somewhat emphasized the costliness of the frontage of the Hibbs Building? Mr. Ashford. Yes. Mr. Douglas. That is comparatively a small area ? Mr. Ashford. Yes, sir. Mr. Douglas. Did you mean to convey the idea to the committee, by what you said, that there were two side walls of that building finished up in the same costly way ? 820 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashfokd. No, sir; I said the side walls were finished, but not with marble. Mr. Douglas. They are finished simply with brick and painted? Mr. Ashford. Not painted. It is enameled brick. Mr. Douglas. It is enameled brick? Mr. Ashfokd, Yes; and the courses are carried around, and the cornices are carried around the entire building. Mr. Douglas. Do you not know that the cornice of the Southern Building is a very expensive one, of very elaborate heavy terra cotta? Mr. Ashfoed. I know it is elaborate terra cotta. Mr. Douglas. Can you tell us whether the cornice of the Hibbs Building cost more than the Southern Building? Mr. Ashford. I do not think so. Mr. Douglas. Could you say? Mr. Ashfoed. I could not. Mr. Douglas. The area of the Southern Building is so great that it covers the full lot on H Street and Fifteenth Street? Mr. Ashfoed. Yes, sir. Mr. Douglas. While the relative frontage of the Hibbs Building is very small? Mr. Ashfokd. Yes. Mr. Douglas. A very small lot, you said ? Mr. Ashfoed. Yes, sir. Mr. Douglas. Would you say. as an architect, the interior of the Hibbs Building is built better and of higher class material than the Southern Building ? Mr. Ashfoed. Yes, sir. Mi 1 . Douglas. Do you know anything about that? Mr. Ashford. Weil, I think it is better work than the Southern Building. Mr. Douglas. I am not asking you about the work. I am talking about the material now. Is there any difference in the material? I am asking you what you know now. Mr. Ashford. Yes; there is a difference in the finish. Now, as I said, I have not figured the Hibbs Building. There is a difference in the finish of the interior. Mr. Douglas. Well, let us take the Hibbs Building at a cost of 52 cents per cubic foot, and assuming that the figures you have given are reasonable and proper, I am asking you now if you know of any substantial difference in the material used in the interior con- struction of the Southern Building compared to the Hibbs Building? I am asking your own personal knowledge. Mr. Ashford. Yes; I know the difference in the marble in front Mr. Douglas. Well, now, you have talked about the front, I think, quite enough. Mr Kedfield. Let him finish, Mr. Douglas. Mr. Douglas. I did not ask about the front. The answer is not responsive to my question. Mr. Ashfoed. You said difference in the materials, and the front includes the materials in general. Mr. Douglas. Have you not said all you want to say about that front? Mr. Ashford. No. INVESTIGATION OP INSURANCE COMPANIES. 82 X Mr. Douglas. Would you mind coming inside the building with me for a moment ? Mr. Ashpoed. I think the front is one of the large expenses of the building. Now, on the interior, as I recall them, the doors are of mahogany — a great many of them, are of mahogany. In the other case a great many of them are oak — hardwood. Mr. Douglas. Are there any oak doors in the Southern Building ? Mr. Ashfoed. There is hardwood trim. Mr. Douglas. I asked if there are any oak doors in the Southern Building. Mr. Ashford. That is my impression. Mr. Douglas. Do you know what you are saying? Mr. Ashfoed. No ; I do not know. Mr. Douglas. Sir? Mr. Ashfoed. No. Mr. Douglas. Do you know that the doors in the Hibbs Building are of mahogany ? Mr. Ashfoed. No, sir; I do not. Mr. Douglas. So you do not know which is mahogany and which is oak, and whether either of them is mahogany or oak ? Mr. Ashfoed. You are asking me Mr. Eedfield. Mr. Ashford, I will ask you to answer the ques- tions in your own way, and when you are interrupted by counsel, proceed to answer the question without regard to the interruption. Finish your statement, as you desire. Mr. Douglas. Well, I have not the slightest desire to curtail or interrupt the answers of the witness. Mr. Eedfield. You have interrupted him repeatedly, Mr. Douglas, when he was making an effort to answer. Mr. Douglas. Well, I will not do so again. Now, I will ask you to point out, if you know — and not to guess — the difference in the character of the material used in the interior construction of the- Southern Building contrasted with the Hibbs Building? If you do not know, say so. Mr. Ashfoed. Well, I will say I do not know. Mr. Douglas. No. Mr. Ashfoed. This estimate is not my estimate. I am submitting here an estimate of another man, and I have never examined the Hibbs Building with a view to comparing it with the Southern Building, and it would be mere guesswork. Mr. Douglas. So if the Hibbs Building cost 52 cents a cubic foot, and that was a reasonable price for its construction, and you know nothing about the relative character of the construction in the- Southern Building and the Hibbs Building, then you would not be in a position to say, taking that as a standard, what the Southern Building ought to cost, would you ? Mr. Ashfoed. No ; not taking that. Mr. "Douglas. As a matter of fact, your estimate is largely a guess, is it not ; Mr. Ashford ? Mr. Ashfoed. No, sir ; I do not think so. Mr. Douglas. Well, will you tell me, then, what kind of doors are used in the Southern Building? Mr. Ashfoed. No; I do not recall now. Mr. Douglas. Would not that enter into the cost per cubic foot ? 822 INVESTIGATION OF INSURANCE COMPANIES. Mr. Ashford. Yes ; the general character of the trim would. Mr. Douglas. Will you tell me how thick the doors are in the Southern Building? Mr. Ashford. I do not know. Mr. Douglas. Would not" that .enter at all into the cost per cubic foot? Mr. Ashford. So slightly that it would not affect it. Mr. Douglas. So slightly that it would not affect it? Mr. Ashford. No. Mr. Douglas. If there were 6 to 7 or 8 layers it would not make tiny difference as between 3 or 4 layers? Mr. Ashford. Not a bit. Mr. Douglas. Not a bit ? Mr. Ashford. So slight it would be negligible. Mr. Douglas. It would be negligible? Mr. Ashford. Yes. Mr. Douglas. Will you tell me about approximately the amount of marble used in the Southern Building? Mr. Ashford. No. Mi'. Douglas. Would that enter into the computation at all? Mr. Ashford. Oh, yes. Mr. Douglas. Very largely? Mr. Ashford. Yes. Mr. Douglas. You have no idea how much marble is in it? Mr. Ashford. Oh, yes ; I have an idea. Mr. Douglas. Do you know how much marble is used in the Southern Building on the first floor ? Mr. Ashford. Not in feet or yards. Mr. Douglas. Well, approximately, do you know? Do you know where it is used on the first floor ? Mr. Ashford. Yes ; I have been through the corridors there, and ■noticed where it was used. Mr. Douglas. Is the ceiling of marble or some other material ? Mr. Ashford. It has the appearance of marble. Mr. Douglas. It has the appearance of marble? Mr. Ashford. Yes. Mr. Douglas. You did not look at it? Mr. Ashford. I did not go up and examine it. Mr. Douglas. So you do not know whether there is marble on the ceiling of the Southern Building first floor or not % Mr. Ashford. No. Mr. Douglas. Well, what did you assume in making your calcula- tion as to whether it was there or not? Mr. Ashford. I assumed that the corridors were finished with the usual amount of marble in a building of that character. Mr. Douglas. What quality of marble is used in the Southern Building, did you ever notice? Mr. Ashford. No. Mr. Douglas. Is it gray or white ? Mr. Ashford. It is a light marble. Mr. Douglas. Yes. Mr. Ashford. It is light marble. I never noticed the character of the marble. INVESTIGATION OP INSUKANCE COMPANIES. 823 Mr. Douglas. Have you any idea as to the cost of the United States Trust Co.'s improvements there ? Mr. Ashford. No, sir. Mr. Douglas. And you have already said that would have to be added to the figure you gave, because you did not take that into account? Mr. Ashford. I took the building as it was Mr. Douglas (interposing). Originally planned according to the original papers filed ? Mr. Ashford. As it was originally constructed ; yes, sir. : Mr. Douglas. That is all. Mr. Redfield. Mr. Ashford, when you spoke of the exterior of the Hibbs Building being finished, you used that word in the ordinary technical sense as it is used among architects and builders ? ' Mr. Ashford. Yes, sir. Mr. Redfield. To distinguish between a finished wall and a rough wall? Mr. Ashford. Yes. Mr. Redfield. And the other construction would be to leave the plain brick, merely pointed up ? Mr. Ashford. Yes, sir. Mr. Redfield. And painted, perhaps, as the case might be ? Mr. Ashford. Yes. ; Mr. Redfield. That is all, unless you gentlemen have further ques- tions. Mr. Easby-Smith? Mr. Easby-Smith. No. Mr. Redfield. That is all Mr. Johnson. The committee will recess until 2 o'clock. Whereupon, at 12.50 p. m., a recess was taken until 2 o'clock p. m. Tuesday, January 7, 1913. AFTER RECESS. The committee met at 2 o'clock p. m., pursuant to the taking of recess. STATEMENT OF DANIEL CURRY. The witness was sworn by the chairman. Mr. Johnson. Mr. Curry, please give to the stenographers your name, residence, and occupation, after which Mr. Redfield will inter- rogate you. Mr. Curry. Daniel Curry, 602 A Street NE., examiner of the de- partment of insurance of the District of Columbia. Mr. Redfield. Mr. Curry, did you personally make the examina- tion of the Commercial Fire Insurance Co. and of the First National Fire Insurance Co. in the fall of 1912? Mr. Curry. I, assisted by Mr. Hall, the statistician of the depart- ment, made examination of the Commercial Fire Insurance Co., as of October 31, on November 2, last. Mr. Hall made examination of the First National. Mr. Johnson. And did you make it of the Commercial ? Mr. Cubry. Assisted by Mr. Hall. 824 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Did you obtain a list of the stockholders of the Commercial Fire Insurance Co. ? Mr. Cukry. Yes, sir. Mr. Redfield. Can you furnish that to the committee ? Mr. Cukry. I think so, sir. Mr. Redfield. Have you a list of the stockholders ? Mr. Curry. Yes, sir. Here is a list. That was made necessary to take off, to reconcile the stock-certificate books with the stock ledger, so as to ascertain how much stock was actually out, checked by the stock books themselves. Mr. Redfield. Did you balance the stock-certificate books with the stock ledger and find if they were in accord ? Mr. Curry. Yes, sir. Mr. Redfield. Were they so in accord? Mr. Curry. We did have little corrections of errors — clerical errors, I imagine. Mr. Redfield. You mean clerical errors? Mr. Curry. There were only a few. It took a great deal of time- more than 10 days — because there were a great many stockholders holding small amounts. Mr. Redfield. And how many stockholders are there? Mr. Curry. There are 32 pages of this [referring to list]. I never counted them. There are two columns on a page. I imagine there are about 65 names in each column ; approximately, I would say, 4,000 at a guess. Mr. Redfield. And did you make any calculation as to the average amount of stock held by each holder? Mr. Curry. No, sir ; that never occurred to me, but it must be very small. Some of them held as low as a half share. Mr. Redfield. I beg pardon. Mr. Curry. Some of them held as little as one-half of one share. Mr. Redfield. Were there many that held as little as one-half of a share? Mr. Curry. No; not many. Mr. Redfield. Can you say how many held one share? Mr. Curry. Not exactly. Mr. Redfield. Were there quite a number ? Mr. Cukry. Well, I would say there were quite a number ; yes, sir. Mr. Redfield. " Quite a number " is rather indefinite. Were there 10, or were there 50? Mr. Curry. In looking through here I would say — I have looked at half a dozen pages here, and I found, I think, propably one or two on each page. I would say that would be — maybe twice or three times that amount. I can not tell. Mr. George. How many on a page, all together? Mr. Curry. I think there are 90 on a page. According to that — that is just a guess — according to that there would be 2,180. One column is not completed. It looks as if there would be about 2,850 stockholders. Mr. Redfield. And how many of them, approximately, held one share? Can you say? Mr. Curry, dancing through, I would say there were at least 100 ; maybe twice that many. INVESTIGATION OP INSURANCE COMPANIES. 825 Mr. Redfield. What was the largest amount of stock held by any individual ? Mr. Curry. Excuse me about that. I was looking at the wrong column when I was saying one share. Mr. Redfield. You wish to correct what you said ? Mr. Curry. Yes ; I wish to correct that ; yes, sir. Mr. Redfield. It is only approximately we desire, Mr. Curry. Mr. Curry. Yes, sir. On looking through it hurriedly I would say that 3 — I think 12 or 15 of either one or one and a half shares. Fractional shares were issued. Mr. Redfield. That is all — 15 or 20? Mr. Curry. That is all I noticed as I ran through it. Mr. Redfield. What is the largest amount of stock held by any one individual ? Mr. Curry. Mr. Redfield, as I understand the question, it was the largest number of shares held by one person. It would be impossible to tell from this list. It occurs to me, while I am looking through it, and from my knowledge of the stock books, that the individuals have had several certilicates of different amounts issued to them all outstanding at the same time; but I find single certificates in here, one for 500 shares. I did not happen to take his name. That is the only one I missed. But I find 250 shares in the name of Frank Wiegand and 296 shares in one certificate held bj' Mr. Robert N. Harper and 272f held by Tuttle, Wightman & Dudley and one of 7571 in the name of William Simon ; C P. Hendricks. 31 8 ; and 150 in several names, and some 200 shares. But that does not indicate that that is all the shares that those people own. Mr. Redfield. Does not the stock ledger contain an account of each stockholder individually ? Mr. Curry. Yes, sir; but I got this stuff from the stub books. Mr. Redfield. Will the stock ledger of the company show the exact number of shares held by each stockholder? Mr. Curry. Yes ; I was told, because I asked for that information as of December 5, the date of an examination that the department is making of this company. Mr. Redfield. Have you not received it yet ? Mr. Curry. Yes, sir. Mr. Redfield. Is it a fact that the stock ledger does show the exact number of shares held by each person? Mr. Curry. I think it does, because Mr. Redfield (interposing). Well, do you not know, Mr. Curry? Mr. Curry. Well, the stock ledger was reconciled with the cer- tificates of stock outstanding ; and, of course, to carry on their busi- ness, they would have to know that so as to know how to apportion the dividends, I should say. Mr. Redfield. Then the ledger does show, does it, by an individual count of each stockholder, just the number of shares outstanding in his name? Mr. Curry. I think it does, sir. Mr. Redfield. You are not sure? Mr. Curry. I would say that I imagine that it does. Mr. Redfield. Did you not examine the stock ledger? 71391— No. 9—13 i 826 INVESTIGATION OF INSURANCE COMPANIES. Mr. Curry. I took the amount of capital stock out and got the number of shares and reconciled that with these certificates of stock that are out, that is, the capital stock that is carried by the company in these ledgers, in these books. Mr. Redfield. In its general books? Mr. Curry. Yes, sir. Mr. Redfield. That is to say, you compared the outstanding shares of certificates with the totals shown by the general account? Mr. Curry. Yes, sir. Mr. Redfield. In the general ledger? Mr. Curry. Yes, sir. Mr. REDHEiiD. But you did not compare the outstanding shares by their stubs, giving the amount in the stock ledger with the stock- holders? Is that so? Mr. Curry. No, sir; that is true. Mr. Redfield. You did not make that comparison? Mr. Curry. I did not, sir. Mr. Redfield. Would not that make possible a mistake or error in the account of certain stockholders, whereby he might be credited with a number of shares that he did not have? Mr. Curry. When we began the examination and began this recon- ciliation the assistant secretary and bookkeeper stated that he was 110 shares out. Mr. Redfield. What is his name? Mr. Curry. John McKee. Mr. Redfield. John McKee? Mr. Curry. Yes, sir. Mr. Redfield, He told you that he was 110 shares out? What do you mean by that ? Mr. Curry. That he was out that in balancing the stubs with his stock ledger. Mr. Redfield. That is to say, that there were 110 shares of stock missing in some way; is that it? Mr. Curry. That is, he had money for 110 shares that he could not locate ; he had the money and we located it, Mr. Redfield. You did find it, did you? Mr. Curry. Yes, sir. Mr. Redfield. Are the names you have arranged alphabetically? Mr. Curry. No, sir. Mr. Redfield. Those are simply in the order upon which they appear upon the stubs? Mr. Curry. Yes, sir. Mr. Redfield. That is all? ' Mr. Curry. That is it; yes, sir. Mr. Redfield. You are not able to say, except by going through it and examining it in detail, how many snares one particular person has? Mr. Curry. We did not do that, sir. Mr. Redfield. You did not do that? Mr. Curry. No, sir. Mr. Redfield. So that you have not got a list of the stockholders of the company showing the amounts of stock they respectively own? Mr. Curry. No, sir. INVESTIGATION OF INSURANCE COMPANIES. 827 Mr. Eedfield. Mr. Douglas or Mr. Carusi, can you furnish that? Mr. Wolfe. Mr. Redfield, I was in there when he was looking at that, and he examined the ledger, the cards, the stock cards. When you were out of balance, do you not remember you took the cards and checked them over ? Mr. Curry. Yes. I thank you for that suggestion. Mr. Redfield. The card is a ledger simply in card form, is it not? Mr. Cukey. Yes, sir; that is so. Mr. Redfield. That is what I referred to. It does not make any difference whether it is in book form or card form. Mr. Cueey. It is kept in that way. Mr. Redfield. It is a ledger, just the same. Mr. Curry. Yes, sir. Mr. Redfield. Did you see the list of the stockholders, with the amounts of stock they respectively own ? Mr. Curry. Yes, sir. Mr. Redfield. Did you make up such a list yourself ? Mr. Curry. I did not, sir. I just wanted to reconcile this. Mr. Redfield. Can you gentlemen furnish us such a list? Mr. Cartjsi. We can furnish the list. Mr. Douglas. Pardon me. May I ask whether it is your pur- pose to introduce. this? Mr. Eedfield. My purpose is to use it. Whether we will introduce them in evidence we will decide in conference. Mr. Douglas. We have no objection to furnishing it to the com- mittee, but we do object to having it introduced in evidence, in a public document, they being private affairs of the company. Mr. Redfield. Is it not a fact — I am not familiar with your law — that any stockholder has a right to see the stock issued ? Mr. Carusi. Yes, sir ; if he can establish a bona fide reason for it. Mr. Redfield. I take it, it is in substance a public matter. Mr. Johnson. You will furnish the list for the use of the com- mittee? Mr. Douglas. Yes. Mr. Redfield. Of the stockholders and the amounts held respec- tively ? . Mr. Curry, did you, in the course of your examination, go through the receipts by the company of amounts contributed to its capital stock? Mr. Curry. Yes, sir ; that was all checked up. Mr. Redfield. Did you determine whether this stock was all paid for in full or not ? Mr. Curry. All of the stock that we showed in our examination was fully paid for. They had an account of installments paid on capital stock, and, of course, that could not be aggregated in the capital stock account until the certificate was issued, fully paid. Mr. Eedfield. But you mean that all of the capital stock issued was accounted for either by cash received or by installments yet to fall due? Mr. Curry. Yes, sir. Mr. Eedfield. Was there any bonus stock ? Mr. Curry. I did not see any, sir. , Mr. Redfield. Did you make such an examination as would show it if there was any ? 828 INVESTIGATION OF INSURANCE COMPANIES. Mr. Curry. We took the outstanding certificates as of the date of the examination. We did not go — yes, sir; we took — but we did not take the canceled certificates. There were a great many certificates issued in different amounts, and then sometimes that would be can- celed and issued to somebody else. Mr. Redfield. Certainly; but did you examine into these certifi- cates to see whether there was any of this stock that was issued as a bonus or for services or as a gift? Mr. Curry. I did not see any evidences of them. Mr. Redfield. You did not look for that especially ? Mr. Curry. We did not make any special 1 look for that; no, sir. Mr. Redfield. As a matter of fact, did you verify the receipts of cash by the company as corresponding with the shares issued, save so far as the installments were not yet due? Mr. Curry. We took the amount of the capital stock up that was claimed by the company, and found outstanding certificates that agreed with that amount at par. Mr. Redfield. At par? Mr. Curry. Yes, sir. Of course the Mr. Redfield (interposing). Did you examine into the question as to what commissions or fees might have been paid for the pur- chase of the Southern Building, for example? Mr. Curry. No, sir. Mr. Redfield. Do you not know what commission was paid to the parties that acted for the company in connection with the purchase of the Southern Building? Mr. Curry. No, sir ; I did not go into the real estate transaction at all, because I did not have time, to start with. We had a limited time in which to get this report out. Mr. Redfield. Did you examine the cash books of the company ? Mr. Curry. Yes, sir. Mr. Redfield. Are there any transactions on that cash book which show the payment of a commission to any person in connection with or at the time of the purchase of the Southern Building ? Mr. Curry. I do not remember seeing any. I made this examina- tion in connection with Mr. Hall, the statistician, and, of course, one man could not see it all. In these examinations usually double men do the work, different branches of it. Mr. Redfield. Mr. Curry, can you not refresh your memory on that point and tell me whether you made a careful and thorough ex- amination of the cash disbursements of this company? Did you? Mr. Curry. Yes, sir. Mr. Redfield. Having made a careful and thorough examination of the cash disbursements, what answer do you give to the question whether there were any disbursements for commissions at or about the time of this Southern Building purchase, and if so what they were and to whom. Mr. Curry. Well, I saw nothing of the kind, but I depended upon ' Mr. Hall to do a good deal of the bookkeeping. Mr. Redfield. Did Mr. Hall show you anything of the kind? Mr. Curry. No, sir. Mr. Redfield. Had you learned, and did you learn in the course of your examination, or in any other way, what amount of commis- sion was paid for the purc hase of ihj SnnmRca fctefldjng? INVESTIGATION OF INSURANCE COMPANIES. 829 Mr. Curry. No, sir. Mr. Redfield. Did you learn in the course of your examination, or at any other time, whether one, two, or three persons received a commission for the purchase of the Southern Building ? Mr. Curry. No, sir. Mr. Redfield. No, sir. Mr. Redfield. Did you determine whether any of the installments upon the stock were, so to speak, overdue ? Mr. Curry. No, sir. Mr. Redfield. You mean that you did not so determine ? Mr. Curry. I did not. Mr. Redfield. So that you are not prepared to say whether any of the shares had overdue payments or not on them ? Mr. Curry. I am not. Mr. Redfield. Did you examine into the question how far any subscribers had failed to pay, and their stock had been resold ? Mr. Curry. No, sir ; I did not. Mr. Redfield. You did not inquire into that ? Mr. Curry. Except in a general way. It occurs to me that I asked if, when they failed, the stock was not issued to them in proportion to what they had paid, and my recollection is that in some cases it was. Mr. Redfield. You mean by that that in some cases it was not? Mr. Curry. I do not remember about that. Mr. Redfield. Did you examine the amount of commissions due or said to be due to Tuttle, Wightman & Dudley (Inc.), so as to compare it with the stock sold and ascertain whether it was correctly clue them or not ? Mr. Curry. Yes, sir; we did that. Mr. Redfield. You made that comparison? Mr. Curry. Yes, sir. Mr. Redfield. What did you find ? Mr. Curry. We found this commission of 20 per cent. They call it expenses and commission. But at any rate, it cost 20 per cent, turtle, Wightman & Dudley got 20 per cent for selling the stock, and this installment stock was paid for, I think, in 10 installments, and they took their 20 per cent out of the first two payments ; and I un- derstood there was an agreement that in case of failure to pay that they would reimburse the company proportionately. Mr. Redfield. Did the books show that they had so reimbursed the company in the cases where stockholders had failed to pay ? Mr. Curry. I did not see anything of that kind. Mr. Redfield. Did you look for it ? Mr. Currx. I did not look for it ; no, sir. Mr. Redfield. You do not know whether they reimbursed the company or not ? Mr. Curry. No, sir. Mr. Redfield. You do know that they took the full 20 per cent out of the first installments that came in ? Mr. Curry. It appeared to be that way ; yes, sir. Mi. Redfield. Did you determine whether certain stock had been sold and partly paid for and was then in whole or in part resold and commissions obtained on both transactions for Messrs. Tuttle, Wight- man & Dudley? 830 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Curry. I did not discover anything of that kind. Mr. Redfield. Did you look for it? Mr. Curry. I did not look for it; no, sir. Mr. Redfield, Did Mr. Hall look for matters of that kind? Mr. Curry. I do not think he did, sir. Mr. Redfield. What were your instructions in making that ex- amination, Mr. Curry? Mr. Curry, Well, they were not in detail. It was simply to make an examination of the company in the ordinary way. Mr. Redfield. And the method of doing it was left to you? Mr. Curry. Well, to a certain extent. We followed the custom of the department in making the examination. Mr. Redfield. In the assets of the First National Fire Insurance Co. are included $25,000 in bonds of the Southern Building Corpora- tion. Mr. Curry. I did not examine that company at all. Mr. Redfield. Mr. Hall examined it? Mr. Curry. Yes, sir. Mr. Redfield. Did jou compare the securities said to exist in the Commercial Fire Insurance Co. with the accounts upon their books, to see if they checked ? Mr. Curry. They did, sir. Mr. Redfield. Did you verify the mortgages which the company claims to own by examining them so as to see that they were first liens upon the property well worth the amount of the loan? Mr, Curry. We did, sir. I recall that there was one loan, some- body in Fort Wayne, Ind., I think it was $25,000 or $30,000. There was, I think, a certificate of title, and it was very voluminous and consisted of a large bundle of papers, and in looking at the — we asked this company to make report to us in detail on a large sheet of paper, giving the amount of the loan and when it was made and the rate of interest and the value of the real estate — the value of the land and the value of the improvements, and the amount of insurance on the property, and in the schedule it appears that they had ample security in land and building, but that could not be verified here, and we did not go out there. Mr. Redfield. You took the documents that you had for it? Mr. Curry. Yes, sir; and it looked all right. Mr. Redfield. Did you examine at all into the purchase of the Southern Building on the part of these companies ? Mr. Curry. No, sir; our report shows that we did not examine into that, because we had a limited time in which to make the exam- ination, and that would take considerable time. Mr. Redfield. Did you determine whether the equity in this building over and above the amount of the thirteen hundred thousand dollar mortgages was in the form of stock or securities, or whether it was paid in cash ? Mr. Curry. No, sir. As I stated before, I did not go into the real estate transaction. Mr. Redfield. Did you really know, Mr. Curry, having signed the report to the insurance commissioner, in just what form that equity stands? INVESTIGATION OF INSURANCE COMPANIES. 831 Mr. Curry. If I may state, why, it seems to me I left that to him when I said in my report that " all of the papers in this case have been referred to and approved by you." Mr. Redfield. To Mr. Ingham, do you refer? Mr. Curry. To Mr. Ingham, yes, sir. Mr. Redfield. Then you mean that Mr. Ingham knew what form that equity was in, do you ? Mr. Curry. He approved that statement, sir. Mr. Redfield. The statement does not show in what form that equity exists, does it? Mr. Curry. No, sir; but excuse me Mr. Redfield (interposing) . Suppose that it became important for any reason to know what shape this important item of property is, it does not appear in the statement, does it ? Mr. Curry. No, sir. Mr. Redfield. In the report made to the Insurance Department ? Mr. Curry. Not further than their equity in this real estate. Mr. Redfield. I am asking you to tell the committee — trying to show your knowledge of this report, and whether you made clear in that report to Mr. Ingham, and through him to the public, in exactly what form this equity stood, whether it was in securities or in actual title to the building, as owners ? Mr. Curry. No, sir ; the report does not show that. Mr. Redfield. The report does not show that? And you did not inquire into it? Mr. Curry. No, sir. Mr. Redfield. So that if the company had, as a matter of fact, merely bought the shares of the company and owned it in that shape, you would not know it ? Mr. Curry. No, sir. Mr. Redfield. Have you no instructions from the commissioner of insurance to determine important matters of that kind ? Mr. Curry. No, sir. Mr. Johnson. Mr. Prouty, have you any question ? Mr. Prouty. No, sir. Mr. Carusi. I have one or two questions. Something was said about stock being sold on installments, wherer the subscription had not been kept up. Do you know whether any stock was resold ? Mr. Curry. I do not. Mr. Carusi. You took no account, in investigating the admitted assets of the company, of those partial payment?, did you ? Do you understand my question ? Mr. Curry. No, sir. Mr. Carusi. The records showed both the stock that had been paid for in full and for which certificates had been issued, and for which credit was claimed, and also showed, did they not, the partial pay- ments of subscriptions? Mr. Curry. Yes, sir. Mr. Redfield. The partial-payment subscriptions had nothing to do with your functions in examining the corrpany, did they? You gave no credit to partial payments? Mr. Curry. None whatever ; no, sir. 832 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Carl-si. Mr. Curry, did the companies give yon full oppor- tunity to examine into all the books and papers and all transactions of whatever sort, or was any impediment put rn your way ? Mr. Cukry. None whatever. Mr. Carfsi. All the data about which you have been questioned could be obtained, therefore, by an accountant whose attention was directed to those? Mr. Curry. It could be in time ; yes, sir. Mr. Redeield. Why do you say " in time.'' and why do you "imagine," Mr. Curry? Mr. Curry. I think his question referred merely to my report, and I want to say that there are certain details that I would have prob- ably gone into, but I did not on account of the fact that this report was wanted and had *o be gotten out at a certain time. Mr. Redfield. Why? Mr. Curry. As I understood it, because these companies were applying for admission to the State of New York. Mr. Redfield. Tell us all you know about it. Who gave you to understand that? Mr. Curry. Well, the superintendent. Mr. Redfield. Mr. Ingham told you that? Mr. Curry. Yes, sir. Mr. Redfield. He told you? Now, what did he say, in justice to him and to the committee? Tell us all that he said to you. Mr. Curry. I remember this much, that he spoke to me more than once about it, that it was important to these companies to get these reports in New York early on November 9, or before that, because of the admission of some of the assets or some credits that I do not remember now in detail why it was, but I do know that there was a desire to get the report finished on the night of the 8th of November. Mr. Redfield. The night of the 8th? Mr. Curry. Ye,s, sir. Mr. Cahisi. Just to refresh the witness about it, perhaps: — were you not told that there is a list published by the New York insurance j department at a certain time, about the end of the year, giving a list of those, companies in which, if some other company reinsures some part of its risk, credit will be given to that other company by the New York department? Was not that the reason for the haste? Mr. Curry. I think it was ; that or something similar to that. Mr. Redfield. You were told to get a report ready by the night of Novembers? Was that it? Mr. Curry. Yes, sir. Mr. Redfield. When were you told to ; what date ? Mr. Curry. I do not remember exactly the date, sir. Mr. Redfield. How long did you have to do the job ? Mr. Curry. I will have to refer to the order directing me to make the examination. Mr. Redfield. Have you that with you ? Mr. Curry. I believe I have, sir. After a pause. Mr. Johnson. We were just suggesting the propriety of Mr. Curry looking these matters up more at his leisure, and having him back to examine him further. INVESTIGATION OF INSURANCE COMPANIES. 833' Mr. Cakusi. That is satisfactory to us. Mr. Kedfield. Mr. Gurry, if you will just kindly bring your papers here and make the investigation you wish in them, we will suspend with you for a short time, while we hear Mgr. Lee, and then take you up again. Mr. Curry. I do not believe I have that order with me. Mr. Kedfield. If you will just move to this end of the table, we will recall you in a few minutes. Mr. Curry. Yes, sir. STATEMENT OF MGR. THOMAS S. LEE. The witness was sworn by the chairman. The Chairman. You will please give to the stenographer your name and residence and calling in life. Mgr. Lee. My name is Mgr. Thomas S. Lee; I am rector of St. Matthews Church. I live at 1725 Rhode Island Avenue NW. > Mr. Johnson. You are a Catholic priest? Mgr. Lee. I am a Catholic priest. Mr. Johnson. Monsignor, did you conduct the negotiations by which the old church at the corner of Fifteenth and H was sold? Mgr. Lee. Yes, sir; I did. Mr. Johnson. Did you negotiate that sale directly with the pur- chasers, or did you do it through a real estate agent ? Mgr. Lee. 1 did it through an agent who was their agent. Mr. Johnson. What was his name, please? Mgr. Lee. Mr. Alexander McNeill. Mr. Johnson. Was he authorized to represent you in the trans- action ? Mgr. Lee. No; he did not represent me. Mr. McNeill came to see me one day, and he told me on several occasions, indeed, about the sale of the old church property. He told me — it was on a Saturday morning at about 10 o'clock — that certain gentlemen whom he repre- sented would hold their meeting that afternoon and that he would probably come to me with an offer of $18 for that property. I there- upon went to the bank in which I keep the church moneys, and I saw there one of my par jshoners and the president of the bank. Mr. Johnson. Who was the president of the bank? Mgr. Lee. Mr. Charles Bell, the American Security & Trust Co. My parishioner was Mr. Perry Johnson. Mr. Johnson. What are his initials ? Mgr. Lee. O. P. Johnson. Mr. Johnson. O. H. P. ? Mgr. Lee. O. P. or O. P. H. ; I do not know. He lives in Sheridan Circle. And Mr. Bell — I asked what they would advise, and Mr. Bell stated, " I would accept that offer if I were you." Whereupon Mr. Johnson said to him. "Do you not think, Mr. Bell, that the Property is worth $20 a foot? " Mr. Bell said, " I think it is worth $21 a foot, but if you wait until somebody offers $21 a foot you may nave to wait two or three years, and in the meantime the interest will eat up the difference between $18 and $21." Mr. McNeill, ac- cording to his promise, came to see me that afternoon about 4 o'clock, and said, " Well, will you accept the offer of $18 a foot ? " I said, 834 INVESTIGATION OF ISSI7KANCE COMPANIES. " Yes." He gave me a check for $1,000 to bind the bargain. The property was held in the name, in fee simple, of Cardinal Gibbons. Cardinal Gibbons several years before had given me a declaration in ■writing that he would ratify any contract I might make with regard to this property, and as these gentlemen whom Mr. Alexander McNeill had represented, in addition to this wanted the cardinal's signature, we got the cardinal's signature, and a short time after that — I do not know exactly how long — the deed was drawn up and was amended in some slight particular. I forget exactly what it was. The deed was drawn up by Judge Morris, who represented me also, and though he did not appear officially in the case — he is retired from the court of appeals here — and it was taken by Mr. Robert McNeill to the Catholic University, where the cardinal hap- pened to be at that time, and in the presence of Mr. Alexander McNeill the cardinal signed that deed, which is here in my pocket. I may state that when I first came to Washington, about some 20 years ago, the matter of building a new church was projected, and had been projected some months before that, and I had to take up the question, and when this property was bought it was proposed that a mortgage should be put upon this property, and a real estate Rgent, a competent man, I believe, he was considered, was recom- mended to me. Mr. Johnson. Who was he, please? Mgr. Lee. Mr. Stellwagen— Edward Stellwagen. He was recom- mended to me by Judge Morris. Mr. Stellwagen said that $20 a foot must be placed on the property, and that amount always re- mained, and I have always . consistently refused any offer of $18 a foot, except on one occasion when Mr. George Howard approached me and asked me if I would let him have an option at two weeks, I think it was, to buy the property at $18 a foot and I consented, and nothing came of it except the check for a thousand which he gave me. But on no other occasion was the property ever offered at less than $20 a foot — that is, by me. It was by others. I noticed, if I may digress a little, the other day that a certain witness stated here that he could have bought the property Mr. Johxson (interposing). Who was the witness, please? Mgr. Lee. Mr. Glover. It -was in the paper. Mr. Glover stated that he could hare bought that property several years before at $15 a foot. I think that was the amount stated. I think I can some- what correct that impression. There was a banker who came to see me, Mr. Tait, who was presi- dent then, or manager, of the International Banking Corporation, and he told me that they needed some larger piece of ground, and that a real estate agent came into his office and told him that he could buy this property Mr. Johnson. Did he say who it was? Mgr. Lee. He did not say who it was ; no — could buy this property at $15 a foot; that he knew that, at $15 a foot. Mr. Tait said to me : " Is that true ? " I said : " No ; it is not." That report possibly got out, and Mr. Glover possibly may have heard of it; but in any case it is incorrect, because $20 a foot was held, as Mr. Stellwagen in the beginning advised. Mr. Johnson. Monsignor. did you receive all of the purchase monev at $18 a foot ? / INVESTIGATION OF INSURANCE COMPANIES. 835 Mgr. Lee. Did I receive all of it ? Mr. Johnson. Did you receive it all ? Mgr. Lee. Oh, yes; all excepting there was a mortgage of $120,000, I think it was, which was protected by the purchasers. They assumed that mortgage. Mr. Johnson. In that indirect way you did receive it? Mgr. Lee. I did not receive more than $180,000. Mr. Johnson. I am not talking about in cash, but you got the full consideration of $18 a foot? Mgr. Lee. Yes ; the whole consideration ; $400,000, it was. Mr. Johnson. Monsignor Lee, do you remember the number of square feet? Mgr. Lee. The number of square feet was mentioned in this agree- ment [referring to deed] between James Cardinal Gibbons, arch- bishop of Baltimore, through his agent and attorney in fact, Mgr. Thomas S. Lee, of the District of Columbia, and the purchasers state that the property has 22,212 square feet. Mr. Johnson. You did not pay any real-estate commissions ? Mgr. Lee. Oh, yes, I did. ■ I paid to Mr. Alexander McNeill the commission. I paid him commissions on two occasions. On one occa- sion when he gave me the check of a thousand dollars, on the 31st of December, 1908, I paid him a commission of 2-| per cent, or $200, and then on the 25th of February, 1909, the balance of the commis- sion, $9,800. And the purchasers gave me a note, which I deposited with the American Security & Trust Co., of $190,000. Mr. Johnson. Monsignor, did you know whether or not this agent to whom you were paying commissions was one of the purchasers? Mgr. Lee. No. He told me, or intimated to me, that he was not one of the purchasers. Mr. Johnson. That he was not? Mgr. Lee. That he was not. Mr. Johnson. And upon that representation collected commis- sions from you ? Mgr. Lee. He collected commissions, yes. I understood him to say that he had to divide the commission with somebody else — one or two others. Mr. Johnson. Did he say with whom he had to divide? Mgr. Lee. I think he said with Mr. Eobert McNeill. Mr. Johnson. He is one of the purchasers recited in that table? Mgr. Lee. Yes. I am not quite sure that Mr. Alexander McNeill Mr. Johnson (interposing) . So, then, they were buying that with a full knowledge that they were going to pay less than the contract price by getting the commissions from you ? Mgr. Lee. Yes, sir. Oh, yes ; I suppose so. You see I did not see these gentlemen at all. Mr. Johnson. You saw Mr. Alexander McNeill ? Mgr. Lee. Yes; Mr. Alexander McNeill only; yes, sir. I remem- ber there was a question about the commissions, and two or three real estate people had claims, and Judge Morris very kindly under- took to transact that matter for me, and see these real estate men who claimed commissions, and he said to me, before Mr. McNeill — Mr. Alexander McNeill — that he could avoid the difficulty if we 836 INVESTIGATION OP INSUEANCE COMPANIES. threw the matter into court, and if I would go to court and say I did not know who I ought to pay the commissions to; and I asked the judge to take charge of the whole matter. Mr. Alexander McNeill did not see it in that light apparently. Mr. Johnson. Monsignor, will you please take your pencil and a piece of paper there and multiply the square feet by the $18 a foot, and then subtract from that the commissions you paid, and state the net amount that you did receive for the property ? Mgr. Lee. Let me see; 22,212 square feet [makes calculation], I think, as well as I remember, these are the correct figures. I have made out of it $194,826, excluding the cost of commissions, $10,000. They assumed Mr. Johnson. They assumed the mortgages that were upon it? Mgr. Lee. They assumed the mortgages that were upon it; yes. In addition to this $1,000 which Mr. Alexander McNeill paid me on December 31, 1908, to bind the bargain they also engaged, as shown here [pointing to paper held in witness's hand], to pay $49,000 in February, making $50,000 all together, and then the purchasers gave a note of $190,000 on the 30th day of April, 1909. Mr. Johnson. Then, with the cash which you got and the note and the cancellation of the indebtedness held against you, you got. say, $399,81(1, which is net $390,000? Mgr. Lee. No; the whole amount, as I make it, would be $399,826 for the purchase of the property. Ten thousand dollars of that was paid out for commissions. That would leave $389,826. Mr. Johnson. "Will you please tell me again, in your own way, the representations that were made to you by Mr. Alexander McNeill relative to his charge against you of $10,000 for commissions? Mgr. Lee. Mr. Alexander McNeill told me that he was — that he acted as an agent for the sale of this property, as he has done On several occasions. Mr. Johnson. For the sale or the purchase of it? M"i". Lee. For the sale of the property — or the purchase I mean; not for the sale by me. These gentlemen, who proposed to buy it in, had seen him, and I suppose they asked him to attend to the matter and he said that he acted as agent for those gentlemen, the would-be or intending pur- chasers, and, of course, as their agent, I suppose he would charge a commission, and I believe the commission in the District at that time was not settled as to any definite amount, and the commission charged, he said, would be 2| per cent. Mr. Redfield. Let me direct your attention to an error of $10 in your figures here [indicating] . Mgr. Lee. Yes ; that is true. Mr. Redfield. So the total amount would be $399,816 ? Mgr. Lee. That is correct. That is a mistake I made after I put the figures down: yes. I am much obliged to you for correcting me. Mr. Johnson. Did you tell Col. "W. V. Judson that you received only $300,000 for this property, Col. Judson being one of the Com- missioners of the District of Columbia ? Mgr. Lee. I do not remember ever telling him that or mentioning the property at all to him. Indeed, I have never seen Col. Judson but once, and that was in regard to the height of the present church INVESTIGATION OF INSURANCE COMPANIES. 837 building. We made all the plans ; all the plans had been drawn and the building was 95 feet above the sidewalk, and we discovered that the Congress had passed a law forbidding that. Mr. Johnson. You did not tell him you received only $300,000 for the property ? Mgr. Lee. As well as I remember, I never mentioned anything to Col. Judson about it. Mr. Johnson. Have you ever told anybody you received only $300,000 for the property ? Mgr. Lee. No; I do not think so. Mr. Johnson. You could not have done so, because it was not, true ? Mgr. Lee. No ; I could never have mentioned such a thing as that, because the point was fixed in my mind at $400,000. Mr. Johnson. Less the commission? Mgr. Lee. Less the commission, and, of course, this large mortgage. Mr. Johnson. "Well, that you were given credit for? Mgr. Lee. Yes, of course. Mr. Johnson. And in that way you received that much money? Mgr. Lee. Yes. Mr. Johnson. Judge Prouty desires to ask you some questions. Mr. Prouty. Mgr. Lee, I notice under this contract that they had an option of paying you $300,000 in cash and $150,000 of second- mortgage bonds. You did not take any bonds, did you ? Mgr. Lee. No. I do not know why that was; I presume it was their desire to put that in the contract. But we didn't do that. Mr. Prouty. I think that is all I wish to ask, Mr. Chairman. Mr. Douglas. Mgr. Lee, with reference to the payment of those commissions, you do not mean to convey the idea to the committee that the syndicate got half of those commissions, but that Mr. R. H. McNeill did? Mgr. Lee. No; I do not want to convey any idea at all. I was merely merely asked whether they were paid to Mr. McNeill or whether others got it. I really do not know. Mr. Douglas. You never heard of the syndicate or anybody else other than Alexander McNeill and R. H. McNeill getting any of those commissions, did you? Mgr. Lee. I do not remember. It was a matter of little interest to me. I had to pay the commissions, amounting to 10 per cent, but that seemed to be agreed upon with Judge Morris. Mr. Douglas. You mean 2| per cent? Mgr. Lee. I mean 2J per cent ; yes ; and my recollection is that Mr. Alexander McNeill told me he had to divide the commissions. Mr. Douglas. And divide it with Mr. R. H. McNeill ? Mgr. Lee. I do not knpw. He may have divided it with Mr. R. H. McNeill or Mr. Leckie ; I do not know. I do not know what the share was at all, Mr. Douglas, because that was an affair which I considered merely his own business. Mr. Douglas. He did not represent to you that the syndicate buy- ing this property was to get half of the commission ? Mgr. Lee. I could not say that. I could not say that he did. I am not quite sure, because, as I say, I paid so little attention to the matter. It was something I thought that I had not any interest in. Mr. Douglas. Mr. Alexander McNeill is no relation to Mr. R. H. McNeill, as I understand it? 838 INVESTIGATION OF INSURANCE COMPANIES. Mgr. Lee. No. They spell their names differently, I believe. I think one of them has only one " 1 " in his name. Mr. Douglas. Mr. Alexander McNeill is a recent comer to Wash- ington ; has not been here but a few years ? Mgr. Lee. He has only been here a few years ; yes. Mr. Douglas. He had seen you several times about the sale of this property before? Mgr. Lee. Yes ; I do not know how often. Mr. Douglas. Before he brought Mr. R. H. McNeill's name to your attention he had seen you several times? Mgr. Lee. Yes; I think he had seen me four or five times about the matter before he spoke of this final arrangement. Mr. Douglas. He was trying to get a purchaser for the property? Mgr. Lee. Yes. Mr. Douglas. Do you say Mr. Stellwagen told you it was worth $20 a foot at that time? Mgr. Lee. Mr. Stellwagen told me for the first time some 20 years ago. I held a meeting of several people, business men, in my rooms, and Judge Morris was one and the late Mr. Waggaman was another, and Dr. Clark was one ; and I asked them wha£ should be done about this matter. The result of the whole thing was that when I spoke to Judge Morris about it — the firm was Morris & Hamilton then — the judge said, " The best thing possible for you to do would be to mortgage the old church property and buy this place." Mr. Douglas. You mean your present site? Mgr. Lee. Yes. Mr. Douglas. That is on Rhode Island Avenue ? Mgr. Lee. Yes. Then, in order to ascertain the value of the old church property he called in Mr. Stellwagen, whom I had never even heard of before, and he said, " This is our Washington authority on real estate," and when Mr. Stellwagen was asked by Judge Morris the value of the old church property, he said that the Worm- ley property, just catecornered from our property, was held at $20 a foot. Mr. Douglas. That is the present site of the Union Trust Co. ? Mgr. Lee. Yes; that is the present site of the Union Trust Co. He said that our property was worth quite as much as Wormley's, and therefore we ought to ask $20 a foot — no; it was $25 a foot. Mr. Douglas. Who put it at $20 a foot? Mgr. Lee. Mr. Stellwagen at first did, but then after— you see, another piece of property was sold somewhere in the neighborhood, and he said that it would be better to put it down to $20 a foot. Mr. Douglas. He first said $25 and then put it down to $20? Mgr. Lee. Yes; when he ascertained that this other piece of property was sold somewhere in the neighborhood. Mr. Douglas. You say that was 20 years ago ? Mgr. Lee. Twenty years ago ; yes. Mr. Douglas. What price did Mr. Bell put on it about that time? Mgr. Lee. Mr. Bell told me his executive committee had agreed with him that it was worth $21 a foot. Mr. Douglas. You consider, then, that you sold it at a very low price at $18 a foot? INVESTIGATION OF INSUBANCE COMPANIES. 839 Mgr. Lee. Yes. Mr. Douglas. And your real reason for selling was that you wanted to build your church on Rhode Island Avenue, in the heart of the residence section of the city? Mgr. Lee. Yes. The church had already been built, but it was on borrowed money. Mr. Douglas. You needed the money ? Mgr. Lee. I wanted to use the money, because we had this heavy mortgage and had interest to pay of $13,000 a year, and I wanted to get rid of that. Mr. Douglas. The total purchase price was, as I make it, $399,816 ? Mgr. Lee. Yes. Mr. Douglas. And you received that, less the $10,000 which you paid to Alexander McNeill? Mgr. Lee. Yes. Mr. Douglas. You say then you never had any conversation with Mr. Judson on that subject at all^? Mgr. Lee. To the best of my recollection, I never did on that matter at all. As I say, I never saw Col. Judson but once, and that was when I went to see him about this matter which I mentioned. Mr. Speer, who is my supervising engineer, when we wanted to prolong the nave, and I called to see Mr. Rudolph and Mr. Rudolph took us to see Col. Judson. Mr. Douglas. Was that the only time you ever met and had a conversation with Mr. Judson? Mgr. Lee. That is the only time I ever talked with him. The only time I was ever in his company, so far as I remember, was that time. Mr. Douglas. Was anyone with you then? Mgr. Lee. Sir? Mr. Douglas. You were there on business, were you not? Mgr. Lee. On this matter of the elevation Mr. Douglas (interposing). The elevation of your building on Rhode Island Avenue ? Mgr. Lee. Yes. Mr. Douglas. Nothing whatever was said at that time with ref- erence to the old property, the St. Matthew Church property? Mgr. Lee. As well as I remember, nothing at all. If so, I don't remember. . Mr. Douglas. If anything had been said, as the chairman sug- gested, it would have been possible for you to have said you only got $300,000 when you really got $399,000? Mgr. Lee. Certainly ; I could not have said that. Mr. Redfield. Mgr. Lee, did you ask Mr. McNeill whom he rep- resented ? Mgr. Lee. I do not remember. As well as my recollection serves me, or as well as my memory, serves me, at first he did not give the names at all, and afterwards he told me that it was these gentlemen whose names are mentioned in that document there, Mr. R. H. McNeill and Mr. Leckie. Mr. Redfteld. Any others? Mgr. Lee. He did not give me any others at the time. After- wards he said there was another one, who came in. Mr. Redfield. Did he say who that was? 840 INVESTIGATION OF INSURANCE COMPANIES. Mgr. Lee. He told me Mr. Douglas. Mr. Redfield. So that you knew that at one time or another there were interested Mr. Alexander McNeill. Mr. Robert H. McNeill, Mr. Leckie, Mr. Douglas, and another? Mgr. Lee. He did not tell me there was any other interested in the matter. Mr. Douglas. I understood you to say, Mr. Redfield, in your ques- tion that Mr. Alexander McNeill was one of the purchasers? Mgr. Lee. No ; Mr. Alexander McNeill was not interested. Mr. Redfield. See if this is correct : Mr. Alexander McNeill stated that he represented Mr. Robert H. McNeill and Mr. Leckie and later others ? Mgr. Lee. He did not say specifically, so far as I remember, that he represented these special gentlemen, but what he did say was this: That they were thinking of buying the property — either then or just afterwards he told me this — that they were thinking of buying the property and that they were going to make this offer, but I could not say that at that moment, just before purchasing the property, he said he represented these three men. Mr. Redfield. But you understood at one time or another and in one way or another that the parties to whom you were selling this property were these three gentlemen, Mr. Robert H. McNeill, Mr. Leckie, and Mi-. Douglas? Mgr. Lee. Yes. Mr. REDFrELD. And you understood Mr. Alexander McNeill was acting on their behalf? Mgr. Lee. Yes. Mr. Redfield. Did you never surmise that Mr. Alexander McNeill was also a party to the transaction ? Mgr. Lee. No, sir; I did not. Mr. Redfield. Did you not know that he was an officer of the Southern Building Corporation? Mgr. Lee. Oh, after that; yes. That was some time after the purchase. Mr. Redfield. Did you afterwards know that he became such an officer ? Mgr. Lee. I understood that he had some interest in it. Exactly what it was, I did not know. Mr. Redfield. So that at some later day you knew he did have an interest in the property which he purchased from you for these other gentlemen ? Mgr. Lee. Oh, as I remember, he told me — I think it was he who , gave me all the information that I have — that these gentlemen pur- j chased the property for the Southern Association, Mr. Parker ren- resenting them, and Mr. Parker was the proper man to see about this matter, and he agreed to take this property over from them. Mr. Redfield. Did you ever know of a chain of events something like this : That Messrs. Robert H. McNeill, Leckie, and Douglas bought the property from you and turned it over to representatives of the Southern Commercial Congress, Messrs. Davis and Parker, and then in turn themselves formed a corporation called the Southern Build- ing Corporation and took it back from the Southern Commercial Congress INVESTIGATION OF 'INSURANCE COMPANIES. 841 Mgr. Lee (interposing). I never heard of it. Mr. Redfield (continuing). And then in turn sold it to the South- ern Commercial Fire Insurance Co., in which they are also inter- ested ? Mgr. Lee. I never heard of the Southern Commercial Fire Insur- ance Co. — at any rate, as to any transaction in regard to it. Mr. Redfield. Did you feel you really owed Mr. Alexander Mc- Neill that $10,000 ? Mgr. Lee. I felt this way : I am not an expert in such matters, and I was very amply protected by some of the best men in town. Judge Morris was an extremely distinguished jurist and of unimpeachable honesty, and Mr. Charles Bell is a very able man, and Mr. Perry Johnson the same way ; and they knew of this transaction, and I feel sure they would not have allowed it to go through without Mr. Redfield (interposing). Did they know about the $10,000? Mgr. Lee. Oh, yes. Mr. . Redfield. They knew about it? Mgr. Lee. Oh, yes ; I believe all of them knew about it. I do not know about Mr. Bell knowing it, but Mr. Johnson did, because Mr. Johnson, at a later date, became the trustee on the part of the church, soke must have known all the inside and out. .Mr. Redfield. Did they express any opinion to you about the $10,000? Mgr. Lee. No; not at all. • Mr. Redfield. When you sold the property at $18 per foot did you expect at that time to be called upon to pay the $10,000 ? Mgr. Lee. Oh, yes. At the very moment that Alexander McNeill presented me the check for $1,000 to bind the bargain, that moment he demanded, as well as I remember, or within a quarter of an hour of that, he demanded $200 commission. ,,' Mr. Redfield. Had he mentioned it to you before that date? Mgr. Lee. I presume he did ; yes. I am not quite sure. . Mr. Redfield. It did not come to you as a surprise to have to give back $200 of that thousand dollars ? Mgr. Lee. No; because I considered Mr. Alexander McNeill was merely the agent, not that he had anything more to do with it than as merely the agent — at least at that time. How far he became involved at a later time, when it passed into the hands of Mr. Parker, of course I could not say, but at that time I understood he was merely the agent. Mr. Redfield. And that he was acting in your behalf, and that you paid him a fee for so doing? Mgr. Lee. Not in my behalf, but in their behalf. The money had to come out of the purchasers' money. Mr. Redfield. Why should you pay him for acting in their behalf? Mgr. Lee. I believe it is always the custom for the one who re- ceives the money to pay the commission. I should rather not pay it, certainly. I did not want to take the $10,000 out of the church money. Mr. Redfield. You regarded it as an entirely correct transaction ? Mgr. Lee. Oh, yes. I think that is the custom here in the District of Columbia, anyway. s 71391— No. 9—13 5 S42 INVESTIGATION OF INSTTKANCE COMPANIES. Mr. PRorTr. That is, to pay the man for doing the other fellow's work ? Mgr. Lee. Yes. I know when I bought that property which is now occupied by St. Matthew's Church the agents were Fitch, Fox & Brown, on the part of Mrs. Dunn, who owned the majority of the property, and we had to pay a commission to Fitch, Fox & Brown— at least, she had. The matter was transacted between Mr. Stell- wagen, who was my agent at the time, and Fitch, Fox & Brown, her agents. I remember Mr. Stellwagen saying to us at the time that these people proposed that I should pay' the commission on the pur- chase money, and Stellwagen objected at once. He said, " You know that is not so, Fitch," or " Fox " ; I don't know which it was. Mr. Redfield. Did you have any agents in the sale of this prop- erty ? Mgr. Lee. None at all ; no. Mr. Redfield. You did not have anybody to pay a fee to besides their agent? Mgr. Lee. Do you mean for the purchase of the present St, Mat- thews property? Mr. Redfield. No ; I mean in the sale of this old property. Mgr. Lee. Oh, no. Mr. Redfield. So the only commission paid was the $10,000 that McNeill got? Mgr. Lee. Yes. Mr. Johnson. Did I understand you correctly to say that Mr. Alexander McNeill told you he was purchasing for the Southern Building Association? Mgr. Lee. Oh, no. He told me he was purchasing, and he gave me that impression, I think, both before the transaction and after- wards; yes, before the transaction he told me that these gentlemen proposed to buy it and then hand it over to Mr. Parker; that Mr. Parker was buying it for the Southern Commercial Congress. Mr. Pkouty. Father, I am having made a copy of the contract you handed the chairman, so as to return to you the original. Mgr. Lee. All right. Mr. Prouty. Mr. Chairman, I wish to introduce this copy of con- tract between James Cardinal Gibbons and Robert H. McNeill and D. E. L. Leckie. _m Said contract follows: AGBEEMENT. This agreement made and entered into this 1st day of January, 1909, by and between James Cardinal Gibbons, archbishop of Baltimore, through his agent and attorney in fact, Monsignor Thoma>s R Lee, of the District of Columbia, party of the first part, and Robert H. McNeill and A. E. L. Leckie, of the city of Washington, D. C, parties of the second part, witnesseth : That whereas the said James Cardinal Gibbons, archbishop of Baltimore, is the owner of that certain piece or parcel of real estate located in the District ; of Columbia, city of Washington, described and defined as follows : " Having a frontage on the north side of H Street, running from a point where said H Street is crossed by Fifteenth Street, in an easterly direction 148 feet and 1 inch to the line of a parcel of real estate belonging to the estate of the late Judge Strong, and from said point on H Street extending in a north- erly direction 150 feet to an alley and with said alley 148 feet and 1 inch to a point where said alley runs into Fifteenth Street, and thence down Fifteenth Street in a southerly direction 150 feet to the point of beginning, containing a INVESTIGATION OF INSUKANCE COMPANIES. 843 total of 22,212 square feet, and being the land on which the old St. Matthews Catholic Church stands and also on which stands two store buildings occupied, respectively, by Mrs. Ash and the Willette-Eeinicks Co. (Inc.)." And whereas the parties of the second part desire to purchase the aforesaid property ; Xow, therefore, these present witnesseth : That, the party of the first part agrees to sell to the parties of the> second part said property on the following terms, to wit. cash upon execution of this instrument $1,000, cash during Janu- ary, 1909, $49,000; $190,000 November 1, 1909, with interest at 4J per cent, and the parties of the second part also agree to assume and pay an existing outstanding trust on said premises amounting' to $160,000. at 4 J per cent per annum, in favor of the Mutual Insurance Co.. of Newark, N. J., and due ana payable on November 1, 1909, together with all interest accruing from and after this date. It is expressly understood and agreed that in the event of the failure of the parties of the second part to comply with the terms hereinabove set out, that any payment mad.3 hereunder shall be forfeited to the party of the first part, or his representative or successors in office, with this proviso that 30 days of grace is hereby given said parties of the second part, and that during said 30 days forfeiture is hereby waived. The party of the first part hereby further promises and agrees that in the event the parties of the second part should choose and prefer to purchase the above-described real estate by the payment of $300,000 in cash and $150,000 in the senond-mortgage bonds of any building corporation which they or their assigns may erect thereon, they may do so, upon the following terms : $1,000 crsh on the execution hereof, $49,000 during January, 1909, and the balance of the said $300,000 on or before November 1, 1909, together with the delivery of the said bonds in the sum of $150,000 to the said James Cardinal Gibbons, archbishop, Baltimore, Md. In witness whereof the said James Cardinal Gibbons, by his agent and attorney in fact as aforesaid, hereunto affixes his hand and seal this 1st day of January, A. D. 1909. (Signed) James Cardinal Gibbons, By Thomas S. Lee, Rector of St. Matthews' Church. Agent or Attorney in Fad. Witness : Alex McNeil. I hereby approve the action of Mgr. Lee in executing the foregoing agreement. Archbisltop of Baltimore. January 1, 1909. Mr. Johnson. Do you gentlemen wish to ask any further ques- tions? Mr. Douglas. No. Mr. Easby- Smith. No. Mr. Johnson. Then we will excuse you, Mgr. Lee, with the thanks of the committee. TESTIMONY OF MR. DANIEL CURRY— Continued. Mr. Redfield. Mr. Curry, have you inquired to see when you re- ceived your instructions to make this examination ? Mr. Curry. Yes, sir. Mr. Redfield. When did you receive them ? . , Mr. Curry. I had the office telephoned and they got the informa- tion November 4. Mr. Redfield. You received your instructions to examine these companies on November 4 ? Mr. Curry. Yes, sir ; that is when we began work. Mr. Redfield. Then you did not receive them on the 4th? Did you receive them before the 4th ? 844 INVESTIGATION OF INSURANCE COMPANIES. Mr. Curry. This is the date. It may have been before. I know I asked to be given the date of the order, Order No. 85, and it is dated November 4. Mr. Johnson. Did you begin work on the same day? Mr. Curry. We went to work that day ; yes, sir. That is Monday morning. Mr. Redfield. The same day? Mr. Cuhry. Yes, sir. Mr. Redfield. Then you got an order, No. 85, on the morning of November 4, and you went to work that same morning? Mr. Curry. Yes, sir. Mr. Redfield. And this order to make this investigation, given you on the morning of the 4th of November, said, did it, that you were to get through and have your report ready by the night of No- vember 8 ? Mr. Curry. No. sir. Mr. Redfield. What was said to you about getting through No- vember 8? Mr. Curry. That was verbal. Mr. Redfield-. Verbal understanding? Mr. Curry. Yes. Mr. Redfield. You got verbal instructions from the office, did you ? Mr. Curry. Yes, sir. Mr. Redfield. Who in the office gave you those instructions ? Mr. Curry. It was not an order. It was just a direction to get through, if possible. Mr. Redfield. Who directed you to get through ? Mr. Curry. The superintendent. Mr. Redfield. Mr. Ingham? Mr. Curry. Yes, sir. Mr. Redfield. He said he wanted it by the night of the 8th ? Mr. Curry. Yes, sir ; to get there by the morning of the 9th. Mr. Redfield. So it could get to New York on the morning of the 9th? Mr. Curry. Yes. Mr. Redfield. Did he say he wanted to take it? Mr. Curry. No, sir. Mr. Redfield. Did he say anything about going with it? Mr. Curry. No, sir. Mr. Redfield. What did he say? Mr. Curry. He said that the company, to get credit for, as I re- call it now. certain reinsurance, it would have to to get there by the morning of the 9th, and that these people would lose money if the report was not there. Mr. Redfield. He wanted you to help them out so they would not lose money ? You got this order when you went down to the office on Monday morning, the 4th, did you ? Mr. Curry. Yes, sir ; I got the order. Mr. Redfield. How soon after that did you go to work ? Mr. Curry. I think we went to work at the usual time. I can not remember whether I did or not definitely. Mr. Redfield. What was your usual time for beginning work ? INVESTIGATION OF INSURANCE COMPANIES. 845 Mr. Curry. We generally went to work at 9 o'clock, but on this investigation we had some distance to go, and we may have gotten to work later than that. Mr. Redfield. What time did you get through in the afternoon on that sort of work ? Mr. Curry. Half past 4. Mr. Redfield. You had Monday, Tuesday, Wednesday, and Thurs- day for the job. How long did it take to write up your report when you got it done ? Mr. Curry. I do not think it took over an hour or an hour and a half. I am not sure ; I do not remember. Mr. Redfield. To dictate the report and get it typewritten ? Mr. Curry. Yes, sir. Mr. Redfield. And then examine it carefully to see that it was right, sign it, and send it upstairs % Are you sure about that now ? Mr. Curry. We read it over, signed it, and swore to it. Mr. Redfield. So that the report that you and Mr. Hall made as to these companies — was it both or one of the companies ? Mr. Curry. One company. Mr. Redfield. So that the report that you made as to this com- pany, as to its condition, the condition of its securities, the entire report which is before this committee and which was transmitted by the superintendent of insurance to the Commissioners of the District of Columbia, was prepared by the two of you, he doing part of the work and you doing the other part, sometimes with his aid and some- times without it, was all done in four days and ready ? Mr. Curry. Yes, sir; but we made notes of things as we went along. Mr. Redfield. You had to, did you not ? Mr. Curry. Yes, sir. Mr. Redfield. What do you mean, to explain to the committee, by your making notes as you went along ? Mr. Curry. Of anything that we felt should be stated. Mr. Redfield. And you stated everything that you thought should be stated? Mr. Curry. Yes, sir; except the fact of the real estate, and Mr. Ingham did that. If I had been doing that myself, it would have taken me, I think, some little time to do that. Mr. Redfield. What do you mean to have the committee under- stand when you say Mr. Ingham did the real estate ? Mr. Curry. He passed on the amount credited as an asset and the papers. Mr. Redfield. And you had no responsibility for that ? Mr. Curry. No, sir. I made no investigation of that at all. Mr. Redfield. You left that entirely to Mr. Ingham? Mr. Curry. Yes, sir. Mr. Redfield. And, so far as that appears in the report here over your signature, it was Mr. Ingham's work, and not your own ? Mr. Curry. Yes, sir ; the report states that. Mr. Redfield. So that this report which was passed up, as a mat- ter of fact, was composed in part of Mr. Ingham's work on the real estate, in part of your work, and in part of Mr. Hall's work. Is that true? 846 INVESTIGATION OF INSURANCE COMPANIES. Mr. Curry. Yes, sir. If you will go into that a little more in de- tail, I would say that I examined the mortgages and other securities and computed the accrued interest on all the mortgage loans and of the securities and worked up the reserve, which is a material part of the work and technical — more so because this was an examination at another date than December 31 — and that took a great deal of my time, because the schedule for reserve in the uniform blank used by all the companies had to be changed. Mr. Redfield. Mr. Curry, did you not think it a little bit strange that you should sign the report and that Mr. Ingham should not sign the report in which he took, as you have testified, charge of so im- portant an item as the real estate, valued at one hundred and forty odd thousand dollars? Mr. Curry. The superintendent never signs the reports. Our re- ports are made to him. Mr. Redfield. Yes; so I observe. Mr. Curry. Directly to him. Mr. Kedfield. But in this case he did look after this item of real estate, and so reported to himself, did he not? Mr. Curry. He approved the report that we made to him, which is the same thing, I suppose. Mr. Redfield. And that particular item in it which he himself looked after? Mr. Curry. Yes, sir. Mr. Redfield. You are making an investigation now, are you not? Mr. Curry. Yes, sir j by order of the Board of Commissioners, and they directed us to make it in detail and elucidate it. Mr. Redfield. How long have you been at this job? Mr. Curry. Pretty nearly a month. Mr. Redfield. Are you through ? Mr. Curry. Not quite, sir; but we are working under disadvan- tage, because there are some accountants there that are working, as I understand, at the direction of this committee, and Mr. S. H.. Wolf, of New York, was making an examination, and we are all working at the same time, and we could not all get at the books at the same time, and that began toward the end of the year, and the companies are busy at that time, and that would cause some delay, of course. Mr. Redfield. And how many of you are there at work? Mr. Curry. Only Mr. Hall and myself. Mr. Redfield. Just the same force you had before ? Mr. Curry. Yes, sir ; and Mr. Hall does not Mr. Redfield (interposing). You have been working about a month ? Mr. Curry. Yes, sir. Mr. Redfield. How long are you going to work before you get done ? Mr. Cukry. I think we can probably finish it in a week. Mr. Redfield. In another week? Mr. Curry. Yes, sir. Mr. Redfield. About five weeks' work altogether ? Mr. Curry. I think so, sir, because I do not know Mr. Redfield (interposing). That is, you will have about seven times as long on this report as you had on the other one? INVESTIGATION OF INSURANCE COMPANIES. 847 Mr. Curry. Yes, sir; but if you will excuse me, Mr. Redfield, I will read you the directions of the commissioners about this. Mr. Redfield. I wish you would. Mr. Curry (reading) : I move that the superintendent of insurance be directed to make an imme- diate and exhaustive examination of the books and accounts of the Commer- cial Fire Insurance Co. of the District of Columbia, and that there be a re- valuation as of this date of the Southern Building, one-half of an equity in which is owned by the Commercial Fire Insurance Co. ; that for the purpose of this valuation the superintendent of insurance be instructed to secure, if possible, the services of Mr. William G. Hoover, president of the National Savings & Trust Co., and Mr. Harold E. Doyle, the real estate expert Mr. Easby-Smith (interposing). I might save time, Mr. Chair- man, by stating that he seems to be reading from a motion that was never passed. Mr. Redfield. That is what occurs to me. Mr. Curry. That portion of it ; no. Mr. Redfield. Is it not a fact, to get this all down, that the por- tion relating to the investigation of the companies was approved, and the other was not ? Mr. Easby-Smith. That is it. Mr. Redfield. Let is go at that. Mr. Curry. Yes, sir. Mr. Eedfield. The difference between those two examinations is that both were immediate, but this one was to be exhaustive also? Is that right? Mr. Curry. This was to be exhaustive, and we were directed to elucidate. Mr. Redfield. Is it not your duty to elucidate everything you take hold of, Mr. Curry ? Mr. Curry. Yes, sir; to a certain extent. Mr. Redfield. Why did you not elucidate in the first instance? Was it because there was lack of time ? Mr. Curry. Yes, sir. Mr, Redfield. That is all. Mr. Easby-Smith. Mr. Curry, I believe you, in conjunction with Mr. Hall, and you as an individual, had made a very considerable number of examinations of this company within the year preceding this last examination, had you not? Mr. Curry. I do not know about a considerable number, but I think there were Mr. Easby-Smith (interposing). About how many? Mr. Curry. I can not recall. I can refer to the books and tell you. Mr. Easby-Smith. I wish you would tell us how many you made and how close together. Tell us, if you please, when you and Mr. Hall made a joint examination and how many times you alone had made an examination of these companies within the last few years — of the Commercial Fire Insurance Co. first. Mr. Curry. I would have to go through this book [indicating | . Mr. Easby-Smith. Tell us approximately now, Mr. Curry, when you and Mr. Hall made the last preceding examination. When did you and Mr. Hall make a joint examination? Mr. Curry. You do not mean the last one, do you ? 848 INVESTIGATION OF INSURANCE COMPANIES. Mr. Easby-Smith. The last one prior to the one of November, 1912. Mr. Cubby. We made one as of December 31, 1911. Mr. Easby-Smith. When did you make it? What is the date of your report? Mr. Curry. February 2. Mr. Easby-Smith. 1912? Mr. Cokey. Yes, sir. Mr. Easby-Smith. Did you alone or in conjunction with Mr. Hall make any examination between that date and the November examina- tion, if you recollect? Mr. Curry. I would have to look at the letter book. Mr. Easby-Smith. Let us pass that for the time being. Have you the documents there which will show, when you yourself made ex- aminations of the Commercial Fire Insurance Co. preceding this joint examination by you and Mr. Hall in February, 1912? Mr. Cuery. I have one here of December 31, 1910. Mr. Easby-Smith. Made by yourself ? Mr. Cueey. Signed by me; yes, sir. Mr. Easby-Smith, And when did you make the other ones ? Mr. Curry. Here is one of August 17, 1911. Mr. Easby-Smith. So that you made one in December, 1910, by yourself; you made another in August, 1911, by yourself; you and Mr. Hall made one, working together, in February, 1912 ; and you and Mr. Hall made this last one in NoA r ember, 1912? Mr. Curry. I do not know whether that is right or not. Mr. Easby-Smith. Those are the dates. Were you familiar, Mr. Curry, with the conditions of the Commercial Fire Insurance Co. by reason of your prior examinations? Mr. Curry. You mean familiar with the financial conditions? Mr. Easby-Smith. Generally familiar with their working and the general conduct of their business. Mr. Curry. Yes, sir. Mr. Easby-Smith. Do you recollect about how long it took you and Mr. Hall to make the examination which you made in February, 1912, about nine months prior to this last examination ? Mr. Curry. I can not tell by this. Mr. Easby-Smith. Do you think it took you over a week, Mr. Curry? Mr. Curry. I would not like to estimate the time it took, it has been so long ago. That can be verified, though. Mr. Easby-Smith. This was a pretty full and exhaustive report of the condition — this report of February, 1912 — was it not? Mr. Curry. That was as exhaustive as we usually make reports. Mr. Easby-Smith. It is in about the same form and covers the same matters as are covered by your report of November 8, 1912, except in the November, 1912 report there is the additional element of the purchase and appraisal of real estate ? Mr. Cueey. Practically the same, without the real estate transac- tion. Mr. Easby-Smith. I am going to ask, if the committee please, that this report of February 6, 1912, be incorporated in the report at this point. Mr. Johnson. Very well. INVESTIGATION" OF INSURANCE COMPANIES. 849 The report of February 6, 1912, referred to by Mr. Easby-Smith, is in the words and figures following, to wit : Department of Insurance of the District of Columbia, Washington, February 6, 1912. I, George W. Ingham, superintendent of insurance of the District of Columbia, do hereby certify that an examination has been made of the books and affairs of the Commercial Fire Insurance Co. of the District of Columbia, and the following is a true and correct copy of the report of said examination as the same remains on file in this office. In witness whereof I hereunto set my hand and the seal of this department the day and year first above written. [seal.] Geo. W. Ingham, Superintendent of Insurance, District of Columbia. Department of Insurance of the District of Columbia, Washington, February 2, 1912. Hon. George W. Ingham, Superintendent of Insurance. District of Columbia. Dear Sir: At your direction we have made a detailed examination of the books and affairs of the Commercial Fire Insurance Co. of the District of Colum- bia as of December 31, 1911. The financial status of the company on said date was as follows : Capital stock paid up in cash $200,000.00 Ledger assets Dec. 31, 1910 165, 778. 94 Increase of paid-up capital during year 100, 000. 00 Extended at 265, 778. 94 INCOME. Gross premiums 187, 791. 52 Deduct amount paid for reinsurance, $9,419.69; return premiums, $35,635.68 45, 055. 37 Total premiums 142, 736. 15 Interest on mortgage loans $6, 234. 20 Interest on bonds and dividends on stocks, less $194.60 accrued interest 30.40 Gross rents from company's property, including $500 for company's occupancy of its own building S33. 04 Total gross interest and rents 7, 097. 64 Premium on sale of capital stock 60, 000. 00 From installment subscriptions to stock 140. 00 Exchange . 75 Total income 209, 974. 54 Balance 475, 753. 4S DISBURSEMENTS. Gross amount paid policyholders for losses, including $3,365.16 oc- curring in previous year ! 36, 170. 91 Deduct amount received for salvage, $3.43 ; reinsurance, $86.50 89. 93 Net amount paid policyholders 36, 080. 98 Adjustment and settlement of losses 362. 31 Commissions or brokerage 49. 319. 50 Salaries, fees, and all other charges of officers, directors, trustees, and home office employees 7, 372. 67 850 INVESTIGATION OF INSURANCE COMPANIES. Rents, including $500 for company's occupancy of its own building. $1, 100. 00 Advertising, $389.57; printing and stationery, $988.45 1,378.02 Postage, telegrams, telephone, and express 269. 29 Legal expenses 735. (10 Furniture and fixtures 795. 76 Maps, including corrections 154.00 Repairs and expenses on real estate 187. 25 Taxes on real estate 142. SS State taxes on premiums 303. 61 Insurance department licenses and fees 1,337.69 Federal corporation tax 8.07 City ,->nd county taxes, licenses, and fees 325.08 Car fare 19. 25 Notary and record 96. 85 Newspapers and insurance publications 68. 86 Miscellaneous 366. 60 Insurance placed 39. 78 Dividends 7, 000. 00 Agents' balances charged off 160. 24 Gross loss on sale or maturity of ledger assets, viz, real estate 3, 179. 50 Total disbursements 110, 803.19 Balance 364, 950. 29 LEDGER ASSETS. Mortgage loans on real estate, first liens $136, 300. 00 Book value of bonds 39, 619. 15 Cash in company's office 25, 481. 89 Deposits in bank, not on interest 105, 551.94 Agents' balances representing business written subse- quent to Oct. 1, 1911 51, 338. 79 Agents' balances representing business written prior to Oct. 1, 1911 175. 52 Certificates of deposit 6, 383. 00 Deposit to clear title to real estate 100. 00 Total ledger assets 364, 950. 29 NONLEDGER ASSETS. Interest due and accrued on mortgage loans $2,105.58 Interest accrued on bonds 815. 39 Interest accrued on other assets 1.48 Total - 2,922.45 Gross assets 367, 872. 74 ASSETS NOT AnMITTED. Agents' balances, representing business written prior to Oct. 1, 1911 $175.52 Book value of ledger assets over market value, viz, bonds- 399. 15 574. 67 Total admitted assets 367, 298. 07 LIABILITIES. Gross losses adjusted and unpaid not yet due $2, 032. 32 Gross claims for losses in process of adjustment or in suspense 6,143.19 Net amount of unpaid losses and claims 8, 175. 51 Total unearned premiums 81,449.30 INVESTIGATION OF INSURANCE COMPANIES. 85 1 Dividends declared and unpaid to stockholders $3, 750. 00 Estimated amount hereafter payable for Federal, State, and other taxes 1, 500. 00 Total liabilities, except capital 94, 874. 81 Capital actually paid up in cash $200, 000. 00 Surplus over all liabilities • 72, 423. 26 Surplus as regards policyholders 272,423.26 Total liabilities 367, 29S. 07 The amount invested in mortgage loans on real estate was $136,300. We examined the mortgage notes, deeds of trust, and certificates of title for each loan and found all of the loans to be first liens. The loans are all on improved property in the District of Columbia, and the amounts for which the land and improvements are assessed by the board of assistant assessors of the District show that the company is amply secured. The bonds were carried at $39,619.15, which was found to be $399.15 above the market value, and the proper deduction has been made under assets not admitted. The cash in office, which amounted to $25,489.89, was verified by counting the cash on hand on the 29th ultimo and checking back through the books to December 31, 1911. The books showed that nearly all of this amount was received on December 30, and the officers stated that it was received too late to be deposited in bank on that date. The cash deposited in bank amounted to $105,551.94. This was verified by a certificate of the District National Bank and the company's books. The amount of agents' balances representing business written subsequent to October 1, 1911, was $51,338.79. The large amount represented by this item was dus to the fact that the Managing Underwriters, who control all of the com- pany's business outside of the District, have, under their contract, 90 days and 15 days of grace in which to remit to the company, and also to the fact that $32,000 in premiums was involved in the reinsurance of the Hawkeye & Des Moines Insurance Co. of Iowa on the 27th of December last. The accrued interest on mortgage loans and bonds was carefully checked. LIABILITIES. The net amount of unpaid losses and claims, which was $8,175.51, was checked with the loss register. The total unearned premiums, amounting to $81,449.30, were carefully com- puted. The company has charged a liability of $1,500 as the estimated amount accrued on account of State and other taxes. The minutes show that an extra dividend of 3 per cent was declared on December 11, 1911, to be payable on January 5, 1912, and we have included the amount of this dividend, which was $3,750, in the'lmbilities. HISTORY. This company was incorporated under the general incorporation laws of the District of Columbia on May 17. 1890, with a capital stock of $100,000. Under the law as it existed at that time its charter must expire by limitation of time on the 17th of May, 1910. The law lias been amended, and the corporate powers of the company are now perpetual. It confined its business entirely to the District of Columbia until 1910, when it entered into a reinsurance contract with a prominent firm of New York underwriters. On June 30 last the capital stock of the company was increased to $125,000, and on December 30 it was increased to $200,000, all of which has been paid up in cash. On October 24 last the authorized capital stock was fixed by the board of directors at $1,000,000, and a contract was entered into with Messrs. Turtle, Wightman & Dudley, the managing underwriters of the company, to sell the additional shares of stock. 852 INVESTIGATION OF INSUBANCE COMPANIES. All books and records called for were exhibited, and the uniform courtesy of the officers and employees is hereby acknowledged. Respectfully submitted. Daniel Cukrv, E.caminer. W. S. Hall, Statistician. District of Columbia, ss: Personally appeared before me, Daniel Curry, examiner, and \V. S. Hall, statistician, of the department of insurance of the District of Columbia, who, being sworn, depose and say that the foregoing report is true to the best of their information, knowledge, and belief. [seal.] Edwin B, Hesse, Xotary Public, District of Columbia. Mr. Easby-Smith. As I understand, there was no suggestion on the part of the superintendent of insurance, when he gave you the order to examine in November, that you in any manner depart from your regular method of examination? Mr. Cubby. No, sir. Mr. Easby-Smith. He told you to go ahead up there, you and Mr. Hall, and make a regular examination of that company? Mr. Ctjrey. We got the same kind of an order that we get in other cases. Mr. Easby-Smith. Did you get any verbal suggestion from the superintendent that you should slight the work or that you should in any manner depart from the usual examination? Mr. Curry. No, sir. Mr. Easby-Smith. You have been in the department, as I under- stand, Mr. Curry, ever since its organization under the Code about 1902? Is that correct? Mr. Cubby. Within six months of that time. Mr. Easby- Smith. And have been examiner ever since? Mr. Cubey. Yes, sir. Mr. Easby-Smith. As I understand, under Mr. Drake, the first superintendent of insurance, there was built up a general plan and system of conducting the department? Mr. Curry. Yes, sir. Mr. Easby-Smith. And that included the method of making ex- aminations, did it? Mr. Cubby. Naturally so. Mr. Easby-Smith. And the general nature and character of the report to be made, the general form of it, and the matters to be cov- ered? Is that correct? Mr. Cubby. I think so. Mr. Easby-Smith. And then, as I understand, instructions and rules and customs grew up in the office of the superintendent of in- surance concerning the manner of appraising real estate belonging to insurance companies? Mr. Cubby. Yes, sir. Mr. Easby-Smith. And as I understand, as a rule, in small prop- erties, comparatively small properties, it was the custom of Mr. Drake to appoint one appraiser of real estate, whenever he learned that an insurance company had acquired a piece of real estate. Is that correct? Mr. Cubry. I do not remember that he appointed one. My recol- lection is that he always appointed three. Mr. Easby-Smith. He always appointed three? INVESTIGATION OF INSURANCE COMPANIES. 853 Mr. Curry. Yes. Mr. Easby- Smith. Do you remember that the general custom, then, under Mr. Ingham, has been, in the case of comparatively small properties, to appoint one appraiser, and in the case of large prop- erties to appoint three appraisers? Mr. Curry. I remember that Mr. Ingham did appoint one man in a number of cases. Mr. Easby- Smith. But where the real estate involved was com- paratively small? Mr. Curry. I do not know about that necessarily. This is the largest piece of property that the department has ever been called upon to appraise, and really is the only very large piece that I remember or. Mr. Easby-Smith. As far as you know, the appointment by the superintendent of insurance of the three appraisers to appraise this property was in conformity with the universal practice, as it was established under Mr. Drake and continued under Mr. Ingham, of appointing these three appraisers to appraise this property ? Mr. Curry. Yes, sir. Mr. Easby-Smith. And it was necessary for him to do that, as you understand the law and his duties? Mr. Curry. As a matter of fact, there is no law on the subject. Mr. Easby-Smith. I am talking to you about the unbroken custom. It was necessary, was it not, for the superintendent of insurance to have some appraisement, some basis of valuation for the property? You understood that to be necessary, did you not ? Mr. Curry. I know it was the custom of the department to have properties appraised for examination purposes. Mr. Easby-Smith. Let us put it this way: You knew that the superintendent of insurance under the law could not issue licenses to fire insurance companies to do business unless they had their entire capital stock, and that if they should become insolvent, or the capital stock should become impaired 25 per cent, it was his duty to revoke the license? You knew that, of course, Mr. Curry? Mr. Curry. Oh, yes. Mr. Easby-Smith. Do you not know as a fact that practically all of the insurance companies coming under his jurisdiction own more or less real estate ? Mr. Curry. A great many of them do. Mr. Easby-Smith. And you knew that under that law it was nec- essary for the insurance department to have some basis of valuation of that real estate ? You knew that ? Mr. Curry. When you say " necessary " you do not mean required by law ? Mr. Easby-Smith. I mean that in order for the insurance depart- ment to know what the assets of the company were it would be neces- sary to have some basis of valuation. Mr. Curry. Oh, yes ; certainly. Mr. Easby-Smith. Do I understand correctly that from the incep- tion of the insurance department under the code, which went into effect January 1, 1902, it became the unbroken custom and practice in the office, both under Mr. Drake, during the eight years of his service, and under Mr. Ingham, during the next two years, to appoint appraisers to appraise property for the department? 854 INVESTIGATION OF INSURANCE COMPANIES. Mr. Curry. Yes, sir. Mr. Easby-Smith. And that the department credited the com- panies with the value of the real estate as returned by these ap- praisers appointed by the department? Mr. Ctjery. Customarily they were. I think there was one occa- sion when Mr. Drake objected to some valuation, and there was some readjustment made. Mr. Easby-Smith. Is that the only exception? Mr. Curry. It was not a very important matter, anyway. Mr. Easby-Smith. That is the only exception you know of? Mr. Curry. Yes, sir. Mr. Easby-Smith. That one case ? Mr. Curry. Yes. Mr. Easby-Smith. Do you remember, Mr. Curry, that immedi- ately prior to the examination made by you and Mr. Hall of the Com- mercial Fire Insurance Co. in November, 1912, you and Mr. Hall had been in New York at work? Mr. C!urry. Yes, sir. Mr. Easby-Smith. For about how long had you been there ? Mr. Curry. Five weeks. Mr. Easby-Smith. And you got back, as I understand, about the 1st of November? Mr. Curry. Yes, sir. Mr. Easby-Smith. How many days preceding this examination of the Commercial Fire Insurance Co.? Mr. Curry. I think maybe two or three or four days, as I re- member. Mr. Easby-Smith. Two or three or four days? Mr. Curry. Before we began work ; yes. Mr. Easby-Smith. Do you remember that Mr. Ingham said to you, when he gave you the instructions to examine the Commercial Fire Insurance Co., that he wanted you to hurry up on that job for two reasons, one because there were a great number of examinations to be made and concluded before the end of the year ? Do you remem- ber that he made that statement to you ? Mr. Curry. He said that he — you mean in connection with this examination ? Mr. Easby-Smith. With this examination, and that another reason was that if possible he wanted to let these people get the result of your examination into New York by the 9th of November ? Mr. Curry. His telling me that we would have to examine a great many more companies would, of course, to some extent cause us to make all the reasonable speed we could. Mr. Easby-Smith. Do you remember that he did tell you that, Mr. Curry, when you got back from New York, that he wanted you to hurry up with this examination because there were a great many to be made? Mr. Curry. Yes, sir. Mr. Easby-Smith. You do remember that? Mr. Curry. Yes, sir. Mr. Easby-Smith. As I understand you, you and Mr. Hall started in on this work on the morning of Monday, November 4, and worked at it continuously Monday, Tuesday, Wednesday, and Thursday, and wrote up your report on Thursday night, the 8th ? INVESTIGATION OF INSURANCE COMPANIES. 855 Mr. Curry. Yes, sir. Mr. Easby-Smith. No; that would have been the fifth day. Fri- day night you wrote up the report. Mr. Curry. Whatever day of the week it was, I don't remember. I remember by the day of the month. Mr. Easby-Smith. As a matter of fact, you worked five days, the 4th, 5th, 6th, and 7th, and on the evening of the 8th, after office hours, you wrote up the report ? Mr. Curry. That is right. Mr. Easby-Smith. So you and Mr. Hall put in five days on the company ? Mr. Curry. Yes, sir. Mr. Easby-Smith. So far as you know, did you and Mr. Hall de- vote to the examination of that company during those five clays all the time that was necessary in order to assure yourselves of the facts as stated in this report, leaving out of consideration for the moment the real estate transaction? Did you slight anything, or did you yourself and Mr. Hall, so far as you know, do honest work there and know that this was the result ? Mr. Curry. We knew that, of course Mr. George (interposing). Know what was the result? Mr. Easby-Smith. The report on the company dated November 8, 1912, and signed and sworn to by Mr. Curry. Mr. Curry. Yes. Mr. Easby-Smith. You knew that ? Mr. Curry. Yes. Mr. Easby-Smith. So that, so far as you know, Mr. Ingham's in- structions to you to hurry up with this work did not cause either vou or Mr. Hall to slight the' work ? Mr. Curry. I will tell you : If we had had plenty of time I would have suggested that we treat the real estate matter differently than it was treated ; that is, by putting an appraisement on it and arriving at what it was worth to the company as an asset of a fire insurance ■company. Mr. Easby-Smith. In other words, you would have suggested, if you had had more time, that Mr. Ingham make an exception to the general rule and custom of the office, and not accept the report of his appraisers ? Mr. Curry. Yes, sir. Mr. Easby-Smith. Did you need any more time to make that sug- gestion than you had? Mr. Curry. I would have done the work. Mr. Easby-Smith. You would have done the work? Mr. Curry. Yes, sir. Mr. Johnson. What work? Mr. Easby-Smith. What work would you have done, Mr. Curry '>. Mr. Curry. What I had in mind was to get the net income from the building and see if the company was earning as much on the appraised value of the real estate, or the increased value of the real estate especially, as it was on its other assets. I would not hold them to that exactly, for the reason that sometimes companies are required to invest in certain kinds of securities to be admitted into States. They have to buy State bonds or certain kinds of securities 856 INVESTIGATION' OP INSURANCE COMPANIES. that they have to deposit, and they do not earn as much on those kinds of securities as they would on mortgage loans, as a rule. Mr. Easby-Smith. Of course you knew there was no law here re- quiring that? Mr. Curry. No law ; no, sir. Mr. Easby-Smith. No law requiring the investment of funds in any particular form of securities or investment? Mr. Curry. Not relating to this kind of a company. Mr. Johnson. Do you mean you would have gone into the ap- praisement of this property yourself ? Mr. Curry. No, sir. Mr. Easby-Smith. What do you mean? Mr. Curry. I meant I would have endeavored to get the gross in- come from the building and deduct from that the taxes, operating expenses and all other expenses of the building, to get the net, so as to see what percentage of income the company had on this invest- ment at the appraised value or the value at which it was carrying it before the value was increased by appraisement. Mr. Easby-Smith. How would you have gotten that? Mr. Curry. It might be that I could not have gotten it. I would have to have gotten it from the books of the Southern Building Corporation. Mr. Easby-Smith. If you could have gotten access to them, could you not have gotten that data in a very few minutes ? Mr. Curry. I do not think so. Mr. Easby-Smith. Did you ever suggest to Mr. Ingham and Mr. Hall that that ought to be done? Mr. Curry. I never suggested it to Mr. Ingham, because when we got to that part, that is the last thing we had to do on the examina- tion. We get up the financial statement and the reserve, and all the other work, and then we take the assets. Mr. Easby-Smith. Did you suggest it to Mr. Hall? Mr. Curry. I do not remember. I may have done so. Mr. Johnson. You just said, for the purpose of arriving at the end desired by you, you would have gotten from the Southern Build- ing Corporation the amount that they received in the way of rents. "Would that have been a criterion as to what these people were re- ceiving? Mr. Curry. They had just gotten the building. Mr. Johnson. How long before? Mr. Curry. A few days. That is, I would have endeavored to get that information from whatever source I could. Mr. Johnson. If you had gotten it from either the fire insurance company or the Southern Building Corporation, do you think you would have been correct in it ? Mr. Curry. I think so. Mr. Johnson. That information, while not perhaps so easily got- ten just at that time from the Southern Building Corporation, was obtainable, as you were right in the office of the fire insurance com- panies where you could have gotten it, were you not ? Mr. Curry. When we came to that part of the work the real estate transaction had already been settled by the superintendent himself. He approved this valuation, and, of course, there was nothing else INVESTIGATION OF INSUEANCE COMPANIES. 857 for me to do. I am speaking about a condition where we had plenty of time. Mr. Johnson. You mean that if you had followed your own course, you might have valued the property differently ? Mr. Curry. Yes, sir; because Mr. Johnson. Then, in that way, you would have become an appraiser of it? Mr. Curry. Well, not necessarily. I would simply have shown the rate of income that the company was getting on the building. Mr. George. Well, you would have appraised that property by its earnings ? Mr. Curry. That would have been the effect of it. Mr. George. You would have put a valuation on that real estate by its earnings, if you had the time ? Mr. Curry. I would have done this : I would have said the amount at which the company bought the building was earning such and such a rate, and that would have shown, I think, to an extent, the reason, if any, for increasing that materially. Mr. Johnson. For increasing what? Mr. Curry. The value of the real estate as an asset. Mr. Johnson. Go ahead with him-, you gentlemen. Mr. Easby- Smith. Mr. Curry, I want to see if I correctly under- stood you. Did I correctly understand you, in answer to questions by Mr. Eedfield, to state that this report, signed and sworn to by you and Mr. Hall, did not show the real situation concerning the real estate owned by the company ? Mr. Curry. Xo; because I did not know whether that was the real situation or not. I thought that if I followed out the plan that I have just described, that that would show just how valuable this asset was to the company. Mr. Easby-Smith. Let us see if this is the real situation in a few words: That on October 29 the Commercial Fire Insurance Co. and the First Xational Fire Insurance Co., jointly, purchased the South- ern Building, subject to incumbrances of a million three hundred thousand dollars, each of the companies paying therefor about $123,000? Mr. Curry. Yes, sir. Mr. Easby- Smith. That the two companies held the equity in that property as tenants in common, share and share alike, and that an appraisement of the property made by appraisers appointed by the superintendent of insurance had appraised the property at $2,000,000, and that as a result of that appraisement each company carried as an asset one-half the equity in the building, that half being worth $350,000. Is that substantially the situation as it to-day exists and as it existed when you made and signed your report? Mr. Curry. I think so. Mr. Easby- Smith. Is there a syllable of that statement which I We made to you which does not appear upon the face of this report right at page 48 of the record, taking the first item on the page, "book value of real estate, equity, $350,000," and including the nar- rative paragraphs at the foot of the page [handing printed copy of record to Mr. Curry] ? 71391— No. 9—13 6 858 INVESTIGATION OF INSURANCE COMPANIES. Mr. Curry. I do not know — your question is so long, I do not know that I follow you. The Reporter. Do yen wish me to read it? Mr. Curry. Yes, sir. The Reporter. Do you wish me to read it, Mr. Easby-Smith, or do you want to ask another Mr. Easby-Smith. If you please ; and let him consider each item of that statement separately. The record was thereupon read by the reporter, as follows : Mr. Easby-Smith. Let us see if this is the real situation in ,-) few words: That ou October 29 the Commercial Fire Insurance Co. and the First Na- tional Fire Insurance Co. jointly purchased the Southern Building, subject to encumbrances of a million three hundred thousand dollars, each of the com- panies paying therefor about $123,000? Mr. Citrey. Yes, sir, Mr. Easby-Smith. That the two companies held the equity in that prop- erty as tenants in common, share and share alike, and that an appraisement of the property made by appraisers appointed by the superintendent of insur- ance had appraised the property at $2,000,000, and that as a result of that appraisement each company carried as an asset one-half the equity in the building, that half being worth $350,000. Is that substantially the situation as it to-day exists and as it existed when you made and signed your report? Mr. Curry. I think so. Mr. Easby-Smith. Is there a syllable of that statement which I have made to you which does not appear upon the face of this report right at page 48 of the record, taking the first item on the page — " book value of real estate, equity, $350,000," and including the narrative paragraphs at the foot of the page [handing printed copy of record to Mr. Curry] ? Mr. Curry. I think that is correct. Mr. Easby- Smith. That everything that I have told you appears on that page and in that report? Mr. Curry. Well, as I remember it, it does. It appears to be, at any rate. Mr. Easby-Smith. Did you not, in fact, dictate the narrative por- tion of the report, Mr. Curry ? Mr. Curry. Yes, sir. Mr. Easby-Smith. Was there anything at all unusual in the super- intendent appointing appraisers, accepting their appraisement, and giving the companies credit as appraised? Mr. Curry. That is the custom of the office. Mr. Easby-Smith. Do you not know as a fact, Mr. Curry, that Mr. Darneille, the former assessor, had frequently been used by Mr. Ingham as an appraiser? Mr. Curry. Yes, sir. Mr. Easby-SmitH. Singly and in conjunction with others? Mr. Cubry. I know he had been used singly, but I do not recall about his being used with others. He may have been. Mr. George. When he was assessor ? Mr. Easby-Smith. Oh, no; since Mr. Ingham has been superin- tendent. Mr. George. Yes. Mr. Easby-Smith. Mr. Curry, do you remember that he had pre- viously been used in conjunction with Mr. Hensey, or Mr. Daniels? [Witness begins looking for record.] Well, you need not look for the records. Do you not recollect it, Mr. Curry ? Mr. Curry. Prior to this case ? INVESTIGATION OF INSUBANCE COMPANIES. 859 Mr. Easby-Smith. Yes ; prior to this case. You do remember that he had been used as a single appraiser ? Mr. Curry. Yes, sir. - Mr. Easby-Smith. "Well, now, do you recollect that he had been used in conjunction with others? [Witness looks for papers.] If you do not remember, we will not waste any time on it. Mr. Ctjeky. I do not remember now ; no. Mr. Easby-Smith. Do you remember that Mr. Hensey had been used as an appraiser by Mr. Ingham prior to this time ? Mr. Curry. I really do not recall. Mr. Easby-Smith. Do you remember that Mr. Hensey had been used by Mr. Drake as an appraiser? Mr. Curry. I remember that Mr. Hensey had been used as an appraiser, but I think it was Mr. A. G. Hensey's father. Mr. Easby-Smith. Are you sure about that? •Mr. Curry. I am not sure; that is way back, and he may have used both of them. I know his father had been used a number of times on nearly all the boards of appraisement. Mr. Easby-Smith. I believe your recollection of what Mr. Ingham said to you about these companies wanting to get their reports to New York was that unless the reports got there prior to a certain date in November the company would not get credit for certain re- insurance which it had bought in New York? Mr. Curry. That is what I understood ; I understood that. Mr. Easby-Smith. And the examination having been made by you .which showed that the company had reinsured to a certain extent, the company wished that information officially to reach the New York department ? Mr. Curry. Yes, sir. Mr. Easby-Smith. And there was nothing improper about that, was there, Mr. Curry? Mr. Curry. No, sir. Mr. Easby-Smith. There was no possible suggestion or suspicion of anything improper? Mr. Curry. No. Mr. Easby-Smith. And that was not, was it, in order that the companies could make more money, except in the sense that they Would get Mr. Curry (interposing). That is all. Mr. Easby-Smith (continuing). Due and proper credit. Sio when you answered Mr. Redfield's question, that this was so that they could make more money, you answered that only in the sense that that would give them credit to which they were entitled ? Mr. Curry. A wider field. Mr. Easby-Smith. Was it not Mr. Ingham's duty, Mr. Curry, as distinguished from any duty on the part of yourself, Mr. Hall, or any other official of the insurance department to pass upon the transfer of title of this real estate and to pass upon the matter of appraisement, rather than the duty of anybody else in the depart- ment? Mr. Curry. I think so. He is the head of the office. Mr. Easby-Smith. Had you ever been called upon, during your entire service as an examiner for 10 years in the office, to pass upon matters of appraisal? 860 INVESTIGATION OF INSURANCE COMPANIES. Mr. Cubky. No. Mr. Easby-Smith. Boiling it all down, Mr. Curry, after your com- plete examination now by Mr. Eedfield, myself, and others, do you mean to suggest by any answer you have made that there was any- thing improper or unusual done by Mr. Ingham in connection with the examination of these companies or the appraisal of the real estate ? Mr. Curry. I do not make any charge that he did anything im- proper in those connections. Mr. Easby-Smith. Have you meant, by any of the answers which you have made, to suggest that there is room for criticism or sus- picion ? Mr. Curry. No. Mr. Easby-Smith. As I understand, the present examination in which you and Mr. Hall are' engaged has been subject to frequent and prolonged interruption; for instance, by your and Mr. Hall's attendance here before this committee, and other reasons? Mr. Curry. Oh, yes. Mr. Easby-Smith. You have gone into that examination, as I understand, very exhaustively? Mr. Curry. Yes, sir. Mr. Easby-Smith. And have almost completed it? Mr. Curry. Well, I do not know about that. I think we have. Mr. Easby-Smith. You stated that you thought another week's work should complete it. Mr. Curry. I think it will. Mr. Easby-Smith. Have you, up to this moment, discovered a single thing which fails to verify the correctness of your examination and report of November, 1912? Mr. Curry. No. Mr. Easky-Smith. Not a thing? Mr. Curry. No. Mr. Easby- Smith. That is all. Mr. Johnson. Do you wish to ask him any further questions, gen- tlemen ? [No response.] Mr. Johnson. The committee stands adjourned until to-morrow morning at 10 o'clock. Whereupon, at 4.25 p. m., on the 7th day of January, 1913, the subcommittee adjourned until Wednesday morning, January 8, 1913, at 10 o'clock, at the same place. INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF KEPEESENTATIVES No. 10 JANUARY 8, 1913 W WASHINGTON GOVERNMENT PRINTING OITIOE 1B13 INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, Washington, D. C, January 8, 1913. The subcommittee met at 10 o'clock a. m., pursuant to the adjourn- ment, Hon. Ben Johnson (chairman), presiding. Present, in addition to the members of the committee : Francis H. Stephens, assistant corporation counsel of the District of Columbia ; and Mrs. J. S. Easby-Smith, representing George H. Ingham, Esq.', superintendent of insurance of the District of Columbia ; also, Messrs. Charles A. Douglas and Charles F. Carusi, representing the Com- mercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Title Co. Mr. Johnson. Mr. Johnson, will you be sworn? STATEMENT OF MR. OLIVER H. P. JOHNSON. The witness was duly sworn by the chairman. Mr. Johnson. Mr. Johnson, please give the committee your full name, your residence, and your occupation. Mr. 0. H. P. Johnson. Oliver H. P. Johnson; residence, 2205 Massachusetts Avenue; occupation, vice president National Metro- politan Bank. Mr. Johnson. On yesterday, Mr. Johnson, Mgr. Lee was before the committee and testified as to your participation in the sale of the old church property at the corner of Fifteenth and H Streets. The committee is endeavoring to arrive at the value of that property by ascertaining the exact figures at which any sale of it may have been made. It is necessary to get at it in this way, because deeds do not recite the real consideration ; the deeds recite a consideration of $10, while we know, as a matter of fact, that more than this sum was paid. If you can throw any light upon the subject, because of your associa- tion with that transaction, the committee would be glad to have you tell it, just in your own way. Mr. 0. H. P. Johnson. My only knowledge of the matter comes from my representation of the interests of Mgr. Lee at the time of the sale of the property. He asked me if I would represent him as trustee, and I believe the purchasers named a trustee, on the deed of trust for the balance due of $190,000. There was already a deed of trust on the property, amounting to $160,000, which was assumed by the purchasers. The price paid Mgr. Lee, or agreed to be paid 861 862 INVESTIGATION OF INSTJBANCE COMPANIES. Mgr. Lee, was $18 per square foot. A deposit of three checks, given by Messrs. McNeill, Leckie, and Douglas, aggregating a thousand dollars, was put up as the cash payment, preparatory to the signing of the papers, and a further payment amounting to $49,000. They agreed that a cash payment of $50,000 should be made. The thousand dollars was merely to bind the bargain, until the proper papers were drawn up, which was done, and on February 25, 1909, a cash pay- ment of $49,000 was made. Then a note, signed by E. H. McNeill and A. E. L. Leckie, payable November 1, 1909, at 4f per cent, for $190,000 was given by them for the balance of the purchase. This note was deposited in the American Security and Trust Co. for col- lection. The note and interest were due November 1, 1909, but the interest was not paid until November 11, 1909. On November 14, 1909, a cash payment was made of $10,000, although the whole amount was due, and that cash payment was made in view of Mgr. Lee's willingness to extend the time of payment a little further; I think, as near as I can recall, until about January. However, the matter was not settled in January, and it was necessary to rather forcibly request the payment of the note, or threaten the foreclosure. However, this was not necessary to do; that is, I mean, it was not necessary to forclose, as on February 2, 1910, the balance, amounting to $180,000 was paid in cash, and, of course, after I had seen to the payment of the balance due I had no further interest in the matter, and that is substantially all I know about the transaction. Mr. Johnson. What information have you relative to the payment by Mgr. Lee of $10,000 as commissions ? Mr. O. H. P. Johnson. At the time of the payment of $1,000 by Mr. McNeil — Mr. Alexander McNeil, I believe, is his full name — to Mgr. Lee he (Mgr. Lee) told me that he requested the immediate payment to him of $200 as his pro rata commission on this thousand dollars, that being pro rated according to the balance; and, I believe, that when the further commission Mr. Johnson. Did Father Lee comply with that request? Mr. O. H. P. Johnson. He did. Mr. Johnson. And was that before or after Mgr. Lee cashed the check for a thousand dollars? Mr. O. H. P. Johnson. I understand that was before he had even cashed the check aggregating $1,000, and when he told me about it I thought that that was rather a remarkable piece of business and a little bit out of the ordinary. Mr. Johnson. Mr. Johnson, have you any knowledge or informa- tion as to who got this $10,000 that was paid in commissions? Mr. O. H. P. Johnson. No, sir ; I have not. Mr. Johnson. Of course, you did not get any of it ? Mr. O. H. P. Johnson. No, sir; I did not. I represented the seller. Mr. Johnson. Yes; but this transaction seems to have reversed itself, by the commissions being paid at the wrong end, and the question of anybody seems to be legitimate as to whether he got any part of it or not. Mr. O. H. P. Johnson. No, sir ; I did not get any of it. Mr. Johnson. Well, let it stand at that. What was your opinion as to the real value of this property per square foot at the time it was sold by Mgr. Lee? INVESTIGATION OP INSURANCE COMPANIES. 863 Mr. O. H. P. Johnson. Why, I considered it a very valuable piece of property, and I thought that the Mr. Johnson (interposing). He was paid $18 a foot for it? Mr. O. H. P. Johnson. $18 a foot; yes, sir. Mr. Johnson. Was it your opinion that it was worth more or less than that? Mr. O. H. P. Johnson. I think it was worth slightly more than that. I thought it was worth easily $20 a foot, and was in hopes he would get that, but when they had this offer of $18 and he had waited a considerable time to dispose of it — had been in hopes of disposing of it — as he had an actual opportunity at this time, it seemed advisable that he should accept $18 and sell rather than de- lay for a little higher price, as he had to pay interest and things of that sort. Mr. Johnson. There were, then, two trusts ? Mr. 0. H. P. Johnson. There was then a trust of $160,000 on it. Mr. Johnson. The one for $190,000 was placed upon it after- wards? Mr. O. H. P. Johnson. That was given to him by the purchasers. Mr. Johnson. Yes; I understand now. And you have no infor- mation as to whether Mr. Alexander McNeil retained this or whether he divided it with somebody else ? Mr. O. H. P. Johnson. No, sir ; I have not. Mr. Johnson. Mr. Berger ? Mr. Berger. No questions. Mr. Johnson. Mr. Eedfield ? ' Mr. Redfield. Mr. Johnson, you say checks of certain parties whom you have named were given to make up this thousand dollars. Were those three checks of equal amount ? Mr. 0. H. P. Johnson. Well, they were, as near as you could divide $1,000 in three parts. I think something like $333.33 and one of them $333.34 — something like that. Mr. Eedfield. That is the form in which they were made? Mr. O. H. P. Johnson. Yes, sir. Mr. Redfield. Substantially equal shares from the three parties you have named ? Mr. 0. H. P. Johnson. Yes, sir. Mr. Redfield. Now, when the second cash payment came to be made, which, as I recall, was a payment of $10,000 on account of the note of $49,000, how was that $10,000 paid and by whom? Mr. O. H. P. Johnson. I think I might get that information, but I do not recall. I know how the $49,000 was paid. Mr. Redfield. Excuse me just a moment. Was not the $10,000 on account of the $49,000? m ^ „™ Mr. O. H. P. Johnson. Correct ; yes, sir. The $10,000 was at the lime a payment on the forty-nine. On February 25, 1909, the com- mission—the balance of the commission rather— amounting to $9,800, was paid. Mr. Redfield. To whom ? ,,,.,.., ^ ,, -, Mr. O. H. P. Johnson. I think to Mr. McNeil. On the same day was paid $49,000 to Mgr. Lee, representing the balance due of $50,000. It would be easy enough to ascertain to whom that check was drawn by Mgr. Lee. 864 INVESTIGATION OF INSURANCE COMPANIES. Mr. Eedfield. I think it would be -well to know particularly by whom the checks were given that paid Mgr. Lee the $49,0QQ. Mr. O. H. P. Johnson. That check was a cashier's check of the United States Trust Co., signed by Mr. B. E. Claughton, cashier. Mr. Eedfield. Now, what is the item of $10,000 that is figured in that? Mr. O. H. P. Johnson (interposing). Then, Mgr. Lee had to pay the balance. Mr. Eedfield. That is what he paid for the balance of commis- sion, you mean? Mr. O. H. P. Johnson. The balance of commission. Mr. Eedfield. And when you said $10,000 you meant the balance of the $10,000? Mr. O. H. P. Johnson. I may have at that time; yes; but I men- tioned also a special item of $10,000 on November 14, 1909. Mr. Eedfield. "What was that item for? Mr. O. H. P. Johnson. The note of $190,000 was due and payable November 1, 1909. Mr. Eedfield. Yes. That was on account of that note? Mr. O. H. P. Johnson. That was the balance due on account of the purchase. The money was not paid, although due, and after taking up the matter of the payment they agreed to pay $10,000 at that time, asking for a little delay for the balance, amounting to $180,000. Mr. Eedfield. So that the $10,000 was a payment on account of the note for $190,000? Mr. O. H. P. Johnson. On account of the note. Mr. Eedfield. Who paid the $10,000? Mr. O. H. P. Johnson. They paid it to him. Mr. Eedfield. Who paid it? Mr. O. H. P. Johnson. I could not state definitely. Mr. Eedfield. Who signed the note for $190,000? Mr. O. H. P. Johnson. Eobert H. McNeill and A. E. L. Leckie. Mr. Eedfield. One of the checks, originally given for the first thousand, was a check of Charles A. Douglas, was it' not? Mr. O. H. P. Johnson. Yes, sir. Mr. Eedfield. Does his name appear on the further payments as a party to this note on any other payments ? Mr. O. H. P. Johnson. Not that I recall. Mr. Eedfield. Do you know why ? Mr. O. H. P. Johnson. No, sir. Mr. Eedfield. Did you not question why he appears as a buyer in the first instance and fails to appear as a buyer in the subsequent transactions ? Mr. O. H. P. Johnson. No, sir; I did not question it at the time. Mr. Eedfield. To whom did you have to apply the pressure you have mentioned in order to get this thing settled ? Mr. O. H. P. Johnson. To Messrs. McNeill and Leckie, and Mr. Douglas entered into that matter, because I had a little conference with him on the subject. Mr. Eedfield. What took place at that conference, Mr. Johnson? Mr. O. H. P. Johnson. I asked him if these gentlemen could not produce the money and make the payment; that Mgr. Lee was not INVESTIGATION OF INSUBANCE COMPANIES. 865 willing to wait longer for the payment, and unless it was forthcom- ing we would have to foreclose. Mr. Kedfield. Where did you see Mr. Douglas ? Mr. O. H. P. Johnson. Why, I saw him once in his office and once in the office of Mr. J. J. Darlington. Mr. Kedfield. Was he acting as counsel for Messrs. Leckie and McNeill? Mr. O. H. P. Johnson. He may have been. Mr. Kedfield. Did he say so to you? Mr. 0. H. P. Johnson. s My recollection is not clear on that subject. Mr. Kedfield. But he was the party you saw in endeavoring to bring pressure upon these people to pay ? Mr. 0. H. P. Johnson. I saw him once by himself and once, or maybe twice, in company with Mr. McNeill, Mr. Leckie, and Mr. Karrick, I think. Mr. Redfield. Can you recall what Mr. Douglas said to you, if anything, at these interviews? Mr. 0. H. P. Johnson. Hardly sufficient to put it in the record. Merely a little discussion to the. effect that the money would be paid; if consideration was shown them in a little delay — something to that effect. Mr. Kedfield (interposing). Did he appear as a principal in the matter ? Mr. 0. H. P. Johnson. He seemed to have full authority. Mr. Kedfield. Did he say he appeared as attorney ? Mr. 0. H. P. Johnson. Not that I recall. Mr. George. Mr. Johnson, you advised Mgr. Lee to take $18 a square foot for that property? Mr. 0. H. P. Johnson. Well, I did ; yes. Mr. George. Yes. Did you have any previous experience as to the value of property in that neighborhood ? Mr. 0. H. P. Johnson. Not in the purchase or sale of it. Only a general knowledge as a resident of the city for many years and from general knowledge of property values in that neighborhood; gleaned more from conversation and some records than from engaging in the business of real estate. Mr. George. Had you formerly any knowledge of the value of real estate in that neighborhood ? Mr. 0. H. P. Johnson. Well, I was interested in the Citizens Na- tional Bank, which was on Fifteenth Street, opposite the Treasury, and that property, I think, sold for approximately $50 a foot, when the Riggs interests bought it, or it was valued at that at the time of the amalgamation of the Metropolitan and Citizens Banks 3 but outside of that I have no definite knowledge of any property. Mr. George. Did you know about the sale of property anywhere else in the neighborhood of the Southern Building ? Mr. 0. H. P. Johnson. Yes, sir. , Mr. George. I mean preceding the building of the Southern Build- ing in that general neighborhood ? Mr. 0. H. P. Johnson. I understand the price paid for the prop- erty now occupied by the Union Trust Co. was $26 a foot, and I be- lieve that the property farther down the street that is occupied by 866 INVESTIGATION OF INSURANCE COMPANIES. some one-story structures, that there was a value there of somewhere between $23 and $25 a foot, Mr. George. But this corner was a favored corner, was it not ? Mr. O. H. P. Johnson. It was. Mr. George. Why did you conclude that $18 a square foot was a fair price for that property ? Mr. O. H. P. Johnson. I concluded it merely because they had an opportunity of a sale. They had held it at other prices, and had been unable to sell it. Therefore, when they did actually have an oppor- tunity of selling it, it seemed to me advisable to take it. As a matter of fact, Mgr. Lee had about decided to accept it before saying any- thing to me about it. He had rather decided he should take it. Mr. George. Yes; but I understood from him that you were one of his advisers. I wanted to know what your state' of mind was about that, why $18 a square foot seemed to you a reasonable price for the property. Mr. O. H. P. Johnson. Some of these sales that I speak of — I may be running a little ahead of my statement there — I think were, and some of these values were after that sale. I am not quite sure whether they were after or before. Mr. George. So that you did not have that information to guide you in this sale? Mr. O. H. P. Johnson. I did not have the information of that bank sale, I think. Now, one other instance that made $18 seem a fair price was an opportunity, or an inquiry, I might call it, from Thomas F. Walsh, who is now dead. He seemed to be interested in that property when he began buying certain other properties around the business section of Washington, and it was expected he was going to make an offer of about $20 per foot. He did, however, make some preliminary offers or preliminary arrangements, I might say, of about $14 or $15 per foot. Well, that was not considered adequate and they did not care to go into it further, and then when the offer of $18 a foot came along, although personally I thought it was worth a little more than that, considering the fact that he had a trust there, and was paying interest, and I did not know really whether the en- hancement in value might keep pace with the interest account, it seemed advisable, for that reason, to dispose of the property. Mr. George. I have finished, Mr. Chairman. Mr. Beeger. I would like to ask just a question. This may be rather direct. Mr. Johnson, is it not a fact that property of that kind is worth as much as you can get for it and not more ? Mr. O. H. P. Johnson. I dare say Mr. Berger (interposing.) What you can sell it for? Mr. O. H. P. Johnson. But I am not a real estate expert, and I would not like to testify particularly regarding property values. Mr. Berger. You are not a real-estate expert, but you have had some experience around there, as you say. What, in your opinion, is that corner — I mean the corner of the Southern Building — worth now per square foot? That is rather direct, but I want a direct answer. Mr. O. H. P. Johnson. I think it is worth considerably more than it was sold for by Mgr. Lee ; worth fully as much as the Union Trust Co. paid for their property. Mr. Beeger. That would be about $26 a foot ? INVESTIGATION OF INSURANCE COMPANIES. 867 Mr. 0. H. P. Johnson. Yes. Mr. Beegek. Per square foot ? Mr. O. H. P. Johnson. And, if anything, I should say it was a more desirable corner than theirs. Mr. Beegek. It is a more desirable corner? Mr. 0. H. P. Johnson. I think so. Mr. Geobge. You would take the north side to be more valuable? Mr. O. H. P. Johnson. I would. You get the southern exposure. It is a little more desirable corner. Mr. George. Would you regard that as an economical corner ? Mr. 0. H. P. Johnson. I would. Mr. George. The dimensions of that building being, I think, 140 by 140 Mr. Easby-Smith. By 148. Mr. O. H. P. Johnson. I would, because it is on the street on two sides, and on the extreme north it is bounded by a very wide alley, where you have the benefit of light and teaming and everything of that sort ; freight handling for the building on that side, out of the way. I think it is a magnificent corner. Mr. Beeger. Mr. Johnson, would you consider that worth $50 a square foot ? That is what some appraisers made it. Mr. 0. H. P. Johnson. Well, if I owned it, I would like to get that for it, but I do not know that I would go into the market and pay that for it expecting to realize a profit on it. Mr. Beeger. I see. I am through. Mr. Prouty. Mr. Douglas, any questions? Mr. Douglas. Mr. Johnson, some questions have been asked you about the payment of commission here. Is it not now, and has it not been as far back as you can remember, the invariable custom for the owner of the property to pay the commission ? Mr. 0. H. P. Johnson. That is my opinion ; yes, sir. Mr. Douglas. There is nothing unusual about that, is there? Mr. 0. H. P. Johnson. Nothing unusual; no, sir. Mr. Douglas. The contrary would be most unusual, would it not? Mr. 0. H. P. Johnson. Yes, sir. Mr. Douglas. Do you not know that this property was in the hands of Fisher & Co. for sale at the time Alexander McNeil found a purchaser for it ? Mr. 0. H. P. Johnson. I know that Fisher & Co. had endeavored to sell the property; yes, sir; and it may have been in their hands at that time, or they may have had the privilege of selling it at the same time that he found a purchaser. Mr. Douglas. The only thing unusual that I gathered from what you said was Mr. Alexander McNeil claiming a part of his commis- sion out of the deposit of a thousand dollars. Mr. 0. H. P. Johnson. At the same time of paying it; yes, sir. Mr. Douglas. Yes. There was nothing unusual about his claim- ing a commission of 2£ per cent of the sale, was there ? Mr. 0. H. P. Johnson. No, sir. Mr. Douglas. If he got the purchaser ? Mr. 0. H. P. Johnson. No, sir. Mr. Douglas. Mr. Johnson, some question has been asked by Mr. Redfield — for what purpose, I can not devine — with reference to 868 INVESTIGATION OF INSURANCE COMPANIES. myself. Did I make any effort to conceal from you the fact that I was one of the syndicate buying that property f Mr. O. H. P. Johnson. Not that I recall ; no, sir. Mr. Douglas. Not the slightest? Mr. O. H. P. Johnson. No, sir. Mr. Douglas. You had my check, as one among the three original checks which made up the deposit or option price that was paid for the property, did you not? Mr. O. H. P. Johnson. Yes, sir. Mr. Douglas. Mr. Johnson, you do not claim, I believe, from what you said, to be a realty expert at all, do you? Mr. O. H. P. Johnson. No, sir; I do not; quite the contrary. Mr. Douglas. You would not express any opinion as to the value of this property now that you would ask this committee to consider as one that should be used to any extent in determining the value of the property now, would you ? Mr. O. H. P. Johnson. Not in the nature of a realty expert, I certainly would not. Mr. Douglas. Do you not regard that corner, on account of the splendid alley, as the most valuable one of the four corners there? Mr. O. H. P. Johnson. I think it is. Mr. George. Just excuse me. Because of what? Mr. Douglas. Because of that alley. Mr. O. H. P. Johnson. That, and not only on account of the alley but on account of its position. Mr. Douglas. On account of its position? Mr. O. H. P. Johnson. Yes. Mr. Douglas. And then it is splendidly proportioned, is it not, as to width and depth, too ? Mr. O. H. P. Johnson. I think its proportions are all right. Mr. Douglas. And I judge it would be very much more valuable than inside lots, either north or south of that building ? Mr. O. H. P Johnson. I believe it would be. Mr. Douglas. That is all. Mr. Pkouty. Do you say it is the custom in this town to pay the commission to the man that represents the other fellow? Mr. O. H. P. Johnson. That is not clear to me, sir — the man that represents the other fellow. Mr. Prouty. The evidence in this case discloses that this Mr. Mc- Neil was the representative of this syndicate that bought It; is that correct ? Mr- O. H. P. Johnson. Well, he was, according to my understand- ing, the agent representing the purchaser. Mr. Prouty. Well, does the seller in such cases as that pay the commission ? Mr. O. H. P. Johnson. I think he does. Mr. Prouty. To the man that represents the other man ? Mr. O. H. P. Johnson. I think he does- That is, if a real estate agent disposes of a piece of property he gets the commission for the sale and my understanding was that Mr. McNeil claimed to be a real estate agent. Mr. Rediteld. Mr. McNeil represented the buyer, did he not? Mr. O. H. P. Johnson. Yes ; I believe he represented the buyer. INVESTIGATION OF INSUKANCE COMPANIES. 869' Mr- Eedfield. And is it the custom in Washington for the seller to pay the commission of the buyer's broker ? Mr. O. H. P. Johnson. Well ; no sir ; I do not know that that is the custom. Mr. Eedfield. Well, was not that what took place in this case ? Mr. O. H. P. Johnson. It was what took place, but inasmuch as — yes, that was what took place all right. Mr. Eedfield. That is what took place, is it not? Mr 0. H. P. Johnson. Yes, dr. Mr. Geoege. Do you know what the custom is in the District of Columbia ? • Mr. 0. H. P. Johnson. Well, the custom is that if — as far as I know — I would rather have you ask some qualified realty dealer, but: as far as I know, if a man owns a piece of property and if it is in the hands of his real estate agent for disposal and he sells it, he charges a commission for having disposed of it. Mr. Prouty. Let me ask you this question, Mr. Johnson. Suppose I had a piece of property, and you had come to me as the representa- tive of another syndicate wanting to buy it, would you consider that in that transaction you were entitled to compensation or a fee from me? Mr. 0. H. P. Johnsox. That is usually treated in this way, I be- lieve; that you would go to see the agent representing the property and the agent representing the property would make the sale, obtain the commission, and probably divide it with you, if you were a real estate agent. Mr. Prouty. Then here you divide it? Mr. 0. H. P. Johnson. Where one real estate agent deals with another, it is divided. Mr. Prouty. Suppose you, as the representative of a syndicate,, came to me direct and wanted to buy this property of me, and I con- cluded to sell it to you at the price offered 'Mr. 0. H. P. Johnson (interposing). Well, then, you might not pay a commission in that case. Mr. Prouty. Well, is not that just what occurred in this case ? Mr. O. H. P. Johnson. Well, I dare say it is. Mr. Prouty. .1 just wanted to learn the custom down here. That is all. Mr. Eedfield. The feature of this collection that you have criti- cized, Mr. Johnson, was, so to speak, its high-speed character? Mr. 0. H. P. Johnson. Yes, sir. Mi;. Eedfield. That is, certain individual checks are presented atid simultaneously with the presentation of those checks another Check is asked back ? That represents it accurately, does it not ? Mr. 0. H. P. Johnson. Yes, sir. Mr. Eedfield. That is all. Mr. Berger. Mr. Johnson, I understood you to say that Mr. Thomas Walsh — was that the name? Mr. 0. H. P. Johnson. Yes, sir; Thomas F. Walsh. He is now dfeceased. Mr. Berger. Yes, sir; I know; one of the wealthiest men in this-, city, I understood. "r. 0. H. P. Johnson. Yes, sir. 870 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bergee (continuing.) That he offered fourteen or fifteen dollars a square foot for that property. Now, in your opinion, was Mr. Walsh a good judge of real estate in Washington? He owned ^, great deal of it? Mr. O. H. P. Johnson. I dare say he was a pretty fair judge.. Mr. Berger. Pretty fair judge. And then, on the strength of that you advised Mgr. Lee to sell for $18, which was, of course Mr. O. H. P. Johnson (interposing). An advance over his offer. Mr. Bergee. Yes. Mr. O. H. P. Johnson. But, of course, Mr. Walsh would have liked to buy low and sell high. Mr. Beegee. Of course, I understand; and he offered about four- teen or fifteen dollars a foot for that property ? Mr. O. H. P. Johnson. Yes. Mr. Beeger. That has been about three years ago ? Mr. O. H. P. Johnson. Three or four years. Mr. Berger. Three or four years ago ? Mr. O. H. P. Johnson. Yes, sir. Mr. Beeger. Now, is it not rather an unusual advance — I under- stood this property was appraised now at $50 a square foot — from fourteen or fifteen dollars, three or four years ago, up to $50, in your opinion? Mr. O. H. P. Johnson. That is a pretty fair increase. Mr. Berger. Rather fair. That is about 400 per cent, is it not? Mr. O. H. P. Johnson. Yes, sir. Mr. Berger. Over 300 per cent, nearly 400 per cent, in three years or four years? Mr. O. H. P. Johnson. Yes. Mr. Redfield. Any further questions on the part of the committee? (No response.) Mr. Redfield. Any further questions, Mr. Douglas? Mr. Douglas. I have just a couple of questions. Mr. Johnson, it seems that the practice in Washington about the sale of real estate is very exceptional, indeed, and I did not know it before. Let me see if I can not clear this up. Suppose I should come to you and say: "Mr. Johnson, there is a house on Sixteenth Street which I wish you to buy for me " Mr* O. H. P. Johnson. Am I supposed to be a real" estate agent? Mr. Douglas. Yes. I am assuming that for the purposes of the question. Mr. O. H. P. Johnson. Well, I am not an expert in that line, Mr. Douglas. I think you know more about the custom than I do. Mr. Douglas. No, sir; I am neither an expert in law nor in real estate. I am asking you about it because I know you know, because you are an intelligent man, and I want you to tell me. Mr. O. H. P. Johnson. I may know more about my own particu- lar business, but not about real estate. Mr. Douglas. Suppose I should say : " Mr. Johnson, there is a house up here on the corner of Sixteenth and Q Streets which Senator Bailey has built there which I am very much attracted to, and which, I understand, he would like to sell, and I would like to buy it." Suppose you and I had been personal friends and you had been buy- ing and selling real estate for me, and you went to Senator Bailey ^ind said, " I have a purchaser for your property. What will you INVESTIGATION OP INSURANCE COMPANIES. 871 take for it ? " and he said " $50,000." Would it be anything unusual for you to require and expect him to pay you a commission on the- sale of that property ? Mr. O. H. P. Johnson. No ; if I, in fact, by that action became his agent I would charge him a commission on the sale of it. Mr. Douglas. Is not that the very theory upon which the commis- sion is charged against the owner and not against the purchaser ? Mr. 0. H. P. Johnson. Yes, sir ; the commission is usually charged against the owner. Mr. Douglas. It makes no difference as to the form of agency at all, because the owner pays it and the purchaser does not pay it. On the other hand, suppose Senator Bailey would say, " Now, I will sell this house for $50,000 net " ; that would mean he would not pay you any commission? Mr. 0. H. P. Johnson. It would. Mr. Douglas. And unless he said $50,000 net, it would be under- stood that you would be paid your commission by the owner? Mr. 0. H. P. Johnson. Yes ; that is understood. Mr. Douglas. And that is especially so unless you are paid by the buyer? Mr. 0. H. P. Johnson. Yes, sir. Mr. Douglas. How many instances have you ever heard of where the buyer paid the commissions? Do you know of one authentic case in the District of Columbia where the buyer has paid the com- missions ? Mr. 0. H. P. Johnson. No, sir ; I am not familiar with any partic- ular cases. Mr. Douglas. Did you ever hear of or suspect that Mr. Alexander McNeil got commissions both from the buyer and the seller in thici instance? So you never heard that he got commissions from both the buyer and the seller in this case ? Mr. O. H. P. Johnson. No, sir ; I do not know that I heard that brought out. Mr. Redfield. What was your answer, please? Read the answer, please. Answer read by the reporter, as follows : No, sir ; I do not know that I heard that brought out. Mr. Redfield. Now, will you read the two questions which Mr. Douglas asked, only one of which, I think, was answered. Question read by the reporter, as follows : Mr. Douglas. Did you ever hear of or suspect that Mr. Alexander McNeil got commissions both from the buyer and the seller in this instance? Mr. Redfield. Now, will you answer that, Mr. Johnson? Mr. 0. H. P. Johnson. I heard there was some — this, of course, is what I heard Mr. Redfield. You were asked what you heard or suspected. Mr. 0. H. P. Johnson. I heard that he requested his commission, or his part, because it had to be divided. Mr. Douglas. Divided with whom ? Mr. 0. H. P. Johnson. The commission had to be divided. Mr. Douglas. With whom ? Mr. 0. H. P. Johnson. Some of the people he was representing. S12 INVESTIGATION OF INSUBANCE' COMPANIES. Mr. Douglas. Did he not say who they were? Mr. O. H. P. Johnson. Not that I know of. Mr. Douglas. He did not say? Mr. O. H. P. Johnson. Not exactly. Mr. Douglas. Did he tell you that? Mr. O. H. P. Johnson. No. Mr. Douglas. From whom did you hear it ? Mr. O. H. P. Johnson. My recollection is that Mgr. Lee told me that. Mr. Douglas. Mgr. Lee testified yesterday that he said he had to ■divide it with Mr. K. H. McNeill. Did you ever hear that ? Mr. O. H. P. Johnson. He may have told me that. Mr. Douglas. Did you ever hear that he was to divide his com- missions with Mr. Douglas, Mr. Leckie, or Mr. Baker or Mr. Kar rick or anybody else in the syndicate? Did you ever hear that? Mr. O. H. P. Johnson. "Well, I have stated all that I recall having heard. Mr. Douglas. That is all. Mr. Prouty. Just a minute. I want to get this moral phase of it straight here. If Mr. Douglas would ask you to go up and buy a house from some fellow, would you consider yourself Mr. Douglas's agent? Mr. O. H. P. Johnson. Why, yes, sir. Mr. Prouty. Would you feel it your duty to buy the house just as cheaply as you could? Mr. O. H. P. Johnson. I would. Mr. Prouty. Would you feel it your duty, to jew the other fellow down a little if you could ? Mr. O. H. P. Johnson. I would. Mr. Prouty. Would you feel like charging that other fellow for jewing him down ? Mr. O. H. P. Johnson. No, sir ; I do not think I would. Mr. Prouty. Would you feel like accepting compensation from him for jewing him down ? Mr. O. H. P. Johnson. I do not know that I would ; but not being in the real-estate business I would not take the deal at all. Mr. Prouty. Is that the way they do it here ? That is what I want to know. Mr. O. H. P. Johnson. I dare say each deal has its own peculiar phases. Mr. Prouty. Well, I want to know if that is the generally recog- nized practice here — considered ethical ? Mr. O. H. P. Johnson. Yes. Well, all I can answer to that is that it is the custom to expect a commission if you represent the party making the deal there and make a sale for his account. Mr. Prouty. Well, now, which party ? That is the question. Mr. O. H. P. Johnson. The seller. Mr. Prouty. If you make a sale for the seller's account Mr. O. H. P. Johnson (interposing). Then you charge him the commission. Mr. Prouty. But if you were sent there by somebody else to buyit, you would not consider yourself his representative, the representative of the seller? INVESTIGATION OF INSURANCE COMPANIES. 873 Mr. O. H. P. Johnson. No. I do not know how the real-estate people would do, but I would not. Mr. George. But if a real-estate dealer undertakes to buy a piece of property he charges for his services, does he not ? Mr. O. H. P. Johnson. He does. Mi-. Geoege. And if he undertakes to sell a piece of property he charges for his services ? Mr. 0. H. P. Johnson. Yes, sir. Mi% George. Now, suppose he represents both sides, then would he charge each party ? Mr. 0. H. P. Johnson. No; I guess he would have to decide that. Mr. George. Do you know anything about it? Mr. 0. H. P. Johnson. No, sir ; I do not. Mr. George. You have no knowledge in the matter ? Mr. O. H. P. Johnson. No, sir; not on that point. I would not like to go too deeply into it. I am getting where I do not know very much about it. Mr. George. Well, the committee is very deeply into it and want? to know. Mr. 0. H. P. Johnson. Yes, sir. Mr. Redfield. Any further questions? Mr. Carusi. No. Mr. Douglas. No, sir. Mr. Redfield. You are excused, Mr. Johnson. Now, Mr. Charles J. Bell. FURTHER STATEMENT OF CHARLES J. BELL. The witness had been previously duly sworn by the chairman of the subcommittee. Mr. Redfield. Mr. Bell, you have testified before this committee heretofore, have you not ? Mr. Bell. Yes, sir. Mr. Redfield. And you have been sworn on that occasion? Mr. Bell. Yes. Mr. Redfield. And your name, address, and occupation are as be- fore stated ? Mr. Bell. They are. Mr. Redfield. Mr. Bell, Mgr. Lee, in his testimony yesterday having to do with the matter of the sale of the St. Matthews Church property, stated that in some way he advised with you at that time. Will you kindly tell the committee what you know, as fully as you can and in your own way, of this transaction, from the beginning to the close of it? Mr. Bell. I think I testified the other day that Mgr. Lee had con- sulted me, but I was unable to remember at that time whether he had consulted me in regard to this particular sale. Mgr. Lee had been offering the property for sale for quite a considerable time be- fore this and, as I since recall from hearing Mr. Johnson's testimony, had an offer of about $15 a foot. I did not know until I heard to-day that that was from Mr. Walsh. I know he consulted me about an offer of that price, and I advised him not to sell. He had been en- deavoring to get $20 a foot, and my recollection is that he had an offer, or rather he gave an option on the property, at $20 a foot to 874 INVESTIGATION OF INSFHANCE COMPANIES. somebody, to whom I do not know; that he received a deposit of $1,000 for that option; that that option expired and was not taken up ; that then this offer of $18 a foot came, and he having borrowed $160,000 on the property in order to build his church up on Khode Island Avenue, which note was running, I think, at about 4^ or 4| per cent interest, making an interest charge there of seven or eight thousand dollars, in addition to taxes, that I recommended him to sell the property at $18 a foot, or that he consulted me at the time that he had agreed to this. I do not recollect clearly, but I thought it was a wise thing for Mgr. Lee to sell that property, although I myself believed it was worth $20 a foot and that by holding he might have obtained that, but in the meantime the interest on the loan for the money he had borrowed to build the Rhode Island Avenue church was running, and I presume that taxes may have been running against this property, as it was no longer used as a church. That I do not know. Church property is exempt as long as it is used for church purposes, and it may be that taxes were also running against the property. Mr. Kedfield. The interest alone on this $160,000 would approxi- mate 30 cents per square foot per annum, would it? Mr. Bell. Twenty-two thousand feet — yes; over that. Mr. Kedfield. A little over 30 cents per foot per annum? Mr. Bell. Yes. Mr. Kedfield. And in view of that fact and of the fact that there was an equity in it which was also carrying an interest charge, be- cause of failure to get any income from it — — Mr. Bell (interposing). Yes. * Mr. Kedfield (continuing). You felt that it was proper for him to take $18 a square foot "rather than run the risk of carrying it further ? Mr. Bell. Yes. Mr. Kedfield. In view of the carrying charges. Did you know when you gave this advice, Mr. Bell, of the earlier option at $20 a foot," on which a thousand dollars had been paid but which lapsed? Mr. Bell. I presume I did. Mr. Redfield. Father Lee himself told you of that ? Mr. Bell. Either he or somebody representing him told me. Mr. Redfield. How long before this actual sale was this option given at $20 a foot, which lapsed, if you know? Mr. Bell. I should say it was within six months prior. My recollection is not very clear on that. I have not seen Mgr. Lee Mr. Redfield. You do not know who the parties were? Mr. Bell. I do not. Mr. Redfield. Whether they were local parties or not? Mr. Bell. I do not. Mr. Redfield. Did your knowledge of this transaction cease with the acceptance by Mgr. Lee of $18 a foot? Mr. Bell. No ; it did not. Mr. Redfield. "Well, will you please tell us all you know about it thereafter, Mr. Bell? Mr. Bell. Mgr. Lee consulted me in regard to the taking or a second mortgage on the property for quite a large sum. The cash payment in proportion to the whole amount was very small, and while I would not recommend anyone else to take a second mortgage INVESTIGATION OF INSURANCE COMPANIES. 875 of that sort, I recommended him to take it, because he still had the property as security, and if they should default in that second mort- gage, he would simply be in the $50,000 that they had paid in cash, and would have his property left, and I therefore recommended him to take the mortgage, which, I think, ran for a very limited time. The mortgage matured and was unpaid, and it was left by Father Lee for collection by the American Security & Trust Co. Mr. Redfield. That is the company of which you are president, Mr. Bell? Mr. Bell. Yes; and Father Lee when the mortgage matured con- sulted me as to what action he should take. I advised him to be con- servative, to try to get a payment on account of it and that, I think, he did. He received $10,000 and made an extension of the mort- gage, extended the $180,000 for a further period of a few months. Then the $180,000 and interest was paid off, and that is all that. I know of the transaction. Mr. Redfield. Do you know, Mr. Bell, who the purchasing parties were in this matter ? Mr. Bell. I do not ; except from what I have heard here. Mr. Redfield. Nothing further than that? Mr. Bell. No. ' Mr. Redfield. What you have heard in the committee room to-day ? Mr. Bell. No. Mr. Redfield. Have you knowledge of your own of subsequent transactions in this particular property, Mr. Bell? Mr. Bell. I have no knowledge whatever; no. Mr. Redfield. Any questions, Mr. Berger? Mr. Beegeh. No questions; no. Mr. Redfield. Mr. Prouty? Mr. Prouty. No. Mr. Redfield. Mr. Douglas? Mr. Douglas. No. Mr. Redfield. Mr. Carusi? Mr.' Carusi. No, sir. Mr. Redfield. Mr. Easby-Smith? Mr. Easby-Smith. No, sir. Mr. Redfield. Thank you, Mr. Bell. That is all. Now, Mr. Alexander McNeil. STATEMENT OF ALEXANDER M'NEIL. The witness was duly sworn by Mr. Redfield. Mr. Redfield. Will you state your full name, address, and occupa- tion to the committee, please ? Mr. McNeil. No. 3358 Eighteenth Street NW. I am an attorney Jn Canada. Mr. Redfield. In order to get the record clear I will ask you if you are related to Mr. Robert H. McNeill, and, if so, how ? Mr. McNeil. I am not related to him ; no sir. Mr. Redfield. And are your names spelled in the same way? Mr. McNeil. They are not. Mr. Redfield. Your name is spelled how? Mr. McNeil. With one " 1." 71391— No. '10—13 2 876 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. With one " 1 " ? Mr. McNeil. And his has two—" 11." I think he spells his "Mac," although I am not positive, and I spell mine " Mc " — short. Mr. Eedfield. I will ask Judge Prouty, of the committee, to ques- tion you. Mr. Pbouty. Mr. McNeil, it has developed in the testimony so far given before this committee that you acted as agent in the purchase of this property that is now under inquiry here. Mr. McNeil. I represented in the transaction of the sale the owners of the property only. ' Mr- Prouty. You mean by that, Mgr. Lee? Mr. McNeil. The title was in His Eminence Cardinal Gibbons. Mg r - Lee, as rector of St. Matthews Parish, also represented the car- dinal in the sale of the property, and I acted directly with him, although Mr. Prouty. Who first spoke to you about this property ? Mr. McNeil. One of the priests at St. Matthews Church, Father Buckey. Mr. Prouty. When did Mr. McNeill — the other McNeill — and Mr. Douglas and that syndicate speak to you about this property ? Mr. McNeil. I spoke to them first — that is, I spoke to Mr- Robert H. McNeill, and told him that I was endeavoring to sell this property for the church authorities. Mr. Prouty. It had been placed in your hands by the Mr. McNeil (interposing). It had been placed in my hands by the church authorities in the same way that it was in the hands of other real estate representatives in the city. Mr. Prouty. I understand that there Avas a commission of $10,000 paid in this sale ? Mr. McNeil. There was. Mr. Prouty. Was that commission divided by you with anyone? Mr. McNeil. No, sir- Mr. Prouty. Divided by you Mr. McNeil (interposing). No, sir; with no one. Mr. Prouty. From whom did you obtain the agency for the sale of this property ? Mr. McNeil. I first went to see His Eminence Cardinal Gibbons, carrying with me a letter of introduction from one of the professors of the Catholic University, who knew me in Canada, and I talked the matter over with the cardinal. He gave me, in turn, a letter of introduction to Mgr. Lee, referring to our conversation, and that I might take up the project of selling the property. Mr. Peouty. How long was that before the transaction out of which the sale resulted ? Mr. McNeil. This was the previous year, in 1907; the first year after I came here from Canada. Mr. Redfield. Any further questions? Mr. Pbouty. That is all. Mr. Berger. Mr. McNeil, what was the property worth, in your opinion, at that time ? Mr. McNeil. The property, in my opinion, was immediately very valuable and prospectively one of the most valuable properties in the city of Washington, for one especial reason. H Street, as I observed it. is the coming great business street of Washington. It was the INVESTIGATION OP INSUEANCE COMPANIES. 877 first business street following population. Pennsylvania Avenue, F, and G break at the Treasury. H Street is the first business street — that is, was evidently becoming a business street — following popula- tion into the northwest, in the way this city is developing. Inter- secting H Street is Fifteenth Street, which I immediately observed was even then permanently fixed as the financial street of Wash- ington. It had the Treasury, the great banks, the great trust com- panies upon it, and it was bound to be, and was then prominently fixed as the financial street. I claimed to these gentlemen who bought that prospectively, that corner at Fifteenth and H, was the most valuable corner in the city of Washington. Mgr. Lee had held it for some time at $21. I argued with him for several weeks that he should reduce the price in order to make a quick sale. I think they held it for a dozen years after they moved from Fifteenth and H up onto Rhode Island Avenue, with their church in the condition of being just begun, but unable to go ahead with it, because they had not sold this property, and I argued with him that it was most desirable to make a sale, and unless a man came along as a buyer himself — and then he would be willing to give what he saw fit for it — he would be obliged to agree to sell it at less than his asking price in order to effect a quick sale, and it was after several weeks of discussion with him that he finally agreed to some such arrangement. Then he had a letter from Thomas H. Fisher & Co., making a proposal at $350,000. Mr. Bergek. How much would that be per square foot ? Mr. Douglas. A little under $16. Mr. McNeil. At his request, I took the letter to Thomas H. Fisher & Co.- Mr. Douglas (interposing). You were with Fisher & Co.? Mr. McNeil. No. At Mgr. Lee's request, I took the letter clown to their selling manager and discussed it with them, and we worked together sometime to effect a sale. Mr. George. Was that with Mr. Doyle of Fisher & Co. ? Mr. McNeil. Yes; with Mr. Doyle. Mr. Berger. And they would not offer more than $16 a foot? Mr. McNeil. The first price I understood they could get their man interested at was $350,000. and I told them I thought I had parties that would go as high as $400,000. Mr. Redfield. Mr. McNeil, you say you told these parties, and in- dicated Mr. Douglas, by Avhich I assume that you meant that he was simply one of the several parties in the matter? Mr. McNeil. Yes ; he was one of the parties. Mr. Redfield. That this was prospectively one of the most valu- able corners in Washington for the reasons that you stated? Mr. McNeil. Yes, sir. Mr. Redfield. And yet I also understand that for several weeks you labored with Father Lee, whom you represented, to induce him to sell at $18 per foot? Mr. McNeil. At 18 ; no Mr. Redfield (interposing). How do you reconcile the two atti- tudes? Mr. McNeil. I reconcile it this way: On his side his great object was to go on and build his church. I am myself a Catholic and had 878 INVESTIGATION OF INSURANCE COMPANIES. acted for the archbishop in my own country and institutions of the church, and I was looking at it somewhat from the standpoint of one interested in the church. I saw from his point it was most important for them to go on and realize on the property and be able to build their church. Mr. George. So that you thought, from his point of view, $18 per square foot was a good price? Mr. McNeil. I thought, from his point of view, looking at the dozen years or so that they held it and paid taxes, and I knew it was a great burden on the parish and on the cardinal, who had told me so Mr. Geoege (interposing). But to anybody who could purchase the property and hold it it would be Mr. McNeil (interposing). Most valuable. Mr. George. A valuable piece of property ? Mr. McNeil. I sold it on that argument largely. I sold it largely on the argument, first, that it was prospectively extremely valuable, and, second, that we were selling it at a sacrifice price. Mgr. Lee — I visited him practically every day and told him everything that went on between us so far as I could remember it. Mr. George. That is, you thought his institution required money at once? Mr. McNeil. Exactly. Mr. George. And you advised him to sell it at $18 a foot, although you believed it worth more; and did you tell him at the same time that if he held on it would become very valuable? Mr. McNeil. I certainly did. I told him frequently that if he could hold that property a few years he could sell it for very much more than he could possibly get then. Mr. George. What do you think the present value of that prop- erty is? I am talking now of the ground alone. Mr. McNeil. Well, when you have ground permanently improved it seems to me necessary to consider the return from the property in order to know really what the ground is worth. Mr. George. Would you not pay attention- to the sales in the neighborhood ? Mr. McNeil. Yes, sir ; I have. Mr. George. Do you know anything about the sales in the neigh- borhood ? Mr. McNeil. In a general way I do. .... , » Mr. George. Would you say that that property is rising in value '. Mr. McNeil. Decidedly ; is rising greatly in value. Mr. George. And has risen since the sale? Mv. McNeil. And has risen greatly since the sale, Mr. George. Do you formulate that rise in any way? Mr. McNeil. You mean how it is occasioned? Mr- George. No, no; as to what it is, what it has amounted to, what its market price would be to-day. Mr. McNeil. I should think it would be worth about double what it cost. Mr. George. $18 a foot? Mr. McNeil. Yes. Mr. George. That would be $36 a foot, would it not ( INVESTIGATION OF INSURANCE COMPANIES. 879 Mr. McNeil. Something like that. I wish to say, in connection with that, that I do not consider myself at all an expert in giving such information. I am merely giving it on general informatipn. Mv. Geobge. Do you anticipate a further rise in the value of that property, of the land I am now talking about ? Mr. McNeil. I do. Mr. Eedfield. What was the date of this transaction in which you acted on behalf of the church authorities ? Mr. McNeil. The last day of December, 1908. Mr. Eedfield. It was in February, 1909, was it not, when the transaction was actually closed? Mr, McNeil. Somewhere along there ; they had something like 60 days to conclude, I think. Mr. Eedfield. And your connection altogether, thus far, had been on behalf of the church authorities ? Mr. McNeil. Entirely so ; yes, sir. . Mr. Eedfield. Were you connected with the Southern Commercial Congress in any way ? Mr. McNeil. I had taken an interest in it ; yes, sir. Mr. Eedfield. Of what kind? Mr. McNeil. In the Southern Commercial Congress? Mr. Eedfield. Yes. Mr. McNeil. I had taken a membership sometime before in the congress. Mr. Eedfield. Did you pay for it? Mr. McNeil. Yes. Mr. Eedfield. How much? Mr. McNeil. A thousand dollars. Mr. Eedfield. Was it their plan to build the Southern Building as an endowment basis for the Commercial Congress ? Mr. McNeil. There was a plan ; yes. Mr. Eedfield. Did you take part in that? Mr. McNeil. In their plans? Mr. Eedfield. Yes, sir. Mr. McNeil. No, sir ; I took no active part. Mr. Eedfield. Was your thousand dollars that you paid into the Southern Commercial Congress intended in any degree to be part of the fund that they were accumulating with which to build the building? Mr. McNeil. I understood so ; yes, sir. Mr. Eedfield. You so understood it? You became the treasurer cf the Southern Building Corporation at its organization, did you not? Mr. McNeil. I did, sir. Mr. Eedfield. And their charter was signed on the 24th day of May, 1909? Mr. McNeil. You are reading from the record, I suppose? Mr. Eedfield. Is that correct, Mr. Douglas ? Mr. Douglas. That is about right. Mr. McNeil. According to my memory it would be along about that date. „ , _ ., , Mr. Eedfield. At that time you held stock in the Southern Build- ing Corporation to qualify you as an officer and director ? 880 INVESTIGATION OF INSUKANCE COMPANIES. Mr. McNeil. Yes; I did, sir. Mr. Redfield. How did you get it? Mr. McNeil. I got it this way. I had $1,000 that I got for my membership in the Southern Commercial Congress, and $2,500 for money I had loaned Robert H. McNeill. Mr. Redfield. What did you make that loan to him for ? Mr. McNeil. He was pressed for money at the time and I advanced him some. Mr. Redfield. At what time? Mr. McNeil. Somewhere along early in the year 1909. I do not recall just the exact date. Mr. Redfield. Was it because he was called upon to pay up under this contract to purchase this land? Mr. McNeil. No, sir ; it was for some previous obligations. Mr. Redfield. Had it no relation to this? Mr. McNeil. Not that I know. Mr. Redfield. And that $2,500 you loaned to him and your $1,000 that you paid in as membership in the Southern Commercial Con- gress comprised your total interest in the Southern Building Cor- poration ? Mr. McNeil. My total interest in the Southern Building Cor- poration. Mr. Redfield. Were you not given any stock ? Mr. McNeil. I was given no stock whatever, sir. Mr. Redfield. No bonds ? Mr. McNeil. No bonds whatever. Mr. Redfield. You received no fee from them? Mr. McNeill. I received no fee of any kind, directly or indirectly. Mr. Redfield. When were you invited to become treasurer of the Southern Building Corporation? Mr. McNeil. I was invited by Mr. Schneider, some time previous to the formation of the company. Mr. Redfield. You mean Mr. T. Franklin Schneider? Mr. McNeil. Yes, sir. Mr. Redfield. He was president of the company, was he not? Mr. McNeil. He became president, and he asked me if I would accept the office of treasurer, at any rate, for a time. Mr. Redfield. When was that he asked you? Mr. McNeil. Just prior to the formation of the organization. Mr. Redfield. That is to say, in the spring of 1909? Mr. McNeil. In that spring. Mr. Redfield. So that although you represented the church authorities in the fall of 1908 and the transaction in which you rep- resentecl them was not closed until February, 1909, you were within two or three months thereafter an officer and a director of the com- pany which owned the property that you had within a few months sold to this syndicate which in the meanwhile had transferred it to this company ? Mr. McNeil. I was, sir. Mr. Redfield. Did you not at the time you sold this property to this syndicate know that you were to take an interest in that property thereafter? Mr. McNeil. I was not to take any interest. INVESTIGATION OP INSURANCE COMPANIES. 881 Mr. Redfield. As a matter of fact, you did, as an officer of this corporation, become interested in it within a few months, to the ex- tent to which you had paid for it? Mr. McNeil. Yes, sir; to the extent which I had paid for, only. Mr. Redfield. Yes; and to the extent that you were the treasurer and a director of that corporation. Mr. McNeil. Yes, sir. Mr. Redfield. Did you or did you not know, before this transac- tion with the church was closed, that the Southern Commercial Con- gress had failed to raise sufficient funds to carry on the building and that the Southern Building Corporation was organized by some of the parties, at least, who were interested in .the sale to be made, as buyers, to take over the contract which the Southern Commercial Congress was unable to carry out ? Mr. McNeil. I did not know or hear anything of the Southern Building Corporation. I did not know anything of the relation of the Southern Commercial Congress in connection with the purchase. I only knew that these men were purchasing as a syndicnte, with the idea of reselling, as I understood. Mi'. Redfield. Did you know to whom they intended to resell ? Mr. McNeil. I did not. Mr. Redfield. Did you know what price they put upon it in the resale ? Mr. McNeil. Finally? I did, sir. Mr. Redfield. That price was what? Mr. McNeil. As I recall it, it was $23 a square foot. Mr. Redfield. That is, they made a profit between the time when their last payment was made, in February, and the time when the Southern Building Corporation was formed to take it over, in May, of $5 a square foot on the property ? Mr. McNeil. I would not state it that way. I understand they received that much in stock of the company. Mr. Redfield. They made a profit which was paid in stock? Mr. McNeil. Certainly. Mr. Redfield. Of $5 a foot, within three months ? Mr. McNeil. A prospective profit, I would call it. Mr. Redfield. So far as the securities were worth what they claimed them to be, it was a profit? Mr. McNeil. Yes. . Mr. Redfield. They took their chance,' of course, of their sale value? ' , Mr. McNeil. They did, and as I understood, sold them Inter for very much less. Mr. Redfield, In so far as they were bonds, they got 75 cents on the dollar, did they not ? Mr. McNeil. I do not know the later transactions. Mr. Redfield. Did you know who the parties were who made this nominal profit of $100,000 in three months ? Mr. McNeil. I knew ; yes. Mr. Redfield. Who were they? Mr. McNeil. They were Mr. Robert H. McNeil, Mr. A. k. U Leckie, Mr. Douglas, Mr. James M. Baker, and Mr. Meek— I think, Mr. S. W. Meek. 882 INVESTIGATION OF INSTJKANCE COMPANIES. Mr. Redfield. As treasurer of the Southern Building Corporation can you say in just what form that $100,000 was paid to them? Mr. NcNeil. They took stock in the corporation. Mr. Eedfield. What kind of stock? Mr. McNeil. I do not recall. Mr. Redfield. Did you not transfer it, as treasurer ? Mr. McNeil. I think not; I think the secretary signed the stock, instead of the treasurer. Mr. Redfield. Did they get any bonds ? Mr. McNeil. There were no bonds issued at that time. Mj\ Redfield. Was the stock which they took for payment of this nominal profit later exchanged for bonds, and if so, to what extent? Mr. McNeil. That I do not know. Mr. Redfield. Why do you not know, Mr. McNeil ? Mr. McNeil. I severed my connection from the company, I think, late in the year 1909. Mr. Redfield. Why? Mr. McNeil. It came about this way. Mr. Schneider, who had asked me to be treasurer, had invested some $20,000 in the enterprise, and had been made architect, and there Avas a proposal to change the architect, and I thought Mr. Schneider should be paid back his money if that change were made, and as I recall it, when the pro- posal was made to make the change Mr. Schneider and I left the room, and T have not acted in an official capacity since then. Mr. Redfield. There were five directors of that company at its organization, were there not, Mr. McNeil? Mr. McNeil. Five, I believe it was, although my memory does not Mr. Redfield (interposing). Of which five you and Mr. Schneider were two? Mr. McNeil. We were two ; yes, sir. Mr. Redfield. And can you say who the director was who threw his deciding vote in such a way that you and Mr. Schneider with- drew and never went back? Mr. McNeil. I could not say that. I think I went out of the room before the vote was really taken. I knew it was proposed. Mr. Redfield. Did Mr. Schneider, president of the company, go out with you at the same time ? Mr. McNeil. Yes, sir ; we went out together. Mr. Redfield. And you went out because you thought that Mr. Schneider, having been deposed as architect of this building, should be refunded the amount that he put in ? Mr. McNeil. Yes, sir. Mr. Redfield. And did you feel that you should be refunded the amount that you put into it, too ? Mr. McNeil. Well, I did not feel the same way about it. My case was somewhat different. Mr. Redfield. He had put the $20,000 in with the expectation of being architect, you think, Mr. McNeil ? Mr. McNeil. I think he felt that way. Mr. Redfield. And you sympathized with him in that feeling? Mr. McNeil. I did. Mr. Redfield. How did you come out in your investment in the Southern Building Corporation, Mr. McNeil? INVESTIGATION OF INSURANCE COMPANIES. 883 Mr. McNeil. I got $1,000 for my $3,500 sometime after. Mr. Redfield. Tell us how you happened to get it, will you ? Mr. McNeil. Well, I was pressed for money, and I told Mr. Robert H. McNeill that I was pressed for money at the time, and there was a proposal made to lend me a thousand dollars with the condition that if I did not repay it within a certain time that the stock should be sold, and as I did not pay it by that time of settlement the stock was taken in that way. Mr. Redfield. What kind of stock did you hold? Mr. McNeil. I believe it was preferred stock. Mr. Redfield. Did you get with your preferred stock a bonus of 50 per cent in common ? Mr. McNeil. I do not think so. Mr. Redfield. Why were you omitted ? Mr. McNeil. Well, I was not sharing in anything except what my money represented. Mr. Redfield. So you were not among those who got a bonus of the common stock, were you? Mr. McNeil. I was not, I believe. Mr. Redfield. And you are quite sure you got no bonus of common stock? Mr. McNeil. Well, I feel that way. I am speaking now from the best of my recollection. Mr. Redfield. You do not recall getting any? Mr. McNeil. I certainly do not recall it; and I do not recall hav- ing had any. Mr. Redfield. Who made the proposition to you to loan you a thousand dollars on it with the consideration that this preferred stock should be considered sold if you did not pay up ? Mr. McNeil. Mr. Robert H. McNeill. Mr. Redfield. And you told him that you were short of funds and that you needed some money, and he made this liberal proposi- tion to you? Mr. McNeil. He made the proposition to me. Mr. Redfield. That was putting what value upon your preferred stock? Mr. McNeil. I had $3,500, and $1,000 was paid. Mr. Redfield. Or less than 33| per cent that would be ? Mr. McNeil. Something like that: about 32 per cent; somewhere along there. Mr. Redfield. And when was this proposal made to you? Mr. McNeil. It seems to me it was along — it was, say, a couple of months — some months after Mr. Schneider and I went out. Mr. Redfield. That is to say, it was in what year — the year 1910 or 1911 ? Mr. McNeil. I should think in the early part of 1910. Mr. Redfield. AA r as the Southern Building constructed at that time? Mr. McNeil. No, sir. Mr. Redfield. Was it under construction? Mr. McNeil. It may have been* Mr. Redfield. Had you seen its illuminating prospectus ? Mr. McNeil. I have seen it; yes, sir. Mr. Redfield. Had you then seen it? 884 INVESTIGATION OF INSURANCE COMPANIES. Mr, McNeil. No, sir; I had not. Mr. Redfield. You knew that this corner was on H Street, which was to become the great business center of Washington, being the first through street and crossing Fifteenth Street, which was the banking center and to become more so, had in it the great prospective value that you told these gentlemen the year before; you knew that fact, did you? Mr. McNeil. Yes, sir ; I knew that fact. Mr. Redfield. So that you knew they had a good thing in the property ? Mr. McNeil. I knew they felt they had a good thing in the prop- erty. I know they had difficulty and felt they would have difficulty in carrying the company and financing it. Mr. Redfield. What explanation did they or any of them make to you for making a contract with you to sell your stock at about 32 cents on the dollar, it being preferred stock m this corporation? Mr. Douglas. Mr. Redfield, you say, "they." What "they"? Mr. Redfield. They or anyone? Mr. McNeil. Mr. Robert H. McNeill is the one I was speaking of. Mr. Douglas. He only mentioned one man. Mr. Redfield. You are speaking for him personally when you mention his name, and not anyone else ? Is that so ? Mr. McNeil. I think he was conferring with somebody, but he did not tell me with whom. He simply told me that he was confer- ring with others. Mr. Redfield. Then I repeat my question with the word " they " in it. What did he or they say to you, when they made you this proposi- tion, in view of this remarkably profitable real estate investment, in which you then believed, and to which some of them now testify, what reason did they give you for selling the stock so cheap? Mr. McNeil. Mr. McNeill said it was the best arrangement he could make for me. Mr. Redfield. In other words, they were not willing to pay any more? Mr. McNeil. That was it. Mr. Redfield. And you needed money? Mr. McNeil. I needed it badly. Mr. Redfield. Do you know of any stockholders in that company who sold their stock to Mr. Robert H. McNeill or any of his asso- ciates ? Mr. McNeil. No ;' I do not. Mr. Redfield. Do you know of any of the bondholders of the company who sold their stock to him or to his associates ? Mr, McNeil. No; I knew nothing of the operations of the com- pany after my connection ceased. Mr. Redfield. Except as to this individual transaction which you have testified to ? Mr. McNeil. Yes. I would like to make you a reference to one matter, Mr. Johnson referred to on the stand, if the committee will allow me to, and that is my getting $200 out of the first deposit that was made. I would like to say that I told Monsignor Lee before the deposit was made, when the transaction was under discussion, that I had a large INVESTIGATION OP INSUEANCE COMPANIES. 885 family, and that I was very much in need of money, and while I did not regard it as a right, it would be a great favor to me if he could spare me $200 out of the first thousand that was paid, and it was on the strength of that that it was paid. Mr. Bedfield. Mr. McNeil, would you have sold your stock at 32 or thereabouts had you known or believed, in 1910, when the sale was made, that toward the latter part of 1912, that building and the land on which it stands would be worth $2,000,000? Mr. McNeil. I would try not to, but if I had to raise the money I might have to. Mr. Bedfield. Are there any questions you wish to ask, Mr. Berger ? 'Mr. Berger. Mr. McNeil, how long have you lived in this city? Mr. McNeil. I came here from Halifax, Nova Scotia, in October- 1907. Mr. Berger. Are you an attorney? Mr. McNeil. I am an attorney in Nova Scotia. Mr. Berger. You took up real estate in this city ? Mr. McNeil. I took up first this transaction, because the church authorities with whom I was acquainted wished me to do so. Mr. Berger. You said you considered that corner worth about $20 to $21? Did I understand you aright? Mr. McNeil. What I said was Monsignor Lee had held it for some time at $21. Mr. Berger. You considered it worth about $20 ; did I understand you aright? Did you say something of the kind; that you considered it worth that money— $20? Mr. McNeil. It was easily worth $20. Mr. Berger. Easily worth $20? Mr. McNeil. More", I should say. Mr. Bedfield. On what did you base your knowledge? You were rather a stranger, were you not, in this city? Mr. McNeil. Yes; I was, comparatively speaking. Mr. Berger. What made you think that this particular corner was worth $20 per square foot? Mr. McNeil. Well, I inquired around among various people as to what property was quoted at in the particular locality; then I examined the corner rather carefullv, and the location rather care- fully. Mr. Berger. You examined the location so as to get a good judg- ment on that? Mr. McNeil. I based my opinion on my general knowledge ob- tained in that way. Mr. Berger. You knew of the offer of $15 before, $15 or $16? Mr. McNeil. I think Monsignor Lee must have told me about all of the offers that had been made. Mr. Berger. Of $15 or $16? Mr. McNeil. He discussed it very fully with me. Mr. Berger. That is why you advised him to sell this property for $18? Mr. McNeil. That was not so much the basis of it as the idea that the church should sell in order to complete their new church. That was my idea. 886 INVESTIGATION OF INSURANCE COMPANIES. Mr. Berger. Then, it was based on different reasons ; not so much based on the offers made before? Mr. McNeil. Not so much in relation to its value as their needs. Mr. Berger. You said the property now would be worth about $36. Do you not think it is a rather strong raise in three years from $18 to $36? Do voir not think it is a big raise? Mr. McNeil. Well, it is a large raise ; but I was trying lately to buy a property near it : and they asked me a price which I think must be about double what the quoting price would have been at the time of this transaction. Mr. Berger. You mean about three or four years ago? Mr. McNeil. Yes. Mr. Berger. So, judging from the general rise in values around there, you judge that this property is worth twice as much as it was three years ago or four years ago? Mr. McNeil. Well, I would not put it quite that way. I would put it that it might very well be worth twice as much as was paid for it at that time. Mr. Beeger. Thank you. Mr. George. I want to ask a few questions in connection with those of my colleagues. Mr. McNeil, when was it that you advised Mgr. Lee to take $18 a square foot for that property? Mr. McNeil. Well, I do not know that I definitely advised him to take any particular price that I can recall, but when I felt that these gentlemen were willing to buy at $400,000 — and I wish to repeat that that is the actual amount at which this property was sold ; there was a slight mistake in some other testimony as to the price; $400,000 was the actual price — when I knew that they were likely to enter- tain that as a purchasing proposition, then I told them that it was Mr. George (interposing). When was that? Mr. McNeil. That was in December, 1908. Mr. George. When was the sale made? Mr. McNeil. The last day of December, 1908. Mr. George. When was the property turned over at $23 a square foot? Mr. McNeil. That was after the formation of the Southern Build- ing Corporation, as far as I know. Mr. George. When was that? Mr. McNeil. Speaking from the record, I think it was in May. From memory, I would say May or June of 1909. Mr. George. So that that was six months later ? Mr. McNeil. About that, I should judge; yes. Mr. George. Did you think $23 was a fair price for the property at that time? Mr. McNeil. I did. That is, I did think so ; turned over for an •object — turned over for the purpose of building an office building. Mr. George. Five dollars increase per square foot? Mr. McNeil. Yes, sir ; I think it was a fair price. Mr. George. And you thought that a fair price at that time? Mr. McNeil. I thought it a fair price ; yes, sir, Mr. George. And since then you think the property has advanced to $36 a square foot, approximately ? Mr. McNeil. I should say that much ; yes, sir. INVESTIGATION OF INSURANCE COMPANIES. 887 Mr. Bergee. Are you aware, Mr. McNeil, that this property has been appraised — how long ago — October, was it, Mr. Kedfield? Mr. Kedfield. Yes. Mr. Beegeb. In October, at $50 a foot — I mean the land. Mr. McNeil. I just heard that. Mr. Beegeb. Do you think that is a fair appraisal in your opinion ? You say you have just tried to buy property in the neighborhood there. Mr. McNeil. The appraisal has to be based not only on the in- trinsic value of the ground and building, but its earning power. Mr. Beegeb. Of course. Mr. McNeil. And not knowing anything definite about the earn- ing capacity of the building or its actual earnings at that time, I do not think my opinion on that valuation would be very valuable. It seems quite a large increase to me. Mr. Pboutt. If that land were now entirely vacant, as it was at the time, what would you consider it worth ? Mr. McNeil. It is hard to speak that way. You see the building of the Southern Building Corporation was one of the great things that enhanced values in that locality. This very operation largely enhanced values. Mr. Pbouty. I would like to have your judgment, independent of that. Mr. McNeil. It is hard to give a judgment on that, because inas- much as this very operation enhanced values, if that had not taken place maybe the Woodward Building would not be built, but the Woodward Building having been built, and therefore these three cor- ners being permanent improvements — the Union Trust, the Wood- ward, and the Southern Building — it tends to increase the value on that particular corner, because you can only get on that corner once. It tends to make all these values increase. Mr. Bergee. That street is becoming the Wall Street of Wash- ington? Mr. McNeil. Fifteenth Street? Mr. Prouty. Fifteenth Street tends to be the coming Wall Street of Washington ? Mr. McNeil. Yes. Mr. Beegee. And this is a Wall Street proposition then ? [Laughter.] Mr. McNeilI Well, I do not know. Mr. Pboutt. I would like to have Mr. McNeil's judgment on that' piece of land as a piece of land, regardless of the improvements on it. Mr. McNeil. If I had the corner for sale now, knowing as much as I do now about Washington, and future prospects there, I would not think $36 too much to ask for it. Mr. Beegee. But could you get it, Mr. McNeil ? Mr. McNeil. That is hard to say. Mr. Beegeb. That is what I say. Mr. McNeil. I find it very hard to sell property, even if you go below value. Mr. Geoege. Mr. McNeil, I was out of the room for a moment. I Want to make sure. Did you give any testimony about the commis- sions you received and whether you divided them ? Mr. McNeil. Yes ; I gave testimony that I did not divide my com- missions at all. 888 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Mr. McNeil, did you receive a salary as treasurer of the Southern Building Corporation? Mr. McNeil. I did not, sir. Mr. Redfield. Did you receive any compensation, and if so, hi what shape? Mr. McNeil. None whatever, in any shape or form. Mr. Redfield. Did you receive any compensation for acting as director of that company ? Mr. McNeil. No, sir. Mr. Redfield. How often were directors' meetings held? Mr. McNeil. Well, I went to Canada that summer, some time in June, and I did not return until some time in the autumn, and was not very long connected with it afterwards. I did not have much connection with the meetings. Mr. Redfield. Did you receive notices of the directors' meetings during your absence ? Mr. McNeil. Oh, yes ; directors' meetings were held. Mr. Redfield. So that as far as you know directors' meetings were regularly held? Mr. McNeil. I presume so; yes. There were many conferences over the way that the matter would be done. Mr. Beegee. Mr. McNeil, the $10,000 commission was paid out of the $400,000? Mr. McNeil. Yes, sir. Mr. Bergee. Of the sale price ? Mr. McNeil. Yes, sir ; a commission of 2^ per cent. Mr. Bergee. Two and one-half per cent? Mr. McNeil. Three per cent is the usual commission here, but on large transactions sometimes they are cut to 2^. per cent. Mr. Redfield. Did you know, as treasurer of the Southern Build- ing Corporation, whether any commissions were paid on the transfer of this land from the syndicate to the Southern Commercial Con- gress? Mr. McNeil. I did not know of any commissions ; no, sir. Mr. Redfield. Do you know whether any commissions or fees were paid for the transfer of the land to the Southern Building Corpora- tion? Mr. McNeil. No ; I did not know of any commissions. Mr. Redfield. Did you actually keep the treasurer's accounts when you were treasurer, Mr. McNeil? Mr. McNeil. I did not have the books ; no, sir. Mr. Redfield. What did you do as treasurer? Mr. McNeil. Very little. There was very little for the treasurer to do, as the treasury was not very full at that time, but if I recollect aright, Mr. Schneider had the books, and my memory leads me to think that there were some checks signed at that timeunder his di- rection. I do not recall very definitely. Mr. Redfield. Who was the active spirit in the Southern Building Corporation during your time as director? Mr. McNeil, The Southern Building Corporation? Well, Mr. Schneider was at that time understood to take an active interest in bringing about the building operation. Mr. Redfield. Do you know that Mr. R. H. McNeill was interested ? INVESTIGATION OF INSUBANCE COMPANIES. 889 Mr. McNeil. Oh, yes ; he was active in the matter. Mr. Redfield. He was active? Was Mr. Leckie interested and active? Mr. McNeil. Yes, sir. Mr. Redfield. Was Mr. Douglas interested and active? Mr. McNeil. Yes, sir. Mr. Redfield. When the suggestion of a loan from the Equitable Life was in question, were you consulted? Mr. McNeil. Yes, sir ; and I went to the Equitable with some of the officers, Mr. Schneider, and one or two — Mr. McNeill, I think. Mr. Beegee. Went to New York? Mr. McNeil. Yes, sir. Mr. Redfield. And there had conferences with the financial officers of the Equitable Life? Mr. McNeil. I believe we had, and with the Thompson- Starrett Co. Mr. Redfield. Did you, as treasurer; make any statement in writ- ing to either the Thompson- Starrett Co. or the Equitable Life? • Mr. McNeil. I think not. Mr. Redfield. Did you ever receive from any of the gentlemen whose names have been mentioned, or from any other source, any written statement as to the value of this property, during the year 1912? Mr. McNeil. No, sir ; not that I recall. Mr. Redfield. Were you acting as treasurer during the time the money was advanced on the first mortgage? Mr. McNeil. No, sir. Mr. Redfield. You and Mr. Schneider pulled out before that began ? Mr. McNeil. Yes, sir. Mr. Redfield. Do you know at what price Mr. Schneider sold his stock?. Mr. McNeil. These gentlemen paid Mr. Schneider back the money that he put in it. Mr. Redfield. In full? Mr. McNeil. And something for his services. In full; yes, sir. Mr. Redfield. In full? Mr. McNeil. Yes, sir. Mr. Redfield. So that his protest whereby he got his full $20,000 back was effective? Mr. McNeil. Yes, sir. Mr. Redfield. And whereas you got out with only 32 cents oh the dollar? Mr. McNeil. Yes, sir. ■ Mr. Redfield. Do you know anybody else that sold out and what they got? Mr. McNeil. I do not know. Mr. Redfield. Do you know why Mr. Schneider got all his money ? Mr. McNeil. His protest was based on his services as architect. He had already done some work, made some sketches on which the loan was being obtained, etc., and he made the claim, in which I supported him, that he should be paid back the money that he had put in with the expectation that he would be the architect. Mr. Redfield. And then he got something for his services besides ? 890 INVESTIGATION OF INSUBANCE COMPANIES. Mr. McNeil. I understood he did. Mr. Redfield. How much? Mr. McNeil. I can only say from what I heard. I think he told me himself, or possibly Mr. Douglas told me, that it was in the neigh- borhood of $3,000. Mr. Redfield. Did you have any stock or any other securities of the Richmond Realty Corporation? Mr. McXeil. None whatever. I never knew anything about the operations of the Richmond Realty Corporation. Mr. Redfield. You left before that? Mr. McNeil. Yes, sir. Mr. Redfield. You may examine, Mr. Douglas. Mr. Douglas. Mr. McNeil, I suppose if you had $50,000 of the preferred stock of the Pennsylvania Railroad Co.,. and you knew, when you paid $50 a share for it, it would become worth $100 a share next January, that you would not sell it for $50? Mr. McNeil. I would not want to, certainly. Mr. Bergee. Would you kindly repeat the question ? Mr. Douglas. It is another hypothetical question similar to the one in which Mr. Redfield asked him if he knew that this property would have been appraised at $2,000,000 would he have sold it. I asked him if he had $50,000 of Pennsylvania Railroad preferred, and knew that 12 months afterwards it would be worth twice that much money, would he sell it ? Of course, he said no. Mr. McNeil, you realized, you say, about 32 or 33 cents on the dol- lar on your stock ? Mr. McNeil. I got $1,000. Mr. Douglas. For $3,500 worth of stock? Mr. McNeil. Yes, sir. Mr. Douglas. I want that matter cleared up. Mr. McNeil. Yes, sir. Mr. Douglas. Is it not true that you asked Mr. R. H. McNeill and his associates to buy that stock of you, and that you yourself named the price? Did not you yourself suggest the $1,000? Mr. McNeil. No, sir. I asked Mr. McNeill to raise some money on it for me, and he came back with this proposition to me. Mr. Douglas. He made the proposition to you himself? Mr. McNeil. Yes, sir. I told him it was $1,000 I wanted to raise, and he came back with the proposition that he could raise about $1,000 on that basis. Mr. Douglas. You mean by your selling the stock? Mr. McNeil. Yes, sir. Mr. Douglas. And you voluntarily sold the stock? Mr. McNeil. I voluntarily sold the stock. v Mr. Douglas. There was no imposition or overreaching by Mr. McNeill or anyone else with reference to you about that stock, was there, Mr. McNeil? Mr. McNeil. Not that I considered. Mr. Douglas. Then or now? Mr. McNeil. No; neither then nor now. Mr. Douglas. It was a perfectly fair. transaction, was it not? Mr. McNeil. It was a voluntary transaction on my part. ' Mr. Douglas. And Mr. McNeill participated in the purcliase of that stock, either bought it wholly or with some one else, did he not? INVESTIGATION OF INSUEANCE COMPANIES. 891 Mr. McNeil. I understood he was conferring with some one else. Mr. Douglas. You understood several of us were interested in the purchase of that stock? Mr. McNeil. Yes. I did not know really who were in it. Mr. Douglas. At any rate you got in the neighborhood of 32 or 33 cents on the dollar on that stock ? Mr. McNeil. I got $1,000 for the $3,500. Mr. Douglas. I suppose you have since been advised of the fact that Mr. McNeill sold all his holdings in the Southern Building Corporation, including what he got from you, at 25 cents on the dollar, have you not? Mr. McNeil. I have heard that. Mr. Douglas. That does not look very much like you were cheated or chiseled out of anything, does it ? Mr. McNeil. It does not look like that to me. Mr. Douglas. You got your money about two years ago? Mr. McNeil. I did. Mr. Douglas. He got his about three or four months ago, includ L ing the stock he got from you at about 33^ cents on the dollar, he got 25 cents on the dollar ? Mr. McNeil. Well, I have heard that. ■ Mr. Douglas. You have been reliably informed that Mr. McNeill and Mr. Douglas and a number of others sold at 25 cents on the dollar? Mr. McNeil. I have heard that; yes, sir. Mr. Douglas. I would like you to look at this paper, Mr. McNeil [handing paper to witness] . Mr. McNeil. That is the memorandum. Mr. Douglas. That is the memorandum of agreement ? Mr. McNeil. Yes, sir. Mr. Douglas. Read it into the record. If we have got to put amy of the stock transactions into the record, let us start now and do it. Mr. McNeil. Do you want me to read it? Mr. Douglas, Yes, sir. Mr. McNeil (reading) : AGREEMENT. This agreement made between Robert H. McNeill and 1 Alexander McNeil, as follows : Whereas, the; said R. H. McNeill has this day agreed upon the purchase from said' Alexander McNeil" of 35 shares of the capital stock of the Southern Build- ing Corporation for the sum of. $1,000, and the said Alexander McNeil has, and' floes hereby sell, the same to the said R. H. McNeill for the said sum ; however,, tie said R. H. McNeill does hereby agree with the said Alexander McNeil that he may repurchase the said stock upon the fallowing terms, to wit: Five hundred dollars ($500) within three (3) months from date and five hundred dollars (.$500) within six (ft) months from date, and that upon the said payments being made, as stated, that the said stock will be retransferred to the said Alexander McNeil, said payments being made with interest on the principal sum at 6 per cent from date. Witness our hands and seals this the 4th day of January A. D. 1910i R. H. McNeill. [seal.] Alexander McNeil. Eseal.] Witness: Annie B. Bevans. 71391— No. 10—13 3 892 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. You return that paper. It is signed by you and Mr. R. H. McNeill, the transaction in which it has been suggested here that you were cheated. You had three and six months in which to redeem that stock with, only paying the sum of 6 per cent interest on it? Mr. McNeil. Yes, sir ; according to the agreement. Mr. Douglas. You did not redeem it? Mr. McNeil. I did not redeem it. Mr. Douglas. Because you did not want to redeem it? Is not that true? Mr. McNeil. Well, I would like to have redeemed it, but I did not have the money to redeem it. Mr. Douglas. But you had the leeway or opportunity to do it ? Mr. McNeil. I had the opportunity" under the agreement to re- deem it. Mr. Douglas. This sale by you of this stock took place some time after you had retired from the offices of director and treasurer of the corporation ? Mr. McNeil. Yes, sir. Mr. Douglas. Coming to the Schneider business, that has also been brought in here, let me ask you if this is not the situation, or if this was not the situation at the time Mr. Schneider went out as treasurer of this company : That a resolution had been passed by the board first employing him as architect of the building? Mi'/McNeil. Yes, sir. Mr. Douglas. And later one employing him as the builder of the building ? Mr. McNeil. Yes, sir. Mr. Douglas. And is it not true that several of us — and Mr. Douglas was one, if you will remember — took the position in a board meeting that the architect and builder ought not to be the same indi- vidual; that it would subject the corporation to criticism, and it would be impossible for the corporation to negotiate a loan with the Equitable or anybody else under such a state of facts as that. Is not that true, Mr. McNeil? Mr. McNeil. That certainly was discussed at the time the arrange- ment was made. Mr. Douglas. Was not that position taken? Mr. McNeil. I remember the recommendation was made. Mr. Douglas. And that position was taken, and finally officially taken, by the board; and, pardon me, do you not remember, Mr. McNeil, that the suggestion was made to Mr. Schneider that he could be either the architect or the builder, but that he could not be both? You remember that, do you not ? Mr. McNeil. I recall that discussion. Mr. Douglas. And Mr. Schneider, with perfect honesty, of course, did not see it that way, and differences of opinion arose ? Mr. McNeil. Quite so. Mr. Douglas. And the discussion was sharp ? Mr. McNeil. Quite so. Mr. Douglas. And you and Mr. Schneider retired and finally passed out of the corporation? Mr. McNeil. Yes, sir. , INVESTIGATION OF INSURANCE COMPANIES. 893 Mr. Douglas. And that you had gone in as treasurer purely to accommodate Mr. Schneider? Mr. McNeil. At his request. Mr. Douglas. At that time I believe you were living at the Cairo. Mr. McNeil. I had lived, from the time I first came to Washing- ton, in October, up until about March, at the Cairo. Mr. Douglas. And you went in as treasurer at that time, and the expectation was that Mr. Schneider would finance the building cor- poration ? Mr. McNeil. That is the idea. Mr. Douglas. With reference to the settlement with Mr. Schneider, Mr. McNeil, you remember, do you not, that after these unhappy differences arose, that Mr. Schneider put his claim in the hands of an attorney, claiming that the corporation had violated its contract to employ him first as architect and secondly as builder? Mr. McNeil. Yes, sir. Mr. Douglas. And that he had already done a very considerable amount of work ? Mr. McNeil. Yes. Mr. Douglas. And do you not also remember that he claimed that he had paid in his original $20,000 into the Southern Commercial Congress, when it was trying to finance it, upon a contract that he should be its architect? Mr. McNeil. Yes, sir. Mr. Douglas. And that his situation was very peculiar in that the consideration for his subscription of $20,000 to the Southern Commercial Congress was that he should be employed as architect, and that his fees were to be used to help reimburse him. That is true, isn't it? Is not every word of that true? Mr. McNeil. I do not recall particularly the contracts made with Mr. Schneider. I would not be prepared to give direct testimony as to what the contracts were with him. Mr. Douglas. As to what whose contracts were ? Mr. McNeil. Between Mr. Schneider and the company. Mr. Douglas. You mean between him and the Southern Com- mercial Congress ? Mr. McNeil. Yes ; I do not know about that. Mr. Douglas. You understood that was the situation from him. Mr. McNeil. I understood he was to be architect. Mr. Douglas. And that he went into it for that reason ? Mr. McNeil. I think so. Mr. Douglas. You never thought for one moment that Mr. Schneider would make a gift of $20,000 to the Southern Commercial Congress without any understanding of the character I have de- scribed ? Mr. McNeil. My understanding was that he subscribed this $20,000 with the idea that he was to be the architect. Mr. Douglas. And when this settlement was made with him he was claiming a breach of two contracts with the company— first, nonemployment of him as architect and failure to employ him as builder— and also claiming that he had taken his $20,000 of stock upon the terms I have stated ? Mr. McNeil. Yes. 894 INVESTIGATION OF INSUBANCE COMPANIES. Mr. Douglas. And that a compromise was effected between the corporation and individuals, was it not ? Mr. McNeil. Yes; with the Southern Building Corporation. Mr. Douglas. The corporation made the settlement with him? Mr. McNeil. Quite so. Mr. Douglas. Redeemed his stock? Mr. McNeil. Redeemed his stock and paid him for his services. Mr. Douglas. And gave him a note, with his stock as collateral, and ultimately it was paid? Mr. McNeil. He told me afterwards it was paid. Mr. Douglas. And that involved the settlement or discharging of his claim for damages as architect? Mr. McNeil. Quite so. Mr. Douglas. For his services as architect? Mr. McNeil. Yes. Mr. Douglas. And for his claim for damages as prospective builder ? Mr. McNeil. Yes. Mr. Douglas. As well as for his stock holdings? Mr. McNeil. I presume so. Mr. Douglas. At that time, Mr. McNeil, do you not also remember that there was a $10,000 obligation that had to be paid, about which Mr. Perry Johnson has testified this morning ? Mr. McNeil. Do you mean my connection with it ? Mr. Douglas. I mean when this particular matter happened, you remember that it was in Mr. McNeil (interposing) . Yes ; I recall what you are speaking of, Mr. Douglas (continuing). That it was in the greatest possible stress ? Mr. McNeil. The company was in the greatest possible stress* They had to do something. . Mr. Douglas. They had to do something? Mr. McNeil. I realized that. I sympathized with them. The situ- ation was on that point that the corporation had to do something to save its life — I mean the people who had the property. Mr. Douglas. And they had to pay immediately about $10,000 ? Mr. McNeil. I recall that. Mr. Douglas. In order to keep the church from foreclosing its second trust? Mr. McNeil. Yes. Mr. Douglas. Which has been detailed in the testimony of Mr. Johnson here this morning? Mr. McNeil. Yes. Mr. Douglas. And that Mr. Schneider said he did not feel that he wq,s under anv obligation to raise that money? Do you remember that? ' Mr. McNeil. Yes. Mr. Douglas. I do not mean to say he was, but I mean to say that was his position. Mr. McNeil. That was the position he took, as I recall it. Mr. Douglas. Which left the rest of us in the position where we had to raise it or have the foreclosure proceed? Mr. McNeil. Yes. INVESTIGATION OF INSUEANCE COMPANIES. 895 Mr. Douglas. Now, Mr. McNeil, let us get it so clear that no one can misunderstand it hereafter. Did you have any kind of an interest, direct or indirect, in the people who chanced it and took this option on this property? Mr. McNeil. None whatever, direct or indirect, of any kind what- ever. Mr. Douglas. Do you remember how well, if at all, you were acquainted with Mr. James M. Baker, and Mr. Leckie, and Mr. Douglas at that time? Mr. McNeil. How what? Mr. Douglas. How well, if at all, you were acquainted with those gentlemen ? Mr. McNeil. I had only met most of you once, I think. Mr. Douglas. You had hardly become acquainted with Mr. Baker at all, then? Mr. McNeil. I do not think I had. Mr. Douglas. And the man that you knew best was Mr. R. H. McNeill. Mr. McNeil. The one I knew best ; yes. Mr. Douglas. So you represented in the transaction exclusively the church ? Mr. McNeil. Absolutely and only the church people. Mr. George. I am not hearing some parts of those answers. Mr. Douglas. You had no idea, had yoUj at that time, of ever becoming interested in any corporation that would buy this prop- erty? Mr. McNeil. None whatever. Mr. Douglass. And the $2,500 of stock which you months after that got you got in the Southern Building Corporation, of course, after it came into being, in the early summer of 1909 ? Mr. McNeil. Yes, sir. Mr. Douglas. Had the Southern Building Corporation, so far as you know, ever been thought of at that time T Mr. McNeil. So far as I know it had never been thought of. ■ Mr. Douglas. Mi-. McNeil, do you not also know that the parties who took this option on this property simply took it as a chance or as a flier or as a gamble? Mr. McNeil. Yes. . Mr. Douglas. Because you convinced them that the property was worth $3 to $4 a foot intrinsically more than they had paid for it? Mr. McNeil. That certainly is my understanding. Mr. Douglas. Do you not also remember discussing with these gentlemen the possibility or, rather, the probability of being able to sell this property for them to parties who were at that time debating putting a theater in Washington? Mr. McNeil. My memory is not good on that point. Mr. Douglas. Do you remember that there was a hotel project also discussed ? Mr. McNeil. Yes; I talked over things that were proposed that might be put on that corner. Mr. Douglas. See if I can refresh your memory: Do you not remember suggesting that you believed you could sell this property to Mr. Hammerstein, the opera man, and suggested that you go to New 896 INVESTIGATION OE INSURANCE COMPANIES. York and see him ? Do you not remember at that time he was dis* cussing building an opera house in Washington ? Mr. McNeil. I remember the fact that it -was talked of building an opera house, but I can not recall just the relation you speak of. Mr. Douglas. But, at any rate, these gentlemen, so far as you knew, and you knew pretty well from your talking with them, that they had no particular purchaser in view, but that they had several general ideas that they did discuss in your presence? Mr. McNeil. That is according to my knowledge and recollection. Mr. Douglas. You say, Mr. McNeil, that you did not agree to and did not divide your commission with Mr. R. H. McNeill or anyone else? Mr. McNeill. I did not agree to or divide my commission with anyone else. Mr. Douglas. Let me refresh your memory a little and ask you a few questions along that line. Is this not in a fact as a part of the history of this transaction ; that the Southern Commercial Congress, after it had paid $50,000, found it impossible to go further, and an- nounced it could not go further toward the payment of the purchase price of this land ? You remember that ? Mr. McNeil. That is my recollection. Mr. Douglas. It was after that, was it not, that the Southern Building Corporation was organized for the purpose of saving this property ? Mr. McNeil. Yes; for the purpose of saving the transaction. Mr. Douglas. Saving this property ? Mr. McNeil. Yes, sir. Mr. Douglas. And then the Southern Building Corporation, did it not, issued its preferred stock to the gentlemen who had made their donations to the Southern Commercial Congress? Mr. McNeil. Yes. Mr. Douglas. And it was done of their own free will and accord, without any obligation to do so, and without any suggestion that they should do so — you knew that at the time ? Mr. McNeil. That is what I understand. Of course, these matters are not all within my personal knowledge, absolutely. Mr. Douglas. You also knew, did you not, that a failure on the part of the Congress to pay, unless something like this was done, could have no other effect than a foreclosure and a wiping out of existence of the $50,000 that the Congress had paid ? Mr. McNeil. Yes. Mr. Douglas. Of course, unless the property brought more money than they had agreed to pay for it. Mr. McNeil. Yes. Mr. Douglas. You regarded the price named to the Congress and subsequently to the Southern Building Corporation as a perfectly reasonable one? Mr. McNeil. I regarded it as a reasonable price at the time. Mr. Douglas. Mr. McNeil, I believe you stated— if you have not, I ask you if you indorse the statement>-that this corner that you sold to these gentlemen was the most valuable corner of the four, in your opinion, at that time and now ? - Mr. McNeil. Well, I did not say that. _ Mr. Douglas. I am asking you do you not think it was and is 5 INVESTIGATION OF INSURANCE COMPANIES. 897 Mr. McNeil. I regard it as the most valuable of the four corners at Fifteenth and H Streets. Mr. Douglas. At that time the improvements that are there now had not been made, with the exception of the Union Trust Co. Building ? Mr. McNeil. Yes, sir. Mr. Douglas. And that had just been finished? Mr. McNeil. Well, the Shoreham Hotel was there in its present shape. Mr. Douglas. Of course, on this property ; the present site of the Woodward Building was the old building of the George "Washington University ? Mr. McNeil. Yes ,sir. Mr. Douglas. And it was in bad condition financially at that time ? Mr. McNeil. Yes; I might safely Mr. Douglas (interposing). And the old church building stood upon this lot? Is it not true that a great many business houses have grown up since and followed in the wake of the Southern Building ; improvements that were not there at all ? Mr. McNeil. Oh, a great many improvements, along H Street especially. Mr. Douglas. Is it not true that there was not a single store be- tween Fourteenth and H and the Southern Building, on either side of the street, when they first began building the Southern Building, with the exception of the florist's store on the corner ? Mr. McNetl. I would not like to answer that as yes, although your statement is substantially correct, no doubt. Mr. Douglas. Mr. McNeil, you have stated that in your judgment this is the most valuable corner. Do you not believe that this corner, because of the presence of the alley and its being the northwest cor- ner, is worth $5 more than the Stellwagen corner — the northeast corner, I mean ; that it is worth $5 a foot more than the Stellwagen corner — I mean apart from the buildings ? Mr. McNeil. Well, that is a considerable difference for two corners in the same locality. Mr. Douglas. How much difference would you put, in your judg- ment. Mr. McNeil. I think it is worth more, because it is a large block, and therefore a suitable block on which to build a fine office building. I do not agree with some others in this, but I claim that in order to have available ground for an office building in a city it should be a large block, not a narrow block, such as the Union Trust Building is built on, because an office building, to be successful, should be large enough to have a community interest in it. Mr. Douglas. That, no doubt, is absolutely true. Now, is it not true that his lot then was the only really available lot left for a fine office building in the city of Washington and anywhere within a proper zone for building an office? Was not it the only one left? Mr. McNeil. The only unimproved lot. Mr. Douglas. That is what I mean, for a real fine office building. Mr. McNeil. In that immediate business section ; yes. Mr. Douglas. And you think its size adds to rather than detracts from its value ? 898 INVESTIGATION OF INSURANCE COMPANIES. Mr. McNeil. Yes. Some argue if you hare a corner and take a narrow strip off of the corner it is more valuable. I argue, on the other hand, that this lot is large enough to build a suitable office building upon it. Mr. Douglas. I will ask you if you do not know, in your experience as a real estate man, that the proper way to compute the value of an alley, in order that it may be added to the value of the property, is to add the value of the alley itself by its width, plus its full depth — I do not mean the full depth to Fourteenth Street, but the full depth of this property? Mr. McNeil. Well, that is true somewhat, under the regulations. You are able to build out to the side line bj the fact of the alley. Mr. Douglas. I am not talking about that ; but here is an alley to the north of this building — all its windows on the north open right on this 20-foot alley, do they not ? Mr. McNeil. They do. Mr. Douglas. Plenty of light and plenty of air ? Mr. McNeil. Oh, yes. Mr. Douglas. And the absence of that alley would subtract very largely from the value of this lot, would it not ? Mr. McNeil. It would. Mr. Douglas. There is no such alley surrounding or passing by the Union Trust Building, is there? Mr. McNeil. Not any of the other corners, except the Shoreham has an alley, but I don't think it is so wide. Mr. Douglas. If the Shoreham lot is worth $50 a foot, this is too, isn't it? Mr. McNeil. Yes ; on that supposition it is. Mr. Douglas. I put it in just that way. Mr. McNeil. Yes ; if the Shoreham lot is worth $50, this lot would be worth $50. Mr. Douglas. And you say that the building of the Southern Build- ing itself improves the value of the bare ground itself — the fact that they are brought in conjunction ; that is true, is it not? That is con- sidered an element of value in real estate, is it not ? Mr. McNeil. After a permanent improvement of real estate is made I think you have to take into consideration the revenue obtained from the improvement in valuing both the ground and the building. That is my own idea of the value. Mr. Douglas. It would be safe, do you not think, Mr. McNeil, to capitalize this building upon a 4 per cent basis ? Mr. Bebger. Upon what? I did not catch that. Mr. Douglas. Upon a 4 per cent basis ; capitalized on a 4 per cent basis. Mr. McNeil. You are getting me into a difficult field there. Mr. Douglas. You do not care to express an opinion as to that ? Mr. McNeil. No, sir; I would rather not. Mr. George. I would just like to ask a question or two, so as to make that clear to me. Given the Stellwagen corner, the Union Trust Co. Building, and this Southern Building corner, is it your contention that, because the Union Trust Building lot is a long, narrow lot and the other is a large, ample lot, that the square-foot price or value of INVESTIGATION OF INSURANCE COMPANIES. 899 the Southern property ought to be higher than the Stellwagen cor- ner, other things not being considered? Mr. McNeil. It is more valuable if you use it for an office build- ing, in my judgment, because it makes a more valuable office building. Mr. George. Both corners are used as office buildings ? Mr. McNeil. Yes. Mr. George. Your judgment is that the square-foot value of the land would be higher for the Southern Building than for the Union Trust Co. Building because one is of better form — you can put up a better and more economical building? Mr. McNeil. Yes ; a more economical building and better adapted for office-building results. Mr. George. So you would judge that the square-foot value of the Southern Building ought to be higher for the ground itself — not the building, but the ground itself — than the Union Trust land ? Mr. McNeil. Yes; that is the opposite of the theory of some with regard to a corner, you understand. Mr. George. I am asking you about the hypothesis upon which you are going. Mr. McNeil. Yes ; that is my own idea about an office building. Mr. Rediteld. Are there any further questions? Mr. Douglas. I have just one more question, Mr. Redfield. Mr. McNeil, in your experience with this property, from the time you got authority to sell it to the time you withdrew from it, had you ever heard of the Commercial Fire Insurance people, Tuttle, Wightman & Dudley, and these other gentlemen now controlling that corporation ? Mr. McNeil. No, sir; I never heard of them in any connection with it in any way whatever. Mr. Redheld. Are there any further questions, Mr. Berger? Mr. Berger. No, sir. Mr. Redfield. The witness will be excused. Mr. McNeil. I hope I made that clear about the agency of the church people, because there seems to have been a misunderstanding about that, and if it were necessary I would like to recall the officers to put it right. Mr. Redfteld. It was testified that there were others who tried to sell it. Mr. McNeil. Cardinal Gibbons sent me with a letter to Mgr. Lee. Mr. Douglas. Did Cardinal Gibbons authorize you to sell this property ? Mr. McNeil. Verbally, he did ; and sent me with a letter of intro- duction to Mgr. Lee to make arrangements for the purpose. Mr. Douglas. That was the year before you sold this property ? Mr. McNeil. That was the year previous; and I told Mgr. Lee that it was a panic year and it would be impossible to take up a sale of a large property of that sort, but that when I came back next year I would see what I could do. Mr. Douglas. You kept pretty busy on it until you did make a sale? Mr. McNeil. I worked on it from the time I came back until I made the sale, and I think I fully earned my commission. Mr. Redfield. You are excused, Mr. McNeil. 900 INVESTIGATION OF INSUKANCE COMPANIES. TESTIMONY OF MR. ROBERT H. McNEILL. Witness was duly sworn by the acting chairman. Mr. Eedfield. Will you please state to the committee your full name and occupation? Mr. McNeill. Eobert H. McNeill, lawyer, with offices in the Southern Building'. Mr. Eedfield. Mr. McNeill, you have heard the testimony of the morning, have you not? Mr. McNeill. I have heard Mr. Alexander McNeil's testimony and Mr. Bell's testimony. I got in about 11 o'clock, sir. Mr. Eedfield. You know, in substance, what the subject matter of that testimony was? Mr. McNeill. Yes^ sir. Mr. Eedfield. Will you kindly, as briefly as you can and in your own way, relate what you know of these transactions that have been mentioned here ? Mr. McNeill. In so far as the testimony of Mr. Alexander McNeil goes, his recollection and mine are identical as to the transactions between him and myself. As to the Southern Building, the history of that is substantially this, and I shall be as brief as possible, and you can interrogate me after I finish. I am very anxious to get to the court of appeals, having an engagement this afternoon in that court. Mr. McNeil came to me in the matter when it was first considered and asked me what I thought of that corner. I told him that I thought it was a good corner, but I was not able to invest in a valu- able piece of real estate like that. He and I became acquainted simply by the fact that we had simi- lar names; that is, the names are pronounced the same. I came from the South as secretary to a Senator, and remained to practice law here. He came from Canada. He hunted me up prior to this — several years, two or three years — and we became acquainted because of our names having the same pronunciation. We became good friends. He found this property for sale — the church had asked him to sell it — and he attempted to interest me in it. After I made him understand that I was not financially able to buy a piece of property so valuable as that, he discussed with me the organization of a syn- dicate, and I told him I would see what I could do about that. He said we could get a temporary option on it for a thousand dollars^ and he thought we could get it for $400,000 total price. I made some inquiry around town, and I developed that that was a fair price for the property at which a person might buy it and make a profit on a resale. I remember Mr. McNeil urged me to take hold of it with a small deposit on that ground — that we might resell it during the life of the option, and that he would assist me in resell- ing it if I would organize the crowd to put up the small sum of $1,000. I went to Mr. Douglas, who was a friend of mine then and yet, and told him about it. He had been in Washington longer than I had, and he hesitated about going into it. He saidlie had no thousand dollars to throw away, but thought it over a day or two and then asked his two friends, Mr. Baker and Mr. Leckie, to join us in put- INVESTIGATION OF INSURANCE COMPANIES. 901 ting up the thousand dollars. I remember that I put up the thousand dollars and then these gentlemen refunded to me $750 of it and we carried that option for 30 days, and at the end of that time we had done nothing with it. We had a prospect, however, that had developed in the meantime in connection with selling it to the South- ern Commercial Congress. That organization was just then taking on form in Washington. Mr. Douglas happened to know Mr. Charles Hall Davis, one of the interested people, and Mr. Meek. I think I also knew Mr. Meek. During the life of our option they had evinced some interest in building a building in Washington, so we got an extension, as I remember it, of 30 days on our option. In the meantime we inter- ested these people in our proposition, and the terms upon which we- interested them were substantially these : That we would sell them the property at $23 a foot, which would give us a profit, on paper at least, of about $110,000. I recall that Mr. Davis communicated with Mr. Parker, president of that association at that time, and, if I recollect the facts aright,. Mr. Parker requested an appraisement of the property. Anyhow, I know appraisements from various gentlemen were had of the- property, and it was generally averaged at from $23 to $25. Mr. Davis and his associates decided that was a fair price for it. Prior to endeavoring to sell it, however, to them, Mr. Alexander McNeil and myself interviewed several real estate people, among them Mr. Bell, who was on the stand this morning. We asked Mr. Bell the direct question if the property was worth $18 a foot, or, if" not, what it was worth. He said in his opinion it was worth $20 a foot to anybody that was able to hold it, and he thought it was worth from $23 to $25 a foot to anybody that was able to improve it and operate it as a revenue property. Largely upon that opinion, Miv Douglas and our other associates determined we would hold on to it until we sold it, if we could ; so we got another 30 days' continuance of our first option, as I said. After we reached an agreement with the Southern Commercial Congress people, they gave us a trust agreement. We passed title to them to the property, Mr. A. E. L. Leckie and myself, who had taken title for the benefit of Mr. Douglas, Mr. Meek, Mr. Baker, and ourselves. We passed title to them. We passed it with a trust agree- ment from them to us, which was never recorded, that they would pay us within a fixed time — I do not recall the time, as I have not seen that agreement for quite a long time Mr. Douglas .(interposing). You mean the agreement between Parker and Davis? Mr. McNeill. Yes; representing the congress — that they would ^ within a fixed time, pay us $110,000 as our profit in the transaction. I might say here that we let them understand fully just what we had paid for the property, and just when we had paid it, and from whom we had bought, and we left nothing concealed, but gave them the whole history of the transaction. Subsequent to this agreement, they undertook to raise certain moneys. We had agreed to pay Cardinal Gibbons an additional amount of money, amounting to $50,000 in all, I believe, within a fixed time ; I do not recall just how long, but several months. The» 902 INVESTIGATION OF INSI7BANCE COMPANIES. second payment we had made of $9,000, which had given us an addi- tional breathing space. We raised that money among ourselves. Mr. Davis and Mr. Parker began a campaign to raise the money to buy the property for the Southern Commercial Congress. They interested a few of their personal friends, and could interest the public very little. They sold a little of their membership certificates in Florida, one or two in Alabama, one or two in North Carolina, and could get no further. We had no mortgage on the property but a trust agreement. We discussed whether we should record that and hold it in the nature of a mortgage; but we felt that these gentlemen had come in with ns to the purchase of the property as an eleemosynary organization, and we did not want to take advantage of them. We proposed, and they agreed upon, the formation of the Southern Building Corporation, and that our profits should be represented by preferred and common stock, the common stock as a bonus, being given with every share of stock that was sold to anybody. Mr. Redfield. How much? Mr. McNeill. Fifty per cent, the same given to us as was given to the other purchasers ; and I think it is apparent and obvious that had we not agreed to give them this preferred stock they could not have gotten anything for their holdings, because we had a trust agreement in the nature of a mortgage which required them to pay us so much or be foreclosed. We organized the Southern Building Corporation. I was not in Washington at the time it was organized, but I, by my request and consent, was made a director of the company. Subsequently I was made secretary of the company, and after that we made certain con- tracts with Mr. Schneider, who had been designated from the begin- ning as our architect and subsequently as our builder. We went to New York to get loans. We asked the Thompson- Starrett Co. to assist us in that matter. They offered to do so, and they took the matter before them for several months, but realized no result in the way of a first-mortgage building loan. I got impatient about it. I was pretty well tied up in the proposi- tion. Mr. Leckie and myself had, improvidently I suspect, signed the second mortgage to Cardinal Gibbons for $190,000. We had given our personal notes for it, and they were coming due. I remember a very interesting incident with respect to it. Mr. Leckie, who is here, came into my office one day with notice of the maturity of that note for $190,000 at Mr. Bell's bank. He said, " McNeill, look what sort of credit I have in Washington." [Laughter.] It got uncomfortably near maturity, and finally matured, and we still had not gotten the loan; so I went over to New York probably a dozen times at my own expense, and spent probably a month there altogether, negotiating for this loan, and finally procured the D. H. Burnham Co. as architects to assist in getting the loan, and Mr. Graham, of that firm, and Mr. Horowitz, president of the Thompson- Starrett Co., and myself closed negotiations for an $800,000 loan after I personally had gotten commitment for it. I had known Mr. Day while he was in the Department of Justice here — I was secre- tary to a Senator who was a close friend of his — and he gave the matter very careful consideration and finally told us if we would INVESTIGATION OF INSUBANCE COMPANIES. 903 arrange the building contract and get the right sort of architects they would lend us $800,000. After that I reported back to our board that we could get that loan with Burnham & Co. as architects. That caused the breach with Mr. Schneider. We had to eliminate him to get the loan. We could not get it, in our judgment, without that. Hence that incident which Mr. Alexander McNeil has related here. We removed Mr. Snyder as architect of the building and employed Burnham, and proceeded then to build the building. We got to a certain point in the construction, and we found we were lacking in funds to complete. It was then that we thought of putting a second mortgage on, or rather we had already authorized the second mort- gage, but arranged to sell a large part of it to the Richmond Realty Corporation^ which was formed about that time. They bought, for ^§0,000, $200,000 of these second-mortgage bonds. My recollection is that they got $75,000 in preferred stock and $75,000 in common stock as a bonus with that purchase, or rather that we sold the block of securities for $150,000. This committee may think, as others have thought, that that was a low price for those securities, but they do not think it any more strongly than I thought it at that time, and I protested at the price ; t»j,t we could not, sell securities in Washington at any price. We tried everybody here, and we could not get any money elsewhere, and we would have lost everything we had m it, as would the Richmond people, had we not accepted their proposition. So, instead of resent- ing the fact that we got a bad bargain out of it, we thought that they had saved us the possibility of not making anything in the final analysis of the proposition. While I think now the bonds were then worth more than that amount, and thought so then, and I think now the stock would have been a good investment at a better price than we got for it with those bonds, yet here in Washington you can not finance a proposi- tion on a second mortgage under any circumstances; at least, that has been my experience for about five years. We sold those bonds, and we went on with the work. Later we found another danger of deficit ahead of us and called upon our Kehmond people, who were really the controlling agencies in the company, to assist us further with further money in the way of loans. They did not agree to the plans I had, which were to sell certain second mortgage bonds in our treasury at a higher price than we had gotten before, but they proposed a third mortgage of $325,000,, for which they would give $200,000, with certain stock bonuses. Mr. Redfield. -Can you state what those were? Mr. McNeill. About 50,000 or 55,000 of preferred and about 25,000 common. I speak from memory, Mr. Redfield. This made a total that they held at the time they closed the pur- chase qf these third-mortgage bonds, of $130,000 of preferred stock and about $130,000 of common stock. Mr. Redfield. All of which they received as bonuses? Mr. McNeill. I will not call them bonuses. You may call them what you please. Under the Virginia laws, a corporation may bunch its securities and sell them all for a lump sum. Mr, Redfield. Can you recapitulate the total amount of bonds they have? 304 INVESTIGATION OF INSURANCE COMPANIES. Mr. McNeill. $325,000 of thirds, and $200,000 of seconds. Mr. Redfield. Then, if I am correct, the total face value of secur- ities is $755,000? Mr. McNeill. That is substantially correct. Mr. Redfield. For which the net amount received by the Southern Building Corporation was what? Mr. McNeill. $350,000. Mr. Douglas. You say $755,000? Mr. McNeill. Counting the common stock and preferred stock, ■which were $230,000. Mr. Douglas. Oh, I thought you meant bonds — $325,000 third- mortgage bonds ? Mi-. McNeill. Yes : $325,000 of third-mortgage bonds. Mr. Douglas. And $200,000 of seconds? Mr. McNeill. Yes. I made myself clear about it. I might say for the record that I resisted the price on those last securities, as did all my Washington associates. Mr. George. You did what? Mr. McNeill. I resisted the sale at that price up to a point where we could not sell them unless we took that price. Mr. Douglas. Who else resisted ? Mr. McNeill. Mr. Douglas resisted just as strenuously as I did, and Mr. Leckie, and Mr. Baker, and Mr. Meek. It seems, gentlemen, there was a sort of psychological situation there. The Richmond people had bought the bonds for the profit there might be in them, and they had taken the stock without considering it of any consid- erable value- We always thought their minds were bent on making the bonds valuable, while our minds were bent on making the stock valuable: so in Washington we fought for high prices for the bonds in order that the stock might be better and they fought with us for low prices on the bonds, not considering their stock holdings of any substantial value. We simply submitted to their prices because we could not get anybody here or elsewhere to take them at any price. I had personally induced some of my friends to go into this enter- prise and pay par for their stock — not in a very large amount, but $10,000 or $12,000 ; and I did not want to see them lose, because I felt morally bound to make good to them if they did. Mr. Redfield. You finished up the building with this money? Mr. McNeill. We finished putting up the building with this money; yes. Then we were in the Richmond Realty Co., some of us Mr. Douglas (interposing). May I ask just one question in that connection ? Mr. McNeill. Yes, sir. Mr. Douglas. Is it not true that as these bonds were offered for sale in both instances, both the seconds and thirds, that they were offered to the stockholders themselves first? Mr. McNeill. We not only did that, but at the time we held our stockholders' meeting, providing for the sale of these securities, we sent out very long detailed letters describing in a very accurate way just what we were offering and at just what price, and asking the stockholders to participate in the purchase of the securities at the price. I sent those letters out, as secretary of the company, myself* INVESTIGATION OF INSURANCE COMPANIES. 905 Mr. Redfield. Will you describe the process by which the Rich- mond Realty Co. obtained control of the Southern Building Corpora- tion ? Mr. McNeill. It never did have voting control, but it had nearly 50 per cent of its stock ; it had probably 40 per cent. I think I am right when I quote Mr. Harriman as saying that 40 per cent usually gives control. Mr. Redfield. Were you interested in both companies? Mr. McNeill. Yes, sir ; I was a director in the Richmond Realty Corporation until along in the summer. Mr. Redfield. Was Mr. Douglas a director in the Richmond Realty Co.? Mr. McNeill. Yes, sir ; he was in both. Mr. Redfield. Was Mr. Carusi interested in either company ? Mr. McNeill. Not to my knowledge. Mr. Redfield. Are you interested as a stockholder in the Commer- cial Fire Insurance Co. ? Mr. McNeill. No, sir ; not at all. - The fact is I have not the very kindliest feelings for them ; but I do not want my testimony colored against them or for them, in any event. Mr. Redfield. Are you interested as a stockholder in the First National Fire Insurance Co. of the United States ? Mr. McNeill. No, sir. Mr. Redfield. Have you any connection, professionally or other- wise, in business with any of the officers or directors of these two companies ? Mr. McNeill. No, sir — I will not say directors ; I do not know who they are. If I have, I do not know it. Mr. Redfield. Did I understand you to say you have not a friendly feeling toward the Commercial Fire Insurance Co. ? Mr. McNeill. I feel this way about it : They have recently under- taken to cancel a lease I have on my office space in favor of another tenant, which I did not appreciate, so right now my feeling is not very pleasant. I probably ought not to have any feeling about it, but I have had. . Mr. Douglas. In order that there may be no misunderstanding about it, all the trouble about the lease proposition was that they wanted the space and made you an offer to purchase your lease ? Mr. McNeill. That was subsequently. We did reach an adjust- ment whereby I am going to sell my lease to them. I should not have lugged that in, but it flashed over me for a moment. Mr. Redfield. I do not think the committee will give that very serious consideration in connection with your testimony in this matter. Did you sell your stock in the Southern Building Corporation ? Mr. McNeill. I am glad you asked that question. During the proceedings in this matter Mr. Leckie had some friction with one of our associates, and he wanted to get out Mr. Redfield (interposing). With whom? Mr. McNeill. With Mr. Baker. Mr. Redfield. Mr. Leckie wanted to get out ? Mr. McNeill. Yes ; and he proposed to sell his stock to me. He bad $18,000 worth of the preferred stock and $0,000 of the common stock. I bought it from him at 37 cents on the dollar. Mr. Redfield. You mean for the preferred? 906 INVESTIGATION OF INSURANCE COMPANIES. Mr. McNeill. Yes, sir; and the common as a bonus. I bought, as representing Mr. Douglas and our other associates, the Alexander McNeil stock at 31 or 32, with the privilege of repurchase within six months at 6 per cent interest on the stock. I sold all my stock at a loss of 7 cents on the McNeil stock and 12 cents on the Leckie stock, and carried it for three years. Mr. Eedfield. To whom did you sell ? Mr. McNeill. I -figured that I got altogether out of the whole transaction for three years' work, two months of it spent in New York, between $4,000 and $5,000 profit. Mr. Eedfield. To whom did you sell your stock ? Mr. McNeill. To Mr. Carusi, through Mr. Story. Mr. Eedfield. Through Mr. John P. Story, jr.? Mr. McNeill. Yes, sir. Mr. Eedfield. What was the occasion for the sale? Mr. McNeill. He came to me and offered so much money for it, and I accepted it. I might say the Eichmond Eealty Co. had indicated a desire that we should sell and said if we did not sell they should not consider themselves responsible for carrying the local debts of the company, which were considerable, and we had two mortgages besides the first on it, and I was not able to take care of them when they matured, and I did not see any certainty of somebody else doing it for me, and I thought a foreclosure might embarrass us, and I got an agreement whereby my friends, whom I had gotten into it, should get par for their stock, every one of them, and I sold my stock at 25 cents on the dollar and got par payment for my friends. Mr. Eedfield. What reason did Mr. Carusi give to you, if any, for wishing to buy the stock? Mr. McNeill. He did not see me at all about it. Mr. Story dealt with me entirely. In fact, I did not know to whom I was selling when I sold. Mr. Eedfield. Did Mr. Story write you any letter with reference to the matter ? Mr. McNeill. No, sir ; he saw me personally. Mr. Eedfield. What representations as to the value of the com- pany's property did Mr. Story make to you ? Mr. McNeill. In a general way, he argued with me that I was fetting a fair price for my stock. I do not recall that he expressed imself as to the value of the building or ground, except to say that he thought, in view of the debts and burdens of the company, that was as much as the stock was worth. Mr. Eedfield. So Mr. Story represented to you that 25 cents on the dollar was all the preferred stock of the building corporation was worth? Mr. McNeill. Yes, sir; and I ultimately agreed with him under all the conditions ; not that I did not believe it was worth par. I be- lieve now the preferred stock was worth par had the building been built by people who were able to carry it. I fixed my own valuations at the time I sold, in my own opinion, I might say, at $1,750,000, the value of the ground and building. Mr. Eedfield. What time was this? Mr. McNeill. That was about two or three months ago. INVESTIGATION OF INSUKANCE COMPANIES. 907 Mr. Redfield. On that valuation do you realize what your stock would have been worth ? Mr. McNeill. It would have been worth par. Mr. Redfield. And if that property is worth $2,000,000, your stock would have been worth more than par ? Mr. McNeill. Yes, sir ; my common stock would have been worth more than par. Mr. Redfield. But you, though familiar with the property and its conditions, accepted 25 Cents on the dollar ? Mr. McNeill. Yes, sir. Mr. Peouty. How much preferred stock was there? Mr. McNeill. That I sold ? Mr. Peouty. No; altogether. Mr. McNeill. $300,000 of preferred and $200,000 of common. Mr. Bebgeb. How much did you sell ? Mr. McNeill. I held about $40,000 of preferred and about $25,000 of common. Mr. Beegee. $65,000? Mr. McNeill. Yes, sir ; I was the heaviest holder in the company. Mr. Redfield. You were the largest stockholder ? Mr. McNeill. That is, except the Richmond Realty Corporation. Isold my home to buy this Leckie stock. Mr. Peouty. Did both the preferred and common stock have vot- ing power ? Mr. McNeill. Yes, sir; equal. I would like to file here copies of the various deeds with respect to transfers of this property and my connection with it, entirely show- ing the execution of deeds to Davis, and Davis to the Southern Build- ing Corporation. The deeds in question are set forth at the close of Mr. McNeill's testimony. Mr. Peottty. I am not quite done with the line of thought I was trying to develop. They bought your stock at 25 cents on the dollar? Mr. McNeill. Yes, sir. Mr. Beegee. That is the preferred ? Mr. Peouty. The preferred; yes; and they did not pay anything for the other stock ? Mr. McNeill. No, sir. Mr. Peouty. And so far as you know they did not pay for any of that stock ? Mr. McNeill. I think they did not. Mr. Redfield. They got that with the preferred ? Mr. McNeill. Yes, sir. Mr. Peouty. How much of yours did they buy at 25 cents? Mr. McNeill. All of it. Mr. Peouty. How much was that ? Mr. McNeill. About $40,000 preferred and— Mr. Peouty (interposing). Just leave that other out. That would leave 260,000 shares of preferred besides that? Mr. McNeill. Yes, sir. Mr. Redfield. Do you know what they paid for that ? 71391— No. 10—13 4 908 INVESTIGATION OF IXSUBANCE COMPANIES. Mr. McNeill. $130,000 of that they bought from the Richmond Realty Corporation for $20,000. Mr. Berger. $130,000 for $20,000? Mr. McNeill. Yes, sir. Mr. Berger. How much is that ? Mr. McNeill. In other words, to make myselk clear, they bought $100,000 of third-mortgage bonds which the Richmond Realty Cor- poration held, and $130,000 of preferred stock, and about $100,000 in round numbers of common stock, for $120,000. Mr. Proutt. Go over that again. Mr. George. For the whole thing ? Mr. McNeill. Yes, sir. Mr. Redfield. State that again. Mr. McNeill. They bought $100,000 of third-mortgage bonds, $130,000 of preferred stock, and $100,000, in round numbers, of com- mon stock for $120,000. Mr. Redfield. You say '•they.'" Do you mean Mr. Carusi and his associates? Mr. McNeill. Mr. Story for Mr. Carusi and his associates. Mr. Douglas. Do you mean to say you know he was acting for Mr. Carusi? Mr. McNeill. I know Mr. Story told me that and Mr. Sands told me that. I am not swearing to the exact men, but that is my recol- lection. Mr. Douglas. I am not asking about men; I am asking about the agency. Mr. McNeill. No ; I do not pretend to know anything about that, Mr. Douglas. You do not know whether Mr. Story was acting for himself alone or for Mr. Carusi ? Mr. McNeill. Not at all. I do not pretend to know anything about it. Mr. Sands advised me they had sold to Mr. Story, and I sold to Mr. Story. What the agency was I do not know and do not pretend to know. Mr. Redfield. So that if I understand you correctly, the sum of $120,000 was paid by Mr. Story to the parties he represented for $330,000 par value of securities of the Southern Building Corpora- tion? Mr. McNeill. That is substantially correct. Mr. Redfield. Of which $100,000 was third-mortgage bonds, $130,000 was preferred stock, and $100,000 was common stock? Mr. McNeill. Those, in round numbers, are correct. Mr. Proutt. How, from that, do you deduce the fact that they paid $20,000 for the preferred stock? Mr. McNeill. My understanding was that the terms of the agree- ment were that they should buy at par the $100,000 of third-mortgage bonds and that they would buy all the stock held by the Richmond Eealty Corporation for $20,000, and I think I voted for that propo- sition at a meeting of the board of directors of the Richmond Realty Corporation. The Richmond Realty Corporation always insisted the stocks had no substantial value, and that is why they were willing to sell them for so little. Mr. Proutt. Does the Richmond Realty Corporation hold any securities of the Southern Building Corporation now? INVESTIGATION OF INSURANCE COMPANIES. 909 Mr. McNeill. Yes, sir; it holds all the second and third bonds practically, except this $100,000. It holds $225,000 of the second- mortgage bonds and $225,000 of third-mortgage bonds. Mr. Redfield. The Southern Building Corporation has been dis- solved, has it not? Mr. McNeill. I understand so, though I am not familiar with what has happened since I sold out. Mr. Redfield. The Richmond Realty Corporation holds these securities against a company in process of liquidation? Mr. McNeill. You will have to get that from others. I am not familiar with that. It holds the securities. Mr. Redfield. Who are the directors of the Richmond Realty Cor- poration ? Mr. McNeill. At this time? Mr. Redfield. Now, or at any time during that transaction. Mr. Peouty. I wish you would allow me to develop my thought. I want to develop just one thing that I have started after now. Mr., Redfield. Certainly ; pardon me. Mr. Peouty. They got $40,000 of this stock from you ? Mr. McNeill. Yes, sir. Mr. Peouty. They got $130,000 from the Richmond Co. ? Mr. McNeill. Yes, sir. Mr. Peouty. Did they acquire the remaining $130,000 of the pre- ferred stock? Mr. McNeill. How much of it they acquired I do not know, but I understood they had acquired it all. Mr. Peouty. You do not know from whom or at what price ? Mr. McNeill. I know of $20,000 additional stock they bought through my own agency. Mr. Peouty. At what price? Mr. McNeill. About $10,000 at par and about $10,000 at 25 cents on the dollar. Mr. Beegee. Those are the friends you had reference to, Mr. McNeill? Mr. McNeill. Yes, sir. Of course, I understand in a general way that they bought Mr. Baker's stock and Mr. Douglas's stock and Mr. Meek's stock — those three gentlemen probably owned $60,000— at 25 cents on the dollar. Mr. Geoege. $60,000 representing par? Mr. McNeill. Yes, sir ; par value $60,000 at 25 cents on the dollar. Mr. Beegee. And that was preferred stock? Mr. McNeill. Yes, sir. Mr. Peouty. Mr. Douglas and Mr. Carusi, will it be shown what your companies put into this property ? Mr. Caeusi. Yes, sir. Mr. Douglas. Oh, yes. Mr. Caeusi. It can be developed at just this point when we ques- tion the witness. Mr. Redfield. The committee wants to adjourn at this time. Mr. Caeusi. If you will give me about two minutes, Mr. Redfield, I think I can complete this witness's examination. Mr. Douglas. I do not know that I shall have any questions for Mr. McNeill at all. 910 INVESTIGATION OF INSURANCE COMPANIES. Mr. McNeill. I would appreciate it if I can be excused. I can come back, however, if necessary. Mr. Cartjsi. It will only take me a moment to complete my exam- ination. I want to clear up the impression you have given, Mr. McNeill, that in any correct sense of the word Mr. Story bought your stock or any- body else's stock as my agent or as the agent of my associates. Did you not know that I entered into a written contract with Mr. Story whereby it was agreed that he should receive $150,000 for $300,000 of the preferred stock of this company, provided he could deliver not less than 66| per cent of both the preferred and common stock? Mr. McNeill. No, sir ; I did not know that. Mr. Cartjsi. Was not that fact communicated to you ? Mr. McNeill. No, sir ; I did not know that before. Mr. Cartjsi. I will ask the committee that when I produce to-mor- row the agreement between myself and Mr. Story, whereby I was to buy and he was to sell to me the stock which he proposed in turn to acquire by purchase or otherwise, that it may be inserted in the record at this point. Mr. Bedeield. That may be done. Memorandum of agreement between Charles F. Carusi, party of the first part, hereinafter called the buyer, and John P. Story, party of the second part, hereinafter called the seller, both of Washington, D. O. Witnesseth, that said parties, for and in consideration of $10 in hand mutu- ally paid by each to the other, do agree as follows : Said buyer hereby agrees to purchase and said seller hereby agrees to sell to said buyer all of the stock which he can obtain in the Southern Building Corporation, not less than 67 per cent in amount of the preferred stock, with a pro rata amount of the issue of common stock, and said buyer agrees to pay therefor the sum of $50 per share for each share of preferred stock so delivered. The buyer agrees to make payment immediately at the Riggs National Bank upon notification that not less than 67 per cent of said preferred and common stock has been deposited by said seller, and to pay for such additional stock as may be from time to time deposited by said seller within 30 days from the date of this agreement; provided, however, that said buyer after 20 days from the date hereof may terminate this obligation to take any shares not delivered or legally committed, by the payment of $10 per share for any amount not exceeding 10 per cent of said preferred stock, without charge to said seller of any part of said expenses hereinafter provided as to said undelivered stock. Said buyer agrees to take any of the committee stock hereinbefore mentioned, provided the same be delivered within said 30 days. Said buyer shall reserve from said purchase price such percentage of $30,000 as the stock delivered bears to the total issue of stock, for the purpose of mak- ing payment of the following obligations of the Southern Building Crporation : $6,000 note due in December, $11,000 bond obligation represented by note, $9,750 interest due in October ; $1,500, fees due firm of Douglas, Baker, Ruffln & Obear, together with any interest due on the above items. Said buyer will refund to the seller any portion of said part of $30,000 so reserved and not used in liquidating the above obligations. Said buyer further agrees to repay to said seller the proportionate part of the value of the equity in a small house owned by said Southern Building Cor- poration, which may be received by said buyer from any dividend upon his stock in the liquidation of said company. Said buyer further agrees to pay for and put in way of cancellation $100,000 of the third issue of bonds of said Southern Building Corporation, which obli- gation is a part of the consideration for this agreement. Witness our hands and seals this 10th day of September, A. D. 1912. . [SEAL.] John P. Stobt. [seal.] INVESTIGATION OF INSURANCE COMPANIES. 911 Mr. McNeill. I recall Mr. Story saying to me once or twice "that he had an agreement with you to buy as much as two-thirds of the stock, but he never did tell me for what price per share or what total sum he was to pay. Mr. Carusi. He was buying it on his own account, was he not, for the purpose of resale to me ? Mr. McNeill. So far as I know. All the papers I gave him were in his own name. I gave him an option in his own name. Mr. Carusi. Do you not know that he bought stock that he resold to me at various prices, in some cases paying par, and particularly to those persons who themselves had paid par for the stock that they had bought of the Southern Building Corporation ? Mr. McNeill. Certain people had paid cash for their stock, includ- ing my clients ; certain others had gotten their stock at a profit on the resale of the building; certain others had come into it as mem- bers of the Southern Commercial Congress. The Richmond Realty Corporation had a big block. He paid in price, to my knowledge, varying from 15 cents, or about that, for what he bought from the -Eichmond Realty Corporation, to par, which was paid to about 8 or 10 of my clients, who had about a thousand dollars apiece in the transaction. Mr. Caeusi. You do not know, do you, just how much Mr. Story made Out of his purchase of .the stock? Mr. McNeill. No, sir ; but if he made as much as your proposition indicates I would have tried to have gotten more for my stock. Mr. Carusi. He will be called as a witness. I do not know myself how much he made. Witness excused. Mr. Redfield. The committee will take a recess at this time until 2.15 this afternoon. Thereupon, at 12.45 o'clock p. m., the committee took a recess until 2.15 o'clock p. m. Copies of papers introduced in evidence by Mr. R. H. McNeill : This deed, made this 25th day of February, in the year one thousand nine hundred and nine, by and between James Gibbons, of the city of Baltimore, in the State of Maryland, acting hereiD in his individual capacity and as James (Cardinal) Gibbons, Archbishop of Baltimore, a corporation sole, party of the first part, and Robert H. McNeill and A. E. L. Leckie, both of the city of Wash- ington, District of Columbia, parties of the second part. Witnesseth, that in consideration of ten ($10) dollars, the party of the first part does grant unto the parties of the second part, in fee simple, all those pieces or parcels of land in the city of Washington, District of Columbia, de- scribed as follows, to wit: Lot numbered forty-four (44) of the subdivision of lots in square numbered two hundred twenty (220) made by James Gibbons, Archbishop of Baltimore, as per plat recorded in Book 24, page 142, in the office of the surveyor for the District of Columbia, together with the improvements, rights, privileges, and appurtenances to the same belonging. And the said party of the first part covenants that he will warrant specially the property hereby conveyed ; and that he will execute such further assurances of said land as may be requisite. Witness my hand and seal the day and year hereinbefore written. [seal.] James Gibbons. [seal.] Archbishop of Baltimore. In presence of — Wm. B. Matthews, Jr. 912 INVESTIGATION OF ISTSTIKANCE COMPANIES. District of Columbia, to wit: I, Wm. B. Matthews, jr., a notary public in and for the District of Columbia, do hereby certify that James Gibbons, acting in his individual capacity, and James (Cardinal) Gibbons, Archbishop of Baltimore, a corporation sole, party to a certain deed bearing date on the 25th day of February, 1909, and hereto annexed, personally appeared before me in said District the said James (Car- dinal) Gibbons, in his individual capacity and as Archbishop of Baltimore, being personally well known to me as the person who executed the said deed, and acknowledged the same to be his act and deed. Given under my hand and seal this 25th day of February, A. D. 1909. Wm. B. Matthews, Jr. This deed, made this twenty-fifth day of February, A. D. 1909, by and be- tween Robert H. McNeill and Cora B. McNeill, his wife, and A. E. L. Leckie, all of the District of Columbia, parties of the first part, and O. H. Perry John- son and James M. Baker, both of said District of Columbia, trustees, parties of the second part ; Whereas the said Robert H. McNeill and A. E. L. Leckie are justly indebted unto James Cardinal Gibbons, archbishop of Baltimore, in the full sum of one hundred and ninety thousand ($190,000.00) dollars, deferred purchase money on the land and premises hereinafter described, for which said sum they, the said Robert H. McNeill and A. E. L. Leckie, have made and delivered their one certain joint and several promissory note, bearing even date with these presents, payable on or before November 1, 1909, to the order of James Car- dinal Gibbons, archbishop of Baltimore, with interest payable at maturity at the rate of four and three-quarters per centum (4J%) per annum; And whereas the parties of the first part desire to secure the prompt pay- ment of said debt and interest thereon when and as the same shall become due and payable, and all costs and expenses incurred in respect thereto, including reasonable counsel fees incurred or paid by the said parties of the second part or substituted trustee or by any person hereby secured on account of any litigation at law or in equity which may arise in respect to this trust or the property hereinafter mentioned, and of all money which may be advanced as provided herein, with interest on all such costs and advances from the date thereof ; Now, therefore, this indenture witnesseth : That the parties of the first part in consideration of the premises and of one dollar lawful money bf the United States of America to them in hand paid by the parties of the second part, the receipt of which, before the sealing and delivery of these presents, is hereby acknowledged, have granted and do hereby grant unto the parties of the second part the following-described land and premises, situate in the city of Washing- ton, District of Columbia, known and distinguished as lot numbered forty-four (44) of a subdivision of lots in square numbered two hundred and twenty (220) made by James Gibbons, archbishop of Baltimore, as per plat recorded in book 24, page 142, in the office of the surveyor for the District of Columbia, subject to an existing deed of trust dated November 1st, 1899, and duly re- corded in liber No. 2465 at folio 54 et seq., one of the land records of said District, securing an indebtedness of $160,000. Together with ail the improve- ments in any wise appertaining and all the estate, right, title, interest, and claim, either at law or in equity, or otherwise however, of the parties of the first part, of, in, to, or out of the said land and premises. In and upon the trusts, nevertheless, hereinafter declared, that is to say: In trust to permit said Robert H. McNeill and A. E. L. Leckie, their heirs or assigns, to use and occupy the said described land and premises and the rents, issues, and profits thereof to take, have, and apply to and for their sole use and benefit until default be made in the payment of the promissory note hereby secured, or any installment of interest thereon when and as the same shall be- come due and payable, or any proper cost or expense in and about the same, as hereinafter provided. And upon the full payment of all the said note and the interest thereon, and all moneys advanced or expended, as herein provided, and all other proper costs, charges, commissions, half commissions, and expenses, at any time before the sale hereinafter provided for, to release and reconvey the said described prem- ises unto the said Robert H. McNeill and A. E. L. Leckie, their heirs or assigns at their cost. INVESTIGATION OF INSURANCE COMPANIES. 913 And upon this further trust, upon any default or failure being made in the payment of said note or of any installment of principal or interest thereon, when and as the same shall become due and payable, or upon default being made in the payment, after demand therefor, of any money advanced as herein pro- vided for, or of any proper cost, charge, commission or expense in and about the same, then and at any time thereafter the said parties of the second part, its successors or assigns, or the trustee acting in the execution of this trust shall have the power and it shall be its or his duty thereafter to sell, and in case of any default of any purchaser to resell the said described land and premises at public auction, upon such terms and conditions, in such parcels, at such time and place, and after such previous public advertisement as the parties of the second part, its successors or assigns, or the trustee acting in the execution of this trust, shall deem advantageous and proper ; and to convey the same in fee simple, upon compliance with the terms of sale, to, and at the cost of the purchaser or purchasers thereof, who shall not be required to see to the application of the purchase money; and of the proceeds of said saie or sales : Firstly, to pay all proper costs, charges, and expenses, including all fees and costs herein provided for, and all moneys advanced for taxes, insurance, and assessments, with interest thereon as provided herein, and all taxes, general and special, due upon said land and premises at time of sale, and to retain as compensation a commission of per cent on the amount of said sale or sales ; secondly, to pay whatever may then remain unpaid of said note, whether the same shall be due or not, and the interest thereon to date of payment, it being agreed that said note shall, upon such sale being made before the maturity of said note, be and become immedately due and payable at the election of the holder thereof ; and, lastly, to pay the remainder of said proceeds, if any there be, to said Robert H. McNeill and A. E. L. Leckie, their heirs or assigns, upon the delivery and surrender to the purchaser, his, her, or their heirs or assigns, of possession of the premises so as aforesaid sold and conveyed, less the ex- pense, if any, of obtaining possession. And the said parties of the first part, for themselves, their heirs, executors, and administrators, do hereby agree at their own cost, during all the time wherein any part of the matter hereby secured shall be unsettled or unpaid, to fceep the said improvements insured against loss by fire in the full sum of dollars in the name and to the satisfaction of the parties of the second part, or substituted trustee, in such fire insurance company or companies as the said parties of the second part may select, who shall apply whatever may be re- ceived therefrom to the payment of the matter hereby secured, whether due or not, unless the party entitled to receive shall waive the right to have the same so applied; and also to pay all taxes and assessments, both general and special, that may be assessed against, or become due on said land and premises during the continuance of this trust, and that upon any neglect or default to so insure or to pay taxes and assessments, any party hereby secured may have said im- provements insured and pay said taxes and assessments and the expense thereof shall be a charge hereby secured and bear interest at the rate of 6 per cent per annum from the time of such payment. And it is further agreed that if the said property shall be advertised for sale, as herein provided, and not sold, the trustee or trustees acting shall be entitled to one-half the commission above provided, to be computed on the amount of the debt hereby secured. And the said parties of the first part covenant that they will warrant specially the land and premises hereby conveyed, and that they will execute such further assurances of said land as may be requisite or necessary. In witness whereof the said parties of the first part have hereunto set their hands and seals on the day and year hereinbefore written. Robert H. McNeill, [seal.] Cora B. McNeill. [seal.] A. E. L. Leckie. [seal.] United States of America, District of Columbia, to wit: I, a in and for the District of Columbia, do hereby certify that Robert H. McNeill and Cora B. McNeill, his wife, and A. E. L. Leckie, parties to a cer- tain deed bearing date on the day of , 1909, and hereto annexed, personally appeared before me in said District the said. Robert H. McNeill and Cora B. McNeill and A. E. L. Leckie, being personally known to me as the 914 INVESTIGATION OF INSURANCE COMPANIES. persons who executed the said deed and acknowledged the same to be their act and deed. Given under my hand and seal this day of , A. D. 19 — . [James, Cardinal Gibbons, archbishop of Baltimore, to Dodd & Dobbins. Recorded No- vember 7, 1899, 3.42 p. m. Trust.] This indenture made this 1st day of November, in the year of our Lord one thousand eight hundred and ninety-nine, by and between James, Cardinal Gibbons, archbishop of Baltimore, acting herein in his individual and corporate capacity, party of the first part, and Ainzi Dodd and Edward S. Dobbins, of Newark, in the State of New Jersey, parties of the second part. Whereas said party of the first part, in his individual and corporate capacity, stands justly indebted unto the Mutual Benefit Life Insurance Co,, of Newark, N. J., in the sum of $160,000, for which he has executed and delivered to the said company his one principal promissory note payable at the office of said company in Newark, N. J., five years after date, with interest at 4 per cent per annum until paid, said interest payable in equal installments semiannually. And for the interest on said principal note from the date thereof until maturity the said party of the first part has made and passed his 10 interest notes bear- ing interest after maturity until paid at 4 per cent per annum, the privilege being reserved, in case of sale of the hereinafter mentioned property before maturity of said principal note, of paying said note, with accrued interest to date of payment ; all of said notes being signed by said party of the first part and having his corporate seal thereunto affixed ; said principal note being given for money loaned by said company to said party of the first part, and being desirous to secure the punctual payment of said notes when and as the same shall respectively become due and payable, with interest and costs due and accruing thereon, including such costs and reasonable counsel fees as may be incurred or expended on account of any suit at law or in equity respecting this trust or the debt or property mentioned herein which shall be commenced during the continuance of this trust, as well as any renewals or extensions of said notes or any note or notes hereafter given for interest, covering any exten- sion, with the interest thereon from maturity of the same. Now therefore this indenture witnesseth, that the said party of the first part, for and in consideration of the premises and further the sum of $1 in lawful money of the United States paid to him, receipt of which is hereby acknowledged, has granted, bargained, and sold, aliened, enfeoffed, released, and conveyed, and does by these presents grant, bargain, and sell, alien, enfeoff, release, and convey unto the parties of the second part, their heirs and as- signs, the following-described real estate, situate in the city of Washington, D. C, to wit: AH those certain pieces or parcels of land and premises known and distinguished as and being lots No. 10, 11, 12, 13, 14, and 15 in the subdi- vision of square No. 220, made by the heirs of John Davidson, as said subdivi- sion is recorded in the officer of the surveyor of the District of Columbia in book N. K., pages 61 and 62. together with all the easements, hereditaments. and appurtenances to the same belonging or in anywise appertaining, and all the estate, right, title, interest, and claim whatsoever, whether at law or in equity, of the said party of the first part of any debt or out of the said pieces or parcels of land and premises. To have and to hold the said pieces or parcels of land and premises, with the appurtenances unto and to the use of the said parties of the second part, their heirs and assigns, in and upon the trust nevertheless hereinafter mentioned and declared that is in trust to permit the said James Cardinal Gibbons, archbishop of Baltimore (a corporation sole), his successors and assigns, to use and occupy the said described premise and the rents, issues, and profits thereof, to take, have, and apply to and for his or their sole use and benefit until default be made in the payment of said note or notes, or any of them, or any installment of interest due thereon or any proper cost, charge, commission, half commission, or expense in and about the same. And upon the full pay- ment of said notes and any extensions or renewals thereof, and the interest thereon, and all other proper costs, charges, commissions, half commissions, and expenses incurred by means of these trusts, including counsel fees as afore- said, and any time before the sale hereinafter provided for, to release and convey the said described premises unto the said James Cardinal Gibbons, archbishop of Baltimore (a corporation sole), his successors and assigns, and his or their cost. And upon this further trust, that upon default being made in the payment of any of said promissory notes at maturity, or any installment INVESTIGATION OF INSTJKANCE COMPANIES. 915 of interest due thereon, or any renewal or extension thereof, or any note or notes hereafter given for interest covering any extension with the interest thereon from maturity of the same, or any proper costs, charges, counsel fees, commissions, half commissions, insurance, taxes, or other proper expenses in and about the same, including such costs and reasonable counsel fees as may be incurred or expended on account of any suit at law or in equity respecting this trust or the debt or property mentioned herein as aforesaid, then, and at any time thereafter, to sell the said pieces or parcels of land and premises, or any portion thereof, at public auction, after at least 10 days' notice of the time, place, and terms of sale by advertising in some ore or more newspapers printed and published in the said city of Washington, upon such terms and conditions as the said trustees, or the survivor of them, or the trustees acting, may deem most advantageous to the parties interested ; and with further power to postpone the same from time to time in their or his discretion, and to resell on default of the purchaser. And upon this further trust upon full compliance with the terms of sale to convey the property sold in fee simple to the purchaser or purchasers thereof, at his or their cost and expense and without liability on the part of such pur- chaser or purchasers to see to the application of the purchase money, and out of the proceeds of said sale or sales, first, to pay all proper costs, charges, expenses, and counsel fees as aforesaid, including all taxes, general and special, due, or any arrears on the premises sold, at the time of the sale, and to retain as compensation a commission of 5 per cent on the amount of said sale or sales ; secondly, to pay whatever may then remain unpaid of the said -principal note or notes, whether the same shall be due or not, and such interest on said principal note or notes as may then remain due and unpaid and not represented by any interest note or notes ; thirdly, to pay any and all earned interest repre- sented by any interest note or notes and any accrued interest thereon ; and lastly, to pay the remainder, if any. to the said party of the first part, his successors and assigns. And the said party of the first part does hereby covenant with the parties of the second part, their heirs and assigns, that all taxes upon the said land and all costs and counsel fees as aforesaid shall be duly paid, and that the building on said parcel of land shall be kept insured by the said party of the first part, during the continuance of this trust, in some good and responsible fire insurance company or companies to the satisfaction of the parties of the second part in the sum of at least $10,000, and the policy or policies of insur- ance be assigned and delivered to the said parties of the second part, as trustees under these presents; and further, that the said party of the first part will warrant and defend said premises hereby conveyed unto said parties of the second part, their heirs and assigns, as trustees, and for the purpose of the trust hereby created, and will make any further or other deed of trust, when duly requested so to do, to vest the title of said premises in said parties of the second part, their heirs and assigns, for the uses and purposes and upon the trusts hereinbefore declared ; and that in case the said party of the first part, his successors or assigns, shall fail to pay taxes, costs, and counsel fees as afore- said, or to keep said property insured, then said taxes, costs, and counsel fees may be paid and the property be insured for the amount aforesaid by the holder of said notes, or either of them, the policy of insurance to be assigned to the trustees hereunder and the amount of taxes, costs, and counsel fees and pre- miums paid shall be considered a part of the indebtedness secured hereby, and shall bear the same rate of interest as the principal debt, and in default of pay- ment of any sum or sums so paid, with interest as aforesaid, on demand, the said parties of the second part, their heirs and assigns, shall have power to sell said property hereby conveyed as aforesaid and shall dispose of the pro- ceeds of sales as hereinbefore provided. And it is further agreed that if the property shall be advertised for sale under the provisions of this deed and not sold, then the said trustees shall be entitled to one-half of the commission above provided for, to be computed on the amount of the debt hereby secured. In testimony whereof the said party of the first part has hereunto set his hand and seal on the day and year first hereinbefore written, and at the same time has hereunto affixed his corporate seal. [seal.] James Cardinal Gibbons, Archbishop of Baltimore. Signed, sealed, and delivered in the presence of — Richard K. Taylor, 916 INVESTIGATION OP INSURANCE COMPANIES. State of Maryland, City of Baltimore, ss: I, William H. Jones, a notary public in and for the State and city aforesaid, do hereby certify that James Cardinal Gibbons, archbishop of Baltimore, both in his individual and corporate capacity, party to a certain deed bearing date on the 1st day of November, A. D. 1899, hereunto annexed, personally appeared before me in the said, city aforesaid the said James Cardinal Gibbons, arch- bishop of Baltimore, being personally well known to me to be the person who executed the said deed and acknowledged the same to be his act and deed. Given under my hand and notarial seal this 4th day of November, A. D. 1899. [iseal.] William H. Jones, Notary Publio. This deed, made this 25th day of February, in the year 1909, by and between Robert H. McNeill and Cora B. McNeill, his wife, and A. E. L. Leckie, of the District of Columbia, parties of the first part, and Charles Hall Davis, of Petersburg, Va., and John M. Parker, of New Orleans, La., parties of the second part, Witnesseth, that in consideration of $10 the parties of the first part do grant unto the parties of the second part in fee simple all those pieces or parcels of land in the city of Washington, D. C, described as follows, to wit: Lot No. 44 of the subdivision of lots in square No. 220 made by James Gibbons, Archbishop of Baltimore, as per plat recorded in book 24, page 142, in the office of the surveyor for the District of Columbia, subject to two certain deeds of trust, one to secure the sum of $160,000 and the other to secure the sum of $190,000, both of which said deeds of trust are duly recorded among the land records of the District of Columbia, which the parties of the second part agree to assume, together with the improvements, rights, privileges, and ap- purtenances to the same belonging. And the said parties of the first part covenant that they will warrant specially the property hereby conveyed, and that they will execute such further as- surances of said land as may be requisite. Witness our hands and seals the day and year hereinbefore written. Robert H. McNeill, [seal.] Coka B. McNeill. [seal.] A. E. If. Leckie. [seal.] In the presence of — Mattie P. McKnew. Distbiot or Columbia, to wit: I, Mattie P. McKnew, a notary public in and for the District of Columbia, do hereby certify that Robert H. McNeill and Cora B. McNeill, his wife, and A. E. L. Leckie, parties to a certain deed bearing date on the 25th day of February, 1909, and hereto annexed, personally appeared before me in said District, the said Robert H. McNeill and Cora B. McNeill, his wife, and A. E. L. Leckie, being personally well known to me as the persons who executed the said deed, and acknowledged the same to be their act and deed. Given under my hand and seal this 25th day of February, A. D. 1909. Mattie P. McKnew. Certificate of Title. The District Title Insurance Co. and The Washington Title Insurance Co., corporations of the District of Columbia. In consideration of $150, paid by John M. Parker and Charles Hall Davis, do hereby certify, that, as it appears by the records of said district, the title to the real estate described in the caption of the annexed schedule A, dated February 26, A. D. 1909, and signed by Thomas P. Woodward, vice president, namely, lot No. 44, in square No. 220, more particularly described in the caption of schedule A hereto annexed, in the city of Washington, District of Columbia, is not, at the date hereof, charged or affected by any existing lien or incum- brance, or by any suit at law or in equity pending in said District, and in which said real estate is described, except such as are noted or mentioned in INVESTIGATION OP INSURANCE COMPANIES. 917 said schedule A and except certain taxes and assessments, if any, as to which the assessor of the District of Columbia will certify. This certificate is issued to John M. Parker, of New Orleans, La., and Charles Hall Davies, of Petersburg, Va., and for their benefit only. The District Title Insurance Co. The Washington Title Insurance Co. Thomas P. Woodward, Vice President. George H. Connor, Secretary. Dated February 26, 1909. E- a a rt f< to M Eh 55 a a Eh a 148,083 LOT 44 148,083 ■H" STREET NORTH Schedule A. [Above referred to.] Case No. 32689. Lot No. 44 of a subdivision of lots in square No. 220 made by James Gibbons, Archbishop of Baltimore, as per plat recorded in the office of the surveyor for the District of Columbia in Liber 24, ;it folio 14S. I have examined the title to the real estate described in the caption hereof and consider the same to be good, according to the records, including original instruments filed for record but not yet copied upon the records, in John M. Parker, of New Orleans, La., and Charles Hall Davis, of Petersburg, Va., in fee simple, subject to the two deeds of trust below noted and to unpaid taxes and assessments and unrecorded tax sales, if any, as to which the assessor for the Ditrict of Columbia will certify. James Cardinal Gibbons, Archbishop of Baltimore, acting herein in his indi- vidual and corporate capacity, to Amzi Dodd, Edward L. Dobbins. Deed of trust dated November 1, 1899. Recorded November 7, 1899. Lots 10 to 15, inclusive, in Davidson's subdivision of square 220 as per plat recorded in book N. K., pages 62 and 62 in said surveyor's office. To secure the Mutual Benefit Life Insurance Co. of Newark, N. J., $160,000, one note payable five years after date, with interest at the rate of 4 per cent per annum until paid, payable semiannually ; 10 separate notes being given for interest installments and bearing interest after maturity at the rate of 4 per cent per annum. Liber 2465.. folio 54. 918 INVESTIGATION OF INSURANCE COMPANIES. Robert X. McNeill, et ux Cora B., A. E. L. Leekie to O. H. Perry Johnson, James M. Baker. Deed of trust dated February 25, 1909. Recorded February 26, 1909. Caption subject to a prior deed of trust dated November 1, 1S99, and re- corded in iiber 2465, at folio 54, to secure $160,000. To secure James Cardinal Gibbons, Archbishop of Baltimore, $190,000 de- ferred purchase money, in one joint and several note of Robert H. McNeill and A. E. L. Leekie, of even date, payable on or before November 1, 1909, with in- terest payable at maturity at the rate of 4J per cent per annum. This instrument examined from the original. Thomas P. Woodward. _ Vice ['resident. Febriaby 26, 1909. AFTEK RECESS. The subcommittee reconvened, pursuant to the taking of recess, at 2.15 o'clock p. m. Mr. Redfield. Mr. Leekie is the next witness. STATEMENT OF A. E. L. LECKIE. The witness was duly sworn by the chairman. Mr. Jon x son. Mr. Leekie, please give your full name to the stenographer, together with your residence and occupation. Mr. Leckie. A. E. L. Leekie, Southern Building; lawyer. Mr. Redfield. Mr. Leckie, you were present this morning during the testimony of Mr. Alexander McNeil, Mr. Richard H. McNeill, and Mr. Johnson, were you not? Mr. Leckie. I was. Mr. Redfield. And Mr. Charles J. Bell ? Mr. Leckie. I was. Mr. Redfield. And you know the subject matter of that testi- mony i Mr. Leckie. Yes, sir. Mr. Redfield. Will you state to the committee, in your own way, and as briefly as possible what personal knowledge you have of the matters covered by that testimony ? Mr. Leckie. Yes, sir. The St. Matthews property, which is the property now known as the Southern Building, Fifteenth and H, was called to my attention by Alexander McNeil and R. H. McNeill. I was told that the property could be purchased for probably $400,000. I looked into it, and I satisfied myself that it was worth easily that and that under ordinary circumstances an advance — more than $400,000. The matter was then taken up with Mr. Douglas and R. H. McNeill. We were told we could get an option on the property on the payment of $1,000. After due consideration we considered that it was well worth considering -and did finally put up $1,000 for a 30-day option on the property. That $1,000 was contributed to equally by Mr. Douglas, Mr. R. H. McNeill, and myself. Mr. James Baker not being present, we paid his propor- tionate part, which he afterwards made good to us, so each of us put up $250. We immediately set about to see whether or not we could not dispose of this property at an increased price. We had several things in view; one was that we might sell it to Hammerstein for an opera house ; another that we might sell it to a New York syndi- cate for a hotel, and while we were looking into that end of it the INVESTIGATION OF INSURANCE COMPANIES. 919 Southern Commercial Congress developed, and the matter was taken up with them. They seemed very anxious to secure possession of the property, and we discussed it very freely with their representative, Mr. Charles Hall Davis. The question was asked at the time as to whether or not we were putting the property — the price we were asking for the property was the price we had purchased it at, and Mr. Davis was frankly informed that it was not and given the exact figures at which it was being purchased. Later the Southern Commercial Congress entered into an agreement to buy this property at approximately $510,000, which was at an average of $23 per foot. The option that we had with Mgr. Lee had expired, and that was extended for 30 days. At the expiration of that time, we paid an additional $49,000, and we took title to the property. The Southern Commercial Congress then undertook to handle the property in their own way, and, so far as I was concerned, I had no part in their plans. Later it developed that the Southern Commercial Congress could not make good the payment of the second mortgage of $120,000 which R. H. McNeill and myself had assumed. The property was then — another method of financing it had' to be evolved, and it was then that the Southern Building Corporation was organized, which was probably during the month of May or early in June of 1909, I think. We were then asked, when that corporation was formed, to recede from our position of $510,000 to $500,000 even, which was done ; and there was issued to those interested — to the syndicate interested in the original pur- chase of this property — $100,000 of preferred stock in the Southern Building Corporation. That was in lieu of the $110,000 which we had in the property originally. That took us up to the early spring oi 1910, at which time I sold my stock to E. H. McNeill, and from that time on I have had no interest in or connection with the Southern Building Corporation. That is practically Mr. Redfield. Are you interested in the Richmond Realty Corpo- ration ? Mr. Leckie. I am not. I have 15 shares of stock in it — but am in no wise interested — for which I paid $1,500. Mr. Redfield. You are not an officer or a director of that, concern ? Mr. Leckie. I am neither an officer nor a director. Mr. Redfield. Are you interested in any way in the Commercial Fire Insurance Co. ? Mr. Leckie. Neither directly nor indirectly. Mr. Redfield. Or in the First National Fire Insurance Co.? Mr. Leckie. In nowise. Mr. Redfield. Or in Tuttle, Dudley & Wightman (Inc.) ? Mr. Leckie. I never knew the gentlemen until I met them here, and do not know which is which now. Mr. Beegee. Mr. Leckie, you said for the $110,000 profit there were issued a hundred thousand dollars preferred stock ? Mr. Leckie. There was. Mr. Beegee. What became of the other $10,000? Mr. Leckie. That went into the treasury. Mr. Beegee. Oh, I see ; into the general funds ? Mr. Leckie. That went, into the general fund ; yes, sir. Mr. Redfield. What did you get for your part ? 920 INVESTIGATION OF INSURANCE COMPANIES. Mr. Leckie. I took an equity in Mr. McNeill's house, which netted me twenty-five hundred dollars. I sold the house afterwards and it netted me twenty-five hundred dollars. I also took his note for $3,500, and that note netted me $3,150, so that I got in all, for my stock, $5,650. I came out just a little bit better than anybody else in the deal. Mr. Redfield. What was the par of your stock ? Mr. Leckie. That is what I received for it. Mr. Redfield. What was the par value of your stock ? Mr. Leckie. $18,000. Mr. Redfield. -$18,000 preferred stock ? Mr. Leckie. Preferred stock. Mr. Redfield. $18,000 par value of preferred stock? Mr. LECKrE. Preferred stock. Mr. Redfield. And how much common was with it ? Mr. Leckie. Nine thousand. Mr. Redfield. And what did that cost you ? Mr. Leckie. It cost me this: It cost me first the initial payment that I put into the property ; it cost me a great deal of time and labor, and the assuming of quite a number of obligations to carry the property on from stage to stage until I had gotten out. Mr. Berger. Now, how much was your initial payment? How much cash? Mr. Leckie. $1,000 cash was paid to the church. Mr. Bergek. And you paid one-quarter of that — $250? Mr. Leckie. No; at the time that — when that came — at the time of the organization of the Southern Building Corporation the syndi- cate was enlarged. Mr. Berger. Oh! Mr. Leckie. And Mr. Karrick and Mr. Samuel W. Meek was taken into the syndicate and then it was divided, which gave us about $18,000 apiece — $18,000 in preferred stock apiece. Mr. Bergek. I know; but how much did you pay for that $18,000? Mr. Leckie. I am just trying to tell you now ; I paid the original payment Mr. Berger (interposing). How much was the original payment? Mr. Leckie. Two hundred and fifty dollars. Mr. Berger. That is all the stock cost you in cash ? Mr. Leckie. One minute. Then we had to raise' $10,000, which we did, to carry — to get these extensions. Mr. Berger. Yes. Mr. Leckie. Then I assumed — we had to borrow considerable money at the bank, and my indorsement was absolutely necessary in order to secure this money, and I lent my indorsement for that pur- pose, and then I labored very arduously to find a purchaser, and after we found one, had to labor still more arduously to enable that pur- chaser to carry through his deal, so that, eventually, we would make some profit out of it. Mr. Berger. In other words, Mr. Leckie, it cost you $250 in cash and a lot of labor ? Mr. Leckie. It cost me $250 cash Mr. Berger (interposing). And your labor? Mr. Leckie. And the labor and the assuming of obligations. Mr. Berger. Yes, sir; and $250 cash? INVESTIGATION OF INSUBANCE COMPANIES. 921 Mr. Leckie. Plus one-quarter of $10,000— $2,500— which I put up to get a further extension. Mr. Beegee. Oh, you put up $2,500 in cash besides ? Mr. Leckie. Yes. Mr. Beegee. I see. Mr. Eedfield. Who put up the rest of the $10,000? Mr. Leckie. Mr. Douglas, Mr. McNeill, and Mr. Baker. Mr. Geoege. Mr. Leckie, as I understand this matter, four gentle- men, of which you were one, undertook to buy a piece of property, the price of which was to be $400,000? Mr. Leckie. Yes, sir. Mr. Geoege. Your capital in this transaction was $250 a piece? Mr. Leckie. Yes, sir. Mr. George. To make up a thousand dollars? Mr. Leckie. Yes, sir; that was to get an option on the property. We paid that for the option. Mr. George. Yes. That was your original capital in this busi- ness Mr. Leckie. Yes, sir ; in order to secure an option on the property. If we did not carry it through our $1,000 was gone, and the church was just $1,000 in. Mr. George. Yes. Then later you had to pay Mr. Leckie (interposing). An additional $10,000? Mr. George. An additional $10,000. Mr. Leckie. Yes. Mr. George. That was on the purchase price? Mr. Leckie. On the purchase price, and so was the $1,000 credited on the purchase price, because that was carried through. Mr. George. The original $1,000? Mr. Leckie. Yes. Mr. George. And then $10,000 you had to raise? Mr. Leckie. Yes. Eeally, $9,000. Mr. George. $9,000? Mr. Leckie. Yes. Mr. George. And you brought some other gentlemen into the mat- ter at that juncture? Mr. Leckie. Yes. Mr. George. I do not remember how many there were Mr. Leckie (interposing). Two, Mr. McNeill and Mr. Karrick. Mr. George. Making six in all? Mr. Leckie. Yes. Mr. George. Did you assume that $10,000 proportionately ? Mr. Leckie. Yes ; they all paid their proportion of the money. Mr. George. In cash? -Mr Lepktf 1 ips Mr. George. Then, when you had this $1,000 and this $10,000 paid upon this $400,000 piece of property, you did not raise any more money ? Mr. Leckie. No ; we had the other people to do that. We sold the property in the meantime. Mr. George. You sold the property in the meantime ? Mr. Leckie. Yes. Mr. George. For $500,000 ? Mr. Leckie. Yes ; $510,000. 922 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. Simply turning the property over without having paid the $400,000 ? You turned that over and got a hundred thou- sand dollars ? Mr. Berger. $110,000. Mr. Geoege. Clear? Mr. Leckie. Yes. You see, when we had Mr. George (interposing). $110,000; yes. Mr. Leckie (continuing) . Paid the $50,000 in we took title to the property, and at that time there was a mortgage on the property of $160,000, and we assumed a second mortgage of $190,000, and when we got the purchaser we turned it over to him just in that -condition. Mr. George. And you cleared $110,000, in fact ? Mr. Leckie. In fact, yes; $100,000, in fact. The $10,000 went back into the treasury. Mr. George. Yes ; but that was part of the agreement ? Mr. Leckie. That was part of the agreement. Mr. George. So that you cleared $100,000, in fact? Mr. Leckie. We cleared $100,000, in fact; yes, sir. Mr. George. I would like to know if you ever have made any com- putation of how much the six gentlemen got out of the $1,000 worth of stock? Mr. Leckie. Yes ; I think I could tell you in a minute. I got — the other gentlemen got — let me see — about $4,500 each, and I received $5,050. Mr. George. How did yon get so much more than they did? Mr. Leckie. Because I sold my stock at an advantage. Mr. George. You got $5,500? Mr. Redeield. $5,650. Mr. Leckie. $5,650. Mr. George. And the others each got what? Mr. Leckie. If I am informed correctly, $4,500. Mr. George. I am finished, Mr. Chairman. Mr. Leckie. Let me figure it up. I do not know. Mr. Beeger. Mr. Chairman, I am afraid the question of my friend, Mr. George, has left a wrong impression. Now, did I understand you right — you put down a thousand dollars for the option? Mr. Leckie. For an option; yes, sir. Mr. Bergee. And then you did not pay down $10,000 at that; only $9,000 to make up the $10,000? Mr. Leckie. Yes, sir. Mr. Berger. So your entire investment was not $11,000, but $10,000 really ? Mr. Leckie. Yes, sir. Mr. Berger. Divided among six? Mr. Leckie. Yes. Mr. Berger. And you made $110,000 on that investment? Mr. Leckie. Xo, sir; we did not. Mr. Berger. I mean nominally? Mr. Leckie. In stock. Mr. Berger. In stock? Mr. Leckie. Yes. Mr. Berger. Each of you got Mr. Leckie (interposing). About $18,500, I think. Mr. Berger. About $18,500 INVESTIGATION OF INSURANCE COMPANIES. 923 Mr. Leckie. Something like that. Whatever it may be. Mr. Beegee (continuing). In cash out of the thing? Mr. Leckie. Oh, they got $4,500 for their stock. Mr. Beegee. All told ; all of them combined ? Mr. Leckie. No; each one of them. Mr. Beeger. How many got $4,500? Mr. Leckie. Five. Mr. Bergee. Five of them? Mr. Leckie. Yes. Mr. Beegee. That would be $22,500? Mr. Leckie. Yes, sir. Mr. Beegee. And you got five thousand Mr. Leckie (interposing). Six hundred and fifty. Mr. Beegee. $5,650? Mr. Leckie. Yes. Mr. Beegee. Now, that would be ten— that is about $28,000, is it not? Mr. Leckie. Yes. Mr. -Easby-Smith. $28,150. Mr. Beegee. $28,150? Mr. Leckie. Yes, sir. Mr. Beegee. Well, that was not such a bad investment after all ? Mr. Leckie. No ; that was not so very bad. Mr. Beegee. $28,150 spot cash? Mr. Leckie. It was not an overly good one. Mr. Beegee. It was a rather good one? Mr. Leckie. Not overly so. I have had money operations that netted me three times the amount. Mr. Beegee. Well, I do not know how this business is carried on in Washington, but considering that, after all, none of you had any- more than about $1,600 invested at any time Mr. Leckie (interposing). Oh, but you do not take into considera- tion the number of thousands of dollars of labor and responsibility. Suppose this thing had gone by the board and been sold out at public auction and had brought less than the amount we had paid for it, then we would have been very heavy losers, would we not? Mr. Beegee. Yes ; but I am afraid you would not have lost much more than your labor, because you did not have very much cash in this at any time. Mr. Leckie. No ; but we had assumed the responsibilities, and we were all able to respond to our responsibilities. Mr. Beegee. Well, it was responsible labor, anyway. Mr. Leckie. Yes. Mr. Eedeield. He means they would have made good if they had been compelled to. Mr. Leckie. That is exactly what I mean, and we had the ability to make good. Mr. Prouty. Mr. Leckie, if I understood your testimony correctly, you said you had invested in this enterprise $250 ? Mr. Leckie. Yes, sir. Mr. Prouty. And $2,500 Mr. Leckie (interposing). Well, that was what we put in, but it was balanced up afterwards and we all put in equally. 71391— No. 10—13 5 924 INVESTIGATION OF INSURANCE COMPANIES. Mr. Peottty. You got that all back? Mr. Leckie. Every dollar of it. Mr. Prottty. That was independent of the $5,500 you spoke of ? Mr. Leckie. Yes, sir ; that is net. Mr, Peouty. So against the $5,500 was the wear and tear and sweat, and so forth? Mr. Leckie. That is net profit. Mr. Berger. $5,(350 net profit ? Mr. Leckie. Yes. sir. Mr. Prouty. In other words, you did not have any money invested in it Mr. Leckie (interposing). Oh, I had the money invested and obligations assumed, but in winding the matter up I got out whole and with a net profit of $5,650. Mr. Protjty. Well, I kind of thought your testimony indicated that this $250 and $2,500 was part of your investment which went into the sum total that you received finally ? Mr. Leckie. Oh, no; I did not mean to convey any such thought as that. J Mr. Proitt. I understand it now. Mr. Berger. Mr. Leckie, now, the $4,500 of every one of these gentlemen — was that also net profit in every instance? Mr. Leckie. I took it that was net profit in every instance. Mr. Berger. In every instance. Mr. Johnson. Are you gentlemen through? No response. Mr. Easby-Smith. In Mr. Douglas's absence, I want to ask him one or two questions. Mr. Leckie, you know Mr. Alexander McNeil ? Mr. Leckie. I do. Mr. Easby-Smith. When did you first meet him, and in what con- nection ? Mr. Leckie. In December, the latter part of December, 1908, and ,■ I met him in connection with this property. Mr. Easby-Smith. Did he come to you or did you come to him? Mr. Leckie. He came to us. Mr. Easby-Smith. And at that time who were interested in secur- ing an option on this property besides yourself ? Mr. Leckie. I do not know. Mr. Easby-Smith. Did you have any associates, I mean ? Mr. Leckie. Oh, yes, sir. Mr. Easby-Smith. Who were associated with' y$u? Who were interested with? Mr. Leckie. Originally there were interested with me E. H. Mc- Neill, Mr. Charles A. Douglas, James M. Baker, and myself — four gentlemen. Mr. Easby-Smith. And were they the four gentlemen who pur- chased through Mr. McNeil Mr. Leckie (interposing). They were. Mr. Easby-Smith. Did you ever receive any portion of the com- mission from Mr. McNeil paid by Father Lee ? Mr. Leckie. Mr. Easby-Smith, I would be incapable of accepting a commission. Mr. Easby-Smith. Then you did not receive any? INVESTIGATION OF INSURANCE COMPANIES. 925 Mr. Leckie. Neither directly nor indirectly. Mr. Easby-Smith. Did any member of the syndicate, so far as you know, ever receive or expect to receive any portion of that commission ? Mr. Leckie. They surely did not. Mr. Easby-Smith. In any form whatever? Mr. Leckie. In no form whatsoever. Mr. Easby-Smith. Had you at that time had any business rela- tions with Mr. Alexander McNeil ? Mr. Leckie. I had never known the gentleman nor seen him until this proposition was presented to me by him. Mr. Easby-Smith. When, according to your information, did Mr. McNeil first become — Mr. Alexander McNeil — first become interested in the Southern Building Corporation ? Mr. Leckie. Oh, I think practically from its inception. Mr. Easby-Smith. So far as you know or have heard Mr. George (interposing). Inception of what? Mr. Easby-Smith. Of the Southern Building Corporation. Mr. George. Oh, yes. Mr. Easby-Smith. So far as you know, did any of your associates in the syndicate ever receive or expect to receive any portion of this commission from Mr. Alexander McNeil? Mr. Leckie. They did not. Mr. Easby-Smith. That is all. Mr. Johnson. You may be excused, Mr. Leckie. Mr. Leckie. Thank you. Mr. Johnson. You wanted Mr. Story, did you ? Mr. Prouty. Yes. Mr. Johnson. Is Mr. Story here ? STATEMENT BY JOHN P. STORY, JR. . The witness was thereupon duly sworn by the chairman of the committee. Mr. Johnson. Mr. Story, after giving your name, residence, and occupation, Judge Prouty, at whose instance you have been asked to come here, will interrogate you. Mr. Story. John P. Story, jr.; 1102 Connecticut Avenue; real- estate broker. Mr. Prouty. It has been developed in this testimony that you were the party that purchased the stock of the Southern Building of the building company for Mr. Carusi. Is that correct Mr. Story. Mr. Carusi and Mr. Harper. Mr. Prouty. For Mr. Carusi and Mr. Harper ? Mr. Story. Yes. Mr. Peouty. Did you do that under a written contract ? Mr. Story. I did. Mr. Prouty. Have you got it? , Mr. Story. I have a copy of it here, Judge Prouty, that Mr. Carusi has handed me as I came in. Shall I read it ? Mr. Prouty. Produce it and have it identified and read it into the record. Mr. Story. I identify it by the fact that it has my signature — - Mr. Prouty (interposing) . I mean for the reporter. 926 INVESTIGATION OF INSURANCE COMPANIES. Mr. Story. I haven't my own copy here which had — I have for- gotten whether it had Mr. Carusi's signature. I have forgotten whether it had Mr. Harper's signature or not. Mr. Carusi might have signed for Mr. Harper. I have forgotten about that. Mr. Protjty. Read it, please. Mr. Story (reading) : Memorandum of agreement between Charles F. Carusi, party of the first part, hereinafter called the buyer, and John P. Story, party of the second part, hereinafter called the seller, both of Washington, D. C. Witnesseth that said parties, for and in consideration of ten (10) dollars in hand mutually paid by each to the other, do agree as follows : Said buyer hereby agrees to purchase and said seller hereby agrees to sell to said buyer all of the stock which he can obtain in the Southern Building Cor- poration, not less than sixty -seven (67) per centum in amount of the preferred stock, with a pro rata amount of the issue of common stock, and said buyer agrees to pay therefor the sum of fifty (50) dollars per share for each share of preferred stock so delivered. The buyer agrees to make payment immediately at the Kiggs National Bank upon notification that not less than sixty-seven (67) per centum of said pre- ferred and common stock has been deposited by said seller and to pay for such additional stock as may be from time to time deposited by said seller within thirty (30) days from the date of this agreement: Provided, how.ever, That said buyer after twenty (20) days from the date hereof may terminate this obligation to take any shares not delivered or legally committed by the payment of ten (10) dollars per share for any amount not exceeding ten (10) per centum of said preferred stock without charge to said seller of any part of said expenses hereinafter provided as to said undelivered stock. Said buyer agrees to take any of the committed stock hereinbefore mentioned, provided the same be delivered within said thirty (30) days. Said buyer shall reserve from said purchase price such percentage of thirty thousand (30,000) dollars as the stock delivered bears to the total issue of stock for the purpose of making payment of the following obligations of the Southern Building Corporation: $6,000 note due in December; $11,000 bond obligation represented by note; $9,750 interest due in October; $1,500 fees due firm of Douglas, Baker, Ruffin & Obear, together with any interest due on the above items. Said buyer will refund to the seller any portion of said part of thirty thou- sand (30,000) dollars so reserved and not used in liquidating the above . obligations. Said buyer further agrees to repay to said seller the proportionate part of the value of the equity in a small house owned by said Southern Building Cor- poration, which may be received by said buyer from any dividend upon his stock in the liquidation of said company. Said buyer further agrees to pay for and put in way of cancellation one hundred thousand (100,000) dollars of the third issue of bonds of said Southern Building Corporation, which obligation is a part of the consideration for this agreement. Witness our hands and seals this tenth day of September, A. D. 1912. John P. Stoky. [seal.] Mr. Pkouty. If I understand this agreement correctly, it is sub- stantially an agreement on your part to purchase and sell to Mr. Carusi the preferred stock, such of it as you might get possession of ; not less than 67 per cent, at 50 cents on the dollar ? Mr. Story. Exactly. Mr. Protjty*. And as a part of that obligation, there is to be de- ducted from that certain stipulated matters? Mr. Story. Yes, sir. Mr. Protjty. Suppose you got 67 per cent of the stock, about what would that net you ? Mr. Story. How do you mean, net me, sir ? INVESTIGATION OF INSURANCE COMPANIES. 927 Mr. Prouty. I mean, how much would you get out of it ? Mr. Story. As profit? Mr. Prouty. No ; I do not care about that. I am not asking what you would buy it for at the present time, but what you would get for it. Mr. Story. I would get $50 a share, less a proportionate amount of what was retained to meet those obligations there set forth on that page, which the $30,000 represents — $10 a share, Judge. Mr. Prouty. I noticed that. Mr. Story. There being $3,000, so when it came to be settled, Mr. Carusi paid me at the rate of $40 a share for each share delivered. Mr. Prouty. How much stock did you buy and turn over under this contract ? Mr. Story. I bought all except 10 shares. Mr. George. All of the shares of the company ? Mr. Story. All the shares except 10 shares. That 10 shares has been committed at fifty on the dollars. Mr. Prouty. That means Mr. Story (interposing). Two thousand nine hundred and ninety- seven shares. Mr. Prouty. Two thousand nine hundred and ninety-seven shares ? Mr. Story. No, Judge; that should be 2,990. Mr. Prouty. It says in here a proportionate amount of common stock. What do you mean by a "proportionate amount " ? Mr. Story. The pro rata of the common stock in relation to the amount issued as it bears to the preferred stock the amount issued. Mr. Prouty. What was the common stock issued ? Mr. Story. It was about 50 per cent of the preferred. Mr. Prouty. So that each $50 you turned over to him — or rather with each $40 you turned over to him — a share of preferred and a half share of common ? Mr. Story. I think I turned over rather more than the propor- tionate amount. Mr. Prouty. Well, that would be in compliance with the con- tract? Mr. Story. Yes. Mr. Prouty. Have you any objection to stating what you paid for this stock ? Mr. Story. No, sir; I paid all the way from twelve dollars and a half to a dollar. Mr. Prouty. If you have an itemized statement of what you paid and would not object to putting it into the record Mr. Story (interposing). I haven't an itemized statement with me. Mr. George. Did you mean you paid those figures or you received in profit those figures ? Mr. Story. I mean I paid $12.50 a share for some and $1 a share for others. Mr. Carusi. You mean $100 a share, do you not ? Mr. Story. Yes ; $100 a share. Mr. Eedeield. What was the face value of the shares ? Mr. Story. $100. Mr. Redfield. So you got it, you wish us to understand, some as W as $12.50? 928 INVESTIGATION OF INSURANCE COMPANIES. Mr. Story. Yes. Mr. Redfield. Or, in other words, 12-i? Mr. Story. Yes. Mr. Redfield. And some as high as par? Mr. Story. And some as high as par. Mr. Redfield. Can you say how many shares you got at $12.50 a share? Mr. Story. 1,397. Mr. Redfield. 1,397 shares at 12J? Mr. Story. Yes. Mr. Redfield. How many did you get at or below 20? Mr. Story. That is all. Mr. Redfield. How many at 25? Mr. Story. I could not say offhand, sir. Mr. Redfield. How many did you pay 50 for? Mr. Story. My recollection is I paid — about 330 — 330 shares. Mr. Redfield. You paid 50 for that; and for how many did you pay par? Mr. Story. I do not know that offhand; I should say something like $10,000 worth. Mr. Redfield. That would be a hundred shares? Mr. Story. A hundred shares. Mr. Prouty. If I have compiled these figures correctly, you re- ceived $116,000 from Mr. Carusi for the 2,990 Mr. Story (interposing). Approximately that. Mr. Protjty. Did you understand at the time he was purchasing this stock that it was for the benefit of these insurance companies? Mr. Story. I did. Mr. Prouty. Did you transfer the stock direct to him or the com- panies ? Mr. Story. I delivered the stock directly to him, indorsed. Mr. Prouty. Indorsed in blank? Mr. Story. In blank. Mr. Prouty. That is all I want to ask. Mr. Redfield. What method did you pursue to get this stock, Mr. Story? Mr. Story. I visited Richmond and had a meeting of the board of directors of the Richmond Realty Co., and I got from them an option. I afterwards saw Mr. McNeill — Mr. Robert McNeill, this is — Mr. Meek; I saw Mr. Douglas, Mr. James A. Baker — I mean, Mr. Gibbs Baker, who represented his brother, James A. Baker; I saw Mr. James McNeill, and I saw Mr. Kerrick. Some stock which is known as the Parker stock, and other Southern Commercial Con- gress stock held out of town, I was in correspondence with. Mr. Redfield. Can you produce copies of that correspondence, Miv Story? Mr. Story. Yes, sir. Mr. Redfield. What means did you take to induce the purchase of 1,397 shares as cheaply as $12.50 a share, Mr. Story? Mr. Story. The fact that they would liquidate $100,000 of a third mortgage bond, and as I had known that they were a corporation that was speculating largely in real" estate, I felt that they would be very glad to make the balance of their bond issue good by canceling this hundred thousand dollars and putting it in such hands — the INVESTIGATION OF INSUBANCE COMPANIES. 929 property in such hands that the balance of the bonds would be good, and that they probably would not have to foreclose and take in the property themselves, and also from the fact that there were a large number of factions in the ownership of the stock ; that the Southern Building Corporation was practically at that time in- solvent; that the only thing that they could do would be to put up the money themselves to carry the corporation, and which they said they were tired of doing ; that if they bought the corporation — that if the Richmond Realty Co. themselves bought the corporation — that they would be criticized by all the other stockholders, and make it practically impossible for them, but I think the principal argument was the fact that they were realizing cash on holdings which they had taken as a venture. Mr. Redfield. Then I infer that this 1,397 shares of stock which you bought at $12.50 was from the Richmond Realty Corporation? Mr. Story. It was. Mr. Redfield. Did you buy any private stock, so to speak, at that price? Mr. Story. No private stock; no. Mr. Redfield. What was the lowest price you paid for private stock ? Mr. Story. $25. Mr. Redfield. Now, did you represent to the private parties that $25 represented fair value for the stock ? Mr. Story. For the stock? I do not know that I did. I do not recollect. I had a great deal of correspondence, but $25 for the stock was more than it was worth, to my mind. Mr. Redfield. What time was this, Mr. Story ? Mr. Story. This was during the negotiations. Mr. Redfield. What date ? Mr. Story. Well, I — some time Mr. Redfield. About. Mr. Story. Well, some time from the middle of September to the middle of October. Mr. Redfield. 1912? Mr. Story. 1912. Mr. Redfield. Are you a real estate man by profession ? Mr. Story. Yes. Mr. Redfield. Have you been familiar with real estate in Wash- ington for some years? Mr. Story. Some parts of Washington. Mr. Redfield. Well, did you not know that this company had a hidden reserve in the shape of the fact that this building was worth $2,000,000? Mr. Story. I did not at that time. Mr. Redfield. You found that out since ? Mr. Story. I have found it out since, if it is. Mr. Redfield. If it is. Well, now, if you had believed this build- ing was worth $2,000,000, only two months later than those negotia- tion?, would you have represented to these stockholders that 25 cents on the dollar was all their stock was worth ? Mr. Story. Well, that is rather a difficult question. If I had felt that this corporation was going to be foreclosed by reason of its non- 930 INVESTIGATION OF INSURANCE COMPANIES. payment of its interest, which was a condition facing it, I would have felt that $25 a share would have been a very good price for it. Mr. Redfield. Would you recommend a client to pay $2,000,000 for that building? Mr. Story. No. Mr. Redfield. Would you buy it yourself at $2,000,000 if you had the money to invest ? Mr. Story. No. Mr. Redfield. Do you believe it is worth $2,000,000. Mr. Story. No. Mr. Kedfield. Now, as a matter of fact, is it not true that there were some stockholders that objected to taking 25 cents on the dollar and came to Washington and made an inquiry into the condition of affairs, and as a result of which they got 50 cents on the dollar? Mr. Story. I do not think it was a matter — I do not think they got 50 cents on the dollar by reason of inquiries. Mr. Kedfield. Well, will you explain the circumstances ? Mr. Story. I can explain to you that these certain men, represent- ing the Parker stock, came to Washington and refused to take 25 cents on the dollar. They had investigated the books of the com- pany — they were here two or three days — made two trips. They held out and said they would not take that. Finally it was sold to them — bought from them at 50 cents on the dollar, and I think they sole compelling cause was the fact that rather than hold up the disso- lution of the Southern Building Corporation, it was better to buy them off. Mr. Redfield. You have mentioned the dissolution. It is the fact, is it not, that two-thirds is the amount of stock necessary to control in order to dissolve a company ? Mr. Story. That is my recollection of what I know to be the Vir- ginia law. Mr. Redfield. And this was a Virginia corporation ? Mr. Story. This was a Virginia corporation. Mr. Redfield. And it was the intention, was it not, to dissolve the Southern Building Corporation? Mr. Story. I was not in Mr. Carusi's confidences, but I understand he had two thoughts in mind: one was that the building could be foreclosed, by reason of nonpayment of interest, or to dissolve it if he got sufficient of the stock. Mr. Redfield. Iin that case, what became of the minority stock- holders ? Mr. Story. If foreclosed ? Mr. Redfield. In either case? You might give us both. Mr. Story. Well, they would have gotten their pro rata, if there had been anything in the equity. Mr. Redfield. If there had been anything left? Mr. Story. Yes. Mr. Redfield. And in case the company was dissolved Mr. Story (interposing). In the same way. Mr. Redfield. In the same way? Mr. Story. Yes.. Mr. Redfield. In other words, if they got possession of two-thirds of the stock and dissolved the corporation, why, they would control the situation, and the other third would take what they could get? INVESTIGATION OP INSURANCE COMPANIES. 931 Mr. Story. So I understand the law. Mr. Redfield. Yes. Who were the parties that came here repre- senting what you call the Parker stock and made the examination of the accounts and then got 50? Mr. Story. Charles Hall Davis and James Mann. Mr. Eedfield. And whom did they represent? Mr. Story. They represented John M. Parker and one or two other gentlemen. Mr. Redfield. Had they been familiar with the history of the corporation to your knowledge? Mr. Story. I have no knowledge of it — what they were. Mr. Redfield. You mean by that that you do not know that they were familiar with the history of it? Mr. Story. I have no knowledge on the subject whatsoever — whether they were familiar or not familiar. Mr. Redfield. You had correspondence with these gentlemen, did you? Mr. Story. I did. Mr. Redfield. As to the value of the stock? Mr. Story. As to the value of the stock. Of the stock, you under- stand, not the property. Mr. Redfield. Of the stock. The value of the stock was more or less affected by the value of the property which it represented? Mr. Story. Yes; but not absolutely. Mr. Prouty. I notice in this contract a provision that Mr. Carusi, the buyer, further agrees to repay to said seller — wait — said buyer further agrees to pay for and put in way of concellation $100,000 of the third issue of bonds of said Southern Building Corporation, which obligation is a part of the consideration for this agreement. What $100,000 worth of those bonds was referred to in that? Mr. Story. That is the third mortgage. Mr. Prouty. Who held them ? Mr. Story. The Richmond Realty Co. Mr. Prouty. Was Mr. Carusi to pay for it in money ? Mr. Story. He did. Mr. Prouty. That was required by the agreement? Mr. Story. Yes. Mr. Prouty. Were you representing them in a measure, too, m that transaction ? Mr. Story. Representing the Richmond Realty Co. ? Mr. Prouty. Yes. Mr. Story. Judge, I have not been representing anybody but my- self in this matter. If you mean that I was a go-between, as a con- duit to conduct the negotiations, I was. Mr. Prouty. Well, you may. call it that, or a funnel, or whatever you please. Mr. Story. Yes ; a funnel. Mr. Prouty. It passed through you ? Mr. Story. The cash transaction did not pass through me. I negotiated it in behalf of both parties. Mr. Prouty. If your figures are correct, Mr. Carusi or these insur- ance companies paid $216,000 for the carrying out of this contract. Mr. Story. Exactly. 932 INVESTIGATION OF INSURANCE COMPANIES. . Mr. Prouty. And you understand that they have so paid it ? Mr. Story. Yes. Mr. Prouty. That is all. Mr. George. What is the value of the land of the Southern Build- ing property ? Mr. Story. Well, up to the time of this opinion, I valued the land at approximately $35 a foot. There are a great many factors enter- ing into the valuation of a property, but I should have said that I -would have been glad to buy the property at $35 a foot, and at that, price I should have expected within a short time to make a handsome profit. Mr. George. What is a handsome profit, in your judgment, on that property? What, would it be? Mr. Story. Well, $10 a foot, Mr. George. At that time you would have been glad to buy it at ^35, expecting in a very short time to get $10 out of it? Mr. Story. Exactly. Mr. George. To sell it? Mr. Story. Yes. Mr. George. At forty-five? Mr. Story. Yes. Mr. George. Within what time do you think you might have Mr. Story. Within three years. Mr. George (continuing). Been able to do that? Mr. Story. Within three years. * Mr. George. What is the present value, in your judgment ? Mr. Story. Well, if I had not been biased by all the opinions I have heard, I should have said approximately $35 a foot. Mr. George. Well, but you are not a biased man. You have your experience. Out of your own experience, what do you think it is worth now? Mr. Story. It is readily worth $35 a foot ; in other words, I regard that as a good buy at $35 a foot ; something that will show an added increment very shortly, rather than an investment that will still be worth $35 a foot in the immediate hereafter. Mr. George. In two or three years it will appreciate — — Mr. Story (interposing). I should anticipate an appreciation of $10 a foot in probably three years and probably $15 a foot in five years. Mr. George. That is all. * Mr. Carusi. Yon are a buyer of real estate, are you not? Mr. Story. In a small way, Mr. Carusi. Mr. Carusi. It goes without saying that you like to buy it as cheaply as possible ? Mr. Story. Exactly. Mr. Carusi. You do not buy property that you do not think there is a quick and handsome profit in? Mr. Story. I do not. Mr. Carusi. You bought that corner, did you not, of Fourteenth and H a year or so ago? Mr. Story. Yes. Mr. Carusi. Have you sold that ? Mr. Story. No. Mr. Carusi. Have you had any offer for it lately? INVESTIGATION OF INSUEANCE COMPANIES. 933 Mr. Story. Not within, I should say, eight months. Mr. Cartjsi. Can you tell the committee off-hand, what the pel- foot price was of the last offer that you got, and refused? Mr. Story. The offer was conditional on our getting the adjoining property. If we had been able to buy the adjoining property, I believe that we could have gotten $55 to $60 a foot for it. The owner of the adjoining property refused to sell at any price. Mr. George. Excuse me, I was not paying attention. Where is that? Mr. Easby-Smith. Fourteenth and H. Mr. Cartjsi. Mr. Story, in order that the committee may have an absolutely clear idea of your relation to the sale of this tract to these companies, I am going to ask you whether or not you did not receive the original letter, of which this is a copy [handing paper to Mr. Story], and I will ask you to read that into the record. Mr. Story. To read this into the record ? Mr. Cartjsi. Yes. Mr. Story (reading) : September 4, 1912. Mr. Joitn P. Story, Wasliington, D. C. My Dear Mr. Story' : Confirming my conversation with you concerning the readiness of my two Are companies to purchase the Southern Building, I wish to say that we are prepared to pay $150,000 for the outstanding capital stock and will agree to reduce at once the second and third mortgages by the payment of $100,000. It is my understanding that in making this offer and making it to you in your individual capacity that you are in a position, or expect shortly to be, to make a delivery of the fee simple of snid building to the two companies upon the pay- ment by them in the form of purchase money of said stock in the amount above mentioned. It is understood that this offer is based upon the representation that there is a lien with eight years still to run for $800,000 at 5 per cent held by the Equitable Assurance Society and second and third liens aggregating $600,000 held by the Richmond Realty Co. in whole or in part. It is further represented to us that there are actual bona fide rentals at the date of this letter of at least $123,000 and outstanding contracts negotiations on which are still pending for additional space up to $135,000 per annum at the present rate. It is further represented that this building may be increased to 11 stories and dint the steel framework and construction of the present nine-story building will permit without alterations of substantial character the additional stories being erectd. If these representations are substantially correct we are prepared to conclude the deal at once; taxes, rents, insurance, etc., to be adjusted as of date of settlement. If the ownership of stock becomes a necessary means of transfer of the equity in the building to the two fire companies, it is my further understanding that bills payable relating strictly to the building itself will be liquidated out of the current rent and bills receivable, such as rent in arrears, etc.; all money in bank and assets extraneous to the building to remain the property of the Southern Building Corporation, but all outstanding indebtedness except bills payable relating strictly to the building are to be liquidated by the sellers of the equity or of the stock, as the case may be. It is my further understanding that the holders of the second and third trusts shall enter into a binding agreement whereby the remaining $500,000 of bonds may be retired in amounts of $25,000 at the option of the fire companies at any time before the maturity of said bonds, which maturity is represented to be aproximately three years from this date. As to the details whereby the ultimate transfer of the equity to the fire companies is brought about, they will have to be left to be worked out as they come along. What the companies want is not stock but the equity in the building subject only to recorded liens as above outlined. There are but three classes of persons interested in the Southern Building Corporation, the stockholders, the directors, 934 INVESTIGATION OF INSURANCE COMPANIES. and the creditors. One hundred per cent of the stock disposes effectually of the stockholders' interest; proper waivers or resignations from the board of directors will dispose of the directors ; if there are any creditors, they will have to be taken care of out of the purchase price of the building. I suggest that the quickest and most satisfactory mode of settling this matter will be for you to secure from as many of the stockholders as possible options under seal on their stock, a proxy to vote the stock for the purpose of real- izing the agreed price upon the same, and the deposit of the stock certificate assigned in blank to the District National Bank, together with the option under the agreement that as fast as said stock is deposited the fire companies will also deposit in the District National Bank as against such stock in a special fund, an amount equal to the agreed purchase price of said stock, the money to be paid over to the stockholders as soon as title is vested in the companies under terms and conditions herein above mentioned, it being understood that if the total of the amounts so deposited as against the option and stock is less than $150,000 that the balance up to that amount will be paid to you directly by the companies as your profit in the transaction less, however, any sum that may be necessary to dispose of the floating indebtedness, unless you may have been able to make some other arrangements for taking care of such indebtedness or unless some mode may be devised whereby such indebtedness would not be a lien upon the property in the hands of the fire companies. As I explained to you. time is of the essence with respect to this purchase by my clients, and while we would be willing to take all needful time in closing up the details of the transaction we will want to feel that the matter is effectually tied up pending that interval. This can be done by your having your clients deposit at least 75 per cent of the stock and options thereon with the District National Bank within the period of 10 days from this date. If that is done then, as I have said, we would be willing to give reasonable time for the closing out of the transaction. The options themselves should be of a sufficient duration of time to cover all possible delay, but it is absolutely impera- tive that the entire matter should be closed out within 60 days. With respect to the representations made above I shall, of course, take steps to verify the correctness of the same before the deal is consummated. Yours, very truly. Mr. Pkouty. What is the date of that letter ? Mr. Story. September 4. Mr. Carttsi. You recall, do you not, Mr. Story, that the first negotiations or talk I ever had with you was strictly on the basis of a real estate transaction? Mr. Story. I do. Mr. Caeusl I told you that I wanted to buy that building for my clients if the price could be agreed upon? Mr. Story. Yes. Mr. Carttsi. And you remember that you informed me either at that particular interview that I refer to or at some other that that could not possibly be done? Mr. Story. I do ; not so reasonably, is what I said. Mr. Carusi. Yes. In effect, that the proposition could not be handled as a real estate proposition; it would have to be handled as a stock proposition ? Mr. Story. Well, Mr. Carusi, at the price at which you wished to buy, it could not have been handled as a real estate proposition. Mr. Carusi. After we talked, I sent you another letter, and I will ask you to read such for the record, if you received the original of it [handing paper to witness]. Oh, before you do that, I will say further for the record that the minutes of both companies show that the prospective purchase of this building was under discussion, and that a resolution was passed appointing Col. Harper and myself as a subcommittee or as trustees to do all things needful to accom- INVESTIGATION OF INSUKANCE COMPANIES. 935 plish the purchase of the Southern Building, and in that connection there was to be deposited to our joint credit at the District National Bank such sums of money as we might call for as being necessary to carry out the acquisition of the Southern Building. Is that suffi- cient ? Mr. Eedmeld. Yes; thank you very much. Now, these letters were written pursuant to such authority ? Mr. Cartjsi. Yes. Mr. Story. Shall I read it now, sir? Mr. Cartjsi. Yes. Mr. Stort (reading) : „ „ ^, Septembeb 7, 1912. John P. Stoby, Esq., 1102 Connecticut Avenue, Washington, D. C. Dear Me. Story: Complying with your request that I write you another letter confirming the modifications suggested by you to my letter of several days ago relating to the same subject matter, I beg to say as follows : I have had a talk with Mr. Douglas, and as a result I believe I can assure you that I will buy 80 per cent of the stock and pay you cash for it on Tues- day, if desired, and will at the same time take up and pay for one-sixth of the bonds representing the second and third trusts. It is my understanding that from the purchase price paid you for the percentage of stock delivered there shall be deducted such a proportion of the floating indebtedness, which it is believed will not exceed $30,000, as the number of shares of stock delivered bears to the whole. It is my further understanding that if you make a delivery of 100 per cent of the stock at any time before a deed to the land is executed by the proper parties and ready for record, that in addition to the purchase price of the stock at 50 cents on the dollar for the preferred stock that you may have as an individual profit the equity in a small piece of ground, said to belong to the corporation, and such of the money in bank and accrued rentals as on the date of settlement are not necessary to pay current obligations of the building, which are represented to me not to exceed more than a couple of thousand dollars. This is a bonus, as it were, to your securing a 100 per cent of the stock and facilitating the transaction. It is understood that accompanying the 80 per cent of the stock will be a corresponding proportion of outstanding common stock. It is also understood that in making settlement interest payable after Octo- ber 1 will be paid by us, all interest payable on that date and prior thereto being treated as part of the floating indebtedness above mentioned. This offer is conditioned upon the feasibility of effecting the purposes mentioned in my previous letter to you in the manner contemplated and upon the representation as to the encumbrance, etc., mentioned in niy previous letter. For your infor- mation, I may say that I have an appointment with Mr. Douglas on Monday at 10 o'clock to go over the charter, by-laws, trust, instruments, and various other documents, etc., and also the laws of Virginia, so that probably by Tuesday I will be ready to recommend the payment of the sums necessary to complete the transaction. Mr. Douglas is seriously of the opinion that unless this matter can be closed by Tuesday there is danger of its falling through, so that I would suggest that you be ready to deliver at least 80 per cent, and as much more as possible, of the stock during banking hours on that date. To facilitate matters, I have requested Mr. Douglas to secure a continuation of the title, which can undoubt- edly be clone Monday. I omitted to say that in allowing you on a 300 per cent basis the rents paids or due up to date of settlement it is understood that taxes, insurance, and other customary items, except interest, would have to be adjusted as of date of settlement. I would be glad to see you Monday about 12 o'clock, or a little later, so that I can know positively whether the matter can be disposed of preliminarily on Tuesday. This letter is written by me as chairman of the finance committee, and may be taken as representing the views of the committee, but more formal action 936 INVESTIGATION OF INSURANCE COMPANIES. can be secured on this matter when the committee meets on Monday. In the meantime, if you can multiply yourself by 10 and do 10 days' work on the proposition in 1 day, I think the matter can be closed out very profitably. Yours, very truly. Mr. Caetjsi. I hand you now a letter from yourself, Mr. Story, which I will ask you to read for the record [handing paper to tlie witness] . Mr. Story (reading) : Story & Cobb, Washington, D. C, September D, 1912. Charles F. Carusi, Esq., Southern Building, City. Dear Mr. Cartjsi : Replying to your letter of the 7th instant, written by you as chairman of the finance committee and on behalf of the insurance companies, I beg to advise you that, having options on something over 75 per cent of the stock, I bind myself to deliver the stock to you immediately upon its receipt by me (which should be within 48 hours after your acceptance of this propo- sition) at the Kiggs National Bank, upon compliance with our agreement as to the $100,000 of bonds and the payment for the stock at the rate of 50 cents a share for the preferred stock, with a corresponding proportion of the outstand- ing common stock accompanying the same and also the resignations of such of the directors as go with the stock, which contemplates the majority of all the directors. It is intended that substantially the terms outlined in your letters upon this subject shall be complied with by both parties. I believe that in respect to certain details your letters are not quite in conformity with my understanding of the transaction. I refer particularly to the question of taxes. The other differences relate to smaller items, and I have no doubt that all can be satis- factorily adjusted when we are able to conclude the transaction. I further suggest, as a matter of protection to all parties, in order that there might not be competition for the purchase of such stock as I am not able to deliver within the next few days, that you agree to take no stock from anyone except myself for a period of, say, 60 days after the first delivery of stock con- templated by this letter. Very truly, yours, J. P. Story, Jr. JPS/LDS. Mr. Caetjsi. Now, kindly read my reply. Mr. Story (reading) : September 9, 13.12. Mr. John P. Story, Jr., 110Z Connecticut Avenue, Washington, D. C. Dear Mr. Stoey: Replying to your favor of September 9, I beg to say that the finance committee of the board of directors of the fire companies accept your proposition, and have appointed Col. Harper and myself as a committee to close the deal according to the terms of the correspondence which has passed between us, and that the funds necessary to carry it out will be placed to our credit in a special fund in the District National Bank not later than to-morrow. We can leave the question of taxes and one or two other matters to be ad- justed depending upon whether you are able to deliver 100 per cent of the stock or not. We agree that you shall have the first call to deliver the balance of the stock at the agreed price, but we hope to have the building corporation dissolved and the assets distributed before 60 days, as we shall act very rapidly after we secure the 75 per cent of the stock. I personally would have much preferred that this transaction be closed through the District National Bank rather than through the Riggs, as^ it is a bank in which I am a director, but, of course, make no objection to Riggs. I would ask, however, that if settlement is made through Riggs that New York exchange or other usual equivalents for cash be accepted as far as possible by that bank, as the amount of cash necessary is large, and local banks carry the bulk of their cash in reserve cities. Yours, very truly, CFC/OC INVESTIGATION OF INSURANCE COMPANIES. 937 Mr. Carusi. Now, it was a day or so jitter the receipt of that letter that we met at the office of your attorneys, Messrs. Blair & Hillyer, and finally drafted and executed the contract that you have read to the committee ? Mr. Story. It was. Mr. Carusi. It has been stated, Mr. Story, that the Southern. Building was hawked around Washington for sale. Will you tell the committee what you know about that? Mr. Story. Well, I had it for sale some 18 months prior to selling- it to Mr. Carusi and Mr. Harper. I offered the building to two other people only — I mean, offered it to them seriously, with a contempla- tion of selling it to them. Otherwise, I do not recollect having offered it to anybody. Mr. Kedfteld. Can you state to whom you offered it and at what figure? Mr. Story. Yes; I offered it to Mr. J. Morris Meredith, of Boston. Mass., at — I am not quite certain of the asking price that was put on it, but with the intimation that probably a million five hundred and fifty thousand dollars would be accepted. Mr. Johnson. When was that? Mr. Story. That was a year ago last summer. Mr. Redfield. That is, in the summer of 1911? Mr. Story. In' the summer of 1911. Mr. Eedfield. To whom otherwise did you offer it ? Mr. Story. I offered it to Sylvester W. LaBreau, of New Orleans. Mr. Eedfield. At what price? Mr. Story. I offered him a stock holding Mr. Redfield. Which would put the property at what figure? Mr. Story. Which would put the property to him at $1,535,000. Mr. Redfield. Mr. Story, tell the committee what were your full instructions in offering this building for sale, from the owners. Mr. Story. My full instructions were a series of conversations with Mr. Douglas, who was the attorney for the company, and Mr. Douglas never told me that he could positively authorize the sale at any definite figure, but I was always given to understand that a million five hundred and fifty thousand dollars would be acceptable to the company. Again, it developed that the Richmond Realty Co., which held the very largest proportion of the stock, would, on a straight sale of the property and a distribution of the funds pro rata, according to their stock holdings — would get a great deal more than what they would take if we bought their stock. Therefore it ended up by making a stock transaction of it, but $1,550,000 was the only, or rather the lowest, figure at which I felt at all that that building- could be sold for, and that "was not an authorized figure — subject to approval. Mr. Redfield. Yet you did offer it to the New Orleans party for $1,535,000? Mr. Story. A stock transaction. Mr. Redfield. Yes; but in which the property figured at that basis? Mr. Story. Yes. Mr. Johnson. When was that? Mr. Story. That was in the summer of 1912. 938 INVESTIGATION OF INSUKANCE COMPANIES. Mr. George. And what rate for the building and what for the ground ? Mr. Story. I do not know that that was gone into. Mr. George. Well, as a man dealing in real estate in the District of Columbia, did you have that in mind? Mr. Stort. I could not tell you whether I did or not. I have no correspondence in the matter, but I recall it was probably in the neighborhood of a million five hundred and fifty thousand dollars to a million six hundred thousand dollars. Mr. George. No; but did you separate the values? Mr. Story. I could not tell you, sir. I had a good many con- versations. Whether I separated them or not I do not recollect. I will say that I had represented that the property was worth more than $1,535,000. Mr. Redfield. Your offer to the party in New Orleans was $1,535,000 as a stock transaction? Mr. Story, Yes; but it was not an offer, but was an intimation of what figure we felt we could probably buy it for. We afterwards learned there were a number of debts that we were not familiar with at the time and had to backwater on the proposition. Mr. Eedfield. Did you withdraw it? Mr. Story. No ; he did not take it. In the meantime we had sold it to Mr. Carusi. Mr. Redfield. Neither of those two propositions was accepted by the parties to whom you made them? Mr. Story. No, sir. Do you mean including the offer at $1,550,000? Mr. Redfield. Yes. Mr. Story. Yes. Mr. Redfield. Did you receive any offers for the property during the 18 months that you had it? Mr. Story. A year ago last summer I received what I would have regarded as an offer had I been willing to encourage it, at a million four hundred thousand dollars. Mr. Redfield. From whom was that? Mr. Story. Mr. J. Morris Meredith. Mr. Redfield. And that was the same party to whom you offered it at $1,550,000? Mr. Story. Yes. Mr. Redfield. Then there was a difference of $150,000 between you? Mr. Story. Exactly. Mr. Redfield. Is that the only offer you ever had for the property ? Mr. Story. That is the only offer I ever had for the property, and that was not bona fide, because it was not accompanied by a deposit; but he said he would pay that if he thought he could get it. That offer was refused flatly — the suggestion of that offer. Mr. Redfield. That is all Mr. Carusi. Mr. Story, the preferred stock was preferred not only as to priority in the payment of dividends but was also preferred as to the right to the assets of the corporation in case of dissolution, is not that so? Mr. Story. I could not answer you, Mr. Carusi. That is my under- standing of it, but I do not know. INVESTIGATION OF INSURANCE COMPANIES. 939 Mr. Carusi. Of course, the certificates will show upon their face. Mr. Story. Yes. I gathered that from what Mr. Charles Hall Davis had said. Mr. Carusi. We have some of those here locked up. I will offer one of them in evidence for the record. This offer of $1,400,000 was, in effect, simply an offer to take the property for the encumbrances, was it not? Mr. Story. Yes; that was 18 months ago. Mr. Carusi. Yes. The encumbrances at the time I purchased were $1,400,000? Mr. Story. Yes. Mr. Carusi. Do you know really just how much it cost these two fire insurance companies to acquire this property ? Mr. Story. Well, I could not say to the dollar, but it is from $1,545,000 to $1,550,000. Mr. Carusi. All of the floating indebtedness has been paid, has it not? Mr. Story. I understand so. Mr. Carusi. All of the accrued taxes and interest? Mr. Story. I understand so. Mr. Carusi. Let me bring this out for the information of the com- mittee. In an ordinary real estate purchase it is usual, is it not, that after the purchase price has been agreed upon at a certain figure, that then when the title is to pass certain adjustments take place and there is either charged or deducted, as the case may be, the accrued interest, taxes, and other running charges against the property? Mr. Story. Yes. Mr. Carusi. So that if the purchaser has to assume the obligation of a large amount of interest that has accrued in the past he deducts that amount from the agreed purchase price. Is not that so ? Mr. Story. If the purchaser Mr. Carusi. Yes. Mr. Story. Yes ; exactly — at the time of settlement. Mr. Carusi. Yes. And if taxes have accrued and he is obliged to pay them at some time in the future, he does the same thing — he makes a deduction ? Mr. Story. Yes. Mr. Carusi. On the other hand, if there is any item, such as a pre- mium paid on insurance, which has a period yet to run, that is treated as a credit on the other side ? Mr. Story. Yes. Mr. Carusi. Now, in acquiring the Southern Building through th& medium of a purchase of stock, those adjustments could not take place, could they? Mr. Story. No. Mr. Carusi. So that in addition to the agreed price there enters into the real purchase price all of the accrued interest? Mr. Story. Debts. Mr. Carusi. Taxes and other charges Mr. Story. Exactly. Mr. Carusi. Against the property? Mr. Story. Yes. 71391— No. 10—13 6 940 INVESTIGATION OF INSURANCE COMPANIES. Mr. Carusi. Now, in order that the distinction between the value of the property and the value of the stock may be accentuated a little, the stock, as I- understand, to have any value at -all, must be worth something over and above not only all the incumbrances of record, but also all the other obligations, of any character whatsoever, of the Southern Building Corporation? Mr. Story. Yes. Mr. Carusi. In other words, the creditors of a corporation come ahead of the stockholders of a corporation? Mr. Story. Yes. Mr. Carusi. So that the value of the stock might depend not so much upon or not entirely upon the value of the Southern Building as a physical property, but upon the condition in which the stockholder would find his interest? Mr. Stort. Yes. Mr. Carusi. As being jeopardized by unsecured debts, demand notes that are coming due, interest that is coming due ; is that not so ? Mr. Story. Yes ; and the ability to meet them. Mr. Carusi. Exactly, and the ability to meet them when they do some due, under the penalty of foreclosure. Mr. Story. Exactly. Mr. Carusi. Which, if it did take place, would deprive his stock of any value whatsoever? Mr. Story. Undoubtedly that is true. Mr. Carusi. Now, do not all of those considerations that we have just gone over affect the value of the property, considered as a piece of real estate ? Mr. Story. I should think very distinctly. Mr. Carusi. Let me make my question clearer. A piece of real estate Mr. Story (interposing). Let me make my answer clear, Mr. Carusi. I mean the ownership of that real estate is very largely affected by the condition. Is that the way you wanted to put the question ? Mr. Carusi. Well, no; that is not exactly what I had in mind. What I want to make clear is that a piece of real estate, as such, is worth a certain sum of money, quite irrespective of whether you own it, who are a very rich man, or I own it, who is a very poor man? Mr. Story. Yes. It represents so much value. Mr. Carusi. Yes. Mr. Story. Exactly. Mr. Carusi. Now, that value depends, does it not, upon three con- siderations — the value of the ground, the value of the building, and the value of the two taken together — as being productive of an income ? Mr. Story. Well, that makes the fixed value. As I said to the committee some time ago, there are a great many factors entering into the valuation, to my mind, of real estate, either as a purchasing proposition or as a sale proposition, and one piece of real estate in the hands of one man is not worth to him as much as that same piece of property would be worth if in the hands of another man under different circumstances. And I am afraid that I do not get the fine point that you are trying to bring out. In other words, I should say that the real estate — if you wanted to say that the value of a INVESTIGATION OF INSURANCE COMPANIES. 941 piece of ground, plus the value of the building, is worth so much, that can be stated in almost any case. Mr. Caeusi. Yes, Mr. Story. Now, as to whether it is worth to the holder that much, more or less, depends upon the circumstances. Mr. Caeusi. It may depend upon his circumstances. Mr. Stoby. Exactly. Mr. Caeusi. Well, now, I will ask you this question Mr. Stoey. Very largely ; that is true. Mr. Caeusi. (continuing) . Because this is a matter that has been thrashed over a good deal here, and it is this : Do you consider the price at which the stock of the Southern Building Corporation was purchased a fair criterion of what the Southern Building was worth ? Mr. Stoey. I do not. The Richmond Eealty Corporation, by their directors, thought that the building was worth $2,000,000, but in the ownership of the stock, as it was, they felt that they would have % to sell it at what they did — twelve and a half for their preferred stock. That is an instance of what I think you mean. Mr. Caeusi. You say they felt that? How do you know? Mr. Stoey. Because they so expressed themselves. Mr. Caeusi. Who told you that? Mr. Stoey. I was present at a meeting at which they said it was worth $2,000,000. Mr. Redfield. Where was that meeting? Mr. Stoey. Richmond, Va. Mr. Redfield. Who were present? Mr. Stoey. Mr. Warner Moore, A. L. Hawse, Mr. Eichelberger, Mr. Rountree, Mr. Sands, and Mr. Gunn. Mr. Redfield. When did they say it would be worth that ? Mr. Stoey. At the time I got an option on their stock. Mr. Redfield. They said they thought it was worth that then? Mr. Stoey. They said they thought the building was worth $2,000,000. Mr. Caeusi. Now, Mr. Story, do you know, speaking of the minority stockholders, that after you delivered nearly all of the stock that I, personally, after your option had expired, bought some of the additional outstanding stock? Mr. Stoey. Yes. Mr. -Caeusi. And that I paid a hundred cents on the dollar for it? Mr. Stoey. Yes. Mr. Caeusi. In one instance I paid a hundred cents on the dollar and 6 per cent interest to the holder of the stock? Mr. Story. Yes. Mr. Caeusi. For all the time he had had his money invested in this company ? Mr. Stoey. I paid that, too. I had forgotten that, when I said I had paid only a hundred dollars a share. I paid interest for two years in one instance. Mr. Carusi. Now, I gave you checks or drafts on New York, did I not, for the stock deliveries that you made ? Mr. Stoey. You did. Mr. Carusi. Will you please tell the committee whether, in any case, so far as you know, there was ever a rebate to me or to any of 942 INVESTIGATION OF INSURANCE COMPANIES. the presons that I represented, or any of my associates, whether directly or indirectly, of a single dollar that I disbursed? Mr. Story. I know absolutely there was no rebate of any kind to you or to your associates or anybody connected with you. Mr. Cahusi. Every dollar Mr. Story (interposing). Every dollar came to my hands and was disbursed by me. Mr. Cartjsi. I have no further questions. Mr. Redfield. I have nothing further. Mr. Johnson. You may be excused, Mr. Story. The committee will stand adjourned until to-morrow morning at 10 o'clock. Whereupon, at 4.10 p. in., on the 8th day of January, 1913, the subcommittee adjourned until Thursday morning, January 9, 1913, at 10 o'clock at the same place. The certificate of title referred to by Mr. Carusi during the after- noon sessions of to-day's hearing is as follows: No. 41499. Certificate of Title. The District Title Insurance Co. and the Washington Title Insurance Co., corporations of the District of Columbia. In consideration of $450 to them paid by the Commercial Fire Insurance Co., of the District of Columbia, and the First National Fire Insurance Co., of the United States, do hereby certify that according to the records, the title to the real estate situate in the city of Washington, D. C, described in the caption of the annexed schedule A dated October 30, A. D. 1912, namely, lot No. 44 in square No. 220, more particularly described in the caption of the annexed schedule A, is as shown in the opinion signed by Arthur G. Bishop, vice president, shown on said schedule and is not, at the date thereof, charged or affected by any existing lien or incumbrance, or by any suit at law or in equity pending in said District in which said real estate is described, except such as are noted or mentioned in said schedule and except unpaid taxes and assessments, if any, as to which the assessor for the District of Columbia will certify. This certificate is issued to the Commercial Fire Insurance Co., of the District of Columbia, and the First National Fire Insurance Co., of the United States, District of Columbia corporations, tenants in common, and for their benefit only. [seal.] The District Title Insurance Co. [seal.] The Washington Title Insurance Co. A. 6. Bishop, Vice President. Fred McKee, Acting Secretary. Dated October 30, 1912. [The District anfl the Washington Title Insurance Cos.] Case No. 41499. Schedule A Above Referred to. Lot No. 44 of a subdivision of lots in square No. 220, made by James Gibbons, archbishop of Baltimore, as per plat recorded in the office of the surveyor for the District of Columbia, in liber 24 at folio 142. I have examined the title to the property described in the caption hereof and consider the same good, according to the records, including original instru- ments filed for record but not yet copied upon the records in the Commercial INVESTIGATION OF INSURANCE COMPANIES. 943 lire Insurance Co. of the District of Columbia and the First National Fire Insurance Co. of the United States, both being corporations organized under the laws of the District of Columbia, in fee simple, as tenants in common, sub- ject to the deeds of trust, lease, pending bill in equity cause No. 30763, and me- chanic's lien No. 6340, below noted, and to unpaid taxes and assessments and ■^recorded tax sales, if any, as to which the assessor for the District of Co- lumbia wi'i certify. Southern Building Corporation (a Virginia corporation) to American Security & Trust Co. Trust. Dated May 11, 1910. Recorded May 20, 1910. Lot 44 in James Cardinal Gibbous, archbishop of Baltimore, combination of lots 10 to 15, inclusive, in the heirs of J. Davidson's subdivision of lots in square 220, as per plat recorded in said surveyor's office in liber 24, at folio 142 ; and all chattels and fixtures on the premises. To secure the Equitable Life Assurance Society of the United States, $800,000, one note, payable in installments of $50,000 on June 1, 1915, and a like amount on the 1st day of June in 1916, 1917, 1918, and 1919, and the residue of $550,000 payable on June 1, 1920, with interest at the rate of 6 per cent per annum, payable on December 1, 1920, and semiannually thereafter until the completion of the building, then at the rate of 5 per cent per annum, payable semiannually on the 1st day of June and December of each year, on the unpaid principal, with 5 per cent interest after maturity on unpaid interest. Resolutions attached. Liber 3377 at folio 126. Southern Building Corporation (a Virginia corporation) to United States Trust Co. Trust. Dated May 12, 1910. Recorded May 21, 1910. Land at the north- east corner of Fifteenth and H Streets NW., being lot 44 in the subdivision by James Cardinal Gibbons, archbishop of Baltimore, subdivision of lots in square 220, as per plat recorded In said surveyor's office in liber 24, at folio 142, front- ing on Fifteenth Street 150 feet and 148 feet 1 inch on H Street, being the same conveyed to the Southern Building Corporation by Charles Hall Davis and others, dated May 26, 1909, and recorded in liber 3258, at folio 479, and chattels, subject to trust for the sum of $800,000, dated May 11, 1910, to be increased to $900,000 on the erection of an 11-story building instead of a 9-story, one first proposed, and this trust to be subordinate to such new loan of $900,000, or $850,000, if that is sufficient for the purpose. To secure bonds of first party for the sum of $450,000, 500 bonds, Nos. 1 to 500; Nos. 1 to 100 for the sum of $500 each; and Nos. 101 to 500 for the sum of $1,000 each, said bonds payable May 1, 1915, with interest at the rate of 6 per cent per annum, payable semiannually on the 1st day of November and May of each year, without priority ; the privilege is reserved of registering stockholders not liable $25,000 annually to paid interest sinking fund. Resolutions attached. Liber 5321 at folio 354. Southern Building Corporation of Virginia, to United States Trust Co., Lease. Dated March 16, 1911. Recorded March 17, 1911. Part of first floor of the building at the corner of Fifteenth and H Streets NW., known as the Southern Building; beginning at the southwest corner of said building at the intersection of Fifteenth and H Streets NW. ; thence north along Fifteenth Street 66 feet 4 A inches; thence easterly, parallel with H Street, 58 feet 6 A inches ; thence south, parallel with Fifteenth Street, 66 feet 4ft inches to H Street; thence west along H Street 58 feet 6A inches to the beginning. Also the basement under said floor and described as above; space on the second floor ; beginning at the southwest corner of said building at the intersection of Fifteenth and H Streets NW. ; thence north along Fifteenth Street 48 feet 8& inches; thence east, parallel with H Street, 57 feet 11 fs inches ; thence south, parallel with Fifteenth Street, 48 feet 8 A inches ; thence west along H Street 57 feet ll^s inches to the beginning. For a period of 10 years from July 1, 1911, with the privilege of renewal for 10 years. If not renewed then the lessor to repay to the lessee at the end of 10 years one-half of the cost of vaults, etc., and if renewed, then at the end of 20 years to pay to the lessee one-fourth of the cost of said improvements. Liber 3402 at folio 216. Southern Building Corporation (a Virginia corporation) to United States Trust Co. Trust. Dated April 1, 1911. Recorded April 12, 1911. Lot 44 in the sub- division of lots in square 220, made by James Gibbons, archbishop of Baltimore, 944 INVESTIGATION OF INSURANCE COMPANIES. as per plat recorded: in said surveyor's office in Liber 24 at folio 142; fronting on Fifteenth Street 150 feet and on H Street 148 feet 1 inch, being the same property conveyed to the first party by Charles Hall Davis and others by deed dated May 26, 1909, and recorded in Liber 3258 at folio 479 ; subject to trusts dated May 11, 1910, for the sum of $800,000, and a second mortgage for the sum of $450,000, dated May 12, 1910, To secure bond issue of 325 gold mortgage bonds for the sum of $1,000 each, numbered 1 to 325, due April 1, 1915, with interest at the rate of 6 per cent per annum, payable semiannually ; provisions as to certification and regis- tration, redemption, if lost, and cancellation coupon interest, notes attached. Liber 3419 at folio 137. Thornpson-Starrett Oo. r. Southern Building Co. Mechanic's lien No. 6340. Filed January 18, 1912. $14,480.92. Thompson-Starrett Co. v. Southern Building Corporation. Equity cause No. 30763. Filed January 24, 1912, to enforce mechanic's lien No. 6340. Lot 44 in Square 220, as per plat recorded in said surveyor's office in liber 24 at folio 142. February 21, 1912, cross bill reciting that complainant did not comply with specifications. March 6, 1912, decree pro confesso. October 30, 1912. [seal.] A. G. Bishop, Viae President, INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMISSIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA HOUSE OF REPRESENTATIVES No. 11 JANUARY 9, 1913 »m» w WASHINGTON GOVERNMENT PRINTING OFFIOJC INVESTIGATION OF INSURANCE COMPANIES AND OFFICE OF COMMIS- SIONER OF INSURANCE IN THE DISTRICT OF COLUMBIA. Subcommittee of the Committee on the District of Columbia, House of Representatives, Washington, D. 0., January 9, 1913. The subcommittee met at 10 o'clock a. m., pursuant to the adjourn- ment, Hon. Ben Johnson (chairman) presiding. Present, in addition to the members of the committee : Francis H. Stephens, assistant corporation counsel of the District of Columbia ; George H. Ingham, Esq., superintendent of insurance of the District of Columbia, and his counsel, Mr. J. S. Easby-Smith; Hon. Cuno Rudolph and Lieut. Col. William V. Judson, United States Army, Commissioners of the District of Columbia. Also Messrs. Charles A. Douglas and Charles F. Carusi, representing the Commercial Fire Insurance Co., the First National Fire Insurance Co. of the United States, and the Washington Loan & Trust Co. STATEMENT OF CHARLES HALL DAVIS. The witness was duly sworn by the chairman. Mr. Johnson. Mr. Davis, you will please give to the stenographers your name, residence, and occupation. Mr. Davis. Charles Hall Davis ; Petersburg, Va. ; attorney. Mr. Redfield. Mr. Davis, will you please tell the committee, in your own language, as briefly as practicable, what relations you have had, if any, with the Commercial Fire Insurance Co. or with any parties connected therewith, with the Southern Building Corpora- tion or parties interested therein, and will you introduce into the record at the proper point in your story such papers as may be perti- nent to the story, please ? Mr. Davis. Before starting on that statement, I wish to say that in a fire which destroyed a large part of the city of Petersburg in December, 1910, my office, with practically all its contents, was de- stroyed, and so in regard to all matters prior to December, 1910, 1 am practically forced to depend entirely on my recollection, though I think my recollection is accurate. Taking up the history of the matter consecutively, I think it was in December, 1908, I was asked to come to Washington to attend the organization meeting of the Southern Commercial Congress. I at- tended that in the capacity of president of the Chamber of Commerce of the city of Petersburg, Va., where I reside. At that organization meeting Mr. John M. Parker, of New Or- gans, was elected president. When he started to organize his board 945 946 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Parker asked me to become a member of bis executive committee. Before consenting to act I asked him about his plans for financing the organization, and only consented to act when he agreed with me that he would attempt to have the institution endowed; that is, to get enough money contributed to give it a yearly income. My own suggestion was that this money should be invested in a building in Washington, which would be the headquarters of the organization, which should produce a revenue for its support, and which, I thought, would be of value to it in many other ways. Mr. Parker finally agreed with me, however, and asked me to act as chairman of the executive committee of that organization, and I did so act for about two years. In order to carry out this plan it became necessary to select a site on which to erect the proposed building, as we intended to ask people all over the South to make contributions, in denomina- tions of a thousand dollars each, for the purpose of constructing this building, and it was necessary to have some tangible proposition to submit to them. Probably a week or two after I had been named as chairman of the executive committee I was in Washington and saw in the paper that Messrs. A. E. L. Leckie and E. H. McNeill, gentlemen whom I had known for some years, and perhaps Mr. Charles A. Douglas — though I am not sure whether his name was mentioned in the paper or not — had secured an option on the old St. Matthews Church property, which was a property which I had looked at with a view to trying to obtain it as a home for the Southern Commercial Congress. I went around and talked with Mr. Douglas about the matter, and Mr. Douglas himself was a member of the executive committee of the Southern Commercial Congress at that time, I think. If not, he immediately became a member. Mr. Douglas. What was the date of that, Mr. Davis % Mr. Davis. I think it was in about January, 1909. Mr. Douglas. You say I was on the executive committee of the congress on that date? Mr. Davis. I think so. My recollection is the congress was organ- ized in December, 1908, though it may have been in December, 1907. I am not absolutely positive about that. It was in December, I am sure, and I think in 1908. I talked with Mr. Douglas about the property and he seemed to think it would be very desirable as a location for the congress. Nego- tiations resulted between myself on the one hand and Messrs. Doug- las, McNeill, and Leckie on the other hand, and finally the property was offered to us at the price of $23 per square foot. At that time, when it was so offered, I knew that that price was in excess of the option price at which the parties referred to held the property, though I did not at that time know just how much in excess it was, and was not particularly interested, because my only interest was to see that the congress got the property at a fair valuation. Negotiations resulted, and I had some correspondence with Mr. Parker. Mr. Parker made certain independent investigations of the value of the property, and finally we agreed to undertake the purchase of the same for the benefit of the Southern Commercial Congress. INVESTIGATION OF INSURANCE COMPANIES. 947 I have before me a copy of a power of attorney from Mr. Parker, dated the 28th day of January, 1909, by which he appoints me as agent and attorney in fact to accept and purchase in his name or in my name, or both, the St. Matthews Church property, in which appears the following : It is understood that in accepting said option and in the purchase of the said above described property thereon by said Charles Hall Davis, whether in his own name or iu our joint names, the purchase so made shall inure to (he benefit of the Southern Commercial Congress or such association as may hereafter be organized under its auspices, for the purpose of holding or develop- ing the said above described real estate. That power of attorney was apparently executed subsequent to the execution of an option on the property from Eobert H. McNeill and A. E. L. Leckie, dated the 11th day of January, 1909, a copy of which is before me and can be copied into the record, I suppose. Mr. Redfteld. We have a copy of it in the record. Mr. Davis. That option shows that $5,000 cash was paid for the option; that the purchase price was $23 per square foot; that $10,000 aditional was to be paid on or before the 10th dav of Feb- ruary, 1909, $35,000 on or before the 25th day of February,' 1909, and the balance on or before November 1, 1909. Mr. Parker was in New Orleans, and the burden of attempting to raise this money fell on me. I used every effort to raise the money to meet these payments for the benefit of the Southern Commercial Congress — and at this point would say that Mr. Parker and I in the beginning had an understanding that neither of us, under any conceivable circumstances, should ever make any profit out of this transaction, but that it was done purely for a public purpose, and, as we thought, for a wise purpose. The method of raising this money was to get individuals to contribute in units of $1,000, the theory being that we would get a thousand men in the South to put up a thousand dollars apiece. The first $5,000 payment was made and the second payment was also made, but a good deal of difficulty was experienced in meeting the third payment, and to that I will refer later. Mr. Douglas himself became one of the members of the Southern Commercial Congress, contributing $1,000, and my recollection is that Mr. Leckie. Mr. R. H. McNeill, Mr. Alexander McNeil, and possibly Mr. Thomas M. Baker did likewise. Quite a number other people' contributed a thousand dollars, and I also contributed a thousand. . Mr. Parker personally contributed $10,000, and had his friends make several contributions of $1,000 each. In obtaining this money, of course we were confronted with the proposition that it was possible we would not be able to raise the whole million dollars, and numerous discussions were had as to ]ust what would be the course pursued in that case. It was finally decided that it should be recognized that in case the Southern Commercial Congress was able to finance the deal and build the building the money contributed should be a gift to it and the building should be held for its benefit, but in case they were unable to finance the deal and it became necessary to commercialize the project, then the people who had contributed this money should be protected so far as possi- ble, and if it was possible the money should be returned to them. 948 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Pardon me, Mr. Davis. Will you say who entered into that agreement? Mr. Davis. I do not think any written agreement was entered into. It was the result of discussions between myself, Mr. Douglas, Mr. Leckie, and a number of other contributors. We were all ap- parently anxious to see that the men who contributed this money for p public purpose should be satisfied that if it was not used for public purposes that every effort would be made to return it to them. I do not think any written agreement was entered into at all. I made every effort to raise the necessary money during the sum- mer and fall of 1909 to meet the last payment, and my recollection is we were about $25,000 shy of the necessary amount. In order to raise this an arrangement was made with Mr. T. Franklin Schneider, an architect of Washington, by which Mr. Schneider was selected as the architect for the building, and Mr. Schneider made a contribu- tion of $20,000, turning over to me twenty $1,000 bills in the Metro- politan Bank, which I immediately deposited in the Union Trust Co. and which was used in making this last $25,000 payment. The other $5,000. as I recall it, was raised on the note of the Southern Commercial Congress, with several indorsers, among whom were Mr. Douglas and myself. Possibly we were the only indorsers. These payments having been made, the title to the property, as I recall it, was taken in the name of John M. Parker and Charles Hall Davis. Mr. Redfikld. As trustees? Mr. Davis. Of course we were trustees. Just Avhat the deed stated, 1 do not recall. My recollection is a declaration of trust was perhaps drawn up and deposited with some third party, but in fact we were trustees for the Southern Commercial Congress. Mr. Redeield. What took place next? Mr. Davis. Then it became aparent we could not raise the balance of the money, and it also became apparent that in order to save the investment already made something had to be done, and it was de- cided to commercialize the project. With this in view, frequent discussions took place, and, of course, all these discussions eventually came down to propositions as to the conveyance to be made by Mr. Parker and myself to a proposed cor- poration. Mr. Parker was in New Orleans and was very hard to see, as he is a man of large affairs. Finally Mr. T. Franklin Schneider and Mr. Alexander McNeil came to Petersburg one Sunday and spent the day at my home. They stated they had just been to New Orleans to see Mr. Parker about the matter. They wanted a conveyance of the property made to the Southern Building Corpora- tion, a corporation which they had either organized or proposed to organize under the Virginia laws, and the question was as to the de- tails of this proposed conveyance. I have absolutely no record of this meeting or of this discussion, but I am very positive as to the understanding arrived at at that time. My position was that the money already subscribed either belonged to the Southern Commercial Congress or it did not. If it belonged to that organization I, as the chairman of the executive committee, was under a duty to take care of it. If it did not belong to that organization, then I, as the executive head of the organization, was INVESTIGATION OF INSUKANCE COMPANIES. 949 under an obligation to see that the parties who had contributed it were protected. On the other hand, it was recognized that a large amount of money was due on the property; that there were existing trusts upon it, which would be foreclosed unless some arrangement was made, and that unless it was practically commercialized the whole investment made by these individuals would be wiped out. As a result of all this discussion, as I recall it, this agreement was made — and when I say agreement I mean simply an understanding, because, so far as I know, no written paper was drawn up about it, though, perhaps, it may have been outlined in letters, my copies of which have been destroyed. My understanding was that the property was to be turned over to the Southern Building Corporation. Mr. Douglas. Pardon me, Mr. Davis. You are talking about the conversation between Alexander McNeil, T. F. Schneider, and yourself ? Mr. Davis. Yes. The result of that conversation, as I recall it, was an understanding that the property was to be turned over to the Southern Building Corporation. The Southern Building Corpora- tion was to pay for the property by assuming the debts already ex- isting on it, and by assuming the debts of the Southern Commercial Congress incurred in connection with its efforts to finance it, and by assuming the $5,000 note indorsed by Mr. Douglas and myself, the money derived from which had gone into this purchase. It was, in addition, to pay ' over to the syndicate represented by Messrs. Leckie, McNeill & Douglas, the difference between the price which they had agreed to pay and the price at which it was sold to the congress, and I at that time knew what they had paid originally, or agreed to pay originally. The parties who had contributed the actual money were to receive stock for their contributions, with the understanding that while they were receiving stock for actual money paid in they would be taken care of in any future transactions involving the property in this way, that the gentlemen who proposed to handle and commercialize the property would see that they got back their money with interest prior to the time that this syndicate made any profit. That is to say, the contributors had their money in the property and it had to stay in the property ; it was obviously necessary for mortgages to be executed and money to be raised to build the building; the contributors were to allow their money to stay in the property, and it might be lost, but my understanding was, and I think Mr. Parker confirms this as being his understanding— I judge so from his correspondence— that while this money was to remain in the project, and the syndicate was to be allowed to handle it in any way they thought fit, all the con- tributors expected was that before the syndicate made any profit the money paid in by these people who acted from a public-purpose stand- point should be returned to them with interest. Prior to this time I had learned exactly what the syndicate paid for the property, or agreed to pay for it, and the question had come up as to what would be the result to them in case the congress was Unable to float this proposition. In order to protect them in that event an instrument in the nature of a trust was executed so that in case the project became commercialized it would be evident that 950 INVESTIGATION OF INSURANCE COMPANIES. the syndicate claimed this excess valuation representing the differ- ence between $18 and $23 per square foot, and so far as the congress was concerned we knew of that and had no criticism to make of their getting the same, but at the same time it should be understood that the $50,000, or thereabouts, contributed by the Southern Commercial Congress represented the actual cash, and so far as I can recall — and I believe my recollection is accurate — that money actually went to the Catholic Church as part of the actual cash payment for the prop- erty itself, and the people who contributed it never expected to re- ceive any profit, and under the most favorable circumstances only expected to receive back their money and the interest, and that only in case the Southern Commercial Congress failed in its efforts to finance the deal. I stated a while ago that Mr. Douglas was a member of the execu- tive committee of the Congress at the time I approached him about the purchase of the St. Matthews Church property. I think, per- haps, I am in error about that. He was either a member of the ex- ecutive committee then or within two or three weeks afterwards, but since he raised the question, I rather think that he came in as a mem- ber of the committee shortly afterwards. He, I think, has been a member of the executive committee ever since. And I want to emphasize the fact that at that stage of the pro- ceedings, so far as I was able to ascertain, Mr. Douglas, Mr. Leckie, Mr. R. H. McNeill, Mr. Alexander McNeil, Mr. James M. Baker, Mr. S. W. Meek, and the other gentlemen interested in the matter apparently were using every effort to help me to raise the money to finance the deal for the Southern Commercial Congress. The transfer was made from John Parker and myself to the South- ern Building Corporation, and stock was issued to us and to each of the parties who contributed to represent their contributions. Mr. Redfield. Preferred stock, Mr. Davis ? Mr. Davis. May I ask a question of Mr. Mann as to some papers, Mr. Redfield? Mr. Redfield. Certainly. Mr. Davis (after conferring with Mr. Mann). According to my recollection the Southern Building Corporation at first had only one class of stock, and this common stock, the stock of the corporation, there being only one class, was issued to the people who had made the contribution. Subsequently the financial plan of the Southern Build- ing Corporation was changed and the stock was divided into pre- ferred and common. When that was done the people who had re- ceived the original stock delivered up their original stock and re- ceived an equal amount of preferred stock of the new issue, and 50 per cent of the amount of their preferred stock in common stock. Iu the records of the Southern Building Corporation appears a proposition made on the 29th day of May, 1909, and which I think is signed by Mr. Parker and myself, addressed to the stockholders. incorporators, and directors of the Southern Building Corporation, setting forth the plan of conveyance of the property to the Southern Building Corporation, and showing that the stock was to be issued to the original contributors as indicated. Mr. Douglas. Have you that paper before you to which you refer, Mr. Davis? Mr. Davis. I have an extract from it. INVESTIGATION OF INSURANCE COMPANIES. • 951 Mr. Douglas. May I see the extract which you have ? Mr. Davis. Yes, sir; certainly [handing paper to counsel]. This paper shows the names of the contributors. Mr. Douglas. I would like to have you read that paper into the record,. Mr. Davis. Mr. Davis. I will, with pleasure. Mr. Douglas. Then you may comment upon it. Mr. Davis. I would like to ask for the original record and read it from that — the original proposition. Mr. Douglas. That is in the possession of the committee now. Mr. Davis. My recollection is this paper is signed by Mr. Parker and myself, but in a matter of this importance I do not like to testify absolutely until I can see it. Mr. Douglas. Suppose you go ahead, Mr. Davis, on that supposi- tion and you can verify it afterwards. ' Mr. Eedfield. Yes ; we want to save all the time we can. Mr. Davis (reading) : Meeting Incorporators, etc., May 29, 1909. Washington, D. C, May 29, 1909. To the stockholders, incorporators, and directors of the Southern Building Cor- poration. Gentlemen : We hereby make you the following proposition : For the consideration hereinafter named we will convey to you, in fee simple, with covenant of special warranty, all of that certain lot, &c. The consideration for such conveyance is to be the sum of $560,974.60, to be paid as follows: Assumption of first mort, 160.000, with interest at 4-S from May 1, 1909. Ass. of second mort. from McNeill & al. to Baker & another tr, to secure $190,000, with 4f% int. from Feb. 25, 1909. Ass. of $5,000 & 6% int. to U. S. Trust Co. Ass. of debts So. Com. Cong., $8,598.80. Issue & delivery of fully paid cap. stock as follows : T. Franklin Schneider $20, 000. 00 John M. Parker 36, 000. 00 Charles Hall Davis 1,000.00 Alexander McNeil 1, 000. 00 Walter Denegre 1, 000. 00 John G. Ruge 1,000.00 Rufus X. Rhodes 250.00 Culpeper Exnm 250. 00 Robert Jennison, jr 250.00 John L. Kaul 250.00 James M. Baker, trustee 4,000.00 James M. Baker, trustee 50,000.00 Charles A. Douglas 10.000.00 A. E. L. Leckie 10,000.00 R. H. McNeill 10,000.00 Samuel W. Meek 10,000.00 James M. Baker 10,000.00 James M. Baker, trustee 1, 375. SO American Security & Trust Co 60,000.00 206, 375. 80 George W. Simmons 1, 000. 00 It is understood that this proposition is to include the stock subscribed for by Mr. McNeill, Mr. Meek, and Mr. Schneider, nil of these gentlemen having consented hereto. Resp. sub. this 29th May, 1909. Mr. Eedfield. Now you may proceed. 952 INVESTIGATION OP INSURANCE COMPANIES. Mr. Davis. Mr. Parker's apparent contribution of $16,000 con- sisted of his own contribution of $10,000 and six contributions of $1,000 each made by his intimate personal friends. It will be seen that in the distribution of stock, stock was issued at par for the cash contributions, and in addition to that, stock was issued to the members of the syndicate for the difference between the $18 and $23 per square foot, and one item of $60,000 to the American Security and Trust Co. I do not recall anything about, except that it appears later on in the minutes of the corporation to have been called in and retired. After this organization was effected I was, on certainly one occa- sion and possibly on others, asked to join with the gentlemen and assist them in financing the proposition and asked to share in the prospective profits. Mr. Geohge. What gentlemen? It is not clear to me. To assist what gentlemen? Mr. Davis. Messrs. Douglas, Leckie, E. H. McNeill, Alexander McNeil, James M. Baker, and S. W. Meek. Mr. George. Do you mean those who had the original option? Mr. Davis. Yes. sir. They asked me to join with them in the effort to finance this mat- ter and commercialize it. This I declined to do, stating to them the agreement that Mr. Parker and I had made, and that under the cir- cumstances I could not be in any way interested in any profits. Thereafter they proceeded to carry out this plan. Mr. Berger. Mr. Davis, I beg your pardon. Who asked you to join? Mr. Bedfield. That has just been stated, Mr. Berger. Every name has been given. Mr. Berger. Oh, no; who asked you? Who did the talking? Who asked you? Mr. Davis. It is very hard, Mr. Berger, after this lapse of time, to answer that question. I had probably 50 or 100 conferences with these gentlemen, and most of them occurred in the office of Mr. Charles A. Douglas, who had been a friend of some years standing. I think probably Mr. Douglas and Mr. B. H. McNeill, but I would not be positive about that. Mr. Bedfield. Up to this point, do we gather correctly that Mr. Douglas was in the original syndicate, was in the Southern Com- mercial Congress, and was in the Southern Building Corporation, and in these various conferences that you had with each of these parties representing these different organizations; you had many conferences with him? Mr. Davis. Oh, yes ; I think that states the fact correctly. Mr. Berger. Did you know how much money these gentlemen had invested? Did you have any idea? Because you were asked to finance the affair, did you ask them to name how much money they had invested, how much real money they had in it ? Mr. Davis. Yes, sir ; I think I knew how much money they had in there at that time, when the Southern Building took it up. Mr. Berger. And how much money they had actually invested ? ■ Mr. Davis. Yes, sir ; I think so. The only real money that I knew anything about that they had invested, each of them had put up a thousand dollars, and each of these other parties had put up the INVESTIGATION OF INSURANCE COMPANIES. 953 money I have named, and Mr. Douglas and I had gone on a note for $5,000, and they, I assume, were responsible for this debt secured on the property; but the only real money I knew anything about that went into this property was the $50,000 or thereabouts which I have heretofore described, which was contributed in $1,000 lots by various parties, among whom where these gentlemen, and the $5,000 note, and the money the Southern Commercial Congress spent in the effort to try to get other people to contribute $1,000 each. Does that answer your question, Mr. Berger ? Mr. Berger. Yes, sir; thank you. Mr. Davis. After the Southern Building Corporation was organ- ized I practically had nothing to do with the property or with the company, and never had anything to do with the property or with the company from that time to this. I think John Parker was originally, for a short time, a director in the company. In fact the records show that. But he very quickly retired from it, and told me that he likewise had been asked if he would participate in the commercialization of the matter and in the profits supposed to be derived therefrom, and had declined. Subsequently, when meeting of the Southern Building Corporation were held, I would be frequently asked to send a proxy, and usually signed these papers and sent them on as a matter of course, paying no particular attention to the matter except that I was, of course, in- terested in seeing these gentlemen succeed in their enterprise. Mr. Redfield. Mr. Davis, the committee understands that when you got your stock in the Southern Building Corporation your active connection with the matter then ceased for a time? Mr. Davis. Yes, sir. Mr. Redfield. Now. about when did the matter next come to your attention ? Mr. Davis. During the period up to December, 1912, I received various notices of meetings, notices of proposed financial plans, etc., to which I paid no particular attention, as I recall it. The only time my attention was particularly called to the corporation was, perhaps, two years ago — I do not recall the exact date — when one evening, Mr. Leckie asked me to go with him to dinner. He took me to the club fronting on Lafayette Square, I believe it is, and told me he had sold his stock and impressed on me the fact that he wanted me to re- member he had sold his stock at that time. My attention was not particularly directed to the company, except that I was very anxious to dispose of my stock, as I had become somewhat financially em- ■barrassed until September 7, 1912, or slightly thereafter. Mr. Redfield. That is an interval of about how long? Mr. Davis. About three months, I think. Mr. Redfield. Will you tell what took place as of September 7, 1912? Mr. Davis. Probably on the 8th of September I received a letter from Mr. J. P. Story! jr., dated September 7, 1912, reading as fol- lows : Washington, I). C, September 7, W12. Charles Hall Davis. Esq., Petersburg, ^'a. Dear Sir: I am endeavoring to effect a sale of the Southern Building in this ?My by purchase of the stock in the Southern Building Corporation, and I am informed that you own 35 shares of preferred and 18 of the common. I wish y04 INVESTIGATION OF INSURANCE COMPANIES. to secure from you an option for two weeks on this stock at 25 cents on the dollar for preferred, the common to be a bonus. When the transaction is to lie completed I propose that your stock be sent to some bank in Washington and delivered to me on the payment of the purchase price. If you care to sell, send me an option to purchase at the price stated, allowing me in it two weeks from Monday, September 9, and then I shall be glad if, at the same time, you will send your stock properly indorsed in blank to any person or bank here in Washington, coupled with your instructions to deliver same to me upon paying the price and within the time named in the option. I have secured an option from the Richmond Realty Corporation, which owns nearly half of the entire stock, preferred and common, of your company, at a very much less price than the tentative offer to you, and I am offering you the same price at which I hold option to October 1 on stock of Mr. Chas A. Douglas, James M, Baker, and others, and these options already amount to considerably more than a majority of all the stock. If you decide to give me the option, kindly wire me on receipt of this. I am, Very respectfully, J. P. Stohy, Jr. I have omitted malting one statement which an understanding of this letter requires should be made. I was the owner of a thousand dollars of preferred and $500 of common stock, as one of the original contributors to this fund. Probably a year or more after that stock had been received, I represented some contractors in connection with the building of the Washington, Spa Spring & Gretna Railroad Co. Mr. G. L. Baker, a law partner of Mr. Douglas, was practically the promotor. A fee was due me from the contractors, and certain claims and counterclaims were made between Mr. Baker and the contractor in an adjustment of these various matters. Certain stock of the railroad company was turned over to me as part of my fee, and then Mr. Baker said he would like to get the stock and offered to give me for it 15 shares of the preferred stock of the Southern Building Corporation and half as much common. I accepted that offer, and thereby became the owner of additional preferred and common stock of the Southern Building Corporation, as indicated. Mr. Redeield. Have you finished reading Mr. Story's letter ? Mr. Davis. Yes, sir. Mr. Redfteld. What occurred next, Mr. Davis? Mr. Davis. As soon as I received Mr. Story's leter I wrote to various parties, notably to Mr. Douglas, Mr. R. H. McNeill, Mr. T. S. Southgate, of Norfolk, and perhaps to others, asking for all the information I could get in regard to the matter. Mr. Southgate was a member of the executive committee of the Southern Commer- cial Congress, and also was a holder of the 15 shares of the preferred and 7i snares of common stock issued to me as indicated, he having- accepted the stock as collateral to a personal loan made to me. In reply to these letters of inquiry on my part I received from Mr. Douglas a letter dated September 12, 1912. Mr. Douglas. In reply to your letter of what date ? Mr. Davis. Your letter states that it is in reply to my letter of the 10th instant, and I expect that is correct. Mr. Douglas. Will you read it? Mr. Davis. Mr. Douglas's letter reads as follows : September 12, 1912. Charles Hall Davis, Esq., Petersburg, Va. My Deae Davis Mr. Douglas. What about your own letter? INVESTIGATION OF INSUKANCE COMPANIES. 955 Mr. Davis. I do not seem to have a copy of the letter here, Mr. Douglas. I can get it if the committee wishes it. [Reading:] My Dear Davis : I am in receipt of your letter of the 10th instant. Story at the time I wrote you was negotiating Mr. Redfield (interposing). Just a moment, Mr. Davis. We will see if Mr. Douglas has your letter here. Mr. Douglas. I do not see how that letter can be understood at all without Mr. Davis's letter, taking it up paragraph by paragraph. Mr. Davis. That is not the letter, Mr. Douglas. Mr. Douglas. Is this a short letter ? Mr. Davis. This is a short letter. Mr. Douglas. Of what date? Mr. Davis. October 12. The letter to which you refer is much later. I have my letter about that and I thought I had the copy of the other letter. Mr. Douglas. That is all right. I thought you were referring to the long one. If you will permit me, Mr. Chairman, I will read into the record Mr. Davis's letter to which mine is in reply : September 10, 1912. Charles A. Douglas, Southern Bvilding, Washington, D. G. Dear Douglas : I inclose herewith copy of letter from John P. Story, jr., asking for option on preferred stock of Southern Building at 25 cents per share, 25 of the par. I will greatly appreciate some information about this. Who is Story, and for whom is he acting? Has John Parker ever been protected in any way as regards the enormous investments he made in this matter in the beginning to help the cause along, or is he the holder simply of preferred and common stock? Is this offer made to him and to the other people who originally went into the deal? Of my preferred stock, $1,000 was paid for at par in cash. The other $1,500 was obtained from Gibbs Baker in exchange for some Spa Springs rail- road stock, taken as a fee in another matter. I am not disposed to option in the dark, and will appreciate any information you can give me. I am writing Parker and Southgate to-day. Very truly, Charles Hall Davis. That is the letter my letter was in answer to. Mr. Davis (reading) : Washington, D. C, September 12, 1912. Charles Hall Davis, Esq., Petersburg, Va. My Dear Davis : I am in receipt of your letter of the 10th instant. Story, at the time he wrote you, was negotiating for two-thirds of the stock of the Southern Building Corporation, and was offering, and I believe is still offering, 25 cents on the dollar for the preferred stock, the common stock going as a bonus with the preferred. I gave him an option on my stock on that basis, and on yesterday delivered it to him, and he effected a transfer of two-thirds of the stock to Charles F. Carusi and Robert N. Harper, for themselves and their associates. The Richmond Realty Corporation, holding nearly half of the stock, sold its holdings in the Southern Building for a very little over half of the price offered to you and me and the others. The same price offered you was offered to Parker. Of course I would like to have seen Parker, and in fact all of us, get par for our stock ; but the truth is the Building Corporation was not able to handle the proposition as it should be handled and the Richmond Realty Cor- poration did not seem just willing to do so, althought it might have done so. I urged on the Richmond Realty Corporation the acquisition of all of the stock of the Southern Building Corporation, and then adding two additional stories 956 INVESTIGATION OF INSURANCE COMPANIES. to the building and refinancing it ; but there were difficulties and complications and some friction, and as the interest on the different trusts matures on the 1st of October, November, and December, it was finally considered best, every- thing being weighed, to sell out. The money paid by Parker and his associates in the Southern Commercial Congress was, of course, originally intended as donations, and it seems to me, under the circumstances, whatever they get out of it will be that much salvage. Let me repeat that I would have been happy to have seen the salvage amount to 100 cents on the dollar. Whatever you do about it, I suggest that you do at once. Hoping that you are getting along well, I am, as ever. Tour friend, Douglas. Mr. Redfield. Mr. Davis, at this point I might ask you if Mr. Douglas was, to your knowledge, interested in the Richmond Realty Corporation at that time? Mr. Davis. He was, according to a statement contained in a letter from him, which I will read later on. Mr. Redfield. Proceed. Mr. Davis. From Mr. R. H. McNeill, in response to a similar letter to that sent to Mr. Douglas, I received the letter reading as follows : Washington, September 1 2, lSllg. Charles Hall Davis, Esq., Petersburg, Va. Deab Davis : I think you know the chief reason why I have sold my stock in the Southern Building Corporation for 25 cents on the dollar. I have been carrying debts for quite a while and had simply gotten tired and sick of it and decided to clean up as far as possible. I think the stock is worth near par right now, but I could not hold on any longer and decided to let it go. Nearly all the other people have done likewise. I do not want to tell you what to do, as I do not know the plans and purposes of the new company. If they are clean business men and intend paying up all mortgages it will doubtless pay you to hold your stock, but if they intend to wreck it, which I have no reason to anticipate, it might pay you to sell it. If you could run up here and investigate the situation yourself you could be better satisfied than by taking my suggestions. Tours, very truly, R. H. McNeill. About the middle of September I received a letter from Mr. Story dated September 14, reading as follows: Washington, D. C, September I//, 1912. Mil Charles Hall Davis, I'etershwg, Va. Deab Sib: On the 7th instant I wrote you asking if you cared to give me an option on your stock— preferred and common— in the Southern Building Cor- poration at 25 cents on the dollar for the preferred, the common to go as a bonus. I have not 'heard from you by letter or wire. Several days ago, having acquired three-fourths of the stock of the company, I sold the same to Charles P. Carusi, and they are now in control of the operations of the company. If you nevertheless care to sell your stock at the above figure, us I indicated my willingness to pay that much, I will still purchase it- at 25 cents on the dol- lar per share for the preferred, the common to go as a bonus, provided you notify me at once of your acceptance of my offer. If you decide to accept, send the stock, properly indorsed in blank and witnessed, to the Riggs National Bank and draw on me for the amount on the basis stated, with authority, of course, to the bank to deliver the stock on the payment of the draft. The transaction will be closed in that way, but it is necessary for you to act at once. At least advise me by wire of your disposition of my proposition. I am, very respectfully, J. P. Stoby, Jr. Mr, Chairman, I will say here that apparently some of my cor- respondence which I thought was here is missing. I have a letter which I sent to Mr. Story on the 16th of September, which is not in INVESTIGATION OF INSUBANCE COMPANIES. 957 these files. I have that letter — a letterpress copy of it — in my office, and will produce it here later on if the committee desires it, because I wish to produce the complete correspondence between myself and Mr. Story. Mr. Redfield. You wrote him on the 16th of September? Mr. Davis. I wrote him on the 16th and then I received this reply from him. Perhaps Mr. Douglas has a copy of that letter. I do not know whether he has or not. Mr. Johnsox. Unless he has, if it is possible to get it from Mr. Story himself, let it go in the record just preceding this. Mr. Davis. I have no doubt he will produce it. Mr. Redfield. The date of that letter is the 16th ? Mr. Davis. September 16 ; yes, sir. Shall I proceed ? Mr. Redfield. Yes. Mr. Davis (reading) : Washington, D. C, September IS, 1912. Charles Hall Davis. Esq.. Seal Building, Petersburg, Va. Dear Sib : I have 5-0111- letter of September 16. As you have written me quite frankly, I will reply likewise. As the situation was put to me, I understand that the Southern Commercial Congress was the recipient of certain donations from those interested in that project ; that such contributions were made as gifts and not as subscriptions. When the Southern Commercial Congress project failed of consummation the Southern Building (Commercial) took over the proposition of the Southern Commercial and issued its stock to the contributors to the Southern Commercial Congress fund. I understand that this stock was regarded merely as a sort of salvage to those who had contributed to the Commercial Congress fund, as against a total loss to them of their donations. Under present conditions the Southern Building Corporation about Decem- ber 1 will owe some $50,000 in interest and other matured items, with ap- proximately $25,000 to pay them. It would, therefore, appear that ou that date the Southern Building Corporation will be insolvent, with interest pay- ments ou the mortgages in arrears. As you know, the Richmond Realty Co. has heretofore been carrying the debts of the Southern Building Corpora- tion, but now they have sold out their stock (and at a much lower figure than I offer) and their support is withdrawn. I am willing to buy such of your preferred stock (with common stock) at 25 cents on the dollar as you see fit to sell, and I think I can say with assurance that you will not receive any- thing like this under a sale by foreclosure of the property or by dissolution of the company. If you have any preferred stock, however you may have acquired it, that yon wish to sell on these terms with a corresponding amount of common, I will take it for a limited time. Please understand there is no wish on my part to dicker for a lower price. I have named one price, the only price, to all, viz, 25 cents, except as noted above, to the Richmond Realty Co., and for some 100 shares for which cash was paid to the Southern Building Corporation treasury, at par. I am willing to pay a little more than the stock is intrinsically worth, in order to vote as many shares as possible for the dissolution of the company, and thus reduce objections to a minimum, though I now have considerably in excess of the necessary 66f per cent for dissolution, having some 80 per cent of both classes of stock. Iwss a pupil at McCabe's school for several years and have many affection- ate remembrances of Petersburg. If these negotiations again take me to Rich- mond I intend to take the opportunity of visiting Petersburg and shall give my- self the pleasure of calling on you. I am, very truly, yours, J- p - Story, Jr. P. S.— I am sending a copy of this letter to Mr. John N. Parker, as I may receive such a letter from him as I received from you. Mr. Redfield. What was the next step, Mr. Davis? 958 INVESTIGATION OP INSURANCE COMPANIES. Mr. Davis. I wrote to Mr. Story on September 19, 1912. [Read- ing:] September 39, 1912. Mr. J. P. Story, Jr., 'Washington, D. C. My Dear Sir: I am in receipt of your favor of the ISth, and thank you for your frankness in regard to the details of this Southern Building Corporation deil. My recollection is that the tract at the corner of Fifteenth and Eighth Streets was bought from the Catholic church at a price slightly in excess of $300,000, and was sold to the Southern Building Corporation at a price slightly in excess of $500,000 ; but I do not remember the figures exactly. The money provided by the people interested in the Southern Commercial Congress was used to make the first payment of $50,000 to Cardinal Gibbons. It was understood that if the congress bought the property, it would pay the price of something over $500,000 for the same. But my understanding was that if the congress was unable to do it, the investment of the parties who provided this first money would be taken care of. When the project was commercialized, the difference between the price paid to the Catholic Church and the price at which the property was sold to the Southern Building Corporation was, as I understood it, represented by preferred stock, with a common-stock bonus issued to the people who were promoting the deal ; but you will appreciate that about $50,000 of the actual cost of the property had then been paid to the church. I understand that certain portions of this $50,000 was paid in full to the parties who contributed it, as they demanded an immediate adjustment with them. Specifically I recall a $20,000 contribution made by an architect in Washington, whose name I can not now recall, but who built and now owns, I think, the Cairo Apartment Hotel. Several of the others who had contributed, appreciating the difficulties of the situation and having the understanding that the promoters of the project were to take care of these contributions in handling it, allowed the contribution to remain and to be handled by them, and since that time we have practically had nothing to do with the matter, simply awaiting developments. Unquestionably it was intended that if the Southern Commercial Congress was able to carry the matter through, the money so advanced by the parties referred to would be contributed to it as a part of its endowment fund; but it was equally well understood that if the congress was unable to finance the deal and the project became commercialized, these gentlemen should not be penalized and suffer a loss, but that if an effort was made to make money out of this project, these contributions would be protected and returned to the contributors. I am very positive in my recollection of this understanding, for the reason that the title to the property stood in the name of Mr. Parker and myself, and these points were very fully discussed and understood before I consented to sign a conveyance transferring the title from Mr. Parker and myself. Of course I fully understand that you were not and are not in any way in- volved in this understanding. I have heard nothing from Mr. Parker as yet in response to my communica- tion. During the last two or three years I have personally suffered very decided financial reverses, and all the stock which I own is collaterated with certain of my creditors. I have advised them fully of the situation, sending them copies of my correspondence, and they seem to agree with me fully in the posi- tion which I take. As I previously wrote you, the 15 shares of preferred and 8 shares of common which I obtained through Mr. G. L. Baker by exchange, as heretofore stated, do not stand on the same basis as the original contribution of $1,000 represented by the original 10 shares of preferred and 5 shares of common. This 15 shares of preferred and 8 shares of common stock, so .obtained by me from Mr. Baker, is in the possession of Mr. T. S. Southgate, of Norfolk, who loaned me on the same a sum in excess of the amount offered by you, or about 40 per cent of the par value of the preferred stock. I feel that I am not emi- tted to any greater consideration as regards this 15 shares than is any other holder, and I have, after writing to Mr. Southgate, assigned the stock to him, with power to him to do as he sees fit. I think he will take advantage of your offer and draw on you for $375, with 15 shares of preferred and 8 shares of INVESTIGATION OF INSUKANCE COMPANIES. 959 common attached to his draft. In doing this, however, I have assigned the stock to Mr. Southgate, the gentleman who made me the loan, and the sale will be by him and not by me, as I do not in any way care to waive my rights as to the original $1,000 contribution and the stock representing the same until I hear from Mr. Parker and decide what steps we will jointly take to protect what I believe to be our rights in the matter. It is very possible, therefore, that you may hear from Mr. Southgate, as sug- I wish to express my appreciation of your courtesy in writing me fully about the matter and to express the hope that should you come to Petersburg you will give me the pleasure of meeting you personally. Very truly, yours, Charles Hall Davis. Where it says "Eighth Street,'' in the first part of that letter, it should read " H." I received, about the latter part of Septem- ber, a letter from Mr. John Parker, reading as follows — I should say that I had written Mr. Parker fully about the matter. Mr. Douglas. Is this a letter from you to Mr. Parker ? Mr. Davis. A letter from Parker to me, the original letter. I had previously written Parker, sending him copies of my correspondence with Story, and I find I have not copies of the letters which I sent him, but I will produce them, if the committee desire. Mr. Douglas. I do not see how any of this is relevant, but if any of it goes in, I should certainly ask that all of it go in. Mr. Berger. How is that ? Mr. Douglas. I say I can not understand how this committee can be expected to receive as evidence here correspondence between Mr. Davis and Mr. Parker, and certainly, if it is received at all, all of the correspondence ought to be produced, and not a letter here and there. I do not know what purpose Mr. Davis has in now offering to read a letter from Mr. Parker. Any light that may be thrown on the ques- tion of value, however, is proper. Mr. Prouty. Mr. Chairman, I have been sitting here patiently. I have not been able to understand the relevancy of any of this testi- mony to the questions that are really before us. There may be ques- tions between these stockholders as to what their respective rights are for and against each other, but they seem to me to have no bear- ing upon the questions which we are looking into, one of which is, and the main question of which is, the value of this building. What these fellows did to, for, or about each other does not seem to me material to this committee. That is the way it strikes me; and, therefore, I am certainly clearly of the opinion that a letter written by one man to another is not competent testimony. It is not possible for us to cross-examine Mr. Parker, or have Mr. Parker cross-ex- amined to find out the basis — I do not know what the letter is. It seems to me, Mr. Chairman, to be frank with you, that we are putting into this record a whole lot of worthless stuff that can not help us a particle in solving the question that Congress has submitted to us for investigation, and it all costs money to print, and it encumbers the record, and while I do not want to narrow this investigation, yet I do not feel like sitting here day after day and hearing questions that do not seem to make any progress at all. I am sure if I were on the bench I would not allow that kind of testimony to go in an an issue of this kind, and I do not think it should be permitted. Mr. Douglas. Permit me to say this, Mr. Chairman: You will find in the correspondence that Mr. Davis is producing a long dis- 71391— No. 11—13 2 960 INVESTIGATION OF INSURANCE COMPANIES. cussion of five or six or seven or eight pages on each side between Mr. Davis and myself as to the respective positions taken by the Rich- mond Realty Corporation in connection with the Southern Build- ing Corporation; whether there is anything wrong about this thing or that thing, both of us stating our views as each saw it and honestly stating what we thought about' it ; and if there be any grievance it certainly, as Judge Prouty suggests, must be among the stockholders themselves. There can not possibly be an issue that this committee can try out. If Mr. Davis or his friends think they have any grievance against the Richmond Realty Corporation, against the original syndicate, or anyone else, the courts are wide open to them to present their claims. The Chairman. The committee will consider the matter in ex- ecutive session. Mr, Davis. Mr. Chairman, may I just say that I will be very glad to produce any and all letters and any and all correspondence of any kind or description which I have if the committee wishes it. Thereupon the committee proceeded to the consideration of execu- tive business, after which the heai'ing was resumed. Mr. Johnson. Mr. Davis, the committee, after having retired for consultation, has arrived at the conclusion that this question should be put to you : Have you any letters or documents in your possession, between yourself and any of the directors or officers of the First National or Commercial Fire Insurance Co., or from the firm of Tuttle, Wightman & Dudley, or the inspector of insurance of the District of Columbia? Mr. Easbv-Smith. I suggest that ought to be " superintendent of insurance." That is his title. Mr. Johnson. Yes; change that to "superintendent of insurance." Mr. Davis. I have no letters or documents from the inspector or superintendent of insurance of the District of Columbia and have never had any communication with him, so far as I know. I have no letters or documents from the firm of Tuttle, Wightman & Dudley, or any member of the same and have never had any com- munication with them, so far as I know. I have some letters — I have a letter or letters from Charles F. Carusi, whose name appears in the advertisement of the Commercial Fire Insurance Co. in the Washington Herald of December 21, as its general counsel. I also have some correspondence with Mr. J. P. Story, jr., who, as I under- stood and understand it, eventually acted as the agent of Mr. Carusi in purchasing the stock belonging to myself, to Mr. John Parker and his associates, and I have some correspondence with Mr. Charles A. Douglas, but just what his connection with the insurance companies is I can not positively state. Mr. Johnson. Then you have answered that you have no corre- spondence with Mr. Ingham, the inspector of insurance of the Dis- trict of Columbia and you have answered that you have no corre- spondence with any of the incorporated firm of Tuttle, Wightman & Dudley. You have answered that you have some other correspond- ence. The committee would be glad to have you produce such cor- respondence as you may have between yourself and any of the directors or officers of the First National or Commercial Fire In- surance Cos. INVESTIGATION OF INSURANCE COMPANIES. 961 Mr. Davis. May I ask if Mr. Carusi is an officer of the First Na- tional Fire Insurance Co. ? Mr. Carusi. Yes; of both companies; general counsel of both companies. Mr. Protjty. Might I ask in this connection, is Mr. Douglas in any manner connected officially with the companies? Mr. Carusi. Merely as counsel in this investigation. Mr. Douglas. That is all. Here are the two original letters, Mr. Chairman. [Handing, papers to Mr. Johnson.] Mr. Johnson. Are these the letters that you wish, Mr. Davis ? Mr. Davis. I do not know, sir. I do not know what they are. Mr. Johnson. Will you look at them [handing papers to Mr. Davis]. It is now 1 o'clock, and I suggest that we take the cus- tomary adjournment until 2.15, and, in the meantime, Mr. Davis, you can have this question fully in mind. Mr. .Davis. I wish the committee to let me know if they wish the correspondence that occurred between myself and Mr. Story, whom I understand to have been an agent of Mr. Carusi in this transaction. Mr. Johnson. The committee desires such correspondence as you may have between any of the directors or officers of the First Na- tional or Commercial Fire Insurance Cos. If Mr. Story was neither a director nor an officer of either of these companies the committee holds that it is a matter that it does not desire to go into ; that it is totally irrelevant to the questions that we have been directed by the resolution to inquire into. Mr. Davis. I am very anxious, Mr. Chairman, to give any infor- mation that I have, and not to give any that you do not wish. Mr. Johnson. I will say to you, Mr. Davis, that it is not a matter of what we wish, but the investigation has become so broad that it is absolutely necessary that the committee in the future, if it is possible, confine itself to the performance of the duties contained in the reso- lution directed to us. Mr. Douglas. Mr. Davis, you can examine those during the lunch hour if you want to. Mr. Davis. Yes, sir ; I will be very glad to do so. Mr. Johnson. The committee now stands adjourned until 2.15. Whereupon the subcommittee took a recess until 2.15 o'clock p. m. AFTER RECESS. The subcommittee reconvened pursuant to the taking of recess. TESTIMONY OF CHARLES HALL DAVIS— Continued. Mr. Johnson. Mr. Davis, when we took the recess for lunch, you had been asked a question, and had responded thereto, the question setting out the directors or officers of the First National or Com- mercial Fire Insurance Cos., or Tuttle, Wightman, and Dudley, or 4e superintendent of insurance. The next formal question which has been framed by the committee m executive session, to be asked you, is this; Have you had any conversations with any of these people bearing upon the value that they put upon this property at the time that 962 INVESTIGATION OF INSURANCE COMPANIES. these negotiations for the sale of stock took place? When that ques- tion was framed, the expression u these people '' was intended to apply to those embodied in the first question, which I have just read and when " this property " is referred to in this question, the prop- erty of the Southern Building was meant. With that explanation, I will again read the question to you : Have you had any conversations with any of these people bearing upon the value that they put upon this property at the time that these negotiations for the sale of stock took place? Mr. Davis. I have never had any conversation bearing on that subject Mr. Johnson (interposing). How is that again? Mr. Davis. I have never had any conversation bearing on that subject with any of the officers of either of the insurance companies. Mr. Johnson. Or with Tuttle, Wightman, and Dudlev? Mr. Davis. Or with Tuttle, Wightman, and Dudley? Mr. Juiinson. Or with the inspector of insurance? Mr. Davis. Or with the inspector of insurance. Mr. Chairman, may I say, in answer to the first question, I have some correspondence here which I have not yet put into the record. Mr. Pkouty. I presume they ought to be passed to the committee for inspection. Mr. Davis. They are carbons of Mr. Carusi's letters. I have the originals, and the originals of my letters [handing papers to Mr. Johnson]. Mr. Proutv. I think that letter is competent [handing paper to Mi\ Davis]. Mr. Davis. Shall I read this letter? Mr. Johnson. Yes : you may read that letter into the record while Judge Prouty is looking at the other letter. Mr. Davis (reading) : October 1, 1912. Mr. Chables F. ('aeusi, Southern Building, Washington, D. C. My Dear Sir : I have recently had a good deal of correspondence with Mr. John P. Story, jr., in reference to the purchase by him of certain stock of the Southern Building Corporation owned by me, and I have understood that in this matter he was acting for you and Mr. Harper. Also, I have had a good deal of correspondence In regard to the same matter with Mr. Charles A. Douglas and others with whom I was originally asso- ciated in this project, and particularly with Mr. John M. Parker, of New Orleans. Doubtless Mr. Story will readily show you the correspondence which we have had, which will show you my position. I have also received a number of letters from Mr. James W. McNeill, asking me to join with him in an effort to prevent the dissolution of the Southern Building Corporation, and I have to-day received from him a letter dated the 30th, inclosing a copy of your favor to him of the 28th. I have never in any way been involved with the Southern Building Corpora- tion, nor have I had anything to do with it since it became commercialized. I have no desire to make any fight or to become involved in any litigation con- cerning it if it can be avoided. Moreover, as the matter now appears to me, I think the position occupied by myself and Mr. Parker, and perhaps some others, is entirely different from that occupied by Mr. James W. McNeill, judging from the statement in your letter to Mr. McNeill, in which you said that he paid nothing for his stock. ' I thought it wise to write you, stating just what is my position and what I understand is the position of Mr. Parker in this matter, with the hope that possibly some adjustment could be made. INVESTIGATION OF INSURANCE COMPANIES. 963 At the time that the Southern Building project first took form I was the chairman of the executive committee of the Southern Commercial Congress, and Mr. John M. Parker was the president of that organization. I think perhaps I was responsible for the suggestion that the organization should attempt to erect a building in Washington as a permanent home and use the income from the rentals as a fund for permanently carrying on its work. Shortly after we had determined to attempt this I found that Mr. Leckie and Mr. McNeill held an option on the property on the corner of Fifteenth and H Streets. I did not know the figure at which they held the option, but they offered to sell it to the Southern Commercial Congress for $23 per square foot, Making a total of about $511,000. After carefully investigating the matter Mr. Parker and I decided to attempt to secure this piece of property for the Southern Commercial Congress. The plan adopted was to ask for subscriptions of $1,000 each from men all over the South until at least 1,000 subscriptions had been obtained, aggregating ?1,000,000; to ask for these subscriptions purely on the patriotic basis of help- ing the South, and to agree that in case the Southern Commercial Congress was unable to finance the building the project would be commercialized and the money so contributed would be protected so far as we were able to protect it, although no profit was to be paid to these contributors under any circumstances. Under this plan a number of subscriptions were made, and my recollection is that the first $50,000 paid to the Catholic Church on account of the purchase price consisted of numerous subscriptions of this kind, among which was a $20,000 subscription made by Mr. T. Franklin Schneider, who was to be the architect. When this payment was made the property was transferred huo the name of Charles Hall Davis and John M. Parker, subject to certain trusts for the deferred payment. These two parties held the property for the benefit of the Southern Commercial Congress. Subsequently it was ascertained that the congress would be unable to finance the proposition. It was thereupon turned back to Messrs. Leckie, McNeill, Douglas. James M. Baker, and their associates to be commercialized. A very disastrous fire, which occurred in Petersburg in 1910, destroyed my offices and practically all of my papers. I have my impression letter books and some few papers relating to this matter, but am speaking almost entirely from recollection. I might add that my recollection is very positive in regard to the details of this transaction. According to my recollection, when it was proposed to commercialize the project Mr. Parker and I were asked to execute a deed conveying the property to the Southern Building Corporation. Before doing this I insisted very strongly that the contributions theretofore made should be protected, because these contributions had been made without any hope or expectation of profit, had been intended ps a gift to the congress in case it could finance the building, and the contributors were entitled, as I understood it, to have their contribu- tions protected in case the "building could not be financed by the congress. It was distinctly understood between Mr. Parker and myself and the other gentlemen interested that neither Mr. Parker nor I would in any way be inter- ested in the financing of the corporation or derive any profit therefrom, as we had undertaken to act purely and solely for the benefit of the Southern Com- mercial Congress. , ., , , With the understanding above outlined; Mr. Parker and I executed the deeds for the property, and I understood very distinctly that in handling this matter the original contributions made, as above outlined, in cash would be protected before any profit was made out of the project. Among these contributions was a contribution of $1,000 from myself and of $10,000, or perhaps more, from Mr. John M. Parker. When the project was commercialized and the transfer made from Mr. Parker and myself as above outlined, I ceased to have anything to do with it, and eventually $1,000 of preferred stock and $500 of common stock was sent to me to represent the cash contribution of $1,000 which I had made. I understand that likewise $10,000 of preferred stock and $500 of common stock was sent to Mr. Parker to represent $10,000 of money contributed by him. You understand that this money was contributed without any hope or expecta- tion of profit to be used for the benefit of the Southern Commercial Congress tf that organization could finance the building, and if this could not be done, then to be protected in any future handling of the property. So far as I know neither Mr. Parker nor I have ever had anything further to do with the com- pany since this stock was issued to us ; certainly I have not. 964 INVESTIGATION OP INSUBANCE COMPANIES. Some two or three years utter this occurred I came into possession of cer- tain stock of the Washington, Spa Springs & Gretta Railroad Co. (organized by Mr. G. L. Baker and Mr. Douglas) as a part of a fee. Mr. Baker said that he would like to control this stock and offered me in exchange for the railroad stock $1,500 of preferred stock of the Southern Building Corporation and $800 of the common. I made various inquiries from Mr. R. H. McNeill and others about the Southern Building stock and finally made a trade. Consequently. I to-day hold $1,000 of preferred stock and $500 of common stock of the Southern Building Corporation, which came to me as nu evidence of my original contribution of $1,000 in cash. I also hold $1,500 of preferred and $800 of common stock, which came to me in a trade, as indicated. About this latter stock I do not feel as I do about the former stock. Mr. Parker, as I understand it, holds $10,000 of preferred and $5,000 of common stock, which came to him as evidencing his original contribution of $10,000. The first I heard of the proposed deal was in the shape of a letter from Mr. Story offering to buy my preferred stock at $25 per share, the common stock to be thrown in as a bonus. I at once wrote to Messrs. Douglas, McNeill, Leckie. and others, asking for information; and I had a long correspondence with Mr. Story, as indicated above. I wrote Mr. Story the facts and told him that I had originally gone into this deal with Mr, Parker, and that I did not feel at liberty to dispose of my stock except after consultation with Mr. Parker. I further stated that I felt under moral obligations to stand with Mr. Parker in any action he might decide to take, because his contribution was many times greater than mine and I did not think it right to overlook his interests, and he had voluntarily made such a large contribution with the understanding above outlined. Mr. Parker wrote me a short note, saying he was leaving New Orleans and would not return before the 2d of October, when he would write me. I wrote Mr. Story that, under these circumstances, I would have to wait until after Mr. Parker returned. e\en though Mr. Story's offer was withdrawn in the mean- time. Mr. Story wrote me a very courteous communication, and I have had some correspondence also with Mr. Douglas and others in regard to this matter. With the understanding that I had, I have felt very strongly that these original contributors who put up cash, who expected no profit, and who per- mitted the cash so contributed to be used in financing the property should be protected. Particularly I feel this in reference to Mr. Parker, who contributed largely to this fund and who went his limit in the effort to pull the matter through, and who has permitted his investment to remain, simply expecting that it would be ultimately taken care of. I understand that Mr. Schneider objected to his investment remaining and got his money out. Please understand that I do not feel that the $1,500 of preferred and $800 of common stock, obtained by me from Mr. Baker in a trade, is entitled to the same consideration as the $1,000 of preferred stock and $500 of common obtained as an evidence of the original cash contribution of $1,000. In regard to this cash contribution and to Mr. Parker's cash contribution, and to the cash contribution of any others similarly situated, I do feel Unit they are entitled to special consideration, and that they should receive back the money which they originally put into the deal. Moreover, I feel under some moral obliga- tions to such contributors to stand with them in any effort they may make to protect their investments. There is no effort or desire on my part to go into any litigation or to attack the company for its former or future actions or to do anything more than seems to me necessary and proper to be done to protect these investments. If these original investments are protected at par, personally I shall be very glad to turn over the $3,500 of preferred stock and the $800 of common stock which came .to me from Mr. Baker at the price of $25 per share for the preferred as offered. This letter is written purely in an effort to compromise these matters, if it is possible to do so. and in case any litigation should arise, of course I would reserve the right to insist on all the legal rights of any and all stock that I may hold. May I trespass on your time sufficiently to ask whether you think, under all the circumstances of the case, there is any prospect of protecting these original investments as indicated? Very truly, yours, , Chabi.es Hall Davis. Mr. Peouty. I suppose this is in answer to that [handing paper to Mr. Davis]. INVESTIGATION OF INSURANCE COMPANIES. 965 Mr. Davis. This is a letter from Mr. Carusi, of which that is a carbon. I will read from the original. [Reading:] OCTOBEB 2, 1912. Charles Hall Davis, Esq., Attorney at Late, Petersburg, In. Dear Sir: Your favor of October 1, addressed to me in my capacity as pur- chaser of the controlling interest in the Southern Building Corporation and offering to sell me your preferred stock of the par value of $2,500 for $1,625, is at hand. I am not in the market for any additional stock of this company. During the month of August Mr. John P. Story, who had options on considerable of his stock, approached me with an offer to sell the same. He stated at that time that he had the stock in question either in his actual possession or that he had options upon it. The nature of these options or the price which he was to pay for the stock was neither asked nor disclosed. I agreed to pay him a fixed price per share for 66§ of the outstanding pre- ferred and common stock. As part consideration I agreed to take any or all of the remaining 33-J per cent of the stock at the same price, provided the same was actually delivered to me within a time limit now almost at hand. Whether Mr. Story had any arrangements with the different stockholders by which some classes were to receive more than others or what the considerations, morally or otherwise, which guided him in purchasing the stock, I have no knowledge and no concern. Mr. Story was not my agent in any sense of the word. He had something to sell, and I offered to buy it at a uniform and agreed price. While I am under an obligation to take stock additional to two-thirds of the outstanding issue, my agreement is with Mr. Story alone, and I am not now and have never been and will not be in the market for any of this stock after the time limit referred to has expired nor do I wish to urge you or any other stockholder to part with his holdings. Mr. Douglas has showed me some correspondence that he had with you, and from the fourth page of his letter dated September 27 you will observe the actual conditions confronting the stockholders as a whole. This condition is one in which I have had no hand whatever in bringing about and no responsi- bility for. At the meeting of the directors held this afternoon there will be discussed the propriety of calling a meeting of the stockholders at an early date, with a view to deciding what is best to be done in their interest. It is obvious that unless some one is prepared to advance very large sums of money during the next two or three years that the building will have to be sold under one of the mortgages, unless sooner disposed of by the stockholders. At this meeting every stockholder will have the fullest opportunity ~to be heard and to place his views upon record. On yesterday I advanced to the company $9,750 to prevent a default in the payment of interest upon the third mortgage bonds, for which I received the demand promissory note of the company, bear- ing 6 per cent interest. I also hold another outstanding claim against the company for $11,000 for money advanced for its use. These advances will carry the company over until the stockholders have a chance to act. You will readily understand that as an ordinary purchaser of stock in the open market I am not concerned with the various equities between different classes of stock- holders, to be paid at different rates by Mr. Story, who is now under no obliga- tion to deliver me any additional stock, having issued to me already more than 80 per cent of the entire outstanding issue. I beg to remain, yours, very truly, . Mr. Redfield. Here is some more correspondence between them [handing papers to Mr. Davis]. Mr. Davis. I suppose I am simply to read this letter without any explanation ? Mr. Carusi. Just a moment. Mr. Chairman, Mr. R. H. Mann de- sires to be excused, counsel having stated that they have no occasion to use him. May he be excused ? Mr. Johnson.' He is your witness here under subpoena. Mr. Carusi. Yes. Mr. Johnson. And if you wish to excuse him, why, excuse him. 966 INVESTIGATION OF INSURANCE COMPANIES. Mr. Davis. Shall I simply read this letter ? Mr. Kedfield. What land of letter is it ? Mr. Davis. It is a letter from me to Mr. Carusi. I ask, shall I read it without any explanation? I will read the letter and the answer in question. Mr. Johnson. Do you desire to explain the letter before you read it or afterwards ? The committee is not going to deny you the right to testify in full. Mr. Davis. I have no desire to testify at all, except there is a period of two months that has elapsed between the two communications, and I simply want to call your attention to that. Mr. Bergek. Mr. Davis, do you feel that an explanation is neces- sary? That the committee would understand the letter and its con- tents better if you explained it first ? Mr. Davis. Well, I think perhaps the committee will answer that question itself by probably asking me some question after they have heard the letter read. I am glad you asked me that question, Mr. Berger. I would like to say that I am not a voluntary witness here by nuy means. I came here on request and under a subpoena, and I am only too glad not to testify at all in regard to the matter. [Eead- ing:] Washington, D. C, December 28, 1912. Mr. Charles F. Carusi, Southern Building, Washington. D. G. — Dear Sir : When we made a sale of the stock of John M. Parker and others in the Southern Building Corporation we based our acceptance upon certain statements made by the agents or representatives of the purchasers, which we are now informed are not in accordance with the facts. We were informed by them, among other things, that the value of the real estate and building of the Southern Building Corporation was not in excess of $1,550,000. We are now informed that the Commercial Fire Insurance Co. and the Na- tional Fire Insurance Co., which, with you and Mr. Harper, were the real pur- chasers of the stock, have caused! said real estate and building to be appraised at $2,000,000 and have reported the same at that valuation in their published statements. Our claim is that our clients are now entitled to receive in addition to the $8,500 which has been paid to them an amount which, with the said amount, will make the total received by our clients equal to the par value of their preferred stock plus accumulated dividends and the book value of their com- mon stock, based upon the $2,000,000 valuation of said real estate and building. Roughly speaking, we claim that our clients are now entitled to receive about the sum of $29,070 less the $8,500 which we have already received. This is based upon the assumption of the validity of all of the outstanding stock and bonds, which, as you know, we do not concede. Mr. Story suggested that you thought our claim premature. We do not think so. In cases of this kind it is required that parties who have been aggrieved shall proceed as soon as they discover the true facts and are cognizant of the wrongs they have suffered. Unless, therefore, we can reach a satisfactory settlement, it is our purpose to institute proceedings to-day, and we have made our plans to that end. This note is intended as a very brief and hurriedly written statement of our claim, without attempting to discuss our objections to much of the stock of the Southern Building Corporation held by you and your associates and many of the bonds of the corporation, with which objections you are to some extent already familiar. Moreover, this letter, as you will understand, is written without prejudice, in pursuance of Mr. Story's statement to us that you wished us to make a written statement of our claim, so that you might present the same to the com- mittee of your company or companies and in order that you may decide INVESTIGATION OF INSUKANCE COMPANIES. 967 whether you wish to make any offer of settlement. As we understood from Mr. Story, this letter is sent in pursuance of your request. Very truly, yours, James Mann. Charles Hall Davis. P. S. — We will wait until 2 p. m. for your reply. We can be reached at room 614, New Willard. J. M. 0. H. D. Mr. Davis. Here is a letter from Mr. Carusi to myself. It is dated December 23, 1912. I will read from the carbon. [Reading :] December 23, 1912. Mr. Charles Hall Davis, The New Willard Hotel, Washington, D. G. Dear Sir: Your communication of December 23, handed to me by special messenger from the New Willard Hotel to-day, was laid by me before the finance committees of the two insurance companies as well as a verbal report of the message with which you yesterday intrusted Mr. Story. The underlying purpose of the threats made through Mr. Story and in your communication of to-day are fully understood by these gentlemen. As you well know, no representations of any kind were made to you at the time you sold your stock for a higher price than most of the other stockholders received, although you had never paid a dollar in the treasury of the Southern Building Corporation for it. I am instructed to say that your demands will not be acceded to. Tours, truly, Mr. Johnson. Does any member of the committee wish to in- terrogate him? Mr. Eedfield. Mr. Davis, in one of the letters which Mr. Carusi wrote to you and which has just been read, he referred to certain " actual conditions " — using those words, I think — which he said had been described to you in a previous communication to you from Mr. Douglas. Will you state what the actual conditions were to which Mr. Carusi thus refers ? Mr. Davis. Mr. Carusi's letter refers to a letter from Mr. Douglas to me, dated September 27, and to the fourth page of that letter. That letter is in answer to a letter from me, dated September 25, 1912, addressed to Mr. Douglas, asking certain specific questions. The part of the fourth page to which I suppose Mr. Carusi refers is that headed " Third. Present condition of Southern Building as to earn- ings, debts, etc." Mr. Eedfield. Pardon me. Does that phrase " third," referred to in that section of Mr. Douglas's letter, to which Mr. Carusi refers you, refer to a similar number that you yourself had used in previous correspondence ? Mr. Davis. It refers to an inquiry contained in my letter o± the 25th, and is in answer to the inquiry, though the inquiry does not seem to be numbered correspondingly . Mr. Eedfield. What was the inquiry ? Mr. Davis. In this letter of the 25th Mr. Douglas (interposing). Just pardon me a moment. If the committee desires, in order that they may understand it— it will be beyond the scope of your ruling, but we have no objection to Mr. Davis's letter to me and my answer being put in the record, if you care to have it. . Mr. Eedfield, Then read your letter to Mr. Douglas in full and his renlv. 968 INVESTIGATION OF INSURANCE COMPANIES. Mr. Davis. My letter to Mr. Douglas read as follows. I read from a carbon. Mr. Douglas. Pardon me. This was before you sold your stock? Mr. Davis. Yes, sir; this letter was written before I sold my stock. [Reading :] September 25, 1912. Mr. Charles A. Douglas, Washington, D. G. My Deae Douglas : Regarding the Southern Building Corporation matter, I hare been making various inquiries and have received certain information, some of which is stated as a fact and some of which is stated as a rumor. I have been very much surprised at this information and have concluded to write to you and ask you to give me a statement of the exact facts in regard to the same. All of the statements referred to are in writing, except one from Hawse, which was made to me verbally. I have placed these statements and the questions in parallel columns and will greatly appreciate your reply to the same. STATED as facts. The Richmond Realty Co. owned $130,000 worth of the preferred stock and a large portion of the common stock of the corporation. This com- pany also owned the second and third mortgage bonds of the company ; the Kiehmond Co. paid nothing for its stock . This company purchased the second and third mort- gage bonds at $60 per bond. The purchasers paid the Richmond Co. $100,000 on the third mortgage bonds long before maturity, and since the company has sold its stock and re- ceived the $100,000 on its first mort- gage bonds. It has recently had a meeting and declared a 50 per cent dividend on its stock, 20 per of cent of which it used in the retirement of its stock and the other 30 per cent it paid in cash to the stockholders. The directors and stockholders, who voted to sell the second and third mortgage bonds at $60 per bond, are identical with the stockholders com- posing the Richmond Realty Co., to which the bonds were sold, and the preferred stock given as a bonus . Certain parties who have re- cently sold their stock holdings in the Southern Building Corporation at 25 cents on the dollar owned a large portion of the Richmond Realty Co. stock and have participated in the enormous dividend declared on that stock. The recent purchasers of the stock of the Southern Building Corporation have paid par to those who originally paid par in cash for their stock hold- ings. The Southern Building is about 93 per cent rented, and on that basis the gross annual income approximates $145,000; the total carrying charges approximate $105,000, leaving a differ- ence of $40,000 per annum to be ap- is this a correct statement of the deal between the Richmond Realty Co. and the purchasers of the stock of the Southern Building Corporation? The significance of this deal is ap- parent from the statement next below. Is this a correct statement? Par- ticularly I would like to know whether you, Mr. James M. Baker, Mr. R. H. McNeill, Mr. Samuel W. Meek, Mr. A. E. L. Leckie, Mr. G. L. Baker, Mr. James L. Karrick, or any of the other parties who originally went into this deal were interested in both of the companies at the time this transaction was made. Is tins statement correct and to whom was par paid for their stock? Is this statement of the condition of the company correct, or approxi- mately correct? INVESTIGATION OF INSURANCE COMPANIES. 969 plied as payment on the 6 per cent dividend on the preferred stock, total- ing $18,000, and leaving a balance of $24,000 as a sinking fund, or as a dividend on the common stock of the ■corporation. Is this rumor a correct statement of the purposes of the new purchasers of the stock, so far as you know? Is this statement true; and if so, who received par for their stock? Was there such an understanding or agreement when this deal was made? It is now rumored here that the purchasers of the controlling interest in the building proposition (intend) to make default in the outstanding bond indebtedness of the company, and thereby allow a foreclosure under the deed of trust, in order to get absolute full control by eliminating the minor- ity stockholders who refused to sell, or if they do not take this course, it is rumored that they purpose to reor- ganize the company and eliminate the minority stockholders, except in a nominal way. I understand that some people who had purchased stock from the South- ern Building Corporation at par have received their money back. I also understand that those who hold pro- motion stock received 25 cents on the dollar before that. Mr. A. L. Hawse stated to me in a telephone conversation that he under- stood that, under the proposed deal, the people who had contributed cash originally, under circumstances similar to those which existed in the case of Mr. Parker and myself, were to re- ceive back the full amount of their investment, and that the other stock- holders whose stock had come to them as promotion stock would receive 25 cents on the dollar for the preferred, the common being thrown in as a bonus. Each one of the statements above is quoted from signed letters received by me. As many of my friends have been interested in this transaction, I wish to get the exact truth about the matter, and if you have no objection to giving me the facts, so far as you know them, I will greatly appreciate it. I am sending a copy of this letter to John Parker, and. of course, you are at liberty to show it to any of the parties who were originally associated in this deal. Very truly, yours. Charles Hall Davis. Mr. Davis. In reply to that letter I received a letter from Mr. Douglas, dated September 27, 1912, reading as follows [reading] : Washington, D. C, September 21, 1912. Charles Hall Davis, Esq.. Petershitifi, Va. My Dear Davis : I am in receipt of your letter of the 2. r >tli instant. I am pleased to give yon the facts in my possession in answer to your sundry in- quiries. FIBST. — RICHMOND REALTY CORPORATION PURCHASES. I think it was early in the spring of 1010 we found it necessary to complete the payment on the purchase price of the land itself. The total amount of the purchase price then due to the church was — and I am speaking in round mint- 970 INVESTIGATION OF INSTJBANCE COMPANIES, bers — $350,000. The building corporation negotiated a loan of SsOO.OOO with the Equitable with which primarily to build the building, but to meet the exigencies of the unpaid purchase price we arranged with the Equitable to ad- vance f200.000 out of the building fund of $800,000 to enable the building cor- poration to pay that much on account of the purchase price. This left $150,000 to be paid. The corporation was pressed for payment by the church of the last-named $150,000, and a foreclosure was threatened and was imminent. To meet this exigency they negotiated » temporary loan of $150,000, giving a sec- ond mortgage on the property for that amount. When this mortgage fell due the stock of the corporation being unsold, and the corporation therefore being unfinanced, arrangements had to be made for the discharge of this last obligation. In the meanwhile a second bond issue, originally for $450,000. had been arranged for, the builders taking a part of this issue, and the corporation sought to use its second mortgage bond issue to discharge, among other things, the temporary second mortgage obligation of $150,000. Accordingly, in April, 1910, a. stockholders' meeting was called, specifically to devise ways and means for paying and discharging the tem- porary mortgage of $150,000 and generally for financing the corporation. As a result of this meeting a tentative plan was determined upon to sell the sec- ond-mortgage bonds, or so much of them as necessary to pay this mortgage, for SO cents on the dollar, with the preferred and common stock as a bonus, hereinafter referred to. Accordingly, and, I think, about the 21st of April, a letter was sent ont by the secretary of the corporation to all of the stock- holders, asking them to subscribe to bonds on that basis to the end that the property of the company might be saved and conserved. The stockholders did not respond to this invitation and request — I do not think a single subscrip- tion was gotten — and a blank form of underwriting was sent out to the stock- holders, so that they could promptly sign up and return their subscription. At an adjourned meeting of the board, held to still further consider and de- termine on ways and means, a further plan was gotten up, modifying the former and reducing the price to 75 cents on the dollar for the same bonds, with stock bonus of $75,000 preferred and $75,000 common stock, to go with the $200,000 second-mortgage bonds, out of which was to be raised, paid off, and discharged the $150,000 temporary mortgage for that amount. This plan was unanimously adopted by the stockholders at a meeting in May — I think about May 10 — the form of the underwriting and exact terms being therein set forth. Of this plan, as I remember, the absent stockholders were notified, but, at any rate, it was adopted at a meeting of the stockholders duly called in accord- ance with the laws of the State of Virginia and the by-laws of the corporation. At that time or shortly thereafterwards the Richmond Realty Corporation made a proposition in writing to take the bonds on exactly the terms set out in the form of the underwriting adopted and ratified by the stockholders at its meeting in May, 1910. This proposition was accepted by the board. There was nothing else for the board to do other than to relinquish the enterprise and permit the property to be sold under foreclosure. At this time the building had not been erected — not even started. No one knew whether it would succeed or not. Many people believed that the proposition was problematical and doubt- ful of success, the building in contemplation being large and the city already having a number of large office buildings. Whether the price was sufficient or not. I do not know. It was all we could get, and the enterprise was still solely in the future. The Richmond Realty proposition, as stated, was accepted, and the bonds turned over to them with the stock bonus as stated. I was at that time a large stockholder, both of preferred and common stock, in the corporation, and I was vitally interested in making the stock as valuable as possible, and I was in addition thereto sentimentally interested in making this enterprise a success. You will easily see that this sale of $200,000 of bonds for the price stated, raising $150,000, enough to pay off the second tem- porary mortgage, left the company only partially financed. It was necessary to raise $200,000 more money, because we had for the time being diverted $200,000 of the Equitable Building loan fund for the payment of the first $200,000 on account of the purchase price. The board thereupon set to work to devise ways and means for raising the $200,000 last referred to, and it be- came necessary to issue what has been called the general mortgage, but which was in fact a third mortgage, on the building. Accordingly another stock- holders' meeting was duly called and the third mortgage was authorized. This meeting of the stockholders was held in April, 1911. At this meeting the board of directors submitted its recommendations for the further financing INVESTIGATION OF INSURANCE COMPANIES. 971 «™r™ 0I T" y ' h , a I- Ug t0 /J tS end ' as indi eated, the raising of the additional $200000-the resolution of the board outlining its plan in detail was submitted. Sirnwr? tn wS We I 6 ; ( - 1} T ° refluce the second-mortgage bond issue of $4uO,O0O to $375,000 and to issue a Lhird-mortgage bond issue of $325,00(3 and thereby make the total junior encumbrances, second and third mortgage bonds, aggregate $700,000, and this total, with the $800,000, to make a grand total or first, second, and third mortgage bonds of $1,500,000. The board in its resolu- tion further recommended that these bonds be sold for the sum of $200 000* the purchaser or purchasers to take the remaining stock, common and 'pre- ferred, in the treasury as a bonus. (2) That the stockholders should be first given an opportunity for subscribing for these bonds on the basis stated This resolution was ratified by the stockholders, and the board was directed to put the same into execution, and in accordance therewith, on the 24th dav of March, 1911, a circular letter was sent out to the stockholders giving notice of the April meeting and setting forth in advance and in detail the scheme cov- ered by and embraced in the board's resolution and specifically asking the stockholders to subscribe for any portion of the third-mortgage bond issue that they might want, and they were asked to send in their subscriptions and to indicate what portion they would take by the date fixed for the April meeting of the stockholders. To this letter no subscriptions were received, and my in- formation is that no answers were sent in. Thereafterwards the Richmond Realty made the proposition in writing to the board of directors of the Southern Building Corporation to purchase said bonds on the terms set out in the reso- lution of the board of directors at this meeting above referred to, and also upon the terms as set out in the letter to stockholders under date March 24, 1911. Thereafterwards the officers of the company, at a subsequent meeting of the stockholders, reported the sale of both the second and third mortgage bonds and the terms upon which they were sold, and the same were ratified by the stock- holders in convention assembled. This gives you a history of the connection with the financing of the Southern Building Corporation by the Richmond Realty Corporation. SECOND. — CONNECTION WITH THIS TRANSACTION BY THE ORIGINAL STOCKHOLDERS OF THE SOUTHERN BUILDING CORPORATION. So far as I know or remember all of the active participants in the organiza- tion and promotion of the Southern Building Corporation agreed to and in- dorsed the plans as above set forth. Those of us who held what was designated as promotion stock tried our utmost to devise better and more satisfactory arrangements for the financing of the Southern Building Corporation, but we simply could not, and when the plan was put through as many of us as could subscribed and paid for in money and at par for such of the stock of the Rich- mond Realty Corporation as we were enabled to purchase. Karrick, Baker, McNeill, and I, in varying amounts, subscribed to the stock of the Richmond Realty Corporation. Meek and Leckie did not. You are in error in the state- ment that " the directors and stockholders who voted to sell the second and third mortgage bonds at $60 per bond are identical with the stockholders com- posing the Richmond Realty Co." I would say in further answer to this that perhaps 90 per cent of the subscribers to the stock of the Richmond Realty had no interest whatsoever in the Southern Building Corporation. THIRD. — PRESENT CONDITION OP SOUTHERN BUIILDING AS TO EARNINGS, DEBTS, ETC. I do not know exactly what percentage of the building is rented. I think it is about 90. The gross earnings of the company at this time are not $145,000, as stated by you, but as I am reliably informed less than $125,000 — about $124,000, as I gather from material furnished me some time ago by Mr. Thyson, and as verified and repeated by him in a letter to Mr. James W. McNeill during the present month. As I have no personal knowledge on this subject I quote a paragraph from the Thyson-McNeill letter, as follows : " The space rented in the Southern Building at the present time should yield in the neighborhood of about $10,300 per month, or about $124,000 a year, for the next 12 months. The revenue of the building up to November 30 will yield about $20,600, and of this about $4,000 must be deducted for ordinary expenses of the building, and the following bills payable, only to mention the large items : "About $2,000 for stokers and $3,500 miscellaneous accounts payable, or about $9,500 in all, leaving available, exclusive of the December rents, which 972 INVESTIGATION OF INSURANCE COMPANIES. are not payable tmtil after the 1st of December, about $11,100. The cownaiiy ruust raise and pay on or before December 1 the following sums: Interest on third trust, due Oct. 1 $9, 750 Interest on second trust, due Nov. 1 7. 980 1 Dec. 1 $20,000 on the first trust, or in all 38,000 " In addition to this there is a note for $6,000 due in the month of November, making in all about $42,000 due December 1 and prior thereto, with a net income applicable to same of $11,100. This situation, showing a deficit of something over $30,000 for the next two months, has been the subject of dis- cussion at the last two meetings of the board of directors." The fact that the building corporation has interest maturing October 1, November 1, and December 1, aggregating the amounts stated in the Thyson- JIcNeill letter, and the latter inability of the corporation alone to meet these obligations and generally to finance the proposition of the almost immediate future, were among the causes that induced me to sell my holdings in this company, and I should add, in addition to this, I did not lose sight of the further consideration that the second-mortgage bond issue requires the build- ing eorponttion, commencing with January 1 next, to pay over to the trustees S25.000 on account of the retirement of the second-mortgage bonds, and to keep up that annual payment until the whole of the second-mortgage bonds shall mature, which will be three years from next January, and the further fact that the Equitable first mortgage of $800,000 requires a sinking fund to be provided for of $50,000 per annum, commencing two years from the date stated. FOURTH. — SALE OF THE STOCK. The Southern Building Corporation property has not been sold. It is true that Charles F. Carusi and Robert N. Harper, acting for themselves and their associates, have purchased more than two-thirds of the stock of the building corporation. As I wrote yon, I sold my stock at 25 cents on the dollar. I had at the time of the sale $21,000 of preferred stock and about half that amount of common stock, which went as a bonus with the sale of the preferred stock. I did not advise a single human being to sell his stock at that price or at any other price. I distinctly refrained from so doing, but I did insist that I should have the right to state to any of my friends and associates the price actually paid to me for the stock, and to all who inquired, you among the number, I stated the fact. The Richmond Realty sold its stock for 12J cents on the dollar, the common stock going as a bonus with the sale of the preferred. So far as I know. ill'. John I'. Story, jr., who acquired this stock, did not pay or offer to pay to any one any figure in excess of 25 cents on the dollar, except to such of the subscribers to the preferred stock of the Southern Building Corporation who made application for the stock and paid him actual money therefor at par. A number of us insisted that this should be done, although none of the parties referred to took a single share of this stock at my instance or upon my sug- gestion or at my request. This class referred to, as already indicated, the people who subscribed to the stock of the Southern Building Corporation and paid in cash therefor at par. This offer did not include the stock that was issued by the Southern Building Corporation to the original subscribers to the Southern Commercial Congress, nor did it include the stock of those of us who held in effect a third mortgage on this property for $100,000, which, if we had sensibly held on to, would have gotten us par for our holdings. We sur- rendered this mortgage, and the property was worth then enough to pay dollar for dollar, and took in lieu thereof preferred and common stock in the building corporation. I should say one word further with reference to the class of stockholders that might be designated as the Southern Commercial Congress stockholders. These gentlemen had made gifts, as I understood it then and now, to the South- ern Commercial Congress of $1,000 each, not expecting to get anything in return therefor except life membership in that organization. When the congress failed to raise the necessary money to pay for this property, or to enable it to save what it had put in, the Southern Building Corporation, rather than see this money wholly lost, of its own volition gave or offered to give to the Southern Commercial Congress its preferred stock, with the usual common stock as a bonus, for the amount paid in. This stock was not issued to the Southern Com- mercial Congress, but was issued direct to the original donors of the fund to the congress. There was no one on earth who would have been happier to have INVESTIGATION OF INSURANCE COMPANIES. 973 seen you and Parker and the others get all of their money back ; but this was not possible under the circumstances and conditions that surrounded the South- ern Building Corporation at the.^ime of the sale of a majority- of the stock to the new owners, and so far as I can see there is no promise of such a situation developing in the future. I do not know where Hawse got his idea that the Southern Commercial Con- gress stock would be taken care of at par, as stated by you. lie doubtless heard the statement made that the people who paid par for the Southern Build- ing Corporation stock would doubtless be cared for that way. FIFTH. — RUMORS. I am not advised as to the correctness or incorrectness of the rumor stated by you as to the plans and purposes of the purchasers of the controlling interest in the company ; but) I do not believe, from my general knowledge of th'eir character (but I have no intimacy with them whatever), that they will under- take to do anything of the kind suggested. They are good and reputable busi- ness people of this community. If they determine to sell the building and to put the Southern Building Corporation into dissolution, that would surely have to be done in the open, and any stockholder who may feel that the price offered, if any is offered, for the property is too small, he will have an opportunity, of course, to procure a better and more desirable purchaser, and this would obtain whether the property is sold at private sale, with the full knowledge of the stockholders, or sold at public auction to the highest bidder. I do not know who your informant is, or who your informants are, but I have given you the facts, so that you may judge safely and intelligently of the whole matter. I am, very sincerely, yours, Chas. A. Douglas. Mr. Davis. In the first paragraph of that letter, where it says "$800,000,000," I think it must mean "$800,000." Mr. Redfield. Have you any information as to whether the state- ment made in that letter regarding the identity of the officers and directors of the Eichmond Realty Co. and Southern Building Cor- poration was a correct statement? Mr. Davis. I have, sir. Mr. Redfield. In what form is it? Mr. Davis. It is in the form of a certificate from the State cor- poration commission of the State of Virginia. Mr. Redfield. Will you show the facts from that certificate to the committee ? Mr. Davis. I will, sir. Mr. Douglas. It is not a matter which I care about personally, but I object to it as being without the scope laid down by your com- mittee at its session before the lunch hour. This is going into the grievances, real or imaginary, of these gentlemen, against the Rich- mond Realty Corporation and against the directors of the Richmond Realty Corporation, that can not throw any light, and does not bear in the most remotest fashion upon the inquiry as already outlined by you before we adjourned for lunch. If we go into that, why, it seems to me, that it would be only fair that we should go into other matters, and there will be a limitless range again established. Mr. Prouty. What is the question? Let me hear it? Mr. Johnson. Read the question. Record read by the reporter, as follows: Mr. Redfield. Have you any information as to whether the statement made in that letter regarding the identity of the officers and directors of the Rich- mond Realty Co. and Southern Building Corporation was a correct statement? Mr. Davis. I have, sir. Mr. Redfield. In what form is it? 974 INVESTIGATION OF INSURANCE COMPANIES. Mr. Davis. It is in the form of a certificate from the State corporation com- mission of the State of Virginia. Mr. Redfield. Will you show the facts from that certificate to the committee? Mr. Davis. I "will, sir. Thereupon the subcommittee retired from the hearing room for the purpose of consultation, and later returned to the hearing room and resumed the hearing. Mr. Johnson. Inasmuch as the question has been raised in the letters as to whether the officers and directors of the two companies are the same, the committee is of the opinion that the paper which you now have may be read and inserted in the record. Mr. Davis. I read to the committee a letter signed by the clerk to the State corporation commission of the State of Virginia addressed to Mr. James Mann, dated October 12, 1912, Richmond, Va. [read- ing] : Commonwealth of Virginia, State Corporation Commission, Richmond, October 12, 191$. Col. James Mann (Care of Dr. Clarence J. Owens), Southern Building, Washington, D. G. Dear Sir : As requested in your letter of October 11, we take pleasure in giv- ing you lists of officers and directors as shown in reports pursuant to section 39, Chapter V, Corporation Law, made by Richmond Realty Corporation for the years 1!)11 and 1912 : Warner Moore, president, Richmond, Va. ; H. D. Eichelberger, vice president. Richmond, Va. ; William C. Schmidt, vice president, Richmond, Va. ; Edgar G. Gunn, treasurer, Richmond, Va. ; A. L. Hawse, secretary, Richmond, Va. Directors. — Oliver J. Sands. Richmond, Va. ; A. L. Hawse, Richmond, Va. ; H. D. Eichelberger, Richmond, Va. ; William C. Schmidt, Richmond, Va. ; Edgar G. Gunn, Richmond, Va. ; Warner Moore, Richmond, Va, ; J. M. Baker, Wash- ington, D. C. ; Charles A. Douglas, Washington, D. C. ; R. H. McNeill, Washing- ton, D. C. Report filed April 15, 1911: Warner Moore, president, Richmond, Va. ; H. D. Eichelberger, vice president, Richmond, Va.; W. C. Schmidt, vice president, Richmond, Va. ; A. L. Hawse, secretary, Richmond, Va. ; A. L. Hawse, treasurer, Richmond, Va. Directors. — Warner Moore, Richmond, Va. ; H. D. Eichelberger, Richmond, Va. ; W. C. Schmidt, Richmond, Va. ; A. L. Hawse, Richmond, Va. ; E. G. Gunn, Richmond, Va. ; H. W. Roundtree, Richmond, Va. ; O. J. Sands, Richmond, Va. ; Charles A. Douglas, Washington, D. C. ; R. H. McNeill, Washington, D. C. Report filed June 21, 1912. The commission makes no charge for this information. Very truly, yours, R. A. Wilson, Clerk to Commission. Mr. Douglas. What about the stockholders? That is what your letter referred to, and that is what mine refers to. Mr. Eedfield. Mr. Davis, look at your letter, to which Mr. Douglas replied, and see what it did include in this respect. Mr. Davis. My statement was this : The directors and stockholders who voted to sell the second and third mort- gage bonds at $60 per bond are identical .with the stockholders composing the Richmond Realty Co., to which the bonds were sold and the preferred stock given as a bonus. Mr. Eedfield. That is all that refers to that ? Mr. Davis. That is the quotation. My question is this: Is this a correct statement? Particularly I would like to know whether you, Mr. James M. Baker, Mr. B. H. McNeill, Mr. Samuel W. Meek, Mr. A. E. L. Leckie, Mr. G. L. Baker, Mr. James L. Karrick, or any of INVESTIGATION OF INSURANCE COMPANIES. 975 the other parties who originally went into this deal, were interested in both of the companies at the time this transaction was made. Mr. Douglas. Now, I suggest you read my answer on that again. Mr. Davis. Mr. Douglas's answer is this : I read from the bottom of the third page of his letter : So far as I know or remember, all of the active participants in the organiza- tion and promotion of the Southern Building Corporation agreed to and in- dorsed the plans as above set forth. Those of us who held what was designated as promotion stock tried our utmost to devise better and more satisfactory arrangements for the financing of the Southern Building Corporation, but we simply could not, and when the plan was put through as many of us as could subscribed and paid for in money and at par for such of the stock of the Rich- mond Realty Corporation as we were enabled to purchase. Karrick, Baker, McNeill, and I, in varying amounts, subscribed to the stock of the Richmond Realty Corporation. Meek and Leckie did not. You are in error in the state- ment that " the directors and stockholders who voted to sell the second and third mortgage bonds at $60 per bond are identical with the stockholders com- posing the Richmond Realty Co." I would say in further answer to this that perhaps 90 per cent of the subscribers to the stock of the Richmond Realty had no interest whatsoever in the Southern Building Corporation. Mr. Redfield. Now, the list you have read was the list of directors of the Richmond Realty Corporation ? Mr. Davis. Yes ; in the report filed April 15, 1911. Mr. Redfield. Now, will you read the corresponding list of the directors of the Southern Building Corporation? Mr. Davis. I do not find among my papers the certificate of the State corporation commission as to who were the officers and direc- tors of the Southern Building Corporation at the time, though I got that information and have a statement that I made from it. This can be verified very readily from the records of the company itself, if it is desired. Mr- Redfield. Will you read it, subject to such verification as may be necessary ? Mr. Davis. This comparison can be verified by these two state- ments. The following were the officers and directors of the Southern Building Cor- poration, as shown by its report of April 15, 1911, and of the Richmond Realty Corporation, as shown by its report of July 16, 1911, to the State corporation commission, capitals indicating those who were officers or directors of both companies : Southern Building Corporation. Richmond Realty Corporation. President Vice president. Vice president. Secretary Treasurer Counsel EDGAR G. GUNN.. WARNER MOORE. R. H. MCNEILL J. M. BAKER CHARLES A. DOUGLAS. DIRECTORS. edgar g. gunn warner moore r. h. mcneill J. M. BAKER CHARLES A. DOUGLAS. OLIVER J. SANDS A. L. HAWSE S. W. Meek J. L. Karrick WARNER MOORE. H. D. Eichelberger. William C Schmidt. A. L. HAWSE. EDGAR G. GUNN. DIRECTORS. EDGAR G. GUNN. WARNER MOORE. R. H. MCNEILL. J. M. BAKER. CHARLES A. DOUGLAS. OLIVER J. SANDS. A. L. HAWSE. H. D. Eichelberger. William S. Schmidt. The third bond issue was authorized by the directors March 20, 1911, and by the stockholders April 1, 1911 ; the report to the State corporation commis- sion was dated April 15, 1911, and was filed April 17, 1911. 976 INVESTIGATION OF INSUKANCE COMPANIES. Mr. Davis. That shows that there are seven out of nine directors who are identical. Xow, there is another report attached to this, as of June 21, 1912, if the committee wants me to read it. This is the result — the paper I have just read here is the result of the report received from the corporation commission put in tabulated form. It the committee would like to have them Mr. Johnson. What is this ? Mr. Davis. The papers from which I read. The bottom paper is simply a comparison of the results obtained from the other papers. Mr. Johnson. Well, you have just stated these ? Mr. Davis. Yes; I have just stated them. Mr. Easby-Smith. If the committee please, as I understand it — the two letters, one from Mr. Charles Hall Davis to Mr. Douglas, dated September 2.5, 1912, and Mr. Douglas's reply of September 27, 1912, which were read into the record became relevant simply be- cause of a reference in a letter from Mr. Carusi to Mr. Hall to the facts stated in the paragraph numbered 3 of Mr. Douglas's letter of September 27, appearing on page 4. The matters concerning which the witness has recently been interrogated, the purpose of the in- terrogations seeming to be to establish the fact that Mr. Douglas hns made untrue statements in the paragraph numbered 2, would appear to me to be absolutely irrelevant to the purpose for which this cor- respondence was introduced. There could be nothing further done in the matter, it seems to me, in fairness than to go ir^o that entire matter and try out, if the record remains in its present condition, the fact whether or not Mr. Douglas has made untrue statements in this letter, which after all is absolutely immaterial. Mr. Peouty. For whom are you appearing, Mr. Easby-Smith? Mr. Easby-Sjiith. I am simply appearing, if the committee please, as counsel who has been here in the entire case, and not for Mr. Douglas or not for Mr. Ingham, but simply, it seems to me, as counsel endeavoring to attempt to carry into effect the rulings which this committee has made; to call to the attention of the com- mittee the fact that this whole matter seems entirely beyond the scope of the ruling of the committee. I think I am correct in say- ing, and if not, I hope Judge Prouty or the other members will correct me, that the correspondence between Mr. Carusi and the witness was introduced simply because it was correspondence be- tween the witness and an officer of the Commercial Fire Insurance Co.; that the correspondence between Mr. Douglas and the witness was introduced simply because there was contained in Mr. Carusi's letter to Mr. Davis a reference to that paragraph of Mr. Douglas's letter. Now, I say that everything contained in Mr. Douglas's letter, and everything contained in Mr. Davis's letter to Mr. Douglas is. absolutely beyond the ruling which the committee has made and absolutely beyond the purpose for which the committee allowed this c< rrespoiidence to go in, and I do not think that the record ought to be expanded, because if it stands as it is, certainly the committee Mr. Peouty (interposing). The reason I asked you that question was that Mr. Douglas himself suggested the putting in of these. Mr. Easby-Smith. That is true. Mr. Peouty. I was wondering whether you appear for him INVESTIGATION OF INSURANCE COMPANIES. 977 Mr. Easby- Smith (interposing). No. As I understand, Mr. Douglas asked that that letter should go in so as to show just what -was in his letter and not the witness's statement of what was in there, and now, after getting the letter in, we go to something entirely apart from the purpose of the introduction of the letter and raise a question of the veracity on the face of the letter, which it seems to me the committee will have to go into and try out, and which is absolutely immaterial. Mr. Douglas. Mr. Chairman, since that letter has been injected into this matter, I shall certainly ask the right to cross-examine Mr. Davis in reference to the matter, because it is susceptible of perfect demonstration that there is not a fraction of untruth in that statement- Mr. Johnson. You shall certainly have the right to cross-ex- amine him. Mr. Davis, the third question which the committee in executive session, had written out to be put to you, perhaps may not now be necessary, but I will read it to you anyway. The ques- tion is this: At the time you were conducting these negotiations, did you know that Mr. Carusi was president of the Southern Build- ing Corporation and active in the management of said corporation? Mr. Davis. I did; and as president asked and obtained from him an order to the secretary to show me the minute books of the cor- poration. Mr. Johnson. Do any of the members of the committee wish to ask him any additional questions? If not, Mr. Douglas may interrogate the witness. Mr. Douglas. Just on that line 1 — on that matter ; that is all. Mr. Davis, when you wrote this letter to me of September 25, and with special reference to the alleged identity of the directors and stock- holders of the Richmond Eealty and Southern Building Corpora- tion, you knew the facts, when you wrote the letter to me, did you not? Mr. Davis. I did not. Mr. Douglas. Yo° Includes combined business of 1906 of Firemans Fund Insurance Co. and Firemens Fund Insurance Corporation. 11 Including losses of Home Fire and Marinp, which was owned by this company. Mr. Johnson. I believe we have the names of the stockholders of the Commercial Fire Insurance Co. ? Mr. Carusi. Such a list was brought here by Mr. Curry, but it did not show exactly what the committee wanted, and I promised to pro- duce a list that would show it. Mr. Johnson. Will you also produce one as to the First National Fire Insurance Co. ? Mr. Carusi. Yes, sir ; but it will take some little time. Mr. George. I wish to put in the record now a letter from Mr. Herron to Mr. Stellwagen, Mr. Herron being assistant treasurer of the Union Trust Co., this letter giving the information asked for about rentals, floor space, and what not. Mr. Johnson. In answer to questions put to him when on the wit- ness stand ? Mr. George. Yes. Mr. Johnson. I also have here a letter addressed to Mr. Rudolph, which is from Mr. C. J. Bell, which I ask to have inserted in the rec- ord, being a statement of the original cost of the land upon which the American Security and Trust Co. building stands, and also the original cost of the building, and then the cost of his furniture. I do not know how material it is. The question as to the value was raised, and I forget whether Ave asked him as to the cost or not. 988 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. It seems to me we did ask for it. By the "burnish- ing " you mean the vaults, etc. ? Mr. Johnson. Yes; Mr. Rudolph, you do not care to have in- serted in the record the letter from Mr. Bell to you ? Mr. Rudolph. Not at all. but I would like very much to have his statement made a part of the record. Mr. Peouty. Does it appear in evidence anywhere how many feet there are in this tract of land? Mr. Johnson. I can not recall. Mr. Easbt-Smith. The Union Trust Co. land? Mr. Pkoutt. No ; the American Security & Trust Co. Mr. Basbv-Smith. I do not think there is. Mr. Douglas. With reference to this Bell matter, may I make the suggestion, Mr. Chairman, that in the first place neither of those let- ters are germane to the inquiry here? I remember asking Mr. Bell something about the value of his property, but there has been cer- tainly no question raised by us that the American Security & Trust Co. is carrying its property at any very great excess of its value. The point has not been pressed as to the American Security & Trust Co. at all, and I do not think it is relevant to the inquiry before the committee; and even if it is admitted as relevant, I think it is better for Mr. Bell to come here and answer these questions instead of put- ting a whole lot of figures into the record with no explanation of how they were arrived at. For instance, in the statement about the cost of the land, we have no idea whether it was bought 20, or 30, or 40 years ago. There is really no great objection to it. Mr. George. I do not remember who asked for that information. Mr. Johnson. Even though the information were asked for, that does not imply that it was to be sent here without opportunity to inquire into it and have an explanation of it. It occurs to me that under the rule fixed in the beginning, that the hearings should be taken down and reported just exactly as they occurred and then if a witness wished to make any correction he should come back before the committee and make such correction, if anything further is to be had from any of these gentlemen relative to these matters, inas- much as they are so close at hand, they might just as well come here before the committee and testify in person. The first question that arises as to this matter is whether it is treated as having been furnished under oath. I do not know that it is material whether it goes in or out, but it seems to me if we indi- cated that we wish more information the witness would be expected to come before the committee and give it. when he could be cross- examined, if necessary. Mr. George. That does not apply to the Stellwagen letter, does it? Mr. Johnson. I think it ought to apply to everything. Mr. Redfield. Then, Mr. Johnson, I would simply point out for the record that these gentlemen were cross-examined very thoroughly by the committee and others as to the value of their property, and it was at least subject to inference that there were differences re- quiring explanation between the statements made by them to the comptroller and the sums at which their property was assessed. Both of the gentlemen in question offered to furnish the committee full information on these subjects, and inasmuch as their good faith, in a measure, or at least their business practice, has been openly and INVESTIGATION OP INSTJKANCE COMPANIES. 989 publicly questioned, and forms a part of the record in this case, I suggest that if this information furnished pursuant to the suggestion of the committee is not to be received, then the gentlemen be formally requested to appear and state the facts as they are to the committee. Mr. Johnson. Yes; it is quite apparent that while the question was gone into fully in the way of interrogation it was not complete in the way of answer, else these letters would not be forthcoming. As the witness was not able to give the committee the information and complete answers to the questions which were propounded at that time, I thoroughly agree with the suggestions made by Mr. Red- field that the better plan is for these gentlemen to come here in per- son and testify as to these facts, and then if any questions are to be asked of them they will be in a position to explain. Mr. Easby-Smith. May I suggest, Mr. Chairman, that in inviting them to return they be asked to prepare themselves to answer ques- tions as to just what the property is carried at in the report to the Comptroller of the Currency? That was left in doubt after Mr. Stellwagen left the stand, when he said he would inform himself so as to 'tie able to communicate that information to the committee, which he apparently has not done in his letter. Mr. Johnson. Here is a similar letter from Mr. Hoover, of the National Savings & Trust Co. I think we had better have Mr. Hoover return, and Mr. Stellwagen and Mr. C. J. Bell; so I will keep these three letters here and either write to these gentlemen or call them up. Most likely I will write to them. Mr. Douglas. I suppose they can come at any time? The first of next week will be sufficient. Mr. Johnson. We will arrange for their coming when they are telephoned for; I think they will prefer that. STATEMENT BY ME. FRANCIS H. STEPHENS, ASSISTANT COR- PORATION COUNSEL OF THE DISTRICT OF COLUMBIA. Mr. Stephens. Before this witness is sworn, Mr. Chairman, may I make a brief statement in explanation ? Mr. Johnson. Yes, sir. Mr. Stephens. Before this investigation began, the Commis- sioners of the District of Columbia instructed me to appear here for them to observe the course of the proceedings, and to report to them from time to time and to advise them about our local insurance laws and the interpretation of those laws by our local courts, and to hold myself at the disposition of your committee for the same purpose. My instructions did not extend to the matter of the examination of witnesses or the cross-examination of the witnesses, and the oral instructions which I received from the corporation counsel, Mr. E. H. Thomas, were that I would not be expected to do so. Down to this point I have not prepared myself to examine any of the witnesses who have been called and have not done so ; and I think this is a good time to state, as the defense is about to offer its evidence, that I shall not be expected by the commissioners to, and I shall not, take any part in the cross-examination of any of the witnesses produced. Mr. Johnson. I may say in that connection, Mr. Stephens, that I, as chairman of the committee, addressed a communication to the 990 INVESTIGATION OF INSURANCE COMPANIES. commissioners advising them when the hearings would open, and also advising them that as to any matter they might have to present as to anything involved in the investigation in which they were inter- ested they could be represented either in person or by attorney : and if I am not mistaken I was advised at the beginning of the hearing that you were here as corporation counsel representing the com- missioners. You will recall that whenever any witness has been upon the stand I have constantly asked you if you had any questions to ask, and you have invariably stated you had not. Mr. Stephens. Yes, you did, Mr. Chairman. Mr. Johnson. Gentlemen, we will now hear your first witness. Mr. Douglas. We will call Mr. A. T. Hensey. TESTIMONY OF MR. ALEXANDER T. HENSEY. The witness was duly sworn by the chairman. Mr. Johnson. Mr. Douglas, 3 r ou may proceed with the examina- tion of Mr. Hensey. Mr. Douglas. Mr. Hensey, give the committee your full name and residence ; you are not called upon to give your age. Mr. Hensey. Alexander T. Hensey. Do you want my residence or office address? Mr. Douglas. Are you over 21 years of age ? Mr. Hensey. Over 21 ; yes. Mr. Douglas. And under 65 ? Mr. Hensey. Yes. Do you want my house address or office address? Mr. Douglas. Give them both. Mr. Hensey. 1801 Adams Mill Road is my residence; 725 Fif- teenth Street NW. is my office. Mr. Douglas. What is your business? Mr. Hensey. Eeal estate business. Mr. Douglas. How long have you been in the real estate business ? Mr. Hensey. Over 21 years. Mr. Douglas. What is the name of your present firm ? Mr. Hensey. Swartzell, Rheem & Hensey Co. Mr. Douglas. They were the successors of B. H. Warner Co.? Mr. Hensey. Yes. Mr. Douglas. Is your firm incorporated ? Mr. Hensey. Yes. Mr. Douglas. How long has your firm been in existence ? Mr. Hensey. I think our firm has been in existence about 40 years. I think it was established by Mr. Warner in 1869. Mr. Douglas. How long has the present firm, the successors of the Warner Co., been in existence? Mr. Hensey. Probably 10 or 12 years. It was first B. H. Warner & Co., and then it was The B. H. Warner Co., and then it was the Swartzell, Rheem & Hensey Co., successors. Mr. Douglas. Your place of business is where, now? Mr. Hensey. 725 Fifteenth Street NW. Mr. Douglas. That puts it on Fifteenth Street, between H and New York Avenue ? Mr. Hensey. Yes, sir. Mr. Douglas. On which side of the street ? INVESTIGATION OF INSUEANCE COMPANIES. 991 Mr. Hensey. On the east side, facing west. Mr. Douglas. Who are your immediate neighbors there ? Mr. Hensey. To the north is William H. Walker, and then comes the Woodward Building; to the south is W. B. Hibbs. Mr. Douglas. Hibbs is immediately adjoining you, W. B. Hibbs & Co. ; and then comes the National Savings & Trust Co. ? Mr. Hensey. The National Savings & Trust Co., yes. Mr. Douglas. Take now the other side of the street. Directly op- posite the National Savings & Trust Co. is what — the American Se- curity & Trust Co. ? Mr. Hensey. Opposite is the American Security & Trust Co., and then they own an additional lot there. Mr. Douglas. An additional lot to the north of their present build- ing? Mr. Hensey. Yes; and then comes the Myers property. Mr. Douglas. What next ? Mr. Hensey. Then comes the old Herald Building, owned, I think,, by Mrs. Halliday now. Mr. Douglas. Then comes the Union Trust Co. ? Mr. Hensey. Then comes the Union Trust Co. ; yes. Mr. Douglas. So your building is in the block between H and ISew York Avenue, on the east side, adjoining the Hibbs Building, which intervenes between yours and the National Savings & Trust Co. ? Mr. Hensey. Yes. Mr. Douglas. I will ask you, before getting down to the details of this matter, to state to the committee when and under what circum- stances you were appointed as an appraiser of the Southern Building by Mr. Ingham, the superintendent of insurance ? Mr. Hensey. Mr. Darneille came into our office, I think it was- about the 18th or 19th of October. It was just after the middle of the month, I remember. Mr. Douglas. Of 1912, of course. Mr. Hensey. Yes ; 1912, October. He asked if I would serve on a committee to appraise the Southern Building for the Southern Build- ing Corporation, he stated. I said no. Mr. Douglas. You said what? Mr. Hensey. I said I did not care to serve on the appraisement committee. Then he asked if I would not do it as a personal matter for Mr. Ingham and himself. I said, " I will let you know in the morning." He said, " Why not make up your mind now, because we would like to have you serve very much, and I would personally like to have you serve." I said, " All right, I will." Mr. Douglas. Did you ever serve as appraiser for Mr. Ingham r the superintendent of insurance, before that time ? Mr. Hensey. Yes, sir. Mr. Douglas. Do you remember any instances in which you did serve ? Mr. Hensey. I served twice before. I think the first time I served" was under Mr. Drake, for the Potomac Fire Insurance Co. Mr. Douglas. You did appraise the property of the Potomac Fire Insurance Co. under the Drake administration ? Mr. Hensey. Yes, sir. Mr. Douglas. Do you remember who acted with you as appraiser- then? 992 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. Mr. J. B. Wiemer and, I think, Allen P. Clark. Mr. Douglas. Did you do any appraisement work for Mr. Ingham for any other fire insurance company prior to this ? Mr. Hexsey. I think it was Mr. Ingham; yes. A year ago last July we appraised the Arlington Fire Insurance Co. Mr. Douglas. Who were the appraisers then? Mr. Hexsey. Mr. Darnielle and Mr. E. H. Daniel -md myself. Mr. Douglas. Mr. Daniel, formerly of the firm of Willige. Gibbs & Daniel ? Mr. Hensey. Yes, sir. Mr. Douglas. You did make an appraisement of the property, did you not? Have you a copy of the appraisement you furnished? Mr. Hensey. Yes. sir — that is, of the Southern Building? Mr. Douglas. Yes; a copy of the actual appraisement that was made? Mr. Hensey. Yes. Mr. Douglas. I believe this is already in evidence, Mr. Hensey, at page ">1 of the printed record, but in order that I may ask my ques- tions intelligently, I will read it as prefacing my questions on the subject. It is dated October 28, 1912, and reads as follows : To die Superintendent of Insurance, Distkiot of Columbia : Pursuant to appointment, we have examined the real estate of the Southern Building Corporation, known as three parts of lot 44, and buildings, ia square 220. and, to the best of our knowledge and belief, the present cash value of such property, judging from its revenue-producing capacity, its location in the heart of Washington's Wall Street or financial center, and its very promising outlook for the future, is $2,000,000. The building is a first-class, fireproof, steel and brick construction, and the ground is increasing in value. Respectfully submitted. H. H. Dakneili.e. Alexandeb T. Hensey. William P. Lipscomb. Were you at any time after you made that appraisement called upon by anyone to give the basis of your figuring ? Mr. Hensey. Yes, sir. Mr. Douglas. How you arrived at that appraisement? Mr. Hensey. Yes, sir ; we received a letter from the superintend- ent of insurance, Mr. Ingham. Mr. Douglas. That is also in evidence, so I will not call for that again. Mr. Easby-Smith. That appears at page 73 of the printed record. Mr. Douglas. Just use your letter as a reference. It appears at page 73 of the record, dated December 10, 1912. It is not worth while to read it again. I notice in that letter you say Mr. Lipscomb is a practical builder, and estimated the building cost at about $975,- 000. and that you valued the land between $45 and $50 per foot. t)o you know the exact number of square feet in that plot of ground ? Mr. Hensey. Yes, sir. Mr. Douglas. 22,212 square feet ? Mr. Hensey. Yes. Mr. Douglas. You say your value of the ground is between $45 and $50 per square foot. Which is your estimate as to the value of that property? INVESTIGATION" OF INSUKANCE COMPANIES. 993 Mr. Hensey. In this letter I took the lower valuation of $45 a foot. Mr. Douglas. What do you think is a fair valuation for it ? Mr. Hensey. I think between those figures, just as we stated. Mr. Douglas. Between $45 and $50 a foot? Mr. Hensey. Yes, sir. Mr. Douglas. I will ask you, Mr. Hensey, if you ever had occasion to appraise this particular piece of property before ; and if so, when and for whom ? Mr. Hensey. I appraised it about three years ago, I think. In fact, I have a copy of the letter here. Mr. Douglas. Let us have that. Mr. Hensey. Shall I read it? Mr. Douglas. Yes; just read the letter into the record. Give the date first. Mr. Hensey. January 25, 1910. J. L. KarrIck, President of the Southern Building Corporation, Washington, D. ('. Dear Mr. Karrick : At your request for an appraisement for the northeast corner of Fifteenth and H Streets, NW., known as the St. Matthews Church property, we beg to state that we consider this site to be worth at least $35 per square foot. It is. in our opinion, one of the finest corners in the city. We remain, yours, very truly, Swartzelt.. Rheum & Hensey Co., By A. T. Hensey. Mr. Douglas. That was in January, 1910 ? Mr. Hensey. Yes, sir. Mr. Douglas. Three years ago? Mr. Hensey. Yes, sir. Mr. Douglas. I will ask you to give this committee the benefit. of all the data and material you have upon which you based and now base your valuation of that ground at between $45 and $50 a foot ? Mr. Hensey. I would like to say that Mr. Darneille and I at- tempted to appraise the ground, and Mr. Lipscomb was the builder, so I did not go into the question of the cubing of the building and putting a value on the building itself. We did all go into the ques- tion of the verification of our figures which we had made on the ques- tion of the net earning capacity, which, I think, was soon after the 25th of October. In the meantime we had gone ahead and figured on the ground separately and the building separately. Mr. Douglas. Let us take up the ground first. We will come to the building and earning capacity later. Mr. Hensey. My first idea in regard to the corner was this:T began using what I call " measuring sticks." I thought the fair way to get at an appraisement there would be to take some relative com- parisons with other properties in like neighborhoods. The first thing I thought of was the Hendricks Building, across the street, which they are holding at $40 per square foot. Mr. Douglas. Give the exact location of that, so the committee will know. That is the property which you say is next to the Union Trust property on Fifteenth Street? Mr. Hensey. Yes, sir. Mr. Douglas. An inside lot ? ; Mr. Hensey. Yes, sir. 994 INVESTIGATION OF INSTJKANCE COMPANIES. Mr. Douglas. On the west side of the street? Mr. Hensey. Yes, sir. It is 50 feet front by 145 feet deep and contains 7,223 square feet, and is held at $40 a square foot. It is now the property of Mrs. Halliday, I understand. Mr. Geohge. Is that building nearly opposite your own? Mr. Hensey. Exactly opposite; yes, sir. The building is an old-style building, but it was renovated a year or so ago ; but, of course, it is not the type of building I should con- sider on high-priced ground. Mr. Douglas. You do not consider the building of any material consequence ? Mr. Hensey. Not of any material value; no. Then we took our own property, which we bought with Hibbs seven years ago, which was then the Barton Hotel, and for which we paid $19.64 a square foot. "We have considered that in the last year probably to be worth $40. Then the Myers property I understood and do understand now is being held also at $40. Mr. Douglas. That is the property known as the American Se- curity & Trust Co. ? Mr. Hensey. Yes, sir; next to the holdings of the American Se- curity, but not their building. They own the ground right north. Mr. Douglas. That is the ground that lies between the new pur- chase of the American Security & Trust Co. and the old Herald Building, owned by Mrs. Halliday. Mr. Hensey. Yes, sir. Mr. Douglas. What do you say about the value of that ? Mr. Hensey. I understand, from the very best information I could get, that that is being held at $40 a foot also. The property to the north of us, Mr. "Walker told me — I do not know whether it is in the market or not — he held at $50 a foot. Mr. Douglas. That is his own property ? Mr. Hensey. Yes, sir. Mr. Douglas. Laying next to the Woodward Building? Mr. Hensey. Next south of the Woodward Building and ad- joining ours on the north. Mr. Douglas. Do you know what Mr. Hibbs's property is held at? Mr. Hensey. No; I do not. Mr. Douglas. Or what is the value of his property ? Mr. Hensey. I do not. Mr. Douglas. I believe you have stated that you and Hibbs bought that old Barton Hotel property ? Mr. Hensey. Yes, sir. That is, Mr. Hibbs bought it and we took half of it. Mr. Douglas. Seven years ago? Mr. Hensey. Nearly seven years ago. Mr. Douglas. For $19 per foot? Mr. Hensey. $19.64 or $19.63. Mr. Douglas. And you now value your property at $40 ? Mr, Hensey. Yes, sir. Mr. Douglas. Is there a single inside lot between New York Avenue and H Street on Fifteenth Street that can be bought under $40 a foot? INVESTIGATION OF INSUKANCE COMPANIES, 995 Mr. Hensey. None that I know of. Of course I do not know, if you went with an offer to Myers or went with an offer for the Hen- dricks Building, what they would take. That is the price, and I have never heard they would take any less. Mr. Douglas. Proceed. You have now disposed of that property. Mr. Hensey. I took that as a measuring stick in the first in- stance, and I certainly believe in my own mind if it was worth $35 or $40 anyway, $35 at the lowest, that the Southern Building Cor- poration site was worth at least $45 a foot. That was one measuring stick. Mr. Douglas. Give us another one. Mr. Hensey. I would like to call attention to the Lenman prop- erty on New York Avenue, on the north side of New York Avenue, east of and adjoining the National Savings & Trust Co. They have 100 feet in there for which, I think, they paid $215,000 several years ago. Last summer it was offered to us, and they suggested that in case we got a purchaser they would sell the east half, the east 50 feet containing about 4,500 square feet — 4,507 square feet, I think, to be exact — for $200,000, which is approximately $45 per square foot. I understood that they had refused an offer of $135,000, which was $30 a square foot. I took that as a measuring stick, and at that offer, if they were offered, which I believe to the the fact, $30 a foot, I believe the Southern Building Corporation corner was worth at least $15 more per square foot. That was another measur- ing stick. Also there came into my mind our appraisement of the Arlington Fire Insurance Co.'s property. Mr. Douglas. You were one of the appraisers ? Mr. Hensey. I was one of the appraisers. Mr. Douglas. About a year ago? Mr. Hensey. I think it was more than a year ago. I think it was a year ago last summer. I do not know whether it was July or August or June. We appraised that ground, not the building, at $50 a foot approximately, or a little less. Mr. Douglas. State to the committee just where that is. Mr. Hensey. That adjoins the Riggs Bank on the west. Mr. Douglas. Is that considered on Pennsylvania Avenue or New York Avenue? Mr. Hensey. Pennsylvania Avenue. Mr. George. That is opposite the Treasury? Mr. Hensey. Yes, sir; right where the street turns there at right angles. Mr. Douglas. You appraised that ground itself at $50 per foot? Mr. Hensey. Yes, sir; we appraised the ground and the building. The building was then in the course of construction, which we es- timated would cost nearly $30,000. I have since learned it cost $31,000. I think Mr. Lipscomb, who was on this present board with me, built it at that time. We appraised it at $50 a foot. Mr. Douglas. That is over a year ago ? Mr. Hensey. A year and a half ago ; a year ago last summer. Mr. Douglas. That is an inside lot. Mr. Hensey. Yes, sir. Mr. Douglas. How deep is it, if you know ? Mr. Hensey. Yes, sir; I have it right here. It is 111 feet. It is 26 feet 4£ inches by 111 feet. That is about 2,907 square feet. I have 996 INVESTIGATION OF INSUBANCE COMPANIES. a copy of our appraisement, if you want it. We appraised that and several other pieces of property. Mr. Douglas. Let us take that ; it will not take long. Mr. Hensey. We appraised it for $176,000. Mr. Douglas. Just read that into the record. Mr. Hensey. I have it here. This appraisement was made in July, 1911. I called up the insurance company not long ago and got this, because I had heard that this appraisement was in question too and had been criticized. I asked Mr. Darneille if he could find the papers in the case. He was then secretary of the board, and he looked for them but could not find them, as he had changed his office ; so I called up the insurance company and got these figures. Mr. Douglas. You verified these figures? Mr. Hen set. Yes, sir. The appraisement was made July, 1911. The appraisers were Messrs. Darneille. Daniel, and Hensey. The property appraised was for the Arlington Fire Insurance Co. Appraisement of No. 1505 Pennsylvania Avenue, $176,460. Appraisement of 212 Four-and-a'-half Street NW., $8,000. Appraisement of 1401 Fifth Street NW., $8,000. Appraisement of 1.S37 Vermont Avenue, $5,000. Appraisement of 601 L Street NE., $3,500. Appraisement of 206 Seventh Street SW., $10,500. Appraisement of 3206 P Street NW., $3,000. This made a total of $214,460. The appraisement of the Pennsylvania Avenue property — or the office building — was $176,460, or $60 per square foot, including the building. The building cost about $30,000, leaving nearly $50 a square foot for the lot alone, containing 2,942 square feet. Mr. Douglas. So much for that.^ Give us another " measuring stick,'" to use your expression. Mr. Hensey. The next measuring stick was the Montrose. Mr. Douglas. That is at the corner of Fourteenth and H? Mr. Hensey'. Northeast corner of Fourteenth and H; yes, sir; which has been sold within seven or eight months for $51.44 per foot. It was sold for $172,500, plus $5,000 commission, the purchaser pay- ing the commission to the agent, making $177,500, which, I think, if divided, makes $51.44 per square foot, as I figure it. There are 3,450 square feet. Mr. Douglas. Do you think the building is of any material conse- quence in that matter ? Mr. Hensey. No. I understand it is to be torn clown, and I do not consider it of any value on that priced ground. I consider that also as a measuring stick against my lower valuation of the Southern Building Corporation property at $45 to $50. Mr. Douglas. What do you know about the other corners of Four- teenth and H? Mr. Hensey. The two south corners are not for sale, I understand. I called up Mr. Wickersham in regard to the Walsh property, and he said it was not on the market. Mr. Douglas. That is the southwest corner ? Mr. Hensey. Yes, sir. That is a large tract facing on H and run- ning south to New York Avenue, and has the entire frontage on Fourteenth Street, Neither is the property to the east for sale, which INVESTIGATION OF INSUBANCE COMPANIES. 997 belongs to the Willard estate. That is a triangular piece of ground running from New York Avenue north to H. The Montrose stands on the northeast corner, and at the northwest corner is the property we have always called the Heurich property, but I understand he never bought it. It was rumored he had bought it. I understand he refused $55 a foot and is holding it at $60. Mr. Douglas. State within what period of time, if you know. Mr. Hensey. Within a year. Mr. Douglas. They refused $55 ? That is the northwest intersec- tion of Fourteenth and H ? Mr. Hensey. Yes, sir. Mr. Douglas. And on the same block with the Southern Building? Mr. Hensey. Yes, sir; square 220; I considered that also as a measuring stick. But the most important thing to my mind was the question of taking the two corners of the Montrose on the northeast corner of Fourteenth and H and the Shoreham corner. The Shore- ham is opposite the Southern Building Corporation site and has a large tract of ground, a little over 16,000 feet. Mr. Douglas. Before you go to the Southern Building direct Id us see if you can get any other measuring stick. Mr. Hensey. You mean, before I go to the Shoreham ? Mr. Douglas. Yes; before you go to that immediate intersection of Fifteenth and H. Let us go to the west of that intersection and take the Arlington Hotel property. What are the values in that section ? Mr. Hensey. I understand they paid $1,400,000 for that property, which is about $24 a foot. Mr. Douglas. How many feet of ground are there in it ? Mr. Hensey. There are over 58,000—58,300 or 58,500, I do not know which. I have tried to figure out that proportion of it on the north, so as to get at the southern corner, to get at the H Street corner. Mr. Douglas. That is at the corner of H and Vermont Avenue? Mr. Hensey. Yes. As nearly as I can figure that, that piece in there would come to about 20,000 feet. If you take 38,000 feet at $8 a foot Mr. Douglas. That is the I Street frontage? Mr. Hensey. That is the I Street frontage, which I think is a high estimate for that proportion. Mr. Douglas. That is $38,000? Mr. Douglas. Figure that out. You say $8 is high for it? Mr. Hensey. I should say $7 to $8 a foot in there. Mr. Douglas. Suppose you put it at $10. Mr. Hensey. Let me take it at $8 first. Mr. Douglas. Take it at $8 first. Mr. Hensey. If I have proportioned it off right — I am not an engineer, and, of course, the maps are not always correct — that would come to $307,128. That is 38,391 square feet, which is the north portion. Mr. Douglas. That would take in all on I Street and up to Ver- mont Avenue ? 71391— No. 12—13 2 998 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. Yes, sir. You see it fronts on I Street 315 feet and fronts on Vermont Avenue 349 feet, and it fronts TO feet on H Street, If I am correct, that would leave $1,092,872 for the H Street side. Mr. Douglas. How much is that? Mr. Henset. That is $54 a foot. Mr. Douglas. I hope I am making this clear to the committee, as I regard this of very great significance. This is the sale of the Arlington Hotel property. Have you a little drawing there? Mr. Henset. Yes. Mr. George. The Arlington Hotel, you mean? Mr. Douglas. The Arlington Hotelsite; yes, sir. Mr. George. Does this indicate the property taken at $8. a foot? Mr. Douglas. I will get Mr. Hensey to mark that in a moment to show just how he arrives at that. We want to try it out in all sorts of ways so as to ascertain what would be a fair relative value of the property on Vermont Avenue and on H Street. You figured that out at $307,000 on the basis of $8 a foot. Mr. Hensey. Yes. Mr. Douglas. Take the 38,000 square feet of ground. Mr. Hensey. The north two-thirds of it? Mr. Douglas. Deducting the 38,000 square feet of ground and commencing on its westernmost point on I Street and running down to Vermont Avenue? Mr. Hensey. Yes, sir. Mr. Douglas. The portion part of the way up on Vermont Avenue? Mr. Hensey. Taking it down to where it jogs from H Street. I think that is 187, and I think this [indicating] is 131, and this [indicating] is 315. and then 349 on Vermont Avenue and 70 feet onH. Mr. Douglas. In other words, the present method of comparison is to run a straight line from the ell on the street corner right straight across to Vermont Avenue? Mr. Hensey. Yes; that is it. Mr. Douglas. That makes a straight property with 70 feet on H Street and 187 feet running back and a little more than that running on Vermont Avenue. Mr. Hensey. Yes. Mr. Douglas. About how many feet would that be? Mr. Hensey. In this corner? Mr. Douglas. Yes. Mr. Hensey. About 20,000 feet, as I figure it. Mr. Douglas. That would leave you then a good sized lot at the corner of Vermont Avenue and H, nearly as large as the Southern Building lot? Mr. Hensey. Yes, sir. Mr. Douglas. Putting the other property at $8 a foot, it would make this corner of 20,000 feet cost about how much ? Mr. Hensey. $54 I figure it. Mr. Douglas. Suppose you put the other property at $10 a foot and see how that would figure it. INVESTIGATION OF INSURANCE COMPANIES. 999 Mr. George. The I Street end? Mr. Douglas. Yes. Mr. Henset. That would be $383,910, if I am correct, and $1,400,000. ' Mr. Douglas. That -would be over a million dollars, too? Mr. Hensey. Yes, sir; that is a little over $50 a foot. Mr. Douglas. Yes, sir. I do not want to tax the patience of the committee, but let us try it again. Put all that ground, except that portion you have cut out at the intersection of Vermont Avenue and H, at $15 a foot. Mr. Hensey. You mean the 38,000 feet ? Mr. Douglas. Yes. Mr. Hensey. That is $575,867. Mr. Douglas. See how much that leaves for the 20,000 feet. Mr. Hensey. That would leave $824,135. Mr. Douglas. How much is that per foot. Mr. Hensey. That is over $40 per foot. Mr. Douglas. Suppose you allow $20 a foot for the I Street prop- erty and see what it figures out. Mr. Hensey. That would be $767,820. Mr. Douglas. For the 20,000 feet of ground ? Mr. Hensey. Yes. Mr. Douglas. How much is that a foot? Mr. Hensey. That would leave $632,180 for the 20,000 feet, which would be a little over $30 a foot. Mr. Douglas. $31.50 a foot? Mr. Hensey. Yes, sir. Mr. Douglas. How much more valuable would you say the South- ern Building corner is than the corner we have been discussing, Mr. Hensey ? Mr. Hensey. I should say — approximately? Mr. Douglas. Without regard to these figures, what is the relative value of the Southern corner as compared to that ? Mr. Hensey. I should say it is worth at least $20 a foot more. Mr. Douglas. At least $20 more per foot? Mr. Hensey. Yes. Mr. Douglas. If the Chamberlain Hotel corner is held and can not be bought for less than $30 a foot — the Chamberlain Hotel cor- ner being at the intersection of I and Fifteenth, on the same block, immediately north of this property and directly south of the Belle- vue Hotel— what light would that throw on the value of the South- ern Building corner? Mr. Hensey. I should make almost the same comparison of differ- ence. Mr. Douglas. $20? Mr. Hensey. Yes, sir. Mr. Douglas. Which, in your judgment, is the more valuable in- tersection, Fourteenth and H or Fifteenth and H? Mr. Hensey. I had rather thought they were very nearly alike in some respects. I thought there was a little more traffic at Four- , teenth and H, but that Fifteenth and H had more prospects, and certainly was very much better improved. Mr. Douglas. Do you put them at about the same value? Mr. Hensey. Yes. 1000 INVESTIGATION OF INSXJBANCE COMPANIES. Mr. DorcLAS. Mr. Stellwagen said Fifteenth and H is more valu- able for certain purposes. Mr. Hexsey. Yes. Mr. Douglas. You say for general purposes they are about the same? Mr. Hex set. Yes. Mr. Douglas. Let us go south a moment and take Fifteenth and New York Avenue, the corners there. Mr. Hensey. Yes, sir. Mr. Douglas. How much more valuable would Mr. Hoover's cor- ner be than the Southern Building corner? Mr. Hensey. Of course, I am just making a bird's-eye appraise- ment of these things; that is, I have not gone into them as closely as I would if I were asked to appraise that corner like we were asked to appraise the Southern Building. I believe Mr. Hoover's corner, the American Security & Trust property, is worth $75 a foot. Mr. Douglas. At any rate, do you think his property is worth more than $25 per foot more than the Southern Building corner? Mr. Hensey. No, sir ; I do not. Mr. Douglas. What corner do you regard in that immediate sec- tion or neighborhood as the most valuable in this city ? Mr. Hensey. I regard the two corners, the Nairn property, and Fifteenth and Gr. Mr. Douglas. The Nairn property is that property lying south of New York Avenue at the intersection of Pennsylvania Avenue? Mr. Hensey. Yes, sir; the southeast corner and the northeast cor- ner. There is only one building between, and that is Thompson's drug store. Those two corners are the most valuable in the city, in my opinion. Mr. Douglas. Do you know what the Nairn property is worth? Mr. Hensey. I think it is worth between eighty-five and one hun- dred dollars a foot. Mr. Douglas. Do you know what the other corner on the same block is worth — that is, the Home Life Building, where the Citizen's Savings Bank is? Mr. Hensey. Yes, sir. Mr. Douglas. What is that worth, or what did it actually sell for recently ? Mr. Hensey. I got a statement from the cashier that they paid $319,000 for that building— for the property ; that the building cost $119,000 and the ground $200,000, which represents over $96 a foot, Mr. Douglas. How long ago was that ? Mr. Hensey. I think that is within a year, Mr. Douglas. Mr. George. Which property is that? Mr. Douglas. That is the Home Life Building, at the northeast intersection of G and Fifteenth Streets. The Home Life Building is immediately to the north of the new Biggs office building. There is a narrow building there called the Home Life Building. Take the property at Fourteenth and G Streets. Mr. Hensey. I spoke to Mr. Dante, who represents the Hutchins property, and he said the corner was not for sale. They have three lots there — two inside lots and one corner lot; and they would not sell the corner unless they sold the entire amount. They have a INVESTIGATION OF INSUBANCE COMPANIES. 1001 frontage of 181 or 182 feet on Fourteenth Street; and he said they wanted $65 a foot there. They have about 15,000 or 16,000 feet. Mr. Douglas. Let us take the other corner, known as the Small corner. Mr. Hensey. I was informed he refused $225,000 for it, which was about $73 a foot, there being 3,118 square feet in it. Mr. Douglas. What do they hold it at ? Mr. Hensey. I do not know what they hold it at ; I have not been able to find out, but I did get this from a gentleman who said he made the offer several years ago of $225,000. Mr. Douglas. Several years ago? Mr. Hensey. Yes, sir. Mr. Douglas. You do not know that they hold it at over $85 a foot, do you ? Mr. Hensey. No; I do not. Mr. Douglas. Do you know anything about New York Avenue and Fourteenth Street, continuing in that immediate neighborhood ? Mr. Hensey. No; I don't know anything about it. The Walsh property is not for sale, neither is the Willard. That is, the two north corners. I do not believe the south corner is for sale. One is the Bond Building, and the other is the haberdashery store. Mr. Douglas. That covers the region about the Southern Build- ing to the north, the east, the south, and west. Let us come now to the four corners themselves. Give us what you think is the relative value of those four corners. Mr. Hensey. You mean Fifteenth and H Streets ? Mr. Douglas. Fifteenth and H Streets ; yes. Mr. Hensey. I should say there is a shade of difference, just a shade of difference in the two south corners. They are a little more valuable, except the Southern Building, and I think that is a very unusual lot. It has a fine exposure, south and west, and then it has the advantage of that 20-foot alley to the north. They have practi- cally three sides for light, which the other corners do not have. Mr. Douglas. Does that alley add much to the value of the ground ? Mr. Hensey. It certainly ought to be considered in its valuation. Mr. Douglas. That alley runs all the way through to Fourteenth Street? Mr. Hensey. Yes, sir. Mr. Douglas. Paved? Mr. Hensey. Yes, sir. Mr. Douglas. What with? Mr. Hensey. It is a 20-foot alley and well paved, nicely paved. Mr. Douglas. What have you to say about the size of the lot, as to whether it adds to or subtracts from its value. Mr. Hensey. I think it is an ideally shaped lot. If you could get one of the smaller corners there it is a question whether you could fill out and get such a shape as that. I doubt it. I do not know of any for sale. The Hutchins property for sale is 182 feet on Four- teenth Street, but it is only 61 feet, I think; on G Street, and then it jogs out in the back. It is an irregular shaped piece of property, which I should not think would be very advantageous for building a large office building or hotel. 1002 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. This is a fine site for either a hotel or an office building ? Mr. Hensey. An office building or store, or a fine site for a hotel, in my opinion. Mr. Douglas. Is there any better site in "Washington for an office building ? Mr. Hensey. I do not know of any, considering the size. Mr. Douglas. Elevation and everything? Mr. Hensey. And elevation. Mr. Douglas. Did you take into account the valuation of the building and grounds taken together and the question of earning capacity ? Mr. Hensey. After we had figured on it and found a diversity of . opinion as to its value per foot, and Mr. Lipscomb had figured on the building itself, it was suggested that the fair way would be to get at the net earning capacity, so that, as I stated in my letter, we called for a statement from the Southern Building Corporation, and they told us the earning capacity of the building was $150,000 ; that the taxes were $13,000 — I looked that up and found they were a little bit less, according to the taxation books, but very little less — running expenses approximately $22,500, which made $35,500. We deducted that from $150,000, leaving $114,500. Then, I took off practically 10 per cent. I called it repairs. You can call it depre- ciation. There ought not to be any repairs in a building of that kind for the first 5 or 10 years. Call it anything you want to. According to their statement they had 7 per cent of vacancies in the building. If 92 or 93 per cent of the rooms were full, the vacancies would be about 7 per cent. Mr. Douglas. So, the total earning capacity was $150,000? Mr. Hensey. That figured out $100,000, which is 5 per cent. Mr. Douglas. $114,000 exclusive of the depreciation or repairs? Mr. Hensey. No; inclusive. I called it repairs. Did vou say $114,000? Mr. Douglas. Yes. Mr. Hensey. Yes; exclusive, that is right. Mr. Douglas. If you did not deduct anything for repairs ? Mr. Hensey. No, sir; that is right. Mr. Douglas. And you figured out then if you allowed as much as $14,500 for depreciation or obsolescence, or decadence, or what not, it would pay 5 per cent on what amount ? Mr. Hensey. $2,000,000. We had figured it up first at $45 a foot, which came to $999,540, I think, and Mr. Lipscomb's estimate was about $975,000, at the lower valuation of $45 a foot, and that came to $1,974,540. Then I figured it out on a basis of $50 a foot, which came to $1,085,000. Mr. Douglas. That is at $50 a foot? Mr. Hensey. That is adding Mr. Lipscomb's estimate of the build- ing. Mr. Douglas. You mean $2,085,000? Mr. Hensey. Yes, $2,085,000. We figured it both ways, and then verified it. Mr. Douglas. You said $1,085,000 just now. Mr. Hensey. I meant $2,085,000. We rather verified it then by the rental earning capacity, and you see it came out in one case INVESTIGATION OF INSURANCE COMPANIES. 1003 $45,000 less than $2,000,000, and in the other case $85,000 more, so then we decided on the figure of $2,000,000. Mr. Douglas. Mr. Hensey, still talking on the subject of earning capacity, let me ask you this question: Is it not excepting far too much of a business property in Washington, especially large prop- erties, to yield anything like 5 per cent ? Is not 3 or 4 per cent nearer the figure at which business property is capitalized here? Mr. Hensey. I can only relate a little experience we had when we built our building. It was a question whether we should go into the office-building proposition, or just build the one story. We made some investigation, and if I remember correctly, I do not think it ran over 4 per cent for what they figured on office buildings. Mr. Douglas. On the subject of allowing for depreciation, what light can you throw on that subject for the committee? In other words, what is your judgment as to whether or not that should be allowed at all in a building of this sort ? Mr. Hensey. I have heard of a number of rules for allowances for depreciation, but I do not believe there is any single case like an- other ; I do not believe there are any two cases alike. I think the only way to find your depreciation is to add up your repair bills during the year, and that will vary from year to year, and it will vary from building to building. Mr. Douglas. I will ask you this: In your opinion, then, if you allow as much as $15,000 a year for depreciation of the building, will or will not that be more than offset bv the appreciation of the land? Mr. Hensey. It certainly would, because I think that ground is still going up. Mr. Douglas. As to the Union Trust Co. building — let us get an- other measuring stick a little closer at hand — I will read a letter which I do not think has yet been read into the record, which was sent to Mr. George, a member of this committee, by Mr. Stellwagen. Mr. Johnson. I believe it was understood, when it was proposed that the letter should go into the record, that we would have Mr. Stellwagen come here and testify to the facts concerned in the letter? Mr. Douglas. Yes, sir; we will strike out that question then and I will state a hypothetical question while Mr. Hensey is on the stand. Assuming, Mr. Hensey, for the purposes of the inquiry that the Union Trust Building has been put in by the Union Trust Co. to the Comptroller of the Currency and carried at a figure of $1,165,000, and taking that as a basis of the value of the property, and assuming that the gross earning capacity of the building Mr. Hensey. Give me that amount? Mr. Douglas. $1,165,000. And assuming that the gross earning capacity of this building is $65,800 ; I want you to tell the committee what would be the gross earning capacity of that building, assuming it to be worth $1,165,000. Mr. Hensey. You mean in comparison with the Southern? Mr. Douglas. No ; I mean, first ascertain what would be the gross earnings of that building and see whether or not they will exceed 5, fy, or §\ per cent. Mr. Hensey. It is over 5 per cent. Mr. Douglas. Between 5 and §\ ? Mr. Hensey. I should say so ; yes, sir. | 1004 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Allowing the owners of the Southern Building the same way of reaching a valuation of their property, will you tell the committee what would be a fair valuation of the Southern Building upon the same basis upon which the Union Trust Co. arrived at its valuation? Mr. Henset. You mean if the gross rental is Mr. Douglas (interposing) . If the gross rental is $65,800. Mr. Henset. If the gross rental is $65,800, and that is about 5£ per cent on $1,160,000, what would the Southern Building be worth? Mr. Douglas. On that same basis. Mr. Henset. On an earning capacity of $150,000 ? Mr. Douglas. Yes; treating the Southern Building the same way the Union Trust people are treating theirs. Mr. Henset. It would be in the neighborhood of $2,500,000 or $3,000,000. Mr. Douglas. It would be $2,600,000, would it not? Mr. Henset. Yes, sir. , Mr. George. Both cases being hypothetical ? Mr. Douglas. Yes; both hypothetical. We will show to-morrow, Mr. Chairman and gentlemen, the exact earning capacity of the Southern Building, and just what has been actually rented, the cost of operation, etc. Assuming that I have given you the correct figures, that would put the Southern Building valuation in excess of $2,600,000? Mr. Henset. Yes, sir. Mr. Douglas. Mr. Hensey, when you accepted the position of ap- praiser, I will ask you if you knew who were then the owners of this building? Mr. Henset. I did not think very much about it, but I understood the insurance companies had bought it, but just how, I did not know, whether they bought the stock or whether it was transferred to them as trustees. Mr. Douglas. Did you know for whom you were making the ap- praisement? Mr. Henset. Yes ; we were making it for the fire insurance super- intendent in the inspection of these insurance companies. Mr. Douglas. Were you consulted or requested by either of the fire insurance companies to serve on that board? Mr. Henset. No, sir. Mr. Douglas. Did you have any talk with Mr. Harper, the presi- dent of the District National Bank, on this subject before you made the appraisement? Mr. Henset. I never did. I never had any talk with him on the subject of the fire insurance companies at all that I can remember. Mr. Douglas. Did he or anyone connected with the Commercial Fire Insurance Co. or the First National Fire Insurance Co. indicate to you directly or indirectly, in any kind of way, that they would like to hare an inflated or high or generous appraisement of the property ? Mr. Henset. No, sir. Mr. Douglas. Did you know for what purpose the superintendent of insurance wanted the property appraised, except the general idea of ascertaining for his own uses'? INVESTIGATION OF INSURANCE COMPANIES. 1005 Mr. Hensey. I presumed he was having it appraised for the Dis- trict government. I had served on these committees before, and I assumed it was for that purpose. As I understand it, when the superintendent examines a fire insurance company, if they have any real estate, he appoints a board of appraisers to appraise it. Mr. Douglas. It was done for District government purposes ? Mr. Hensey. Yes, sir. I might say, just how the insurance com- panies carried that ; whether they carried it as book value or market value or whether they carried it both ways, I really do not know. Mr. Douglas. Mr. Hensey, reference has been made sevsral times here to the fact that you are a member of the board of directors of the District National Bank, of which Mr. Harper is president, and that Mr. Tuttle and Mr. Carusi, of the fire insurance companies, are also on that board, and that Mr. Lipscomb is on that board. I do not know for what purpose it was brought out unless it was to sug- gest that you were at least unconsciously influenced by it. Will you tell me whether or not you are acquainted with Mr. Tuttle ? Mr. Hensey. I never met Mr. Tuttle in my life until last week in your office. Mr. Douglas. Under what circumstances did you meet him there? Mr. Hensey. You called up at my office and asked me to come down, and you had gone out to dinner and I did not know what you wanted, so I came down; and when you came back you wanted to ascertain how I had come at the valuation of the Southern Build- ing, and a gentleman came in and sat next to me whom I did not know, and you introduced him to me as Mr. Tuttle. That was -the first time I ever saw Mr. Tuttle. Mr. Douglas. Are you personally acquainted with Mr. Wightman of that firm ? Mr. Hensey. No, sir; I do not know which is which, but I was introduced to them here to-day. Mr. Douglas. You did not meet either one of them before that time? Mr. Hensey. I do not know whether I saw Mr. Wightman that night up in your office or not. If I did I do not remember being introduced to him. Mr. Douglas. Do you know anything about the relation between the Commercial Fire Insurance Co. and the District National Bank? Mr. Hensey. I know nothing except that Mr. Tuttle is on the board. But I have never been present at a meeting at which he attended, so of course I had never met him before. What Mr. Harper's connection with it was I did not know, but I know he was interested in the insurance companies. I do not know where I got it, but I had an idea that he simply had gone into the insurance com- panies, probably the National — I do not know which one. This is all a mental impression, Mr. Douglas. I thought he was probably like many other gentlemen who serve on boards who only have nominal holdings. I thought maybe he was serving on those boards to secure the deposits for his company. Mr. Douglas. You did not know anything about it ? Mr. Hensey. No, sir. Mr. Douglas. That was what was in your mind ? 1006 INVESTIGATION OF INSURANCE COMPANIES. -Mr. Hensey. Yes, sir ; it was a mental deduction, if I thought of it at all. That was in my mind. Of course I absolutely know noth- ing of that, Mr. Douglas. Mr. Douglas. Mr. Easby-Smith called my attention to a fact that I had overlooked. Do you know anything about the valuation put on the Shoreham Hotel ? Mr. Henset. Yes; I think the George report showed that they refused an offer of $800,000, which was $50 a foot— 16,000 feet. Mr. Douglas. Assuming it is yielding net $55,000 on the basis of a 5 per cent investment, that would capitalize it at over a million dollars, would it not ? Mr. Hensey. Yes, sir. Mr. Douglas. That would make it over $60 a foot ? Mr. Hensey. Yes, sir. Five per cent on $1,100,000. ■ ' Mr. Douglas. Just one more question, Mr. Hensey. Will you tell me, or do you know, about what the Washington Loan & Trust Build- ing nets, as a renting proposition, on the investment ? Mr. Hensey. I do not know, but I have heard. I do not know how true this is ; this is rumor. I have heard that they did not pay over 2 or 3 per cent. Mr. Doulgas. Well, we will ascertain about that. Mr. Hoover made some reference to the fact that Mr. Darneille came to see him and perhaps it was not just clear as to whether or not he asked him to give only his general judgment or whether he asked him to give his judgment as an appraiser. Do you know how Mr. Darneille happened to go to Mr. Hoover ? Mr. Hensey. I do not know how many times Mr. Darneille went to Mr. Hoover, but I can tell you the circumstances under which he went once. Mr. Dor <; las. That was after you had been appointed as ap- praiser? Mr. Hensey. Oh, yes. It was several days. I had gone down to see Mr. Hoover to talk with him like I talked to a number of people, and Mr. Hoover was at a funeral. I went back to the office, and I think Mr. Darneille came in several times that morning, and I asked him if he was down by Mr. Hoover's bank at any time if he would go in there in case he got there before I did, as it would save my going down. He came back and reported that Mr. Hoover had stated that the ground per square foot was worth from $22 to $25 ; and this is what Mr. Darneille said to me at that time, that he said, '' Why," he said, " man, you are low," and then Mr. Hoover said, " I do not know anything about it," Mr. Douglas. That is the substance of what was reported to you? Mr. Hensey. Yes, sir. Mr. Douglas. Mr. Hensey, before concluding my direct examina- tion, let me ask you just two other questions. Did Mr. Darneille, in asking you to serve as an appraiser here, indicate in any kind of way that he wanted you to put a high appraisement on this property ? Mr. Hensey. He did not. Mr. Douglas. There was not a thing ever said ? Mr. Hensey. No ; sir; not one word. Mr. Douglas. Did Mr. Ingham ever communicate with you di- rectly ? INVESTIGATION OF INSURANCE COMPANIES. 1007 Mr. Hensey. I do not think I had met Mr. Ingham before this investigation started. Mr. Douglas. That is all, Mr. Chairman. Mr. Johnson. Mr, Eedfield, do you desire to ask anything ? Mr. Redfield. Mr. George wishes to ask some questions. Mr. George. Mr. Hensey, I am not clear about this Arlington property. It is an irregular piece of property, and runs from I Street along Vermont Avenue to H Street, and the H Street end of it you put at $54 a foot and the other part of it — the I Street side of it — you put at about $8 a foot. Mr. Hensey. Yes, sir. That is, I put $8 a foot on I Street, and multiply that by practically two-thirds, 38,000 feet, which leaves about 20,000 feet for the corner of Vermont Avenue and H Street. Mr. George. There seems to be in my mind a great disparity be- tween $8 and $54 — a very great difference. I wish you would clear up in my mind the reason why you put the I Street end of that property at $8 and the H Street end of it at $54. Mr. Hensey. Mr. George, I do not put the H Street end at any price excepting the difference. I do not appraise that, but Mr. George (interposing). But it comes to $54? Mr. Hensey. But I do think that the I Street is not worth over $8 a foot. Mr. George. How do you come to that conclusion? Do you know that from sales on I Street? Mr. Hensey. No; I have not heard of any sales there. I think we had the corner of Sixteenth and I, which I think adjoins this property. I do not know whether it adjoins the Arlington Hotel. I think it does. Mr. Douglas. Yes; it adjoins it. Mr. Hensey. About a year or a year and a half ago — now, I am speaking from recollection — my impression is that they wanted about $10 to $15 a foot for it. Mr. George. And did they get it ? Mr. Hensey. I do not think that it was sold. I do not remember whether it was or not. We never sold it. Mr. George. Was that the corner property ? Mr. Hensey. Yes, sir. Mr. George. Which corner was that? Mr. Hensey. That was the southeast corner. Mr. George. That would be the opposite corner ? Mr. Hensey. Sir? Mr. Geobge. That would be the diagonal corner ? Mr. Hensey. No. I mean the southwest corner. Mr. Douglas. The southwest corner? Mr. Hensey. Wait until I get myself straight on that. I am turned around. Mr. Douglas. The southeast. Mr. Hensey. I mean the southeast. That is what I said — the southeast corner. That is right. And it adjoins the Arlington property ; I think that is right. Mr. George. And was that price obtained, or was any price ob- tained ? Mr. Hensey. For the corner ? Mr. George. Yes. 1008 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. I do not know, sir, whether it was sold or not. Mr. Douglas. Your firm did not sell it? Mr. Hensey. Oh, no; we did not sell it. The gentleman who owned it came in and talked with me about it a year and a half ago, I think it was. Mr. George. I still am not clear about the $8 per square foot. Mr. Hensey. I just assumed that that is all it is worth, Mr. George— $8. Mr. George. How do you assume it? What is your process? Where is your measuring stick here in this instance ? Mr. Henset. My measuring stick here would be in regard to that corner at $10 or $15 a foot. Mr. George. Was that an actual transaction? Mr. Henset. No, sir ; that was just a question of holding price. Mr. George. And do you think that is a proper relation, $8 or $10 for the corner, and $8 a square foot for all the rest of that Arlington I Street property? Mr. Hensey. I do; yes, sir. Mr. George. And your process of arriving at the value of the rest of the lot, the remainder of this Arlington lot, is to multiply the size of the I Street lot by $8 and take the remainder of the purchase price as the value of this H Street end of the Arlington property. Mr. Hensey. Yes, sir. Mr. George. Dividing that, you would get $54 a foot? Mr. Hensey. About $54 ; yes. Mr. George. Taking that as the proper proportion between the I Street end and the H Street end of the property, lying between those two blocks, do you find the same relation on the other streets? Mr. Hensey. It is only one block, Mr. George. Mr. George. Yes ; one block lying between H and I. Do you find that relation in, say, Fifteenth Street? Mr. Hensey. No, sir. Mr. George. Do you find it on Fourteenth Street? Mr. Hensey. No, sir; not in any business street. Mr. George. What would you call Vermont Avenue? Mr. Hensey. I call Vermont Avenue a residence street. Mr.- George. Not a business street? Mr. Hensey. Well, there are a few stores on the east side, but where the hotel is and up where the club is, opposite the park, that is all a residence section. John E,. McLean has his residence right on the corner there. Mr. George. What I am trying to get at is this : The Arlington lot, having such a difference in value between the I Street end and the H Street end, do you find the same proportions relatively on any of the other streets running north and south between I and H ? Mr. Hensey. No, sir. Mr. George. Then, what are we to go on ? Mr. Hensey. You see, Mr. George, we figured, to start with, on a set price of $1,400,000, which they received for the property — which the property was sold for — and if you take the I Street part at $8, which is my individual judgment, and take off two-thirds of it, which is the larger portion of I Street and Vermont Avenue, of course it must necessarily follow that you would have to divide the corner, INVESTIGATION OF INSURANCE COMPANIES. 1009 the number of square feet in the corner of H and Vermont Avenue, by the balance or difference. Mr. George. You understand me, I am not trying to refute you; I am trying to test this thing. Mr. Hensey. I know. As I understand it, the ratio of difference between the corner of Vermont Avenue and I and H Street and Vermont Avenue is very much larger than you would probably find in the business up on Fifteenth Street between H and I or Four- teenth between H and I. Mr. George. Suppose you take the thing from the other end and see what you work out, if you work the H Street end of it first. Mr. Douglas. Just let him try it that way, Mr. George, and see how it works out. Mr. George. Do you think that the H Street end of that lot, the Arlington lot, should be fixed at $54 a square foot, by your informa- tion of the rest of the property on H Street in that block? Mr. Hensey. No ; I do not. Mr. George. Well, I do not mean to say that you can compare a corner lot with an inside lot on H Street in that same block. Mr. Hensey. No. Mr. George. That is to say, I do not suppose you would say that all the property on H Street in that block should be put down at $54. There is some relation between an inside lot and a corner lot, of course. Mr. Hensey. Yes. Mr. George. Do you know anything about the price of the rest of the property on H Street in that block, the Arlington block? Mr. Hensey. No, sir ; there is none that is for sale that I know of. There are one or two pieces there — the St. John's Church, that is not for sale, and then Miss Freeman owns that brownstone house which adjoins, and that has never been for sale. In fact, there is an old story here that Mr. Corcoran tried to buy it and she wanted to buy him out, but how true that is I do not know. Mr. George. As I remember, that corner at H and Vermont Ave- nue is occupied by an old brownstone private house, and it was re- garded as a kind of an annex to the Arlington ? Mr. Hensey. Yes, sir. Mr. George. Was it an annex? Mr. Hensey. Yes, sir. Mr. George. I never knew that. Mr. Hensey. Yes, sir ; it was always used. I think they had the ladies' entrance there. Mr. George. Has that changed hands in recent years? Mr. Hensey. No, sir ; that still belongs to the Arlington property. It is the corner we are talking about now. Mr. George. To cut this thing short, can you demonstrate to me that $54 is a fair, price for that property by any other process than the one that you have used, namely, subtracting from the total price of the property the northern portion of it at $8 a foot? Mr. Hensey. No, sir ; I can not, because I think $54 a foot for it is high. But the question was put to me in that shape, and of course i figured it out. I believe that $8 a foot was all the I Street property was worth. 1010 INVESTIGATION OP INSURANCE COMPANIES. Mr. George. That is to say, you think that the total price paid for that property was high? Mr. Hen set. No; I do not; not for its purpose; I consider that the finest hotel site in Washington City. Mr. George. But you think that corner at $54 a square foot would be high? Mr. Hen set. Yes; I do. Mr. George. That is what I wanted to get at. Why did you say that ? Mr. Hensey. Because I did not consider it as valuable as Fifteenth and H. My valuation on Fifteenth and H was only between $45 and $50. Mr. George. But here you are confronted by the fact that a certain sum of money was paid for this strip of land between H and I Streets, and getting at the value of the I Street end of it as well as you can and subtracting that portion you have $54 a foot for the H Street end of that same block. Mr. Hensey. Yes, Mr. George; but that is a rather arbitrary pro- ceeding, because it is a question where you shall divide that in two; whether you shall divide it at 131 feet back from 1 Street or 200 feet. It is just an arbitrary price, that is all. Mr. George. It is arbitrary to do it in that way, you mean? Mr. Hensey. Yes, sir. Mr. George. Now, then, try it the other way arbitrarily, too, and see whether you get the same results. Give us what reasons you have for starting in at H and Vermont Avenue, or the Arlington prop- erty, at $54 per square foot, and then go up and see whether you get $8 per square foot the other way. That is, prove your case by doing it backward — if you can. Mr. Hensey. You mean you think that I think the corner is worth $54? Mr. George. Yes. Can you prove this thing backward? Mr. Hensey. No ; I can not ; because I do not think it is worth $54. Mr. George. But you do have an arbitrary relation of $8 to $54. I want to know why you do that. I want you to convince me, in other words, that this is the way I ought to go about that in valuing that corner. Mr. Hensey. I can not convince you, Mr. George, because there is no argument that I can give. I do not think that corner is worth $54. Mr. George. But you do value the other as worth $8 ? Mr. Hensey. Yes. The question is how far back shall you go. There are 349 feet from one end of that square to the other. It is arbitrary whether you shall go back a hundred feet, or go back 200 feet, or go back 250 feet, anyway you want to. Mr. George. These things come in, in your mind ? Mr. Hensey. Yes, sir. Mr. George. I want to know how you arrive at it. Mr. Hensey. The only way I arrive at it was believing that the I Street property was worth $8 a foot, and just cutting it off at the jog, and that left the balance. Mr. George. Would that leave a reasonable sized lot, would you say? INVESTIGATION OF INSUBANCE COMPANIES. 1011 Mr. Hensey. Yes ; 131 feet is all right for this purpose, and I do not think that is too high a price as a total — $23 or $23 a foot for its purpose, as I consider it the best hotel site in the city of Washington. Mr. Geokge. Your position, as I understand it, is that this $54 a foot was too high, but nevertheless it was paid ? Mr. Hensey. Yes ; it figures out if you figure it that way. Mr. Redfield. Mr. Hensey, on this same proposition, for a mo- ment; there are two narrow lots on the I Street side, between Six- teenth Street and the west wing of the Arlington property, are they not? Mr. Hensey. I think so; yes, sir. Mr. Redfield. And it is those two lots to which you refer? Mr. Hensey. On the corner, Mr. Redfield. Mr. Redfield. One on the corner and the next on the inside, be- tween the Arlington property and the corner property? Mr. Hensey. Yes, sir. Mr. Redfield. Those are the two to which you refer as being held at $10 to $15? Mr. Hensey. I said that was an indistinct recollection ; the gentle- man who owned it came in about a year or a year and a half ago and talked to me about it. Mr. Redfield. And at that time your indistinct recollection is that $10 to $15 is what he held it at? Mr. Hensey. Yes, sir. Mr. Redfield. And, of course, you recognize $10 to $15 is a differ- ence of 50 per cent ? Mr. Hensey. That is true. Mr. Redfield. Which was it? Was it $15 or was it $10? Mr. Hensey. Between $10 and $15. I can not tell you. Mr. Redfield. Was the corner lot worth more than the inside one ? Mr. Hensey. I think he took it as a whole. Mr. Redfield. The corner lot had a frontage of 131 feet on Six- teenth Street, did it not? Mr. Hensey. Yes, sir. Mr. Redfield. And the two lots did not have as much frontage as that on I Street? Mr. Hensey. No. Mr. Redfield. It is obvious that the Sixteenth Street lot was worth the more of the two, is it not? Mr. Hensey. I do not know what you mean. I am taking it as a corner, Mr. Redfield. Mr. Redfield. Well, as a corner. You mean as a whole, as a unit? Mr. Hensey. Yes, sir. Mr. Redfield. In dividing that unit into two lots, what did you take the corner at ? Mr. Hensey. I did not do that. I took it as an entirety. Mr. Redfield. Can you do it now? Mr. Hensey. I suppose the inside lot would be worth what I thought the other was worth— $8 a foot. Mr. Redfield. What would the corner one be worth ? Mr. Hensey. $10 to $15, probably, is what he held them at. Mr. Redfield. Can you not make a nearer statement than that on prices, one of which is 50 per cent greater than the other ? 1012 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. No; not on that land of an appraisement; I can not do it on a minute appraisement, Mr. Redfield. Mr. Eedfield. Are you prepared to swear that that Sixteenth Street corner is not worth $15 a foot? Mr. Hex sey. Not worth $15? Mr. Redfield. Yes. Mr. Hensey. Xo; I would not swear that it is not worth $15; no. Mr. Redfield. You think it may be worth $15 ? Mr. Hensey. Yes. Mr. Redfield. What is the corner on the other end of the block worth, on Vermont Avenue and I Street ? Mr. Hensey. The immediate corner? Mr. Redfield. Yes. Mr. Hensey. It would probably be worth as much, if not a little more. Mr. Redfield. Perhaps worth as much as what — $18? Mr. Hensey. $15 to $17, probably. Mr. Redfield. That is part of the Arlington Hotel property? Mr. Hensey. Yes, sir. Mr. Redfield. So that the corner of Vermont Avenue and I Street you think might possibly run as high as $17? Mr. Hensey. It might. Mr. Redfield. It has an unusually large street frontage, has it not, by reason of the diagonal street? Mr. Hensey. Yes; it has an acute angle there, which is not always an advantage in building, though. Mr. Redfield. You would reduce the inside lots in value on I Street by reason of valuing the corner of Vermont Avenue and I as high as $17? Mr. Hensey. No. Mr. Redfield. So that in your calculation of $8 a foot for this entire I Street frontage did you not overlook the value of the corner of Vermont and I ? Mr. Hensey. Yes; I did, but I do not figure out a corner there at all, you see. It is all one tract. Mr. Redfield. But there is a corner there. Mr. Hensey. Well, that depends upon where you begin and where you end. Mr. Redfield. Yes. Of course if you do not go to the corner you do not get to it. Mr. Hensey. That is it. Mr. Redfield. You said in your report, in the letter to the insur- ance department, which appears on page 73 of the record, you found a diversity of opinion among real estate brokers and others as to the land valuation of this property. Mr. Hensey. Yes, sir. Mr. Redfield. Will you please tell the committee, as fully as you can, about that diversity in two ways: First, as to the diversity among the real estate brokers, who they were, and what the diver- sities were; and, second, as to who the others were you mentioned and what the diversity was among them. Mr. Hensey. Well, Mr. Hoover was one of the others. Mr. Redfield. Tell us the real estate brokers first, please, whom you consulted, and what their opinions were. INVESTIGATION OP INSUKANCE COMPANIES. 1013 Mr. Hensey. Let us see. I think I have a list here. I said the committee, Mr. Kedfield, I think, didn't I ? Mr. Redfield. The committee found ; yes, sir. Mr. Hensey. Well, Mr. Darneille consulted most of them. Mr. Eedfield. Of course you can hardly be expected to speak for anyone else, unless you are personally acquainted with the facts. Mr. Hensey. No, sir. I have a list here, and I .think Mr. Darneille when he testifies can report about that. Mr. Kedfield. Let us have it all. Mr. Douglas. I submit, Mr. Chairman, that if Mr. Hensey should testify to what other people told him, that is hearsay No. 1. But for. him to testify to the committee what somebody else told him somebody else said strikes me as entirely hearsay. Mr. Johnson. The witness is now under cross-examination, and those interrogating him may put leading questions to him, but under no state of the case, I believe, is hearsay evidence legitimate. Mr. Kedfield. State what you know yourself on the subject. Mr. Hensey. My partner, Mr. Swartzell, thought it was worth $45. I talked with him. He is in our company. Mr. Rheem thought it was worth $50. Mr. Redfteld. Mr. who? Mr. Hensey. Mr. Rheem, a member of our firm. He thought it was worth between $45 and $50. The other names I have from Mr. Darneille. Rr. Redfield. Are your two partners the only real estate brokers you consulted on the subject yourself? Mr. Hensey. No. Mr. Redfield. Who else did you consult, and what prices did they give you ? Mr. Hensey. I think the only one I consulted told me he thought we were high, but he did not put any price on it. Mr. Redfield. Who was he? Mr. Hensey. Mr. Latimer ; Mr. Lee Latimer. Mr. Redfield. Did you consult anybody else besides Mr. Latimer and your partners ? Mr. Hensey. I do not remember that I did. I might have, but I have forgotten who they were. Mr. Redfield. As to the others whom you mention in your letter to the insurance department — who were the others ? Mr. Hensey. Mr. Hoover was one, and there was another name. Mr. Redfield. Did I understand you, pardon me, about Mr. Hoover, to say that you personally saw Mr. Hoover ? Mr. Hensey. No. Mr. Redfield. Then you did not actually yourself get any informa- tion from Mr. Hoover save from Mr. Darneille? Mr. Hensey. That is it, Mr. Redfield. Who else? Mr. Hensey. The others I heard from through Mr. Darneille, but as I understand it there was another outsider. Mr. Redfield. Who was that outsider? Mr. Hensey. I do not know. You would have to consult Mr. Mr. Redifeld. Did you yourself consult personally. any others* 71391— No. 12—13 3 1014 INVESTIGATION OF INSUBANCE COMPANIES. Mr. Hensey. I think I did ; but I have forgotten who. Mr. Redfield. You do not know whether you did or not? , Mr. Hensey. I think I did ; but I can not call to mind who they were. Mr. Redfield. You made a formal statment only as late as a month ago in writing, Mr. Hensey, to the insurance department, that the committee found a diversity of opinion among real estate brokers and others. Mr. Henset. Yes, sir. Mr. Redfield. If I understand you correctly — and if I do not, be kind enough to set us right — as a matter of fact, so far as your personal knowledge of the facts stated by you here is concerned, it consists in consulting your two partners and Mr. Latimer, and that so far as the other mentioned are concerned it consists in something that Mr. Darneille told you he had heard from two people, and beyond that your recollection is not clear. Is that right ? Mr. Hensey. No ; you do not state the the problem straight. Mr. Redfield. Will you make it right? Mr. Hensey. Mr. Darneille was to get the information in con- sulting other people on the committee. He was a member of that committee, and, of course, we used any information he brought in. Those are the facts. Mr. Redfield. But I am interested for a moment only, Mr. Hensey, in your personal part of this, and I am dealing with your letter as it appears in the record. I will ask you again, referring to your letter, in which you state the committee found a diversity of opinion among real estate brokers and others, whether so far as your part of that was concerned, in- dividually, it was not confined to your two partners, to Mr. Latimer, and as regards the others mentioned, two reports from Darneille, and that beyond that your recollection is not clear? Mr. Hensey. That is right. Mr. Redfield. Mr. Hensey, are you prepared to state under oath that the property known as the Southern Building, building and land taken together, is worth $2,000,000? Mr. Hensey. Under our appraisement; yes, sir. Mr. Redfield. You believe it is so worth ? Mr. Hensey. Absolutely ; or I would not have signed the report. Mr. Redfield. Let us come back for a moment to the Arlington Hotel property. If you reckon about 100 feet from the corner of Vermont Avenue and I Street, along Vermont Avenue, would not the frontage ori Vermont Avenue left between the corner and the jog you have men- tioned be worth more than the frontage on I Street ? Mr. Hensey. I did not catch your question, Mr. Redfield. Mr. Redfield. The stenographer will read it. The stenographer read the pending question. Mr. Hensey. Will you kindly hand me that map that vou have there? Map handed to witness. Mr. Hensey. It would be if you figured it in connection with the corner like we figured it before. If you take the difference INVESTIGATION OP INSURANCE COMPANIES. 1015 Mr. Redfeeld (interposing). So that, as a matter of fact, if. this property were taken in detail you would have four elements in it, would you not, of different values, namely, the corner on H and Vermont Avenue, the corner on Vermont Avenue and I, the I Street frontage, and the Vermont Avenue frontage between the two corners ? Mr. Hensey. That would probably be so if you took it that way. Mr. Redfield. Did you know that an appraisal had been made by the insurance department of the State of New York of the South- ern Building in the early part of the year 1912 ? Mr. Hensey. I did not. I do not remember hearing about it. I might have heard about it since this investigation. I think it has been in the testimony. Mr. Redfield. Did you make any inquiry as to what other ap- praisements had been made of that property within a year? Mr. Hensey. I did not. I think Mr. Darneille said that he had appraised it the year before, but I did not ask him what his ap- praisal was. Mr. Redfield. Have you any knowledge now as to the valuation put upon the property by the appraisers employed by the insurance department of the State of New York? Mr. Hensey. I have not. Mr. Redfield. Do you know who those appraisers were ? Mr. Hensey. I do not. I understand Mr. Darneille was one of them, but whether that is so or not I am not sure. Mr. Johnson. Any questions, Mr. Prouty? Mr. Prouty. Mr. Hensey, you spoke in your testimony of not hav- . ing examined the question of taxes on this property. Mr. Hensey. Yes, sir. / Mr. Prouty. Do you recall at what it was assessed ? Mr. Hensey. Yes, sir ; I have it right here. Mr. Prouty. I mean the Southern property. Mr. Hensey. The Southern Building? Mr. Prouty. Yes, sir; building and property. Mr. Hensey. The ground was assessed at $310,968 and the build- ing at $550,968, making a total assessment of $860,968, indicating a value of $1,291,452; that is, if the assessors assessed it on a two- thirds basis. Mr. Prouty. Did you take this as one of your yardsticks in meas- uring? Mr. Hensey. I did not; no, sir. Mr. Prouty. And why not? Mr. Hensey. Because I thought it was too low. Mr. Prouty. But did you not use it as one of your yardsticks? In other words, were you hunting for long yardsticks or short ones ? Mr. Hensey. No; I was just hunting for fair ones. Mr. Prouty. Then you did not consider this as a fair one? Mr. Hensey. I thought it was too low ; yes, sir. I would not say it was not fair, but I think it is too low. Mr. Prouty. And what is the rule or law by which property is to be assessed in the District ? Mr. Hensey. Two-thirds of its value. They may assess, as I understand it, full value, but not less than two-thirds. 1016 INVESTIGATION OF INSURANCE COMPANIES. Mr. Prouty. Does not the statute provide that it shall be assessed at its actual cash value? Mr. Hensey. That is pretty hard to say — cash value. Col. Judson. The statute says not less than two-thirds of its true value, Mr. Prouty. Mr. Prouty. You had known at the time of the making of this appraisement that this property had been sold within the last three or four years at $18 a foot? Mr. Hensey. Yes; I knew when the church sold it to the first organization — the Southern Commercial Congress. Mr. Prouty. Did you use that yardstick in your calculation? Mr. Hensey. I did not. Of course, it affected my mind the same as the price we paid for ours more than seven years ago — $19.63. That was sold at $18. Of course, that neighborhood Mr. Prouty (interrupting). What do you think was the fair value of this property at the time the St. Matthews people sold it? Mr. Hensey. I thought it was worth more money than that. Mr. Prouty. What did you think it was worth ? Mr. Hensey. I thought it was worth at least what Ve paid for an inside lot, or probably a little more. Mr. Prouty. That is hypothetical. Can you not put it in dollars and cents ? I do not know what you paid. Mr. Douglas. He stated that. Mr. Hensey. We paid $19.64. Mr. Prouty. How much? Mr. Hensey. $19.64. Mr. Prouty. If this was worth $20 at that time, do you think property in that region has appreciated 250 per cent in the last two and a half years ? Mr. Hensey. Two hundred and fifty per cent? v Mr. Prouty. Yes. Mr. Hensey. From $20 to $45, would not be that much. Mr. Prouty. You assessed it at $50. Mr. Hensey. $45 to $50. Mr. Prouty. Your report here shows $50. I do not know what you had in your mind. Your report here shows $50. Do you think property in that neighborhood has appreciated in the two and a half years 250 per cent? Mr. Hensey. I think it has doubled; yes, sir — more than doubled. I think that is a great business corner there, and that a great many of the citizens of Washington do not realize it. That is one of the greatest corners in the city. Mr. Prouty. You do know that this property had been upon the market for the last two and half years for about $1,550,000? Mr. Hensey. No, sir. I did not know that before. , Mr. Prouty. You never heard anything about that? Mr. Hensey. Not until I read it in this testimony that is going on now. Mr. Prouty. Did you make any inquiry as to what this property had exchanged or sold for in the last two and one-half years? Mr. Hensey. No, sir. I should have considered it a very improper question for me to ask, on appraising a man's piece of property, to go to him and ask him what he paid for it. It would certainly bias my appraisement. INVESTIGATION OP INSUKANCE COMPANIES. 1017 Mr. Peouty. I mean at other times and by other parties. Mr. Hensey. No, sir. • Mr. Peottty. In all your testimony you have taken the value of other people's property— what it sold at? Mr. Hensey. No ; I have not. Mr. Peouty. What it is offered at? Mr. Hensey. Yes, sir; at what it is held for. Mr. Peouty. Why did you not take that same rule and apply it to this piece of property? Mr. Hensey. On the building itself? Mr. Peouty. No ; on this piece of property. Mr. Hensey. No ; I could not do that. Mr. Peouty. You could on the land, though, could you not? Mr. Hensey. Suppose you asked me, Mr. Prouty, to appraise your house, and I would say, " Mr. Prouty, what did you pay for ihat house? " and you would say, "Well, I paid $10,000." there certainly would be some bias in my mind to start with. I would rather not have you tell me what you paid for it. I would rather find out what some relative property near it there was held at. Mr. Peotjty. Would you not rather find out what this property had been sold for by other parties just prior to the time I asked you ? Mr. Hensey. No, sir. Mr. Peouty. In other words, you do not use as a yardstick what the property itself sold at? Mr. Hensey. No, sir. Mr. Peouty. But rather use as a yardstick what other properties sold at? Mr. Hensey. Relative property ; yes, sir. Mr. Peouty. Why that distinction? Mr. Hensey. Because then I am unprejudiced and not starting in being biased by the fact that this property was sold for such a price. I much prefer knowing nothing about it, and I did not know in this case. Mr. Peouty. Do you know of any property in that immediate neighborhood that has appreciated 250 per cent in the last three and a half years ? Mr. Hensey. Well, all the business property in the city Mr. Peouty (interposing) . I mean that has sold at such an appre- ciation. Mr. Hensey. The Montrose must have appreciated a very large amount. Mr. Peouty. How much ? Mr. Hensey. I do not know what the owner paid for it, but I think if you would investigate it you would find that it appreciated very largely. Mr. Peouty. Another thing, you spoke of verifying your judg- ment as to the value of this property by its income. Mr. Hensey. Yes, sir. Mr. Peouty. And estimated your value upon a 5 per cent basis? Mr. Hensey. Yes, sir. Mr. Peouty. Had you known that there were $1,300,000 of mort- gages on the property that were drawing 6 per cent, would that have made any difference in your estimate of the value ? 1018 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. Not a bit. I would not have considered it proper to take into consideration at all a mortgage in the valuating of property. Mr. Prouty. You would consider property valuable that does not even pay interest on the mortgages on it? Mr. Hensey. No; I would not; but at the same time that would not enter into the valuation of the property. Mr. Prouty. The equity in this property would be worth only the difference between what the interest on the first mortgage was and the net income. Mr. Hensey. I know ; but you very often see it figured out where they take a mortgage on a piece of property at 5 per cent and then show an income of 25 or 30 per cent on the equity. I do not think that is the way to do it, but that has been done time and time again in real estate propositions. Mr. Prottty. Suppose there had been mortgages on this property to more than consume the income, would you not have considered that if you were a purchaser of the property instead of an appraiser ? Mr. Hensey. I might have as a purchaser; yes. Mr. Prouty. Would you not, as appraiser, use the same common sense that you would use as a purchaser? Mr. Hensey. Mr. Prouty, I did not appraise it on the income. I appraised it on the net rent earning capacity, which, to my mind, is the only way you can get at it. If you value a piece of property on what it brings — take the Southern Building — suppose the South- ern Building was two-thirds vacant, would it be fair to value that on its income ? I will answer that question by a question. Mr. Protjty. Pardon me, I am not on the witness stand. Mr. Hensey. I am answering your question by a question. Pardon me, that is my argument. Mr. Prouty. If you put the question to me I would say this, if it was there, capable of being rented, the mere fact that it was not rented at that particular time I would not deduct that from the value of the land or property. Mr. Hensey. That is my proposition. Mr. Prouty. That comes to the second question, and the real question: Do you not consider the incumbrances upon a property in estimating its value where you are trying to determine its value by the income from it? Mr. Hensey. No, sir. Mr. Prouty. For instance — if I have got my figures correct — there was $78,000 interest that would have to be paid on these mortgages before these purchasers would receive any consideration? Mr. Hensey. No, Mr. Prouty ; I would not consider that in valuing the property. Mr. Prouty. If it was a 10 per cent mortgage, would you not consider that? Mr. Hensey. No, sir; or if they wanted to pay 50 per cent. Mr. Prouty. If it had been mortgaged for $19,000 at 8 per cent you would still make the same answer? Mr. Hensey. On the valuation; yes, sir. Mr. Prouty. But how would you have verified that by the in- come? You say you based it upon income. INVESTIGATION OF INSURANCE COMPANIES. 1019 Mr. Hensey. No, sir; I based it upon net earning capacity of the building. Mr. Peouty. But in figuring that income capacity, are you not compelled to figure interest on the loans that are on it ? Mr. Hensey. No, sir ; I would not. Mr. Peouty. I can not understand how you are figuring it. You would not figure that way if you were buying I am sure. Mr. Hensey. You would not take that into consideration. If the property was worth $200,000, what difference would it make if it had $50,000 or $100,000 mortgages on it. That would not enter into the value of the property. Mr. Peouty. You have assumed that it did, because you said that you tried to find out what its income was. Mr. Hensey. No; I did not. When did I say that? Mr. Peouty. You said you sent to the company and asked for their income. Mr. Hensey. No ; I sent to the company and asked for their rental, net capacity, rentals, net earnings. Mr. Protjty. If you are going to use one side of the ledger, is it not perfectly fair that you should use the other side as to what the expenses are in carrying it? Mr. Hensey. We did. Mr. Protjty. What was that? Mr. Hensey. They told us this, that the rental earning capacity of the building was $150,000 ; that 92 or 93 per cent was full ; that the taxes were $13,000; that the running expenses were approximately $22,500. That made $35,500. We deducted that from $150,000, the earning capacity, which left net $114,500. We took off $14,000, or practically 10 per cent for repairs, or so-called depreciation, or any- thing you want to call it, which left $100,000 net rental earning ca- pacity, which was 5 per cent on $2,000,000. Mr. Protjty. You did not know that out of that $100,000 it would take $78,000 to pay interest on the mortgages ? Mr. Hensey. I did not know what the mortgages were, except I knew there was an $800,000 mortgage on it. Mr. Protjty. Did you know what the rate of interest was? Mr. Hensey. I did not; no, sir. Mr. Protjty. Do you not think that in order to get at the cash value of a piece of property, when you are figuring its income, you ought to figure its expenses as well as its income ? Mr. Hensey. Not to get at the value. Mr. Protjty. Why did you figure taxes or any of the items of expense ? Mr. Hensey. Because taxes must come out and running expenses must come out. Mr. Peouty. Why did you not figure that? Mr. Hensey. The interest is supposed to come out of the 5 per cent, whatever that is. Mr. Prouty. Has not the interest on this money that they have borrowed got to come out of the income before these owners get any- thing? Mr. Hensey. Of course, if the building was filled they would have enough to make it up ; yes, sir. Mr. Peouty. Would it not have to be, whether they had or not? 1020 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. Yes, sir. Mr. Prouty. Just as much as taxes? Mr. Hensey. I do not consider it, Mr. Prouty, in connection with appraising a piece of property. Mr. Prouty. I am trying to find out why you do not. Mr. Hensey. I am trying to explain it to you. Mr. Pbotjty. They first have to pay the taxes, and then pay the running expenses, and then pay the interest on their loans before they get anything out of it, do they not ? Mr. Hensey. Yes, sir. Mr. Prouty. Why do you consider part of these items and not con- sider the others ? Mr. Hensey. Suppose that was very much less ; then I would have to figure a higher per cent on the equity in the property, just as I stated a while ago. Mr. Pbotjty. Suppose it were a good deal more ; you would have to cut it down, would you not ? Mr. Hensey. On the equity? Mr. Prouty. Yes. Mr. Hensey. But I do not think that is a fair way to figure it, on the valuation, because you will probably show, in most cases, a very large percentage on your equity and low percentage on your mort- gage. Mr. Prouty. Getting this down to a practical basis, there is $100,000 income from this property above its expenses, according to your way of figuring ? Mr. Heksey. Net earning capacity. I did not say that was the income. Mr. Prouty. Well, net earning capacity? Mr. Hensey. Yes, sir. Mr. Prouty. It took $78,000 of that to pay the interest on these mortgages, did it not ? Mr. Hensey. I do not know that. Mr. Prouty. After deducting the expenses, wear and tear, and cost of operating the building you have $100,000 left, do you, of net re- ceipts ? Mr. Hensey. Earning capacity; yes sir. Mr. Prouty. Earning capacity. That was the basis. Did you make any inquiries upon how much interest they had to pay in carry- ing this mortgage ? Mr. Hensey. No, sir ; I did not take that into consideration. Mr. Prouty. Supposing that they paid $70,000 a year for it. That would simply leave them $30,000 net income ? Mr. Hensey. That would be above the 5 per cent, that is all. They might pay 10 per cent, they might pay 15 per cent ; I do not know. I do not think that the mortgage properly belongs in the appraise- ment. They might pay any rate of interest. If the building would show an earning capacity of $100,000 and they paid 10 per cent of $100,000, that would have nothing to do with the matter. Mr. Prouty. I am only testing one thing. If you are going to determine the income, ought you not to take into account the expenses as well as the income? Mr. Hensey. The expenses, but not the interest on the mortgage. INVESTIGATION OF INSURANCE COMPANIES. 1021 Mr. Peouty. Is not the interest on the mortgage considered an expense? Mr. Hensey. It is generally considered an expense, but not in an appraisement. Suppose they paid 15 per cent on a million dollars; there would be $150,000, which would be $50,000 more than the earn- ing capacity. Mr. Peouty. Let me put the proposition to you this way : Suppose there had been a $2,000,000 8 per cent mortgage running for 10 years and it could not be paid until the expiration of that time, and you were fully cognizant of that fact, and you were called upon to appraise this property, and you were to call for the books, as you did, as to the income, would you still appraise the property the same as you do now? Mr. Hensey. I would. I would not consider the mortgage in the valuation at all. Mr. Peouty. You do not consider taxes in the valuation? Mr. Hensey. Yes. Mr. Peouty. Why? Mr. Hensey. Because that comes in with the running expenses. Mr. Peouty. Does not interest on loans come in with the running expenses ? Mr. Hensey. Yes; that comes in on running expenses, but that is a part of the amount that you appraise at a 5 per cent basis. The interest may be 4 per cent, or 3 per cent, or 2 per cent, or 10 per cent, or 15 per cent. Mr. Peouty. Let me ask you this question: Do you figure 5 per cent as the earning capacity of the property as your basis for figuring this value? Mr. Hensey. Sometimes. Mr. Prouty. Well, when? Mr. Hensey. How do you mean? Mr. Peouty. When do you use one and when do you use the other? Mr. Hensey. We used it in this case to verify it. That is a mooted question. Some people believe in appraising property on a net per cent basis of 5 per cent, and some do not. Mr. Peouty. Which did you use in this case ? Mr. Hensey. We used both. Mr. Peouty. And arrived at the same conclusion ? Mr. Hensey. Practically; yes, sir. Mr. Peouty. But in doing that you omitted the interest charge on the loan? Mr. Hensey. Yes, sir ; we did not take that into consideration. Mr. Peouty. Just one more question. Did Mr. Ingham ever re- quest you to appraise this property? Mr. Hensey. No; I do not think I met Mr. Ingham until this in- vestigation. Mr. Peouty. Did he communicate with you in writing about it? Mr. Hensey. No, sir. As I said at the beginning, Mr. Darneille came in and asked me to serve. Mr. Peouty. How long before you made this appraisement did he so ask you to serve? Mr. Hensey. I agreed to do it the very day he came in. Mr. Peouty. What did he say about it? 1022 INVESTIGATION OF INSURANCE COMPANIES. Mr. Hensey. When he came in to ask me? Mr. Peotjtt. Yes, sir. Mr. Hensey. He said that Mr. Ingham asked him to come in and ask if I would serve on this committee. Mr. Prouty. Did you understand that Mr. Ingham had committed to Mr. Darneille the responsibility of hunting up appraisers for this property ? Mr. Henset. I presume he did in this case; yes, sir. Mr. Peouty. And he was out hunting? Mr. Hensey. Sir? Mr. Peouty. And he was out hunting? Mr. Hensey. I do not know where he was. Mr. Prouty. Did he make inquiry of you as to what you thought it was worth before? Mr. Hensey. No, sir; not a word. Mr. Peouty. Did he ever make any inquiry of you until after the appraisement was in fact ready to be made? Mr. Hensey. No, sir ; I do not remember it. The reason I thought anything about it, I had served on this committee a year ago in ap- praising the Arlington property and Mr. Darneille was on the same committee. Mr. Prouty. Did you receive any written authority from the commissioner of insurance of this District to make this appraise- ment? Mr. Hensey. I do not think I did. Mr. Peouty. Were you paid for making it? Mr. Hensey. Yes, sir. Mr. Peouty. By whom? Mr. Hensey. It came from the Southern Building Corporation, I believe. Mr. Peouty. How much were you paid ? Mr. Hensey. Fifty dollars. Mr. Peouty. Who fixed your fees ? Mr. Hensey. I suppose the superintendent of insurance did. Mr. Peouty. Well, what do you know about it? Mr. Hensey. I do not know anything, except I got a check. Mr. Darneille brought it in, and I gave him a receipt for it. Mr. Prouty. Did you present any bill for it ? Mr. Hensey. No. I think the receipt was brought in and I signed it. Mr. Peouty. Had you at any time indicated what your fee ought to be, or what you thought it ought to be ? Mr. Hensey. I do not remember that; no. I think that was the amount set for the appraisement. Mr. Peouty. Whose check did you receive? Mr. Hensey. I think we received Mr. Tuttle's check. Whether it was Tuttle's or the insurance company's I do not remember now. Mr. Peouty. What I am really trying to find out is whether you fixed your own fees, or whether the companies fixed them, or who fixed them. Mr. Hensey. Well, I do not think I did. I think I took what they gave me, Mr. Prouty. I am very sorry I did it too. Mr. Peouty. You did not understand that you were in the em- ploy of the insurance companies ? INVESTIGATION OF INSURANCE COMPANIES. 1023 Mr. Henset. No, sir. Mr. Protjty. Why should you accept their check then ? Mr. Henset. Well, when I examined for the Arlington Fire In- surance Co. I was appointed by the insurance commissioner and they paid for the appraisement. I think we got $35 apiece in that case. Mr. Proutt. Do you know who fixed the fees ? Mr. Henset. No; I do not know who fixed the fees. I suppose it would depend — if I had said I would not do it for less than $150 they would have made up their minds whether they wanted me or not. Mr. Proutt. Do you understand that the insurance department fixes the fees ? Mr. Henset. No ; I do not. Mr. Proutt. Do you understand that the people whose property is appraised fix the fees ? Mr. Henset. Not that I understand ; no, sir. Mr. Pkotttt. Do you understand that the appraisers fix the fees? Mr. Henset. Well, we did not seem to in this case. We were asked to take $50. Mr. Proutt. Have you any idea who did fix the fees ? Mr. Henset. No, sir ; I have not. Mr. Proutt. That is all. Mr. Douglas. Mr. Hensey, to test out the line of questions Judge Prouty has asked you about the existence of mortgages on the prop- erty, let me put it in this way : If the present owners of this property should to-day pay off all these mortgages— $800,000 and $500,000— would that add to or subtract from the real value of the land and building? Mr. Henset. Not one cent. Mr. Douglas. Not one cent? Mr. Henset. No, sir. Mr. Douglas. You say the appraisers — when you acted before you were paid by the fire insurance company? Mr. Hensey. I think we got a check from the Arlington; yes, sir; and I think the same thing occurred when I appraised for the Po- tomac. Mr. Douglas. For the Potomac ? Mr. Henset. Yes. Mr. Douglas. .Mr. Hensey, do you not remember, or do you re- member, that that corner of I Street and Sixteenth was subsequently sold to a gentleman by the name of Butler for $9 a foot? Mr. Henset. No ; I do not remember that. Mr. George. What corner is that? Mr. Douglas. Sixteenth and I. Mr. Henset. The one I said I thought they wanted ten or fifteen dollars for. Mr. Douglas. Mr. Hensey, Mr. George did not understand how you arrived at $54 a foot. I believe you said that was arbitrarily done in this way, that you put on the I Street property what you thought was a fair value, and then you took what they paid for the rest of the property, and if the I Street property was worth $8 a foot it was necessary to put the balance on the H Street and Vermont Avenue part 1024 INVESTIGATION OF INSURANCE COMPANIES. Mr. Henset (interposing). Balance on the ground. Mr. Douglas. On the H and Vermont Avenue property ? Mr. George. Yes ; he cleared that up. Mr. Douglas. Yes. I did not know whether he did or not. Well, give me first what you think is the fair valuation for the H and Ver- mont Avenue end of it. Is it worth over $30 a foot, fairly ? Mr. Henset. Just the corner? Mr. Douglas. Yes. Mr. Henset. No ; I do not think it is worth more than $30 to $35. Mr. Douglas. $30 to $35 a foot? Mr. Henset. Yes. Mr. Douglas. Putting it at $30 a foot, and then taking into ac- count the whole purchase price of $1,400,000, the owners will have paid $20 a foot for all the balance, if they paid $30 a foot for the corner ? Mr. Henset. I think it figures out that way ; yes, sir. Mr. Douglas. And you figure that the Southern Building is' worth $20 a foot more than the H Street and Vermont Avenue property ? Mr. Henset. Yes, sir. Mr. Douglas. And even taking the average price of $24 a foot, would run the Southern Building around $45 a foot? Mr. Henset. Yes, sir. Mr. Douglas. That is all. Mr. Johnson. Mr. Hensey, there have been a number of questions and answers concerning the question of whether or not the rate of interest paid upon a loan upon a building figured into the value of the building. Let me put this question to you. If you were com- pelled to have a loan, and you took your watch to a loan shark, or another class of loan shark, a pawnbroker, and deposited it with him, and agreed to pay him 36 per cent interest, would that lessen the value of your watch, in your opinion ? Mr. Henset. I would not think so ; no, sir. Mr. Johnson. Is not this a parallel case, to your mind ? Mr. Henset. It is to my mind ; yes. Mr. Johnson. And that is the point you have been endeavoring to make? Mr. Henset. Yes ; I have been trying to. Mr. REDrrELD. Mr. Hensey, did you take the statement of the insurance company as to the income from the building, without any inquiry as to the accuracy of it? Mr. Henset. I did. Mr. Redfield. You did? Mr. Henset. Yes, sir; I did. Mr. Redfield. Did you take into account, or discover whether there was in that statement any allowance* made for the annual proportion of the amount that under their lease with the United States Trust Co. they might be obliged to refund to that company at the end of 10 years when they moved out? Mr. Henset. I did not. Mr. Redfield. If they moved out? Mr. Henset. No, sir; I only appraised it, Mr. Redfield, at the present market valuation. Mr. Redfield. Did you take into account the character of the tenancy ? INVESTIGATION OF INSUKANCE COMPANIES. 1025 Mr. Henset. Well, I did think of that somewhat. I knew it was a very popular building. Mr. Redfield. Did you consider whether there were any leases of such a nature that they might be subject to sudden termination? Mr. Henset. I did not; no, sir. Mr. Redfield. Or to involving the building in considerable ex- pense, which might be useless, or largely depreciate Mr. Henset. I did not. I left that for later appraisements. Mr. Redfield. So, as a matter of fact, your estimate was based upon the rental value, and that was taken from a statement given to you without any knowledge on your part as to how accurate that statement was? Mr. Henset. No, sir ; I took their word for it. Mr. Redfield. And if there were any offsets in the way of a sinking fund or an allowance to be made for depreciation or improvements, or refund on account of same, you did not calculate that at all ? Mr. Henset. I did not, only so far as I allowed 10 per cent for them — for repairs. Mr. Redfield. For repairs to the building? Mr. Henset. Well, that would be in the way of depreciation. Mr. Redfield. So far as it goes. Mr. Henset. Yes, sir. Mr. Redfield. Did you base your statement made a few minutes ago, that the property in your judgment was worth $2,000,000, upon any personal knowledge of the character of that building? Mr. Henset. How do you mean, Mr. Redfield? Do you mean the building itself ? Mr. Redfield. Yes. Mr. Henset. I took Mr. Lipscomb's statement on that. Mr. Redfield. So you only had what he said on that ? Mr. Henset. As I understood it, Mr. Darneille and I were to ap- praise the ground, and Mr. Lipscomb was to appraise the building. Of course, I would not set my judgment against his on that. Mr. Redfield. Now, had you ever become familiar with the fact that the Southern Building Corporation itself had stated that in some respects the building was defective ? Mr. Henset. No, sir. Mr. Redfield. Had you ever seen the statement, for example, that the sleepers were of poor quality ? Mr. Henset. I did not. Mr. Redfield. That they had been laid in small pools of water and had rotted ? Mr. Henset. I did not. Mr. Redfield. That it had become necessary to relay at least 25 to, 35 per cent of the flooring of that building? Mr. Henset. No, sir; I did not. -„.,,. Mr Redfield. And did you ever hear that the Southern Building Corporation had stated that the ceilings throughout were not straight or true, but were wavy and cracked ? Mr. Henset. I never heard that. ■,,.,, Mr Redfield. Did you know that the metal windows in the build- ing did not fit and were not properly painted; that two coats of varnish were used instead of three? Mr. Henset. No, sir. 1026 INVESTIGATION OF INSURANCE COMPANIES. Mr. Eedfield. That the masonry was inferior ? Mr. Henset. No, sir. Mr. Eedfield. That the terra cotta was cracked and chipped in many places and in many places out of plumb ? Mr. Hensey. No, sir. Mr. Eedfield. Those facts have never been brought to your atten- tion ? Mr. Hex sex. No, sir. Mr. Eedfield. Furthermore, did you know that the hot-water plant, vacuum pumps, and elevators did not come up to the speci- fications ? Mr. Henset. No, sir; I did not know the building was in such bad condition. Mr. Eedeield. These are statements made by the Southern Build- ing Corporation itself about a month after your appraisement. Mr. Hessey. I never saw it, Mr. Eedfield; I have never seen it. Mr. Easby-Smith. Mr. Hensey, Judge Prouty asked yon whether or not Mr. Ingham turned over to Mr. Darneille the authority to ap- point the appraisers. Will you state, as fully as you remember it, the conversation between you and Mr. Darneille when he first ap- proached you as an appraiser. Mr. Hensey. I think I stated that before. I think I stated that he came into the office and stated that Mr. Ingham had asked me to serve on the committee to appraise this property. Mr. Easby-Smith. When you served before under Mr. Drake once and subsequently a year and a half ago under Mr. Ingham, in what form were you appointed an appraiser? Mr. Hensey. I do not remember in what form I got the notice under Mr. Drake. I do not think I had any written communication a year and a half ago. I do not remember it, if I did. Mr. Easbt-Smith. Do you remember when you were appointed a year and a half ago to appraise the Franklin in conjunction with Mr. Daniel and Mr. Darneille? Mr. Hensey. That was the Arlington. Mr. Easby-Smith. That was Mr. Drake? Mr. Hensey. No. Mr. Douglas. Mr. Drake's was the Potomac. Mr. Easby-Smith. In that case, do you remember how you were notified ? Mr. Hensey. No, sir; I do not. I do not remember whether I received a written communication or not. ' Mr. Easby-Smith. That is all. Mr. Johnson. Col.- Judson, do you wish to interrogate him? Col. Judson. I would like to. In figuring the value of an equity in a building, it is fair to consider the interest, is it not ? Mr. Hensey. Just figuring the equity ? Col. Judson. Yes ; figuring the value of an equity in a building. Mr. Hensey. Yes ; if you are figuring the value of an equity you take the interest on the trust ; yes. Col. Judson. And you realize it would be the value of the equity in a building that would enter into a statement of an insurance com- pany as a part of its assets? Mr. Hensey. I presume so. INVESTIGATION OE INSURANCE COMPANIES. 1027 Col. Judson. Yes. Therefore the question of interest would be very important in considering the value of the equity ? Mr. Hensey. Well, no, Colonel. I was one of the appraisers to appraise that building at its market value as a piece of real estate. Col. Judson. I understand that; but I am asking you another question. Mr. Hensey. I am answering it in that way. Col. Judson. But you are not answering my question at all. In . determining the value of the equity in a building the amount of interest is important, is it not? Mr. Hensey. If you are figuring on the equity alone ; yes, sir. Col. Judson. That is what I say. And it is the equity alone that enters into the statement of an insurance company— you would know that as a business man, would you not? Mr. Hensey. Yes; I presume so. Col. Judson. You stated you took .the taxes at $13,000? Mr. Hensey. Yes. Col. Judson. But you say the building is worth $2,000,000. You would realize, would you not, and expect that the taxes would ad- vance by the time of the next appraisal by the assessors, if the building had advanced in value? Mr. Hensey. It might. Col. Judson. So you would expect to find the taxes $20,000 or about that? Mr. Hensey. Well, I do not know what I would expect to find them, but I suppose they would advance in an improving section, of course. Col. Judson. You say you took the statement as to the expenses of the building just as they were given to you by the company? Mr. Hensey. I did. Col. Judson. And you took $150,000 as the gross rental income? Mr. Hensey. No; I took $150,000 as the gross rental capacity — the earning capacity — not the income. Col. Judson. But you did not subtract anything from that for those vacancies which are always or nearly always Mr. Hensey (interposing). Well, I took off about 10 per cent. Colonel. Col. Judson. But you did not include an allowance for what vacancies there might be? Mr. Hensey. I did not consider there would be much depreciation in a new building like thai, and in my 10 per cent, in view of the fact that according to their statement they had only 7 per cent of vacancies Col. Judson (interposing). At that moment? Mr. Hensey. Yes. Col. Judson. But you might have realized that the Interstate Com- merce Court would have to move out of one floor in a few months? Mr. Hensey. Well, I was not figuring it on the future. I was figuring on the present value. Col. Jtjdson. Well, I know, but it is the future that means value to a building. Mr. Hensey. Not necessarily. Col. Judson. Is it only the present 1028 INVESTIGATION OF INSUKANOE COMPANIES. Mr. Hensey (interposing). No, sir. I might have figured that, if I had taken the future prospects into consideration, at a larger price per square foot, because I oelieve it is going to be worth more. Col. Judson. You did not think anything should be figured for depreciations or obsolescence in the case of a new building f Mr. Hensey. Not very much; no, sir. Col. Judson. Do you not believe that as conditions change in a locality, after a number of years, it becomes desirable ordinarily, even if the building is not worn out, to destroy it and build some- thing else on that site? Mr. Hensey. That has been the history of other kinds of con- struction. I do not know how this iron construction is going to turn out. Col. Judson. So far as experience goes, you would say that is the experience in building Mr. Hensey (interposing). Yes. -Col. Judson. Generally that is the experience. Mr. Hensey. Yes. Col. Judson. And we have to go on the experience in the past in judging as to the future, do we not ? Mr. Hensey. Yes. The new method of building is experimental. How long that will last no one knows — this iron and steel construc- tion. That has not been tested as the old-time wall bearing and brick buildings have. Col. Judson. There is some thought, is there not, that steel build- ings may not last as long as substantial masonry buildings by reason of the possible rusting of the steel ? Mr. Hensey. Yes; depending on whether the steel is properly painted when it is put in place. Of course, everything wears out in time. Col. Judson. Well, as a real estate expert, do you think you could sell the Southern Building for its present owners for $2,000,000? Mr. Hensey. I might, and I might not. Col. Judson. How long do you think it would take you? What would you suppose would be the time it would take you to get $2,000,000 out of that building for them if they placed it in your hands for sale, considering there is no further advance, but that property remains as it is now in that vicinity ? Mr. Hensey. Colonel, I could not tell you that. Col. Judson. Would you be hopeful that you could sell it soon ? Mr. Hensey. Well, I could not tell you that. No man can tell when he can sell a piece of property. Col. Judson. You would not like to answer that question? i Mr. Hensey. I do not see how anyone can. Col. Judson. You can answer as to whether you would be hopeful or not? Mr. Hensey. Well, I am always hopeful. Col. Judson. You are always hopeful? Mr. Hensey. About selling property ; yes. Col. Judson. Have you loaned much money on real estate? Mr. Hensey. Yes; a good deal. Col. Judson. Have you loaned money at various times where buildings were being constructed ? Mr. Hensey. Yes. INVESTIGATION OF INSURANCE QOMPANIES- 102$ .Col. Judson. Or just after being constructed,, in amounts, grefl/ter than the ground and building cost? ,Mr. Hensey. Not to my knowledge. Col. Judson. Did your firm loan money on the apartments ejected on lots Nos. 82 and 83 in square 81, down on F Street, west of the War Department, to the amount of $60,Q00 on each apartment house that was built there? Mr. Hensey. Well, I can get you that, Colonel ; I do not remember. Col. Judson. Will you get it, please? Mr. Douglas. I would like to know the relevancy of the question before Mr. Hensey is asked to do that. Col. Judson. I think it will appear. Mr. Douglas. Can you not state it now ? Col. Judson. Well, I can, if it is demanded. Mr. Douglas. Well, I ask now, Mr. Chairman, respectfully, that he show how that would throw any light on this inquiry. Mr. George. How far away is that, please ? Col. Judson. That is some distance away. Mr. Eedfield. What is the purpose of it? Col. Judson. The purpose of it is to develop the fact, or to attempt to develop or bring out the f act, for the information of the com- mittee, as to whether this firm of Swartzell, Rheem & Hensey is not in the habit of loaning practically up to the value of the ground and building, in connection with Harry Wardman, and to show that he is in the habit of taking real estate at its very highest value. ,. It is/to his interest to do so ; his interest is "along that line. I want to dis- cover whether that is the fact, just as you wished to discover whether Mr, Bell was not in the habit of assessing real estate low for the pur- pose of such loans as he made for his bank. Mr. Douglas. I submit, Mr. Chairman, Mr. George went about that in a very sensible and direct way. He asked Mr. Bell the ques- tion. Now, Col. Judson might follow the very worthy example of Mr. George and ask Mr. Hensey this question. But for him to take an isolated case, and go all over this city and say, " Did you not lend. so much money, and did not the land cost so much, and the ground- so much, and the building so much ? " then this inquiry will again, be made interminable. I think it is a perfectly proper question to ask Mr. Hensey if his point of view is not this or that. Col. Judson. I will pass that, if the committee does not think it is prqper. Is it not your tendency, on account of the character of loans your company makes, to be optimistic, and therefore is not that liable to lead you to high valuations ? Mr. Hensey. Well, we try to look on the best side of the situation. When we make a loan on a man's house we hope he will not sell it for half what it costs him. We hope he will sell it for more than it costs him. Col. Judson. Then your tendency is to optimism ? Mr. Hensey. I do not think it is unnecessarily so, Colonel. Col. Judson. Is the Hendricks Building, next south of the Union Trust Co v worth more than the ground or the building on the,, west side of the Union Trust Co.; and if sp, how much more? Mr. Hensey. You mean on H Street? Col. Judson. Yes. 71391— No. 12—13 4 Urn INVESTIGATION OP INSURANCE COMPANIES. ' Mr. Henset. You mean the part that the Union Trust Co. bought for $24? Col. Jtjdson. Yes. Is the Hendricks Building, next south of the Union Trust Co., worth more or less? Mr. Hen set. It is worth more. Col. Jtjdson. Do you know what it can be bought for? Mr. Henset. $40 a foot. Col. Jtjdson. Do you know it can be bought for $30 a foot ? Mr. Henset. I do not. 1 Col. Jtjdson. What is the ground worth under the Bond Build- ing? Mr. Henset. That corner? Col. Jtjdson. Yes. ,Mr. Henset. Well, I consider that worth $65 to $70 a foot. Col. Jtjdson. What is the ground worth under the Colorado Building? Mr. Henset. That is worth about the same amount. Col. Jtjdson. How much is an interior lot worth in the center of the square on the north side of H Street between Fourteenth and Fifteenth Streets? Mr. Henset. $25 to $30 a foot. Col. Jtjdson. Do you not know that Mr. Cornwall bought the ground next to the Southern Building in February last for less than $19 a foot? Mr. Douglas. February, 1911- Col. Jtjdson. Yes; February 11, 1911. Mr. Henset. Yes; I heard that. About $18 and something. Col. Jtjdson. Now, how much more can the east 100 feet of the Southern lot be worth than that property that is adjacent to it, which was sold for $19 a foot on February 11, 1911 ? Mr. Henset. I do not understand that question. Do you want me to subdivide the Southern Building for you ? Col. Jtjdson. Yes. Considering that the building was not there; considering the land alone. 1 Mr. Henset. Outside of the corner; two subdivisions? The corner lot and another one? Col. Jtjdson. Yes. Mr. Henset. I would consider it the same — $25 to $30 a foot. Col. Jtjdson. Well, $19 is what it sold for^ • Mr. Henset. Yes; but I think it is worth more than that. That was a few years ago — two years ago. Col. Jtjdson. You think it is worth $25 now ? Mr. Henset. I think it is worth $25 to $3Q. Col. Jtjdson. And you think the east — — Mr. Henset (interposing). I would not answer it that way, but if you say that is an inside lot, 100 feet, whether it belongs to the Southern Building, or to anyone else, I should say it was worth $25 to $30 a foot. 1 Col. Jtjdson. How much would you say the west 48 feet of ground under the Southern Building is worth? Mr. Henset. You mean the corner? Col. Jtjdson. Yes. Mr. Henset. I should say it depends on the shape of it. I should say $45 to $50 a foot. INVESTIGATION OF INSURANCE COMPANIES. 1031 Col. Judson. What is lot 48 in square 220 worth per foot? Mr. Hensey. What lot is that? Is that a vacant lot? Col. Judson. That is east of the Southern Building ; about 75 feet east. Mr. Hensey. Is that a vacant lot ? Col. Judson. That is a vacant lot. Mr. Hensey. They want $25 a foot for it. Col. Judson. Do you know it can be bought for less than $22 a foot? Mr. Hensey. I do not. Col. Judson. Are you willing to offer $22 a foot for it now, through this committee, and take the commission? Mr. Hensey. Colonel, I would be very glad to sell it to you at $25 or $30. Col. Judson. Is there any corner in that section that has doubled in value in the last two years? Mr. Hensey. In two years? Col. Judson. Yes. Mr. Hensey. I do not know. It is pretty hard to figure that. The Citizens' Savings Bank corner- Col. Judson. I was not talking about that. Mr. Hensey. Well, that is in that neighborhood, is it not ? Col. Judson. I guess so. Mr. Hensey. That recently sold for $96 a foot. I do not know what the former owners paid for it. How much that has enhanced in two years I could not tell you. Col. Judson. What corner was that? Mr. Hensey. Where the Home Life Building is — Fifteenth and Gr Streets. Col. Judson. Fifteenth and G? Mr. Hensey. Yes, sir; the northeast corner. Here it is [indicat- ing] . I can show you right on this map. Col. Judson. You think that it doubled in value in the last two years ? Mr. Hensey. Well, I do not know. I could not tell you that. Col. Judson. Well, what is your opinion as an expert? That it did double in value in the last two years ? Mr. Hensey. I have just said I could not tell you. I have no data to go on. Col. Judson. How does the ground under the Southern Build- ing compare with the ground under the Shoreham Hotel ? Mr. Hensey. I think they are about the same, excepting my pref- . erence is for the Southern Building, on account of the alley. Col. Judson. And you know that the Shoreham site is under an option to be sold for $950,000? Mr. Hensey. I understood that. Col. Judson. Do you know what the hotel building is assessed for bv th.6 assessor s Mr. Hensey. No'; I think $200,000, is it not? Col. Judson. Three hundred thousand. Mr. Hensey. Three hundred thousand, I meant ; yes. Col. Judson. Lending a value of $450,000 to it, would it not, on i he basis of the true value, as estimated by the assessors? Mr. Hensey. I do not consider that building worth very much. 1032 INVESTIGATION OP INSURANCE COMPANIES. Col. Judson. No? Mr. Hensey. Excepting what has been spent on it lately. Col. Jtjdson. How much has been spent on it lately ? Mr. Hensey. I do not know, Colonel. Col. Judson. What did the ground cost under your building? Mr. Hensey. Seven years ago it cost $19.64. Col. Jtjdson. Has there not been a boom in real estate values in the neighborhood of Fifteenth Street and H Street which is likely to react and cause prices to fall instead of rising ? Mr. Hensey. Colonel, I am not pessimistic enough to think that. Col. Judson. You are rather optimistic, are you not ? Mr. Hensey. Fairly so, I hope. Col. Jtjdson. There is a little overproduction of office buildings up in that vicinity, do you not think ? I mean, are there not vacan- cies in office buildings in that neighborhood now ? Mr. Hense5t. Well, I will tell you, Colonel, when you put three large buidlings on corners like those you are bound to have vacancies for a while, but after a while they fill up. Col. Judson. But they exist now? Mr. Hensey. Yes ; I think the Union Trust, Mr. Stellwagen- testi- fied, had 35 vacancies, and I do not know how many in the Wood- ward Building. Col. Jtjdson. If it became necessary for Mr. Stellwagen and the Woodward Building to reduce their rents in order to fill up their rooms, they might draw some from the Southern Building, might they not? Mr. Hensey. That might be so. Col. Jtjdson. You have testified that you are a director in the District National Bank? Mr. Hensey. I am. Col. Judson. And that Mr. Tuttle, Mr. Harper, and Mr. Carusi, who are connected with these insurance companies, are also con- nected with that bank? Mr. Hensey. Yes, sir. Col. Judson. Do you know whether the District National Bank is also the depository for one or both of the insurance companies under investigation here? Mr. Hensey. I think one of the insurance companies keeps an account there. Col. Jtjdson. You do not know how large the account is ? Mr. Hensey. No. Col. Judson. You have no idea of the size of the account kept by one or both of these insurance companies or by Tuttle, Dudley & Wightman ? Mr. Hensey. No, sir ; I have no idea at all. Col. Jtjdson. Are they large deposits in the aggregate ? Mr. Douglas. He said he did not know. Col. Judson. I did not know but that he had a general idea. Mr. Hensey. No ; I have no idea as to that at all, Colonel. Col. Judson. I have no further questions. Mr. Eedfxeld. Mr. Hensey, I want to get a little clearer idea of the allowance you made of $14,000. Mr. Hensey. Yes. INVESTIGATION OF INSURANCE COMPANIES. 1033 Mr. Eedfield. That allowance was to cover everything in the way of depreciation, was it not ? Mr. Hensey. Yes, sir. Mr. Eedfield. And it was also to cover any shortage in rents that might occur? Mr. Hensey. Well, they showed 7 per cent loss. Mr. Eedfield. Well, now, 7 per cent on $150,000, the rental ca- pacity, would be $10,500, would it not? Mr. Hensey. Yes. Mr. Eedfield. So that out of your $14,500 you would take all but $4,000 right away, would you not? Mr. Hensey. Yes; about that. Mr. Eedfield. Do you not know, as a real estate man, that the process has already begun in other cities of tearing down steel-frame construction buildings and replacing them with others, because of obsolescence ? Mr. Hensey. I have heard of it in a general way, but I know noth- ing about it. Mr. Eedfield. Well, now, to be specific, do you not know that the Stuyvesant Building, in New York, an 18-story steel-frame struc- ture, was torn down, although it was only 24 years old, or there- abouts, and replaced by the Bankers' Trust Co. Building? Mr. Hensey. I do not. Mr. Eedfield. Do you not know that there are other steel-frame buildings less than 30 years old that have been torn down and re- placed by others? Mr. Hensey. In New York? Mr. Eedfield. Yes. Mr. Hensey. No ; I have not been in New York for years. Mr. Eedfield. And in other cities, too? Mr. Hensey. No, sir ; I do not know that. Mr. Eedfield. Would you not consider it, in view of the real estate conditions existing in other cities, a conservative practice to allow for this building to become obsolete and required to be re- moved in, say, 50 years, and that, therefore, something like 2 per cent per annum should be placed in a sinking fund to cover its obsolescence ? Mr. Hensey. Well, there should be something, I presume, Mr. Redfield, but what amount, I do not know. Mr. Eedfield. Well, assuming the life of the building to be 50 years, what would 2 per cent per annum amount to on its value ? Mr. Hensey. Do you mean 2 per cent on its value or on its income ? Mr. Eedfield. Well, take it on its income. We will take it that way. Mr. Hensey. That would be $150,000, Mr. Eedfield. So you have only $1,500 for depreciation charges, including all repairs, out of your $14,500 ? Mr. Hensey. No; you said four thousand, did you not? Mr. Eedfield. Yes ; but out of that you are taking $3,000 for obso- lescence alone. Mr. Hensey. I did not understand that. Mr. Eedfield. I thought you said so a moment ago. Mr. Hensey. I said I did not know anything about it. 1034 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield. Well, that being my impression, too, I think we will leave it just that way. Mr. Hensey. All right, sir. Mr. Prouty. I am trying to use the yardsticks you used in deter- mining the value here. I notice in the report made by Mr. Lipscomb, or whatever his name is, that he figured the value of the building at $976,921 « s Mr. Hensey. Yes, sir. Mr. Prouty. You considered that, as I understand you, as the cor- rect value of the building in determining the value of this property? Mr. Hensey. Well, Mr. Darneille and I left that entirely to Mr. Lipscomb. We believed that was correct. x Mr. Prouty. Now, if you had known that that building only cost $681,480.92, including $60,000 profit to the contractor, would that have made any difference with you in determining the value of that property ? Mr. Hensey. I do not think that has anything to do with an appraisement — the cost of the building. Mr. Prouty, Do you mean to say what a building costs does not make any difference in determining its value ? Mr. Hensey. No ; it may have cost too much or too little, or might have been built cheaper. Mr. Proutt. In other words, that would assume that the ap- praiser knew more about the cost of the building than the man who built it? Mr. Hensey. Well, in a way, yes ; but not generally. In this case we had a practical builder who was an appraiser. Mr. PRotrTY. Now, is it your judgment that the appraisers knew more about this building and what it cost to build it than the con- tractor who built it? Mr. Hensey. Why, no ; of course not. Mr. Prouty. If you had known that they built this building under contract for $681,000, and reserved in that a $60,000 profit, you would not have put in that building, would you, at $976,000 ? Mr. Hensey. I think I might, if Mr. Lipscomb — you know, the original cost, Mr. Prouty, does not always mean the total cost. There are always a lot of expenses added to a building, incidentals, and changes, and so forth. You will go to a builder and ask him for a contract for the building of a house, and he will say so much money, but you can always figure that a great deal more will be necessary before you are finished. Mr. Prouty. Not if you have got a contract for it. Mr. Hensey. Oh, yes. Mr. Prouty. In other words, if you go to a man and make a con- tract with him for the construction of a building, complete, you do not pay any more money than that contract calls for, do you ? Mr. Hensey. Well, you never get it in that condition. I never heard of a case — it may be. I never heard of a man building a building complete for the original cost. Mr. Prouty. Let me see if I understand you correctly. Do you mean to say that a contractor never carries out his contract? Mr. Hensey. Oh, no ; I would not say that. INVESTIGATION OP INSURANCE COMPANIES. 1.035 Mr. Protjty. Then do you mean to say that a man can never get a contract with a contractor for building a building complete at a specified cost? Mr. Hensey. I mean to say they never, as a rule, put in every thing complete ; there are always changes made in the building, aa4 incidentals that come up in the course of construction that always add to the cost of it. I have never heard of a case where that was not true. There might be some people who have been fortunate enough to get through with their original contracts, but I never heard of a case. Mr. Peotjty. Well, in this particular case you do not know of any extras, other than those provided for in the contract? Mr. Hensey. I do not know what it cost at all, only by hearsay from this investigation. Mr. Peotjty. In other words, you relied in that proposition en- tirely upon the judgment of this other gentleman? Mr. Hensey. Absolutely. Mr. Peotjty. While it was your sworn appraisement, it was not your appraisement at all? Mr. Hensey. It was generally the judgment of those gentlemen. I would not put my judgment against Mr. Lipscomb, and I believe what he said was correct. , Mr. Peotjty. You noticed he figured this up at 35 cents per cubic foot, for the construction? Mr. Hensey. I think he figured it at about 40 cents. I think he figured it at 35, and then added 5 per cent for the difference in cost. Mr. Prottty. Appreciation? Mr. Hensey. Yes. Mr. Peotjty. Instead of providing a fund here for obsolescence or depreciation, you have provided a fund for an increase in the value of the building itself ? Mr. Hensey. You mean the difference between our appraisement and the cost ? Mr. Peotjty. You have deliberately taken into consideration an appreciation of the building rather than a depreciation? Mr. Hensey. We have taken into consideration the increased cost in labor and material since that building was finished. Mr. Peotjty. Well, that means appreciation, does it not ? Mr. Hensey. Yes, sir. Mr. Peotjty. But you have made no allowance for depreciation or obsolescence ? Mr. Hensey. I made some allowance for it; yes. Mr. Protjty. How much ? Mr. Hensey. Well, we took off 10 per cent— $14,500. Mr. Protjty. Well, that you only took off of the revenue part of it. You did not take that off the value of the building? Mr. Hensey. No ; only the revenue. Mr. Protjty. You just simply took that out of the revenue part of it? Mr. Hensey. Yes ; that is right. Mr. Protjty. But you have not taken anything off of the building for depreciation? Mr. Hensey. No ; I do not think it has depreciated. Mr. Peotjty. You think it has appreciated? .... 1036 INVESTIGATION OF iNSttBANCE COMPANIES. Mr. Hensey. Appreciated, on account of the increase in the oost of material and labor. » Mr. Pkotjtt. Now, if these facts recited in this cross bill filed by Mr. Douglas and others are correct, there ought to have been some depreciation, ought there not? Mr. Hensey. Why, I should think so. I should think that the building inspector would condemn the building. Mr. Peotjtt. That is all. Mr. Johnson. Mr. Hensey, for the purpose of testing your knowl- edge as an expert in the value of real estate and in connection with what has been said as to your*being an optimist as to the outcome of real estate values in the District of Columbia, the suggestion has been made that your firm frequently lend money to the extent of the cost of the real estate and the building which is erected thereon. Has your experience in doing that resulted in profit or loss to you ? Mr. Hensey. Well, I did not know that we ever did that, Mr. Jrhn-eu. Wo did not know that we did it. We never intended to do it. You mean full value ? Mr. Johnson. Yes. Mr. Hensey. We never did it that I know of. We might have done it in the opinion of some other people, but not in our own opinion. We did not intend to do it. Mr. Johnson. In the loans that your firm have made, taking into consideration what property you may have been compelled to take under foreclosure, if any, has your business shown a profit or a loss? Mr. Hensey. Well, our business has shown a profit. I could not tell you ; of course, we have made losses on failing contractors, where t-c mode building loans, you know, where they have fallen down and we could not get the bond to complete and we have had to go in and finish the job up. We have made losses in such cases from time to time. Mr. Johnson. But considering that there are exceptions to all rules, your optimism as to the outcome of real estate values in the District of Columbia has been realized ? Mr. Hensey. I should say, as a rule, yes, sir. Mr. Redfield. In how many cases have you had to take in prop- erty under foreclosure? Mr. Hensey. We have had quite a number, Mr. Kedfield. I could not give you the amount. Mr. Redfield. What do you mean by " quite a number ? Mr. Hensey. Oh, well, now, you know you are asking me a ques- tion when I have not the records before me. I can get them for you, but if you want me to guess at that, I can do it. Mr. Redfield. Yes ; approximately. Mr. Hensey. I suppose 8 or 10 failing contractors, since we have been in business. Mr. Redfield. Well, how long is that ? Mr. Hensey. I think we have been in business 40 years. Mr. Redfield. Well, do you mean during the 40 years— all of that time? Mr. Hensey. In all our existence; yes, sir. Mr. Redfield. Now, in regard to those particular cases in which you have taken property in under foreclosure, have those transactions resulted in loss or profit? INVESTIGATION OF INSURANCE COMPANIES. 1037 ' Mr. Hensey. Very often in loss. Most of the cases— you see, sup- pose a contractor is building a lot of houses, and he gets them up to the second story — joists, for instance — and then he fails; it costs us a great deal more to step in and finish the job from the second story up than if we had started from the ground. Mr. Redfield. Mr. Hensey, I am not anxious to go into the details of your personal affairs, but what I want to divine in this particular case is whether they were actual cases where your judgment has proven unfortunate through excessive loans, or whether they were building loans upon property under construction, which I recognize to be in a different class ! Mr. Hensey. Well, they have been building loans. We make hardly any other kind. Mr. Redfield. That is all. Mr. Douglas. I have nothing else, Mr. Chairman. Mr. Johnson. Well, the witness will be excused, and the committee will take a recess until 2.15. Thereupon the subcommittee took a recess until 2.15 o'clock p. m. AFTER EECESS. TESTIMONY OF ELDRIDGE E. JORDAN. The witness was duly sworn by the chairman. Mr. Douglas. Give you full name, place of residence, and occu- pation. Mr. Jordan. Eldridge E. Jordan, Washington, D. C. ; president of the United States Trust Co. Mr. Douglas. Where is the United States Trust Co, located ? Mr. Jordan. Fifteenth and H Streets, in the Southern Building. Mr. Douglas. How long has it been in that building ? Mr. Jordan. I think about a year and a little more. Mr. Douglas. It moved in there about the time of the completion of the building? Mr. Jordan. Yes, sir; before the actual completion. Mr. Douglas. Where was the trust company located before that time? Mr. Jordan. Fourteen hundred and five G Street. Mr. Douglas. That is between Fourteenth and Fifteenth ? Mr. Jordan. Between Fourteenth and Fifteenth, on the north side of G Street. Mr. Douglas. How long have you been in the banking business ? Mr. Jordan. Five or six years. Mr. Douglas. You are also interested, I believe, in the Commercial National Bank, on Fourteenth and G Streets? Mr. Jordan. Yes, sir ; I am vice president of that bank. Mr. Douglas. You are considerably interested financially in, that institution ? Mr. Jordan. I am. Mr. Douglas. Have you had any experience in the real estate busi- ness in Washington? Mr. Jordan. Yes; I have been in that business ever since I have been in Washington — about 12 or 13 years. 1038 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Are you pretty familiar with real estate values in the business section or Washington ? Mr. Jordan. I feel more or less so; yes. Mr. Douglas. I suppose you have bought and sold real estate on your own account as well as in a brokerage capacity ? Mr. Jordan. I have. Mr. Douglas. I believe you were at the head of the real estate firm of Jordan & Co. until it was absorbed by the Eeal Estate Trust Co.? Mr. Jordan. Yes. Mr. Douglas. Will you state to the committee what, in your judg- ment, is the present value or what was the value of the ground upon which the Southern Building stands? Mr. Jordan. Approximately $45 a foot, taking it as a whole. Mr. Douglas. Would you mind telling the committee why you put a valuation of $45 upon that land ? Mr. Jordan. Principally based on the value of property in that vicinity which I have bought and sold. Mr. Douglas. Can you give the committee the benefit of some in- stances which you might suggest? Mr. Jordan. The more recent transaction in which I was interested was the purchase of the Montrose Hotel property at the corner of Fourteenth and H Streets at approximately $51 a foot. I do not regard that as valuable a corner as Fifteenth and H Streets, for the purposes for which I am now occupying it. Mr. Douglas. And for general purposes? Mr. Jordan. For an office building and bank I should say Fifteenth and H is more desirable. Mr. Douglas. How do you think this property compares in value with the corner to the south, Fifteenth and New York Avenue, where the American Security and Trust Co. is located ? Mr. Jordan. That is a pretty hard proposition to judge, but I value and would consider that property to be worth at least $100 a foot — the southeast corner of Fifteenth and New York Avenue. Mr. Douglas. That is the old Nairn property ? Mr. Jordan. Yes. Mr. Douglas. $100 a foot? Mr. Jordan. Yes. Mr. Douglas. What do you think is a fair valuation for the prop- erty of the National Savings & Trust Co. ? Mr. Jordan. I would think it would be wort at least $80 a foot. Mr. Douglas. Do you know the property known as the Lenman Building? Mr. Jordan. I know only the location of the property; I do not know the number of square feet. Mr. Douglas. Assuming that they had an offer of $130 a foot for the east half of that, what light would that throw upon the value of the Southern Building? Mr. Jordan. I can not imagine them having had an offer of $130 a foot. You must be mistaken. Mr. Douglas. I mean $30 a foot. Mr. Jordan. I should think that would indicate a valuation of the Southern Building of about $50 a foot. Mr. Douglas. Do you know the property known as the Home Life Building, now owned by the Citizens Savings Bank? INVESTIGATION OF INSURANCE COMPANIES. 1039 Mr. Jordan. Yes. I should say that is practically worth as much as Fifteenth and New York Avenue, or $100 a foot. Mr. Douglas. Do you know whether, as a matter of fact, they paid $100 for the land itself? Mr. Jordan. No ; I do not. I understood it came to $90, but it is worth practically $100. It is not quite as valuable as the corner this way. Mr. Douglas. Will you tell the committee about how real estate is capitalized here as to earnings and about what it really realizes? Mr. Jordan. I think an average of about 4 per cent, perhaps. It depends entirely on the special uses to which it is put and how it is improved ; but improved real estate, as I understand, nets, as a rule, about 4 per cent. Mr. Douglas. About 4 per cent net ? Mr. Jordan. Yes. Mr. Douglas. That is, on the earning capacity of the property ? Mr. Jordan. On large properties, you understand. Mr. Douglas. Would you mind telling us what you think of the relative values of these four corners at Fourteenth and H Streets ? Mr. Jordan. I would not think there would be more than $5 a foot difference, in any instance, in the real-estate values, assuming they are all the same size. That is a very difficult thing to arrive at on the corners. I think the northwest corner, as a rule, in most squares is most desirable. If you follow that out over the city it will prove the rule; but in this case I believe the Southern Building property, owing to the fact of this business property all along H Street be- tween Fourteenth and Fifteenth, is more desirable than the other property. Mr. Douglas. That side of Fifteenth Street is, therefore, more valuable ? Mr, Jordan. Yes, sir. Mr. Douglas. Does the size of the lot of the Southern Building, being 148' by 150 feet, make it more valuable or less valuable? Mr. Jordan. It brings down the average value, owing to the large size of the property. Mr. Douglas. Does the presence of the alley to the north, a 20- foot alley, paved and running through from Fifteenth Street to Fourteenth Street, add substantially to the value? Mr. Jordan. It adds materially to the value of the lot as a build- ing proposition. Mr. Douglas. Is there much business done now about the corner of Fifteenth and H? Mr. Jordan. I think, just about immediately on the corner, more than any other place in Washington. Mr. Douglas. You mean the northeast corner? Mr. Jordan. Yes. I think it is one of the busiest corners in Wash- ington. Mr. Douglas. Would you regard that spot as the sanctuary, in- stead of Fifteenth and New York Avenue? Mr. Jordan. You are speaking of Fifteenth and H? Mr. Douglas. Yes. Mr. Jordan. When I answered I assumed that is what you meant. I do not regard any special location as the sanctuary, and I think it should not be so. I am opposed to the idea. 1040 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. I suppose the number of people doing business at or about a given spot in the business section of the city affects largely the value of property as business property, does it not ? Mr. Jordan. Unquestionably. Mr. Douglas. Would you object to stating about the total number of depositors, as to individual depositors, that you have in your insti- tion, that come to that institution? Mr. Jordan. Of course, we have branch banks. The total indi- vidual depositors of our bank might be doubtful. As to how many individual depositors there are at that particular bank, I could not say. We have something like 50,000 depositors in the banks, includ- ing branches. Mr. Douglas. How does it compare with any other institution in Washington ? Mr. Jordan. I think the next highest would be about 32,000 or 33,000 individual depositors. Mr. Douglas. That is the National Savings & Trust Co. ? Mr. Jordan. I think that is it. Mr. Douglas. You are the treasurer, are you not, of the new Arlington Hotel? Mr. Jordan. Yes, sir ; recently elected to that position. Mr. Douglas. Is it correct that they paid $1,400,000 for that ground ? Mr. Jordan. I have not reviewed the records personally, but I am informed they paid at the rate of $24 a foot for approximately 58,000 feet of ground. Mr. Douglas. How much more valuable, without going into detail about it or making any arbitrary division of it, is the corner of Ver- mont Avenue and H Street, which is where the old annex of the Arlington Hotel was, than the balance of the ground on Vermont Avenue down at the corner of I Street? Mr. Jordan. Will you repeat that ? Mr. Douglas. How much more valuable, if more valuable at all, would you say the land on which the Arlington was located at the corner of H and Vermont Avenue was, than the land at Vermont A venue and I Street? Mr. Jordan. There is a very material difference in the valuation there. Mr. Douglas. Is it worth twice as much? Mr. Jordan. I should say three or four times as much. Mr. Douglas. How much more valuable is the land on that corner of H Street and Vermont Avenue than the inside lots on I Street? Mr. Jordan. I should think three times. Mr. Douglas. Do you know the corner of Sixteenth and I, that southeast corner, about which we had some inquiry made this morn- ing, and whether it has been recently sold? Mr. Jordan. I understand that Charles Henry Butler recently pur- chased this property at $9 a foot. I may be mistaken, but he has some suit against the Arlington Hotel, which leads me to believe he is adjoining it on the west. I understand that is practically what he paid for it. Mr. Douglas. You know the site of the new University Club Building ? Mr. Jordan. Yes, sir. INVESTIGATION OF INSURANCE COMPANIES. 1041 Mr. Douglas. That is immediately across the street to the north on I Street from the Arlington corner on I Street and Vermont Avenue? Mr. Jordan. Yes, sir. Mr. Douglas. Do you know what they paid for that, approxi- mately ? Mr. Jordan. I do not. I never appraised it or considered it. Mr. Douglas. That building has just been built and opened for use ? Mr. Jordan. Yes, sir. Mr. Douglas. This purchase of the Arlington was made about a year ago, was it not ? Mr. Jordan. Yes, sir. Mr. Douglas. Mr. Jordan, will you state whether or not, in your judgment, the region of country, say, from Vermont Avenue back to Fourteenth Street and down to G Street, property is constantly in- creasing in value? Mr. Jordan. It is undoubtedly increasing. Mr. Douglas. Do you share the view expressed by Col. Judson that this property will go down in value ? Mr. Jordan. I do not, and I do not know of any argument that would indicate his being correct in the matter. Mr. Douglas. When the Southern Building was started, Mr. Jor- dan, was' there a single business house or place of business on H Street between Fourteenth Street and the Southern Building corner, except the florist shop of Blackistone? Mr. Jordan. I do not think there. were many; I do not recall just what was there. Mr. Douglas. Do you recall any? Mr. Jordan. I do not recall any. The Cornwalls have bought up there. Mr. Douglass. Since the Southern Building was started? Mr. Jordan. I think that was since the Southern Building was started ; that is, before they started to building there. Mr. Douglas. They moved from Pennsylvania Avenue and Four- teenth Street, or thereabouts? Mr. Jordan. Yes ; on account of the Government purchasing that property south of the Avenue they were obliged to look for a new location, and selected that, as I believe, as being the best. Mr. Douglas. Cornwall's is a very high-class grocery establish- ment? Mr. Jordan. Yes, sir. Mr. Douglas. One of the best in the city ? Mr. Jordan. Yes, sir ; so regarded. Mr. Douglas. And after that building was put up there was then erected the new Woodward Building? Mr. Jordan. Yes, sir. Mr. DoUglas. Mr. Jordan, I will ask how much money the United States Trust Co. expended on its quarters rented from the Southern Building, independent of the original cost of the building? Mr. Jordan. Approximately, $75,000. Mr. Douglas. By that you mean it was put into the building itself? 1042 INVESTIGATION OP INSURANCE. COMPANIES. Mr. Jordan. Put into the building in making improvements, in the way of flooring, decorating, and columns, making it a banking room, instead of two stories as they had it originally planned; Mr. Douglas. Mr. Jordan, will you state whether or not, in your judgment, it added that much value to the building? Mr. Jordan. Undoubtedly it did. It gave it a higher-class ap- pearance, especially on the corner, and is a convenience to the patrons of the building in every particular; I think it is distinctly a desirable thing for the building to have a bank on that corner. Mr. Douglas. I will ask you to state what arrangements were made with reference to payment for these improvements ? Mr. Jordan. I really do not remember how that was. I remember there was an agreement prepared covering the lease and the manner in which we were to make the improvements, but I do not recall the details of it. Mr. Douglas. Perhaps it is best to leave that to the lease itself. Mr. Jordan. It is a matter of record, I think. I think you may have the agreement if you wish. Mr. Douglas. Yes; we promised to furnish a copy of that. Let us assume there was some provision made with the owners of the building that in event you should move out at the expiration of the first 10 years, they should pay for half of these improvements, or pay for the improvements on the basis of half of the cost Mr. Jordan. That is my understanding. Mr. Douglas. At the end of the second 10 years, one-fourth of the cost Mr. Jordan. Yes. Mr. Douglas. I will ask if that was not taken into consideration and you got your rent cheaper in view of that provision? Mr. Jordan. I always regarded that we made a very advantageous lease for the trust company, and we have had opportunities to dispose of it at a profit before we moved into it, but never saw fit to accept. Mr. Douglas. Do you object to stating whether or not you could have sold that lease for in the neighborhood of $15,000 or $20,000 profit ? Mr. Jordan. It was intimated, but I could not say it was a defi- nite offer, because there was no money actually tendered. I was ap- proached by two or three different people and asked if we would, sell the lease. Mr. Douglas. At a considerable profit ? Mr. Jordan. Yes ; at a considerable profit. Mr. Douglas. Looking at this property from the standpoint of value, is a fair item to be considered the question of the probability -of rents increasing in that locality ? Mr. Jordan. Undoubtedly. I am apprehensive of the fact, even though it is 10 years or 20 years off. Mr. Douglas. If the quarters now occupied by the United States Trust Co. were being offered for rent now, and you owned that building, would you rent those quarters for any such figure as you now pay for them ? Mi-. Jordan. I doubt if I would if I could get more, and I believe I could. Mr. Douglas. Is it probable that stores and other quarters in that building will increase with the lapse of time ? INVESTIGATION- OF INSURANCE COMPANIES. 1043 Mr. Jordan. I think so. I know when we outgrew the quarters we leased under the original lease, we had to make arrangements for additional space, and there was competition to get it at the figure named, and they made a special concession to us owing to the fact we occupied the corner. Mr. Douglas. Mr. Chairman, that is all, I believe, I have to ask the witness at this time, unless something should develop that makes it necessary to further examine him. Mr. Bebger. Mr. Jordan, you stated that the corner of H Street is worth four times as much as the corner of I Street and about three times as much as the inside lots on H Street. What is the basis of your calculation? Mr. Jordan. That was an offhand statement, and I do not want to be questioned on an appraisement of subdividing a piece of property without giving it consideration. Mr. Berger. I know, but what is the general basis of it ? "Mr. Jordan. Offhand, as a cheap residence street, occupied as I Street is occupied, between Vermont Avenue and Sixteenth Street, with cheap residences, necessarily considering it separate from the other property, $8 a foot seems like a high price. Mr. Berger. For residence purposes? Mr. Jordan. For residence purposes, and excepting the Arlington Hotel or some larger hotel, it is doubtful if that property would be occupied for any other purpose than cheap residences or boarding- house property at this time. Mr. Berger. That is your basis ? Mr. Jordan. That is the basis for my reason for putting a very low valuation on the I Street end of it. Mr. Berger. That is all, Mr. Chairman. Mr. Douglas. Mr. Chairman, I omitted one thing that other mem- bers of the committee may want to ask Mr. Jordan about. Mr. Jordan, are you an officer or in any way connected with the First National Fire Insurance Co. or the Commercial Fire Insurance Co.? Mi. Jordan. I am not. Mr. Douglas; I will ask you to state if you ever were a member of the board of directors of either one of these institutions ? Mr. Jordan. No. Upon the organization of the First National Fire Insurance Co., as I remember it, some gentleman asked me if I would be one of the organization committee of the First National Fire Insurance Co., and stated who were to be on it, and stated that they would, perhaps, be able to give us some business for the Trust 'Co. in the event the organization was successful, and I consented io act as one of the organization committee. I think it was only a very short time after that until I resigned, owing to the fact that I found it absolutely impossible to attend a single meeting, and I never did attend a single meeting. Mr. Douglas. You resigned when? Mr. Jordan. I think it was last June or July. Mr. Douglas. July of 1912? Mr. Jordan. Yes, sir; and that prompted me to do so— the fact ;that J was not able to give personal attention to it. Mr. Douglas, You had no other reason ? 3:044 INVESTIGATION OF INSURANCE COMPANIES. Mr. Jordan. I had no other reason, absolutely, and so stated in my letter. Mr. Douglas. You know the gentlemen who have organized these two companies? Mr. Jordan. I do. Mr. Douglas. Mr. Jordan, I will ask you to state whether or not they are high class, reputable business men of this city ? Mr. Jobdan. To the best of my knowledge. I have always regarded them as such. I have seen no reason to change my mind. Mr. Douglas. You know most of them, do you not ? Mr. Jordan. Yes, sir. Mr. Berger. Who was it asked you? Mr. Jordan. I have been trying to think, but I do not really recall which one it was. Mr. Redfield. Mr. Jordan, are you a stockholder in either the Com- mercial Fire Insurance Co. or the First National Fire Insurance Co. ? Mr. Jordan. At the time I was asked to become a member of the organization committee of the First National Fire Insurance Co., I think I bought and paid cash for 250 shares — no, $250 of the capital stock of the First National Fire Insurance Co. I paid for it in full, and do not owe any money on it, and that is all I know about it. Mr. Redfield. Are you a stockholder in the v Commercial Fire In- surance Co.? Mr. Jordan. No, sir. Mr. Redfield. AYill you give us the details of this expenditure of approximately $75,000 made by you? Mr. Jordan. I would not attempt to do that, Mr. Redfield. As president of the. bank, we entered into a lease, I know, for the prop- erty and agreed to make certain expenditures for the purpose of mak- ing it suitable for our special purposes — that is, for a bank — and the details were then left to the other officers of the bank, and I do not remember. It passed out of my hands after that. Mr. Redfield. Those details have been mentioned several times. Mr. Jordan. I can give you a copy of the arrangement or agree- ment which would cover it. Mr. Redfield. No ; what the committee would like to have is the details of the expenditure, because this item of $75,000 has been men- tioned a number of times as being an addition to the value of the building. It is quite important that we know just what the details are. Mr. Jordan. For instance, I might illustrate that. As I recall it, because I may be entirely wrong and therefore do not state it posi- tively, the agreement would state definitely, whereas I can only state it as I understand it. For instance, the tiling on the floor and the columns Mr. Redfield (interposing). When you say "tiling on the floor," what do you mean ? Mr. Jordan. Marble floor. We put in a marble floor. Mr. Redfield. Did you lay it at your own expense ? Mr. Jordan. As I understand it, we laid at our expense marble floor, whereas the plan of the building in its original state would have called for a wooden floor, which would not have been appro- priate for a bank. INVESTIGATION OF INSURANCE COMPANIES. 1045 Mr. Eedfield. That is the very thing I want to get at. Did you take up a wooden floor and lay down a tile floor? Mr. Jordan. No;_ we were allowed the difference, whatever that was, afterwards adjusted, between the price of the wooden floor and the price of the marble floor which was placed there instead of the wooden floor. Mr. Eedfield. And that allowance for the difference would be a part of the $75,000? Mr. Jokdan. Not as I understand it. Mr. Douglas. You say not as you understand it ? Mr. Jordan. Not as I understand it. Mr. Eedfield. Then what has the floor got to do with it ? Mr. Jordan. They bore the expense of the floor, and we added $75,000 actual expenditure outlay for equipping the room for bank- ing purposes. Mr. Eedfield. But I do not think our minds quite meet. Mr. Jordan. Perhaps not. Mr. Eedfield. If the floor was not a part of the additional $75,000 Mr. Jordan (interposing). I say the floor was part of the addi- tional $75,000. We paid for the floor ; consequently that is part of the $75,000 additional expenditure. Mr. Eedfield. You paid for a marble floor ? Mr. Jordan. Yes, sir. Mr. Eedfield. And the company allowed you what a wooden floor would have cost? Mr. Jordan. That is the idea. Mr. Eedfield. So that in the $75,000 is only included the excess in price of a marble floor over the wooden floor ? Mr. Jordan. I recall it so ; I understand it so. Mr. Eedfield. You did not mean to deny that fact when a mo- ment ago you spoke of the matter, did you ? Mr. Jordan. I am not denying any facts. Mr. Eedfield. No ; I understood you — just to clear up the record- to say a few moments ago it was not so. Mr. Jordan. You may so have understood it, but I wish to be very specific in the statement that an agreement covered the entire transaction, with which I am not familiar and which I do not recall, and therefore I do not want to be questioned on a matter about which I do not know anything. Mr. Eedfield. Does the agreement specify the details of the $75,000? Mr. Jordan. I will have to refer you to the agreement. Mr. Eedfield. I ask you if it specifies the details ? Mr. Jordan. I do not know anything about what the agreement calls for, except that there was to be an expenditure of approximately $75,000, which the bank paid for in order to make the room habitable and proper quarters for a bank. Mr. Eedfield. You have heard it stated by counsel, Mr. Jordan, that this $75,000 was an addition to the value of the building. The committee must know Mr. Jordan (interposing). I appreciate that. 71391— No. 12—13 5 , 1046 INVESTIGATION OF INSURANCE COMPANIES. Mr. Redfield (continuing) — just what the details of that were in order that they may determine for themselves whether it was or was not, in whole or in part, such an addition. Part of it is the differ- ence in the value of the floor you laid as compared with that which otherwise would have been laid? Mr. Jordan. Yes. Mr. Redfield. For how long a time is that floor good ? Mr. Jordan. I should think it is good marble; I do not know how long marble will last. You will have to get an expert for that. I could not answer your question. Mr. Redfield. Is that one of the details in which they are to re- fund one-half if you should move out at the end of 10 years ? Mr. Jordan. As I understand it, yes. Mr. Redfield. Do I understand you to say the decorations were a part of the $75,000? "What do you mean by decorations? Mr. Jordan. I mean the columns. For instance, they had steel beams or columns rather in the banking room there. The original condition ? as I recall it, was, for instance, plaster. We put scagliola or imitation marble there. All these expenditures went to make up the cost of the $75,000 that we spent on the building. Mr. Redfield. Do they include the fixtures which screen in the working room of the bank from the outer or public office? Mr. Jordan. I do not think they do ; no, sir. Mr. Redfield. Do thev include any of the desks or furniture of the bank? Mr. Jordan. No, sir. Mr. Redfield. Do they include the masonry work, so far as it exists, of the vaults ? Mr. Jordan. No, sir. Mr. Redfield. They do not include the vaults? Mr. Jordan. No, sir. Mr. Redfield. The vaults belong to the trust company exclusively ? Mr. Jordan. They belong to the trust company. Mr. Redfield. Are there vaults as distinguished from portable safes ? Mr. Jordan. They are vaults of the usual type of cement vaults with steel lining. Mr. Redfield. Are they removable? Mr. Jordan. The interior is, certainly. Mr. Redfield. Is the cement vault itself fixed? Mr. Jordan. The cement vault is fixed as a cement vault would naturally be. We can tear it down or not, as we wish. Mr. Redfield. You say that is not included in the $75,000? Mr. Jordan. Not as I recall it. Mr. Redfield. Will you kindly have the proper officer of your bank Mr. Jordan (interposing) . I offered to do it. Mr. Redfield (continuing). Prepare a statement of the details of that $75,000 expenditure? Mr. Jordan. I offered a while ago to do so. I offered to give you a copy of the agreement we had with the Southern Building Co. Mr. Douglas. Mr. Redfield also wants a statement of the expendi- tures under the agreement. INVESTIGATION OF INSURANCE COMPANIES. 1047 Mr. Jordan. I will be very glad to furnish, it. I do not carry any of the details in mind. Mr. Redfield. The agreement is not a matter of serious interest by comparison with the actual details of the expenditure. Mr. Jordan. I think the agreement would show exactly what we paid for on our account and what was paid for on account of the building. Mr. Redfield. Is the agreement dated after the expenditure was made? Mr. Jordan. Prior. Mr. Redfield. Then, I want was done pursuant to the agreement, if you please, not merely what was agreed to be done. Mr. Jordan. You can readily understand I would not have those figures or facts in my mind, but I will be very glad to get them for you from the trust company. Mr. Redfield. Do these two fire insurance companies keep ac- counts in your bank ? Mr. Jordan. I do not think they do. Mr. Rediteld. Or any of their officers? Mr. Jordan. I think perhaps the First National may have a small balance there. It never did amount to a great deal. Mr. Redfield. Are you not certain whether they do or do not keep an account in your trust company? Mr. Jordan. I am not. My impression is they have a small dormant balance, less than $2,000 or $3,000, or something like that. Mr. Redfield. Are you interested in the District National Bank? Mr. Jordan. Not a bit. Mr. Redfield. Does the Commercial Fire Insurance Co. keep an account with your trust company? Mr. Jordan. Not to my knowledge. Mr. Redfield. Does the Southern Building Corporation keep an account in your trust company? Mr. Jordan. I think it has a small balance there. Mr. Redfield. Is that a new or an old account? Mr. Jordan. They have had an account with the trust company ever since they started the building. Mr. Redfield. Have you any loans outstanding in your trust com- pany to the Commercial Fire Insurance Co.? Mr. Jordan. No, sir ; not that I know of. Mr. Redfield. Or to the First National Fire Insurance Co. ? Mr. Jordan. Neither one. Mr. Redfield. Or to the Southern Building Corporation? Mr. Jordan. Not to my knowledge. Mr: Redfield. Has the Richmond Realty Co. an account in your trust company? Mr. Jordan. They formerly had, but they have none now. Mr. Redfield. Have you any loans to the Richmond Realty Co. ? Mr. Jordan. No, sir. _ Mr. Redfield. Does the corporation or firm of Tuttle, Wightman & Dudley keep an account in your trust company? Mr. Jordan. If so, not an active one. It is possible for them to have one, but I do not think they ever have had one. Mr. Redfield. Have any of the individuals who form that cor- 1048 INVESTIGATION OF INSUKANCE COMPANIES. poration, either Mr. Tuttle or Mr. Wightman or Mr. Dudley, ever kept an account in your trust company ? Mr. Jordan. They may have done so. Mr. Redfield. That you do not know? Mr. Jordan. If it is an active account of any consequence I would probably know about it ; but not to my knowledge. So far as I know they have not any. Mr. Redfield. Are any loans outstanding to either that corpora- tion or to either of the three gentlemen named in your trust company ? Mr. Jordan. Xot to my knowledge. If at all, it would be very small or very slight. Mr. Redfield. Have you any interest in the Southern Building, personally, or of any kind ? Mr. Jordan. Neither directly nor indirectly, except as a tenant. Mr. Redfield. Are you in active charge of the trust company's business ? Mr. Jordan. Yes, sir; as president of the company. Mr. Redfield. How many depositors did I understand you to say you had? Mr. Jordan. Approximately 50,000 — 55,000. Mr. Redfield. What is the total amount of vour deposits ? Mr. Jordan. $6,500,000. Mr. Redfield. Do you run a savings department? Mr. Jordan. Yes, sir. Mr. Redfield. And the large percentage of these accounts would be in the savings department, would it not ? Mr. Jordan. In number, they would be. Mr. Redfield. How many of these accounts are in the savings department ? Mr. Jordan. I do not know the relative proportion. Mr. Redfield. You do not know the relative proportion? Mr. Jordan. No ; I do not recall. Mr. Redfield. You could not say whether it was half or two- thirds? Mr. Jordan. I should think it was two-thirds. Mr. Redfield. Then, out of the 55,000 accounts, we may assume that one- third would be in the regular banking department? Mr. Jordan. Yes, sir. Mr. Redfield. Is that it? Mr. Jordan. Yes. Mr. Redfield. Do you know what are the total deposits in that department ? Mr. Jordan. No, sir; I do not recall. Mr. Redfield. Is the business done by the company so large, Mr. Jordan, that as president of the company you can not state positively whether any of these corporations or any of the individuals named in them keep an account or not? Mr. Jordan. Yes, sir; it is so large that it would be absolutely impossible to state on oath who had accounts there except in special instances that I personally know about. Mr. Redfield. What real estate do you own in this general locality, Mr. Jordan? INVESTIGATION" Or INSURANCE COMPANIES. 1049 Mr. Jordan. I am, through corporations or companies in which I am interested, the owner of property in the neighborhood pretty generally ; pretty generally throughout the neighborhood I am more or less interested in property. Mr. Bedfield. I wish you would state, for the record and the committee, what corporations in which you are interested own such properties, and state the streets, within, let us say, two squares of this locality in either direction. Mr. Jordan. For instance, the Eeal Estate Trust Co. recently pur- chased the Montrose Hotel corner at the corner of Fourteenth and H Streets at approximately $51 a foot. Mr. Bedfield. Including the building? Mr. Jordan. We regard the building of no value, and it is about to be torn down. Mr. Berger. $51 a foot, did you say ? Mr. Jordan. Yes ; the corner one square east of the Southern Build- ing, on the same side of the street. Mr. Bedfield. What else? Mr. Jordan. The Commercial National Bank, which is two or three squares from there, own the corner which they occupy. Mr. Douglas. That is Fourteenth and G? Mr. Jordan. That is Fourteenth and G. I believe we are car- rying it at approximately $80 a foot. Mr. Berger. Is that what you paid for it? Mr. Jordan. No. Mr. Berger. You are carrying it at that? Mr. Jordan. Yes. Mr. Berger. You are holding it for that ? Mr. Jordan. Yes; that is what they are carrying it at on their books. Mr. Bedfield. That is what you value it at on your books? Mr. Jordan. Yes. Mr. Bedfield. Anything else? Mr. Jordan. You want to know only the properties which I have bought or sold or am personally interested in ? Mr. Bedfield. Yes. Mr. Jordan. The Bond Building property is owned by the United States Trust Co. That is at the corner of Fourteenth and New York Avenue, and we paid $737,500 for that property a few years ago, and we are carrying it at $850,000 on the books of the trust company. In my opinion, the property is worth $80 a foot, or $880,000 for the ground alone, carrying the building at nothing. That just depends on how you want to figure those things as to what valuation you are going to put on them. Mr. Berger. I did not understand that last. Mr. Jordan. Figuring the Bond Building at what I consider it worth, $80 a foot, it would be $880,000. Mr. Bedfield. Is the corner office in that building rented ? Mr. Jordan. Yes, sir. Mr. Bedfield. On the ground floor? Mr. Jordan. Yes, sir. Mr. Berger. Excuse me before you go on. Did I understand you you to say that you did not figure the building as worth anything? 1050 INVESTIGATION OF INSURANCE COMPANIES. Mr. Jordan. I do figure it absolutely worth something. You can not deny the building is a very valuable building. Mr. Berger. You say $80 a foot. How much do you figure for the building? Mr. Jordan. I say, without figuring the building at anything, it would be $880,000 for the ground, without any building at all. Mr. Redfield. When did the United States Trust Co. buy that building? Mr. Jordan. When they took over the assets of the Merchants & Mechanics Savings Bank. Mr. Douglas. Which was when? Mr. Jordan. Within the last year. Mr. Redfield. You took it within a year at $735,500 ? Mr. Jordan. No, sir ; we "took over the assets of the Merchants & Mechanics Savings Bank, and when we reappraised the property and the assets of that bank we put them in at what we considered to be their value. Mr. Redfield. So within a year that building has been advanced on the books of the company $112,500 ? Mr. Jordan. You are correct. Mr. Redfield. What other property does your trust company own, or any other company in which you are interested, or you yourself individually, in that neighborhood? Mr. Jordan. I do not recall any in that exact neighborhood. Mr. Redfield. Anywhere within two blocks? Mr. Jordan. I believe that is all. Mr. Redfield. I think you said you are vice president of the Com- mercial National Bank? Mr. Jordan. I am; yes, sir. Mr. Redfield. What is the surplus of the United States Trust Co. as shown in its last statement? Mr. Jordan. About $80,000 surplus and undivided profits. Mr. Redfield. So that, as a matter of fact, does it appear to be correct — I do not wish to have it appear if it is not entirely correct — that the surplus of the company would be entirely represented by what has been added to the value of the Bond Building in the year since you purchased it? Mr. Jordan. Not in any sense ; no, sir. Mr. Redfield. I understood you to testify that $112,500 Mr. Jordan (interposing). That may be, but there are other rela- tive conditions that have to be taken into consideration. For instance, I think it is fair to state here, as a matter of record, as all this is advertised, that the United States Trust Co. in the past year has taken over and purchased the deposits of other banks in the shape and form of good will, aggregating $320,000, that they have paid out in money and that is not carried at anything. Mr. Redfield. Do you mean the good will of these other banks? Mr. Jordan. The money we have paid out of our surplus for bank deposits is not carried as an asset. We do not carry good will as an asset, although we paid for it $320,000. So, in reappraising the assets of the institutions taken over, we put them in at their actual value, which would make a material difference, you see, in the surplus. If you figured both ways, you would find that we have a surplus of $250,000, and with the Bond INVESTIGATION OF INSURANCE COMPANIES. 1051 Building at what it is worth we would show approximately a surplus of $500,000. Mr. Berger. That is, if you figured in good will as an asset ? Mr. Jordan. If we figured the good will we have paid for in the last eight months as an asset, we would show approximately $500,000. Mr. Redfield. Do you know of any banks or any trust companies in your experience that have ever figured good will in as an asset ? Mr. Jordan. I do not know what they figure as good will, but I am informed that some of the banks in our immediate neighborhood are carrying as an asset their properties at an amount considerably ap- proximating what was actually paid for them, and it goes to make up their surplus and undivided profits, the same as any other asset would. Mr. Berger. How would you define the good will of a trust com- pany? Mr. Jordan. I would not attempt it. Therefore I am not carry- ing it as an asset, you understand. We are not carrying good will, as I say, although we paid $320,000 for deposits which we have. It costs money, as we all know, to advertise and build up an institution. Instead of spending money for advertising and years of time in that way, we have actually paid out cash and purchased deposits which averaged us on the basis of 6 or 7 per cent, and I think the usual rate paid for deposits, at customary rates throughout the country, would be about 10 per cent ; so we feel we made a good deal. Mr. Douglas. You paid between 6 and 7 per cent ? Mr. Jordan. Yes, sir. Mr. Redfield. 1 do not think I understand. I will be glad if you will explain what you mean by " average price paid throughout the country." For what? Mr. Jordan. In purchasing deposits and good will of a bank, for instance, retiring from business you liquidate the bank on the basis of its book value, and as a rule the bank pays for the deposits that it has on hand, turning over those deposits to another bank, delivering them at about 10 per cent. In other words, for a million dollars you would pay about $100,000 — for a million dollars of well estab- lished deposits in a city. Mr. Redfield. That excess of 10 per cent being substantially what you pay for a going business ? Mr. Jordan. Yes, sir. Mr. Redfield. Do you think that can in any way be reckoned as an actual asset for the purchasing institution ? Mr. Jordan. We have never carried it as such, although we would not sell it for that price. Mr. Redfield. But its value depends entirely upon the future and on the skill of the management, does it not ? Mr. Jordan. Absolutely. Mr. Redfield. It is, in other words, what the bankers know as a contingent value ? Mr. Jordan. No ; it is not. It is what I would regard as good will, which is well known to every layman in the country. Mr. Redfield. But the value of which is contingent upon other things? " Mr. Jordan. Contingent upon their successful management of the institution after you take it over. 1052 INVESTIGATION OF INSURANCE COMPANIES. Mr. Bergee. Sometimes on luck, is it not, Mr. Jordan ? Mr. Jordan. That is right. Mr. Redfield. Are you subject to the supervision of the Treasury Department ? Mr. Jordan. We are. Mr. Redfield. They would not receive from your institution or from anv other bank anv statement of good will as an asset, would they? Mr. Jordan. I should not judge so. We would not ask them to do so. Mr. Redfield. So that on the record as it stands, without regard to the values which may be in reserve, the actual advance in the value on your books of the Bond Building within the year does represent a larger sum than the entire surplus of the institution? Mr. Jordan. It represents $112,000. Mr. Redfield. And the surplus is $80,000 ? Mr. Jordan. The surplus is $80,000. Mr. Redfield. Who was it tried to buy the lease from you of the Southern Building? Mr. Jordan. I did not say anyone tried to buy it. I said it was suggested to me on the part of some brokers who approached me. J. P. Story was one. Mr. Redfield. Did he say for whom he acted ? Mr. Jordan. No, sir. Mr. Redfield. Do you know? Mr. Joedan. I had the impression it was the United Cigar Stores Co. Mr. Redfield. Do you know the policy of the United Cigar Stores Co. in regard to leasing property ? Mr. Joedan. No, sir. Mr. Redfield. I have no further questions, Mr. Chairman. Mr. George. Mr. Jordan, did you hear Mr. Hensey's testimony here this morning? Mr. Joedan I did ; yes, sir ; I do not know that I remember it all. - Mr. Geobge. No; but I want to ask you about the value of the H Street corner of that property ? Mr. Jordan. Of which property ? Mr. George. The Arlington property. Mr. Jordan. Yes, sir. Mr. George. Mr. Hensey stated that if you estimated the northern half, say the I Street half, of that property at $8 a square foot, then you would be compelled to value the remainder, the southern por- tion of it, at $54, if you take as your purchase price the price that was actually paid for the property. Mr. Joedan. Yes, sir. Mr. Geoege. Do 3 7 ou think $8 per square foot would be a fair valuation for the I Street side? Mr. Joedan. Only that part not related necessarily to the corner for business purposes; the corner, in other words, of Vermont Ave- nue and I Street I regard as worth more than $8 a foot. Mr. George. But I mean generally. Mr. Jordan. I would not attempt to justify the price paid by the Arlington Hotel Co. for the Arlington Hotel property, at $24. I would not attempt it without taking a pencil and paper and study- INVESTIGATION OF INSURANCE COMPANIES. 1053 ing it oyer. As an entirety, I regard it as entirely all right and a good, fair price. Mr. George. What valuation would you put on the corner of Ver- mont Avenue and H Street? Mr. Jordan. $17 to $20 a foot I should think would be all right on Vermont Avenue and H Street. Mr. Douglas. Vermont Avenue and I Street? Mr. Jordan. I mean I Street. Mr. George. I am talking about H and Vermont. Mr. Jordan. That also depends on the size of the lot. Mr. George. Taking the remainder of that piece of property from the point where the jog comes in the property on the west side. Mr. Jordan. Have you a plat of it there? Mr. George. No ; it does not seem to be here. Mr. Jordan. I will say $35 a foot— $35 to $40 a foot for that corner. Mr. George. Supposing that the property there is about the same size as the Southern Building property? Mr. Jordan. I would put it at $35 to $40 a foot, offhand, taking the same sized property. Mr. George. Would you put the value of that property, as high as the Southern Building property? Mr. Jordan. No, sir. Mr. George. Why do you make a difference ? Mr. Jordan. Because of my idea of the demands for the property. For instance, Fifteenth and H is distinctly a business community. It is especially suitable for most any class of business — offices or banks or grocery store or haberdashery or barber shop or anything else. Mr. George. And is worth how much more ? Mr. Jordan. Therefore I should think it would be worth at least $10 a foot more than the other property, taking it as an actual corner place. Mr. George. And $35 would be your valuation of H Street and Vermont Avenue? Mr. Jordan. I have valued the Southern Building up to $45 a foot. Mr. George. You have a general knowledge of real estate values, I presume, in this whole business part of the District ? Mr. Jordan. I have ; yes ; but I find from experience that there are some quite serious surprises every now and then in the recent develop- ment that rather opened my eyes, and I do not attempt to state off- hand the value of anything without thinking it over a bit. I have been very much surprised in the recent sales at prices of property in the vicinity of the Southern Building on H Street. Mr. George. Surprised in what way — by values going up or going down? Mr. Jordan. Prices have gone up, and they have actually sold at considerably higher prices than I expected they possibly would sell for. I was very much surprised at the price paid along there by the Wilkins Bros, for the property on which they put the Wilkins Building. Mr. George. Where is that? 1054 INVESTIGATION OE INSURANCE COMPANIES. Mr. Jordan. That is on H Street, between Fifteenth and Sixteenth, or Fifteenth and Vermont Avenue, just the other side of the Union Trust Co. They are paying up there as high as $25 a foot, as I under- stand it, for interior property, away up in the middle of the square. Mr. George. The Southern Building square? Mr. Jordan. No, sir; the Union Trust Co. square, between the Union Trust Co. and the Cosmos Club. I much prefer, before giving a definite statement as to what I think a value is, to look into it. Mr. George. Which do you regard as the most valuable of the four corners at the intersection of Fifteenth and H? Mr. Jordan. That is pretty much of a problem. I think the, in- terior ground is more valuable on the Southern Building side than the interior ground on any of the other streets, except through G Street south. I mean to say the ground facing on H Street, between Four- teenth and Fifteenth, is more valuable for shops, in my opinion, than the ground between Fifteenth and Sixteenth Streets on the north side, along by the Shoreham. Mr. George. What value do you put on the site of the Union Trust Co.? Mr. Jordan. I think it would be worth $50 a foot. It certainly should be worth $50 a foot. Mr. George. Do you put on that corner a higher valuation than on the corner where the Southern Building is ? Mr. Jordan. You asked as to that part occupied by that company. They do not occupy very much space actually on the corner. Mr. George. I mean the whole building. Mr. Jordan. $50 a foot, but they do not occupy the same amount of ground, by any means. Mr. George. It is a narrower lot? Mr. Jordan. I think a lot 60 or 75 feet on H Street would be a narrow lot. Mr. George. I say this is a narrower lot than the Southern Build- ing lot. Mr. Jordan. Yes, sir ; it is, on that side. Mr. George. What about the Shoreham Hotel property? Mr. Jordan. I put that at $50 a foot. Mr. George. What about the Woodward Building? Mr. Jordan. The same price. Mr. George. $50 a foot? Mr. Jordan. Yes ; for that part occupied. I do not know that it would all be so, but I should think it would be about $40 to $45, taking it as a whole. I should put the Woodward Building at that figure. Mr. George. So you put this corner at no more, and in two in- stances at a less vaiue? Mr. Jordan. Yes ; because of the size of it compared to the others. Mr. George. But it is an economical lot, is it not — 148 by 148 ? Mr. Jordan. You could not get that sort and size of a building on a lot much smaller, properly built. Mr. George. Then you are taking a conservative view of the value of your own corner ? Mr. Jordan. Yes, sir ; I feel that I am. INVESTIGATION OF INSURANCE COMPANIES. 1055 Mr. George. There is a 20-foot alley on the north side of the South- ern Building, is there not ? Mr. Jordan. Yes, sir ; and that is naturally a very good advantage to a building. It gives light and air space and fire protection. Mr. George. I understood you to testify $45 a foot was your esti- mate of the value of the ground. Mr. Jordan. Yes, sir. Mr. George. The ground where the Southern Building stands? Mr. Jordan. Yes, sir. Mr. George. Why do you not make it $50 a foot? Mr. Jordan. I have not such a keen perception of the actual valu& |of property that I can come as close as some men's minds do, and to quote an exact amount of $46.25 or $47.50 on that corner, is perfectly absurd; and it is equally absurd for anyone to actually state it is actually worth so much and no more. The ground is worth, actually, $50 a footin my actual and honest opinion ; and another man may be just as specific in announcing his value and his opinion when he saya he values it at $40 a foot. It depends on the future use to which it is put; and I think that justifies me in stating that is my absolute opinion of the value of the property, based on the sales in the neigh- borhood and what I have seen properties sold for time and time again, and the continued advance in prices in this neighborhood, all of which I think has justified that opinion. Mr. George. Do you regard this as a conservative figure ? Mr. Jordan. I certainly do. Mr. George. You might be surprised by values going higher, but. you would not be surprised at them going lower ? Mr. Jokdan. I would be surprised if they went lower, and would not be a bit surprised if they go higher, just the reverse of your state- ment. Mr. Bergee. Mr s Jordan, did I understand you right? You said property in the vicinity of Fifteenth and H Streets is worth more than anywhere else in the neighborhood there and worth about $50 a foot because certain kinds of business would pay there. You men- tioned a grocery store, did you not, and barber shops, and haber- dasheries ? Mr. Jordan. Yes. Mr. Berger. Is that the reason it is worth $50 a foot? Mr. Jordan. That is the reason there is a popular demand; there is a demand for space in that neighborhood more than any other place. Mr. Berger. Do you think a grocery store or barber shop or haber- dashery or any kind of a store would pay rent on a property worth $50 a foot? Mr. Jordan. I say the property is in demand for certain classes of business, including these specialties we have mentioned. Mr. Berger. I could understand a grocery store, with your high standard of living, with your high cost of living; but how could a. barber shop afford it ? Mr. Jordan. There are barber shops and haberdasheries occupy- ing the property I refer to, and I do not see any scramble by them for the other property. In fact, there is no provision made for them ; consequently, I can not judge the relative desirability. Mr. Berger. Are there any grocery stores there ? 1056 INVESTIGATION OF INSURANCE COMPANIES. Mr. Jordan. Cornwall occupies a building there with a very high- class grocery store between Fourteenth and Fifteenth. He bought it about two years ago and paid eighteen or nineteen dollars. Mr. Douglas. That adjoins the Southern Building, does it not? Mr. Jordan. Yes. Mr. Berger. That is the foremost grocery store of the city ? Mr. Jordan. In justice to their competitors I would rather say it is one of them. Mr. Berger. I thought it was rather, as a rule, pretty high. Mr. Jordan. I do not think for a moment that Mr. Cornwall or the estate would have bought that property at the price they could sell it for to-day as a venture. They would probably have gone to a more modest locality. They paid $18 or $20 a foot for that ground, and it is a high-priced property for that class of business to occupy. Mr. Berger. That is what I thought. Mr. Jordan. But since it only cost them $20 and is worth $40, why not? Mr. Berger. Otherwise, $50 a foot for grocery stores and haber- dasheries Mr. Jordan. But in a building arranged for having haberdash- eries and barber shops, and therefore they pay the prices to jus- tify it. Mr. Johnson. That seems to be all; you may be excused, Mr. Jordan. Witness excused. TESTIMONY OF MR. E. H. DANIEL. The witness was duly sworn by the chairman. Mr. Douglas. Mr. Daniel, I believe you are a resident of Wash- ington ? Mr. Daniel. I am. Mr. Douglas. Will you kindly give the committee your full name? Mr. Daniel. E. H. Daniel. Mr. Douglas. Have you been engaged in the real estate business? Mr. Daniel. I was in the real estate business for about 12 years ; yes, sir. Mr. Douglas. Are you now in the real estate business '>. Mr. Daniel. I am "not in the real estate business as a broker. I am as a dealer on my own account. Mr. Douglas. You were for some years a member of the firm of Willige, Gibbs & Daniel? Mr. Daniel. I was an officer of that corporation; yes, sir. Mr. Douglas. You say you were and have been engaged for about 12 years in all in the real estate business ? Mr. Daniel. Yes, sir. Mr. Douglas. Are you a native of Washington ? Mr. Daniel. No ; I am a native of the State of Virginia. Mr. Douglas. Mr. Daniel, have you during that period of time handled, either on your own account or as broker, business proper- ties in Washington? Mr. Daniel. I have. INVESTIGATION OF INSURANCE COMPANIES 1057 Mr. Douglas. Have you had occasion to study and watch the growth of Washington in a business way in the last four or five or six or seven years? Mr. Daniel,. I have. Mr. Douglas. State whether or not that growth generally has been slight or only ordinary or extraordinary in the last four or five years ? Mr. Daniel. In the immediate locality surrounding the Southern Building, or south of where the Southern Building is located, the increase in value has been very great; it has been rapid. Mr. Douglas. How long have you had occasion to note or to pay attention to this particular piece of property known as the old St. Matthew's Church property? Mr. Daniel. Before the Southern Building was erected on that site, and before the site was purchased by the Southern Corpora* tion — I think that was the name of it — I had an option on that site at $20 per square foot approximately three years ago. Mr. Douglas. You say you had an option on that property of $20 a quare foot? Mr. Daniel. Yes, sir. Mr, Douglas. That is before the Southern people bought this property ? Mr. Daniel. Yes, sir. Mr. Douglas. Did you have that option on your own account or some one else? Mr. Daniel. I procured the option for other parties. Mr. Douglas. Did you pay anything for the option ? Mr. Daniel. I did not. Mr. Douglas. You did not avail yourself of the option, of course ? Mr. Daniel. I did not. Mr. Douglas. It was subsequently sold ? Mr. Daniel. Yes. Mr. Douglas. Was the property at that time, in your judgment, approximately worth $20 a foot ? - Mr. Daniel. I thought it was, and so advised my client. Mr. Douglas. That is before it was actually sold by Mgr. Lee to the syndicate? Mr. Daniel. Yes, sir. Mr. Douglas. At that time, of course, the old St. Matthew's Church, unoccupied, was standing on that corner. Mr. Daniel. It was. Mr. Douglas. Where did the congregation of the St. Matthew's Church worship at that time? Was it in temporary quarters? Mr. Daniel. On Rhode Island Avenue, I think, just east of Con- necticut Avenue. Mr. Douglas. They had partially built their new structure and held their services there? Mr. Daniel. That is correct. Mr. Douglas. And the old church was dismantled, and therefore not in use at all, and had not been for a year or two ? Mr. Daniel. That is correct. Mr. Douglas. At that time what was on the site where the Wood- ward Building now stands? 1058 INVESTIGATION OF INSURANCE COMPAJN1JSS. Mr. Daniel. The buildings used by the George Washington Uni- versity, or the Columbian University I think it was then called. Mr. Douglas. And where the Union Trust Co. building now stands was the site of the old Wormley Hotel, was it not? Mr. Daniel. Yes; if my recollection serves me correctly, that is true. Mr. Douglas. In the last five or six years the Union Trust Build- ing, the Woodward Building, and the Southern Building, all three, have been put on that corner, and the Shoreham Hotel Building renovated and considerable money spent upon it? Mr. Daniel. Since the time I had the option ? Mr. Douglas. Yes. Mr. Daniel. Since the time I had the option the Southern Build- ing and the Woodward Building have been erected. I will not be certain about the Union Trust Building, but the Shoreham Building was already in use as a hotel, I believe. Mr. Douglas. Since that time their building has been extensively and expensively renovated? Mr. Daniel. Yes. Mr. Douglas. The same thing has occurred to the old Normandie, which lies one block north of that, on the same corner corresponding with the Southern, on I Street? Mr. Daniel. Yes. Mr. Douglas. Mr. Daniel, will you give to the committee your views, as a real-estate expert, as to the conservative value of the land a foot. Mr. Douglas. The building on it is of no account, is it ? Mr. Goldsboeough. It is of no account ; no. It is not worth taking away, I think. Mr. Douglas. That is all, Mr. Chairman. Mr. Redfield. Any questions, Mr. Prouty? Mr. Peouty. Yes. You spoke of the marvelous growth of the city of Washington. Has it been more rapid than cities of similar size in the United States, in your judgment? Mr. Goldsboeough. I think so, sir. The financial growth espe- cially. If you will permit me to volunteer a remark — to give you some idea of the financial growth and value resulting from it, as T say, upon Fifteenth Street, I call your attention to some facts that these gentlemen know about, many of them here, the commissioners particularly and most people who are interested financially in the district. There are in the neighborhood of seventy-five or eighty thousand, or probably more, people in the District of Columbia who are in- terested in that little block of ground there in this way. The National, Safe Deposit Co. started business there 35 or 40 years ago with a very small capitalization, practically a nominal capitalization. They now have over 30,000 depositors or people who come there, most of them once a week or once a month, at any rate, )o make deposits of money. About 1890, I think it was — about 20 years ago — I as- sisted in the formation of the American Security & Trust Co. That company is nearly diagonally opposite. I think they have about 20,000 depositors. A total of 50,000 within a few feet. I do not. know how many depositors there are in the Riggs Bank, but the number of people who do business there is very large, and, of course, they include the most important people in the District of Columbia! Going down the street, going south, you have the Metropolitan Bank, which is a flourishing bank, one of our best banking institutions. It has been associated with the city's progress and with the men who helped to make Washington what it is. I do not know how many depositors they have, but a very large number. Going up Fifteenth Street, you have the United States Trust Co., which, I think, has some thirty or forty thousand depositors. I am told so. I am speaking simply from hearsay about it, but I know they have a very large number of depositors. There are 75,000 or 85.000 people in a population of 300,000 who are constant visitors to that section, and, of course, they represent very largely the investing public and add tremendously to the financial development of Washington, which 1068 INVESTIGATION OF INSURANCE COMPANIES. is made by. a great number of small investors rather than by a small number of large investors. Mr. Prouty. There are not very many manufacturers in this city? Mr. Goldsborough. There is more manufacturing done here than people imagine, but still it is not a manufacturing city. Mr. Prouty. What is the source of the commercial wealth of Washington ? Mr. Goldsborough. At the time of the foundation of the Amer- ican Security & Trust Co., whose first president was Mr. Alexander T. Britton, a very able man, there was a great deal of feeling among the bankers, and I have been associated with bankers socially and otherwise for many years and especially bankers in that section, for they were personal friends of mine and clients. One of them said to me, " I notice you went over to Alexandria and helped incorporate a trust company, and that is going to injure this bank." I said, " How '." "Well," he said, "you know we have a limited amount of investing capital here and of investors, and this company will undoubtedly take away a good man}' depositors from all the banks and it will be injurious to the banks." I said, "I do not think so." That company has. I think, to-day more money deposited there than all the banks put together had 22 or 23 years ago. Mr. Prouty. Now, without embarrassment, can you not be a little more direct in your answer? What is the primal source of the money wealth of Washington? Mi. Goldsborough. The primal source is undoubtedly the fact that the Government is pumping out money here every day in the week, every week in the month, and every month in the year, and then* is a constant stream of it going out to the 30,000 or 40,000 Government employees and in Government purchases of property, in building, and all that sort of thing. That is the first source. Mr. Prouty. Are these Government employees largely depositors in these banks that you speak of? Mr. Goldsborough. I think that there is quite a large number of them, but they do not constitute the great body of these depositors, because they outnumber the Government clerks 300 or 400 per cent. Mr. Prouty. About how many Government clerks do you under- stand there are here ? Mr. Goldsborough. I think there is about 30,000, between 30,000 and 35.000. Mr. Prouty. That does not include the officers, employees of higher rank, and military officers ? Mr. Goldsborough. Xo; it does not include, of course, the higher officers of the Government. And I want to say also that, of course, a great many people are brought here now — financial people — by rea- son of the fact that the institution of the national banking system has tremendously added to the power of the Treasury Department of the United States, and every one of the 7,000 national banks of this country, more or less, has to do business here in Washington and has an agent here. The tremendous development of the country in public works of all kinds brings a great many people to Washington who have interests before the departments and the courts and Con- gress and one thing and another, and they leave money here, and they invest money here. INVESTIGATION OF INSURANCE COMPANIES. 1069 Mr. Peouty. Has the advancement of real estate in Washington during the last 15 or 20 years been more marked than in cities of similar size of the United States ? Mr. Goldsboeough. I think so, sir. Mr. Pbotjtt. For what reason? Mr. Goldsboeough. Take suburban property, for instance. Su- burban property that 25 years ago was worth two or three hundred dollars an acre is $4,000 or $5,000 an acre now. Mr. Peoutt. To what do you attribute that ? Mr. Goldsboeough. That is attributed first to the actual growth of Washington, its value as a residential city, and the potential value of property here in view of the fact that it is generally believed that it is going to be the social center and the intellectual center, as well as the financial center and the political center, probably of the entire country, excepting, of course, the great commercial marts like New York ; it never can compete with them in any particular. Mr. Peouty. Has property in the business districts of Washing- ton in your judgment advanced more rapidly than similar property situated in cities of similar size, generally? Mr. Goldsborough. So far as I know. Of course, there has been a marked advance in city values throughout this country wherever 'the natural advantages were reasonably fair, because the great move- ment of population has been toward the cities. The likely young men no longer follow the plow ; it is too slow for them. They want to go somewhere where there is money in circulation and money to be made, and they do not see much of it around the country. Certainly not in the East. It may be in the West. Mr. Peouty. Speaking of the advance of property in the business districts of this city, do you know of any property that has increased in value 250 per cent within the last three and a half years? Mr. Goldsboeough. Two hundred and fifty per cent within the past three and a half years ? Mr. Peouty. Yes; in the business districts. Mr. Goldsboeough. I can not say offhand that I do, but I do know that there has been a very rapid increase in values in this particular section within the last three or four years or five years. Up to five years ago the higher values were around F Street and G Street and in the lower portion of Fifteenth Street around about the Riggs Bank. Everybody knew that ultimately values would increase fur- ther to the north, but there was no movement, no actual movement, there until a little later on when the Union Trust Co. bought that corner. That stimulated the demand for property in that direction, and there has been a very rapid advance since then. I tried myself to buy this property a number of times for a well-known man here, and a very wealthy man, and I am familiar with the progress of prices there by reason of the fact that I have had occasion to con- sider it. Mr. Peouty. -Do you know of any other tract of land other than this so-called Southern Building that has increased in value, in that neighborhood, 250 per cent within the last three and a half years? If so, name it. Mr. Goldsboeough. I can not be very accurate about the dates, but take all the property running from the Riggs Bank to the corner 1070 INVESTIGATION OF IXSUKAXCE COMPANIES. of Fifteenth Street, and it has all increased in value much more than that, I think, within the last 10 years. Mr. Prouty. That extends beyond the scope of our inquiry. I am speaking of the last three and a half years, or you might extend it four years. Mr. Goldsborough. The progress or increase there has been very rapid. I do not know, and I can not recall any particular cases now. Mr. Prouty. Take the Biggs Bank corner — what has it increased within the last three and a half years ? Mr. Goldsborough. Of course the Eiggs Bank is out of the market. It has increased in value undoubtedly, but the chief value there is derived from the fact, or a large portion of it is, that it has been the site of one of the must prosperous and successful financial insti- tutions in the country, and it has a value to its owners that could not properly be stated in the account in terms of an account. I do not suppose they would take any price for it. Mr. Prouty. I suppose you know that this Southern property sold three and a half years ago for $18 a foot? Mr. Goldsborough. Yes, sir: I know that. Mr. Procty. And it sold again within six or eight months for $23 a foot. Mr. Ttoldsborough. Yes. sir. Mr. Prouty. You know. I suppose, that the present owners of it acquired it on the basis of about $23 a foot? Mr. Goldsborough. Yes. sir. Mr. Prouty, But that would not make any difference, in your judgment, as to its value? Mr. Goldsborough. Not materially, because it very often happens that property is bought for less than its actual value, and it usually does happen. Mr. Prouty. Is not that what fixes its value, the price at which it can be sold, in a commercial way? Mr. Goldsborough. In a certain sense it does and in a certain sense it does not. Of course a man that buys property would not give that price for it unless he thought it was worth more money. Mr. Prouty. And the man would not sell it if he did not think he was getting what it was worth? Mr. Goldsborough. No. He might sell it, and it usually happens that he does sell, for less than it is worth. There might be some financial reason, such as in this case. The church wanted the money to complete the development — the church development, or the build- ing of an ecclesiastical building. Mr. Prouty. Is there any fairer course by which to determine the value of property than the price at which it is sold or exchanged on the market ? Mr. Goldsborough. Of course that is the leading element of value, but there are many others. Mr. Prouty. If you are trying to ascertain the value of wheat or oats or anything else, you would try to find out what somebody else is selling it for or what somebody else is buying it for, would you not? Mr. Goldsborough. Of course those have a very high intrinsic value, which would be recognized. Mr. Prouty. They have not much intrinsic value as far as com- merce is concerned, except the price at which they are sold and bought, have they ? INVESTIGATION OP INSUBANCE COMPANIES. 1071 Mr. Goldsboeotjgh. It has not, so far as commerce is concerned. Mr. Prouty. Is not that just as true of real estate as anything else? Mr. Goldsboeotjgh. No, sir* Pardon me one moment. You asked me a question. I would like to answer it fully, Judge. Mr. Protjty. All right. Mr. Goldsboeotjgh. The value, the market value, of wheat, for instance, or stock or bonds, is dependent on a margin; that is, the amount of the surplus of the product over the demand. If there are five men who want to buy a certain piece of ground and they are present at the sale, it will sell for a great deal more money, naturally, than if there is but one man there. If there is a surplus of wheat in the world's supply, wheat goes down. There is a saturation point in the market, just as you would have in a glass of water. You take a glass of water and put some salt in it and it disappears — the pinch of salt disappears. It has been saturated by the water. If you keep on, finally you find the glass filling up with the salt, which sinks to the bottom. If you have more stocks for sale than there are people to buy, of course, stocks would go down ; and if there are more people who want to buy, the stocks go up ; and they are manipulated more or less by reason of that fact by smart men who consider before- hand what the probable surplus is going to be of the wheat crop, for instance, or the cotton crop, and that regulates the price. Mr. Peotjty. Is there not a saturation in the real estate market as well ? Mr. Goldsboeotjgh. It does come. Usually it comes periodically. That is to say, you have periods following panics when real estate is depressed. Sometimes real estate goes up and the market for other things goes down — stock and bonds. Of course there are fluctuations in all elements of value. They are not worth the same any minute of the day. Mr. Peotjty. That depends upon whether somebody wants them or whether somebody wants to get rid of them — in real estate and everything else. Mr. Goldsboeotjgh. In a large sense; but, as I said before, ther^ are other elements of value that ought to be taken into account. Mr. Peotjty. As far as intrinsic value is concerned, this mud down under this building is worth no more than it is out on the soil of Iowa, it is, so far as the mud itself is concerned, or so far as the soil itself is concerned? Mr. Goldsborotjgh. No. Mr. Peotjty. But it is all because somebody wants it for a partic- ular purpose, and is willing to buy it for that purpose. Mr. Goldsboeotjgh. Yes; and the values there have largely in- creased because of the demand for financial purposes of choice ground in that district. Mr. Peotjty. That leads me back to the question I asked you, and that is whether these values are not to be determined bv what thev sellfor? Mr. Goldsboeotjgh. I answer that as I did before. Of course that is the chief element of value, what a property will bring. Mr. Peotjty. Can real estate be worth any more than it can be sold for? Mr. Goldsboeotjgh. Well, of course, it may be worth more to the owners, for instance, than the assessed value or the market value, 1072 INVESTIGATION OF INSURANCE COMPANIES. because it may be particularly adapted for that business. For in- stance, this property would not be worth anything to a concern that manufactured plows, that had plows* for sale or agricultural im- plements. Mr. Prouty. You are an attorney, and if you went in court to prove the value of a piece of property you could only determine its value in court by determining by what it had sold for or would sell for in the market. Mr. Goldsborough. Oh, no. In the case of a condemnation, for instance, the value would depend upon the best use to which it could be put and the most valuable results or fruits or usufruct that could be gotten from it. It might have a general value for a specific pur- pose much higher than its ordinary market value. For instance, I will cite the Riggs Bank. It has a superadded value there because, as I said before, of the high reputation of the institution, built by the splendid exertions of a succession of able men, and splendid organiza- tion, and all that. Mr. Prouty. If you were one of the condemning appraisers of that piece of property you would take into consideration the character of the men that owned it in determining its value? Mr. Goldsborough. No; I would not; but I would take into con- sideration the reflection that the character of these men had made upon that property, the increased value derived from their labors there in building up a great business and giving it a reputation as a financial center. Of course I would. Mr. Prouty. Suppose it was owned by somebody else than the owners you referred to. Would that make any difference? Mr. Goldsborough. Of course, if it had been a grocery store, for instance, it would not have that element of value. It would have some good will if it had been a good grocery store. But that element of value would not be material or comparable to this. Mr. Prouty. That leads me to repeat the question, from which I have gone out quite a ways, and that is whether you know of any property in the immediate neighborhood of this Southern Building that has during the last three and a half years increased in market value 250 per cent? Mr. Goldsborough. Xo; I do not. I can not cite any such case. Mr. George. Which corner would you say was the most valuable corner at the intersection of H Street and Fifteenth Street? Mr. Goldsborough. The Southern Building, beyond doubt, I think. Mr. George. You said that the north side is more valuable than the south side ? Mr. Goldsborough. Of course, the Shoreham would be approxi- mately of the same value, but that has not the alley back of it. Mr. George. What per square foot value would you put on the Southern Building property? Mr. Goldsborough. Fifty dollars a foot. Mr. George. And $50 on the Shoreham land also ? Mr. Goldsborough. Yes, sir. Mr. George. What about the other two corners, on the south side ? Mr. Goldsborough. The difference in value would not be very great, but I should think that that side was worth $5 or $10 a foot, anyway, more — probably $10. INVESTIGATION OF INSUKANCE COMPANIES. 1073 Mr. Geokge. The north side ? Mr. Goldsboeough. Yes. That would be about, say, 12, 15, or 20 per cent ; somewhere between 10 and 20 per cent. Mr. George. What value would you put on the Union Trust Com- pany corner? Mr. Goldsborough. I think that property is easily worth $40 a foot. Mr. George. And do you remember what the assessment is for those corners ? Mr. Goldsborough. No ; I do not. That property could have been bought some years ago for one-fourth the price. Mr. George. What property ? Mr. Goldsborough. The Union Trust Co. That property was for sale, and I think the gentleman from whom the Union Trust Co. bought it — it was an old hotel many years ago, kept by a colored man Mr. George (interposing). Wormley's? Mr. Goldsborough. Wormley's; yes. And the owner there, ac- cording to my recollection, faiied or died; but, at any rate, it came on the market, and a syndicate was organized to buy it, and at one time I was in negotiation to purchase it myself. I think they paid something like $7 or $8 a foot for it only. Mr. Bell was one of the syndicate. Mr. George. How long ago was it? Mr. Goldsborough. Time flies very fast, but I think that was not to exceed 12 cr 15 years ago. I think it is within the twentieth cen- tur y- Mr. George. This is immaterial. What I am trying to get at is how you arrive at $50 per square foot for the Southern Building property. Mr. Goldsborough. I consider the value of the other sites. Mr. George. The other corners ? Mr. Goldsborough. The other corners, and the inside sites, too, of that particular district, and the limited amount of ground there is for sale there. Mr. George. How do you get at the values for the other sites? Mr. Goldsborough. Now, for instance^ next to the Union Building is the old Herald Building, right in the center of the block, the value of which is not comparable, I think, to the value of the corners there, can not be bought for less, anywav, than $35. I think I tentatively offered $35 for it. Mr. George. Where the New York Herald agency is now? Mr. Goldsborough. No, sir. Mr. Douglas. No, sir; that is the old Washington Herald Build- ing. Mr. Goldsborough. It is the old Washington Herald Building. Mr. Douglas. Eight next to the Union Trust Co. Mr. Goldsborough. Bight next to the Union Trust Co. Mr. George. But the New York Herald has an agency, I think, in that building now ; hasn't it ? That is immaterial. I just want to locate it to myself. Mr. Goldsborough. I do not know. I can not answer that ques- tion. 1074 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. All right, then. Do you know of any other property in the neighborhood upon the sale of which you would base your present ideas of value on those corners ? Mr. Goldsborough. A couple of years ago I looked at all the prop- erty that was for sale in that neighborhood. Mr. George. You are speaking of Fifteenth Street ? Mr. Goldsborough. Yes ; on G Street, too; all the way down to the corner, of Ninth and F, and I was very much surprised to find that there was no property for sale that would suit the purpose that my clients wanted. They wanted a large building. They wanted to put up a fine building there, and it was impossible to get it in a large quantity, in large blocks. Take the corner there, Nairn's corner Mr. George (interposing). By "a large block" you have in mind now about 150 by 150, or approximately that? Mr. GoLDSBORoroH. Yes ; something like that, where you could put up a large building. Mr. George. Such as the Southern Building? Mr. Goldsborough. Yes. You know you can economize in a large block in building in a great many ways. Take the corner of G Street and Fifteenth Street, the north corner, next to Nairn's, or next to Thompson's drug store there — well, I suppose all that property is worth $100 a foot. Talk about increase in value, I was offered that property before that building was built for, I think, about $14 a foot, and that was perhaps six years ago or seven years ago. Mr. Douglas. $14 a foot? Mr. Goldsborough. I understand that that property cost the pres- ent purchasers over $80 a foot. That is a very narrow lot. Mr. George. You set up a relation between that $80 a foot there and $40 or $50 up at the intersection of Fifteenth and H? Mr. Goldsboro'jgh. "Well, they are in the same community, and they are used for the same purposes. Mr. George. What I mean, do you have one in mind when you think of the other neighborhood ? Mr. Goldsborough. Why, of course I do ; I have all the sales that come within my knowledge. Mr. George. What I asked you was how you come at the values at the intersection of these streets. Mr. Goldsborough. Well, I found that we could not buy any ground at all, even inside ground, on F Street north to Fifteenth Street, for $35 a foot. Mr. George. And what about corners? Mr. Goldsborough. The corners were not for sale; and that is one element of value : all these corners are occupied, but people won't sell them. Mr. George. What relation do you see between inside lots and corner lots ? Mr. Goldsborough. The corner lots are. of course, vastly more valuable for business purposes. Mr. George. What proportion, generally speaking? Mr. Goldsborough. Generally in this case I would say it is double. That is on account of light; getting light and air and ventilation for the building. Here we have got practically a street or big alley back of it, as well as streets on both sides. INVESTIGATION OF INSURANCE COMPANIES. 1075 Mr. George. To take a case in point, what would you say the value of that property was where the Herald Building is, on H Street? Mr. Goldsborough. $35 a foot, Mr. George. That is an inside lot? Mr. Goldsborough. That is an inside lot. Mr. George. According to your view of things about the relation of inside lots to corner lots, the corner lot, say the Union Trust Co. lot, would be $70 a foot? Mr. Goldsborough. No. Mr. George. In relation to that Herald lot that you speak of. Mr. Goldsborough. No ; I did not say that it was twice the value. It may be, under certain conditions, especially where it has an alley back of it, where you get three fronts instead 01 one. Mr. George. Such as the situation in the Southern Building ? Mr. Goldsborough. Yes, sir ; such as the situation in the Southern Building. Mr. George. Is there any inside lot on the block between Fifteenth and H Streets with which you could compare that Southern Build- ing? Mr. Goldsborough. They are all there in the same neighborhood. They are devoted more or less to the same business purposes — part of the same district, and, of course, the value of the inside lots has a direct bearing upon the value of the corner lots, and the value of one square upon the value in the next square. Mr. George. I do not want to ask a whole lot of questions. Per- haps if you know what I want to get at you can give it in you own way. Mr. Goldsborough. I do not quite understand you, then. I am trying to answer you. Mr. George. What I want to know is how you come, to this $50 a foot for the Southern Building property. I am very anxious to know how you do that. I want you to show me. If you can show me by the sale of inside property on H Street or on Fifteenth Street in that block, why that will throw some light on the subject. Mr. Goldsborough. I understand that $50 a foot was offered for the Shoreham corner. The opposite end of the square, on Fourteenth Street, the old Montrose Building, I know was sold for $51 a foot. I know that the corner opposite that, owned by the Walsh estate, is valued around those figures or higher, and I do know that there has been a great deal of demand for property in that block — in that entire block. Mr. George. I think I see what you have in mind and how you base that. I am very much obliged. Mr. Chairman, I am through. Mr. Bedeield. Mr. Goldsborough, how much real estate have you sold at a loss in Washington ? Mr. Goldsborough. At a loss? Mr. Redfield. Yes. Mr. Goldsborough. I do not think I ever sold any. Mr. Redheld. Do you know of any ever having been sold at a loss? 73301— -No- 33— 13 2 1076 INVESTIGATION OF INSURANCE COMPANIES. Mr. Goldsboeough. Oh, yes. People have lost money, but it is because they could not. for some reason, hold the property any longer. Nobody loses money buying anything here if he can hold it. Mr. Redfield. In the event of a fire insurance company owning a large piece of property, the value of which constituted a quarter of their assets — or the equity in which, I mean, constituted a quarter of all their assets, meeting with a conflagration loss and being forced suddenly to realize, how much, in your judgment, would that real estate shrink in value by reason of the forced sale? Mr. Goldsboeough. Well, I think as a rule business property holds its own with far greater tenacity and strength than residential prop- erty or suburban property. Good business property, well located, in any prosperous city, will command something approximating its value, unless under very unfavorable circumstances, and the courts would not permit property to be sold under very unfavorable cir- cumstances, ordinarily. Mr. Redfield. Mr. Goldsborough, I call your attention to the fact Mr. Goldsboeough (interposing). Of course it would depreciate the value of it. Mr. Redfield. It would depreciate its value, would it not ? Mr. Goldsboeough. If it was suddenly forced on the market. Mr. Redfield. I call your attention to the fact that the total assets of all kinds stated by the superintendent of insurance to be owned by the Commercial Fire Insurance Co. on October 31 last was $745,047.71, out of which the net value of real estate was $331,922.06, which is perhaps 40 per cent of the total admitted assets of the company, and I ask you in the event of a conflagration hazard or loss which forced the company immediately to realize on half its property, and in view of the fact that upon this building there are two mortgages, how much would that property depreciate, in your judgment, if, under those conditions,, to wit, a conflagration loss, •obliging them to realize half of their assets, and this building hav- ing upon it two mortgages, how much would it shrink in value on the forced sale that might become necessary ? Mr. Goldsboeough. Well, of course, it would depend upon when it occurred. Shrinking in value from the value that I am now putting upon it — if the conflagration occurred 10 years from now, I think the value of that property would have increased so much in the mext 10 years that it could be sold, under any circumstances, for much more money than the present appraisement; but I know there are financial conflagrations also, and if one had invested in stocks and bonds, in one of those periods they would not bring anything either. I have seen the time, and so have you, when there was no market at all. For instance, in New York the best bonds and stocks went begging, and if they were sold, they were paid for in certifi- cates of the stock exchange — exchange certificates, and not in money. Mr. Redfield. At that time was real estate salable at all ? Mr. Goldsboeough. There was some market for real estate un- doubtedly. Mr. Redfield. You know ? Mr. Goldsboeough. I do; because I went through it, and I lost a great deal of money in it. I know I held my real estate when I could not hold anything else. INVESTIGATION OF INSUKANCE COMPANIES. 1077 Mr. Redfield. The point is, did you sell your real estate? Mr. Goldsboeotjgh. I did not want to seHlt. Mr. Redfield. Well, did you ? Mr. Goldsboeotjgh. I did not want to ; and in point of fact, I could hold it very much easier than I could other things. Mr. Redfield. The question is, Mr. Goldsborough, not what you could or could not hold, but could you or could you not have sold your real estate at such a time at anything like what you thought it was worth — at what you valued it? Mr. Goldsboeotjgh. No. You could not sell anything. Mr. Redfield. Now, take the year 1908: Was there a market in the first six months of 1908 in the city of New York, to your knowl- edge, for improved real estate at anything like the price at which it had been held for the two previous years ? Mr. Goldsboeotjgh. I could not say in reference to New York, but I will say this, that values have enormously increased since 1908. Business property has increased in three years there Mr. Redfield (interposing). Do you know or do you not know that there have been for years certain sections of Broadway in New York wherein values have been lower than they were 10 years ago or 20 years ago ? Mr. Goldsboeotjgh. I have so understood; but I understand it is not so any longer. Mr. Redfield. Is it not a fact that there has been for many years a section of Broadway between the upper and lower districts in which prices have, for a long time, receded, to be advanced again later? Mr. Goldsboeotjgh. Well, that is due to the movement Mr. Redfield (interposing). I did not ask you to what it was due. I asked you if it was not a fact. Mr. Goldsboeotjgh. Well, I do not reside in New York, but I have some general information about it, and I believe, as a matter of fact, that there was a time when certain portions of Broadway did not participate in the strength of the real estate market in other sections, when the speculation went farther out. Mr. Redfield. And that condition existed for years? Mr. Goldsboeotjgh. New York Avenue Mr. Redfield (interposing). I say, that condition existed for years ? Mr. Goldsboeotjgh. Yes ; I think it existed for quite a time-^-quite a period, but not in the lower portion of New York; not in the financial district. . Mr. Redfield. Are you familiar with the Equitable Building site in New York ? Mr. Goldsboeotjgh. I think the Equitable Building— I was trying to remember the number, but I can not. Mr. Redfield. You know, in a general way, where it was, do you not? . , . . Mr. Goldsboeotjgh. I know m a general way where it is. It is down around the Astor House. Mr. Redfield. I ask if you recall that the Equitable block is a com- plete block, with a Broadway frontage for a full square, with a Pine Street frontage for a full square, with a Cedar Street frontage for a full square, and with a Nassau Street frontage for a full square, hav- ing those four complete corners. 1078 INVESTIGATION OF INSURANCE COMPANIES. Mr. Goldsboeough. Yes, sir. Mr. Redfield. And that it sold at a price which may be approxi- mated at $200 a square foot. Now, I ask you if the Southern Build- ing is worth a quarter as much as that site ? Mr. Goldsboeough. Well, of course, to answer that question intelli- gently I should have to be as familiar with values in New York as I am with values here. Mr. Redfield. I have given you the approximate value. Mr. Goldsboeough. You gave me the approximate, as I understood, price that it sold for ? Mr. Redfield. Yes. Mr. Goldsboeough. And I could not tell you what the relative value — what would be the relation of value between that property, for instance, and the Riggs Bank. Mr. Redfield. Assume. Mr. Goldsborough, that the price of the Equitable lot, thus comprising four full blocks, with a frontage on each of four streets, one of them being Broadway, and with four corners ; assume that the price at which it sold was $250 a foot. I ask you if you consider the Southern Building site equal to one-fifth of the value of the Equitable building site per foot? Mr. Goldsboeough. "Well, I should say so, sir. Mr. Redfield. You would? Mr. Goldsboeough. I would. Mr. Redfield. That is all. Mr. Johnson. Mr. Goldsborough, can you tell us in a general way what connection the value of property in New York has with the value of property at Fifteenth and H Streets, in the city of Wash- ington ? Mr. Goldsborough. Well, both properties are situated in cities; that is the broadest way I can define it, and both are in financial districts of cities that have undoubted merit, from a property point of view ; but I do not see that they have any close relation to each other — so close that a man who had a perfect knowledge of New York values, absolute knowledge, if he knew the value of every foot of ground in New York — would be competent to pass upon the value of the Southern Building or any other building here. Mr. Johnson. Then you are not of the opinion that the value of New York real estate would throw any light whatever upon the value of real estate in the District of Columbia? Mr. Goldsboeough. That is my opinion ; yes, sir. Mr. Johnson. Any more than the value of real estate in Calcutta would ? Mr. Goldsboeough. Well, I would not go quite so far afield as that, but I do not think it has any relation that could be — from which any equation could be worked out. Mr. Johnson. Does anybody desire to ask any questions ? Mr. Douglas. I have one or two other questions I would like to ask the witness along the line of the chairman's inquiry. Mr. Golds- borough, whether New York is near or far away, I ask you if the actual sale of the Montrose property, one block away to the east, and the fixing of the minimum price at $51 a foot and the fixing of a minimum price for the sale of the Chamberlin property, one block to the north, of $30 a foot, and the actual sale of the Arlington Hotel property at an average price of $24 a foot, for a large block, one INVESTIGATION OF INSURANCE COMPANIES. 1079 block to the west of this property, and the refusal to take $90 a foot for the Nairn property, one block to the south — if those four points of view do not furnish very strong and certain proof as to the value of the Southern Building corner, in the center of all four of them ? Mr. Goldsborough. It does, to my mind; undoubtedly. I think the Southern Building is admirably located and that it will increase in value indefinitely. I think, for instance, there is no comparison between the actual Value of the Southern Building and that Arling- ton ground. The Arlington gi'ound has a reservation in front of it — a Government reservation in front of it. Mr. Douglas. Is the Arlington ground, on an average, worth Mr. Goldsborough (interposing). And there is no business and can be no business there on the opposite side, and business property derives increased value from the fact that it is in a dense settlement of business people. Mr. Douglas. Is the Arlington property, at the corner of Vermont Avenue and H Street, worth half as much as the Southern Building corner, or more than that? Mr. Goldsborough. Well, I think it is worth half as much, but Mr. Douglas (interposing). What is the relative value of the two — those two corners? Mr. Goldsborough. Well, I think, easily, taking the Arlington property as a whole — you see, the Arlington property runs back all the way to I Street, and the I Street front is nothing like as valu- able as the other frontage — but taking it as a whole, why, I should think that the Southern Building is worth very close to twice as much, as an entirety. Mr. Douglas. That is all I have to ask, Mr. Chairman. Col. Judson. Mr. Goldsborough, if the Southern Building stood on the site of the Equitable Building, in New York, what would the building be worth? Mr. Douglas. I object to the question as the wildest sort of specu- lation. I object to the question, Mr. Chairman, because it has abso- lutely no relevancy to this issue at all. Col. Judson. I will explain what the relevancy is. Mr. Douglas. Then I withdraw the objection. Mr. Johnson. I can say for myself that I do not care any more about the value of property in New York than I do about the value of property in Calcutta for the purpose of ascertaining the value of property at the corners of Fifteenth and Fourteenth and H Streets in Washington, but if Col. Judson wants to go ahead, he may do so. Col. Judson. Well, Mr. Chairman, I am willing to abandon it if the committee desires. Mr. Johnson. Oh, no ; you go ahead. Col. Judson. If the Southern Building stood on the site of the Equitable Building in New York, what would the building itself be worth ? Mr. Kedfield. One moment, before you answer, please. Col. Judson. No't the land, but the building itself. Mr. Redfield. I do not know what yon mean. I confess I do not understand what your purpose is, and I do not care what your pur- pose is, but I do not understand what your question means. Col. Judson. Well, I mean if this Southern Building, just as it stands now, at the corner of Fifteenth and H Streets, stood just as 1080 INVESTIGATION OP INSURANCE COMPANIES. it stands now in this city, upon the site of the Equitable Building in New York, what would the building itself be worth ? Mr. Goldsboeough. I suppose you are trying to ascertain whether the character of the building would be suitable for the location — the New York location ? Col. Judson. Yes. Mr. Goldsboeough. Well, I can answer that in this way. Ot course, if it were there they would want a building, in order to utilize the value of the ground, that would be 25 or 30 or 40 stories high, and they would want the foundations to be made for it. Col. Judson. What would the building be worth then ? Mr. Goldsboeough. Well, I could not say what the building Is worth now, because I never examined the building, and I do not know, but I do not think it would be appropriate for that location. Mr. George. Do you mean, Colonel, as so much brick and so much cement, and so much steel, or do you mean as a structure ? Col. Judson. Whatever attributes value to it. Mr. Geoege. As a building? Col. Judson. Yes; as a building. Mr. Redfield. Before he answers, I confess I can not see any pos- sible answer which anybody could give there which would mean anything. It costs neither more nor less to put up a steel frame structure on the one site or the other ; it costs neither more nor less to put the shell of the structure on and to put the equipment in — the cost of the building would not be substantially different on either site — and the question of its suitability to the site has no apparent relation to the question at issue that I can see. Now, I do think, contrary to my very dear friend, the Chairman — and I think I can show him in a few moments — that the question of the relative com- parison of the land has great pertinence, and, what is more, is the customary and usual thing, but the question about the building I do not understand at all. Col. Judson. I think I can develop my thought. Mr. Johnson. Just in that connection, it may be well for me to say that I have endeavored to follow very closely the values of prop- erties adjacent to the Southern Building, but I have not cared to follow the values of property, even in the District of Columbia, very far removed from this building, and to be getting out into New York seems to me to be entirely too far removed, and then I do not under- stand that the witness has qualified as an expert in the values of property or real estate in the city of New York. Col. Judson. I will explain, if the chairman will permit me, what my desire was to bring out. Mr. Johnson. Just ask him the question, and go on. Mr. Douglas. Yes, that will save time. Mr. Johnson. Yes, we will save time in that way. Col. Judson. Do you think the building, as it stands now, if it were put in that new location that I have suggested, would be of any con- siderable value? Mr. Goldsboeough. Oh, yes ; of course, it would be of considerable value, but it would not be such a building as probably would be erected there. Col. Judson. It would probably be torn down, and another build- ing erected in its place, would it nnt? INVESTIGATION OF INSURANCE COMPANIES. 1081 Mr. Goldsboeough. In the course of time, undoubtedly. Col. Judson. And if the man had the money, he would tear it down at once and build another building, would he not ? Mr. Goldsboeough. Well, there are a great many buildings there that are not as good as the Southern Building, around in that sec- tion — a good many old buildings. Col. Judson. But it would not have as great value on that site as it would on this site, where it is adapted to the city and the sur- roundings ? Mr. Goldsboeough. It is better adapted to its location at present than the location which you have suggested, of course. Col. Judson. Well, now, it would not have the value which it has now, if it were located, for example, in Alexandria ? Mr. Goldsboeough. No ; I doubt that very much. Col. Judson. Then, if the land upon which this building stands were to go down in value so that it would become like the land in Alexandria, the building would depreciate in value — the building itself — would it not? Mr. Goldsboeough. What do you mean by going down? If they had an earthquake? Col. Judson. No. I mean if the land should depreciate very con- siderably, until it was related to the value of land in Alexandria ; then the building itself would lose very much of its value, although it might not have depreciated, would it not ? Mr. Goldsboeough. Well, to be frank with you, Colonel, I think that that proposition is unthinkable. Col. Judson. You can not even think of its going down ? Mr. Goldsboeough. I can not think of its going down to the Alex- andria level, or Bladensburg, for instance. Col. Judson. Well, if it did? Mr. Goldsboeough. Well, if it went down, of course, it would be down. Col. Judson. Yes ; and the building would not be worth as much ? Mr. Goldsboeough. Why, of course not. Col. Judson. Now, if the value of the land went up considerably, until it became related to the value of property in New York, along Wall Street, similarly the building would go down, because it would not be adapted to the location, would it not? Mr. Goldsboeough. Well, it would take a long time. Col. Judson. It would take a long time ? Mr. Goldsboeough. Yes. Col. Judson. Well, that is all. I will not pursue that further. Now, the Southern Building covers a piece of land about 150 feet on the side, does it not ? Mr. Goldsboeough. I think so, sir. Col. Judson. Did you ever hear of a similarly large piece of land in Washington selling for $50 a foot? Mr. Goldsboeough. No. Col. Judson. Did you ever hear of a similarly large piece of land in Washington selling for $45 a foot ? Mr. Goldsboeough. I have not. Col. Judson. Did you ever hear Mr. Goldsboeough (interposing). But I can answer that in an- other way, if you will permit me. 1082 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. Xo; that is an answer. Mr. Douglas. He will not be permitted to stop your answers. He does it all the time, but we will see if we can not stop it. What did you start to say '. Mr. Goldsborough. Well, I started to say this: Of course, some- times the fact that you can get a large area adds to the value of even- foot of the ground and sometimes it depreciates its value Col. Judson (interposing). And, therefore, you might expect to find Mr. Douglas (interposing). One moment, Colonel. Mr. Goldsborough. For instance, take a small lot like the corner of G and Fifteenth, which, I think,' sold for about $80 or $90 a foot. That is the property where — it is the northwest corner of Fifteenth and G. Xow. that is a very narrow lot. I do not remember pre- cisely, but I think it is only — it is less than 25 feet. I think it is only 20 feet. Xow, the same way with the corner of Fourteenth and F. Xow. when lots are narrow that way the walls take up a tremendous proportion of the space. If you have two 18-inch walls, for instance, there you have got a foot and a half right out of the livable part of the structure — the usable part of the structure; so if you want a large building — for instance, when I was looking for a building — and I think probably you might divine the purpose — a couple of yea is ago, I was very anxious to get a large lot, but I could not find one, because the purpose I wanted it for required a large lot. Xow, you take the Arlington Hotel, for instance; there has been no sale here comparable to that. There is more ground there than was ever sold in any one part of the city, that I know of, at any one time, and yet that brought quite a high price, relative to what appertained three or four years ago, and an enormous price, relative to what was a going price 10 years ago; and I do not think the size of this particular lot, in view* of the fact that it has got to the rear of it an alley, and a large alley, militates against the prop- erty at all. I do not think there is a foot too much there to put up an economical building. Col. Judson. Well, that would apply to other lots in Washington, would it not ? Mr. Goldsborough. It would. Col. Judson. That their size would not be so great as to lessen the relative value? Mr. Goldsborough. It would apply, of course, to any other location. Col. Judson. Did you ever hear of a similarly large tract anywhere in Washington selling for $40 a square foot? Mr. Goldsborough. Xo. Col. Judson. Or $35 a square foot ? Mr. Douglas. Similar in size? Mr. Goldsborough. You mean similar in size ? Col. Judson. Yes. Mr. Goldsborough. Xo; I do not know of any piece of ground of the size of that that has been in the market. Col. Judson. You used the Montrose Hotel sale, did you not, as one yardstick to measure the value of this property ? Mr. Goldsborough. Yes. Col. Judson. You know that it sold for $51 a square foot, recently? Mr. Goldsborough. Yes, sir; I am so advised and believe. INVESTIGATION OF INSURANCE COMPANIES. - 1083 Col. Judson. Do you not know that when the Montrose Hotel property sold for $51 a square foot, that the amount of cash paid was only $13,250, and that there was a mortgage left upon the prop- erty of $162,500? In other words, do you not know that of that $51 paid for the Montrose property, that $47.10 was left on mortgage, and only $3.90 paid in cash, and that this was, in fact, practically a margin transaction? Or looking at it in another way, did not Mr. Jordan practically buy an option on this property for $13,250, so that if it went up he might make what he could, while if it went down or stayed down he could lose but $13,250 ? Mr. Douglas. Are you through with the question? Col. Judson. Yes. Mr. Douglas. I would like to ask, for the purpose of objecting to this question, whether or not Mr. Judson means to question the good faith of that purchase by that question. Col. Judson. These are only hypothetical statements. Mr. Douglas. I ask you that question now. to test your good faith in this matter. Col. Judson. I will not answer that question. Mr. Douglas. Then I object to the question as scurrilous and highly improper and perfectly irrelevant to the issues in this case. Col. Judson has injected into this question things that I respectfully submit to this committee were intended as reflections upon Mr. Jordan and the other gentlemen interested in the transaction, and yet he re- fuses to answer a perfectly pertinent question as to whether or not he means by his own question to question the good faith of the sale of the Montrose property. Now. I mean to bring that home to you. Col. Judson. I wish to question nobody's good faith. I am asking for the facts. Mr. Douglas. I submit it is perfectly irrelevant. I ask him fur^ ther, as it is a hypothetical question, if he means to back up, by his proof, the alleged facts in that question ? Col. Judson. I will say that I am not absolutely certain that these are the facts. Mr. Douglas. From whom did you get the statements, sir? Col. Judson. The assessor informed my chief clerk this morning, when I sent down to inquire, that there was a trust upon that site of $162,500. The total purchase price at $51 a foot could be ascer- tained by you by multiplying 51 by 3,450. It would appear, there- fore, that the cash paid was only $13,250, and I would be very glad if Mr. Jordan could be recalled and be asked about that. I am very sorry that I was not here to ask him yesterday, but I could not be here. Mr. Douglas. You knew Mr. Jordan was going to be on the stand, and you were asked to be here to cross-examine him. Col. Judson. Well, I did not know that this might be true yes- terday. Mr. Douglas. It is not what might be true, and Mr. Chairman Col. Judson (interposing). I am asking the witness in order to ascertain Mr. Douglas (interposing). I am addressing myself now to the chairman and the members of this committee in support of my objec- tion to your question. It is primary and elementary law, which is onnlicable here as everywhere else — -to this committee and everybody 1084 INVESTIGATION OF INSUKANCE COMPANIES. else — that there is no sense, there is no meaning, there is no relevancy in a hypothetical question unless the person propounding it asks the hypothetical question in good faith and intends and promises to the court that he will back up the hypothesis by proof of it as a fact. Xow, if Col. Judson does nut state to this committee thai, he intends to back up the statements in this hypothetical question, then I chal- lenge his good faith in asking that question, and I object to the question as highly improper and irrelevant. Mr. Johnson. Eead the question again. Mr. Redfield. I will say for the record and for the information of the chairman that the question of this sale of the Montrose Hotel at $51 a foot has been used during the chairman's absence as one of the means of measuring the value of the land under the Southern Building, and that if there are any circumstances in that sale of so unusual a character as to make that price less pertinent than without that explanation it may seem to be, it would appear to me to be proper that the committee should be informed in the right way about it. Mr. Douglas. Oh. Mr. Redfield and Mr. Chairman, I have no objection to the committee going into the matter and calling wit- nesses to prove it, but to waste the time of this committee with such a question as this I do not think is proper. Col. Judsox. I have no objection to Mr. Jordan being recalled and asked that question. Then I will withdraw the question. Mr. Johnson. Repeat the question, please. The question was thereupon read by the stenographer, as follows: Do you not know that when the .Montrose Hotel property sold for $51 a ptjmire foot that the amount of cash paid was only $13,250, and that there was a mortgage left upon the property of $162,500? In other words, do you not know that of that $51 paid for the Montrose property that $47.10 was left on mortgage and only $3.90 paid in cash, and that this was, in fact, practically a margin transaction'.' Or. looking at it in another way, did not Mr. Jordan practically buy an option on this property for $13,250, so that if it went up he might make what he could, while if it went down or stayed down he could lose but $13,250? Mr. Eedfield. "What is scurrilous about that? You used the ad- jective " scurrilous." Mr. Douglas. I so characterized the question, because I think it is. There is a suggestion that these gentlemen, under the pretense of a purchase, were, in fact, making no purchase at all, and that under the pretense of buying this property they paid $13,250 for an option on this property — pretended to be the buyers, though they were not. Mr. Johnson. The Montrose Hotel Building is just one square away from the Southern Building. If the Montrose Building has been mortgaged for approximately $50 a square foot, it would have much weight in determining me as to its value. There is nothing more timid that I know of than capital or money, and if the moneyed interests of the town are willing to take a trust or a mortgage upon that property to the extent of nearly $50 a square foot I would be very glad to hear it, because that would influence me in determining my opinion as to surrounding property. Mr. Douglas. Mr. Chairman, I would suggest that you call the president of that institution; that is, the Real Estate Trust Co., who bought it. He ought to know all about it. INVESTIGATION OF INSURANCE COMPANIES. 1085 Mr. Johnson. If this witness does not know anything about it, of course he can not answer. Mr. Douglas. I would suggest that the chairman ask him if he knows anything about it. I do not think he knows a thing about it. Mr. Goldsborough, do you know anything about the details of that transaction other than the price at which you heard it was sold ? Mr. Goldsborough. I do not. Mr. Douglas. You do not? Mr. Goldsborough. No, sir. Mr. Douglas. Then I move that the question asked by Mr. Judson be stricken from the record. Mr. Johnson. If the witness knows anything about it having been mortgaged to this extent, I am not averse to getting the information. Mr. Goldsborough. I do not know about the amount of the mort- gage, but that would not influence my judgment at all, because the market is made by margins. Take the margins in New York, for instance — the margin of buying of stocks. Why, it determines the price of stocks every day of the week. In other words, the specu- lator is a man who would not exist if he could not make money in his business. If a speculator bought that property for $55 a foot or $51 a foot, I would not want any better evidence of its value, un- less he was regarded as an imbecile. He would not put up $13,000 margin if he was not very confident he had a margin of profit in there and was going to make some money out of it. In other words, it is a sincere purchase, because $13,000 is a very substantial sum of money. It is not a million dollars, but it is Col. Judson (interposing). I would like to have it go into the record that I regard this transaction as a reflection upon no one, if it occurred. As to whether it occurred or not, I am uncertain, but I think it should be ascertained. Mr. Johnson. I will say to the attorneys, and the witnesses, and all persons interested, if possible, they should address themselves >nly to such matters as may be of help to us in arriving at the value of this Southern Building. Col. Judson. I will try to do so. We have here in Washington a great many real estate operators ; more than you know of in any other city of its size, have we not? Mr. Goldsborough. I am not sufficiently acquainted with other cities to say, but there are a large number of operators here. Col. Judson. It is a notorious fact that we have a great many real estate men here, is it not? Mr. Goldsborough. Well, there are a great many, undoubtedly. Mr. Johnson. Does Col. Judson use the word " notorious " advis- edly or thoughtfully? Col. Judson. No; "well known," I will say. I have heard that said and I do not know but what "notorious" would be the right word. Mr. Johnson. Well, let it go at that. Col. Judson. Among the many real estate operators, some are engaged in bulling real estate, and some in bearing it, perhaps, as you might find the stock operators in New York; is not that true? Some are optimistic, and others not; is that not true? Mr. Goldsborough. Well, of course, that applies to all classes and kinds of men. 1086 INVESTIGATION OF INSURANCE COMPANIES. Col. Judson. So you can get men who entertain optimistic views to give testimony, can you not? Mr. Goldsborough. Oh, undoubtedly, and pessimistic, too. Col. Judson. And pessimistic, also?' Mr. Goldsborough. Yes. Col. Judson. You have been closely associated, have you not, with Mr. John R. McLean in various enterprises here, including the Wash- ington Gas Light Co.? Mr. Goldsborough. I have. Col. Judson. Mr. McLean owns a great part of the block facing the Southern Building, does he not? Mr. Goldsborough. He does. Col. Judson. Has he an option on the piece of ground immediately opposite it, across Fifteenth Street? Mr. Goldsborough. Immediately opposite what? Col. Judson. Has he an option on the land within the block oppo- site the Southern Building? Mr. Goldsborough. Opposite — the Shoreham, you mean ? Col. Judson. "Well, any? Mr. Goldsborough. He owns the entire square, except the Shore- ham building. Col. Judson. And he has an option on that ? Mr. Goldsboroi'gii. Not that I know of. He owns the entire square, except the Shoreham, or he did. Col. Judson. And it would be to Mr. McLean's advantage, would it not, if the Southern Building were to rise in value? Mr. Goldsborough. "Well, in a general way; yes. Col. Judson. And you are Mr. Mr. Goldsborough (interposing). But Mr. McLean's property is not in the market. Col. Judson. I understand. Mr. Goldsborough. And I think probably it would be some pres- ent expense to him, because it would perhaps increase his taxes. I do not know. Col. Judson. You are Mr. McLean's close associate in business and otherwise, and his attorney? Mr. Goldsborough. I have been Mr. McLean's attorney. Col. Judson. Do not the courts hold, or have they not stated, that the best test of the true value of a piece of land depends upon what a willing buyer will pay a willing seller for it? Mr. Goldsborough. Well, that is a legal proposition, and I did not come here particularly to testify as to the law, but as to real estate. As a general proposition, I think you have fairly stated one of the elements that the court would hold. Col. Judson. That is all. Mr. Goldsborough. But I want it understood, of course, that I am not representing Mr. McLean here in any capacity at all, and I really do not see that it has any relevancy at all to the question. Mr. Johnson. You have testified as to whether or not you have been closely associated with Mr. John R. McLean, who is largely interested in real estate in the District of Columbia. Do you plead guilty or not guilty to being closely associated with Mr. Glover, Mr. Stellwagen, and some others who are also largely interested in real estate in the District of Columbia ? INVESTIGATION OF INSURANCE COMPANIES. 1087 Mr. Goldsborough. I have been; yes, sir; and it seems to me a great privilege to have been associated with all of them. Mr. Johnson. You plead guilty Mr. Goldsborough (interposing). Not guilty; no; but I plead it as a matter of merit and privilege. Col. Jtjdson. I had no intention of casting any reflection upon you or upon Mr. McLean. • Mr. Goldsborough. That is all right. Col. Jtjdson. You understood that, of course, did you not ? Mr. Goldsborough. I do not think for one moment, Colonel, that you could entertain any such purpose. TESTIMONY OF MR. JAMES H. TAYLOR. The witness was duly sworn by the chairman. Mr. Douglas. Mr. Taylor, you are a resident of Washington? Mr. Taylor. I am. Mr. Douglas. And a member of the bar of the District of Co- lumbia ? Mr. Taylor. I am. Mr. Douglas. How long have you practiced law here ? Mr. Taylor. About 30 years. Mr. Douglas. About 30 years? Mr. Taylor. Yes. Mr. Douglas. Have you had anything to do with the sale and settlement of estates here in the practice of your profession? Mr. Taylor. Yes. Mr. Douglas. Are you the attorney for the Fernando Wood estate ? Mr. Taylor. I am. Mr. Douglas. I believe Mr. Goldsborough said Mr. Wood was for- merly a prominent Member of Congress. You knew him, did you? Mr. Taylor. No. It was before my time. Mr. Douglas. Does that estate own the property known as the old Chamberlin hotel or restaurant site at I and Fifteenth Streets? Mr. Taylor. Yes, sir. Mr. Douglas. Just one block from the Southern Building? Mr. Taylor. Yes. Mr. Douglas. Do you know the lowest price at which that corner property can be bought? Mr. Taylor. $110,000. Mr. Douglas. And what price per foot is that ? Mr. Taylor. Somewhere from $33 to $35, probably. We have not calculated it by the foot. Mr. Douglas. But it figures between $33 and $35 a foot? Mr. Taylor. Yes; that is a mathematical calculation, however. Mr. Douglas. I suppose you have had enough experience in real estate to at least answer one question as to how much more per foot the Southern Building corner, which is right close to it, is worth than the Chamberlin property, or are you willing to express any opinion on that subject? I do not insist upon your doing it, because you are a lawyer and not a real estate man, and I brought you here only to prove the value with reference to the Chamberlin nroriertv. 1088 INVESTIGATION OF INSURANCE COMPANIES. Mr. Taylor. I think I had better confine my testimony to the facts and not give any opinion. Of course, the corner of H Street, I would say, is worth very much more than the corner of I. Anyone would know that, and anyone would be willing to give more for it. As for the corner below — that is, Pennsylvania Avenue — where the American Security & Trust Co. is — that is worth more. Mr. Dotjglas. Than the corner of H ? • Mr. Taylor. Yes. Mr. Douglas. That is all. Mr. Johnson. Col. Judson, do you desire to ask him, anything? Col. Judson.. You testified you held this property at $110,000. I want to ask you what is the highest offer you have received for it. Mr. Taylor. $85,000. Col. Judson. How much is that a square foot? Mr. Taylor. I have not made the calculation. Col. Judson. Who made you that offer? Mr. Taylor. That was an offer through one of three brokers, and I would rather not say because my recollection is not clear. It oc- curred last spring, and I at once communicated with the members of the Wood family, in New York, stating the offer, and two of them came here. We held the property at that time at $100,000. The gentlemen came here and we walked around through the neighbor- hood. One of them had not been here for a number of years, and one not within three years. They saw the buildings on the corner below — the Woodward Building and the Southern Building — and one had not seen the Union Trust Building. That influenced them in raising the price, and they said " No ; we will not take $85,000. We feel more like putting something onto it ; " and after a family conference they notified me that $110,000 would be the lowest figure they would accept for it. Mr. Douglas. How many feet are in that lot? Mr. Taylor. A little over 3,400. I can give you the exact number of feet if you will allow me to refer to a memorandum I have with me. Mr. Douglas. Yes ; I wish you would do so. Mr. Taylor. Three thousand four hundred and forty-nine feet, plus. Col. Judson. But you are unwilling to say who it was offered you that? Mr. Taylor. I would rather not, because I am not certain. Col. Judson. Was it not Mr. Sidney Bieber and some others who were associated with him? Mr. Taylor. No; it was not. Col. Judson. It was not ? Mr. Taylor. No, sir. Mr. Douglas. What difference would it make whether it was Sid- ney Bieber or Sidney Smith ? Col. Judson. Perhaps you will be able to judge later. That was when there was a desire on the part of some people to put up a build- ing there for the Department of Commerce and Labor, was it not? Mr. Taylor. It was last spring; no. Col. Judson. I have no further questions. Mr. Redfield. What do you reckon the price per foot to be if it be held at $110,000? INVESTIGATION OP INSURANCE COMPANIES. 1089 Mr. Taylor. I have not reckoned it at all. Something like $34 a foot, I think. Mr. Redfield. I want you to be sure about it. Mr. Taylor. It is simply a mathematical calculation. I will make it for you, if you want it. Mr. Redfield. I am going, to ask you to do it in a moment. You say $110,000 is the, price at which it ia.held? Mr. Taylor. Yes. Mr. Redfield. And the area is 3,449 square feet ? Mr. Taylor. Yes. Mr. Redfield. Will you be kind enough to figure that yourself and say exactly what it is? Mr. Taylor. I will be very glad to do it. Mr. Douglas. It is $32 and something. Mr. Redfield. I would rather he would figure it. Mr. Taylor (after making calculation). Approximately $32, sir. Mr. Douglas, You mean a fraction over $32? Mr. Taylor. Plus. Mr. Redfield. Now, pardon me, just what is it? Figure it out in decimals, please. Let us get it right. Is it not thirty-one dollars and sixty cents odd ; is that not so ? Mr. Taylor. Probably. Mr. Redfield. Not quite $32, is it not ? Mr. Taylor. Not quite $32. Mr. Redfield. About $31.60? Mr. Taylor. Yes. Mr. Redfield. A little bit less than $32? Mr. Taylor. Yes. STATEMENT OF MR. R. W. BEAIL. The witness was duly sworn by the chairman. Mr. Douglas. Mr. Beall, are you a member of the firm — the incor- ported firm of Moore & Hill, a real estate firm here? Mr. Beall. Yes, sir; I am vice president of the firm. Mr. Douglas. Vice president of that company ? Mr. Beall. Yes, sir. Mr. Douglas. How long have you been connected with Moore & Hill (Inc.) ? Mr. Beall. Since 1901. Mr. Douglas. How long has that corporation been in existence? About what time? Mr. Beall. I think it was incorporated in 1900. Oh, I beg your pardon. The partnership was formed about 1900, and the corpora- tion was made up a short time after that. Mr. Douglas. A little after that? About 1901 or 1902? Well, you have been with Moore & Hill (Inc.) practically since its forma- tion? Mr. Beall. Since 1901 Mr. Douglas. And you are vice president of that organization? Mr. Beall. Yes, sir. Mr. Douglas. Mr. Beall, were you in the real estate business before that time? Mr. Beall. Yes, sir; in 1893— since 1893. 1090 INVESTIGATION OF INSURANCE COMPANIES. Mr. Douglas. Were you in business on your own account, or with some one else prior to going with Moore & Hill ? Mr. Beall. I was associated with another firm. Mr. Douglas. Hare you been all these years in the active business of buying and selling real estate? Mr. Beall. I have. Mr. Douglas. Please state, Mr. Beall, whether or not your experi- ence has been large, or to the contrary, in buying and selling real estate ? Mr. Beall. We feel that our firm's business has been among the larger firms of the city. Mr. Douglas. Have you made any special study of business proper- ties in the District of Columbia i Mr. Beall. I have. Mr. Douglas. I suppose you can say you are familiar with the business section of ~\\ ashington ? Mr. Beall. I am. Mr. Douglas. Thoroughly familiar with it? Mr. Beall. I am. Mr. Douglas. Pretty familiar with transactions in real estate — I mean, generally familiar? Mr. Beall. Yes; generally familiar. Mr. Douglas. I do not mean every one of them, but for, I would say, the last 10 or 12 years. Mr. Beall. Yes. Mr. Douglas. Mr. Beall, I will ask you, preliminarily, if you know of anj r section in Washington, in your life time, that has built up so rapidly, and in which the values have increased so rapidly, as the intersection of Fifteenth and H Streets and thereabouts, or as that neighborhood has increased in the last three or four years? Mr. Beall. I do not. Mr. Douglas. You know of no section that has increased as rapidly or which lias changed as much in three or four years as has that section ; is that right ? Mr. Beall. I do not. Mr. Douglas. Do you know of any property that has increased as rapidly in value as the property on those four blocks that meet at Fifteenth and H — four squares. I mean? Mr. Beall. Xo : I know of no section where it is built up so well and so substantially as that. Mr. Doltglas. Where was Moore & Hill's office before the South- ern Building site was purchased from the old St. Matthew's Church people? Where did you have your place of business? Mr. Beall. For five years prior to last December the office was at 1333 G Street. Mr. Douglas. 1333 G Street I Mr. Beall. Yes. Mr. Douglas. That is, between Thirteenth and Fourteenth on G Street? Mr. Beall. Yes. Mr. Douglas. On the north side of the street ? Mr. Beall. Yes. Mr. Douglas. The building next door to the Colorado Building' Mr. Beall. Yes. sir. INVESTIGATION OF INSURANCE COMPANIES. 1091 Mr. Douglas. And where is your office now ? Mr. Beall. In the Woodward Building, No. 1420 and 1422 H Street. Mr. Douglas. That is directly across from the Southern Building? Mr. Beall. Yes. Mr. Douglas. Between Fourteenth and Fifteenth Streets on H? Mr. Beall. Yes. Mr. Douglas. You changed your location from G to H Streets? Mr. Beall. Yes, sir. Mr. Douglas. How long had you been there? Since the Wood- ward Building was opened? Mr. Beall. I think it was in December last we moved up there. Mr. Douglas. December, 1911, was it? Mr. Beall. Yes, sir ; December, 1911. Mr. Douglas. The firm of Heiskell & McLeran — now Jesse Heis- kell — he has his real estate office in the same block, on the north side, next to the Blackistone corner, has he not ? Mr. Beall. He has. Mr. Douglas. Where did he move from to that place ? Mr. Beall. Opposite the Boston House. I think the number was 1008 F Street. Mr. Douglas. Opposite what ? Mr. Beall. Opposite the Boston House. Mr. Douglas. The Boston House ? Mr. Beall. Yes ; the Woodward & Lothrop business. Mr. Douglas. He moved his business from there to the same block ; that is to say, on H between Fourteenth and Fifteenth Streets ? Mr. Beall. He did. Mr. Douglas. The real estate firm of Simpson & Sullivan," where is their place of business now ? Mr. Beall. On the first floor of the Southern Building. Mr. Douglas. From what point did they move? Mr. Beall. On G Street, between Fourteenth and Fifteenth, on the south side. Mr. Douglas. Now, the firm of carpet men, Sloan & Co., they do a very large business here, do they not? Mr. Beall. Yes ; they appear to do a very large business. Mr. Douglas. Where is their place of business now ? Mr. Beall. Just west of our office. Mr. Douglas. East of your office, is it not ? Mr. Beall. Yes; east of our office. The number would be 1416 and 1418, I think. Mr. Douglas. On the south side of the street? Mr. Beall. Yes. Mr. Douglas. Now, where was their place of business formerly? Mr. Beall. They came from uptown. I do not remember their former location. Mr. Douglas. And they recently moved into that section — in the last 12 months? Mr. Beall. Yes. Mr. Douglas. There are several automobile stores that have been established in that section — that same block on the north aide of the street, are there not? 71391— No. 13—13 3 1092 INVESTIGATION OF IXSUKANCE COMPANIES. Mr. Beall. Yes; there are two — I think there are three auto- mobile concerns on the north side of H Street, west of Fourteenth Street. Mr. Douglas. And is it not true that Cornwell's grocery store has been built there since the erection of the Southern Building ? Mr. Beall. Yes, sir. Mr. Douglas. How many stories is that ? Mr. Beall. Four stories. Mr. Douglas. Four stories? Mr. Beall. Yes. Mr. Douglas. It is a very fine building, is it not, Mr. Beall? Mr. Beall. Yes ; the finest store of its Kind in the city. Mr. Douglas. And from what point did the Cornwell people move? Mr. Beall. Pennsylvania Avenue, between Fourteenth and Fif- teenth. Mr. Douglas. Do you remember the optician, Edmonds, Mr. Beall? Mr. Beall. Yes. He had a place on New York Avenue, between Fourteenth and Fifteenth. Mr. Douglas. New York Avenue, between Fourteenth and Fif- teenth? Mr. Beall. Yes. Mr. Douglas. He does a very large and select business and has a very fine clientele, has he not? Mr. Beall. I understand he has a very fine business. Mr. Douglas. And do you know, Mr. Beall, that he has rented and is just about to occupy the portion of the Southern Building north, -toward the alley there, on the ground floor ? Mr. Beall. I have noticed his sign in the window ; yes. Mr. Douglas. I am asking you these questions for the purpose of enlightening the committee as to the trend and movement of business in that section. As a matter of fact, Mr. Beall, before the Southern Building was erected, was there a single store between Blackistone's corner and Fifteenth and H, on either side of the street, between Fourteenth and Fifteenth? Mr. Beall. There was an auction place on the north side, which I think was the only place. Mr. Douglas. You mean an antique place ? Mr. Beall. Yes; an antique place. They had an auction business. Mr. Douglas. Yes. And is it not true that all the buildings on the north side of the street now, from Blackistone's corner to the United States Trust Co.'s place in the Southern Building, with the excep- tion of a vacant lot, are now occupied by business places ? Mr. Beall. They are, I think, every one of them, all occupied by business places. Mr. Douglas. Let us take the corner down here of Fourteenth and H. That is occupied by H. L. Rust, a real estate man, is it not ? Mr. Beall. It is. Mr. Douglas. When did he move there ? Since the Southern Build- ing has been put up, did he not? Mr. Beall. He moved there about that time. Mr. Douglas. About that time? Mr. Beall. Yes. Mr. Douglas. From what point did he move ? INVESTIGATION OF INSURANCE COMPANIES. 1093 Mr. Beall. He had a place on Fourteenth Street near G. Mr. Douglas. And that is considered a very desirable business location down there, is it not? Mr. Beall. It is. Mr. Douglas. And do you remember where Small's flower store was before the Southern Building was erected ? Mr. Beall. At the corner of Fourteenth and G Streets. Mr. Douglas. At the corner of Fourteenth and G? Mr. Beall. The southeast corner of Fourteenth and G. Mr. Douglas. Where is Small's flower store now ? Mr. Beall. He has a very large part of the first floor, around on H Street and Fifteenth, of the "Woodward Building. Mr. Douglas. Is it not true that Weaver Bros., the real-estate people, have also moved from what might be called relatively down town into the Woodward Building, at the same intersection of Fif- teenth and H Streets ? Mr. Beall. They have. Mr. Douglas. Before the Southern Building was erected, was there a single store on H street between Fifteenth and Vermont Avenue? Mr. Beall. It seems there was a millinery establishment of some kind on the north side. Mr. Douglas. Let us take the south side. Mr. Beall. There were no stores of any special consequence, as I recall. Schoen & Co. built their building since the Southern Building has been built. Mr. Douglas. And from there up is now practically occupied by business places of one character and another? Mr. Beall. Yes, sir. Mr. Douglas. And since the Southern Building was put up, the Wilkins office building, which is still further west, between Fifteenth Street and Vermont Avenue, and quite a good building, has been erected ? Mr. Beall. Yes ; it has. Mr. Douglas. Mr. Beall, I have asked a good many questions along this line in order to enable the committee to form a safe idea as to the situation at Fifteenth and H Streets. Will you tell us what, in your judgment, is a fair, conservative value for the land upon which the Southern Building is situated? Mr. Beall. I would place it at $45 per square foot. Mr. Douglas. That is for the whole lot, without the building? Mr. Beall. That is for the lot without the building. Mr. Douglas. What do you think is a fair basis for capitalizing that building on, as on its earning capacity — 3 or 4 or 5 per cent? Mr. Beall. There has been a good deal of thought given to that question by items in the papers from time to time. I should say, frdm my experience, around 4 or 4J per cent. Mr. Douglas. In your judgment, will the land upon which the Southern Building is located increase or decrease in value in the next 3 or 4 or 5 or 10 years ? Mr. Beall. The Washington business section is spreading, and it seems to be going in that direction a good deal, and it should greatly enhance in value. Mr. Douglas. I will ask you, Mr. Beall, if the growth in that direc- tion is not considerably circumscribed by the presence of two parks, 1094 INVESTIGATION OF INSUBANCE COMPANIES. one called McPherson Square, commencing at the intersection of I and Fifteenth Streets, and the other just one block away from the Southern Building, where you come in contact with Jackson Place? Mr. Beall. Yes ; the trend, to a certain extent, will be stopped on account of those two parks and will be somewhat hedged in by Mr. John R. McLean's holdings. The building is probably too good to be torn down, and he will probably not sell any of his holdings there. Mr. Douglas. It takes that property practically out of the market? Mr. Beall. And it therefore would take that property practically out of the market. Mr. Douglas. Will the building of the New Arlington Hotel tend to increase or lower the value of property in that region of the city? Mr. Beall. It should increase the value of property all about it. Mr. Douglas. How would you compare Fourteenth and H Streets with Fifteenth and H Streets? Mr. Beall. When we take the general rule, that property is more valuable on G Street and Fifteenth Street than it is on G Street and Fourteenth Street, and more valuable at Fifteenth and New York Avenue than Fourteenth and New York Avenue; it seems to me it would be fair to say that the corner of Fifteenth and H Streets should be more valuable than the corner at Fourteenth and H Streets. Mr. Douglas. It has high class and more expensive improvements ? Mr. Beall. The most expensive improvements in the city. Mr. Douglas. Has not that section shown more rapid and substan- tial increase in value and has not the attention of the community been focused upon that corner and that intersection more than Fourteenth and H Streets? Mr. Beall. Yes. Mr. Douglas. There is no real first-class improvement on either of the four corners at Fourteenth and H Streets, is there ? Mr. Beall. No ; no improvement to speak of. Mr. Douglas. Did you ever have occasion to appraise this property for anyone before the Commercial Fire Insurance Co. and the First National Fire Insurance Co. bought it or the stock ? Mr. Beall. I really do not know when the companies bought the building. A gentleman whom I knew called me up one evening and asked me if I would appraise the ground upon which the Southern Building was located; that the insurance company or companies, of which he was a director, desired probably to acquire the Southern Building. Mr. Douglas. That is a confidential letter he wrote you ? Mr. Beall. No ; it was a call over the telephone. He asked me if I would advise him in a confidential manner of what I thought the ground was worth ; that he would like to have my opinion on it. After taking some time to go over the matter the next day, looking up and going over in my mind the prices that I understood were re- liable at which sales had been made, and the use to which this lot had been put, being the maximum use to which a business site could be put, I said that in my opinion the ground was worth $45 per square foot. Mr. Douglas. Did you write him a letter to that effect? Mr. Beall. Yes, sir. Mr. Douglas. Have you a cop INVESTIGATION OF INSURANCE COMPANIES. 1095 Mr. Beall. I have a copy here that was made by my secretary, and [ assume it is accurate. I have not had an opportunity to compare it. Mr. Douglas. You know the substance of your former letter ? Mr. /Beall. Yes ; I know the substance of my former letter. Mr. Douglas. Look at it and see. Mr. Beall (after examination). I regard that as a substantial copy of the letter. Mr. Douglas. To whom was this letter written? Mr. Beall. Hon. Ashley M. Gould, associate justice. Mr. Douglas. Are you a personal friend of Judge Gould? Mr. Beall. I hope the judge is a friend of mine. I have known the judge for a good while. Mr. Douglas. He asked you for his own information ? Mr. Beall. Yes, sir. Mr. Johnson. To whom is that letter addressed? Mr. Douglas. This is to Judge Gould, a member of the board of directors. Mr. Johnson. And from whom is it ? Mr. Douglas. From Mr. Beall himself. Mr. Beall testifies that he was asked by Judge Gould to give his confidential opinion as to what this property was worth. Mr. Johnson. When? Mr. Douglas. He said it was about two days before the date of this letter. This was in 1912. This letter is dated October 22, 1912. I think the views expressed by Mr. Beall at that time tend to strengthen and throw light upon the views expressed by him now, and in view of the fact that those views were expressed before any controversy had developed in relation to this matter. Mr. Johnson. The point you wish to make is that he entertained these views at that time as well as now ? Mr. Douglas. Yes, sir; before the appraisement had been made, and before any suggestion had been made. Mr. Peoutt. Do you think it is competent testimony to reinforce a man's sworn testimony by private views he has given not under oath ? Mr. Douglas. I think it is. I think I could satisfy you, if you want any authorities on the subject, that one in the first place can always state what he himself has said and what he himself has thought. It would be a very different proposition if he were trying to strengthen his views by what somebody else said to him. Of course, it might be said in some circumstances that that would be a self-serving declaration. T have no doubt that is in your mind now. But I think I could satisfy the committee, if it deemed it of sufficient importance — though I am not here really to urge it, as I do not care very much about it. But I think I can satisfy the committee that expressions of views as to the value of property that were in perfect conformity with the views expressed on the stand are admissible in evidence to show that the party has not been, consciously or un- consciously, influenced by the developments of this matter since the expression of the former view and prior to his expression of his view on the witness stand at this time. I think it will appeal to any of us, apart from the principle of law involved, that the view expressed by the witness as to the value of this property, before 1096 INVESTIGATION OF INSURANCE COMPANIES. any controversy arose and before there was any lining up of the forces as to the opinions of the optimists on one side and the pessi- mists on the other side, whether we might be influenced more or less by our friendships — and they do more or less unconsciously influence all of us in some things. I think if this witness expressed the opinion before this appraisement was made, and expressed it before this controversy developed — before this investigation had been thought of or was dreamed of by anyone — and gave that view to a friend that he desired to aid in determining what he ought to do and should do with reference to the final acquisition of this property, and considering the personal relations between Mr. Beall and Judge Gould, it seems to me that that is the very sort of thing this com- mittee really would want to have. I did not come here prepared to cite any authorities on the sub- ject, but I believe that the suggestion of introducing this letter is in harmony with the rules of evidence and not in violation of them. I would not express that as a view that I am absolutely sure about; because I really have not investigated it. Mr. Proutt. Do you believe there is any better testimony that the witness can give than his own opinion ? Mr. Douglas. No, sir; this would be no better than for him to state, as he did state, that he did give this view to Judge Gould. Mr. Johnson. I would suggest that, having the witness here, he could be interrogated as to how long he has entertained that opinion, or if he entertained that opinion at that time; but I doubt the propriety of inserting that letter in the record, written by him at that time. That might be proper upon cross-examination, but not upon direct examination. It would be buttressing a witness before he has been cross-examined. Mr. Douglas. Yes, sir; I really think that is the correct view to take of it. He can testify as to what he himself said. Mr. Johnson. Yes. Mr. Proutt. That is perfectly proper on cross-examination. Mr. Douglas. That is undoubtedly so. Mr. Johnson. Undoubtedly the more proper way would be to interrogate the witness, if you wish, at this point, as to whether or not he entertained an opinion as to the value of that property then ; and if so, what. Mr. Douglas. I will do that. I think that is entirely all that we have a right to ask. Mr. Beall, I believe you have already testified that Judge Gould asked you to give him your personal opinion as to what this property was really worth ? Mr. Beall. Yes, sir. Mr. Douglas. He stating to you that he wanted to be able to pass upon the question as a member of the board of directors of the First National Fire Insurance Co.? Mr. Beall. Yes, sir; or words to that effect. Mr. Douglas. And which company contemplated taking over the title to the property? Mr. Beall. Yes, sir. Mr. Douglas. You had that in view when you looked into the matter, and I believe you said you looked into it for a couple of days? INVESTIGATION OF INSUKANCE COMPANIES. 1097 Mr. Beall. I spent the larger part of one day. Mr. Douglas. I did not mean you were working all the time. What figure did you give Judge Gould as being a conservative figure ? Mr. Beall. $45 per square foot. Mr. Douglas. I think that is all I have for the present, Mr. Chairman. Mr. Johnson. Do you desire to ask anything, gentlemen? Mr. George. I have no questions, Mr. Chairman. Mr. Prouty. I do not think of anything now. Mr. Redfield. Mr. Beall, what is the cause, in your judgment, of the rapid appreciation of property in the general neighborhood of the Southern Building? Mr. Beall. On account of the permanent and substantial im- provements in that section. Mr. Redfield. Do you regard that immediate section as having been overimproved ? Mr. Beall. No ; I do not. Mr. Redfield. How many offices are vacant in the Woodward Building? Mr. Beall. I do not know. Mr. Redfield. Any? Mr. Beall. Yes, sir. Mr. Redfield. Have you no idea how many ? Mr. Beall. No, sir. Mr. Redfield. How many offices are vacant in the Union Trust Building ? Mr. Beall. I do not know, sir. Mr. Redfield. Any? Mr. Beall. I do not know that, sir. Mr. Redfield. If there were a number of offices vacant in those buildings, would not that affect the question of whether it had been overimproved at that point? Mr. Beall. I do not believe it would, Mr. Redfield. Mr. Wood- ward had that in mind, or apparently should have had it in mind, when he bought this property that he acquired opposite the Southern Building, and he could have improved it with some other class of improvement than an office building. He backs up his opinion by a very large investment. Mr. Redfield. As a matter of fact you are not prepared to say whether there are few or many vacancies in either of those buildings ? Mr. Beall. Xo, sir; I have not investigated it. Mr. Redfield. Do you know how many vacancies there are in the Southern Building? Mr. Beall. I was told by the manager that the building was about 91 or 92 per cent occupied. Mr. Redfield. When was this? Mr. Beall. Recently ; within the last 10 days, I think. Mr. Redfield. At what rate is the population in Washington in- creasing? ' Mr. Beall. I do not believe I could say, Mr. Redfield. Mr. Redfield. Is it increasing as rapidly or more rapidly than other cities of the same approximate size ? 1098 INVESTIGATION OF INSURANCE COMPANIES. Mr. Beall. I never believed that the census people found all the people in Washington; at least, they did not count them. I will say that they did not enumerate all the people in Washington, for one reason or another, because we have to a certain extent a certain amount of people who are away from Washington at certain seasons of the year. As to comparing the rapid growth of Washington with the rapid growth of any other city, I have not done that. Mr. Bedfield. What increase, if any, has there been in the indus- trial line in Washington in the last 10 years? I mean substantially, and not in detail. Mr. Beall. I do not know. I have never looked that up. Mr. Bedfield. Are there here established any wholesale concerns doing business from this city as a center ? Mr. Beall. Not any large ones, I believe. Mr. Bedfield. Has there been any substantial increase in the general commercial life of Washington apart from retail stores? Mr. Beall. There has been some; yes. in a way. some improve- ments. Mr. Bedfield. In what way, Mr. Beall? Mr. Beall. Of course I am speaking generally. I do not wish to bring the New York end into this at all, but Miss Maynard, from Fifth Avenue, New York, has established a shop on F Street, between Thirteenth and Fourteenth Streets. Mr. Bedfield. Win >m Mr. Beall. Miss or Mrs. Alice Maynard. Mr. Bedfield. That is the kind of development you refer to? Mr. Beall. I have only been on Fifth Avenue three times, and I saw this name. Mr. Bedfield. It is a fact, is it not, that the business development of Washington is along the line of retail supplies for the dwellers in the city? Mr. Beall. More or less ; yes. sir. Mr. Bedfield. Chiefly? Mr. Beall. Yes, sir. Mr. Bedfield. Have you ever given consideration to the question as to whether or not the banking development of the city of Wash- ington has not progressed during the last few years at a greater ratio than the growth of population ? Mr. Beall. I believe we should have larger banking facilities here than we have. Mr. Bedfield. What is lacking in those'facilities? Mr. Beall. I think we could get a larger portion of the southern business if we had larger banking interests here. Mr. Bedfield. Is that because the banks are unable or unwilling to do the business which is here pending? Mr. Beall. I do not believe I could answer that question. I do not believe there is sufficient banking capital here for that kind of business. Mr. Bedfield. Has not the advance of real estate in this particular neighborhood greatly exceeded the growth of population in rate? Mr. Beall. In ratio ; I should say yes. Mr. Bedfield. Is there any reason to expect any increase in the rate of growth of population in Washington in the near future? INVESTIGATION OF INSUKANCE COMPANIES. 1099 Mr. Beall. There should be, Mr. Eedfield. Mr. Redfield. "Why? Mr. Beall. We should have just these businesses and industries that you speak of in Washington. There is room here and there is need for large commercial houses. There is need here for industries of certain kinds. Mr. Eedfield. Why do you think Washington is likely to get them? Mr. Beall. I think Washington has awakened more in that re- spect in the last 20 years, from what I understand, than in the other years that have gone before. Mr. Redfield. As a matter of fact, there is not here a single large manufacturing industry, is there? Mr. Beall. I understand the Firth-Sterling Steel Co., down at Giesboro Point, in the District of Columbia, employs 800 people. I simply have that from the newspapers. Mr. Redfield. That is a very well-known concern, of course. Mr. Beall. The Southern Railway has its headquarters here, Mr. Redfield. Mr. Redfield. I know — their railroad offices. Mr. Beall. Their railroad headquarters; yes. Mr. Redfield. Do you not think that the views as to advancing real estate values in Washington are based more upon the hope of what may come, than upon any actual, tangible basis for these in- creased values that exist to-day? Mr. Beall. I do not think Washington is a city of abandoned hope at all. These values placed on the property are values that should work out and structures on them should pay, reasonably, a fair income. In other words, Washington is not all in the future. We have something here now, and I hope when our Democratic friends get in the saddle, we will fare well. Mr. Redfield. Have there been any actual transactions, to your knowledge, at any of these values such as you have described ? Mr. Beall. There are no other corners about Washington with the potential possibilities that these four corners have at Fifteenth and H Streets. If you were to attempt to purchase ground the size of this block, I doubt very seriously if you would be able to buy it except at a very much higher price than $45 per square foot on any corner upon Fifteenth Street or Fourteenth Street from the north side of F Street to H Street, except barely possibly either of the north corners of H and Fourteenth Streets. Mr. Redfield. Mr. Beall, could you sell the Southern Building quickly at forced sale ? Mr. Beall. I have not gone into the question of the Southern Building property — that is, the building itself. If the Southern Building were, for instance, on the same corner as the hotel prop- erty — I mean the Shoreham Hotel property — and this lot were vacant, I believe it would be possible to sell it in a very short time for $45 per square foot. Mr. Redfield. What do you mean by a short time ? Mr. Beall. Within three months or six months. Mr. Redfield. Suppose the case of a severe conflagration loss akin to those resulting from the Houston (Tex.) fire or the San Francisco 1100 INVESTIGATION OF INSURANCE COMPANIES. fire or the Baltimore fire should require this company to realize upon half of its assets and therefore to make available in cash its equity in this building, how quickly, in your judgment, could it depend, as a matter of fact, upon getting that equity available? Mr. Beall. That is a large and wide question, Mr. Redfield, and would embrace a question of the valuation of the building and a number of questions that I am really not prepared to answer. Mr. Redfield. As a real-estate expert, are you not familiar with the fact that in order to realize quickly upon that equity it would have to be offered at a sacrifice ? Mr. Beall. Not necessarily. There have been sales in panics and when there was a necessity for forced sales in property — I can not recall any special instances of the kind, but I have read about them — where properties have been sold, if there was a sale needed badly, and they brought a fair price. Mr. Redfield. There are two mortgages upon this building, are there not? Mr. Beall. I could answer that question by saying I do not know ; and I rather think I should answer that question that way. I do not know. Mr. Redfield. Assuming, as I am informed, there are three mort- gages on this building, instead of two, is it your judgment as a real estate man that the equity in that building could be turned into cash within 60 days without considerable shrinkage from its esti- mated value on the basis you have stated ? Mr. Beall. I am stating the value of the ground. Mr. Redfield. I am taking your statement for the purpose of the question. Mr. Beall. As I said before, I believe, if this building were across where the Shoreham Hotel is and this lot were vacant, there would then be three large buildings, the Union Trust Building and the Woodward Building and the Shoreham building on the three cor- ners, and this lot could be realized on at $45 per square foot within three months, and certainly within six months. Mr. Redfield. Would you say less than three months ? Mr. Beall. No; I would say three months — I think three to six months. Mr. Redfield. That is to say, it is your judgment it might take six months to realize $45 a foot on it if it were vacant? Mr. Beall. Yes, sir. Mr. Redfield. Taking it as it is, with the building on it, and tak- ing it as it stands as an asset on the books of these companies, I ask you as a real estate man, how quickly could you realize upon that equity ? Mr. Beall. I have not testified as to the value of the building, and you are asking me to testify on the two parts, the building and the ground, and that I have not taken into consideration at all. Mr. Redfield. I am asking your judgment as a real estate man as to how quickly you could dispose of the property as it stands and as it is carried on the books of these companies, and, in so doing, if you can say at all what shrinkage in the value of that equity would occur by reason of its having to be sold in order to get cash. Mr. Beall. May I have that question again, please, sir? INVESTIGATION OF INSURANCE COMPANIES. 1101 The stenographer read the pending question. Mr. Beall. I do not know how to answer that question. It is a hypothetical question, and any answer I gave would be a hypothetical answer. Mr. Redfield. It is a question of your judgment that is asked. Mr. Beall. I do not believe I can answer that question. Mr. Redfield. You regard it as a very doubtful matter ? Mr. Beall. No; I do not. You ask me to state a time when it could be sold and at what price it would be sold. Mr. Redfield. I did not quite ask that. I asked you how quickly you thought you could sell it and what shrinkage would occur in the equity. Let me change it and ask a more direct question, because what I am asking of you is a question that practically affects the valuation at which this building is carried on the books of these companies. Do you think you could sell that building for $2,000,000 in a month? Mr. Beall. No, sir ; I do not think so. Mr. Redfield. Do you think you could sell it for $2,000,000 in two months ? Mr. Beall. No, sir. Mr. Redfield. Would vou undertake, as a matter of business, to sell it for $2,000,000 in three months? Mr. Beall. I think so. Mr. Redfield. You think it might take three months to do it? If you offered it and had to get cash and could not wait three months or 60 days or even 30 days for it, but had to get cash, would you not have, as a real estate man, to advise the owners that they must sacri- fice something of their equity to get them the money ? Mr. Beall. As a usual thing, in any line of property ownership, in order to realize quickly on any property of any size at immediate panic sale, there is a reduction in price. Mr. Redfield. I am not referring altogether to a panic. In fact, I am not referring at all to a panic. Mr. Beall. So far as this property is concerned, it Would mean the immediate quick sale of the company's assets. Mr. Redfield. You would say to them, if they came to you to ask you to sell this property, in the event they had to meet a sweeping conflagration loss, in substance, " If you gentlemen desire to realize immediately or within two or three weeks upon this investment, you will have to sacrifice a certain amount of this equity to do it ? " Mr. Beall. I think so. Mr. Redfield. It would be, in other words, a necessary bargain sale for somebody that was looking for something of that kind at a, bargain ? Mr. Beall. It would probably have to be sold for less than that price ; just how much less, I do not know. Mr. Redfield. Would you consider a 10 per cent shrinkage in the price of the building as too great under those circumstances? Mr. Beall. I would not like to say. Mr. Redfield. As a matter of fact, have you not known of prop- erties in that condition, where they had to realize, where even as much as a 20 per cent shrinkage took place ? 1102 INVESTIGATION OF INSURANCE COMPANIES. Mr. Beall. I might go over the matter in my mind and think up some, but I do not recall any just now. Mr. Redfield. Would you consider it excessive if those companies had to get money and get it quickly to meet a conflagration loss, if they had to sacrifice 20 per cent of the value of the building to get it ? Mr. Beall. Yes, sir. Mr. Redfield. Would you consider that excessive? Mr. Beall. Yes, sir. Mr. Redfield. Would you consider it by any means impossible? Mr. Beall. Impossible? What do you mean? Mr. Redfield. That they might have to make that sacrifice? Mr. Beall. Yes ; I would consider that a loss of 20 per cent would be excessive. Whether it is impossible, is a matter I know nothing about. That is an exigency of the insurance business I do not know anything about. Mr. Redfield. Do you know any of the details of the Montrose sale? Mr. Beall. I was informed — I do not know by whom — that the building sold for around $50 a square foot. Mr. Redfield. Do you know any of the details as to the mortgage taken back upon it by the Real Estate Trust Co. ? Mr. Beall. No, sir. Mr. Redfield. Who sold the building ? Mr. Beall. I do not know who was the broker. Mr. Redfield. Who was the owner? Mr. Beall. I do not know that, sir. Mr. Redfield. Do you know who the buyer was? Mr. Beall. Mr. Jordan and his associates, I understood, were the buyers. Mr. Redfield. Did the Real Estate Trust Co. buy it or sell it? Mr. Beall. He is interested in that company — the Real Estate Trust Co. Mr. Johnson. Do you not know that the last report made by the Census Office was that the population of the District of Columbia was 331,000? Mr. Beall. Yes ; I was going to say that. I think it was 331,000 in 1910 and 278,000 in 1900. Mr. Redfield. Did not the Commissioners of the District of Co- lumbia only a few months ago cause a census to be taken of the Dis- trict of Columbia and find the population to be in excess of 350,000? Mr. Beall. I do not recall that, Mr. Johnson. There was what we call the police census, or whatever it was, which was around 350,000. Mr. Johnson. Commissioner Rudolph, considering it a continua- tion of your examination, will you please state whether or not that is approximately correct, that the commissioners, since last Septem- ber, perhaps, had this census taken and found the population to be more than 350,000? Mr. Rudolph. That is correct, sir. Mr. Johnson. Mr. Beall, you have been interrogated along the lines of Washington increasing from the standpoint of being a manu- facturing city. Do you not know it to be a fact that Congress is continually manufacturing salaried officers in the District of Co- lumbia ? INVESTIGATION OP INSUEANGE COMPANIES. 1103 Mr. Beall. By reason of the congressional appropriations we get new people here, Mr. Johnson, of whom we are very proud. Mr. Johnson. Do you not know that the Federal Government has in its employment in the District of Columbia nearly 40,000 people ? Mr. Beall. I have made that statement. I hope I was close to being right. Mr. Johnson. Do you not know the government of the District of Columbia has in its employment nearly 25,000 people? Mr. Beall. No, sir ; I did not know that. Mr. Johnson. You are not advised as to that ? Mr. Beall. No, sir; I do not know that. Mr. Johnson. Do you not know that the Federal Government and the District government are paying, in salaries and pensions, to those who live within the District of Columbia, the enormous sum of nearly four and one-half million dollars a month ? Mr. Beall. I did not know that. I am very glad you told me. I have stated it was about $40,000,000 a year. That is the total dis- bursement made by the two governments. -^ Mr. Johnson. If I am correctly advised, it is about $4,500,000 per month. If those conditions are true, even to the extent to which you have testified, $40,000,000 a year, would not that do more toward necessitating houses within which people are to live, whether they purchase them or whether they rent them, and at the same time to make valuable the business localities of the city ? Mr. Beall. You say it would do more than manufacturing in- dustries? Mr. Johnson. Yes. Mr. Beall. I did not mean we would have a certain kind of manu- facturing industry here that would militate against Washington as a residence city. We are all proud of Washington as a residence city and proud of what Congress has done for us. I do not know just how to answer your question. Mr. Johnson. My idea in putting the question was to ascertain your opinion as to whether or not, while there might not be ex- tensive manufactories and other things in the District of Columbia, that there was a very large manufacturing concern here of salaried official positions, and if that would not keep the city going. Mr. Beall. Oh, yes; but I meant high-grade manufacturing in- dustries to supplement what we have, but in no way to reflect on the city as a residential city. Mr. George. I would like to supplement the questions of the chair- man by one or two further questions, Mr. Beall. Is it not true that the increased value of the ground of a community is due to social growth and social improvement? By social growth I mean increase of population, and by social improvement I mean all those improve- ments which that population will put there as a community and as individuals. Mr. Beall. Yes, sir. Mr. George. So that even if there were not manufacturing concerns in the District of Columbia the growth of the city in population and the social growth that would come from that population would cause an increment in the value of the ground, would it not ? Mr. Beall. Surely; yes, sir. 1104 INVESTIGATION OF INSURANCE COMPANIES. Mr. George. And as a real-estate man you appreciate that and take advantage of that in buying and selling land here? Mr. Beall. We do it for our clients ; yes, sir. Mr. George. I did not mean that in any invidious sense. Mr. Beall. I was afraid the question was asked on the theory that I buy and sell real estate on my own account. Mr. George. As a matter of fact, that is the chief occupation in the District of Columbia — buying and selling land — is it not ? Mr. Beall. No ; I think that is a wrong impression. That is one of the businesses of the District of Columbia. Mr. George. Rather a large and nourishing business ? Mr. Beall. No ; it has not been regarded as a large and nourishing business, I believe, since Cleveland's administration, when the big boom was here — during Cleveland's first administration. But there has been a gradual rise in values. Mr. George. Let us put it in a more moderate way. There has been large buying and selling of land in the District of Columbia ? Mr. Beall. Yes, sir. Mr. George. And that is due to the increase in the value of ground in the District of Columbia? Mr. Beall. Yes, sir. Mr. George. And this neighborhood of H Street and Fifteenth Street, with other prosperous neighborhoods in the District of Co- lumbia, owing to the general trend of those things we have been talking about, social growth and social improvement, would tend upward, would it not? Mr. Beall. Yes, sir. Mr. George. Your own judgment is that that particular locality, I think you testified, would appreciate within the next few years? Mr. Beall. Yes, sir. Mr. Johnson. Is it not an historical fact that Messrs. Glover, Stell- vragen, and McLean have been enabled to foresee, almost with pro- phetic vision, just where real estate advancements in value would come, and that these gentlemen have invested largely in the im- mediate neighborhood of the Southern Building, and that advance- ments have occurred and values have rapidly accrued there? Mr. Beall. Yes, sir. Mr. Prouty. Mr. Beall, has the increase in value of business prop- erty in the city of Washington been phenomenal ; or, in other words, has it been more rapid than the increase in other cities of the same size in the United States ? Mr. Beall. I really have not investigated that, Judge Prouty; I do not know. Mr. Douglas. Mr. Beall, with reference to the question just asked by Judge Prouty, I think you answered in substance before, but I will ask you again if it is not true that in this immediate neighbor- hood — what people call here the Washington Wall Street-there have been phenomenal advances in prices in those four squares right around the intersection of Fifteenth and H ? Mr. Beall. Yes ; there have. Mr. Douglas. Really phenomenal increases ? Mr. Beall. Yes. Mr. Douglas. Let me ask if that has not contributed largely to the increase in bank deposits and inrx p""" ^ +^<> ir^i-i- -* — »-i — +-+- INVESTIGATION OF INSURANCE COMPANIES. 1105 together with the coming into "Washington, in the last 10 years, of a great many people who are very wealthy, building and having their winter homes here, in order that they might have the social and official social life of Washington? Is not that true? Mr. Beall. That is right. Mr. Douglas. That has been one of the marked causes of rapid and substantial improvement in Washington ? Is not that true ? Mr. Beall. That, coupled with the large and increased appropria- tions and provisions made by the Federal Government. Mr. Douglas. And the other things that have been suggested? Mr. Beall. Yes. Mr. Douglas. If there should be a run on the Riggs Bank, or any other bank in the city, its assets would shrink overnight, would they not, to an appalling extent — its stocks and everything else? Mr. Beall. I could only answer that relatively. Mr. Douglas. I am taking that merely as a sample. Mr. Beall. I suppose so ; yes, sir. I would think so. Mr. Douglas. And those gentlemen that Mr. Johnson referred to as having bought property in this neighborhood, some in this square, and Mr. Stellwagen across the street, and Mr. Bell and others in the same block, have also purchased with prophetic vision outlying suburban properties, such as Chevy Chase, and the extension of Massachusetts Avenue, in both of those directions, and the extension of Sixteenth Street, too, have they not, Mr. Beall ? Mr. Beall. Yes, sir. Mr. Douglas. And they have proven to be very valuable purchases ? Mr. Beall. I have understood that they have been ; yes, sir. Mr. Douglas. And very extensive improvements have gone on in those directions, along the line of the extension of Sixteenth Street and out Connecticut Avenue and Massachusetts Avenue? Mr. Beall. As I understand it, Sixteenth Street was condemned long before Mr. Glover made any purchases out there of any account, and that the Chevy Chase Land Co. built Connecticut Avenue, to a certain extent. Mr. Peouty. Moneys and credits are not assessable in the District of Columbia, are they; that is, intangible personal property? Mr. Beall. I do not believe they are, Judge Prouty. Mr. Peouty. Would that account for a good deal of the notation of money interests to the city of Washington ? Mr. Beall. It may, in a sense ; but you realize most of the States have a law of that kind themselves. Mr. Peouty. You say most of the States do not tax moneys and credits ? Mr. Beall. I thought that most of the States did tax credits. Per- haps I do not understand your question. I rather thought you were talking about the personal-tax law here. Mr. Johnson. He is inquiring about intangible personal property ; not as to personal property strictly, but intangible personal property. Mr. Peouty. And moneys and credits, bonds and stocks, and similar matters? Mr. Beall. They are not taxed here, but as I understand it are taxed in some other States. Mr. Peouty. Would not that naturally tend to have this class of securities and men owning them make this their domicile ? 1106 INVESTIGATION OF INSURANCE COMPANIES. Mr. Beall. We have tried to induce the outside rich people to come here, and other people, too, who would help the District. Mr. Prouty. That is, make a kind of Mecca, in which they would escape that taxation which they would have at home ? Mr. Beall. No. We think probably Congress will levy those as- sessments here; that Congress, in running the matters here in the District, will levy that tax here, in line with other cities. Mr. Prouty. They do not now, and have not up to date ? Mr. Beall. No, I think not. Mr. Prouty. Do you not think that is quite largely responsible for the fact that very large personal estates have been transferred to this District for assessment instead of at home? Mr. Beall. No ; I did not know that. There is a large number of them. Mr. Prouty. You have no inheritance tax here, have you, in this District? Mr. Beall. No, sir. Mr. Prouty. They have that in most all other jurisdictions, do they not, except the District, of Columbia? Mr. Beall. They have in a number of States; I do not know as to all States. Mr. Prouty. Do you not think that has induced a good many men to come here with their holdings to avoid the tax levied by most other jurisdictions? Mr. Beall. Unfortunately, there are not as many here as we would like to have. I do not believe they come here to dodge the tax. I do not believe they do, because Congress — ■ — Mr. Prouty (interposing). Do you not think the fact that the Federal Government carries half the burden that ordinarily falls upon real estate elsewhere has been responsible, very largely, for this marvelous development of values in this District? Mr. Beall. No; I would not say so. I think the people here Mr. Johnson (interposing). The real estate people put it in their advertisements. Mr. Prouty. Do you not think the fact that real estate does not have to carry more than about half the burden that it carries in other jurisdictions has a tendency to increase very much its market value ? Mr. Beall. I do not think it has. I do not believe it enters into the question whether a man should pay a certain amount of taxes liv- ing in the District. We have good police protection here. In other words, we can sell a man a lot in Chevy Chase, D. C, or Chevy Chase, Md., and most people prefer the District of Columbia because we have good schools and good police protection, and we have very few people who mention the question of taxation. Mr. Prouty. Do you think people in buying real estate do not figure what the tax will be on it? Mr. Beall. They may. I have sold people houses who did not know the Government had any part in it. Mr. Johnson. How did you find out they did not know it? Did you tell them? Mr. Beall. Yes, sir. Mr. George. What did you tell them — that there was no assessment or a low assessment? INVESTIGATION OF INSURANCE COMPANIES. 1107 Mr. Beall. "We told them that the United States Government pays about half the expenses of running the District Government. Mr. George. And that the assessment was low, too? Mr. Beall. That we have a very efficient District government, a Aery low priced one, and one that does not cost very much. Mr. Prouty. Considering Chicago, where the assessment is 4J per cent, as compared with 1£ per cent in the District, do you think that would make any perceptible impression upon a man who was going to buy real estate ? Mr. Beall. Not on any I have ever found. Mr. Prouty. They would as soon live in a community where taxes were not as low ? Mr. Beall. Those questions are ones I have not heard argued very much. Mr. Prouty. You do not say very much about that? Mr. Beall. I mean the question of whether a man should buy in Chicago, where the rate is 4J, or whether he should buy in Wash- ing ton, where the rate is 1 J. Mr. Johnson. Is the rate 1\ per cent on the real value of property in Washington, or is it not l\ per cent on two-thirds of the true valuation ( Mr. Beall. I think that is it. Mr. Johnson. Which makes a difference in the real valuation? Mr. Beall. Yes, sir. Mr. Prouty. And you never mention that fact when you are in- ducing men to buy real estate in Washington ? You never call their attention to that fact at all? Mr. Beall. I once heard a man well versed in New York real estate say that he could not learn any lessons by coming to Wash- ington and engaging in the real estate business; so I assume all the good points to be brought up in trying to make a sale in Wash- ington are not forgotten. Mr. Prouty. Do you forget it when you are talking to your clients and talking about buying real estate ? Do you forget it then ? Mr. Beall. No; I tell them we have the finest government in the world, and have the finest city in the world, and the lowest taxes in the world, and that we have the most efficient government in the world, and we are looked after by Congress as no other capital city in the world is looked after by its government. Mr. Johnson. And you have fine police protection? Mr. Beall. Yes, sir. Mr. Prouty. That is to say, you are looked after by Congress by their contributing one-half to the payment of your expenses, and they do not do that for any other city in the United States ? Mr. Beall. I do not believe it is done by any other country for its capital city. ' Mr. Peouty. Do you know of any other municipality in the world where the General Government supports a municipality like it does here? Mr. Beall. I read an article sometime ago with reference to Buenos Aires, Argentine Eepublic, a city having about 1,000,000 peo- ple, and there was some scale of payment there; I would not like to swear to these amounts, but it occurs to me the amounts ran from 1108 INVESTIGATION OF INSURANCE COMPANIES. $2,000,000 to $2,500,000 a year up to a larger amount— T do not re- member how much it was — that the General Government turns over to the city of Buenos Aires as a gift, as it were, each year, to run for a certain length of time. Mr. George. Were those the articles which appeared in the Star? Mr. Beall. I do not know where it appeared, Mr. George. It ap- parently was more or less authentic. Mr. Johnson. Have you investigated to ascertain that is not true ? Mr. Beall. I asked a man who had lived in Buenos Aires for some time about that and he did not know. Mr. Johnson. They do not know it there ; they have not found it out there? Mr. Beall. He had been in the consular service. He did not know. Mr. Prouty. You do not know of any other country yourself his- torically that supports its capital as the Capital of the United States is supported, do you — Germany, England, or France? Mr. Beall. No, sir: I am not familiar with any; I do not know about that. Mr. Johnson. If it is any information to you, I will say to you that I am conducting an investigation of that kind, and I have been unable yet to find a country anywhere in the civilized world that is subsidizing its capital city as the United States is subsidizing the city of Washington. Mr. Prottty. Do you not think that has a great deal to do with these marvelously high-priced values in the city of Washington — the fact that they escape the burdens that real estate ordinarily has to carry in other cities of a similar size? Mr. Beall. While that in a way might have some effect on it, Judge Prouty, I think it would be a question, though I have not given very much thought to it. But I think a man buying a home, a $10,000 or $12,000 home, would not hesitate on the question of taxes. Mr. Prouty. That leads to the real question I was going to ask you, carrying this to its logical conclusion : If Congress should with- draw the large contribution that it makes every year for the support of the government of the District of Columbia, and this burden would have to fall upon the taxable property in the District of Co- lumbia, would it not have a tendency to reduce values? Mr. Beall. I do not think very materially. Mr. Prouty. You think it would be just the same ? Mr. Beall. It might have some bearing on the case. It might be a question like you might like to live on the north side of the street and some other man on the south side of the street. It might have some slight bearing and might reduce prices. Mr. Prouty. Is it your opinion that if Congress should withdraw this one-half support it has given to the District it would increase the rate of taxation on the property in Washington ? Mr. Beall. Yes; it would just double it. Mr. Prouty. Do you think it would have any effect on its value then ( Mr. Beall. I think the amount would fall so small on each indi- vidual that it would not cause much trouble. The average indi- vidual would get more money, and I do not think the home-buyers would go out into Virginia or M p^im-^ *<-> V»n:iz_tVipir_ hom es to esca/ne INVESTIGATION OP INSURANCE COMPANIES. 1109 taxation. If it would come down to a question of business property, that might cause them to raise the rents. It would give men a chance to raise their rents to offset them against the increased taxes. Mr. Prouty. In this city are special assessments levied for pave- menrs and sewers and those items ? Are those items taxed up against the property on which they abut ? Mr. Beall. I may be more ignorant about that than I should be, but as I understand it, as we work it out in practice, we pay $1.25 a linear foot for our water mains. How much that water main costs I do not know. We pay approximately $1 per linear foot for sewers. The curb and sidewalk costs are around about that amount. It will vary a little from year to year. Mr. Prouty. Do you understand that the pavements here are as- sessed against the abutting property ? Mr. Beall. No, sir; I understand that here the United States Government pays for one-half and the District government pays for the other half. That division may not be just right. Mr. Prouty. If it were assessed against property here as it is in practically every other city of the United States, assessed against the property abutting these improvements, that would have a ten- dency to reduce the value of real estate in the District, would it not ? Mr. Beall. I do not think so. I do not think it would make any perceptible difference. I think the town would grow just as well. Mr. Prouty. You think they would kind of like it ? Mr. Beall. No ; I do not think they would like it. I think there would be a big howl put up. Mr. Prouty. Why should they put up a big howl if it did not affect their values ? Are you folks just in the habit of howling re- gardless of whether you are hurt or not ? Mr. Beall. I think the citizens of the District of Columbia do not appreciate Congress and do not appreciate the Federal Government as they should appreciate it. I am not saying this because I am in front of the committee, but I wrote an article for the Star some time ago and brought that out — that is, I sent it to them, but I do not know whether they published it or not — that the members of the Committee on the District of Columbia in the House and Senate were not appreciated by the citizens of the District; they do not appreciate what is done for the District ; that it was not appreciated ; that we are not a people that could get together very quickly, be- cause we have not any opportunity to vote and discuss municipal questions that come up, and therefore we do not meet at any one time on any one thing. Mr. Johnson. Have you gone into the question of ascertaining whether or not the tax which is now levied upon property in the Dis- trict of Columbia would support the municipal government, econom- ically administered ? Mr. Beall. Do you mean the amount now actually paid by the District Government? Mr. Johnson. Yes. Mr. Beall. No, sir ; I have not. Mr. Johnson. You have no opinion on that ? Mr. Beall. No, sir; I have not gone into that at all. Mr. Johnson. Have you any opinion as to whether or not the sub- sidy that is annually appropriated for the District of Columbia does 1110 INVESTIGATION OF INST7KANCE COMPANIES. not go more toward enhancing the property which is desired to be sold to the Government for parks than it does any other property ? Mr. Beall. I do not believe so. I do not know of all the instances, nor one-fiftieth of them, I suppose, but in the purchases made by the United States Government or the District government of property here, in those cases I have heard anything about, the prices were not excessively high. For instance, the Government is acquiring prop- erty down here [indicating], but that would hardly apply to the property on the Avenue, between Thirteenth and Fourteenth. Mr. Johnson. Have you, Mr. Beall, in going about the city, ob- served this " hookworm brigade " that goes about one day tearing up a good street that is to be built with a new street in the next succeed- ing few days, and whether they do a day's work or not, and in that way as to whether the affairs of the District of Columbia are econom- ically administered? Mr. Beall. I believe that the affairs of the District of Columbia are economically administered. Of course we can all find places in the streets where they should be improved, and so they tear up other streets that we think might be good enough. I am not an engineer; I do not know anything about the reasons for those things. Mr. Johnson. That seems to be all ; you may be excused, Mr. Beall. Mr. Easby-Smith. Mr. Chairman, might we plead for a half hol- iday this afternoon? My office is absolutely suffering, and I think Mr. Douglas's office is as well. Mr. Johnson. The committee will stand adjourned until Monday morning at 10 o'clock. Thereupon, at 1.20 o'clock p. m., the committee adjourned until Monday, January 13, 1913, at 10 o'clock a. m.